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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 30, 1998
DynaGen, Inc.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 001-11835 33-0659916
(State or other jurisdiction (Commission (IRS Employer
of incorporation or organization) File Number) Identification No.)
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840 Memorial Drive, Cambridge, MA 02139
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 491-2527
(Former Name or Former Address, if Changed Since Last Report)
Page 1 OF 3 Pages
Exhibit Index Located on Page 3
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ITEM 5. OTHER EVENTS
Dynagen, Inc. (the "Company") hereby amends in its entirety the
discussion under Item 1 of its Registration Statement on Form 8-A filed
August 19, 1992 under the Securities Exchange Act of 1934, as amended. The
Company's "Description of Capital Stock" is set forth as Exhibit 99.1 to this
Current Report on Form 8-K.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(C) Exhibits.
Exhibit number Description
99.1 Description of Capital Stock
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
DYNAGEN, INC.
/s/ Dhananjay G. Wadekar
_______________________________
Date: September 30, 1998 Dhananjay G. Wadekar
Executive Vice President
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Exhibit Index
Exhibit
Number Description
99.1 Description of Capital Stock
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Exhibit 99.1
DESCRIPTION OF CAPITAL STOCK
The following descriptions of the Company's securities are qualified in
all respects by reference to the Company's Restated Certificate of Incorporation
and By-laws, copies of which are included as exhibits to the Registration
Statement of which this Prospectus forms a part.
The authorized capital stock of the Company consists of (i) 75,000,000
shares of common stock, $0.01 par value per share ("Common Stock"), and (ii)
10,000,000 shares of preferred stock, $.01 par value per share ("Preferred
Stock").
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in all
matters to be voted on by the shareholders. Holders of Common Stock vote as a
single class with holders of Preferred Stock. See "Preferred Stock." Subject to
the preferences that may be applicable to any Preferred Stock then outstanding,
holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Board of Directors out of funds
legally available therefor. The Company has never paid or declared a dividend on
its Common Stock. The Company currently intends to retain any future earnings to
finance operations and therefore does not anticipate paying any cash dividends
in the foreseeable future. In addition, the terms of the Company's credit
agreements with various lenders place certain restrictions on the Company's
ability to pay cash dividends on its Common Stock. In the event of liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in all assets remaining after payment of the Company's
liabilities and the liquidation preference, if any, of any then outstanding
shares of Preferred Stock. Holders of Common Stock have no preemptive rights and
no rights to convert their Common Stock into any other securities, and there are
no redemption or sinking fund provisions with respect to such shares. The
rights, preferences and privileges of holders of Common Stock are subject to,
and may be materially adversely affected by, the rights of the holders of shares
of any series of Preferred Stock which the Company may designate and issue in
the future. All outstanding shares of Common Stock are fully paid and
non-assessable. The shares of Common Stock offered by this Prospectus will, upon
conversion of the Series C Preferred Stock or Series D preferred Stock in
accordance with the terms of each or upon exercise of the warrants and payment
of the exercise price in connection therewith, will be fully paid and
non-assessable.
PREFERRED STOCK
The Board of Directors is authorized, subject to limitations prescribed
by Delaware law, to provide for the issuance of up to 10,000,000 shares of
preferred stock, $0.01 par value per share, in one or more series, to establish
from time to time the number of shares to be included in each such series, to
fix the voting powers, designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, and to increase or decrease the number of shares of any
such series (but not below the number of shares of such
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series then outstanding) without further vote or action by the stockholders.
The Board of Directors is authorized to issue Preferred Stock with voting,
conversion and other rights and preferences that could adversely affect the
voting power or other rights of the holders of Common Stock. As of September 28,
1998 the Board of Directors has designated (a) 50,000 shares as Series A
Convertible Preferred Stock ("Series A Stock"), of which 50,000 have been
issued and 1,570 were outstanding; (b) 12,515 shares as Series B Convertible
Preferred Stock ("Series B Stock"), of which 12,515 shares have been issued and
7,500 were outstanding; (c) 7,500 shares as Series Convertible C Preferred
Stock ("Series C Stock"),of which 7,500 have been issued and 6,500 were
outstanding; (d) 60,000 shares as Series D Convertible Preferred Stock ("Series
D Stock"), of which 15,000 were issued and 5,000 were outstanding; (e) 10,500
shares as Series E Convertible Preferred Stock ("Series E Stock"), all of which
were issued and outstanding; (f) 5,000 shares have been designated as Series F
Convertible Preferred Stock ("Series F Stock"), all of which were issued and
outstanding; and (g) 10,000 shares have been designated as Series G Convertible
Preferred Stock ("Series G Stock"), all of which were issued and outstanding,
and (H) 20,000 shares have been designated as Series H Preferred Stock ("Series
H Stock"), of which 19,000 were issued and outstanding.
With respect to the remaining 9,824,485 of authorized preferred stock,
the Board of Directors has the authority, without further action by the
stockholders, to issue from time to time shares of preferred stock with voting
rights and other rights and preferences that may be great than the rights of the
Common Stock. The Board of Directors, without stockholder approval, can from
time to time issue preferred stock with voting, conversion and other rights that
could adversely affect the voting rights and other rights of the holders of
Common Stock. Preferred stock could be issued quickly with terms intended to
delay or prevent a change in control of the Company without any further action
by the stockholders.
SERIES A STOCK
The rights, preferences and limitations of the Series A Stock are as
follows:
Conversion. Each holder of Series A Stock has the right to convert
during any five (5) trading day period up to twenty percent (20%) of the shares
of Series A Stock held by such holder into a number of shares of Common Stock
determined by multiplying the number of shares of Series A Stock to be converted
by a fraction, the numerator of which is the original issue price and the
denominator of which is 74% of the average of the closing bid price of the
Common Stock for the five (5) trading days immediately preceding conversion (the
"Series A Conversion Price"). On the date that is two (2) years from the
original issue date for each holder of Series A Stock all shares of the Series A
Preferred Stock then held by such holder shall, without any action on the part
of such holder, be automatically converted into the number of shares of Common
Stock determined by multiplying the number of shares of Series A Stock then held
by such holder by a fraction the numerator of which is the original issue price
and the denominator of which is the applicable Series A Conversion Price. Prior
to such mandatory conversion date, however, no holder of Series A Stock may
convert Series A Stock into shares of Common Stock to the extent that the number
of shares of Common Stock beneficially owned by such holder and its affiliates
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immediately after such conversion would be more than 4.9% of the shares of
Common Stock then outstanding.
Dividends. Commencing on the date of issuance, a stated dividend (the
"Series A Stated Dividend") accrues quarterly in arrears at the rate of five
dollars ($5.00) per annum with respect to each issued share of Series A
Preferred Stock and shall be payable on the last trading day of each fiscal
quarter of the Company. Such Series A Stated Dividends are cumulative and are
payable upon conversion, whether or not earned or declared.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of Common
Stock or any other class or series of capital stock of the Company designated to
be junior to the Series A Stock, and subject to the liquidation rights and
preferences of any class or series of Preferred Stock designated by the Board of
Directors in the future to be senior to, or on a parity with the Series A Stock
with respect to liquidation preferences, the holders of each share of Series A
Preferred Stock will be entitled to be paid first out of the assets of the
Company available for distribution to holders of the Company's capital stock of
all classes, whether such assets are capital, surplus or earnings, an amount
equal to the original issue price per share of Series A Stock held by any
holder, plus the Series A Stated Dividend accruing to the Series A Stock (the
"Series A Liquidation Value"). If, upon liquidation, dissolution or winding up
of the Company, the assets of the Company available for distribution to its
stockholders are insufficient to pay the holders of the Series A Stock the full
amount to which they otherwise would be entitled, the holders of Series A Stock
shall share ratably in any distribution of available assets pro rata in
proportion to the respective liquidation preference amounts which would
otherwise be payable upon liquidation with respect to the outstanding shares of
the Series A Stock if all liquidation preference amounts with respect to such
shares were paid in full, based upon the aggregate Series A Liquidation Value
payable upon all shares of Series A Stock then outstanding.
Voting. Except as otherwise required by the General Corporation Law of
the State of Delaware, each holder of Series A Stock is entitled to vote on all
matters and is entitled to that number of votes equal to the largest number of
whole shares of Common Stock into which such holder's shares of Series A Stock
could be converted at the record date for the determination of stockholders
entitled to vote on any matter or, if no such record date is established, at the
date such vote is taken or any written consent of stockholders is solicited.
Except as otherwise required by law, the holders of shares of Series A Stock and
Common Stock shall vote together (or render written consents in lieu of a vote)
as a single class on all matters submitted to the stockholders of the Company.
Notwithstanding the foregoing, for so long as there are any shares of Series A
Stock outstanding, the Company may not amend its Certificate of Incorporation or
the Certificate of Designation of the Series A Stock without the approval, by
vote or written consent, of the holders of at least a majority of the then
outstanding shares of Series A Stock, voting together as a class, each share of
Series A Stock to be entitled to one vote in each instance, if such amendment
would adversely affect the rights of the holders of Series A Stock.
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Redemption. The Series B Stock may not be redeemed by the Company.
SERIES B STOCK
The rights, preferences and limitations of the Series B Stock are as
follows:
Conversion. Each holder of Series B Stock has the right to convert
during any five (5) trading day period up to twenty percent (20%) of the shares
of Series B Stock held by such holder into a number of shares of Common Stock
determined by multiplying the number of shares of Series B Stock to be converted
by a fraction, the numerator of which is the original issue price and the
denominator of which is 75% of the average of the closing bid price of the
Common Stock for the five (5) trading days immediately preceding conversion (the
"Series B Conversion Price"). On the date that is two (2) years from the
original issue date for each holder of Series B Stock all shares of the Series B
Preferred Stock then held by such holder shall, without any action on the part
of such holder, be automatically converted into the number of shares of Common
Stock determined by multiplying the number of shares of Series B Stock then held
by such holder by a fraction the numerator of which is the original issue price
and the denominator of which is the applicable Series B Conversion Price. Prior
to such mandatory conversion date, however, no holder of Series B Stock may
convert Series B Stock into shares of Common Stock to the extent that the number
of shares of Common Stock beneficially owned by such holder and its affiliates
immediately after such conversion would be more than 4.9% of the shares of
Common Stock then outstanding.
Dividends. Commencing on the date of issuance, a stated dividend (the
"Series B Stated Dividend") accrues quarterly in arrears at the rate of seven
dollars ($7.00) per annum with respect to each issued share of Series B Stock
and shall be payable on the last trading day of each fiscal quarter of the
Company. Such Series B Stated Dividends are cumulative and are payable upon
conversion, whether or not earned or declared.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of Common
Stock or any other class or series of capital stock of the Company designated to
be junior to the Series B Stock, and subject to the liquidation rights and
preferences of the Series A Stock and any other class or series of preferred
stock designated by the Board of Directors to be senior to the Series B Stock
with respect to liquidation preferences, the holders of each share of Series B
Stock will be entitled to be paid first out of the assets of the Company
available for distribution to holders of the Company's capital stock of all
classes, whether such assets are capital, surplus or earnings, an amount equal
to the original price per share of Series B Stock held by any holder, plus all
Series B Stated Dividends that have become due but have not been paid, and all
accrued but not yet due dividends, to the date of final distribution (whether
earned or not) (the "Series B Liquidation Preference"). The Series B Stock ranks
on liquidation junior to the Series A Stock. If, upon liquidation, dissolution
or winding up of the Company, the assets of the Company, or proceeds of those
assets, available for distribution to the holders of the Series B Stock and of
the shares of all other classes or series that are on a parity as to
distributions on liquidation with the Series B Stock are not sufficient to pay
in full the preferential amount required to be distributed to the holders of the
Series B Stock and of all other classes or series that are on a
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parity as to distributions on liquidation with the Series B Stock, then the
assets, or the proceeds of those assets, that are available for distribution to
the holders of Series B Stock and of the shares of all other classes or series
that are on a parity as to distributions on liquidation with the Series B Stock
will be distributed to the holders of the Series B Stock and of the shares of
all other classes or series that are on a parity as to distributions on
liquidation with the Series B Stock ratably in accordance with the respective
amount of the Series B Liquidation Preferences of the shares held by each of
them. After payment of the full amount of the Series B Liquidation Preference
(including accumulated unpaid dividends and accrued dividends) and accumulated
and accrued dividends to which holders of Series B Stock are entitled, the
holders of Series B Stock will not be entitled to any further distribution of
assets of the Company. Neither a consolidation or merger of the Company with
another company, nor a sale or transfer of all or any part of the Company's
assets for cash or securities, will be considered a liquidation, dissolution, or
winding-up of the Company.
Voting. Except as otherwise required by the General Corporation Law of
the State of Delaware, each holder of Series B Stock is entitled to vote on all
matters and is entitled to that number of votes equal to the largest number of
whole shares of Common Stock into which such holder's shares of Series B Stock
could be converted at the record date for the determination of stockholders
entitled to vote on any matter or, if no such record date is established, at the
date such vote is taken or any written consent of stockholders is solicited.
Except as otherwise required by law, the holders of shares of Series B Stock and
Common Stock shall vote together (or render written consents in lieu of a vote)
as a single class on all matters submitted to the stockholders of the Company.
Notwithstanding the foregoing, for so long as there are any shares of Series B
Stock outstanding, the Company may not amend its Certificate of Incorporation or
the Certificate of Designation of the Series B Stock without the approval, by
vote or written consent, of the holders of at least a majority of the then
outstanding shares of Series B Stock, voting together as a class, each share of
Series B Stock to be entitled to one vote in each instance, if such amendment
would adversely affect the rights of the holders of Series B Stock.
Redemption. The Series B Stock may not be redeemed by the Company.
SERIES C STOCK
The rights, preferences and limitations of the Series C Stock are as
follows:
Conversion. Each holder of Series C Stock has the right to convert
during any five (5) trading day period up to twenty percent (20%) of the shares
of Series C Stock held by such holder into a number of shares of Common Stock
determined by multiplying the number of shares of Series C Stock to be converted
by a fraction, the numerator of which is the original issue price and the
denominator of which is the lesser of (a) 125% of the original issue price or
(b) 74% of the average of the closing bid price of the Common Stock for the five
(5) trading days immediately preceding conversion (the "Series C Conversion
Price"). At any time after the
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close of business on the first anniversary of the date on which the Securities
and Exchange Commission declares effective the registration statement
registering the shares of Common Stock issuable upon conversion of the Series C
Stock, all of the shares of Series C Stock shall be convertible, at the option
of the Company, into such number of fully paid and nonassessable shares of
Common Stock as shall be determined by multiplying the number of shares of
Series C Stock outstanding on such conversion date by a fraction, the numerator
of which is the Original Issue Price, and the denominator of which is the Series
C Conversion Price. On the second anniversary of the original issue date for
each holder of Series C Stock all shares of the Series C Stock then held by such
holder shall, without any action on the part of such holder, be automatically
converted into the number of shares of Common Stock determined by multiplying
the number of shares of Series C Stock then held by such holder by a fraction
the numerator of which is the original issue price and the denominator of which
is the applicable Series C Conversion Price. Prior to any such conversion,
however, no holder of Series C Stock may convert Series C Stock into shares of
Common Stock to the extent that the number of shares of Common Stock
beneficially owned by such holder and its affiliates immediately after such
conversion would be more than 4.9% of the shares of Common Stock then
outstanding.
Dividends. Commencing on the date of issuance, a stated dividend (the
"Series C Stated Dividend") accrues quarterly in arrears at the rate of seven
percent (7.0%) per annum of the original issue price with respect to each issued
share of Series C Stock and shall be payable on the last trading day of each
fiscal quarter of the Company. Such Series C Stated Dividends are cumulative and
are payable upon conversion, whether or not earned or declared.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of Common
Stock or any other class or series of capital stock of the Company designated to
be junior to the Series C Stock, and subject to the liquidation rights and
preferences of any class or series of Stock designated by the Board of Directors
in the future to be senior to or on a parity with the Series C Stock with
respect to liquidation preferences, the holder of each share of Series C Stock
shall be entitled to be paid first out of the assets of the Company available
for distribution to holders of the Company's capital stock of all classes,
whether such assets are capital, surplus or earnings, an amount equal to the
original issue price per share of Series C Stock held by any holder, plus the
Series C Stated Dividend accrued (the "Series C Liquidation Value"). The Series
C Stock shall rank on liquidation junior to the Series A Stock and on parity
with the Series B Stock. If, upon liquidation, dissolution or winding up of the
Company, the assets of the Company available for distribution to its
stockholders shall be insufficient to pay the holders of the Series C Preferred
Stock the full amount to which they otherwise would be entitled, the holders of
Series C Preferred Stock shall share ratably in any distribution of available
assets pro rata in proportion to the respective liquidation preference amounts
which would otherwise be payable upon liquidation with respect to the
outstanding shares of the Series C Preferred Stock if all liquidation preference
amounts with respect to such shares were paid in full, based upon the aggregate
Liquidation Value payable upon all shares of Series C Preferred Stock then
outstanding.
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Voting. Except as otherwise required by the General Corporation Law of
the State of Delaware, each holder of Series C Stock is entitled to vote on all
matters and is entitled to that number of votes equal to the largest number of
whole shares of Common Stock into which such holder's shares of Series C Stock
could be converted at the record date for the determination of stockholders
entitled to vote on any matter or, if no such record date is established, at the
date such vote is taken or any written consent of stockholders is solicited.
Except as otherwise required by law, the holders of shares of Series C Stock and
Common Stock shall vote together (or render written consents in lieu of a vote)
as a single class on all matters submitted to the stockholders of the Company.
Notwithstanding the foregoing, for so long as there are any shares of Series C
Stock outstanding, the Company may not amend its Certificate of Incorporation or
the Certificate of Designation of the Series C Stock without the approval, by
vote or written consent, of the holders of at least a majority of the then
outstanding shares of Series C Stock, voting together as a class, each share of
Series C Stock to be entitled to one vote in each instance, if such amendment
would adversely affect the rights of the holders of Series C Stock.
Redemption. The Series C Stock may not be redeemed by the Company.
SERIES D STOCK
The rights, preferences and limitations of the Series D Stock are as
follows:
Conversion. Each holder of Series D Stock has the right to convert
during any five (5) trading day period up to twenty percent (20%) of the shares
of Series D Stock held by such holder into a number of shares of Common Stock
determined by multiplying the number of shares of Series D Stock to be converted
by a fraction, the numerator of which is the original issue price and the
denominator of which is the lesser of (a) 125% of the original issue price or
(b) 85% of the average of the closing bid price of the Common Stock for the five
(5) trading days immediately preceding conversion (the "Series D Conversion
Price"). At any time after the close of business on the second anniversary of
the date on which the Securities and Exchange Commission declares effective the
registration statement registering the shares of Common Stock issuable upon
conversion of the Series D Stock, all of the shares of Series D Stock shall be
convertible, at the option of the Company, into such number of fully paid and
nonassessable shares of Common Stock as shall be determined by multiplying the
number of shares of Series D Stock outstanding on such conversion date by a
fraction, the numerator of which is the Original Issue Price, and the
denominator of which is the Series D Conversion Price. Prior to any such
conversion, however, no holder of Series D Stock may convert Series D Stock into
shares of Common Stock to the extent that the number of shares of Common Stock
beneficially owned by such holder and its affiliates immediately after such
conversion would be more than 4.9% of the shares of Common Stock then
outstanding.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of Common
Stock or any other class or series of capital stock of the Company designated to
be junior to the Series D Stock, and subject to the liquidation rights and
preferences of any class or series of preferred stock designated by the Board of
Directors in
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the future to be senior to or on a parity with the Series D Stock with respect
to liquidation preferences, the holder of each share of Series D Stock will be
entitled to be paid first out of the assets of the Company available for
distribution to holders of the Company's capital stock of all classes, whether
such assets are capital, surplus or earnings, an amount equal to the original
issue price per share of Series D Stock held by any holder (the "Series D
Liquidation Value"). The Series D Stock shall rank on liquidation junior to the
Series A Stock, Series B Stock and Series C Stock. If, upon liquidation,
dissolution or winding up of the Company, the assets of the Company available
for distribution to its stockholders is insufficient to pay the holders of the
Series D Stock the full amount to which they otherwise would be entitled, the
holders of Series D Stock will share ratably in any distribution of available
assets pro rata in proportion to the respective liquidation preference amounts
which would otherwise be payable upon liquidation with respect to the
outstanding shares of the Series D Stock if all liquidation preference amounts
with respect to such shares were paid in full, based upon the aggregate Series D
Liquidation Value payable upon all shares of Series D Stock then outstanding.
Voting. Except as otherwise required by the General Corporation Law of
the State of Delaware, each holder of Series D Stock is entitled to vote on all
matters and is entitled to that number of votes equal to the largest number of
whole shares of Common Stock into which such holder's shares of Series D Stock
could be converted at the record date for the determination of stockholders
entitled to vote on any matter or, if no such record date is established, at the
date such vote is taken or any written consent of stockholders is solicited.
Except as otherwise required by law, the holders of shares of Series D Stock and
Common Stock shall vote together (or render written consents in lieu of a vote)
as a single class on all matters submitted to the stockholders of the Company.
Notwithstanding the foregoing, for so long as there are any shares of Series D
Stock outstanding, the Company may not amend its Certificate of Incorporation or
the Certificate of Designation of the Series D Stock without the approval, by
vote or written consent, of the holders of at least a majority of the then
outstanding shares of Series D Stock, voting together as a class, each share of
Series D Stock to be entitled to one vote in each instance, if such amendment
would adversely affect the rights of the holders of Series D Stock.
Redemption. The Series D Stock may not be redeemed by the Company.
SERIES E STOCK
The rights, preferences and limitations of the Series E Stock are as
follows:
Conversion. Beginning March 4, 1999, each holder of Series E Stock
shall have the right, at such holder's option, to convert during any five (5)
trading day period up to a maximum of 420 shares of Series E Preferred Stock
held by such holder into the number of shares of Common Stock determined by
multiplying the number of shares of Series E Stock to be converted by a
fraction, the numerator of which is the original issue price of the Series E
Stock and the denominator of which is the average of the closing bid price of
the Common Stock for the three (3) trading days immediately prior to the day of
the conversion.
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Automatic Cancellation. If a holder of Series E Stock converts Series E
Stock into Common Stock and thereafter sells the converted shares of Common
Stock within five (5) trading days of the conversion date, the proceeds from
such sale, after brokers' commissions and expenses but before payment of any tax
liabilities resulting from the sale, will be added to an account of the selling
Series E holder(s) (the "Stockholder's Total Value Account"). If a holder of
Series E Stock converts Series E Stock into Common Stock and thereafter does not
sell the converted shares of Common Stock within five (5) trading days of the
conversion date, a dollar amount equal to the conversion price for such
converted shares of Common Stock multiplied by the number of such converted
shares of Common Stock held in excess of five (5) trading days, will be added to
the Stockholder's Total Value Account. Once the aggregate dollar amount of all
Stockholders' Total Value Accounts exceeds $1,050,000, any and all remaining,
unconverted shares of Series E Stock will be automatically canceled by the
Company without consideration.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of Common
Stock or any other class or series of capital stock of the Company designated to
be junior to the Series E Stock, and subject to the liquidation rights and
preferences of any class or series of preferred stock issued in the future and
designated by the Board of Directors to be senior to, or on a parity with the
Series E Stock with respect to liquidation preferences, the holders of each
share of Series E Stock shall be entitled to be paid first out of the assets of
the Company available for distribution to holders of the Company's capital stock
of all classes, whether such assets are capital, surplus or earnings, an
aggregate amount equal to $1,050,000 minus the aggregate amount of all actual
cash proceeds received from the sale of Common Stock upon conversion of Series E
Stock (the "Series E Liquidation Value"). The Series E Liquidation Value will be
distributed pro rata to the holders of the Series E Stock in proportion to the
number of shares held by each such holder of Series E Stock. The Series E Stock
will rank junior to the Series A Stock, the Series B Stock, the Series B Stock,
the Series C Stock and the Series D Stock, but senior to the Common Stock. If,
upon liquidation, dissolution or winding up of the Company, the assets of the
Company available for distribution to its stockholders shall be insufficient to
pay the holders of Series E Stock the full amounts to which they otherwise would
be entitled, the holders of Series E Stock shall share ratably in any
distribution of available assets pro rata in proportion to the respective Series
E Liquidation Value amounts which would otherwise be payable upon liquidation
with respect to the outstanding shares of Series E Stock if all liquidation
preference amounts with respect to such shares were paid in full, based upon the
aggregate Series E Liquidation Value payable upon all shares of Series E
Preferred Stock then outstanding.
Dividends. In the event that the Board of Directors declares a cash
dividend payable upon the then outstanding shares of Common Stock, the holders
of the Series E Stock will be entitled to the amount of dividends on the Series
E Stock as would be declared payable on the largest number of whole shares of
Common Stock into which the shares of Series E Stock held by each holder thereof
could then be converted
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Voting. Except as otherwise required by the General Corporation Law of
the State of Delaware, each holder of Series E Stock is entitled to vote on all
matters and is entitled to that number of votes equal to the largest number of
whole shares of Common Stock into which such holder's shares of Series E Stock
could be converted at the record date for the determination of stockholders
entitled to vote on any matter or, if no such record date is established, at the
date such vote is taken or any written consent of stockholders is solicited.
Except as otherwise required by law, the holders of shares of Series E Stock and
Common Stock shall vote together (or render written consents in lieu of a vote)
as a single class on all matters submitted to the stockholders of the Company.
Notwithstanding the foregoing, for so long as there are any shares of Series E
Stock outstanding, the Company may not amend its Certificate of Incorporation or
the Certificate of Designation of the Series E Stock without the approval, by
vote or written consent, of the holders of at least a majority of the then
outstanding shares of Series E Stock, voting together as a class, each share of
Series E Stock to be entitled to one vote in each instance, if such amendment
would adversely affect the rights of the holders of Series E Stock.
Redemption. The Series E Stock may not be redeemed by the Company.
SERIES F STOCK
The rights, preferences and limitations of the Series F Stock are as
follows:
Conversion. Beginning June 30, 1998, a maximum aggregate amount of 200
shares of Series F Stock (calculated for all holders of Series F Stock) may be
convertible in any five (5) trading day period. Each holder of Series F Stock
shall have the right to convert the shares of Series F Stock held by such holder
(subject to the maximum aggregate amount of 200 shares of Series F Stock
convertible into Common Stock during each five (5) day trading period) into the
number of shares of Common Stock determined by multiplying the number of shares
of Series F Stock to be converted by a fraction the numerator of which is the
original issue price of the Series F Stock and the denominator of which is the
average of the closing bid price of the Common Stock for the three (3) trading
days immediately prior to the date of the conversion.
Automatic Cancellation. If a holder of Series F Stock converts Series F
Stock into Common Stock and thereafter sells the Converted Shares of Common
Stock within five (5) trading days of the conversion date, the dollar amount of
the net proceeds from such sale, after brokers' commissions and expenses but
before payment of any tax liabilities resulting from the sale, will be added to
the account of the selling Series F holder that for purposes of this section
shall be called the following: (1) the "GDLP Total Value Account" (reflecting
the conversion of up to 1,500 shares of Series F Stock issued to Generic
Distributors Limited Partnership ("GDLP") in connection with a certain Asset
Purchase Agreement by and among the Company, Generic Distributors Incorporated,
GDLP, United Pharmacists Inc., and Mr. Donald Couvillon ("Couvillon"), dated as
of December 15, 1997, as amended (the "Asset Purchase Agreement"); (2) the "GDLP
Deficiency in Net Proceeds Total Value Account" (reflecting the issuance of any
Additional Series F Shares (as that term is defined in Amendment No. 1 to the
Asset Purchase Agreement); (3) the "Couvillon Total Value Account" (reflecting
the conversion of up to 700
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shares of Series F Stock issued to Couvillon pursuant to the Asset Purchase
Agreement); and (4) the "Johnson Total Value Account" (reflecting the conversion
of up to 700 shares of Series F Stock issued to Mr. Sidney Johnson ("Johnson")
pursuant to the Asset Purchase Agreement). The GDLP Total Value Account, the
GDLP Deficiency in Net Proceeds Total Value Account, the Couvillon Total Value
Account and the Johnson Total Value Account shall be collectively known as the
"Stockholders' Total Value Accounts."
If a holder of Series F Stock converts Series F Stock into Common Stock
and thereafter does not sell the converted shares of Common Stock within five
(5) trading days of the conversion date, then a dollar amount equal to the
conversion price for such converted shares of Common Stock multiplied by the
number of such converted shares of Common Stock held in excess of such five (5)
trading days, will be added to the applicable Stockholder's Total Value Account
(that is, the GDLP Total Value Account, the GDLP Deficiency in Net Proceeds
Total Value Account, the Couvillon Total Value Account or the Johnson Total
Value Account, as the case may be). Once the aggregate dollar amount of the GDLP
Total Value Account equals or exceeds $100,000, any and all remaining
unconverted shares of Series F Stock held by GDLP (with the exception of any
Additional Series F Shares issued pursuant to Section 1.05(e) of the Asset
Purchase Agreement) will be automatically canceled by the Company without
consideration. Once the aggregate dollar amount of the GDLP Deficiency in Net
Proceeds Total Value Account equals or exceeds the Deficiency in Net Proceeds,
any and all remaining unconverted Additional Series F Shares held by GDLP will
be automatically canceled by the Company without consideration. Once the
aggregate dollar amount of the Couvillon Total Value Account exceeds $50,000,
any and all remaining, unconverted shares of Series F Stock held by Couvillon
will be automatically canceled by the Company without consideration. Once the
aggregate dollar amount of the Johnson Total Value Account exceeds $50,000, any
and all remaining, unconverted shares of Series F Stock held by Johnson will be
automatically canceled by the Company without consideration.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of Common
Stock or any other class or series of capital stock of the Company designated to
be junior to the Series F Stock, and subject to the liquidation rights and
preferences of any class or series of preferred stock issued in the future and
designated by the Board of Directors to be senior to, or on a parity with, the
Series F Stock with respect to liquidation preferences, the holders of each
share of Series F Stock shall be entitled to be paid first out of the assets of
the Company available for distribution to holders of the Company's capital stock
of all classes, whether such assets are capital, surplus or earnings, an
aggregate amount equal to $500,000, minus the aggregate amount of all actual
cash proceeds received from the sale of Common Stock issued upon conversion of
Series F Stock (the "Series F Liquidation Value"). The Series F Liquidation
Value shall be distributed pro rata to the holders of the Series F Stock in
proportion to the number of shares held by each such holder of Series F Stock.
The Series F Stock will rank on a parity with the Series E Stock. If, upon
liquidation, dissolution or winding up of the Company, the assets of the Company
available for distribution to its stockholders shall be insufficient to pay the
holders of the Series F Stock the full Liquidation Value to which they
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<PAGE> 12
otherwise would be entitled, the holders of Series F Stock shall share ratably
in any distribution of available assets pro rata in proportion to the respective
Series F Liquidation Value amount which would otherwise be payable upon
liquidation with respect to the outstanding shares of the Series F Stock if all
liquidation preference amounts with respect to such shares were paid in full,
based upon the aggregate Series F Liquidation Value amount payable upon all
shares of Series F Stock then outstanding.
Dividends. In the event that the Board of Directors declares a cash
dividend payable upon the then outstanding shares of Common Stock, the holders
of the Series F Stock will be entitled to the amount of dividends on the Series
F Stock as would be declared payable on the largest number of whole shares of
Common Stock into which the shares of Series F Stock held by each holder thereof
could then be converted.
Voting. Except as otherwise required by the General Corporation Law of
the State of Delaware, each holder of Series F Stock is entitled to vote on all
matters and is entitled to that number of votes equal to the largest number of
whole shares of Common Stock into which such holder's shares of Series F Stock
could be converted at the record date for the determination of stockholders
entitled to vote on any matter or, if no such record date is established, at the
date such vote is taken or any written consent of stockholders is solicited.
Except as otherwise required by law, the holders of shares of Series F Stock and
Common Stock shall vote together (or render written consents in lieu of a vote)
as a single class on all matters submitted to the stockholders of the Company.
Notwithstanding the foregoing, for so long as there are any shares of Series F
Stock outstanding, the Company may not amend its Certificate of Incorporation or
the Certificate of Designation of the Series F Stock without the approval, by
vote or written consent, of the holders of at least a majority of the then
outstanding shares of Series F Stock, voting together as a class, each share of
Series F Stock to be entitled to one vote in each instance, if such amendment
would adversely affect the rights of the holders of Series F Stock.
Redemption. The Series F Stock may not be redeemed by the Company.
SERIES G STOCK
The rights, preferences and limitations of the Series G Stock are as
follows:
Conversion. Beginning ninety (90) days after the original issue date,
each holder of Series G Stock is entitled to convert the shares of Series G
Stock held by such holder into the number of shares of Common Stock determined
by multiplying the number of shares of Series G Stock to be converted by a
fraction, the numerator of which is the original issue price of such Series G
Stock and the denominator of which is the average of the closing bid price of
the Common Stock for the three (3) trading days immediately preceding conversion
date. Each holder of Series G Stock will have the right to convert, in any three
(3) day trading period, up to (i) 100 shares of Series G Preferred Stock, or
(ii) the number of shares of Series G Stock that will convert into a number of
shares of Common Stock equal to 5% of the average daily trading volume of the
Common Stock, whichever amount is larger.
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Automatic Cancellation. If a holder of Series G Stock converts Series G
Stock into Common Stock and thereafter sells the converted shares of Common
Stock within two (2) trading days of the conversion date, the net proceeds from
the sale will be added to the account of the selling holder(s) of Series G Stock
that for purposes of this section shall be called the "Series G Stockholder's
Total Value Account." If a holder of Series G Stock converts Series G Stock into
Common Stock and thereafter does not sell the converted shares of Common Stock
within two (2) trading days of the conversion date, then a dollar amount equal
to the conversion price for such converted shares of Common Stock multiplied by
the number of such converted shares of Common Stock held in excess of such two
(2) trading days, will be added to the applicable Series G Stockholder's Total
Value Account. Once the aggregate dollar amount of the Stockholder's Total Value
Account equals or exceeds an amount equal to the number of shares of Series G
Stock issued by the Company on the $550,000, any and all remaining unconverted
shares of Series G Stock will be automatically canceled by the Company without
consideration.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of Common
Stock or any other class or series of capital stock of the Company designated to
be junior to the Series G Stock (if any), and subject to the liquidation rights
and preferences of any class or series of preferred stock issued in the future
and designated by the Board of Directors to be senior to, or on a parity with
the Series G Stock with respect to liquidation preferences, the holders of each
share of Series G Stock shall be entitled to be paid first out of the assets of
the Company available for distribution to holders of the Company's capital stock
of all classes, whether such assets are capital, surplus or earnings, an
aggregate amount equal to the number of unconverted shares of Series G Stock
then held by such holder multiplied by $100, minus the aggregate amount of all
actual cash proceeds received from the sale of Common Stock issued upon
conversion of Series G Stock (the "Series G Liquidation Value"). The Series G
Liquidation Value shall be distributed pro rata to the holders of the Series G
Stock in proportion to the number of shares held by each such holder of Series G
Stock. The Series G Stock will rank junior to the Series A Stock, the Series B
Stock, the Series C Stock, the Series D Stock, the Series E Stock and the Series
F Stock, but senior to the Common Stock. If, upon liquidation, dissolution or
winding up of the Company, the assets of the Company available for distribution
to its stockholders shall be insufficient to pay the holders of the Series G
Stock the full Series G Liquidation Value to which they otherwise would be
entitled, the holders of Series G Stock shall share ratably in any distribution
of available assets pro rata in proportion to the respective Series G
Liquidation Value amount which would otherwise be payable upon liquidation with
respect to the outstanding shares of the Series G Stock if all liquidation
preference amounts with respect to such shares were paid in full, based upon the
aggregate Series G Liquidation Value amount payable upon all shares of Series G
Stock then outstanding.
Dividends. Commencing on the original issue date and continuing
thereafter until there are no shares of Series G Stock outstanding, each holder
of Series G Stock will be entitled to receive a dividend of six dollars ($6.00)
per share per annum (the "Series G Stated Dividend"). The Series G Stated
Dividend shall be payable on the last day of each month after the original issue
date. Series G Stated Dividends shall be payable by the Company in cash or
Common Stock
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<PAGE> 14
at the sole discretion of the Company, whether or not earned or declared. In the
event that the Board of Directors declares a cash dividend payable upon the then
outstanding shares of Common Stock, the holders of the Series G Stock shall be
entitled to the amount of dividends on the Series G Stock as would be declared
payable on the largest number of whole shares of Common Stock into which the
shares of Series G Stock held by each holder thereof could then e converted.
Voting. Except as otherwise required by the General Corporation Law of
the State of Delaware, the Series G Stock is not entitled to vote on any matter.
Redemption. At any time after the original issue date and at the sole
discretion of the Company, the Company may redeem from each holder of shares of
Series G Stock, any number of shares of Series G Preferred Stock as so
determined by the Company. The Series G Stock shall be redeemed by paying for
each share in cash an amount equal to the original issue price for each such
share. Any amount paid by the Company to the holders of Series G Stock pursuant
to a redemption shall be added to the Series G Stockholder's Total Value Account
and such amount shall be used in calculating the automatic cancellation
provisions of the Series G Stock.
SERIES H STOCK
The rights, preferences and limitations of the Series H Stock are as
follows:
Conversion. Each holder of Series H Stock shall have the right to
convert at any time after one year from the original issuance date any of the
shares of Series H Stock held by such holder into the number of shares of Common
Stock determined by multiplying the number of shares of Series H Stock to be
converted by a fraction the numerator of which is the original issue price of
the Series H Stock, and the denominator of which is the applicable Conversion
Price; provided that in no event shall any holder of Series H Preferred Stock
convert more than twenty percent (20%) of such holder's shares of Series H
Preferred Stock in any period of seven (7) consecutive days. On the second
anniversary of the date hereof, all outstanding shares of Series H Preferred
Stock shall automatically be converted into such number of fully paid and non-
assessable shares of Common Stock as shall be determined by multiplying the
number of shares of Series H Preferred Stock to be converted by a fraction, the
numerator of which is the Original Issue Price, and the denominator of which is
67% of the average of the closing bid price of the Common Stock for the five (5)
trading days immediately preceding any conversion date. Additionally, in no
event shall any holder of Series H Stock, prior to earlier to occur of the
delivery of a mandatory redemption notice by the Company or a change in control
of the Company, be entitled to convert Series H Stock into shares of Common
Stock to the extent that such conversions when taken together with all other
conversions of shares of Series H Stock shall exceed 19.9% of the issued and
outstanding shares of Common Stock of the Company on the original date of
issuance of Series H Stock; provided that if such conversions exceed 19.9% the
Company at its sole option shall either (i) redeem any shares of Series H
Preferred Stock submitted for conversion in excess of 19.9% for an amount equal
to 150% of the original issue price, (ii) obtain approval of its stockholders
for the issuance of such additional shares of Common Stock or (iii) do a
combination of any of the foregoing. Notwithstanding the foregoing,
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upon the delivery of a mandatory redemption notice or upon the consummation of a
change in control of the Company, all such shares of Series H Stock then
outstanding shall be converted into Common Stock.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of Common
Stock or any other class or series of capital stock of the Company designated to
be junior to the Series H Stock, and subject to the liquidation rights and
preferences of any class or series of preferred stock designated by the Board of
Directors in the future to be senior to or on a parity with the Series H Stock
with respect to liquidation preferences, the holder of each share of Series H
Stock shall be entitled to be paid first out of the assets of the Company
available for distribution to holders of the Company's capital stock of all
classes, whether such assets are capital, surplus or earnings, an amount equal
to the original issue price per share of Series H Stock held by any holder (the
"Series H Liquidation Value"). The Series H Stock shall rank on liquidation
junior to the Series A Stock, the Series B Stock, the Series C Stock, the Series
D Stock, the Series E Stock, the Series F Stock and the Series G Stock, but
senior to the Common Stock. If, upon liquidation, dissolution or winding up of
the Company, the assets of the Company available for distribution to its
stockholders shall be insufficient to pay the holders of the Series H Stock the
full amount to which they otherwise would be entitled, the holders of Series H
Stock shall share ratably in any distribution of available assets pro rata in
proportion to the respective liquidation preference amounts which would
otherwise be payable upon liquidation with respect to the outstanding shares of
the Series H Stock if all liquidation preference amounts with respect to such
shares were paid in full, based upon the aggregate Series H Liquidation Value
payable upon all shares of Series H Stock then outstanding.
Dividends. If the Board of Directors shall declare a cash dividend
payable upon the then outstanding shares of Common Stock, the holders of the
Series H Stock shall be entitled to the amount of dividends on the Series H
Stock as would be declared payable on the largest number of whole shares of
Common Stock into which the shares of Series H Stock held by each holder thereof
could then be converted. In the event the Company shall make or issue, or shall
fix a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution with respect to the Common Stock
payable in (i) securities of the Company other than shares of Common Stock or
(ii) other assets (excluding cash dividends or distributions), then and in each
such event provision shall be made so that the holders of the Series H Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the number of securities or such other assets
of the Company which they would have received had their Series H Stock been
converted into Common Stock on the date of such event and had they thereafter,
during the period from the date of such event to and including the conversion
date, retained such securities or such other assets receivable by them during
such period, giving application to all other adjustments called for during such
period under the terms of the Series H Stock.
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Voting. Except as otherwise required by the General Corporation Law of
the State of Delaware, the Series H Stock is not entitled to vote on any matter.
Redemption. The Series H Stock may not be redeemed by the Company.
DELAWARE LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date that the
person became an interested stockholder unless (with certain exceptions) the
business combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of the Company's voting stock.
As a result of the foregoing provisions, the acquisition of the Company by
means of a tender offer, a proxy contest or otherwise and the removal of
incumbent officers and directors could be made more difficult. These provisions
are expected to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of
the Company to negotiate with the Company first. The Company believes that the
benefits of increased protection of the Company's potential ability to negotiate
with the proponent of an unfriendly or unsolicited proposal to acquire or
restructure the Company outweigh the disadvantages of discouraging such
proposals because, among other things, negotiation of such proposals could
result in an improvement of their terms.
TRANSFER AGENT
The Transfer Agent and Registrar for the Common Stock is The American Stock
Transfer & Trust Company, located at 40 Wall Street, New York, NY 10005.
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