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As filed with the Securities and Exchange Commission on August 26, 1998
Registration No. 333-47077
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM S-3
AMENDMENT NO. 1 TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DYNAGEN, INC.
(Exact name of Registrant as Specified in its Charter)
-----------------------------
DELAWARE 04-3029787
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Riverside Technology Center
840 Memorial Drive, 4th Floor
Cambridge, Massachusetts 02139
(617) 491-2527
(Address, including zip code, and telephone number,
including area code, of Registrant's principal
executive offices)
DR. INDU A. MUNI, President
DynaGen, Inc.
Riverside Technology Center
840 Memorial Drive, 4th Floor
Cambridge, Massachusetts 02139
(617) 491-2527
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
David A. Broadwin, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
(617) 832-1000
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
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If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 416 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ___________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] ___________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following. [ ]
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
In accordance with Rule 416 under the Securities Act, this Registration
Statement also covers such indeterminate number of additional shares of the
Registrant's Common Stock, $.01 par value, as may become issuable upon
conversion of shares of the Registrant's Series C Convertible Preferred Stock,
$.01 par value per share (the "Series C Stock") and Series D Convertible
Preferred Stock, $.01 par value per share (the "Series D Stock"), to prevent
dilution resulting from stock splits, stock dividends or similar transactions or
by reason of changes in conversion price of the Series C Stock and Series D
Stock in accordance with the respective terms thereof.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Title of Proposed Maximum Proposed Maximum
Shares Amount Offering Price Aggregate Offering
to be to be per Share Price Amount of
Registered Registered Registration Fee
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par 11,560,921 shares $.39 (1) $4,508,759.10 $1,330.08(2)
value
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
</TABLE>
(1) The price of $.39 per share, which is the average of the bid and
asked prices reported on the Nasdaq SmallCap Market on August 24,
1998, is set forth solely for purposes of calculating the filing fee
pursuant to Rule 457(c).
(2) $236.00 previously paid by wire transfer on February 6, 1998.
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PROSPECTUS
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DYNAGEN, INC.
11,560,921 Shares of Common Stock
($.01 par value)
All of the shares of Common Stock, par value $.01 per share ("Common
Stock"), of DynaGen, Inc. ("DynaGen" or the "Company") offered hereby (the
"Shares") will be sold from time to time by stockholders of the Company (the
"Selling Stockholders"). The Shares consist of (i) shares of Common Stock
issuable upon the conversion of the Company's Series C Convertible Preferred
Stock, $.01 par value per share (the "Series C Stock"); (ii) shares of Common
Stock issuable upon the conversion of the Company's Series D Convertible
Preferred Stock (the "Series D Stock"); (iii) shares of Common Stock issuable
upon exercise of warrants; and (iv) shares of Common Stock issued in private
placements.
In accordance with Rule 416, the registration statement of which this
Prospectus forms a part also covers that indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of the Series C
Stock and Series D Stock held by one Selling Stockholder to prevent dilution
resulting from stock splits, stock dividends or similar transactions or by
various changes in the conversion price of the Series C Stock and Series D Stock
in accordance with the respective terms thereof.
The Company will not receive any of the proceeds from the sale of the
Shares offered hereby. All brokerage commissions and other similar expenses
incurred by the Selling Stockholders will be borne by the Selling Stockholders.
Other expenses of the offering, estimated at $50,000, will be borne by the
Company.
The sale of the Shares by the Selling Stockholders may be effected from
time to time in one or more transactions (which may involve block transactions)
on the Nasdaq SmallCap Market, the Boston Stock Exchange, the OTC Bulletin Board
or in the over-the-counter market, in negotiated transactions or by a
combination of such methods of sale, at fixed prices, at market prices
prevailing at the time of the sale, at prices related to the prevailing market
prices or at negotiated prices. The Selling Stockholders may effect such
transactions with or through one or more broker-dealers, which may act as agent
or principal. The Selling Stockholders and/or any broker-dealer effecting the
sales may be deemed to be an "underwriter" within the meaning of Section 2(11)
of the Securities Act, and any commissions received by the broker-dealer and any
profit on the resale of shares as principal may be deemed to be underwriting
discounts and commissions under the Securities Act. The Selling Stockholders may
transfer Shares, Series C Stock or Series D Stock to other persons who may, in
turn, resell Shares in the manner described above. Additionally, the Selling
Stockholders may pledge or make gifts of the Shares, and the Shares may also be
sold by the pledgees or transferees. The Shares may also be transferred pursuant
to Rule 144 under the Securities Act, whether or not the Registration Statement
of which this Prospectus forms a part is effective at the time of any such
transfer. The Company has agreed to indemnify the Selling Stockholders against
certain liabilities, including certain liabilities under the Securities Act, and
to the extent any indemnification by an indemnifying party is prohibited or
limited by law, the Company has agreed to make the maximum contribution with
respect to any amounts for
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which it would otherwise be liable under such indemnification provision to the
fullest extent permitted by law. See "Plan of Distribution."
As of August 15, 1998, the authorized capital stock of the Company
consisted of (i) 75,000,000 shares of Common Stock, of which 24,755,480 shares
were issued and outstanding, and (ii) 10,000,000 shares of preferred stock, $.01
par value per share, of which (A) 50,000 shares have been designated Series A
Stock, of which 50,000 shares were issued and 1,570 outstanding, (B) 12,515
shares have been designated as Series B Stock, of which 12,515 shares were
issued and 7,500 were outstanding, (C) 7,500 shares have been designated Series
C Preferred Stock $.01 par value per share, ("Series C Stock") all of which were
issued and outstanding, (D) 60,000 shares have been designated as Series D
Preferred Stock $.01 par value per share, ("Series D Stock") of which 15,000
were issued and 5,000 were outstanding, (E) 10,500 shares have been designated
as Series E Preferred Stock, $.01 par value per share ("Series E Stock"), all of
which were issued and outstanding, (F) 5,000 shares have been designated as
Series F Preferred Stock, $.01 par value per share ("Series F Stock"), all of
which were issued and outstanding. (G) 10,000 shares have been designated as
Series G Preferred Stock, $.01 par value per share ("Series G Stock"), all of
which were issued and outstanding, and (H) 20,000 shares have been designated as
Series H Preferred Stock, $.01 par value per share, of which 19,000 were issued
and outstanding. As of such date, the Company was obligated to issue
approximately 22,435,000 shares of Common Stock upon exercise of outstanding
options, rights, warrants, convertible preferred stock and convertible notes.
The Common Stock is currently traded on the Nasdaq SmallCap Market
under the symbol "DYGN" and on the Boston Stock Exchange under the symbol "DYG."
On August 24, 1998, the closing bid price of the Common Stock, as reported by
the Nasdaq SmallCap Market, was approximately $ .38 per share.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
SUBSTANTIAL DILUTION TO THE PUBLIC INVESTOR. SEE "RISK FACTORS" AND "DILUTION."
----------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------------------
The date of this Prospectus is August 26, 1998.
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SPECIAL CONSIDERATIONS
During the year ended December 31, 1997, DynaGen, Inc. ("DynaGen" or the
"Company") experienced a substantial decrease in the Company's stock price and
market capitalization, continued losses from operations including an unexpected
loss at its Superior Pharmaceutical Company subsidiary and substantial and
continuing dilution to existing stockholders due to the below-market
conversion features of convertible securities sold by the Company. During the
six months ended June 30, 1998, the Company experienced continued losses from
operations and continued substantial dilution to existing stockholders. The
following special considerations should be carefully noted by the reader:
Financial Condition of the Company
For the year ended December 31, 1997, the Company incurred net losses of
approximately $12,241,278. For the six months ended June 30, 1998, the Company
incurred net losses of approximately $3,874,593. As of June 30, 1998, the
Company had approximately $230,488 in cash and cash equivalents and a net worth
of $4,168,668. The Company's current liabilities, as of such date aggregated
approximately $21,785,395. The Company expects its operating cash needs for the
next twelve months to be approximately $6,000,000. The Company does not
presently have adequate cash from operations to meet these needs. In order to
meet its needs for cash to fund its operations, the Company must obtain
additional financing and renegotiate the terms of its current arrangements with
creditors. The Company is presently in default under a number of its
arrangements, agreements and instruments with creditors, with the result that
the Company's obligations under such agreements and instruments may be
accelerated. If the Company is unable to obtain significant additional financing
or to renegotiate its arrangements with existing creditors, it may be obliged to
seek protection from its creditors under the bankruptcy laws. See "Risk Factors
- -- Financial Condition."
COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN
The Company's independent auditors have issued an opinion on the
financial statements of the Company, as of December 31, 1997 and for the year
then ended, which includes an explanatory paragraph expressing substantial doubt
about the Company's ability to continue as a going concern. Among the reasons
cited by the independent auditors as raising substantial doubt as to the
Company's ability to continue as a going concern are the following: the Company
has incurred recurring losses from operations resulting in an accumulated
deficit and a working capital deficiency. In addition, the Company has debt
obligations which are in default, and a liability of approximately $4,200,000 to
the selling stockholders of Superior Pharmaceutical Company (Superior), due in
September 1998. The ability of the Company to use cash generated by its
subsidiaries, Superior and Generic Distributors, Incorporated (GDI), is
restricted under the terms of the subsidiaries' loan agreements. These
circumstances raise substantial doubt about the Company's ability to continue as
a going concern. If the Company is unable to secure significant additional
financing or to renegotiate its agreements with its existing creditors, it may
be obliged to seek protection from its creditors under the bankruptcy laws. See
"Risk Factors -- Ability to Continue as a Going Concern".
COMPANY'S COMMON STOCK MAY BE DELISTED FROM NASDAQ STOCK MARKET
On February 26, 1998, the Company received a notice from the Nasdaq
Stock Market, Inc. (Nasdaq) that it does not meet the applicable listing
requirements and that the Company's Common Stock is therefore subject to
delisting. The Company has contested the delisting of its securities in
accordance with Nasdaq's procedures.
On March 11, 1998, the Company responded to Nasdaq explaining the
reasons that the Company believes led to its non-compliance with the listing
requirements and steps that the Company intended to take in order to achieve
compliance. The Company received a response from Nasdaq dated June 17, 1998,
rejecting its written response as the basis for continued listing and informing
the Company that the Company could request an oral hearing. Accordingly, the
Company has requested an oral hearing which occurred on August 14, 1998.
The Company does not meet the Nasdaq listing requirements. Although
Nasdaq has the discretion to grant exceptions to the listing requirements, there
is no assurance that it will do so in the Company's case. The Company
anticipates that, if its Common Stock is delisted from the Nasdaq SmallCap
Market, it will continue to trade on the Boston Stock Exchange and may also be
quoted on the OTC Bulletin Board. However, delisting of the Company's Common
Stock from the Nasdaq SmallCap Market could have a material adverse effect on
the liquidity of the Common Stock and on the Company's ability to raise capital
necessary for the Company's continued operations.
CONTINGENT OBLIGATIONS WITH RESPECT TO SUPERIOR ACQUISITION
The Company used a combination of cash, a note and 166,667 shares of
Common Stock (after giving effect to a one-for-ten reverse split of the common
stock outstanding) to acquire Superior in June 1997. The Agreement and Plan of
Merger for the Superior acquisition provided that the Company would also be
obligated to issue to the former stockholders of Superior up to an additional
1,666,667 shares of Common Stock if on June 18, 1998 the Common Stock had not
had an average closing bid price of at least $30.00 per share for the 10
previous trading days. The merger agreement provided further that any difference
between the value of the stock issued and the $5,000,000 guaranteed value was to
be paid in cash. The Common Stock traded at approximately $0.50 per share as of
June 18, 1998, and the Company therefore became obligated to pay approximately
$4,000,000 in cash to the former stockholders of Superior.
On July 31, 1998, the Company entered into a contingent settlement
agreement with the former stockholders of Superior which provides for an overall
reduction in purchase price of $4,900,000 through waiver of any additional stock
or cash payment. This agreement also provides for, and is contingent upon,
payment by DynaGen of $4,200,000, which represents the remaining amount due on
the original selling shareholder notes, by September 30, 1998. There can be no
assurance that the Company will be able to obtain financing to meet the
obligations to pay the selling shareholders. The Company's inability to meet any
such obligation or other fixed or contingent obligations of the Company as they
become due could have a material adverse effect on the Company's ability to
continue its operations.
VOLATILITY OF STOCK PRICE
The market for securities of technology companies, including those of
the Company, has been highly volatile. The market price of the Company's Common
Stock has fluctuated between $70.00 and $1.25 from January 1, 1993 to December
31, 1997 and was approximately $0.38 on August 24, 1998, and it is likely that
the price of the Common Stock will continue to fluctuate widely in the future.
Announcements of technical innovations, new commercial products, results of
clinical trials, regulatory approvals, patent or proprietary rights or other
developments by the Company or its competitors could have a significant impact
on the Company's business and the market price of the Common Stock.
ADVERSE CONSEQUENCES ASSOCIATED WITH THE OBLIGATION TO ISSUE SUBSTANTIAL SHARES
OF COMMON STOCK UPON CONVERSION OF CONVERTIBLE SECURITIES
The Company is obligated to issue a substantial number of shares of
Common Stock upon the conversion or exercise of its outstanding warrants,
rights, convertible preferred stock and a convertible note. The price which the
Company may receive for the Common Stock issuable upon exercise of such options
and warrants will, in all likelihood, be less than the market price of the
Common Stock at the time of such exercise. Consequently, for the life of such
options and warrants the holders thereof may have been given, at nominal cost,
the opportunity to profit from a rise in the market price of the Common Stock.
The exercise of all of the aforementioned securities may also adversely
affect the terms under which the Company could obtain additional equity capital.
In all likelihood, the Company would be able to obtain additional equity capital
on terms more favorable to the Company at the time the holders of such
securities choose to exercise them. In addition, should a significant number of
these securities be exercised, the resulting increase in the amount of the
Common Stock in the public market could have a substantial dilutive effect on
the Company's outstanding Common Stock.
AVAILABLE INFORMATION
DynaGen, Inc., a Delaware corporation, is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy and
information statements and other information filed by the Company with the
Commission pursuant to the informational requirements of the Exchange Act may be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission: Seven World
Trade Center, Suite 1300, New York, New York 10048; and 500 West Madison Avenue,
Suite 1400, Chicago, Illinois 60661. Copies of such material may be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains a Web
site (at http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding the Company. The Company's Common
Stock is traded on the Nasdaq SmallCap Market, and such reports, proxy and
information statements and other information can be inspected at the offices of
Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006. The Company's
Common Stock is also listed on the Boston Stock Exchange and such material is
also available for inspection at the offices of the Boston Stock Exchange, One
Boston Place, Boston, Massachusetts 02109.
The Company has filed with the Commission in Washington, D.C., a
Registration Statement on Form S-3 under the Act with respect to the securities
offered hereby. As permitted by the rules and regulations of the Commission,
this Prospectus omits certain information contained in the Registration
Statement. For further information with respect to the Company and the
securities offered hereby, reference is hereby made to the Registration
Statement and to the exhibits and schedules filed therewith. Statements
contained in this Prospectus regarding the contents of any documents filed with,
or incorporated by reference in, the Registration Statement as exhibits are not
necessarily complete, and each such statement is qualified in all respects by
reference to the copy of the applicable documents filed with the Commission. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part
thereof may be obtained from such office upon payment of the prescribed fees.
INFORMATION INCORPORATED BY REFERENCE
The following documents heretofore filed by the Company with the
Commission (File No. 1-11352) pursuant to the Exchange Act are incorporated by
reference in this Prospectus:
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(1) The Company's Annual Report on Form 10-K for the year ended
December 31, 1997, as amended;
(2) The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998;
(3) The Company's Proxy Statement for the March 4, 1998 Special
Meeting of Stockholders;
(4) The Company's Current Report on Form 8-K dated March 14, 1998;
(5) The Company's Current Report on Form 8-K dated June 18,1997 as
amended;
(6) All other documents filed by the Company pursuant to Section 13(a)
or 15(d) of the Exchange Act since the end of the fiscal year covered by the
Annual Report referred to in (1) above; and
(7) The "Description of Securities" contained in the Company's
Registration Statement No. 33-71416 on Form S-1 and incorporating by reference
the information contained in the Company's Final Prospectus dated March 16,
1994, filed under Section 424(b) under the Securities Act of 1933.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of this Offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing
such documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
Copies of the documents incorporated herein by reference (excluding exhibits
unless such exhibits are specifically incorporated by reference into such
documents) may be obtained upon written or oral request without charge by
persons, including beneficial owners, to whom this Prospectus is delivered.
Request should be made to: Investor Relations, DynaGen, Inc., 840 Memorial
Drive, Cambridge Massachusetts 02139 (telephone: 617-491-2527).
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
more detailed information appearing elsewhere in this Prospectus or incorporated
herein by reference and the financial statements which are incorporated herein
by reference.
THE COMPANY DynaGen, Inc. (the "Company") develops, manufactures and
markets generic diagnostic and specialty therapeutic
products for human health care. During 1996, DynaGen began
expanding its business focus from development and
licensing to building a diversified healthcare
company focused on the manufacture and distribution of
generic drug products and specialty pharmaceuticals.
RISK FACTORS The offering involves substantial risk, including the
Company's financial condition, doubt about the Company's
ability to continue as a going concern; the possible
delisting of the Company's Common Stock from the Nasdaq
SmallCap Market, the Company's history of losses and the
anticipation of future losses, the Company's future
capital needs and the uncertainty of additional funding,
uncertainties related to its current or future licensing
of the NicErase(R) technology,
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the integration of recently acquired companies, the risks
associated with managing a changing business and
implementing future acquisitions, limited manufacturing
and marketing capability and experience, competition,
dependence on patents and proprietary technology,
volatility of stock price and limited trading volume of
Common Stock. See "Risk Factors."
SECURITIES OFFERED 11,560,921 shares of the Company's Common Stock, par
value $.01 per share.
OFFERING PRICE All or part of the Shares offered hereby may be sold from
time to time in amounts and on terms to be determined by
the Selling Stockholders at the time of sale.
USE OF PROCEEDS The Company will receive no part of the proceeds from the
sale of any of the Shares by the Selling Stockholders. The
Company has received proceeds from the sale of the Series
C Stock and Series D Stock which proceeds were applied to
working capital.
SELLING STOCKHOLDER The Shares being offered hereby are being offered for the
account of the Selling Stockholders specified under the
caption "Selling Stockholders."
STOCK MARKET SYMBOLS: Nasdaq SmallCap Market Boston Stock Exchange
---------------------- ---------------------
Common Stock DYGN DYG
THE COMPANY
DynaGen, Inc. ("DynaGen" or the "Company") develops, manufactures and
distributes specialty and generic pharmaceuticals. From its inception in 1988
until 1996, the Company was focused primarily on new drug development and
licensing. However, during 1996 DynaGen began expanding its business focus to
building a generic pharmaceutical business while licensing its existing
portfolio of therapeutic and diagnostic products to larger pharmaceutical
companies for further development and commercialization in return for milestone
payments and royalties.
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In 1996, the Company changed its year end from June 30 to December 31.
Accordingly, the Company began a new 12-month fiscal year on January 1, 1997. In
March 1998, the Company completed a reverse split of its stock -- one share for
every ten shares outstanding.
Multisource Business
The U.S. multisource pharmaceutical market approximates $12 billion in
annual sales. This sector has grown due to a number of factors including the
large number of drugs coming off patent, the growing importance and impact of
managed care organizations which prefer lower cost generics to brand products,
and the increasing acceptance of generic drugs by physicians, pharmacists and
consumers. Generic drugs are the chemical and therapeutic equivalents of
brand-name drugs. They are required to meet the same governmental standards as
the brand-name drugs and must receive FDA approval prior to manufacture and
sale. Generic drugs may be manufactured and marketed only if relevant patents
(and any additional government-mandated market exclusivity periods) have
expired. These drugs are typically sold under their generic chemical names at
prices significantly below those of their brand-name equivalents.
To successfully participate in the multisource business, DynaGen intends to
compete with other generic companies through vertical integration of two key
elements of the multisource business, such as manufacturing and distribution. In
August 1996, the Company acquired substantially all of the assets of Able
Laboratories, Inc. ("Able"), including its 46,000 square foot tablet and
suppository manufacturing facility. As part of this acquisition, the Company
obtained rights to eleven approved Abbreviated New Drug Applications ("ANDAs")
as well as other generic formulations. Since the acquisition, DynaGen has
updated and expanded Able's manufacturing capability, validated several of the
acquired products, retrained employees in quality assurance procedures, and
successfully met FDA requirements and guidelines to manufacture these products.
The Company is increasing sales of its current generic products through the
expansion of its distribution networks and by providing contract manufacturing
services to various pharmaceutical companies. The Company is currently marketing
three of the acquired ANDA products.
DynaGen filed its first ANDA for labetalol hydrochloride (brand names:
Normadyne(R)and Trandate(R)), a treatment for hypertension in January 1998. The
patent on the drug expired in August 1998. There is no assurance that the filing
will be approved by the FDA or if approved, that the Company will be able to
generate sales for this drug.
To complement the acquisition of Able, in June 1997 the Company acquired
Superior Pharmaceutical Company ("Superior") through a merger of Superior and a
wholly-owned subsidiary of DynaGen. Superior has its primary operations in
Cincinnati, Ohio where it employs approximately 65 people and has 37,300 square
feet of office, warehouse and distribution space.
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In 1997, Superior experienced a sharp decline in sales and earnings
compared to 1996. This was due to the loss of sales of methylphenidate (brand
name: Ritalin(R)) which was being manufactured and supplied to Superior under
the Superior label. This product resulted in sales of over $7.5 million for
Superior in 1996 and $5.1 million in 1997. The decline in sales and margins was
also due to the loss of key personnel at Superior immediately after the
acquisition, which resulted in a loss of business with certain federal and
corporate accounts. There was further erosion in margins as price pressure
continued in the generic industry. Recently, however, as marginal manufacturers
have either shut down operations or discontinued production, prices and margins
are improving. There can be no assurance, however, that these actions will
improve Superior's performance in the near future. In the past six months,
Superior has hired and trained additional sales staff, upgraded its systems and
instituted controls to improve margins. Superior is also aggressively bidding on
federal and state contracts and has won supply agreements with the governments
of the states of Florida, Ohio, Louisiana and Texas.
On March 4, 1998, the Company, through its wholly-owned subsidiary, Generic
Distributors Incorporated ("GDI"), acquired substantially all of the assets of
Generic Distributors Limited Partners, a distributor of generic drugs. GDI,
based in Monroe, LA, employs 23 people and operates out of an 11,000 sq. ft.
facility. DynaGen believes that GDI complements Superior by providing next-day
delivery service to the southern and southeastern United States. GDI's customer
base consists primarily of independent pharmacies in the states of Louisiana,
Texas, Arkansas, Alabama and Mississippi. Management believes that GDI has the
potential to grow its business through supply opportunities with institutional,
hospital and nursing home pharmacies. There can be no assurance that such
opportunities will arise, or that DynaGen will be able to exploit any such
opportunities profitably.
The purchase price of $2,350,000 for GDI was financed by a $1,200,000
five-year secured term loan from Fleet Bank and $1,150,000 in shares of Series
E Preferred Stock and Series F Preferred Stock. The preferred shares cannot be
converted into common stock until one year from the date of closing. After that,
the preferred shares can only be converted at a rate of $40,000 per week at the
prevailing market price. Fleet Bank has also provided $300,000 in a second
working capital line of credit.
Specialty Pharmaceutical Business
DynaGen's specialty pharmaceutical business strategy is to create a
business based on branded products and multi-drug combinations in convenient
packaging for specific indications and treatments. Physicians routinely
prescribe two or more separate drugs for the treatment of several common medical
problems. These drugs are separately prescribed and dispensed but are taken at
various times during the course of the day as directed by the physician. A major
problem in such multi-drug therapies is lack of compliance by the patient and
therefore less than desirable therapeutic efficacy. For this reason, the Company
initially intends to focus its efforts in the area of compliance enhancement
packaging. DynaGen has identified near-term opportunities in compliance
enhancement packaging in the areas of women's healthcare products. The Company
is developing convenience packaging which it believes will provide ease of
prescription, dispensing, storage and self-administration. Convenience packaging
also provides cost advantages to the consumer since there is only a single
"co-pay" instead of multiple co-payments.
The Company's proposed specialty pharmaceutical products are in an early
stage of development and therefore are subject to the risks of unsuccessful
development, marketing and commercialization. These proposed products will
require substantial further development which may include clinical testing, bio-
equivalency studies and regulatory approval, all at a substantial cost to the
Company. The use of specialty pharmaceuticals will require the acceptance of a
new way of prescribing medication and there can be no assurance a market will
develop for such products. Additional investment by the Company in
manufacturing, marketing and sales infrastructures will also be required prior
to commercialization. No assurance can be given that these development efforts
will be successfully completed or that the products, if introduced, will be
successfully marketed.
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Licensed Products
Since its inception, DynaGen's business consisted of developing proprietary
diagnostic and therapeutic products. These products included NicErase-SL, a
sublingual tablet containing the non-nicotine ingredient lobeline for smoking
cessation, and OrthoDyn(R), a bone-repair cement based on a family of
bioresorbable and biocompatible polymers derived from compounds naturally
occurring in the body. The Company has licensed these products for further
development, testing, manufacturing and marketing to other healthcare companies.
NicCheck I
The health care industry is shifting to a managed care approach which
integrates prevention, diagnostic, therapeutic and compliance technologies into
a panel of products for specific disease management. The Company has developed a
diagnostic product, NicCheck I, which may help in the determination of
compliance with smoking cessation programs.
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NicCheck I is an FDA-cleared simple colorometric test for the detection of
nicotine and/or its metabolites in urine. The test distinguishes between smokers
and nonsmokers with 97% accuracy and is also able to distinguish between high
and low consumers of nicotine. The NicCheck I result may be used to determine
the appropriate level of nicotine replacement therapy during smoking cessation
efforts. Smokers who are trying to quit may become more motivated by observing a
decrease in color intensity of the NicCheck I results as they reduce nicotine
consumption. NicCheck I may also prove to be a cost-effective means for
insurance companies to employ risk assessment/risk management strategies.
The Company maintains its principal executive offices at 840 Memorial
Drive, Cambridge, Massachusetts 02139, U.S.A., and its telephone number is
(617) 491-2527.
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RISK FACTORS
FINANCIAL CONDITION. For the year ended December 31, 1997, the Company
incurred net losses of approximately $12,241,278. For the six months ended June
30, 1998, the Company incurred a net loss of $3,874,593. As of June 30, 1998,
the Company had approximately $230,488 in cash and cash equivalents and a net
worth of $4,168,668. The Company's current liabilities, as of such date,
aggregated approximately $21,785,395. The Company expects its cash needs for the
next twelve months to be approximately $6,000,000. The Company does not
presently have adequate cash from operations to meet these needs. In order to
meet its needs for cash to fund its operations, the Company must obtain
additional financing and renegotiate the terms of its current arrangements with
creditors. The Company is presently in default under a number of its
arrangements, agreements and instruments with creditors, with the result that
the Company's obligations under such agreements and instruments may be
accelerated. If the Company is unable to obtain significant additional financing
or to renegotiate its arrangements with existing creditors, it may be obliged to
seek protection from its creditors under the bankruptcy laws. See "-- Contingent
Obligations with Respect to Superior Acquisition", "Special Considerations --
"Financial Condition".
ABILITY TO CONTINUE AS A GOING CONCERN. The Company's independent auditors
have issued an opinion on the financial statements of the Company as of December
31, 1997 and for the year then ended which includes an explanatory paragraph
expressing substantial doubt about the Company's ability to continue as a going
concern. Among the reasons cited by the independent auditors as raising
substantial doubt as to the Company's ability to continue as a going concern are
the following: the Company has incurred recurring losses from operations
resulting in an accumulated deficit and a working capital deficiency at December
31, 1997. In addition, the Company has debt covenant obligations which are in
default, and a liability of approximately $4,200,000 to the selling stockholders
of Superior Pharmaceutical Company (Superior), due in September 1998. The
ability of the Company to use cash generated by its subsidiaries, Superior and
Generic Distributors, Incorporated (GDI), is restricted under the terms of the
subsidiaries' loan agreements. These circumstances raise substantial doubt about
the Company's ability to continue as a going concern. If the Company is unable
to secure significant additional financing or to renegotiate its agreements with
its existing creditors, it may be obliged to seek protection from its creditors
under the bankruptcy laws. See "-- Contingent Obligations with Respect to
Superior Acquisition" and "Special Considerations -- Company's Ability to
Continue As A Going Concern".
COMMON STOCK SUBJECT TO DELISTING FROM NASDAQ SMALLCAP MARKET. The Company
received a notice from the Nasdaq Stock Market, Inc. ("Nasdaq") that it does not
meet the applicable listing requirements and that the Company's Common Stock is
therefore subject to delisting. The Company does not meet the Nasdaq listing
requirements. The Company contested the delisting action by requesting a
written hearing. Nasdaq notified the Company in a letter dated June 17, 1998,
that its request for an exception to the listing requirements had been denied
and that the Company's Common Stock was scheduled for delisting as of June 25,
1998. The Company obtained a stay of this delisting action by requesting an
oral hearing in accordance with Nasdaq's procedures. The oral hearing took
place on August 14, 1998. Although Nasdaq has the discretion to grant exceptions
to the listing requirements, there is no assurance that it will do so in the
Company's case. The Company anticipates that, if its Common Stock is delisted
from the Nasdaq SmallCap Market, it will continue to trade on the Boston Stock
Exchange and may also be quoted on the OTC Bulletin Board. However, delisting of
the Company's Common Stock from the Nasdaq SmallCap Market could have a material
adverse effect on the liquidity of the Common Stock and on the Company's ability
to raise capital necessary for the Company's continued operations. See "Special
Considerations -- Company's Common Stock May Be Delisted From Nasdaq Stock
Market."
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HISTORY OF LOSSES; ANTICIPATION OF FUTURE LOSSES. The Company has
incurred operating losses since its inception and had an accumulated deficit of
$40,431,062 as of June 30, 1998. The Company incurred a net loss of $3,874,593
for the six months ended June 30, 1998. The Company incurred a net loss of
$12,241,278 for the year ended December 31, 1997. The Company incurred a net
loss of $4,306,140 for the six months ended December 31, 1996, as compared with
a net loss of $1,809,816 for the same period ended December 31, 1995. The
Company incurred a net loss of $5,097,419 for the fiscal year ended June 30,
1996, compared with a net loss of $3,042,383 for the fiscal year ended June 30,
1995. Such losses have resulted principally from expenses incurred in research
and development and from general and administrative costs associated with the
Company's development efforts. In addition, the Company's Able subsidiary has
incurred operating losses resulting primarily from insufficient revenues. The
continued development of the Company's products will require the commitment of
substantial resources to conduct further development and preclinical and
clinical trials, and to establish manufacturing, sales, marketing, regulatory
and administrative capabilities. The Company expects to incur substantial
operating losses over the next several years as its product programs expand,
various clinical trials commence and marketing efforts are launched. The amount
of net losses and the time required by the Company to reach sustained
profitability are highly uncertain, and to achieve profitability the Company
must, among other things, successfully complete development of its products,
obtain regulatory approvals, and establish manufacturing and marketing
capabilities by itself or with third parties. There is no assurance that the
Company will ever generate substantial revenues from its proprietary and generic
products or achieve profitability.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING; POSSIBILITY OF
BANKRUPTCY. It is anticipated that the Company will continue to expend
significant amounts of capital to fund its research and development, clinical
trials and generic pharmaceutical business and future acquisitions, if any. The
Company's available working capital is inadequate for completion of the
Company's development programs, and additional financing will be necessary for
the continued support of the Company's proposed products and operations,
including the establishment of manufacturing, marketing and distribution
capabilities for its proposed products and the continued operations of Able,
Superior and GDI. There can be no assurance that the Company will be able to
secure additional financing or that such financing will be available on
favorable terms. If the Company is unable to obtain such additional financing,
the Company's ability to maintain its current level of operations would be
materially and adversely affected and the Company may be obliged to seek
protection from its creditors under the bankruptcy laws.
SHARES OF COMMON STOCK MAY BE SUBJECT TO PENNY STOCK RULES. The Securities
Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure,
relating to the market for penny stocks, in connection with trades in any stock
defined as a penny stock. The Securities and Exchange Commission has adopted
regulations that generally define a penny stock to be any equity security that
has a market price of less than $5.00 per share, subject to certain exceptions.
Such exceptions include any equity security listed on the Nasdaq National Market
System or the Nasdaq SmallCap Market and any equity security issued by an issuer
that has (i) net tangible assets of at least $2,000,000, if such issuer has been
in continuous operation for at least three years, (ii) net tangible assets of at
least $5,000,000, if such issuer has been in continuous operation for less than
three years, or (iii) average annual revenue of at least $6,000,000 for the last
three years. Unless an exception is available, the regulations require the
delivery, prior to any transaction involving a penny stock, of a disclosure
schedule explaining the penny stock market and the risks associated therewith.
If the Company's Common Stock is delisted from the Nasdaq SmallCap Market,
and the Company does not have at least $2,000,000 in net tangible assets or at
least $6,000,000 in average annual revenue for the last three years, trading in
the Company's securities would be covered by Rules 15g-1 through 15g-6 and 15g-9
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") for
non-Nasdaq and non-exchange listed securities. Under such rules, broker/dealers
who recommend such securities to persons other than established customers and
institutional accredited investors must make a special written suitability
determination for the purchaser and have received the purchaser's written
agreement to a transaction prior to sale. Securities are exempt from these rules
if the market price of the Common Stock is at least $5.00 per share.
If the Company's Common Stock is delisted from the Nasdaq SmallCap Market,
the Common Stock would become characterized as a penny stock and the market
liquidity for the Company's securities could be severely affected. In such an
event, the regulations on penny stocks could limit the ability of broker/dealers
to sell the Company's securities and thus the ability of purchasers of the
Company's securities to sell their securities in the secondary market.
The shares of Common Stock offered hereby involve a high degree of risk
and should not be purchased by persons who cannot afford the loss of their
entire investment. The following factors, in addition to the other information
discussed in this Prospectus, should be considered carefully in evaluating an
investment in the Company and its business.
RISKS ASSOCIATED WITH SUBSIDIARY OPERATIONS. The Company's results of
operations depend to a large degree upon the performance of its subsidiaries,
including its recently acquired subsidiaries Able, Superior and GDI. In its role
as a holding company with respect to these subsidiaries, the Company is
dependent on dividends or other intercompany transfers for funds from the
subsidiaries to meet the Company's obligations. Agreements between the Company
and certain of its creditors restrict the Company's ability to cause its
subsidiaries to make such dividends or other intercompany transfers. Claims of
creditors of the Company's subsidiaries, including trade creditors, will
generally have priority as to the assets of such subsidiaries over the claims of
the Company and the holders of the Company's indebtedness.
ADVERSE CONSEQUENCES ASSOCIATED WITH THE OBLIGATION TO ISSUE SUBSTANTIAL
SHARES OF COMMON STOCK UPON CONVERSION OF CONVERTIBLE SECURITIES. As of August
15, 1998 the Company was obligated to issue approximately 15,935,000 shares of
Common Stock for issuance upon the conversion or exercise of its outstanding
warrants, rights, convertible preferred stock and convertible notes and
6,500,000 shares of Common Stock have been reserved for issuance pursuant to
options granted to employees, officers, directors and consultants. The price
which the Company may receive for the Common Stock issuable upon exercise of
options and warrants will, in all likelihood, be less than the market price of
the Common Stock at the time of such exercise. Consequently, for the life of
such options and warrants the holders thereof may have been given, at nominal
cost, the opportunity to profit from a rise in the market price of the Common
Stock.
The exercise of all of the aforementioned securities may also adversely
affect the terms under which the Company could obtain additional equity capital.
In all likelihood, the Company would be able to obtain additional equity capital
on terms more favorable to the Company at the time the holders of such
securities choose to exercise them. In addition, should a significant number of
these securities be exercised, the resulting increase in the amount of the
Common Stock in the public market could have a substantial dilutive effect on
the Company's outstanding Common Stock.
CONTINGENT OBLIGATIONS WITH RESPECT TO SUPERIOR ACQUISITION. The
Company used a combination of cash, a note and 166,667 shares of Common Stock
(after giving effect to a one-for-ten reverse split of the common stock
outstanding) to acquire Superior in June 1997. The Agreement and Plan of Merger
for the Superior acquisition provided that the Company would also be obligated
to issue to the former stockholders of Superior up to an additional 1,666,667
shares of Common Stock if on June 18, 1998 the Common Stock had not had an
average closing bid price of at least $30.00 per share for the 10 previous
trading days. The merger agreement provided further that any difference between
the value of the stock issued and the $5,000,000 guaranteed value was to be paid
in cash. The Common Stock traded at approximately $0.50 per share as of June 18,
1998, and the Company therefore became obligated to pay approximately $4,000,000
in cash to the former stockholders of Superior.
On July 31, 1998, the Company entered into a contingent settlement
agreement with the former stockholders of Superior which provides for an
overall reduction in purchase price of $4,900,000 through waiver of any
additional stock or cash payment. This agreement also provides for, and is
contingent upon, payment by DynaGen of $4,200,000, which represents the
remaining amount due on the original selling shareholder notes, by September 30,
1998. There can be no assurance that the Company will be able to obtain
financing to meet the obligations to pay the selling shareholders. The Company's
inability to meet any such obligation or other fixed or contingent obligations
of the Company as they become due could have a material adverse effect on the
Company's ability to continue its operations. See "Special Considerations --
Contingent Obligations With Respect to Superior Acquisition."
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INTEGRATION OF ACQUISITIONS. In August 1996, the Company acquired
substantially all of the assets of Able, in June 1997, the Company purchased all
of the outstanding shares of Superior and in March 1998, the Company acquired
substantially all of the assets of GDI. There can be no assurance that the
anticipated benefits from the acquisitions will be realized. Additionally, there
can be no assurance that the Company will be able to effectively market the
existing Able products, that it will obtain FDA approval to market additional
generic drugs or that it will be successful in managing the combined operations.
The integration of operations of the Company's subsidiaries requires substantial
attention from management, many of whom have limited experience in integrating
acquisitions. The diversion of management's attention, the process of
integrating the businesses and any difficulties encountered in the transition
process could cause an interruption of business, and could have a material
adverse effect on the Company's operations and financial performance.
LOSS OF KEY EMPLOYEES. The Company and its subsidiaries have in the past
18 months experienced loss of key personnel due to layoffs and attrition. While
management believes that the remaining employees have adequately performed
routine tasks, it will be necessary to fill several of these positions in the
near term. There is no assurance that the Company will be able to attract and
retain qualified employees and that the remaining employees will continue to
perform these functions satisfactorily. The Company's inability to attract and
retain qualified employees may result in further decline in the Company's
business and its financial condition.
RISKS ASSOCIATED WITH MANAGING A CHANGING BUSINESS. The Company has begun
to expand its business focus from being a development and licensing company to
building a diversified healthcare company focused on the manufacture and
distribution of generic drug products as well as the continued development of
therapeutic and diagnostic products. In order to achieve this expansion, the
Company must undergo substantial changes in its operations, which may
significantly strain the Company's limited administrative, operational and
financial resources. The ability of the Company to achieve its business
objectives will depend in large part on its ability to build and expand its
manufacturing operations and sales and marketing capabilities, to generally
expand its operational capabilities and its financial and management information
systems, to develop the management skills of its managers and supervisors and to
train, motivate and manage both its existing employees and the additional
employees that will be required if the Company is to expand its business. There
can be no assurance that the Company will succeed in developing all or any of
these capabilities, and any failure to do so would have a material adverse
effect on the Company's business, financial condition and results of operations.
LIMITED MANUFACTURING CAPABILITY AND EXPERIENCE. The Company's
NicCheck(R), MycoDot(R) and MycoAKT(R) products are currently made by licensed
manufacturers. The Company intends to enter into licenses, joint venture and
similar collaborative arrangements with third parties for the manufacture of
other proprietary products and proposed products. There are no other such
agreements and there can be no assurance that the Company will be successful in
securing manufacturing agreements for its products or that such agreements will
prove to be on terms favorable to the Company. In addition, the Company's
dependence upon third parties for the manufacture of its products and proposed
products could have an adverse effect on the Company's profitability and its
ability to deliver its proposed products on a timely and competitive basis. To
the extent that the Company attempts to manufacture any of its products, there
can be no assurance that the Company will be able to attract and retain
qualified manufacturing personnel, or build or rent manufacturing facilities.
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<PAGE> 15
The Company's generic therapeutic products are manufactured at its Able
Laboratories facility in South Plainfield, New Jersey. In order to maintain
compliance with FDA Good Manufacturing Practices ("GMP") standards, the Company
will have to make significant investments in its infrastructure and plant
facility. The Company will need to raise capital to finance these investments
and there can be no assurance that the Company will be able to obtain such
financing or that such financing will be available on favorable terms. There can
be no assurance that such capital expenditures and overhead costs will not have
a material adverse effect upon the Company's ability to achieve profitability.
There can be no assurance that the Company will retain the key employees it
acquired in the Able acquisition.
LIMITED COMMERCIALIZATION OF PROPRIETARY PRODUCTS. The Company has
commercially introduced and is currently marketing through distributors only
three of its proprietary products, yielding limited revenues from the sale of
these products. Historically, substantially all of the Company's revenues had
been generated from research and development contracts and license fees. The
Company's ability to achieve profitability will depend on its ability to develop
and introduce commercially viable products, obtain regulatory approvals for
these products and either successfully manufacture, market and distribute such
products on its own or enter into collaborative agreements for product
manufacturing, marketing and distribution. Many of the Company's proposed
therapeutic and diagnostic products will require substantial further
development, preclinical and clinical testing, and investment by the Company or
third party licensees in manufacturing, marketing and sales infrastructures
prior to their commercialization. No assurance can be given that the Company's
development efforts will be successfully completed, that regulatory approvals
will be obtained, or that these products, once introduced, will be successfully
marketed.
POTENTIAL PRODUCT LIABILITY; LIMITED INSURANCE COVERAGE. The testing,
marketing and sale of pharmaceutical products for human use entail inherent
risks. Liability might result from claims made directly by consumers or by
pharmaceutical companies or others selling the Company's products. The Company's
Superior and Able subsidiaries presently carry product liability insurance in
amounts that the Company believes to be adequate, but there can be no assurance
that such insurance will remain available at a reasonable cost or that any
insurance policy would offer coverage sufficient to meet any liability arising
as a result of a claim. The Company intends to seek to obtain insurance coverage
if and when its proposed products are commercialized but can give no assurance
that it will be able to obtain such insurance on reasonable terms or that, if
obtained, such insurance will be sufficient to protect the Company against such
potential liability or at a reasonable cost. The obligation to pay any product
liability claim or a recall of a product could have a material adverse affect on
the business, financial condition and future prospects of the Company.
LACK OF MARKETING EXPERIENCE. The Company currently does not plan to
market its proprietary products directly and does not have adequate resources or
expertise to develop a substantial marketing organization and internal sales
force for these products. Since the Company does not have the financial or other
resources to undertake extensive direct marketing activities, the Company
intends to enter into marketing arrangements with third parties, including
possible joint venture, license or distribution arrangements. While the Company
intends to license its products for manufacture and sale to established health
care or pharmaceutical companies, it has had very limited success in its efforts
to enter into such agreements to date. There can be no assurance that the
Company will be able to locate collaborative partners or that these strategic
alliances, if consummated, will prove successful.
With respect to the Company's generic therapeutic products, there can be
no assurance that present and potential customers of Able and Superior will
continue their recent buying patterns, and any significant delay or reduction in
orders could have a material adverse effect on the Company's near-term business
and results of operations.
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REGULATION BY GOVERNMENT AGENCIES. The Company's research, preclinical
development, clinical trials, manufacturing and marketing of its proposed
products are subject to extensive regulation by numerous governmental
authorities in the United States (including the FDA), and other equivalent
foreign regulatory authorities. The process of obtaining FDA and other required
regulatory approvals is lengthy and expensive. There can be no assurance that
the Company will be able to obtain the necessary approvals for clinical testing
or for the manufacturing or marketing of its proposed products. Further,
additional governmental regulation may be established which could prevent or
delay regulatory approval of the Company's products. The regulatory process may
delay for long periods, and ultimately prevent, marketing of new products or
impose costly procedures that would have a materially adverse effect on the
Company's business. Failure to comply with the applicable regulatory
requirements can, among other things, result in fines, suspensions of regulatory
approvals, product recalls, operating restrictions and criminal prosecution.
The Company's success in the generic drug market depends, in part, on its
ability to obtain FDA approval of ANDAs for its new products, as well as its
ability to procure a continuous supply of raw materials and to validate the
manufacturing processes used to produce consistent test batches for FDA
approval. Sources for certain materials for the Company's products must be
approved by the FDA, and in many instances only one source has been approved. If
raw materials from a specified supplier were to become unavailable, the Company
would be required to file a supplement to its ANDA and revalidate the
manufacturing process using a new supplier's materials. This could cause a delay
of several months in the manufacture of the drug involved and the consequent
loss of potential revenue and market share. Additionally, there is often a time
lag, sometimes significant, between the receipt of ANDA approval and the actual
marketing of the approved product due to this validation process.
The Able Laboratories facility is subject to plant inspections by the FDA
to determine compliance with GMP standards. The Company could be subject to
fines and sanctions such as the suspension of manufacturing or the seizure of
drug products if it were found to be in non-compliance with GMP standards.
RAPID TECHNOLOGICAL ADVANCES AND COMPETITION. The therapeutic and
diagnostic markets in which the Company competes have undergone and can be
expected to continue to undergo rapid and significant technological advances.
There can be no assurance that the technological developments of others will not
render the Company's technology or products incorporating such technology either
uneconomical or obsolete. The Company competes with a number of specialized
biotechnology companies and major pharmaceutical companies. Most of these
companies have substantially greater financial, technical and human resources
and research and development staffs and facilities, as well as substantially
greater experience in conducting clinical trials, obtaining regulatory
approvals, and manufacturing and marketing products than does the Company. There
can be no assurance that the Company's products or proposed products will be
able to compete successfully.
In addition, with its newly acquired generic product line, the Company is
now competing in a new market with off-patent drug manufacturers, brand-name
pharmaceutical companies that manufacture off-patent drugs, the original
manufacturers of brand-name drugs and manufacturers of new drugs that may be
used for the same indications as the Company's products. There is no assurance
that the Company will compete successfully in this market. Revenues and gross
profit derived from generic pharmaceutical products tend to follow a pattern
based on regulatory and competitive factors unique to the generic pharmaceutical
industry. As patents for brand name products and related exclusivity periods
mandated by regulatory authorities expire, the first generic manufacturer to
receive regulatory approval for generic equivalents of such products is usually
able to achieve relatively high revenues and gross profit. As other generic
manufacturers receive regulatory approvals on competing products, prices and
revenues typically decline. Accordingly, the level of revenues and gross profit
attributable to generic products developed and manufactured by the Company is
dependent, in part, on its ability to develop and introduce new generic
products, the timing of regulatory approval of such products, and the number and
timing of regulatory approvals of competing products. In addition, competition
in the United States generic pharmaceutical market continues to intensify as the
pharmaceutical industry adjusts to increased pressures to contain health care
costs. Brand name companies are increasingly selling their products into the
generic market directly by acquiring or forming strategic alliances with generic
pharmaceutical companies. No regulatory approvals are required for a brand name
manufacturer to sell directly or through a third party to the generic market,
nor do such manufacturers face any other significant barriers to entry into such
market. These competitive factors may have a material adverse effect on the
Company's ability to sell its generic products.
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DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY. The Company owns certain
patents and has applied for other patents relating to its technology and
proposed products. No assurance can be given, however, whether pending patent
applications will be granted or whether any patents granted will be enforceable
or provide the Company with meaningful protection from competitors. Even if a
competitor were to infringe the Company's patents, the costs of enforcing its
patent rights may be substantial or even prohibitive. In addition, there can be
no assurance that the Company's proposed products will not infringe the patent
rights of others. The Company may be forced to expend substantial resources if
the Company is required to defend against any such infringement claims. The
Company also may desire or be required to obtain licenses from others in order
to further develop, produce and market commercially viable products effectively.
There can be no assurance that such licenses will be obtainable on commercially
reasonable terms, if at all, that the patents underlying such licenses will be
valid and enforceable or that the proprietary nature of the unpatented
technology underlying such licenses will remain proprietary. The Company also
relies on unpatented proprietary know-how and trade secrets, and employs various
methods including confidentiality agreements with employees, consultants,
manufacturing and marketing partners to protect its trade secrets and know-how.
However, such methods may not afford complete protection and there can be no
assurance that others will not independently develop such trade secrets and
know-how or obtain access thereto.
The manufacture and sale of certain products developed by the Company will
involve the use of processes, products or information, the rights to certain of
which are owned by others. Although the Company has obtained licenses with
regard to the use of certain such processes, products and information, there can
be no assurance that such licenses will not be terminated or expire during
critical periods, that the Company will be able to obtain licenses for other
rights which may be important to it, or, if obtained, that such licenses will be
obtained on commercially reasonable terms. If the Company is unable to obtain
such licenses, the Company may have to develop alternatives to avoid infringing
patents of others, potentially causing increased costs and delays in product
development and introduction, or precluding the Company from developing,
manufacturing or selling its proposed products. Additionally, there can be no
assurance that the patents underlying any licenses will be valid and
enforceable. To the extent any products developed by the Company are based on
licensed technology, royalty payments on the licenses will reduce the Company's
gross profit from such product sales and may render the sales of such products
uneconomical.
EARLY STAGE OF PRODUCT DEVELOPMENT. Several of the Company's proposed
products, including its specialty pharmaceuticals, are at an early stage of
development. The Company does not expect that its early stage products will be
available for a significant number of years, if at all. The early stage products
will require significant research and development, and potential products that
appear to be promising at early stages of development may not reach the market
for a number of reasons. Potential products may be found ineffective or cause
harmful side effects during preclinical testing or clinical trials, fail to
receive necessary regulatory approvals, be difficult to manufacture on a large
scale, be uneconomical to produce, fail to achieve market acceptance or be
precluded from commercialization by proprietary rights of third parties. There
can be no assurance that the Company's or its collaborative partners' product
development efforts will be successfully completed, that required regulatory
approvals will be obtained or that any products, if introduced, will be
successfully marketed or achieve customer acceptance.
UNCERTAINTY OF AVAILABILITY OF HEALTH CARE REIMBURSEMENTS. The ability of
the Company to maintain profitability in Superior's generic distribution
business or to commercialize its product candidates depends in part on the
extent to which reimbursement for the cost of such products will be available
from government health administration authorities, private health insurers and
other organizations. Third party payors are attempting to control costs by
limiting the level of reimbursement for medical products, including
pharmaceuticals, which may adversely effect the pricing of the Company's product
candidates. Moreover, health care reform has been, and may continue to be, an
area of national and state focus, which could result in the adoption of measures
which could adversely affect the pricing of pharmaceuticals or the amount of
reimbursement available from third party payors. There can be no assurance that
health care reimbursement laws or policies will not materially adversely affect
the Company's ability to sell its products profitably or prevent the Company
from realizing an appropriate return on its investment in product development.
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UNCERTAINTIES RELATED TO PRODUCT SUPPLIERS. Superior purchases its
products from several pharmaceutical manufacturers. If a manufacturer is unable
to supply a product or is unable to supply a product at a competitive price,
Superior may lose revenues or experience significantly reduced gross profit
margins. One or more of Superior's products could be subject to a manufacturer's
product recall due to manufacturing defects or other reasons. Such recalls would
result in lost revenues and additional costs to Superior. There can be no
assurance that Superior can maintain a continuous and uninterrupted supply of
products.
CUSTOMER CONCENTRATION; CONSOLIDATION OF DISTRIBUTION NETWORK. The
distribution network for pharmaceutical products has in recent years been
subject to increasing consolidation. As a result, a few large wholesale
distributors control a significant share of the market. In addition, the number
of independent drug stores and small chains has decreased as retail pharmacy
consolidation has occurred. Further consolidation among, or any financial
difficulties of, distributors or retailers could result in the combination or
elimination of warehouses, thereby stimulating product returns to Superior.
Consolidation or financial difficulties could cause customers to reduce their
inventory levels, or otherwise reduce purchases of Superior's products, which
could have a materially adverse effect on the Company's business, results of
operations and financial condition.
VOLATILITY OF STOCK PRICE. The market for securities of technology
companies, including those of the Company, has been highly volatile. The market
price of the Company's Common Stock has fluctuated between $70.00 and $1.25 from
January 1, 1993 to December 31, 1997 and was approximately $.38 on August 24,
1998, and it is likely that the price of the Common Stock will continue to
fluctuate widely in the future. Announcements of technical innovations, new
commercial products, results of clinical trials, regulatory approvals, patent or
proprietary rights or other developments by the Company or its competitors could
have a significant impact on the Company's business and the market price of the
Common Stock.
18
<PAGE> 19
DILUTION. At June 30, 1998, the net tangible book value of the Company's
Common Stock was ( $14,008,562), or approximately ($0.62) per share.
Purchasers of the Company's Common Stock offered hereby will experience
immediate and substantial dilution. See "Dilution."
19
<PAGE> 20
DILUTION
"Dilution" represents the difference between the assumed price to
public per share of Common Stock and the net tangible book value per share
immediately after the completion of this offering. "Net tangible book value
(deficit) per share" represents the amount of total tangible assets less total
liabilities and preferred stock at liquidation value, divided by the number of
shares of Common Stock outstanding.
As of June 30, 1998, the net tangible book value (deficit) of the
Company's Common Stock was $(14,008,562) or $(0.62) per share of Common Stock.
Assuming a price to the public of $.38 per share (based upon the last reported
sales price of the Common Stock on Nasdaq at August 24, 1998, there will be an
immediate dilution per share of $1.00 to new investors purchasing the Shares
offered hereby. The issuance of additional shares of Common Stock due to
decreases in the conversion price of Series C Stock and Series D Stock would
increase the dilutitive effect of this offering. See "Risk Factors -- Adverse
Consequences Associated with the Obligation to Issue Substantial Shares of
Common Stock Upon Conversion of Convertible Securities."
The following table illustrates the dilution per share described above:
<TABLE>
<S> <C>
Assumed price to public per share........................... $0.38
Net tangible book value (deficit) per share at June 30, 1998,
as defined above........................................ $(0.62)
Dilution to new investors................................... $1.00
</TABLE>
In August 1997, the Company issued the Series C Stock to one of the
Selling Stockholders (the "Series C Holder") for an aggregate purchase price of
$750,000 , as part of a private placement transaction. Each share of Series C
Stock is convertible into shares of Common Stock at any time at the option of
the Selling Stockholder holding such share, of Series C Stock, subject to
certain limitations, at a discount on the average of the closing bid price per
share of the Company's Common Stock for the five (5) consecutive trading days
ending immediately prior to the date the notice of conversion is received by the
Company. The Company also issued to the Series C Holder a warrant exercisable
for an aggregate of 250,000 shares of Common Stock at a purchase price per share
of $7.4609. The Company also agreed to issue up to $2,400,000, and the Series C
Holder agreed to purchase up to $4,800,000, of Series D Stock, in a series of
tranches commencing thirty (30) days after the effective date of the
Registration Statement of which this Prospectus forms a part and upon the
satisfaction as of each additional closing of certain conditions, including:
(a) The Company's giving five (5) days prior written notice;
(b) The principal amount of Series D Preferred Stock issued in each
tranche shall be not less than $200,000 nor in excess of $400,000;
(c) On each additional closing date;
(i) this Registration Statement shall be effective;
(ii) The representations and warranties contained in Section 3 of
the Series C Purchase Agreement shall be true and correct in all material
respects;
(iii) The average daily trading volume of the Common Stock for the
previous thirty (30) trading days shall exceed $100,000; and
(iv) The average daily share price of the Common Stock for the ten
trading days prior to any closing on a tranche of Series D Preferred Stock must
exceed 60% of the price per share on the closing date of the Series C Preferred
Stock, or on the immediately preceding additional closing date for the Series D
Preferred Stock, as applicable. The Series C Purchase agreement provides that if
the Company does not exercise its option to require the Series C Holder to
purchase at least $2,400,000 of Series D Stock, or the Series C Holder declines
to purchase such amount because either (i) the conditions to the Series C
Holder's obligation have not been satisfied or (ii) the time for the Series C
Holder's performance has been suspended, then the Company will issue to the
Series C Holder no later than 13 months after the effective date of this
Registration Statement a warrant to purchase 300,000 shares of Common Stock.
15,000 shares of Series D Stock have been issued. There can be no assurance that
the Company will be
20
<PAGE> 21
able to satisfy the conditions to the Series C Holder's obligation to
purchase additional shares of Series D Stock. The inability of the Company to
obtain additional financing would have a material adverse effect on its ability
to continue operations. See "Risk Factors -- "Financial Condition" and Future
Capital Needs; Uncertainty of Additional Financing; Possibility of Bankruptcy."
At June 30, 1998, the Company had outstanding options to purchase
2,000,000 shares of Common Stock, at exercise prices ranging between $.01 and
$.05 per share. At June 30, 1998, the Company also had outstanding warrants,
rights, convertible preferred stock and a convertible note which have exercise
or conversion prices ranging between $.125 and $.50, which if exercised would
result in the issuance of 22,435,000 shares of Common Stock.
USE OF PROCEEDS
The Company will receive no part of the proceeds from the sale of any
of the Shares by the Selling Stockholders. The Company received proceeds from
the sale of the Series C Stock and Series D Stock, which proceeds were applied
to working capital.
21
<PAGE> 22
SELLING STOCKHOLDERS
The following table sets forth information known to the Company
concerning the beneficial ownership of shares of Common Stock by each Selling
Stockholder as of the date of this Prospectus, the number of such shares
included for sale in this Prospectus by such Selling Stockholder and the
number of shares of Common Stock to be held by such Selling Stockholder after
the conclusion of this Offering, assuming the sale of all such Shares being
offered by this Prospectus. No Selling Stockholder has held any office or
maintained any material relationship with the Company or any of its predecessors
or affiliates over the past three years.
<TABLE>
<CAPTION>
Number of
Shares of
Number of Shares of Common Stock Number of Shares Percent of
Common Stock Owned to Owned Shares Owned
Names Prior to the Offering(1) be Sold After Offering After Offering
----- --------------------- ------------ ----------------- --------------
<S> <C> <C> <C> <C>
North Hampton Holdings, LLC 2,800,000 2,000,000(1) 800,000(1) *
1895 Mt. Hope Avenue
Rochester, NY 14620
USIS International Capital Corp. 950,000 950,000 0 --
5 Ari Drive
Wesley Hills, NY 10901
LBI Group, Inc. 270,000 270,000 0 --
10100 West Sample Road
Coral Spring, FL 33065
L.G. Zangani, Inc. 25,000 25,000 0 --
9 Main Street
Flemington, NJ 08822
The Endeavour Capital Fund S.A. 3,289,473(2) 3,289,473(3) 0 --
c/o Endeavour Management
14/14 Divrei Chaim Street
Jerusalem 94479
Israel
Sovereign Partners 1,363,636 1,363,636 0 --
90 Grove Street
Suite #01
Ridgefield, CT 06877
Dominion Capital Fund 1,551,406 1,551,406 0
c/o Citco Asset Management
Bahamas Financial Center
Shirley & Charlotte Streets
Nassau, Bahamas
Canadian Advantage LP 1,551,406 1,551,406 0 --
365 Bay Street, 10th Floor
Toronto, Ontario
M5H 2U2
Canada
Acentech Incorporated 60,000 60,000 0 --
33 Moulton Street
Cambridge, MA 02138
Leonard Gotshalk 150,000 150,000 0 --
1200 Butler Creek Road
Ashland, OR 97520
Fortress Financial 200,000 200,000 0 --
600 West Broadway
San Diego, CA 92101
Venture Partners Capital LLC 150,000 150,000 0 --
1224 Mill Street
East Berlin, CT 06023
</TABLE>
* less than one percent
- --------------------
(1) Includes, pursuant to the rules of the Commission, shares of Common
Stock which each Selling Stockholder has a right to acquire within 60
days upon conversion of Preferred Stock or upon the exercise of the
warrants held by such Selling Stockholder. Shares of Series C Stock and
Series D Stock are convertible into Common Stock at a discount on the
average market price for the Common Stock for the five consecutive
trading days immediately preceding the date on which the stock is
converted. In addition, pursuant to the terms of the Series C Stock and
Series D Stock, the conversion rights of the holders of Preferred
Stock are limited in that the number of shares of Common Stock thereby
issuable, together with the number of shares of Common Stock then held
by such holder and its affiliates, may not exceed 4.9% of the then
outstanding Common Stock of the Company, as determined in accordance
with Section 13(d) of the Exchange Act.
(2) Consists of shares of Common Stock included in this Offering issuable
upon conversion of the Series C Stock and Series D Stock held by the
Selling Stockholder.
(3) The actual number of shares set forth represents an estimate of the
number of shares of Common Stock to be offered by the Selling
Stockholder. The actual number of shares of common stock issuable upon
conversion of the Series C Stock or Series D Stock is indeterminate,
is subject to adjustment and could be materially less or more than such
estimated number depending on a number of factors which cannot be
predicted by the Company at this time, including among other factors,
the future market price of the Common Stock. The actual number of
shares of Common Stock offered hereby, and included in the Registration
Statement of which this Prospectus is a part, includes such additional
shares of Common Stock as may be issued or issuable upon conversion of
the Series C Stock and Series D Stock by reason of the floating rate
conversion price mechanism or other adjustment mechanisms described
therein, or by reason of any stock split, stock dividend or similar
transaction involving the Common Stock, in order to prevent dilution,
in accordance with Rule 416 under the Securities Act.
PLAN OF DISTRIBUTION
The distribution of the Shares by the Selling Stockholders or their
respective pledgees, donees, transferees, or other successors in interest may be
effected in one or more transactions that may take place on the Nasdaq SmallCap
Market, the Boston Stock Exchange, the OTC Bulletin Board, in the
over-the-counter market, or in such other markets on which the Company's
securities may from time to time be trading, including ordinary broker's
transactions or through sales to one or more dealers for resale of the Shares as
principals, in privately negotiated
22
<PAGE> 23
transactions, through the writing of options on the Shares (whether such
options are listed on an options exchange or otherwise) or by a combination of
such methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. If any Selling Stockholder effects such
transactions by selling the Shares through underwriters, dealers or agents, such
underwriters, dealers or agents may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Stockholders
and/or the purchasers of the Shares for whom they may act as agent. Any such
Selling Stockholder and any such underwriters, dealers or agents that
participate in the distribution of the Shares may be deemed to be underwriters,
and any profit on the sale of the Shares by them and any discounts, commissions
or concessions received by them may be deemed to be underwriting discounts and
commissions under the Securities Act. Shares may also be sold pursuant to Rule
144 under the Securities Act. Brokers or dealers acting in connection with the
sale of the Shares may receive fees or commissions in connection therewith. The
Company will not receive any of the proceeds from the sale of the Shares by the
Selling Stockholders.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of shares of Common Stock may not
simultaneously engage in market making activities with respect to such shares of
Common Stock for a period of up to five business days prior to the commencement
of such distribution, subject to certain exceptions. In addition and without
limiting the foregoing, the Selling Stockholder and any other person
participating in the distribution of the Shares will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including, without limitation, Rule 10b-5 and Regulation M, which provisions may
limit the time of purchases and sales of any Shares by the Selling Stockholder
or any other such person. All of the foregoing may affect the marketability of
the Shares.
The Company has agreed with one of the Selling Stockholders to file the
Registration Statement of which this Prospectus is a part with the Commission,
and has agreed to keep the Registration Statement effective until August 21,
1999 or such earlier time as all of such Selling Stockholder's Shares have been
sold. The Company will pay all of the expenses incidental to the registration of
the Shares and certain other expenses related to the offering. The Company has
agreed to indemnify the Selling Stockholder against certain liabilities they may
incur in connection with the issuance and sale of the Shares, including
liabilities under the Securities Act. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the Company has agreed to
make the maximum contribution with respect to any amounts for which it would
otherwise be liable under such indemnification provision to the fullest extent
permitted by law.
In order to comply with certain states' securities laws, if applicable,
the Shares may be sold in such jurisdictions only through registered or licensed
brokers or dealers. In certain states, the Shares may not be sold unless the
Shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.
LEGAL MATTERS
Certain legal matters with respect to the validity of the securities
offered hereby will be passed upon for the Company by Foley, Hoag & Eliot LLP.
23
<PAGE> 24
EXPERTS
The Company's consolidated balance sheets as of December 31, 1997 and
December 31, 1996 and the related consolidated statements of loss, changes in
stockholders' equity and cash flows for the year ended December 31, 1997, the
six months ended December 31, 1996 and the years ended June 30, 1996 and 1995
incorporated by reference in this Prospectus, have been audited by Wolf &
Company, P.C., independent auditors, and are incorporated in reliance on the
report of such firm, given on their authority as experts in accounting and
auditing.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
24
<PAGE> 25
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an estimate of the expenses expected to
be incurred in connection with the issuance and distribution of the securities
being registered:
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission..............$ 901.75
Nasdaq SmallCap Market additional listing fee....................... 7,500.00
Boston Stock Exchange additional listing fee........................ 5,000.00
Blue Sky Fees and Expenses.......................................... 1,000.00
Accounting Fees and Expenses........................................ 2,000.00
Legal Fees and Expenses............................................. 30,000.00
Transfer Agent Fees and Expenses.................................... 1,000.00
Miscellaneous....................................................... 2,598.25
----------
TOTAL....................................$50,000.00
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(A) The Company is a Delaware corporation. Section 145 of the Delaware
General Corporation Law, as amended, provides in regard to indemnification of
directors and officers as follows:
"(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
25
<PAGE> 26
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in subsections
(a) and (b) of this section. Such determination shall be made, with respect to a
person who is a director or officer at the time of such determination, (1) by
the board of directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (2) by a committee
of such directors designated by majority vote of such directors, even though
less than a quorum, or (3) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (included attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses (including
attorneys' fees) incurred by former director or officers or employees and agents
may be so paid upon such terms and conditions, if any, as the corporation deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such,
26
<PAGE> 27
whether or not the corporation would have the power to indemnify such person
against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents so that
any person who was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses."
(B) Article 9 of the Company's Certificate of Incorporation contains
the following provision relating to the indemnification of directors and
officers:
"To the maximum extent permitted by Section 102(b)(7) of the General
Corporation Law of Delaware, a director of this Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit."
27
<PAGE> 28
(C) Article VII of the Company's By-laws contains the following
provisions relating to indemnification of officers and directors:
"Reference is made to Section 145 and any other relevant provisions of
the General Corporation Law of the State of Delaware. Particular reference is
made to the class of persons, hereinafter called "Indemnitees," who may be
indemnified by a Delaware corporation pursuant to the provisions of such Section
145, namely, any person or the heirs, executors, or administrators of such
person, who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, by reason of the fact that such
person is or was a director, officer, employee, or agent of such corporation or
is or was serving at the request of such corporation as a director, officer,
employee, or agent of such corporation or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, or other enterprise. The
Corporation shall, and is hereby obligated to, indemnify the Indemnitees, and
each of them in each and every situation where the Corporation is obligated to
make such indemnification pursuant to the aforesaid statutory provisions. The
Corporation shall indemnify the Indemnitees, and each of them, in each and every
situation where, under the aforesaid statutory provisions, the Corporation is
not obligated, but is nevertheless permitted or empowered, to make such
indemnification, it being understood that, before making such indemnification
with respect to any situation covered under this sentence, (i) the Corporation
shall promptly make or cause to be made, by any of the methods referred to in
Subsection (d) of such Section 145, a determination as to whether each
Indemnitee acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of the Corporation, and, in the case of
any criminal action or proceeding, had no reasonable cause to believe that his
conduct was unlawful, and (ii) that no such indemnification shall be made unless
it is determined that such Indemnitee acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, in the case of any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful."
The effect of these provisions would be to permit indemnification by
the Company of for, among other liabilities, liabilities arising under the
Securities Act of 1933 (the "Securities Act").
ITEM 16. EXHIBITS.
The following exhibits, required by Item 601 of Regulation S-K, are
filed as a part of this Registration Statement. Exhibit numbers, where
applicable, in the left column correspond to those of Item 601 of Regulation
S-K.
<TABLE>
<CAPTION>
Exhibit No. Item and Reference
<S> <C>
4a -- Specimen Common Stock Certificate (filed as Exhibit 4a
to the Company's Registration Statement on Form S-1, No.
33-31836-B and incorporated by reference).
4b -- Certificate of Designations, Preferences and Rights of
Series C Preferred Stock of the Company (filed as
Exhibit 3b to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997 and
incorporated by reference).
4c -- Form of Securities Purchase Agreement among the Company
and Endeavor Capital Fund S.A. (filed as Exhibit 4d to
the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1997 and incorporated
by reference).
4d -- Registration Rights Agreement dated August 21, 1997
among the Company and Endeavor Capital Fund S.A. (filed
as Exhibit 4 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997 and
incorporated by reference).
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <C>
4e -- Certificate of Designations, Preferences and Rights of
Series D Preferred Stock of the Company (filed as
Exhibit 3c to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997 and
incorporated by reference).
4f -- Agreement dated March 19, 1998 with Endeavour Capital
Fund S.A. (filed as Exhibit 4d to the Company's Report
on Form 10-Q for the quarter ended March 31, 1998 and
incorporated herein by reference)
4g -- Warrant Dated August 21, 1998 in the name of North
Hampton Holdings, LLC to Purchase 2,500,000 shares of
Common Stock
4h -- Warrant Dated August 21, 1998 in the name of USIS
International Capital Corp. to Purchase 750,000 shares
of Common Stock
4i -- Warrant Dated August 1, 1998 in the name of Fortress
Financial to Purchase 200,000 shares of Common Stock
4j -- Warrant in the name of LBI Group, Inc. to purchase
400,000 shares of Common Stock (Filed as Exhibit 4d the
Company's Quarterly Report on Form 10-Q and
incorporated herein by reference)
5.1 -- Opinion of Foley, Hoag & Eliot LLP
23a -- Consent of Wolf & Company, P.C. dated August 25, 1998
23b -- Consent of Grant Thornton LLP dated August 25, 1998
23c -- Consent of Foley, Hoag & Eliot LLP (See Exhibit 5)
24 -- Power of Attorney (previously filed)
</TABLE>
29
<PAGE> 30
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant
to section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes that for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A, and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h), under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective.
(d) The undersigned registrant hereby undertakes that for the purpose
of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein,
30
<PAGE> 31
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Cambridge, Commonwealth of Massachusetts on
August 25, 1998.
DYNAGEN, INC.
By: /s/ DHANANJAY G. WADEKAR
-----------------------------
Dhananjay G. Wadekar
Executive Vice President
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Name Capacity Date
- ---- -------- ----
/s/ Dhananjay G. Wadekar Executive Vice President and August 25, 1998
- ------------------------ Director
Dhananjay G. Wadekar
31
<PAGE> 32
<TABLE>
<S> <C> <C>
/s/ Indu A. Muni* President, Chief Executive Officer, August 25, 1998
- ------------------------ Treasurer, (Principal Executive,
Dr. Indu A. Muni Financial and Accounting Officer)
and Director
/s/ F. Howard Schneider* Director August 25, 1998
- ------------------------
Dr. F. Howard Schneider
/s/ Steven Georgiev* Director August 25, 1998
- ------------------------
Steven Georgiev
/s/ Robert Cusick Chairman of the Board of Directors August 25, 1998
- ------------------------
</TABLE>
32
/s/ Dhananjay G. Wadekar
- ---------------------------
*By Dhananjay G. Wadekar,
as attorney-in-fact
<PAGE> 33
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
<S> <C>
4a -- Specimen Common Stock Certificate (filed as Exhibit 4a
to the Company's Registration Statement on Form S-1, No.
33-31836-B and incorporated by reference).
4b -- Certificate of Designations, Preferences and Rights of
Series C Preferred Stock of the Company (filed as
Exhibit 3b to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997 and
incorporated by reference).
4c -- Form of Securities Purchase Agreement among the Company
and Endeavor Capital Fund S.A. (filed as Exhibit 4d to
the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1997 and incorporated
by reference).
4d -- Registration Rights Agreement dated August 21, 1997
among the Company and Endeavor Capital Fund S.A. (filed
as Exhibit 4 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997 and
incorporated by reference).
4e -- Certificate of Designations, Preferences and Rights of
Series D Preferred Stock of the Company (filed as
Exhibit 3c to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997 and
incorporated by reference).
4f -- Agreement dated March 19, 1998 with Endeavour Capital
Fund S.A. (filed as Exhibit 4d to the Company's Report
on Form 10-Q for the quarter ended March 31, 1998 and
incorporated herein by reference)
4g -- Warrant Dated August 21, 1998 in the name of North
Hampton Holdings, LLC to Purchase 2,500,000 shares of
Common Stock
4h -- Warrant Dated August 21, 1998 in the name of USIS
International Capital Corp. to Purchase 750,000 shares
of Common Stock
4i -- Warrant Dated August 1, 1998 in the name of Fortress
Financial to Purchase 200,000 shares of Common Stock
4j -- Warrant in the name of LBI Group, Inc. to purchase
400,000 shares of Common Stock (Filed as Exhibit 4d the
Company's Quarterly Report on Form 10-Q and
incorporated herein by reference)
5.1 -- Opinion of Foley, Hoag & Eliot LLP
23a -- Consent of Wolf & Company, P.C. dated August 25, 1998
23b -- Consent of Grant Thornton LLP dated August 25, 1998
23c -- Consent of Foley, Hoag & Eliot LLP (See Exhibit 5)
24 -- Power of Attorney (previously filed)
</TABLE>
33
<PAGE> 1
EXHIBIT 4g
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER
THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE
APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 p.m. Eastern Standard Time, on June 30, 2001.
WARRANT TO PURCHASE COMMON STOCK
OF
DYNAGEN, INC.
FOR VALUE RECEIVED, DYNAGEN, INC., a Delaware corporation (the "Company"),
hereby certifies that North Hampton Holdings, LLC, or its permitted assigns, is
entitled to purchase from the Company, at any time or from time to time
commencing on August 21, 1998 and prior to 5:00 P.M., Eastern Standard Time, on
June 30, 2001, a total of Two Million Five Hundred Thousand (2,500,000) fully
paid and nonassessable shares of the common stock, par value $.01 per share, of
the Company for an aggregate purchase price of $0.50 per share. (Hereinafter,
(i) said common stock, together with any other equity securities which may be
issued by the Company with respect thereto or in substitution therefor, is
referred to as the "Common Stock", (ii) the shares of the Common Stock
purchasable hereunder are referred to as the "Warrant Shares", (iii) the
aggregate purchase price payable hereunder for the Warrant Shares is referred to
as the "Aggregate Warrant Price", (iv) the price payable hereunder for each of
the Warrant Shares is referred to as the "Exercise Price", (v) this Warrant, and
all warrants hereafter issued in exchange or substitution for this Warrant are
referred to as the "Warrant" and (vi) the holder of this Warrant is referred to
as the "Holder".) The Exercise Price is subject to adjustment as hereinafter
provided.
1. Exercise of Warrant.
(a) Exercise. This Warrant may be exercised, in whole at any time or in
part from time to time, commencing on August 21, 1998 and prior to 5:00 P.M.,
Eastern Standard Time on June 30, 2001, by the Holder of this Warrant by the
surrender of this Warrant (with the subscription form at the end hereof duly
executed) at the address set forth in Section 7(a) hereof, together with proper
payment of the Aggregate Warrant Price, or the proportionate part thereof if
this Warrant is exercised in part. Payment for Warrant Shares shall be made by
certified or official bank check payable to the order of the Company. If this
Warrant is exercised in part, the Holder is entitled to receive a new Warrant
covering the number of Warrant Shares in respect of which this Warrant has not
been exercised and setting forth the proportionate part of the
<PAGE> 2
Aggregate Warrant Price applicable to such Warrant Shares. Upon such surrender
of this Warrant, the Company will (a) issue a certificate or certificates in the
name of the Holder for the largest number of whole shares of the Common Stock to
which the Holder shall be entitled if this Warrant is exercised in whole and (b)
deliver the proportionate part thereof if this Warrant is exercised in part,
pursuant to the provisions of the Warrant. In lieu of any fractional share of
the Common Stock which would otherwise be issuable in respect to the exercise of
the Warrant, the Company at its option (a) may pay in cash an amount equal to
the product of (i) the daily mean average of the Closing Price of a share of
Common Stock on the ten consecutive trading days before the Conversion Date and
(ii) such fraction of a share or (b) may issue an additional share of Common
Stock.
Upon exercise of the Warrant, the Company shall issue and deliver to
the Holder certificates for the Common Stock issuable upon such exercise within
ten business days after such exercise and the person exercising shall be deemed
to be the holder of record of the Common Stock issuable upon such exercise.
No warrant granted herein shall be exercisable after 5:00 p.m. Eastern
Standard Time on the third anniversary of the date of issuance.
(b) Net Issuance. Notwithstanding anything to the contrary contained in
Subsection 1(a) hereof, in the case of any exercise on or prior to June 30, 2001
the Holder may elect to exercise this Warrant in whole or in part by receiving
shares of Common Stock equal to the net issuance value (as determined below) of
this Warrant, or any part hereof, upon surrender of this Warrant at the
principal office of the Company together with notice of such election (with the
form at the end hereof duly executed), in which event the Company shall issue to
the Holder a number of shares of Common Stock computed using the following
formula:
X= Y (A-B)
------
A
Where: X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock as to which this
Warrant is to be exercised
A = the current fair market value of one share of Common
Stock calculated as of the last trading day immediately
preceding the exercise of this warrant
B = the Exercise Price
2
<PAGE> 3
(c) Certain Adjustments
The Exercise Price and the number of Warrant Shares shall be equitable
adjusted from time to time to account for stock splits, stock dividends,
combinations, recapitalizations, reclassifications and similar events.
As used herein, current fair market value of the Common Stock as of a
specified date shall mean with respect to each share of Common Stock the average
of the closing bid prices of the Common Stock on the principal securities market
on which the Common Stock may at the time be traded over a period of five
business days consisting of the day as of which the current fair market value of
a share of Common Stock is being determined (or if such day is not a business
day, the business day next preceding such day) and the four consecutive business
days prior to such day. If on the date for which current fair market value is to
be determined the Common Stock is not eligible for trading on any securities
market, the current fair market value of Common Stock shall be the highest price
per share which the Company could then obtain from a willing buyer (not a
current employee or director) for shares of Common Stock sold by the Company,
from authorized but unissued shares, as determined in good faith by the Board of
Directors of the Company, which determination shall be conclusive, unless prior
to such date the Company has become subject to a merger, acquisition or other
consolidation pursuant to which the Company is not the surviving party, in which
case the current fair market value of the Common Stock shall be deemed to be the
value received by the holders of the Company's Common Stock for each share
thereof pursuant to the Company's acquisition.
2. Reservation of Warrant Shares. The Company agrees that, prior to the
expiration of this Warrant, the Company will at all times have authorized and
reserved, and will keep available, solely for issuance or delivery upon the
exercise of this Warrant, the number of shares of the Common Stock as from time
to time shall be receivable upon the exercise of this Warrant.
3. Fully Paid Stock: Taxes. The Company agrees that the shares of the
Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not subject
to preemptive rights, and the Company will take all such actions as may be
necessary to assure that the par value or stated value, if any, per share of the
Common Stock is at all times equal to or less than the then Exercise Price. The
Company further covenants and agrees that it will pay, when due and payable, any
and all Federal and state stamp, original issue or similar taxes that may be
payable in respect of the issue of any Warrant Share or certificate therefor.
4. Transfer.
(a) Securities Laws. Neither this Warrant nor the Warrant
Shares issuable upon the exercise hereof have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under any state
securities laws and unless so registered may not be
3
<PAGE> 4
transferred, sold, pledged, hypothecated or otherwise disposed of unless an
exemption from such registration is available. In the event Holder desires to
transfer this Warrant or any of the Warrant Shares issued, the Holder must give
the Company prior written notice of such proposed transfer including the name
and address of the proposed transferee. Such transfer may be made only either
(i) upon publication by the Securities and Exchange Commission (the
"Commission") of a ruling, interpretation, opinion or "no action letter" based
upon facts presented to said Commission, or (ii) upon receipt by the Company of
an opinion of counsel to the Company in either case to the effect that the
proposed transfer will not violate the provisions of the Securities Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the rules
and regulations promulgated under either such act, or in the case of clause (ii)
above, to the effect that the Warrant or Warrant Shares to be sold or
transferred has been registered under the Securities Act and that there is in
effect a registration statement in which is included a prospectus meeting the
requirements of Subsection 10 (a) of the Securities Act, which is being or will
be delivered to the purchaser or transferee at or prior to the time of delivery
of the certificates evidencing the Warrant or Warrant Stock to be sold or
transferred.
(b) Conditions to Transfer. Prior to any such proposed
transfer, and as a condition thereto, if such transfer is not made pursuant to
an effective registration statement under the Securities Act, the Holder will,
if requested by the Company, deliver to the Company (i) an investment covenant
signed by the proposed transferee, (ii) an agreement by such transferee to the
impression of the restrictive investment legend set forth herein on the
certificate or certificates representing the securities acquired by such
transferee, (iii) an agreement by such transferee that the Company may place a
"stop transfer order" with its transfer agent or registrar, and (iv) an
agreement by the transferee to indemnify the Company to the same extent as set
forth in the next succeeding paragraph.
(c) Indemnity. The Holder acknowledges that the Holder
understands the meaning and legal consequences of this Section 6, and the Holder
hereby agrees to indemnify and hold harmless the Company, its representatives
and each officer and director thereof from and against any and all loss, damage
or liability (including all attorneys' fees and costs incurred in enforcing this
indemnity provision) due to or arising out of (a) the inaccuracy of any
representation or the breach of any warranty of the Holder contained in, or any
other breach of, this warrant, (b) any transfer of the Warrant or any of the
Warrant Shares in violation of the Securities Act, the Exchange Act or the rules
and regulations promulgated under either of such acts, (c) any transfer of the
Warrant or any of the Warrant Shares not in accordance with this Warrant or (d)
any untrue statement or omission to state any material fact in connection with
the investment representations or with respect to the facts and representations
supplied by the Holder to counsel to the Company upon which its opinion as to a
proposed transfer shall have been based.
(d) Transfer. Except as restricted hereby, this Warrant and
the Warrant Shares issued may be transferred by the Holder in whole or in part
at any time or from time to time. Upon surrender of this Warrant to the Company
or at the office of its stock transfer agent, if any,
4
<PAGE> 5
with assignment documentation duly executed and funds sufficient to pay any
transfer tax, and upon compliance with the foregoing provisions, the Company
shall, without charge, execute and deliver a new Warrant in the name of the
assignee named in such instrument of assignment, and this Warrant shall promptly
be canceled. Any assignment, transfer, pledge, hypothecation or other
disposition of this Warrant attempted contrary to the provisions of this
Warrant, or any levy of execution, attachment or other process attempted upon
the Warrant, shall be null and void and without effect.
(e) Legend and Stop Transfer Orders. Unless the Warrant Shares
have been registered under the Securities Act, upon exercise of any part of the
Warrant and the issuance of any of the Warrant Shares, the Company shall
instruct its transfer agent to enter stop transfer orders with respect to such
shares, and all certificates representing Warrant Shares shall bear on the face
thereof substantially the following legend, insofar as is consistent with
Massachusetts law:
"The shares of common stock represented by this certificate have not
been registered under the Securities Act of 1933, as amended, and may
not be sold, offered for sale, assigned, transferred or otherwise
disposed of unless registered pursuant to the provisions of that Act or
an opinion of counsel to the Company is obtained stating that such
disposition is in compliance with an available exemption from such
registration."
5. Loss, etc. of Warrant. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of an
unsecured indemnity from the Holder reasonably satisfactory to the Company, if
lost, stolen or destroyed, and upon surrender and cancellation of the Warrant,
if mutilated, the Company shall execute and deliver to the Holder a new Warrant
of like date, tenor and denomination.
6. Warrant Holder Not Shareholder. Except as otherwise provided herein,
this Warrant does not confer upon the Holder any right to vote or to consent to
or receive notice as a shareholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a shareholder, prior
to the exercise hereof.
7. Communication. No notice or other communication under this Warrant
shall be effective unless the same is in writing and is mailed by certified
mail, return receipt requested, addressed to:
(a) the Company at 840 Memorial Drive, Cambridge, MA 02139, or
such other address as the Company has designated in writing to the Holder, with
a copy to David A. Broadwin, Foley, Hoag & Eliot LLP, One Post Office Square,
Boston, Massachusetts 02109, or
(b) the Holder at 1895 Mt. Hope Avenue, Rochester, NY 14620,
or such other address as the Holder has designated in writing to the Company.
5
<PAGE> 6
Any notice given hereunder shall be effective upon the earlier of (i)
receipt, or (ii) a date three days from the date of posting.
8. Headings. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof
9. Applicable Law. This Warrant shall be governed by and construed in
accordance with the law of The Commonwealth of Massachusetts without giving
effect to the principles of conflicts of law thereof.
IN WITNESS WHEREOF, DYNAGEN, INC. has caused this Warrant to be signed
by its President and Chief Executive Officer and its corporate seal to be
hereunto affixed and attested by its Secretary as of the 21st day of August,
1998.
ATTEST: DYNAGEN, INC.
_______________________ By: /s/ Dhananjay Wadekar
[Corporate Seal]
6
<PAGE> 7
SUBSCRIPTION
The undersigned, _______________________________________, pursuant to
the provisions of the foregoing Warrant, hereby agrees to subscribe for the
purchase of ________ shares of the Common Stock of DYNAGEN, INC. covered by said
Warrant, and makes payment therefor in full at the price per share provided by
said Warrant.
Dated:____________________________ Signature:_________________________________
Address:__________________________
__________________________
__________________________
ASSIGNMENT
FOR VALUE RECEIVED ___________________________ hereby sells, assigns
and transfers unto ______________________________ the foregoing Warrant and all
rights evidenced thereby, and does irrevocably constitute and appoint
_____________________, attorney, to transfer said Warrant on the books of
DYNAGEN, INC..
Dated:____________________________ Signature:_________________________________
Address:___________________________
___________________________________
___________________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _________________________ hereby sells, assigns and transfers
unto ___________________________ the right to purchase _________ shares of the
Common Stock of DYNAGEN, INC. by the foregoing Warrant, and a proportionate part
of said Warrant and the rights evidenced hereby, and does irrevocably constitute
and appoint ___________________________________, attorney, to transfer that part
of said Warrant on the books of DYNAGEN, INC.
Dated:____________________________ Signature:_________________________________
7
<PAGE> 8
Address:___________________________
___________________________________
___________________________________
NET ISSUANCE ELECTION
The undersigned, _______________________________, pursuant to the
provisions of the foregoing Warrant, hereby tenders the right to purchase _____
shares of the Common Stock of DYNAGEN, INC., and a proportionate part of said
Warrant and the rights evidenced thereby, in exchange for a number of shares of
said Common Stock to be computed in accordance with the provisions of Section 1
(b) of said Warrant.
Dated:____________________________ Signature:_________________________________
Address:___________________________
___________________________________
___________________________________
8
<PAGE> 1
EXHIBIT 4h
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER
THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE
APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 p.m. Eastern Standard Time, on June 30, 1999.
WARRANT TO PURCHASE COMMON STOCK
OF
DYNAGEN, INC.
FOR VALUE RECEIVED, DYNAGEN, INC., a Delaware corporation (the "Company"),
hereby certifies that USIS International Capital Corp., or its permitted
assigns, is entitled to purchase from the Company, at any time or from time to
time commencing on August 1, 1998 and prior to 5:00 P.M., Eastern Standard Time,
on June 30, 1999, a total of Seven Hundred Fifty Thousand (750,000) fully paid
and nonassessable shares of the common stock, par value $.01 per share, of the
Company for an aggregate purchase price of $0.15 per share. (Hereinafter, (i)
said common stock, together with any other equity securities which may be issued
by the Company with respect thereto or in substitution therefor, is referred to
as the "Common Stock", (ii) the shares of the Common Stock purchasable hereunder
are referred to as the "Warrant Shares", (iii) the aggregate purchase price
payable hereunder for the Warrant Shares is referred to as the "Aggregate
Warrant Price", (iv) the price payable hereunder for each of the Warrant Shares
is referred to as the "Exercise Price", (v) this Warrant, and all warrants
hereafter issued in exchange or substitution for this Warrant are referred to as
the "Warrant" and (vi) the holder of this Warrant is referred to as the
"Holder".) The Exercise Price is subject to adjustment as hereinafter provided.
1. Exercise of Warrant.
(a) Exercise. This Warrant may be exercised, in whole at any time or in
part from time to time, commencing on August 21, 1998 and prior to 5:00 P.M.,
Eastern Standard Time on June 30, 1999, by the Holder of this Warrant by the
surrender of this Warrant (with the subscription form at the end hereof duly
executed) at the address set forth in Section 7(a) hereof, together with proper
payment of the Aggregate Warrant Price, or the proportionate part thereof if
this Warrant is exercised in part. Payment for Warrant Shares shall be made by
certified or official bank check payable to the order of the Company. If this
Warrant is exercised in part, the Holder is entitled to receive a new Warrant
covering the number of Warrant Shares in respect of which this Warrant has not
been exercised and setting forth the proportionate part of the
<PAGE> 2
Aggregate Warrant Price applicable to such Warrant Shares. Upon such surrender
of this Warrant, the Company will (a) issue a certificate or certificates in the
name of the Holder for the largest number of whole shares of the Common Stock to
which the Holder shall be entitled if this Warrant is exercised in whole and (b)
deliver the proportionate part thereof if this Warrant is exercised in part,
pursuant to the provisions of the Warrant. In lieu of any fractional share of
the Common Stock which would otherwise be issuable in respect to the exercise of
the Warrant, the Company at its option (a) may pay in cash an amount equal to
the product of (i) the daily mean average of the Closing Price of a share of
Common Stock on the ten consecutive trading days before the Conversion Date and
(ii) such fraction of a share or (b) may issue an additional share of Common
Stock.
Upon exercise of the Warrant, the Company shall issue and deliver to
the Holder certificates for the Common Stock issuable upon such exercise within
ten business days after such exercise and the person exercising shall be deemed
to be the holder of record of the Common Stock issuable upon such exercise.
No warrant granted herein shall be exercisable after 5:00 p.m. Eastern
Standard Time on the third anniversary of the date of issuance.
(b) Net Issuance. Notwithstanding anything to the contrary contained in
Subsection 1(a) hereof, in the case of any exercise on or prior to June 30, 1999
the Holder may elect to exercise this Warrant in whole or in part by receiving
shares of Common Stock equal to the net issuance value (as determined below) of
this Warrant, or any part hereof, upon surrender of this Warrant at the
principal office of the Company together with notice of such election (with the
form at the end hereof duly executed), in which event the Company shall issue to
the Holder a number of shares of Common Stock computed using the following
formula:
X= Y (A-B)
------
A
Where: X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock as to which this
Warrant is to be exercised
A = the current fair market value of one share of Common
Stock calculated as of the last trading day immediately
preceding the exercise of this warrant
B = the Exercise Price
2
<PAGE> 3
(c) Certain Adjustments
The Exercise Price and the number of Warrant Shares shall be equitable
adjusted from time to time to account for stock splits, stock dividends,
combinations, recapitalizations, reclassifications and similar events.
As used herein, current fair market value of the Common Stock as of a
specified date shall mean with respect to each share of Common Stock the average
of the closing bid prices of the Common Stock on the principal securities market
on which the Common Stock may at the time be traded over a period of five
business days consisting of the day as of which the current fair market value of
a share of Common Stock is being determined (or if such day is not a business
day, the business day next preceding such day) and the four consecutive business
days prior to such day. If on the date for which current fair market value is to
be determined the Common Stock is not eligible for trading on any securities
market, the current fair market value of Common Stock shall be the highest price
per share which the Company could then obtain from a willing buyer (not a
current employee or director) for shares of Common Stock sold by the Company,
from authorized but unissued shares, as determined in good faith by the Board of
Directors of the Company, which determination shall be conclusive, unless prior
to such date the Company has become subject to a merger, acquisition or other
consolidation pursuant to which the Company is not the surviving party, in which
case the current fair market value of the Common Stock shall be deemed to be the
value received by the holders of the Company's Common Stock for each share
thereof pursuant to the Company's acquisition.
2. Reservation of Warrant Shares. The Company agrees that, prior to the
expiration of this Warrant, the Company will at all times have authorized and
reserved, and will keep available, solely for issuance or delivery upon the
exercise of this Warrant, the number of shares of the Common Stock as from time
to time shall be receivable upon the exercise of this Warrant.
3. Fully Paid Stock: Taxes. The Company agrees that the shares of the
Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not subject
to preemptive rights, and the Company will take all such actions as may be
necessary to assure that the par value or stated value, if any, per share of the
Common Stock is at all times equal to or less than the then Exercise Price. The
Company further covenants and agrees that it will pay, when due and payable, any
and all Federal and state stamp, original issue or similar taxes that may be
payable in respect of the issue of any Warrant Share or certificate therefor.
4. Transfer.
(a) Securities Laws. Neither this Warrant nor the Warrant
Shares issuable upon the exercise hereof have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under any state
securities laws and unless so registered may not be
3
<PAGE> 4
transferred, sold, pledged, hypothecated or otherwise disposed of unless an
exemption from such registration is available. In the event Holder desires to
transfer this Warrant or any of the Warrant Shares issued, the Holder must give
the Company prior written notice of such proposed transfer including the name
and address of the proposed transferee. Such transfer may be made only either
(i) upon publication by the Securities and Exchange Commission (the
"Commission") of a ruling, interpretation, opinion or "no action letter" based
upon facts presented to said Commission, or (ii) upon receipt by the Company of
an opinion of counsel to the Company in either case to the effect that the
proposed transfer will not violate the provisions of the Securities Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the rules
and regulations promulgated under either such act, or in the case of clause (ii)
above, to the effect that the Warrant or Warrant Shares to be sold or
transferred has been registered under the Securities Act and that there is in
effect a registration statement in which is included a prospectus meeting the
requirements of Subsection 10 (a) of the Securities Act, which is being or will
be delivered to the purchaser or transferee at or prior to the time of delivery
of the certificates evidencing the Warrant or Warrant Stock to be sold or
transferred.
(b) Conditions to Transfer. Prior to any such proposed
transfer, and as a condition thereto, if such transfer is not made pursuant to
an effective registration statement under the Securities Act, the Holder will,
if requested by the Company, deliver to the Company (i) an investment covenant
signed by the proposed transferee, (ii) an agreement by such transferee to the
impression of the restrictive investment legend set forth herein on the
certificate or certificates representing the securities acquired by such
transferee, (iii) an agreement by such transferee that the Company may place a
"stop transfer order" with its transfer agent or registrar, and (iv) an
agreement by the transferee to indemnify the Company to the same extent as set
forth in the next succeeding paragraph.
(c) Indemnity. The Holder acknowledges that the Holder
understands the meaning and legal consequences of this Section 6, and the Holder
hereby agrees to indemnify and hold harmless the Company, its representatives
and each officer and director thereof from and against any and all loss, damage
or liability (including all attorneys' fees and costs incurred in enforcing this
indemnity provision) due to or arising out of (a) the inaccuracy of any
representation or the breach of any warranty of the Holder contained in, or any
other breach of, this warrant, (b) any transfer of the Warrant or any of the
Warrant Shares in violation of the Securities Act, the Exchange Act or the rules
and regulations promulgated under either of such acts, (c) any transfer of the
Warrant or any of the Warrant Shares not in accordance with this Warrant or (d)
any untrue statement or omission to state any material fact in connection with
the investment representations or with respect to the facts and representations
supplied by the Holder to counsel to the Company upon which its opinion as to a
proposed transfer shall have been based.
(d) Transfer. Except as restricted hereby, this Warrant and
the Warrant Shares issued may be transferred by the Holder in whole or in part
at any time or from time to time. Upon surrender of this Warrant to the Company
or at the office of its stock transfer agent, if any,
4
<PAGE> 5
with assignment documentation duly executed and funds sufficient to pay any
transfer tax, and upon compliance with the foregoing provisions, the Company
shall, without charge, execute and deliver a new Warrant in the name of the
assignee named in such instrument of assignment, and this Warrant shall promptly
be canceled. Any assignment, transfer, pledge, hypothecation or other
disposition of this Warrant attempted contrary to the provisions of this
Warrant, or any levy of execution, attachment or other process attempted upon
the Warrant, shall be null and void and without effect.
(e) Legend and Stop Transfer Orders. Unless the Warrant Shares
have been registered under the Securities Act, upon exercise of any part of the
Warrant and the issuance of any of the Warrant Shares, the Company shall
instruct its transfer agent to enter stop transfer orders with respect to such
shares, and all certificates representing Warrant Shares shall bear on the face
thereof substantially the following legend, insofar as is consistent with
Massachusetts law:
"The shares of common stock represented by this certificate have not
been registered under the Securities Act of 1933, as amended, and may
not be sold, offered for sale, assigned, transferred or otherwise
disposed of unless registered pursuant to the provisions of that Act or
an opinion of counsel to the Company is obtained stating that such
disposition is in compliance with an available exemption from such
registration."
5. Loss, etc. of Warrant. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of an
unsecured indemnity from the Holder reasonably satisfactory to the Company, if
lost, stolen or destroyed, and upon surrender and cancellation of the Warrant,
if mutilated, the Company shall execute and deliver to the Holder a new Warrant
of like date, tenor and denomination.
6. Warrant Holder Not Shareholder. Except as otherwise provided herein,
this Warrant does not confer upon the Holder any right to vote or to consent to
or receive notice as a shareholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a shareholder, prior
to the exercise hereof.
7. Communication. No notice or other communication under this Warrant
shall be effective unless the same is in writing and is mailed by certified
mail, return receipt requested, addressed to:
(a) the Company at 840 Memorial Drive, Cambridge, MA 02139, or
such other address as the Company has designated in writing to the Holder, with
a copy to David A. Broadwin, Foley, Hoag & Eliot LLP, One Post Office Square,
Boston, Massachusetts 02109, or
(b) the Holder at 5 Ari Drive, Wesley Hills, NY 10901, or such
other address as the Holder has designated in writing to the Company.
5
<PAGE> 6
Any notice given hereunder shall be effective upon the earlier of (i)
receipt, or (ii) a date three days from the date of posting.
8. Headings. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof
9. Applicable Law. This Warrant shall be governed by and construed in
accordance with the law of The Commonwealth of Massachusetts without giving
effect to the principles of conflicts of law thereof.
IN WITNESS WHEREOF, DYNAGEN, INC. has caused this Warrant to be signed
by its President and Chief Executive Officer and its corporate seal to be
hereunto affixed and attested by its Secretary as of the 1st day of August,
1998.
ATTEST: DYNAGEN, INC.
_______________________ By: /s/ Dhananjay Wadekar
[Corporate Seal]
6
<PAGE> 7
SUBSCRIPTION
The undersigned, _______________________________________, pursuant to
the provisions of the foregoing Warrant, hereby agrees to subscribe for the
purchase of ________ shares of the Common Stock of DYNAGEN, INC. covered by said
Warrant, and makes payment therefor in full at the price per share provided by
said Warrant.
Dated:____________________________ Signature:_________________________________
Address:___________________________
___________________________
___________________________
ASSIGNMENT
FOR VALUE RECEIVED ___________________________ hereby sells, assigns
and transfers unto ______________________________ the foregoing Warrant and all
rights evidenced thereby, and does irrevocably constitute and appoint
_____________________, attorney, to transfer said Warrant on the books of
DYNAGEN, INC..
Dated:____________________________ Signature:_________________________________
Address:___________________________
___________________________________
___________________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _________________________ hereby sells, assigns and transfers
unto ___________________________ the right to purchase _________ shares of the
Common Stock of DYNAGEN, INC. by the foregoing Warrant, and a proportionate part
of said Warrant and the rights evidenced hereby, and does irrevocably constitute
and appoint ___________________________________, attorney, to transfer that part
of said Warrant on the books of DYNAGEN, INC.
Dated:____________________________ Signature:_________________________________
7
<PAGE> 8
Address:___________________________
___________________________________
___________________________________
NET ISSUANCE ELECTION
The undersigned, _______________________________, pursuant to the
provisions of the foregoing Warrant, hereby tenders the right to purchase _____
shares of the Common Stock of DYNAGEN, INC., and a proportionate part of said
Warrant and the rights evidenced thereby, in exchange for a number of shares of
said Common Stock to be computed in accordance with the provisions of Section 1
(b) of said Warrant.
Dated:____________________________ Signature:_________________________________
Address:___________________________
___________________________________
___________________________________
8
<PAGE> 1
EXHIBIT 4i
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER
THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE
APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 p.m. Eastern Standard Time, on December 31, 1998.
WARRANT TO PURCHASE COMMON STOCK
OF
DYNAGEN, INC.
FOR VALUE RECEIVED, DYNAGEN, INC., a Delaware corporation (the "Company"),
hereby certifies that Fortress Financial, or its permitted assigns, is entitled
to purchase from the Company, at any time or from time to time commencing on
August 1, 1998 and prior to 5:00 P.M., Eastern Standard Time, on December 31,
1998, a total of Two Hundred Thousand (200,000) fully paid and nonassessable
shares of the common stock, par value $.01 per share, of the Company for an
aggregate purchase price of $0.15 per share. (Hereinafter, (i) said common
stock, together with any other equity securities which may be issued by the
Company with respect thereto or in substitution therefor, is referred to as the
"Common Stock", (ii) the shares of the Common Stock purchasable hereunder are
referred to as the "Warrant Shares", (iii) the aggregate purchase price payable
hereunder for the Warrant Shares is referred to as the "Aggregate Warrant
Price", (iv) the price payable hereunder for each of the Warrant Shares is
referred to as the "Exercise Price", (v) this Warrant, and all warrants
hereafter issued in exchange or substitution for this Warrant are referred to as
the "Warrant" and (vi) the holder of this Warrant is referred to as the
"Holder".) The Exercise Price is subject to adjustment as hereinafter provided.
1. Exercise of Warrant.
(a) Exercise. This Warrant may be exercised, in whole at any time or in
part from time to time, commencing on August 21, 1998 and prior to 5:00 P.M.,
Eastern Standard Time on December 31, 1998, by the Holder of this Warrant by the
surrender of this Warrant (with the subscription form at the end hereof duly
executed) at the address set forth in Section 7(a) hereof, together with proper
payment of the Aggregate Warrant Price, or the proportionate part thereof if
this Warrant is exercised in part. Payment for Warrant Shares shall be made by
certified or official bank check payable to the order of the Company. If this
Warrant is exercised in part, the Holder is entitled to receive a new Warrant
covering the number of Warrant Shares in respect of which this Warrant has not
been exercised and setting forth the proportionate part of the
<PAGE> 2
Aggregate Warrant Price applicable to such Warrant Shares. Upon such surrender
of this Warrant, the Company will (a) issue a certificate or certificates in the
name of the Holder for the largest number of whole shares of the Common Stock to
which the Holder shall be entitled if this Warrant is exercised in whole and (b)
deliver the proportionate part thereof if this Warrant is exercised in part,
pursuant to the provisions of the Warrant. In lieu of any fractional share of
the Common Stock which would otherwise be issuable in respect to the exercise of
the Warrant, the Company at its option (a) may pay in cash an amount equal to
the product of (i) the daily mean average of the Closing Price of a share of
Common Stock on the ten consecutive trading days before the Conversion Date and
(ii) such fraction of a share or (b) may issue an additional share of Common
Stock.
Upon exercise of the Warrant, the Company shall issue and deliver to
the Holder certificates for the Common Stock issuable upon such exercise within
ten business days after such exercise and the person exercising shall be deemed
to be the holder of record of the Common Stock issuable upon such exercise.
No warrant granted herein shall be exercisable after 5:00 p.m. Eastern
Standard Time on the third anniversary of the date of issuance.
(b) Net Issuance. Notwithstanding anything to the contrary contained in
Subsection 1(a) hereof, in the case of any exercise on or prior to December 31,
1998 the Holder may elect to exercise this Warrant in whole or in part by
receiving shares of Common Stock equal to the net issuance value (as determined
below) of this Warrant, or any part hereof, upon surrender of this Warrant at
the principal office of the Company together with notice of such election (with
the form at the end hereof duly executed), in which event the Company shall
issue to the Holder a number of shares of Common Stock computed using the
following formula:
X= Y (A-B)
------
A
Where: X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock as to which this
Warrant is to be exercised
A = the current fair market value of one share of Common
Stock calculated as of the last trading day immediately
preceding the exercise of this warrant
B = the Exercise Price
2
<PAGE> 3
(c) Certain Adjustments
The Exercise Price and the number of Warrant Shares shall be equitable
adjusted from time to time to account for stock splits, stock dividends,
combinations, recapitalizations, reclassifications and similar events.
As used herein, current fair market value of the Common Stock as of a
specified date shall mean with respect to each share of Common Stock the average
of the closing bid prices of the Common Stock on the principal securities market
on which the Common Stock may at the time be traded over a period of five
business days consisting of the day as of which the current fair market value of
a share of Common Stock is being determined (or if such day is not a business
day, the business day next preceding such day) and the four consecutive business
days prior to such day. If on the date for which current fair market value is to
be determined the Common Stock is not eligible for trading on any securities
market, the current fair market value of Common Stock shall be the highest price
per share which the Company could then obtain from a willing buyer (not a
current employee or director) for shares of Common Stock sold by the Company,
from authorized but unissued shares, as determined in good faith by the Board of
Directors of the Company, which determination shall be conclusive, unless prior
to such date the Company has become subject to a merger, acquisition or other
consolidation pursuant to which the Company is not the surviving party, in which
case the current fair market value of the Common Stock shall be deemed to be the
value received by the holders of the Company's Common Stock for each share
thereof pursuant to the Company's acquisition.
2. Reservation of Warrant Shares. The Company agrees that, prior to the
expiration of this Warrant, the Company will at all times have authorized and
reserved, and will keep available, solely for issuance or delivery upon the
exercise of this Warrant, the number of shares of the Common Stock as from time
to time shall be receivable upon the exercise of this Warrant.
3. Fully Paid Stock: Taxes. The Company agrees that the shares of the
Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not subject
to preemptive rights, and the Company will take all such actions as may be
necessary to assure that the par value or stated value, if any, per share of the
Common Stock is at all times equal to or less than the then Exercise Price. The
Company further covenants and agrees that it will pay, when due and payable, any
and all Federal and state stamp, original issue or similar taxes that may be
payable in respect of the issue of any Warrant Share or certificate therefor.
4. Transfer.
(a) Securities Laws. Neither this Warrant nor the Warrant
Shares issuable upon the exercise hereof have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under any state
securities laws and unless so registered may not be
3
<PAGE> 4
transferred, sold, pledged, hypothecated or otherwise disposed of unless an
exemption from such registration is available. In the event Holder desires to
transfer this Warrant or any of the Warrant Shares issued, the Holder must give
the Company prior written notice of such proposed transfer including the name
and address of the proposed transferee. Such transfer may be made only either
(i) upon publication by the Securities and Exchange Commission (the
"Commission") of a ruling, interpretation, opinion or "no action letter" based
upon facts presented to said Commission, or (ii) upon receipt by the Company of
an opinion of counsel to the Company in either case to the effect that the
proposed transfer will not violate the provisions of the Securities Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the rules
and regulations promulgated under either such act, or in the case of clause (ii)
above, to the effect that the Warrant or Warrant Shares to be sold or
transferred has been registered under the Securities Act and that there is in
effect a registration statement in which is included a prospectus meeting the
requirements of Subsection 10 (a) of the Securities Act, which is being or will
be delivered to the purchaser or transferee at or prior to the time of delivery
of the certificates evidencing the Warrant or Warrant Stock to be sold or
transferred.
(b) Conditions to Transfer. Prior to any such proposed
transfer, and as a condition thereto, if such transfer is not made pursuant to
an effective registration statement under the Securities Act, the Holder will,
if requested by the Company, deliver to the Company (i) an investment covenant
signed by the proposed transferee, (ii) an agreement by such transferee to the
impression of the restrictive investment legend set forth herein on the
certificate or certificates representing the securities acquired by such
transferee, (iii) an agreement by such transferee that the Company may place a
"stop transfer order" with its transfer agent or registrar, and (iv) an
agreement by the transferee to indemnify the Company to the same extent as set
forth in the next succeeding paragraph.
(c) Indemnity. The Holder acknowledges that the Holder
understands the meaning and legal consequences of this Section 6, and the Holder
hereby agrees to indemnify and hold harmless the Company, its representatives
and each officer and director thereof from and against any and all loss, damage
or liability (including all attorneys' fees and costs incurred in enforcing this
indemnity provision) due to or arising out of (a) the inaccuracy of any
representation or the breach of any warranty of the Holder contained in, or any
other breach of, this warrant, (b) any transfer of the Warrant or any of the
Warrant Shares in violation of the Securities Act, the Exchange Act or the rules
and regulations promulgated under either of such acts, (c) any transfer of the
Warrant or any of the Warrant Shares not in accordance with this Warrant or (d)
any untrue statement or omission to state any material fact in connection with
the investment representations or with respect to the facts and representations
supplied by the Holder to counsel to the Company upon which its opinion as to a
proposed transfer shall have been based.
(d) Transfer. Except as restricted hereby, this Warrant and
the Warrant Shares issued may be transferred by the Holder in whole or in part
at any time or from time to time. Upon surrender of this Warrant to the Company
or at the office of its stock transfer agent, if any,
4
<PAGE> 5
with assignment documentation duly executed and funds sufficient to pay any
transfer tax, and upon compliance with the foregoing provisions, the Company
shall, without charge, execute and deliver a new Warrant in the name of the
assignee named in such instrument of assignment, and this Warrant shall promptly
be canceled. Any assignment, transfer, pledge, hypothecation or other
disposition of this Warrant attempted contrary to the provisions of this
Warrant, or any levy of execution, attachment or other process attempted upon
the Warrant, shall be null and void and without effect.
(e) Legend and Stop Transfer Orders. Unless the Warrant Shares
have been registered under the Securities Act, upon exercise of any part of the
Warrant and the issuance of any of the Warrant Shares, the Company shall
instruct its transfer agent to enter stop transfer orders with respect to such
shares, and all certificates representing Warrant Shares shall bear on the face
thereof substantially the following legend, insofar as is consistent with
Massachusetts law:
"The shares of common stock represented by this certificate have not
been registered under the Securities Act of 1933, as amended, and may
not be sold, offered for sale, assigned, transferred or otherwise
disposed of unless registered pursuant to the provisions of that Act or
an opinion of counsel to the Company is obtained stating that such
disposition is in compliance with an available exemption from such
registration."
5. Loss, etc. of Warrant. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of an
unsecured indemnity from the Holder reasonably satisfactory to the Company, if
lost, stolen or destroyed, and upon surrender and cancellation of the Warrant,
if mutilated, the Company shall execute and deliver to the Holder a new Warrant
of like date, tenor and denomination.
6. Warrant Holder Not Shareholder. Except as otherwise provided herein,
this Warrant does not confer upon the Holder any right to vote or to consent to
or receive notice as a shareholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a shareholder, prior
to the exercise hereof.
7. Communication. No notice or other communication under this Warrant
shall be effective unless the same is in writing and is mailed by certified
mail, return receipt requested, addressed to:
(a) the Company at 840 Memorial Drive, Cambridge, MA 02139, or
such other address as the Company has designated in writing to the Holder, with
a copy to David A. Broadwin, Foley, Hoag & Eliot LLP, One Post Office Square,
Boston, Massachusetts 02109, or
(b) the Holder at__________________________________, or such
other address as the Holder has designated in writing to the Company.
5
<PAGE> 6
Any notice given hereunder shall be effective upon the earlier of (i)
receipt, or (ii) a date three days from the date of posting.
8. Headings. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof
9. Applicable Law. This Warrant shall be governed by and construed in
accordance with the law of The Commonwealth of Massachusetts without giving
effect to the principles of conflicts of law thereof.
IN WITNESS WHEREOF, DYNAGEN, INC. has caused this Warrant to be signed
by its President and Chief Executive Officer and its corporate seal to be
hereunto affixed and attested by its Secretary as of the 1st day of August,
1998.
ATTEST: DYNAGEN, INC.
_______________________ By: /s/ Dhananjay Wadekar
[Corporate Seal]
6
<PAGE> 7
SUBSCRIPTION
The undersigned, _______________________________________, pursuant to
the provisions of the foregoing Warrant, hereby agrees to subscribe for the
purchase of ________ shares of the Common Stock of DYNAGEN, INC. covered by said
Warrant, and makes payment therefor in full at the price per share provided by
said Warrant.
Dated:____________________________ Signature:_________________________________
Address:___________________________
___________________________________
___________________________________
ASSIGNMENT
FOR VALUE RECEIVED ___________________________ hereby sells, assigns
and transfers unto ______________________________ the foregoing Warrant and all
rights evidenced thereby, and does irrevocably constitute and appoint
_____________________, attorney, to transfer said Warrant on the books of
DYNAGEN, INC..
Dated:____________________________ Signature:_________________________________
Address:___________________________
___________________________________
___________________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _________________________ hereby sells, assigns and transfers
unto ___________________________ the right to purchase _________ shares of the
Common Stock of DYNAGEN, INC. by the foregoing Warrant, and a proportionate part
of said Warrant and the rights evidenced hereby, and does irrevocably constitute
and appoint ___________________________________, attorney, to transfer that part
of said Warrant on the books of DYNAGEN, INC.
Dated:____________________________ Signature:_________________________________
7
<PAGE> 8
Address:___________________________
___________________________________
___________________________________
NET ISSUANCE ELECTION
The undersigned, _______________________________, pursuant to the
provisions of the foregoing Warrant, hereby tenders the right to purchase _____
shares of the Common Stock of DYNAGEN, INC., and a proportionate part of said
Warrant and the rights evidenced thereby, in exchange for a number of shares of
said Common Stock to be computed in accordance with the provisions of Section 1
(b) of said Warrant.
Dated:____________________________ Signature:_________________________________
Address:___________________________
___________________________________
___________________________________
8
<PAGE> 1
EXHIBIT 5.1
FOLEY, HOAG & ELIOT LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109-2170
------------
TELEPHONE 617-832-1000
FACSIMILE 617-832-7000
http://www.fhe.com
August 25, 1998
DynaGen, Inc.
Riverside Technology Center
840 Memorial Drive, 4th Floor
Cambridge, MA 02139
Gentlemen:
We are familiar with the Registration Statement on Form S-3 (the
"Registration Statement") to which this opinion is an exhibit, to be filed by
DynaGen, Inc., a Delaware corporation (the "Company"), with the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
The Registration Statement relates to the proposed public offering by
securityholders of the Company of a total of 11,580,921 shares (the "Shares") of
the Company's common stock, $0.01 par value per share ("Common Stock"), held by
such securityholders or issuable upon conversion of shares of Series C Preferred
Stock, $0.01 par value per share ("Series C Stock") Series D Preferred Stock,
$.01 par value per share ("Series D Stock") and warrants of the Company held by
such securityholders.
In arriving at the opinion expressed below, we have examined and relied
on the following documents:
(1) the Restated Certificate of Incorporation and By-laws of
the Company, each as amended as of the date hereof; and
(2) records of meetings and consents of the Board of
Directors of the Company provided to us by the Company.
In addition, we have examined and relied on the originals or copies certified or
otherwise identified to our satisfaction of all such corporate records of the
Company and such other instruments and other certificates of public officials,
officers and representatives of the Company and such other persons, and we have
made such investigations of law, as we have deemed appropriate as a basis for
the opinion expressed below. In such examination, we have assumed, without
independent verification, the genuineness of all signatures (whether original or
<PAGE> 2
DynaGen, Inc.
August 25, 1998
Page 2
photostatic), the authenticity of all documents submitted to us as originals and
the conformity to authentic original documents of all documents submitted to us
as certified or photostatic copies.
In rendering the following opinion, we have further assumed that the
consideration received by the Company in respect of each Share will be no less
than its par value.
Based upon and subject to the foregoing, it is our opinion that; 1:The
outstanding shares have been legally issued and are fully paid and
non-assesable. 2: With respect to the Conversion Shares the Company has taken
all necessary corporate action required to authorize the issuance of said
Shares, and when said Shares are issued upon receipt of consideration therefor,
and when certificates for the same have been duly executed and countersigned and
delivered, said Shares will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
FOLEY, HOAG & ELIOT LLP
By: /s/ David A. Broadwin
-------------------------------
A Partner
<PAGE> 1
EXHIBIT 23a
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
DynaGen, Inc. on Form S-3 of our report dated April 14, 1998, appearing in the
Annual Report on Form 10-K of DynaGen, Inc. for the year ended December 31,
1997, as amended and to the reference to us under the heading "Experts" in this
Prospectus, which is part of this Registration Statement.
/s/ Wolf & Company, P.C.
--------------------------------
WOLF & COMPANY, P.C.
Boston, Massachusetts
August 25, 1998
<PAGE> 1
EXHIBIT 23b
[LETTERHEAD OF GRANT THORNTON LLP]
We have issued our report dated January 24, 1997, accompanying the financial
statements and schedules of Superior Pharmaceutical Company appearing in the
Form 8K/A dated July 11, 1997 of Dynagen, Inc., which is incorporated by
reference in this Registration Statement. We consent to the incorporation by
reference in the Registration Statement of the aforementioned reports, and to
the use of our name as it appears under the caption "Experts".
/s/ Grant Thornton LLP
- -----------------------
Grant Thornton
Cincinnati, Ohio
August 25, 1998
