AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 13, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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DYNAGEN, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3029787
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
840 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 01239
(617) 491-2527
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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C. ROBERT CUSICK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DYNAGEN, INC.
840 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 01239
(617) 491-2527
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
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Copies to:
DAVID A. BROADWIN, ESQ.
FOLEY, HOAG & ELIOT LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
(617) 832-1259
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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 415 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 box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================
Proposed Proposed
AMOUNT Maximum Maximum
TITLE OF EACH CLASS OF TO BE Offering Price Aggregate AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED Per Share(1) Offering Price(1) REGISTRATION FEE
====================================================================================================================
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 6,209,763 $.66 $4,098,444 $1,139.37
====================================================================================================================
</TABLE>
(1) Estimated solely for the purposes of determining the registration fee. In
accordance with Rule 457(c) under the Securities Act of 1933, the above
calculation is based on average of the high and low prices reported on the OTC
Bulletin Board on July 9, 1999.
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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 SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 13, 1999
6,209,763 SHARES
COMMON STOCK
The selling stockholders are offering 6,209,763 shares of Common Stock. We
will not receive any of the proceeds from sales of shares by the selling
stockholders. Certain of the selling stockholders are offering shares of Common
Stock issuable upon conversion of convertible preferred stock and exercise of
warrants. We issued the convertible securities to those selling stockholders in
private transactions entered into in May 1999 and June 1999.
The selling stockholders may sell these shares from time to time in the
over-the-counter market, on the Boston Stock Exchange or otherwise. They may
sell the shares at prevailing market prices or at prices negotiated with buyers.
The selling stockholders will be responsible for any commissions or discounts
that may be due to brokers or dealers. The amount of those commissions or
discounts will be negotiated before the sales. We will pay all of the other
offering expenses, which we estimate will total $25,000.
We have informed the selling stockholders that the anti-manipulative rules
under the Exchange Act of 1934, including Regulation M, may apply to their sales
in the market. We have furnished the selling stockholders with a copy of
Regulation M. We have also informed the selling stockholders that they must
deliver a copy of this Prospectus with any sale of their shares.
DynaGen's Common Stock is traded on the Boston Stock Exchange under the
symbol "DYG" and quoted on the OTC Bulletin Board under the symbol "DYGN." The
last reported sale price of the Common Stock on the OTC Bulletin Board on July
9, 1999 was $.66 per share.
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INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
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THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is July 13, 1999.
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT. IN THIS PROSPECTUS, REFERENCES TO "WE," "US" AND
"OUR" REFER TO DYNAGEN, INC. AND ITS SUBSIDIARIES.
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TABLE OF CONTENTS
PAGE
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Summary.......................................................................3
Risk Factors..................................................................5
Use of Proceeds...............................................................8
Dividend Policy...............................................................8
Selling Stockholders..........................................................8
Plan of Distribution.........................................................10
Legal Matters................................................................11
Experts......................................................................11
Disclosure of SEC Position on Indemnification for
Securities Acts Liabilities ...............................................11
Where You Can Find More Information..........................................11
We own or have rights to various trademarks and trade names used in our
business. These include DynaGen, Able, Superior, GDI, and others. This
prospectus also refers to trademarks and trade names of other companies.
2
<PAGE>
SUMMARY
Because this is only a summary, it does not contain all the information
that may be important to you. You should read the entire prospectus carefully
before you decide to purchase our shares of Common Stock being offered by this
Prospectus. You should also carefully consider the information provided in this
Prospectus under the heading "Risk Factors."
DYNAGEN
INTRODUCTION: We develop, manufacture and distribute generic drugs. From
our inception in 1988 until 1996, we focused primarily on
developing new drugs and licensing the resulting products
and technologies to others. Beginning in 1996, we began
redirecting our business focus to building a generic drug
distribution business.
THE MULTISOURCE
GENERIC DRUG BUSINESS: Generic drugs compete with brand-name drugs for which
patent or other government-mandated market exclusivity
has expired. 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 they replace, and they must meet all
FDA guidelines. Generic drugs are typically sold under
their generic chemical names at prices significantly
below those of their brand-name equivalents. We
estimate that the U.S. market for generic drugs
approximates $12 billion in annual sales. This market
has grown due to a number of factors, including:
o a significant number of widely-prescribed
brand-name drugs are at or near the end of their
period of patent protection, making it possible
for generic manufacturers to produce and market
competing generic drugs;
o managed care organizations, which prefer
lower-cost generics to brand- name products, are
capturing a greater share of the healthcare
market; and
o physicians, pharmacists and consumers are
increasingly accepting generic drugs as an
alternative to brand-name drugs.
OUR BUSINESS: To participate successfully in the generic drug business, we
intend to compete with other generic drug companies by
vertically integrating two key elements of the business:
manufacturing and distribution. We have acquired three
operating subsidiaries to effect this integration:
Able Labs: In August 1996, we acquired Able
Laboratories, Inc., including its
46,000-square foot tablet and suppository
manufacturing facility in South Plainfield,
New Jersey. As part of the acquisition of
Able, we obtained rights to eleven
FDA-approved Abbreviated New Drug
Applications, or ANDAs, for generic drug
products. We are currently marketing three
of these acquired products.
Superior: In June 1997, we acquired Superior
Pharmaceutical Company ("Superior"), a
generic drug distributor in Cincinatti,
Ohio. Since we acquired it, Superior has
experienced a sharp and steady decline in
its sales and margins. Superior lost
several key personnel immediately after the
acquisition, which resulted in a loss of
business with certain federal and corporate
accounts, and also suffered the effects of
erosion in margins brought on by price
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pressure in the generic drug industry. We
have taken actions intended to improve
Superior's performance. 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. We can give no
assurance, however, that these actions will
improve Superior's performance in the near
future or at all.
GDI: In March 1998, we acquired Generic
Distributors Limited Partnership, a
distributor of generic drugs based in
Monroe, Louisiana. GDI's customer base
consists primarily of independent
pharmacies in the states of Louisiana,
Texas, Arkansas, Alabama and Mississippi.
We believe that GDI complements Superior by
providing next-day delivery service to the
southern and southeastern United States. We
believe that GDI has the potential to grow
its business through supply opportunities
with institutional, hospital and nursing
home pharmacies. We can give no assurance
that such opportunities will arise, though,
or that we will be able to exploit any such
opportunities profitably.
OUR ADDRESS: Our corporate headquarters is at 840 Memorial Drive,
Cambridge, MA 02139. The telephone number at our corporate
office is (617) 491-2527, and the facsimile number is (617)
354-3902.
SPECIAL CONSIDERATIONS
AND RISK FACTORS: We experienced a sharp decline in our stock price and market
value in 1997 and 1998. In the section of this Prospectus
entitled "Risk Factors," beginning on page 5, we have
described several matters which we believe are significant
and which you should consider very carefully before you
decide to invest in the Common Stock. There are two specific
factors to which we want to draw your attention:
o our independent auditors, in their opinion on our
financial statement as of December 31, 1998 and
for the year then ended, expressed substantial
doubt as to our ability to continue as a going
concern; and
o we need significant additional financing to
continue operations.
THE OFFERING
COMMON STOCK OFFERED: All of the 6,209,763 shares offered by this prospectus
are being sold by the selling stockholders. Certain of
the selling stockholders hold shares of convertible
preferred stock and warrants to purchase Common Stock,
which they acquired in private investment transactions
in May 1999 and June 1999.
USE OF PROCEEDS: We will not receive any of the proceeds from sales of
shares by the selling stockholders.
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RISK FACTORS
Before you invest in our Common Stock, you should be aware that there are
various risks, including those described below. You should carefully consider
these risk factors, together with all of the other information included in this
prospectus, including information incorporated by reference, before you decide
whether to purchase shares of our Common Stock.
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate," "continue" and similar words. You should
read statements that contain these words carefully because they: (1) discuss our
future expectations; (2) contain projections of our future operating results or
financial condition; or (3) state other " forward-looking" information. We
believe it is important to communicate certain of our expectations to our
investors. There may be events in the future, however, that we are not
accurately able to predict or over which we have no control. The risk factors
listed in this section, as well as any cautionary language in this prospectus,
provide examples of risks, uncertainties and events that may cause our actual
results to be materially worse than the expectations we describe in our
forward-looking statements. Before you invest in our Common Stock, you should be
aware that the occurrence of any of the events described in these risk factors
and elsewhere in this prospectus could materially and adversely affect our
business. If that happens, the trading price of our Common Stock could decline
and you could lose all or part of your investment.
OUR FINANCIAL CONDITION IS HIGHLY UNCERTAIN; WE HAVE A HISTORY OF LOSSES AND WE
ANTICIPATE FUTURE LOSSES
We have incurred operating losses in every operating period since our
inception. We had an accumulated deficit of $52,050,563 as of March 31, 1999. We
incurred net losses of $12,612,009 for the year ended December 31, 1998 and
$1,897,010 for the three months ended March 31, 1999.
Our losses have resulted principally from expenses we incurred in research
and development activities, and from general and administrative costs associated
with our development efforts. In addition, our Able subsidiary has incurred
operating losses, primarily because its revenues have not equaled its expenses.
To continue development of our current and proposed products, we will need to
expend substantial additional resources to conduct further product development
and to establish and expand our manufacturing, sales, marketing, regulatory and
administrative capabilities. Therefore, we expect to incur substantial
operating losses over the next several years as we expand our product programs
and commence marketing efforts. We can give no assurance that we will ever
generate substantial revenues from our business, or achieve profitability.
OUR ABILITY TO CONTINUE OPERATIONS IS IN QUESTION; WE NEED TO RAISE SIGNIFICANT
ADDITIONAL FUNDS TO CONTINUE OPERATIONS
Our history of operating losses raises substantial doubt about our ability
to continue operations. If we are unable to secure significant additional
financing or to renegotiate our agreements with our existing creditors, we may
be obliged to seek protection from our creditors by declaring bankruptcy. Our
independent auditors issued an opinion on our financial statements as of
December 31, 1998 and for the year then ended which included an explanatory
paragraph expressing substantial doubt about our ability to continue as a going
concern. The reasons cited by the independent auditors include the following:
o we have incurred recurring losses from operations resulting in a
stockholders' deficit and a working capital deficiency at December 31,
1998;
o we have defaulted on conditions placed upon us by our banks and other
lenders; and
o our ability to use cash generated by our subsidiaries is restricted
under the terms of the subsidiaries' loan agreements.
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WE FACE INTENSE COMPETITION FROM A WIDE RANGE OF MANUFACTURERS
The generic drug manufacturing and distribution business is highly
competitive. We compete with several companies that are better capitalized than
DynaGen and that have financial and human resources significantly greater than
ours. Because we manufacture generic drugs, our products by their very nature
are chemically and biologically equivalent to the products of our larger and
profitable competitors. These larger companies could capture a significant share
of the market.
OUR COMMON STOCK HAS BEEN DELISTED FROM THE NASDAQ STOCK MARKET AND MAY BE
DELISTED FROM THE BOSTON STOCK EXCHANGE
Our Common Stock was delisted from the Nasdaq Stock Market as of the close
of trading on October 6, 1998. We received a notice from the Boston Stock
Exchange on April 12, 1999 informing us that our Common Stock does not meet the
requirements for continued listing on that exchange.
The Boston Stock Exchange requires a minimum of $500,000 in stockholders'
equity for continued listing. As of March 31, 1999, we had an accumulated
stockholders deficit of approximately $4,024,000, a shortfall of approximately
$4,524,000, and therefore we did not meet the listing requirements. We have
responded to the Boston Stock Exchange, explaining our plan for regaining
compliance with this requirement. Delisting of the Common Stock from the Boston
Stock Exchange could have a material adverse effect on the public perception of
the value of the Common Stock and, consequently, on our ability to raise capital
necessary for our continued operations. We anticipate that the Common Stock will
continue to be quoted on the OTC Bulletin Board if it is delisted from the
Boston Stock Exchange.
OUR COMMON STOCK MAY BE SUBJECT TO PENNY STOCK RULES
The Securities Enforcement and Penny Stock Reform Act of 1990 applies to
stock characterized as "penny stocks," and 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.
The exceptions include exchange-listed equity securities and any equity security
issued by an issuer that has (i) net tangible assets of at least $2,000,000, if
the issuer has been in continuous operation for at least three years, (ii) net
tangible assets of at least $5,000,000, if the 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 our Common Stock is delisted from the Boston Stock Exchange, then
trading in the Common Stock would be covered by Rules 15g-1 through 15g-6 and
15g-9 promulgated under the Securities Exchange Act. Under those 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 must have received the
purchaser's written agreement to a transaction prior to sale. These regulations
would likely limit the ability of broker/dealers to trade in our Common Stock
and thus would make it more difficult for purchasers of Common Stock to sell
their securities in the secondary market. The market liquidity for the Common
Stock could be severely affected.
WE ARE OBLIGATED TO ISSUE A LARGE NUMBER OF SHARES OF COMMON STOCK AT PRICES
BELOW THE MARKET PRICE, WHICH COULD ADVERSELY AFFECT THE VALUE OF THE COMMON
STOCK
We are obligated to issue a large number of shares of Common Stock at
prices lower than market value. Therefore, the Common Stock could lose value if
a large number of shares are issued into the market. At June 30, 1999 we had
55,572,048 shares of Common Stock issued and outstanding. We have issued a large
number of securities, such as options, warrants, convertible preferred stock and
convertible notes, that are convertible by their
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holders into shares of Common Stock. As of March 31, 1999, we were obligated to
issue up to approximately 9,281,096 shares of Common Stock upon the conversion
or exercise of convertible securities. We have also reserved 8,034,920 shares of
Common Stock for issuance pursuant to options granted to our employees,
officers, directors and consultants. The holders of these convertible securities
likely would only exercise their rights to acquire Common Stock at times when
the exercise price is lower than the price at which they could buy the Common
Stock on the open market. Therefore, because we would likely receive less than
current market price for any shares of Common Stock issued upon exercise of
options and warrants, the exercise of a large number of these convertible
securities could reduce the per-share market price of Common Stock held by
existing investors. Also, the exercise of a large number of convertible
securities could limit our ability to obtain additional equity capital by
selling Common Stock. In all likelihood, we would be able to sell shares of
Common Stock elsewhere on more favorable terms at the time the holders of
convertible securities choose to exercise their rights.
OUR STOCK PRICE IS HIGHLY VOLATILE; THE VALUE OF THE COMMON STOCK MAY FLUCTUATE
WIDELY FROM DAY TO DAY
Volatility in our stock price may cause the market price of our Common
Stock to drop and increases the risk that we could be the subject of costly
securities litigation. The market price of our Common Stock has fluctuated
between $70.00 and $.10 from January 1, 1993 to December 31, 1998 and was
approximately $.62 on June 30, 1999. It is likely that the price of the Common
Stock will continue to fluctuate widely in the future. The market price of our
Common Stock could fluctuate substantially based on a variety of factors,
including:
o quarterly fluctuations in our operating results;
o announcements of new products by us or our competitors;
o key personnel losses;
o sales of common stock; and
o developments or announcements with respect to industry standards,
patents or proprietary rights.
WE MAY BE SURPRISED BY YEAR 2000 ISSUES
Many software products and computer systems are coded to accept only two
digit entries in the date code field. These date code fields will need to accept
four digit entries to distinguish 21st century dates from 20th century dates.
This ability is commonly referred to as being Year 2000 compliant. We have not
conducted a Year 2000 compliance review of the computer software we use or that
our vendors and suppliers use. If the software and computer systems we use are
not Year 2000 compliant, we could face system failures or miscalculations
causing disruptions of operations, including a temporary inability to process
transactions, send invoices or engage in similar normal business activities. If
the systems maintained by our vendors and suppliers are not Year 2000 compliant,
we could incur significant unanticipated expenses to remedy any problems or to
replace affected vendors and suppliers.
WE MAY FACE PRODUCT LIABILITY FOR WHICH WE ARE NOT ADEQUATELY INSURED
The testing, marketing and sale of drug products for human use is
inherently risky. Liability might result from claims made directly by consumers
or by pharmaceutical companies or others selling our products. Superior, GDI and
Able presently carry product liability insurance in amounts that we believe to
be adequate, but we can give 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. We can give no
assurance that we will be able to obtain or maintain adequate insurance on
reasonable terms or that, if obtained, such insurance will be sufficient to
protect us 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 our business, financial condition and future
prospects.
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INTENSE REGULATION BY GOVERNMENT AGENCIES MAY DELAY OUR EFFORTS TO COMMERCIALIZE
OUR PROPOSED DRUG PRODUCTS
Our research, preclinical development, clinical trials, manufacturing and
marketing of our 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. We can give no
assurance that we will be able to obtain the necessary approvals for clinical
testing or for the manufacturing or marketing of our proposed products. Present
and future governmental regulatory processes could prevent or delay approval of
our products or make them too costly for us to pursue. Also, if we failed to
comply with applicable regulatory requirements we could face fines, suspensions
of regulatory approvals, product recalls, operating restrictions and criminal
prosecution. Our success in the generic drug market depends in part on our
ability to obtain FDA approval of ANDAs for our new products, as well as our
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 our 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, we would be required to
file a supplement to our 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.
Our Able Laboratories facility is subject to plant inspections by the FDA
to determine compliance with cGMP standards. We could be subject to fines and
sanctions such as the suspension of manufacturing or the seizure of drug
products if we were found to be in non-compliance with cGMP standards.
USE OF PROCEEDS
All of the shares of common stock offered by this prospectus are being
offered by the selling stockholders. We received proceeds from the sale of the
notes and shares of convertible preferred stock that were converted, or are
convertible, into the shares of common stock offered in this prospectus. This
money was used for working capital and general corporate purposes. We will not
receive any additional proceeds from the sale of shares by the selling
stockholders. For information about the selling stockholders, see "Selling
Stockholders."
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
currently intend to retain earnings, if any, to fund our business, and therefore
we do not anticipate paying cash dividends in the foreseeable future. If we ever
earn income on which we would be entitled to declare or pay dividends, we expect
that our Board of Directors would decide whether to pay dividends after taking
into account various factors including our financial condition, results of
operations, current and anticipated cash needs, and plans for expansion.
SELLING STOCKHOLDERS
All of the 6,209,763 shares offered by this prospectus are being registered
for sale for the accounts of selling stockholders. As noted in the following
table, except for one selling stockholder, the selling stockholder will obtain
the Common Stock offered under this prospectus by converting or exercising
certain convertible securities of DynaGen that they now hold. These selling
stockholders hold shares of Series I Preferred Stock and warrants to purchase
Common Stock, which we issued to them in private investment transactions in May
1999 and June 1999.
The table below includes, in the total number of shares offered, 5,859,379
shares of Common Stock issuable upon conversion of shares of Series I Stock that
are currently issued and outstanding. Pursuant to the terms of the Series I
Stock, the selling stockholders may convert shares of Series I Stock to acquire
shares of Common Stock at a conversion price equal to 80% of the market price of
the Common Stock for three of the five days preceding the conversion.
The table below also includes 200,384 shares of Common Stock issuable upon
exercise of warrants issued to the selling stockholders. The warrants are
exercisable to purchase Common Stock at an average exercise price of $.75 per
share. If all of the warrants were exercised, then we would receive proceeds of
approximately $165,000. However, we cannot predict whether, or how many of, the
warrants will be exercised.
The remaining 150,000 shares of Common Stock offered by this prospectus are
issued and outstanding, and held by a selling stockholder.
We will not receive any portion of the proceeds from the sale of shares of
Common Stock by the selling stockholders.
Based on the information supplied to DynaGen by each selling stockholder,
the following table sets forth certain information regarding the number of
shares owned by each selling stockholder as of June 30, 1999, and as adjusted to
reflect the sale by the selling stockholders of the shares of Common Stock
offered by this prospectus. No selling stockholder has held any office or
maintained any material relationship with DynaGen, or any of our predecessors or
affiliates, over the past three years.
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<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING(1) NUMBER AFTER OFFERING(1)(2)
------------------------ OF SHARES --------------------
NAME AND ADDRESS NUMBER PERCENT(3) OFFERED(4) NUMBER PERCENT
- ------------------- ------------ --------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
The Endeavour Capital Fund, S.A.(5)
c/o Endeavour Management Inc. 14/14
Divrei Chaim St., Jerusalem, Israel 94479 ........ 2,569,086 4.4% 2,013,366 -- --
Sovereign Partners, L.P.
c/o Southridge Capital Management LLC
90 Grove Street
Ridgefield, CT 06877(6) ......................... 1,429,021 2.5% 1,429,021 -- --
Dominion Capital Fund Limited
c/o Citco Fund Services (Bahamas) Limited
Nassau, Bahama(7) ................................ 1,610,693 2.8% 1,610,693 -- --
Dominion Investment Fund LLC
c/o Citco Fund Services (Bahamas) Limited
Nassau, Bahama(7) ................................ 201,337 * 201,337 -- --
Canadian Advantage Fund Limited Partnership
365 Bay Street
Toronto, Canada 75H 2V2(8) ...................... 402,673 * 402,673 -- --
Gross Foundation, Inc.
1661 49th Street
Brooklyn, NY(9) .................................. 402,673 * 402,673 -- --
Venture Partners Capital LLC.
c/o 50 Federal Street
Boston, MA 02109(10) ............................. 150,000 * 150,000 -- --
</TABLE>
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* Less than 1.0%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated, each
person possesses sole voting and investment power with respect to all of
the shares of common stock owned by such person, subject to community
property laws where applicable. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options and convertible securities held
by that person that are currently exercisable, or become exercisable within
60 days of the date of this prospectus are deemed outstanding. Such shares,
however, are not deemed outstanding for the purpose of computing the
percentage ownership of any other person. The information as to each person
has been furnished by such person.
(2) Assumes that all shares of Common Stock offered in this prospectus will be
sold.
(3) There were 55,572,048 shares of Common Stock issued and outstanding as of
June 30, 1999.
(4) With respect to all of the selling stockholders other than Venture Partners
Capital LLC, the shares offered represent shares of Common Stock issuable
upon the exercise of Common Stock purchase warrants and shares of Series I
Preferred Stock, $0.01 par value per share, sold to the selling
stockholders in private transactions in May 1999 and June 1999,
respectively.
(5) Mr. Shmuli Margulies, director of Endeavour Capital Fund S.A., is the
individual who has voting and investment decision authority over this
investment.
9
<PAGE>
(6) Messrs. Stephen Hicks and Daniel Pickett are the individuals who have
voting and investment decision authority over this investment.
(7) Mr. David Sims is the individual who has voting and investment decision
authority over this investment.
(8) Messrs. Mark Valentine and Ian McKinnon are the individuals who have voting
and investment decision authority over this investment.
(9) Mr. Chaim Gross is the individual who has voting and investment decision
authority over this investment.
(10) Mr. Andrew Clapp, managing director of Venture Partners, is the individual
who has voting and investment decision authority over this investment.
PLAN OF DISTRIBUTION
The shares offered by this prospectus may be sold from time to time by
selling stockholders, who consist of the persons named under "Selling
Stockholders" above and those persons' pledgees, donees, transferees or other
successors in interest. The selling stockholders may sell the shares on the OTC
Bulletin Board, on the Boston Stock Exchange or otherwise, at market prices or
at negotiated prices. They may sell shares by one or a combination of the
following:
o a block trade in which a broker or dealer so engaged will attempt to
sell the shares as agent, but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker or dealer as principal and resale by the broker
or dealer for its account pursuant to this prospectus;
o ordinary brokerage transactions and transactions in which a broker
solicits purchasers;
o an exchange distribution in accordance with the rules of such
exchange;
o privately negotiated transactions;
o short sales;
o if such a sale qualifies, in accordance with Rule 144 promulgated
under the Securities Act rather than pursuant to this Prospectus; and
o any other method permitted pursuant to applicable law.
In making sales, brokers or dealers engaged by the selling stockholders may
arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from selling stockholders in amounts to be
negotiated prior to the sale. The selling stockholders and any broker-dealers
that participate in the distribution may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act of 1933, and any proceeds or
commissions received by them and any profits on the resale of shares sold by
broker-dealers, may be deemed to be underwriting discounts and commissions.
If any selling stockholder notifies us that a material arrangement has been
entered into with a broker-dealer for the sale of shares through a block trade,
special offering, exchange distribution or secondary distribution or a purchase
by a broker or dealer, we will file, a prospectus supplement, if required
pursuant to Rule 424(c) under the Securities Act of 1933, setting forth:
o the name of each of the participating broker-dealers,
o the number of shares involved,
10
<PAGE>
o the price at which the shares were sold,
o the commissions paid or discounts or concessions allowed to the
broker-dealers, where applicable,
o a statement to the effect that the broker-dealers did not conduct any
investigation to verify the information set out or incorporated by
reference in this prospectus, and
o any other facts material to the transaction.
We are paying the expenses incurred in connection with preparing and filing
this prospectus and the registration statement to which it relates (other than
selling commissions).
In addition, in the event the selling stockholders sell short shares of
Common Stock, this Prospectus may be delivered in connection with such short
sales and the shares offered by this Prospectus may be used to cover such short
sales. To the extent, if any, that the selling stockholders may be considered
"underwriters" within the meaning of the Securities Act, the sale of the shares
by them shall be covered by this Prospectus.
LEGAL MATTERS
Foley, Hoag & Eliot LLP, Boston, Massachusetts, has advised us with respect
to the validity of the shares of common stock offered by this prospectus.
EXPERTS
The financial statements for each of the two fiscal years ended December
31, 1998 and 1997, incorporated by reference in this Prospectus and in the
registration statement of which this prospectus is part, have been audited by
Wolf & Company, P.C., independent public accountants, as indicated in their
report with respect to such financial statements. The incorporation by reference
in this Prospectus and in the registration statement of which it is part, is in
reliance upon such reports given upo the authority of Wolf & Company as experts
in accounting and auditing.
DISCLOSURE OF SEC POSITION ON
INDEMNIFICATION FOR SECURITIES ACTS LIABILITIES
DynaGen's Restated Certificate of Incorporation and By-Laws provide that we
will indemnify our directors and officers, to the fullest extent permitted under
Delaware law, including in circumstances in which indemnification is otherwise
discretionary under Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or controlling persons of DynaGen,
pursuant to the foregoing provisions, or otherwise, we have been advised that,
in the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable.
WHERE YOU CAN FIND MORE INFORMATION
We file annual reports, quarterly reports, current reports, proxy
statements and other information with the Securities and Exchange Commission
(the "SEC"). You may read and copy any of our SEC filings at the SEC's public
reference room at 450 Fifth Street, N.W., Washington D.C. 20549. You may call
the SEC at 1-800-SEC-0330 for further information about the public reference
room. Our SEC filings also are available to the public on the SEC's website at
http://www.sec.gov.
The SEC allows us to "incorporate by reference" information from certain of
our other SEC filings. This means that we can disclose information to you by
referring you to those other filings, and the information incorporated by
reference is considered to be part of this prospectus. In addition, certain
information that we
11
<PAGE>
file with the SEC after the date of this prospectus will automatically update,
and in some cases supersede, the information contained or otherwise incorporated
by referenc in this prospectus. We are incorporating by reference the
information contained in the following SEC filings (File No. 1-11352):
o Our Annual Report on Form 10-KSB for the year ended December 31, 1998;
o Our Quarterly Report on Form 10-QSB for the three months ended March
31, 1999;
o The "Description of Securities" contained in the our Registration
Statement on Form 8-A filed August 19, 1992 together with all
amendments and reports filed for the purpose of updating that
description;
o All other documents we filed 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 above; and
o any filings we make with the SEC under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 (1) subsequent to the
initial filing of this prospectus and prior to the date it is declared
effective and (2) subsequent to the date of this prospectus and prior
to the termination of this offering. Information in these filings will
be incorporated as of the filing date.
You may request copies of these filings, at no cost, by writing or
telephoning us as follows:
Investor Relations
DynaGen, Inc.
840 Memorial Drive
Cambridge, Massachusetts 02139
Telephone: (617) 491-2527
This prospectus is part of a registration statement on Form S-3 we filed
with the SEC under the Securities Act of 1933. This prospectus does not contain
all of the information contained in the registration statement. For further
information about us and our Common Stock, you should read the registration
statement and the exhibits filed with the registration statement.
12
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses to be paid by the
Registrant in connection with the issuance and distribution of the shares of
common stock being registered. All amounts shown are estimates, except for the
Securities and Exchange Commission registration fee. The Registrant will pay all
expenses in connection with the distribution of the shares of common stock being
sold by the Selling Stockholders (including fees and expenses of counsel for the
Registrant), except for the underwriting discount and for legal fees of any
counsel selected by any particular Selling Stockholder.
Securities and Exchange Commission registration fee................ $ 1,139.37
Boston Stock Exchange listing additional shares fee................ 5,000.00
Accounting fees and expenses....................................... 2,000.00
Legal fees and expenses............................................ 12,000.00
Blue sky fees and expenses, including legal fees................... 1,000.00
Printing, EDGAR formatting and mailing expenses.................... 2,000.00
Miscellaneous...................................................... 1,860.63
-----------
Total $ 25,000.00
===========
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 enterpris 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
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.
II-1
<PAGE>
(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 office 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, 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.
II-2
<PAGE>
(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."
(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").
II-3
<PAGE>
ITEM 16. EXHIBITS
EXHIBIT NO.
- ------------
4.1 Specimen certificate for common stock filed as Exhibit 4a to the
Company's Registration Statement on Form S-1, No. 33-31836-B and
incorporated by reference)
4.2 Securities Purchase Agreement dated May 13, 1999 by and among the
Company and the several purchasers named therein
4.3 Form of Debenture issued in connection with the May 13, 1999
Securities Purchase Agreement
4.4 Form of Common Stock Purchase Warrant issued in connection with
the May 13, 1999 Securities Purchase Agreement
4.5 Registration Rights Agreement dated May 13, 1999
4.6 Form of Exchange Agreement dated June 29, 1999
4.7 Certificate of Designations, Preferences, and Rights of Series I
Preferred Stock
5.1 Opinion of Foley, Hoag & Eliot LLP
23.1 Consent of Wolf & Company, P.C.
23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
24.1 Powers of Attorney (included on page II-5)
- --------------
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required to Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement; and
(iii) 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;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the registration statement is on Form S-3, Form S-8,
or Form F-3, and the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this 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.
II-4
<PAGE>
(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.
(b) The undersigned Registrant hereby undertakes 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 Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference to 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 initia bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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.
II-5
<PAGE>
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 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cambridge, Commonwealth of Massachusetts, as of July
13, 1999.
DYNAGEN, INC.
By /s/ C. Robert Cusick
-------------------------------------
President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of DynaGen, Inc., hereby
severally constitute and appoint each of C. Robert Cusick and Dhananjay G.
Wadekar our true and lawful attorney with full power to sign for us and in our
names in the capacities indicated below, any and all pre-effective and
post-effective amendments to the Registration Statement on Form S-3 filed
herewith, and any subsequent Registration Statement for the same offering which
may be filed under Rule 462(b) under the Securities Act of 1933, and generally
to do al such things in our names and on our behalf in our capacities as
officers and directors to enable DynaGen, Inc. to comply with the provisions of
the Securities Act of 1933 and all requirements of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be signed
by our said attorneys, or any of them, to any and all amendments to said
Registration Statement or to any subsequent Registration Statement for the same
offering that may be filed under said Rule 462(b).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated as of July 13, 1999.
<TABLE>
<CAPTION>
SIGNATURE Date Title
--------- ---- -----
<S> <C> <C>
/S/ C. ROBERT CUSICK July 13, 1999 President, Chief Executive Officer, Treasurer
- -------------------------------------------------------------- and Director
C. ROBERT CUSICK (Principal Executive Officer, Principal
Financial and Accounting Officer)
/S/ DHANANJAY G. WADEKAR July 13, 1999 Executive Vice President and Director
- --------------------------------------------------------------
DHANANJAY G. WADEKAR
/s/ F. Howard Schneider July 13, 1999 Director
- --------------------------------------------------------------
F. HOWARD SCHNEIDER
/s/ Steven Georgiev July 13, 1999 Director
- --------------------------------------------------------------
STEVEN GEORGIEV
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
EXHIBITS
EXHIBIT NO.
- ------------
4.1 Specimen certificate for common stock (filed as Exhibit 4a to the
Company's Registration Statement on Form S-1, No. 33-31836-B, and
incorporated by reference)
4.2 Securities Purchase Agreement dated May 13, 1999 by and among the
Company and the several purchasers named therein
4.3 Form of Debenture issued in connection with the May 13, 1999
Securities Purchase Agreement
4.4 Form of Common Stock Purchase Warrant issued in connection with
the May 13, 1999 Securities Purchase Agreement
4.5 Registration Rights Agreement dated May 13, 1999
4.6 Form of Exchange Agreement dated June 29, 1999
4.7 Certificate of Designations, Preferences, and Rights of Series I
Preferred Stock
5.1 Opinion of Foley, Hoag & Eliot LLP
23.1 Consent of Wolf & Company, P.C.
23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
24.1 Powers of Attorney (included on page II-5)
II-7
Exhibit 4.2
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT ("Agreement") by and among DYNAGEN INC., a
Delaware corporation (the "Company"), [INSERT NAMES OF PURCHASERS] (collectively
"Purchaser"), dated as of May 13, 1999.
RECITALS
WHEREAS, the Company and the Purchaser are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded, inter alia, by Rule 506 under Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "1933 Act"), and/or
Section 4(2) of the 1933 Act; and
WHEREAS, the Purchaser wishes to purchase, upon the terms and subject to
the conditions of this Agreement, 8% Convertible Debentures of the Company (the
"Debentures") which which will be convertible into shares of Common Stock, $.01
par value per share, of the Company (the "Common Stock"), upon the terms and
subject to the conditions of such Convertible Debentures, and subject to
acceptance of this Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Agreement to Purchase; Purchase Price.
1.1 The undersigned hereby agrees to purchase from the Company the
Debentures in the principal amount set forth on the signature page of this
Agreement (the "Initial Debentures"), out of a total offering of up to$3,000,000
of such Debentures, and having the terms and conditions and being in the form
attached hereto as ANNEX I. The purchase price for the Initial Debentures shall
be as set forth on the signature page hereto and shall be payable in United
States Dollars.
(a) As used herein, the term "Debentures" means the Initial
Debentures unless the context otherwise requires.
(b) As used herein, the term "Securities" means the Debentures and
the Common Stock.
(c) As used herein, the term "Purchase Price" means the purchase
price for the Initial Debentures.
(d) As used herein, the term "Closing Date" means the relevant
Initial Closing Date.
(e) As used herein, the term "Transaction Documents" means the
Securities Purchase Agreement, the Registration Rights Agreement, the Debenture,
the Warrant and the Joint Escrow Instructions.
1.2 Form of Payment; Delivery of Debentures.
(a) The Purchaser shall pay the Purchase Price for the relevant
Debentures by delivering immediately available good funds in United States
Dollars to the escrow agent (the "Escrow Agent") identified in the Joint Escrow
Instructions attached hereto as ANNEX II (the "Joint Escrow Instructions") on
the date prior to the relevant Closing Date.
<PAGE>
(b) No later than the relevant Closing Date, but in any event
promptly following payment by the Purchaser to the Escrow Agent of the relevant
Purchase Price, the Company shall deliver the relevant Debentures duly executed
on behalf of the Company to the Escrow Agent.
(c) By signing this Agreement, each of the Purchaser and the
Company, subject to acceptance by the Escrow Agent, agrees to all of the terms
and conditions of, and becomes a party to, the Joint Escrow Instructions, all of
the provisions of which are incorporated herein by this reference as if set
forth in full.
1.3 Method of Payment. Payment into escrow of the Purchase Price shall
be made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
Account No.: [To be provided by Krieger & Prager]
Not later than 5:00 p.m., New York time, on the date which is one (1) New York
Stock Exchange trading days after the Company shall have accepted this Agreement
and returned a signed counterpart of this Agreement to the Escrow Agent by
facsimile, the Purchaser shall deposit with the Escrow Agent the Purchase Price
for the Initial Debentures in currently available funds. Time is of the essence
with respect to such payment, and failure by the Purchaser to make such payment,
shall allow the Company to cance this Agreement.
1.4 Escrow Property. The Purchase Price and the Debentures delivered to
the Escrow Agent as contemplated by Sections 1.2(a) and (b) hereof are referred
to as the "Escrow Property."
2. Representations and Warranties of Purchaser. To induce the Company's
acceptance of this Agreement, each of Purchasers hereby severally certifies,
represents and warrants to the Company and its agents and attorneys as follows:
2.1 Intent. Purchaser will be acquiring the Debentures and any shares of
Common Stock acquired upon conversion of the Debentures, for its own account,
and Purchaser has no present arrangement (whether or not legally binding) to
sell any of the Securities to or through any person or entity or any intention
to effect a distribution of Securities; provided, however, that by making the
representations herein, Purchaser does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with U.S. federal and state securities laws
applicable to such disposition and any restrictions imposed on such transfer by
this Agreement or the instruments and documents executed in connection with this
Agreement. Purchaser understands that the Securities must be held indefinitely
unless the Securities are subsequently registered under the Securities Act or an
exemption from registration is available. Purchaser has been advised or is aware
of the provisions of Rule 144 promulgated under the Securities Act.
2.2 Sophisticated Investor And Accredited Investor. Purchaser is a
"sophisticated investor" (as described in Rule 506(b)(2)(ii) of Regulation D)
and an "accredited investor" (as defined in Rule 501(a) of Regulation D), and
Purchaser has such knowledge and experience in business and financial matters
that it is capable of evaluating the merits and risks of an investment in the
Company's securities.
2.3 Ability of Purchaser to Bear Risk of Investment. Purchaser
acknowledges that the Securities are speculative investments and involve a high
degree of risk and the Purchaser is able to bear the economic risk of an
investment in the Securities, and, at the present time, is able to afford a
complete loss of such investment.
2.4 Authority. The Transaction Documents have been duly authorized and
validly executed and delivered by each Purchaser and (assuming due authorization
and valid execution by the Company) are legal, valid and
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binding agreements of Purchaser enforceable against Purchaser in accordance with
their terms, subject to general principles of equity and to bankruptcy,
insolvency or similar laws relating to, or affecting generally the enforcement
of creditors' rights and remedies or by other equitable principles of general
application. The person or persons executing the Transaction Documents and
documents or instruments executed in connection with this Agreement have all
requisite authority to do so on behalf of Purchaser.
2.5 Brokers, Finders. Each Purchaser has taken no action which would
give rise to any claim by any person for brokerage commission, finder's fees or
similar payments by the Company relating to this Agreement or the transactions
contemplated hereby. The Company shall have no obligation with respect to such
fees or with respect to any claims made by or on behalf of other Persons for
fees of a type contemplated in this Section 2.5 that may be due in connection
with the transactions contemplated hereby. Purchaser shall indemnify and hold
harmless the Company, its respective employees, officers, directors, agents, and
partners, and their respective affiliates, from and against all claims, losses,
damages, costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees, as and when
incurred.
2.6 Organization; Authority. Each Purchaser is an entity organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents, and to
carry out its obligations thereunder. The acquisition of the Securities and the
payment of the purchase price therefor by such Purchaser have been duly
authorized by all necessary action on the part of such Purchaser.
2.7 Absence of Conflicts. The execution and delivery of the Transaction
Documents and any other document or instrument executed in connection herewith
or therewith, and the consummation of the transactions contemplated hereby or
thereby and compliance with the requirements thereof, will not violate any law,
rule, regulation, order, writ, judgment, injunction, decree or award binding on
such Purchaser, or the provision of any indenture, instrument or agreement to
which such Purchaser is a party or is subject, or by which such Purchaser or any
of its assets is bound, or conflict with or constitute a material default
thereunder, or require the approval of any third-party pursuant to any material
contract, agreement, instrument, relationship or legal obligation to which such
Purchaser is subject or to which any of its assets, operations or management may
be subject.
2.8 Disclosure; Access to Information. Each Purchaser has received
copies of or has had access to all documents, records, books and other
information pertaining to such Purchaser's investment in the Company and the
Securities that have been requested by such Purchaser. Each Purchaser has been
afforded the opportunity to ask questions of the Company and its management.
Such Purchaser further acknowledges that it understands that the Company is
subject to the periodic reporting requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and such Purchaser has reviewed or
received copies of any such reports that have been requested by it, including
the Company's Annual Report or form 10-KSB for the year ended December 31, 1998.
Such Purchaser further acknowledges that it has been provided with copies of the
Company's Certificate of Incorporation and By-Laws.
2.9 Manner of Sale. At no time was Purchaser presented with or solicited
by or through any leaflet, public promotional meeting, television advertisement
or any other form of general solicitation or advertising with respect to the
Securities.
2.10 Accuracy of Other Materials. To the extent Purchaser has received
from the Company documents or other materials which constitute summaries,
projections, forecasts or estimates, Purchaser acknowledges the following with
respect to such documents or other materials. Such documents or other materials
are intended to illustrate projected financial and other results based upon a
set of assumptions (in some cases based on information obtained by the Company
from outside sources) the Company views as reasonable and obtainable. All such
summaries, projections, forecasts or estimates pertaining to revenue growth,
profitability and other similar financial or market data are forward-looking
statements. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. No
representations or warranties of future performance by or market trends for the
Company are intended, and such are expressly disclaimed.
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2.11 Accuracy of Representations and Information. All representations
made by Purchaser in the Transaction Documents and all documents and instruments
related to this Agreement or the other Transaction Documents, and all
information provided by Purchaser to the Company concerning Purchaser are
correct and complete in all material respects as of the date hereof.
2.12 Conversion Limitation. Notwithstanding the provisions hereof, in no
event (except (i) with respect to a Mandatory Conversion or (ii) if the Company
is in default under any provision of the Debentures or of any of the Transaction
Agreements, as defined above) shall the holder be entitled to convert any
Debentures to the extent that, after such conversion, the sum of (1) the number
of shares of Common Stock beneficially owned by the Purchaser and its affiliates
(other than shares of Common Stock which may be deemed beneficially owned
through the ownership of the unconverted portion of the Debentures or
unexercised portion of the Warrants), and (2) the number of shares of Common
Stock issuable upon the conversion of the Debentures or exercise of the Warrants
with respect to which the determination of this proviso is being made, would
result in beneficial ownership by the Purchaser and its affiliates of more than
9.99% of the outstanding shares of Common Stock. For purposes of the proviso to
the immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), except as otherwise provided in clause (1) of such proviso.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to Purchaser as follows:
3.1 Company Status. The Company has registered its shares of Common
Stock pursuant to Section 12(g) of the Exchange Act, is in full compliance with
all reporting requirements of the Exchange Act, and the Company has maintained
all requirements for the continued listing of its Common Stock on the Nasdaq OTC
Bulletin Board, and such Common Stock is currently listed on the Nasdaq OTC
Bulletin Board and the Boston Stock Exchange.
3.2 Current Public Information. The Company has furnished or made
available to Purchaser through directing the Purchaser to the Company's filings
on the SEC Web site, true and correct copies of all registration statements,
reports and documents, including proxy statements (other than preliminary proxy
statements), filed with the Securities and Exchange Commission (the "SEC") by or
with respect to the Company since December 31, 1997 and prior to the date of
this Agreement, pursuant to the Securities Act or the Exchange Act, including
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998
(collectively, the "SEC Documents"). The SEC Documents are the only filings made
by or with respect to the Company since December 31, 1997 pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act or pursuant to the Securities
Act. The Company has filed all reports, schedules, forms, statements and other
documents required to be filed under Sections 13(a), 13(c), 14 an 15(d) of the
Exchange Act since January 1, 1997 and prior to the date of this Agreement. The
Company currently meets the "Registrant Requirement" for eligibility to use Form
S-3 under the Securities Act in order to register the Company's Securities for
resales.
3.3 No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Securities.
3.4 Valid Issuance of Securities. The Company has an authorized
capitalization consisting of 75,000,000 shares of Common Stock, par value $0.01
per share, and 10,000,000 Preferred Shares par value $0.01 per share. As of the
date of this Agreement, the Company has issued and outstanding the shares of
capital stock, options, warrants and convertible securities set forth on
Schedule 3.4. All of the shares of Common Stock of the Company issued to date
have been duly and validly authorized and issued and are fully paid and
non-assessable. Except as set forth above or as disclosed in Schedule 3.4,the
SEC Documents as of the date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or
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any of its subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of it subsidiaries is or may become
bound to redeem or issue additional shares of capital stock of the Company or
any of its subsidiaries or options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of the Company or any of
its subsidiaries, (ii) there are no outstanding debt securities and (iii) there
are no agreements or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of any of their securities under
the Securities Act. Except for the disclosed in Schedule 3.4, there are no
securities or instruments containing any anti-dilution, right of first refusal,
preemptive rights or similar provisions that will be triggered by the issuance
of the Securities as described in this Agreement. Upon issuance of the
Securities, such securities will be duly and validly issued, fully paid and
non-assessable.
3.5 Organization and Qualification. The Company is a corporation duly
organized and existing in good standing under the laws of the State of Delaware,
and has the requisite corporate power to own its properties and to carry on its
business as now being conducted. The Company does not have any subsidiaries,
except for those listed on Schedule 3.5 attached to this Agreement (the
"Subsidiaries"). The Subsidiaries are duly incorporated or organized and
existing in good standing under the laws of the jurisdiction of their
incorporation or organization. The Company and each of the Subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect. "Material
Adverse Effect" means any effect on the business, operations, properties,
prospects, or financial condition of the Company and its Subsidiaries taken as a
whole or which would prohibit or otherwise materially interfere with the ability
of the Company to enter into and perform its obligations under the Transaction
Documents.
3.6 Authorization: Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Transaction Documents, Debentures and the Registration
Rights Agreement (the "Transaction Documents"), and to issue the Securities in
accordance with the terms of the Transaction Documents, (ii) the execution,
issuance and delivery of the Transaction Documents by the Company and the
consummation by it of the transactions contemplate by the Transaction Documents
have been duly authorized by all necessary corporate action, and no further
consent or authorization of the Company or its board of directors or
shareholders is required, (iii) the Transaction Documents have been duly
executed and delivered by the Company, and (iv) the Transaction Documents
(assuming due authorization and valid and legal execution) constitute legal,
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
3.7 No Conflicts. To the best of the Company's knowledge after diligent
inquiry, the execution, delivery and performance of the Transaction Documents by
the Company and the consummation by the Company of the transactions contemplated
hereby, including without limitation the issuance of the Securities, do not and
will not (i) result in a violation of the Company's Certificate of Incorporation
or By-Laws, or (ii) conflict with, or result in a breach of or forfeiture of any
rights (or result in an event which with notice or lapse of time or both would
become a breach of or forfeiture of any rights) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of the
Subsidiaries is a party, or (iii) result in a violation of any federal or state
law, rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations) applicable to the Company or any of the
Subsidiaries or by which any property or asset of the Company or any of the
Subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect). The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations which either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Securities in accordance with the terms of this
Agreement (other than any SEC, NASD or state securities filings which may be
required to be
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made by the Company subsequent to any Closing, and any registration statement
which may be filed in furtherance of this Agreement); provided that, for
purposes of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
Purchaser herein. Except disclosed in the SEC Documents, neither the Company nor
any of the Subsidiaries is in violation of any material term of or in material
default under its certificate of incorporation, by-laws, or any material
contract, agreement, mortgage, indebtedness, indenture, instrument, judgment,
decree of order or any statute, rule or regulation applicable to the Company or
is subsidiaries, which has not been duly waived as of the date of this
Agreement, except for any of the foregoing that do not, individually or in the
aggregate, have a Material Adverse Effect.
3.8 SEC Documents. The Company has not provided to Purchaser any
information which according to applicable law, rule or regulation, should have
been disclosed publicly prior to the date hereof by the Company but which has
not been so disclosed. As of their respective dates, the SEC Documents complied,
and all similar documents filed with the SEC prior to the Closing Date will
comply, in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such SEC Documents, and none of the SEC Documents
contained, nor will any similar document filed with the SEC prior to the Closing
Date contain, any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Documents, as of the dates thereof, complied, and all similar documents filed
with the SEC prior to the Closing Date will comply, as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC and other applicable rules and regulations with respect
thereto. Such financial statements were prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto or (ii) in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed or summary statements
as permitted by Form 10-Q of the SEC) and fairly present in all material
respects the financial position of the Company and its consolidated subsidiaries
as of the dates thereof and the consolidated results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).
3.9 No Undisclosed Liabilities. Except to the extent described in
Schedule 3.19, the Company and the Subsidiaries have no liabilities or
obligations of a financial nature (whether accrued, absolute, contingent or
otherwise), which are material, individually or in the aggregate, and are not
disclosed in the SEC Documents, other than those incurred in the ordinary course
of the Company's or the Subsidiaries' respective businesses consistent with past
practice since December 31, 1997, and which, individually or in the aggregate,
do not or would not have a Material Adverse Effect on the Company.
3.10 Litigation and Other Proceedings. Except as may be set forth in the
SEC Documents or otherwise disclosed in writing to the Purchaser, there are no
lawsuits or proceedings pending or to the best knowledge of the Company
threatened, against the Company, nor has the Company received any written or
oral notice of any such action, suit, proceeding or investigation, which might
have a Material Adverse Effect on the Company or which might materially
adversely affect the transactions contemplated by this Agreement. Except as set
forth in the SEC Documents no judgment, order, writ, injunction or decree or
award has been issued by or, to the best knowledge of the Company, requested of
any court, arbitrator or governmental agency which might result in a Material
Adverse Effect or which might materially adversely affect the transactions
contemplated by this Agreement.
3.11 Other Documents or Materials. With respect to any document or other
materials received by Purchaser from the Company or its representatives other
than the Transaction Documents and the SEC Documents, (i) the Company has no
reason to believe any of such documents and materials or any projections
contained therein, as of the date of such other documents or materials,
contained errors or misstatements or do not adequately describe the status of
the development of the Company's technologies or its business as of such date,
and (ii) such documents, materials and projections were prepared by the Company
and its management in good faith.
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3.12 Nature of Company. The Company is not an open ended investment
company or a unit investment trust, registered or required to be registered, or
a closed end investment company required to be registered, but not registered,
under the Investment Company Act of 1940.
3.13 Brokers, Finders. Except for payment of fees to Caldwell Capital,
payment of which is the sole responsibility of the Company, the Company has
taken no action which would give rise to any claim by any person for brokerage
commission, finder's fees or similar payments by Purchaser relating to this
Agreement or the transactions contemplated hereby. Purchaser shall have no
obligation with respect to such fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this Section 3.14
that may be due in connection with the transactions contemplated hereby. The
Company shall indemnify and hold harmless each of Purchaser, their respective
employees, officers, directors, agents, and partners, and their respective
affiliates, from and against all claims, losses, damages, costs (including the
costs of preparation and attorney's fees) and expenses suffered in respect of
any such claimed or existing fees, as and when incurred.
3.14 Absence of Certain Changes. Except as disclosed in the SEC
Documents, since December 31, 1998, no Material Adverse Effect has been suffered
by, and no material adverse development has occurred in the business,
properties, operations, financial condition, results of operations or prospects
of, the Company or the Subsidiaries, except as set forth on Schedule 3.15
hereto. Except as disclosed in the SEC Documents, the Company has not taken any
steps, and does not currently expect to take any steps, to seek protection
pursuant to any bankruptcy law nor does the Company or any of the Subsidiaries
have any knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings.
3.15 Intellectual Property Rights. The Company and its subsidiaries do
not have any knowledge of any infringement by the Company or its subsidiaries of
trademarks, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service mark registrations, trade
secrets or other similar rights of others, or of any such development of similar
or identical trade secrets or technical information by others and, there is no
claim, action or proceeding being made or brought against, or to the best
knowledge of the Company, being threatened against, the Company or its
subsidiaries regarding trademark, trade name, patent, patent rights, invention,
copyright, license, service name, service mark, service mark registration, trade
secret or other infringement; and the Company and its subsidiaries are unaware
of any facts or circumstances which might give rise to any of the foregoing. The
Company and its subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual properties.
3.16 Tax Status. The Company and the Subsidiaries have made or filed all
federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject and has paid all taxes and
other governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports, declarations, except those being
contested in good faith and has set aside on its books provisions reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports, or declarations apply. There are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.
3.17 Certain Transactions. Except as set forth in the SEC Documents and
except for arm's length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options, none of the current officers, directors, or employees of the Company
(or any spouse or relative of any such person) is presently a party to any
transaction with the Company (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
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3.18 Dilution. The number of shares of Common Stock issuable upon
conversion of the Debentures may increase substantially in certain
circumstances, including, but not necessarily limited to, the circumstance
wherein the trading price of the Common Stock declines during the sixty day
period between the Effectiveness Date and the Second Closing Date. The Company's
executive officers and directors have studied and fully understand the nature of
the transactions contemplated by this Agreement and recognize that they have a
potential dilutive effect. The board of directors of the Company has concluded,
in its good faith business judgment, that such issuance is in the best interests
of the Company. The Company specifically acknowledges that its obligation to
issue additional Shares pursuant to the Debenture is binding upon the Company
and enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company.
3.19 Nasdaq Listing. The Company's Common Stock is presently quoted on
the Nasdaq OTC Bulletin Board and the Boston Stock Exchange under the symbol
"DYGN". Except as set forth in a letter from the Boston Stock Exchange requiring
a response by May 10, 1999, the Company meets all criteria except the $500,000
net worth requirements of the Boston Stock Exchange. Except as set forth in this
Section 3.19, the Company is not in receipt of any written notice from any stock
exchange, market or trading facility on which the shares of Common Stock are or
have been listed (or on which they are or have been quoted) to the effect that
the Company is not in compliance with the listing or maintenance requirements of
such stock exchange, market or trading facility or that the shares of Common
Stock will be delisted from such stock exchange, market or trading facility.
3.20 No Integrated Offering. Neither the Company nor any of its
affiliates nor any person acting on its or their behalf has, directly or
indirectly, at any time since August 1998, made any offer or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under
Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
4. Use and Disposition of Proceeds. The Company will use the proceeds from
the sale of the Debentures pursuant thereto (excluding amounts paid by the
Company for legal fees, finder's fees and escrow agent fees in connection with
the sale of the Debentures) for general company purposes and acquisitions, but
shall not, directly or indirectly, use such proceeds for investment in any other
affiliate or to repay debt to affiliates other than debt to former stockholders
of Superior Pharmaceutical.
5. Company Reliance on Purchaser's Representations. Purchaser understands
that the Company is relying on the truth and accuracy of the representations and
warranties made herein by Purchaser in offering the Securities for sale and in
relying upon applicable exemptions available under the Act and applicable state
securities laws.
6. Restricted Shares. Purchaser understands and acknowledges that the
Initial Securities have not been, and will not as of the time issued, be
registered under the Securities Act and that they will be issued in reliance
upon exemptions from the registration requirements of the Securities Act, and
thus cannot be resold unless they are included in an effective registration
statement filed under the Securities Act or unless an exemption from
registration is available for such resale. With regard to the restrictions on
resales of the Securities, Purchaser is aware (a) that the Company will issue
stop transfer orders to its stock transfer agent in the event of attempts to
improperly transfer any such securities; and (b) that a restrictive legend will
be placed on certificates representing the Securities, which legend will read
substantially as follows:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAW.
ACCORDINGLY, THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
ASSIGNED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT UNDER THE ACT WITH RESPECT TO SUCH SECURITIES AND THE
REGISTRATION AND QUALIFICATIONS OF THE SECURITIES UNDER APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE COMPANY IN FORM AND CONTENT, THAT
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SUCH REGISTRATION OR QUALIFICATION UNDER THE SECURITIES ACT AND STATE
SECURITIES LAWS IS NOT REQUIRED.
The legend set forth above shall be promptly removed, and the Company shall
issue a certificate without such legend to the holder of any such Securities
upon which such legend is stamped, if, unless otherwise required by state
securities laws, (i) such Securities are registered for resale under the
Securities Act, or (ii) such holder provides the Company with reasonable
assurances that such Securities can be sold pursuant to Rule 144(k) promulgated
under the Securities Act. Notwithstanding the removal of the legend set forth
above in the event the Securities are registered for resale on an effective
registration statement, the Company reserves the right to affix a legend on
certificates representing such Securities that any selling shareholder must
comply with the prospectus delivery requirements of the Securities Act in
connection with any resale. The Company shall bear the cost of the removal of
any legend as anticipated by this Section 6.
7. Other Covenants of the Company.
7.1 Furnishing of Information. As long as Purchaser owns Securities, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange
Act. If at any time prior to the date on which the Purchasers may resell all of
their Securities without volume restrictions pursuant to Rule 144(k) promulgated
under the Securities Act (as determined by counsel to the Company pursuant to a
written opinion letter to such effect), the Company is not required to file
reports pursuant to such sections, it will prepare and furnish to the Purchasers
and make publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
management's discussion and analysis of such financial statements in form and
substance substantially similar to those that woul otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the Exchange Act in
the time period that such filings would have been required to have been made
under the Exchange Act.
7.2 Listing of Securities. The Company shall (a) not later than the
Effective Date, prepare and file with the Nasdaq OTC Bulletin Board (as well as
any other national securities exchange, market or trading facility on which the
Securities are then listed) any additional shares listing application covering
the Securities covered by on the Nasdaq OTC Bulletin Board, (b) take all other
steps, if any, which may be necessary to cause such Securities to be approved
for listing on the Nasdaq OTC Bulletin Board (as well as on any other national
securities exchange, market or trading facility on which the Securities are then
listed) as soon as possible thereafter, and (c) provide to Purchaser evidence of
such listing, and the Company shall use its best efforts to maintain the listing
of its Securities on such exchange or market.
7.3 Certain Agreements.
(a) Except in accordance with the provisions of Section 7.4 hereof
and the Registration Rights Agreement, the Company covenants and agrees that it
will not, without the prior written consent of the Purchaser, enter into any
subsequent or further offer or sale of the Debentures, Common Stock, or
securities convertible into shares of Common Stock with a market value exceeding
$500,000 with any third party which would require the filing of a Registration
Statement prior to sixty (60) days after the Effective Date.
(b) The provisions of Subsection 7.4 shall not apply to (i) the
issuance of Debentures constituting "restricted securities" within the meaning
of Rule 144, provided the holder thereof holds such Securities for at least one
year from the date of issuance; (ii) public offerings of Securities at market;
or (iii) the issuance of securities (other than for cash) in connection with a
merger, consolidation, purchase of assets, or the exchange of capital stock for
assets, stock or other interests; (iv) the sale or issuance of Securities upon
the exercise of currently outstanding options, warrants or rights or upon the
exercise of options hereafter granted to employees or directors of the Company,
(v) the conversion of currently outstanding convertible securities, or (vi) in
connection with the Settlement of the Superior Pharmaceuticals litigation.
9
<PAGE>
7.4 First Right. Each time the Company proposes to sell securities
convertible into or exercisable for shares of its common stock in a capital
raising transaction, prior to closing any such transaction, the Company shall
first notify the Investors in writing stating (i) its bona fide intent to sell
such securities, (ii) a detailed description of the price and terms upon which
the Company intends to sell such securities, and (iii) the number or amount of
the securities proposed to be sold. The Investors shall have five business days
to inform the Company in writing that they wish to purchase all, but not a part,
of the securities proposed to be sold by the Company on the terms and for the
price set forth in the Company's notice. If the Investors shall not exercise
such right, the Company may proceed to sell such securities for the price and on
the terms set forth in its notice. If such transaction is not closed within 60
days of the Company's notice to the Investors, the Investos right set forth in
this paragraph 7.4 shall be deemed to be revived and such securities shall not
be sold unless reoffered to the Investors in accordance herewith. The right of
refusal set forth herein shall not be applicable to sales of securities
described in Section 7.3(b) of this Agreement.
7.5 Available Shares. The Company shall have at all times authorized and
reserved for issuance, free from preemptive rights, shares of Common Stock
sufficient to issue the Repricing Shares.
7.6 Reimbursement. If (i) any Purchaser, other than by reason of its
gross negligence or willful misconduct or violation of any applicable law, rule
or regulation, becomes involved in any capacity in any action, proceeding or
investigation brought by any stockholder of the Company, in connection with or
as a result of the consummation of the transactions contemplated by Transaction
Documents, or is impleaded in any such action, proceeding or investigation, or
(ii) any Purchaser, other than by reason of its gross negligence or willful
misconduct or by reason of its trading of the Company's Securities in a manner
that is illegal under the federal securities laws, rules or regulations or by
reason of its violation of any other law, becomes involved in any capacity in
any action, proceeding or investigation brought by the Commission against or
involving the Company or in connection with or as a result of the consummation
of the transactions contemplated by the Transaction Documents, or is impleaded
in any such action, proceeding or investigation by any person, then in any such
case, the Company will reimburse such Purchaser for its reasonable legal and
other expenses (including the cost of any investigation and preparation)
incurred in connection therewith, as such expenses are incurred. In addition,
other than with respect to any matter in which such Purchaser is a named party
or is impleaded, the Company will pay such Purchaser the charges, as reasonably
determined by such Purchaser, for the time of any officers or employees of such
Purchaser devoted to appearing and preparing to appear as witnesses, assisting
in preparation for hearings, trials or pretrial matters, or otherwise with
respect to inquiries, hearing, trials, and other proceedings relating to the
subject matter of this Agreement. The reimbursement obligations of the Company
under this paragraph shall be in addition to any liability which the Company may
otherwise have, shall extend upon the same terms and conditions to any
affiliates of the Purchasers who are actually named in such action, proceeding
or investigation, and partners, directors, agents, employees and controlling
persons (if any), as the case may be, of the Purchasers and any such affiliate,
and shall be binding upon and inure to the benefit of any successors, assigns,
heirs and personal representatives of the Company, the Purchasers and any such
affiliate and any such Person. The Company also agrees that neither any
Purchaser nor any such affiliate, partners, directors, agents, employees or
controlling persons shall have any liability to the Company or any person
asserting claims on behalf of or in right of the Company in connection with or
as a result of the consummation of the Transaction Documents except to the
extent that any losses, claims, damages, liabilities or expenses incurred by the
Company result from the gross negligence or willful misconduct or violation of
law, rule or regulation by such Purchaser.
7.7 Release. Effective upon the mutual execution hereof, the Company,
for itself and on behalf of all affiliated persons and entities,
representatives, and all predecessors in interest, successors and assigns
(collectively, the "Releasing Parties"), hereby releases and forever discharges
each of Purchaser, and Purchaser's direct and indirect partners, officers,
directors, employees, affiliates, representatives, agents, trustees,
beneficiaries, predecessors in interest, successors in interest and nominees, of
and from any and all claims, demands, actions and causes of action, whether
known or unknown, fixed or contingent, arising prior to the Closing Date, that
the Company may have had, may now have or may hereafter acquire with respect to
any matters whatsoever under, relating to or arising from any prior Purchase
Agreement, Registration Agreement, the Existing Preferred Shares or Debentures,
and the agreements entered into in connection therewith (sometimes collectively
referred to as the
10
<PAGE>
"Prior Agreements") with the Purchaser or any affiliate of the Purchaser. The
Purchasers expressly agree that, if any of them commences an action against the
Company, the Company does not waive and the Company may raise (i) any and all
defenses and counterclaims it may have with respect to honoring the terms of the
Prior Agreements, or any (ii) offsets it may have with respect to the amounts
owed under the Prior Agreements.
The Company represents, warrants and covenants that it has not, and at
the time this release becomes effective will not have, sold, assigned,
transferred or otherwise conveyed to any other person or entity all or any
portion of its rights, claims, demands, actions or causes of action herein
released.
7.8 Warrants. The Company agrees to issue to Purchaser at the Closing,
transferable divisible warrants (the "Warrants") for ____________ shares of
Common Stock. Such Warrants shall bear an exercise price per share of Common
Stock as follows: 110% of the Market Price, as defined in the Debenture, on the
Closing Date, and shall be exercisable immediately upon issuance, and for a
period of three (3) years thereafter, in the form annexed hereto as Exhibit VI,
together with piggy-bac registration rights, and demand registration rights.
8. Transfer Agent Instructions.
8.1 Irrevocable Instructions. If the Company maintains a transfer agent
with respect to its Debentures and/or Common Stock, the Company will irrevocably
instruct that the transfer agent issue shares of Common Stock from time to time
in such amounts as shall be specified from time to time by the Company to the
transfer agent, bearing the restrictive legend specified in Section 5 of this
Agreement prior to registration under the Securities Act, registered in the name
of the Purchaser or its nominee and in such denominations to be specified by the
Purchaser and issuable by the Company. The Company warrants that no instruction
other than such instructions referred to in this Section 8 and stop transfer
instructions to give effect to Section 5 hereof prior to registration and sale
of the Securities under the Securities Act will be given by the Company to the
transfer agent and that the securities shall otherwise be freely transferable on
the books and records of the Company as and to th extent provided in this
Agreement, the Registration Rights Agreement, and applicable law. Nothing in
this Section 8 shall affect in any way the Purchaser's obligations and agreement
to comply with all applicable securities laws upon resale of the Securities.
8.2 Transmission of Certificates. The Company will transmit the
Certificates representing the unlegended securities to be issued to the
Purchaser pursuant to Section 8.2 via express courier, by electronic transfer or
otherwise, within three (3) business days after receipt by the Company of the
certificate representing the legended Common Stock (the "Delivery Date").
8.3 Delay. The Company understands that a delay in the issuance of the
securities beyond the Delivery Date could result in economic loss to the
Purchaser. As compensation to the Purchaser for such loss, the Company agrees to
pay late payments to the Purchaser for late issuance of unlegended securities in
accordance with the following schedule (where "No. Days Late" is defined as the
number of days beyond five (5) business days from Delivery Date):
Late Payment For Each
No. Days Late $10,000 of Common Stock
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
11
<PAGE>
9 $900
10 $1,000
>10 $1,000 +$200 for each
Business Day
Late beyond 10
days
The Company shall pay any payments incurred under this Section 9.4 in
immediately available funds upon demand. Nothing herein shall limit the
Purchaser's right to pursue actual damages for the Company's failure to issue
and deliver the unlegended securities to the Purchaser.
8.4 Cover. If, by the relevant Delivery Date, the Company fails for any
reason to deliver the Shares to be issued pursuant to Section 8.2 and after such
Delivery Date, the holder of the securities (a "Holder") purchases, in an open
market transaction or otherwise, the shares of Common Stock (the "Covering
Shares") in order to make delivery in satisfaction of a sale of shares of Common
Stock by the Holder (the "Sold Shares"), which delivery such Holder anticipated
to make using the Shares to be issued upon such conversion (a "Buy-In"), the
Company shall pay to the Holder, in addition to all other amounts contemplated
in other provisions of the Transaction Agreements, and not in lieu thereof, the
Buy-In Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is
the amount equal to the excess, if any, of (x) the Holder's total purchase price
(including brokerage commissions, if any) for the Covering Shares over (y) the
net proceeds (after brokerage commissions, if any) received by the Holder from
the sale of the Sold Shares. The Company shall pay the Buy-In Adjustment Amount
to the Company in immediately available funds immediately upon demand by the
Holder. By way of illustration and not in limitation of the foregoing, if the
Holder purchases shares of Common Stock having a total purchase price (including
brokerage commissions) of $11,000 to cover a Buy-In with respect to the shares
of Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment
Amount which Company will be required to pay to the Holder will be $1,000.
8.5 Electronic Transfer. In lieu of delivering physical certificates
representing the securities issuable upon conversion, provided the Company's
transfer agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program, upon request of the Purchaser and its
compliance with the provisions contained in this paragraph, so long as the
certificates therefor do not bear a legend and the Purchaser thereof is not
obligated to return such certificat for the placement of a legend thereon, the
Company shall use its best efforts to cause its transfer agent to electronically
transmit the shares of Common Stock issuable upon conversion to the Purchaser by
crediting the account of Purchaser's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission system.
9. Closing Date.
9.1 The closing of the issuance and sale of the Debentures shall occur
on the date (the "Closing Date") which is the first NYSE trading day after the
fulfillment or waiver of all closing conditions pursuant to Sections 10 and 11
hereof or such other date and time as is mutually agreed upon by the Company and
the Purchaser.
9.2 Each closing of the purchase and issuance of the Debentures shall
occur on the Closing Date, as the case may be, at the offices of the Escrow
Agent and shall take place no later than 12:00 Noon, New York time, on such day
or such other time as is mutually agreed upon by the Company and the Purchaser.
9.3 Notwithstanding anything to the contrary contained herein, the
Escrow Agent will be authorized to release the Escrow Property only upon
satisfaction of the conditions set forth in Sections 10 and 11 hereof.
10. Conditions To The Company's Obligation To Sell
The Purchaser understands that the Company's obligation to sell the
Debentures on the Closing Date to the Purchaser pursuant to this Agreement is
conditioned upon:
12
<PAGE>
10.1 The receipt and acceptance by the Purchaser of this Agreement as
evidenced by execution of this Agreement by the Purchaser.
10.2 Delivery by the Purchaser to the Escrow Agent of immediately
available funds as payment in full of an amount equal to the Purchase Price for
the Debentures in accordance with Section 1(c) hereof;
10.3 The accuracy on the Closing Date of the representations and
warranties of the Purchaser contained in this Agreement as if made on the
Closing Date, and the performance by the Purchaser on or before the Closing Date
of all covenants and agreements of the Purchaser required to be performed on or
before the Closing Date;
10.4 There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
10.5 No statute, rule, regulation, executive order, decree, ruling or
injunction shall be enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits or adversely
affects any of the transactions contemplated by this Agreement or the
Transaction Documents, and no proceeding or investigation shall have been
commenced or threatened which may have the effect of prohibiting or adversely
effecting any of the transactions contemplated by this Agreement or the
Transaction Documents.
11. Conditions To The Purchaser's Obligation To Purchase.
The Company understands that the Purchaser's obligation to purchase the
Debentures on the Closing Date is conditioned upon:
11.1 Acceptance by the Company of this Agreement for the sale of the
Debentures as indicated by execution of this Agreement;
11.2 Delivery by the Company to the Escrow Agent of the appropriate
Debentures in accordance with this Agreement;
11.3 The accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement as if
made on the Closing Date and the performance by the Company on or before the
Closing Date of all covenants and agreements of the Company required to be
performed on or before the Closing Date; and
11.4 On the Closing Date, the Purchaser having received an opinion of
counsel for the Company, dated the Closing Date, in form, scope and substance
reasonably satisfactory to the Purchaser, to the effect set forth in ANNEX III
attached hereto, the Registration Rights Agreement annexed hereto as ANNEX IV
and the Warrants.
11.5 No statute, rule, regulation, executive order, decree, ruling or
injunction shall be enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits or adversely
affects any of the transactions contemplated by this Agreement or the
Transaction Documents, and no proceeding or investigation shall have been
commenced or threatened which may have the effect of prohibiting or adversely
effecting any of the transactions contemplated by this Agreement or the
Transaction Documents.
11.6 From and after the date hereof to and including the initial Closing
Date, the trading of the Securities shall not have been suspended by the SEC, or
the NASD and trading in securities generally on the New York Stock Exchange or
NASDAQ OTC Bulletin Board shall not have been suspended or limited, nor shall
minimum prices been established for securities traded on NASDAQ OTC Bulletin
Board, nor shall there be any outbreak or escalation of hostilities involving
the United States or any material adverse change in any financial
13
<PAGE>
market that in either case in the reasonable judgment of the Purchaser makes it
impracticable or inadvisable to purchase the Debentures, as the case may be.
12. General Provisions.
12.1 Assignment. Neither this Agreement nor any rights of Purchaser
hereunder may be assigned by any party to any other person without the prior
written consent of the Company.
12.2 Attorneys' Fees. In the event any dispute arises under this
Agreement or the documents or instruments executed and delivered in connection
with this Agreement, and the parties hereto resort to litigation to resolve such
dispute, the prevailing party in any such litigation, in addition to all other
remedies at law or in equity, shall be entitled to an award of costs and fees
from the other party, which costs and fees shall include, without limitation,
reasonable attorneys' fees and legal costs.
12.3 Choice of Law; Venue. This Agreement will be construed and enforced
in accordance with and governed by the laws of the State of Delaware without
reference to principles of conflicts of law. The parties agree that, in the
event of any dispute arising out this Agreement or the transactions contemplated
thereby, venue for such dispute shall be in the state or federal courts located
in Delaware, and that each party hereto waives any objection to such venue based
on forum non conveniens.
12.4 Costs and Expenses. Except as provided in the Escrow Agreement, the
parties shall be responsible for and shall pay their own costs and expenses,
including without limitation attorneys' fees and accountants' fees and expenses,
in connection with the conduct of the due diligence inquiry, negotiation,
execution and delivery of this Agreement and the instruments, documents and
agreements executed in connection with this Agreement.
12.5 Counterparts/Facsimile Signatures. This Agreement may be executed
in one or more counterparts, each of which when so signed shall be deemed to be
an original, and such counterparts together shall constitute one and the same
instrument. In lieu of the original, a facsimile transmission or copy of the
original shall be as effective and enforceable as the original.
12.6 Entire Agreement: Amendment. This Agreement, together with the
exhibits to this Agreement and the other instruments and documents delivered in
connection with this Agreement constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof,
and no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth in
this Agreement or therein. Except as expressly provided in this Agreement,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
12.7 Headings. The headings of the sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
12.8 Notices. All notices or other communications provided for under
this Agreement shall be in writing, and mailed, telecopied or delivered by hand
delivery or by overnight courier service, as follows:
If to the Company:
DynaGen Inc.
840 Memorial Drive
Cambridge, Massachusetts 02139
ATT: President
Tel: (617) 491-2527
14
<PAGE>
Fax: (617) 354-3902
With a copy to:
David Broadwin, Esq.
Foley Hoag & Eliot LLP
1 Post Office Square
Boston, Massachusetts 02109
Fax: (617) 832-7000
If to Purchaser:
With a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
ATT: Samuel M. Krieger, Esq.
Tel: 212-689-3322
Fax: 212-213-2077
All notices and communications shall be effective as follows: When mailed, upon
three (3) business days after deposit in the mail (postage prepaid); when
telecopied, upon confirmed transmission of the telecopied notice; when hand
delivered, upon delivery; and when sent by overnight courier, the next business
day after deposit of the notice with the overnight courier.
12.9 Publicity. The Company and Purchaser shall consult with each other
in issuing any press releases or otherwise making public statements with respect
to the transactions contemplated hereby and no party shall issue any such press
release or otherwise make any such public statement without the prior written
consent of the other parties, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide the other
parties with prior notice of such public statement. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of Purchaser without
the prior written consent of such Purchaser, except to the extent required by
law. Purchaser acknowledges that this Agreement and all or part of the
Transaction Documents may be deemed to be "material contracts" as that term is
defined by Item 601(b)(10) of Regulation S-K, and that the Company may therefore
be required to file such documents as exhibits to reports or registration
statements filed under the Securities Act or the Exchange Act. Purchaser further
agrees that the status of such documents and materials as material contracts
shall be determined solely by the Company, in consultation with its counsel.
12.10 Severability. Should any one or more of the provisions of this
Agreement be determined to be illegal or unenforceable, all other provisions of
this Agreement shall be given effect separately from the provision or provisions
determined to be illegal or unenforceable and shall not be affected thereby.
12.11 Survival Of Representations And Warranties. The Company's and the
Purchaser's representations and warranties herein shall survive the execution
and delivery of this Agreement and the delivery of the Debentures and the
Purchase Price.
15
<PAGE>
[SIGNATURE PAGE FOLLOWS IMMEDIATELY]
16
<PAGE>
IN WITNESS WHEREOF, the parties named below have caused this Agreement
to be executed, as of the date first above written.
PURCHASER:
------------------------------------------
By: ______________________________________
Its: _______________________________
By: ______________________________________
Its: _______________________________
THE COMPANY:
DYNAGEN INC.
By: ______________________________________
Its: _______________________________
17
<PAGE>
SCHEDULE 2
PURCHASERS AND AMOUNT OF DEBENTURE PURCHASED
PURCHASER AMOUNT
--------- ------
Sovereign Partners L.P. $ 700,000
Canadian Advantage Limited Partnership $ 200,000
Dominion Investment Fund LLC $ 100,000
Dominion Capital Fund Limited $ 800,000
Endeavour Capital Fund S.A. $ 1,000,000
Gross Foundation, Inc. $ 200,000
18
<PAGE>
ANNEXES
-------
ANNEX I Form of Debenture
II Joint Escrow Instructions
III Form of Opinion
IV Registration Rights Agreement
V Form of Warrant
VI Company Disclosure Material
19
<PAGE>
SCHEDULE 4.4
CAPITALIZATION
1. First Refusal, Preemptive Rights or Similar Provisions
None.
20
<PAGE>
SCHEDULE 4.5
SUBSIDIARIES
1. GDI
2. Superior Pharmaceutical
3. Able Laboratories, Inc.
4. Apex
21
<PAGE>
SCHEDULE 4.10
UNDISCLOSED FINANCIAL LIABILITIES
22
<PAGE>
ANNEX VI
--------
DYNAGEN, INC. 8% CONVERTIBLE DEBENTURE
DUE APRIL 30, 2002
COMPANY DISCLOSURE MATERIALS
----------------------------
NONE
23
EXHIBIT 4.3
ANNEX I
TO
SECURITIES PURCHASE AGREEMENT
FORM OF DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE
BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE OR UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED, RESOLD, PLEDGED
OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR
EXEMPTION OR SAFE HARBOR THEREFROM.
No. 99-5 US $ 1,000,000
- ----------- -----------
DYNAGEN INC.
8% CONVERTIBLE DEBENTURE DUE APRIL 30, 2002
THIS DEBENTURE is one of a duly authorized issue of up to $3,000,000 in
Debentures of DYNAGEN INC., a corporation organized and existing under the laws
of the State of Delaware (the "Company"), designated as its 8% Convertible
Debentures. Such Debentures may be issued in series, each of which may have a
different maturity date, but which otherwise have substantially similar terms.
FOR VALUE RECEIVED, the Company promises to pay to THE ENDEAVOUR FUND S.A.,
the registered holder hereof (the "Holder"), the principal sum of ONE MILLION
and 00/100 Dollars (US $1,000,000) on April 30, 2002 (the "Maturity Date") and
to pay interest in Common Stock on the principal sum outstanding from time to
time in arrears (i) prior to the Maturity Date at the Market Price of the Common
Stock, semi-annually each year, (ii) upon conversion as provided herein or (iii)
on the Maturity Date, at the rate of 8% per annum accruing from May 13, 1999,
the date of initial issuance of this Debenture. Accrual of interest shall
commence on the first such business day to occur after the date hereof and shall
continue to accrue on a daily basis until payment in full of the principal sum
has been made or duly provided for.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Ten Thousand Dollars
(US$10,000) and integral multiples thereof. The Debentures are exchangeable for
an equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration or transfer or exchange.
<PAGE>
2. The Company shall be entitled to withhold from all payments of principal
of, and interest on, this Debenture any amounts required to be withheld under
the applicable provisions of the United States income tax laws or other
applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.
3. This Debenture has been issued subject to investment representations of
the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws. In the event of any proposed
transfer of this Debenture, the Company may require, prior to issuance of a new
Debenture in the name of such other person, that it receive reasonable transfer
documentation including legal opinions that the issuance of the Debenture in
such other name does not and will not cause a violation of the Act or any
applicable state or foreign securities laws. Prior to due presentment for
transfer of this Debenture, the Company and any agent of the Company may treat
the person in whose name this Debenture is duly registered on the Company's
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture be
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
4. A. The Holder of this Debenture is entitled, at its option, subject to
the following provisions of this Section 4, to convert all or a portion of the
principal and accrued interest on this Debenture into shares of Common Stock of
the Company, $0.01 par value per share ("Common Stock") at any time until the
Maturity Date, at a conversion price for each share of Common Stock (the
"Conversion Rate") equal to the Current Market Price (as defined below)
multiplied by eighty percent (80%); provided that the principal amount being
converted is the lower of (x) US $2,000 (unless if at the time of such election
to convert the aggregate principal amount of all Debentures registered to the
Holder is less than Two Thousand Dollars US $2,000, then the whole amount
thereof) or (y) the maximum amount which the Holder can then convert pursuant to
the terms of Section 4(D) hereof .
B. For purposes of this Debenture, the following terms have the meanings
indicated below:
(i) "Market Price of the Common Stock" means (x) the closing bid price
of the Common Stock for the period indicated in the relevant provision, as
reported by Bloomberg, LP or, if not so reported, as reported on the
over-the-counter market or (y) if the Common Stock is listed on a stock
exchange, the closing price on such exchange, as reported in The Wall Street
Journal.
(ii) "Current Market Price" means the average Market Price of the Common
Stock for the three (3) trading days (which need not be consecutive) selected by
the Holder from the five (5) trading days ending on the trading day immediately
before the relevant Conversion Date (as defined below).
C. Conversion shall be effectuated by surrendering the Debentures to be
converted to the Company's transfer agent, American Stock Transfer & Trust Co.,
accompanied by or preceded by facsimile or other delivery to the Company of the
form of conversion notice attached
2
<PAGE>
hereto as Exhibit A, executed by the Holder of the Debenture evidencing such
Holder's intention to convert this Debenture or a specified portion hereof, and
accompanied, if required by the Company, by proper assignment hereof in blank.
Subject to the provisions of Section 4(E) hereof, interest accrued or accruing
from the date of issuance to the date of conversion shall, at the option of the
Company, be paid in cash or Common Stock upon conversion at the Conversion Rate
applicable to such conversion. No fractional shares of Common Stock or scrip
representing fractions of shares will be issued on conversion, but the number of
shares issuable shall be rounded to the nearest whole share. The date on which
notice of conversion is given (the "Conversion Date") shall be deemed to be the
date on which the Holder faxes or otherwise delivers the conversion notice
("Notice of Conversion"), substantially in the form annexed hereto as Exhibit A,
duly executed, to the Company, provided that the Holder shall deliver to the
Company's transfer agent or the Company the original Debentures being converted
within five (5) business days thereafter (and if not so delivered with such
time, the Conversion Date shall be the date on whic the later of the Notice of
Conversion and the original Debentures being converted is received by the
Company). Facsimile delivery of the Notice of Conversion shall be accepted by
the Company at facsimile number (617) 354-6064, ATTN: Dhananjay Watekar.
Certificates representing Common Stock upon conversion will be delivered within
three (3) business days from the date the Notice of Conversion is delivered to
the Company as contemplated in the first sentence of this paragraph C or the
original Debenture is delivered to the Company's transfer agent or the Company.
D. Conversion Limitation. In no event (except (i) with respect to a
Mandatory Conversion or (ii) if the Company is in default under any provision of
the Debentures or of any of the Transaction Agreements, as defined in the
Securities Purchase Agreement to which these Debentures are issued) shall the
holder be entitled to convert any Debentures to the extent that, after such
conversion, the sum of (1) the number of shares of Common Stock beneficially
owned by the Purchaser and its affiliates (other than shares of Common Stock
which may be deemed beneficially owned through the ownership of the unconverted
portion of the Debentures or unexercised portion of the Warrants), and (2) the
number of shares of Common Stock issuable upon the conversion of the Debentures
or exercise of the Warrants with respect to which the determination of this
proviso is being made, would result in beneficial ownership by the Purchaser and
its affiliates of more than 9.99% of the outstanding shares of Common Stock. For
purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), except as otherwise provided
in clause (1) of such proviso.
E. Anything herein to the contrary notwithstanding, in the event the
Company breaches the provisions of Section 7.3 or 7.4 of the Securities Purchase
Agreement, the Conversion Rate shall be amended to be equal to (i) 90% of (ii)
the Conversion Rate determined in accordance with the other provisions of this
Debenture without regard to this Section 4(E), and the Holder may require the
Company to immediately redeem the outstanding portion of this Debenture in
accordance with clause (y of Section 6A hereof.
5. All principal and interest outstanding under any Debentures not
converted as of the Maturity Date, shall be automatically converted, without
further action of any kind by the Company
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or any of its agents, employees or representatives, as of the Maturity Date at
the Conversion Rate applicable on the Maturity Date ("Mandatory Conversion").
6. A. The Holder recognizes that the Company may be limited in the number
of shares of Common Stock it may issue by (i) reason of its authorized shares,
or (ii) the applicable rules and regulations of the principal securities market
on which the Common Stock is listed or traded (collectively, the"Cap
Regulations"). Without limiting the other provisions hereof, (i) the Company
will take all steps reasonably necessary to be in a position to issue shares of
Common Stock on conversion of the Debentures without violating the Cap
Regulations and (ii) if, despite taking such steps, the Company still can not
issue such shares of Common Stock without violating the Cap Regulations, the
Holder of this Debenture (to the extent the same can not be converted in
compliance with the Cap Regulations (an "Unconverted Debenture"), shall have the
option, exercisable in the Holder's sole and absolute discretion, to elect any
one of the following remedies:
(x) require the Company to issue shares of Common Stock in accordance
with such Holder's Notice of Conversion relating to the Unconverted Debenture at
a conversion purchase price equal to the average of the closing bid price per
share of Common Stock for any three (3) consecutive trading days (subject to the
equitable adjustments for certain events occurring during such period as
provided in this Debenture) during the five (5) trading days immediately
preceding the date of the Notice of Conversion; or
(y) require the Company to redeem each Unconverted Debenture for an
amount (the "Cap Redemption Amount"), payable in cash, equal to:
V x 125%
where:
"V" means the outstanding principal plus accrued interest through the
Cap Redemption Date (as defined below) of an Unconverted Debenture;
The holder of an Unconverted Debenture may elect one of the above remedies with
respect to a portion of such Unconverted Debenture and the other remedy with
respect to other portions of the Unconverted Debenture.
B. Notwithstanding any other provision hereof to the contrary, at any
time prior to the Conversion Date, the Company shall have the right to redeem
all or any portion of the then outstanding principal amount of the Debentures
then held by the Holder in cash for an amount (the "Redemption Amount") equal to
the product of (a) such outstanding principal of the Debentures plus all accrued
but unpaid interest thereon through the date the Redemption Amount is paid to
the Holder (the " Redemption Payment Date"), times (b) 125%.
The Company shall give at least ten (10) business days' written notice
of such redemption to the Holder (the "Notice of Redemption"). Anything in the
preceding provisions of
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this Section 5 to the contrary notwithstanding, the Redemption Amount shall,
unless otherwise agreed to in writing by the Holder after receiving the Notice
of Redemption, be paid to the Holder in good funds at least five (5) but not
more than ten (10) business days from the date of the Notice of Redemption,
except that, with respect to any Debentures for which a Notice of Redemption is
given, the Holder shall have the right, exercisable by submitting a Notice of
Conversion to the Company within five (5) business days of the Holder's receipt
of the Company's Notice of Redemption, to convert any or all of the Debentures
sought to be redeemed (a "Redemption Notice Conversion") and the Redemption
Notice Conversion shall take precedence over the redemption contemplated by the
Notice of Redemption. Such Debentures shal be converted in accordance with the
terms hereof. Furthermore, in the event such Redemption Amount is not timely
made, any rights of the Company to redeem outstanding Debentures shall
terminate, and the Notice of Redemption shall be null and void. Any redemption
contemplated by this Debenture shall be made only in cash by the payment of
immediately available good funds to the Holder.
7. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part o the consideration for the issue hereof,
expressly waived and released.
8. If the Company merges or consolidates with another corporation or sells
or transfers all or substantially all of its assets to another person and the
holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee agree that the Debenture may thereafter be
converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of Common
Stock into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which shall
be as nearly equivalent as may be practicable. In the event of any proposed
merger, consolidation or sale or transfer of all or substantially all of the
assets of the Company (a "Sale"), the Holder hereof shall have the right to
convert by delivering a Notice of Conversion to the Company within fifteen (15)
days of receipt of notice of such Sale from the Company. In the event the Holder
hereof shall elect not to convert, the Company may prepay all outstanding
principal and accrued interest on this Debenture by paying the Redemption Amount
contemplated by Section 5(A) hereof, less all amounts required by law to be
deducted, upon which tender of payment followin such notice, the right of
conversion shall terminate.
9. If, for any reason, prior to the Conversion Date or the Redemption
Payment Date, the Company spins off or otherwise divests itself of a part of its
business or operations or disposes all or of a part of its assets which
represents 40% of its gross assets or 40% of its gross revenue for the prior
twelve months in a transaction (the "Spin Off") in which the Company does not
receive compensation for such business, operations or assets, but causes
securities of another entity (the "Spin Off Securities") to be issued to
security holders of the Company, then the Company shall
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cause (i) to be reserved Spin Off Securities equal to the number thereof which
would have been issued to the Holder had all of the Holder's Debentures
outstanding on the record date (the "Record Date") for determining the amount
and number of Spin Off Securities to be issued to security holders of the
Company (the "Outstanding Debentures") been converted as of the close of
business on the trading day immediately before th Record Date (the "Reserved
Spin Off Shares"), and (ii) to be issued to the Holder on the conversion of all
or any of the Outstanding Debentures, such amount of the Reserved Spin Off
Shares equal to (x) the Reserved Spin Off Shares multiplied by (y) a fraction,
of which (I) the numerator is the principal amount of the Outstanding Debentures
then being converted, and (II) the denominator is the principal amount of the
Outstanding Debentures.
10. The Holder agrees that any payments of money (and not of stock or other
securities) as payment of principal and interest under this Debenture shall be
subordinated in right of payment to the prior payment in full of all
indebtedness of the Company for money borrowed from banks or other institutional
lenders (including but not limited to Argosy Investment Partners, L.P., Sirrom
Capital Corporation, and Finova Mezzanine Capital, Inc.) and their successors
and assigns, whether outstanding o the date hereof or hereafter incurred, which
is not by its terms subordinate and junior to or on a parity with this Debenture
("Senior Debt"). The Holder hereby designates and appoints the holders of Senior
Debt as its agent and attorney-in-fact to demand, sue for, collect and receive
such Senior Debt holder's ratable share of all payments of money and to file any
necessary proof of claim therefor and to take all such other action in the name
of the Holder as such Senior Debt holder may determine to be necessary or
appropriate for the enforcement of this Section. If any payment of money shall
be made to the Holder before all Senior Debt shall have been paid in full,
despite or in violation of this subordination, such payment shall be held in
trust for and paid and delivered ratably to the holders of Senior Debt until all
Senior Debt shall have been paid in full.
11. All payments contemplated hereby to be made "in cash" shall be made in
immediately available good funds in such coin or currency of the United States
of America as at the time of payment is legal tender for payment of public and
private debts. All payments of cash and each delivery of shares of Common Stock
issuable to the Holder as contemplated hereby shall be made to the Holder at the
address last appearing on the Debenture Register of the Company as designated in
writing by the Holder from time to time; except that the Holder can designate,
by notice to the Company, a different delivery address for any one or more
specific payments or deliveries.
12. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.
13. This Debenture shall be governed by and construed in accordance with
the laws of the State of Delaware. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of Wilmington or the state courts of the State of Delaware sitting in the
City of Wilmington in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection
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based on forum non coveniens, to the bringing of any such proceeding in such
jurisdictions. To the extent determined by such court, the Company shall
reimburse the Holder for any reasonable legal fees and disbursements incurred by
the Holder in enforcement of or protection of any of its rights under any of
this Debenture.
14. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal or interest
on this Debenture and same shall continue for a period of ten
(10) days; or
b. Any of the representations or warranties made by the Company
herein, in the Securities Purchase Agreement, the Registration
Rights Agreement or in any certificate or financial or other
written statements heretofore or hereafter furnished by the
Company in connection with the execution and delivery of this
Debenture or the Securities Purchase Agreement shall be false or
misleading in any material respect at the time made; or
c. The Company fails to issue shares of Common Stock to the Holder
or to cause its Transfer Agent to issue shares of Common Stock
upon exercise by the Holder of the conversion rights of the
Holder in accordance with the terms of this Debenture, fails to
transfer or to cause its Transfer Agent to transfer any
certificate for shares of Common Stock issued to the Holder upon
conversion of this Debenture and when required by this Debenture
or the Registration Rights Agreement, and such transfer is
otherwise lawful, or fails to remove any restrictive legend or to
cause its Transfer Agent to transfer on any certificate or any
shares of Common Stock issued to the Holder upon conversion of
this Debenture as and when required by this Debenture, the
Agreement or the Registration Rights Agreement and such legend
removal is otherwise lawful, and any such failure shall continue
uncured for five (5) business days.
d. The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition,
agreement or obligation of any Debenture in this series and such
failure shall continue uncured for a period of thirty (30) days
after written notice from the Holder of such failure; or
e. The Company shall fail to perform or observe, in any material
respect, any covenant, term, provision, condition, agreement or
obligation of the Company under the Securities Purchase Agreement
or the Registration Rights Agreement and such failure shall
continue uncured for a period of thirty (30) days after written
notice from the Holder of such failure (other than a failure to
cause the Registration Statement to become effective no later
than the Required Effective Date, as defined and provided in the
Registration Rights Agreement, as to which no such cure period
shall apply); or
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<PAGE>
f. The Company shall (1) admit in writing its inability to pay its
debts generally as they mature; (2) make an assignment for the
benefit of creditors or commence proceedings for its dissolution;
or (3) apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial part of its
property or business; or
g. A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within sixty (60)
days after such appointment; or
h. Any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties
or assets of the Company and shall not be dismissed within sixty
(60) days thereafter; or
i. Any money judgment, writ or warrant of attachment, or similar
process in excess of Two Hundred Thousand ($200,000) Dollars in
the aggregate shall be entered or filed against the Company or
any of its properties or other assets and shall remain unpaid,
unvacated, unbonded or unstayed for a period of sixty (60) days
or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or
j. Bankruptcy, reorganization, insolvency or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any
law for the relief of debtors shall be instituted by or against
the Company and, if instituted against the Company, shall not be
dismissed within sixty (60) days after such institution or the
Company shall by any action or answer approve of, consent to, or
acquiesce in any such proceedings or admit the material
allegations of or default in answering a petition filed in any
such proceeding; or
k. The Company shall have its Common Stock suspended or delisted
from any exchange or the over-the-counter market from trading for
in excess of five (5) consecutive trading days.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kinds, all of which are hereby expressly waived, anything herein
or in any note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law.
15. Nothing contained in this Debenture shall be construed as conferring
upon the Holder the right to vote or to receive dividends or to consent or
receive notice as a shareholder in respect
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<PAGE>
of any meeting of shareholders or any rights whatsoever as a shareholder of the
Company, unless and to the extent converted in accordance with the terms hereof.
16. In the event for any reason, any payment by or act of the Company or
the Holder shall result in payment of interest which would exceed the limit
authorized by or be in violation of the law of the jurisdiction applicable to
this Debenture, the ipso facto the obligation of the Company to pay interest or
perform such act or requirement shall be reduced to the limit authorized under
such law, so that in no event shall the Company be obligated to pay any such
interest, perform any such act or be bound by any requirement which would result
in the payment of interest in excess of the limit so authorized. In the event
any payment by or act of the Company shall result in the extraction of a rate of
interest in excess of a sum which is lawfully collectible as interest, then such
amount (to the extent of such excess not returned to the Company) shall, without
further agreement or notice between or by the Company or the Holder, be deemed
applied to the payment of principal, if any, hereunder immediately upon receipt
of such excess funds by the Holder, with the same force and effect as though the
Company had specifically designated such sums to be so applied to principal and
the Holder had agreed to accept such sums as an interest-free prepayment of this
Debenture. If any part of such excess remains after the principal has been paid
in full, whether by the provisions of the preceding sentences of this Section 16
or otherwise, such excess shall be deemed to be an interest-free loan from the
Company to the Holder, which loan shall be payable immediately upon demand by
the Company. The provisions of this Section 16 shall control every other
provision of this Debenture.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: __________________, 1999
DYNAGEN INC.
By:_______________________________________
------------------------------------------
(Print Name)
__________________________________________
(Title)
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EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $ ________________ of
the principal amount of the above Debenture No. ___ into Shares of Common Stock
of DYNAGEN INC. (the "Company") according to the conditions hereof, as of the
date written below.
Conversion Date*
___________________________________________________________
Applicable Conversion Price
___________________________________________________________
Signature
___________________________________________________________
[Name]
Address:
___________________________________________________________
___________________________________________________________
* This original Debenture must be received by the Company or its transfer agent
by the fifth business date following the Conversion Date.
11
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION"
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH
TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND
EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
DYNAGEN, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance. In consideration of good and valuable
consideration, the receipt of which is hereby acknowledged by Dynagen, Inc., a
Delaware corporation (the "Company"), ENDEAVOUR CAPITAL FUND S.A., or registered
assigns (the "Holder") is hereby granted the right to purchase at any time until
5:00 P.M., New York City time, on May 12, 2002 (the "Expiration Date"), sixty
thousand two hundred forty-one (60,241) fully paid and nonassessable shares of
the Company's Common Stock, pa value $.01per share (the "Common Stock") at an
initial exercise price of $.913 per share (the "Exercise Price"), subject to
further adjustment as set forth in Section 6 and 7 hereof.
2. (a) General. This Warrant is exercisable in whole or in
part at any time and from time to time at the Exercise Price per share of Common
Stock payable hereunder, payable in cash or by certified or official bank check,
or by "cashless exercise," by means of tendering this Warrant Certificate to the
Company to receive a number of shares of Common Stock equal in Market Value to
the difference between the Market Value of the shares of Common Stock issuable
upon exercise of thi Warrant and the total cash exercise price thereof. Upon
surrender of this Warrant Certificate with the annexed Notice of Exercise Form
duly executed (which Notice of Exercise Form may be submitted either by delivery
to the Company or by facsimile transmission as provided in Section 8 hereof),
together with payment of the Exercise Price for the shares of Common Stock
purchased, if applicable, the Holder shall be entitled to receive a certificate
or certificates for the shares of Common Stock so purchased.
For the purposes of this Section 2, "Market Value" shall be an amount equal to
the average closing ask price of a share of Common Stock, as reported by
Bloomberg, LP, for the five (5) trading days preceding the Company's receipt of
the Notice of Exercise Form duly executed multiplied by the number of shares of
Common Stock to be issued upon surrender of this Warrant Certificate.
(b) Limitation on Exercise. Notwithstanding the provisions
of this Warrant, or of the other Transaction Agreements (as defined in the
Securities Purchase Agreement), in no event (except (i) with respect to an
mandatory conversion, if any, of a Debenture as provided
<PAGE>
in the Debentures, (ii) as specifically provided in the Debentures as an
exception to this provision, or (iii) if the Company is in default hereunder or
under any of the Transaction Agreements, and the Holder has asserted such
default in writing and the applicability of this provision to such default)
shall the Holder be entitled to exercise this Warrant or shall the Company have
the obligation, to issue shares upon such exercise of all or any portion of this
Warrant to the extent that, after such conversion, the sum of (1) the number of
shares of Common Stock beneficially owned by the Holder and its affiliates
(other than shares of Common Stock which may be deemed beneficially owned
through the ownership of the unconverted portion of the Debentures or
unexercised portion of the Warrants), and (2) the number of shares of Common
Stock issuable upon the conversion of the Debentures or exercise of the Warrants
with respect to which the determination of this proviso is being made, would
result in beneficial ownership by the Holder and its affiliates of more than
9.99% of the outstanding shares of Common Stock (after taking into account the
shares to be issued to the Holder upon such conversion or exercise). For
purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), except as otherwise provided
in clause (1) of such sentence.
3. Reservation of Shares. The Company hereby agrees that at
all times during the term of this Warrant there shall be reserved for issuance
upon exercise of this Warrant such number of shares of its Common Stock as shall
be required for issuance upon exercise of this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the Company
of evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) receipt of
reasonably satisfactory indemnification, and (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant of like tenor and date and any such lost, stolen, destroyed or
mutilated Warrant shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue
hereof, be entitled to any rights of a stockholder in the Company, either at law
or equity, and the rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
6. Protection Against Dilution.
6.1 Adjustment Mechanism. If an adjustment of the Exercise
Price is required pursuant to this Section 6, the Holder shall be entitled to
purchase such number of additional shares of Common Stock as will cause (i) the
total number of shares of Common Stock Holder is entitled to purchase pursuant
to this Warrant, multiplied by (ii) the adjusted purchase price per share, to
equal (iii) the dollar amount of the total number of shares of Common Stock
Holder is entitled to purchase before adjustment multiplied by the total
purchase price before adjustment.
6.2 Capital Adjustments. In case of any stock split or
reverse stock split, stock dividend, reclassification of the Common Stock,
recapitalization, merger or consolidation, or
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<PAGE>
like capital adjustment affecting the Common Stock of the Company, the
provisions of this Section 6 shall be applied as if such capital adjustment
event had occurred immediately prior to the date of this Warrant and the
original purchase price had been fairly allocated to the stock resulting from
suc capital adjustment; and in other respects the provisions of this Section
shall be applied in a fair, equitable and reasonable manner so as to give
effect, as nearly as may be, to the purposes hereof. A rights offering to
stockholders shall be deemed a stock dividend to the extent of the bargain
purchase element of the rights.
6.3 Adjustment for Spin Off. If, for any reason, prior to
the exercise of this Warrant in full, the Company spins off or otherwise divests
itself of a part of its business or operations or disposes all or of a part of
its assets which represents 40% of its gross assets or 40% of its gross revenue
for the prior twelve months in a transaction (the "Spin Off") in which the
Company does not receive compensation for such business, operations or assets,
but causes securities of another entity (the "Spin Off Securities") to be issued
to security holders of the Company, then
(a) the Company shall cause (i) to be reserved Spin Off
Securities equal to the number thereof which would have been issued to the
Holder had all of the Holder's unexercised Warrants outstanding on the record
date (the "Record Date") for determining the amount and number of Spin Off
Securities to be issued to security holders of the Company (the "Outstanding
Warrants") been exercised as of the close of business on the trading day
immediately before the Record Date (the "Reserved Spin Off Shares"), and (ii) to
be issued to the Holder on the exercise of all or any of the Outstanding
Warrants, such amount of the Reserved Spin Off Shares equal to (x) the Reserved
Spin Off Shares multiplied by (y) a fraction, of which (I) the numerator is the
amount of the Outstanding Warrants then being exercised, and (II) the
denominator is the amount of the Outstanding Warrants; and
(b) the Exercise Price on the Outstanding Warrants
shall be adjusted immediately after consummation of the Spin Off by multiplying
the Exercise Price by a fraction (if, but only if, such fraction is less than
1.0), the numerator of which is the numerator of which is the Average Market
Price of the Common Stock for the five (5) trading days immediately following
the fifth trading day after the Record Date, and the denominator of which is the
Average Market Price of the Common Stock on the five (5) trading days
immediately following the fifth trading day after the Record Date, and the
denominator of which is the Average Market Price of the Common Stock on the five
(5) trading days immediately preceding the Record Date; and such adjusted
Exercise Price shall be deemed to be the Exercise Price with respect to the
Outstanding Warrants after the Record Date.
For the purposes of this Section 6.3, the "Average Market Price of the Common
Stock" shall mean, for the relevant period, (x) the average closing bid price of
a share of Common Stock, as reported by Bloomberg, LP or, if not so reported, as
reported on the over-the-counter market or (y) if the Common Stock is listed on
a stock exchange, the closing price on such exchange on the date indicated in
the relevant provision hereof, as reported in The Wall Street Journal.
7. Transfer to Comply with the Securities Act; Registration
Rights.
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<PAGE>
(a) This Warrant has not been registered under the
Securities Act of 1933, as amended, (the "Act") and has been issued to the
Holder for investment and not with a view to the distribution of either the
Warrant or the Warrant Shares. Neither this Warrant nor any of the Warrant
Shares or any other security issued or issuable upon exercise of this Warrant
may be sold, transferred, pledged or hypothecated in the absence of an effective
registration statement under the Act relating to such security or an opinion of
counsel satisfactory to the Company that registration is not required under the
Act. Each certificate for the Warrant, the Warrant Shares and any other security
issued or issuable upon exercise of this Warrant shall contain a legend on the
face thereof, in form and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer contained in this Section.
(b) The Company agrees to file a registration
statement, which shall include the Warrant Shares, (the "Registration
Statement), pursuant to the Registration Rights Agreement of even date herewith.
8. Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage pre-paid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission, or, if mailed, two days after the date of deposit in the United
States mails, as follows:
(i) if the to Company, to:
DynaGen, Inc.
840 Memorial Drive
Cambridge, Massachusetts 02139
(ii) if to the Holder, to:
Endeavour Capital Fund S.A.
14/14 Divrei Chaim Street
Jerusalem, Israel 94479
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement. This
Warrant may be amended or supplemented only by an instrument in writing signed
by the parties hereto. This Warrant of even date herewith contain the full
understanding of the parties hereto with respect to the subject matter hereof
and thereof and there are no representations, warranties, agreements or
understandings other than expressly contained herein and therein.
10. Governing Law. This Warrant shall be deemed to be a
contract made under the laws of the State of Delaware for contracts to be wholly
performed in such state and without
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giving effect to the principles thereof regarding the conflict of laws. Each of
the parties consents to the jurisdiction of the federal courts whose districts
encompass any part of the City of Wilmington or the state courts of the State of
Delaware sitting in the City of Wilmington in connection with any dispute
arising under this Warrant and hereby waives, to the maximum extent permitted by
law, any objection, including any objection based on forum non conveniens, to
the bringing of any such proceeding in such jurisdictions. To the extent
determined by such court, the Company shall reimburse the Holder for any
reasonable legal fees and disbursements incurred by the Buyer in enforcement of
or protection of any of its rights under any of the Transaction Agreements.
11. Counterparts. This Warrant may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
12. Descriptive Headings. Descriptive headings of the
several Sections of this Warrant are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the 13th day of May, 1999.
DYNAGEN, INC.
By:__________________________
Its_______________________
Attest:
___________________________
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NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate dated as of ____________, 1999, to
purchase __________ shares of the Common Stock, par value $.01 per share, of
Dynagen, Inc., and tenders herewith [payment of $_________] [_______ warrants to
purchase __________ shares of Common Stock] in accordance with Section 2 of said
Common Stock Purchase Warrant.
Please deliver the stock certificate to:
Dated:
By:
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
(TO BE SIGNED ONLY UPON ASSIGNMENT OF WARRANT)*
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
- --------------------------------------------------------------------------------
(Name and Address of Assignee must be Printed or Typewritten)
the right to purchase Common Stock represented by this Warrant to the extent of
______ Shares as to which such right is exercisable, hereby irrevocably
constituting and appointing ________________, Attorney to transfer said Warrant
on the books of the Company, with full power of substitution in the premises.
Dated: ___________________, 199__
------------------------------
Signature of Registered Holder
Signature Guaranteed:
- -------------------------------------
- ------------------------
* The Warrant and the Warrant Agreement contain restrictions on sale, assignment
or transfer of this Warrant.
6
EXHIBIT 4.5
ANNEX IV
TO
SECURITIES PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of May 13, 1999
(this "Agreement"), is made by and between DYNAGEN INC., a Delaware corporation,
with headquarters located at 840 Memorial Drive, Cambridge, Massachusetts (the
"Company"), and each entity named on a signature page hereto (each, an "Initial
Investor") (each agreement with an Initial Investor being deemed a separate and
independent agreement between the Company and such Initial Investor, except that
each Initial Investor acknowledges and consents to the rights granted to each
other Initial Investor under such agreement).
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement, dated as of May 13, 1999, between the Initial
Investor and the Company (the "Securities Purchase Agreement"; terms not
otherwise defined herein shall have the meanings ascribed to them in the
Securities Purchase Agreement), the Company has agreed to issue and sell to the
Initial Investor one or more 8% Convertible Debentures of the Company, in an
aggregate principal amount not exceeding $ 3,000,000 (the "Debentures"); and
WHEREAS, the Company has agreed to issue the Warrants to the
Initial Investor in connection with the issuance of the Debentures; and
WHEREAS, the Debentures are convertible into shares of Common
Stock (the "Conversion Shares"; which term, for purposes of this Agreement,
shall include shares of Common Stock of the Company issuable in lieu of accrued
interest on conversion as contemplated by the Debentures) upon the terms and
subject to the conditions contained in the Debentures and the Warrants may be
exercised for the purchase of shares of Common Stock (the "Warrant Shares") upon
the terms and conditions of the Warrants; and
WHEREAS, to induce the Initial Investor to execute and deliver
the Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Conversion Shares and the Warrant Shares;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
(a) "Investor" means the Initial Investor and any permitted
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof and who holds Debentures, Warrants
or Registrable Securities.
<PAGE>
(b) "Potential Material Event" means any of the following: (i)
the possession by the Company of material information not ripe for disclosure in
a registration statement, which shall be evidenced by determinations in good
faith by the Board of Directors of the Company that disclosure of such
information in the registration statement would be detrimental to the business
and affairs of the Company; or (ii) any material engagement or activity by the
Company which would, in the good fait determination of the Board of Directors of
the Company, be adversely affected by disclosure in a registration statement at
such time, which determination shall be accompanied by a good faith
determination by the Board of Directors of the Company that the registration
statement would be materially misleading absent the inclusion of such
information.
(c) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(d) "Registrable Securities" means the Conversion Shares and
the Warrant Shares applicable to the Debentures and Warrants issued on the
Initial Closing Date.
(e) "Registration Statement" means a registration statement of
the Company under the Securities Act.
2. REGISTRATION.
A) MANDATORY REGISTRATION.
(i) The Company shall prepare and file with the SEC, as soon
as possible after the Initial Closing Date no later than a date (the "Required
Filing Date") which is sixty (60) days following the Initial Closing Date either
a Registration Statement on form S-3 or Form SB-2 or an amendment to an existing
Registration Statement, in either event registering for resale by the Investor a
sufficient number of shares of Common Stock for the Initial Investors to sell
the Registrable Securitie (or such lesser number as may be required by the SEC,
but in no event less than one hundred fifty percent (150%) of the aggregate
number of shares (A) into which the relevant Debentures and all interest thereon
through their respective Maturity Dates would be convertible at the time of
filing of such Registration Statement (assuming for such purposes that all such
Debentures had been eligible to be converted, and had been converted, into
Conversion Shares in accordance with their terms, whether or not such accrual of
interest, eligibility or conversion had in fact occurred as of such date) and
(B) which would be issued upon exercise of all of the relevant Warrants at the
time of filing of the Registration Statement (assuming for such purposes that
such Warrants had been eligible to be exercised and had been exercised in
accordance with their terms, whether or not such eligibility or exercise had in
fact occurred as of such date). The Registration Statement (W) shall include
only the Registrable Securities and other securities with a market value not
exceeding $500,000, and (X) shall also state that, in accordance with Rule 416
and 457 under the Securities Act, it also covers such indeterminate number of
additional shares of Common Stock as may become issuable upon conversion of the
Debentures and the exercise of the Warrants to prevent dilution resulting from
stock splits or stock dividends. The Company will use its reasonable best
efforts to cause such Registration Statement to be declared effective on a date
(a "Required Effective Date") which no later than is the earlier of (Y) five (5)
days after notice by the SEC that it may be declared effective or (Z) one
hundred twenty (120) days after the Initial Closing Date.
(ii) If at any time (an "Increased Registered Shares Date"),
(a) the closing Bid Price (as defined in the Debentures) shall for 3 consecutive
Business Days decrease in excess of 40% below the Closing Bid Price on the
Effective Date, or (b) the number of shares of Common Stock represented by the
Registrable Shares, issued or to be issued as contemplated by the Transaction
Agreements, exceeds the aggregate number of
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<PAGE>
shares of Common Stock then registered, the Company shall within ten (10)
business days after receipt of a written notice from any Investor, either (X)
amend the relevant Registration Statement filed by the Company pursuant to the
preceding provisions of this Section 2, if such Registration Statement has not
been declared effective by the SEC at that time, to register one hundred fifty
percent (150%) of such Registrable Shares, computed as contemplated by the
immediately preceding subparagraph (i), or (Y) if such Registration Statement
has been declared effective by the SE at that time, file with the SEC an
additional Registration Statement on Form S-3, Form SB-2 or other appropriate
registration statement form (an "Additional Registration Statement") to register
one hundred fifty percent (150%) of the shares of Common Stock represented by
the Registrable Shares, computed as contemplated by the immediately preceding
subparagraph (i), that exceed the aggregate number of shares of Common Stock
already registered. The Company will use its reasonable best efforts to cause
suc Registration Statement to be declared effective on a date (a "Required
Effective Date") which is no later than (Q) with respect to a Registration
Statement under clause (X) of this subparagraph (ii), the Required Effective
Date contemplated by the immediately preceding subparagraph (i) and (R) with
respect to an Additional Registration Statement, the earlier of (I) five (5)
days after notice by the SEC that it may be declared effective or (II) thirty
(30) days after the Increased Registered Shares Date.
B) PAYMENTS BY THE COMPANY.
(i) If the Registration Statement covering the Registrable
Securities is not filed in proper form with the SEC by the Required Filing Date,
the Company will make payment to the Initial Investor in such amounts and at
such times as shall be determined pursuant to this Section 2(b).
(ii) If the Registration Statement covering the Registrable
Securities is not effective by the relevant Required Effective Date or if the
Investor is restricted from making sales of Registrable Securities covered by a
previously effective Registration Statement at any time (the date such
restriction commences, a "Restricted Sale Date") after the Effective Date other
than during a Suspension Period (as defined below), then the Company will make
payments to the Initial Investo in such amounts and at such times as shall be
determined pursuant to this Section 2(b).
(iii) The amount (the "Periodic Amount") to be paid by the
Company to the Initial Investor shall be determined as of each Computation Date
(as defined below) and such amount shall be equal to the Periodic Amount
Percentage (as defined below) of the Purchase Price for all Debentures for the
period from the date following the relevant Required Filing Date, Required
Effective Date or Restricted Sale Date, as the case may be, to the first
relevant Computation Date, and thereafter to each subsequent Computation Date.
The "Periodic Amount Percentage" means (A) two percent (2%) of the Purchase
Price for all the Debentures previously purchased for the period from the date
following the relevant Required Filing Date, Required Effective Date or
Restricted Sale Date, as the case may be, to the first relevant Computation Date
(prorated on a daily basis if such period is less than thirty [30] days), and
(B) two percent (2%) of the Purchase Price of all Debentures to each Computation
Date thereafter (prorated on a daily basis if such period is less than thirty
[30] days). Anything in the preceding provisions of this paragraph (iii) to the
contrary notwithstanding, after the Effective Date the Purchase Price shall be
deemed to refer to the sum of (X) the principal amount of all Debentures
previously purchased but not yet converted and (Y) the Held Shares Value (as
defined below). The "Held Shares Value" means, for shares acquired by the
Investor upon a conversion within the thirty (30) days preceding the Restricted
Sale Date, but not yet sold by the Investor, the principal amount of the
Debentures converted into such Conversion Shares; provided, however, that if the
Investor effected more than one conversion during such thirty (30) day period
and sold less than all of such shares, the sold shares shall be deemed to be
derived first from the conversions in the sequence of such conversions (that is,
for example, until the number of shares from the first of such conversions have
been sold all shares shall be deemed to be from the first conversion;
thereafter, from the second conversion until all such shares are sold). By way
of illustration and not in limitation of the foregoing, if the Registration
Statement for the Registrable Securities relating to the Debentures and Warrants
issued on the Initial Closing Date is timely filed but is not declared effective
until one hundred sixty five (165) days after the Initial Closing Date, the
Periodic
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<PAGE>
Amount will aggregate four percent (3%) of the Purchase Price of the Initial
Debentures (2% for days 120-150, plus 1% for days 151-165).
(iv) Each Periodic Amount will be payable by the Company in
cash or other immediately available funds to the Investor monthly, without
requiring demand therefor by the Investor.
(v) The parties acknowledge that the damages which may be
incurred by the Investor if the Registration Statement is not filed by the
Required Filing Date or if the Registration Statement has not been declared
effective by a Required Effective Date, including if the right to sell
Registrable Securities under a previously effective Registration Statement is
suspended, may be difficult to ascertain. The parties agree that the Periodic
Amounts represent a reasonable estimate o the part of the parties, as of the
date of this Agreement, of the amount of such damages.
(vi) Notwithstanding the foregoing, the amounts payable by
the Company pursuant to this provision shall not be payable to the extent any
delay in the effectiveness of the Registration Statement occurs because of an
act of, or a failure to act or to act timely by the Initial Investor or its
counsel, or in the event all of the Registrable Securities may be sold pursuant
to Rule 144 or another available exemption under the Act.
(vii) "Computation Date" means (A) the date which is the
earlier of (1) thirty (30) days after the Required Filing Date, any relevant
Required Effective Date or a Restricted Sale Date, as the case may be, or (2)
the date after the Required Filing Date, such Required Effective Date or
Restricted Sale Date on which the Registration Statement is filed (with respect
to payments due as contemplated by Section 2(b)(i) hereof) or is declared
effective or has its restrictions removed (with respect to payments due as
contemplated by Section 2(b)(ii) hereof), as the case may be, and (B) each date
which is the earlier of (1) thirty (30) days after the previous Computation Date
or (2) the date after the previous Computation Date on which the Registration
Statement is filed (with respect to payments due as contemplated by Section
2(b)(i) hereof) or is declared effective or has its restrictions removed (with
respect to payments due as contemplated by Section 2(b)(ii) hereof), as the case
may be, until all of the Registrable Securities may be sold by the Investor
pursuant to Rule 144(k) or to the extent sold under 144(d).
3. OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registrable Securities, the Company shall do each of the
following.
A) Prepare promptly, and file with the SEC by the Required
Filing Date a Registration Statement with respect to not less than the number of
Registrable Securities provided in Section 2(a) above, and thereafter use its
reasonable best efforts to cause such Registration Statement relating to
Registrable Securities to become effective by the Required Effective Date and
keep the Registration Statement effective at all times during the period (the
"Registration Period") continuing until the earliest of (i) the date that is
four (4) years after the last day of the calendar month following the month in
which the Effective Date occurs, (ii) the date when the Investors may sell all
Registrable Securities under Rule 144 or (iii) the date the Investors no longer
own any of the Registrable Securities, which Registration Statement (including
any amendments or supplements thereto and prospectuses contained therein) shall
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such
4
<PAGE>
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set forth in the
Registration Statement;
(c) The Company shall permit a single firm of counsel
designated by the Initial Investors to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time (but not less
than three (3) business days) prior to their filing with the SEC, and not file
any document in a form to which such counsel reasonably objects.
(d) Notify each Investor, such Investor's legal counsel
identified to the Company (which, until further notice, shall be deemed to be
Krieger & Prager, ATTN: Samuel Krieger, Esq.; each, an "Investor's Counsel"),
and any managing underwriters immediately (and, in the case of (i)(A) below, not
less than five (5) days prior to such filing) and (if requested by any such
Person) confirm such notice in writing no later than one (1) business day
following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) whenever the SEC notifies the Company whether there will be a "review" of
such Registration Statement; (C) whenever the Company receives (or a
representative of the Company receives on its behalf) any oral or written
comments from the SEC respect of a Registration Statement (copies or, in the
case of oral comments, summaries of such comments shall be promptly furnished by
the Company to the Investors); and (D) with respect to the Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the SEC or any other Federal or state governmental
authority for amendments or supplements to the Registration Statement or
Prospectus or for additional information; (iii) of the issuance by the SEC of
any stop order suspending the effectiveness of the Registration Statement
covering any or all of the Registrable Securities or the initiation of any
Proceedings for that purpose; (iv) if at any time any of the representations or
warranties of the Company contained in any agreement (including any underwriting
agreement) contemplated hereby ceases to be true and correct in all material
respects; (v) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any Proceeding for such purpose; and (vi) of the occurrence of
any event that to the best knowledge of the Company makes any statement made in
the Registration Statement or Prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a materia fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. In addition, the Company shall furnish the Investors with
copies of all intended written responses to the comments contemplated in clause
(C) of this Section 3(d) not later than one (1) business day in advance of the
filing of such responses with the SEC so that the Investors shall have the
opportunity to comment thereon.
(e) Furnish to each Investor and such Investor's Counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, and all amendments and
supplements thereto and such other documents, as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor;
(f) As promptly as practicable after becoming aware thereof,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement or other appropriate filing with the
SEC to correct such untrue statement or omission,
5
<PAGE>
and deliver a number of copies of such supplement or amendment to each Investor
as such Investor may reasonably request;
(g) As promptly as practicable after becoming aware thereof,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the SEC of a Notice of Effectiveness or any notice of effectiveness or any stop
order or other suspension of the effectiveness of the Registration Statement at
the earliest possible time;
(h) Notwithstanding the foregoing, if at any time or from time
to time after the date of effectiveness of the Registration Statement, the
Company notifies the Investors in writing of the existence of a Potential
Material Event, the Investors shall not offer or sell any Registrable
Securities, or engage in any other transaction involving or relating to the
Registrable Securities, from the time of the giving of notice with respect to a
Potential Material Event until such Investor receives written notice from the
Company that such Potential Material Event either has been disclosed to the
public or no longer constitutes a Potential Material Event; provided, however,
that the Company may not so suspend the right to such holders of Registrable
Securities for more than two twenty (20) day periods in the aggregate during any
12-month period ("Suspension Period") with at least a ten (10) business day
interval between such periods, during the periods the Registration Statement is
required to be in effect;
(i) Use its reasonable efforts to secure and maintain the
designation of all the Registrable Securities covered by the Registration
Statement on the "OTC Bulletin Board Market" of the National Association of
Securities Dealers Automated Quotations System ("NASDAQ") within the meaning of
Rule 11Aa2-1 of the SEC under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the quotation of the Registrable Securities on The
NASDAQ Bulletin Board Market; and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities;
(j) Provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the Registration Statement;
(k) Cooperate with the Investors to facilitate the timely
preparation and delivery of certificates for the Registrable Securities to be
offered pursuant to the Registration Statement and enable such certificates for
the Registrable Securities to be in such denominations or amounts as the case
may be, as the Investors may reasonably request, and, within three (3) business
days after a Registration Statement which includes Registrable Securities is
ordered effective by the SEC, the Compan shall deliver, and shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an appropriate
instruction and opinion of such counsel; and
(l) Take all other reasonable actions necessary to expedite
and facilitate disposition by the Investor of the Registrable Securities
pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
A) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably required to effect the
registration of such Registrable Securitie and shall execute such documents in
connection with such registration as the Company may reasonably request. At
least ten (10) days prior to the first anticipated filing date
6
<PAGE>
of the Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects to have any of such Investor's Registrable
Securities included in the Registration Statement. If at least two (2) business
days prior to the filing date the Company has not received the Requested
Information from an Investor (a "Non-Responsive Investor"), then the Company may
file the Registration Statement without including Registrable Securities of such
Non-Responsive Investor;
B) Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement; and
C) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(e)
or 3(f), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or 3(f) and, if
so directed by the Company, such Investo shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
5. EXPENSES OF REGISTRATION. (a) All reasonable expenses
(other than underwriting discounts and commissions of the Investor) incurred in
connection with registrations, filings or qualifications pursuant to Section 3,
but including, without limitation, all registration, listing, and qualifications
fees, printers and accounting fees, the fees and disbursements of counsel for
the Company and a fee for a single counsel for the Investors (as a group and not
individually) not exceeding $2,500 for the Registration Statement covering the
Registrable Securities applicable to the Debentures and Warrants issued on the
Initial Closing Date and $1,000 for each Registration Statement covering
Registrable Securities applicable to the Additional Debentures and related
Warrants issued on each Additional Closing Date, shall be borne by the Company.
(b) Except as described in the legal opinion of Company
counsel, neither the Company nor any of its subsidiaries has, as of the date
hereof, nor shall the Company nor any of its subsidiaries, on or after the date
of this Agreement, enter into any agreement with respect to its securities that
is inconsistent with the rights granted to the Investors in this Agreement or
otherwise conflicts with the provisions hereof. Except as described in the legal
opinion of Company counsel, neithe the Company nor any of its subsidiaries has
previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person. Without limiting the generality
of the foregoing, without the written consent of the Investors holding a
majority of the Registrable Securities, the Company shall not grant to any
person the right to request the Company to register any securities of the
Company under the Securities Act unless the rights so granted are subject in all
respects to the prior rights in full of the Investors set forth herein, and are
not otherwise in conflict or inconsistent with the provisions of this Agreement
and the other Transaction Agreements.
6. INDEMNIFICATION. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
A) To the extent permitted by law, the Company will indemnify
and hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act (each, an "Indemnified Person" or
"Indemnified Party"), against any losses, claims, damages, liabilities or
expenses (joint or several) incurred (collectively, "Claims") to which any of
them may become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any of the
following statements,
7
<PAGE>
omissions or violations in the Registration Statement, or any post-effective
amendment thereof, or any prospectus included therein: (i) any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement or any post-effective amendment thereof or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to clause (b) of this Section 6, the Company shall
reimburse the Investors, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a) shall not (I) apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; (II) be available to the extent such Claim is based on a failure of
the Investor to deliver or cause to be delivered the prospectus made available
by the Company; or (III) apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. Each Investor will indemnify
the Company and its officers, directors and agents (each, an "Indemnified
Person" or "Indemnified Party") against any claims arising out of or based upon
a Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company, by or on behalf of such Investor, expressly
for use in connection with the preparation of the Registration Statement,
subject to such limitations and conditions as are applicable to the
Indemnification provided by the Company to this Section 6. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
B) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the exten the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be. If notice of indemnifiable claim is not timely delivered, the
indemnifying party shall not be liable for indemnification to the extent it is
prejudiced by such delay. In case any such action is brought against any
Indemnified Person or Indemnified Party, and it timely notifies the indemnifying
party of the commencement thereof, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, assume the defense thereof, subject to
the provisions herein stated and after notice from the indemnifying party to
such Indemnified Person or Indemnified Party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such Indemnified
Person or Indemnified Party under this Section 6 for any legal or other
reasonable out-of-pocket expenses subsequently incurred by such Indemnified
Person or Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation, unless the indemnifying party shall not
pursue the action of its final conclusion. The Indemnified Person or Indemnified
Party shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and reasonable out-of-pocket
expenses of such counsel shall not be at the expense of the indemnifying party
if the indemnifying party has assumed the defense of the action with counsel
reasonably satisfactory to the Indemnified Person or Indemnified Party. The
failure to deliver written notice to the
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indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action. The indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due and
payable.
7. CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the fullest extent permitted by
law; provided, however, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6; (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation; and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available
to the Investors the benefits of Rule 144 promulgated under the Securities Act
or any other similar rule or regulation of the SEC that may at any time permit
the Investors to sell securities of the Company to the public without
registration ("Rule 144"), the Company agrees to:
A) make and keep public information available, as those terms
are understood and defined in Rule 144;
B) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
C) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have
the Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of the Registrable
Securities (or all or any portion of any unconverted Debenture or unexercised
Warrant) only if: (a) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable tim after such assignment, (b) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (i) the name and address of such transferee or assignee and
(ii) the securities with respect to which such registration rights are being
transferred or assigned, (c) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the Securities Act and applicable state securities laws, and
(d) at or before the time the Company received the written notice contemplated
by clause (b) of this sentence the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions contained herein. In the event
of any delay in filing or effectiveness of the Registration Statement as a
result of such assignment, the Company shall not be liable for any damages
arising from such delay, or the payments set forth in Section 2(c) hereof
arising from such delay.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
hold an eighty
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(80%) percent interest of the Registrable Securities. Any amendment or waiver
effected in accordance with this Section 10 shall be binding upon each Investor
and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall
be given in the manner contemplated by the Agreement, (i) if to the Company or
to the Initial Investor, to their respective address contemplated by the
Agreement, and (iii) if to any other Investor, at such address as such Investor
shall have provided in writing to the Company, or at such other address as each
such party furnishes by notice given in accordance with this Section 11(b).
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of
Wilmington or the state courts of the State of Delaware sitting in the City of
Wilmington in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non coveniens, to the bringing of any such
proceeding in such jurisdictions. To the extent determined by such court, the
Company shall reimburse the Buyer for any reasonable legal fees and
disbursements incurred by the Buyer in enforcement of or protection of any of
its rights under this Agreement.
(e) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
(j) The Company acknowledges that any failure by the Company
to perform its obligations under Section 3(a) hereof, or any delay in such
performance could result in loss to the Investors, and the Company agrees that,
in addition to any other liability the Company may have by reason of such
failure or delay, the
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Company shall be liable for all direct damages caused by any such failure or
delay, unless the same is the result of force majeure. Neither party shall be
liable for consequential damages.
(k) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof. This Agreement may be amended only by an instrument in writing signed by
the party to be charged with enforcement thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
COMPANY:
DYNAGEN INC.
By:___________________________
Name:_________________________
Title:________________________
INITIAL INVESTOR:
______________________________
By:___________________________
Name:_________________________
Title:________________________
12
Exhibit 4.6
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT (this "Agreement"), dated as of June 30, 1999, by
and among DynaGen, Inc., a corporation organized under the laws of the State of
Delaware (the "Company"), with headquarters located at 840 Memorial Drive,
Cambridge, Massachusetts 02139, and the purchaser named on the signature page
hereto "Purchaser").
WHEREAS:
A. The Company and the Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the "Securities
Act").
B. The Company desires to sell and issue to the Purchaser, and the
Purchaser desires to purchase, in consideration for the exchange and
cancellation of that certain 8% Convertible Debenture of the Company dated May
13, 1999 in favor of the Purchaser in the principal amount of $___________ (the
"Debenture"), ________ shares of Series I Preferred Stock, par value $0.01 per
share, of the Company (the "Series I Stock"), in accordance with the terms and
conditions set forth therein (the shares of common stock, $0.01 par value per
share, issuable upon conversion of the Series I Stock are referred to herein as
the "Common Shares," and the Series I Preferred Stock and the Common Shares are
sometimes collectively referred to herein as the "Securities").
NOW, THEREFORE, the Company and the Purchaser hereby agree as follows:
1. PURCHASE AND SALE OF SERIES I STOCK
a. Purchase of Series I Stock. The Company hereby agrees to issue and
sell to the Purchaser, and the Purchaser agrees to purchase from the Company,
the number of shares of Series I Stock set forth next to the Purchaser's name on
the signature page of this Agreement.
b. FORM OF PAYMENT. PURCHASER HEREBY TENDERS TO THE COMPANY THE
DEBENTURE IN PAYMENT OF THE PURCHASE PRICE FOR THE SERIES I STOCK. THE DEBENTURE
AND THE DEBT EVIDENCED THEREBY SHALL BE CANCELED ON THE BOOKS OF THE COMPANY AS
OF THE DATE HEREOF. The Company agrees to pay to the Purchaser, on demand, all
interest accrued on the Debenture from May 13, 1999 to the date hereof, in
shares of Common Stock, valued at the average Market Price of the Common Stock
for the three (3) trading days (which need not be consecutive) selected by the
holder from the five (5) trading days ending on the trading day immediately
before the date such demand is received. Market Price of the Common Stock" means
(x) the closing bid price of the Common Stock for the period indicated in the
relevant provision, as reported by Bloomberg, LP or, if not so reported, as
reported on the over-the-counter market or (y) if the Common Stock is listed on
a stock exchange, the closing price on such exchange, as reported in The Wall
Street Journal.
<PAGE>
2. PURCHASER'S REPRESENTATIONS AND WARRANTIES
The Purchaser represents and warrants to the Company that:
a. Investment Purpose. It is purchasing the Securities for its own
account for investment only and not with a present view towards the public sale
or distribution thereof, except pursuant to sales that are exempt from the
registration requirements of the Securities Act and/or sales registered under
the Securities Act. The Purchaser understands that the Purchaser must bear the
economic risk of this investment indefinitely. The Purchaser understands that
the Securities have not been and are not being registered under the Securities
Act or any state securities laws, and may not be transferred unless the
Securities are registered pursuant to the Securities Act and any applicable
state securities or blue sky laws or an exemption from such registration is
available, and that the Company has no present intention of registering, or
obligation to register, any such Securities.
The Purchaser understands that while such restrictions are in effect
the certificates for the Securities may bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such Securities):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be sold, transferred or assigned in
the absence of an effective registration statement for the securities
under said Act, or an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, that
registration is not required under said Act or unless the Company is
provided with reasonable assurances that the securities were sold
pursuant to Rule 144 under said Act.
b. Accredited Investor Status/Representation by Counsel. The Purchaser
is an "accredited investor" as defined in Rule 501(a) promulgated under the
Securities Act and has reviewed all of the Company's periodic and other filings
with the Securities and Exchange Commission (the "Company SEC Documents"). The
Purchaser is represented by counsel.
c. Reliance on Exemptions. The Purchaser understands that the
Securities are being offered and sold to the Purchaser in reliance upon specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Purchaser's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Purchaser set forth herein
in order to determine the availability of such exemptions and the eligibility of
the Purchaser to acquire the Securities.
d. Information. The Purchaser and its counsel or representative, if
any, have been furnished all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by such Purchaser or its counsel or
representative. The Purchaser and its counsel, if any, have been afforded the
opportunity to ask questions of the Company and have received what such
Purchaser believes to be complete and satisfactory answers to any such
inquiries.
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<PAGE>
e. Speculative Investment. The Purchaser has been informed and
understands that (i) this investment involves a HIGH DEGREE OF RISK, and (ii)
the Company's independent auditors have included an explanatory paragraph in
their opinion on the Company's financial statements expressing substantial doubt
about the Company's ability to continue as a going concern. In particular, the
Purchaser has read and carefully considered the information set forth in the
Company SEC Documents, including, without limitation, under the heading "Certain
Factors That May Affect Future Results" in the Company's Annual Report on Form
10-KSB for the Year Ended December 31, 1998, as amended through the date hereof,
and the Company's Quarterly Report on Form 10-QSB for the Quarter Ended March
31, 1999, as amended through the date hereof.
f. Authorization; Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Purchaser and constitutes
the valid and binding agreements of the Purchaser enforceable in accordance with
its terms.
g. Location of Purchaser. The Purchaser has advised the Company in
writing with respect to the jurisdiction wherein the investment decision
regarding the Purchaser's acquisition of the Securities has been made.
3. OTHER AGREEMENTS
a. Representations and Warranties of the Company. Reference is made
hereby to that certain Securities Purchase Agreement, dated May 13, 1999 by and
between the Company and the Purchaser (the "Securities Purchase Agreement") as
well as the "Transaction Documents," as defined therein. The Securities Purchase
Agreement is hereby amended to the extent necessary to provide that "Securities"
as defined therein shall include the shares of Series I Preferred Stock to be
issued hereunder. Each of the representations and warranties of the Company made
in the Securities Purchase Agreement is hereby incorporated into this Agreement
by reference with the same force and effect as if such representation or
warranty was set fully forth herein (except for the representation of the
Company in Section 3.4 of the Securities Purchase Agreement as to the
outstanding securities of the Company, which has changed since May 13, 1999).
b. Registration Rights. The Registration Rights Agreement dated May 13,
1999 by and between the Company and the Purchaser is hereby amended to the
extent necessary to provide that "Registrable Securities" as defined therein
shall include the Common Shares issuable upon conversion of shares of Series I
Preferred Stock to be issued hereunder. The Securities Purchase Agreement and
Registration Rights Agreement, as amended hereby, and each other Transaction
Document (except for the Debentures) shall remain in full force and effect after
the execution and delivery of this Agreement, including without limitation all
obligations of the Company under Sections 2 and 3 of the Registration Rights
Agreement.
4. GOVERNING LAW; MISCELLANEOUS
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware.
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<PAGE>
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other parties.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Purchaser make any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived other than by an instrument in
writing signed by the party to be charged with enforcement and no provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and the Purchaser.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier, overnight delivery
service or by confirmed telecopy, and shall be effective five days after being
placed in the mail, if mailed, or upon receipt or refusal of receipt, if
delivered personally or by courier, overnight delivery service or confirmed
telecopy, in each case addressed t a party. The addresses for such
communications shall be:
If to the Company:
DynaGen, Inc.
840 Memorial Drive
Cambridge, Massachusetts 02139
Telecopy: (617) 354-3902
Attention: Dhananjay G. Wadekar
with a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Telecopy: (617) 832-7000
Attention: David A. Broadwin, Esq.
If to Purchaser, to the address set forth on the signature page hereof.
Each party shall provide notice to the other parties of any change in
address.
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g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor any Purchaser shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
PURCHASER
___________________________________
By:________________________________
Name:______________________________
Title:_____________________________
Notice Address:
___________________________________
___________________________________
Telecopy:__________________________
ACCEPTED:
DYNAGEN, INC.
By:________________________________
Name:______________________________
Title:_____________________________
5
EXHIBIT 4.7
DYNAGEN, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES I PREFERRED STOCK
The undersigned officer of DynaGen, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred by the Certificate of
Incorporation, as amended to date, and pursuant to the provisions of Section 151
of the General Corporation Law of the State of Delaware, the Board of Directors
of DynaGen, Inc., on June 29, 1999 adopted a resolution providing for certain
powers, designations, preferences and relative, participating, optional or other
rights, and the qualifications, limitations or restrictions thereof, of certain
shares of Series I Preferred Stock, $.01 par value, of the Corporation, which
resolution is as follows:
RESOLVED: That, pursuant to the authority vested in the Board of
Directors of the Corporation and in accordance with the General Corporation Law
of the State of Delaware and the provisions of the Corporation's Certificate of
Incorporation, a series of 3,000 shares of the authorized Preferred Stock, par
value $.01 per share, of the Corporation is hereby created as the Series I
Preferred Stock, and that the designation and number of shares thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
and restrictions thereof, are as set forth on Exhibit A attached hereto.
EXECUTED as of this 29th day of June, 1999.
DYNAGEN, INC.
By:/s/ Dhananjay G. Wadekar
------------------------
Dhananjay G. Wadekar
Executive Vice President
<PAGE>
Exhibit A
C. Description and Designation of Series I Preferred Stock
1. Designation and Definitions.
a. Designation. A total of 3,000 shares of the Corporation's previously
undesignated Preferred Stock, $.01 par value, shall be designated as the "Series
I Preferred Stock." The original issue price per share of the Series I Preferred
Stock shall be $1,000 (the "Original Issue Price").
b. Certain Definitions. As used herein, the following terms, unless the
context otherwise requires, have the following respective meanings:
i. "Conversion Date" means each date on which the
Corporation receives by telecopy written notice in accordance with Section (5)
hereof from a holder of Series I Preferred Stock that such holder elects to
convert shares of its Series I Preferred Stock.
ii. "Issue Date" means, with respect to each share of Series
I Preferred Stock held by any holder, the date on which the Corporation
originally issued such share to such holder (irrespective of any subsequent
transfer or other disposition of such share to any other holder).
2. Dividends.
a. Stated Dividend. Commencing on the Issue Date and continuing
thereafter, a dividend will accrue and be paid quarterly in arrears at the rate
of 8% per annum (the "Stated Dividend") with respect to each issued share of
Series I Preferred Stock. Stated Dividend payments shall be made, at the option
of the Corporation, in cash or in shares of Common Stock, of the Corporation
valued at the "Conversion Rate," as defined in Section 6(a), on June 30 and
December 31 of each year.
b. Payment Upon Conversion. On the date on which any holder of Series I
Preferred Stock converts any of its Series I Preferred Stock into Common Stock,
the accrued Stated Dividend with respect to the shares so converted shall be
paid to such holder. All accrued and unpaid Stated Dividends also shall be
payable upon the liquidation, dissolution or winding up of the Corporation.
c. Fractional Shares. Notwithstanding anything herein to the contrary,
no fractional shares shall be issued pursuant to this Section 2, and the number
of shares of Common Stock issued upon the payment of the Stated Dividend shall
be rounded to the nearest whole share.
d. Declared Dividends. Except to the extent provided in this Section 2,
holders of shares of Series I Preferred Stock shall not be entitled to
participate in any dividends which may be declared or paid on the Common Stock,
any other class or series of Preferred Stock or otherwise.
3. Liquidation, Dissolution or Winding Up.
a. Treatment at Liquidation, Dissolution or Winding Up. In the event of
any liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary, or in the event of
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its insolvency, before any distribution or payment is made to any holders of
Common Stock or any other class or series of capital stock of the Corporation
designated to be junior to the Series I Preferred Stock, and subject to the
liquidation rights and preferences of any class or series of Preferred Stock
designated by the Board of Directors in the future to be senior to, or on a
parity with, the Series I Preferred Stock with respect to liquidation
preferences, the holders of each share of Series I Preferred Stock shall be
entitled to be paid first out of the assets of the Corporation available for
distribution to holders of the Corporation's capital stock of all classes,
whether such assets are capital, surplus or earnings, an amount equal to the
Original Issue Price per share of Series I Preferred Stock held by any holder,
plus accrued and unpaid dividends pursuant to Section 2 above (the "Liquidation
Value"). For purposes hereof, the Series I Preferred Stock will rank junior to
all classes of preferred stock currently outstanding but senior to the Common
Stock.
If, upon liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation available for distribution to its stockholders shall
be insufficient to pay the holders of the Series I Preferred Stock the full
amount to which they otherwise would be entitled, the holders of Series I
Preferred Stock shall share ratably in any distribution of available assets in
proportion to the respective liquidation preference amounts which would
otherwise be payable upon liquidation with respec to the outstanding shares of
the Series I Preferred Stock if all liquidation preference amounts with respect
to such shares were paid in full, based upon the aggregate Liquidation Value
payable upon all shares of Series I Preferred Stock then outstanding.
After such payment shall have been made in full to the holders of the
Series I Preferred Stock, or funds necessary for such payment shall have been
set aside by the Corporation in trust for the account of holders of the Series I
Preferred Stock so as to be available for such payment, the remaining assets
available for distribution shall be distributed ratably among the holders of the
Common Stock and any class or series of capital stock designated to be junior to
the Series I Preferred Stock (if any) in right of payment upon any liquidation,
dissolution or winding up of the Corporation.
The amounts set forth above shall be subject to equitable adjustment by
the Board of Directors whenever there shall occur a stock dividend, stock split,
combination, reorganization, recapitalization, reclassification or other similar
event involving a change in the capital structure of the Common Stock or Series
I Preferred Stock.
(b) Distributions Other than Cash. Whenever the distributions provided
for in this Section 3 shall be payable in property other than cash, the value of
such distribution shall be the fair market value of such property as determined
in good faith by the Board of Directors. All distributions (including
distributions other than cash) made hereunder shall be made pro rata to the
holders of Series I Preferred Stock.
4. Voting Power.
(a) General. Except as otherwise expressly provided in this Section 4
or as otherwise required by the General Corporation Law of the State of
Delaware, each holder of Series I Preferred Stock shall be entitled to vote on
all matters and shall be entitled to that number of votes equal to the largest
number of whole shares of Common Stock into which such holder's shares of Series
I Preferred Stock could be converted, pursuant to the provisions of Section 6
hereof, at the record date
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for the determination of stockholders entitled to vote on any matter or, if no
such record date is established, at the date such vote is taken or any written
consent of stockholders is solicited. Except as otherwise required by law, the
holders of shares of Series I Preferred Stock and Common Stock shall vote
together (or render written consents in lieu of a vote) as a, single class on
all matters submitted to the stockholders of the Corporation.
Such determination of "whole shares" shall be based upon the aggregate
number of shares of Series I Preferred Stock held by each holder, and not upon
each share of Series I Preferred Stock so held by the holder.
5. Amendments to Charter. For so long as there are any shares of
Series I Preferred Stock outstanding, the Corporation shall not amend its
Certificate of Incorporation or this Certificate of Designation without the
approval, by vote or written consent, of the holders of at least a majority of
the then outstanding shares of Series I Preferred Stock, voting together as a
class, each share of Series I Preferred Stock to be entitled to one vote in each
instance, if such amendment would adversely affect the rights of the holders of
Series I Preferred Stock. The creation of other classes or series of Preferred
Stock having voting powers, preferences and relative, participating, optional
and other special rights or provisions of any kind different from or superior to
those of the Series I Preferred Stock shall be deemed not to adversely affect
the rights of the holders of the Series I Preferred Stock.
6. Conversion Rights.
(a) Each holder of shares of Series I Preferred Stock shall be
entitled, at its option, subject to the following provisions of this Section 6,
to convert all or a portion of such holder's shares of Series I Preferred Stock
and accrued but unpaid dividends on shares of Series I Preferred Stock into
shares of Common Stock at any time until April 30, 2002 (the "Mandatory
Conversion Date") at a conversion price for each share of Common Stock (the
"Conversion Rate") equal to the Current Market Price (as defined below)
multiplied by eighty percent (80%); provided that the Original Issue Price of
the shares of Series I Preferred Stock being converted is not less than the
lower of (x) Two Thousand Dollars (US $2,000) (unless if at the time of such
election to convert the aggregate Original Issue Price of all shares of Series I
Preferred Stock registered to the holder is less than US $2,000, then the whole
amount thereof) or (y) the maximum amount which the holder can then convert
pursuant to the terms of Section 6(d) hereof.
(b) For purposes of this Section 6, the following terms have the
meanings indicated below:
(i) "Market Price of the Common Stock" means (x) the closing
bid price of the Common Stock for the period indicated in the relevant
provision, as reported by Bloomberg, LP or, if not so reported, as reported on
the over-the-counter market or (y) if the Common Stock is listed on a stock
exchange, the closing price on such exchange, as reported in The Wall Street
Journal.
(ii) "Current Market Price" means the average Market Price
of the Common Stock for the three (3) trading days (which need not be
consecutive) selected by the holder from the five (5) trading days ending on the
trading day immediately before the relevant Conversion Date (as defined below).
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(c) Conversion shall be effectuated by surrendering the certificate
representing shares of Series I Preferred Stock to be converted to the Company
accompanied by or preceded by facsimile or other delivery to the Company of the
form of conversion notice ("Notice of Conversion"), substantially in the form
set forth below, executed by the holder of the shares evidencing such holder's
intention to convert the shares of Series I Preferred Stock and accompanied, if
required by the Company by proper assignment thereof in blank. Subject to the
provisions of Section 2(a) hereof, unpaid dividends accrued or accruing from the
date of issuance to the date of conversion shall, at the option of the Company,
be paid in cash or shares of Common Stock upon conversion at the Conversion Rate
applicable to such conversion. No fractional shares of Common Stock or scrip
representing fractions of shares will be issued on conversion, but the number of
shares issuable shall be rounded to the nearest whole share. The date on which
notice of conversion is given (the "Conversion Date") shall be deemed to be the
date on which the holder faxes to (617) 354-3902 or such other number a may be
provided by the Company to the holder or otherwise delivers the Notice of
Conversion, duly executed, to the Company, provided that the holder shall
deliver to the Company's transfer agent or the Company the original certificate
representing shares of Series I Preferred Stock being converted within five (5)
business days thereafter (and if not so delivered with such time, the Conversion
Date shall be the date on which the later of the Notice of Conversion and the
original certificate representing shares of Series I Preferred Stock being
converted is received by the Company). Certificates representing Common Stock
issuable upon conversion will be delivered within three (3) business days from
the date the Notice of Conversion is delivered to the Company as contemplated in
the first sentence of this paragraph (c) or the original certificates
representing shares of Series I Preferred Stock being converted is delivered to
the Company.
(d) In no event (except (i) with respect to a Mandatory Conversion or
(ii) if the Company is in default under any provision of the shares of Series I
Preferred Stock or of any of the Transaction Agreements, as defined in the
Securities Purchase Agreement, dated May 13, 1999 (the "Securities Purchase
Agreement"), by and among the Company and the original Purchasers of the 8%
Convertible Debentures which were exchanged for shares of Series I Preferred
Stock) shall the holder be entitled to convert any shares of Series I Preferred
Stock to the extent that, after such conversion, the sum of (1) the number of
shares of Common Stock beneficially owned by the holder and its affiliates
(other than shares of Common Stock which may be deemed beneficially owned
through the ownership of the unconverted portion of the shares of Series I
Preferred Stock or unexercised portion of any Warrants issued to the holder
pursuant to the Transaction Documents ("Warrants")), and (2) the number of
shares of Common Stock issuable upon the conversion of the shares of Series I
Preferred Stock or exercise of the Warrants with respect to which the
determination of this sentence is being made, would result in beneficial
ownership by the holder and its affiliates of more than 9.99% of the outstanding
shares of Common Stock. For purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), except as
otherwise provided in clause (1) of such proviso.
(e) Anything herein to the contrary notwithstanding, in the event the
Company breaches the provisions of Section 7.3 or 7.4 of the Securities Purchase
Agreement, the Conversion Rate shall be amended to be equal to (i) 90% of (ii)
the Conversion Rate determined in accordance with the other provisions of the
Series I Preferred Stock without regard to this Section 6(e), and the holder may
require the Company to immediately redeem the outstanding portion of the shares
of Series I Preferred Stock in accordance with clause (y) of Section 6(g)
hereof.
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(f) All shares of Series I Preferred Stock together with accrued and
unpaid dividends not converted as of the Mandatory Conversion Date, shall be
automatically converted, without further action of any kind by the Company or
any of its agents, employees or representatives, as of the Mandatory Conversion
Date at the Conversion Rate applicable on the Mandatory Conversion Date
("Mandatory Conversion").
(g) The holder recognizes that the Company may be limited in the number
of shares of Common Stock it may issue by (i) reason of its authorized shares,
or (ii) the applicable rules and regulations of the principal securities market
on which the Common Stock is listed or traded (collectively, the "Cap
Regulations"). Without limiting the other provisions hereof, (i) the Company
will take all steps reasonably necessary to be in a position to issue shares of
Common Stock on conversion of the Series I Preferred Stock without violating the
Cap Regulations and (ii) if, despite taking such steps, the Company still can
not issue such shares of Common Stock without violating the Cap Regulations, the
holders of shares of Series I Preferred Stock (to the extent the same can not be
converted in compliance with the Cap Regulations, "Uncovered Series I Preferred
Shares"), shall have the option, exercisable in each holder's sole and absolute
discretion, to elect any one of the following remedies:
(x) require the Company to issue shares of Common Stock in
accordance with such holder's Notice of Conversion relating to the
Uncovered Series I Preferred Shares at a conversion purchase price equal to
the average of the closing bid price per share of Common Stock for any
three (3) consecutive trading days (subject to the equitable adjustments
for certain events occurring during such period as provided in the shares
of Series I Preferred Stock) during the five (5) trading days immediatel
preceding the date of the Notice of Conversion; or
(y) require the Company to redeem each Uncovered Series I
Preferred Stock for an amount (the "Cap Redemption Amount"), payable in
cash, equal to:
V x 125% y
where:
"V" means the Original Issue Price of the relevant shares of
Series I Prefered Stock plus accrued and unpaid dividends through the Cap
Redemption Date (as defined below) of Uncovered Series I Preferred Shares.
The holder of Uncovered Series I Preferred Shares may elect one of the above
remedies with respect to a portion of such Uncovered Series I Preferred Shares
and the other remedy with respect to other portions of the Uncovered Series I
Preferred Shares.
(h) Notwithstanding any other provision hereof to the contrary, at any
time prior to the Conversion Date, the Company shall have the right to redeem
all or any portion of the then outstanding shares of Series I Preferred Stock
then held by the holder in cash for an amount (the "Redemption Amount") equal to
the product of (a) the Original Issue Price of such outstanding shares of Series
I Preferred Stock plus all accrued but unpaid interest thereon through the date
the Redemption Amount is paid to the holder (the "Redemption Payment Date'),
times (b) 125%.
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The Company shall give at least ten (10) business days' written notice
of such redemption to the holder of shares of Series I Preferred Stock to be
redeemed (the "Notice of Redemption"). Anything in the preceding provisions of
this Section 5 to the contrary notwithstanding, the Redemption Amount shall,
unless otherwise agreed to in writing by the holder after receiving the Notice
of Redemption, be paid to the holder in good funds at least five (5) but not
more than ten (10) business days from the date for redemption set forth in the
Notice of Redemption, except that, with respect to any shares of Series I
Preferred Stock for which a Notice of Redemption is given, the holder shall have
the right, exercisable by submitting a Notice of Conversion to the Company
within five (5) business days of the Holder's receipt of the Company's Notice of
Redemption, to convert any or all of the shares of Series I Preferred Stock
sought to be redeemed (a "Redemption Notice Conversion") and the Redemption
Notice Conversion shall take precedence over the redemption contemplated by the
Notice of Redemption. Such shares of Series I Preferred Stock shall be converted
in accordance with the terms hereof. Furthermore, in the event such Redemption
Amount is not timely paid, any rights of the Company to redeem outstanding
shares of Series I Preferred Stock shall terminate, and the Notice of Redemption
shall be null and void. Any redemption contemplated by this Section 6(h) shall
be made only in cash by the payment of immediately available good funds to the
Holder.
(i) No recourse shall be had for the payment of the Original Issue
Price of, or the dividends on, any shares of Series I Preferred Stock, or for
any claim based thereon or on the Transaction Documents, or otherwise in respect
hereof, against any incorporator, shareholder, officer or director, as such,
past, present or future, of the Company or any successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issue hereof, expressly waived
and released.
(j) If the Company merges or consolidates with another corporation or
sells or transfers all or substantially all of its assets to another person and
the holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, then the shares of Series I
Preferred Stock outstanding at the effective time of such merger, consolidation,
sale or transfer may thereafter be converted on the terms and subject to the
conditions set forth above into the kind and amount of stock, securities or
property receivable upon such merger, consolidation, sale or transfer by a
holder of the number of shares of Common Stock into which the shares of Series I
Preferred Stock might have been converted immediately before such merger,
consolidation, sale or transfer, subject to adjustments which shall be as nearly
equivalent as may be practicable. In the event of any proposed merger,
consolidation or sale or transfer of all or substantially all of the assets of
the Company (a "Sale"), each holder of shares of Series I Preferred Stock shall
have the right to convert by delivering a Notice of Conversion to the Company
within fifteen (15) days of receipt of notice of such Sale from the Company. In
the event the holder hereof shall elect not to convert, the Company may redeem
the shares of Series I Preferred Stock by paying the Redemption Amount
contemplated by Section 6(h) hereof, less all amounts required by law to be
deducted, upon which tender of payment following such notice, the right of
conversion shall terminate.
(k) If, for any reason, prior to the Conversion Date or the Redemption
Payment Date, the Company spins off or otherwise divests itself of a part of its
business or operations or disposes all or of a part of its assets which
represents 40% of its gross assets or 40% of its gross
7
<PAGE>
revenue for the prior twelve months in a transaction (a "Spin Off") in which the
Company does not receive compensation for such business, operations or assets,
but causes securities of another entity (the "Spin Off Securities') to be issued
to security holders of the Company, then the Company shall cause (i) to be
reserved Spin Off Securities equal to the number thereof which would have been
issued to the holder had all of the holder's shares of Series I Preferred Stock
outstanding on the record date (the "Record Date") for determining the amount
and number of Spin Off Securities to be issued to security holders of the
Company (the "Outstanding Series I Preferred Stock") been converted as of the
close of business on the trading day immediately before the Record Date (the
"Reserved Spin Off Shares"), and (ii) to be issued to the holder on the
conversion of all or any of the shares of Series I Preferred Stock, such amount
of the Reserved Spin Off shares equal to (x) the Reserved Spin Off Shares
multiplied by (y) a fraction, of which (I) the numerator is the shares of Series
I Preferred Stock then being converted, and (II) the denominator is the number
of shares of Series I Preferred Stock issued and outstanding as of the Record
Date.
(l) Each holder of Series I Preferred Stock agrees that any payments of
money (and not of stock or other securities) as payment of Original Issue Price
and dividends under the shares of Series I Preferred Stock shall be subordinated
in right of payment to the prior payment in full of all indebtedness of the
Company for money borrowed from banks or other institutional lenders (including
but not limited to Argosy Investment Partners, L.P., Sirrom Capital Corporation,
and Finova Mezzanine Capital, Inc.) and their successors and assigns, whether
outstanding on the date hereof or hereafter incurred, which is not by its terms
subordinate and junior to or on a parity with the shares of Series I Preferred
Stock ("Senior Debt"'). The holder hereby designates and appoints the holders of
Senior Debt as its agent and attorney-in-fact to demand, sue for, collect and
receive such Senior Debt holder's ratable share of all payments of money and to
file any necessary proof of claim therefor and to take all such other action in
the name of the holder as such Senior Debt holder may determine to be necessary
or appropriate for the enforcement of this Section 6(l). If any payment of money
shall be made to the holder before all Senior Debt shall have been paid in full,
despite or in violation of this subordination, such payment shall be held in
trust for and paid and delivered ratably to the holders of Senior Debt until all
Senior Debt shall have been paid in full.
(m) All payments contemplated hereby to be made "in cash" shall be made
in immediately available good funds in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts. All payments of cash and each delivery of shares of
Common Stock issuable to the holder as contemplated hereby shall be made to the
holder at the address last appearing on the Series I Preferred Stock Register of
the Company as designated in writing by the holder from time to time; except
that the holder can designate, by notice to the Company, a different delivery
address for any one or more specific payments or. deliveries.
(n) The following shall constitute an "Event of Default":
(i) The Company shall default in the payment of any amounts
owed under the Series I Preferred Stock and same shall continue for a period of
ten (10) days; or
(ii) Any of the representations or warranties made by the
Company herein, in the Securities Purchase Agreement, the Registration Rights
Agreement (as defined in the Securities Purchase Agreement) or in any
certificate or financial or other written statements
8
<PAGE>
heretofore or hereafter finished by the Company in connection with the execution
and delivery of the Securities Purchase Agreement shall be false or misleading
in any material respect at the time made; or
(iii) The Company fails to issue shares of Common Stock to
the holder or to cause its transfer agent to issue shares of Common Stock upon
exercise by the holder of the conversion rights of the holder in accordance with
the terms of the Series I Preferred Stock, fails to transfer or to cause its
transfer agent to transfer any certificate for shares of Common Stock issued to
the holder upon conversion of the shares of Series I Preferred Stock and when
required by the Series I Preferred Stock or the Registration Rights Agreement,
and such transfer is otherwise lawful, or fails to remove any restrictive legend
or to cause its Transfer Agent to transfer on any certificate or any shares of
Common Stock issued to the holder upon conversion of the shares of Series I
Preferred Stock as and when required by the terms of the Series I Preferred
Stock, the Securities Purchase Agreement or the Registration Rights Agreement,
and such legend removal is otherwise lawful, and any such failure shall continue
uncured for five (5) business days.
(iv) The Company shall fail to perform or observe, in any
material respect, any other covenant, term, provision, condition, agreement or
obligation of the Series I Preferred Stock and such failure shall continue
uncured for a period of thirty (30) days after written notice from the holder of
such failure; or
(v) The Company shall fail to perform or observe, in any
material respect, any covenant, term, provision, condition, agreement or
obligation of the Company under the Securities Purchase Agreement or the
Registration Rights Agreement and such failure shall continue uncured for a
period of thirty (30) days after written notice from the holder of such failure
(other than a failure to cause the Registration Statement to become effective no
later than the Required Effective Date, as defined and provided in the
Registration Rights Agreement, as to which no such cure period shall apply); or
(vi) The Company shall (1) admit in writing its inability to
pay its debts generally as they mature; (2) make an assignment for the benefit
of creditors or commence proceedings for its dissolution; or (3) apply for or
consent to the appointment of a trustee, liquidator or receiver for its or for a
substantial part of its property or business; or
(vii) A trustee, liquidator or receiver shall be appointed
for the Company or for a substantial part of its property or business without
its consent and shall not be discharged within sixty (60) days after such
appointment; or
(viii) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties or assets of
the Company and shall not be dismissed within sixty (60) days thereafter; or
(ix) Any money judgment, writ or warrant of attachment, or
similar process in excess of Two Hundred Thousand ($200,000) Dollars in the
aggregate shall be entered or filed against the Company or any of its properties
or other assets and shall remain unpaid, unvacated,
9
<PAGE>
unbonded or unstayed for a period of sixty (60) days or in any event later than
five (5) days prior to the date of any proposed sale thereunder; or
(x) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed within sixty (60) days
after such institution or the Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any such proceeding;
or
(xi) The Company shall have its Common Stock suspended or
delisted from any exchange or the over-the-counter market from trading for in
excess of five (5) consecutive trading days. Then, or at any time thereafter,
and in each and every such case, unless such Event of Default shall have been
waived in writing by the holder (which waiver shall not be deemed to be a waiver
of any subsequent default) at the option of the holder and in the holder's sole
discretion, the holder may require payment in full of the Original Issue Price
and accrued but unpaid dividends on all shares of Series I Preferred Stock owned
by such holder, without presentment, demand, protest or notice of any kinds, all
of which are hereby expressly waived, anything herein or in any note or other
instruments contained to the contrary notwithstanding, and the holder may
immediately enforce any and all of the holder's rights and remedies provided
herein or any other rights or remedies afforded by law.
FORM OF
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the shares of
Series I Preferred Stock)
The undersigned hereby irrevocably elects to convert ____ shares of Series I
Preferred Stock into shares of Common Stock of DYNAGEN INC. (the "Company")
according to the conditions hereof, as of the date written below.
Conversion Date*
______________________________________________________________________________
Applicable Conversion Price
______________________________________________________________________________
Signature
______________________________________________________________________________
[Name]
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Address:
______________________________________________________________________________
______________________________________________________________________________
*The original certificate representing shares of Series I Preferred Stock must
be received by the Company or its transfer agent by the fifth business date
following the Conversion Date.
7. Notices of Record Date. In the event of any:
c. taking by the Corporation of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of capital stock of any class or any
other securities or property, or to receive any other right, or
d. capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other Corporation, or any other entity or
person, or
e. voluntary or involuntary dissolution, liquidation or winding up of
tile, Corporation, then and in each such event the Corporation shall telecopy
and thereafter mail or cause to be mailed to each holder of Series I Preferred
Stock a notice specifying (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right and a description of
such dividend, distribution or right, (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or, winding up is expected to become effective,
and (iii) the time, if any, that is to be fixed, as to when the holders of
record of Common Stock (or other securities) shall be entitled to exchange their
shares of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up. Such
notice shall be telecopied and thereafter mailed by first class mail, postage
prepaid, or by express overnight courier service, at least ten (10) days prior
to the date specified in such notice on which such action is to be taken.
11
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
1747 Pennsylvania Ave., N.W.
Suite 1200
WASHINGTON, D.C. 20006
TEL: 202-223-1200
FAX: 202-785-6687
July 13, 1999
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 security
holders of the Company of a total of 6,209,763 shares (the "Shares") of the
Company's common stock, $0.01 par value per share ("Common Stock"), including
Shares issuable upon conversion of shares of Series I Convertible Preferred
Stock, $0.01 par value per share ("Series I Stock") of the Company held by such
security holders.
In arriving at the opinion expressed below, we have examined and relied
on the following documents:
(1) the Certificate of Incorporation and By-laws of the
Company, each as amended as of the date hereof; and
(2) the records of meetings and consents of the Board of
Directors of the Company relating to the issuance of the Shares 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
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. We have further assumed that a sufficient
number of duly authorized and unissued shares of Common Stock will be available
for issuance at the time the shares of Series I Stock are presented for
conversion in accordance with the terms thereof; and
<PAGE>
DynaGen, Inc.
July 13, 1998
Page 2
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 the
Company has taken all necessary corporate action required to authorize the
issuance of the Shares, and the Shares, when issued upon receipt of
consideration therefor, and when certificates for the same have been duly
executed and countersigned and delivered, 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
EXHIBIT 23a
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration
Statement on Form S-3 of DynaGen, Inc. (the "Company") of our report dated
February 12, 1999, except for Note 13 as to which the date of our report is
March 29, 1999, appearing in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1998, and to the reference to us under the heading
"Experts" in the Prospectus which is part of this Registration Statement
/s/ Wolf & Company, P.C.
--------------------------------
WOLF & COMPANY, P.C.
Boston, Massachusetts
July 13, 1999
