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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-QSB
-----------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission File Number 1-11352
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DYNAGEN, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 04-3029787
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1000 Winter Street
Suite 2700
Waltham, MA 02451
(Address of principal executive offices)
(781) 890-0021
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
As of October 28, 1999 there were outstanding 57,883,355 shares of common stock,
$.01 par value per share.
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<PAGE>
DYNAGEN, INC.
FORM 10-QSB
QUARTERLY REPORT
SEPTEMBER 30, 1999
TABLE OF CONTENTS
Facing Page ........................................................ 1
Table of Contents .................................................. 2
PART I. FINANCIAL INFORMATION (*)
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet ............. 3
Condensed Consolidated Statements of Loss ........ 5
Condensed Consolidated Statements of Changes
in Stockholders' Equity (Deficit) .............. 7
Condensed Consolidated Statements of
Cash Flows ..................................... 9
Notes to Unaudited Condensed Consolidated
Financial Statements ........................... 11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations .................................. 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................ 25
Item 2. Changes in Securities ............................ 25
Item 3. Defaults on Senior Securities .................... 26
Item 6. Exhibits and Reports on Form 8-K ................. 27
SIGNATURES ......................................................... 28
(*) The financial information at December 31, 1998 has been derived from
the audited financial statements at that date and should be read in
conjunction therewith. All other financial statements are unaudited.
2
<PAGE>
PART I. FINANCIAL INFORMATION
DYNAGEN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Unaudited)
-----------
ASSETS
September 30, December 31,
1999 1998
----------- -----------
Current assets:
Cash and cash equivalents $ 702,788 $ 97,045
Accounts receivable, net of
allowance for doubtful
accounts of $39,297 and $68,133 4,923,798 3,673,472
Rebates 307,860 398,724
Inventory 7,799,680 6,647,079
Notes receivable 86,500 150,000
Prepaid expenses and other
current assets 1,120,193 201,470
----------- -----------
Total current assets 14,940,819 11,167,790
----------- -----------
Property and equipment, net 3,116,231 1,685,010
----------- -----------
Other assets:
Customer lists, net of accumulated
amortization of $5,098,515 and
$4,205,133 2,463,021 7,636,072
Goodwill, net of accumulated amorti-
tization of $57,172 and $48,567 -0- 337,652
Patents and trademarks, net of
accumulated amortization of
$16,305 and $0 48,924 65,229
Deferred debt financing costs, net
of accumulated amortization 662,996 277,325
Deposits and other assets 357,519 276,372
----------- -----------
Total other assets 3,532,460 8,592,650
----------- -----------
$21,589,510 $21,445,450
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
DYNAGEN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (Deficit)
(Unaudited)
-----------
September 30, December 31
1999 1998
----------- -----------
Current liabilities:
Bank overdraft $ 816,314 $ 621,313
Notes payable and current
portion of long-term debt 10,702,708 13,162,041
Accounts payable and accrued
expenses 4,111,625 3,705,209
Deferred revenue -0- 100,000
Settlement obligation, current portion 14,460 -0-
Acquisition obligation -0- 4,083,000
----------- -----------
Total current liabilities 15,645,107 21,671,563
Warrant put liability 949,365 858,435
Long term debt, less current portion 3,132,063 1,510,813
Settlement obligation, less current portion 471,423 -0-
----------- -----------
Total liabilities 20,197,958 24,040,811
----------- -----------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 10,000,000
shares authorized, 41,425 and 52,152
shares of Series A through K outstanding,
(liquidation value $6,482,485 and
$5,212,977) 414 521
Common stock, $.01 par value, 75,000,000
shares authorized, 57,548,131 and
37,612,612 shares issued and outstanding 575,482 376,126
Additional paid-in capital 56,132,350 47,181,545
Accumulated deficit (55,316,694) (50,153,553)
----------- -----------
Total stockholders' equity (deficit) 1,391,552 (2,595,361)
----------- -----------
$21,589,510 $21,445,450
=========== ===========
See accompanying notes to consolidated unaudited financial statements.
4
<PAGE>
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
-----------------------------------------
(Unaudited)
-----------
Three Months Ended
September 30, September 30,
1999 1998
----------- -----------
Revenues
Product sales $ 7,368,820 $ 6,617,614
Fees and royalties -0- 188
----------- -----------
Total revenues 7,368,820 6,617,802
----------- -----------
Costs and expenses:
Cost of sales 5,721,391 6,076,656
Research and development 699,397 110,487
Selling, general and administrative 2,013,761 3,206,820
----------- -----------
Total costs and expenses 8,434,549 9,393,963
----------- -----------
Operating loss (1,065,729) (2,776,161)
----------- -----------
Other income (expense):
Investment and other income, net 5,294 143,283
Interest and financing expense (603,882) (468,091)
----------- -----------
Other income (expense), net (598,588) (324,808)
----------- -----------
Net loss (1,664,317) (3,100,969)
Less returns to preferred stockholders:
Beneficial conversion feature 268,750 245,156
Dividends paid and accrued 60,549 28,357
----------- -----------
Net loss applicable to common stock $(1,993,616) $(3,374,482)
=========== ===========
Net loss per share-basic $ (0.03) $ (0.14)
=========== ===========
Weighted average shares outstanding 57,016,814 24,589,980
=========== ===========
See accompanying notes to consolidated unaudited financial statements.
5
<PAGE>
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
-----------------------------------------
(Unaudited)
-----------
Nine Months Ended
September 30, September 30,
1999 1998
----------- -----------
Revenues
Product sales $20,974,432 $20,009,036
Fees and royalties 225 553
----------- -----------
Total revenues 20,974,657 20,009,589
----------- -----------
Costs and expenses:
Cost of sales 16,903,374 17,145,156
Research and development 1,198,033 430,774
Selling, general and administrative 6,370,083 8,437,873
Loss on impairment of customer lists 400,000 -0-
----------- -----------
Total costs and expenses 24,871,490 26,013,803
----------- -----------
Operating loss (3,896,833) (6,004,214)
----------- -----------
Other income (expense):
Investment and other income, net 483,278 297,894
Interest and financing expense (1,749,586) (1,269,242)
----------- -----------
Other income (expense), net (1,266,308) (971,348)
----------- -----------
Net loss (5,163,141) (6,975,561)
Less returns to preferred stockholders:
Beneficial conversion feature 1,264,127 570,198
Dividends paid and accrued 108,664 126,006
----------- -----------
Net loss applicable to common stock $(6,535,932) $(7,671,765)
=========== ===========
Net loss per share-basic $ (0.13) $ (0.45)
=========== ===========
Weighted average shares outstanding 48,541,680 17,023,765
=========== ===========
See accompanying notes to consolidated unaudited financial statements.
6
<PAGE>
DYNAGEN, INC.
CONDENSED CONSOLIDATED STAEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
-------------------------------------------------------------------
(DEFICIT)
---------
Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Description Preferred Stock Common Stock
- -------------------------------------- -------------------------- --------------------------
Shares Amounts Shares Amounts
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at 12/31/97 (as restated) 63,522 $ 635 4,315,137 $ 43,151
Stock issued for GDI acquistion 12,000 120 -- --
Shares issued in private placement 34,000 340 -- --
Stock issued for services -- -- 1,562,671 15,626
Employee stock & stock options granted
for services -- -- 300,000 3,000
Issuance of common stock purchase
warrants -- -- -- --
Common stock issued for interest -- -- 416,167 4,162
Conversion of note payable to
preferred stock 4,500 45 -- --
Delayed registration penalty -- -- -- --
Conversion of note payable into common
stock -- -- 1,798,526 17,986
Conversion of family loans -- -- 1,560,000 15,600
Conversion of preferred stock (58,241) (582) 16,435,759 164,358
Adjustment due to change in ownership
of former subsidiary -- -- -- --
Comprehensive Income: Net Loss -- -- -- --
---------- ---------- ---------- ----------
Balance at September 30, 1998 55,781 $ 558 26,388,260 $ 263,883
========== ========== ========== ==========
- ------------------------------------------------------------------------------------------------------
Balance @ 12/31/98 52,152 $ 521 37,612,612 $ 376,126
Stock options and warrants exercised -- -- 347,572 3,476
Shares issued in private placement 24,500 245 -- --
Conversion of preferred stock (35,227) (352) 11,615,331 116,154
Conversion of debt -- -- 3,407,641 34,076
Stock issued for bonus -- -- 125,000 1,250
Stock issued for services -- -- 2,940,000 29,400
Stock and warrants issued for Superior
settlement -- -- 1,500,000 15,000
Comprehensive Income: Net loss -- -- -- --
---------- ---------- ---------- ----------
Balance at September 30, 1999 41,425 $ 414 57,548,156 $ 575,482
========== ========== ========== ==========
- ------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated unaudited financial statements.
7
<PAGE>
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
--------------------------------------------------------------------
(DEFICIT)
---------
Nine Months Ended September 30, 1999 and 1998 (continued)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Additional Accumulated
Description Paid-In Capital Deficit Total
- -------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Balance at 12/31/97 (As Restated) $ 40,122,386 $(37,541,544) $ 2,624,628
Stock issued for GDI acquisition 1,199,880 -- 1,200,000
Shares issued in private placements 3,251,698 -- 3,252,038
Stock issued for services 655,584 -- 671,210
Employee stock & stock options granted
for services 128,400 -- 131,400
Issuance of common stock purchase warrants 182,500 -- 182,500
Common stock issued for interest 139,528 -- 143,690
Conversion of note payable to preferred stock 449,955 -- 450,000
Delayed registration penalty (175,000) -- (175,000)
Conversion of note payable into common stock 412,014 -- 430,000
Conversion of family loans 179,400 -- 195,000
Conversion of preferred stock (163,776) -- --
Adjustment due to change in
ownership of former subsidiary 468,888 -- 468,888
Comprehensive Income: Net Loss -- (6,975,561) (6,975,561)
------------ ------------ ------------
Balance at September 30, 1998 $ 46,851,457 $(44,517,105) $ 2,598,793
============ ============ ============
- ---------------------------------------------------------------------------------------------------------
Balance at 12/31/98 $ 47,181,545 $(50,153,553) $ (2,595,361)
Stock options and warrants exercised (3,376) -- 100
Shares issued in private placement 5,138,239 -- 5,138,484
Conversion of preferred stock (115,802) -- --
Conversion of debt 1,016,809 -- 1,050,885
Stock issued for bonus 27,500 -- 28,750
Stock issued for services 905,435 -- 934,835
Stock and warrants issued for Superior settlement 1,982,000 -- 1,997,000
Comprehensive income: Net Loss -- (5,163,141) (5,163,141)
------------ ------------ ------------
Balance at September 30, 1999 $ 56,132,350 $(55,316,694) $ 1,391,552
============ ============ ============
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated unaudited financial statements.
8
<PAGE>
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
-----------
Nine Months Ended
September 30, September 30,
1999 1998
----------- -----------
Cash flows from operating activities:
Net loss $(5,163,141) $(6,975,561)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 1,250,509 2,346,105
Loss on impairment of customer lists 400,000 --
Stock, stock options and warrants issued
for services 963,585 1,128,802
Write-off of patent cost -- 97,076
(Increase) decrease in operating assets:
Accounts receivable (1,250,326) 259,332
Rebates 90,864 85,804
Inventory (1,152,601) 2,608,532
Prepaid expenses and other current assets (918,723) 157,969
Deposits and other assets (81,147) 226,944
Notes receivable 63,500 --
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 867,633 (2,636,119)
Deferred revenue (100,000) --
----------- -----------
Net cash used for operating activities (5,029,847) (2,701,116)
----------- -----------
Cash flows from investing activities:
Cash paid in Superior Settlement (1,500,000) --
Purchase of wholly-owned subsidiary net of
cash received in acquisition -- (756,406)
Purchase of property and equipment (1,641,694) 38,673
Increase in deferred financing and
acquisition costs -- (50,000)
----------- -----------
Net cash provided (used) by investing
activities (3,141,694) (767,733)
----------- -----------
9
<PAGE>
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
-----------
Nine Months Ended
September 30, September 30,
1999 1998
----------- -----------
Cash flows from financing activities:
Proceeds from bank loan -- 1,214,280
Repayments of loan payable - bank (254,452) (2,430,984)
Net proceeds from debt placements 4,213,415 950,000
Net proceeds from private stock placements 5,138,484 3,252,038
Proceeds from stock options exercised 100 --
Repayment of debt obligation (372,177) --
Repayments on settlement obligation (53,900) --
Net change in accounts receivable factoring (89,187) --
Increase (decrease) in bank overdraft 195,001 408,563
Repayment of Superior note payable -- (416,667)
----------- -----------
Net cash provided by financing activities 8,777,284 2,977,230
----------- -----------
Net change in cash and cash equivalents 605,743 (491,619)
Cash and cash equivalents at beginning 97,045 697,045
----------- -----------
Cash and cash equivalents at end $ 702,788 $ 205,426
=========== ===========
Supplemental cash flow information:
Interest paid 828,158 633,013
Common stock issued for convertible note
payable and accrued interest 1,050,885 450,000
Debt issued for delayed registration penalty -- 262,500
Schedule of non-cash investing and financing
activities:
On March 2, 1998, the Company purchased the net
assets of Generic Distributors Limited Partnership
for $2,350,000. In connection with the acquisition,
non-cash financing activities, liabilities assumed
and customer lists were as follows:
Fair value of assets acquired $ 2,375,274
Cash paid (1,200,000)
Preferred stock issued (1,150,000)
Liabilities assumed (658,274)
-----------
Customer lists (exclusive of other
acquisition costs of $96,205) $ 633,000
===========
Additional non-cash investing and financing activities are described in Note 2
See accompanying notes to consolidated unaudited financial statements.
10
<PAGE>
DYNAGEN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of DynaGen,
Inc. (the "Company") and its wholly-owned subsidiaries: Able Laboratories,
Inc.("Able"), which is engaged in the manufacture of generic pharmaceuticals,
Superior Pharmaceutical Company ("Superior") and Generic Distributors Inc.
("GDI"), which are engaged in the distribution of generic pharmaceuticals, and
Apex Pharmaceuticals, Inc., which was established to develop therapeutic
products. The consolidated financial statements no longer include the accounts
of BioTrack, Inc. In 1998, the Company sold the majority of its shares in
BioTrack in exchange for a promissory note of BioTrack in the principal amount
of $1,000,000. The Company's ownership interest in BioTrack on September 30,
1999 was approximately 20%. Accordingly, BioTrack's financial statements are not
included in the accompanying consolidated financial statements. All significant
intercompany balances and transactions have been eliminated in consolidation.
The results of operations for the periods reported are not necessarily
indicative of those that may be expected for a full year. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
which are necessary for a fair statement of operating results for the interim
periods presented have been made.
The financial information included in this report has been prepared in
conformance with the accounting policies reflected in the financial statements
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1998 filed with the Securities and Exchange Commission.
USE OF ESTIMATES
In preparing consolidated financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the balance sheet date and reported amounts of revenues and
expenses during the reporting period. Material estimates that are particularly
susceptible to significant change in the near term relate to the carrying values
of rebates receivable and intangible assets, the valuation of equity instruments
issued by the Company and the amount of obligations due as a result of defaults
on certain debt obligations. Actual results could differ materially from those
estimates.
EARNINGS PER SHARE
Basic earnings per share represents income available to common stock
divided by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share reflects additional common shares that would
have been outstanding if dilutive potential common shares had been issued, as
well as any adjustment to income that would result from the assumed issuance.
For all periods presented, the effect of including shares issuable upon
exercise or conversion of options, warrants and put warrants, would have been
anti-dilutive, and so these shares were excluded in calculating diluted earnings
per share.
11
<PAGE>
The loss applicable to common stock has been increased by the stated
dividends on the convertible preferred stock and the amortization of discounts
on convertible preferred stock due to beneficial conversion features.
2. IMPACT OF SUPERIOR SETTLEMENT
On June 18, 1997, the Company acquired all of the outstanding stock of
Superior Pharmaceutical Company ("Superior"), a distributor of generic
pharmaceutical products. The Company paid the shareholders of Superior
$6,250,000 in cash, $5,000,000 in three-year secured promissory notes and
166,667 shares of DynaGen's common stock with a guaranteed value of $5,000,000.
The secured promissory notes were subsequently reduced by $400,000 due to a
deficiency in the required net worth of Superior as of the acquisition date.
DynaGen was obligated to issue to the shareholders up to an additional 1,666,667
shares of its common stock on June 19, 1998 if its common stock was not trading
at an average of at least $30.00 per share for 10 consecutive trading days. The
merger agreement provided further that DynaGen would pay to the former Superior
stockholders the difference between $5,000,000 and the current aggregate market
value of the shares issued to the former Superior stockholders. The Company
recorded a $4,083,000 acquisition obligation at December 31, 1997 based on the
difference between the current estimated fair value of the 1,833,334 shares of
common stock issued and issuable and the guaranteed value of $5,000,000.
On July 31, 1998, DynaGen entered into a contingent settlement
agreement to reduce the remaining purchase price to approximately $4,000,000.
During 1998, the Company issued the former shareholders of Superior 416,167
shares of common stock in connection with a forbearance agreement which has
expired. The shares were valued at $143,700 and charged to expense.
On December 17, 1998, the former Superior stockholders commenced a
civil action against the Company. In May 1999, we settled all issues between us
and the former Superior stockholders by:
- paying $1,500,000 in cash;
- issuing 1,500,000 shares of Common Stock;
- issuing warrants to purchase 1,000,000 shares of Common Stock
at a price of $.86 per share;
- issuing warrants to purchase 300,000 shares of Common Stock
at a price of $.01 per share; and
- modifying the Commercial Lease Agreement between Superior
and a company controlled by the former stockholders.
The Superior acquisition was accounted for as a purchase. The results
of operations of Superior have been included in the Company's consolidated
financial statements since the date of acquisition. The purchase price
allocation as adjusted, has been based on the estimated fair values at the date
of acquisition. The Company initially allocated $13,612,000 of the purchase
price to customer lists, which was being amortized on a straight line basis over
five years. The Company also recorded initial goodwill of $386,219, which was
being amortized over 15 years.
12
<PAGE>
The Company valued the modification of its lease agreement for additional rent,
using discounted cash flows, at $539,783, to be amortized over 15 years. The
Company also wrote off all of its obligations to the Superior shareholders. This
transaction resulted in a reduction of $3,879,669 in the customer list leaving a
balance of $1,979,636 in the customer list. In addition, the goodwill balance of
$329,047 was written off due to the reduction in the purchase price.
3. GENERIC DISTRIBUTORS, INC.
On March 2, 1998 the Company, through its subsidiary, Generic
Distributors, Incorporated ("GDI"), completed the acquisition of substantially
all of the assets and liabilities of Generic Distributors Limited Partnership
("GDLP"), of Monroe, LA. In connection with the acquisition, the Company paid
the limited partnership $1,200,000 in cash, 10,500 shares of Series E
Convertible Preferred Stock valued at $1,050,000 and 1,500 shares of Series F
Convertible Preferred Stock valued at $100,000, for a total purchase price of
$2,350,000. The Series E Preferred Stock is convertible beginning 12 months from
the closing into the Company's common shares at the then prevailing market
prices. The Series F Preferred Stock is convertible into $100,000 in value of
the Company's common stock commencing 120 days after the closing at the then
prevailing market prices. In connection with the transaction, GDI received
$1,200,000 in a five-year term loan from Fleet Bank. The loan matures on April
26, 2003. Fleet Bank also established a revolving line of credit for general
working capital in the amount of $300,000. The line bears interest at LIBOR plus
2-1/2%. The loans are secured by all of the assets of GDI and Able and a pledge
of all of the common stock of GDI, and are guaranteed by the Company. In
addition, the Company entered into employment and consulting agreements with the
sellers.
The GDI acquisition has been accounted for as a purchase. The results
of operations of GDI have been included in the Company's consolidated financial
statements since the date of acquisition. The purchase price allocation was
based on the estimated fair values at the date of acquisition. The Company
allocated $729,205 of the purchase price to customer lists, based on an
independent appraisal. This amount is being amortized on a straight line basis
over five years. Amortization of customer lists amounted to $109,380 and $85,486
for the nine months ended September 30, 1999 and 1998, respectively.
Unaudited pro forma consolidated operating results for the Company,
assuming the acquisition of GDI had been made as of the beginning of fiscal
1998, are as follows:
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998
------------------ ------------------
Revenues $ 7,330,802 $ 21,903,312
Net loss (3,274,585) (7,562,796)
------------------ ------------------
Net loss per share $ (0.13) $ (0.44)
================== ==================
The unaudited pro forma information is not necessarily indicative of
either (i) the actual results of operations that would have occurred had the
purchases been made as of the beginning of the fiscal period presented or (ii)
future results of operations of the combined companies.
13
<PAGE>
3. INVENTORY
Inventory consists of the following:
September 30, December 31,
1999 1998
------------- -------------
Raw materials $ 412,651 $ 401,531
Work-in-progress 539,630 66,372
Finished goods 6,847,399 6,179,176
------------- -------------
$ 7,799,680 $ 6,647,079
============= =============
4. DEBT
Notes payable consist of the following:
September 30, December 31,
1999 1998
------------- -------------
Convertible note payable $ -0- $ 155,000
Bridge loans 1,755,000 725,000
Accounts receivable factoring 95,643 184,830
Machinery & Equipment Financing 582,056 586,333
7% Convertible Debenture -- 250,000
8% Convertible Debenture -- 328,500
9% Convertible Debenture 980,000 --
Secured debt - Fleet Bank 1,092,840 1,171,420
Loan Payable -Huntington 4,329,232 4,505,104
Notes payable - Superior Acquisition -- 3,766,667
Senior subordinated debt 3,000,000 3,000,000
NJEA Bond 2,000,000 -0-
------------- -------------
Total 13,834,771 14,672,854
Less current portion 10,702,708 13,162,041
------------- -------------
Long-term debt $ 3,132,063 $ 1,510,813
============= =============
9% CONVERTIBLE DEBENTURE
In the second quarter, the Company received $980,000 by issuing 9%
Convertible Subordinated Debentures. The debentures mature in one year from date
of issuance and carry a quarterly interest payment of 9% per annum. The
principal and interest accrued shall be automatically converted into shares of
Common Stock on the maturity date. Each tranche of $1,000,000 will be converted
into 5% of the shares of Common Stock of DynaGen that are issued and outstanding
on the date of conversion and smaller amounts will be prorated.
14
<PAGE>
NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY BOND
On June 23, 1999, Able Laboratories, Inc., completed the Industrial
Development Revenue Bond offering issued by the New Jersey Economic Development
Authority. The bonds consist of series 1999A $1,700,000, 8% non-taxable and
series 1999B $300,000, 8.25% taxable. Series 1999A bonds will mature in 15 years
and series 1999B bonds will mature in 4 years. The total cost of the bond issue
is estimated at $240,000 and the net proceeds of approximately $1,700,000 are
being used for acquisition, installation and commissioning of equipment and
machinery.
In connection with these bonds, the Company has entered into various
agreements with the New Jersey Economic Development Authority and the bond
holders, including an escrow arrangement intended to cover the Company's
obligations under the bond documents for periods of between two and six months.
5. PREFERRED STOCK
In May and June 1999, the Company received $3,000,000 from the issuance
of 3,000 shares of Series I to various unaffiliated investors. Shares of Series
I are convertible into Common Stock at 80% of the average of the closing bid
price of Common stock for the three (3) selected, closing bids of past five (5)
trading days immediately preceding any conversion date. The Company issued
165,652 Common Stock warrants at an exercise price of $0.91 and 34,722 Common
Stock warrants at an exercise price of $0.396 in connection with this financing.
In July 1999, the Company received $1,000,000 from the issuance of
1,000 shares of Series J Preferred Stock to a single unaffiliated investor.
Shares of Series J Preferred Stock are convertible into Common Stock at 80% of
the average closing bid price of Common stock for the five trading days
immediately preceding the conversion notice from the investor. The conversion
can take place on the earlier of (1) 90 days from original issue date of the
Series J Preferred Stock; or (2) the date on which a registration statement is
declared effective by the Securities and Exchange Commission.
In August and September 1999, the Company received $1,150,000 from the
issuance of 1,150 shares of Series K Preferred Stock to various unaffiliated
investors. Holders of the Series K Preferred Stock have the right to convert
during any five trading day period up to 20% of their holdings, into Common
Stock of the Company at 80% of the three day average quoted price for three days
immediately proceeding the conversion notice from the holder. The discount at
80% to the market price increases to 75%, and then to 70%, if the investor
retains his investment in the Series K Preferred Stock for longer periods.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following information should be read in conjunction with the
consolidated financial statements and notes thereto in Part I, Item 1 of this
Quarterly Report and with Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1998.
The Company does not provide forecasts of the future financial
performance of the Company. However, from time to time, information provided by
the Company or statements made by its employees may contain "forward-looking"
information that involves risks and uncertainties. In particular, statements
contained in this Form 10-QSB which are not historical facts constitute
forward-looking statements and are made under the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Each forward-looking statement
should be read in conjunction with the consolidated financial statements and
notes thereto in Part I, Item 1, of this Quarterly Report and with the
information contained in Item 2, including, but not limited to, "Certain Factors
That May Affect Future Results" contained herein, together with the discussion
set forth under the heading Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1998, including, but not limited to,
the section therein entitled "Certain Factors That May Affect Future Results."
RESULTS OF OPERATIONS
DynaGen makes and sells generic drugs for the human health care market.
During 1998 and the first quarter of 1999, we shifted our business focus from
being a development and licensing company to building a company focused on the
manufacture and distribution of generic drug products and specialty
pharmaceuticals. We intend to implement this strategy through internal product
development as well as through the acquisition of businesses, technologies and
products that we believe are undervalued. In August 1996, we acquired the tablet
business of Able Laboratories, Inc. ("Able"), a generic pharmaceutical product
subsidiary of Alpharma, Inc. In addition, we acquired Superior Pharmaceutical
Company ("Superior"), a distributor of generic pharmaceuticals, in June 1997. In
March 1998, we acquired Generic Distributors Limited Partnership through our
wholly-owned subsidiary, Generic Distributors Incorporated ("GDI").
We have financed our operating losses primarily through the proceeds
from public and private stock offerings and debt offerings. We anticipate that
revenues from product sales will not be sufficient to fund our current
operations or produce an operating profit until such time as we can establish
acceptance of our products in their respective markets and expand our
distribution channels. We have incurred losses since inception and expect to
incur additional losses until such time as we can successfully develop,
manufacture, and sell or license our existing and proposed products and
technologies.
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 have to file for 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. See " Certain Factors That May
Affect Future Results."
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Three-Month Period Ended September 30, 1999
- -------------------------------------------
Revenues for the three-month period ended September 30, 1999 were
$7,368,820, compared to $6,617,802 for the period ended September 30, 1998. The
increase of $751,018 is primarily the result of increased product sales by Able
of Clorazepate tablets through Superior and outside distributors.
Cost of product sales was $5,721,391, or 78% of product sales for the
three-month period ended September 30, 1999, compared to $6,076,656, or 92% of
product sales the period ending September 30,1998. The Company has improved the
gross profit margin to 22% due to the lower cost of some of our new drugs
manufactured at Able Laboratories.
Research and development expenses for the three-month period ended
September 30, 1999 were $699,397 compared to $110,487 for the three-month period
ended September 30, 1998. All of these expenses relate to research which is
currently being conducted at Able to identify and develop generic drug
candidates for future manufacturing and sales.
Selling, general and administrative expenses for the three-month period
ended September 30, 1999 were $2,013,761 compared to $3,206,820 for the
three-month period ended September 30, 1998. The $1,193,059 decrease is
primarily due to the cost cutbacks and reduction of staff at our headquarters in
Waltham.
Investment and other income was $5,294 for the three months ended
September 30, 1999, compared to $143,283 for the three-month period ended
September 30, 1998. Interest and financing expenses of $603,882 for the
three-month period ended September 30, 1999, compared to $468,091 for the
three-month period ended September 30, 1998, an increase of $135,791 due
primarily to private placements of debt instruments. We issued several warrants
in connection with debt placements, the values of which are included in our
financing costs.
Nine-Month Period Ended September 30, 1999
- ------------------------------------------
The GDI acquisition was completed on March 1, 1998. Therefore, results
for the first three quarters of 1998 include sales for GDI only after that date.
Revenues for the nine-month period ended September 30, 1999 were
$20,974,657, compared to $20,009,589 for the period ended September 30, 1998.
The increase of $965,068 is primarily the result of increased product sales by
Able of Clorazepate tablets through Superior and outside distributors.
Cost of product sales was $16,903,374 or 81% of product sales for the
nine-month period ended September 30, 1999, compared to $17,145,146 or 86% of
product sales for the period ended September 30, 1998. The cost of manufacturing
some of our newer drugs at Able tends to be lower than the cost of distribution
activities which accounted for a greater percentage of our revenues in 1998.
Research and development expenses for the nine-month period ended
September 30, 1999 were $1,198,033, compared to $430,774 for the nine-month
period ended September 30, 1998. All of these expenses relate to research which
is currently being conducted at Able to identify and develop generic drug
candidates for future manufacturing and sales.
Selling, general and administrative expenses for the nine-month period
ended September 30, 1999 were $6,370,083, compared to $8,437,873 for the
nine-month period ended September 30, 1998. The
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$2,067,790 decrease is primarily due to cost cutbacks and reduction of staff at
our headquarters in Waltham.
We recorded an additional $400,000 of loss on impairment of Superior's
customer lists in the first quarter of 1999, based on our revised projections of
Superior's cash flows after reviewing Superior's performance during the first
quarter of 1999.
Investment and other income was $483,278 for the nine months ended
September 30, 1999, compared to $297,894 for the nine-month period ended
September 30, 1998. During 1998, we recorded income received from sale of
BioTrack stock held by the Company whereas during 1999, we recorded $311,600 of
income from forgiveness of old payables. Interest and financing expenses were
$1,749,586 for the nine-month period ended September 30, 1999, compared to
$1,269,242 for the nine-month period ended September 30, 1998. The increase is
due to the increase in our average outstanding debt, increased interest rates
and issuance of several warrants in connection with debt placements, the values
of which are included in our financing costs.
Liquidity and Capital Resources
As of September 30, 1999, we had a working capital deficit of $704,288,
compared to a working capital deficit of $10,503,773 at December 31, 1998. This
significant reduction of the working capital deficit is mainly due to the
settlement of all obligations to the Superior shareholders. The notes payable,
which included $3,766,667 of notes payable to the former stockholders of
Superior , as well as $4,083,000 of additional liability to the sellers booked
due to the decline in the share price, are no longer a part of our current
liabilities. Cash was $702,788 at September 30, 1999 compared to $97,045 at
December, 1998. We continued to have a working capital deficit as funds were
raised through short term debt placements. We expect our cash needs for the next
12 months to be approximately $5,000,000. We intend to generate the needed cash
through additional financing activities. We can give no assurance, though, that
we will be able to obtain such financing or, if we do, that the financing will
be sufficient for our needs. If we are not able to raise the needed financing,
we will likely need to seek the protection of the bankruptcy courts. See
"Certain Factors That May Affect Future Results."
In June 1997, we acquired Superior Pharmaceutical Company, of
Cincinnati, Ohio, for an adjusted purchase price of $15.9 million in cash, notes
and stock. The merger agreement guaranteed the selling shareholders at least
$5,000,000 in the value of their shares of the Company as of June 1998. The
agreement provided that we would make up any shortfall in this guaranteed stock
value through the issuance of additional stock and cash.
The Common Stock traded at approximately $0.50 per share as of June 18,
1998, and we therefore became obligated to pay approximately $4,000,000 in cash
to the former stockholders of Superior. Under the agreement, we then owed the
former stockholders a total of approximately $9,000,000 in common stock, cash
and notes. On July 31, 1998 we entered into a contingent settlement agreement to
reduce the remaining purchase price to approximately $4,000,000. We were unable,
however, to obtain financing sufficient in amount and appropriate in form of
payment (i.e., cash and/or stock) to fund the final settlement.
On December 17, 1998, the former Superior stockholders commenced a
civil action in the Court of Common Pleas, Hamilton County, Ohio. The complaint
filed by the former Superior stockholders alleged that we owed them
approximately $9,000,000, including $4,166,667 in connection with promissory
notes issued in connection with the merger as well as $4,817,660 as an
adjustment to the purchase price. In May 1999, we settled all issues between us
and the former Superior stockholders. The former Superior stockholders agreed to
dismiss their lawsuit in exchange for our:
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o paying $1,500,000 in cash;
o issuing 1,500,000 shares of Common Stock;
o issuing warrants to purchase 1,000,000 shares of Common Stock
at a price of $.86 per share;
o issuing warrants to purchase 300,000 shares of Common Stock at
a price of $.01 per share; and
o modifying the Commercial Lease Agreement between Dynagen and a
company controlled by the former stockholders of Superior.
We have senior secured working capital and lending facilities from
three separate entities. Huntington National Bank has provided working capital
for Superior Pharmaceutical. The initial note matured in June 1998 and since
then, Huntington has extended the facility on a monthly basis. Fleet Capital
provided a term loan for the acquisition of GDI. K&L Financial has provided
working capital for Able Laboratories. We are in default of certain financial
covenants, but we have not defaulted on payment obligations in connection with
these agreements.
To date we have met substantially all of our capital requirements
through the sale of securities and loans convertible into common stock. The
negative impact of events in 1997 and 1998 severely limited our ability to raise
capital in a conventional sale of our securities. We have engaged an investment
banking firm that specializes in the turnaround of companies to seek both debt
and equity financing. We cannot give any assurance that we will raise the needed
financing. If we cannot raise such financing, we will not have adequate working
capital for our operations. Under such circumstances we may have to seek
protection of the bankruptcy courts. See "Certain Factors That May Affect Future
Results."
YEAR 2000 COMPLIANCE
Many computer systems and software products could experience problems
handling dates beyond the year 1999 because the systems are coded to accept only
two-digit entries in the date code fields. Inability of products and systems on
which we rely to process these dates could have a material adverse effect on our
business.
We have assessed our internal processes and systems. We believe that
our sales, administration, and general operations are substantially year 2000
compliant. Prior to purchasing any new equipment or software, it is company
policy to ensure that the specifications include year 2000 compliance.
We intend to query major suppliers and other third parties upon which
we may be dependent to determine the extent of their Year 2000 compliance. We
intend to complete this inquiry and assessment of the Year 2000 readiness of the
systems and products of these suppliers and other third parties as soon as
practicable. However, due to the need to devote management and financial
resources to other matters, we have not as yet completed this inquiry and
assessment.
Contingency Plan
To minimize potential disruptions, we intend to adopt a contingency
plan, if deemed necessary, to address any issues raised during our planned
assessment in 1999. Because no specific instance of material Year 2000
non-compliance has been discovered to date, we have not adopted a contingency
plan to deal with Year 2000 issues.
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Costs
Based on our internal investigation to date, we do not expect the total
costs of our Year 2000 review and compliance to have a material adverse effect
on our business or financial results. We may have to spend a material amount to
develop and implement a contingency plan during 1999, if we find that a material
supplier or other third party on whom we rely will face business interruptions
as a result of Year 2000 issues.
Risks
Because we have not completed a review of potential Year 2000 Issues,
we cannot rule the possibility that a significant problem might result from Year
2000 Issues. In the worst case, we might be unable to obtain necessary raw
materials or process orders for our inventory, and we could be forced to curtail
or suspend our operations.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
We do not provide forecast of our future financial performance.
However, some of the information in this quarterly report contains
forward-looking statements that involve substantial risks and uncertainties. In
particular, statements contained in this Report that are not historical facts,
including statements relating to liquidity and capital resources, constitutes
forward-looking statements and are made under the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. 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 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 report, as
well as any cautionary language in this report, 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. The
reader should be aware that the occurrence of any of the events described below
and elsewhere in this report could materially and adversely affect our business.
If that happens, the trading price of our common stock could decline and
investors could lose all or part of their investment.
The following risk factors should be read in conjunction with the
financial statements and related notes thereto. The following factors, among
others, could cause our actual results to differ materially from those contained
in forward-looking statements contained or incorporated by reference in this
report and presented by management from time to time. Such factors, among
others, may have a material adverse effect upon our business, results of
operations and financial condition.
IF WE CONTINUE TO INCUR LOSSES, THEN THE VALUE OF OUR COMMON STOCK WILL
LIKELY DECLINE
We have incurred operating losses in every operating period since our
inception. We had an accumulated deficit of $55,316,694 as of September 30,
1999. We incurred a net loss of $5,163,141 in the nine months ended September
30, 1999. We anticipate future losses, and we can give no assurance that we will
ever generate substantial revenues from our business, or achieve profitability.
If we continue to incur operating losses, then the value of our common stock
will likely decline and stockholders could lose their investment.
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,
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our Able subsidiary has incurred operating losses, primarily because its
revenues have not equaled it expenses. To continue development of our current
and proposed products, we will need to expend substantial 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.
IF WE CANNOT RAISE SIGNIFICANT ADDITIONAL FUNDS, THEN WE WILL LIKELY
FACE BANKRUPTCY AND YOU COULD LOSE THEIR INVESTMENT
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. If that happens, stockholders could lose their entire investment.
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 place 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
WE FACE INTENSE COMPETITION FROM OTHER MANUFACTURERS OF GENERIC DRUGS
In order to succeed in the generic drug business, we need to achieve a
significant share of the market for each generic drug we market. The generic
drug manufacturing and distribution business is highly competitive. We compete
with several companies that are better capitalized than we are 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. Also, we believe that, as a rule, the first one or two companies to
bring a generic alternative to the market will capture the highest market share
for that product. These larger companies, with their greater resources, could
bring products to the market before us, and could capture a significant share of
the market at our expense.
IF THE BOSTON STOCK EXCHANGE DELISTS OUR COMMON STOCK, WE WILL HAVE
GREATER DIFFICULTY RAISING THE CAPITAL WE NEED TO CONTINUE OPERATIONS
Our common stock has been delisted from the Nasdaq Stock Market and is
listed on the Boston Stock Exchange. The common stock is also quoted on the OTC
Bulletin Board. If the common stock was delisted by
the Boston Stock Exchange, then public perception of the value of the common
stock could be materially adversely affected. Stockholder could lose their
investment and we could face greater difficulty raising capital necessary for
our continued operations.
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We received a notice from the Boston Stock Exchange on April 12, 1999
informing us that our common stock did not meet the requirements for continued
listing. The Boston Stock Exchange requires a minimum of $500,000 in
stockholders' equity for continued listing. As of March 31, 1999, we had a
stockholders' deficit of approximately $4,024,000, a shortfall of approximately
$4,524,000 and therefore we did not meet the listing requirements. We responded
to the Boston Stock Exchange, explaining our plan for regaining compliance with
this requirement by June 30, 1999. We regained compliance with the requirement
and stockholders' equity as of September 30, 1999 was $1,391,522. Therefore, as
of that date we met the requirement and so our common stock remains listed on
the Boston Stock Exchange. Our common stock could face delisting action again,
however, if we do not maintain the minimum stockholders' equity or other listing
requirements.
IF OUR COMMON STOCK BECOMES SUBJECT TO PENNY STOCK RULES, INVESTORS MAY
HAVE GREATER DIFFICULTY SELLING THEIR SHARES
The Securities Enforcement and Penny Stock Reform Act of 1999 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 securities and any equity security issued
by an issuer that has
o net tangible assets of at least $2,000,000, if the issuer has been
in continuous operation for at least three years;
o net tangible assets of least $5,000,000, if the issuer has been in
continuous operation for less than three years; or
o 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 associated risks.
If our common stock is delisted from the Boston Stock Exchange, then
trading in the common stock will 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 their
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 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 September 30, 1999,
57,548,156 shares of common stock were 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 holders into shares
of common stock. As of September 30, 1999, we were obligated to issue up to
approximately 11,006,667 shares of common stock upon the
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conversion or exercise of convertible securities. We have also reserved
8,054,681 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. 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 chose to exercise their rights.
THE VALUE OF THE COMMON STOCK FLUCTUATES WIDELY
The price of our common stock has fluctuated widely in the past, and it
is likely that it will continue to do so 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.
The market price of our common stock has fluctuated between $70.00 and
$.10 from January 1, 1993 to December 31, 1998. Over the past twelve months, the
common stock has fluctuated between approximately $.89 and approximately $.05,
and was approximately $.48 on October 25, 1999. These broad market fluctuations
could adversely affect the market price of our common stock, in that at the
current price, any fluctuation in the dollar price per share could constitute a
significant percentage decrease in the value of your investment. Also, when the
market price of a stock has been volatile, holders of that stock have often
instituted securities class action litigation against the company that issued
the stock. If any of our stockholders brought such a lawsuit against us, we
could incur substantial costs of defending the lawsuit and we would have to
divert management time and attention away from operations. A lawsuit based on
the volatility of the stock price in whole or in part could seriously harm our
business and the value of stockholders' investment.
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WE COULD FACE A SIGNIFICANT INTERRUPTION IN OUR OPERATIONS BY
YEAR 2000 ISSUES
We have not completed an exhaustive analysis of potential Year 2000
issues, and consequently we cannot rule out the chance that we could face
serious operational problems as a result of the Year 2000 change.
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 comprehensive Year 2000 compliance review of the computer
software we use, or that is used by our vendors and suppliers. 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.
Because we have not completed a review of potential Year 2000 Issues, we cannot
rule out the possibility that a significant problem might result from Year 2000
issues. In the worst case, we might be unable to obtain necessary raw materials
or process orders for our inventory, and we could be forced to curtail or
suspend our operations.
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 costs 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 recall of a product could have
a material adverse affect on our business, financial condition and future
prospects.
INTENSE REGULATION BY GOVERNMENT AGENCIES MAY DELAY OUR EFFORTS TO
COMMERCIALIZE OUR PROPOSED DRUG PRODUCTS
Before we can market any generic drug, we must first obtain FDA
approval of the proposed drug and of the active drug raw materials that we use.
In many instances, our approvals cover only one source of raw materials. If raw
materials from a specified supplier were to become unavailable, we would be
required to file a supplement to our Abbreviated New Drug Application to use a
different manufacturer and revalidate the manufacturing process using a new
supplier's material. 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. For example, for a period of time we were unable to acquire
the active drug for our clorazapate dipotassium product, and so we had to
discontinue production of the product. The active drug ingredient has since
become available again and we have resumed manufacturing the product.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
The Company is not party to any pending legal proceedings, other than
routine litigation that is incidental to the business, which would have a
material adverse effect on the Company's financial position or results of
operations for the nine-month period ended September 30, 1999.
ITEM 2. CHANGES IN SECURITIES
---------------------
a. Not applicable.
b. Sales of Unregistered Securities - In the three months ended
September 30, 1999, the Company sold the following securities:
In July 1999, the Company received $1,000,000 from the issuance of
1,000 shares of Series J Preferred Stock to a single unaffiliated investor.
Shares of Series J Preferred Stock are convertible into Common Stock at 80% of
the average closing bid price of Common stock for the five trading days
immediately preceding the conversion notice from the investor. The conversion
can take place on the earlier of (1) 90 days from original issue date of the
Series J Preferred Stock; or (2) the date of which a registration statement is
declared effective by the Securities and Exchange Commission. The Company
issued a warrant to purchase 33,334 shares of common stock at an exercise price
of $.01 in connection with Series J offering to the accredited investor.
In August and September 1999, the Company received $1,150,000 from the
issuance of 1,150 shares of Series K Preferred Stock to various unaffiliated
investors. The holders of Series K have the right to convert during any five
trading day period up to 20% of their holding into Common Stock of the Company
at 80% of the three day average quoted price for three days immediately
proceeding the conversion notice from the holder. The discount of 80% to the
market price increases to 75% and then 70% if the investor retains his
investment in the Series K Preferred Stock for longer periods. In August, the
Company issued two warrants to exercise a total of 168,750 of Common Stock at an
exercise price of $.01 to the secured subordinated lenders for their continued
forbearance of certain covenant defaults.
During the quarter ending September 30, 1999, the Company issued an
aggregate of 1,359,368 shares of Common Stock upon the exercise of option and
warrants and conversion of convertible debt and equity securities.
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ITEM 3. DEFAULTS ON SENIOR SECURITIES
-----------------------------
The Company has incurred recurring losses from operations resulting in
an accumulated deficit of $55,316,694 and a working capital deficiency of
$704,288 at September 30, 1999. In addition, the Company is in default with
respect to certain covenants in its debt agreements and obligated to make
payments as follows:
Sirrom Capital Corporation ("Sirrom") and Odyssey Investment Partners,
L.P. ("Odyssey") - The Company issued secured promissory notes in the aggregate
principal amount of $3,000,000 on June 18, 1997 due June 17, 2002. In addition,
the Company issued stock warrants to purchase in the aggregate 400,000 shares of
the Company's common stock and granted Sirrom and Odyssey the right to sell to
the Company the warrants (put warrants) under a put and substitution agreement.
At the time of issuance, $702,000 of the proceeds was allocated to the put
warrants, resulting in a discount on the promissory notes.
The discount on the notes was being amortized to expense over the term
of the promissory notes. The Company is in default of certain covenants in the
loan agreement and has not obtained a waiver of the defaults from the lender.
Accordingly, the total principal amount of the loan, $3,000,000, has been
classified as a current liability and the unamortized discount on the loan has
been charged to expense.
The Huntington National Bank - The Company's subsidiary, Superior, has
a line of credit with the Huntington National Bank in the amount of
approximately $4,500,000. At September 30, 1999, Superior is in default of
certain loan covenants, in the loan and security agreement with the bank.
Superior is in negotiations with the bank with respect to the defaults, but has
not received a waiver of the defaults at the present time.
The Company has guaranteed the loan to the bank. The loan and security
agreement with the bank requires the Company to achieve a tangible net worth,
exclusive of the tangible net worth of Superior, of $4,000,000, which the
Company has not achieved at September 30, 1999.
The loan and security agreement with the bank allowed Superior to make
distributions to the Company in amounts sufficient to enable the Company to pay
the debt service due to the former stockholders of Superior, provided, however,
that such permitted payments cannot be made by Superior in the event of a
default.
26
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) List of Exhibits
The following exhibits, required by Item 601 of Regulation S-B, are
filed as part of this Quarterly Report on Form 10-QSB. Exhibit numbers, where
applicable, in the left column correspond to those of Item 601 of Regulation
S-B.
Exhibit No. Description of Exhibit
----------- ----------------------
3.1 Restated Certificate of Incorporation (filed as Exhibit 3a to
the Company's Report on Form 10-Q for the Quarter ended June
30, 1998, as amended on September 14, 1998, and incorporated
herein by reference)
3.2 By-laws, as amended (filed 3b to Registrant's Registration
Statement on Form S-1, No. 33-46445, and incorporated by
reference).
3.3 Certificate of Designations, Preferences, and Rights of
Series J Preferred Stock
3.4 Certificate of Designations, Preferences, and Rights of
Series K Preferred Stock
4.1 Stock Purchase Warrant for 56,250 Shares of Common Stock
dated August 1999 in the name of Argosy Investment Partners,
L.P.
4.2 Stock Purchase Warrant for 112,500 Shares of Common Stock
dated August 1999 in the name of Sirrom Capital Corporation
4.3 Stock Purchase Warrant for 33,334 Shares of Common Stock
dated June 1999 in the name of Kenilworth, LLC
10.1 Subscription Agreement for Series J Preferred Stock dated
July, 1999
10.2 Registration Rights Agreement for Series J Preferred Stock
dated July, 1999
10.3 Form of Subscription Agreement for Series K Preferred Stock
dated November, 1999
10.4 Form of Registration Rights Agreement for Series K Preferred
Stock dated November, 1999
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DYNAGEN, INC.
November 15, 1999 By: /s/ Dhananjay G. Wadekar
----------------------------
Dhananjay G. Wadekar
Duly Authorized Officer and
Principal Financial and
Accounting Officer
28
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------
3.1 Restated Certificate of Incorporation (filed as Exhibit 3a to
the Company's Report on Form 10-Q for the Quarter ended June
30, 1998, as amended on September 14, 1998, and incorporated
herein by reference)
3.2 By-laws, as amended (filed 3b to Registrant's Registration
Statement on Form S-1, No. 33-46445, and incorporated by
reference).
3.3 Certificate of Designations, Preferences, and Rights of
Series J Preferred Stock
3.4 Certificate of Designations, Preferences, and Rights of
Series K Preferred Stock
4.1 Stock Purchase Warrant for 56,250 Shares of Common Stock
dated August 1999 in the name of Argosy Investment Partners,
L.P.
4.2 Stock Purchase Warrant for 112,500 Shares of Common Stock
dated August 1999 in the name of Sirrom Capital Corporation
4.3 Stock Purchase Warrant for 33,334 Shares of Common Stock
dated June 1999 in the name of Kenilworth, LLC
10.1 Subscription Agreement for Series J Preferred Stock dated
July, 1999
10.2 Registration Rights Agreement for Series J Preferred Stock
dated July, 1999
10.3 Form of Subscription Agreement for Series K Preferred Stock
dated November, 1999
10.4 Form of Registration Rights Agreement for Series K Preferred
Stock dated November, 1999
27.1 Financial Data Schedule
29
EXHIBIT 3.3
DYNAGEN, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES J 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 30, 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 J 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 15,000 shares of the class of authorized Preferred
Stock, par value $.01 per share, of the Corporation is hereby created as the
Series J Preferred Stock, and that the designation and number of shares thereof
and the voting powers, preferences and relative, participating, option 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 8th day of July, 1999.
DYNAGEN, INC.
By: /s/ Dhananjay G. Wadekar
-------------------------
Dhananjay G. Wadekar
Executive Vice President
<PAGE>
EXHIBIT A
---------
(a) Description and Designation of Series J Preferred Stock
1. Designation and Definitions.
(a) Designation. A total of 15,000 shares of the Corporation's
previously undesignated Preferred Stock, $.01 par value, shall be designated as
the "Series J Preferred Stock." The original issue price per share of the Series
J Preferred Stock shall be $100 (the "Original Issue Price").
(b) Certain Definitions. As used herein, the following terms,
unless the context otherwise requires, have the following respective meanings:
(i) "Common Stock" means the common stock, par value $.01
per share, of the Corporation.
(ii) "Conversion Date" means (i) in the case of a
conversion upon the request of a holder of Series J Preferred Stock, 3 days from
the Conversion Notice Date, and (ii) in the case of a conversion upon the
request of the Corporation, the Conversion Notice Date.
(iii) "Conversion Notice Date" means (i) each date on
which the Corporation receives by telecopy written notice in accordance with
Section 5(h) hereof from a holder of Series J Preferred Stock that such holder
elects to convert shares of its Series J Preferred Stock, or (ii) the date on
which the Corporation gives by telecopy written notice to holders of Series J
Preferred Stock to convert shares of Series J Preferred Stock.
(iv) "Conversion Price" means 80% of the Five Day Average
Quoted Price for the five Trading Days immediately preceding the Conversion
Notice Date.
(v) "Discount Rate" means 20%.
(vi) "Effective Date" means the date on which a
registration of the Common Stock issuable upon conversion of the Series J
Preferred Stock on Form SB-2 or Form S-3 (or any successor form) is declared
effective by the Securities and Exchange Commission.
(vii) "Five Day Average Quoted Price" means the average of
the closing bid price of the Common Stock of the Corporation as reported by the
OTC Bulletin Board or Bloomberg, for five (5) consecutive Trading Days.
<PAGE>
(viii) "Fundamental Change" means: (i) any sale, lease,
exchange or other transfer of all or substantially all of the assets of the
Corporation; or (ii) any merger or consolidation to which the Corporation is a
party. Notwithstanding the foregoing, the following shall not be a Fundamental
Change: A merger of consolidation (a) to which the Corporation is a party; (b)
in which it is the surviving corporation and there is no resulting
reclassification of the outstanding Common Stock; and (c) after giving effect to
which, persons who were, immediately before the consummation or closing of such
merger or consolidation, holders of outstanding Common Stock will be the direct
or indirect owners of securities of the Corporation possessing, on a fully
diluted basis, at least fifty-one percent (51%) of the voting power of all
voting securities of the Corporation (excluding, for purposes of such
computation, any such person who also is a party to such merger or
consolidation).
(ix) "Issue Date" means, with respect to each share of
Series J Preferred Stock held by any holder, the date on which the Corporation
originally issued such share to such holder (regardless of the number of times
transfer of such share is made on the stock transfer books maintained by or for
the Corporation, and regardless of the number of certificates which may be
issued to evidence such share, and irrespective of any subsequent transfer or
other disposition of such share to any other holder).
(x) "Quoted Price" means the closing bid price of the
Common Stock of the Corporation as reported by the OTC Bulletin Board or
Bloomberg.
(xi) "Trading Day" means a day on which the principal
securities exchange on which the Common Stock is listed or admitted to trading
is open for the transaction of business; or, if the Common Stock is not listed
or admitted to trading on any securities exchange but is listed on the Nasdaq
system (or such other trading system then in use by the National Association of
Securities Dealers, Inc.), a day on which such system is open for the
transaction of business; or, if the foregoing does not apply, any business day.
2. Dividends. Except as expressly provided herein the holders of shares of
Series J Preferred Stock shall not be entitled to dividends.
(a) Declared Dividends on Common Stock. If the Board of
Directors shall declare a cash dividend payable upon the then outstanding shares
of Common Stock (other than a stock dividend on the Common Stock distributed
solely in the form of additional shares of Common Stock), the holders of the
Series J Preferred Stock shall be entitled to the amount of dividends on the
Series J Preferred Stock as would be declared payable on the largest number of
whole shares of Common Stock into which the shares of Series J Preferred Stock
held by each holder thereof could be converted pursuant to the provisions of
Section 5 hereof, such number determined as of the record date for the
determination of holders of Common Stock entitled to receive such dividend. Such
determination of "whole shares" shall be based upon the aggregate number of
shares of Series J Preferred Stock held by each holder, and not upon each share
of Series J Preferred Stock so held by the holder.
-3-
<PAGE>
(b) Dividends on Other Securities. The Board of Directors may
declare and the Corporation may pay or set apart for payment, or cause the
accrual of, stated or cumulative dividends and other distributions on any other
series of preferred stock, and may purchase or otherwise redeem any of the same
(or any warrants, rights, options or other securities exercisable therefor or
convertible or exchangeable therein), and the holders of Series J Preferred
Stock shall not be entitled to share therein.
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 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 J 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 J
Preferred Stock with respect to liquidation preferences, the holder of each
share of Series J 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 J Preferred Stock held by any holder (the "Liquidation Value"). For
purposes hereof, the Series J Preferred Stock shall rank on liquidation junior
to the Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock, the
Series F Preferred Stock, the Series G Preferred Stock, the Series H Preferred
Stock and the Series I Preferred 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 J Preferred Stock the full
amount to which they otherwise would be entitled, the holders of Series J
Preferred Stock shall share ratably in any distribution of available assets pro
rata in proportion to the respective liquidation preference amounts which would
otherwise be payable upon liquidation with respect to the outstanding shares of
the Series J 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 J Preferred Stock then outstanding.
After such payment shall have been made in full to the holders of the
Series J 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 J
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 J 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,
-4-
<PAGE>
recapitalization, reclassification or other similar event involving a change in
the capital structure of the Series J Preferred Stock.
(b) Distributions Other Than Cash. Whenever the distributions
provided for in this Section 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 J Preferred Stock.
(c) Events Not Deemed A Liquidation. A Fundamental Change will
not be deemed to be a liquidation, dissolution or winding up of the Corporation
under this Section 3.
4. Voting Power.
(a) General. Except as expressly provided in this Section 4 or
as otherwise required by the General Corporation Law of the State of Delaware,
each holder of Series J 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 J
Preferred Stock could be converted, pursuant to the provisions of Section 5
hereof, at the record date for the determination of stockholders entitled to
vote on any matter or, if no such record date is established, at the date such
vote is taken or any written consent of stockholders is solicited. Except as
otherwise required by law, the holders of shares of Series J Preferred Stock and
Common Stock shall vote together (or render written consent in lieu of a vote)
as a single class on all matters submitted to the stockholders of the
Corporation. The determination as to the number of "whole shares" shall be based
upon the aggregate number of shares of Series J Preferred Stock held by each
holder, not upon each share of Series J Preferred Stock so held by the holder.
(b) Amendments to Charter. For so long as there are any shares
of Series J 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 J Preferred Stock, voting together as a
class, each share of Series J Preferred Stock to be entitled to one vote in each
instance, if such amendment would adversely affect the rights of the holders of
Series J Preferred Stock; provided that the creation, or increase in the
authorized number of shares, of any class or series of stock ranking senior to
or on a parity with the Series J Preferred Stock either as to dividends or upon
liquidation shall not be deemed to adversely affect the rights of the holders of
Series J Preferred Stock for purposes of this Section 4(b).
-5-
<PAGE>
5. Conversion Rights,
(a) Conversion. Subject to Section 6 and as provided elsewhere
in this Section 5, each holder of Series J Preferred Stock shall have the right,
at such holder's option, to convert at any time on or after the earlier of (i)
90 days from the Issue Date or (ii) the Effective Date, any of the shares of
Series J Preferred Stock held by such holder into such number of fully paid and
nonassessable shares of Common Stock as shall be determined by multiplying the
number of shares of Series J Preferred Stock to be converted by a fraction, the
numerator of which is the Original Issue Price, and the denominator of which is
the Conversion Price; provided that in no event shall any holder of Series J
Preferred Stock convert more than twenty percent (20%) of such holder's shares
of Series J Preferred Stock in any period of five (5) consecutive Trading Days.
On or after the second anniversary of the date hereof, the Corporation may, at
its option, by giving written notice to the holders of shares of Series J
Preferred Stock to be converted, convert all outstanding shares of Series J
Preferred Stock into such number of fully paid and non-assessable shares of
Common Stock as shall be determined by multiplying the number of shares of
Series J Preferred Stock to be converted by a fraction, the numerator of which
is the Original Issue Price, and the denominator of which is the Conversion
Price.
(b) Limitation on Number of Shares. Notwithstanding anything
set forth in this Section 5 to the contrary, other than upon the delivery of a
Redemption Notice or upon a Fundamental Change, no holder of Series J Preferred
Stock shall be entitled to convert Series J Preferred Stock into shares of
Common Stock to the extent that such conversions when taken together with all
other conversions of shares of Series J Preferred Stock shall exceed 19.9% of
the issued and outstanding shares of Common Stock of the Corporation on the date
hereof, provided that if such conversion is to exceed 19.9%, the Corporation
shall redeem any shares of Series J Preferred Stock submitted for conversion in
excess of 19.9% for an amount equal to (x) the Original Issue Price, divided by
(y) one minus the Discount Rate. In addition, notwithstanding anything herein to
the contrary, except in the event of a Fundamental Change, no holder of Series J
Preferred Stock shall have the right, and the Corporation shall not have the
obligation, to convert all or any portion of the Series J Preferred Stock if and
to the extent that the issuance to such holder of shares of Series J Preferred
Stock upon such conversion would result in such holder being deemed the
beneficial owner of more than four and ninety nine one-hundredths (4.99%)
percent of the then outstanding shares of Common Stock within the meaning of
Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules
promulgated thereunder.
(c) Dividends Other Than Common Stock Dividends. In the event
the Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock entitled to receive a dividend or other
distribution (other than a distribution in liquidation or other distribution
otherwise provided for herein) with respect to the Common Stock payable in (i)
securities of the Corporation other than shares of Common Stock or (ii) other
assets (excluding cash dividends or distributions), then and in each such event
provision shall be made so that the holders of the Series J Preferred Stock
shall receive upon conversion thereof in
-6-
<PAGE>
addition to the number of shares of Common Stock receivable thereupon, the
number of securities or such other assets of the Corporation which they would
have received had their Series J Preferred Stock been converted into Common
Stock on the date of such event and had they thereafter, during the period from
the date of such event to and including the Conversion Date, retained such
securities or such other assets receivable by them during such period, giving
application to all other adjustments called for during such period under this
Section 5 with respect to the rights of the holders of the Series J Preferred
Stock.
(d) Subdivision or Combination of Common Stock. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
(e) Capital Reorganization or Reclassification. If the Common
Stock issuable upon the conversion of the Series J Preferred Stock shall be
changed into the same or different number of shares of any class or classes of
capital stock, whether by capital reorganization, recapitalization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for elsewhere in this Section 5, or the sale of all
or substantially all of the Corporation's capital stock or assets to any other
person), then and in each such event the holders of Series J Preferred Stock
shall have the right thereafter to convert such shares into the kind and amount
of shares of capital stock and other securities and property receivable upon
such reorganization, recapitalization, reclassification or other change by the
holders of the number of shares of Common Stock into which such shares of Series
J Preferred Stock might have been converted immediately prior to such
reorganization, recapitalization, reclassification or change, all subject to
further adjustment as provided herein.
(f) Mandatory Conversion - Fundamental Change. If any
Fundamental Change shall occur, then each share of Series J Preferred Stock
outstanding as of the date of the consummation or closing thereof shall be (and
be deemed to have been) converted automatically, without any further action by
the holders thereof, into such number of fully paid and nonassessable shares of
Common Stock as shall be determined by multiplying the number of shares of
Series J Preferred Stock outstanding on the date of such consummation or closing
date by a fraction, the numerator of which is the Original Issue Price, and the
denominator of which is the Conversion Price. Such conversion shall be deemed to
have occurred whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent.
The Corporation shall give notice of a proposed or anticipated Fundamental
Change to all holders of the Series J Preferred Stock not later than thirty (30)
days before the expected closing or consummation of such Fundamental Change. The
Corporation also shall give prompt notice of the closing or consummation of such
Fundamental Change to all holders of record of the Series J Preferred Stock as
of the date of such closing or consummation. Each holder of Series J
-7-
<PAGE>
Preferred Stock shall thereupon promptly surrender for conversion, to the
Corporation at its principal office or to any transfer agent for the Series J
Preferred Stock or the Common Stock, all certificates representing all shares of
Series J Preferred Stock held by such holder, accompanied by a written notice
specifying the name or names in which such holder wishes the certificate(s) for
shares of Common Stock to be issued.
(g) Certificate as to Adjustments; Notice by Corporation. In
each case of an adjustment or readjustment of the Conversion Price, the
Corporation at its expense will furnish each holder of Series J Preferred Stock
so affected with a certificate prepared by an officer of the Corporation,
showing such adjustment or readjustment, and stating in detail the facts upon
which such adjustment or readjustment is based.
(h) Exercise of Conversion Privilege. To exercise its
conversion privilege, a holder of Series J Preferred Stock shall give written
notice by telecopy to the Corporation at its principal office that such holder
elects to convert shares of its Series J Preferred Stock and shall thereafter
surrender the original certificate(s) representing the shares being converted to
the Corporation at its principal office together with an originally executed
copy of such notice. Such notice shall also state the name or names (with its
address or addresses, as well as the address(es) for delivery) in which the
certificate(s) for shares of Common Stock issuable upon such conversion shall be
issued. The certificate(s) for the shares of Series J Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Corporation or in blank. As promptly as practicable after the Corporation
receives the original certificate(s) for the shares of Series J Preferred Stock
surrendered for conversion, the proper assignment thereof to the Corporation or
in blank and the original notice of conversion (collectively, the "ORIGINAL
DOCUMENTATION"), but in no event more than three (3) Trading Days after the
later of the Corporation's receipt of the Original Documentation and the
Conversion Date (the "Delivery Date"), the Corporation shall issue and shall
deliver to the holder of the shares of Series J Preferred Stock being converted,
at the addresses set forth therefor by the holder, such certificate(s) as it may
request for the number of whole shares of Common Stock issuable upon the
conversion of such shares of Series J Preferred Stock in accordance with the
provisions of this Section 5, and cash, as provided in Section 5(i), in respect
of any fraction of a share of Common Stock issuable upon such conversion. Such
conversion or any conversion upon the request of the Corporation shall be deemed
to have been effected immediately prior to the close of business on the
applicable Conversion Date, and at such time the rights of the holder as holder
of the converted shares of Series J Preferred Stock shall cease and the
person(s) in whose name(s) any certificate(s) for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder(s) of
record of the shares of Common Stock represented thereby.
(i) Cash in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series J Preferred Stock. Instead of any fractional
shares of Common Stock that would otherwise be issuable upon conversion of
Series J Preferred Stock, the Corporation shall pay to the holder of the share
of Series J Preferred Stock being converted a cash adjustment in respect of such
fractional shares in an amount equal to the same fraction of the market price
per share of the
-8-
<PAGE>
Common Stock (as determined in a reasonable manner prescribed by the Board of
Directors) at the close of business on the Conversion Date. The determination as
to whether or not any fractional shares are issuable shall be based upon the
aggregate number of shares of Series J Preferred Stock being converted at any
one time by any holder thereof, not upon each share of Series J Preferred Stock
being converted.
(j) Partial Conversion. In the event some but not all of the
shares of Series J Preferred Stock represented by a certificate(s) surrendered
by a holder are converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series J Preferred Stock which were not
converted. Such new certificate shall be so delivered on or prior to the date
set forth in Section 5(h) for the delivery of certificates for shares of Common
Stock.
(k) Reservation of Common Stock. The Corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Series J Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series J Preferred Stock (including any shares of
Series J Preferred Stock represented by any warrants, options, subscription or
purchase rights for the Series J Preferred Stock), and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Series J Preferred
Stock (including any shares of Series J Preferred Stock represented by any
warrants, options, subscriptions or purchase rights for the Series J Preferred
Stock), then the Corporation shall use all means reasonably available to it, and
promptly take any and all actions as may be necessary, to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
(l) Delivery of Common Stock. In the event that entirely due
to the Corporation's direct or indirect actions or to its failure to act (the
"Corporation's Actions"), the Corporation fails to deliver the number of whole
shares of Common Stock issuable upon conversion pursuant to Section 5(i) (the
"Conversion Stock") within five (5) business days following the Delivery Date,
the Corporation shall pay late payments to the holder seeking conversion (the
"Converting Holder") pursuant to the following schedule: (i) for the sixth
business day following the Delivery Date, $100 for each $10,000 of Liquidation
Value of Conversion Stock, (ii) for the seventh business day following the
Delivery Date, $200 for each $10,000 of Liquidation Value of Conversion Stock,
(iii) for the eighth business day following the Delivery Date, $300 for each
$10,000 of Liquidation Value of Conversion Stock, (iv) for the eighth business
day following the Delivery Date, $400 for each $10,000 of Liquidation Value of
Conversion Stock, (v) for the ninth business day following the Delivery Date,
$500 for each $10,000 of Liquidation Value of Conversion Stock, for the tenth or
more business day following the Delivery Date, $500 plus an additional $200 for
each $10,000 of Liquidation Value of Conversion Stock for each additional
business day in which the Conversion Stock is not delivered.
-9-
<PAGE>
The Corporation shall pay any payments incurred under this Section (5)(l)
in immediately available funds upon demand. Nothing herein shall limit the
Converting Holder's right to pursue actual damages for the Corporation's Actions
resulting in the Corporation's failure to issue and deliver the Conversion Stock
to the Converting Holder. Furthermore, in addition to any other remedies which
may be available to the to the Converting Holder, in the event that due to the
Corporation's Actions, the transfer agent fails to deliver such shares of Common
Stock within five (5) business days after the Delivery Date, the Converting
Holder will be entitled to revoke the relevant Notice of Conversion by
delivering a notice to such effect to the Corporation whereupon the Corporation
and the Converting Holder shall each be restored to their respective positions
immediately prior to delivery of such notice of conversion.
If, by the relevant Delivery Date, due to the Corporation's Actions, the
transfer agent fails for any reason to deliver the Conversion Stock and after
such Delivery Date, the Converting Holder purchases, in an open market
transaction or otherwise, shares of Common Stock (the "Covering Shares") solely
in order to make delivery in satisfaction of a sale of Common Stock by the
Converting Holder (the "Sold Shares"), which delivery such Converting Holder
anticipated to make using the Conversion Stock (a "Buy-In"), the Corporation
shall pay to the Converting Holder, in addition to any other amounts due to such
holder hereunder, 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 Converting Holder's total purchase price (including
brokerage commissions, if any) for the Converting Shares over (y) the net
proceeds (after brokerage commissions, if any) received by the Converting Holder
from the sale of the Sold Shares. The Corporation shall pay the Buy-In
Adjustment Amount to the Purchaser in immediately available funds immediately
upon demand by the Converting Holder. By way of illustration and not in
limitation of the foregoing, if the Converting 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 shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which Corporation will be
required to pay to the Converting Holder will be $1,000.
6. Redemption Rights. At the Corporation's option, at any time, the
Corporation may redeem all or any of the then outstanding shares of Series J
Preferred Stock by giving written notice to the holders of shares of Series J
Preferred Stock to be redeemed (the "Redemption Notice") of its election to
redeem such shares. The Corporation shall pay in cash an amount equal to (i) the
Original Issue Price of the shares to be redeemed, divided by (ii) one minus the
Discount Rate, within 5 days after the Redemption Notice.
Each holder of shares of Series J Preferred Stock being redeemed shall,
promptly after receipt of the Redemption Notice surrender for redemption to the
Corporation at its principal office or to any transfer agent for the Series J
Preferred Stock or the Common Stock all certificates representing all shares of
Series J Preferred Stock held by such holder, accompanied by a written notice
specifying the name or names and address or wire transfer information in which
such holder wishes the redemption payment to be made.
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Effective as of the close of business on the date of the Redemption Notice,
each share of Series J Preferred Stock then outstanding shall be (and be deemed
to have been) redeemed automatically, without any further action by the holders.
Such redemption shall be deemed to have occurred whether or not the certificates
representing such shares are surrendered to the Corporation or its transfer
agent and shall cut off and supersede any pending conversion.
7. Notices of Record Date. In the event of any:
(a) 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 (b)
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
(c) voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation shall telecopy and thereafter mail
or cause to be mailed to each holder of Series J 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.
8. General.
(a) Replacement of Certificates. Upon the Corporation's
receipt, from the holder of any certificate evidencing shares of Series J
Preferred Stock, of evidence reasonably satisfactory to the Corporation (an
affidavit of such holder will be satisfactory) of the ownership and the loss,
theft, destruction or mutilation of such certificate, and in the case of any
such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation, and in the case of any such mutilation, upon
surrender of such certificate, the Corporation (at its expense) shall execute
and deliver to such holder, in lieu of such certificate, a new certificate that
represents the number of shares represented by, is dated the date of, is issued
in the name of the
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holder of, and is substantially identical in form of, such lost, stolen,
destroyed or mutilated certificate.
(b) Payment of Taxes. The Corporation shall pay all taxes
(other than taxes based upon income) and other governmental charges that may be
imposed in connection with the issuance or delivery of any shares of Common
Stock (or other of the Corporation's securities) that results from the
conversion of shares of Series J Preferred Stock pursuant to this Certificate of
Designations. If the Corporation, pursuant to a notice from a holder of any
shares of Series J Preferred Stock, effects the issuance or delivery of any
shares of Common Stock (or other of the Corporation's securities) in any name(s)
other than such holder's name, then such holder shall deliver to the Corporation
with the aforesaid notice (A) all transfer taxes and other governmental charges
payable upon the issuance or delivery of securities in such other name(s) or (B)
evidence satisfactory to the Corporation that such taxes and charges have been
or shall be paid in full.
(c) Status of Redeemed or Converted Shares. Shares of Series J
Preferred Stock that are redeemed, converted or otherwise acquired by the
Corporation in any manner (including by purchase or exchange) shall be canceled
and upon cancellation (i) shall no longer be deemed to be outstanding, (ii)
shall become authorized but unissued shares of preferred stock undesignated as
to series, and (iii) may be reissued as part of another series of preferred
stock.
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EXHIBIT 3.4
DYNAGEN, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES K 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 November 3, 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 K 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, the Certificate of Designations, Preferences and Rights of Series
K Preferred Stock filed with the Secretary of State of the State of Delaware on
August 10, 1999, providing for the creation of the Series K Preferred Stock, par
value $.01 per share, of the Corporation, and the voting powers, preferences and
relative, participating, option and other special rights and the qualifications,
limitations and restrictions thereof, be and hereby are amended and restated as
set forth on Exhibit A attached hereto.
EXECUTED as of this 3rd day of November, 1999.
DYNAGEN, INC.
By: /s/ Dhananjay G. Wadekar
---------------------------
Dhananjay G. Wadekar
Executive Vice President
<PAGE>
EXHIBIT A
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(a) Description and Designation of Series K Preferred Stock
1. Designation and Definitions.
(a) Designation. A total of 20,000 shares of the Corporation's
previously undesignated Preferred Stock, $.01 par value, shall be designated as
the "Series K Preferred Stock." The original issue price per share of the Series
K Preferred Stock shall be $100 (the "Original Issue Price").
(b) Certain Definitions. As used herein, the following terms,
unless the context otherwise requires, have the following respective meanings:
(i) "Common Stock" means the common stock, par value $.01
per share, of the Corporation.
(ii) "Conversion Date" means (i) in the case of a
conversion upon the request of a holder of Series K Preferred Stock, 3 days from
the Conversion Notice Date, and (ii) in the case of a conversion upon the
request of the Corporation, the Conversion Notice Date.
(iii) "Conversion Notice Date" means (i) each date on
which the Corporation receives by telecopy written notice in accordance with
Section 5(h) hereof from a holder of Series K Preferred Stock that such holder
elects to convert shares of its Series K Preferred Stock, or (ii) the date on
which the Corporation gives by telecopy written notice to holders of Series K
Preferred Stock to convert shares of Series K Preferred Stock.
(iv) "Conversion Price" means: (i) 80% of the Three Day
Average Quoted Price for the three Trading Days immediately preceding the
Conversion Notice Date, for the period from January 15, 2000, up to (but not
including) April 1, 2000, (ii) 75% of the Two Day Average Quoted Price for the
two Trading Days immediately preceding the Conversion Notice Date, for the
period from April 1, 2000 up to (but not including) July 1, 2000, and (iii) 70%
of the Quoted Price for the Trading Day immediately preceding the Conversion
Notice Date, for the period from and after July 1, 2000.
(v) "Discount Rate" means: (i) 15%, for the period from
the date hereof up to (but not including) the later of (x) January 15, 2000, and
(y) six months from the Issue Date, (ii) 20%, for the period from the later of
(x) January 15, 2000, and (y) six months from the Issue Date, up to (but not
including) April 15, 2000, (ii) 25%, for the period from April 15, 2000 up to
(but not including) July 15, 2000, and (iv) 30%, for the period from and after
July 15, 2000.
<PAGE>
(vi) The following shall constitute an "Event of Default":
(a) The Company shall default in the payment of any amounts
owed under the Series K Preferred Stock 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 Subscription Agreement, the Registration Rights Agreement
(as defined in the Subscription Agreement) or in any certificate or financial or
other written statements heretofore or hereafter finished by the Company in
connection with the execution and delivery of the Subscription 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 the Series K 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 K Preferred Stock and when
required by the Series K 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 K
Preferred Stock as and when required by the terms of the Series K Preferred
Stock, the Subscription 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 the Series K 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
(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 Subscription 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; or
(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
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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 require payment in full of the Original Issue Price
and accrued but unpaid dividends on all shares of Series K 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.
(vii) "Fundamental Change" means: (i) any sale, lease,
exchange or other transfer of all or substantially all of the assets of the
Corporation; or (ii) any merger or consolidation to which the Corporation is a
party. Notwithstanding the foregoing, the following shall not be a Fundamental
Change: A merger of consolidation (a) to which the Corporation is a party; (b)
in which it is the surviving corporation and there is no resulting
reclassification of the outstanding Common Stock; and (c) after giving effect to
which, persons who were, immediately before the consummation or closing of such
merger or consolidation, holders of outstanding
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<PAGE>
Common Stock will be the direct or indirect owners of securities of the
Corporation possessing, on a fully diluted basis, at least fifty-one percent
(51%) of the voting power of all voting securities of the Corporation
(excluding, for purposes of such computation, any such person who also is a
party to such merger or consolidation).
(viii) "Issue Date" means, with respect to each share of
Series K Preferred Stock held by any holder, the date on which the Corporation
originally issued such share to such holder (regardless of the number of times
transfer of such share is made on the stock transfer books maintained by or for
the Corporation, and regardless of the number of certificates which may be
issued to evidence such share, and irrespective of any subsequent transfer or
other disposition of such share to any other holder).
(ix) "Quoted Price" means the closing bid price of the
Common Stock of the Corporation as reported by the OTC Bulletin Board or
Bloomberg.
(x) "Two Day Average Quoted Price" and "Three Day Average
Quoted Price" mean the average of the closing bid price of the Common Stock of
the Corporation as reported by the OTC Bulletin Board or Bloomberg, for two (2)
or three (3) consecutive Trading Days, as the case may be.
(xi) "Trading Day" means a day on which the principal
securities exchange on which the Common Stock is listed or admitted to trading
is open for the transaction of business; or, if the Common Stock is not listed
or admitted to trading on any securities exchange but is listed on the Nasdaq
system (or such other trading system then in use by the National Association of
Securities Dealers, Inc.), a day on which such system is open for the
transaction of business; or, if the foregoing does not apply, any business day.
2. Dividends. Except as expressly provided herein the holders of shares of
Series K Preferred Stock shall not be entitled to dividends.
(a) Declared Dividends on Common Stock. If the Board of
Directors shall declare a cash dividend payable upon the then outstanding shares
of Common Stock (other than a stock dividend on the Common Stock distributed
solely in the form of additional shares of Common Stock), the holders of the
Series K Preferred Stock shall be entitled to the amount of dividends on the
Series K Preferred Stock as would be declared payable on the largest number of
whole shares of Common Stock into which the shares of Series K Preferred Stock
held by each holder thereof could be converted pursuant to the provisions of
Section 5 hereof, such number determined as of the record date for the
determination of holders of Common Stock entitled to receive such dividend. Such
determination of "whole shares" shall be based upon the aggregate number of
shares of Series K Preferred Stock held by each holder, and not upon each share
of Series K Preferred Stock so held by the holder.
(b) Dividends on Other Securities. The Board of Directors may
declare and the Corporation may pay or set apart for payment, or cause the
accrual of, stated or cumulative
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<PAGE>
dividends and other distributions on any other series of preferred stock, and
may purchase or otherwise redeem any of the same (or any warrants, rights,
options or other securities exercisable therefor or convertible or exchangeable
therein), and the holders of Series K Preferred Stock shall not be entitled to
share therein.
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 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 K 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 K
Preferred Stock with respect to liquidation preferences, the holder of each
share of Series K 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 K Preferred Stock held by any holder (the "LIQUIDATION VALUE"). For
purposes hereof, the Series K Preferred Stock shall rank on liquidation junior
to the Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock, the
Series F Preferred Stock, the Series G Preferred Stock, the Series H Preferred
Stock, the Series I Preferred Stock and the Series J Preferred 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 K Preferred Stock the full
amount to which they otherwise would be entitled, the holders of Series K
Preferred Stock shall share ratably in any distribution of available assets pro
rata in proportion to the respective liquidation preference amounts which would
otherwise be payable upon liquidation with respect to the outstanding shares of
the Series K 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 K Preferred Stock then outstanding.
After such payment shall have been made in full to the holders of the
Series K 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 K
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 K 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,
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<PAGE>
recapitalization, reclassification or other similar event involving a change in
the capital structure of the Series K Preferred Stock.
(b) Distributions Other Than Cash. Whenever the distributions
provided for in this Section 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 K Preferred Stock.
(c) Events Not Deemed A Liquidation. A Fundamental Change will
not be deemed to be a liquidation, dissolution or winding up of the Corporation
under this Section 3.
4. Voting Power.
(a) General. Except as expressly provided in this Section 4 or
as otherwise required by the General Corporation Law of the State of Delaware,
each holder of Series K 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 K
Preferred Stock could be converted, pursuant to the provisions of Section 5
hereof, at the record date for the determination of stockholders entitled to
vote on any matter or, if no such record date is established, at the date such
vote is taken or any written consent of stockholders is solicited. Except as
otherwise required by law, the holders of shares of Series K Preferred Stock and
Common Stock shall vote together (or render written consent in lieu of a vote)
as a single class on all matters submitted to the stockholders of the
Corporation. The determination as to the number of "whole shares" shall be based
upon the aggregate number of shares of Series K Preferred Stock held by each
holder, not upon each share of Series K Preferred Stock so held by the holder.
(b) Amendments to Charter. For so long as there are any shares
of Series K 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 seventy-five
percent (75%) of the then outstanding shares of Series K Preferred Stock, voting
together as a class, each share of Series K Preferred Stock to be entitled to
one vote in each instance, if such amendment would adversely affect the rights
of the holders of Series K Preferred Stock.
5. Conversion Rights,
(a) Conversion. Subject to Section 6 and as provided elsewhere
in this Section 5, each holder of Series K Preferred Stock shall have the right,
at such holder's option, to convert at any time on or after January 15, 2000,
any of the shares of Series K Preferred Stock held by such holder into such
number of fully paid and nonassessable shares of Common Stock as shall be
determined by multiplying the number of shares of Series K Preferred Stock to be
converted by a fraction, the numerator of which is the Original Issue Price, and
the denominator
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<PAGE>
of which is the Conversion Price applicable to those shares; provided that in no
event shall any holder of Series K Preferred Stock convert more than twenty
percent (20%) of such holder's shares of Series K Preferred Stock in any period
of five (5) consecutive Trading Days. On or after the second anniversary of the
date hereof, the Corporation may, at its option, by giving written notice to the
holders of shares of Series K Preferred Stock to be converted, convert all
outstanding shares of Series K Preferred Stock into such number of fully paid
and non-assessable shares of Common Stock as shall be determined by multiplying
the number of shares of Series K Preferred Stock to be converted by a fraction,
the numerator of which is the Original Issue Price, and the denominator of which
is the applicable Conversion Price.
(b) Limitation on Number of Shares. Additionally,
notwithstanding anything set forth in this Section 5 to the contrary, other than
upon an Event of Default, the delivery of a Redemption Notice or upon a
Fundamental Change, if as a result of any change in the listing status of the
Corporation, NASD Rule 4460 or its equivalent applies to the Corporation, no
holder of Series K Preferred Stock shall be entitled to convert Series K
Preferred Stock into shares of Common Stock to the extent that such conversions
when taken together with all other conversions of shares of Series K Preferred
Stock shall exceed 19.9% of the issued and outstanding shares of Common Stock of
the Corporation on the date hereof, provided that if such conversion is to
exceed 19.9%, the Corporation at its sole option shall either (i) redeem any
shares of Series K Preferred Stock submitted for conversion in excess of 19.9%
for an amount equal to (x) the Original Issue Price, divided by (y) one minus
the applicable Discount Rate, (ii) within not more than thirty (30) days obtain
approval of its stockholders for the issuance of such additional shares of
Common Stock or (iii) do a combination of any of the foregoing. In addition,
notwithstanding anything herein to the contrary, except in the event of a
Fundamental Change or an Event of Default, no holder of Series K Preferred Stock
shall have the right, and the Corporation shall not have the obligation, to
convert all or any portion of the Series K Preferred Stock if and to the extent
that the issuance to such holder of shares of Series K Preferred Stock upon such
conversion would result in such holder being deemed the beneficial owner of more
than four and ninety nine one-hundredths (4.99%) percent of the then outstanding
shares of Common Stock within the meaning of Section 13(d) of the Securities
Exchange Act of 1934, as amended, and the rules promulgated thereunder.
(c) Dividends Other Than Common Stock Dividends. In the event
the Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock entitled to receive a dividend or other
distribution (other than a distribution in liquidation or other distribution
otherwise provided for herein) with respect to the Common Stock payable in (i)
securities of the Corporation other than shares of Common Stock or (ii) other
assets (excluding cash dividends or distributions), then and in each such event
provision shall be made so that the holders of the Series K Preferred Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the number of securities or such other assets
of the Corporation which they would have received had their Series K Preferred
Stock been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
Conversion Date, retained such securities or such other assets receivable by
them during such period, giving
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<PAGE>
application to all other adjustments called for during such period under this
Section 5 with respect to the rights of the holders of the Series K Preferred
Stock.
(d) Subdivision or Combination of Common Stock. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
(e) Capital Reorganization or Reclassification. If the Common
Stock issuable upon the conversion of the Series K Preferred Stock shall be
changed into the same or different number of shares of any class or classes of
capital stock, whether by capital reorganization, recapitalization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for elsewhere in this Section 5, or the sale of all
or substantially all of the Corporation's capital stock or assets to any other
person), then and in each such event the holders of Series K Preferred Stock
shall have the right thereafter to convert such shares into the kind and amount
of shares of capital stock and other securities and property receivable upon
such reorganization, recapitalization, reclassification or other change by the
holders of the number of shares of Common Stock into which such shares of Series
K Preferred Stock might have been converted immediately prior to such
reorganization, recapitalization, reclassification or change, all subject to
further adjustment as provided herein.
(f) Mandatory Conversion - Fundamental Change. If any
Fundamental Change shall occur, then each share of Series K Preferred Stock
outstanding as of the date of the consummation or closing thereof shall be (and
be deemed to have been) converted automatically, without any further action by
the holders thereof, into such number of fully paid and nonassessable shares of
Common Stock as shall be determined by multiplying the number of shares of
Series K Preferred Stock outstanding on the date of such consummation or closing
date by a fraction, the numerator of which is the Original Issue Price, and the
denominator of which is the Conversion Price. Such conversion shall be deemed to
have occurred whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent.
The Corporation shall give notice of a proposed or anticipated Fundamental
Change to all holders of the Series K Preferred Stock not later than thirty (30)
days before the expected closing or consummation of such Fundamental Change. The
Corporation also shall give prompt notice of the closing or consummation of such
Fundamental Change to all holders of record of the Series K Preferred Stock as
of the date of such closing or consummation. Each holder of Series K Preferred
Stock shall thereupon promptly surrender for conversion, to the Corporation at
its principal office or to any transfer agent for the Series K Preferred Stock
or the Common Stock, all certificates representing all shares of Series K
Preferred Stock held by such holder, accompanied by a written notice specifying
the name or names in which such holder wishes the certificate(s) for shares of
Common Stock to be issued.
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<PAGE>
(g) Certificate as to Adjustments; Notice by Corporation. In
each case of an adjustment or readjustment of the Conversion Price, the
Corporation at its expense will furnish each holder of Series K Preferred Stock
so affected with a certificate prepared by an officer of the Corporation,
showing such adjustment or readjustment, and stating in detail the facts upon
which such adjustment or readjustment is based.
(h) Exercise of Conversion Privilege. To exercise its
conversion privilege, a holder of Series K Preferred Stock shall give written
notice by telecopy to the Corporation at its principal office that such holder
elects to convert shares of its Series K Preferred Stock and shall thereafter
surrender the original certificate(s) representing the shares being converted to
the Corporation at its principal office together with an originally executed
copy of such notice. Such notice shall also state the name or names (with its
address or addresses, as well as the address(es) for delivery) in which the
certificate(s) for shares of Common Stock issuable upon such conversion shall be
issued. The certificate(s) for the shares of Series K Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Corporation or in blank. As promptly as practicable after the Corporation
receives the original certificate(s) for the shares of Series K Preferred Stock
surrendered for conversion, the proper assignment thereof to the Corporation or
in blank and the original notice of conversion (collectively, the "ORIGINAL
DOCUMENTATION"), but in no event more than three (3) Trading Days after the
later of the Corporation's receipt of the Original Documentation and the
Conversion Date (the "Delivery Date"), the Corporation shall issue and shall
deliver to the holder of the shares of Series K Preferred Stock being converted,
at the addresses set forth therefor by the holder, such certificate(s) as it may
request for the number of whole shares of Common Stock issuable upon the
conversion of such shares of Series K Preferred Stock in accordance with the
provisions of this Section 5, and cash, as provided in Section 5(i), in respect
of any fraction of a share of Common Stock issuable upon such conversion. Such
conversion or any conversion upon the request of the Corporation shall be deemed
to have been effected immediately prior to the close of business on the
applicable Conversion Date, and at such time the rights of the holder as holder
of the converted shares of Series K Preferred Stock shall cease and the
person(s) in whose name(s) any certificate(s) for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder(s) of
record of the shares of Common Stock represented thereby.
(i) Cash in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series K Preferred Stock. Instead of any fractional
shares of Common Stock that would otherwise be issuable upon conversion of
Series K Preferred Stock, the Corporation shall pay to the holder of the share
of Series K Preferred Stock being converted a cash adjustment in respect of such
fractional shares in an amount equal to the same fraction of the market price
per share of the Common Stock (as determined in a reasonable manner prescribed
by the Board of Directors) at the close of business on the Conversion Date. The
determination as to whether or not any fractional shares are issuable shall be
based upon the aggregate number of shares of Series K
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<PAGE>
Preferred Stock being converted at any one time by any holder thereof, not upon
each share of Series K Preferred Stock being converted.
(j) Partial Conversion. In the event some but not all of the
shares of Series K Preferred Stock represented by a certificate(s) surrendered
by a holder are converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series K Preferred Stock which were not
converted. Such new certificate shall be so delivered on or prior to the date
set forth in Section 5(h) for the delivery of certificates for shares of Common
Stock.
(k) Reservation of Common Stock. The Corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Series K Preferred Stock, two hundred percent (200%) of such number of
its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of the Series K Preferred Stock
(including any shares of Series K Preferred Stock represented by any warrants,
options, subscription or purchase rights for the Series K Preferred Stock), and
if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Series K Preferred Stock (including any shares of Series K Preferred
Stock represented by any warrants, options, subscriptions or purchase rights for
the Series K Preferred Stock), then the Corporation shall use all means
reasonably available to it, and promptly take any and all actions as may be
necessary, to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
(l) Delivery of Common Stock. In the event that entirely due
to the Corporation's direct or indirect actions or to its failure to act (the
"Corporation's Actions"), the Corporation fails to deliver the number of whole
shares of Common Stock issuable upon conversion pursuant to Section 5(i) (the
"Conversion Stock") within five (5) business days following the Delivery Date,
the Corporation shall pay late payments to the holder seeking conversion (the
"Converting Holder") pursuant to the following schedule: (i) for the sixth
business day following the Delivery Date, $100 for each $10,000 of Liquidation
Value of Conversion Stock, (ii) for the seventh business day following the
Delivery Date, $200 for each $10,000 of Liquidation Value of Conversion Stock,
(iii) for the eighth business day following the Delivery Date, $300 for each
$10,000 of Liquidation Value of Conversion Stock, (iv) for the eighth business
day following the Delivery Date, $400 for each $10,000 of Liquidation Value of
Conversion Stock, (v) for the ninth business day following the Delivery Date,
$500 for each $10,000 of Liquidation Value of Conversion Stock, for the tenth or
more business day following the Delivery Date, $500 plus an additional $200 for
each $10,000 of Liquidation Value of Conversion Stock for each additional
business day in which the Conversion Stock is not delivered.
The Corporation shall pay any payments incurred under this Section (5)(l)
in immediately available funds upon demand. Nothing herein shall limit the
Converting Holder's right to pursue actual damages for the Corporation's Actions
resulting in the Corporation's failure to issue and
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<PAGE>
deliver the Conversion Stock to the Converting Holder. Furthermore, in addition
to any other remedies which may be available to the to the Converting Holder, in
the event that due to the Corporation's Actions, the transfer agent fails to
deliver such shares of Common Stock within five (5) business days after the
Delivery Date, the Converting Holder will be entitled to revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Corporation
whereupon the Corporation and the Converting Holder shall each be restored to
their respective positions immediately prior to delivery of such notice of
conversion.
If, by the relevant Delivery Date, due to the Corporation's Actions, the
transfer agent fails for any reason to deliver the Conversion Stock and after
such Delivery Date, the Converting Holder purchases, in an open market
transaction or otherwise, shares of Common Stock (the "Covering Shares") solely
in order to make delivery in satisfaction of a sale of Common Stock by the
Converting Holder (the "Sold Shares"), which delivery such Converting Holder
anticipated to make using the Conversion Stock (a "Buy-In"), the Corporation
shall pay to the Converting Holder, in addition to any other amounts due to such
holder hereunder, 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 Converting Holder's total purchase price (including
brokerage commissions, if any) for the Converting Shares over (y) the net
proceeds (after brokerage commissions, if any) received by the Converting Holder
from the sale of the Sold Shares. The Corporation shall pay the Buy-In
Adjustment Amount to the Purchaser in immediately available funds immediately
upon demand by the Converting Holder. By way of illustration and not in
limitation of the foregoing, if the Converting 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 shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which Corporation will be
required to pay to the Converting Holder will be $1,000.
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 Converting Holder and its compliance with the
provisions contained in this paragraph, so long as the certificates therefor do
not bear a legend and the Converting Holder 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 Converting Holder by crediting
the account of Converting Holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission system.
6. Redemption Rights. At the Corporation's option, at any time, the
Corporation may redeem all or any of the then outstanding shares of Series K
Preferred Stock by giving written notice to the holders of shares of Series K
Preferred Stock to be redeemed (the "Redemption Notice") of its election to
redeem such shares. The Corporation shall pay in cash an amount equal to (i) the
Original Issue Price of the shares to be redeemed, divided by (ii) one minus the
Discount Rate applicable to the shares to be redeemed, within 5 days after the
Redemption Notice.
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<PAGE>
The Company shall give at least ten (10) business days' written notice of
such redemption to the holder of shares of Series K 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 K
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 K 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 K 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 K Preferred Stock shall terminate, and the Notice of Redemption
shall be null and void. Any redemption contemplated by this Section 6 shall be
made only in cash by the payment of immediately available good funds to the
Holder.
7. Notices of Record Date. In the event of any:
(a) 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
(b) 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
(c) voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation shall telecopy and thereafter mail
or cause to be mailed to each holder of Series K 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
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<PAGE>
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.
8. General.
(a) Replacement of Certificates. Upon the Corporation's
receipt, from the holder of any certificate evidencing shares of Series K
Preferred Stock, of evidence reasonably satisfactory to the Corporation (an
affidavit of such holder will be satisfactory) of the ownership and the loss,
theft, destruction or mutilation of such certificate, and in the case of any
such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation, and in the case of any such mutilation, upon
surrender of such certificate, the Corporation (at its expense) shall execute
and deliver to such holder, in lieu of such certificate, a new certificate that
represents the number of shares represented by, is dated the date of, is issued
in the name of the holder of, and is substantially identical in form of, such
lost, stolen, destroyed or mutilated certificate.
(b) Payment of Taxes. The Corporation shall pay all taxes
(other than taxes based upon income) and other governmental charges that may be
imposed in connection with the issuance or delivery of any shares of Common
Stock (or other of the Corporation's securities) that results from the
conversion of shares of Series K Preferred Stock pursuant to this Certificate of
Designations. If the Corporation, pursuant to a notice from a holder of any
shares of Series K Preferred Stock, effects the issuance or delivery of any
shares of Common Stock (or other of the Corporation's securities) in any name(s)
other than such holder's name, then such holder shall deliver to the Corporation
with the aforesaid notice (A) all transfer taxes and other governmental charges
payable upon the issuance or delivery of securities in such other name(s) or (B)
evidence satisfactory to the Corporation that such taxes and charges have been
or shall be paid in full.
(c) Status of Redeemed or Converted Shares. Shares of Series K
Preferred Stock that are redeemed, converted or otherwise acquired by the
Corporation in any manner (including by purchase or exchange) shall be canceled
and upon cancellation (i) shall no longer be deemed to be outstanding, (ii)
shall become authorized but unissued shares of preferred stock undesignated as
to series, and (iii) may be reissued as part of another series of preferred
stock.
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EXHIBIT 4.1
STOCK PURCHASE WARRANT
----------------------
This STOCK PURCHASE WARRANT ("Warrant") is issued this ____ day of
August, 1999, by DYNAGEN, INC., a Delaware corporation (the "Company"), to
ARGOSY INVESTMENT PARTNERS, L.P.("Argosy"), a Pennsylvania limited partnership
(Argosy and any subsequent assignee or transferee hereof are hereinafter
referred to collectively as "Holder" or "Holders").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM. In conjunction with that Secured
Promissory Note (the ANote@) dated June 18, 1997, of this date in an amount of
One Million and no/100ths Dollars ($1,000,000.00) and related loan agreement
(the "Loan Agreement"), and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company hereby grants to
Holder the right to purchase 56,250 shares of the Company's common stock (the
"Common Stock"). The shares of Common Stock issuable upon exercise of this
Warrant are hereinafter referred to as the "Shares." This Warrant shall be
exercisable at any time and from time to time from the date hereof until July
31, 2002 (the AExpiration Date@).
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per share
for which all or any of the Shares may be purchased pursuant to the terms of
this Warrant shall be One Cent ($.01).
3. EXERCISE. This Warrant may be exercised by the Holder hereof (but
only on the conditions hereinafter set forth) in whole or in part, upon delivery
of written notice of intent to exercise to the Company in the manner at the
address of the Company set forth in Section 13 hereof, together with this
Warrant and payment to the Company of the aggregate Exercise Price of the Shares
so purchased. The Exercise Price shall be payable, at the option of the Holder,
(i) by certified or bank check, (ii) by the surrender of the Note or portion
thereof having an outstanding principal balance equal to the aggregate Exercise
Price or (iii) by the surrender of a portion of this Warrant where the Shares
subject to the portion of this Warrant that is surrendered have a fair market
value equal to the aggregate Exercise Price. In the absence of an established
public market for the Common Stock, fair market value shall be established by
the Company=s board of directors in a commercially reasonable manner. Upon
exercise of this Warrant as aforesaid, the Company shall as promptly as
practicable, and in any event within fifteen (15) days thereafter, execute and
deliver to the Holder of this Warrant a certificate or certificates for the
total number of whole Shares for which this Warrant is being exercised in such
names and denominations as are requested by such Holder. If this Warrant shall
be exercised with respect to less than all of the Shares, the Holder shall be
entitled to receive a new Warrant covering the number of Shares in respect of
which this Warrant shall not have been exercised, which new Warrant shall in all
other respects be identical to this Warrant. The Company covenants and agrees
that it will pay when due any and all state and federal issue taxes which may be
payable in respect of the issuance of this Warrant or the issuance of any Shares
upon exercise of this Warrant.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
following:
<PAGE>
(a) Neither this Warrant nor the Shares have been registered
under the Securities Act of 1933, as amended ("Securities Act"), or any
state securities laws ("Blue Sky Laws"). This Warrant has been acquired
for investment purposes and not with a view to distribution or resale
and may not be sold or otherwise transferred without (i) an effective
registration statement for such Warrant under the Securities Act and
such applicable Blue Sky Laws, or (ii) an opinion of counsel, which
opinion and counsel shall be reasonably satisfactory to the Company and
its counsel, that registration is not required under the Securities Act
or under any applicable Blue Sky Laws (the Company hereby acknowledges
that Boult, Cummings, Conners & Berry, PLC is acceptable counsel).
Transfer of the Shares shall be restricted in the same manner and to
the same extent as the Warrant and the certificates representing such
Shares shall bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAW
AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT
UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) IN THE
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION
UNDER SUCH SECURITIES ACTS AND SUCH APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents
and instruments as counsel for the Company reasonably deems necessary
to effect the compliance of the issuance of this Warrant and any shares
of Common Stock issued upon exercise hereof with applicable federal and
state securities laws.
(b) The Company covenants and agrees that all Shares which may
be issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, liens, charges and preemptive
rights, if any, with respect thereto or to the issuance thereof. The
Company shall at all times reserve and keep available for issuance upon
the exercise of this Warrant such number of authorized but unissued
shares of Common Stock as will be sufficient to permit the exercise in
full of this Warrant.
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4 hereof,
this Warrant may be transferred, in whole or in part, to any person or business
entity, by presentation of the Warrant to the Company with written instructions
for such transfer. Upon such presentation for transfer, the Company shall
promptly execute and deliver a new Warrant or Warrants in the form hereof in the
name
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<PAGE>
of the assignee or assignees and in the denominations specified in such
instructions. The Company shall pay all expenses incurred by it in connection
with the preparation, issuance and delivery of Warrants under this Section.
6. WARRANT HOLDER NOT SHAREHOLDER; RIGHTS OFFERING; PREEMPTIVE RIGHTS.
Except as otherwise provided herein, this Warrant does not confer upon the
Holder, as such, any right whatsoever as a shareholder of the Company.
Notwithstanding the foregoing, if the Company should offer to all of the
Company's shareholders the right to purchase any securities of the Company, then
all shares of Common Stock that are subject to this Warrant shall be deemed to
be outstanding and owned by the Holder and the Holder shall be entitled to
participate in such rights offering. The Company shall not grant any preemptive
rights with respect to any of its capital stock without the prior written
consent of the Holder.
7. OBSERVATION RIGHTS. The Holder of this Warrant shall receive notice
of and be entitled to attend or may send a representative to attend all meetings
of the Company's Board of Directors in a non-voting observation capacity and
shall receive a copy of all correspondence and information delivered to the
Company's Board of Directors, from the date hereof until such time as the
indebtedness evidenced by the Note has been paid in full.
8. ADJUSTMENT UPON CHANGES IN STOCK.
(a) If all or any portion of this Warrant shall be exercised
subsequent to any stock split, stock dividend, recapitalization,
combination of shares of the Company, or other similar event, occurring
after the date hereof, then the Holder exercising this Warrant shall
receive, for the aggregate Exercise Price, the aggregate number and
class of shares which such Holder would have received if this Warrant
had been exercised immediately prior to such stock split, stock
dividend, recapitalization, combination of shares, or other similar
event. If any adjustment under this Section 8(a), would create a
fractional share of Common Stock or a right to acquire a fractional
share of Common Stock, such fractional share shall be disregarded and
the number of shares subject to this Warrant shall be the next higher
number of shares, rounding all fractions upward. Whenever there shall
be an adjustment pursuant to this Section 8(a), the Company shall
forthwith notify the Holder or Holders of this Warrant of such
adjustment, setting forth in reasonable detail the event requiring the
adjustment and the method by which such adjustment was calculated.
(b) If all or any portion of this Warrant shall be exercised
subsequent to any merger, consolidation, exchange of shares,
separation, reorganization or liquidation of the Company, or other
similar event, occurring after the date hereof, as a result of which
shares of Common Stock shall be changed into the same or a different
number of shares of the same or another class or classes of securities
of the Company or another entity, or the holders of Common Stock are
entitled to receive cash or other property, then the Holder exercising
this Warrant shall receive, for the aggregate Exercise Price, the
aggregate number and class of shares, cash or other property which such
Holder would have received if this Warrant had been exercised
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<PAGE>
immediately prior to such merger, consolidation, exchange of shares,
separation, reorganization or liquidation, or other similar event. If
any adjustment under this Section 8(b) would create a fractional share
of Common Stock or a right to acquire a fractional share of Common
Stock, such fractional share shall be disregarded and the number of
shares subject to this Warrant shall be the next higher number of
shares, rounding all fractions upward. Whenever there shall be an
adjustment pursuant to this Section 8(b), the Company shall forthwith
notify the Holder or Holders of this Warrant of such adjustment,
setting forth in reasonable detail the event requiring the adjustment
and the method by which such adjustment was calculated.
9. REGISTRATION.
(a) The Company and the holders of the Shares agree that if at
any time after the date hereof the Company shall propose to file a
registration statement with respect to any of its Common Stock on a
form suitable for a secondary offering (including its initial public
offering), it will give notice in writing to such effect to the
registered holder(s) of the Shares at least thirty (30) days prior to
such filing, and, at the written request of any such registered holder,
made within ten (10) days after the receipt of such notice, will
include therein at the Company's cost and expense (including the fees
and expenses of counsel to such holder(s), but excluding underwriting
discounts, commissions and filing fees attributable to the Shares
included therein) such of the Shares as such holder(s) shall request;
provided, however, that if the offering being registered by the Company
is underwritten and if the representative of the underwriters certifies
in writing that the inclusion therein of the Shares would materially
and adversely affect the sale of the securities to be sold by the
Company thereunder, then the Company shall be required to include in
the offering only that number of securities, including the Shares,
which the underwriters determine in their sole discretion will not
jeopardize the success of the offering (the securities so included to
be apportioned pro rata among all selling shareholders according to the
total amount of securities entitled to be included therein owned by
each selling shareholder, but in no event shall the total amount of
Shares included in the offering be less than the number of securities
included in the offering by any other single selling shareholder unless
all of the Shares are included in the offering).
(b) Whenever the Company undertakes to effect the registration
of any of the Shares, the Company shall, as expeditiously as reasonably
possible:
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(i) Prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement
covering such Shares and use its best efforts to cause such
registration statement to be declared effective by the
Commission as expeditiously as possible and to keep such
registration effective until the earlier of (A) the date when
all Shares covered by the registration statement have been
sold or (B) one hundred eighty (180) days from the effective
date of the registration statement; provided, that before
filing a registration statement or prospectus or any amendment
or supplements thereto, the Company will furnish to each
Holder of Shares covered by such registration statement and
the underwriters, if any, copies of all such documents
proposed to be filed (excluding exhibits, unless any such
person shall specifically request exhibits), which documents
will be subject to the review of such Holders and
underwriters, and the Company will not file such registration
statement or any amendment thereto or any prospectus or any
supplement thereto (including any documents incorporated by
reference therein) with the Commission if (A) the
underwriters, if any, shall reasonably object to such filing
or (B) if information in such registration statement or
prospectus concerning a particular selling Holder has changed
and such Holder or the underwriters, if any, shall reasonably
object.
(ii) Prepare and file with the Commission such
amendments and post-effective amendments to such registration
statement as may be necessary to keep such registration
statement effective during the period referred to in Section
10(b)(i) and to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered
by such registration statement, and cause the prospectus to be
supplemented by any required prospectus supplement, and as so
supplemented to be filed with the Commission pursuant to Rule
424 under the Securities Act.
(iii) Furnish to the selling Holder(s) such numbers
of copies of such registration statement, each amendment
thereto, the prospectus included in such registration
statement (including each preliminary prospectus), each
supplement thereto and such other documents as they may
reasonably request in order to facilitate the disposition of
the Shares owned by them.
(iv) Use its best efforts to register and qualify
under such other securities laws of such jurisdictions as
shall be reasonably requested by any selling Holder and do any
and all other acts and things which may be reasonably
necessary or advisable to enable such selling Holder to
consummate the disposition of the Shares owned by such Holder,
in such jurisdictions; provided, however, that the Company
shall not be required in connection therewith or as a
condition thereto to qualify to transact business or to file a
general consent to service of process in any such states or
jurisdictions.
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<PAGE>
(v) Promptly notify each selling Holder of the
happening of any event as a result of which the prospectus
included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to
make the statements therein not misleading and, at the request
of any such Holder, the Company will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered
to the purchasers of such Shares, such prospectus will not
contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not
misleading.
(vi) Provide a transfer agent and registrar for all
such Shares not later than the effective date of such
registration statement.
(vii) Enter into such customary agreements (including
underwriting agreements in customary form for a primary
offering) and take all such other actions as the underwriters,
if any, reasonably request in order to expedite or facilitate
the disposition of such Shares (including, without limitation,
effecting a stock split or a combination of shares).
(viii) Make available for inspection by any selling
Holder or any underwriter participating in any disposition
pursuant to such registration statement and any attorney,
accountant or other agent retained by any such selling Holder
or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause
the officers, directors, employees and independent accountants
of the Company to supply all information reasonably requested
by any such seller, underwriter, attorney, accountant or agent
in connection with such registration statement.
(ix) Promptly notify the selling Holder(s) and the
underwriters, if any, of the following events and (if
requested by any such person) confirm such notification in
writing: (A) the filing of the prospectus or any prospectus
supplement and the registration statement and any amendment or
post-effective amendment thereto and, with respect to the
registration statement or any post-effective amendment
thereto, the declaration of the effectiveness of such
documents, (B) any requests by the Commission for amendments
or supplements to the registration statement or the prospectus
or for additional information, (C) the issuance or threat of
issuance by the Commission of any stop order suspending the
effectiveness of the registration statement or the initiation
of any proceedings for that purpose and (D) the receipt by the
Company of any notification with respect to the suspension of
the qualification of the Shares for sale in any jurisdiction
or the initiation or threat of initiation of any proceeding
for such purposes.
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(x) Make every reasonable effort to prevent the entry
of any order suspending the effectiveness of the registration
statement and obtain at the earliest possible moment the
withdrawal of any such order, if entered.
(xi) Cooperate with the selling Holder(s) and the
underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing the Shares to be sold
and not bearing any restrictive legends, and enable such
Shares to be in such lots and registered in such names as the
underwriters may request at least two (2) business days prior
to any delivery of the Shares to the underwriters.
(xii) Provide a CUSIP number for all the Shares not
later than the effective date of the registration statement.
(xiii) Prior to the effectiveness of the registration
statement and any post-effective amendment thereto and at each
closing of an underwritten offering, (A) make such
representations and warranties to the selling Holder(s) and
the underwriters, if any, with respect to the Shares and the
registration statement as are customarily made by issuers in
primary underwritten offerings; (B) use its best efforts to
obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed
to the selling Holders and the underwriters, if any, such
letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters by
underwriters in connection with primary underwritten
offerings; (C) deliver such documents and certificates as may
be reasonably requested (1) by the holders of a majority of
the Shares being sold, and (2) by the underwriters, if any, to
evidence compliance with clause (A) above and with any
customary conditions contained in the underwriting agreement
or other agreement entered into by the Company; and (D) obtain
opinions of counsel to the Company and updates thereof (which
counsel and which opinions shall be reasonably satisfactory to
the underwriters, if any), covering the matters customarily
covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by the
selling Holders and underwriters or their counsel. Such
counsel shall also state that no facts have come to the
attention of such counsel which cause them to believe that
such registration statement, the prospectus contained therein,
or any amendment or supplement thereto, as of their respective
effective or issue dates, contains any untrue statement of any
material fact or omits to state any material fact necessary to
make the statements therein not misleading (except that no
statement need be made with respect to any financial
statements, notes thereto or other financial data or other
expertized material contained therein). If for any reason the
Company's counsel is unable to give such opinion, the Company
shall so notify the Holders of the Shares and shall use its
best efforts to remove expeditiously all impediments to the
rendering of such opinion.
(xiv) Otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and
make generally available to its security holders
7
<PAGE>
earnings statements satisfying the provisions of Section 11(a)
of the Securities Act, no later than forty-five (45) days
after the end of any twelve-month period (or ninety (90) days,
if such period is a fiscal year) (A) commencing at the end of
any fiscal quarter in which the Shares are sold to
underwriters in a firm or best efforts underwritten offering,
or (B) if not sold to underwriters in such an offering,
beginning with the first month of the first fiscal quarter of
the Company commencing after the effective date of the
registration statement, which statements shall cover such
twelve-month periods.
(c) The Company's obligations under Section 10(a) above with
respect to each holder of Shares are expressly conditioned upon such
holder's furnishing to the Company in writing such information
concerning such holder and the terms of such holder's proposed offering
as the Company shall reasonably request for inclusion in the
registration statement. If any registration statement including any of
the Shares is filed, then the Company shall indemnify each holder
thereof (and each underwriter for such holder and each person, if any,
who controls such underwriter within the meaning of the Securities Act)
from any loss, claim, damage or liability arising out of, based upon or
in any way relating to any untrue statement of a material fact
contained in such registration statement or any omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except for any such
statement or omission based on information furnished in writing by such
holder of the Shares expressly for use in connection with such
registration statement; and such holder shall indemnify the Company
(and each of its officers and directors who has signed such
registration statement, each director, each person, if any, who
controls the Company within the meaning of the Securities Act, each
underwriter for the Company and each person, if any, who controls such
underwriter within the meaning of the Securities Act) and each other
such holder against any loss, claim, damage or liability arising from
any such statement or omission which was made in reliance upon
information furnished in writing to the Company by such holder of the
Shares expressly for use in connection with such registration
statement.
(d) For purposes of this Section 10, all of the Shares shall
be deemed to be issued and outstanding.
10. CERTAIN NOTICES. In case at any time the Company shall
propose to:
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in
stock or make any special dividend or other distribution to the holders
of its Common Stock;
(c) offer for subscription to the holders of any of its Common
Stock any additional shares of stock in any class or other rights;
8
<PAGE>
(d) reorganize, or reclassify the capital stock of the
Company, or consolidate, merge or otherwise combine with, or sell of
all or substantially all of its assets to, another corporation;
(e) voluntarily or involuntarily dissolve, liquidate or wind
up of the affairs of the Company; or
(f) redeem or purchase any shares of its capital stock or
securities convertible into its capital stock;
then, in any one or more of said cases, the Company shall give to the
Holder of the Warrant, by certified or registered mail, (i) at least
twenty (20) days' prior written notice of the date on which the books
of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights
to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up,
and (ii) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at
least twenty (20) days' prior written notice of the date when the same
shall take place. Any notice required by clause (i) shall also specify,
in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Common Stock shall be entitled
thereto, and any notice required by clause (ii) shall specify the date
on which the holders of Common Stock shall be entitled to exchange
their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be.
11. ARTICLE AND SECTION HEADINGS. Numbered and titled article and
section headings are for convenience only and shall not be construed as
amplifying or limiting any of the provisions of this Warrant.
12. NOTICE. Any and all notices, elections or demands permitted or
required to be made under this Warrant shall be in writing, signed by the party
giving such notice, election or demand and shall be delivered personally,
telecopied, or sent by certified mail or overnight via nationally recognized
courier service (such as Federal Express), to the other party at the address set
forth below, or at such other address as may be supplied in writing and of which
receipt has been acknowledged in writing. The date of personal delivery or
telecopy or two (2) business days after the date of mailing (or the next
business day after delivery to such courier service), as the case may be, shall
be the date of such notice, election or demand. For the purposes of this
Warrant:
The Address of Holder is: Sirrom Capital Corporation
Suite 200
500 Church Street
Nashville, TN 37219
Attention: Tim McCarthy
Telecopy No. 615/726-1208
9
<PAGE>
with a copy to: Boult, Cummings, Conners & Berry, PLC
Suite 1600
414 Union Street
Nashville, TN 37219
Attention: Roger G. Jones, Esq.
Telecopy No. 615/252-6323
The Address of Company is: DynaGen, Inc.
1000 Winter Street
Suite 2700
Waltham, MA 02154
Attention: Dhananjay G. Wadekar
Fax: 781-890-0118
with a copy to: Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attention: David A. Broadwin, Esq.
13. SEVERABILITY. If any provisions(s) of this Warrant or the
application thereof to any person or circumstances shall be invalid or
unenforceable to any extent, the remainder of this Warrant and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
14. ENTIRE AGREEMENT. This Warrant between the Company and Holder
represents the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
15. GOVERNING LAW AND AMENDMENTS. This Warrant shall be construed and
enforced under the laws of the State of Tennessee applicable to contracts to be
wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
16. COUNTERPARTS. This Warrant may be executed in any number of
counterparts and be different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
17. CONSENT TO JURISDICTION; EXCLUSIVE VENUE. The Company hereby
irrevocably consents to the jurisdiction of the United States District Court for
the Middle District of Tennessee and of all Tennessee state courts sitting in
Davidson County, Tennessee, for the purpose of any litigation to which Holder
may be a party and which concerns this Warrant. It is further agreed that venue
for
10
<PAGE>
any such action shall lie exclusively with courts sitting in Davidson County,
Tennessee, unless Holder agrees to the contrary in writing.
18. WAIVER OF TRIAL BY JURY. HOLDER AND THE COMPANY HEREBY KNOWINGLY
AND VOLUNTARILY WITH THE BENEFIT OF COUNSEL WAIVE TRIAL BY JURY IN ANY ACTIONS,
PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT OR OTHERWISE,
AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS WARRANT.
19. EQUITY PARTICIPATION. This Warrant is issued in connection with the
Loan Agreement. It is intended that this Warrant constitute an equity
participation under and pursuant to T.C.A. '47-24-101, et seq. and that equity
participation be permitted under said statutes and not constitute interest on
the Note. If under any circumstances whatsoever, fulfillment of any obligation
of this Warrant, the Loan Agreement, or any other agreement or document executed
in connection with the Loan Agreement, shall violate the lawful limit of any
applicable usury statute or any other applicable law with regard to obligations
of like character and amount, then the obligation to be fulfilled shall be
reduced to such lawful limit, such that in no event shall there occur, under
this Warrant, the Loan Agreement, or any other document or instrument executed
in connection with the Loan Agreement, any violation of such lawful limit, but
such obligation shall be fulfilled to the lawful limit. If any sum is collected
in excess of the lawful limit, such excess shall be applied to reduce the
principal amount of the Note.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
date first above written.
COMPANY:
DYNAGEN, INC.,
a Delaware corporation
By:______________________________________
Title:___________________________________
HOLDER:
ARGOSY INVESTMENT PARTNERS, L.P.
A Pennsylvania limited partnership
By:______________________________________
Title:___________________________________
12
EXHIBIT 4.2
STOCK PURCHASE WARRANT
----------------------
This STOCK PURCHASE WARRANT (AWarrant@) is issued this ____ day of
August, 1999, by DYNAGEN, INC., a Delaware corporation (the "Company"), to
SIRROM CAPITAL CORPORATION, a Tennessee corporation (SIRROM CAPITAL CORPORATION
and any subsequent assignee or transferee hereof are hereinafter referred to
collectively as "Holder" or "Holders").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM. In conjunction with that Secured
Promissory Note (the ANote@) dated June 18, 1997, of this date in an amount of
Two Million and no/100ths Dollars ($2,000,000.00) and related loan agreement
(the "Loan Agreement"), and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company hereby grants to
Holder the right to purchase 112,500 shares of the Company's common stock (the
"Common Stock"). The shares of Common Stock issuable upon exercise of this
Warrant are hereinafter referred to as the "Shares." This Warrant shall be
exercisable at any time and from time to time from the date hereof until July
31, 2002 (the AExpiration Date@).
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per share
for which all or any of the Shares may be purchased pursuant to the terms of
this Warrant shall be One Cent ($.01).
3. EXERCISE. This Warrant may be exercised by the Holder hereof (but
only on the conditions hereinafter set forth) in whole or in part, upon delivery
of written notice of intent to exercise to the Company in the manner at the
address of the Company set forth in Section 13 hereof, together with this
Warrant and payment to the Company of the aggregate Exercise Price of the Shares
so purchased. The Exercise Price shall be payable, at the option of the Holder,
(i) by certified or bank check, (ii) by the surrender of the Note or portion
thereof having an outstanding principal balance equal to the aggregate Exercise
Price or (iii) by the surrender of a portion of this Warrant where the Shares
subject to the portion of this Warrant that is surrendered have a fair market
value equal to the aggregate Exercise Price. In the absence of an established
public market for the Common Stock, fair market value shall be established by
the Company=s board of directors in a commercially reasonable manner. Upon
exercise of this Warrant as aforesaid, the Company shall as promptly as
practicable, and in any event within fifteen (15) days thereafter, execute and
deliver to the Holder of this Warrant a certificate or certificates for the
total number of whole Shares for which this Warrant is being exercised in such
names and denominations as are requested by such Holder. If this Warrant shall
be exercised with respect to less than all of the Shares, the Holder shall be
entitled to receive a new Warrant covering the number of Shares in respect of
which this Warrant shall not have been exercised, which new Warrant shall in all
other respects be identical to this Warrant. The Company covenants and
<PAGE>
agrees that it will pay when due any and all state and federal issue taxes which
may be payable in respect of the issuance of this Warrant or the issuance of any
Shares upon exercise of this Warrant.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
following:
(a) Neither this Warrant nor the Shares have been registered
under the Securities Act of 1933, as amended ("Securities Act"), or any
state securities laws ("Blue Sky Laws"). This Warrant has been acquired
for investment purposes and not with a view to distribution or resale
and may not be sold or otherwise transferred without (i) an effective
registration statement for such Warrant under the Securities Act and
such applicable Blue Sky Laws, or (ii) an opinion of counsel, which
opinion and counsel shall be reasonably satisfactory to the Company and
its counsel, that registration is not required under the Securities Act
or under any applicable Blue Sky Laws (the Company hereby acknowledges
that Boult, Cummings, Conners & Berry, PLC is acceptable counsel).
Transfer of the Shares shall be restricted in the same manner and to
the same extent as the Warrant and the certificates representing such
Shares shall bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAW
AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT
UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) IN THE
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION
UNDER SUCH SECURITIES ACTS AND SUCH APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents
and instruments as counsel for the Company reasonably deems necessary
to effect the compliance of the issuance of this Warrant and any shares
of Common Stock issued upon exercise hereof with applicable federal and
state securities laws.
(b) The Company covenants and agrees that all Shares which may
be issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, liens, charges and preemptive
rights, if any, with respect thereto or to the issuance thereof. The
Company shall at all times reserve and keep available for issuance upon
the exercise of this Warrant such number of authorized but unissued
shares of Common Stock as will be sufficient to permit the exercise in
full of this Warrant.
2
<PAGE>
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4 hereof,
this Warrant may be transferred, in whole or in part, to any person or business
entity, by presentation of the Warrant to the Company with written instructions
for such transfer. Upon such presentation for transfer, the Company shall
promptly execute and deliver a new Warrant or Warrants in the form hereof in the
name of the assignee or assignees and in the denominations specified in such
instructions. The Company shall pay all expenses incurred by it in connection
with the preparation, issuance and delivery of Warrants under this Section.
6. WARRANT HOLDER NOT SHAREHOLDER; RIGHTS OFFERING; PREEMPTIVE RIGHTS.
Except as otherwise provided herein, this Warrant does not confer upon the
Holder, as such, any right whatsoever as a shareholder of the Company.
Notwithstanding the foregoing, if the Company should offer to all of the
Company's shareholders the right to purchase any securities of the Company, then
all shares of Common Stock that are subject to this Warrant shall be deemed to
be outstanding and owned by the Holder and the Holder shall be entitled to
participate in such rights offering. The Company shall not grant any preemptive
rights with respect to any of its capital stock without the prior written
consent of the Holder.
7. OBSERVATION RIGHTS. The Holder of this Warrant shall receive notice
of and be entitled to attend or may send a representative to attend all meetings
of the Company's Board of Directors in a non-voting observation capacity and
shall receive a copy of all correspondence and information delivered to the
Company's Board of Directors, from the date hereof until such time as the
indebtedness evidenced by the Note has been paid in full.
8. ADJUSTMENT UPON CHANGES IN STOCK.
(a) If all or any portion of this Warrant shall be exercised
subsequent to any stock split, stock dividend, recapitalization,
combination of shares of the Company, or other similar event, occurring
after the date hereof, then the Holder exercising this Warrant shall
receive, for the aggregate Exercise Price, the aggregate number and
class of shares which such Holder would have received if this Warrant
had been exercised immediately prior to such stock split, stock
dividend, recapitalization, combination of shares, or other similar
event. If any adjustment under this Section 8(a), would create a
fractional share of Common Stock or a right to acquire a fractional
share of Common Stock, such fractional share shall be disregarded and
the number of shares subject to this Warrant shall be the next higher
number of shares, rounding all fractions upward. Whenever there shall
be an adjustment pursuant to this Section 8(a), the Company shall
forthwith notify the Holder or Holders of this Warrant of such
adjustment, setting forth in reasonable detail the event requiring the
adjustment and the method by which such adjustment was calculated.
(b) If all or any portion of this Warrant shall be exercised
subsequent to any merger, consolidation, exchange of shares,
separation, reorganization or liquidation of the Company, or other
similar event, occurring after the date hereof, as a result of which
shares of Common Stock shall be changed into the same or a different
number of shares of the same or another
3
<PAGE>
class or classes of securities of the Company or another entity, or the
holders of Common Stock are entitled to receive cash or other property,
then the Holder exercising this Warrant shall receive, for the
aggregate Exercise Price, the aggregate number and class of shares,
cash or other property which such Holder would have received if this
Warrant had been exercised immediately prior to such merger,
consolidation, exchange of shares, separation, reorganization or
liquidation, or other similar event. If any adjustment under this
Section 8(b) would create a fractional share of Common Stock or a right
to acquire a fractional share of Common Stock, such fractional share
shall be disregarded and the number of shares subject to this Warrant
shall be the next higher number of shares, rounding all fractions
upward. Whenever there shall be an adjustment pursuant to this Section
8(b), the Company shall forthwith notify the Holder or Holders of this
Warrant of such adjustment, setting forth in reasonable detail the
event requiring the adjustment and the method by which such adjustment
was calculated.
9. REGISTRATION.
(a) The Company and the holders of the Shares agree that if at
any time after the date hereof the Company shall propose to file a
registration statement with respect to any of its Common Stock on a
form suitable for a secondary offering (including its initial public
offering), it will give notice in writing to such effect to the
registered holder(s) of the Shares at least thirty (30) days prior to
such filing, and, at the written request of any such registered holder,
made within ten (10) days after the receipt of such notice, will
include therein at the Company's cost and expense (including the fees
and expenses of counsel to such holder(s), but excluding underwriting
discounts, commissions and filing fees attributable to the Shares
included therein) such of the Shares as such holder(s) shall request;
provided, however, that if the offering being registered by the Company
is underwritten and if the representative of the underwriters certifies
in writing that the inclusion therein of the Shares would materially
and adversely affect the sale of the securities to be sold by the
Company thereunder, then the Company shall be required to include in
the offering only that number of securities, including the Shares,
which the underwriters determine in their sole discretion will not
jeopardize the success of the offering (the securities so included to
be apportioned pro rata among all selling shareholders according to the
total amount of securities entitled to be included therein owned by
each selling shareholder, but in no event shall the total amount of
Shares included in the offering be less than the number of securities
included in the offering by any other single selling shareholder unless
all of the Shares are included in the offering).
(b) Whenever the Company undertakes to effect the registration
of any of the Shares, the Company shall, as expeditiously as reasonably
possible:
4
<PAGE>
(i) Prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement
covering such Shares and use its best efforts to cause such
registration statement to be declared effective by the
Commission as expeditiously as possible and to keep such
registration effective until the earlier of (A) the date when
all Shares covered by the registration statement have been
sold or (B) one hundred eighty (180) days from the effective
date of the registration statement; provided, that before
filing a registration statement or prospectus or any amendment
or supplements thereto, the Company will furnish to each
Holder of Shares covered by such registration statement and
the underwriters, if any, copies of all such documents
proposed to be filed (excluding exhibits, unless any such
person shall specifically request exhibits), which documents
will be subject to the review of such Holders and
underwriters, and the Company will not file such registration
statement or any amendment thereto or any prospectus or any
supplement thereto (including any documents incorporated by
reference therein) with the Commission if (A) the
underwriters, if any, shall reasonably object to such filing
or (B) if information in such registration statement or
prospectus concerning a particular selling Holder has changed
and such Holder or the underwriters, if any, shall reasonably
object.
(ii) Prepare and file with the Commission such
amendments and post-effective amendments to such registration
statement as may be necessary to keep such registration
statement effective during the period referred to in Section
10(b)(i) and to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered
by such registration statement, and cause the prospectus to be
supplemented by any required prospectus supplement, and as so
supplemented to be filed with the Commission pursuant to Rule
424 under the Securities Act.
(iii) Furnish to the selling Holder(s) such numbers
of copies of such registration statement, each amendment
thereto, the prospectus included in such registration
statement (including each preliminary prospectus), each
supplement thereto and such other documents as they may
reasonably request in order to facilitate the disposition of
the Shares owned by them.
(iv) Use its best efforts to register and qualify
under such other securities laws of such jurisdictions as
shall be reasonably requested by any selling Holder and do any
and all other acts and things which may be reasonably
necessary or advisable to enable such selling Holder to
consummate the disposition of the Shares owned by such Holder,
in such jurisdictions; provided, however, that the Company
shall not be required in connection therewith or as a
condition thereto to qualify to transact business or to file a
general consent to service of process in any such states or
jurisdictions.
5
<PAGE>
(v) Promptly notify each selling Holder of the
happening of any event as a result of which the prospectus
included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to
make the statements therein not misleading and, at the request
of any such Holder, the Company will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered
to the purchasers of such Shares, such prospectus will not
contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not
misleading.
(vi) Provide a transfer agent and registrar for all
such Shares not later than the effective date of such
registration statement.
(vii) Enter into such customary agreements (including
underwriting agreements in customary form for a primary
offering) and take all such other actions as the underwriters,
if any, reasonably request in order to expedite or facilitate
the disposition of such Shares (including, without limitation,
effecting a stock split or a combination of shares).
(viii) Make available for inspection by any selling
Holder or any underwriter participating in any disposition
pursuant to such registration statement and any attorney,
accountant or other agent retained by any such selling Holder
or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause
the officers, directors, employees and independent accountants
of the Company to supply all information reasonably requested
by any such seller, underwriter, attorney, accountant or agent
in connection with such registration statement.
(ix) Promptly notify the selling Holder(s) and the
underwriters, if any, of the following events and (if
requested by any such person) confirm such notification in
writing: (A) the filing of the prospectus or any prospectus
supplement and the registration statement and any amendment or
post-effective amendment thereto and, with respect to the
registration statement or any post-effective amendment
thereto, the declaration of the effectiveness of such
documents, (B) any requests by the Commission for amendments
or supplements to the registration statement or the prospectus
or for additional information, (C) the issuance or threat of
issuance by the Commission of any stop order suspending the
effectiveness of the registration statement or the initiation
of any proceedings for that purpose and (D) the receipt by the
Company of any notification with respect to the suspension of
the qualification of the Shares for sale in any jurisdiction
or the initiation or threat of initiation of any proceeding
for such purposes.
6
<PAGE>
(x) Make every reasonable effort to prevent the entry
of any order suspending the effectiveness of the registration
statement and obtain at the earliest possible moment the
withdrawal of any such order, if entered.
(xi) Cooperate with the selling Holder(s) and the
underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing the Shares to be sold
and not bearing any restrictive legends, and enable such
Shares to be in such lots and registered in such names as the
underwriters may request at least two (2) business days prior
to any delivery of the Shares to the underwriters.
(xii) Provide a CUSIP number for all the Shares not
later than the effective date of the registration statement.
(xiii) Prior to the effectiveness of the registration
statement and any post-effective amendment thereto and at each
closing of an underwritten offering, (A) make such
representations and warranties to the selling Holder(s) and
the underwriters, if any, with respect to the Shares and the
registration statement as are customarily made by issuers in
primary underwritten offerings; (B) use its best efforts to
obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed
to the selling Holders and the underwriters, if any, such
letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters by
underwriters in connection with primary underwritten
offerings; (C) deliver such documents and certificates as may
be reasonably requested (1) by the holders of a majority of
the Shares being sold, and (2) by the underwriters, if any, to
evidence compliance with clause (A) above and with any
customary conditions contained in the underwriting agreement
or other agreement entered into by the Company; and (D) obtain
opinions of counsel to the Company and updates thereof (which
counsel and which opinions shall be reasonably satisfactory to
the underwriters, if any), covering the matters customarily
covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by the
selling Holders and underwriters or their counsel. Such
counsel shall also state that no facts have come to the
attention of such counsel which cause them to believe that
such registration statement, the prospectus contained therein,
or any amendment or supplement thereto, as of their respective
effective or issue dates, contains any untrue statement of any
material fact or omits to state any material fact necessary to
make the statements therein not misleading (except that no
statement need be made with respect to any financial
statements, notes thereto or other financial data or other
expertized material contained therein). If for any reason the
Company's counsel is unable to give such opinion, the Company
shall so notify the Holders of the Shares and shall use its
best efforts to remove expeditiously all impediments to the
rendering of such opinion.
(xiv) Otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and
make generally available to its security holders
7
<PAGE>
earnings statements satisfying the provisions of Section 11(a)
of the Securities Act, no later than forty-five (45) days
after the end of any twelve-month period (or ninety (90) days,
if such period is a fiscal year) (A) commencing at the end of
any fiscal quarter in which the Shares are sold to
underwriters in a firm or best efforts underwritten offering,
or (B) if not sold to underwriters in such an offering,
beginning with the first month of the first fiscal quarter of
the Company commencing after the effective date of the
registration statement, which statements shall cover such
twelve-month periods.
(c) The Company's obligations under Section 10(a) above with
respect to each holder of Shares are expressly conditioned upon such
holder's furnishing to the Company in writing such information
concerning such holder and the terms of such holder's proposed offering
as the Company shall reasonably request for inclusion in the
registration statement. If any registration statement including any of
the Shares is filed, then the Company shall indemnify each holder
thereof (and each underwriter for such holder and each person, if any,
who controls such underwriter within the meaning of the Securities Act)
from any loss, claim, damage or liability arising out of, based upon or
in any way relating to any untrue statement of a material fact
contained in such registration statement or any omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except for any such
statement or omission based on information furnished in writing by such
holder of the Shares expressly for use in connection with such
registration statement; and such holder shall indemnify the Company
(and each of its officers and directors who has signed such
registration statement, each director, each person, if any, who
controls the Company within the meaning of the Securities Act, each
underwriter for the Company and each person, if any, who controls such
underwriter within the meaning of the Securities Act) and each other
such holder against any loss, claim, damage or liability arising from
any such statement or omission which was made in reliance upon
information furnished in writing to the Company by such holder of the
Shares expressly for use in connection with such registration
statement.
(d) For purposes of this Section 10, all of the Shares shall
be deemed to be issued and outstanding.
10. CERTAIN NOTICES. In case at any time the Company shall
propose to:
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in
stock or make any special dividend or other distribution to the holders
of its Common Stock;
(c) offer for subscription to the holders of any of its Common
Stock any additional shares of stock in any class or other rights;
8
<PAGE>
(d) reorganize, or reclassify the capital stock of the
Company, or consolidate, merge or otherwise combine with, or sell of
all or substantially all of its assets to, another corporation;
(e) voluntarily or involuntarily dissolve, liquidate or wind
up of the affairs of the Company; or
(f) redeem or purchase any shares of its capital stock or
securities convertible into its capital stock;
then, in any one or more of said cases, the Company shall give to the
Holder of the Warrant, by certified or registered mail, (i) at least
twenty (20) days' prior written notice of the date on which the books
of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights
to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up,
and (ii) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at
least twenty (20) days' prior written notice of the date when the same
shall take place. Any notice required by clause (i) shall also specify,
in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Common Stock shall be entitled
thereto, and any notice required by clause (ii) shall specify the date
on which the holders of Common Stock shall be entitled to exchange
their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be.
11. ARTICLE AND SECTION HEADINGS. Numbered and titled article and
section headings are for convenience only and shall not be construed as
amplifying or limiting any of the provisions of this Warrant.
12. NOTICE. Any and all notices, elections or demands permitted or
required to be made under this Warrant shall be in writing, signed by the party
giving such notice, election or demand and shall be delivered personally,
telecopied, or sent by certified mail or overnight via nationally recognized
courier service (such as Federal Express), to the other party at the address set
forth below, or at such other address as may be supplied in writing and of which
receipt has been acknowledged in writing. The date of personal delivery or
telecopy or two (2) business days after the date of mailing (or the next
business day after delivery to such courier service), as the case may be, shall
be the date of such notice, election or demand. For the purposes of this
Warrant:
The Address of Holder is: Sirrom Capital Corporation
Suite 200
500 Church Street
Nashville, TN 37219
Attention: Tim McCarthy
Telecopy No. 615/726-1208
9
<PAGE>
with a copy to: Boult, Cummings, Conners & Berry, PLC
Suite 1600
414 Union Street
Nashville, TN 37219
Attention: Roger G. Jones, Esq.
Telecopy No. 615/252-6323
The Address of Company is: DynaGen, Inc.
1000 Winter Street
Suite 2700
Waltham, MA 02154
Attention: Dhananjay G. Wadekar
Fax: 781-890-0118
with a copy to: Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attention: David A. Broadwin, Esq.
13. SEVERABILITY. If any provisions(s) of this Warrant or the
application thereof to any person or circumstances shall be invalid or
unenforceable to any extent, the remainder of this Warrant and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
14. ENTIRE AGREEMENT. This Warrant between the Company and Holder
represents the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
15. GOVERNING LAW AND AMENDMENTS. This Warrant shall be construed and
enforced under the laws of the State of Tennessee applicable to contracts to be
wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
16. COUNTERPARTS. This Warrant may be executed in any number of
counterparts and be different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
17. CONSENT TO JURISDICTION; EXCLUSIVE VENUE. The Company hereby
irrevocably consents to the jurisdiction of the United States District Court for
the Middle District of Tennessee and of all Tennessee state courts sitting in
Davidson County, Tennessee, for the purpose of any litigation to which Holder
may be a party and which concerns this Warrant. It is further agreed that venue
for
10
<PAGE>
any such action shall lie exclusively with courts sitting in Davidson County,
Tennessee, unless Holder agrees to the contrary in writing.
18. WAIVER OF TRIAL BY JURY. HOLDER AND THE COMPANY HEREBY KNOWINGLY
AND VOLUNTARILY WITH THE BENEFIT OF COUNSEL WAIVE TRIAL BY JURY IN ANY ACTIONS,
PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT OR OTHERWISE,
AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS WARRANT.
19. EQUITY PARTICIPATION. This Warrant is issued in connection with the
Loan Agreement. It is intended that this Warrant constitute an equity
participation under and pursuant to T.C.A. '47-24-101, et seq. and that equity
participation be permitted under said statutes and not constitute interest on
the Note. If under any circumstances whatsoever, fulfillment of any obligation
of this Warrant, the Loan Agreement, or any other agreement or document executed
in connection with the Loan Agreement, shall violate the lawful limit of any
applicable usury statute or any other applicable law with regard to obligations
of like character and amount, then the obligation to be fulfilled shall be
reduced to such lawful limit, such that in no event shall there occur, under
this Warrant, the Loan Agreement, or any other document or instrument executed
in connection with the Loan Agreement, any violation of such lawful limit, but
such obligation shall be fulfilled to the lawful limit. If any sum is collected
in excess of the lawful limit, such excess shall be applied to reduce the
principal amount of the Note.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
date first above written.
COMPANY:
DYNAGEN, INC.,
a Delaware corporation
By:______________________________________
Title:___________________________________
HOLDER:
SIRROM CAPITAL CORPORATION,
a Tennessee corporation
By:______________________________________
Title:___________________________________
12
EXHIBIT 4.3
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 COMMISION 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"), Kenilworth LLC, 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 June 30, 2004 (the "Expiration Date"), up to thirty-three
thousand three hundred thirty four (33,334) fully paid and nonassessable shares
of the Company's Common Stock, par value $.01 per 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 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 to the Company to
receive the 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 this Warrant and the total cash exercise price thereof. Upon
surrender of this Warrant 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
bid price of a share of Common Stock, as reported by Bloomberg 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.
(b) Limitation and Exercise. Notwithstanding the provisions
of this Warrant, or of the Subscription Agreement entered into between the
Company and the Holder of even date herewith (the "Subscription Agreement"), in
no event (except (i) with respect to a mandatory conversion, if any, of the
Preferred Stock (as such term is defined in the Subscription Agreement) in
accordance with its terms, or (ii) if the Company is in default hereunder 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 exercise, 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 unconverted Preferred Stock or the
unexercised portion of the Warrant), and (2) the number of shares of Common
Stock issuable upon the exercise of the Warrant with respect to which the
determination of this proviso is being made) would result in beneficial
<PAGE>
ownership by the Holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock (after taking into account the shares to be issued to the
Holder upon such exercise). Except as otherwise provided in clause (1) 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").
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 any 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 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 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 such 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 Adjustments 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 of
all or 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
<PAGE>
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 a fraction is
less than 1.0), 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 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 or, if not so
reported, on the over-the-counter market or (y) if indicated in the relevant
provision hereof, as reported in the Wall Street Journal.
7. Transfer to Comply with the Securities Act; Registration
Rights.
(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 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 by 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 to Company, to:
DynaGen, Inc.
840 Memorial Drive
Cambridge, Massachusetts 02139
<PAGE>
(ii) if to the Holder, to:
Kenilworth LLC
c/o Citco Trustees (Cayman) Limited
attn: Mr. Bas Horsten
Commercial Centre
P.O. Box 31106 SMB
Grand Cayman
Cayman Islands
British West Indies
Any party may be given notice in accordance with this Section to the
address set forth above or to any other address provided by such party 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 contains 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 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 Holder in enforcement of or protection of any of its rights under this
Warrant.
11. Counterparts. This Warrant may be executed in any number
of counterparts and each of such counterparts shall for all purposes by deemed
to by 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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the 30th day of June, 1999.
DYNAGEN, INC.
By:_______________________
Title:____________________
Attest:
- ---------------------------
<PAGE>
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant dated as of ____________, 1999, to purchase
______________ shares of 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 Subscription Agreement contain restrictions on sale,
assignment or transfer of this Warrant.
EXHIBIT 10.1
SUBSCRIPTION AGREEMENT
SUBSCRIPTION 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 undersigned ("Purchaser").
WHEREAS:
A. The Company and 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 Purchaser and Purchaser
desires to purchase, upon the terms and conditions stated in this Agreement, the
number of shares of Series J Preferred Stock., $.01 par value per share (the
"Preferred Stock"), of the Company convertible into shares of common stock, par
value $.01 per share, of the Company (the "Common Stock") and a warrant to
purchase 33,334 shares of Common Stock (the "Warrant") in accordance with the
terms and conditions set forth herein. The Series J Preferred Stock Designation
setting forth the rights, preferences, including the terms upon which the shares
of Preferred Stock are convertible into shares of Common Stock, is attached
hereto as Exhibit A.
NOW, THEREFORE, the Company and the Purchaser hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANT
a. Purchase of Preferred Shares and Warrant. On the Closing Date (as
defined below), subject to the satisfaction (or waiver) of the conditions set
forth in Sections 6 and 7 below, the Company shall issue and sell to Purchaser
and Purchaser agrees to purchase from the Company, up to 15,000 shares of
Preferred Stock (the "Preferred Shares") and a Warrant. The aggregate purchase
price is $1,500,000.00 (the "Purchase Price"). The shares of Common Stock
issuable upon conversion of the Preferred Shares are referred to herein as the
"Conversion Shares." The shares of Common Stock issuable upon exercise of the
Warrant are referred to herein as the "Warrant Shares." The Preferred Shares,
the Conversion Shares, the Warrant and the Warrant Shares are collectively
referred to herein as the "Securities."
b. Form of Payment. On the Closing Date (as hereinafter defined),
Purchaser shall pay the aggregate Purchase Price for the Preferred Shares and
Warrant by wire transfer to the Company and shall deliver by telecopier (with
originals following by first class mail) a fully executed copy of this
Subscription Agreement and the Registration Rights Agreement (as defined below)
to the Company. Payment and delivery instructions are attached as Exhibit B
hereto. Promptly upon receipt of the Purchase Price and the executed agreements,
the Company shall deliver a certificate (the "Certificate") representing the
Preferred Shares, the Warrant, and
<PAGE>
the accepted agreements to the Purchaser by Federal Express or other overnight
courier at the address set forth on the signature page of this Agreement.
c. Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Preferred Shares and the Warrant pursuant to
this Agreement shall take place from time to time as may be mutually agreed upon
by the Company and Purchaser. Each closing shall occur at the offices of the
Company.
2. PURCHASER'S REPRESENTATIONS AND WARRANTIES. Purchaser represents and
warrants to the Company that:
a. Investment Purpose. Purchaser is purchasing the Preferred Shares and
the Warrant for Purchaser's 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. Purchaser understands that
Purchaser must bear the economic risk of this investment indefinitely, unless
the Preferred Shares, the Warrant Shares or the Conversion Shares, as the case
may be, 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 any such Securities
other than as contemplated by the Registration Rights Agreement, dated as of the
date hereof, between the Company and the Purchaser (the "Registration Rights
Agreement").
b. Accredited Investor Status. Purchaser is an "accredited investor" as
defined in Rule 501(a) promulgated under the Securities Act.
c. Reliance on Exemptions. Purchaser understands that the Preferred
Shares, the Conversion Shares, the Warrant ant the Warrant Shares are being
offered and sold to 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 Purchaser's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of Purchaser to acquire the
Preferred Shares, the Conversion Shares, the Warrant and the Warrant Shares.
d. Information. 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 Preferred Shares and
the Warrant which have been requested by Purchaser or its counsel or
representative. Purchaser and its counsel, if any, have been afforded the
opportunity to ask questions of the Company and have received what Purchaser
believes to be complete and satisfactory answers to any such inquiries. Neither
such inquiries nor any other due diligence investigation conducted by Purchaser
or its counsel or any of its representatives shall modify, amend or affect
Purchaser's right to rely on the Company's representations and warranties
contained in Section 3 below. Purchaser has been informed and
2
<PAGE>
understands that (i) this investment involves a HIGH DEGREE OF RISK, (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, and (iii) the Company's
common stock has been delisted by the NASDAQ Stock Market and is currently
traded on the Boston Stock Exchange.
e. Governmental Review. Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. Purchaser understands that (i) except as
provided in the Registration Rights Agreement, 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 (a) subsequently registered thereunder, or (b)
Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration, including without limitation Rule 144 promulgated under the
Securities Act (or a successor rule) ("Rule 144"), or (c) transferred without
consideration to an affiliate of Purchaser; (ii) any sale of such Securities
made in reliance on Rule 144 may be made only in accordance with the terms of
said Rule and further, if said Rule 144 is not applicable, any resale of such
Securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the Securities Act) may require compliance with some other exemption under the
Securities Act or the rules and regulations of the Securities and Exchange
Commission (the "SEC") thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement).
g. Legends. Purchaser understands that the Preferred Shares and, until
such time as the Conversion Shares and the Warrant Shares have been registered
under the Securities Act as contemplated by Section 5 of this Agreement or
otherwise may be sold by Purchaser pursuant to Rule 144 without any restriction
as to the public resale thereof, the Warrant and the certificates for the
Conversion Shares and the Warrant Share, 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.
3
<PAGE>
The legend set forth above shall be removed and the Company shall issue
a Warrant or a certificate without such legend upon conversion of the Preferred
Shares or the exercise of the Warrant, as the case may be, to the holder of any
Security upon which it is stamped, if (a) the resale of such Security is
registered under the Securities Act, or (b) such holder provides the Company
with an opinion of counsel, in form, substance and scope customary for opinions
of counsel in comparable transactions, to the effect that a public sale or
transfer of such Security may be made without registration under the Securities
Act or (c) such holder provides the Company with reasonable assurances that such
Security has been sold pursuant to Rule 144 or can be sold pursuant to Rule 144
without any restriction as to the number of Securities acquired as of a
particular date that can then be immediately sold. Purchaser agrees to sell all
Securities, including those represented by a certificate(s) from which the
legend has been removed, pursuant to an effective registration statement and to
deliver a prospectus in connection with such sale (if and to the extent such
delivery is required) or in compliance with an exemption from the registration
requirements of the Securities Act. In the event the above legend is removed
from any Security and thereafter the effectiveness of a registration statement
covering such Security is suspended or the Company determines that a supplement
or amendment thereto is required by applicable securities laws, then upon
reasonable advance notice to Purchaser the Company may require that the above
legend be placed on any such Security that cannot then be sold pursuant to an
effective registration statement or Rule 144 without any restriction as to the
number of Securities acquired as of a particular date that can then be
immediately sold, which legend shall be removed when such Security has been sold
pursuant to Rule 144 or may be sold pursuant to an effective registration
statement or Rule 144 without any restriction as to the number of Securities
acquired as of a particular date that can then be immediately sold.
h. Authorization: Enforcement. This Agreement and the Registration
Rights Agreements have been duly and validly authorized, executed and delivered
on behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable in accordance with their respective terms.
i. Location of Purchaser. Purchaser has advised the Company in writing
with respect to the jurisdictions wherein the investment decision regarding
Purchaser's acquisition of the Preferred Shares and the Warrant has been made.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Purchaser that:
a. Organization and Qualification. The Company is a corporation duly
organized and existing in good standing under the laws of the jurisdiction in
which it is incorporated, and has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The Company is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction where the failure so to qualify would have a Material
Adverse Effect. "Material Adverse Effect" means any material adverse effect on
the operations, properties, condition (financial or otherwise) or prospects of
the Company and its subsidiaries, taken as a whole on a consolidated basis or on
the ability of the Company to perform its obligations in connection with the
transactions contemplated hereby on a timely basis.
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b. Authorization: Enforcement. The Company has the requisite corporate
power and authority to enter into and perform this Agreement and the
Registration Rights Agreement, to issue and sell the Warrant and the Preferred
Shares in accordance with the terms hereof, and to issue the Warrant Shares upon
the exercise of the Warrant and the Conversion Shares upon conversion of the
Preferred Shares in accordance with their respective terms. The execution,
delivery and performance of this Agreement and the Registration Rights Agreement
by the Company and the consummation by it of the transactions contemplated
hereby and thereby (including, without limitation, the issuance of the Preferred
Shares and the Warrant and the issuance and reservation for issuance of the
Conversion Shares and the Warrant Shares) have been duly authorized by the
Company's Board of Directors and no further consent or authorization of the
Company, its Board or Directors, or its stockholders is required; this Agreement
has been duly executed and delivered by the Company; and this Agreement
constitutes the valid and binding obligations of the Company enforceable against
the Company in accordance with its respective terms.
c. Issuance of Securities. The Preferred Stock and the Warrant are duly
authorized and, upon issuance in accordance with the terms of this Agreement,
the Preferred Shares and the Warrant will be validly issued, fully paid and
non-assessable. The Warrant Shares and the Conversion Shares have been duly
authorized by the Company's Board of Directors, and have been reserved for
issuance upon conversion of the Preferred Shares and exercise of the Warrant in
accordance with the respective terms thereof, and upon issuance in accordance
with the terms of this Agreement will be validly issued, fully paid and
non-assessable.
d. No Conflicts. To the Company's knowledge, the execution, delivery
and performance of this Agreement and the Registration Rights Agreement by the
Company, the performance by the Company of its obligations hereunder and
thereunder, and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance and reservation
for issuance, as applicable, of the Preferred Shares, the Conversion Shares, the
Warrant and the Warrant Shares) will not (i) result in a material violation of
the Certificate of Incorporation or Bylaws or (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including U.S. federal and
state securities laws and regulations) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
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 or reasonably be expected to result
in a Material Adverse Effect or for which consents have been obtained). Except
as described in the SEC Documents (as hereinafter defined), to the Company's
knowledge, neither the Company nor any of its subsidiaries is in violation of
its Certificate of Incorporation or other organizational documents and except as
described in the SEC Documents, to the Company's knowledge, neither the Company
nor any of its subsidiaries is in default under, nor has there occurred any
event giving others (with notice or lapse of time or both) any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or
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any of its subsidiaries is a party, except for defaults as would not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect or for which consents have been obtained.
e. SEC Documents, Financial Statements. Since December 31, 1996, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (all of the foregoing, filed prior to the date hereof and after December
31, 1996, and all exhibits included therein and financial statements and
schedules thereto and documents (other than exhibits) incorporated by reference
therein together with any registration statements or other documents filed by
the Company pursuant to the Securities Act prior to the date hereof and all news
releases by the Company being hereinafter referred to herein as the "SEC
Documents"). The Company has made available to Purchaser true and complete
copies of the SEC Documents, except for such exhibits, schedules and
incorporated documents. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Exchange Act or the
Securities Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted 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. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in accordance with U.S
generally accepted accounting principles, consistently applied, 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) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in the financial
statements of the Company included in the SEC Documents, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to the date of the most recent financial
statements included in the SEC Documents and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not required
under generally accepted accounting principles to be reflected in such financial
statements, which, individually or in the aggregate, are not material to the
financial condition or operating results of the Company.
f. Absence of Litigation. Except as disclosed in the SEC Documents or
otherwise disclosed to Purchaser, there is no action, suit, proceeding, inquiry
or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its subsidiaries, threatened against or affecting the Company, any of
its subsidiaries, or any of their respective directors or officers in their
capacities as such, wherein an unfavorable decision, ruling or finding would or
could reasonably be expected to result in a Material Adverse Effect.
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<PAGE>
g. Disclosure. All information relating to or concerning the Company
set forth in this Agreement or provided to Purchaser pursuant to Section 2(d)
hereof and otherwise in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with respect to the
Company or its subsidiaries or their respective businesses, properties,
prospects, operations or financial conditions, which, under applicable law, rule
or regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed (assuming for this purpose
that the Company's Exchange Act Reports are being incorporated into an effective
registration statement filed by the Company under the Securities Act).
h. Current Public Information. The Company is currently eligible to
register the resale of its Common Stock by a stockholder on a registration
statement on Form SB-2 or S-3] under the Securities Act.
i. No General Solicitation. Neither the Company nor any person acting
for the Company has conducted any "general solicitation," as such term is
defined in Regulation D, with respect to any of the Securities being offered
hereby.
j. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act.
k. Dilution. The number of shares of Common Stock issuable upon
conversion of the Preferred Stock may increase substantially in certain
circumstances, including, but not limited to, the circumstance wherein the
trading price of the Common Stock declines prior to the conversion of the
Preferred Stock. The Company has studied and fully understands the nature of the
Securities being sold hereby 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 the shares of
Common Stock upon conversion of the Preferred Stock is binding upon the Company
and enforceable regardless of the dilution such issuance may have on the
ownership interests of other stockholders of the Company.
4. COVENANTS
a. Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Sections 6 and 7 of this Agreement.
b. Blue Sky Laws. The Company shall take such action as the Company or
Purchaser shall reasonably determine is necessary to qualify the Securities for
sale to Purchaser pursuant to this Agreement under applicable securities or
"blue sky" laws of the states of the
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<PAGE>
United States or obtain exemption therefrom, and shall provide evidence of any
such action so taken to Purchaser.
c. Reporting Status. So long as Purchaser beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed with
the SEC pursuant to the Exchange Act.
d. Use of Proceeds. The Company shall use the proceeds from the sale of
the Preferred Shares and the Warrant for internal working capital purposes and
general corporate purposes.
e. Financial Information. Upon the written request of Purchaser while
holding any Preferred Shares or the Warrant, the Company shall send the
following reports to Purchaser: a copy of its Annual Report on Form 10-K, its
Quarterly Reports on Form l0-Q, any proxy statements, any Current Reports on
Form 8-K and any press releases issued by the Company or any of its
subsidiaries.
f. Reservation of Shares. The Company shall reserve and shall at all
times thereafter have authorized and reserved for the purpose of issuance a
sufficient number of shares of Common Stock to provide for the full conversion
of the shares of Preferred Shares issued in accordance herewith and full
exercise of the Warrant and issuance of the Warrant Shares and Conversion Shares
and in connection therewith and as otherwise required by the terms of the
Preferred Stock.
g. Corporate Existence. So long as Purchaser beneficially owns the
Preferred Shares or the Warrant, the Company shall maintain its corporate
existence, except in the event of a merger, consolidation or sale of all or
substantially all of the Company's assets, as long as the surviving or successor
entity in such transaction (i) assumes the Company's obligations hereunder and
under the agreements and instruments entered into in connection herewith
regardless of whether or not the Company would have had a sufficient number of
shares of Common Stock authorized and available for issuance in order to effect
the conversion of the Preferred Shares and the exercise of the Warrant as of the
date of such transaction, and (ii) is a publicly traded corporation whose common
stock is listed for trading on the Nasdaq Stock Market, the New York Stock
Exchange or The American Stock Exchange.
5. REGISTRATION; TRANSFER AGENT INSTRUCTIONS
a. Registration Rights. The Company and the Purchaser shall enter into
a Registration Rights Agreement as of the date hereof.
b. Transfer Agent Instructions. The Company shall instruct its transfer
agent to issue certificates, registered in the name of Purchaser or its nominee,
for the Conversion Shares in such amounts as specified from time to time by
Purchaser to the Company upon conversion of the Preferred Shares, and for the
Warrant Shares upon exercise of the Warrant. Prior to registration of the
Conversion Shares and the Warrant Shares under the Securities Act or resale
8
<PAGE>
of such Securities under Rule 144, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than such instructions referred to in this
Section 5, and stop transfer instructions to give effect to Section 2(f) hereof
in the case of the Conversion Shares and the Warrant Shares prior to
registration of the Conversion Shares and the Warrant Shares under the
Securities Act, will be given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the Preferred
Stock terms. Nothing in this Section shall affect in any way Purchaser's
obligations and agreement set forth in Section 2(f) hereof not to resell the
Securities except pursuant to an effective registration statement (and to
deliver a prospectus in connection with such a sale) or in compliance with an
exemption from the registration requirements of applicable securities law. If
Purchaser provides the Company with an opinion of counsel, which opinion of
counsel shall be in form, substance and scope customary for opinions of counsel
in comparable transactions, to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from
registration, the Company shall permit the transfer, and, in the case of the
Conversion Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by a Purchaser.
c. Rule 144. The Company will use its best efforts to make all filings
and take all other actions so that Rule 144 promulgated under the Securities Act
of 1933, as amended, will be available for the resale of the Conversion Shares
and the Warrant Shares.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
The obligation of the Company hereunder to issue and sell the Preferred
Shares and the Warrant to Purchaser at the closing is subject to the
satisfaction, at or before the Closing Date, of each of the following conditions
thereto, provided that these conditions are for the Company's sole benefit and
may be waived by the Company at any time in its sole discretion.
a. Purchaser shall have executed the execution page to this Agreement
and delivered the same to the Company.
b. Purchaser shall have delivered the Purchase Price for the Preferred
Shares and the Warrant.
c. The representations and warranties of Purchaser shall be true and
correct in all material respects.
d. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
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7. CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE
The obligation of Purchaser hereunder to purchase the Preferred Shares
and the Warrant on the Closing Date is subject to the satisfaction of each of
the following conditions, provided that these conditions are for Purchaser's
sole benefit and may be waived by Purchaser at any time in Purchaser's sole
discretion:
a. The Company shall have executed the signature page to this Agreement
and the Registration Rights Agreement and delivered the same to Purchaser.
b. The Company shall have delivered to Purchaser one or more duly
executed Certificates representing the Preferred Shares and the Warrant
purchased hereby in the principal amount being purchased by Purchaser in
accordance with Section 1(b) above.
c. The representations and warranties of the Company shall be true and
correct as of the Closing Date in all material respects and the Company shall
have performed, satisfied and complied in all material respects the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date.
d. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
8. 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. The parties consent
to the jurisdiction of the United States District Courts for the Southern
District of New York in any suit or proceeding based on or arising under this
Agreement and agree that all claims in respect of such suit or proceeding may be
determined in such court. The parties irrevocably waive the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The parties
further agree that service of process mailed by first class mail shall be deemed
in every respect effective service of process in any suit or proceeding arising
hereunder. Nothing herein shall affect Purchaser's right to serve process in any
other manner permitted by law. The parties agree that a final non-appealable
judgment in any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful manner.
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 party.
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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 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
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 to 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:
Chu, Ring & Hazel LLP
253 Summer Street
Boston, Massachusetts 02210
Telecopy: (617) 443-9840
Attention: John H. Chu, 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.
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 Purchaser shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of
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the other. This provision shall not limit Purchaser's right to transfer the
Securities pursuant to the terms of the Preferred Stock and this Agreement or to
assign Purchaser's rights hereunder to any such transferee, nor shall this
provision limit the right of Purchaser to transfer or assign its rights under
such agreements and instruments to an affiliate (provided that Purchaser makes
no more than two (2) such transfers), provided that the representations and
warranties set forth in Section 2 are true and correct with respect to such
affiliate or managed account.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. The representations and warranties of the parties and the
agreements and covenants set forth in Sections 2, 3, 4 and 5 shall survive the
closing hereunder and any conversion of the Preferred Shares or exercise of the
Warrant, notwithstanding any due diligence investigation conducted by or on
behalf of Purchaser.
j. Publicity. Purchaser shall not make any press release or other
public statement concerning the transactions contemplated hereby without the
prior written consent of the Company.
k. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements. certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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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
KENILWORTH LLC
By: _____________________________
Name:___________________________
Title:
Address: c/o Citco Trustees (Cayman) Limited
Commercial Centre
PO Box 31106 SMB
Grand Cayman
Cayman Islands
British West Indies
Number of shares purchased: 10,000
Aggregate Purchase Price: $1,000,000
ACCEPTED:
DYNAGEN, INC.
By: _____________________________
Name:___________________________
Title:____________________________
13
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
AGREEMENT dated as of June 30, 1999 by and between DynaGen, Inc., a
Delaware corporation (the "Company"), and the Purchaser listed on the execution
pages of this Agreement.
ARTICLE I
GRANT OF REGISTRATION RIGHTS
ss.1.01. Investment Documents. Pursuant to the Subscription Agreement
dated as of June 30, 1999 (herein, as amended from time to time, called the
Subscription Agreement), DynaGen, Inc., a Delaware corporation (the Company),
grants to the Purchaser (as defined therein) who is a party thereto, the
registration rights contained in Article II of this Agreement.
ss.1.02. Definitions. For all purposes of this Agreement, all of the
words and expressions used herein which are not defined herein, but which are
defined in the Subscription Agreement, shall have the same respective meanings
herein as the meanings specified therein.
ARTICLE II
REGISTRATION RIGHTS
ss.2. Registration Rights.
ss.2.01. Definitions. As used in this Agreement:
(a) the term Commission shall mean the Securities and Exchange
Commission;
(b) the term Common Stock shall mean the Common Stock, par value $0.01
per share, of the Company or any other security into which the Preferred Stock
may, by its terms, be converted;
(c) the term Exchange Act shall mean the Securities Exchange Act of
1934, as amended, or any federal statute or code which is a successor thereto;
(d) the terms Form SB-2 and Form S-3 shall mean the forms so
designated, promulgated by the Commission for registration of securities under
the Securities Act, and any forms succeeding to the functions of such forms,
whether or not bearing the same designation;
<PAGE>
-2-
(e) the term Holder shall mean the original Purchaser, and any person
to whom the Preferred Stock or the Warrant is transferred pursuant to the terms
of the Subscription Agreement;
(f) the terms register, registered and registration shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering by the
Commission of effectiveness of such registration statement;
(g) the term Registrable Securities shall mean, in relation to the
Holder at any particular time: (i) all shares of Common Stock issuable upon
conversion of the Preferred Stock held of record by the Holder at such time;
(ii) all shares of Common Stock issuable upon exercise of the Warrant held of
record by the Holder at such time; and (iii) all shares of Common Stock held of
record at such time by Holder as a result of such conversion or exercise;
(h) the term Rule 144 shall mean Rule 144 issued by the Commission
under the Securities Act, or any subsequent rule pertaining to the disposition
of securities without registration;
(i) the term Securities Act shall mean the Securities Act of 1933, as
amended, or any federal statute or code which is a successor thereto;
(j) the term Preferred Stock shall mean the shares of Series J
Convertible Preferred Stock, par value $0.01 per share, of the Company issued to
the original Purchaser pursuant to the Subscription Agreement and any other
Preferred Stock issued to other purchasers;
(k) the Holder shall, for all purposes of this Agreement, unless the
context shall otherwise require, be deemed to hold, at any particular time, all
shares of Common Stock issuable upon conversion of the Preferred Stock and all
shares of Common Stock issuable upon exercise of the Warrant held of record by
the Holder at such time.
(l) the term Warrant shall have the meaning ascribed to that term in
the Subscription Agreement.
(m) the term Market Value shall have the meaning ascribed to that term
in the Warrant.
ss.2.02. Registration on Form SB-2 or S-3. The Company will use its
best efforts in good faith to register the greater of (i) 150% of all shares of
Common Stock issuable upon conversion of the Preferred Stock held of record by
the Holder on the Effective Date based upon the Market Value of the Common Stock
as of the date hereof, and all shares of
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-3-
Common Stock issuable upon exercise of the Warrant as of the date hereof, and
(ii) the Registrable Securities, on Form SB-2 or S-3 within the earlier of (i)
four (4) months of the first date on which the Company originally issued shares
of Preferred Stock and the Warrant to a purchaser (regardless of the number of
times transfer of such shares is made on the stock transfer books maintained by
or for the Company, and regardless of the number of certificates which may be
issued to evidence such shares, and irrespective of any subsequent transfer or
of the disposition of such shares to any other holder) and (ii) fifteen (15)
days of written notice to the Company from the Commission that there will be no
additional comments on the registration statement or that no review will be made
on the same (the "Registration Period"). To the extent not unlawful, the Company
will pay all Registration Expenses of each registration of Registrable
Securities pursuant to this ss.2.02. If (i) the Company has not registered the
Registrable Securities by the end of the Registration Period or (ii) the
Commission suspends the registration statement after the Registration Period,
the Company shall pay to the Holder in cash two percent (2%) of the aggregate
purchase price paid by such Holder for the Preferred Stock and the Warrant for
each month (and in the case of (i) only, or part thereof) that the Registrable
Securities are not registered or such registration statement is suspended, as
the case may be, until the earlier to occur of (i) the registration of the
Registrable Securities (including but limited to by means of the revocation of
the suspension of the registration statement), and (ii) twelve months from the
date on which the Company originally issued shares to the Purchaser, provided,
however, the Company shall not be required to make such payment if the Company's
failure to register the Registrable Securities or the suspension of the
registration statement, is due, in whole or in part, to the Holder's failure to
comply with ss.2.04 hereof. The Company will not include any securities other
than the Registrable Securities in the registration pursuant to this ss.2.02
without the prior written consent of the Holders of a majority of the
Registrable Securities (on an as-converted basis).
ss.2.03. Registration Procedures. When the Company undertakes to effect
a registration pursuant to ss.2.02 hereof of the Registrable Securities, the
Company will use its best efforts in good faith to effect promptly the
registration of such Registrable Securities under the Securities Act and to
permit the public offering and sale of such Registrable Securities in accordance
with the intended method of disposition thereof, and, in connection therewith,
the Company, as expeditiously as shall be reasonably possible, will:
(a) prepare and file with the Commission a registration statement with
respect to such Registrable Securities, and use its best efforts in good faith
to cause such registration statement to become and remain effective as provided
herein;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus included in such
registration statement as may be necessary or advisable to comply in all
material respects with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement or as may
be necessary to keep such registration statement effective and current, but for
no longer than one (1) year subsequent to the effective date of such
registration;
<PAGE>
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(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto (in
each case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus), and such other
documents as any such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities held by such seller;
(d) enter into such customary agreements and take all such other
customary action in connection therewith in order to expedite or facilitate the
disposition of such Registrable Securities; and
(e) use its best efforts in good faith to register and qualify the
Registrable Securities covered by such registration statement under such
securities or Blue Sky laws of such jurisdictions as any seller shall reasonably
request and do any and all such other acts and things as may be reasonably
necessary or advisable to enable such seller to consummate the disposition in
such jurisdictions of the Registrable Securities held by such seller; provided,
however that the Company shall not be required in connection therewith to
qualify to do business or file a general consent to service of process in any
such jurisdiction.
ss.2.04. Cooperation by Prospective Sellers, etc.
(a) The Holder will furnish to the Company in writing such information
as the Company may reasonably require from the Holder or as required by the
Commission, and otherwise reasonably cooperate with the Company in connection
with any registration statement with respect to such Registrable Securities.
(b) The Holder of Registrable Securities included in any registration
statement will not (until further notice) effect sales thereof after receipt of
telegraphic or written notice from the Company to suspend sales to permit the
Company to correct or update such registration statement or prospectus.
ss.2.05. Registration Expenses.
(a) The following costs and expenses incurred or sustained in
connection with or arising out of each registration pursuant to ss.2.02 shall
constitute Registration Expenses: all registration and filing fees, fees and
expenses of compliance with securities or Blue Sky laws, printing expenses,
messenger, telephone and delivery expenses, fees and disbursements of counsel
for the Company, fees and disbursements of all independent certified public
accountants (including the expenses relating to the preparation and delivery of
any special audit or "cold comfort" letters required by or incident to such
registration), and fees and disbursements of underwriters (excluding discounts
and commissions), the reasonable fees and expenses of any special experts
retained by the Company of its own initiative or at the request of the managing
underwriters in connection with such registration, and fees and expenses of all
(if any) other persons retained by the Company. The term "Registration
<PAGE>
-5-
Expenses" shall not include, however, any legal fees or disbursements of counsel
for the Holder of Registrable Securities.
(b) The Company will not bear the cost of nor pay for any stock
transfer taxes imposed in respect of the transfer of any Registrable Securities
to any purchaser thereof by any Holder of Registrable Securities in connection
with any registration of Registrable Securities pursuant to this Article II.
(c) To the extent that Registration Expenses incident to any
registration are, under the terms of this Article II, not required to be paid by
the Company, each Holder of Registrable Securities included in such registration
will pay all Registration Expenses which are clearly solely attributable to the
registration of such Holder's Registrable Securities so included in such
registration, and all other Registration Expenses not so attributable to one
Holder will be borne and paid by all sellers of securities included in such
registration in proportion to the number of securities so included by each such
seller.
ss.2.06. Indemnification.
(a) Indemnification by the Company. The Company will indemnify the
Holder, the officers, directors and partners of each such Holder and each person
who controls any thereof (within the meaning of the Securities Act), against any
and all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
any material fact contained in any prospectus, offering circular or other
document incident to any registration, qualification or compliance (or in any
related registration statement, notification or the like) or any omission (or
alleged omission) to state therein any material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of any rule or regulation promulgated under the
Securities Act applicable to the Company and relating to any action or inaction
required of the Company in connection with any such registration, qualification
or compliance, and the Company will reimburse each such Holder, officer,
director, partner and controlling person for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action; provided, however, that the Company
will not be liable in any such case to the extent that any such claim, loss,
damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company in an
instrument duly executed by such Holder, officer, director, partner or
controlling person and stated to be exclusively and specifically for use
therein.
(b) Indemnification by the Holder. The Holder will indemnify the
Company and its officers and directors and each person, if any, who controls any
thereof (within the meaning of the Securities Act) and, if required by the
underwriter effecting the related registration, such underwriter, and their
respective successors in title and assigns against any and all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of any material fact
contained in
<PAGE>
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any prospectus, offering circular or other document incident to any
registration, qualification or compliance (or in any related registration
statement, notification or the like) or any omission (or alleged omission) to
state therein any material fact required to be stated therein or necessary to
make the statement therein not misleading, and the Holder will reimburse the
Company and each other person indemnified pursuant to this paragraph (b) for any
legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
provided, however, that this paragraph (b) shall apply only if (and only to the
extent that) such statement or omission was made in reliance upon information
furnished to the Company in any instrument duly executed by the Holder and
stated to be exclusively and specifically for use in such prospectus, offering
circular or other document (or related registration statement, notification or
the like) or any amendment or supplement thereto.
(c) Indemnification Proceedings. Each party entitled to indemnification
pursuant to this ss.2.06 (the indemnified party) shall give notice to the party
required to provide indemnification pursuant to this ss.2.06 (the indemnifying
party) promptly after such indemnified party acquires actual knowledge of any
claim as to which indemnity may be sought, and shall permit the indemnifying
party (at its expense) to assume the defense of any claim or any litigation
resulting therefrom; provided that counsel for the indemnifying party, who shall
conduct the defense of such claim or litigation, shall be acceptable to the
indemnified party, and the indemnified party may participate in such defense at
such party's expense; and provided, further, that the failure by any indemnified
party to give notice as provided in this paragraph (c) shall not relieve the
indemnifying party of its obligations under this ss.2.06 except to the extent
that the failure results in a failure of actual notice to the indemnifying party
and such indemnifying party is damaged solely as a result of the failure to give
notice. No indemnifying party, in the defense of any such claim or litigation,
shall, except with the consent of each indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. The reimbursement required by this ss.2.06 shall be made by periodic
payments during the course of the investigation or defense, as and when bills
are received or expenses incurred.
ss.2.07. Rule 144 Requirements. The Company will make every effort in
good faith to make publicly available and available to the Holder of Registrable
Securities, pursuant to Rule 144 of the Commission under the Securities Act,
such information as shall be necessary to enable the Holders of Registrable
Securities to make sales of Registrable Securities pursuant to that Rule. The
Company will furnish to any Holder of Registrable Securities, upon request made
by such Holder at any time, a written statement signed by the Company, addressed
to such Holder, describing briefly the action the Company has taken or proposes
to take to comply with the current public information requirements of Rule 144.
The Company will, at the request of any Holder of Registrable Securities, upon
receipt from such Holder of a certificate certifying (i) that such Holder has
held such Registrable Securities for a period of not less than one (1) year,
(ii) that such Holder has not been an affiliate (as defined in Rule
<PAGE>
-7-
144) of the Company for more than the ninety (90) preceding days, and (iii) as
to such other matters as may be appropriate in accordance with such Rule, remove
from the stock certificates representing such Registrable Securities that
portion of any restrictive legend which relates to the registration provisions
of the Securities Act.
ss.2.08. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not, at any time after
the date of the Subscription Agreement, enter into any agreement or contract
(whether written or oral) with respect to any of its securities which prevents
the Company from complying in any respect with the registration rights granted
by the Company to the Holder of Registrable Securities pursuant to Article II of
this Agreement.
(b) Amendments and Waivers. The provisions of Article II of this
Agreement, including the provisions of this paragraph (b), may not be amended,
modified or supplemented, and any waiver or consent to or any departure from any
of the provisions of Article II of this Agreement may not be given and shall not
become or be effective, unless and until (in each case) the Company shall have
received the prior written consent of the Holder of the Registrable Securities
for any such amendment, modification, supplement, waiver or consent.
(c) Permitted Transferees.
(i) All of the agreements contained in, and all of the rights
granted by the Company pursuant to, Article II of this Agreement shall inure to
the benefit of and be binding upon the Purchaser.
(ii) None of the agreements contained in, and none of the
rights granted by the Company pursuant to, Article II of this Agreement shall be
assignable or transferable (by operation of law or otherwise) by the Purchaser
to any person except pursuant to the terms of the Subscription Agreement.
(d) Term. The agreements of the Company contained in Article II of this
Agreement shall continue in full force and effect so long as any Holder holds
any Registrable Securities.
(e) Governing Law. The provisions of this Agreement shall be governed
by and construed in accordance with the laws (other than the choice-of-law
rules) of the Commonwealth of Massachusetts.
<PAGE>
-8-
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
DYNAGEN, INC.
By: _____________________________
Name:___________________________
Title:____________________________
PURCHASER
KENILWORTH LLC
By: _____________________________
Name:___________________________
Title:____________________________
EXHIBIT 10.3
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of November ___,
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 undersigned ("Purchaser").
WHEREAS:
A. The Company and 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 Purchaser and Purchaser
desires to purchase, upon the terms and conditions stated in this Agreement, the
number of shares of Series K Preferred Stock., $.01 par value per share (the
"Preferred Stock"), of the Company convertible into shares of common stock, par
value $01 per share, of the Company (the "Common Stock") in accordance with the
terms and conditions set forth herein. The Series K Preferred Stock Designation
setting forth the rights, preferences, including the terms upon which the shares
of Preferred Stock are convertible into shares of Common Stock, is attached
hereto as Exhibit A. The shares of Common Stock issuable upon conversion of the
Preferred Stock or otherwise pursuant to the Preferred Stock are referred to
herein as the "Conversion Shares." The Preferred Stock and the Conversion Shares
are collectively referred to herein as the "Securities."
NOW, THEREFORE, the Company and the Purchaser hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED STOCK
a. Purchase of Preferred Stock. On the Closing Date (as defined below),
subject to the satisfaction (or waiver) of the conditions set forth in Sections
6 and 7 below, the Company shall issue and sell to Purchaser and Purchaser
agrees to purchase from the Company, the number of shares of Preferred Stock
(the "Preferred Shares") set forth on the signature page. The purchase price
(the "Purchase Price Per Share") for each of the Preferred Shares is $100.00 per
share.
b. Form of Payment. On the Closing Date (as hereinafter defined),
Purchaser shall pay the aggregate Purchase Price for the Preferred Shares by
wire transfer to the Company and shall deliver by telecopier (with originals
following by first class mail) a fully executed copy of this Subscription
Agreement to the Company. Payment and delivery instructions are attached as
Exhibit B hereto. Promptly upon receipt of the Purchase Price and the executed
Agreement, the Company shall deliver a certificate (the "Certificate")
representing the Preferred Shares together with the accepted Agreement to the
Purchaser by Federal Express or other overnight courier at the address set forth
on the signature page of this Agreement.
<PAGE>
c. Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the shares of Preferred Shares pursuant to this
Agreement shall take place from time to time as may be mutually agreed upon by
the Company and Purchaser. Each closing shall occur at the offices of the
Company.
2. PURCHASER'S REPRESENTATIONS AND WARRANTIES. Purchaser represents and
warrants to the Company that:
a. Investment Purpose. Purchaser is purchasing the Preferred Stock for
Purchaser's 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. Purchaser understands that Purchaser must
bear the economic risk of this investment indefinitely, unless the Preferred
Shares or the Conversion Shares 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 any such Securities other than as contemplated by the Registration
Rights Agreement, dated as of the date hereof, between the Company and the
Purchaser (the "Registration Rights Agreement").
b. Accredited Investor Status. Purchaser is an "accredited investor" as
defined in Rule 501(a) promulgated under the Securities Act.
c. Reliance on Exemptions. Purchaser understands that the Preferred
Shares and the Conversion Shares are being offered and sold to 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 Purchaser's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of Purchaser set
forth herein in order to determine the availability of such exemptions and the
eligibility of Purchaser to acquire the Preferred Shares and Conversion Shares.
d. Information. 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
Preferred Shares which have been requested by Purchaser or its counsel or
representative. Purchaser and its counsel, if any, have been afforded the
opportunity to ask questions of the Company and have received what Purchaser
believes to be complete and satisfactory answers to any such inquiries. Neither
such inquiries nor any other due diligence investigation conducted by Purchaser
or its counsel or any of its representatives shall modify, amend or affect
Purchaser's right to rely on the Company's representations and warranties
contained in Section 3 below. Purchaser has been informed and understands that
(i) this investment involves a HIGH DEGREE OF RISK, (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, and (iii) the Company's common
stock has been delisted by the NASDAQ Stock Market and is currently traded on
the Boston Stock Exchange.
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<PAGE>
e. Governmental Review. Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. Purchaser understands that (i) except as
provided in the Registration Rights Agreement, 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 (a) subsequently registered thereunder, or (b)
Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration, including without limitation Rule 144 promulgated under the
Securities Act (or a successor rule) ("Rule 144"), or (c) transferred without
consideration to an affiliate of Purchaser; (ii) any sale of such Securities
made in reliance on Rule 144 may be made only in accordance with the terms of
said Rule and further, if said Rule 144 is not applicable, any resale of such
Securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the Securities Act) may require compliance with some other exemption under the
Securities Act or the rules and regulations of the Securities and Exchange
Commission (the "SEC") thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement).
g. Legends. Purchaser understands that the Preferred Shares and, until
such time as the Conversion Shares have been registered under the Securities Act
as contemplated by Section 5 of this Agreement or otherwise may be sold by
Purchaser pursuant to Rule 144 without any restriction as to the public resale
thereof, the certificates for the Conversion Shares, 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.
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend upon conversion of the Preferred Stock to the
holder of any Security upon which it is stamped, if (a) the resale of such
Security is registered under the Securities Act, or (b) such holder provides the
Company with an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a public sale
or transfer of such Security may be made without registration under the
Securities Act or (c) such
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<PAGE>
holder provides the Company with reasonable assurances that such Security has
been sold pursuant to Rule 144 or can be sold pursuant to Rule 144 without any
restriction as to the number of Securities acquired as of a particular date that
can then be immediately sold. Purchaser agrees to sell all Securities, including
those represented by a certificate(s) from which the legend has been removed,
pursuant to an effective registration statement and to deliver a prospectus in
connection with such sale (if and to the extent such delivery is required) or in
compliance with an exemption from the registration requirements of the
Securities Act. In the event the above legend is removed from any Security and
thereafter the effectiveness of a registration statement covering such Security
is suspended or the Company determines that a supplement or amendment thereto is
required by applicable securities laws, then upon reasonable advance notice to
Purchaser the Company may require that the above legend be placed on any such
Security that cannot then be sold pursuant to an effective registration
statement or Rule 144 without any restriction as to the number of Securities
acquired as of a particular date that can then be immediately sold, which legend
shall be removed when such Security has been sold pursuant to Rule 144 or may be
sold pursuant to an effective registration statement or Rule 144 without any
restriction as to the number of Securities acquired as of a particular date that
can then be immediately sold.
h. Authorization: Enforcement. This Agreement and the Registration
Rights Agreements (together, the "Transaction Agreements") have been duly and
validly authorized, executed and delivered on behalf of Purchaser and are valid
and binding agreements of Purchaser enforceable in accordance with their
respective terms.
i. Location of Purchaser. Purchaser has advised the Company in writing
with respect to the jurisdictions wherein the investment decision regarding
Purchaser's acquisition of the Preferred Stock has been made.
j. Conversion Limitation. Notwithstanding the provisions hereof, in no
event (except (i) in the event of a Mandatory Conversion (as defined in the
Amended and Restated Certificate of Designations, Preferences and Rights of
Series K Preferred Stock (the "Certificate of Designation") or (ii) if the
Company is in default under any provision of the Transaction Agreements, as
defined above) shall the holder be entitled to convert any of the Preferred
Shares 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 unconverted Preferred Shares), and (2) the number of
shares of Common Stock issuable upon the conversion of the Preferred Shares 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.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Purchaser that:
a. Organization and Qualification. The Company is a corporation duly
organized and existing in good standing under the laws of the jurisdiction in
which it is incorporated, and has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The Company is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction where the failure so to qualify would have a Material
Adverse Effect. "Material Adverse Effect" means any material adverse effect on
the operations, properties, condition (financial or otherwise) or prospects of
the Company and its subsidiaries, taken as a whole on a consolidated basis or on
the ability of the Company to perform its obligations in connection with the
transactions contemplated hereby on a timely basis.
b. Authorization: Enforcement. The Company has the requisite corporate
power and authority to enter into and perform this Agreement and the
Registration Rights Agreement, to issue and sell the Preferred Shares in
accordance with the terms hereof, and to issue the Conversion Shares upon
conversion of the Preferred Shares in accordance with their terms. The
execution, delivery and performance of this Agreement and the Registration
Rights Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including, without limitation, the issuance of
the Preferred Shares and the issuance and reservation for issuance of the
Conversion Shares) have been duly authorized by the Company's Board of Directors
and no further consent or authorization of the Company, its Board or Directors,
or its stockholders is required; this Agreement has been duly executed and
delivered by the Company; and this Agreement constitutes the valid and binding
obligations of the Company enforceable against the Company in accordance with
its respective terms.
c. Issuance of Securities. The Preferred Stock is duly authorized and,
upon issuance in accordance with the terms of this Agreement, the Preferred
Shares will be validly issued, fully paid and non-assessable. The Conversion
Shares have been duly authorized by the Company's Board of Directors, and have
been reserved for issuance upon conversion of the Preferred Shares in accordance
with the terms thereof, and upon issuance in accordance with the terms of this
Agreement will be validly issued, fully paid and non-assessable.
d. 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 shares of preferred stock, 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 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
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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.
e. No Conflicts. To the Company's knowledge, the execution, delivery
and performance of this Agreement and the Registration Rights Agreement by the
Company, the performance by the Company of its obligations hereunder and
thereunder, and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance and reservation
for issuance, as applicable, of the Preferred Shares and the Conversion Shares)
will not (i) result in a material violation of the Certificate of Incorporation
or Bylaws or (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including U.S. federal and state securities laws and
regulations) applicable to the Company or any of its subsidiaries or by which
any property or asset of the Company or any of its 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 or reasonably be expected to result in a Material Adverse Effect
or for which consents have been obtained). Except as described in the SEC
Documents (as hereinafter defined), to the Company's knowledge, neither the
Company nor any of its subsidiaries is in violation of its Certificate of
Incorporation or other organizational documents and except as described in the
SEC Documents, to the Company's knowledge, neither the Company nor any of its
subsidiaries is in default under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, except for defaults as would
not, individually or in the aggregate, have or reasonably be expected to result
in a Material Adverse Effect or for which consents have been obtained.
f. SEC Documents, Financial Statements. Since December 31, 1996, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (all of the foregoing, filed prior to the date hereof and after December
31, 1996, and all exhibits included therein and financial statements and
schedules thereto and documents (other than exhibits) incorporated by reference
therein together with any registration statements or other documents filed by
the Company pursuant to the Securities Act prior to the date hereof and all news
releases by the Company being hereinafter referred to herein as the "SEC
Documents"). The Company has made available to Purchaser true and complete
copies of the SEC Documents, except for such exhibits, schedules and
incorporated documents. As of their respective dates, the SEC Documents complied
in all
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material respects with the requirements of the Exchange Act or the Securities
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and none of the SEC Documents, at
the time they were filed with the SEC, contained any untrue statement of a
material fact or omitted 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. As of their respective
dates, the financial statements of the Company included in the SEC Documents
complied in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with U.S generally
accepted accounting principles, consistently applied, 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) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in the financial
statements of the Company included in the SEC Documents, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to the date of the most recent financial
statements included in the SEC Documents and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not required
under generally accepted accounting principles to be reflected in such financial
statements, which, individually or in the aggregate, are not material to the
financial condition or operating results of the Company.
g. Absence of Litigation. Except as disclosed in the SEC Documents or
otherwise disclosed to Purchaser, there is no action, suit, proceeding, inquiry
or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its subsidiaries, threatened against or affecting the Company, any of
its subsidiaries, or any of their respective directors or officers in their
capacities as such, wherein an unfavorable decision, ruling or finding would or
could reasonably be expected to result in a Material Adverse Effect.
h. Disclosure. All information relating to or concerning the Company
set forth in this Agreement or provided to Purchaser pursuant to Section 2(d)
hereof and otherwise in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with respect to the
Company or its subsidiaries or their respective businesses, properties,
prospects, operations or financial conditions, which, under applicable law, rule
or regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed (assuming for this purpose
that the Company's Exchange Act Reports are being incorporated into an effective
registration statement filed by the Company under the Securities Act).
i. Current Public Information. The Company is currently eligible to
register the resale of its Common Stock by a stockholder on a registration
statement on Form SB-2 or S-3 under the Securities Act.
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j. No General Solicitation. Neither the Company nor any person acting
for the Company has conducted any "general solicitation," as such term is
defined in Regulation D, with respect to any of the Securities being offered
hereby.
k. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act.
l. 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.
m. 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.
n. Dilution. The number of shares of Common Stock issuable upon
conversion of the Preferred Shares may increase substantially in certain
circumstances. 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 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.
o. 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". The Company meets all criteria of the Boston Stock Exchange. 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
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stock exchange, market or trading facility or that the shares of Common Stock
will be delisted from such stock exchange, market or trading facility.
p. 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. COVENANTS
a. Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Sections 6 and 7 of this Agreement.
b. Blue Sky Laws. The Company shall take such action as the Company or
Purchaser shall reasonably determine is necessary to qualify the Securities for
sale to Purchaser pursuant to this Agreement under applicable securities or
"blue sky" laws of the states of the United States or obtain exemption
therefrom, and shall provide evidence of any such action so taken to Purchaser.
c. Reporting Status. So long as Purchaser beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed with
the SEC pursuant to the Exchange Act.
d. Use of Proceeds. The Company shall use the proceeds from the sale of
the Preferred Stock for internal working capital purposes and general corporate
purposes.
e. Financial Information. Upon the written request of Purchaser while
holding any Preferred Shares, the Company shall send the following reports to
Purchaser: a copy of its Annual Report on Form 10-K, its Quarterly Reports on
Form l0-Q, any proxy statements, any Current Reports on Form 8-K and any press
releases issued by the Company or any of its subsidiaries.
f. Reservation of Shares. The Company shall reserve and shall at all
times thereafter have authorized and reserved for the purpose of issuance a
sufficient number of shares of Common Stock to provide for the full conversion
of the shares of Preferred Shares issued in accordance herewith and issuance of
the Conversion Shares in connection therewith and as otherwise required by the
terms of the Preferred Stock.
g. Corporate Existence. So long as Purchaser beneficially owns the
Preferred Shares, the Company shall maintain its corporate existence, except in
the event of a merger, consolidation or sale of all or substantially all of the
Company's assets, as long as the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith regardless of
whether
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or not the Company would have had a sufficient number of shares of Common Stock
authorized and available for issuance in order to effect the conversion of the
Preferred Shares as of the date of such transaction, and (ii) is a publicly
traded corporation whose common stock is listed for trading on the Nasdaq Stock
Market, the New York Stock Exchange or The American Stock Exchange.
h. 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
Registrable Securities (as such term is defined in the Registration Rights
Agreement of even date herewith) any additional shares listing application
covering the Registrable Securities covered by on the Nasdaq OTC Bulletin Board,
(b) take all other steps, if any, which may be necessary to cause such
Registrable 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 Registrable 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
Registrable Securities on such exchange or market.
i. Certain Agreements. Except in accordance with the provisions of the
Registration Rights Agreement or in connection with the subsequent sale of
Preferred Shares (which shall not exceed in the aggregate 20,000 shares), 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
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.
j. 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
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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.
k. 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 or the Preferred Shares, and the agreements
entered into in connection therewith (sometimes collectively referred to as the
"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.
5. REGISTRATION; TRANSFER AGENT INSTRUCTIONS
a. Registration Rights. The Company and the Purchaser shall enter into
a Registration Rights Agreement as of the date hereof.
b. Transfer Agent Instructions. The Company shall instruct its transfer
agent to issue certificates, registered in the name of Purchaser or its nominee,
for the Conversion Shares in such amounts as specified from time to time by
Purchaser to the Company upon conversion of the Preferred Shares. Prior to
registration of the Conversion Shares under the Securities Act or resale of such
Securities under Rule 144, all such certificates shall bear the restrictive
legend specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than
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such instructions referred to in this Section 5, and stop transfer instructions
to give effect to Section 2(f) hereof in the case of the Conversion Shares prior
to registration of the Conversion Shares under the Securities Act, will be given
by the Company to its transfer agent and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Preferred Stock terms. Nothing in this
Section shall affect in any way Purchaser's obligations and agreement set forth
in Section 2(f) hereof not to resell the Securities except pursuant to an
effective registration statement (and to deliver a prospectus in connection with
such a sale) or in compliance with an exemption from the registration
requirements of applicable securities law. If Purchaser provides the Company
with an opinion of counsel, which opinion of counsel shall be in form, substance
and scope customary for opinions of counsel in comparable transactions, to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from registration, the Company shall permit the
transfer, and, in the case of the Conversion Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by a Purchaser.
c. Rule 144. The Company will use its best efforts to make all filings
and take all other actions so that Rule 144 promulgated under the Securities Act
of 1933, as amended, will be available for the resale of the Conversion Shares.
5A. 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 Preferred Shares for sale and in relying upon applicable exemptions
available under the Act and applicable state securities laws.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
The obligation of the Company hereunder to issue and sell the Preferred
Shares to Purchaser at the closing is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions thereto, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion.
a. Purchaser shall have executed the execution page to this Agreement
and delivered the same to the Company.
b. Purchaser shall have delivered the Purchase Price for the Preferred
Shares.
c. The representations and warranties of Purchaser shall be true and
correct in all material respects.
d. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
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7. CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE
The obligation of Purchaser hereunder to purchase the Preferred Shares
on the Closing Date is subject to the satisfaction of each of the following
conditions, provided that these conditions are for Purchaser's sole benefit and
may be waived by Purchaser at any time in Purchaser's sole discretion:
a. The Company shall have executed the signature page to this Agreement
and delivered the same to Purchaser.
b. The Company shall have delivered to Purchaser one or more duly
executed Certificates representing the Preferred Shares purchased hereby in the
principal amount being purchased by Purchaser in accordance with Section 1(b)
above.
c. The representations and warranties of the Company shall be true and
correct as of the Closing Date in all material respects and the Company shall
have performed, satisfied and complied in all material respects the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date.
d. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
8. 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. The parties consent
to the jurisdiction of the United States District Courts for the Southern
District of New York in any suit or proceeding based on or arising under this
Agreement and agree that all claims in respect of such suit or proceeding may be
determined in such court. The parties irrevocably waive the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The parties
further agree that service of process mailed by first class mail shall be deemed
in every respect effective service of process in any suit or proceeding arising
hereunder. Nothing herein shall affect Purchaser's right to serve process in any
other manner permitted by law. The parties agree that a final non-appealable
judgment in any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful manner.
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 party.
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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 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
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 to 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:
Chu, Ring & Hazel LLP
253 Summer Street
Boston, Massachusetts 02210
Telecopy: (617) 443-9840
Attention: John H. Chu, 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.
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 Purchaser shall
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<PAGE>
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the other. This provision shall not limit Purchaser's right
to transfer the Securities pursuant to the terms of the Preferred Stock and this
Agreement or to assign Purchaser's rights hereunder to any such transferee, nor
shall this provision limit the right of Purchaser to transfer or assign its
rights under such agreements and instruments to an affiliate (provided that
Purchaser makes no more than two (2) such transfers), provided that the
representations and warranties set forth in Section 2 are true and correct with
respect to such affiliate or managed account.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. The representations and warranties of the parties and the
agreements and covenants set forth in Sections 2, 3, 4 and 5 shall survive the
closing hereunder and any conversion of the Preferred Stock, notwithstanding any
due diligence investigation conducted by or on behalf of Purchaser.
j. Publicity. Purchaser shall not make any press release or other
public statement concerning the transactions contemplated hereby without the
prior written consent of the Company.
k. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements. certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
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:____________________________
SUBCRIPTION AMOUNT:
Number of Shares: _________________
Total Purchase Price: _______________
ACCEPTED:
DYNAGEN, INC.
By: _____________________________
Name:___________________________
Title:____________________________
16
EXHIBIT 10.4
REGISTRATION RIGHTS AGREEMENT
AGREEMENT dated as of November ___, 1999 by and between DynaGen, Inc.,
a Delaware corporation (the "Company"), and the Purchaser listed on the
execution pages of this Agreement.
ARTICLE I
GRANT OF REGISTRATION RIGHTS
ss.1.01. Investment Documents. Pursuant to the Subscription Agreement
dated as of November __, 1999 (herein, as amended from time to time, called the
Subscription Agreement), DynaGen, Inc., a Delaware corporation (the Company),
grants to the Purchaser (as defined therein) who is a party thereto, the
registration rights contained in Article II of this Agreement.
ss.1.02. Definitions. For all purposes of this Agreement, all of the
words and expressions used herein which are not defined herein, but which are
defined in the Subscription Agreement, shall have the same respective meanings
herein as the meanings specified therein.
ARTICLE II
REGISTRATION RIGHTS
ss.2. Registration Rights.
ss.2.01. Definitions. As used in this Agreement:
(a) the term Commission shall mean the Securities and Exchange
Commission;
(b) the term Common Stock shall mean the Common Stock, par value $0.01
per share, of the Company or any other security into which the Preferred Stock
may, by its terms, be converted;
(c) the term Exchange Act shall mean the Securities Exchange Act of
1934, as amended, or any federal statute or code which is a successor thereto;
(d) the terms Form SB-2 and Form S-3 shall mean the forms so
designated, promulgated by the Commission for registration of securities under
the Securities Act, and
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any forms succeeding to the functions of such forms, whether or not bearing the
same designation;
(e) the term Holder shall mean the original Purchaser, and any person
to whom the Preferred Stock is transferred pursuant to the terms of the
Subscription Agreement;
(f) the terms register, registered and registration shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering by the
Commission of effectiveness of such registration statement;
(g) the term Registrable Securities shall mean, in relation to the
Holder at any particular time: (i) 150% of all shares of Common Stock issuable
upon conversion of the Preferred Stock held of record by the Holder at such
time; (ii) all shares of Common Stock held of record at such time by Holder as a
result of such conversion or exercise; and (iii) no other shares of capital
stock of the Company without the consent of the Holder.
(h) the term Rule 144 shall mean Rule 144 issued by the Commission
under the Securities Act, or any subsequent rule pertaining to the disposition
of securities without registration;
(i) the term Securities Act shall mean the Securities Act of 1933, as
amended, or any federal statute or code which is a successor thereto;
(j) the term Preferred Stock shall mean the shares of Series K
Convertible Preferred Stock, par value $0.01 per share, of the Company issued to
the original Purchaser pursuant to the Subscription Agreement and any other
Preferred Stock issued to other purchasers;
(k) the Holder shall, for all purposes of this Agreement, unless the
context shall otherwise require, be deemed to hold, at any particular time, all
shares of Common Stock issuable upon conversion of the Preferred Stock held of
record by the Holder at such time.
ss.2.02. Registration on Form SB-2 or S-3. The Company will use its
best efforts in good faith to register the Registrable Securities on Form SB-2
or S-3 by January 31, 2000 (regardless of the number of times transfer of such
shares is made on the stock transfer books maintained by or for the Company, and
regardless of the number of certificates which may be issued to evidence such
shares, and irrespective of any subsequent transfer or of the disposition of
such shares to any other holder) (the "Registration Period"). To the extent not
unlawful, the Company will pay all Registration Expenses of each registration of
Registrable Securities pursuant to this ss.2.02. If the Company has not
registered the Registrable Securities by the end of the Registration Period or
if the Registration Statement is not effective at the end of the Permitted
Suspension Period (as hereinafter defined), the Company shall pay to the Holder
one and one-half percent (1.5%) of the aggregate purchase price paid
<PAGE>
-3-
by such Holder for the Preferred Stock for each month or part thereof that the
Registrable Securities are not registered, until the registration of the
Registrable Securities, provided, however, the Company shall not be required to
make such payment if the Company's failure to register the Registrable
Securities is due, in whole or in part, to the Holder's failure to comply with
ss.2.04 hereof.
ss.2.03. Registration Procedures. When the Company undertakes to effect
a registration pursuant to ss.2.02 hereof of the Registrable Securities, the
Company will use its best efforts in good faith to effect promptly the
registration of such Registrable Securities under the Securities Act and to
permit the public offering and sale of such Registrable Securities in accordance
with the intended method of disposition thereof, and, in connection therewith,
the Company, as expeditiously as shall be reasonably possible, will:
(a) prepare and file with the Commission a registration statement with
respect to such Registrable Securities, and use its best efforts in good faith
to cause such registration statement to become and remain effective as provided
herein;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus included in such
registration statement as may be necessary or advisable to comply in all
material respects with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement or as may
be necessary to keep such registration statement effective and current, but for
no longer than one (1) year subsequent to the effective date of such
registration;
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto (in
each case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus), and such other
documents as any such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities held by such seller;
(d) enter into such customary agreements and take all such other
customary action in connection therewith in order to expedite or facilitate the
disposition of such Registrable Securities; and
(e) use its best efforts in good faith to register and qualify the
Registrable Securities covered by such registration statement under such
securities or Blue Sky laws of such jurisdictions as any seller shall reasonably
request and do any and all such other acts and things as may be reasonably
necessary or advisable to enable such seller to consummate the disposition in
such jurisdictions of the Registrable Securities held by such seller; provided,
however that the Company shall not be required in connection therewith to
qualify to do business or file a general consent to service of process in any
such jurisdiction.
(f) 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 Holder in writing
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of the existence of a Potential Material Event, the Holder 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 Holder 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 Holder
of Registrable Securities for more than two ten (10) day periods in the
aggregate during any 12-month 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 ("Permitted Suspension Period");
"Potential Material Event" shall mean 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 determination 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 faith 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.
ss.2.04. Cooperation by Prospective Sellers, etc.
(a) The Holder will furnish to the Company in writing such information
as the Company may reasonably require from the Holder or as required by the
Commission, and otherwise reasonably cooperate with the Company in connection
with any registration statement with respect to such Registrable Securities.
(b) The Holder of Registrable Securities included in any registration
statement will not (until further notice) effect sales thereof after receipt of
telegraphic or written notice from the Company to suspend sales to permit the
Company to correct or update such registration statement or prospectus.
ss.2.05. Registration Expenses.
(a) The following costs and expenses incurred or sustained in
connection with or arising out of each registration pursuant to ss.2.02 shall
constitute Registration Expenses: all registration and filing fees, fees and
expenses of compliance with securities or Blue Sky laws, printing expenses,
messenger, telephone and delivery expenses, fees and disbursements of counsel
for the Company, fees and disbursements of all independent certified public
accountants (including the expenses relating to the preparation and delivery of
any special audit or "cold comfort" letters required by or incident to such
registration), and fees and disbursements of underwriters (excluding discounts
and commissions), the reasonable fees
<PAGE>
-5-
and expenses of any special experts retained by the Company of its own
initiative or at the request of the managing underwriters in connection with
such registration, and fees and expenses of all (if any) other persons retained
by the Company. The term "Registration Expenses" shall not include, however, any
legal fees or disbursements of counsel for the Holder of Registrable Securities.
(b) To the extent that Registration Expenses incident to any
registration are, under the terms of this Article II, not required to be paid by
the Company, each Holder of Registrable Securities included in such registration
will pay all Registration Expenses which are clearly solely attributable to the
registration of such Holder's Registrable Securities so included in such
registration, and all other Registration Expenses not so attributable to one
Holder will be borne and paid by all sellers of securities included in such
registration in proportion to the number of securities so included by each such
seller.
ss.2.06. Indemnification.
(a) Indemnification by the Company. The Company will indemnify the
Holder, the officers, directors and partners of each such Holder and each person
who controls any thereof (within the meaning of the Securities Act), against any
and all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
any material fact contained in any prospectus, offering circular or other
document incident to any registration, qualification or compliance (or in any
related registration statement, notification or the like) or any omission (or
alleged omission) to state therein any material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of any rule or regulation promulgated under the
Securities Act applicable to the Company and relating to any action or inaction
required of the Company in connection with any such registration, qualification
or compliance, and the Company will reimburse each such Holder, officer,
director, partner and controlling person for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action; provided, however, that the Company
will not be liable in any such case to the extent that any such claim, loss,
damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company in an
instrument duly executed by such Holder, officer, director, partner or
controlling person and stated to be exclusively and specifically for use
therein.
(b) Indemnification by the Holder. The Holder will indemnify the
Company and its officers and directors and each person, if any, who controls any
thereof (within the meaning of the Securities Act) and, if required by the
underwriter effecting the related registration, such underwriter, and their
respective successors in title and assigns against any and all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of any material fact
contained in any prospectus, offering circular or other document incident to any
registration, qualification or compliance (or in any related registration
statement, notification or the like) or any
<PAGE>
-6-
omission (or alleged omission) to state therein any material fact required to be
stated therein or necessary to make the statement therein not misleading, and
the Holder will reimburse the Company and each other person indemnified pursuant
to this paragraph (b) for any legal and any other expenses reasonably incurred
in connection with investigating or defending any such claim, loss, damage,
liability or action; provided, however, that this paragraph (b) shall apply only
if (and only to the extent that) such statement or omission was made in reliance
upon information furnished to the Company in any instrument duly executed by the
Holder and stated to be exclusively and specifically for use in such prospectus,
offering circular or other document (or related registration statement,
notification or the like) or any amendment or supplement thereto.
(c) Indemnification Proceedings. Each party entitled to indemnification
pursuant to this ss.2.06 (the indemnified party) shall give notice to the party
required to provide indemnification pursuant to this ss.2.06 (the indemnifying
party) promptly after such indemnified party acquires actual knowledge of any
claim as to which indemnity may be sought, and shall permit the indemnifying
party (at its expense) to assume the defense of any claim or any litigation
resulting therefrom; provided that counsel for the indemnifying party, who shall
conduct the defense of such claim or litigation, shall be acceptable to the
indemnified party, and the indemnified party may participate in such defense at
such party's expense; and provided, further, that the failure by any indemnified
party to give notice as provided in this paragraph (c) shall not relieve the
indemnifying party of its obligations under this ss.2.06 except to the extent
that the failure results in a failure of actual notice to the indemnifying party
and such indemnifying party is damaged solely as a result of the failure to give
notice. No indemnifying party, in the defense of any such claim or litigation,
shall, except with the consent of each indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. The reimbursement required by this ss.2.06 shall be made by periodic
payments during the course of the investigation or defense, as and when bills
are received or expenses incurred.
ss.2.07. Rule 144 Requirements. The Company make publicly available and
available to the Holder of Registrable Securities, pursuant to Rule 144 of the
Commission under the Securities Act, such information as shall be necessary to
enable the Holders of Registrable Securities to make sales of Registrable
Securities pursuant to that Rule. The Company will furnish to any Holder of
Registrable Securities, upon request made by such Holder at any time, a written
statement signed by the Company, addressed to such Holder, describing briefly
the action the Company has taken or proposes to take to comply with the current
public information requirements of Rule 144. The Company will, at the request of
any Holder of Registrable Securities, upon receipt from such Holder of a
certificate certifying (i) that such Holder has held such Registrable Securities
for a period of not less than one (1) year, (ii) that such Holder has not been
an affiliate (as defined in Rule 144) of the Company for more than the ninety
(90) preceding days, and (iii) as to such other matters as may be appropriate in
accordance with such Rule, remove from the stock certificates representing
<PAGE>
-7-
such Registrable Securities that portion of any restrictive legend which relates
to the registration provisions of the Securities Act, provided, however, in the
event that Foley, Hoag & Eliot LLP is no longer counsel to Company, counsel to
Holder may provide such instructions to the transfer agent regarding the removal
of the restrictive legend.
ss.2.08. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not, at any time after
the date of the Subscription Agreement, enter into any agreement or contract
(whether written or oral) with respect to any of its securities which prevents
the Company from complying in any respect with the registration rights granted
by the Company to the Holder of Registrable Securities pursuant to Article II of
this Agreement.
(b) Amendments and Waivers. The provisions of Article II of this
Agreement, including the provisions of this paragraph (b), may not be amended,
modified or supplemented, and any waiver or consent to or any departure from any
of the provisions of Article II of this Agreement may not be given and shall not
become or be effective, unless and until (in each case) the Company shall have
received the prior written consent of the Holder of the Registrable Securities
for any such amendment, modification, supplement, waiver or consent.
(c) Permitted Transferees.
(i) All of the agreements contained in, and all of the rights
granted by the Company pursuant to, Article II of this Agreement shall inure to
the benefit of and be binding upon the Purchaser.
(ii) None of the agreements contained in, and none of the
rights granted by the Company pursuant to, Article II of this Agreement shall be
assignable or transferable (by operation of law or otherwise) by the Purchaser
to any person except pursuant to the terms of the Subscription Agreement.
(e) Term. The agreements of the Company contained in Article II of this
Agreement shall continue in full force and effect so long as any Holder holds
any Registrable Securities.
(f) Governing Law. The provisions of this Agreement shall be governed
by and construed in accordance with the laws (other than the choice-of-law
rules) of the State of Delaware.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-8-
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
DYNAGEN, INC.
By: _____________________________
Name:___________________________
Title:____________________________
PURCHASER
By: _____________________________
Name:___________________________
Title:____________________________
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<PERIOD-START> JAN-01-1999
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