EXHIBIT 99.2
EXCHANGE AGREEMENT
This Exchange Agreement (this "Agreement") is made and entered into as
of March 23, 2004, by and among Cygnus, Inc., a Delaware corporation (the
"Company"), and the undersigned Holders (each a "Holder" and collectively, the
"Holders").
RECITALS
WHEREAS, pursuant to a Convertible Debenture and Warrant Purchase
Agreement dated June 29, 1999, by and among the Company and the purchasers named
therein (as amended, the "Purchase Agreement"), the Company issued its 8.5%
Convertible Debentures Due June 29, 2004 (as amended, the "June Debentures"),
and its 8.5% Convertible Debentures Due September 29, 2004 (as amended, the
"September Debentures" and collectively as amended, the "Convertible
Debentures"), to such purchasers named therein (the "Original Holders").
WHEREAS, pursuant to the terms and conditions of this Agreement, the
parties now wish to exchange all outstanding Convertible Debentures for an
aggregate amount of $13,750,000 in cash and 2,500,000 shares of common stock of
the Company.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises hereunder and
for other good and valuable consideration, the adequacy of which is hereby
acknowledged by all parties, the parties hereto hereby agree as follows:
1. Exchange. Subject to the terms and conditions of this
Agreement, each Holder shall deliver all of the Convertible Debentures it
currently holds in exchange for delivery by the Company of cash and shares of
common stock of the Company (the "Shares"), in each such case in the amounts set
forth opposite such Holder's name on Exhibit A hereto.
2. Closing. The exchange of the Convertible Debentures shall take
place at the offices of Xxxxxx, Xxxxxxxxxx & Xxxxxxxxx LLP, 0000 Xxxxx Xxxx,
Xxxxx Xxxx, XX 00000 at 10:00 a.m. on March 23, 2004, or at such other time and
place as the Company and the Holders mutually agree upon, orally or in writing
(the "Closing"). Any party hereto may terminate this Agreement if the Closing
does not occur prior to March 31, 2004 through no fault of such party.
3. Representations and Warranties of the Company. The Company
hereby represents and warrants to each Holder that:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization.
(b) All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, the performance of all obligations of the
Company hereunder and the authorization, issuance and delivery of the Shares has
been taken or will be taken prior to the Closing, and this Agreement, when
executed and delivered by the Company, shall constitute the valid and legally
binding obligation of the Company, enforceable against the Company in accordance
with its terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent
conveyance, or other laws of general application relating to or affecting the
enforcement of creditors' rights generally, or (ii) as limited by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies. The Shares, when issued to the Holders in accordance with
this Agreement, shall be duly and validly issued, fully-paid and nonassessable,
free and clear of any liens imposed by or through the Company. This Agreement
and the transactions contemplated hereby will not conflict with any term or
provision of any of the Company's organizational documents, or of any agreement,
order or decree to which it is party or may be subject. The issuance of the
Shares hereunder will not be subject to or trigger any preemptive, "poison
pill", anti-dilution, "reset" or similar rights on the part of its security
holders or third parties.
(c) Assuming the accuracy of the representations made by
each Holder in paragraph 4(c) below, and delivery of an opinion of counsel by
such Holder to the Company to the effect that such Holder is not an "affiliate"
of the Company, the certificates representing the Shares delivered to such
Holder will not contain any restrictive or other legend.
4. Representations and Warranties of the Holders. Each Holder
hereby represents and warrants, severally and not jointly, on behalf of itself
only that:
(a) The Holder is a corporation or limited partnership,
as the case may be, duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization.
(b) All corporate or partnership action, as the case may
be, on the part of the Holder, its officers, directors, stockholders and
partners necessary for the authorization, execution and delivery of this
Agreement, the performance of all obligations of the Holder hereunder and the
delivery of the Convertible Debentures has been taken or will be taken prior to
the Closing, and this Agreement, when executed and delivered by the Holder,
shall constitute the valid and legally binding obligation of the Holder,
enforceable against the Holder in accordance with its terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, or other laws of general application relating to or
affecting the enforcement of creditors' rights generally, or (ii) as limited by
laws relating to the availability of specific performance, injunctive relief, or
other equitable remedies.
(c) The Holder is the beneficial owner of the Convertible
Debentures set forth opposite its name on Exhibit A hereto, and has not
transferred any interest in the Convertible Debentures to any third party that
is not a party to this Agreement.
(d) The Holder has either held the Convertible Debentures
owned by it for at least two years, or has acquired such Convertible Debentures
from another holder that held for at least two years prior to such transfer, and
the Holder otherwise meets the requirements to resell the Shares it will receive
in exchange for the Convertible Debentures hereunder pursuant to Rule 144(k)
under the Securities Act of 1933, as amended.
5. Cancellation of Convertible Debentures. At and as of the
Closing, the Convertible Debentures shall be cancelled and have no further force
or effect.
6. Cancellation of Warrants. At and as of the Closing, any and
all warrants to purchase capital stock of the Company held by any Holder (the
"Warrants") shall terminate and be cancelled and shall have no further force or
effect.
7. Termination of Certain Agreements. At and as of the Closing,
the Purchase Agreement and the Registration Rights Agreement dated June 29,
1999, by and among the Company and the Original Holders, as amended (the
"Registration Rights Agreement"), shall each terminate and be cancelled and
shall have no further force or effect.
8. Termination of Security Interest. At and as of the Closing,
any and all security interests granted or to be granted to secure the
indebtedness evidenced by the Convertible Debentures shall terminate and be
cancelled and shall have no further force or effect. The Company shall bear the
entire cost of filing all termination statements and taking such other action as
may be necessary to evidence such termination.
9. Securities Laws. The parties understand and acknowledge that
the exchange transaction contemplated herein is intended to qualify under
Section 3(a)(9) of the Securities Act of 1933, as amended, such that the Shares
will be covered securities with respect to such transaction under the National
Securities Markets Improvements Act of 1996. As a result, the Holders
acknowledge that the Company, following the Closing, will either withdraw the
resale registration statement on Form S-3 covering resale of the securities that
would have been received upon conversion of the Convertible Debentures, or will
file a post-effective amendment to such registration statement to deregister
such securities.
10. Closing Deliverables. At the Closing:
(a) the Company shall pay to each Holder, by wire
transfer of immediately available funds to the account designated by such
Holder, the amount of cash set forth opposite such Holder's name on Exhibit A;
(b) the Company shall deliver to each Holder the number
of Shares set forth opposite such Holder's name by crediting the Shares to the
DTC account designated by such Holder through DTC's Deposit Withdrawal Agent
Commission system. Certificates evidencing the Shares shall be free of all
restrictive or other legends. The Shares shall be freely tradable upon the
issuance thereof, and the Company shall, on or before the Closing Date, notify
its transfer agent that the Shares constitute freely tradable securities, and
provide each Holder with written evidence of such notification;
(c) each Holder shall deliver to the Company for
cancellation the manually signed original of any and all Convertible Debentures
held by such Holder, as well as any Warrants not previously surrendered to the
Company for cancellation; and
(d) each Holder shall deliver to the Company an opinion
of counsel reasonably acceptable to the Company that, as of the Closing, such
Holder is not an "affiliate" of the Company as such term is defined in Rule 501
of Regulation D under the Securities Act of 1933, as amended.
11. Mutual General Release.
(a) Effective as of the Closing, each Holder, on behalf
of itself, its past and present agents, employees, officers, directors,
stockholders, partners, successors, assigns, attorneys, and all subsidiary,
parent, affiliated and predecessor companies, and all of its insurers and
sureties (with respect to each Holder, a "Holder Group"), jointly and severally,
fully and forever release the Company, and its past and present agents,
employees, officers, directors, stockholders, successors, assigns, attorneys,
and all subsidiary, parent, affiliated and predecessor
companies, and all of their insurers and sureties (the "Company Group"), of and
from any claim, duty, obligation, or cause of action relating to any matters of
any kind, whether presently known or unknown, suspected or unsuspected, that any
of them may possess relating to the issuance and sale of the Convertible
Debentures or such Holder's ownership thereof, or arising under, out of or in
connection with the Purchase Agreement or the Registration Rights Agreement.
Effective as of the Closing, the Company Group, jointly and severally, fully and
forever release each Holder Group, of and from any claim, duty, obligation, or
cause of action relating to any matters of any kind, whether presently known or
unknown, suspected or unsuspected, that any of them may possess relating to the
issuance and sale of the Convertible Debentures or such Holder's ownership
thereof, or arising under, out of or in connection with the Purchase Agreement
or the Registration Rights Agreement.
(b) This release does not extend to any obligations
incurred under this Agreement.
(c) Waiver of Civil Code Section 1542. The release in
paragraph (a) of this section expressly covers all claims or possible claims by
the releasing parties, whether the same are known, unknown, or hereafter
discovered or ascertained. The releasing parties acknowledge that they have been
advised by legal counsel and are familiar with the provisions of California
Civil Code Section 1542, which provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE
TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
The releasing parties, being aware of said Code Section, hereby expressly,
knowingly and intentionally waive any rights they may have thereunder, as well
as under any other statute or common law principles of similar effect.
12. Interest Allocation. The Holders hereby waive any rights they
may have to receive accrued interest under the Convertible Debentures, and no
portion of the cash or Shares exchanged for the Convertible Debentures pursuant
to this Agreement shall be deemed to constitute the payment of accrued interest
with respect to the Convertible Debentures.
13. Further Assurances. At and after the Closing, subject to the
second sentence of paragraph 8 above, the parties will cooperate and take such
further steps and sign such further documents as may be reasonably requested to
evidence and reflect the transactions contemplated hereby.
14. Entire Agreement; Amendment. This Agreement contains the
entire understanding of the parties with respect to the matters covered hereby.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the party against whom enforcement of any such amendment or
waiver is sought.
15. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
applicable to agreements executed and to be performed entirely within such
State.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
17. Authorization. The parties hereby represent and warrant to
each other that the signatories hereto have full power and authority to sign
this Agreement for and on behalf of the entities for which they purport to be
signing and that their signatures hereto shall be binding and enforceable upon
the purported parties hereto.
IN WITNESS WHEREOF, the parties have executed this Exchange Agreement
as of the date first written above.
THE COMPANY:
CYGNUS, INC.
By: /s/ Xxxx X Xxxxxxx
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Xxxx X Xxxxxxx
President and Chief Executive Officer
THE HOLDERS:
XXXX CONVERTIBLE ARBITRAGE FUND, LTD.
By: /s/ Xxxxxxx Xxxxxxx
----------------------------------------
Print Name: Xxxxxxx Xxxxxxx
Title: Counsel
HALIFAX FUND, L.P.
By: /s/ Xxxxxxx Xxxxxxx
----------------------------------------
Print Name: Xxxxxxx Xxxxxxx
Title: Counsel
GUGGENHEIM CAPITAL MARKETS LLC
By: /s/ Xxxxxx Xxxxxx
----------------------------------------
Print Name: Xxxxxx Xxxxxx
Title: CFO
PALLADIN PARTNERS I, L.P.
By: /s/ Xxxxxxx Xxxxxxx
----------------------------------------
Print Name: Xxxxxxx Xxxxxxx
Title: Counsel
PALLADIN OVERSEAS FUND LIMITED
By: /s/ Xxxxxxx Xxxxxxx
----------------------------------------
Print Name: Xxxxxxx Xxxxxxx
Title: Counsel
EXHIBIT A
CLOSING CLOSING
HOLDER CONVERTIBLE DEBENTURES CASH SHARES
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XXXX CONVERTIBLE ARBITRAGE FUND, LTD. $ 1,250,000 of June Debentures $ 1,229,754.38 223,592
$ 270,000 of September Debentures
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HALIFAX FUND, L.P. $ 9,750,000 of June Debentures $ 9,576,584.78 1,741,197
$ 2,090,000 of September Debentures
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GUGGENHEIM CAPITAL MARKETS LLC $ 1,250,000 of June Debentures $ 1,229,754.38 223,592
$ 270,000 of September Debentures
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PALLADIN PARTNERS I, L.P. $ 1,000,000 of June Debentures $ 977,991.25 177,816
$ 210,000 of September Debentures
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PALLADIN OVERSEAS FUND LIMITED $ 750,000 of June Debentures $ 735,915.21 133,803
$ 160,000 of September Debentures
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