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EXHIBIT 4.3
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES B CONVERTIBLE PREFERRED STOCK
OF
CELL GENESYS, INC.
Cell Genesys, Inc. (the "COMPANY"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, does hereby certify
that, pursuant to authority conferred upon the Board of Directors of the Company
by the Certificate of Incorporation, as amended, of the Company, and pursuant to
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors of the Company at a meeting duly held, adopted resolutions (i)
authorizing a series of the Company's previously authorized preferred stock, par
value $0.001 per share, and (ii) providing for the designations, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, of Four Thousand (4,000) shares of Series B
Convertible Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 4,000 shares of
Series B Convertible Preferred Stock (the "PREFERRED SHARES"), par value
$0.001 per share, which shall have the following powers, designations,
preferences and other special rights:
(1) Dividends. The Preferred Shares shall not bear any dividends.
(2) Holder's Conversion of Preferred Shares. A holder of
Preferred Shares shall have the right, at such holder's option, to
convert the Preferred Shares into shares of the Company's common stock,
$0.001 par value per share (the "COMMON STOCK"), on the following terms
and conditions:
(a) Conversion Right. Subject to the provisions of Section
2(j) below, at any time or times on or after the Issuance Date (as
defined below), any holder of Preferred Shares shall be entitled to
convert any whole number of Preferred Shares into fully paid and
nonassessable shares (rounded to the nearest whole share in accordance
with Section 2(h) below) of Common Stock, at the Conversion Rate (as
defined below); provided, however, that in no event shall any holder be
entitled to convert Preferred Shares in excess of that number of
Preferred Shares which, upon giving effect to such conversion, would
cause the aggregate number of shares of Common Stock beneficially owned
by the holder and its affiliates to exceed 4.9% of the outstanding
shares of the Common Stock following such conversion. For purposes of
the foregoing proviso, the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates shall include the
number of shares of Common Stock issuable upon conversion of the
Preferred Shares with respect to which the determination of such proviso
is being made, but shall exclude the number of
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shares of Common Stock which would be issuable upon (i) conversion of
the remaining, nonconverted Preferred Shares beneficially owned by the
holder and its affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the
Company (including, without limitation, any warrants) subject to a
limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by the holder and its affiliates.
Except as set forth in the preceding sentence, for purposes of this
paragraph, beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended. The
holder may waive the foregoing limitations by written notice to the
Company upon not less than 61 days prior notice (with such waiver taking
effect only upon the expiration of such 61 day notice period).
(b) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of each of the Preferred Shares pursuant to
Sections (2)(a) and 2(g) shall be determined according to the following
formula (the "CONVERSION RATE"):
(.05)(N/365)($10,000) + $10,000
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Conversion Price
For purposes of this Certificate of Designations, the following terms
shall have the following meanings:
(i) "CONVERSION PRICE" means, as of any
Conversion Date (as defined below) or other date of determination, the lower of
the Fixed Conversion Price and the Floating Conversion Price, each in effect as
of such date and subject to adjustment as provided herein; provided, however,
that (A) during the period beginning on and including the date which is 90 days
after the applicable Issuance Date (as defined below) and ending on and
including the date which is 180 days after the applicable Issuance Date, the
Conversion Price shall be not less than 75% of the Floating Conversion Price on
the applicable Issuance Date, and (B) during the period beginning on and
including the date which is 181 days after the applicable Issuance Date and
ending on and including the date which is 270 days after the applicable Issuance
Date, the Conversion Price shall be not less than 50% of the Floating Conversion
Price on the applicable Issuance Date; and, provided further, that the
restrictions on the Conversion Price described in clauses (A) and (B)
immediately above shall not apply on and after the date of the occurrence of a
Triggering Event (as defined in Section 3(d) below) or the public announcement
or occurrence of a Major Transaction (as defined in Section 3(c) below).
(ii) "FIXED CONVERSION PRICE" means 125% of the
Market Price on the date of issuance of the applicable Preferred Shares,
provided that the Fixed Conversion Price for the Preferred Shares issued on the
Initial Closing Date shall be $11.02, subject in each case to adjustment as
provided herein;
(iii) "FLOATING CONVERSION PRICE" means, as of any
date of determination, the amount obtained by multiplying the Conversion
Percentage in effect as of such date by the Market Price as of such date;
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(iv) "CONVERSION PERCENTAGE" means 100%, subject
in each case to adjustment as provided herein;
(v) "MARKET PRICE" means, with respect to any
security for any date, the average of the two lowest Closing Bid Prices (as
defined below) for such security during the ten consecutive trading days
immediately preceding such date;
(vi) "CLOSING BID PRICE" means, for any security
as of any date, the last closing bid price for such security on the Nasdaq
National Market as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if
the Nasdaq National Market is not the principal trading market for such
security, the last closing bid price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last closing bid
price of such security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg, or, if no closing bid price is
reported for such security by Bloomberg, the last closing trade price of such
security as reported by Bloomberg, or, if no last closing trade price is
reported for such security by Bloomberg, the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the holders of Preferred Shares. If the Company and the
holders of Preferred Shares are unable to agree upon the fair market value of
the Common Stock, then such dispute shall be resolved pursuant to Section
2(f)(iii) below with the term "Closing Bid Price" being substituted for the term
"Market Price." (All such determinations to be appropriately adjusted for any
stock dividend, stock, split or other similar transaction during such period).
(vii) "N" means the number of days from, but
excluding, the Issuance Date through and including the Conversion Date for the
Preferred Shares for which conversion is being elected; and
(viii) "ISSUANCE DATE" means, with respect to each
Preferred Share, the date of issuance of the applicable Preferred Share.
(c) Effect of Failure to Obtain and Maintain
Effectiveness of Registration Statement. If the registration statement (the
"REGISTRATION STATEMENT") covering the resale of the shares of Common Stock
issuable upon conversion of the Preferred Shares and required to be filed by the
Company pursuant to the Registration Rights Agreement between the Company and
the Buyers referred to therein (the "REGISTRATION RIGHTS AGREEMENT") is not (i)
filed within 60 days of the first Issuance Date of any Preferred Shares (the
"SCHEDULED FILING DATE"), (ii) declared effective by the United States
Securities and Exchange Commission (the "SEC") on or before 120 days after the
first Issuance Date for any Preferred Shares (the "SCHEDULED EFFECTIVE DATE"),
or (iii) if after the Registration Statement has been declared effective by the
SEC, sales of all the shares of Common Stock issued or issuable upon conversion
of the Preferred Shares (without taking into account any limitations or
restrictions on the timing or amount of conversions of the Preferred Shares or
sales of the underlying Common Stock) cannot be made pursuant to the
Registration Statement (whether because of a failure to keep the Registration
Statement effective, to disclose such information as is necessary for sales to
be made pursuant to the Registration Statement, to register sufficient
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shares of Common Stock or otherwise, provided that such inability to sell shares
is not due solely to the action or inaction of the Buyers), then, as partial
relief for the damages to any holder by reason of any such delay in or reduction
of its ability to sell the underlying shares of Common Stock (which remedy shall
not be exclusive of any other remedies available at law or in equity), the
Conversion Percentage and the Fixed Conversion Price shall be adjusted as
follows:
(A) Conversion Percentage. The
Conversion Percentage in effect at such time shall be reduced by a
number of percentage points equal to the product of (I) .06 and (II) the
sum of (x) the number of days after the Scheduled Filing Date that the
relevant Registration Statement is filed with the SEC, (y) the number of
days after the Scheduled Effective Date and prior to the date that the
relevant Registration Statement is declared effective by the SEC
(without double- counting any number of days after the Scheduled Filing
Date that the relevant Registration Statement is filed, if applicable)
and (z) the number of days that sales cannot be made pursuant to the
Registration Statement in accordance with the Registration Rights
Agreement after the Registration Statement has been declared effective
(such number of days being collectively referred to herein as the
"REGISTRATION STATEMENT DEFAULT DAYS"). Notwithstanding the foregoing,
the Registration Statement Default Days shall not include the number of
days during any Grace Period (as defined in the Registration Rights
Agreement). (For example, if the Registration Statement becomes
effective 30 days after the Scheduled Effective Date, the Conversion
Percentage would be 98.2% percent until any subsequent adjustment; if
thereafter sales could not be made pursuant to the Registration
Statement for a period of 40 additional days, the Conversion Percentage
would then be 95.8%); and
(B) Fixed Conversion Price. The Fixed
Conversion Price in effect at such time shall be reduced by an amount
equal to the product of (I) the Fixed Conversion Price in effect as of
the Issuance Date and (II) .0006 multiplied by (III) Registration
Statement Default Days. The Registration Statement Default Days shall
not include the number of days during any Grace Period (as defined in
the Registration Rights Agreement). (For example, assuming for purposes
of this Section 3(c)(B) only that the Fixed Conversion Price equals
$9.00, if the Registration Statement becomes effective 30 days after the
Scheduled Effective Date, the Fixed Conversion Price would be $8.982
until any subsequent adjustment; if thereafter sales could not be made
pursuant to the Registration Statement for a period of 40 additional
days, the Fixed Conversion Price would then be $8.958.)
(d) Adjustment to Conversion Price -- Dilution and
Other Events. In order to prevent dilution of the rights granted under this
Certificate of Designations, the Conversion Price will be subject to adjustment
from time to time as provided in this Section 2(d).
(i) Adjustment of Fixed Conversion Price upon
Issuance of Common Stock. If and whenever on or after the date of issuance of
the Preferred Shares, the Company issues or sells, or is deemed to have issued
or sold, any shares of Common Stock (other than shares of Common Stock deemed to
have been issued by the Company in connection with the Warrants (as defined in
the Securities Purchase Agreement between the Company and the initial holders of
the Preferred Shares (the "SECURITIES PURCHASE AGREEMENT")), the GenPharm Note
(as defined in the Securities Purchase Agreement), an
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Approved Stock Plan (as defined below) or an Excluded Issuance (as defined
below)) for a consideration per share less than the Fixed Conversion Price in
effect immediately prior to such time (the "APPLICABLE PRICE"), then immediately
after such issue or sale, the Fixed Conversion Price shall be reduced to an
amount equal to the product of (x) the Fixed Conversion Price in effect
immediately prior to such issue or sale and (y) the quotient determined by
dividing (1) the sum of (I) the product of the Applicable Price and the number
of shares of Common Stock Deemed Outstanding (as defined below) immediately
prior to such issue or sale, and (II) the consideration, if any, received by the
Company upon such issue or sale, by (2) the product of (I) the Applicable Price
and (II) the number of shares of Common Stock Deemed Outstanding immediately
after such issue or sale. For purposes of determining the adjusted Fixed
Conversion Price under this Section 2(d)(i), the following shall be applicable:
(A) Issuance of Options. If the
Company in any manner grants any rights or options to subscribe for or
to purchase Common Stock (other than pursuant to an Approved Stock Plan
or upon conversion of the Preferred Shares or the GenPharm Note or
exercise of the Warrants) or any stock or other securities convertible
into or exchangeable for Common Stock (such rights or options being
herein called "OPTIONS" and such convertible or exchangeable stock or
securities being herein called "CONVERTIBLE SECURITIES") and the price
per share for which Common Stock is issuable upon the exercise of such
Options or upon conversion or exchange of such Convertible Securities is
less than the Applicable Price, then the total maximum number of shares
of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to
be outstanding and to have been issued and sold by the Company for such
price per share. For purposes of this Section 2(d)(i)(A), the "price per
share for which Common Stock is issuable upon exercise of such Options
or upon conversion or exchange of such Convertible Securities" is
determined by dividing (I) the total amount, if any, received or
receivable by the Company as consideration for the granting of such
Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of all such Options, plus in
the case of such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable to
the Company upon the issuance or sale of such Convertible Securities and
the conversion or exchange thereof, by (II) the total maximum number of
shares of Common Stock issuable upon exercise of such Options or upon
the conversion or exchange of all such Convertible Securities issuable
upon the exercise of such Options. No adjustment of the Fixed Conversion
Price shall be made upon the actual issuance of such Common Stock or of
such Convertible Securities upon the exercise of such Options or upon
the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities.
(B) Issuance of Convertible Securities.
If the Company in any manner issues or sells any Convertible Securities
and the price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Applicable Price, then the
maximum number of shares of Common Stock issuable upon conversion or
exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Company for such
price per share. For the purposes of this Section 2(d)(i)(B), the "price
per share for which Common Stock is issuable upon such conversion or
exchange" is determined by dividing (I) the total amount received or
receivable by the Company as consideration for the issue or sale of such
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Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or
exchange thereof, by (II) the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of all such Convertible
Securities. No adjustment of the Fixed Conversion Price shall be made
upon the actual issue of such Common Stock upon conversion or exchange
of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which
adjustment of the Fixed Conversion Price had been or are to be made
pursuant to other provisions of this Section 2(d)(i), no further
adjustment of the Fixed Conversion Price shall be made by reason of such
issue or sale.
(C) Change in Option Price or Rate of
Conversion. If the purchase price provided for in any Options, the
additional consideration, if any, payable upon the issue, conversion or
exchange of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exchangeable for Common
Stock change at any time, the Fixed Conversion Price in effect at the
time of such change shall be readjusted to the Fixed Conversion Price
which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed
purchase price, additional consideration or changed conversion rate, as
the case may be, at the time initially granted, issued or sold; provided
that no adjustment shall be made if such adjustment would result in an
increase of the Fixed Conversion Price then in effect. Nothing in this
Section 2(d)(i)(C) shall be construed to require any readjustment to the
Fixed Conversion Price where the Board of Directors of the Company votes
to reprice at fair market value any rights or options to subscribe for
or to purchase Common Stock granted pursuant to an Approved Stock Plan
in order to provide appropriate employee incentives.
(D) Certain Definitions. For purposes
of determining the adjusted Fixed Conversion Price under this Section
2(d)(i), the following terms have meanings set forth below:
(I) "APPROVED STOCK PLAN" shall mean
any contract, plan or agreement which has been approved by the Board of
Directors of the Company, pursuant to which the Company's securities may
be issued to any employee, officer, director, consultant or other
service provider.
(II) "COMMON STOCK DEEMED
OUTSTANDING" means, at any given time, the number of shares of Common
Stock actually outstanding at such time, plus the number of shares of
Common Stock deemed to be outstanding pursuant to Sections 2(d)(i)(A)
and 2(d)(i)(B) hereof regardless of whether the Options or Convertible
Securities are actually exercisable at such time, but excluding any
shares of Common Stock issuable upon conversion of the Preferred Shares.
(III) "EXCLUDED ISSUANCE" shall
mean (i) a single issuance by the Company consisting solely of Common
Stock, (ii) any underwritten public offering by the Company consisting
solely of Common Stock, (iii) any transaction involving the Company's
issuance of securities in connection with any strategic partnership or
joint venture (the primary
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purpose of which is not to raise equity capital), (iv) any issuance of
securities by a subsidiary of the Company, and (v) any issuance of
securities by the Company as consideration for the acquisition of a
license by the Company; provided that (x) in each instance under clauses
(i) and (iii) immediately above the consideration received by the
Company for each such share of Common Stock issued is not less than the
lesser of (A) the Closing Bid Price (as defined in the Certificate of
Designations) on the date of issuance of such shares and (B) the average
of the Closing Bid Prices for the Common Stock for the 20 consecutive
trading days immediately preceding the date of issuance of such shares,
and (y) in each instance under clause (ii) above the consideration
received by the Company for each such share of Common Stock issued is
not less than 95% of the lesser of (A) the Closing Bid Price on the date
of issuance of such shares and (B) the average of the Closing Bid Prices
for the Common Stock for the 20 consecutive trading days immediately
preceding the date of issuance of such shares.
(E) Effect on Fixed Conversion Price of
Certain Events. For purposes of determining the adjusted Fixed
Conversion Price under this Section 2(d)(i), the following shall be
applicable:
(I) Calculation of Consideration
Received. If any Common Stock, Options or Convertible Securities are
issued or sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net amount
received by the Company therefor. In case any Common Stock, Options or
Convertible Securities are issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of
consideration received by the Company will be the arithmetic average of
the Closing Bid Prices on the twenty (20) consecutive trading days
immediately preceding the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the Company
is the surviving entity the amount of consideration therefor will be
deemed to be the fair value of such portion of the net assets and
business of the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair
value of any consideration other than cash or securities will be
determined jointly by the Company and the holders of a majority of the
Preferred Shares then outstanding. If such parties are unable to reach
agreement within ten (10) days after the occurrence of an event
requiring valuation (the "VALUATION EVENT"), the fair value of such
consideration will be determined within forty-eight (48) hours of the
tenth (10th) day following the Valuation Event by an independent,
reputable appraiser selected by the Company. The determination of such
appraiser shall be deemed binding upon all parties absent manifest
error.
(II) Integrated Transactions. In
case any Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to such
Options by the parties thereto, the Options will be deemed to have been
issued for a consideration of $.01.
(III) Treasury Shares. The number
of shares of Common Stock outstanding at any given time does not include
shares owned or held by or for the account of
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the Company, and the disposition of any shares so owned or held will be
considered an issue or sale of Common Stock.
(IV) Record Date. If the Company
takes a record of the holders of Common Stock for the purpose of
entitling them (1) to receive a dividend or other distribution payable
in Common Stock, Options or in Convertible Securities or (2) to
subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have been issued
or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(ii) Adjustment of Fixed Conversion Price upon
Subdivision or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock
into a greater number of shares, the Fixed Conversion Price in effect
immediately prior to such subdivision will be proportionately reduced.
If the Company at any time combines (by combination, reverse stock split
or otherwise) one or more classes of its outstanding shares of Common
Stock into a smaller number of shares, the Fixed Conversion Price in
effect immediately prior to such combination will be proportionately
increased.
(iii) Adjustment of Floating Conversion Price upon
Issuance of Convertible Securities. If the Company in any manner issues
or sells Convertible Securities that are convertible into Common Stock
at a price which varies with the market price of the Common Stock (the
formulation for such variable price being herein referred to as, the
"VARIABLE PRICE") and such Variable Price is not calculated using the
same formula used to calculate the Floating Conversion Price in effect
immediately prior to the time of such issue or sale, the Company shall
provide written notice thereof via facsimile and overnight courier to
each holder of the Preferred Shares ("VARIABLE NOTICE") on the date of
issuance of such Convertible Securities. If the holders of Preferred
Shares representing at least two-thirds (2/3) of the Preferred Shares
then outstanding provide written notice via facsimile and overnight
courier (the "VARIABLE PRICE ELECTION NOTICE") to the Company within
five (5) business days of receiving a Variable Notice that such holders
desire to replace the Floating Conversion Price then in effect with the
Variable Price described in such Variable Notice, the Company shall
prepare and deliver to each holder of the Preferred Shares via facsimile
and overnight courier a copy of an amendment to this Certificate of
Designations (the "VARIABLE PRICE AMENDMENT") that substitutes the
Variable Price for the Floating Conversion Price (together with such
modifications to this Certificate of Designations as may be required to
give full effect to the substitution of the Variable Price for the
Floating Conversion Price) within five (5) business days after receipt
of the requisite number of Variable Price Election Notices set forth
above. The Company shall file such Variable Price Amendment with the
Secretary of State of the State of Delaware within five (5) business
days after delivery of the Variable Price Amendment to the holders of
the Preferred Shares; provided that in the event that the Company
receives a notice prior to the filing of the Variable Price Amendment
from any holder who has delivered a Variable Price Election Notice in
connection with such Variable Price Amendment that such holder objects
to the form of the Variable Price Amendment, the Company shall not file
such Variable Price Amendment
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until such time as the Variable Price Amendment has been revised to the
reasonable satisfaction of such holder and approved in writing by the
holders of the Preferred Shares representing at least two-thirds (2/3)
of the Preferred Shares then outstanding. Except as provided in the
preceding proviso, a holder's delivery of a Variable Price Election
Notice shall serve as the consent required to amend this Certificate of
Designations pursuant to Section 12 below.
(iv) Reorganization, Reclassification,
Consolidation, Merger or Sale. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially
all of the Company's assets to another Person (as defined below) or
other transaction which is effected in such a way that holders of Common
Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange
for Common Stock is referred to herein as an "ORGANIC CHANGE." Prior to
the consummation of any Organic Change, the Company will make
appropriate provision (in form and substance satisfactory to the holders
of a majority of the Preferred Shares then outstanding) to insure that
each of the holders of the Preferred Shares will thereafter have the
right to acquire and receive in lieu of or addition to (as the case may
be) the shares of Common Stock immediately theretofore acquirable and
receivable upon the conversion of such holder's Preferred Shares, such
shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon the conversion of
such holder's Preferred Shares had such Organic Change not taken place
(without taking into account any limitations or restrictions on the
timing or amount of conversions). In any such case, the Company will
make appropriate provision (in form and substance satisfactory to the
holders of a majority of the Preferred Shares then outstanding) with
respect to such holders' rights and interests to insure that the
provisions of this Section 2(d) and Section 2(e) below will thereafter
be applicable to the Preferred Shares (including, in the case of any
such consolidation, merger or sale in which the successor entity or
purchasing entity is other than the Company, an immediate adjustment of
the Fixed Conversion Price to the value for the Common Stock reflected
by the terms of such consolidation, merger or sale, if the value so
reflected is less than the Fixed Conversion Price in effect immediately
prior to such consolidation, merger or sale). The Company will not
effect any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor entity (if other than the Company)
resulting from consolidation or merger or the entity purchasing such
assets assumes, by written instrument, the obligation to deliver to each
holder of Preferred Shares such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holder may be
entitled to acquire. "PERSON" shall mean an individual, a limited
liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a government or any department
or agency thereof.
(v) Certain Events. If any event occurs of the
type contemplated by the provisions of this Section 2(d) but not
expressly provided for by such provisions (including, without
limitation, the granting of stock appreciation rights, phantom stock
rights or other rights with equity features), then the Company's Board
of Directors will make an appropriate adjustment in the Conversion Price
so as to protect the rights of the holders of the Preferred Shares;
provided that no such adjustment will increase the Conversion Price as
otherwise determined pursuant to this Section 2(d).
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(vi) Notices.
(A) As soon as practicable, upon any
adjustment of the Conversion Price, the Company will give written notice
thereof to each holder of Preferred Shares, setting forth in reasonable
detail and certifying the calculation of such adjustment.
(B) The Company will give written notice
to each holder of Preferred Shares at least twenty (20) days prior to
the date on which the Company closes its books or takes a record (I)
with respect to any dividend or distribution upon the Common Stock, (II)
with respect to any pro rata subscription offer to holders of Common
Stock or (III) for determining rights to vote with respect to any
Organic Change, dissolution or liquidation and in no event shall such
notice be provided to such holder prior to such information being made
known to the public.
(C) The Company will also give written
notice to each holder of Preferred Shares at least twenty (20) days
prior to the date on which any Organic Change, dissolution or
liquidation will take place and in no event shall such notice be
provided to such holder prior to such information being made known to
the public.
(e) Purchase Rights. In addition to any adjustments of
the Conversion Price pursuant to Section 2(d) above, if at any time the Company
grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the holders
of Preferred Shares will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock acquirable
upon complete conversion of the Preferred Shares (without taking into account
any limitations or restrictions on the timing or amount of conversions)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
(f) Mechanics of Conversion. Subject to the Company's
inability to fully satisfy its obligations under a Conversion Notice (as defined
below) as provided for in Section 6 below:
(i) Holder's Delivery Requirements. To convert
Preferred Shares into full shares of Common Stock on any date (the
"CONVERSION DATE"), the holder thereof shall (A) transmit by facsimile
(or otherwise deliver), for receipt on or prior to 11:59 p.m., Central
Time on such date, a copy of a fully executed notice of conversion in
the form attached hereto as Exhibit I (the "CONVERSION NOTICE"), to the
Company or its designated transfer agent (the "TRANSFER AGENT"), and (B)
surrender to a common carrier for delivery to the Company or the
Transfer Agent as soon as practicable following such date, the original
certificates representing the Preferred Shares being converted (or an
indemnification undertaking with respect to such shares in the case of
their loss, theft or destruction) (the "PREFERRED STOCK CERTIFICATES")
and the originally executed Conversion Notice.
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(ii) Company's Response. Upon receipt by the
Company of a facsimile copy of a Conversion Notice, the Company shall
immediately send, via facsimile, a confirmation of receipt of such
Conversion Notice to such holder. Upon receipt by the Company or the
Transfer Agent of the Preferred Stock Certificates to be converted
pursuant to a Conversion Notice, together with the originally executed
Conversion Notice, the Company or the Transfer Agent (as applicable)
shall, on the next business day following the date of receipt, (I) issue
and surrender to a common carrier for overnight delivery to the address
as specified in the Conversion Notice, a certificate, registered in the
name of the holder or its designee, for the number of shares of Common
Stock to which the holder shall be entitled, or (II) credit such
aggregate number of shares of Common Stock to which the holder shall be
entitled to the holder's or its designee's balance account with The
Depository Trust Company. If the number of Preferred Shares represented
by the Preferred Stock Certificate(s) submitted for conversion is
greater than the number of Preferred Shares being converted, then the
Company or Transfer Agent, as the case may be, shall, as soon as
practicable and in no event later than two business days after receipt
of the Preferred Stock Certificate(s) and at its own expense, issue and
deliver to the holder a new Preferred Stock Certificate representing the
number of Preferred Shares not converted.
(iii) Dispute Resolution. In the case of a
dispute as to the determination of the Market Price or the arithmetic
calculation of the Conversion Rate, the Company shall promptly issue to
the holder the number of shares of Common Stock that is not disputed and
shall submit the disputed determinations or arithmetic calculations to
the holder via facsimile as soon as possible, but in no event later than
two (2) business days after receipt of such holder's Conversion Notice.
If such holder and the Company are unable to agree upon the
determination of the Market Price or arithmetic calculation of the
Conversion Rate within one (1) business day of such disputed
determination or arithmetic calculation being submitted to the holder,
then the Company shall within one (1) business day submit via facsimile
(A) the disputed determination of the Market Price to an independent,
reputable investment bank or (B) the disputed arithmetic calculation of
the Conversion Rate to its independent, outside accountant. The Company
shall cause the investment bank or the accountant, as the case may be,
to perform the determinations or calculations and notify the Company and
the holder of the results no later than forty-eight (48) hours from the
time it receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation, as the
case may be, shall be binding upon all parties absent manifest error.
(iv) Record Holder. The person or persons entitled
to receive the shares of Common Stock issuable upon a conversion of
Preferred Shares shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on the Conversion Date.
(v) Company's Failure to Timely Convert. If within
ten (10) business days of the Company's or the Transfer Agent's receipt
of the Preferred Stock Certificates to be converted and the originally
executed Conversion Notice the Company shall fail to issue a certificate
to a holder or credit the holder's balance account with The Depository
Trust Company for the number of shares of Common Stock to which such
holder is entitled upon such holder's conversion of Preferred Shares or
to issue a new Preferred Stock Certificate representing the number of
Preferred Shares to which such holder is entitled pursuant to Section
2(f)(ii), in addition to all other available
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remedies which such holder may pursue hereunder and under the Securities
Purchase Agreement (including indemnification pursuant to Section 8
thereof), the Company shall pay additional damages to such holder on
each date on and after the sixth (6th) business day after the Company's
receipt of such Conversion Notice that such conversion is not timely
effected in an amount equal to 0.5% of the product of (A) the sum of the
number of shares of Common Stock not issued to the holder on a timely
basis pursuant to Section 2(f)(ii) and to which such holder is entitled
and, in the event the Company has failed to deliver a Preferred Stock
Certificate to the holder on a timely basis pursuant to Section
2(f)(ii), the number of shares of Common Stock issuable upon conversion
of the Preferred Shares represented by such Preferred Stock Certificate,
as of the last possible date which the Company could have issued such
Preferred Stock Certificate to such holder without violating Section
2(f)(ii) and (B) the Closing Bid Price of the Common Stock on the last
possible date which the Company could have issued such Common Stock and
such Preferred Stock Certificate, as the case may be, to such holder
without violating Section 2(f)(ii).
(g) Mandatory Conversion. If any Preferred Shares remain
outstanding on the Mandatory Conversion Date (as defined below), then
all such Preferred Shares shall be converted as of such date in
accordance with this Section 2 as if the holders of such Preferred
Shares had given the Conversion Notice on the Mandatory Conversion Date.
All holders of Preferred Shares shall thereupon surrender all Preferred
Stock Certificates, duly endorsed for cancellation, to the Company or
the Transfer Agent. "MANDATORY CONVERSION DATE" means the date which is
five years after the applicable Issuance Date, unless extended pursuant
to Section 4(k) of the Securities Purchase Agreement or Section 3(f) of
the Registration Rights Agreement, which extension shall be equal to
twice the aggregate number of days of all Underwriting Lock-Up Periods
(as defined in Section 4(k) of the Securities Purchase Agreement) and
Grace Periods (as defined in Section 3(f) of the Registration Rights
Agreement).
(h) Fractional Shares. The Company shall not issue any
fraction of a share of Common Stock upon any conversion. All shares of
Common Stock (including fractions thereof) issuable upon conversion of
more than one Preferred Share by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the
issuance of a fraction of a share of Common Stock. If, after the
aforementioned aggregation, the issuance would result in the issuance of
a fraction of a share of Common Stock, the Company shall round such
fraction of a share of Common Stock up or down to the nearest whole
share.
(i) Taxes. The Company shall pay any and all taxes which
may be imposed upon it with respect to the issuance and delivery of
Common Stock upon the conversion of the Preferred Shares.
(j) Conversion Restrictions. The right of a holder of
Preferred Shares to convert Preferred Shares pursuant to this Section 2
shall be limited as set forth below. Without the prior consent of the
Company, a holder of Preferred Shares shall not be entitled to convert
an aggregate number of Preferred Shares from the Issuance Date of such
Preferred Shares through the date of this determination in excess of the
number of Preferred Shares which when divided by the number of Preferred
Shares purchased by such holder on such Issuance Date would exceed (i)
0.25 for the
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period beginning on the date which is 91 days after the Issuance Date
and ending on and including the date which is 135 days after the
Issuance Date, (ii) 0.50 for the period beginning on and including the
date which is 136 days after the Issuance Date and ending on and
including the date which is 180 days after the Issuance Date, (iii) 0.75
for the period beginning on the date which is 181 days after the
Issuance Date and ending on and including the date which is 225 days
after the Issuance Date, and (iv) 1.00 for the period beginning on and
including the date which is 226 days after the Issuance Date and ending
on and including the Mandatory Conversion Date. Notwithstanding the
foregoing, the conversion restriction set forth in this Section 2(j)
shall not apply (x) with respect to any conversion of Preferred Shares
at a Conversion Price which is equal to the Fixed Conversion Price then
in effect or (y) if an event constituting a Major Transaction (as
defined in Section 3(c) below) or a Triggering Event (as defined in
Section 3(d) below) shall have occurred or been publicly announced.
(k) Adjustment of Conversion Restrictions upon Issuance of
Convertible Securities. If the Company in any manner issues or sells
Convertible Securities that are convertible into Common Stock and are
subject to (i) restrictions on the amount of shares that can be
converted, or (ii) no restrictions on the amount of shares that can be
converted (the restriction on conversions or lack thereof being herein
referred to as the "CONVERSION RESTRICTION"), and such Conversion
Restriction is not formulated with using the same time periods and
percentages used in Section 2(j), then the Company shall provide written
notice thereof via facsimile and overnight courier to each holder of the
Preferred Shares ("CONVERSION RESTRICTION NOTICE") on the date of
issuance of such Convertible Securities. If the holders of Preferred
Shares representing at least two-thirds (2/3) of the Preferred Shares
then outstanding which remain subject to the restrictions in Section
2(j) provide written notice via facsimile and overnight courier (the
"CONVERSION RESTRICTION ELECTION NOTICE") to the Company within five (5)
business days of receiving a Conversion Restriction Notice that such
holders desire to replace the conversion restrictions set forth in
Section 2(j) then in effect with the Conversion Restriction described in
such Conversion Restriction Notice, the Company shall prepare and
deliver to each holder of the Preferred Shares via facsimile and
overnight courier a copy of an amendment to this Certificate of
Designations (the "CONVERSION RESTRICTION AMENDMENT") that substitutes
the Conversion Restriction for conversion restrictions set forth in
Section 2(j) (together with such modifications to this Certificate of
Designations as may be required to give full effect to the substitution
of the Conversion Restriction for the conversion restrictions set forth
in Section 2(j)) within five (5) business days after receipt of the
requisite number of Conversion Restriction Election Notices set forth
above. The Company shall file such Conversion Restriction Amendment with
the Secretary of State of the State of Delaware within five (5) business
days after delivery of the Conversion Restriction Amendment to the
holders of the Preferred Shares; provided that in the event that the
Company receives a notice prior to the filing of the Conversion
Restriction Amendment from any holder who has delivered a Conversion
Restriction Election Notice in connection with such Conversion
Restriction Amendment that such holder objects to the form of the
Conversion Restriction Amendment, the Company shall not file such
Conversion Restriction Amendment until such time as the Conversion
Restriction Amendment has been revised to the reasonable satisfaction of
such holder and approved in writing by the holders of the Preferred
Shares representing at least two-thirds (2/3) of the Preferred Shares
then outstanding. Except as provided in the preceding
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proviso, a holder's delivery of a Conversion Restriction Election Notice
shall serve as the consent required to amend this Certificate of
Designations pursuant to Section 12 below.
(l) Conversion at the Option of the Company. At any time
or times on or after the date which is three years after the Issuance
Date, the Company shall have the right, in its sole discretion, to
require that any or all of the outstanding Preferred Shares issued on
such Issuance Date be converted ("CONVERSION AT COMPANY'S ELECTION") at
the Conversion Rate; provided that the Conditions to Conversion at
Company's Election (as defined below) are satisfied. The Company shall
exercise its right to Conversion at Company's Election by providing each
holder of such Preferred Shares written notice ("NOTICE OF CONVERSION AT
COMPANY'S ELECTION") at least 30 days prior to the date selected by the
Company for conversion ("COMPANY'S ELECTION CONVERSION DATE"). If the
Company elects to require conversion of some, but not all, of such
Preferred Shares, the Company shall convert an amount from each holder
of such Preferred Shares equal to such holder's pro rata amount (based
on the number of Preferred Shares held by such holder relative to the
number of Preferred Shares outstanding on Company's Election Conversion
Date) of all Preferred Shares the Company is requiring to be converted.
The Notice of Conversion at Company's Election shall indicate (x) the
number of Preferred Shares the Company has selected for conversion, (y)
the Company's Election Conversion Date, which date shall be not less
than 30 or more than 40 days after each holder's receipt of such notice,
and (z) each holder's pro rata share of outstanding Preferred Shares.
All Preferred Shares selected for conversion in accordance with the
provision of this Section 2(l) shall be converted as of the Company's
Election Conversion Date in accordance with this Section 2 as if the
holders of such Preferred Shares selected by the Company to be converted
had given the Conversion Notice on the Company's Election Conversion
Date. All holders of Preferred Shares shall thereupon and within two
business days of the Company's Election Conversion Date surrender all
Preferred Stock Certificates selected for conversion, duly endorsed for
cancellation, to the Company or the Transfer Agent. "CONDITIONS TO
CONVERSION AT COMPANY'S ELECTION" means the following conditions: (i) on
each day during the 20 consecutive trading days immediately preceding
the date of the Company's Notice of Conversion at the Company's
Election, the last reported sale price (as reported by Bloomberg) of the
Common Stock is at least 250% of the Fixed Conversion Price of such
Preferred Shares as of the applicable Issuance Date of the Preferred
Shares being converted; (ii) the Company shall not have previously given
Notice of Conversion at Company's Election in the 365 days prior to such
Notice of Conversion at Company's Election; (iii) on each day during the
period beginning 20 days prior to the Notice of Conversion at the
Company's Election and ending on and including the Company's Election
Conversion Date, the Registration Statement shall be effective and
available for the sale of no less than 150% of the sum of (A) the number
of Conversion Shares then issuable upon the conversion of all
outstanding Preferred Shares, including the Conversion Shares to be
issued pursuant to this Conversion at the Company's Election and (B) the
number of Conversion Shares that are then held by the holders of the
Preferred Shares, (iv) on each day during the period beginning 20 days
prior to the date of the Company's Notice of Conversion at Company's
Election and ending on and including the Company's Election Conversion
Date, the Common Stock is designated for quotation on the Nasdaq
National Market, The New York Stock Exchange, Inc. or The American Stock
Exchange, Inc. and is not suspended from trading; (v) during the period
beginning on the Initial Issuance Date and ending on and including the
Company's Election Conversion Date, the Company shall have delivered
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Conversion Shares upon conversion of the Preferred Shares on a timely
basis as set forth in Section 2(f)(ii) of this Certificate of
Designations; (vi) none of the holders shall have been subject to a
lockup agreement under Section 4(k) of the Securities Purchase Agreement
at any time during the period beginning 20 days prior to the date of the
Company's Notice of Conversion at Company's Election and ending on an
including the Company's Election Conversion Date; and (vii) the Company
otherwise has satisfied its obligations and is not in default under this
Certificate of Designations, the Securities Purchase Agreement and the
Registration Rights Agreement. Notwithstanding the above, any holder of
Preferred Shares may convert such shares (including Preferred Shares
selected for conversion) into Common Stock pursuant to Section 2(a) on
or prior to the date immediately preceding the Company's Election
Conversion Date (and, after such holder's receipt of the Notice of
Conversion at Company's Election, without regard to the conversion
limitations set forth in Section 2(j) above).
(3) Redemption at Option of Holders.
(a) Redemption Option Upon Major Transaction. In addition
to all other rights of the holders of Preferred Shares contained herein,
simultaneous with or after the occurrence of a Major Transaction (as
defined below), each holder of Preferred Shares shall have the right, at
such holder's option, to require the Company to redeem all or a portion
of such holder's Preferred Shares at a price per Preferred Share equal
to the greater of (i) the sum of (A) $12,000 and (B) an amount equal to
the product of (.05) (N/365) ($10,000), and (ii) the product of (A) the
Conversion Rate at such time and (B) the Closing Bid Price on the date
of the public announcement of such Major Transaction or the next date on
which the exchange or market on which the Common Stock is traded is open
if such public announcement is made (X) after 12:00 p.m., Central Time,
time on such date or (Y) on a date on which the exchange or market on
which the Common Stock is traded is closed ("MAJOR TRANSACTION
REDEMPTION PRICE").
(b) Redemption Option Upon Triggering Event. In addition
to all other rights of the holders of Preferred Shares contained herein,
after a Triggering Event (as defined below), each holder of Preferred
Shares shall have the right, at such holder's option, to require the
Company to redeem all or a portion of such holder's Preferred Shares at
a price per Preferred Share equal to the greater of (i) the sum of (A)
$12,000 and (B) an amount equal to the product of (.05) (N/365)
($10,000), and (ii) the product of (A) the Conversion Rate at such time
and (B) the Closing Bid Price calculated as of the date immediately
preceding such Triggering Event on which the exchange or market on which
the Common Stock is traded is open ("TRIGGERING EVENT REDEMPTION PRICE"
and, collectively with "MAJOR TRANSACTION REDEMPTION PRICE," the
"REDEMPTION PRICE").
(c) "Major Transaction". A "MAJOR TRANSACTION" shall be
deemed to have occurred at such time as any of the following events:
(i) the consolidation, merger or other business
combination of the Company with or into another Person (other than
pursuant to a migratory merger effected solely for the purpose of
changing the jurisdiction of incorporation of the Company);
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(ii) the sale or transfer of all or substantially
all of the Company's assets; or
(iii) a purchase, tender or exchange offer made to
and accepted by the holders of more than 50% of the outstanding shares
of Common Stock.
(d) "Triggering Event". A "TRIGGERING EVENT" shall be
deemed to have occurred at such time as any of the following events:
(i) the failure of the Registration Statement to be
declared effective by the SEC on or prior to the date that is 240 days
after the Initial Issuance Date;
(ii) while the Registration Statement is required
to be maintained effective pursuant to the terms of the Registration
Rights Agreement, the effectiveness of the Registration Statement lapses
for any reason (including, without limitation, the issuance of a stop
order) or is unavailable to the holder of the Preferred Shares for sale
of the Registrable Securities (as defined in the Registration Rights
Agreement) in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of
ten consecutive trading days (not including any days during a Grace
Period (as defined in Section 3(f) of the Registration Rights
Agreement)), provided that the cause of such lapse or unavailability is
not due to factors solely within the control of such holder of Preferred
Shares;
(iii) the failure of the Common Stock to be listed
on the Nasdaq National Market, The New York Stock Exchange, Inc. or The
American Stock Exchange, Inc. for a period of seven consecutive days; or
(iv) the Company's notice to any holder of
Preferred Shares, including by way of public announcement, at any time,
of its intention not to comply with proper requests for conversion of
any Preferred Shares into shares of Common Stock, including due to any
of the reasons set forth in Section 4(a) below.
(e) Mechanics of Redemption at Option of Buyer Upon Major
Transaction. No sooner than 15 days nor later than 10 days prior to the
consummation of a Major Transaction, but not prior to the public
announcement of such Major Transaction, the Company shall deliver
written notice thereof via facsimile and overnight courier ("NOTICE OF
MAJOR TRANSACTION") to each holder of Preferred Shares. At any time
after receipt of a Notice of Major Transaction, the holders of at least
two-thirds (2/3) of the Preferred Shares then outstanding may require
the Company to redeem all of the holder's Preferred Shares then
outstanding by delivering written notice thereof via facsimile and
overnight courier ("NOTICE OF REDEMPTION AT OPTION OF BUYER UPON MAJOR
TRANSACTION") to the Company, which Notice of Redemption at Option of
Buyer Upon Major Transaction shall indicate (i) the number of Preferred
Shares that such holders are voting in favor of redemption and (ii) the
applicable Major Transaction Redemption Price, as calculated pursuant to
Section 3(a) above.
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(f) Mechanics of Redemption at Option of Buyer Upon
Triggering Event. Within one (1) day after the occurrence of a
Triggering Event, the Company shall deliver written notice thereof via
facsimile and overnight courier ("NOTICE OF TRIGGERING EVENT") to each
holder of Preferred Shares. At any time after receipt of a Notice of
Triggering Event, any holder of the Preferred Shares then outstanding
may require the Company to redeem all or any portion of the Preferred
Shares held by such holder by delivering written notice thereof via
facsimile and overnight courier ("NOTICE OF REDEMPTION AT OPTION OF
BUYER UPON TRIGGERING EVENT") to the Company, which Notice of Redemption
at Option of Buyer Upon Triggering Event shall indicate (i) the number
of Preferred Shares that such holder is submitting for redemption and
(ii) the applicable Triggering Event Redemption Price, as calculated
pursuant to Section 3(b) above. Notwithstanding the foregoing, if (A)
the Triggering Event is one described in Section 3(d)(ii) above, and (B)
such lapse discontinues and a holder of Preferred Shares receives notice
from the Company that the lapse in the effectiveness of the registration
statement no longer continues prior to such holder's delivery to the
Company of the holder's Notice of Redemption at Option of Buyer Upon
Triggering Event, then the holder shall no longer have the right to
deliver a Notice of Redemption at Option of Buyer Upon Triggering Event
to the Company with respect to such lapse.
(g) Payment of Redemption Price. Upon the Company's
receipt of a Notice(s) of Redemption at Option of Buyer Upon Major
Transaction from the holders of at least two-thirds (2/3) of the
Preferred Shares then outstanding the Company shall immediately notify
each holder by facsimile of the Company's receipt of such requisite
notice(s) necessary to effect a redemption and each holder of Preferred
Shares shall thereafter promptly send such holder's Preferred Stock
Certificates to be redeemed to the Company or its Transfer Agent. Upon
the Company's receipt of a Notice(s) of Redemption at Option of Buyer
Upon Triggering Event from any holder of Preferred Shares, the Company
shall immediately notify each holder of Preferred Shares by facsimile of
the Company's receipt of such Notice(s) of Redemption at Option of Buyer
Upon Triggering Event and each holder which has sent such a notice shall
promptly submit to the Company or its Transfer Agent such holder's
Preferred Stock Certificates which such holder has elected to have
redeemed. The Company shall deliver the applicable Redemption Price to
such holder within ten business days after the Company's receipt of the
requisite notices required to effect a redemption; provided that a
holder's Preferred Stock Certificates shall have been so delivered to
the Company or its Transfer Agent; provided further that if the Company
is unable to redeem all of the Preferred Shares to be redeemed, the
Company shall redeem an amount from each holder of Preferred Shares
being redeemed equal to such holder's pro-rata amount (based on the
number of Preferred Shares held by such holder relative to the number of
Preferred Shares outstanding) of all Preferred Shares being redeemed. If
the Company shall fail to redeem all of the Preferred Shares submitted
for redemption (other than pursuant to a dispute as to the arithmetic
calculation of the Redemption Price), in addition to any remedy such
holder of Preferred Shares may have under this Certificate of
Designations and the Securities Purchase Agreement, the applicable
Redemption Price payable in respect of such unredeemed Preferred Shares
shall bear interest at the rate of 2.0% per month (prorated for partial
months) until paid in full. Until the Company pays such unpaid
applicable Redemption Price in full to a holder of Preferred Shares
submitted for redemption, such holder shall have the option, in the case
of a Notice of Redemption at Option of Buyer Upon Triggering Event, and,
in the event of a Notice of Redemption at Option of Buyer Upon Major
Transaction, the holders
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of at least two-thirds (2/3) of the Preferred Shares then outstanding
(including Preferred Shares submitted for redemption pursuant to this
Section 3 and for which the applicable Redemption Price has not been
paid) shall have the option (the "VOID OPTIONAL REDEMPTION OPTION") to,
in lieu of redemption, require the Company to promptly return to such
holder(s) all of the Preferred Shares that were submitted for redemption
by such holder(s) under this Section 3 and for which the applicable
Redemption Price has not been paid, by sending written notice thereof to
the Company via facsimile (the "VOID OPTIONAL REDEMPTION NOTICE"). Upon
the Company's receipt of such Void Optional Redemption Notice(s) and
prior to payment of the full applicable Redemption Price to such holder,
(i) the Notice(s) of Redemption at Option of Buyer Upon Triggering Event
or the Notice(s) of Redemption at Option of Buyer Upon Major
Transaction, as the case may be, shall be null and void with respect to
those Preferred Shares submitted for redemption and for which the
applicable Redemption Price has not been paid, (ii) the Company shall
immediately return any Preferred Shares submitted to the Company by each
holder for redemption under this Section 3(g) and for which the
applicable Redemption Price has not been paid, (iii) the Fixed
Conversion Price of such returned Preferred Shares shall be adjusted to
the lesser of (A) the Fixed Conversion Price as in effect on the date on
which the Void Optional Redemption Notice(s) is delivered to the Company
and (B) the lowest Closing Bid Price during the period beginning on the
date on which the Notice(s) of Redemption of Option of Buyer Upon Major
Transaction or the Notice(s) of Redemption at Option of Buyer Upon
Triggering event, as the case may be, is delivered to the Company and
ending on the date on which the Void Optional Redemption Notice(s) is
delivered to the Company; provided that no adjustment shall be made if
such adjustment would result in an increase of the Fixed Conversion
Price then in effect, and (iv) the Conversion Percentage in effect at
such time shall be reduced by a number of percentage points equal to the
product of (A) .25 and (B) the number of days in the period beginning on
the date which is five business days after the date on which the
Notice(s) of Redemption at Option of Buyer Upon Major Transaction or the
Notice(s) of Redemption at Option of Buyer Upon Triggering Event, as the
case may be, is delivered to the Company and ending on the date on which
the Void Optional Redemption Notice(s) is delivered to the Company.
Notwithstanding the foregoing, in the event of a dispute as to the
determination of the Closing Bid Price or the arithmetic calculation of
the Redemption Price, such dispute shall be resolved pursuant to Section
2(f)(iii) above with the term "Closing Bid Price" being substituted for
the term "Average Market Price" and the term "Redemption Price" being
substituted for the term "Conversion Rate". Payments provided for in
this Section 3 shall have priority to payments to other stockholders in
connection with a Major Transaction.
(4) Inability to Fully Convert.
(a) Holder's Option if Company Cannot Fully Convert. If,
upon the Company's receipt of a Conversion Notice, the Company can not
issue shares of Common Stock registered for resale under the
Registration Statement for any reason, including, without limitation,
because the Company (x) does not have a sufficient number of shares of
Common Stock authorized and available, (y) is otherwise prohibited by
applicable law or by the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Company or its Securities, including without
limitation the Exchange Cap (as defined in Section 11 below), from
issuing all of the Common Stock which is to be issued to a holder of
Preferred
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Shares pursuant to a Conversion Notice or (z) fails to have a sufficient
number of shares of Common Stock registered for resale under the
Registration Statement, then the Company shall issue as many shares of
Common Stock as it is able to issue in accordance with such holder's
Conversion Notice and pursuant to Section 2(f) above and, with respect
to the unconverted Preferred Shares, the holder, solely at such holder's
option, can elect to:
(i) require the Company to redeem from such holder
those Preferred Shares for which the Company is unable to issue Common
Stock in accordance with such holder's Conversion Notice ("MANDATORY
REDEMPTION") at a price per Preferred Share (the "MANDATORY REDEMPTION
PRICE") equal to the Redemption Price as of such Conversion Date;
(ii) if the Company's inability to fully convert
Preferred Shares is pursuant to Section 4(a)(z) above, require the
Company to issue restricted shares of Common Stock in accordance with
such holder's Conversion Notice and pursuant to Section 2(f) above;
(iii) void its Conversion Notice and retain or have
returned, as the case may be, the nonconverted Preferred Shares that
were to be converted pursuant to such holder's Conversion Notice; or
(iv) if the Company's inability to fully convert
Preferred Shares is pursuant to the Exchange Cap described in Section
4(a)(y) above, require the Company to issue shares of Common Stock in
accordance with such holder's Conversion Notice and pursuant to Section
2(f) above at a Conversion Price equal to the Market Price of the Common
Stock for the five consecutive trading days preceding such holder's
Notice in Response to Inability to Convert (as defined below).
(b) Mechanics of Fulfilling Holder's Election. The Company
shall immediately send via facsimile to a holder of Preferred Shares,
upon receipt of a facsimile copy of a Conversion Notice from such holder
which cannot be fully satisfied as described in Section 4(a) above, a
notice of the Company's inability to fully satisfy such holder's
Conversion Notice (the "INABILITY TO FULLY CONVERT NOTICE"). Such
Inability to Fully Convert Notice shall indicate (i) the reason why the
Company is unable to fully satisfy such holder's Conversion Notice, (ii)
the number of Preferred Shares which cannot be converted and (iii) the
applicable Mandatory Redemption Price. Such holder must within ten (10)
business days of receipt of such Inability to Fully Convert Notice
deliver written notice via facsimile to the Company ("NOTICE IN RESPONSE
TO INABILITY TO CONVERT") of its election pursuant to Section 4(a)
above.
(c) Payment of Redemption Price. If such holder shall
elect to have its shares redeemed pursuant to Section 4(a)(i) above, the
Company shall pay the Mandatory Redemption Price in cash to such holder
within ten (10) days of the Company's receipt of the holder's Notice in
Response to Inability to Convert. If the Company shall fail to pay the
applicable Mandatory Redemption Price to such holder on a timely basis
as described in this Section 4(c) (other than pursuant to a dispute as
to the determination of the arithmetic calculation of the Redemption
Price), in addition to any remedy such holder of Preferred Shares may
have under this Certificate of Designations and the Securities Purchase
Agreement, such unpaid amount shall bear interest at the
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rate of 2.0% per month (prorated for partial months) until paid in full.
Until the full Mandatory Redemption Price is paid in full to such
holder, such holder may void the Mandatory Redemption with respect to
those Preferred Shares for which the full Mandatory Redemption Price has
not been paid and receive back such Preferred Shares. Notwithstanding
the foregoing, if the Company fails to pay the applicable Mandatory
Redemption Price within such ten (10) days time period due to a dispute
as to the determination of the arithmetic calculation of the Redemption
Rate, such dispute shall be resolved pursuant to Section 2(f)(iii) above
with the term "Redemption Price" being substituted for the term
"Conversion Rate".
(d) Pro-rata Conversion and Redemption. In the event the
Company receives a Conversion Notice from more than one holder of
Preferred Shares on the same day and the Company can convert and redeem
some, but not all, of the Preferred Shares pursuant to this Section 4,
the Company shall convert and redeem from each holder of Preferred
Shares electing to have Preferred Shares converted and redeemed at such
time an amount equal to such holder's pro-rata amount (based on the
number of Preferred Shares held by such holder relative to the number of
Preferred Shares outstanding) of all Preferred Shares being converted
and redeemed at such time.
(5) Reissuance of Certificates. In the event of a conversion or
redemption pursuant to this Certificate of Designations of less than all
of the Preferred Shares represented by a particular Preferred Stock
Certificate, the Company shall promptly cause to be issued and delivered
to the holder of such Preferred Shares a preferred stock certificate
representing the remaining Preferred Shares which have not been so
converted or redeemed.
(6) Reservation of Shares. The Company shall, so long as any of
the Preferred Shares are outstanding, reserve and keep available out of
its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares, such number of shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Preferred Shares then outstanding; provided
that the number of shares of Common Stock so reserved shall at no time
be less than 150% of the number of shares of Common Stock for which the
Preferred Shares are at any time convertible; provided further that such
shares of Common Stock so reserved shall be allocated for issuance upon
conversion of Preferred Shares pro rata among the holders of Preferred
Shares based on the number of Preferred Shares held by such holder
relative to the total number of authorized Preferred Shares.
(7) Voting Rights. Holders of Preferred Shares shall have no
voting rights, except as required by law, including but not limited to
the General Corporation Law of the State of Delaware, and as expressly
provided in this Certificate of Designations.
(8) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Company, the holders of the Preferred Shares shall be entitled to
receive in cash out of the assets of the Company, whether from capital
or from earnings available for distribution to its stockholders (the
"PREFERRED FUNDS"), before any amount shall be paid to the holders of
any of the capital stock of the Company of any class junior in rank to
the Preferred Shares in respect of the preferences as to the
distributions and payments on the liquidation,
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dissolution and winding up of the Company, an amount per Preferred Share
equal to the sum of (i) $10,000 and (ii) an amount equal to the product
of (.05) (N/365) ($10,000) (such sum being referred to as the
"LIQUIDATION VALUE"); provided that, if the Preferred Funds are
insufficient to pay the full amount due to the holders of Preferred
Shares and holders of shares of other classes or series of preferred
stock of the Company that are of equal rank with the Preferred Shares as
to payments of Preferred Funds (the "PARI PASSU SHARES"), then each
holder of Preferred Shares and Pari Passu Shares shall receive a
percentage of the Preferred Funds equal to the full amount of Preferred
Funds payable to such holder as a liquidation preference, in accordance
with their respective Certificate of Designations, Preferences and
Rights, as a percentage of the full amount of Preferred Funds payable to
all holders of Preferred Shares and Pari Passu Shares. The purchase or
redemption by the Company of stock of any class, in any manner permitted
by law, shall not, for the purposes hereof, be regarded as a
liquidation, dissolution or winding up of the Company. Neither the
consolidation or merger of the Company with or into any other Person,
nor the sale or transfer by the Company of less than substantially all
of its assets, shall, for the purposes hereof, be deemed to be a
liquidation, dissolution or winding up of the Company. No holder of
Preferred Shares shall be entitled to receive any amounts with respect
thereto upon any liquidation, dissolution or winding up of the Company
other than the amounts provided for herein.
(9) Preferred Rank. All shares of Common Stock shall be of junior
rank to all Preferred Shares in respect to the preferences as to
distributions and payments upon the liquidation, dissolution and winding
up of the Company. The rights of the shares of Common Stock shall be
subject to the preferences and relative rights of the Preferred Shares.
Without the prior express written consent of the holders of not less
than two-thirds (2/3) of the then outstanding Preferred Shares, the
Company shall not hereafter authorize or issue additional or other
capital stock that is of senior rank to the Preferred Shares in respect
of the preferences as to distributions and payments upon the
liquidation, dissolution and winding up of the Company. Without the
prior express written consent of the holders of not less than two-thirds
(2/3) of the then outstanding Preferred Shares, the Company shall not
hereafter authorize or make any amendment to the Company's Certificate
of Incorporation or bylaws, or file any resolution of the board of
directors of the Company with the Delaware Secretary of State containing
any provisions, which would adversely affect or otherwise impair the
rights or relative priority of the holders of the Preferred Shares
relative to the holders of the Common Stock or the holders of any other
class of capital stock. In the event of the merger or consolidation of
the Company with or into another corporation, the Preferred Shares shall
maintain their relative powers, designations and preferences provided
for herein and no merger shall result inconsistent therewith.
(10) Restriction on Redemption and Cash Dividends with respect to
Other Capital Stock. Until all of the Preferred Shares have been
converted or redeemed as provided herein, the Company shall not,
directly or indirectly, redeem, or declare or pay any cash dividend or
distribution on, its Common Stock without the prior express written
consent of the holders of not less than two-thirds (2/3) of the then
outstanding Preferred Shares.
(11) Limitation on Number of Conversion Shares. The Company
shall not be obligated to issue upon conversion of the Preferred Shares,
in the aggregate, more than a number of shares of
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Common Stock equal to 19.99% of the number of shares of Common Stock
outstanding on the Initial Issuance Date (such amount to be
proportionately and equitably adjusted from time to time in the event of
stock splits, stock dividends, combinations, reverse stock splits,
reclassification, capital reorganizations and similar events relating to
the Common Stock) (the "EXCHANGE CAP"), if issuance of a larger number
of shares of Common Stock would constitute a breach of the Company's
obligations under the rules or regulations of The Nasdaq Stock Market,
Inc. or any other principal securities exchange or market upon which the
Common Stock is or becomes traded. The Exchange Cap shall be allocated
among the Preferred Shares pro rata based on the total number of
authorized Preferred Shares.
(12) Vote to Change the Terms of or Issue Preferred Shares. The
affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting, of the holders of not less than
two-thirds (2/3) of the then outstanding Preferred Shares, shall be
required for (1) any change to this Certificate of Designations or the
Company's Certificate of Incorporation which would amend, alter, change
or repeal any of the powers, designations, preferences and rights of the
Preferred Shares, or (2) any issuance of Preferred Shares other than
pursuant to the Securities Purchase Agreement.
(13) Lost or Stolen Certificates. Upon receipt by the Company of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the
Preferred Shares, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the holder to the Company and, in the
case of mutilation, upon surrender and cancellation of the Preferred
Stock Certificate(s), the Company shall execute and deliver new
preferred stock certificate(s) of like tenor and date; provided,
however, the Company shall not be obligated to re-issue preferred stock
certificates if the holder contemporaneously requests the Company to
convert such Preferred Shares into Common Stock.
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IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Kathleen Sereda Glaub, its Chief Executive Officer,
as of the 13th day of November, 1997.
CELL GENESYS, INC.
By: /s/ Kathleen Sereda Glaub
-------------------------------
Name: Kathleen Sereda Glaub
-------------------------------
Its: SVP and CFO
-------------------------------
24
EXHIBIT I
CELL GENESYS, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
Series __ Convertible Preferred Stock (the "CERTIFICATE OF DESIGNATIONS"). In
accordance with and pursuant to the Certificate of Designations, the undersigned
hereby elects to convert the number of shares of Series B Convertible Preferred
Stock, par value $0.001 per share (the "PREFERRED SHARES"), of Cell Genesys,
Inc., a Delaware corporation (the "COMPANY"), indicated below into shares of
Common Stock, par value $0.001 per share (the "COMMON STOCK"), of the Company,
by tendering the stock certificate(s) representing the share(s) of Preferred
Shares specified below as of the date specified below.
Date of Conversion:
-----------------------------------------------------
Number of Preferred Shares to be converted:
-----------------------------
Stock certificate no(s). of Preferred Shares to be converted:
-----------
Please confirm the following information:
Conversion Price:
-------------------------------------------------------
Number of shares of Common Stock to be issued:
--------------------------
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
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-------------------------------------------------------
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Facsimile Number:
Authorization:
-------------------------------------------------------
By:
---------------------------------------------------
Title:
------------------------------------------------
Dated:
-------------------------------------------------------
Account Number:
(if electronic book entry transfer):
----------------------------------
Transaction Code Number
(if electronic book entry transfer):
-----------------------------------