Exhibit 4.1
CERTIFICATE OF DESIGNATIONS
of
SERIES B CONVERTIBLE PREFERRED STOCK
of
ZONAGEN, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
ZONAGEN, INC., a corporation organized and existing under the laws of the
State of Delaware (the "Corporation"), does hereby certify that, pursuant to the
authority conferred on the Board of Directors of the Corporation by the Amended
and Restated Certificate of Incorporation, as amended, of the Corporation and in
accordance with Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Corporation adopted the following
resolution establishing a series of 1,925,000 shares of Preferred Stock of the
Corporation designated as "Series B Convertible Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the Board of
Directors of this Corporation by the Amended and Restated Certificate of
Incorporation, as amended, a series of Preferred Stock, par value $.001 per
share, of the Corporation is hereby established and created, and that the
designation and number of shares thereof and the voting and other powers,
preferences and relative, participating, optional or other rights of the
shares of such series and the qualifications, limitations and restrictions
thereof are as follows:
Series B Convertible Preferred Stock
------------------------------------
1. Designation and Amount. There shall be a series of Preferred Stock
designated as "Series B Convertible Preferred Stock" and the number of shares
constituting such series shall be 1,925,000. Such series is referred to herein
as the "Series B Convertible Preferred Stock". Such number of shares may be
increased or decreased by resolution of the Board of Directors of the
Corporation; provided, however, that no decrease shall reduce the number of
shares of Series B Convertible Preferred Stock to less than the number of shares
then issued and outstanding. The Series B Preferred Stock shall be junior to
the Series A Preferred Stock.
2. Dividends. Subject to the prior and superior rights of the holders of
any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series B Convertible Preferred Stock with respect to dividends and
distributions, the holders of shares of Series B Convertible Preferred Stock,
shall be entitled to receive dividends and distributions, when, as and if
declared by the Board of Directors out of funds legally available for such
purpose. If the Corporation declares a dividend or distribution on the common
stock, par value $.001 per share (the "Common Stock"), of the Corporation, the
holders of shares of Series B Convertible Preferred Stock shall be entitled to
receive for each share of Series B Convertible Preferred Stock a dividend or
distribution in the amount of the dividend or distribution that would be
received by a holder of the Common Stock into which such share of Series B
Convertible Preferred Stock is convertible on the record date for such dividend
or distribution. If the Corporation declares a dividend or distribution on any
other class or series of preferred stock, the holders of shares of Series B
Convertible
Preferred Stock shall be entitled to receive a dividend or distribution in an
amount per share in proportion to the dividend or distribution declared on a
share of such other class or series based upon the liquidation preference of a
share of the Series B Convertible Preferred Stock relative to that of a share of
such other class or series, unless the holders of at least 66-2/3% of the
outstanding shares of Series B Convertible Preferred Stock consent otherwise. In
any such case, the Corporation shall declare a dividend or distribution on the
Series B Convertible Preferred Stock at the same time that it declares a
dividend or distribution on the Common Stock or such other class or series of
preferred stock and shall establish the same record date for the dividend or
distribution on the Series B Convertible Preferred Stock as is established for
such dividend or distribution on the Common Stock or such other class or series
of preferred stock. Each such dividend or distribution will be payable to
holders of record of the Series B Convertible Preferred Stock as they appeared
on the records of the Corporation at the close of business on the record date
declared for such dividend or distribution, as shall be fixed by the Board of
Directors. If the Corporation declares or pays a dividend or distribution on the
Series B Convertible Preferred Stock as a result of the declaration or payment
of a dividend or distribution on the Common Stock or any other class or series
of preferred stock as described above, the holders of the Series B Convertible
Preferred Stock shall not be entitled to any additional dividend or distribution
solely because such first dividend or distribution also required the declaration
or payment of a dividend or distribution on any other class or series of
preferred stock. Any reference to "distribution" contained in this Section 2
shall not be deemed to include any distribution made in connection with or in
lieu of any Liquidation Event (as defined below).
3. Liquidation Preference. In the event of a (i) liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, (ii) a sale
or other disposition of all or substantially all of the assets of the
Corporation or (iii) any consolidation, merger, combination, reorganization or
other transaction in which the Corporation is not the surviving entity or the
shares of Common Stock constituting in excess of 50% of the voting power of the
Corporation are exchanged for or changed into other stock or securities, cash
and/or any other property (a "Merger Transaction") (subparagraphs (i), (ii) and
(iii) being collectively referred to as a "Liquidation Event"), after payment or
provision for payment of debts and other liabilities of the Corporation, the
holders of the Series B Convertible Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its shareholders, whether such assets are capital, surplus, or
earnings, before any payment or declaration and setting apart for payment of any
amount shall be made in respect of the stock junior to the Series B Convertible
Preferred Stock, an amount equal to $13.00 per share plus an amount equal to all
declared and unpaid dividends thereon; provided, however, in the case of Section
3(iii) above, such $13.00 per share may be paid in cash and/or securities
(valued at the closing price (as defined in Section 5) of such security) of the
entity surviving such Merger Transaction. If upon any Liquidation Event,
whether voluntary or involuntary, the assets to be distributed to the holders of
the Series B Convertible Preferred Stock shall be insufficient to permit the
payment to such shareholders of the full preferential amounts aforesaid, then
all of the assets of the Corporation to be distributed shall be so distributed
ratably to the holders of the Series B Convertible Preferred Stock on the basis
of the number of shares of Series B Convertible Preferred Stock held. A
consolidation or merger of the Corporation with or into another corporation,
other than in a transaction described in Section 3(iii) above, shall not be
considered a liquidation, dissolution or winding up of the Corporation or a sale
or other disposition of all or substantially all of the assets of the
Corporation and accordingly the Corporation shall make appropriate provision to
ensure that the terms of this Certificate of Designations survive any such
transaction. All shares of Series B Convertible Preferred Stock shall rank as
to payment upon the occurrence of any Liquidation Event senior to the Common
Stock as provided herein and, unless the terms of such series shall provide
otherwise, senior to all other series of the Corporation's preferred stock.
2
4. Conversion.
(a) Right of Conversion. The shares of Series B Convertible Preferred Stock
shall be convertible, in whole or in part, at the option of the holder thereof
and upon notice to the Corporation as set forth in paragraph (b) below, into
fully paid and nonassessable shares of Common Stock and such other securities
and property as hereinafter provided. The shares of Series B Convertible
Preferred Stock shall be convertible initially at the rate of 1.51 shares of
Common Stock for each full share of Series B Convertible Preferred Stock and
shall be subject to adjustment as provided herein. The initial conversion price
per share of Common Stock is $6 5/8 and shall be subject to adjustment as
provided herein. For purposes of this resolution, the "conversion rate"
applicable to a share of Series B Convertible Preferred Stock shall be the
number of shares of Common Stock and number or amount of any other securities
and property as hereinafter provided into which a share of Series B Convertible
Preferred Stock is then convertible and shall be determined by dividing the then
existing conversion price into $10.00.
The conversion price (subject to adjustments pursuant to the provisions of
paragraph (c) below) in effect immediately prior to the date that is 12 months
after the Final Closing Date of the issuance and sale of the Series B
Convertible Preferred Stock (the "Reset Date") shall be adjusted and reset
effective as of the Reset Date if the average closing bid price of the Common
Stock for the 20 consecutive trading days immediately preceding the Reset Date
(the "12-Month Trading Price") is less than 130% of the then applicable
conversion price (a "Reset Event"). Upon the occurrence of a Reset Event, the
conversion price shall be reduced to be equal to the greater of (A) the 12-Month
Trading Price divided by 1.3, and (B) 50% of the then applicable conversion
price. If there is any change in the conversion price as a result of the
preceding sentence, then the conversion rate shall be changed accordingly, and
shall be determined by dividing the new conversion price into $10.00. The
Corporation shall prepare a certificate signed by the principal financial
officer of the Corporation setting forth the conversion rate as of the Reset
Date, showing in reasonable detail the facts upon which such conversion rate is
based, and such certificate shall forthwith be filed with the transfer agent of
the Series B Convertible Preferred Stock. Notwithstanding the provisions of
subparagraph (vi) of paragraph (c) below, a notice stating that the conversion
rate has been adjusted pursuant to this paragraph, or that no adjustment is
necessary, and setting forth the conversion rate in effect as of the Reset Date
shall be mailed as promptly as practicable after the Reset Date by the
Corporation to all record holders of the Series B Convertible Preferred Stock at
their last addresses as they shall appear in the stock transfer books of the
Corporation.
The "closing bid price" for each trading day shall be the reported closing
bid price on the Nasdaq Small-Cap Market or the Nasdaq National Market
(collectively referred to as, "NASDAQ") or, if the Common Stock is not quoted on
NASDAQ, on the principal national securities exchange on which the Common Stock
is listed or admitted to trading (based on the aggregate dollar value of all
securities listed or admitted to trading) or, if not listed or admitted to
trading on any national securities exchange or quoted on NASDAQ, the closing bid
price in the over-the-counter market as furnished by any NASD member firm
selected from time to time by the Corporation for that purpose, or, if such
prices are not available, the fair market value set by, or in a manner
established by, the Board of Directors of the Corporation in good faith.
"Trading day" shall mean a day on which the national securities exchange or
NASDAQ used to determine the closing bid price is open for the transaction of
business or the reporting of trades or, if the closing bid price is not so
determined, a day on which NASDAQ is open for the transaction of business.
(b) Conversion Procedures. Any holder of shares of Series B Convertible
Preferred Stock desiring to convert such shares into Common Stock shall
surrender the certificate or certificates
3
evidencing such shares of Series B Convertible Preferred Stock at the office of
the transfer agent for the Series B Convertible Preferred Stock, which
certificate or certificates, if the Corporation shall so require, shall be duly
endorsed to the Corporation or in blank, or accompanied by proper instruments of
transfer to the Corporation or in blank, accompanied by irrevocable written
notice to the Corporation that the holder elects so to convert such shares of
Series B Convertible Preferred Stock and specifying the name or names (with
address) in which a certificate or certificates evidencing shares of Common
Stock are to be issued. The Corporation need not deem a notice of conversion to
be received unless the holder complies with all the provisions hereof. The
Corporation will instruct the transfer agent (which may be the Corporation) to
make a notation of the date that a notice of conversion is received, which date
shall be deemed to be the date of receipt for purposes hereof.
The Corporation shall, as soon as practicable after such deposit of
certificates evidencing shares of Series B Convertible Preferred Stock
accompanied by the written notice and compliance with any other conditions
herein contained, deliver at such office of such transfer agent to the person
for whose account such shares of Series B Convertible Preferred Stock were so
surrendered, or to the nominee or nominees of such person, certificates
evidencing the number of full shares of Common Stock to which such person shall
be entitled as aforesaid, together with a cash adjustment of any fraction of a
share as hereinafter provided. Subject to the following provisions of this
paragraph, such conversion shall be deemed to have been made as of the date of
such surrender of the shares of Series B Convertible Preferred Stock to be
converted, and the person or persons entitled to receive the Common Stock
deliverable upon conversion of such Series B Convertible Preferred Stock shall
be treated for all purposes as the record holder or holders of such Common Stock
on such date; provided, however, that the Corporation shall not be required to
convert any shares of Series B Convertible Preferred Stock while the stock
transfer books of the Corporation are closed for any purpose, but the surrender
of Series B Convertible Preferred Stock for conversion during any period while
such books are so closed shall become effective for conversion immediately upon
the reopening of such books as if the surrender had been made on the date of
such reopening, and the conversion shall be at the conversion rate in effect on
such date. No adjustments in respect of any dividends on shares surrendered for
conversion or any dividend on the Common Stock issued upon conversion shall be
made upon the conversion of any shares of Series B Convertible Preferred Stock.
All notices of conversion shall be irrevocable; provided, however, that if
the Corporation has sent notice of an event pursuant to Section 4(g) hereof, a
holder of Series B Convertible Preferred Stock may, at its election, provide in
its notice of conversion that the conversion of its shares of Series B
Convertible Preferred Stock shall be contingent upon the occurrence of the
record date or effectiveness of such event (as specified by such holder),
provided that such notice of conversion is received by the Corporation prior to
such record date or effective date, as the case may be.
(c) Certain Adjustments of Conversion Rate. In addition to adjustment
pursuant to paragraph (a) above, the conversion rate (and the corresponding
conversion price) shall be subject to adjustment from time to time as follows:
(i) In case the Corporation shall (A) pay a dividend in Common Stock or make
a distribution in Common Stock, (B) subdivide its outstanding Common Stock, (C)
combine its outstanding Common Stock into a smaller number of shares of Common
Stock or (D) issue by reclassification of its Common Stock other securities of
the Corporation, then in each such case the conversion rate in effect
immediately prior thereto shall be adjusted so that the holder of any shares of
Series B Convertible Preferred Stock thereafter surrendered for conversion shall
be entitled to
4
receive the kind and number of shares of Common Stock or other securities of the
Corporation which such holder would have owned or would have been entitled to
receive immediately after the happening of any of the events described above had
such shares of Series B Convertible Preferred Stock been converted immediately
prior to the happening of such event or any record date with respect thereto.
Any adjustment made pursuant to this subparagraph (i) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
(ii) In case the Corporation shall (i) sell or issue any shares of Common
Stock for a consideration per share less than the closing price on the date of
sale of issue or (ii) issue rights, options, warrants or convertible securities
to all or substantially all holders of its Common Stock, without any charge to
such holders, entitling them to subscribe for or purchase Common Stock at a
price per share which is lower at the record date mentioned below than both (A)
the then effective conversion price and (B) the closing bid price (as defined in
Section 4) for the trading day immediately prior to such record date (the
"Current Market Price"), then the conversion rate shall be determined by
multiplying the conversion rate theretofore in effect by a fraction, of which
the numerator shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such shares, rights, options, warrants or
convertible securities plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the denominator shall be the
number of shares of Common Stock outstanding immediately prior to the issuance
of such shares, rights, options, warrants or convertible securities plus the
number of shares which the aggregate offering price of the total number of
shares offered would purchase at such closing price or Current Market Price, as
the case may be. Such adjustment shall be made whenever such shares, rights,
options, warrants or convertible securities are issued, and shall become
effective immediately and retroactive to the record date for the determination
of stockholders entitled to receive such rights, options, warrants or
convertible securities. Notwithstanding any of the foregoing, no adjustment
shall be made pursuant to the provisions of this subsection (ii), if such
adjustment would result in a decrease of the conversion rate.
(iii) In case the Corporation shall distribute to all or substantially all
holders of its Common Stock evidences of its indebtedness or assets (excluding
cash dividends or distributions out of earnings) or rights, options, warrants or
convertible securities containing the right to subscribe for or purchase Common
Stock (excluding those referred to in subparagraph (ii) above), then in each
case the conversion rate shall be determined by multiplying the conversion rate
theretofore in effect by a fraction, of which the numerator shall be the then
fair value as determined in good faith by the Corporation's Board of Directors
on the date of such distribution, and of which the denominator shall be such
fair value on such date minus the then fair value (as so determined) of the
portion of the assets or evidences of indebtedness so distributed or of such
subscription rights, options, warrants or convertible securities applicable to
one share. Such adjustment shall be made whenever any such distribution is made
and shall become effective on the date of distribution retroactive to the record
date for the determination of stockholders entitled to receive such
distribution.
(iv) Upon the expiration of any rights, options, warrants or conversion
privileges, if such shall not have been exercised, the conversion rate shall,
upon such expiration, be readjusted and shall thereafter be such as it would
have been had it been originally adjusted (or had the original adjustment not
been required, as the case may be) on the basis of (A) the fact that Common
Stock, if any, actually issued or sold upon the exercise of such rights,
options, warrants or conversion
5
privileges, and (B) the fact that such shares of Common Stock, if any, were
issued or sold for the consideration actually received by the Corporation upon
such exercise plus the consideration, if any, actually received by the
Corporation for the issuance, sale or grant of all such rights, options,
warrants or conversion privileges whether or not exercised.
(v) No adjustment in the conversion rate shall be required unless such
adjustment would require an increase or decrease of at least 1% in such rate;
provided, however, that the Corporation may make any such adjustment at its
election; and provided, further, that any adjustments which by reason of this
subparagraph (v) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section
4 shall be made to the nearest cent or to the nearest one-hundredth of a share,
as the case may be.
(vi) Whenever the conversion rate is adjusted as provided in any provision
of this Section 4:
(A) the Corporation shall compute (or may retain a firm of independent
public accountants of recognized national standing (which may be any such firm
regularly employed by the Corporation) to compute) the adjusted conversion rate
in accordance with this Section 4 and shall prepare a certificate signed by the
principal financial officer of the Corporation (or cause any such independent
public accountants to execute a certificate) setting forth the adjusted
conversion rate and showing in reasonable detail the facts upon which such
adjustment is based, and such certificate shall forthwith be filed with the
transfer agent of the Series B Convertible Preferred Stock; and
(B) a notice stating that the conversion rate has been adjusted and setting
forth the adjusted conversion rate shall forthwith be required, and as soon as
practicable after it is required, such notice shall be mailed by the Corporation
to all record holders of Series B Convertible Preferred Stock at their last
addresses as they shall appear in the stock transfer books of the Corporation.
(vii) In the event that at any time, as a result of any adjustment made
pursuant to this Section 4, the holder of any shares of Series B Convertible
Preferred Stock thereafter surrendered for conversion shall become entitled to
receive any shares of the Corporation other than shares of Common Stock or to
receive any other securities, the number of such other shares or securities so
receivable upon conversion of any share of Series B Convertible Preferred Stock
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions contained in this Section 4
with respect to the Common Stock.
(d) No Fractional Shares. No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon conversion of Series B
Convertible Preferred Stock. If more than one certificate evidencing shares of
Series B Convertible Preferred Stock shall be surrendered for conversion at one
time by the same holder, the number of full shares issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of
Series B Convertible Preferred Stock so surrendered. Instead of any fractional
share of Common Stock which would otherwise be issuable upon conversion of any
shares of Series B Convertible Preferred Stock, the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount equal to the same
fraction of the market price per share of Common
6
Stock (which shall be the closing price as defined in Section 5) at the close of
business on the day of conversion.
(e) Reservation of Shares; Transfer Taxes; Etc. The Corporation shall at
all times reserve and keep available, out of its authorized and unissued stock,
solely for the purpose of effecting the conversion of the Series B Convertible
Preferred Stock, such number of shares of its Common Stock free of preemptive
rights as shall from time to time be sufficient to effect the conversion of all
shares of Series B Convertible Preferred Stock from time to time outstanding.
The Corporation shall use its best efforts from time to time, in accordance with
the laws of the State of Delaware, to increase the authorized number of shares
of Common Stock if at any time the number of shares of Common Stock not
outstanding shall not be sufficient to permit the conversion of all the then-
outstanding shares of Series B Convertible Preferred Stock.
The Corporation shall pay any and all issue or other taxes that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of the Series B Convertible Preferred Stock. The Corporation shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue or delivery of Common Stock (or other securities
or assets) in a name other than that in which the shares of Series B Convertible
Preferred Stock so converted were registered, and no such issue or delivery
shall be made unless and until the person requesting such issue has paid to the
Corporation the amount of such tax or has established, to the satisfaction of
the Corporation, that such tax has been paid.
Notwithstanding anything to the contrary herein, before taking any action
that would cause an adjustment increasing the conversion rate or before any such
adjustment is made as a result of a Reset Event, in either event, such that the
effective conversion price (for all purposes an amount equal to $10.00 divided
by the conversion rate as in effect at such time) would be below the then par
value of the Common Stock, the Corporation shall take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Corporation
may validly and legally issue fully paid and nonassessable shares of Common
Stock at the conversion rate as so adjusted.
(f) Prior Notice of Certain Events. In case:
(i) the Corporation shall declare any dividend (or any other distribution)
on its Common Stock; or
(ii) the Corporation shall authorize the granting to the holders of Common
Stock of rights or warrants to subscribe for or purchase any shares of stock of
any class or of any other rights or warrants; or
(iii) of any reclassification of Common Stock (other than a subdivision or
combination of the outstanding Common Stock, or a change in par value, or from
par value to no par value, or from no par value to par value), or of any
consolidation or merger to which the Corporation is a party and for which
approval of any stockholders of the Corporation shall be required, or of the
sale or transfer of all or substantially all of the assets of the Corporation or
of any compulsory share exchange whereby the Common Stock is converted into
other securities, cash or other property; or
(iv) of the voluntary or involuntary dissolution, liquidation or winding up
of the Corporation;
7
then the Corporation shall cause to be filed with the transfer agent for the
Series B Convertible Preferred Stock, and shall cause to be mailed to the
holders of record of the Series B Convertible Preferred Stock, at their last
addresses as they shall appear upon the stock transfer books of the Corporation,
at least 10 days prior to the applicable record date hereinafter specified, a
notice stating (x) the date on which a record (if any) is to be taken for the
purpose of such dividend, distribution or granting of rights or warrants or, if
a record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, rights or warrants are to
be determined and a description of the cash, securities or other property to be
received by such holders upon such dividend, distribution or granting of rights
or warrants or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding up
is expected to become effective, the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such exchange,
dissolution, liquidation or winding up and the consideration, including
securities or other property, to be received by such holders upon such exchange;
provided, however, that no failure to mail such notice or any defect therein or
in the mailing thereof shall affect the validity of the corporate action
required to be specified in such notice.
(g) Other Changes in Conversion Rate. The Corporation from time to time may
increase the conversion rate by any amount for any period of time if the period
is at least 20 days and if the increase is irrevocable during the period.
Whenever the conversion rate is so increased, the Corporation shall mail to
holders of record of the Series B Convertible Preferred Stock a notice of the
increase at least 15 days before the date the increased conversion rate takes
effect, and such notice shall state the increased conversion rate and the period
it will be in effect.
The Corporation may make such increases in the conversion rate, in addition
to those required or allowed by this Section 4, as shall be determined by it, as
evidenced by a resolution of the Board of Directors, to be advisable in order to
avoid or diminish any income tax to holders of Common Stock resulting from any
dividend or distribution of stock or issuance of rights or warrants to purchase
or subscribe for stock or from any event treated as such for income tax
purposes.
(h) Ambiguities/Errors. The Board of Directors of the Corporation shall
have the power to resolve any ambiguity or correct any error in the provisions
relating to the convertibility of the Series B Convertible Preferred Stock, and
its actions in so doing shall be final and conclusive.
5. Mandatory Conversion. At any time on or after the Reset Date, the
Corporation, at its option, may cause the Series B Convertible Preferred Stock
to be converted in whole, or in part, on a pro rata basis, into fully paid and
nonassessable shares of Common Stock and such other securities and property as
herein provided if the closing price of the Common Stock shall have exceeded
150% of the then applicable conversion price for at least 20 trading days in any
30 consecutive trading day period. Any shares of Series B Convertible Preferred
Stock so converted shall be treated as having been surrendered by the holder
thereof for conversion pursuant to Section 4 on the date of such mandatory
conversion (unless previously converted at the option of the holder).
Not more than 60 nor less than 20 days prior to the date of any such
mandatory conversion, notice by first class mail, postage prepaid, shall be
given to the holders of record of the Series B Convertible Preferred Stock to be
converted, addressed to such holders at their last addresses as shown on the
stock transfer books of the Corporation. Each such notice shall specify the
date fixed for conversion, the place or
8
places for surrender of shares of Series B Convertible Preferred Stock, and the
then effective conversion rate pursuant to Section 4.
The "closing price" for each trading day shall be the reported last sales
price regular way or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices regular way, in either case
on NASDAQ or, if the Common Stock is not quoted on NASDAQ, on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading (based on the aggregate dollar value of all securities listed or
admitted to trading) or, if not listed or admitted to trading on any national
securities exchange or quoted on NASDAQ, the average of the closing bid and
asked prices in the over-the-counter market as furnished by any NASD member firm
selected from time to time by the Corporation for that purpose, or, if such
prices are not available, the fair market value set by, or in a manner
established by, the Board of Directors of the Corporation in good faith.
"Trading day" shall have the meaning given in Section 4 hereof.
Any notice which is mailed as herein provided shall be conclusively
presumed to have been duly given by the Corporation on the date deposited in the
mail, whether or not the holder of the Series B Convertible Preferred Stock
receives such notice; and failure properly to give such notice by mail, or any
defect in such notice, to the holders of the shares to be converted shall not
affect the validity of the proceedings for the conversion of any other shares of
Series B Convertible Preferred Stock. On or after the date fixed for conversion
as stated in such notice, each holder of shares called to be converted shall
surrender the certificate evidencing such shares to the Corporation at the place
designated in such notice for conversion. Notwithstanding that the certificates
evidencing any shares properly called for conversion shall not have been
surrendered, the shares shall no longer be deemed outstanding and all rights
whatsoever with respect to the shares so called for conversion (except the right
of the holders to convert such shares upon surrender of their certificates
therefor) shall terminate.
6. Voting Rights.
(a) General. Except as otherwise provided herein, in the Amended and
Restated Certificate of Incorporation or the By-laws, the holders of shares of
Series B Convertible Preferred Stock, the holders of shares of Common Stock and
the holders of any other class or series of shares entitled to vote with the
Common Stock shall vote together as one class on all matters submitted to a vote
of stockholders of the Corporation. In any such vote, each share of Series B
Convertible Preferred Stock shall entitle the holder thereof to cast the number
of votes equal to the number of votes which could be cast in such vote by a
holder of the Common Stock into which such share of Series B Convertible
Preferred Stock is convertible on the record date for such vote, or if no record
date has been established, on the date such vote is taken. Any shares of Series
B Convertible Preferred Stock held by the Corporation or any entity controlled
by the Corporation shall not have voting rights hereunder and shall not be
counted in determining the presence of a quorum.
(b) Class Voting Rights. In addition to any vote specified in paragraph (a)
of this Section 6, so long as 50% of the shares of Series B Convertible
Preferred Stock (including those shares of Series B Convertible Preferred Stock
issued or issuable upon the exercise of the warrants issued to Paramount
Capital, Inc., the placement agent in connection with the offer and sale of the
Series B Convertible Preferred Stock) shall be outstanding, the Corporation
shall not, without the affirmative vote or consent of the holders of at least
66-2/3% of all outstanding Series B Convertible Preferred Stock voting
separately as a class, (i) amend, alter or repeal any provision of the Amended
and Restated Certificate of
9
Incorporation, as amended, or the Bylaws of the Corporation so as adversely to
affect the relative rights, preferences, qualifications, limitations or
restrictions of the Series B Convertible Preferred Stock, (ii) declare any
dividend or distribution on the Common Stock or any other class or series of
preferred stock or authorize the repurchase of any securities of the Corporation
or (iii) authorize or issue, or increase the authorized amount of, any
additional class or series of stock, or any security convertible into stock of
such class or series, (A) ranking prior to, or on a parity with, the Series B
Convertible Preferred Stock upon liquidation, dissolution or winding up of the
Corporation or a sale of all or substantially all of the assets of the
Corporation or (B) providing for the payment of any dividends or distributions.
A class vote on the part of the Series B Convertible Preferred Stock shall,
without limitation, specifically not be deemed to be required (except as
otherwise required by law or resolution of the Corporation's Board of Directors)
in connection with: (a) the authorization, issuance or increase in the
authorized amount of Common Stock or of any shares of any other class or series
of stock ranking junior to the Series B Convertible Preferred Stock in respect
of distributions upon liquidation, dissolution or winding up of the Corporation;
(b) the authorization, issuance or increase in the amount of the Series B
Convertible Preferred Stock or any bonds, mortgages, debentures or other
obligations of the Corporation (other than bonds, mortgages, debentures or other
obligations convertible into or exchangeable for or having option rights to
purchase any shares of stock of the Corporation the authorization issuance or
increase in amount of which would require the consent of the holders of the
Series B Preferred Stock); or (c) any consolidation or merger of the Corporation
with or into another corporation in which the Corporation is not the surviving
entity, a sale or transfer of all or part of the Corporation's assets for cash,
securities or other property, or a compulsory share exchange.
7. Outstanding Shares. For purposes of this Certificate of Designations,
all shares of Series B Convertible Preferred Stock shall be deemed outstanding
except (i) from the date, or the deemed date, of surrender of certificates
evidencing shares of Series B Convertible Preferred Stock, all shares of Series
B Convertible Preferred Stock converted into Common Stock, (ii) from the date of
registration of transfer, all shares of Series B Convertible Preferred Stock
held of record by the Corporation or any subsidiary of the Corporation and (iii)
any and all shares of Series B Convertible Preferred Stock held in escrow prior
to delivery of such stock by the Corporation to the initial beneficial owners
thereof.
8. Status of Acquired Shares. Shares of Series B Convertible Preferred
Stock received upon conversion pursuant to Section 4 or Section 5 or otherwise
acquired by the Corporation will be restored to the status of authorized but
unissued shares of Preferred Stock, without designation as to class, and may
thereafter be issued, but not as shares of Series B Convertible Preferred Stock.
9. Preemptive Rights. The Series B Convertible Preferred Stock is not
entitled to any preemptive or subscription rights in respect of any securities
of the Corporation.
10. Severability of Provisions. Whenever possible, each provision hereof
shall be interpreted in a manner as to be effective and valid under applicable
law, but if any provision hereof is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating or otherwise adversely affecting
the remaining provisions hereof. If a court of competent jurisdiction should
determine that a provision hereof would be valid or enforceable if a period of
time were extended or shortened or a particular percentage were increased or
decreased, then such court may make such change as shall be necessary to render
the provision in question effective and valid under applicable law.
10