RESTATED CERTIFICATE OF INCORPORATION
OF
ACCENT COLOR SCIENCES, INC.
FIRST. The name of the corporation is Accent Color
Sciences, Inc.
SECOND. The nature of the business to be transacted, or
the purposes to be promoted or carried out by the corporation,
are as follows:
To have and exercise all of the powers now or hereafter
conferred by the laws of the State of Connecticut upon a
corporation organized pursuant to the Connecticut Stock
Corporation Act, and any and all acts amending said Act, in
substitution therefor or supplementing such Act.
THIRD. The designation of each class of shares, the
authorized number of shares of each such class, and the par value
of each share thereof, are as follows:
The corporation shall have one (1) class of stock
designated as Common Stock and consisting of Twenty Five
Million (25,000,000) authorized shares. Each share of
common stock shall be without par value.
The corporation shall have one (1) class of stock
designated as Preferred Stock and consisting of Five Hundred
Thousand (500,000) authorized shares. Each share of
preferred stock shall be without par value.
FOURTH. The terms, limitations and relative rights and
preferences of each class of shares and series thereof, or an
express grant of authority to the Board of Directors pursuant to
Section 33-341(b) of the Connecticut Stock Corporation Act are as
follows:
A. AUTHORITY OF THE BOARD OF DIRECTORS
The Board of Directors may, before their issuance, fix
and determine the terms, limitations or relative rights or
preferences of Preferred Stock, or establish series of such
shares and fix and determine the variations as among such
series, to the extent the certificate of incorporation has
not or does not in the future do so.
B. COMMON STOCK
1. Dividends. Subject to the prior right of the Preferred Stock,
the holders of outstanding shares of Common Stock ("Common Stock Holders")
shall be entitled to receive dividends as, when and in the amount declared
by the Board of Directors, out of any funds legally available therefor.
2. Liquidation, Dissolution and Winding Up. Subject
to the prior and superior right of the Preferred Stock, in
the event of any liquidation, dissolution or winding up of
the affairs of the corporation, whether voluntary or
involuntary, the Common Stock Holders shall be entitled to
receive, out of the net assets of the corporation, after
payment or provision for payment of the debts and other
liabilities of the corporation, that portion of the
remaining funds to be distributed. Such funds shall be paid
to the Common Stock Holders on the basis of the number of
shares of Common Stock held by each of them. Neither the
consolidation nor merger of the corporation into or with any
other corporation nor the sale or transfer by the
corporation of all or any part of its assets shall be deemed
a liquidation, dissolution or winding up of the affairs of
the corporation within the meaning of the provisions of this
subparagraph 2.
3. Voting. Each share of Common Stock shall entitle
the holder thereof to one vote, in person or by proxy, on
any matter on which action of the shareholders is sought.
C. PREFERRED STOCK
1. Series. The shares of Preferred Stock may be
divided into and issued in one or more series, and each
series shall be so designated so as to distinguish the
shares thereof from the shares of all other series. All
shares of Preferred Stock shall be identical except in
respect of particulars which may be fixed by the Board of
Directors as hereinafter provided pursuant to authority
which is hereby expressly vested in the Board of Directors.
Each share of a series shall be identical in all respects
with all other shares of such series, except as to the date
from which dividends thereon shall be cumulative on any
series as to which dividends are cumulative. Shares of Pre
ferred Stock of any series which have been retired in any
manner, including shares redeemed or reacquired by the
corporation and shares which have been converted into or
exchanged for shares of any other class, or any series of
the same or any other class shall have the status of
authorized but unissued shares of Preferred Stock and may be
reissued as shares of the series of which they were
originally a part or may be issued as shares of a new series
or any other series of the same class.
2. Voting Rights. Shares of Preferred Stock shall
not entitle the holder thereof to any voting rights except
that with respect to all shares of Preferred Stock which may
be convertible into shares of Common Stock, the holder
thereof shall be entitled to as many votes with respect to
all matters brought before the shareholders of the
corporation as such Preferred Stockholder would have been
entitled had such holder converted his or her shares of
Preferred Stock into Common Stock immediately prior to the
record date for determining shareholders entitled to vote on
any such matter. All such voting rights of any Preferred
Stock shall be exercised together with the voting rights of
all holders of Common Stock as a single class and no holders
of Preferred Stock shall have any separate voting rights
with respect to the class of Preferred Stock or any series
thereof, except as otherwise provided by law.
3. Provisions. Before any shares of Preferred Stock
of any series shall be issued, the Board of Directors,
pursuant to authority hereby expressly vested in it, shall
fix by resolution or resolutions the following provisions in
respect of the shares of each such series so far as the same
are not inconsistent with the provisions of this Article
Fourth applicable to all series of Preferred Stock:
(a) the distinctive designations of such series
and the number of shares which shall constitute such series,
which number may be increased (except where otherwise
provided by the Board of Directors in creating such series)
or decreased (but not below the number of shares thereof
then outstanding) from time to time by like action of the
Board of Directors;
(b) the annual rate or amount of dividends, if
any, payable on shares of such series (which dividends would
be payable in preference to any dividends on Common Stock),
whether such dividends shall be cumulative or non-cumulative
and the conditions upon which and/or the dates when such
dividends shall be payable;
(c) whether the shares of such series shall be
redeemable and, if so, the terms and conditions of such
redemption, including the time or times when and the price
or prices at which shares of such series may be redeemed;
(d) the amount, if any, payable on shares of such
series in the event of liquidation of the corporation;
(e) whether the shares of such series shall be
convertible into or exchangeable for shares of any other
class, or any series of the same or any other class, and, if
so, the terms and conditions thereof, including the date or
dates when such shares shall be convertible into or
exchangeable for shares of any other class, or any series of
the same or any other class, the price or prices or the rate
or rates at which shares of such series shall be so
convertible or exchangeable, and the adjustments which shall
be made, and the circumstances in which such adjustments
shall be made, in such conversion or exchange prices or
rates; and
(f) any other preferences and relative, partici
pating, optional or other special rights, and any qualifica
tions, limitations and restrictions thereof.
D. SERIES A PREFERRED STOCK
1. Designation. There is hereby created a series of
the Preferred Stock consisting of 350,000 shares having the
designation, voting powers, preferences, relative,
participating, optional and other special rights and the
qualifications, limitations and restrictions thereof as are
set forth in this Paragraph D. This series is designated
"Series A Convertible Voting Preferred Stock" (hereinafter
called "Series A Stock");
2. Cash Dividend.
(a) The record holders of the outstanding shares
of Series A Stock ("Series A Holders") shall be entitled to
receive noncumulative cash dividends when and as declared by
the Board of Directors.
(b) Upon the payment or setting apart for payment
of any dividends upon the outstanding shares of Series A
Stock, the Board of Directors may declare and pay dividends
upon the Common Stock up to an amount with respect to each
share of Common Stock equal to the amount paid or set aside
for payment with respect to each share of Series A Stock
divided by the number of shares of Common Stock into which
each such share of Preferred Stock shall then be
convertible.
3. Redemption. The Series A Stock may not be
redeemed, in whole or in part.
4. Liquidation.
(a) In the event of any voluntary or involuntary
liquidation of the corporation, the Series A Holders shall
be entitled to be paid an amount equal to all dividends
thereon remaining unpaid up to the date of such liquidation
whether or not at such times the corporation shall have
surplus available for the payment of dividends.
(b) After payment to the Series A Holders of the
amounts payable under subpart (a) above, the Series A
Holders shall be entitled to be paid as a liquidating
distribution Five Dollars ($5.00) per share (the
"Liquidation Preference") prior to any liquidating distribu
tion to the Common Stock Holders but shall not participate
further in any liquidating distributions to such Common
Stock Holders.
5. Conversion.
(a) Conversion Option. At the option of the
Series A Holders, their holdings of such Series A Stock
shall be convertible into shares of Common Stock and cash in
lieu of fractional shares upon the terms and conditions of
subparagraph (c) below.
(b) Mandatory Conversion. The holdings of the
Series A Holders shall automatically convert into shares of
Common Stock and cash in lieu of fractional shares upon the
terms and conditions of subparagraph (c) below (1) upon the
affirmative vote of 70% or more of the Series A Holders or
(2) upon the effectiveness of a registration statement
registering the sale by the Company of shares of Common
Stock to the public pursuant to which (A) Common Stock is
offered to the public at a price of at least 1.4 times the
conversion price (which may be adjusted downward at the
discretion of the Board of Directors) and (B) the gross
proceeds to the Company and/or the selling stockholders are
at least $5,000,000.
(c) Conversion Rate.
(i) The shares shall be convertible from and
after the date of their issuance under the terms and
conditions outlined in subparagraphs (a) and (b) above at
the office of any Transfer Agent for the Series A Stock (or
such other place as may be designated by the corporation)
into fully paid and nonassessable shares of Common Stock (as
such Common Stock shall then be constituted) at the rate of
1.4 shares of Common Stock for each one (1) share of Series
A Stock but such rate shall be adjusted to the extent
provided in subpart (b) of this subparagraph 5.
(ii) In order to convert shares of Series A
Stock into Common Stock, the holder thereof shall surrender
the certificate or certificates for Series A Stock, duly
endorsed to the corporation or in blank, at the office of
any Transfer Agent for the Series A Stock (or such other
place as may be designated by the corporation), and shall
give written notice to the corporation at said office that
he elects to convert the same and shall state in writing
therein the name or names in which he wishes the certificate
or certificates for Common Stock to be issued. The
corporation will, as soon as practicable thereafter, deliver
at said office to such holder of shares of the Series A
Stock or to his nominee or nominees, a certificate or certif
icates for the number of full shares of Common Stock to
which he shall be entitled as aforesaid. Shares of the
Series A Stock shall be deemed to have been converted as of
the date of the surrender of such certificate or certifi
cates for conversion as provided above, and the person or
persons entitled to receive the Common Stock issuable upon
such conversion shall be treated for all purposes as the
record holder or holders of such Common Stock on such date.
(d) Conversion Adjustment Provisions. The
conversion rate provided in subpart (a)(i) above shall be
subject to adjustment to the extent provided below:
(i) Stock Dividends, Subdivisions and
Combinations. In the event the corporation shall
(a) pay a dividend of Common Stock, or
of any capital stock convertible into Common Stock, on its
outstanding Common Stock;
(b) subdivide its outstanding Common
Stock into a larger number of shares of Common Stock by
reclassification or otherwise; or
(c) combine its outstanding Common
Stock into a smaller number of shares of Common Stock by
reclassification or otherwise;
the conversion rate in effect immediately prior thereto
shall be proportionately adjusted so that the holder of any
Series A Stock thereafter surrendered for conversion shall
be entitled to receive the number of shares of Common Stock
(and, in the case of a dividend payable in capital stock
convertible into Common Stock, the number of shares of such
capital stock) which he would have owned or have been
entitled to receive after the happening of any of the events
described above had such Series A Stock been converted
immediately prior to the happening of such event. Such
adjustment shall be made whenever any of the events
described above shall occur. In the case of a dividend, any
such adjustment shall be made as of the record date thereof
and in the case of a subdivision or combination, any such
adjustment shall be made as of the effective date thereof.
(ii) Issuance of Additional Securities. In
the event that the corporation shall issue shares of Common
Stock (other than Excluded Securities) or other securities
convertible into or exchangeable for shares of Common Stock
(other than Excluded Securities) at a price per share in the
case of issuances of Common Stock less than the conversion
rate then in effect or at a price per share in the case of
securities other than Common Stock which, when divided by
the number of shares of Common Stock into which each such
share of such other securities is convertible or
exchangeable, is less than the conversion rate then in
effect, the conversion rate shall be reduced to the result
obtained by multiplying the conversion rate in effect
immediately prior to such issuance by a fraction, the
numerator of which is equal to the number of outstanding
shares of Common Stock and shares of Common Stock issuable
pursuant to then existing conversion or exchange rights
multiplied by the conversion rate then in effect plus the
total consideration received for the Common Stock or other
securities issued and the denominator of which is the total
number of shares of Common Stock and shares of Common Stock
issuable pursuant to all rights of conversion or exchange
immediately following such issuance. For purposes of the
preceding sentence, the term "Excluded Securities" means
Common Stock or other securities issued to employees,
consultants, directors and officers of the corporation,
securities issued as a dividend or distribution on the
Preferred Stock and securities issued in the event of a
stock split, reverse stock split, Common Stock dividend on
Common Stock or other subdivision or consolidation or
reclassification of the Common Stock.
(iii) Minimum Adjustment. Notwithstanding
the provisions of (i) or (ii) of this subpart (b), no
adjustment in the conversion rate shall be required unless
such adjustment would require an increase or decrease of at
least 2% of such rate; provided, however, that any such
adjustments which are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment. All calculations required by any provision of
this subpart (b) shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be.
(e) Fractional Shares. No fraction of a share of
Common Stock shall be issued upon any conversion of Series A
Stock but, in lieu thereof, there shall be paid an amount in
cash equal to the same fraction of the market value of a
full share of Common Stock. For such purpose, the market
value of a share of Common Stock shall be the prevailing
market value or other as determined by the Board in the open
market, as conclusively determined by the corporation.
(f) Reservation of Common Stock. The corporation
shall at all times reserve and keep available out of its
authorized but unissued Common Stock solely for the purposes
of effecting the conversion of the shares of the Series A
Stock, the full number of shares of Common Stock then
deliverable upon the conversion of all shares of Series A
Stock at the time outstanding.
FIFTH. The minimum amount of stated capital with which the
corporation shall commence business is One Thousand Dollars.
SIXTH.
A. The personal liability of a director to the corporation
or its shareholders for monetary damages for breach of duty as a
director shall be limited to an amount that is equal to the
compensation received by the director for serving the corporation
during the year of the violation if such breach did not (A)
involve a knowing and culpable violation of law by the director,
(B) enable the director, or an associated, as defined in
subdivision (3) of section 33-374d of the Connecticut General
Statutes, to receive an improper personal economic gain, (C) show
a lack of good faith and conscious disregard for the duty of the
director to the corporation under the circumstances in which the
director was aware that his conduct or omission created an
unjustifiable risk of serious injury to the corporation, (D)
constitute a sustained or unexcused pattern of inattention that
amounted to an abdication of the director's duty to the
corporation, or (E) create liability under section 33-321 of the
Connecticut General Statutes. Nothing herein shall limit or
preclude the liability of a director for any act or omission
occurring prior to the effective date of this provision.
B. As permitted by Section 33-343(f) of the Connecticut
Stock Corporation Act, all preemptive rights of shareholders are
hereby denied, and no holder of any shares of stock of the
corporation shall be entitled as a matter of right to subscribe
for, purchase or receive any shares of stock of the corporation
(or any obligation convertible into, or warrant or other
instrument entitling the holder to purchase, any stock of the
corporation) which the corporation may issue or sell, whether out
of the number of shares of stock now authorized, or whenever
authorized, or out of shares of stock of the corporation acquired
by it after issuance.
C. The terms of the directors shall be staggered by
dividing the total number of directors into three classes, with
each class comprising as nearly as possible the same percentage
of the total as each other class. The classes shall be formally
referenced as Class 1, Class 2 and Class 3. The terms of the
directors in Class 1 expire at the first annual shareholders'
meeting after their election, the terms of the directors in Class
2 expire at the second annual shareholders' meeting after their
election, and the terms of the directors of Class 3 expire at the
third annual shareholders' meeting after their election. At each
annual shareholders' meeting following the annual meeting at
which directors are first elected to such three classes,
directors shall be elected for terms of three years to succeed
those whose terms expire at such annual meeting. If the number
of directorships is changed, any increase or decrease in
directors shall be apportioned among the classes so that each
class comprises as nearly as possible the same percentage of the
total as each other class. Upon a change in the number of
directorships, the term of any newly elected director or any
director reallocated to a different class shall be for the period
until such class stands for election. Notwithstanding the
preceding sentence, no decrease in the number of directorships
shall shorten the term of any director. Any director elected to
fill a vacancy not resulting from an increase in the number of
directorships shall have the same remaining term as that of his
or her predecessor. No director shall be removed except by the
affirmative vote of two-thirds (2/3) or more of the issued and
outstanding shares of capital stock of the corporation entitled
to vote for the election of directors generally.
Article FOURTH is amended by adding a new subsection E as
follows:
E. SERIES B CONVERTIBLE PREFERRED STOCK
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 4,500
shares of Preferred Stock, is the Series B Convertible Preferred
Stock (the "Series B Preferred Stock") and the face amount shall
be One Thousand U.S. Dollars ($1000.00) per share (the "Face
Amount").
II. DIVIDENDS
The Series B Preferred Stock shall bear no dividends, and
the holders of the Series B Preferred Stock shall not be entitled
to receive dividends on the Series B Preferred Stock.
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the
following terms shall have the following meanings:
A. "Average Price" means, as of any date, the average of
the Closing Prices for the Common Stock during the five (5)
consecutive trading days ending on the trading day immediately
preceding such date of determination (subject to equitable
adjustment for any stock splits, stock dividends,
reclassifications or similar events during such five (5) trading
day period).
B. "Closing Price" means, for any security as of any date,
the last sale price of such security on the principal securities
exchange or trading market where such security is listed or
traded as reported by Bloomberg Financial Markets or a comparable
reporting service of national reputation selected by the
Corporation and reasonably acceptable to holders of a majority of
the then outstanding shares of Series B Preferred Stock if
Bloomberg Financial Markets is not then reporting closing bid
prices of such security (collectively, "Bloomberg"), or if the
foregoing does not apply, the last reported sale 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 sale 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 Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing
Price of such security on such date shall be the fair market
value as reasonably determined by an investment banking firm
selected by the Corporation and reasonably acceptable to holders
of a majority of the then outstanding shares of Series B
Preferred Stock, with the costs of such appraisal to be borne by
the Corporation.
C. "Conversion Date" means, for any Conversion, the date
specified in the notice of conversion in the form attached hereto
(the "Notice of Conversion"), so long as the copy of the Notice
of Conversion is faxed (or delivered by other means resulting in
notice) to the Corporation before 11:59 p.m., New York City time,
on the Conversion Date indicated in the Notice of Conversion. If
the Notice of Conversion is not so faxed or otherwise delivered
before such time, then the Conversion Date shall be the date the
holder faxes or otherwise delivers the Notice of Conversion to
the Corporation.
D. "Conversion Percentage" shall initially mean eighty-
five percent (85%). In the event the Corporation's Common Stock
is no longer designated for quotation on the Nasdaq National
Market ("NNM") and is designated for quotation on the Nasdaq
SmallCap Market ("SmallCap"), the Conversion Percentage shall be
permanently reduced by two percent (2%) to 83%. In addition, in
the event that the Corporation fails to obtain the Shareholder
Approval contemplated by Section 4(m) of the Securities Purchase
Agreement (as defined herein) on or before May 31, 1998, the
Conversion Percentage shall be permanently reduced by ten percent
(10%) to 75%. The Conversion Percentage also shall be subject to
adjustment as provided herein and as provided in Section 2(c) of
the Registration Rights Agreement entered into in connection with
and pursuant to the Securities Purchase Agreement (the
"Registration Rights Agreement").
E. "Conversion Price" means, with respect to any
Conversion Date, the lower of (i) the Variable Conversion Price
in effect as of such date and (ii) in the event that the Average
Price as of such date is greater than the Fixed Conversion Price
in effect as of such date, the arithmetic average between the
Fixed Conversion Price in effect as of such date and the Average
Price (but in no event greater than $5.00).
F. "Fixed Conversion Price" means $2.75, and shall be
subject to adjustment as provided herein.
G. "Floor Price" means $2.50, and shall be subject to
adjustment as provided herein.
H. "Issuance Date" means the date of the closing under
that certain Securities Purchase Agreement by and among the
Corporation and the purchasers named therein with respect to the
issuance of the Series B Preferred Stock (the "Securities
Purchase Agreement").
I. "N" means the number of days from, but excluding, the
Issuance Date.
J. "Premium" means an amount equal to
(.06)x(N/365)x(1,000).
K. "Variable Conversion Price" means, as of any date of
determination, the amount obtained by multiplying the Conversion
Percentage then in effect by the Average Price as of such date,
and shall be subject to adjustment as provided herein.
IV. CONVERSION
A. Conversion at the Option of the Holder. (i) Subject to
the limitations on conversions contained in Paragraph C of this
Article IV, each holder of shares of Series B Preferred Stock
may, at any time and from time to time after the Issuance Date,
convert (a "Conversion") each of its shares of Series B Preferred
Stock into a number of fully paid and nonassessable shares of
Common Stock determined in accordance with the following formula
if the Corporation timely redeems the Premium thereon in cash in
accordance with subparagraph (ii) below:
1,000
Conversion Price
or in accordance with the following formula if the Corporation
does not timely redeem the Premium thereon in accordance with
subparagraph (ii) below:
1,000 + the Premium
Conversion Price
(ii) (a) The Corporation shall have the right, in its
sole discretion, upon receipt of a Notice of Conversion, to
redeem the Premium subject to such conversion for a sum of cash
equal to the amount of the Premium being so redeemed. All cash
redemption payments hereunder shall be paid in lawful money of
the United States of America at such address for the holder as
appears on the record books of the Corporation (or at such other
address as such holder shall hereafter give to the Corporation by
written notice). In the event the Corporation so elects to
redeem the Premium in cash and fails to pay such holder the
applicable redemption amount to which such holder is entitled by
depositing a check in the U.S. Mail to such holder within three
(3) business days of receipt by the Corporation of a Notice of
Conversion, the Corporation shall thereafter forfeit its right to
redeem such Premium in cash and such Premium shall thereafter be
converted into shares of Common Stock in accordance with Article
IV.A(i).
(b) Each holder of Series B Preferred Stock shall
have the right to require the Corporation to provide advance
notice to such holder stating whether the Corporation will elect
to redeem the Premium in cash pursuant to the Corporation's
redemption rights discussed in subparagraph (a) of this Article
IV.A(ii). A holder may exercise such right from time to time by
sending notice (an "Election Notice") to the Corporation, by
facsimile, requesting that the Corporation disclose to such
holder whether the Corporation would elect to redeem the Premium
for cash in lieu of issuing shares of Common Stock therefor if
such holder were to exercise its right of conversion pursuant to
this Article IV.A. The Corporation shall, no later than the
close of business on the second business day following receipt of
an Election Notice, disclose to such holder whether the
Corporation would elect to redeem the Premium in connection with
a conversion pursuant to a Notice of Conversion delivered over
the subsequent five (5) business day period. If the Corporation
does not respond to such holder within such two (2) business day
period via facsimile, the Corporation shall, with respect to any
conversion pursuant to a Conversion Notice delivered within the
subsequent five (5) business day period, forfeit its right to
redeem such Premium in accordance with subparagraph (a) of this
Article IV.A(ii) and shall be required to convert such Premium
into shares of Common Stock.
B. Mechanics of Conversion. In order to effect a
Conversion, a holder shall: (x) fax (or otherwise deliver) a copy
of the fully executed Notice of Conversion to the Corporation or
the transfer agent for the Common Stock and (y) surrender or
cause to be surrendered the original certificates representing
the Series B Preferred Stock being converted (the "Preferred
Stock Certificates"), duly endorsed, along with a copy of the
Notice of Conversion as soon as practicable thereafter to the
Corporation or the transfer agent. Upon receipt by the
Corporation of a facsimile copy of a Notice of Conversion from a
holder, the Corporation shall immediately send, via facsimile, a
confirmation to such holder stating that the Notice of Conversion
has been received, the date upon which the Corporation expects to
deliver the Common Stock issuable upon such conversion and the
name and telephone number of a contact person at the Corporation
regarding the conversion. The Corporation shall not be obligated
to issue shares of Common Stock upon a conversion unless either
the Preferred Stock Certificates are delivered to the Corporation
or the transfer agent as provided above, or the holder notifies
the Corporation or the transfer agent that such certificates have
been lost, stolen or destroyed and delivers the documentation to
the Company required by Article XIV.B hereof.
(i) Delivery of Common Stock Upon Conversion. Upon
the surrender of Preferred Stock Certificates from a holder of
Series B Preferred Stock accompanied by a Notice of Conversion,
the Corporation shall, no later than the later of (a) the second
business day following the Conversion Date and (b) the business
day following the date of such surrender (or, in the case of
lost, stolen or destroyed certificates, after provision of
indemnity pursuant to Article XIV.B) (the "Delivery Period"),
issue and deliver to the holder or its nominee (x) that number of
shares of Common Stock issuable upon conversion of such shares of
Series B Preferred Stock being converted and (y) a certificate
representing the number of shares of Series B Preferred Stock not
being converted, if any. If the Corporation's transfer agent is
participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program, and so long as the
certificates therefor do not bear a legend and the holder thereof
is not obligated to return such certificate for the placement of
a legend thereon, the Corporation shall cause its transfer agent
to electronically transmit the Common Stock issuable upon
conversion to the holder by crediting the account of the holder
or its nominee with DTC through its Deposit Withdrawal Agent
Commission system ("DTC Transfer"). If the aforementioned
conditions to a DTC Transfer are not satisfied, the Corporation
shall deliver to the holder physical certificates representing
the Common Stock issuable upon conversion. Further, a holder may
instruct the Corporation to deliver to the holder physical
certificates representing the Common Stock issuable upon
conversion in lieu of delivering such shares by way of DTC
Transfer.
(ii) Taxes. The Corporation shall pay any and all
taxes which may be imposed upon it with respect to the issuance
and delivery of the shares of Common Stock upon the conversion of
the Series B Preferred Stock.
(iii) No Fractional Shares. If any conversion of
Series B Preferred Stock would result in the issuance of a
fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable
upon conversion of the Series B Preferred Stock shall be the next
higher whole number of shares.
(iv) Conversion Disputes. In the case of any dispute
with respect to a conversion, the Corporation shall promptly
issue such number of shares of Common Stock as are not disputed
in accordance with subparagraph (i) above. If such dispute
involves the calculation of the Conversion Price, the Corporation
shall submit the disputed calculations to an independent outside
accountant via facsimile within two (2) business days of receipt
of the Notice of Conversion. The accountant, at the
Corporation's sole expense, shall audit the calculations and
notify the Corporation and the holder of the results no later
than two (2) business days from the date it receives the disputed
calculations. The accountant's calculation shall be deemed
conclusive, absent manifest error. The Corporation shall then
issue the appropriate number of shares of Common Stock in
accordance with subparagraph (i) above.
C. Limitations on Conversions. The conversion of shares
of Series B Preferred Stock shall be subject to the following
limitations (each of which limitations shall be applied
independently):
(i) Cap Amount. Unless permitted by the applicable
rules and regulations of the principal securities market on which
the Common Stock is listed or traded, in no event shall the total
number of shares of Common Stock issued upon conversion of the
Series B Preferred Stock exceed the maximum number of shares of
Common Stock that the Corporation can so issue pursuant to Rule
4460(i) of the National Association of Securities Dealers
("NASD") (or any successor rule) (the "Cap Amount") which, as of
the date of issuance of the Series B Preferred Stock, shall be
2,397,000 shares. The Cap Amount shall be allocated pro-rata to
the holders of Series B Preferred Stock as provided in Article
XIV.C. In the event the Corporation is prohibited from issuing
shares of Common Stock as a result of the operation of this
subparagraph (i), the Corporation shall comply with Article VII.
(ii) No Five Percent Holders. Unless a holder of
shares of Series B Preferred Stock delivers a waiver in
accordance with the last sentence of this subparagraph (ii), in
no event shall a holder of shares of Series B Preferred Stock be
entitled to receive shares of Common Stock upon a conversion to
the extent that the sum of (x) the number of shares of Common
Stock beneficially owned by the holder and its affiliates
(exclusive of shares issuable upon conversion of the unconverted
portion of the shares of Series B Preferred Stock or the
unexercised or unconverted portion of any other securities of the
Corporation (including, without limitation, the warrants (the
"Warrants") issued by the Corporation pursuant to the Securities
Purchase Agreement) subject to a limitation on conversion or
exercise analogous to the limitations contained herein) and (y)
the number of shares of Common Stock issuable upon the conversion
of the shares of Series B Preferred Stock with respect to which
the determination of this subparagraph is being made, would
result in beneficial ownership by the holder and its affiliates
of more than 4.99% of the outstanding shares of Common Stock.
For purposes of this subparagraph, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13 D-G
thereunder, except as otherwise provided in clause (x) above.
Except as provided in the immediately succeeding sentence, the
restriction contained in this subparagraph (ii) shall not be
altered, amended, deleted or changed in any manner whatsoever
unless the holders of a majority of the outstanding shares of
Common Stock and each holder of outstanding shares of Series B
Preferred Stock shall approve such alteration, amendment,
deletion or change. Notwithstanding the foregoing, a holder of
shares of Series B Preferred Stock may waive the restriction set
forth in this subparagraph (ii) by written notice to the
Corporation upon not less than sixty-one (61) days prior notice
(with such waiver taking effect only upon the expiration of such
sixty-one (61) day period).
(iii) Conversions Below Floor Price. (a) For
purposes hereof, "Below Floor Conversion" means any Conversion
occurring on a Conversion Date on which the Average Price in
effect as of such date is less than the Floor Price in effect as
of such date.
(b) So long as no Conversion Default (as defined
in Article VI hereof) or Mandatory Redemption Event (as defined
in Article VIII.A hereof) has occurred and is then continuing,
holders of shares of Series B Preferred Stock shall not be
entitled to effect a Below Floor Conversion on or before March
31, 1998 (the "Lockup Expiration Date"). Following the Lockup
Expiration Date, there shall be no restrictions pursuant to this
Article IV.C.(iii) on the ability of holders of shares of Series
B Preferred Stock to effect Below Floor Conversions.
(c) Notwithstanding the foregoing, the
restrictions on conversion set forth in subparagraph (b) of this
Article IV.C.(iii) shall not apply to conversions taking place on
any Conversion Date (I) on or after the date the Corporation
makes a public announcement that it intends to merge or
consolidate with any other entity (other than a merger in which
the Corporation is the surviving or continuing entity and its
capital stock is unchanged) or to sell or transfer all or
substantially all of the assets of the Corporation or (II) on or
after the date any person, group or entity (including the
Corporation) publicly announces a tender offer, exchange offer or
another transaction to purchase 50% or more of the Corporation's
Common Stock or otherwise publicly announces an intention to
replace a majority of the Corporation's Board of Directors by
waging a proxy battle or otherwise.
V. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. Upon the initial issuance of the
shares of Series B Preferred Stock, the Corporation shall reserve
4,800,000 shares of the authorized but unissued shares of Common
Stock for issuance upon conversion of the Series B Preferred
Stock and thereafter the number of authorized but unissued shares
of Common Stock so reserved (the "Reserved Amount") shall not be
decreased and shall at all times be sufficient to provide for the
conversion of the Series B Preferred Stock outstanding at the
then current Conversion Price thereof. The Reserved Amount shall
be allocated to the holders of Series B Preferred Stock as
provided in Article XIV.C.
B. Increases to Reserved Amount. If the Reserved Amount
for any three (3) consecutive trading days (the last of such
three (3) trading days being the "Authorization Trigger Date")
shall be less than 135% of the number of shares of Common Stock
issuable upon conversion of the then outstanding shares of Series
B Preferred Stock, the Corporation shall immediately notify the
holders of Series B Preferred Stock of such occurrence and shall
take immediate action (including, if necessary, seeking
shareholder approval to authorize the issuance of additional
shares of Common Stock) to increase the Reserved Amount to 200%
of the number of shares of Common Stock then issuable upon
conversion of the outstanding Series B Preferred Stock. In the
event the Corporation fails to so increase the Reserved Amount
within ninety (90) days after an Authorization Trigger Date, each
holder of Series B Preferred Stock shall thereafter have the
option, exercisable in whole or in part at any time and from time
to time by delivery of a Mandatory Redemption Notice (as defined
in Article VIII.C) to the Corporation, to require the Corporation
to purchase for cash, at an amount per share equal to the
Mandatory Redemption Amount (as defined in Article VIII.B), a
portion of the holder's Series B Preferred Stock such that, after
giving effect to such purchase, the holder's allocated portion of
the Reserved Amount exceeds 135% of the total number of shares
of Common Stock issuable to such holder upon conversion of its
Series B Preferred Stock. If the Corporation fails to redeem any
of such shares within five (5) business days after its receipt of
such Mandatory Redemption Notice, then such holder shall be
entitled to the remedies provided in Article VIII.C.
C. Limitations on Redemption Right. Notwithstanding the
provisions of Paragraph B of this Article V, the holders of
Series B Preferred Stock shall have no right to require the
Corporation to effect a redemption of their outstanding shares of
Series B Preferred Stock as provided in Paragraph B of this
Article V so long as (i) the Corporation has not, at any time,
decreased the Reserved Amount below 4,800,000 shares of Common
Stock; (ii) the Corporation shall have taken immediate action
following the applicable Authorization Trigger Date (including,
if necessary, seeking shareholder approval to authorize the
issuance of additional shares of Common Stock) to increase the
Reserved Amount to 200% of the number of shares of Common Stock
then issuable upon conversion of the outstanding Series B
Preferred Stock; and (iii) the Corporation continues to use its
good faith best efforts (including the resolicitation of
shareholder approval to authorize the issuance of additional
shares of Common Stock) to increase the Reserved Amount to 200%
of the number of shares of Common Stock then issuable upon
conversion of the outstanding Series B Preferred Stock. The
Corporation will be deemed to be using "its good faith best
efforts" to increase the Reserved Amount so long as it solicits
shareholder approval to authorize the issuance of additional
shares of Common Stock not less than three (3) times during each
twelve month period following the applicable Authorization
Trigger Date during which any shares of Series B Preferred Stock
remain outstanding.
VI. FAILURE TO SATISFY CONVERSIONS
A. Conversion Default Payments. If, at any time, (x) a
holder of shares of Series B Preferred Stock submits a Notice of
Conversion and the Corporation fails for any reason (other than
because such issuance would exceed such holder's allocated
portion of the Reserved Amount or Cap Amount, for which failures
the holders shall have the remedies set forth in Articles V and
VII, respectively) to deliver, on or prior to the fourth (4th)
business day following the expiration of the Delivery Period for
such conversion, such number of freely tradeable shares of Common
Stock to which such holder is entitled upon such conversion, or
(y) the Corporation provides notice to any holder of Series B
Preferred Stock at any time of its intention not to issue freely
tradeable shares of Common Stock upon exercise by any holder of
its conversion rights in accordance with the terms of this
Certificate of Designation (other than because such issuance
would exceed such holder's allocated portion of the Reserved
Amount or Cap Amount) (each of (x) and (y) being a "Conversion
Default"), then the Corporation shall pay to the affected holder,
in the case of a Conversion Default described in clause (x)
above, and to all holders, in the case of a Conversion Default
described in clause (y) above, an amount equal to:
(.24) x (D/365) x (the Default Amount)
where:
"D" means the number of days after the expiration of the
Delivery Period through and including the Default Cure Date;
"Default Amount" means (i) the total Face Amount of all
shares of Series B Preferred Stock held by such holder, plus (ii)
the total accrued Premium as of the first day of the Conversion
Default on all shares of Series B Preferred Stock included in
clause (i) of this definition; and
"Default Cure Date" means (i) with respect to a Conversion
Default described in clause (x) of its definition, the date the
Corporation effects the conversion of the full number of shares
of Series B Preferred Stock and (ii) with respect to a Conversion
Default described in clause (y) of its definition, the date the
Corporation begins to issue freely tradeable shares of Common
Stock in satisfaction of all conversions of Series B Preferred
Stock in accordance with Article IV.A, and (iii) with respect to
either type of a Conversion Default, the date on which the
Corporation redeems shares of Series B Preferred Stock held by
such holder pursuant to Paragraph D of this Article VI.
The payments to which a holder shall be entitled pursuant to
this Paragraph A are referred to herein as "Conversion Default
Payments." A holder may elect to receive accrued Conversion
Default Payments in cash or to convert all or any portion of such
accrued Conversion Default Payments, at any time, into Common
Stock at the lowest Conversion Price in effect during the period
beginning on the date of the Conversion Default through the
Conversion Date with respect to such Conversion Default Payments.
In the event a holder elects to receive any Conversion Default
Payments in cash, it shall so notify the Corporation in writing.
Such payment shall be made in accordance with and be subject to
the provisions of Article XIV.E. In the event a holder elects to
convert all or any portion of the Conversion Default Payments
into Common Stock, the holder shall indicate on a Notice of
Conversion such portion of the Conversion Default Payments which
such holder elects to so convert and such conversion shall
otherwise be effected in accordance with the provisions of
Article IV.
B. Adjustment to Conversion Price. If a holder has not
received certificates for all shares of Common Stock prior to the
tenth (10th) business day after the expiration of the Delivery
Period with respect to a conversion of Series B Preferred Stock
for any reason (other than because such issuance would exceed
such holder's allocated portion of the Reserved Amount or Cap
Amount, for which failures the holders shall have the remedies
set forth in Articles V and VII), then the Fixed Conversion Price
in respect of any shares of Series B Preferred Stock held by such
holder (including shares of Series B Preferred Stock submitted to
the Corporation for conversion, but for which shares of Common
Stock have not been issued to such holder) shall thereafter be
the lesser of (i) the Fixed Conversion Price on the Conversion
Date specified in the Notice of Conversion which resulted in the
Conversion Default and (ii) the lowest Conversion Price in effect
during the period beginning on, and including, such Conversion
Date through and including the earlier of (x) the day such shares
of Common Stock are delivered to the holder and (y) the day on
which the holder regains its rights as a holder of Series B
Preferred Stock with respect to such unconverted shares of Series
B Preferred Stock pursuant to the provisions of Article XIV.F
hereof. If there shall occur a Conversion Default of the type
described in clause (y) of Article VI.A, then the Fixed
Conversion Price with respect to any conversion thereafter shall
be the lowest Conversion Price in effect at any time during the
period beginning on, and including, the date of the occurrence of
such Conversion Default through and including the Default Cure
Date. The Fixed Conversion Price shall thereafter be subject to
further adjustment for any events described in Article XI.
C. Buy-In Cure. Unless the Corporation has notified the
applicable holder in writing prior to the delivery by such holder
of a Notice of Conversion that the Corporation is unable to honor
conversions, if (i) (a) the Corporation fails for any reason to
deliver during the Delivery Period shares of Common Stock to a
holder upon a conversion of shares of Series B Preferred Stock or
(b) there shall occur a Legend Removal Failure (as defined in
Article VIII.A(iii) below) and (ii) thereafter, such holder
purchases (in an open market transaction or otherwise) shares of
Common Stock to make delivery in satisfaction of a sale by such
holder of the unlegended shares of Common Stock (the "Sold
Shares") which such holder anticipated receiving upon such
conversion (a "Buy-In"), the Corporation shall pay such holder
(in addition to any other remedies available to the holder) the
amount by which (x) such holder's total purchase price (including
brokerage commissions, if any) for the unlegended shares of
Common Stock so purchased exceeds (y) the net proceeds received
by such holder from the sale of the Sold Shares. For example, if
a holder purchases unlegended shares of Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to
shares of Common Stock it sold for $10,000, the Corporation will
be required to pay the holder $1,000. A holder shall provide the
Corporation written notification and supporting documentation
indicating any amounts payable to such holder pursuant to this
Paragraph C. The Corporation shall make any payments required
pursuant to this Paragraph C in accordance with and subject to
the provisions of Article XIV.E.
D. Redemption Right. If the Corporation fails, and such
failure continues uncured for five (5) business days after the
Corporation has been notified thereof in writing by the holder,
for any reason (other than because such issuance would exceed
such holder's allocated portion of the Reserved Amount or Cap
Amount, for which failures the holders shall have the remedies
set forth in Articles V and VII) to issue shares of Common Stock
within ten (10) business days after the expiration of the
Delivery Period with respect to any conversion of Series B
Preferred Stock, then the holder may elect at any time and from
time to time prior to the Default Cure Date for such Conversion
Default, by delivery of a Mandatory Redemption Notice to the
Corporation, to have all or any portion of such holder's
outstanding shares of Series B Preferred Stock purchased by the
Corporation for cash, at an amount per share equal to the
Mandatory Redemption Amount (as defined in Article VIII.B). If
the Corporation fails to redeem any of such shares within five
(5) business days after its receipt of such Mandatory Redemption
Notice, then such holder shall be entitled to the remedies
provided in Article VIII.C.
VII. INABILITY TO CONVERT DUE TO CAP AMOUNT
A. Obligation to Cure. If at any time after March 2, 1998
the then unissued portion of any holder's Cap Amount is less than
135% of the number of shares of Common Stock then issuable upon
conversion of such holder's shares of Series B Preferred Stock (a
"Trading Market Trigger Event"), the Corporation shall
immediately notify the holders of Series B Preferred Stock of
such occurrence and shall take immediate action (including, if
necessary, seeking the approval of its shareholders to authorize
the issuance of the full number of shares of Common Stock which
would be issuable upon the conversion of the then outstanding
shares of Series B Preferred Stock but for the Cap Amount) to
eliminate any prohibitions under applicable law or the rules or
regulations of any stock exchange, interdealer quotation system
or other self-regulatory organization with jurisdiction over the
Corporation or any of its securities on the Corporation's ability
to issue shares of Common Stock in excess of the Cap Amount.
B. Remedies. In the event the Corporation fails to
eliminate all prohibitions on its ability to issue shares of
Common Stock in excess of the Cap Amount within ninety (90) days
after the Trading Market Trigger Event and thereafter the
Corporation is prohibited, at any time, from issuing shares of
Common Stock upon conversion of Series B Preferred Stock to any
holder because such issuance would exceed the then unissued
portion of such holder's Cap Amount because of applicable law or
the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with
jurisdiction over the Corporation or its securities, any holder
who is so prohibited from converting its Series B Preferred Stock
may elect either or both of the following remedies:
(i) to require, with the consent of holders of at
least fifty percent (50%) of the outstanding shares of Series B
Preferred Stock (including any shares of Series B Preferred Stock
held by the requesting holder), the Corporation to terminate the
listing of its Common Stock on the NNM (or any other stock
exchange, interdealer quotation system or trading market) and to
cause its Common Stock to be eligible for trading on the Nasdaq
SmallCap Market or on the over-the-counter electronic bulletin
board, at the option of the requesting holder; or
(ii) to require the Corporation to issue shares of
Common Stock in accordance with such holder's Notice of
Conversion at a conversion price equal to the greater of (x) the
Average Price and (y) the book value per share of Common Stock,
each in effect as of the date of the holder's written notice to
the Corporation of its election to receive shares of Common Stock
pursuant to this subparagraph (ii);
provided, however, that the Corporation may, at its option, by
delivery of an Optional Redemption Notice within five (5)
business days after the Corporation's receipt of any notice of
election delivered by a holder pursuant to this Article VII.B,
elect to purchase for cash, at an amount per share equal to the
Optional Redemption Amount, a number of the holder's shares of
Series B Preferred Stock such that, after giving effect to such
redemption, the then unissued portion of such holder's Cap Amount
exceeds 135% of the total number of shares of Common Stock
issuable upon conversion of such holder's shares of Series B
Preferred Stock.
VIII. REDEMPTION DUE TO CERTAIN EVENTS
A. Redemption by Holder. In the event (each of the events
described in clauses (i)-(v) below after expiration of the
applicable cure period (if any) being a "Mandatory Redemption
Event"):
(i) the Common Stock (including any of the shares of
Common Stock issuable upon conversion of the Series B Preferred
Stock) is suspended from trading on any of, or is not listed (and
authorized) for trading on at least one of, the New York Stock
Exchange, the American Stock Exchange, the NNM or the SmallCap
for an aggregate of ten (10) trading days in any nine (9) month
period;
(ii) the Corporation fails to remove any restrictive
legend on any certificate or any shares of Common Stock issued to
the holders of Series B Preferred Stock upon conversion of the
Series B Preferred Stock as and when required by this Certificate
of Designation, the Securities Purchase Agreement or the
Registration Rights Agreement (a "Legend Removal Failure"), and
any such failure continues uncured for five (5) business days
after the Corporation has been notified thereof in writing by the
holder;
(iii) the Corporation provides notice to any holder
of Series B Preferred Stock, including by way of public
announcement, at any time, of its intention not to issue shares
of Common Stock to any holder of Series B Preferred Stock upon
conversion in accordance with the terms of this Certificate of
Designation (other than due to the circumstances contemplated by
Articles V or VII for which the holders shall have the remedies
set forth in such Articles);
(iv) the Corporation shall:
(a) sell, convey or dispose of all or
substantially all of its assets;
(b) merge, consolidate or engage in any other
business combination with any other entity (other than pursuant
to a migratory merger effected solely for the purpose of changing
the jurisdiction of incorporation of the Corporation); or
(c) have approved, recommended or otherwise
consented to any transaction or series of related transactions
which result in fifty percent (50%) or more of the voting power
of the Corporation's capital stock being owned beneficially by
one person, entity or "group" (as such term is used under Section
13(d) of the Securities Exchange Act of 1934, as amended);
(v) the Corporation otherwise shall breach any other
material term hereunder or under the Securities Purchase
Agreement or the Registration Rights Agreement and such breach
continues uncured for ten (10) business days after the
Corporation has been notified thereof in writing by the holder;
then, upon the occurrence of any such Mandatory Redemption Event,
each holder of shares of Series B Preferred Stock shall
thereafter have the option, exercisable in whole or in part at
any time and from time to time by delivery of a Mandatory
Redemption Notice (as defined in Paragraph C below) to the
Corporation while such Mandatory Redemption Event continues, to
require the Corporation to purchase for cash any or all of the
then outstanding shares of Series B Preferred Stock held by such
holder for an amount per share equal to the Mandatory Redemption
Amount (as defined in Paragraph B below) in effect at the time of
the redemption hereunder. For the avoidance of doubt, the
occurrence of any event described in clauses (i), (iii) or (iv)
above shall immediately constitute a Mandatory Redemption Event
and there shall be no cure period; provided, however, that the
holders of Series B Preferred Stock shall have no right to
deliver a Mandatory Redemption Notice following the occurrence of
a Mandatory Redemption Event specified in clause (i) above if the
Corporation pays to each holder within five (5) business days
after the occurrence of such Mandatory Redemption Event, as
liquidated damages for the decrease in the value of the Series B
Preferred Stock (and the shares of the Corporation's Common Stock
issuable upon conversion thereof) which will result from the
occurrence of such Mandatory Redemption Event, an amount (the
"Damages Amount") equal to twenty-five percent (25%) of the
aggregate Face Amount of the shares of Series B Preferred Stock
then held by each such holder. The Damages Amount shall be
payable, at the Corporation's option, in cash or shares of Common
Stock (based upon a price per share of Common Stock equal to
fifty percent (50%) of the Average Price as of the date of such
Mandatory Redemption Event). Upon the initial issuance of shares
of Series B Preferred Stock, the Corporation shall reserve
1,500,000 shares of Common Stock to satisfy its obligation with
respect to the Damages Amount and thereafter the number of
authorized but unissued shares of Common Stock so reserved shall
not be decreased. In the event that the number of shares
required to be issued by the Corporation with respect to the
Damages Amount exceeds 1,500,000 shares of Common Stock and the
Corporation does not have a sufficient number of shares of Common
Stock authorized and available for issuance to satisfy its
obligation with respect to the Damages Amount, the Corporation
shall issue and deliver to the holders, on a pro-rata basis based
on the number of shares of Series B Preferred Stock then held by
each such holder, a number of shares of Common Stock equal to the
greater of (i) the number of shares authorized and available for
issuance by the Corporation to satisfy such obligation and (ii)
all 1,500,000 shares of Common Stock so reserved for such purpose
and, upon such issuance, the holders shall have no right of
redemption with respect to such Mandatory Redemption Event, but
shall retain all other remedies to which they may be entitled at
law or in equity (which remedies shall not include the right of
redemption).
Upon the Corporation's receipt of any Mandatory Redemption
Notice hereunder (other than during the three (3) trading day
period following the Corporation's delivery of a Mandatory
Redemption Announcement (as defined below) to all of the holders
in response to the Corporation's initial receipt of a Mandatory
Redemption Notice from a holder of Series B Preferred Stock), the
Corporation shall immediately (and in any event within one (1)
business day following such receipt) deliver a written notice (a
"Mandatory Redemption Announcement") to all holders of Series B
Preferred Stock stating the date upon which the Corporation
received such Mandatory Redemption Notice and the amount of
Series B Preferred Stock covered thereby. The Corporation shall
not redeem any shares of Series B Preferred Stock during the
three (3) trading day period following the delivery of a required
Mandatory Redemption Announcement hereunder. At any time and from
time to time during such three (3) trading day period, each
holder of Series B Preferred Stock may request (either orally or
in writing) information from the Corporation with respect to the
instant redemption (including, but not limited to, the aggregate
number of shares of Series B Preferred Stock covered by Mandatory
Redemption Notices received by the Corporation) and the
Corporation shall furnish (either orally or in writing) as soon
as practicable such requested information to such requesting
holder.
B. Definition of Mandatory Redemption Amount. The
"Mandatory Redemption Amount" with respect to a share of Series B
Preferred Stock means an amount equal to the greater of:
(i) V x M
C P
and
(ii) The sum of (x) the product of (I) one hundred
percent (100%) divided by the Conversion Percentage in effect on
the date on which the Corporation receives the Mandatory
Redemption Notice, times (II) the Face Amount thereof, plus (y)
the accrued Premium thereon and all unpaid Conversion Default
Payments owing (if any) with respect thereto through the date of
payment of the Mandatory Redemption Amount.
where:
"V" means the Face Amount thereof plus the accrued Premium
thereon and all unpaid Conversion Default Payments owing (if any)
with respect thereto through the date of payment of the Mandatory
Redemption Amount;
"CP" means the Conversion Price in effect on the date on
which the Corporation receives the Mandatory Redemption Notice;
and
"M" means (i) with respect to all redemptions other than
redemptions pursuant to Article VIII.A(iv) hereof, the highest
Closing Price of the Corporation's Common Stock during the period
beginning on the date on which the Corporation receives the
Mandatory Redemption Notice and ending on the date immediately
preceding the date of payment of the Mandatory Redemption Amount
and (ii) with respect to redemptions pursuant to Article
VIII.A(iv) hereof, the greater of (a) the amount determined
pursuant to clause (i) of this definition or (b) the fair market
value, as of the date on which the Corporation receives the
Mandatory Redemption Notice, of the consideration payable to the
holder of a share of Common Stock pursuant to the transaction
which triggers the redemption. For purposes of this definition,
"fair market value" shall be determined by the mutual agreement
of the Company and holders of a majority-in-interest of the
shares of Series B Preferred Stock then outstanding, or if such
agreement cannot be reached within five (5) business days prior
to the date of redemption, by an investment banking firm selected
by the Corporation and reasonably acceptable to holders of a
majority-in-interest of the then outstanding shares of Series B
Preferred Stock, with the costs of such appraisal to be borne by
the Corporation.
C. Redemption Defaults. If the Corporation fails to pay
any holder the Mandatory Redemption Amount with respect to any
share of Series B Preferred Stock within five (5) business days
after its receipt of a notice requiring such redemption (a
"Mandatory Redemption Notice"), then the holder of Series B
Preferred Stock delivering such Mandatory Redemption Notice (i)
shall be entitled to interest on the Mandatory Redemption Amount
at a per annum rate equal to the lower of twenty-four percent
(24%) and the highest interest rate permitted by applicable law
from the date on which the Corporation receives the Mandatory
Redemption Notice until the date of payment of the Mandatory
Redemption Amount hereunder, and (ii) shall have the right, at
any time and from time to time prior to payment thereof in cash,
to require the Corporation, upon written notice, to immediately
convert (in accordance with the terms of Paragraph A of Article
IV) all or any portion of the Mandatory Redemption Amount, plus
interest as aforesaid, into shares of Common Stock at the lowest
Conversion Price in effect during the period beginning on the
date on which the Corporation receives the Mandatory Redemption
Notice and ending on the Conversion Date with respect to the
conversion of such Mandatory Redemption Amount. In the event the
Corporation is not able to redeem all of the shares of Series B
Preferred Stock subject to Mandatory Redemption Notices delivered
prior to the date upon which such redemption is to be effected,
the Corporation shall redeem shares of Series B Preferred Stock
from each holder pro rata, based on the total number of shares of
Series B Preferred Stock outstanding at the time of redemption
included by such holder in all Mandatory Redemption Notices
delivered prior to the date upon which such redemption is to be
effected relative to the total number of shares of Series B
Preferred Stock outstanding at the time of redemption included in
all of the Mandatory Redemption Notices delivered prior to the
date upon which such redemption is to be effected.
D. Redemption at the Corporation's Option.
(i) The Corporation shall have the right, at any time,
so long as no Conversion Default or Mandatory Redemption Event
shall have occurred and be continuing, to redeem (an "Optional
Redemption") all, but not less than all, of the then outstanding
shares of Series B Preferred Stock (excluding shares of Series B
Preferred Stock subject to a Notice of Conversion delivered to
the Corporation prior to the date of the Optional Redemption
Notice (as defined in subparagraph (iii) below)) for cash, at an
amount per share equal to the Optional Redemption Amount (as
defined below), by delivering an Optional Redemption Notice to
the holders of Series B Preferred Stock. Subject to the
provisions of Article IV.C hereof, holders of Series B Preferred
Stock may convert all or any part of their shares of Series B
Preferred Stock selected for redemption hereunder into Common
Stock by delivering a Notice of Conversion to the Corporation at
any time prior to the Effective Date of Redemption. For purposes
hereof, the "Optional Redemption Amount" with respect to a share
of Series B Preferred Stock means an amount equal to the greater
of:
(a) V x M
C P
and
(b) The sum of (x) the product of (I) one hundred
percent (100%) divided by the Conversion Percentage in effect on
the date of the Optional Redemption Notice, times (II) the Face
Amount thereof, plus (y) the accrued Premium thereon and all
unpaid Conversion Default Payments owing (if any) with respect
thereto through the Effective Date of Redemption (as defined in
subparagraph (iii) below).
where:
"V" means the Face Amount thereof plus the accrued Premium
thereon and all unpaid Conversion Default Payments owing (if any)
with respect thereto through the Effective Date of Redemption;
"CP" means the Conversion Price in effect on the date of the
Optional Redemption Notice; and
"M" means the Closing Price of the Corporation's Common
Stock on the date of the Optional Redemption Notice.
(ii) The Corporation may not deliver an Optional
Redemption Notice to the holders of Series B Preferred Stock
unless on or prior to the date of delivery of such Optional
Redemption Notice, the Corporation shall have deposited with an
escrow agent reasonably acceptable to holders of a majority of
the outstanding shares of Series B Preferred Stock, as a trust
fund, cash sufficient in amount to pay all amounts to which the
holders of Series B Preferred Stock are entitled upon such
redemption pursuant to subparagraph (i) of this Paragraph D, with
irrevocable instructions and authority to such escrow agent to
complete the redemption thereof in accordance with this Paragraph
D. Any Optional Redemption Notice delivered in accordance with
the immediately preceding sentence shall be accompanied by a
statement executed by a duly authorized officer of its escrow
agent, certifying the amount of funds which have been deposited
with such escrow agent and that the escrow agent has been
instructed and agrees to act as redemption agent hereunder.
(iii) The Corporation shall effect an Optional
Redemption under this Section VIII.D by giving at least thirty
(30) business days prior written notice (the "Optional Redemption
Notice") of the date on which such redemption is to become
effective (the "Effective Date of Redemption") and the Optional
Redemption Amount to (i) the holders of Series B Preferred Stock
at the address and facsimile number of each holder appearing in
the Corporation's register for the Series B Preferred Stock and
(ii) the transfer agent for the Common Stock, which Optional
Redemption Notice shall be deemed to have been delivered on the
business day after the Corporation's fax (with a copy sent by
overnight courier to the holders of Series B Preferred Stock) of
such notice to the holders of Series B Preferred Stock.
(iv) The Optional Redemption Amount shall be paid to
the holder of the Series B Preferred Stock being redeemed within
three (3) business days of the Effective Date of Redemption;
provided, however, that the Corporation shall not be obligated to
deliver any portion of the Optional Redemption Amount until
either the certificates evidencing the Series B Preferred Stock
being redeemed are delivered to the office of the Corporation or
the escrow agent or the holder notifies the Corporation or the
escrow agent that such certificates have been lost, stolen or
destroyed and delivers the documentation in accordance with
Article XIV.B hereof. Notwithstanding anything herein to the
contrary, in the event that the certificates evidencing the
Series B Preferred Stock being redeemed are not delivered to the
Corporation or the escrow agent prior to the third business day
following the Effective Date of Redemption, the redemption of the
Series B Preferred Stock pursuant to this Article VIII.D shall
still be deemed effective as of the Effective Date of Redemption
and the Optional Redemption Amount shall be paid to the holder of
Series B Preferred Stock being redeemed within five (5) business
days of the date the certificates evidencing the Series B
Preferred Stock being redeemed are actually delivered to the
Corporation or the escrow agent.
E. Redemptions Below Floor Price. In the event that any
holder of Series B Preferred Stock attempts to effect a Below
Floor Conversion, the Corporation shall have the option, in lieu
of issuing shares of Common Stock to the converting holder, to
redeem all or any portion of the shares of Series B Preferred
Stock submitted for conversion for an amount per share in cash
equal to the Optional Redemption Amount (treating, for purposes
of this Article VIII.E, the Conversion Date applicable to such
Below Floor Conversion as the "date of the Optional Redemption
Notice" and the date on which the Corporation delivers the
Optional Redemption Amount to the holder as the "Effective Date
of Redemption"). From time to time, the holders may request
advance notice as to whether the Corporation will issue shares of
Common Stock, deliver cash in redemption or any combination
thereof in respect of the shares of Series B Preferred Stock
submitted for conversion. Such request shall be made in writing
and the Corporation shall respond in writing as promptly as
practicable but in any event within three (3) business days of
receipt of the request. The Corporation will be bound by such
response for a period of thirty (30) trading days from the date
of its response. A failure to respond within three (3) business
days shall be deemed to be an election to issue Common Stock on
conversion. Any amounts payable hereunder shall be paid to the
converting holder within five (5) business days of the applicable
Conversion Date. If the Corporation fails to pay any holder the
Optional Redemption Amount with respect to any share of Series B
Preferred Stock within such five (5) business day period, then
the Corporation shall thereafter be deemed to have forfeited all
of its rights to effect redemptions under this Article VIII.E and
under Article VIII.D above and the holder (i) shall be entitled
to interest on the Optional Redemption Amount at a per annum rate
equal to the lower of twenty-four percent (24%) and the highest
interest rate permitted by applicable law, and (ii) shall have
the right, at any time and from time to time, to require the
Corporation, upon written notice, to immediately convert (in
accordance with the terms of Paragraph A of Article IV) all or
any portion of such Optional Redemption Amount, plus interest as
aforesaid, into shares of Common Stock at the lowest Conversion
Price in effect during the period beginning on and including the
Conversion Date with respect to such attempted Below Floor
Conversion and ending on the Conversion Date with respect to the
conversion of such Optional Redemption Amount.
IX. RANK
All shares of the Series B Preferred Stock shall rank (i)
prior to the Corporation's Common Stock and Series A Convertible
Preferred Stock; (ii) prior to any class or series of capital
stock of the Corporation hereafter created (unless, with the
consent of the holders of Series B Preferred Stock obtained in
accordance with Article XIII hereof, such class or series of
capital stock specifically, by its terms, ranks senior to or pari
passu with the Series B Preferred Stock) (collectively with the
Common Stock and Series A Convertible Preferred Stock, "Junior
Securities"); (iii) pari passu with any class or series of
capital stock of the Corporation hereafter created (with the
consent of the holders of Series B Preferred Stock obtained in
accordance with Article XIII hereof) specifically ranking, by its
terms, on parity with the Series B Preferred Stock (the "Pari
Passu Securities"); and (iv) junior to any class or series of
capital stock of the Corporation hereafter created (with the
consent of the holders of Series B Preferred Stock obtained in
accordance with Article XIII hereof) specifically ranking, by its
terms, senior to the Series B Preferred Stock (the "Senior
Securities"), in each case as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary.
X. LIQUIDATION PREFERENCE
A. If the Corporation shall commence a voluntary case
under the U.S. Federal bankruptcy laws or any other applicable
bankruptcy, insolvency or similar law, or consent to the entry of
an order for relief in an involuntary case under any law or to
the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make
an assignment for the benefit of its creditors, or admit in
writing its inability to pay its debts generally as they become
due, or if a decree or order for relief in respect of the
Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the U.S. Federal
bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law resulting in the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part
of its property, or ordering the winding up or liquidation of its
affairs, and any such decree or order shall be unstayed and in
effect for a period of sixty (60) consecutive days and, on
account of any such event, the Corporation shall liquidate,
dissolve or wind up, or if the Corporation shall otherwise
liquidate, dissolve or wind up, including, but not limited to,
the sale or transfer of all or substantially all of the
Corporation's assets in one transaction or in a series of related
transactions (a "Liquidation Event"), no distribution shall be
made to the holders of any shares of capital stock of the
Corporation (other than Senior Securities) upon liquidation,
dissolution or winding up unless prior thereto the holders of
shares of Series B Preferred Stock shall have received the
Liquidation Preference with respect to each share. If, upon the
occurrence of a Liquidation Event, the assets and funds available
for distribution among the holders of the Series B Preferred
Stock and holders of Pari Passu Securities shall be insufficient
to permit the payment to such holders of the preferential amounts
payable thereon, then the entire assets and funds of the
Corporation legally available for distribution to the Series B
Preferred Stock and the Pari Passu Securities shall be
distributed ratably among such shares in proportion to the ratio
that the Liquidation Preference payable on each such share bears
to the aggregate Liquidation Preference payable on all such
shares.
B. The purchase or redemption by the Corporation 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 Corporation. Neither the consolidation or
merger of the Corporation with or into any other entity nor the
sale or transfer by the Corporation 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 Corporation.
C. The "Liquidation Preference" with respect to a share of
Series B Preferred Stock means an amount equal to the Face Amount
thereof plus the accrued Premium thereon through the date of
final distribution. The Liquidation Preference with respect to
any Pari Passu Securities shall be as set forth in the
Certificate of Designation filed in respect thereof.
XI. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price and the Floor Price shall be subject to
adjustment from time to time as follows:
A. Stock Splits, Stock Dividends, Etc. If at any time on
or after the Issuance Date, the number of outstanding shares of
Common Stock is increased by a stock split, stock dividend,
combination, reclassification or other similar event, the Fixed
Conversion Price and the Floor Price shall be proportionately
reduced, or if the number of outstanding shares of Common Stock
is decreased by a reverse stock split, combination or
reclassification of shares, or other similar event, the Fixed
Conversion Price and the Floor Price shall be proportionately
increased. In such event, the Corporation shall notify the
Corporation's transfer agent of such change on or before the
effective date thereof.
B. Adjustment Due to Merger, Consolidation, Etc. If, at
any time after the Issuance Date, there shall be (i) any
reclassification or change of the outstanding shares of Common
Stock (other than a change in par value, or from par value to no
par value, or from no par value to par value, or as a result of a
subdivision or combination), (ii) any consolidation or merger of
the Corporation with any other entity (other than a merger in
which the Corporation is the surviving or continuing entity and
its capital stock is unchanged), (iii) any sale or transfer of
all or substantially all of the assets of the Corporation or (iv)
any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or
property (each of (i) - (iv) above being a "Corporate Change"),
then the holders of Series B Preferred Stock shall thereafter
have the right to receive upon conversion, in lieu of the shares
of Common Stock otherwise issuable, such shares of stock,
securities and/or other property as would have been issued or
payable in such Corporate Change with respect to or in exchange
for the number of shares of Common Stock which would have been
issuable upon conversion (without giving effect to the
limitations contained in Article IV.C) had such Corporate Change
not taken place, and in any such case, appropriate provisions
shall be made with respect to the rights and interests of the
holders of the Series B Preferred Stock to the end that the
provisions hereof (including, without limitation, provisions for
adjustment of the Conversion Price and the Floor Price and of the
number of shares of Common Stock issuable upon conversion of the
Series B Preferred Stock) shall thereafter be applicable, as
nearly as may be practicable in relation to any shares of stock
or securities thereafter deliverable upon the conversion thereof.
The Corporation shall not effect any Corporate Change unless (i)
each holder of Series B Preferred Stock has received written
notice of such transaction at least seventy-five (75) days prior
thereto, but in no event later than twenty (20) days prior to the
record date for the determination of shareholders entitled to
vote with respect thereto, and (ii) the resulting successor or
acquiring entity (if not the Corporation) assumes by written
instrument the obligations of this Certificate of Designation.
The above provisions shall apply regardless of whether or not
there would have been a sufficient number of shares of Common
Stock authorized and available for issuance upon conversion of
the shares of Series B Preferred Stock outstanding as of the date
of such transaction, and shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or
share exchanges.
C. Adjustment Due to Major Announcement. In the event the
Corporation at any time after the Issuance Date (i) makes a
public announcement that it intends to consolidate or merge with
any other entity (other than a merger in which the Corporation is
the surviving or continuing entity and its capital stock is
unchanged) or to sell or transfer all or substantially all of the
assets of the Corporation or (ii) any person, group or entity
(including the Corporation) publicly announces a tender offer,
exchange offer or another transaction to purchase 50% or more of
the Corporation's Common Stock or otherwise publicly announces an
intention to replace a majority of the Corporation's Board of
Directors by waging a proxy battle or otherwise (the date of the
announcement referred to in clause (i) or (ii) of this Paragraph
C is hereinafter referred to as the "Announcement Date"), then
the Conversion Price shall, effective upon the Announcement Date
and continuing through the sixth (6th) trading day following the
earlier of the consummation of the proposed transaction or tender
offer, exchange offer or another transaction or the Abandonment
Date (as defined below), be equal to the lower of (x) the
Conversion Price which would have been applicable for a
Conversion occurring on the Announcement Date and (y) the
Conversion Price determined in accordance with Article III.E on
the Conversion Date set forth in the Notice of Conversion for the
Conversion. From and after the sixth (6th) trading day following
the Abandonment Date, the Conversion Price shall be determined as
set forth in Article III.E. "Abandonment Date" means with respect
to any proposed transaction or tender offer, exchange offer or
another transaction for which a public announcement as
contemplated by this Paragraph C has been made, the date upon
which the Corporation (in the case of clause (i) above) or the
person, group or entity (in the case of clause (ii) above)
publicly announces the termination or abandonment of the proposed
transaction or tender offer, exchange offer or another
transaction which caused this Paragraph C to become operative.
D. Adjustment Due to Distribution. If at any time after
the Issuance Date the Corporation shall declare or make any
distribution of its assets (or rights to acquire its assets) to
holders of Common Stock as a partial liquidating dividend, by way
of return of capital or otherwise (including any dividend or
distribution to the Corporation's shareholders in cash or shares
(or rights to acquire shares) of capital stock of a subsidiary
(i.e. a spin-off)) (a "Distribution"), then the holders of Series
B Preferred Stock shall be entitled, upon any conversion of
shares of Series B Preferred Stock after the date of record for
determining shareholders entitled to such Distribution, to
receive the amount of such assets which would have been payable
to the holder with respect to the shares of Common Stock issuable
upon such conversion (without giving effect to the limitations
contained in Article IV.C) had such holder been the holder of
such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.
E. Issuance of Other Securities With Variable Conversion
Price. If the Corporation shall issue any securities which are
convertible into or exchangeable for Common Stock ("Convertible
Securities") at a conversion or exchange rate based on a discount
to the market price of the Common Stock at the time of conversion
or exercise, then the Conversion Percentage in respect of any
conversion of Series B Preferred Stock after such issuance shall
be calculated utilizing the higher of the greatest discount
applicable to any such Convertible Securities and the difference
between one hundred percent (100%) and the Conversion Percentage
then in effect hereunder.
F. Purchase Rights. If at any time after the Issuance
Date, the Corporation issues any Convertible Securities or rights
to purchase stock, warrants, securities or other property (the
"Purchase Rights") pro rata to the record holders of any class of
Common Stock, then the holders of Series B Preferred Stock 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 Series
B Preferred Stock (without giving effect to the limitations
contained in Article IV.C) 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.
G. Notice of Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price and/or Floor
Price pursuant to this Article XI, the Corporation, at its
expense, shall promptly compute such adjustment or readjustment
and prepare and furnish to each holder of Series B Preferred
Stock a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series B Preferred Stock,
furnish to such holder a like certificate setting forth (i) such
adjustment or readjustment, (ii) the Conversion Price and/or
Floor Price at the time in effect and (iii) the number of shares
of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of a
share of Series B Preferred Stock.
XII. VOTING RIGHTS
Except as otherwise provided herein, the holders of the
Series B Preferred Stock shall have such voting rights as are
provided in the Corporation's Certificate of Incorporation as in
effect on the date hereof and as the same may be amended or
restated hereafter (the "Certificate of Incorporation") and as
otherwise provided by the Connecticut Business Corporation Act
(the "Business Corporation Act") and in Article XIII below.
The Corporation shall provide each holder of Series B
Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information
sent to shareholders). If the Corporation takes a record of its
shareholders for the purpose of determining shareholders entitled
to (a) receive payment of any dividend or other distribution, any
right to subscribe for, purchase or otherwise acquire (including
by way of merger, consolidation or recapitalization) any share of
any class or any other securities or property, or to receive any
other right, or (b) to vote in connection with any proposed sale,
lease or conveyance of all or substantially all of the assets of
the Corporation, or any proposed merger, consolidation,
liquidation, dissolution or winding up of the Corporation, the
Corporation shall mail a notice to each holder, at least twenty
(20) days prior to the record date specified therein (or seventy-
five (75) days prior to the consummation of the transaction or
event, whichever is earlier, but in no event earlier than public
announcement of such proposed transaction), of the date on which
any such record is to be taken for the purpose of such vote,
dividend, distribution, right or other event, and a brief
statement regarding the amount and character of such vote,
dividend, distribution, right or other event to the extent known
at such time.
To the extent that under the Business Corporation Act or the
Certificate of Incorporation the vote of the holders of the
Series B Preferred Stock, voting separately as a class or series,
as applicable, is required to authorize a given action of the
Corporation, the affirmative vote or consent of the holders of at
least a majority of the then outstanding shares of the Series B
Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of the holders of at
least a majority of the then outstanding shares of Series B
Preferred Stock (except as otherwise may be required hereunder or
under the Business Corporation Act or the Certificate of
Incorporation) shall constitute the approval of such action by
the class. To the extent that under the Business Corporation Act
or the Certificate of Incorporation holders of the Series B
Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series
B Preferred Stock shall be entitled to a number of votes equal to
the number of shares of Common Stock into which it is then
convertible (subject to the limitations contained in Article
IV.C(ii)) using the record date for the taking of such vote of
shareholders as the date as of which the Conversion Price is
calculated.
XIII. PROTECTION PROVISIONS
So long as any shares of Series B Preferred Stock are
outstanding, the Corporation shall not without first obtaining
the approval (by vote or written consent, as provided by the
Business Corporation Act) of the holders of (i) all of the then
outstanding shares of Series B Preferred Stock with respect to
subsection (a) below or (ii) at least 67% of the then outstanding
shares of Series B Preferred Stock with respect to subsections
(b) through (h) below:
(a) alter or change the rights, preferences or
privileges of the Series B Preferred Stock;
(b) alter or change the rights, preferences or
privileges of any capital stock of the Corporation so as to
affect adversely the Series B Preferred Stock;
(c) create any new class or series of capital
stock having a preference over the Series B Preferred Stock as to
distribution of assets upon liquidation, dissolution or winding
up of the Corporation (as previously defined in Article IX
hereof, "Senior Securities");
(d) create any new class or series of capital
stock ranking pari passu with the Series B Preferred Stock as to
distribution of assets upon liquidation, dissolution or winding
up of the Corporation (as previously defined in Article IX
hereof, "Pari Passu Securities");
(e) increase the authorized number of shares of
Series B Preferred Stock;
(f) issue any shares of Senior Securities or Pari
Passu Securities;
(g) issue any shares of Series B Preferred Stock
other than pursuant to the Securities Purchase Agreement; or
(h) redeem, or declare or pay any cash dividend
or distribution on, any Junior Securities.
Notwithstanding the foregoing, no change pursuant to this
Article XIII shall be effective to the extent that, by its terms,
it applies to less than all of the holders of shares of Series B
Preferred Stock then outstanding.
XIV. MISCELLANEOUS
A. Cancellation of Series B Preferred Stock. If any
shares of Series B Preferred Stock are converted pursuant to
Article IV, the shares so converted shall be cancelled, shall
return to the status of authorized, but unissued preferred stock
of no designated series, and shall not be issuable by the
Corporation as Series B Preferred Stock.
B. Lost or Stolen Certificates. Upon receipt by the
Corporation of (i) evidence of the loss, theft, destruction or
mutilation of any Preferred Stock Certificate(s) and (ii) (y) in
the case of loss, theft or destruction, of indemnity reasonably
satisfactory to the Corporation, or (z) in the case of
mutilation, upon surrender and cancellation of the Preferred
Stock Certificate(s), the Corporation shall execute and deliver
new Preferred Stock Certificate(s) of like tenor and date.
However, the Corporation shall not be obligated to reissue such
lost or stolen Preferred Stock Certificate(s) if the holder
contemporaneously requests the Corporation to convert such Series
B Preferred Stock.
C. Allocation of Cap Amount and Reserved Amount. The
initial Cap Amount and Reserved Amount shall be allocated pro
rata among the holders of Series B Preferred Stock based on the
number of shares of Series B Preferred Stock issued to each
holder. Each increase to the Cap Amount and Reserved Amount
shall be allocated pro rata among the holders of Series B
Preferred Stock based on the number of shares of Series B
Preferred Stock held by each holder at the time of the increase
in the Cap Amount or Reserved Amount. In the event a holder
shall sell or otherwise transfer any of such holder's shares of
Series B Preferred Stock, each transferee shall be allocated a
pro rata portion of such transferor's Cap Amount and Reserved
Amount. Any portion of the Cap Amount or Reserved Amount which
remains allocated to any person or entity which does not hold any
Series B Preferred Stock shall be allocated to the remaining
holders of shares of Series B Preferred Stock, pro rata based on
the number of shares of Series B Preferred Stock then held by
such holders.
D. Quarterly Statements of Available Shares. For each
calendar quarter beginning in the quarter in which the
registration statement required to be filed pursuant to Section
2(a) of the Registration Rights Agreement is declared effective
and thereafter so long as any shares of Series B Preferred Stock
are outstanding, the Corporation shall deliver (or cause its
transfer agent to deliver) to each holder a written report
notifying the holders of any occurrence which prohibits the
Corporation from issuing Common Stock upon any such conversion.
The report shall also specify (i) the total number of shares of
Series B Preferred Stock outstanding as of the end of such
quarter, (ii) the total number of shares of Common Stock issued
upon all conversions of Series B Preferred Stock prior to the end
of such quarter, (iii) the total number of shares of Common Stock
which are reserved for issuance upon conversion of the Series B
Preferred Stock as of the end of such quarter and (iv) the total
number of shares of Common Stock which may thereafter be issued
by the Corporation upon conversion of the Series B Preferred
Stock before the Corporation would exceed the Cap Amount and the
Reserved Amount. The Corporation (or its transfer agent) shall
deliver the report for each quarter to each holder prior to the
tenth (10th) day of the calendar month following the quarter to
which such report relates. In addition, the Corporation (or its
transfer agent) shall provide, within fifteen (15) days after
delivery to the Corporation of a written request by any holder,
any of the information enumerated in clauses (i) - (iv) of this
Paragraph D as of the date of such request.
E. Payment of Cash; Defaults. Whenever the Corporation is
required to make any cash payment to a holder under this
Certificate of Designation (as a Conversion Default Payment, upon
redemption or otherwise), such cash payment shall be made to the
holder within five (5) business days after delivery by such
holder of a notice specifying that the holder elects to receive
such payment in cash and the method (e.g., by check, wire
transfer) in which such payment should be made. If such payment
is not delivered within such five (5) business day period, such
holder shall thereafter be entitled to interest on the unpaid
amount at a per annum rate equal to the lower of twenty-four
percent (24%) and the highest interest rate permitted by
applicable law until such amount is paid in full to the holder.
F. Status as Stockholder. Upon submission of a Notice of
Conversion by a holder of Series B Preferred Stock, (i) the
shares covered thereby (other than the shares, if any, which
cannot be issued because their issuance would exceed such
holder's allocated portion of the Reserved Amount or Cap Amount)
shall be deemed converted into shares of Common Stock and (ii)
the holder's rights as a holder of such converted shares of
Series B Preferred Stock shall cease and terminate, excepting
only the right to receive certificates for such shares of Common
Stock and to any remedies provided herein or otherwise available
at law or in equity to such holder because of a failure by the
Corporation to comply with the terms of this Certificate of
Designation. In situations where Article VI.B is applicable, the
number of shares of Common Stock referred to in clauses (i) and
(ii) of the immediately preceding sentence shall be determined on
the date on which such shares of Common Stock are delivered to
the holder. Notwithstanding the foregoing, if a holder has not
received certificates for all shares of Common Stock prior to the
tenth (10th) business day after the expiration of the Delivery
Period with respect to a conversion of Series B Preferred Stock
for any reason, then (unless the holder otherwise elects to
retain its status as a holder of Common Stock by so notifying the
Corporation within five (5) business days after the expiration of
such ten (10) business day period after expiration of the
Delivery Period) the holder shall regain the rights of a holder
of Series B Preferred Stock with respect to such unconverted
shares of Series B Preferred Stock and the Corporation shall, as
soon as practicable, return such unconverted shares to the
holder. In all cases, the holder shall retain all of its rights
and remedies (including, without limitation, (i) the right to
receive Conversion Default Payments pursuant to Article VI.A to
the extent required thereby for such Conversion Default and any
subsequent Conversion Default and (ii) the right to have the
Conversion Price with respect to subsequent conversions
determined in accordance with Article VI.B) for the Corporation's
failure to convert Series B Preferred Stock.
G. Remedies Cumulative. The remedies provided in this
Certificate of Designation shall be cumulative and in addition to
all other remedies available under this Certificate of
Designation, at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein
shall limit a holder's right to pursue actual damages for any
failure by the Corporation to comply with the terms of this
Certificate of Designation. The Corporation acknowledges that a
breach by it of its obligations hereunder will cause irreparable
harm to the holders of Series B Preferred Stock and that the
remedy at law for any such breach may be inadequate. The
Corporation therefore agrees, in the event of any such breach or
threatened breach, that the holders of Series B Preferred Stock
shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security
being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, this Certificate of Designation is
executed on behalf of the Corporation this 8th day of January,
1998.
ACCENT COLOR SCIENCES, INC.
By: /s/ Norman L. Milliard
Name: Norman L. Milliard
Title: President