Exhibit 3.1
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
of
SERIES B CONVERTIBLE PREFERRED STOCK
of
ATLANTIC TECHNOLOGY VENTURES, INC.
I. Creation of Series B Convertible Preferred Stock.
The undersigned officer of Atlantic Technology Ventures, Inc., a
Delaware corporation (the "Corporation"), pursuant to the provisions of Section
151 of the General Corporation Law of the State of Delaware, does hereby make
this Certificate of Designations, Preferences and Rights (the "Series B
Certificate of Designations") and does hereby state and certify that pursuant to
the authority expressly vested in the Board of Directors of the Corporation by
the Certificate of Incorporation, as amended, the Board of Directors duly
adopted the following resolutions:
RESOLVED: That, pursuant to the Certificate of Incorporation, as
amended, of the Corporation (the "Amended Certificate of Incorporation"), which
authorizes 10,000,000 shares of undesignated Preferred Stock, par value $0.001
per share (the "Preferred Stock"), of which 1,375,000 shares are designated
Series A Convertible Preferred Stock, par value $0.001 per share (the "Series A
Preferred Stock"), the Board of Directors is authorized, within the limitations
and restrictions stated in the Amended Certificate of Incorporation, to fix by
resolution or resolutions the designation of each series of Preferred Stock and
the powers, preferences and relative participating, optional, or other special
rights, and qualifications, limitations, and restrictions thereof; and
RESOLVED: That the Corporation hereby fixes the designations and
preferences and relative, participating, optional, and other special rights, and
qualifications, limitations, and restrictions of the Preferred Stock consisting
of Two Million (2,000,000) shares to be designated Series B Convertible
Preferred Stock, par value $0.001 per share (the "Series B Preferred Stock");
and
RESOLVED: That the Series B Preferred Stock is hereby authorized on the
terms and with the provisions herein set forth.
II. Provisions Relating to the Series B Preferred Stock.
1. Number of Shares. Of the 8,625,000 remaining shares of authorized
but undesignated Preferred Stock of the Corporation, Two Million (2,000,000)
shares shall be designated and known as shares of Series B Preferred Stock. Any
shares of Series B Preferred Stock repurchased by the Corporation shall be
cancelled and shall revert to authorized but
unissued shares of Preferred Stock, undesignated as to series, subject to
reissuance by the Corporation as shares of Preferred Stock of any one or more
series other than Series B Preferred Stock.
2. Rank. Subject to approval of an amendment, to the extent required,
of the Certificate of Designations of the Company's Series A Preferred Stock to
subordinate the rights, preferences and privileges of the Series A Preferred
Stock to the rights, preferences and privileges of the Series B Preferred Stock
as set forth herein, the Series B Preferred Stock shall, with respect to
dividend rights and with respect to rights upon liquidation, winding up or
dissolution, rank senior and prior in right to the Series A Preferred Stock, the
Common Stock and any other equity interests (including, without limitation,
warrants, stock appreciation rights, phantom stock rights, profit participation
rights in debt instruments or other rights with equity features, calls or
options exercisable for or convertible into such capital stock or equity
interests) in the Corporation that by its terms rank junior to the Series B
Preferred Stock (all of such classes or series of capital stock and other equity
interests are collectively referred to as "Junior Securities").
3. Dividends. The holders of the Series B Preferred Stock shall be
entitled to receive cumulative annual dividends (the "Series B Dividends") at an
annual rate per share equal to eight percent (8%) of the original purchase price
paid per share for the Series B Preferred Stock (which amount shall be subject
to adjustment whenever there shall occur a stock split, combination,
reclassification or other similar event involving the Series B Preferred Stock,
the "Quarterly Dividend Amount"), payable on each March 31, June 30, September
30 and December 31 (each, a "Quarterly Dividend Date") after the date on which
such share of Series B Preferred Stock was issued (the "Original Issue Date" for
such share), provided that the amount of dividends on the first Quarterly
Dividend Date after the any Original Issue Date shall equal the Quarterly
Dividend Amount multiplied by a fraction (A) the numerator of which shall equal
the number of days from and including the Original Issue Date for such share to
and including such first Quarterly Dividend Date, and (B) the denominator of
which is ninety (90). Dividends with respect to the Series B Preferred Stock
must be paid quarterly on each Quarterly Dividend Date. Such accrued dividends
shall also become payable upon any conversion or redemption of the shares of
Series B Preferred Stock. The Corporation, at its option, must pay each dividend
either (A) in cash on each Quarterly Dividend Date (or other payment date), or
(B) in shares of Series B Preferred Stock (for which the shares of Common Stock
issuable upon conversion thereof have been registered for resale under the
Securities Act of 1933, as amended) valued at 85% of the two lowest consecutive
closing bid prices of the Common Stock during the twenty trading days prior to
the applicable dividend date. Such dividends shall be deemed to accrue on the
Series B Preferred Stock and be cumulative, whether or not earned or declared
and whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends. With respect to the declaration,
payment and setting apart of dividends, other than in Common Stock, whether of
cash, securities of other persons, evidences of indebtedness, assets,
Convertible Securities (as defined below), Stock Purchase Rights (as defined
below) or rights to acquire any of the above, the holders of Series B Preferred
Stock shall be entitled to participate with the Series A Preferred Stock, Common
Stock or other Junior Securities and receive, before any dividends shall be
declared and paid upon or set aside for the
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Series A Preferred Stock, Common Stock or other Junior Securities, the same
dividends or distributions, on an as-converted basis, as are proposed to be
distributed to the holders of Series A Preferred Stock, Common Stock or other
Junior Securities, in addition to the Series B Dividends set forth above. Each
share of Series B Preferred Stock shall be treated for purposes of such
participation as being equal to the number of shares of Common Stock (which may
be a fraction) into which such share could then be converted. The rights of the
holders of Series B Preferred Stock with respect to dividends of Common Stock
are set forth in Section 7 hereof.
4. Liquidation.
(a) Upon the occurrence of any Liquidating Event (as defined
below), each holder of Series B Preferred Stock then outstanding shall be paid,
out of the assets of the Corporation available for distribution to its
stockholders, before any payment shall be made in respect of the Series A
Preferred Stock or Common Stock, an amount equal to the original purchase price
paid (the "Series B Original Price") per share of Series B Preferred Stock
pursuant to the Convertible Preferred Stock and Warrants Purchase Agreement
dated September 28, 2000 entered into between the Corporation and the investors
signatory thereto (the "Purchase Agreement"), plus all accrued dividends that
are then unpaid for each share of Series B Preferred Stock then held by them
(the "Series B Preference Amount"), subject to appropriate adjustment in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares.
(b) Written notice of any such Liquidating Event stating a
payment date, the place where such payment shall be made, the amount of each
payment in liquidation and the amount of dividends to be paid shall be given by
first class mail, postage prepaid, not less than thirty (30) days prior to the
payment date stated therein, to each holder of record of the Series B Preferred
Stock at such holder's address as shown in the records of the Corporation,
provided that any holder of Preferred Stock may convert its shares of Preferred
Stock to Common Stock during such period at any time prior to the payment date
stated in such notice. If upon the occurrence of a Liquidating Event, the assets
of the Corporation available for distribution to its stockholders shall be
insufficient to pay the holders of the Series B Preferred Stock the full Series
B Preference Amount to which they shall be entitled, the holders of the Series B
Preferred Stock shall share ratably in any distribution of assets (so that each
holder receives the same percentage of the Series B Preference Amount per
share). After payment has been made to the holders of the Series B Preferred
Stock of the full Series B Preference Amount to which they shall be entitled as
aforesaid, any remaining assets shall be distributed ratably among the holders
of the Corporation's Common Stock, Series A Preferred Stock, Series B Preferred
Stock and other Junior Securities as if such shares of Series B Preferred Stock
had been converted voluntarily into Common Stock immediately prior to such
Liquidating Event.
(c) A "Liquidating Event" shall mean (i) any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary,
or (ii) a sale, transfer or other disposition of all or substantially all the
assets of the Corporation to, or a merger or consolidation into, an entity that
is not controlled, directly or indirectly, by the stockholders of the
Corporation; for purposes of this definition, "control" shall mean ownership of
more than 50% of the voting power of an entity; provided, however, if the
holders of a majority of the shares of Series B
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Preferred Stock so elect by giving written notice to the Corporation before the
effective date of a merger or consolidation that would otherwise be a
Liquidating Event as defined herein, such merger or consolidation shall not be
deemed a Liquidating Event and the provisions of Section 6(h) shall apply. Upon
the occurrence of any Liquidating Event that would involve the distribution of
assets other than cash with respect to the outstanding shares of Series B
Preferred Stock, the amount of such distribution shall be deemed to be the fair
market value thereof at the time of such distribution determined in accordance
with the provisions of Section 3(b) of the Corporation's Certificate of
Designations relating to its Series A Preferred Stock.
5. Voting.
(a) Voting Rights. Except as otherwise expressly provided
herein or as required by law, the holder of each share of Series B Preferred
Stock shall be entitled to the number of votes equal to the number of shares of
Common Stock into which such share of Series B Preferred Stock could then be
converted and shall have voting rights and powers equal to the voting rights and
powers of the Common Stock (except as otherwise expressly provided herein or as
required by law, voting together with the Common Stock as a single class) and
shall be entitled to notice of any stockholders' meeting in accordance with the
Bylaws of the Corporation. Fractional votes shall not, however, be permitted and
any fractional voting rights resulting from the above formula (after aggregating
all shares of Common Stock into which shares of Series B Preferred Stock held by
each holder could be converted) shall be reduced to the nearest whole number.
(b) Protective Provisions. In addition to any other rights
provided by law or as set forth in this Series B Certificate of Designations, so
long as at least 10% of the shares of Series B Preferred Stock shall remain
outstanding, the Corporation shall not, without first obtaining the affirmative
vote or written consent of the holders of not less than two-thirds (2/3rds) of
the then-outstanding shares of the Series B Preferred Stock affected by such
action
(i) take any action that materially and adversely
alters or changes the powers, rights, preferences or privileges of the Series B
Preferred Stock.
(ii) redeem, purchase or otherwise acquire for value
(or pay into or set aside for a sinking fund for such purpose), or declare and
pay or set aside funds for the payment of any dividend (except dividends payable
in Common Stock or preferred stock) with respect to, any share or shares of
capital stock, except as required or permitted hereunder with respect to Series
B Preferred Stock and except for repurchasing shares of Common Stock from
employees or consultants of the Corporation at the original purchase price
thereof pursuant to vesting agreements approved by the Board of Directors;
(iii) authorize or issue, or obligate itself to
authorize or issue, additional shares of Series A Preferred Stock or Series B
Preferred Stock (except as permitted under the terms of the Purchase Agreement);
(iv) authorize or issue, or obligate itself to
authorize or issue, any equity or debt security on a parity with or having
preference or priority over the Series B
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Preferred Stock as to liquidation preferences, redemption rights, dividend
rights, voting rights or otherwise; provided, however, that this provision shall
not apply to, and stockholder consent pursuant to this Section shall not be
required for, debt securities representing up to $1,000,000 in indebtedness
incurred by the Corporation after the date of filing of this Series B
Certificate of Designations (provided, this limitation shall not apply to trade
payables incurred in the ordinary course;
(v) consent to any liquidation, dissolution or winding
up of the Corporation; or
(vi) amend, restate, modify or alter the Bylaws of the
Corporation in any way which adversely affects the rights of the holders of the
Series B Preferred Stock.
For this purpose, without limiting the generality of the
foregoing, the authorization of any shares of capital stock with preference or
priority over, or on a parity with, Series B Preferred Stock as to the right to
receive either dividends or amounts distributable upon liquidation, dissolution
or winding up of the Corporation shall be deemed to affect adversely such
series.
6. Conversion Rights. The holders of Series B Preferred Stock shall
have the following conversion rights:
(a) Right to Convert.
(i) Subject to the terms, conditions, and
restrictions of Sections 6 and 7 hereof, at any time after the Original Issue
Date the holder of any shares of Series B Preferred Stock shall have the right
to convert each whole share of Series B Preferred Stock into that number of
fully paid and nonassessable shares of Common Stock at the Conversion Rate (as
defined below).
(ii) Anything in Subsection 6(a)(i) to the contrary
notwithstanding, in no event shall any holder be entitled to convert Series B
Preferred Stock in excess of that number of shares of Series B Preferred Stock
that, upon giving effect to such conversion, would cause the aggregate number of
shares of Common Stock beneficially owned by the holder and its "affiliates" (as
defined in Rule 405 under the Securities Act of 1933, as amended (the
"Securities Act")) to exceed 9.99% of the outstanding shares of the Common Stock
following such conversion. For purposes of this Subsection, the aggregate number
of shares of Common Stock beneficially owned by the holder and its affiliates
shall include the number of shares of Common Stock issuable upon conversion of
the Series B Preferred Stock with respect to which the determination is being
made, but shall exclude the number of shares of Common Stock that would be
issuable upon (i) conversion of the remaining, nonconverted Series B Preferred
Stock beneficially owned by the holder and its affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of
the Corporation (including, without limitation, any warrants or convertible
preferred stock) subject to a limitation on conversion or exercise analogous to
the limitation contained herein beneficially owned by the holder and its
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affiliates. Except as set forth in the preceding sentence, for purposes of this
Subsection 6(a)(ii), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). For purposes of this Subsection, in determining the number of outstanding
shares of Common Stock a holder may rely on the number of outstanding shares of
Common Stock as reflected in (1) the Corporation's most recent Form 10-QSB or
Form 10-KSB, as the case may be, (2) a more recent public announcement by the
Corporation or (3) any other notice by the Corporation or its transfer agent
setting forth the number of shares of Common Stock outstanding. For any reason
at any time, upon the written or oral request of any holder, the Corporation
shall immediately confirm orally and in writing to any such holder the number of
shares of Common Stock then outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to conversions of
Series B Preferred Stock by such holder since the date as of which such number
of outstanding shares of Common Stock was reported. To the extent that the
limitation contained in this Subsection 6(a)(ii) applies, the determination of
whether shares of Series B Preferred Stock are convertible (in relation to other
securities owned by a holder) and of which shares of Series B Preferred Stock
are convertible shall be in the sole discretion of such holder, and the
submission of shares of Series B Preferred Stock for conversion shall be deemed
to be such holder's determination that such shares of Series B Preferred Stock
are convertible, in each case subject to such aggregate percentage limitation,
and the Corporation shall have no obligation or right to verify or confirm the
accuracy of such determination. Nothing contained herein shall be deemed to
restrict the right of a holder to convert such shares of Series B Preferred
Stock at such time as such conversion will not violate the provisions of this
Subsection. A holder of Series B Preferred Stock may waive the provisions of
this Subsection 6(a)(ii) as to itself (and solely as to itself) upon not less
than 75 days' prior notice to the Corporation, and the provisions of this
Subsection 6(b)(ii) shall continue to apply until such 75th day (or such later
date as may be specified in such notice of waiver). No conversion in violation
of this Subsection 6(b)(ii), but otherwise in accordance with this Certificate
of Designations, shall affect the status of the Common Stock issued upon such
conversion as validly issued, fully paid and nonassessable.
(b) Conversion Rate and Other Definitions. Each share of
Series B Preferred Stock shall be convertible at the option of the holder
thereof, at any time after the issuance of such share, into fully paid and
nonassessable shares of Common Stock of the Corporation. The number of shares of
Common Stock into which each share of the Series B Preferred Stock may be
converted (the "Series B Conversion Rate" or the "Conversion Rate") shall be
determined by dividing the Series B Original Price by the Conversion Price
(determined as hereinafter provided) in effect at the time of the conversion.
Before any adjustment is required pursuant to Section 7, the Conversion Price
shall be equal to the Series B Original Price.
For purposes of this Certificate of Designations, the following terms
shall have the following meanings:
"Market Price" means the average Closing Bid Price of the
Common Stock on the Principal Market for the five (5) days prior to the date for
which the Market Price is to be determined.
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"Closing Bid Price" or "Closing Ask Price" means, for any
security as of any date, the last closing bid or ask price, as the case may be,
for such security on the Principal Market as reported by Bloomberg Financial
Markets ("Bloomberg"), or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing bid or
ask price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid or ask price of such security
in the over-the-counter market on the electronic bulletin board for such
security as reported by Bloomberg, or, if no closing bid or ask price is
reported for such security by Bloomberg, the last closing trade price of such
security as reported by Bloomberg, or, if no last closing trade price is
reported for such security by Bloomberg, the average of the bid or ask prices of
any market makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc. If the Closing Bid Price or Closing Ask Price
cannot be calculated for such security on such date on any of the foregoing
bases, the Closing Bid Price or Closing Ask Price of such security on such date
shall be the fair market value as mutually determined by the Corporation and the
holders of sixty-six and two-thirds percent (66- 2/3%)) of the shares of Series
B Preferred Stock then outstanding.
"Conversion Price" means, as of any Conversion Date or
other date of determination, the lower of (x) $3.00, (y) the Market Price or (z)
the average of the two (2) lowest Closing Bid Prices on the Principal Market of
the Common Stock out of the fifteen (15) Trading Days immediately prior to
conversion, which Conversion Price shall be adjusted proportionately for any
reorganizations, reclassifications, stock splits, stock dividends, reverse stock
splits and similar events; provided, however, that the Conversion Price will be
reduced by an additional 5% if the Common Stock is not listed on either the
Nasdaq SmallCap Market or Nasdaq National Market as of such date, and provided
further that in no event will the Conversion Price be lower than the Floor
Price, if any.
"Floor Price" means $1.50 for the conversion of a share of
Series B Preferred Stock effected during the twelve (12) months following the
applicable Issue Date for such share; provided further, however, that if: (A)
the Conversion Price, as calculated herein without regard to Floor Price, is
below the Floor Price for thirty (30) calendar days at any time after the Issue
Date for such share, then the Floor Price shall thereafter equal $1.00 (but in
no event for longer than twelve (12) months following the applicable Issue
Date), (B)(i) for any period of five consecutive trading days commencing on
after the date of this filing, there is no closing bid price of the Common Stock
on the Principal Market, (ii) the Common Stock ceases to be listed for trading
on any of the NYSE, the AMEX, the Nasdaq National Market or the Nasdaq SmallCap
Market, or (iii) there occurs the resignation of either A. Joseph Rudick as
Chief Executive Officer or Frederic P. Zotos as President of the Corporation (or
either of their terminations as a result of death or disability), then the
Conversion Price shall be reduced by 15% and shall not be subject to the Floor
Price, and (C)(i) Bausch & Lomb Surgical ("B&L") fails to file before January
31, 2001 an application with the U.S. Food and Drug Administration (the "FDA")
seeking approval to market the Corporation's Catarex technology, (ii) the FDA
does not grant final approval to B&L to market Catarex on or before June 1,
2001, or (iii) the Corporation fails to secure the stockholder approvals
contemplated by Section 6.13 of the
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Purchase Agreement by the deadline stated therein, then the Conversion Price
shall not be subject to the Floor Price and shall be as otherwise calculated
herein.
"Principal Market" means the American Stock Exchange, the
New York Stock Exchange, the Nasdaq National Market, or the Nasdaq Smallcap
Market, whichever is at the applicable time the principal trading exchange or
market for the Common Stock, based upon share volume.
"Trading Day" means any day during which the Principal
Market shall be open for business.
(c) Conversion Notice. A holder of Series B Preferred Stock
may exercise its conversion right by giving a written conversion notice in the
form of Exhibit A hereto (the "Conversion Notice") to the Corporation (x) by
facsimile confirmed by a telephone call or (y) by registered mail or overnight
delivery service, with a copy by facsimile to the Corporation's transfer agent
for its Common Stock, as designated by the Corporation from time to time. If
such conversion will result in the conversion of all of such holder's shares of
Series B Preferred Stock, such holder shall also surrender the certificate or
certificates representing the shares so to be converted (the "Preferred Stock
Certificates") to the Corporation at its principal office (or such other office
or agency of the Corporation as the Corporation may designate by notice in
writing to the holders of the Series B Preferred Stock) at any time during its
usual business hours on the date set forth in the Conversion Notice.
(d) Issuance of Certificates.
(i) Promptly, but in no event more than three (3) Trading
Days, after the receipt of the Conversion Notice referred to in Section 6(c) and
surrender of the Preferred Stock Certificates (if required), the Corporation
shall issue and deliver, or cause to be issued and delivered, to the holder,
registered in such name or names as such holder may direct, a certificate or
certificates for the number of whole shares of Common Stock into which such
shares of Series B Preferred Stock have been converted. In the alternative, if
the Corporation's transfer agent is a participant in the electronic book
transfer program, the transfer agent shall credit such aggregate number of
shares of Common Stock to which the holder shall be entitled to the holder's or
its designee's balance account with The Depository Trust Company. Such
conversion shall be deemed to have been effected, and the Conversion Date shall
be deemed to have occurred, on the date on which such Conversion Notice shall
have been received by the Corporation and at the time specified stated in such
Conversion Notice, which must be during the calendar day of such notice. The
rights of the holder of such share or shares of Series B Preferred Stock shall
cease, and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares
represented thereby, on the Conversion Date. Issuance of shares of Common Stock
issuable upon conversion that are requested to be registered in a name other
than that of the registered holder shall be subject to compliance with all
applicable federal and state securities laws.
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(ii) The Corporation understands that a delay in the
issuance of the shares of Common Stock beyond three (3) Trading Days after the
Conversion Date could result in economic loss to the holder of shares of Series
B Preferred Stock. As compensation to the holder for such loss, the Corporation
agrees to pay liquidated damages to such holder per day of delay in the amount
of 0.2% of the product of (1) the number of shares of Common Stock for which
certificates have not been properly delivered and (2) the highest Market Price
during the delay period. The Corporation shall make all payments due under this
Subsection 6(d)(ii) in immediately available funds upon demand. Nothing herein
shall limit a holder's right to pursue injunctive relief and/or actual damages
for the Corporation's failure to issue and deliver Common Stock to such holder
as required by Subsection 6(d)(i), including, without limitation, such holder's
actual losses occasioned by any "buy-in" of Common Stock necessitated by such
late delivery. Furthermore, in addition to any other remedies that may be
available to such holder, if the Corporation fails for any reason to effect
delivery of such shares of Common Stock within five (5) Trading Days after the
Conversion Date, such holder will be entitled to revoke the relevant Conversion
Notice by delivering a notice to such effect to the Corporation. Upon delivery
of such notice of revocation, the Corporation and the holder shall each be
restored to their respective positions immediately prior to delivery of such
Conversion Notice, except that holder shall retain the right to receive both the
late payment amounts set forth above plus the actual cost of any "buy-in."
(iii) If, at any time (a) the Corporation challenges,
disputes or denies the right of a holder to effect the conversion of the Series
B Preferred Stock into Common Stock or otherwise dishonors or rejects any
Conversion Notice properly delivered in accordance with this Section 6 or (b)
any third party who is not and has never been an affiliate of a holder obtains a
judgment or order from any court or public or governmental authority that
denies, enjoins, limits, modifies, or delays the right of such holder to effect
the conversion of the Series B Preferred Stock into Common Stock, then such
holder shall have the right, by written notice to the Corporation, to require
the Corporation to promptly redeem the Series B Preferred Stock at a price equal
to the closing sale price of the Common Stock on the date immediately prior to
the date on which such notice is given. Under any of the circumstances set forth
above, the Corporation shall indemnify the holder against and hold it harmless
from, and be responsible for the payment of, all costs and expenses of the
holder, including its reasonable legal fees and expenses, as and when incurred
in disputing any such action or pursuing its rights hereunder (in addition to
any other rights of such holder). The Corporation shall not refuse to honor any
Conversion Notice unless its has actually been enjoined by a court of competent
jurisdiction from doing so, and if so enjoined, the Corporation shall post with
such court a performance bond equal to 150% of the aggregate Market Price
multiplied by the number of shares sought to be converted by the holder that are
the subject of such injunction.
(iv) The holders of Series B Preferred Stock shall be
entitled to exercise their conversion privilege notwithstanding the commencement
of any case under 11 U.S.C.ss.101 et seq. (the "Bankruptcy Code"). The
Corporation hereby waives to the fullest extent permitted any rights to relief
it may have under 11 U.S.C.ss.362 in respect of the holder's conversion
privilege, if it becomes a debtor under the Bankruptcy Code. The Corporation
agrees
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to take or consent to any and all action necessary to effectuate relief under 11
U.S.C.ss. 362 without cost or expense to the holder.
(e) Fractional Shares. The Corporation shall not issue any
fraction of a share of Common Stock upon any conversion. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Series B Preferred Stock by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance of a
fraction of a share of Common Stock. If, after such aggregation, the issuance
would result in the issuance of a fraction of a share of Common Stock, the
Corporation shall round such fraction of a share of Common Stock up to the
nearest whole share.
(f) Issuance Taxes. The Corporation shall pay any and all
issue and other taxes that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of Series B Preferred Stock pursuant
hereto; provided that the Corporation shall not be required to pay any tax that
may be payable in respect of any transfer involved in the issuance and delivery
of any certificate in a name other than of the holder of Series B Preferred
Stock which is being converted.
(g) Reorganizations, Reclassifications, Etc. If the Common
Stock issuable upon the conversion of Series B Preferred Stock shall be changed
into the same or a different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares or stock dividend provided for in Section
7(a), then and in each such event the holder of each share of Series B Preferred
Stock shall have the right thereafter to convert such share into the kind and
amount of shares of stock and other securities and property receivable upon such
reorganization, reclassification, or other change, by holders of the number of
shares of Common Stock into which such shares of Series B Preferred Stock might
have been converted immediately prior to such reorganization, reclassification,
or change.
(h) Mergers, Consolidations, Sale of Assets. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale treated as a Liquidating
Event pursuant to Section 4 above), each share of Series B Preferred Stock shall
thereafter be convertible into the kind and amount of shares of stock or other
securities or property that a holder of the number of shares of Common Stock of
the Corporation deliverable upon conversion of Series B Preferred Stock would
have been entitled upon such consolidation, merger or sale; and in such case,
appropriate adjustment (as determined in good faith by the Board of Directors)
shall be made in the application of the provisions of Sections 6 and 7 with
respect to the rights and interest thereafter of the holders of Series B
Preferred Stock, to the end that the provisions set forth in Sections 6 and 7
shall thereafter be applicable, as nearly as reasonably may be, in relation to
any shares of stock or other property thereafter deliverable upon the conversion
of Series B Preferred Stock.
(i) Listing Requirements. If any shares of Common Stock to be
reserved for the purpose of conversion of shares of Series B Preferred Stock
require registration or listing with, or approval of, any governmental
authority, stock exchange or other regulatory body under
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any federal or state law or regulation or otherwise, before such shares may be
validly issued or delivered upon conversion, the Corporation will secure such
registration, listing or approval, as the case may be.
(j) Valid Issuance. All shares of Common Stock that may be
issued upon conversion of the shares of Series B Preferred Stock will upon
issuance by the Corporation be validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issuance thereof.
(k) No Impairment. The Corporation will not, by amendment of
the Amended Certificate of Incorporation or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in the carrying out of all of the
provisions of Sections 6 and 7 and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the
holders of the Series B Preferred Stock against impairment.
(l) Limitation on Number of Conversion Shares. Notwithstanding
any other provision herein, the Corporation shall not be obligated to issue any
shares of Common Stock upon conversion of the Series B Preferred Stock to the
extent the issuance of such shares of Common Stock would exceed the number of
shares (the "Exchange Cap") then permitted to be issued without violation of the
rules or regulations of the Nasdaq Stock Market, except that such limitation
shall not apply in the event that the Corporation (i) obtains the approval of
its stockholders as required by applicable rules and regulations of the Nasdaq
Stock Market for issuances of Common Stock in excess of the Exchange Cap, (ii)
obtains a written opinion issued to the Corporation and the holders of Series B
Preferred Stock from outside counsel to the Corporation that such approval is
not required, which opinion shall be reasonably satisfactory to the holders of
sixty-six and two-thirds percent (66-2/3%) of the shares of Series B Preferred
Stock then outstanding, or (iii) is no longer listed on the Nasdaq Stock Market
at such time. Until such approval or written opinion is obtained or such action
has been taken by the required number of holders, no original purchaser of
Series B Preferred Stock (collectively, the "Investors") shall be issued, upon
conversion of Series B Preferred Stock, shares of Common Stock in an amount
greater than the product of (x) the Exchange Cap amount multiplied by (y) a
fraction, the numerator of which is the number of shares of Series B Preferred
Stock originally issued to such Investor and the denominator of which is the
aggregate amount of all the Series B Preferred Stock issued to the Investors
(the "Cap Allocation Amount"). In the event that any Investor shall sell or
otherwise transfer any of such Investor's Series B Preferred Stock, the
transferee shall be allocated a pro rata portion of such Investor's Cap
Allocation Amount. In the event that any holder of Series B Preferred Stock
shall convert all of such holder's Series B Preferred Stock into a number of
shares of Common Stock that, in the aggregate, is less than such holder's Cap
Allocation Amount, then the difference between such holder's Cap Allocation
Amount and the number of shares of Common Stock actually issued to such holder
shall be allocated to the Cap Allocation Amounts of the remaining holders of
Series B Preferred Stock on a pro rata basis in proportion to the number of
Series B Preferred Stock then held by each such holder.
11
7. Adjustment of Conversion Rate. The Series B Conversion Rate from
time to time in effect shall be subject to adjustment from time to time as
follows.
(a) Stock Splits, Dividends and Combinations. In case the
Corporation shall at any time subdivide the outstanding shares of Common Stock
or shall issue a dividend in Common Stock on its outstanding Common Stock, the
Conversion Rate in effect immediately prior to such subdivision or the issuance
of such dividend shall be proportionately decreased, and in case the Corporation
shall at any time combine the outstanding shares of Common Stock into a lesser
number of shares of Common Stock, the Conversion Rate in effect immediately
prior to such combination shall be proportionately increased, concurrently with
the effectiveness of such subdivision, dividend or combination, as the case may
be.
(b) Noncash Dividends, Stock Purchase Rights, Capital
Reorganizations and Dissolutions. In case:
(i) the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to
receive a dividend or any other distribution, payable otherwise than in
cash; or
(ii) the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to
subscribe for or purchase any shares of stock of any class or to
receive any other rights; or
(iii) of any capital reorganization of the
Corporation, reclassification of the capital stock of the Corporation
(other than a subdivision or combination of its outstanding shares of
Common Stock), consolidation or merger of the Corporation with or into
another Corporation that is not a Liquidating Event or conveyance of
all or substantially all of the assets of the Corporation to another
Corporation that is not a Liquidating Event (an "Organic Change");
then, and in any such case, the Corporation shall cause to be mailed to the
transfer agent for the Series B Preferred Stock, if any, and to the holders of
record of the outstanding Series B Preferred Stock, at least ten (10) days prior
to the date hereinafter specified, a notice stating the date on which (A) a
record is to be taken for the purpose of such dividend, distribution or rights
or (B) such reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up. In addition, prior to the
Organic Change, the Corporation will make appropriate provision (in form and
substance reasonably satisfactory to the holders of sixty-six and two-thirds
percent (66-2/3%) of the Series B Preferred Stock then outstanding) to insure
that each of the holders of the Series B Preferred Stock will thereafter have
the right to acquire and receive in lieu of or in addition to (as the case may
be) the shares of Common Stock otherwise acquirable and receivable upon the
conversion of such holder's Series B Preferred Stock, such shares of stock,
securities or assets as would have been
12
issued or payable in such Organic Change with respect to or in exchange for the
number of shares of Common Stock that would have been acquirable and receivable
had all of such holder's Series B Preferred Stock been converted into shares of
Common Stock immediately prior to such Organic Change (without taking into
account any limitations or restrictions on the timing or amount of conversions).
In any such case, the Corporation will make appropriate provision (in form and
substance reasonably satisfactory to the holders of sixty-six and two-thirds
percent (66-2/3%) of the Series B Preferred Stock then outstanding) with respect
to such holders' rights and interests to insure that the provisions of this
Section 7(b) will thereafter be applicable to the Series B Preferred Stock. The
Corporation will not effect any such consolidation, merger or sale, unless prior
to the consummation thereof, the successor entity (if other than the
Corporation) resulting from consolidation or merger or the entity purchasing
such assets assumes, by written instrument (in form and substance reasonably
satisfactory to the holders of sixty-six and two-thirds percent (66-2/3%) of the
Series B Preferred Stock then outstanding), the obligation to deliver to each
holder of Series B Preferred Stock such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holder may be entitled to
acquire.
(c) Issuances at Less Than the Conversion Price. Upon the
issuance or sale by the Corporation, during the period ending twelve (12) months
following the applicable Issue Date (the "MFN Period") of:
(i) Common Stock for a Per Share Selling Price less than
any Conversion Price in effect immediately prior to the time of such issue or
sale; or
(ii) any Stock Purchase Rights where the Per Share Selling
Price for which shares of Common Stock may at any time thereafter be issuable
upon exercise thereof (or, in the case of Stock Purchase Rights exercisable for
the purchase of Convertible Securities, upon the subsequent conversion or
exchange of such Convertible Securities) shall be less than any Conversion Price
in effect immediately prior to the time of the issue or sale of such Stock
Purchase Rights; or
(iii) any Convertible Securities where the consideration
per share for which shares of Common Stock may at any time thereafter be
issuable pursuant to the terms of such Convertible Securities shall be less than
any Conversion Price in effect immediately prior to the time of the issue or
sale of such Convertible Securities;
other than an issuance of Common Stock pursuant to Sections 7(a) or 7(f) hereof
(any such issuance shall be referred to hereinafter as a "Dilutive Issuance"),
then forthwith upon such issue or sale, such applicable Conversion Price shall
be reduced to such lower Per Share Selling Price.
Notwithstanding the foregoing, no Conversion Price shall at such time
be reduced if such reduction would be an amount less than $.01, but any such
amount shall be carried forward and deduction with respect thereto made at the
time of and together with any subsequent reduction that, together with such
amount and any other amount or amounts so carried forward, shall aggregate $.01
or more.
(d) For purposes of this Section 7, the following provisions
will be applicable:
13
(i) "Convertible Securities" shall mean evidences of
indebtedness, shares of stock (including, without limitation, the Series A
Preferred Stock and Series B Preferred Stock) or other securities that are
convertible into or exchangeable for, with or without payment of additional
consideration, shares of Common Stock.
(ii) "Stock Purchase Rights" shall mean any warrants,
options or other rights to subscribe for, purchase or otherwise acquire any
shares of Common Stock or any Convertible Securities.
(iii) Convertible Securities and Stock Purchase Rights
shall be deemed outstanding and issued or sold at the time of such issue or
sale.
(iv) The term "Per Share Selling Price" shall include the
amount actually paid by third parties for each share of Common Stock. In the
event the Corporation in connection with such transaction pays a fee in excess
of 6%, any such excess amount shall be deducted from the selling price pro rata
to all shares sold in the transaction to arrive at the Per Share Selling Price.
A sale in a capital raising transaction of shares of Common Stock shall include
the sale or issuance of rights, options, warrants or convertible securities
under which the Corporation is or may become obligated to issue shares of Common
Stock, and in such circumstances the Per Share Selling Price of the Common Stock
covered thereby shall also include the exercise or conversion price thereof (in
addition to the consideration received by the Corporation upon such sale or
issuance less the excess fee amount, if any, as provided above). In case of any
such security issued within the MFN Period in a "Variable Rate Transaction" or
"MFN Transaction" (each as defined below), the Per Share Selling Price shall be
deemed to be the lowest conversion or exercise price at which such securities
are converted or exercised or might have been converted or exercised in the case
of a Variable Rate Transaction, or the lowest adjustment price in the case of an
MFN Transaction, each over the life of such securities.
(v) "Variable Rate Transaction" means a transaction in
which the Corporation issues or sells (a) any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the right to
receive additional shares of Common Stock either (x) at a conversion, exercise
or exchange rate or other price that is based upon and/or varies with the
trading prices of or quotations for the Common Stock at any time after the
initial issuance of such debt or equity securities, or (y) with a fixed
conversion, exercise or exchange price that is subject to being reset at some
future date after the initial issuance of such security or upon the occurrence
of specified or contingent events directly or indirectly related to the business
of the Corporation or the market for the Common Stock, or (b) any securities of
the Corporation issued or issuable pursuant to an "equity line" structure which
provides for the sale, from time to time, of securities of the Corporation which
are registered for resale pursuant to the Securities Act.
(vi) "MFN Transaction" means a transaction in which the
Corporation issues or sells any equity securities in a capital raising
transaction or series of related transactions (the "New Offering") which grants
to an investor (the "New Investor") the right to receive additional shares based
upon future equity raising transactions of the Corporation on terms more
favorable than those granted to the New Investor in the New Offering.
14
(vii) Determination of Consideration. The "consideration
actually received" by the Corporation for the issuance, sale, grant or
assumption of shares of Common Stock, Stock Purchase Rights or Convertible
Securities, irrespective of the accounting treatment of such consideration,
shall be valued as follows:
(A) Cash Payment. In the case of cash, the net
amount received by the Corporation after deduction of any accrued interest or
dividends and before deducting any expenses paid or incurred and any
underwriting commissions or concessions paid or allowed by the Corporation in
connection with such issue or sale;
(B) Noncash Payment. If shares are issued for a
consideration other than cash, the Per Share Selling Price shall be the fair
market value of such consideration as determined in good faith by independent
certified public accountants mutually acceptable to the Corporation and the
holders of a majority of shares of Series B Preferred Stock.; and
(C) Stock Purchase Rights and Convertible
Securities. The total consideration, if any, received by the Corporation as
consideration for the issuance of the Stock Purchase Rights or the Convertible
Securities, as the case may be, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the exercise of such
Stock Purchase Rights or upon the conversion or exchange of such Convertible
Securities, as the case may be, in each case after deducting any accrued
interest or dividends.
(e) Readjustment of Conversion Rate. In the event of any
change in (i) the consideration, if any, payable upon exercise of any Stock
Purchase Rights or upon the conversion or exchange of any Convertible Securities
or (ii) the rate at which any Convertible Securities are convertible into or
exchangeable for shares of Common Stock, the applicable Conversion Rate as
computed upon the original issue thereof shall forthwith be readjusted to the
Conversion Rate that would have been in effect at such time had such Stock
Purchase Rights or Convertible Securities provided for such changed purchase
price, consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold. On the expiration of any Stock Purchase
Rights not exercised or of any right to convert or exchange under any
Convertible Securities not exercised, the applicable Conversion Rate then in
effect shall forthwith be increased to the Conversion Rate that would have been
in effect at the time of such expiration had such Stock Purchase Rights or
Convertible Securities never been issued. No readjustment of the Conversion Rate
pursuant to this Subsection 7(e) shall (i) increase the applicable Conversion
Rate by an amount in excess of the adjustment originally made to the Conversion
Rate in respect of the issue, sale or grant of the applicable Stock Purchase
Rights or Convertible Securities or (ii) require any adjustment to the amount
paid or number of shares of Common Stock received by any holder of Preferred
Stock upon any conversion of any share of Preferred Stock prior to the date upon
which such readjustment to the Conversion Rate shall occur.
(f) Exclusions. Anything herein to the contrary
notwithstanding, the Corporation shall not be required to make any adjustment of
any Conversion Rate in the case of (i) the issuance or sale of options, or the
shares of stock issuable upon exercise of such options, to purchase shares of
Common Stock to directors, officers, employees or consultants of the
15
Corporation pursuant to stock options or stock purchase plans or agreements in
existence on the date of this filing, whether "qualified" for tax purposes or
not, pursuant to plans or arrangements approved by the Board of Directors and
stockholders, (ii) the issuance of Common Stock pursuant to warrants outstanding
as of the date of filing this Series B Certificate of Designations and (iii) the
issuance of Common Stock upon conversion of the Series A Preferred Stock or
Series B Preferred Stock. The issuances or sales described in the preceding
clauses (i), (ii) and (iii) shall be ignored for purposes of calculating any
adjustment to the Conversion Rate.
(g) Notice of Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Rate pursuant to this Section 7,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms thereof, and prepare and furnish to
each holder of Series B Preferred Stock affected thereby 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 notice at any time of any holder of Series B Preferred Stock furnish or
cause to be furnished to such holder a like certificate setting forth (i) such
adjustment or readjustment, (ii) the applicable Conversion Rate at the time in
effect and (iii) the number of shares of Common Stock and the amount, if any, of
other property that at the time would be received upon the conversion of such
holder's shares.
8. Redemption. So long as a Registration Statement covering the resale
of the Common Stock issued or issuable upon conversion of the Series B Preferred
Stock is effective (but only for so long as such Registration Statement is
required to remain effective), at any time after the second (2nd) anniversary of
the date of this filing, at the option of the Corporation, and upon at least 30
days' written notice to the holders of Series B Preferred Stock, the Corporation
may redeem some or all of the Series B Preferred Stock, at a redemption price
equal to the greater of: (a) 125% of the Series B Original Price per share, plus
all accrued but unpaid dividends thereon; or (b) an amount equal to the product
of (1) the number of shares of Common Stock then issuable to the Investors upon
conversion of the Series B Preferred Stock being redeemed and (2) the Market
Price on the date of redemption. Holders of the Series B Preferred Stock shall
be entitled to convert their shares of Series B Preferred Stock into Common
Stock during the 30-day notice period of this Section 8.
IN WITNESS WHEREOF, Atlantic Technology Ventures, Inc. has caused this
Series B Certificate of Designations to be signed by its duly authorized officer
as of the 28th day of September 2000.
ATLANTIC TECHNOLOGY VENTURES , INC.
By: /s/ Frederic P. Zotos
-----------------------------------
Frederic P. Zotos
President
16
Exhibit A
Notice of Conversion of Series B Preferred Stock
The undersigned hereby elects to convert _____________ shares of Series
B Preferred Stock of Atlantic Technology Ventures, Inc. (the "Company") held by
the undersigned pursuant to the following terms and instructions:
Date of Conversion:____________________________________________
Applicable Conversion Price:_____________________________________
Applicable Conversion Rate:_____________________________________
Calculation of the Conversion Rate: _______________________________
-------------------------------
Number of Shares of Common Stock to be Issued:_____________________
Name in which Shares are to be Issued:______________________________
Holder:________________________________________________________
Signature:______________________________________________________
Title, if applicable:_______________________________________________
Address for delivery of shares or DTC account number for deposit of shares:
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