Section 240.14a-101 Schedule 14A.
Information required in proxy statement.
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
FASTCOMM COMMUNICATIONS CORPORATION
.................................................................
(Name of Registrant as Specified In Its Charter)
.................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction
applies:
............................................................
(2) Aggregate number of securities to which transaction
applies:
.......................................................
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount
on which the filing fee is calculated and state how it was
determined):
.......................................................
(4) Proposed maximum aggregate value of transaction:
.......................................................
(5) Total fee paid:
.......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
.......................................................
(2) Form, Schedule or Registration Statement No.:
.......................................................
(3) Filing Party:
.......................................................
(4) Date Filed:
.......................................................
FASTCOMM COMMUNICATIONS CORPORATION
45472 HOLIDAY DRIVE
STERLING, VA 20166
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 10, 1997
------------------------
To the Shareholders of
FASTCOMM COMMUNICATIONS CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of FastComm
Communications Corporation, a Virginia corporation (the 'Company' or
'FastComm'), will be held on November 10, 1997, at 9:00 p.m. local time, at the
Holiday Inn, Holiday Drive, Sterling, Virginia for the following purposes:
1. To elect four (4) directors of the Company;
2. To consider and act upon a proposal to Amend the Articles of
Incorporation for authorization of shares of Preferred Stock;
3. To consider and act upon a proposal to approve the issuance of
shares of Common Stock underlying the corporations convertible Debentures
and certain Warrants.
4. To consider and act upon a proposal to approve an Employee Stock
Purchase Plan; and
5. To ratify the appointment of BDO Seidman, LLP as the independent
auditors for the Company for the fiscal year ending April 30, 1998;
6. To transact such other business as may properly come before the
meeting or any adjournment thereof.
All shareholders are cordially invited to attend the meeting, although only
shareholders of record at the close of business on September 30, 1997, are
entitled to notice of and to vote at the meeting.
Shares can be voted at the meeting only if the holder is present or represented
by Proxy. If you do not expect to attend the meeting, you are urged to date and
sign the enclosed proxy and return it in the accompanying envelope promptly, so
that your shares may be voted in accordance with your instructions and the
presence of a quorum may be assured. The prompt return of your signed proxy,
regardless of the number of shares you hold, will aid the Company in reducing
the expense of additional proxy solicitation. The grant of your proxy does not
affect your right to vote in person in the event you attend the meeting.
By Order of the Board of Directors
ROBERT C. ABBOTT,
Secretary
Sterling, Virginia
Dated: September , 1997
YOUR VOTE IS IMPORTANT
You are cordially invited to attend the Annual Meeting in person. However,
whether or not you plan to attend, you are requested to complete, sign and
date the enclosed proxy card and return it promptly in the enclosed,
self-addressed stamped envelope, which requires no postage if mailed in the
United States. If you attend the Annual meeting and so desire, you may
revoke your proxy and vote your shares in person.
FASTCOMM COMMUNICATIONS CORPORATION
45472 HOLIDAY DRIVE
STERLING, VIRGINIA 20166
PRELIMINARY PROXY STATEMENT FOR THE
ANNUAL MEETING OF SHAREHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
This Proxy Statement is furnished in connection with the solicitation of
proxies by FastComm Communications Corporation, a Virginia corporation (the
'Company' or 'FastComm'), for use at the Annual Meeting of Shareholders of the
Company to be held on November 10, 1997, and at any and all adjournments of such
meeting. The Company will bear the cost of this solicitation of proxies. Such
costs are expected to be nominal.
This Proxy Statement and the accompanying proxy card are being mailed to
shareholders commencing on or about September 30, 1997.
RECORD DATE; VOTING SECURITIES; QUORUM; BROKER NON-VOTES
September 30, 1997, has been fixed as the record date for determination of
shareholders entitled to notice of and to vote at the meeting or any adjournment
thereof. At the close of business on that date, 10,081,307 Common Shares, par
value $.01 per share, of the Company were issued and outstanding. Each Common
Share is entitled to one vote on any matter that properly comes before the
meeting. Cumulative voting is not permitted with respect to the election of
directors. The presence in person or by proxy of the holders of at least a
majority of the Common Shares entitled to be voted at the meeting is required to
constitute a quorum. Shares which are present, or represented by a proxy, at the
Annual Meeting will be counted for quorum purposes regardless of whether the
holder of the shares or proxy fails to specify a choice with respect to any or
all of the proposals or whether a broker with discretionary authority declines
to exercise its discretionary voting authority with respect to any or all of the
proposals (known as 'non-votes').
VOTING AND SOLICITATION
Pursuant to regulations of the Securities and Exchange Commission, boxes
and a clear means are provided on the accompanying proxy card for shareholders
to mark if they wish to withhold authority to vote for one or more nominees for
director, or to vote against or abstain on the other proposal. With regard to
Proposal I, election of directors, applicable Virginia law provides that, if a
quorum is present, directors are elected by a plurality of the votes cast; that
is, the nominee receiving the most votes FOR is elected. With regard to
Proposals II, IV and V, under applicable Virginia law abstentions as well as
non-votes will not be counted in determining votes cast because Virginia law
provides that, if a quorum is present, action on a matter (other than election
of directors) is approved if the votes cast in favor exceed the votes cast
against. Therefore, abstentions and non-voters have no effect on the votes on
this proposal. With regard to Proposal II, applicable Virginia law provides that
the Amendment to the Company's Articles of Incorporation must be approved by
two-thirds of the issued and outstanding shares of the company.
The Company has retained Innisfree M&A Incorporated ('Innisfree') to assist
the Company in connection with its communications with, and solicitation of
proxies from, its shareholders with respect to the Annual Meeting. Innisfree
will receive $ for its services and reimbursement of out-of-pocket
expenses in connection therewith the Company has agreed to indemnify Innisfree
against certain liabilities arising out of or in connection with its engagement.
1
REVOCABILITY OF PROXIES
Shareholders who execute proxies retain the right to revoke them at any
time by giving written notice of revocation to the Secretary of the Company.
Unless so revoked, the shares represented by signed proxies solicited by the
Company will be voted in accordance with the instructions given therein by the
shareholders. Any signed proxy not specifying to the contrary will be voted FOR
the election of the Board of Directors' nominees as directors referred to in
Proposal I and, FOR the ratification of the appointment of BDO Seidman, LLP as
independent auditors for the Company for the fiscal year 1998 referred to in
Proposal V and FOR Proposals II, III and IV. So far as the Company's management
is aware, such matters are the only matters to be acted on at the meeting. As to
any other matter which may properly come before the meeting or any adjournment
thereof, the person named in the accompanying proxy card will vote thereon in
accordance with their best judgment.
2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information regarding ownership of Common
Shares of the Company at July 15, 1997, by each person who is known by
management of the Company to own beneficially more than five percent of the
Common Shares (setting forth the address of each such person), by each director
and nominee for election as a director, by the Named Executive Officers of the
listed in the 'Summary Compensation Table' set forth herein, and by all
directors and Executive Officers of the Company as a group. Shares issuable on
exercise of options exercisable within 60 days are deemed to be outstanding for
the purpose of computing the percentage ownership of persons beneficially owning
such warrants or options, but have not been deemed to be outstanding for the
purpose of computing the percentage ownership of any other person. Insofar as is
known to the Company, the persons indicated below have sole voting and
investment power with respect to the shares indicated as owned by them except as
otherwise stated in the notes to the table.
AMOUNT AND NATURE PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP CLASS(10)
- ------------------------------------------------------------------------ ----------------------- ----------------
Peter C. Madsen, Sterling, Virginia(1).................................. 751,086 7.48%
Robert C. Abbott, Reston, Virginia...................................... 225,741(2) 2.24%
William A. Flanagan, Sterling, Virginia................................. 224,451(3) 2.23%
Edward R. Olson, Reston, Virginia(1).................................... 20,000(4) 0.20%
Thomas G. Amon, New York, New York(1)................................... 13,317(5) 0.13%
Edward C. Bursk, Centreville, Virginia.................................. 3,833(6) 0.04%
Mark H. Rafferty, Centreville, Virginia................................. 69,754(7) 0.69%
Richard L. Apel, Lawrenceville, Georgia................................. 146,563(8) 1.46%
Susquehanna Financial Group, Bala Cynwyd, PA............................ 829,879(9) 7.63%
All Directors and Officers as a group
(seven persons)....................................................... 1,344,762 13.4%
- ------------
(1) Director
(2) Gives effect to 33,333 options owned by Mr. Abbott exercisable within 60
days.
(3) Gives effect to 5,000 options owned by Mr. Flanagan exercisable within 60
days.
(4) Gives effect to 20,000 options owned by Mr. Olson exercisable within 60
days.
(5) Shares are owned by Thomas G. Amon Pension and Profit Sharing Plans as to
which Mr. Amon has no voting or investment power. Gives effect to 6,667
options owned by Mr. Amon exercisable within 60 days.
(6) Gives effect to 3,333 options owned by Mr. Bursk exercisable within 60
days.
(7) Gives effect to 41,667 options owned by Mr. Rafferty exercisable within 60
days.
(8) In connection with the acquisition of Comstat Datacomm Corporation ('CDC'),
the Company issued 146,600 shares of restricted common shares, $.01 par
value (the 'Exchange Shares') and 43,948 of its restrictive common shares,
$.01 par value (the 'Adjustment Shares') in exchange for all the issued and
outstanding shares of CDC which were owned by Richard L. Apel.
(9) Reflects shares issuable upon conversion of securities issued under $5
million private convertible debenture offering to four investors in a
private placement in April, 1997.
(10) Based upon 10,041,513 shares outstanding at July 15, 1997.
------------------------
The Company is unaware of any arrangement the operation of which could at a
subsequent date result in a change in control of the Company.
3
PROPOSAL I
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
Each of the four persons listed below has been nominated for election as a
director of the Company to serve until the next Annual Meeting of Shareholders,
or until a successor has been duly elected and qualified. If so authorized, the
persons named in the accompanying proxy will vote for the election of each
nominee. Shareholders who do not wish their shares voted for a particular
nominee may so indicate by striking that nominee's name as instructed on the
proxy card.
The Company has been informed that each nominee is willing to serve as a
director. If any one or more of the nominees should become unavailable to serve
at the time of the Annual Meeting, the shares represented by Proxy will be voted
for the remaining nominees and for any substitute nominees designated by the
incumbent Board of Directors. If no substitute is designated, the size of the
Board may be reduced or votes will be cast according to the judgment in such
matters of the persons voting the proxies. Each nominee for election except Mr.
Bursk, as director of the Company is an incumbent. The Board knows of no reason
why any of the nominees will be unavailable to serve.
The following lists the nominees for election as directors of the Company,
including the age of each person as of July 15, 1997, the positions with the
Company or principal occupations of each person, certain other directorships
held and the year each person became a director of the Company. The number of
Common Shares of the Company owned beneficially by each person at July 15, 1997,
is set forth beneath the caption 'Security Ownership of Certain Beneficial
Owners and Management' at Page 3.
NOMINEES FOR ELECTION AS DIRECTORS
WITH TERMS EXPIRING AT THE 1998 ANNUAL MEETING
Peter C. Madsen, age 46; Mr. Madsen has been President, Chief Executive
officer and a director of the Company since September 1992. Mr. Madsen was
President of Professional Marketing Corporation, a telecommunications equipment
distributor, from February 1992 to September 1992. From November 1986 to January
1992, he was an officer and director of Newbridge Networks Corporation, a
Canadian telecommunications company, most recently as President of Newbridge
Networks Inc., Newbridge Networks Corporation's United States subsidiary. Mr.
Madsen currently serves as a director of Newbridge Networks Corporation.
Edward R. Olson, age 56, has served as a director since January 1989. From
1990 to present, Mr. Olson has served as the President, Chief Executive Officer
and Chairman of MC Industries, Inc., a fluid hydraulics equipment manufacturer.
Commencing July 1, 1995, Mr. Olson became a principal in KPMG BayMark, LLC. KPMG
BayMark LLC has since been renamed to Dominion Management LLC. For the past five
years, Mr. Olson has served as President of Ed Olson Consulting Group, Ltd., a
management consulting firm. From 1992 to 1993 Mr. Olson was Senior Vice
President, Operations of Audiovox Corporation, a company concentrating in the
marketing and distribution of consumer electronic devices. Mr. Olson is Chairman
and President of York Industries, York, PA and Chairman of S&L Metal Products,
Queens, New York.
Mark H. Rafferty, age 42, has been Vice President, Chief Financial Officer
and Treasurer of the Company since August 1993. From August 1992 to August 1997,
Mr. Rafferty was Vice President, Finance at Newbridge Networks, Inc. From August
1987 through August 1992, Mr. Rafferty was Controller of Newbridge Networks,
Inc.
Thomas G. Amon, age 49, has served as a director since December, 1994. Mr.
Amon has been a partner in the law firm of Amon & Sabatini for the past five
years.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held four meetings during fiscal 1997. All directors
attended each of the meetings of the Board of Directors.
4
The Board of Directors has a standing Audit Committee and Compensation
Committee. The Board of Directors has no nominating committee.
The Audit Committee, consisting of Messrs. Olson and Amon met four times
during fiscal 1997. The function of the Audit Committee is to recommend the
appointment of the independent public accountants, to review the nature and
scope of the services of the independent public accountants, to confer with the
independent public accountants and to review the results of their audit and the
Company's internal controls, and to provide assistance to the Board of Directors
with respect to the corporate and reporting practices of the Company.
The Compensation Committee, consisting of Messrs. Madsen, Olson and Amon
met four times during Fiscal 1997. The function of the Compensation Committee is
to make recommendations to the Board of Directors regarding compensation to be
paid to the Company's executive Officers.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES FOR ELECTION AS
DIRECTORS LISTED ABOVE.
BOARD REPORT ON EXECUTIVE COMPENSATION
The Company does not have a formal compensation committee. Compensation
levels for executive officers are set by the Compensation Committee of the Board
of Directors. The Committee is presently comprised of the following individuals:
Peter C. Madsen, Thomas G. Amon and Edward R. Olson. Salaries are reviewed
annually and are based on individual performance, the extent of individual
responsibility and comparisons with salaries paid in the industry.
The Company recruits for its executive officer positions from within the
communications industry. In most instances, the source Company is significantly
larger than the Company. It is the policy of the Board of Directors of FastComm
to hire executive officers at levels below that of their current salaries along
with a stock option package intended to make up for the differentiation and to
provide a performance incentive. The Company feels that stock options are an
attractive benefit in that they enhance performance and loyalty at little cost.
The Company believes that the compensation packages offered to its current
employees and prospective employees are consistent with that of the
telecommunications industry.
The Board establishes compensation levels based on experience and
responsibility. No executive officer has received a salary increase during
fiscal year 1997.
The Board granted four executive officers options during fiscal 1997. Two
of these grants were determined by these individuals performance,
responsibility, security and the number of options currently held by these
officers. The two remaining grants were conditions of employment.
The Board adheres to a policy of granting options to executive officers
based upon performance and responsibility. In addition, the Board also considers
the relative importance of the job function being performed and the number of
options currently held by the executive officer.
/s/ Thomas G. Amon, /s/ Edward R. Olson, /s/ Peter C. Madsen
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year, Peter C. Madsen, Edward R. Olson, and Thomas G. Amon as
directors participated in deliberations of the Company's Board of Directors
concerning executive officer compensation and stock option grants, including
their own. Other than the foregoing, none of such directors was party to any
reportable interlock or participation during fiscal 1997. During the fiscal year
ended April 30, 1997, the Company sold approximately $43,000 of product under
normal terms and conditions to Newbridge Networks, Inc., the United States
subsidiary of Newbridge Networks Corporation, a Canadian Telecommunications
Company ('Newbridge'). Peter C. Madsen, President, Chief Executive Officer and a
director of the Company is also a director of Newbridge.
5
SHAREHOLDER RETURN PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative
total shareholder return on the Company's Common Stock with that of the
cumulative total return of the NASDAQ Stock Market -- US Index ('NASDAQ STOCK
MRKT -- US') and the NASDAQ Telecommunications Index ('NASDAQ TELECOM') for the
five year period ended on April 30, 1997. The information below is based on an
investment of $100, on April 30, 1992, in the Company's Common Stock, the NASDAQ
STOCK MRKT -- US and the NASDAQ TELECOM. The Company's Management consistently
cautions that the stock price performance shown in the graph below should not be
considered indicative of potential future stock price performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
Among FastComm Communications Corp., The NASDAQ Stock Market-US
Index and The NASDAQ Telecommunications Index
[GRAPH]
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Fast Communications Corp 583 678 400 1217 348
NASDAQ Stock Market 115 128 149 212 225
NASDAQ Telecommmunications 130 154 161 221 199
6
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding compensation paid by
the Company to the six (6) named executives (the 'Named Executive Officers') for
services furnished in all capacities to the Company during the fiscal year ended
April 30, 1997, as well as such compensation paid by the Company to the Named
Executive Officers during the Company's two previous fiscal years:
LONG TERM
COMPENSATION
AWARDS
------------
SHARES OF
ANNUAL COMPENSATION OTHER ANNUAL COMMON STOCK
----------------------------- COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITIONS YEAR SALARY($) BONUS($) ($) OPTIONS
- ----------------------------------------------------- ---- --------- -------- ------------ ------------
Peter C. Madsen(2) .................................. 1997 101,757 0 6,613 0
President, CEO and Chairman of the Board 1996 104,196 0 6,219 0
1995 113,344 0 6,219 0
Mark H. Rafferty(3) ................................. 1997 108,503 0 5,824 25,000
Vice President -- Chief Financial Officer 1996 106,207 0 5,824 0
1995 110,825 0 5,824 125,000
Robert C. Abbott(4) ................................. 1997 98,639 0 0 15,000
Vice President -- Engineering Corporate Secretary 1996 95,552 0 0 0
1995 100,750 0 0 50,000
William A. Flanagan(5) .............................. 1997 109,417 0 2,511 0
Vice President -- Marketing and Technology 1996 106,715 0 6,632 15,000
1995 113,913 0 6,632 0
Edward C. Bursk(6) .................................. 1997 52,532 0 2,400 55,000
Vice President -- Sales and Marketing
Richard L. Apel(7) .................................. 1997 25,853 0 1,200 50,000
Vice President
- ------------
The options listed with respect to fiscal year 1995 long-term compensation
awards include options granted upon repricing (and consequent cancellation) of
previously granted options. Options to purchase the following number of shares
granted to the following persons in fiscal year 1995 were issued as a result of
the repricing on September 9, 1994 of previously granted options: Mr.
Rafferty -- 75,000 (all of which were originally granted in fiscal year 1994);
Mr. Abbott -- 50,000 (all of which were originally granted in fiscal year 1994).
The repriced options were conditioned upon waiver of previously granted options
and acceptance of a new vesting period.
(1) Automobile benefit.
(2) At April 30, 1997, Mr. Madsen held 751,086 restricted shares of Common Stock
with a market value of $3,755,430 at that date; Mr. Madsen waived the
payment of $28,522 of his salary in the 1994 fiscal year.
(3) At April 30, 1997, Mr. Rafferty held 28,088 restricted shares of Common
Stock with a market value of $140,435 at that date.
(4) At April 30, 1997, Mr. Abbott held 192,408 restricted shares of Common Stock
with a market value of $962,040 at that date.
(5) At April 30, 1997, Mr. Flanagan held 218,451 restricted shares of Common
Stock with a market value of $1,097,255 at that date.
(6) Mr. Bursk commenced working for the Company in November, 1996. At April 30,
Mr. Bursk held 500 restricted shares of Common Stock with a market value of
$2,500.
(7) Mr. Apel commenced working for the Company in February, 1997. At April 30,
Mr. Apel held 146,600 shares of Common Stock with a market value of
$733,000.
7
FISCAL 1997 OPTION GRANTS
The following table sets forth information concerning grants of stock
options to the Named Executive Officers made pursuant to the Company's 1992
Stock Option Plan during the fiscal year ended April 30, 1997:
PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE
NAME GRANTED(#) FISCAL YEAR ($/SH)
- ------------------------------ ---------- ------------- -----------
Peter C. Madsen............... 0 -- --
Mark H. Rafferty.............. 25,000 4.86 6.50
Robert C. Abbott.............. 15,000 2.92 12.00
William A. Flanagan........... 0 0 --
Thomas G. Amon................ 10,000 1.95% $ 15.63
Edward R. Olson............... 10,000 1.95% $ 15.63
Edward C. Bursk............... 55,000 10.70% $ 6.50
Richard L. Apel............... 50,000 9.73% $ 6.82
EXPIRATION
NAME DATE 5%($) 10%($)
- ---------------------------------------- ------- --------
Peter C. Madsen............... -- -- --
Mark H. Rafferty.............. 12/23/01 44,750 99,250
Robert C. Abbott.............. 07/14/01 49,800 109,250
William A. Flanagan........... -- -- --
Thomas G. Amon................ 05/08/01 $43,150 $ 95,450
Edward R. Olson............... 05/08/01 $43,150 $ 95,450
Edward C. Bursk............... 12/23/01 $98,450 $218,350
Richard L. Apel............... 01/30/02 $94,000 $208,000
- ------------
The exercise price of each option may not be less than 100% of the fair market
value of the stock on the date of the grant for incentive options or 85% of such
fair market value for non-qualified stock options, as determined by the Board of
Directors. Options vest over a three year period and expire five years from date
of grant and, in most cases, upon termination of employment.
FISCAL 1997 AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth information concerning each exercise of
stock options during the fiscal year ended April 30, 1997 by each of the Named
Executive Officers and the fiscal year end value of unexercised options held by
such persons:
SHARES UNDERLYING
SHARES UNEXERCISED OPTIONS AT FISCAL
ACQUIRED ON VALUE YEAR-END(#)
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE
- ------------------------------ ----------- ----------- -----------------------------
Peter C. Madsen............... -- -- 0 0
Robert C. Abbott.............. -- -- 33,333 31,667
William Flanagan.............. -- -- 5,000 10,000
Thomas G. Amon................ 3,333 13,334
Edward R. Olson............... -- -- 16,666 13,334
Mark H. Rafferty.............. -- -- 41,667 66,667
Edward C. Bursk............... 11,600 89,125 3,699 70,001
Richard L. Apel............... -- -- -- 50,000
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END($)
NAME EXERCISABLE/UNEXERCISABLE
- ----------------------------------------------------------
Peter C. Madsen...............$ 0 $ 0
Robert C. Abbott..............$ 20,833 $10,417
William Flanagan..............$ 0 $ 0
Thomas G. Amon................$ 5,833 $ 5,835
Edward R. Olson...............$ 11,666 $ 5,835
Mark H. Rafferty..............$ 26,042 $26,042
Edward C. Bursk...............$ 208 $ 7,500
Richard L. Apel...............$ 0 $ 0
EMPLOYMENT AND CONTROL ARRANGEMENTS
Effective September 18, 1992 the Company, Mr. Robert N. Dennis and Mr.
Edward R. Olson, as the 'Current Directors' therein, and Mr. Peter C. Madsen
entered into an employment agreement (the 'Employment Agreement') regarding the
terms of Mr. Madsen's employment by the Company and the scope of the
relationships among the parties to the Employment Agreement.
Pursuant to the Employment Agreement (i) Mr. Madsen was elected President
and Chief Executive officer of the Company for an initial term expiring on
January 31, 1995 at an initial base salary of $100,000 per year, (ii) Mr. Madsen
was granted an option to purchase up to 425,000 shares of Common Stock of the
Company at an exercise price of $1,09375 per share upon certain terms and
conditions, and (iii) Mr. Madsen and Mr. Peter Sommerer were elected directors
of the Company to fill two vacancies then existing on the Board of Directors.
Under the Employment Agreement, Mr. Madsen has been granted full control of
and authority over the operations of the Company, subject to the general
oversight of the Board, and the Current
8
Directors agreed not to take any action inconsistent with their respective
obligations thereunder. The Employment Agreement and the related actions
resulted in an effective change in control of the Company away from Mr. Dennis
to Mr. Madsen. The Employment Agreement, which currently expires on January 31,
1998, is renewable thereafter on a year to year basis.
DIRECTOR'S COMPENSATION
Directors receive no salary for their services as such; however, the Board
of Directors has authorized payment of reasonable expenses incurred by
non-employee directors in connection with attendance at meetings of the Board of
Directors. Further, members of the Company's Board of Directors are granted
options to purchase common shares pursuant to the Company's 1992 Stock Option
Plan. During Fiscal Year 1997, the Company granted options to purchase 10,000
shares each to two of its directors. The Chairman of the Board receives no
compensation for serving in such capacity.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal years ended April 30, 1996 and 1997, the Company sold
approximately $158,000 and $43,000, respecting of product under normal terms and
conditions to Newbridge Networks, Inc. ('NNI') a United States subsidiary of
Newbridge Networks Corporation, a Canadian Telecommunications Company
('Newbridge'). FastComm sells to NNI under net 30 day terms with prompt payment
discounts. Such terms are consistent with that of similar customers. Title
passes on shipment of product. Under the terms of the contract, NNI may return
purchased and paid for (during the previous six month period) but unused
products to FastComm for either warranty revalidation and/or revision level
change (hardware or firmware). Peter C. Madsen, President, Chief Executive
Officer and a director of the Company is also a director of Newbridge.
The Company paid the law firm of Amon & Sabatini $154,000 in the fiscal
year ended April 30, 1996 and $183,000 in the fiscal year ended April 30, 1997.
Thomas G. Amon, a Director of the Company, since December 1994, is a partner of
Amon & Sabatini.
On February 13, 1997, FastComm entered into an agreement whereby it leased
a facility in Georgia that is owned by Richard L. Apel. Mr. Apel is a Vice
President of the Company. The Complained $22,0000 to Mr. Apel in the fiscal year
ended April 30, 1997. Also in connection with the acquisition of Comstat, Mr.
Apel was loaned $300,000. The loan bears interest at 2 1/2 above the prime
lending rate and is secured by a pledge of certain shares the Company's stock
issued to him in connection with this transaction.
The terms of the transactions described above were negotiated at arms
length such that the terms were as favorable to the Company as could have been
obtained from an unaffiliated third party.
The Company has entered into separate indemnification agreements with each
of its directors and executive officers that may require the Company, among
other things, to indemnify them against certain liabilities that may arise by
reason of their status or service as directors or officers.
PROPOSAL II
AUTHORIZATION OF SHARES OF PREFERRED STOCK
(ITEM 2 ON PROXY CARD)
The Board of Directors has unanimously approved, and recommends to the
shareholders that they adopt an amendment to Article 3 of the Articles of
Incorporation that would authorize 100,000 shares of preferred stock with such
relative rights, preferences, voting and class or series designations as shall
be determined by the Board of Directors.
The Company's Articles of Incorporation currently authorize the issuance of
25,000,000 shares of Common Stock. No holder of Common Stock has any preemptive
rights.
Under the proposed amendment, in creating a new class of series of
Preferred Stock, the Board of Directors would set the rights of such class or
series as to dividends, voting, preferences, liquidations and redemption. This
would enable the Board of Directors to act promptly in issuing a new class or
9
series of Preferred Stock and to tailor the terms of such class or series to the
transaction or circumstances to which such issuance relates. The Company will
from time to time consider issuing shares of preferred stock or rights to
acquire preferred stock.
The full text of Proposal Two is attached to this Proxy Statement as
Exhibit A, which shareholders are urged to read carefully.
Effective April 9, 1997, the Company issued, in a private placement,
$5,000,000 principal amount of Debentures to four private investors (the
'Private Placement Investors'). The Debentures are convertible into shares of
the Company's common stock at, depending on the time of conversion, a fixed or
variable conversion price. The Securities Purchase Agreement (the 'Agreement')
with the Private Placement Purchasers provides, in part that the Debentures are
also convertible into 5,000 shares of to-be-created class of Class 'A' Preferred
Stock of the Company, if authorized by the Board of Directors and the
Shareholders of the Company. If so authorized the Preferred Shares, will be
convertible into Common Shares and Warrants upon the terms and subject to the
limitations and conditions set forth in a Certificate of Designation,
Preferences and Rights attached hereto as Exhibit B.
Upon approval of the Amendment to the Company's Articles of Incorporation,
to create the new class of Preferred Stock, and upon the fulfillment of certain
other conditions, the Company has the right to require the conversion of all of
the outstanding principal amount of Debentures into that number of shares of the
to-be created series of the Company's Preferred Stock having the designations
preferences and rights set forth in the Certificate of Designations, Preferences
and Rights which have a total face amount equal to such principal amount.
PURPOSES AND EFFECTS OF PROPOSAL II
The Board of Directors believes that the authorization of shares of
preferred stock as contemplated by Proposal II would benefit the Company and its
shareholders by giving the Company needed flexibility in its corporate planning
and in responding to developments in the Company's business, including possible
financing and acquisition transactions, stock dividends and other general
corporate purposes such authorized shares available for issuance in the future
would give the Company greater flexibility and allow shares of preferred stock
to be issued without the expense and delay of a special shareholder meeting. The
Company does not have any present plan or agreement for the issuance for
Preferred Stock, other than to the Private Placement Investors.
Except as otherwise required by applicable law or regulation, the shares of
preferred stock to be authorized in Proposal II will be issuable without further
authorization by vote or consent of the shareholders and on such terms and for
such consideration as may be determined by the Board of Directors.
The issuance of shares of preferred stock could adversely affect the rights
of the Company's common shareholders, since the dividend and liquidation rights
of the common shareholders will generally be subordinate to the rights of
preferred shareholders.
The Board of Directors could use preferred stock to discourage an attempt
to change control of the Company, even though a change in control might be
perceived as desirable by some shareholders, by, among other things selling a
substantial number of shares of preferred stock to persons who have an
arrangement with the company concerning the voting of such shares, or by
distributing shares of preferred stock, or rights to receive such shares, to the
shareholders. In this respect, certain corporations have issued as a dividend to
their common shareholders shares of preferred stock or rights to acquire shares
of preferred stock having terms designed to encourage negotiated rather than
unilateral takeover proposals and to protect against the adverse consequences of
certain abusive takeover tactics such as open market accumulation programs and
partial and front end loaded takeovers and freezeouts. The shares of authorized
preferred stock would be available for such purposes and the Board of Directors
may from time to time consider issuing shares of preferred stock for such
purposes. The ability to issue shares of preferred stock also would allow the
Board of Directors to issue shares only to shareholders supportive of
management's position. This could provide management with the means to block a
business combination considered desirable by some shareholders. In addition, the
Board could authorize the issuance of a series of preferred stock that votes as
a class, either separately or with the
10
holders of Common Stock, on any merger, sale or exchange of assets by the
Company or any other extraordinary corporate transaction.
The proposed amendment to the Articles of Incorporation is permitted under
Virginia law and is consistent with the rules of NASDAQ, upon which the
Company's Common Stock is listed and traded.
VOTE REQUIRED
Under Virginia law, more than two thirds of the outstanding shares of the
Company's Common Stock must approve Proposal II. Abstentions and broker shares
that are not voted on the matter and will have the same effect as a negative
vote.
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED AMENDMENT OF THE COMPANY'S
ARTICLES OF INCORPORATION IS IN THE BEST INTERESTS OF BOTH THE COMPANY AND ITS
SHAREHOLDERS AND RECOMMENDS THAT THE SHAREHOLDERS VOTE IN FAVOR OF PROPOSAL II.
PROPOSAL III
APPROVAL OF THE ISSUANCE OF SHARES OF COMMON STOCK UNDERLYING THE CORPORATION'S
CONVERTIBLE DEBENTURES (OR CONVERTIBLE PREFERRED STOCK) AND CERTAIN WARRANTS.
(ITEM 3 ON PROXY CARD)
On April 9 1997, the Corporation issued and sold an aggregate of $5,000,000
principal amount of convertible debentures (which is convertible into a New
Series A Preferred Stock upon Shareholders Approval) and Warrants to purchase up
to 1,160,622 shares of Common Stock to a group of institutional investor for an
aggregate purchase price of $5.0 million. As discussed under Proposal II, the
New Preferred Stock is convertible into common stock at a price which is equal
to or less than market price of the Common Stock at the time of conversion.
Moreover, the Corporation is required to pay the 5% premium on the New Preferred
Stock in the form of Commons Stock at the time of conversion. Because the
conversion rates applicable to the New Preferred Stock fluctuate with the market
price of the Common Stock, the Corporation cannot determine the exact number of
shares which will be issued upon conversion of and as dividends on the New
Preferred Stock.
In connection with the issuance of the New Preferred Stock, the Corporation
agreed to seek the approval of its Stockholders for the issuance of in excess of
2,016,260 shares of Common Stock (20% of the number of shares of Common Stock
outstanding on the first assumed date of issuance of the New Preferred Stock)
upon (i) the conversion of, and as dividends on, the New Preferred Stock and
(ii) the exercise of warrants issued in connection with the issuance of the New
Preferred Stock.
This proposal is being presented to the Corporation's stockholders in
accordance with Rule 4460(i) of the NASDAQ. Rule 4460(i) requires stockholder
approval for the issuance of shares of common stock in a transaction or series
of transactions involving (i) the sale or issuance by the issuer of common stock
(or securities convertible into or exercisable for common stock) at a price less
than the greater of book or market value which together with sales by officers,
directors or substantial shareholders of the Corporation equals 20% or more of
the common stock or 20% or more of the voting power outstanding before the
issuance; or (ii) the sale or issuance by the issuer of common stock (or
securities convertible into or exercisable for common stock) equal to 20% or
more of the common stock or 20% or more of the voting power obtained before the
issuance for less than the greater of book or market value of the stock.
Based on the market price for the Corporation's Common Stock on July 8,
1997 of $6.75 per share, the New Preferred Stock would be convertible into
740,740 shares of Common Stock. Moreover, an additional 296,296 shares of Common
Stock are issuable upon exercise of warrants issued in connection with the New
Preferred Stock (assumes maximum issuance). Such shares represent in the
aggregate 10.33% of the number of shares of Common Stock issued and outstanding
on July 8, 1997 and represent in the aggregate 10.33% of the Corporation's
voting power outstanding on July 8, 1997. Additional
11
shares of Common Stock may be issued as dividends on the New Preferred Stock,
which issuances will increase these percentages.
This investment in New Preferred Stock provided the Corporation with an
additional $5.0 million in working capital. Exercise of the Warrants issued in
connection with the New Preferred Stock will provide the Corporation with an
additional $2.0 million in working capital. Such funds are essential to fund the
Corporation's continued expansion of the Corporation's business domestically and
into countries that may provide opportunities for continued commercial expansion
of the Corporation's integrated frame and voice data relay devices.
In the event the Corporation does not receive approval by the stockholders
of this Proposal III, the Corporation would be required to redeem all shares of
Common Stock issuable upon conversion of the New Preferred Stock or exercise of
the warrants to the extent such shares exceeds 20% of the issued and outstanding
Common Stock. Such redemption would require the Corporation (i) to pay, in cash,
an amount equal to 120% of the market price for the shares of Common Stock that
investors in the New Preferred Stock were not able to convert due to such
limitation and (ii) to issue one warrant for every 2 1/2 shares redeemed for
each share of new Preferred Stock redeemed. In the alternative, the Corporation
may issue other securities with the same economic value (before taxes) as the
securities redeemed.
In light of the redemption obligation, failure to obtain stockholder
approval pursuant to NASDAQ Rule 4460(i) would adversely affect the
Corporation's financial position. The resulting reduction in working capital
could cause the Corporation to delay the commercial roll-out of the
Corporation's new products or to forego opportunities for expansion in the
marketplace.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS OF
COMMON STOCK VOTE IN FAVOR OF THE PROPOSAL III.
PROPOSAL IV
EMPLOYEES STOCK PURCHASE PLAN
On March 14, 1997, the Board of Directors of the Company subject to
shareholder approval, adopted the Employees' Stock Purchase Plan (the 'Plan'),
the text of which is set forth in Exhibit C. The purpose of the Plan is to
encourage ownership of Common Stock of the Company by its employees and to
provide additional incentive to those employees to remain with the Company and
promote the success of its business.
GENERAL
The Plan permits full-time employees whose customary employment is for more
than 1,000 hours per year (to whom there are at present approximately
) to purchase shares of Common Stock in an aggregate amount not
exceeding 100,000 shares (subject to adjustment in the event of stock dividends,
split-ups, recapitulizations or combinations) through payroll deductions and
voluntary participant contributions of up to $10,000 per year. Participation in
the Plan is entirely voluntary. Shares will be purchased either on the open
market or from the Company on the last day of each payroll period. Shares
purchased from the Company will be purchased at a price equal to the average of
the high and low sales prices of the Common Stock on the NASDAQ, on the day most
recently preceding the purchase date on which reported sales of Common Stock on
the NASDAQ were effected.
In the sole discretion of the Board of Directors, the Company may
contribute to a participant's account on any purchase date an amount up to but
not exceeding such participant's payroll deduction for the payroll period ending
on such purchase date. Such contribution may be in the form of a cash
contribution, in the event that shares purchased for such participant are
purchased in an open market transaction or in the form of a price discount, in
the event that such shares are purchased from the Company. The Board does not
presently intend to make contributions although it may elect to do so in the
future.
12
The Company will hold stock certificates representing shares purchase under
the Plan until a participant requests delivery of the certificates. Shares so
held will be enrolled in the Company's Dividend Reinvestment Plan. Any cash
dividends paid on such shares will be used to purchase additional Commons Stock
under that Plan.
A participant may terminate or suspend his participation in the Plan at any
time. An employee's participation also terminates if he ceases to be employed by
the Company for any reason, including death or retirement. Participants may not
sell, assign or transfer their interests in the Plan or rights thereunder to any
other person.
ADMINISTRATION
The Plan is administered by the Compensation Committee, which has duel
power and authority to decide all questions regarding its construction and
incorporation, The Compensation Committee may also pass upon and decide cases
presenting unusual circumstances and in so doing, shall not in a
nondiscriminatory manner consistent with and to further the purposes of the
Plan. All decisions of the Compensation Committee shall be final and binding
upon all persons.
AMENDMENT AND TERMINATION OF THE PLAN
The Plan may be amended or terminated by the Board of Directors, but no
amendment which is required to be approved by the shareholders of the Company as
a condition of exemption of purchases from Section 16(b) of the Securities and
Exchange Act of 1934 shall be effective until it is so approved.
EXPENSES
This Company will bear all expenses of administering the Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL IV.
PROPOSAL V RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(ITEM 5 ON PROXY CARD)
The Board of Directors has appointed BDO Seidman, LLP as independent
certified public accountants to examine the financial statements of the Company
for the fiscal year ending April 30, 1998, and to perform other appropriate
accounting services.
A proposal will be presented at the meeting to ratify the Board's
appointment of BDO Seidman, LLP as the Company's independent certified public
accountants. If the appointment is not ratified by the shareholders represented
at the meeting, the Board of Directors may reconsider its recommendation. One or
more representatives of BDO Seidman, LLP are expected to be present at the
Annual Meeting and have an opportunity to make a statement and/or respond to
appropriate questions from Shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL V.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and with the National Association of Securities Dealers, Inc. Automated
Quotations (NASDAQ) system. Officers, directors and greater than ten percent
shareholders are required by regulation to furnish the Company with copies of
all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes
13
that during its fiscal year ended April 30, 1996, all filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with.
OTHER BUSINESS
Management of the Company knows of no other business which may come before
the meeting. However, if any additional matters are properly presented at the
meeting, it is intended that the persons named in the enclosed proxy, or their
substitutes, will vote such proxy in accordance with their judgment on such
matters.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Shareholder proposals intended for presentation at the Company's next
Annual Meeting must be received by the Company at its principal offices in
Sterling, Virginia not later than July 5, 1998.
ANNUAL REPORT TO SHAREHOLDERS
Enclosed with this Proxy Statement is the Annual Report to Shareholders for
the fiscal year ended April 30, 1997, including audited consolidated financial
statements for the year then ended, which includes the Company's Annual Report
on Form 10-K as filed with the Securities and Exchange Commission. The Annual
Report is not incorporated in the Proxy Statement and is not to be considered a
part of the soliciting materials.
FASTCOMM COMMUNICATIONS CORPORATION
The Board of Directors
Sterling, Virginia
September , 1997.
14
EXHIBIT A
ARTICLES OF AMENDMENT
TO THE RESTATED ARTICLES OF INCORPORATION
OF
FASTCOMM COMMUNICATIONS CORPORATION
(PURSUANT TO SECTION 13.1 -- 708 OF THE
VIRGINIA STOCK CORPORATION ACT)
1. The Board of Directors of FastComm Communications Corporation, a
Virginia corporation and hereinafter referred to as the 'Corporation', at a
meeting duly called and held on , 1997 at which a quorum was
present and acting throughout in accordance with Section 13.1 - 688 of the
Virginia Stock Corporation Act (he 'Act'), found that the following proposed
amendment to the Corporation's Restated Articles of Incorporation was in the
best interests of the Corporation and directed that it be submitted to a vote of
the Shareholders:
'RESOLVED, that Article III of the Restated Articles of Incorporation
be amended to read as follows:
ARTICLE III
AUTHORIZED SHARES
A. GENERAL AUTHORIZATION.
The aggregate number of shares which the corporation is authorized to issue
is 25,100,000 shares, consisting of:
(1) 25,000,000 shares of common stock having a par value of $.01 per
share; and
(2) 100,000 shares of preferred stock having a par value of $.01 per
share.
B. PREFERRED STOCK.
(1) The Board of Directors is authorized, subject to limitations prescribed
by law and the provisions of this Subsection B, to provide for the issuance of
the preferred shares in series, and by filing a certificate pursuant to the
Virginia Stock Corporation Act, to establish the number of shares to be included
in each such series, and to fix the designation, relative rights, preferences
and limitations of the shares of each such series. The authority of the Board
with respect to each series shall include but not be limited to, determination
of the following:
(a) The number of shares constituting that series and the distinctive
designation of that series;
(b) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and if so, from which date or dates;
(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges, and if so,
the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(e) Whether or not the shares of that series shall be redeemable, and
if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(f) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the corporation;
A-1
(g) Any other relative rights, preferences and limitations of that
series.
(2) Dividends on outstanding preferred shares shall be declared and paid,
or set apart for payment, before any dividends shall be declared and paid, or
set apart for payment, on the common shares with respect to the same dividend
period.
2. Adoption of this proposed Amendment by the Shareholders was accomplished
by the vote of more than two-thirds of those shares entitled to vote on the
Amendment pursuant to Section 13.1 -- 707(e) of the Act at a meeting duly called
and held on , 1997.
3. The number of shares outstanding and entitled to vote on the proposed
amendment, the number of shares voted for and against the proposed amendment,
the number of each class or series entitled to vote as a class, and the number
of shares of each such class or series voted for or against the amendment were
as follows:
Shares outstanding, all classes, . Shares entitled to vote,
all classes, . Shares, all classes, voted such amendment: FOR:
; AGAINST: . Shares entitled to vote and voted as a
class:
CLASS OR NUMBER
SERIES OUTSTANDING VOTED FOR VOTED AGAINST
- --------- ----------- ---------- --------------
Common
The undersigned, President of FastComm Communications Corporation, hereby
acknowledges, verifies and affirms under penalties of perjury this th
day of , 1997, that the foregoing amendment to ARTICLE III of the
Restated Articles of Incorporation of FastComm Communications Corporation, and
the foregoing resolutions, were adopted by the directors and shareholders of
FastComm Communications Corporation, and that the foregoing instrument is the
act and deed of said corporation and that the facts stated herein are true.
FASTCOMM COMMUNICATIONS CORPORATION
By: .................................
Peter C. Madsen, President
ATTEST:
.....................................
Robert C. Abbott, Secretary
A-2
EXHIBIT B
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES 'A' CONVERTIBLE PREFERRED STOCK
OF
FASTCOMM COMMUNICATIONS CORPORATION
PURSUANT TO SECTION 13.1-639 OF THE
VIRGINIA STOCK CORPORATION ACT
Fastcomm Communications Corporation, a corporation organized and existing
under the laws of the Commonwealth of Virginia (the 'corporation'), hereby
certifies that the following resolutions were adopted by the Board of Directors
of the Corporation pursuant to authority of the board of directors as required
by Section 13.1-639 of the Virginia Stock Corporation Act.
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of this corporation (the 'Board of Directors' or the 'Board') in
accordance with the provisions of its Certificate of Incorporation, the board of
Directors hereby authorizes a series of the Corporation's previously authorized
Preferred Stock, par value $.01 per share (the 'Preferred Stock'), and hereby
states the designation and number of shares, and fixes the relative rights,
preferences, privileges, powers and restrictions thereof as follows:
Series 'A' Convertible Preferred Stock:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 5,000 shares of Preferred
Stock, is the Series 'A' Convertible Preferred Stock (the 'Series 'A' Preferred
Stock') and the face amount shall be One Thousand U.S. Dollars ($1,000.00) per
share (the 'Face Amount').
II. NO DIVIDENDS
The Series 'A' Preferred Stock will bear no dividends, and the holders of
the Series 'A' Preferred Stock shall not be entitled to receive dividends on the
Series 'A' Preferred Stock.
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms shall
have the following meaning:
A. 'Closing Bid Price' means, for any security as of any date, the closing
bid price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg
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 'A' referred 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 Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as 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 'A' Preferred Stock, with the costs of such
appraisal to be borne by the Corporation.
B-1
B. 'Conversion Date' means, for any Optional 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
Midnight, New York city time, on the conversion Date indicated in the Notice of
conversion. If the Notice of Conversion is no so faxed or otherwise delivered
before such time, then the Conversion Date shall be the date the holder faxes of
otherwise delivers the Notice of Conversion to the Corporation. The Conversion
Date for the Required Conversion at Maturity shall be the Maturity Date (as such
terms are defined in Paragraph D of Article IV).
C. 'Conversion Percentage' shall have the following meaning and shall be
subject to adjustment as provided herein:
IF THE CONVERSION DATE IS: THEN THE CONVERSION PERCENTAGE IS:
- ---------------------------- ----------------------------------
Prior to October 6, 1997 100%
On or after October 6, 1997 90%
D. 'Conversion Price' means, (a) with respect to any Conversion Date
occurring prior to October 6, 1997, the Variable Conversion Price and (b) with
respect to any Conversion Date occurring on or after October 6, 1997, the lower
of the Fixed Conversion Price and the Variable Conversion Price, each in effect
as of such date and subject to adjustment as provided herein.
E. 'Fixed Conversion Price' means $7.54, and shall be subject to adjustment
as provided herein.
F. 'N' means the number of days from, but excluding, the Closing Date (the
'Closing Date') of the First Closing under that certain Securities Purchase
Agreement (the 'Securities Purchase Agreement') dated April 9, 1997 by and among
the Corporation and the Purchasers of the Corporation's 5% Convertible Term
Debentures due 2001 (the 'Debentures') through and including the Conversion Date
for such share of Series 'A' Preferred Stock.
G. 'Premium' means an amount equal to (.05) x (N/365) x (1,000).
H. 'Variable Conversion Price' means, as of any date of determination, the
amount obtained by multiplying the Conversion Percentage then in effect by the
average of the Closing Bid Prices for the Common Stock for the ten (10)
consecutive trading days ending on the trading day immediately preceding such
date of determination (subject to equitable adjustment for any stock splits,
stock dividends, reclassification or similar events during such ten (10) trading
day period), and shall be subject to adjustment as provided herein.
I. 'Warrant Coverage Percentage' shall have the following meaning and shall
be subject to adjustment as provided herein:
IF THE CONVERSION DATE IS: THEN THE WARRANT COVERAGE PERCENTAGE IS:
- --------------------------------------- ----------------------------------------
Prior to October 6, 1997 0%
On or after October 6, 1997 and prior
to April 4, 1998 20%
On or after April 4, 1998 40%
IV. CONVERSION
A. Conversion at the Option of the Holder. Subject to the limitations on
conversions contained in Paragraph C of this Article IV, each holder of shares
of Series 'A' Preferred Stock may, at any time and from time to time, convert
(an 'Optional Conversion') each of its shares of Series 'A' Preferred Stock
into:
(i) a number of fully paid and nonassessable shares of Common Stock
determined in accordance with the following formula:
1,000 + the Premium
-------------------------
Conversion Price
Plus
B-2
(ii) warrants, in the form attached as Exhibit B to the Securities
Purchase Agreement, to purchase a number of shares of Common Stock equal to
the Warrant Coverage Percentage multiplied by the number of shares of
Common Stock issuable pursuant to clause (i) above (the 'Warrants')
B. Mechanics of Conversion. In order to effect an Optional Conversion, a
holder shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice
of Conversion to the Corporation and (y) surrender or cause to be surrendered
the original certificates representing the Series 'A' 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. 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 and Warrants 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 or Warrants
upon a conversion unless either the Preferred Stock Certificates are delivered
to the Corporation as provided above, or the holder notifies the Corporation
that such certificates have been lost, stolen or destroyed (and the requirements
of Article XIV.B are complied with).
(i) Delivery of Common Stock Upon Conversion. Upon the surrender of
Preferred Stock Certificates from a holder of Series 'A' 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 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 (x) that
number of shares of Common Stock and Warrants issuable upon conversion of
such shares of Series 'A' Preferred Stock being converted and (y) a
certificate representing the number of shares of Series 'A' Preferred Stock
not being converted, if any.
(ii) Taxes. The Corporation shall pay any and all taxes (other than
transfer 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 'A' Preferred Stock.
(iii) No Fractional Shares. If any conversion of Series 'A' Preferred
Stock would result in the issuance of either a fractional share of Common
Stock or a Warrant to purchase a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common
Stock issuable up[on conversion of the Series 'A' Preferred Stock or upon
exercise of the Warrant shall be the nearest 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 and Warrants 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
its outside accountant via facsimile within two (2) business days of
receipt of the Notice of Conversion. The accountant 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 and Warrants in accordance with
subparagraph (i) above.
C. Limitations on Conversions. The conversion of shares of Series 'A'
preferred Stock shall be subject to the following limitations (each of which
limitations shall be applied independently):
(i) Volume Limitations. During the first 360 days following the
Closing Date, a holder of Series 'A' Preferred Stock may not during any
ninety (90) calendar day period ending on a Conversion Date, convert at the
Variable Conversion Price more than seventy-five percent (75%) of the Total
Face Amount of all shares of Series 'A' Preferred Stock acquired by such
holder. For the avoidance of doubt, the conversion of any shares of Series
'A' Preferred Stock into Common Stock and Warrants subject to an Optional
Redemption notice (as defined in Article VIII.D) shall
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not be counted as a conversion at the Variable Conversion Price for
purposes of this subparagraph (i).
(ii) 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 'A' Preferred Stock exceed the
maximum number of shares of Common Stock that the Corporation can so issue
pursuant to Rule 4460(i) of the NASDAQ National Market ('NASDAQ') (or any
successor rule) (the 'Cap Amount') which, as of the date of issuance of the
Series 'A' Preferred Stock, shall be 2,016,261 shares. The Cap Amount shall
be allocated pro-rata to the holders of Series 'A' Preferred Stock as
provided in Article XIV.D. 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.
(iii) No Five Percent Holders. Except in a Required Conversion at
Maturity, in no event shall a holder of shares of Series 'A' 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
'A' Preferred Stock or the unexercised or unconverted portion of any other
securities of the Corporation (including, without limitation, the Warrants)
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 'A' 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 4.9% 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 13D-G thereunder, except as otherwise provided in clause (x)
above. The restriction contained in this subparagraph (iii) shall not be
altered, amended, deleted or changed in any manner whatsoever unless the
holders of a majority of the Common Stock and each holder of Series 'A'
Preferred Stock shall approve such alteration, amendment, deletion or
change.
D. Required Conversion at Maturity. Subject to the limitations set forth in
Paragraph C (ii) of this Article IV and provided all shares of Common Stock
issuable upon conversion of all outstanding shares of Series 'A' Preferred Stock
and all Warrants issuable upon conversion thereof are then (i) authorized and
reserved for issuance, (ii) registered under the Securities Act of 1933, as
amended (the 'Securities Act') for resale by the holders of such shares of
Series 'A' Preferred Stock and (iii) eligible to be traded on either the NASDAQ,
the New York Stock Exchange or the American Stock Exchange, each share of Series
'A' Preferred Stock issued and outstanding on April 9, 2001 (the 'Maturity
Date') (and any accrued and unpaid Conversion Default Payments), automatically
shall be converted into shares of Common Stock and Warrants on such date in
accordance with the conversion formulas set forth in Paragraph A of this Article
IV (the 'Required Conversion at Maturity'). If a Required Conversion at Maturity
occurs, the Corporation and the holders of Series 'A' Preferred Stock shall
follow the applicable conversion procedures set forth in Paragraph B of this
Article IV; provided, however, that the holders of Series 'A' Preferred Stock
are not required to deliver a Notice of Conversion to the Corporation or its
transfer agent.
V. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. Upon the initial issuance of the shares of Series 'A'
Preferred Stock, all of the authorized but unissued shares of Common Stock
reserved for issuance upon conversion of the Debentures shall be reserved for
issuance upon conversion of the Series 'A' Preferred Stock and exercise of the
Warrants 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 'A'
Preferred Stock outstanding at the then current Conversion Price and exercise of
the Warrants then issuable upon conversion. The Reserved Amount shall be
allocated to the holders of Series 'A' Preferred Stock as provided in Article
XIV.D.
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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 Series 'A' Preferred Stock and
exercise of Warrants issuable upon such Conversion on such trading days, the
Corporation shall immediately notify the holders of Series 'A' 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 'A'
Preferred Stock and exercise of Warrants issuable upon such conversion. 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 'A'
Preferred Stock shall thereafter have the opinion, exercisable in whole or in
par at any time and from time to timely delivery of a 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 Redemption Amount (as
defined in Article VIII.B), a portion of the holder's Series 'A' 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 'A' Preferred Stock
(and exercise of the Warrants issuable upon such conversion). If the Corporation
fails to redeem any of such shares within (5) business days after is receipt of
a Redemption Notice, then such holder shall be entitled to the remedies provided
in Article VIII.C.
VI. FAILURE TO SATISFY CONVERSIONS
A. Conversion Default Payments. If, at any time, (x) a holder of shares of
Series 'A' 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) to
deliver, on or prior to the fourth business day following the expiration of the
Delivery Period for such conversion, such number of Warrants or 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 'A' Preferred Stock
at any time of its intention not to issue Warrants or 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, payments for the first ten
(10) business days following the expiration of the Delivery Period, in the case
of a Conversion Default described in clause (x), and for the first ten (10)
business days of a Conversion Default described in clause (y), an amount equal
to $500 per day. In the event any Conversion Default continues beyond such ten
(10) business day period, the Corporation shall pay to the holder an additional
amount equal to:
(.24) x (D/365) x (the Default Amount)
Where:
'D' means the number of days after the expiration of the ten (10) business
day period described above through and including the Default Cure Date;
'Default Amount' means (i) the Total Face Amount of all shares of Series
'A' Preferred Stock held by such holder plus (ii) the total Premium as of the
first day of the Conversion Default on all shares of Series 'A' 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 'A' 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 Common Stock in
satisfaction of all conversions of Series 'A' Preferred Stock in accordance with
Article IV.A.
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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 and Warrants at the lowest Conversion Price in effect during the period
beginning on the date of the Conversion Default through the Conversion Date for
such conversion. 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 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 or Warrants prior to the tenth
(10th) business day after the expiration of the Delivery Period with respect to
a conversion of Series 'A' 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 VI), then the Fixed Conversion Price in respect of any
shares of Series 'A' Preferred Stock held by 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 day such shares of Common Stock
are delivered to the holder. 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 the 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 that the Corporation is unable to honor conversions, if (i) 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 'A' Preferred
Stock and (ii) after the applicable Delivery Period with respect to such
conversion, 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 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 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 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 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.F.
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 he 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 or Warrants within ten (10)
business days after the expiration of the Delivery Period with respect to any
conversion of Series 'A' Preferred Stock, then the holder may elect at any time
and from time to time prior to the Default Cure Date such
Conversion Default, by delivery of a Redemption Notice (as defined in Article
VIII.C) to Corporation, to have all or any portion of such
holder's outstanding shares of Series 'A' Preferred Stock purchased by the
Corporation for cash, at an amount per share equal to the 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 a Redemption Notice,
then such holder shall be entitled to the remedies provided in Article VIII.C.
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VII. INABILITY TO CONVERT SHARES OF SERIES 'A' PREFERRED STOCK
DUE TO CAP AMOUNT
A. Obligation to Cure. If at any time 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 'A' Preferred
Stock (a 'Trading Market Trigger Event'), the Corporation shall immediately
notify the holders of Series 'A' 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 Series 'A' Preferred Stock
but for the Cap Amount) to eliminate any prohibitions under applicable law or
the rules or regulations of any stock exchange, inter-dealer 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. In the event the Corporation fails to eliminate all
such prohibitions within ninety (90) days after the Trading Market Trigger
Event, each holder of Series 'A' 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 Redemption Notice (as define din Article VIII.C) to the
Corporation, to require the Corporation to purchase for cash, at an amount per
share equal to the Redemption Amount (as defined in Article VIII.B), a portion
of the holder's Series 'A' Preferred Stock such that, after giving effect to
such purchase, the holder's allocated portion of the Cap Amount exceeds 135% of
the total number of shares of Common Stock issuable to t such holder upon
conversion of its Series 'A' Preferred Stock on the date of such Redemption
Notice. If the Corporation fails to redeem any of such shares within five (5)
business days after its receipt of a Redemption Notice, then such holder shall
be entitled to the remedies provided in Article VIII.C.
B. Remedies. If the Corporation fails to eliminate the applicable
prohibitions within the ninety (90) day cure period referred to in Paragraph a
of this Article VII and thereafter the Corporation is prohibited, at any time,
from issuing shares of Common Stock or Warrants upon conversion of Series 'A'
Preferred Stock to any holder because such issuance would exceed such holder's
allocated portion of the Cap Amount because of applicable law or the rules or
regulations of any stock exchange, inter-dealer quotation system or other
self-regulatory organization with jurisdiction over the Corporation or its
securities, any holder who is so prohibited form converting its Series 'A'
Preferred Stock may elect any or both of the following additional remedies:
(i) to require, with the consent of holders of at least fifty percent
(50%) of the outstanding shares of Series 'A' Preferred Stock (including
any shares of Series 'A' Preferred Stock held by the requesting holder),
the Corporation to terminate the listing of its Common Stock on the NASDAQ
National Market ('NASDAQ') (or any other stock exchange, inter-dealer
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 and
Warrants in accordance with such holder's Notice of Conversion at a
conversion price equal to the average of the Closing Bid Prices of the
Common Stock for the five (5) consecutive trading days (subject to
equitable adjustment for any stock splits, stock dividends,
reclassification or similar events during such five (5) trading day period)
preceding the date of the holder's written notice to the Corporation or its
election to receive shares of Common Stock and Warrants pursuant to this
subparagraph (ii).
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 'Redemption Event'):
(i) the Common Stock (including any of the shares of Common Stock
issuable upon conversion of the Series 'A' Preferred Stock and exercise of
the Warrants issuable upon conversion thereof) 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 or NASDAQ for an
aggregate of ten (10) trading days in any nine (9) month period.
B-7
(ii) the Corporation fails, and any such failure continues uncured for
five (5) business days after the Corporation has been notified thereof in
writing by the holder, to remove any restrictive legend on any certificate
or any shares of Common Stock or any Warrants issued to the holders of
Series 'A' Preferred Stock upon conversion of the Series 'A' Preferred
Stock as an when required by this Certificate of Designation, the
Securities Purchase Agreement, the Warrants or the Registration Rights
Agreement, dated as of April 9, 1997, by and among the Corporation and the
other signatories thereto (the 'Registration Rights Agreement'),
(iii) the Corporation provides notice to any holder of Series 'A'
Preferred Stock, including by way of public announcement, at any time, of
its intention not to issue shares of Common Stock or Warrants to any holder
of Series 'A' 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 se forth in such Articles),
(iv) the Corporation breaches any material covenant or other material
term or condition of this Certificate of Designation (other than as
specifically provided in subparagraphs (i)-(v) of this Paragraph A), the
Securities Purchase Agreement or the Registration Rights Agreement and such
breach continues for a period of fifteen (15) business days after written
notice thereof to the Corporation, or
(v) any representation or warranty of the Corporation made in any
agreement, statement or certificate given in writing in connection with the
issuance of the Series 'A' Preferred Stock (including, without limitation,
the Securities Purchase Agreement and the Registration Rights Agreement),
shall be false or misleading in any material respect when made and the
breach of which would have a material adverse effect on the Corporation or
the rights of the Corporation with respect to any of the shares of Series
'A' Preferred Stock or the shares of Common Stock issuable upon conversion
thereof;
then, upon the occurrence of any such Redemption Event, each holder of shares of
Series 'A' 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 Redemption
Notice (as defined in Paragraph C below) to the Corporation while such
Redemption Event continues, to require the Corporation to purchase for cash any
or all of the then outstanding shares of Series 'A' Preferred Stock held by such
holder for an amount per share equal to the 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) or
(iii) above shall immediately constitute a Redemption Event and there shall be
no cure period.
B. Definition of Redemption Amount. The 'Redemption Amount' with respect to
a share of Series 'A' Preferred Stock means an amount equal to:
1,000 + P X M
---------
CP
where:
'P' means the accrued Premium on such share of Series 'A' Preferred Stock
through the date of redemption;
'CP' means the Conversion Price in effect on the date of the Redemption
Notice; and
'M' means the highest Closing Bid Price of the Company's Common Stock
during the period beginning on the date of the Redemption Notice and ending on
the date of the redemption, as reported on the principal securities exchange or
trading market on which the Common Stock is traded.
C. Redemption Defaults. If the Corporation fails to pay any holder the
Redemption Amount with respect to any share of Series 'A' Preferred Stock within
five (5) business days of its receipt of a notice requiring such redemption (a
'Redemption Notice'), then the holder of Series 'A' Preferred Stock delivering
such Redemption Notice (i) shall be entitled to interest on the 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 of the
Redemption Notice until the date of redemption hereunder, 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
B-8
of the Redemption Amount, plus interest as aforesaid, into shares of Common
Stock and Warrants at the lowest Conversion Price in effect during the period
beginning on the date of the Redemption Notice and ending on the Conversion Date
with respect to the conversion of such Redemption Amount. In the event the
Corporation is not able to redeem all of the shares of Series 'A' Preferred
Stock subject to Redemption Notices, the Corporation shall redeem shares of
Series 'A' Preferred Stock from each holder pro rata, based on the total number
of shares of Series 'A' Preferred Stock included by such holder in the
Redemption Notice relative to the total number of shares of Series 'A' Preferred
Stock in all of the Redemption Notices.
D. Redemption by Corporation.
(i) During the thirty (30) calendar day period beginning on the
trading day following the first ten (10) consecutive trading day period (if
any) that the average of the Closing Bid Prices for the Common Stock is
less than $3.02 per share (subject to equitable adjustments for stock
splits, stock dividends, reclassification or similar events) and provided
the Corporation has not previously had the opportunity to prepay and
portion of the Debentures pursuant to Article I thereof and is not in
material violation of any of its obligations under this Certificate of
Designations, the Securities Purchase Agreement or the Registration Rights
Agreement, then the Corporation shall have the right to redeem ('Redemption
at Corporation's Election') all or any portion of the then outstanding
Series 'A' Preferred Stock (other than Series 'A' Preferred Stock which is
the subject of a Notice of Conversion delivered prior to the delivery date
of the Optional Redemption Notice as defined below)) for the Optional
Redemption Amount (as defined below), which right shall be exercisable one
time while any Series 'A' Preferred Stock are outstanding by the
Corporation in its sole discretion by delivery of an Optional Redemption
Notice during such thirty (30) day period and otherwise in accordance with
the redemption procedures set forth below. Any optional redemption pursuant
to this Paragraph D shall be made ratably among the holders of Series 'A'
Preferred Stock in proportion to the number of shares of Series 'A'
Preferred Stock then outstanding. Holders of Series 'A' Preferred Stock may
convert all or any part of their shares of Series 'A' Preferred Stock
selected for redemption hereunder into Common Stock and Warrants at a
conversion price equal to the average of the Closing Bid Prices for the ten
(10) consecutive trading days ending on the trading day immediately
preceding the Conversion Date (subject to equitable adjustment for any
stock splits, stock dividends, reclassification or similar events during
such ten (10) trading day period) by delivering a Notice of conversion to
the Corporation at anytime prior to the Effective Date or Redemption as
defined in subparagraph (iii). The 'Optional Redemption Amount' with
respect to each share of Series 'A' Preferred Stock means (a) 120%
multiplied by the sum of the Face Amount thereof plus all accrued and
unpaid Premium and Conversion Default Payments (if any) through the date of
redemption plus (b) Warrants to purchase forty percent (40%) of the number
of shares of Common Stock which would have been issuable to the holder of
such share of Series 'A' Preferred Stock had such share of Series 'A'
Preferred Stock been converted into Common Stock and Warrants in accordance
with Article IV.A on the date of delivery of the Optional Redemption
Notice.
(ii) The Corporation may not deliver an Optional Redemption Notice to
a holder of Series 'A' Preferred Stock unless on or prior to the date of
delivery of such Optional Redemption Notice, the Corporation shall have
deposited with Nations Bank, N.A. or another escrow agent reasonably
acceptable to holders of a majority of the outstanding shares of Series 'A'
Preferred Stock, as a trust fund, cash and Warrants sufficient in amount to
pay all amounts to which the holders of Series 'A' Preferred Stock are
entitled upon such redemption pursuant to subparagraph (i) of this
Paragraph D, with irrevocable instructions and authority to such transfer
agent or 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 transfer agent or escrow
agent, certifying the amount of funds and Warrants which have been
deposited with such transfer agent or escrow agent and that the transfer
agent or escrow agent has been instructed and agrees to act as redemption
agent hereunder.
B-9
(iii) The Corporation shall effect each redemption under this Section
VIII.D by giving at least five (5) business days but not more than ten (10)
business days prior written notice (the 'Optional Redemption Notice') of
the date which such redemption is to become effective (the 'Effective Date
of Redemption'), the shares of Series 'A' Preferred Stock selected for
redemption and the Optional Redemption Amount to (i) the holders of Series
'A' Preferred Stock selected for redemption at the address and facsimile
number of such holder appearing in the Corporation's register for the
Series 'A' 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 dy after the Corporation's fax (with a copy sent
by overnight courier to the holders of Series 'A' Preferred Stock) of such
notice to the holders of Series 'A' Preferred Stock.
(iv) The Optional Redemption Amount shall be paid to the holder of the
Series 'A' 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 'A' Preferred
Stock being redeemed are delivered to the office of the Corporation or the
transfer agent, or the holder notifies the Corporation or the transfer
agent that such certificates have been lost, stolen or destroyed and
delivers the documentation in accordance with Article XIV.D hereof.
Notwithstanding anything herein to the contrary, in the event that the
certificates evidencing the Series 'A' Preferred Stock being redeemed are
not delivered to the Corporation or the transfer agent, or the holder
notifies the Corporation or the transfer agent that such certificates have
been lost, stolen or destroyed and delivers the documentation in accordance
with Article XIV.D hereof. Notwithstanding anything herein to the contrary,
in the event that the certificates evidencing the Series 'A' Preferred
Stock being redeemed are not delivered to the Corporation or the transfer
agent that such certificates have been lost, stolen or destroyed and
delivers the documentation in accordance with Article XIV.D hereof.
Notwithstanding anything herein to the contrary, in the event that the
certificates evidencing the Series 'A' Preferred Stock being redeemed are
not delivered to the Corporation or the transfer agent prior to the 3rd
business day following the Effective Date of Redemption, the redemption of
the Series 'A' 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 'A' Preferred Stock
being redeemed within five (5) business days of the date the certificates
evidencing the Series 'A' Preferred Stock being redeemed are actually
delivered to the Corporation or the transfer agent.
IX. RANK
All shares of the Series 'A' Preferred Stock shall rank (i) prior to the
Corporation's common stock, par value $.01 per share (the 'Common Stock'); (ii)
prior to any lass or series of capital stock of the Corporation hereafter
created (unless, with the consent of the holders of Series 'A'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
'A' Preferred Stock) (collectively, with the Common 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 'A' Preferred Stock
obtained in accordance with Article XIII hereof) specifically ranking, by its
terms, on parity with the Series 'A' 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 'A'
Preferred Stock obtained in accordance with Article XIII hereof) specifically
ranking, by its terms, senior to the Series 'A' 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
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property, or make an assignment for the benefit of its creditors, or admits 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 (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
'A' 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 'A' 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 'A' 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 'A'
Preferred Stock means an amount equal to the Face Amount thereof plus the
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 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
Closing 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 shall be proportionately reduced, or if the
number of outstanding shares of Common Stock is decreased by a reverse stock
split, combination or reclassification or shares, or other similar event, the
Fixed Conversion 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. [Intentionally Omitted]
C. Adjustment due to Merger, Consolidation, Etc. If, at any time after the
Closing 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, then the
holders of Series 'A' Preferred Stock shall thereafter have the right to receive
upon conversion, in lieu of the shares of Common Stock and Warrants immediately
theretofore issuable, such shares of stock, securities and/or other property as
may be issued or payable with respect to or in exchange for the number of shares
of Common Stock and Warrants immediately theretofore issuable upon conversion
had such merger, consolidating, exchange of shares, recapitalization,
reorganization or other similar event not taken place, and in any such case,
appropriate provisions
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shall be made with respect to the rights and interests of the holders of the
Series 'A' Preferred Stock to the end that the provisions hereof (including,
without limitation, provisions for adjustment of the Conversion Price and of the
number of shares of Common Stock and Warrants issuable upon conversion of the
Series 'A' 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
transaction described in this Paragraph C unless (i) each holder of Series 'A'
Preferred Stock has received written notice of such transaction at least thirty
(30) days prior thereto, but in no event later than ten (10) days prior to the
record date for the determination of shareholders entitled to vote with respect
thereto; provided, however, that the Corporation shall not be required to
disclose any material inside information to a holder of Series 'A' Preferred
Stock prior to the public disclosure thereof, and (ii) the resulting successor
or acquiring entity (if not the Corporation) assumes by written instrument the
obligations of this Paragraph C. 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 'A' Preferred Stock outstanding and the Warrants issuable upon conversion
thereof as of the date of such transaction, and shall similarly apply to
successive reclassification, consolidations, mergers, sales, transfers or share
exchanges.
D. Adjustment Due to Distribution. If at any time after the Closing 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 'A' Preferred Stock shall be
entitled, upon any conversion of shares of Series 'A' 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 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, at any
time after the Closing Date and prior to the first annual anniversary of the
Closing Date, 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 from the market price of the Common Stock
at the time of conversion or exercise, then the Variable Conversion Price in
respect of any conversion of Series 'A' Preferred Stock after such issuance
shall be calculated utilizing the greatest discount applicable to any such
Convertible Securities.
F. Purchase Rights. If at any time after the Closing 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 A 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 A Preferred Stock 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.
XII. VOTING RIGHTS
The holders of the Series 'A' Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Virginia General Corporation Law
(the 'General Corporate Law'), in this Article XII and in Article XIII below.
Notwithstanding the above, the Corporation shall provide each holder of
Series 'A' 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,
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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 thirty (30) 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 General Corporate Law the vote of the holders
of the Series 'A' 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 shares
of the Series 'A' Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of a majority of the shares of Series
'A' Preferred Stock (except as otherwise may be required under the General
Corporate Law) shall constitute the approval of such action by the class. To the
extent that under the General Corporate Law holders of the Series 'A' Preferred
Stock are entitled to vote on a matter with holders of Common Stock, voting
together as one class, each share of Series 'A' 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 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 A Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the General Corporate Law) of the holders of at least a
majority of the then outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or privileges of the
Series A 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 A
Preferred Stock;
(c) create any new class or series of capital stock having a p
reference over the Series A 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 A 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 A Preferred
Stock;
(f) Issue any shares of Series A Preferred Stock other than in
exchange for the Debentures in accordance with the terms of the Debentures
as in effect on October 6, 1997;
(g) redeem, or declare or pay any cash dividend or distribution on,
any Junior Securities.
If holder of at least a majority of the then outstanding shares of Series A
Preferred Stock agree to allow the Corporation to alter or change the rights,
preferences or privileges of the shares of Series A Preferred Stock pursuant to
subsection (a) above, then the Corporation shall deliver notice of such approved
change to the holders of the Series A Preferred Stock that did not agree to such
alteration or change (the 'Dissenting Holders') an the Dissenting Holders shall
have the right, for a period of thirty (30) days, to convert pursuant to the
terms of this Certificate of Designation as they existed prior to such
alteration or change or to continue to hold their shares of Series A Preferred
Stock.
XIV. MISCELLANEOUS
A. Cancellation of Series A Preferred Stock. If any shares of Series A
Preferred Stock are converted pursuant to Article IV, the shares so converted
shall be canceled, shall return to the status of authorized,
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but unissued preferred stock of no designated series, and shall not be issuable
by the corporation as series A 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 an date. However, the Corporation shall not ge
obligated to reissue such lost or stolen Preferred Stock Certificate(s) if the
holder contemporaneously requests the Corporation to convert such Series A
Preferred Stock.
C. [Intentionally Omitted]
D. Allocations of Cap Amount and Reserved Amount. The initial Cap Amount
and Reserved Amount shall be allocated to the holders of Series A Preferred
Stock in the same proportion as the Reserved Amount and the Cap Amount were
allocated to the holders of the Debentures on the date such Debentures were
converted into Series A Preferred Stock. Each increase to the Cap Amount and
Reserved Amount shall be allocated pro rata among the holders of Series A
Preferred Stock based on the number of shares of Series A Preferred Stock held
by each holder at the time of the increase in the Cap Amount or reserved Amount,
as the case may be. In the event a holder shall sell or otherwise transfer any
of such holder's shares of Series A 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 A Preferred Stock shall
be allocated to the remaining holders of shares of Series A Preferred Stock, pro
rata based on the number of shares of Series A Preferred Stock then held by such
holders.
E. Statements of Available Shares. Upon request, the Corporation shall
deliver to each holder a written report notifying the holders of any occurrence
which prohibits the Corporation from issuing Common Stock or Warrants upon any
such conversion. The report shall also specify (i) the total number of shares of
Series A Preferred Stock outstanding as of the date of the request, (ii) the
total number of shares of Common Stock and Warrants issued upon all conversions
of Series A Preferred Stock through the date of the request, (iii) the total
number of shares of Common Stock issued upon exercise of all Warrants through
the date of the request, (iv) the total number of shares of Common Stock which
are reserved for issuance upon conversion of the Series A Preferred Stock and
exercise of Warrants as of the date of the request, and(v) the total number of
shares of Common Stock which may thereafter be issued by the Corporation upon
conversion of the Series A Preferred Stock and exercise of Warrants before the
Corporation would exceed the Cap Amount and the Reserved Amount. The Corporation
shall provide, within fifteen (15) days after delivery to the Corporation of a
written request by any holder, all of the information enumerated in clauses
(i)-(v) of this Paragraph E.
F. 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 (254%) and
the highest interest rate permitted by applicable law until such amount is paid
in full to the holder. Payment of interest under this Article XIV. F is in lieu
of and not in addition to the interest provided for in clause (i) of Article
VIII.C.
G. Status as Stockholder. Upon submission of a Notice of Conversion by a
holder of Series A Preferred Stock, the shares covered thereby shall be deemed
converted into shares of common Stock and the holder's rights as a holder of
such converted shares of Series A 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. Notwithstanding the foregoing, if a holder
has not received certificates for all share of Common Stock prior to the tenth
(10th) business day after the expiration of the Delivery Period with respect to
a conversion of Series A
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Preferred Stock for any reason, then (unless the holder e=otherwise elects to
retain its status as a holder of Common Stock ) the holder shall regain the
rights of a holder of Series A Preferred Stock with respect to such uncovered
shares of Series A Preferred Stock and the Corporation shall, as soon as
practicable, return such unconcerned shares to the holder. In all cases, the
holder shall retain all of its right 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 A Preferred Stock.
H. 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 A 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, the holders of
Series A 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.
I. Force Majeure. Neither the Corporation nor any holder of Series A
Preferred Stock shall be responsible for any delay or failure to perform any
obligation under this Certificate of Designation to the extent that such delay
or failure is solely caused by fire, flood, earthquake, explosion, war, labor
strike, riot, act of governmental, civil or military authority which imposes a
moratorium on the performance of the specific obligation in question or other
comparable catastrophic event beyond the Corporation's or holder's control.
Notice with full details of any such event shall be given to the other party as
promptly as practicable after its occurrence. The affected party shall use its
best efforts to minimize the effects of or end any such event so as to
facilitate the resumption of full performance hereunder.
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf
of the Corporation this the day of , 1997.
FASTCOMM COMMUNICATIONS CORPORATION
By ..................................
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NOTICE OF CONVERSION
(To be Executed by the Registered Holder in
order to Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert shares of
Series A Preferred Stock (the 'Conversion'), represented by stock certificate
Nos(s). (the 'Preferred Stock Certificates') into shares of common
stock ('Common Stock') and Warrants of FastComm communications Corporation (the
'Corporation') according to the conditions of the Certificate of Designation,
Preferences and Rights of Series A Convertible Preferred Stock (the 'Certificate
of Designation'), as of the date written below. If securities are to be issued
in the name of a person other than the undersigned , the undersigned will pay
all transfer taxes payable with respect thereto. No fee will be charged to the
holder for any conversion, except for transfer taxes, if any. A copy of each
Preferred Stock Certificate is attached hereto (or evidence of loss, theft or
destruction thereof).
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Series A Preferred Stock shall be made pursuant to registration of the Common
Stock under the Securities Act of 1933, as amended (the 'Act'), or pursuant to
an exemption from registration under the Act.
Date of conversion: .................
Applicable Conversion Price: ........
Amount of Conversion Default Payments
to be Converted, if any: ............
Number of Shares of
Common Stock to be Issued: ..........
Number of Warrants to be Issued: ....
Signature: ..........................
Name: ...............................
Address: ............................
Acknowledged and Agreed:
Fastcomm Communications Corporation
By: .................................
Name: ...............................
Title: ..............................
Date: ...............................
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* The Corporation is not required to issue shares of Common Stock or Warrants
until the original Preferred Stock Certificate(s) (or evidence of loss, theft
or destruction thereof) to be converted are received by the Corporation or
its transfer agent. The corporation shall issue and deliver shares of Common
Stock and Warrants to an overnight courier not later than the later of (a)
two (2) business days following receipt of this Notice of Conversion and (b)
delivery of the original Preferred Stock Certificates (or evidence of loss,
theft or destruction thereof) and shall make payments pursuant to the
certificate of Designation for the failure to make timely delivery.
APPENDIX 1 -- PROXY CARD
FORM OF PROXY
The undersigned hereby appoints Peter C. Madsen, Mark H. Rafferty, and
Robert C. Abbott and each or any of the, proxy for the undersigned, with power
of substitution to vote all the shares of Common Stock of FastComm
Communications Corporation held of record by the undersigned on September 30,
1997, at the Annual Meeting of Shareholders to be held at 9:00 a.m., November
10, 1997, and at any adjournments thereof, upon the matters designated on the
other side and as more fully set forth in the Proxy Statement and for the
transaction of such business as may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed by
the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS, 2, 3, 4 AND 5.
1. Election of directors for one year terms expiring at the 1998 annual
meeting:
[ ] FOR Nominee: Peter C. Madsen, Edward R. Olson, Mark H. Rafferty,
Thomas G. Amon
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE EACH SUCH NOMINEE'S NAME IN THE FOLLOWING SPACE:
_________________________________________________________________________
[ ] WITHHOLD AUTHORITY: To vote for all such nominees
2. Proposal to amend Articles of Incorporation for authorization of 100,000
shares of Preferred Stock:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve the issuance of shares of Common Stock underlying
Convertible Debentures and certain warrants
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to adopt and employee Stock Ownership Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Proposal to approve the appointment of BDO Seidman, LLP. as the
independent auditors for the Company
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Please sign exactly as name appears. When shares are held by joint
tenants, both should sign. When signing in a representative capacity,
please give full title as such. If a corporation, please sign in
corporation's name by President or other authorized person. PLEASE MARK,
SIGN, DATE AND RETURN THE PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
Date: ............................
..................................
Signature(s)
..................................
Signature(s)