CERTIFICATE OF DESIGNATION OF SERIES
AND DETERMINATION OF RIGHTS AND PREFERENCES
OF
CONVERTIBLE PREFERRED STOCK, SERIES A
OF
AMERICAN ELECTROMEDICS CORP.
American Electromedics Corp., a Delaware corporation
(the "Company"), acting pursuant to <Section> 151 of the General
Corporation Law of Delaware, does hereby submit the following
Certificate of Designation of Series and Determination of Rights
and Preferences of its Convertible Preferred Stock, Series A.
FIRST: The name of the Company is American Electromedics Corp.
SECOND: By unanimous consent of the Board of Directors of the
Company dated May 4, 1998, the following resolutions
were duly adopted:
WHEREAS the Certificate of Incorporation of the Company
authorizes Preferred Stock consisting of 1,000,000 shares, par
value $.01 per share, issuable from time to time in one or more
series; and
WHEREAS the Board of Directors of the Company is authorized,
subject to limitations prescribed by law and by the provisions of
Article FOUR (4) of the Company's Certificate of Incorporation,
as amended, to establish and fix the number of shares to be
included in any series of Preferred Stock and the designation,
rights, preferences, powers, restrictions and limitations of the
shares of such series; and
WHEREAS it is the desire of the Board of Directors to
establish and fix the number of shares to be included in a new
series of Preferred Stock and the designation, rights,
preferences and limitations of the shares of such new series;
NOW, THEREFORE, BE IT RESOLVED that pursuant to Article FOUR
(4) of the Company's Certificate of Incorporation, as amended,
there is hereby established a new series of 3,150 shares of
convertible preferred stock of the Company (the "Series A
Preferred Stock") to have the designation, rights, preferences,
powers, restrictions and limitations set forth in a supplement of
Article FOUR (4) as follows:
1. Dividends.
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The holders of the Series A Preferred Stock shall be
entitled to receive, out of funds legally available therefor,
dividends at a rate equal to 5% (the "Dividend Rate") of the
Liquidation Preference (as hereinafter defined) (subject to
appropriate adjustments in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting
such shares) per share per annum, and no more, payable in
preference and priority to any payment of any cash dividend on
Common Stock or any other shares of capital stock of the Company
other than the Series A Preferred Stock or other class or series
of stock ranking junior to the Series A Preferred Stock in
respect of dividends (such Common Stock and other inferior stock
being collectively referred to as "Junior Stock"), when and as
declared by the Board of Directors of the Company; provided,
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however, that in the event the Registration Statement (as
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hereinafter defined) is not (i) filed within 30 days of the
Initial Closing Date (as defined in the Securities Purchase
Agreement, between the Company, the purchasers named therein and
West End Capital LLC (the "Securities Purchase Agreement")) or
(ii) declared effective by the Securities and Exchange Commission
(the "Commission") by the day which is 90 days from the Initial
Closing Date (as hereinafter defined), then the Dividend Rate
shall increase to 12% until the Registration Statement is so
filed or declared effective, as the case may be; in addition, in
the event the Registration Statement is not declared effective by
the Commission by 120 days from the Initial Closing Date, the
Dividend Rate shall increase to 18% until the Registration
Statement is declared effective. Notwithstanding the foregoing,
if the Commission conducts a review of the Registration
Statement, the Dividend Rate shall not increase unless it is not
declared effective by the Commission by 120 days from the Initial
Closing Date, at which time the Dividend Rate shall increase to
14% until the Registration Statement is declared effective; in
addition, if the Commission conducts a review of the Registration
Statement and the Registration Statement is not declared
effective by 150 days from the Initial Closing Date, the Dividend
Rate shall increase to 18% until the Registration Statement is
declared effective.
Such dividends shall accrue with respect to each share of
Series A Preferred Stock from the date on which such share is
issued and outstanding and thereafter shall be deemed to accrue
from day to day whether or not earned or declared and whether or
not there exists profits, surplus or other funds legally
available for the payment of dividends, and shall be cumulative
so that if such dividends on the Series A Preferred Stock shall
not have been paid, or declared and set apart for payment, the
deficiency shall be fully paid or declared and set apart for
payment before any dividend shall be paid or declared or set
apart for any Junior Stock and before any purchase or acquisition
of any Junior Stock is made by the Company, except the repurchase
of Junior Stock from employees of the Company upon termination of
employment. At the earlier of: (1) the redemption or conversion
of the Series A Preferred Stock or (2) the liquidation, sale or
merger of the Company, any accrued but undeclared dividends shall
be paid to the holders of record of outstanding shares of
Series A Preferred Stock. No accumulation of dividends on the
Series A Preferred Stock shall bear interest.
At the election of the Company, each dividend may be paid
either in additional shares of Series A Preferred Stock or in
cash. Dividends paid in additional shares of Series A Preferred
Stock shall be paid (based on an assumed value of $1,000 per
share) in full shares only, with a cash payment equal to the
value of any fractional shares. Each dividend paid in cash shall
be mailed to the holders of record of the Series A Preferred
Stock as their names and addresses appear on the share register
of the Company or at the office of the transfer agent on the
corresponding dividend payment date. Holders of Series A
Preferred Stock will receive written notification from the
Company or the transfer agent if a dividend is paid in kind,
which notification will specify the number of shares of Series A
Preferred Stock paid as a dividend and the recipient's aggregate
holdings of Series A Preferred Stock as of that dividend payment
date and after giving effect to the dividend. All shares of
Series A Preferred Stock issued as dividends shall be entitled to
all of the rights and benefits as the shares of Series A
Preferred Stock issued on the Initial Closing Date, including the
Conversion Rights set forth in Section 4 hereof.
2. Liquidation, Dissolution or Winding Up.
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(a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the
holders of shares of Series A Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Company
available for distribution to its stockholders, after and subject
to the payment in full of all amounts required to be distributed
to the holders of any other class or series of stock of the
Company ranking on liquidation prior and in preference to the
Series A Preferred Stock (collectively referred to as "Senior
Preferred Stock"), but before any payment shall be made to the
holders of Junior Stock by reason of their ownership thereof, an
amount equal to $1,000 per share of Series A Preferred Stock (the
"Liquidation Preference") plus any accrued but unpaid dividends
(whether or not declared). If upon any such liquidation,
dissolution or winding up of the Company the remaining assets of
the Company available for distribution to its stockholders shall
be insufficient to pay the holders of shares of Series A
Preferred Stock (and the holders of any other series of Preferred
Stock with a Liquidation Preference equal to the Liquidation
Preference of the Series A Preferred Stock) the full amount to
which they shall be entitled, the holders of shares of Series A
Preferred Stock (and the holders of any other series of Preferred
Stock with a Liquidation Preference equal to the Liquidation
Preference of the Series A Preferred Stock) shall share ratably
in any distribution of the remaining assets and funds of the
Company in proportion to the respective amounts which would
otherwise be payable in respect of the shares held by them upon
such distribution if all amounts payable on or with respect to
such shares were paid in full.
(b) After the payment of all preferential amounts required
to be paid to the holders of Senior Preferred Stock upon the
dissolution, liquidation, or winding up of the Company, all of
the remaining assets and funds of the Company available for
distribution to its stockholders shall be distributed ratably
among the holders of the Series A Preferred Stock and the Common
Stock, with each share of Series A Preferred Stock being deemed,
for such purpose, to be equal to the number of shares of Common
Stock, including fractions of a share, into which such share of
Series A Preferred Stock is convertible immediately prior to the
close of business on the business day fixed for such
distribution.
(c) The merger or consolidation of the Company into or with
another corporation which results in the exchange of outstanding
shares of the Company for securities or other consideration
issued or paid or caused to be issued or paid by such other
corporation or an affiliate thereof (except if such merger or
consolidation does not result in the transfer of more than 50
percent of the voting securities of the Company), or the sale of
all or substantially all the assets of the Company, shall be
deemed to be a liquidation, dissolution or winding up of the
Company for purposes of this Section, unless the holders of
66-2/3 percent of the Series A Preferred Stock then outstanding
vote otherwise. The amount deemed distributed to the holders of
Series A Preferred Stock upon any such merger or consolidation
shall be the cash or the value of the property, rights and/or
securities distributed to such holders by the acquiring person,
firm or other entity. The value of such property, rights or
other securities shall be determined in good faith by the Board
of Directors of the Company.
3. Voting.
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(a) The Company shall not amend, alter or repeal
preferences, rights, powers or other terms of the Series A
Preferred Stock so as to affect adversely the Series A Preferred
Stock, without the written consent or affirmative vote of the
holders of at least sixty-six and two-thirds percent (66.6%) of
the then outstanding shares of Series A Preferred Stock, given in
writing or by vote at a meeting, consenting or voting (as the
case may be) separately as a class.
4. Optional Conversion.
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The holders of the Series A Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A
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Preferred Stock shall be convertible, at the option of the holder
thereof, at any time and from time to time, into such number of
fully paid and nonassessable shares of Common Stock as is
determined by dividing $1,000 (plus the amount of any accrued and
unpaid dividends) by the Conversion Price (as defined below) in
effect at the time of conversion. The Conversion Price at which
shares of Common Stock shall be deliverable upon conversion of
Series A Preferred Stock without the payment of additional
consideration by the holder thereof (the "Conversion Price")
shall be the lower of (i) $4.00 or (ii) 75% of the average
Closing Bid Price of the shares of Common Stock for the five (5)
trading days prior to the Conversion Date (as hereinafter
defined). For purposes of this Certificate of Designations, the
term "Closing Bid Price" means, for any security as of any date,
the closing bid price on the principal securities exchange or
trading market where the Company's Common Stock is listed or
traded as reported by Bloomberg, L.P. ("Bloomberg"), or, if
applicable, the closing bid price of the Common Stock in the
over-the-counter market on the electronic bulletin board for such
security as reported by Bloomberg, or, if no closing bid price is
reported for the Common Stock by Bloomberg, then 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 of the Common Stock can not be calculated
on such date on any of the foregoing bases, the Closing Bid Price
of the Common Stock on such date shall be the fair market value
as mutually determined by the Company and the holders of a
majority of the outstanding shares of Series A Preferred Stock
being converted for which the calculation of the Closing Bid
Price is required in order to determine the Conversion Price of
such shares. "Trading day" shall mean any day on which the
Company's Common Stock is traded for any period on the principal
securities exchange or other securities market on which the
Common Stock is then being traded.
In the event of a liquidation of the Company, the Conversion
Rights shall terminate at the close of business on the first full
day preceding the date fixed for the payment of any amounts
distributable on liquidation to the holders of Series A Preferred
Stock.
(b) Fractional Shares. No fractional shares of Common
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Stock shall be issued upon conversion of the Series A Preferred
Stock. In lieu of fractional shares, the Company shall pay cash
equal to such fraction multiplied by the then effective
Conversion Price.
(c) Mechanics of Conversion.
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(i) The Company will permit each holder of Series A
Preferred Stock to exercise its right to convert the Series A
Preferred Stock by faxing an executed and completed Notice of
Conversion to the Company, and delivering within three (3)
business days thereafter, the original Notice of Conversion (and
the certificates representing the related shares of Series A
Preferred Stock) to the Company by hand delivery or by express
courier, duly endorsed. Each date on which a Notice of
Conversion is faxed to and received in accordance with the
provisions hereof shall be deemed a "Conversion Date." The
Company will transmit the certificates representing the Common
Stock issuable upon conversion of the Series A Preferred Stock
(together with certificates representing the related shares of
Series A Preferred Stock not so converted) to such holder via
express courier as soon as practicable, but in all events no
later than the later to occur of (the "Delivery Date") (i) four
(4) business days after the Conversion Date and (ii) four (4)
business days after receipt by the Company of the original Notice
of Conversion (and the certificates representing the related
shares of Series A Preferred Stock). For purposes of this
Agreement, such conversion of the Series A Preferred Stock shall
be deemed to have been made immediately prior to the close of
business on the Conversion Date. The Company shall pay cash in
lieu of any fraction of a share.
(ii) In lieu of delivering physical certificates
representing the Common Stock issuable upon the conversion of the
Series A Preferred Stock, provided that the Company's transfer
agent is participating in the Depositary Trust Company ("DTC")
Fast Automated Securities Transfer program, on the written
request of a holder of Series A Preferred Stock who shall have
previously instructed such holder's prime broker to confirm such
request to the Company's transfer agent, the Company shall use
commercially reasonable efforts to cause its transfer agent to
electronically transmit such Common Stock to such holder by
crediting the account of the holder's prime broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system
no later than the applicable Delivery Date.
(iii) The Company will at all times have authorized
and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the conversion of the
Convertible Preferred Stock. The Company will use its best
efforts at all times to maintain a number of shares of Common
Stock so reserved for issuance that is no less than one and one-
half (1.5) times the number that is then actually issuable upon
the conversion of the Series A Preferred Stock or the exercise of
the Warrants issued to West End Capital LLC pursuant to the
Securities Purchase Agreement. Before taking any action which
would cause an adjustment reducing the Conversion Price below the
then par value of the shares of Common Stock issuable upon
conversion of the Series A Preferred Stock, the Company will take
any corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock at such
adjusted Conversion Price.
(iv) All shares of Series A Preferred Stock, which
shall have been surrendered for conversion as herein provided
shall no longer be deemed to be outstanding and all rights with
respect to such shares, including the rights, if any, to receive
dividends, notices and to vote, shall immediately cease and
terminate on the Conversion Date, except only the right of the
holders thereof to receive shares of Common Stock in exchange
therefor. Any shares of Series A Preferred Stock so converted
shall be retired and cancelled and shall not be reissued, and the
Company may from time to time take such appropriate action as may
be necessary to reduce the number of shares of authorized
Series A Preferred Stock accordingly.
(v) If the conversion is in connection with an
underwritten offer of securities registered pursuant to the
Securities Act of 1933, as amended, the conversion may at the
option of any holder tendering Series A Preferred Stock for
conversion be conditioned upon the closing with the underwriter
of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive the Common Stock issuable
upon such conversion of the Series A Preferred Stock shall not be
deemed to have converted such Series A Preferred Stock until
immediately prior to the closing of the sale of securities.
(d) No Impairment. The Company will not, by amendment
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of its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the
taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
(e) Notice of Record Date. In the event:
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(i) that the Company declares a dividend (or any
other distribution) on its Common Stock payable in Common Stock
or other securities of the Company;
(ii) that the Company subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common
Stock of the Company (other than a subdivision or combination of
its outstanding shares of Common Stock or a stock dividend or
stock distribution thereon), or of any consolidation or merger of
the Company into or with another corporation, or of the sale of
all or substantially all of the assets of the Company; or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Company;
then the Company shall cause to be filed at its principal office
or at the office of the transfer agent of the Series A Preferred
Stock, and shall cause to be mailed to the holders of the
Series A Preferred Stock at their last addresses as shown on the
records of the Company or such transfer agent, at least ten days
prior to the record date specified in (A) below or twenty days
before the date specified in (B) below, a notice stating
(A) the record date of such dividend,
distribution, subdivision or combination, or, if a record is
not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend, distribution,
subdivision or combination are to be determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation or
winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution or
winding up.
(f) Quantity Limitations on Conversions. At no time
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shall any holder of the Series A Preferred Stock convert such
amount of Series A Preferred Stock as shall result in such
Purchaser's ownership, after such conversion, exceeding 9.9% of
the Company's outstanding Common Stock.
5. Mandatory Conversion.
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(a) The Company may, at its option, require all (and
not less than all) holders of shares of Series A Preferred Stock
then outstanding to convert their shares of Series A Preferred
Stock into shares of Common Stock, at the then effective
conversion rate pursuant to Section 4, at any time on or after
the first anniversary of the date the registration statement
filed under the Securities Act of 1933 relating to the shares of
Common Stock into which the Series A Preferred Stock is then
convertible (the "Registration Statement") was declared effective
by the Securities and Exchange Commission.
(b) All holders of record of shares of Series A
Preferred Stock then outstanding will be given at least 10 days'
prior written notice of the date fixed and the place designated
for mandatory or special conversion of all such shares of
Series A Preferred Stock pursuant to this Section 5. Such notice
will be sent by first class or registered mail, postage prepaid,
to each record holder of Series A Preferred Stock at such
holder's address last shown on the records of the transfer agent
for the Series A Preferred Stock (or the records of the Company,
if it serves as its own transfer agent).
6. Optional Redemption of the Series A Preferred Stock.
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(a) Optional Redemption Event.
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(i) Upon the occurrence of an Optional Redemption
Event (as hereinafter defined) the Company may, by notice given
to each holder of Series A Preferred Stock, redeem the shares of
Series A Preferred Stock then owned by such holder (up to an
amount with an aggregate Liquidation Preference of $1 million) at
a price equal to 120% of the Liquidation Preference, plus all
accrued but unpaid dividends.
(ii) Upon receipt of a notice given pursuant to
Section 6(a)(i), each holder of Series A Preferred Stock shall
accept its ratable portion (based on its holdings of Series A
Preferred Stock as compared to the aggregate number of shares of
Series A Preferred Stock then outstanding) of such offer by
tendering such holder's shares to the Company for redemption, at
an address to be set forth in such notice, at any time prior to
5:00 p.m. New York time on the 15th day following the mailing of
such notice (the "Redemption Date"). On the Redemption Date, the
Company shall remit the applicable redemption price, calculated
pursuant to Section 6(a)(i) hereof, by check to each holder of
the Series A Preferred Stock, to the most recent address of each
holder, as set forth in the Company's books and records.
(iii) An Optional Redemption Event shall occur
(a) if, subsequent to the Initial Closing Date, the Closing Bid
Price for the shares of Common Stock shall have been less than
$2.50 per share for at least five (5) consecutive trading days
immediately prior to the date of the Optional Redemption Event
and (b) if (I) the Second Additional Closing Date (as defined in
the Securities Purchase Agreement) is held and (II) the Closing
Bid Price for the shares of Common Stock shall have been less
than $2.75 per share for at least five (5) consecutive trading
days immediately prior to the date of the Optional Redemption
Date. No more than one Optional Redemption Date may be deemed to
occur, unless the Second Additional Closing Date is held under
the Securities Purchase Agreement, in which case up to two (2)
Optional Redemption Dates may be deemed to occur.
Notwithstanding the foregoing, an Optional Redemption Event shall
not occur from the time a holder of Series A Preferred Stock has
submitted notice of conversion to the Company pursuant to Section
4(c) herein, until such time as the Company has issued and
delivered all shares of Common Stock to which such holder shall
be entitled.
(b) Cancellation of Redeemed Stock. Any shares of
Series A Preferred Stock redeemed pursuant to this Section or
otherwise acquired by the Company in any manner whatsoever shall
be canceled and shall not under any circumstances be reissued;
the Company may from time to time take such appropriate corporate
action as may be necessary to reduce accordingly the number of
authorized shares of the Company's capital stock.
(c) The Company will not, and will not permit any
subsidiary of the Company to, purchase or acquire any shares of
Series A Preferred Stock otherwise than pursuant to (1) the terms
of this Section, or (2) an offer made on the same terms to all
holders of Series A Preferred Stock at the time outstanding.
(d) Anything contained in this Section 6 to the
contrary notwithstanding, the holders of shares of Series A
Preferred Stock to be redeemed in accordance with this Section
shall have the right, exercisable at any time up to the close of
business on the applicable redemption date (unless the Company is
legally prohibited from redeeming such shares on such date, in
which event such right shall be exercisable until the removal of
such legal disability), to convert all or any part of such shares
to be redeemed as herein provided into shares of Common Stock
pursuant to Section 3 hereof.
7. Sinking Fund.
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There shall be no sinking fund for the payment of
dividends, or liquidation preferences on the Series A Preferred
Stock or the redemption of any shares thereof.
8. Amendment.
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This Certificate of Designation constitutes an
agreement between the Company and the holders of the Series A
Preferred Stock. It may be amended by vote of the Board of
Directors of the Company and the holders of a majority of the
outstanding shares of Series A Preferred Stock.
IN WITNESS WHEREOF, the Company has caused this Certificate
to be executed by its President this 5th day of May, 1998.
By: /s/ Michael Pieniazek
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President