EXHIBIT 4.6
DONLAR CORPORATION
CERTIFICATE OF DESIGNATION
SENIOR CONVERTIBLE PREFERRED STOCK
Section 1. Dividends. In the event that the Corporation declares or
pays any dividends upon the Common Stock (whether payable in cash, securities or
other property) other than dividends payable solely in shares of Common Stock,
the Corporation shall also declare and pay to the holders of the Senior
Convertible Preferred at the same time that it declares and pays such dividends
to the holders of the Common Stock, the dividends which would have been declared
and paid with respect to the Common Stock issuable upon conversion of the Senior
Convertible Preferred had all of the outstanding Senior Convertible Preferred
been converted immediately prior to the record date for such dividend, or if no
record date is fixed, the date as of which the record holders of Common Stock
entitled to such dividends are to be determined; however, no dividend shall be
declared or paid until all amounts owing under the Loan Agreement have been
repaid or converted in full.
Section 2. Liquidation. Upon any liquidation, dissolution or winding
up of the Corporation (whether voluntary or involuntary), each holder of Senior
Convertible Preferred shall be entitled to be paid, before any distribution or
payment is made upon any Junior Securities, an amount in cash equal to the
greater of: (i) the aggregate Liquidation Value of all shares of Senior
Convertible Preferred held by such holder and (ii) the amount such holder would
be entitled to receive had all the Senior Convertible Preferred held by such
holder been converted into Common Stock, and the holders of Senior Convertible
Preferred shall not be entitled to any further payment. If upon any such
liquidation, dissolution or winding up of the Corporation the Corporation's
assets to be distributed among the holders of the Senior Convertible Preferred
are insufficient to permit payment to such holders of the aggregate amount which
they are entitled to be paid under this Section 2, then the entire assets
available to be distributed to the Corporation's shareholders shall be
distributed pro rata among such holders based upon the aggregate Liquidation
Value of the Senior Convertible Preferred held by each such holder. Not less
than sixty (60) days prior to the payment date stated therein, the Corporation
shall mail written notice of any such liquidation, dissolution or winding up to
each record holder of Senior Convertible Preferred, setting forth in reasonable
detail the amount of proceeds to be paid with respect to each share of Senior
Convertible Preferred and each share of Common Stock in connection with such
liquidation, dissolution or winding up.
Upon the election of the holders of a majority of the outstanding
shares of Senior Convertible Preferred delivered to the Corporation within forty
(45) days after receipt of the Corporation's notice to the holders of Senior
Convertible Preferred under this Section 2, any consolidation or merger of the
Corporation (except for the merger of the Corporation pursuant to the Loan
Agreement) with or into another entity or entities (whether or not the
Corporation is the surviving entity) or any sale or transfer by the Corporation
of all or substantially all of its assets (determined either for the Corporation
alone or with its Subsidiaries on a consolidated basis) or any sale, transfer or
issuance or series of sales, transfers and/or issuances of shares of the
Corporation's capital stock by the Corporation or the holders thereof as a
result of which the holders of the
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Corporation's outstanding capital stock possessing the voting power (under
ordinary circumstances) to elect a majority of the Corporation's Board of
Directors immediately prior to such sale or issuance cease to own the
Corporation's outstanding capital stock possessing the voting power (under
ordinary circumstances) to elect a majority of the Corporation's Board of
Directors, shall be deemed to be a liquidation, dissolution and winding up of
the Corporation for purposes of this Section 2, and the holders of the Senior
Convertible Preferred shall be entitled to receive payment from the Corporation
of the amounts payable with respect to the Senior Convertible Preferred upon a
liquidation, dissolution or winding up of the Corporation under this Section 2
in cancellation of their shares of Senior Convertible Preferred upon the
consummation of any such transaction. Each holder of Senior Convertible
Preferred shall have the right to elect the benefits of either this Section 2 or
Section 6E hereof in connection with any such merger, consolidation or sale of
assets.
Section 3. Priority of Senior Convertible Preferred on Dividends and
Redemptions. So long as any Senior Convertible Preferred remains outstanding,
without the prior written consent of the holders of 75% of the outstanding
shares of Senior Convertible Preferred, the Corporation shall not, nor shall it
permit any Subsidiary to, directly or indirectly redeem, purchase or otherwise
acquire, any Junior Securities or any capital stock or other equity securities
(including, without limitation, warrants, options and other rights to acquire
such capital stock or other equity securities) of any Subsidiary pursuant to the
terms of the Certificate of Incorporation or directly or indirectly redeem,
purchase or make any payments with respect to any stock appreciation rights,
phantom stock plans or similar rights or plans, nor shall the Corporation
directly or indirectly pay or declare any dividend or make any distribution upon
any Junior Securities pursuant to the terms of the Certificate of Incorporation
except for dividends payable in shares of Common Stock issued upon the
outstanding shares of Common Stock.
Section 4. Redemptions. The Corporation shall not, nor shall it permit
any Subsidiary to, redeem or otherwise acquire any shares of Senior Convertible
Preferred, except pursuant to a purchase offer made pro rata to all holders of
Senior Convertible Preferred on the basis of the number of shares of Senior
Convertible Preferred owned by each such holder.
Section 5. Voting and Consent Rights.
5A. Voting Rights. The holders of the Senior Convertible
Preferred shall be entitled to notice of all shareholders meetings in accordance
with the Corporation's bylaws, and the holders of the Senior Convertible
Preferred shall be entitled to vote on all matters submitted to the shareholders
for a vote together with the holders of the Common Stock voting together as a
single class with each share of Common Stock entitled to one vote per share and
each share of Senior Convertible Preferred entitled to one vote for each share
of Common Stock issuable upon conversion of the Senior Convertible Preferred as
of the record date for such vote or, if no record date is specified, as of the
date of such vote.
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5B. Consent Rights. In addition to and not in derogation of any
voting rights expressly provided hereunder or under applicable laws, for so long
as Willis Stein & Partners, L.P., Star Polymers, L.L.C. or their respective
transferees continue to hold at least an aggregate of 4,500,000 shares of Senior
Convertible Preferred (as adjusted for stock splits, stock dividends and
recapitalizations), the Corporation shall not, without the prior written consent
of the holders of at least 75% of the outstanding Senior Convertible Preferred:
(i) make any amendment to the Certificate of Incorporation, the
Certificate of Designation or the Corporation's bylaws, or file any resolution
of the Board of Directors with the Illinois Secretary of State containing any
provisions, which would increase the number of authorized shares of the Senior
Convertible Preferred Stock or adversely affect or otherwise impair the rights
or the relative preferences and priorities of the holders of the Senior
Convertible Preferred;
(ii) authorize, issue or enter into any agreement providing for
the issuance (contingent or otherwise) of any capital stock or other equity
securities (or any securities convertible into or exchangeable for any capital
stock or other equity securities) which are senior to the Senior Convertible
Preferred with respect to the payment of dividends, redemptions or distributions
upon liquidation or otherwise;
(iii) except as provided in the Loan Agreement, merge or
consolidate with any Person or permit any Subsidiary to merge or consolidate
with any Person (other than a wholly-owned Subsidiary);
(iv) sell, lease or otherwise dispose of, or permit any
Subsidiary to sell, lease or otherwise dispose of, more than 50% of the
consolidated assets of the Corporation and its Subsidiaries (computed on the
basis of book value, determined in accordance with generally accepted accounting
principles consistently applied, or fair market value, determined by the
Corporation's Board of Directors in its reasonable good faith judgment) in any
transaction or series of related transactions (other than sales of inventory in
the ordinary course of business) or sell or permanently dispose of 25% or more
of its or any Subsidiary's Intellectual Property Rights (based on the fair
market value of such Intellectual Property, determined by the Corporation's
Board of Directors in its reasonable good faith judgment), provided, however,
that any such sale or disposition of any of its or any Subsidiary's Intellectual
Property Rights shall only be made to an independent third party at fair market
value and, until such time as all indebtedness owed the Lender (as defined in
the Loan Agreement) has been repaid or converted in full, that the Corporation
uses the proceeds of such sale to repay any amounts outstanding under the Loan
Agreement; or
(v) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation, any
reorganization into a limited liability company, a partnership or any other
non-corporate entity which is treated as a partnership for federal income tax
purposes).
Section 6. Conversion. The holders of Senior Convertible Preferred
shall have
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no right to convert into Common Stock until the Term A Loan and the Term C Loan
made under the Loan Agreement (as such terms are defined in the Loan Agreement)
shall have been repaid or converted in full. After such repayment or conversion,
a holder of Senior Convertible Preferred may convert all or any portion of the
outstanding principal amount of their Senior Convertible Preferred pursuant to
this Section 6.
6A. Conversion Procedure.
(i) Once Term Loans A and C under the Loan Agreement are
converted or repaid in full, a holder of Senior Convertible Preferred may
convert all or any portion of the outstanding principal amount of such holder's
Senior Convertible Preferred into a number of shares of Conversion Stock
(excluding any fractional share) determined by dividing the aggregate
Liquidation Value ($1.00 per share) of the number of shares of Senior
Convertible Preferred designated by such holder of Senior Convertible Preferred
in a written notice of intention to convert as the amount to be converted, by
the applicable Conversion Price. Written notice of an intention to convert may
condition the consummation of such conversion upon the consummation of a
transaction affecting the Corporation, such as a Public Offering, Change in
Ownership or Fundamental Change, in which case conversion shall not be deemed to
be effective until such transaction has been consummated.
(ii) Each such conversion of a Senior Convertible Preferred
shall be deemed to have been effected as of the close of business on the date on
which the Senior Convertible Preferred has been surrendered at the principal
office of the Corporation. At such time as such conversion has been effected,
the rights of the holder of Senior Convertible Preferred as such holder to the
extent of the conversion shall cease, and the Person or Persons in whose name or
names any certificate or certificates for shares of Conversion Stock are to be
issued upon such conversion shall be deemed to have become the holder or holders
of record of the shares of Conversion Stock represented thereby.
(iii) As soon as possible after a conversion has been effected
(but in any event within five (5) business days), the Corporation shall deliver
to the converting holder of Senior Convertible Preferred:
(a) a certificate or certificates representing the number of
shares of Conversion Stock (excluding any fractional share) issuable by
reason of such conversion in such name or names and such denomination or
denominations as the converting holder has specified;
(b) payment in an amount equal to the sum of all dividends
declared but unpaid with respect to the Senior Convertible Preferred that
has been converted, plus the amount payable under subparagraph (d) below;
(c) a new certificate representing any portion of the Senior
Convertible Preferred surrendered to the Corporation in connection with
such conversion but which was
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not converted; and
(d) with respect to any fractional share of Conversion Stock
which would, except for the provisions hereof, be deliverable upon
conversion of the Senior Convertible Preferred, an amount equal to the
Market Price of such fractional share as of the date of such conversion.
(iv) The issuance of certificates for shares of Conversion
Stock upon conversion of Senior Convertible Preferred shall be made without
charge to the holder hereof for any domestic documentary, stamp, transfer,
excise or similarly related transactional tax relating to the issuance of
securities in respect thereof or other cost incurred by the Corporation in
connection with such conversion and the related issuance of shares of Conversion
Stock. Upon conversion of any Senior Convertible Preferred, the Corporation
shall take all such actions as are necessary in order to ensure that the
Conversion Stock issuable with respect to such conversion shall be validly
issued, fully paid and nonassessable.
(v) The Corporation shall not close its books against the
transfer of Senior Convertible Preferred or Conversion Stock issued or issuable
upon conversion of Senior Convertible Preferred in any manner which interferes
with the timely conversion of Senior Convertible Preferred. The Corporation
shall assist and cooperate with any Holder of Senior Convertible Preferred
required to make any governmental filings or obtain any governmental approval
prior to or in connection with the conversion of a Senior Convertible Preferred
(including, without limitation, making any filings required to be made by the
Corporation).
(vi) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Conversion Stock, solely
for the purpose of issuance upon the conversion of the Senior Convertible
Preferred, such number of shares of Conversion Stock issuable upon the
conversion of all outstanding Senior Convertible Preferred. All shares of
Conversion Stock which are so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges.
The Corporation shall take all such actions as may be necessary to assure that
all such shares of Conversion Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Conversion Stock may be listed (except
for official notice of issuance which shall be immediately delivered by the
Corporation upon each such issuance).
6B. Conversion Price. The initial Conversion Price for Senior
Convertible Preferred shall be $0.68. If and whenever on or after the original
date of issuance of Senior Convertible Preferred the Corporation issues or
sells, or in accordance with Section 6C is deemed to have issued or sold, any
shares of Common Stock for a consideration per share less than the Conversion
Price in effect immediately prior to such time, the Conversion Price shall be
reduced to the Conversion Price determined by dividing (A) an amount equal to
the sum of (x) the product derived by multiplying the Conversion Price
immediately prior to such issue or sale by the number of shares of Common Stock
deemed outstanding immediately prior to such issue or sale, plus (y) the
consideration, if any, received by the Corporation upon such issue on sale, by
(B) the number of
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shares of Common Stock deemed outstanding immediately after such issue or sale.
6C. Effect on Conversion Price of Certain Events. For purposes
of determining the adjusted Conversion Price under Section 6B, the following
shall be applicable:
(i) Issuance of Rights or Option. If the Corporation in any
manner grants any rights or options to subscribe for or to purchase Common Stock
or any stock or other securities convertible into or exchangeable for Common
Stock (such rights or options being herein called "Options" and such convertible
or exchangeable stock or securities being herein called "Convertible
Securities") and the price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such Convertible
Securities is less than the Conversion Price in effect immediately prior to the
time of the granting of such Options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon conversion or
exchange of the total maximum amount of such Convertible Securities issuable
upon the exercise of such Options shall be deemed to be outstanding and to have
been issued and sold by the Corporation for such price per share. For purposes
of this paragraph, the "price per share for which Common Stock is issuable upon
exercise of such Options or upon conversion or exchange of such Convertible
Securities" is determined by dividing (A) the total amount, if any, received or
receivable by the Corporation as consideration for the granting of such Options,
plus the minimum aggregate amount of additional consideration payable to the
Corporation upon the exercise of all such Options, plus in the case of such
Options which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the issuance
or sale of such Convertible Securities and the conversion or exchange thereof,
by (B) the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No adjustment
of the Conversion Price shall be made upon the actual issuance of such Common
Stock or of such Convertible Securities upon the exercise of such Options or
upon the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities. Notwithstanding the foregoing, there shall be no
adjustment pursuant to this Section 6C(i) with respect to Options issued (a) to
employees, directors and consultants of the Corporation pursuant to employee
benefit plans for an aggregate of 5 million shares of Common Stock (as such
number of shares is equitably adjusted for subsequent stock splits, stock
combinations, stock dividends and recapitalizations) or (b) pursuant to the Loan
Agreement or Restructuring Agreement as defined on Exhibit A attached hereto.
(ii) Issuance of Convertible Securities. If the Corporation in
any manner issues or sells any Convertible Securities and the price per share
for which Common Stock is issuable upon such conversion or exchange is less than
the Conversion Price in effect immediately prior to the time of such issue or
sale, then the maximum number of shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities shall be deemed to be outstanding
and to have been issued and sold by the Corporation for such price per share.
For the purposes of this paragraph, the "price per share for which Common Stock
is issuable upon such conversion or exchange" is determined by dividing (A) the
total amount received or receivable by the Corporation as consideration for the
issue or sale of such Convertible Securities, plus the
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minimum aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (B) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities. No adjustment of the Conversion Price shall be made
upon the actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustments of the
Conversion Price had been or are to be made pursuant to other provisions of this
Section 6C(i), no further adjustment of the Conversion Price shall be made by
reason of such issue or sale. Notwithstanding the foregoing, there shall be no
adjustment pursuant to this Section 6C(ii) with respect to Convertible
Securities issued pursuant to the Loan Agreement or the Restructuring Agreement
as defined on Exhibit A attached hereto.
(iii) Change in Option Price or Conversion Rate. If the
purchase price provided for in any Option, the additional consideration (if any)
payable upon the issue, conversion or exchange of any Convertible Security, or
the rate at which any Convertible Security is convertible into or exchangeable
for Common Stock changes at any time, the Conversion Price in effect at the time
of such change shall be readjusted to the Conversion Price which would have been
in effect at such time had such Option or Convertible Security originally
provided for such changed purchase price, additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued or
sold; provided that if such adjustment of the Conversion Price would result in
an increase in the Conversion Price then in effect, such adjustment shall not be
effective until thirty (30) days after written notice thereof has been given to
all holders of Senior Convertible Preferred.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities without the exercise of such
Option or right, the Conversion Price then in effect hereunder shall be adjusted
to the Conversion Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued; provided that if such expiration or termination would result in an
increase in the Conversion Price then in effect, such increase shall not be
effective until thirty (30) days after written notice thereof has been given to
all holders of Senior Convertible Preferred.
(v) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefore shall be deemed to
be the net amount received by the Corporation therefore. In case any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Corporation shall be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Corporation shall be the Market Price thereof as of the date of
receipt. In case any Common Stock, Options or Convertible Securities are issued
to the owners of the non-surviving entity in connection with any merger in which
the Corporation is the surviving corporation, the amount of consideration
therefore shall be deemed to be the fair value of such portion of the net assets
and business of the non-
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surviving corporation as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any consideration
other than cash and securities shall be determined jointly by the Corporation
and the holders of two thirds of the outstanding Senior Convertible Preferred.
If such parties are unable to reach agreement within a reasonable period of
time, such fair value shall be determined by an independent appraiser
experienced in valuing such types of consideration jointly selected by the
Corporation and the holders of two thirds of the outstanding Senior Convertible
Preferred. The determination of such appraiser shall be final and binding upon
the parties, and the fees and expenses of such appraiser shall be borne by the
Corporation.
(vi) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
shall be deemed to have been issued for a consideration of $0.01.
(vii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Corporation or any Subsidiary, and the disposition of any
shares so owned or held shall be considered an issue or sale of Common Stock.
(viii) Record Date. If the Corporation takes a record of the
holders of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date shall be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
6D. Subdivision or Combination of Common Stock. If the
Corporation at any time subdivides (by any stock split, stock dividend or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately prior to
such subdivision shall be proportionately reduced, and if the Corporation at any
time combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
6E. Reorganization, Reclassification, Consolidation, Merger or
Sale. If any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Corporation's assets to another
Person or other transaction, except for the merger of the Corporation with
Donlar Biosyntrex Corporation contemplated by the Restructuring Agreements
(collectively, any "Organic Change"), is effected in such a way that holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock, then, prior to the consummation of such Organic Change, lawful,
adequate and appropriate provisions (in form and substance satisfactory to each
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holder of Senior Convertible Preferred) shall be made whereby each of the
holders of Senior Convertible Preferred shall thereafter have the right to
acquire and receive in lieu of or addition to (as the case may be) shares of
Conversion Stock immediately theretofore acquirable and receivable upon the
conversion of such holder's Senior Convertible Preferred, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for the number of shares of Conversion Stock immediately theretofore acquirable
and receivable upon conversion of such holder's Senior Convertible Preferred had
such Organic Change not taken place. In any such case, appropriate provisions
(in form and substance reasonably satisfactory to each holder of the Senior
Convertible Preferred) shall be made with respect to such holder's rights and
interests to insure that the provisions of this Section 6 shall thereafter be
applicable in relation to any shares of stock, securities or assets thereafter
deliverable upon the conversion of the Senior Convertible Preferred (including,
in the case of any such consolidation, merger or sale in which the successor
entity or purchasing entity is other than the Corporation, an immediate
adjustment of the Conversion Price to the value for the Common Stock reflected
by the terms of such consolidation, merger or sale and a corresponding immediate
adjustment in the number of shares of Conversion Stock acquirable and receivable
upon conversion of the Senior Convertible Preferred, if the value so reflected
is less than the Conversion Price in effect immediately prior to such
consolidation, merger or sale.) The Corporation shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor entity (if other than the Corporation) resulting from consolidation or
merger or the entity purchasing such assets assumes by written instrument (in
form reasonably satisfactory to the each holder of Senior Convertible
Preferred), the obligation to deliver to each such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to acquire.
6F. Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 6 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Corporation's board of directors shall make an appropriate adjustment
in the Conversion Price so as to protect the rights of the holders of Senior
Convertible Preferred; provided that no such adjustment shall increase the
Conversion Price as otherwise determined pursuant to this Section 6 or decrease
the number of shares of Conversion Stock issuable upon conversion of the Senior
Convertible Preferred then outstanding.
6G. Notices.
(i) Immediately upon any adjustment of the Conversion Price,
the Corporation shall send written notice thereof to the holders of Senior
Convertible Preferred, setting forth in reasonable detail and certifying the
calculation of such adjustment.
(ii) The Corporation shall send written notice to the holders
of Senior Convertible Preferred at least twenty (20) days prior to the date on
which the Corporation closes its books or takes a record (A) with respect to any
dividend or distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Organic Change, dissolution or liquidation.
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(iii) The Corporation shall also give at least twenty (20) days
prior written notice of the date on which any Organic Change, dissolution or
liquidation shall take place.
Section 7. Information Rights.
7A. Financial Statements and Other Information. The Corporation
shall deliver to each holder of at least 1,800,000 shares of Senior Convertible
Preferred:
(i) as soon as available but in any event within forty-five
(45) days after the end of each monthly accounting period in each year,
unaudited consolidated statements of income and cash flows of the Corporation
and its Subsidiaries for such monthly period and for the period from the
beginning of the year to the end of such month, and unaudited consolidated
balance sheets of the Corporation and its Subsidiaries as of the end of such
monthly period, setting forth in each case comparisons to the Corporation's
annual budget and to the corresponding period in the preceding year, and all
such statements shall be prepared in accordance with generally accepted
accounting principles, consistently applied and shall be certified by the
Corporation's chief financial officer;
(ii) accompanying the financial statements referred to in
subparagraph (i) an Officer's Certificate stating that there is no Event of
Noncompliance in existence and that neither the Corporation nor any of its
Subsidiaries is in default under any of its material agreements or, if any Event
of Noncompliance or any such default exists, specifying the nature and period of
existence thereof and what actions the Corporation and its Subsidiaries have
taken and propose to take with respect thereto;
(iii) within ninety (90) days after the end of each year,
consolidated statements of income and cash flows of the Corporation and its
Subsidiaries for such year, and consolidated balance sheets of the Corporation
and its Subsidiaries as of the end of such year, setting forth in each case
comparisons to the Corporation's annual budget and to the preceding year, all
prepared in accordance with generally accepted accounting principles,
consistently applied, and accompanied by (a) an opinion of the Corporation's
regular independent accounting firm of recognized national or regional standing,
(b) a certificate from such accounting firm, addressed to the Corporation's
Board of Directors, stating that in the course of its examination nothing came
to its attention that caused it to believe that there was an Event of
Noncompliance in existence or that there was any material default by the
Corporation or any Subsidiary in the fulfillment of or compliance with any of
the terms, covenants, provisions or conditions of any material agreement to
which the Corporation or any such Subsidiary is a party or, if such accountants
have reason to believe that any Event of Noncompliance any other such default by
the Corporation or any such Subsidiary exists, a certificate specifying the
nature and period of existence thereof, and (c) a copy of such firm's annual
management letter to the Board of Directors;
(iv) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant aspects
of the Corporation's operations
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or financial affairs given to the Corporation by its independent accountants
(and not otherwise contained in other materials provided hereunder);
(v) at least thirty (30) days but not more than ninety (90)
days prior to the beginning of each fiscal year, an annual budget prepared on a
monthly basis for the Corporation and its Subsidiaries for such fiscal year
(displaying anticipated statements of income and cash flows and balance sheets),
and promptly upon preparation thereof any other significant budgets prepared by
the Corporation and any revisions of such annual or other budgets, and within
forty-five (45) days after any monthly period in which there is a material
adverse deviation from the annual budget, an Officer's Certificate explaining
the deviation and what actions the Corporation has taken and proposes to take
with respect thereto;
(vi) promptly (but in any event within five (5) business days)
after the discovery or receipt of notice of any Event of Noncompliance, any
default under any material agreement to which it or any of its Subsidiaries is a
party, any condition or event which is reasonably likely to result in any
material liability under any federal, state or local statute or regulation
relating to public health and safety, worker health and safety or pollution or
protection of the environment, or any other material adverse change, event or
circumstance affecting the Corporation or any Subsidiary (including, without
limitation, the filing of any material litigation against the Corporation or any
Subsidiary or the existence of any dispute with any Person which involves a
reasonable likelihood of such litigation being commenced), an Officer's
Certificate specifying the nature and period of existence thereof and what
actions the Corporation and its Subsidiaries have taken and propose to take with
respect thereto;
(vii) within ten (10) days after transmission thereof, copies
of all financial statements, proxy statements, reports and any other general
written communications which the Corporation sends to its shareholders and
copies of all registration statements and all regular, special or periodic
reports which it files, or any of its officers or directors file with respect to
the Corporation, with the Securities and Exchange Commission or with any
securities exchange on which any of its securities are then listed, and copies
of all press releases and other statements made available generally by the
Corporation to the public concerning material developments in the Corporation's
and its Subsidiaries' businesses; and
(viii) with reasonable promptness, such other information and
financial data concerning the Corporation and its Subsidiaries as any Person
entitled to receive information under this paragraph 7A may reasonably request.
7B. Inspection of Property. The Corporation shall permit any
representatives designated by any holder of 1,800,000 shares of Senior
Convertible Preferred, upon reasonable notice and during normal business hours,
to (i) visit and inspect any of the properties of the Corporation and its
Subsidiaries, (ii) examine the corporate and financial records of the
Corporation and its Subsidiaries and make copies thereof or extracts therefrom
and (iii) discuss the affairs, finances and accounts of any such corporations
with the directors, officers, key employees and independent accountants of the
Corporation and its Subsidiaries.
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7C. Attendance at Board Meetings. The Corporation shall give
each holder of at least 1,800,000 shares of Senior Convertible Preferred written
notice of each meeting of its Board of Directors and each committee thereof at
the same time and in the same manner as notice is given to the directors (which
notice shall be promptly confirmed in writing to each such Person), and the
Corporation shall permit a representative of each such Person to attend as an
observer all meetings of its Board of Directors and all committees thereof. Each
representative shall be entitled to receive all written materials and other
information (including, without limitation, copies of meeting minutes) given to
directors in connection with such meetings at the same time such materials and
information are given to the directors. If the Corporation proposes to take any
action by written consent in lieu of a meeting of its Board of Directors or of
any committee thereof, the Corporation shall give written notice thereof to each
such Person prior to the effective date of such consent describing in reasonable
detail the nature and substance of such action.
Section 8. Purchase Rights. If at any time the Corporation grants,
issues or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "Purchase Rights"), then each holder of Senior
Convertible Preferred shall 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 Conversion Stock
acquirable upon conversion of such holder's Senior Convertible Preferred
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.
Section 9. Event of Noncompliance
9A. Definition. An Event of Noncompliance shall have occurred
if:
(i) the Corporation breaches or otherwise fails to perform or
observe any covenant or agreement set forth herein;
(ii) the Corporation breaches the representation and warranty
set forth in paragraph (viii) in the letter agreement by and between the
Corporation, Willis Stein Partners, L.P. and Star Polymers, L.L.C. dated March
18, 2002; or
(iii) the Corporation or any material Subsidiary makes an
assignment for the benefit of creditors or admits in writing its inability to
pay its debts generally as they become due (provided however that an Event of
Noncompliance shall be deemed not to occur if the Lender, as defined in the Loan
Agreement, exercises or enforces any of its rights under the Loan Agreement or
any ancillary agreements thereto, including, but not limited to the
Subordination Agreements); or an order, judgment or decree is entered
adjudicating the Corporation or any material Subsidiary bankrupt or insolvent;
or any order for relief with respect to the Corporation or any material
Subsidiary is entered under the Federal Bankruptcy Code; or
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the Corporation or any material Subsidiary petitions or applies to any tribunal
for the appointment of a custodian, trustee, receiver or liquidator of the
Corporation or any material Subsidiary or of any substantial part of the assets
of the Corporation or any material Subsidiary or any material Subsidiary, or
commences any proceeding (other than a proceeding for the voluntary liquidation
and dissolution of a Subsidiary) relating to the Corporation or any material
Subsidiary under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction; or any
such petition or application is filed, or any such proceeding is commenced,
against the Corporation or any material Subsidiary and either (a) the
Corporation or any material Subsidiary by any act indicates its approval
thereof, consent thereto or acquiescence therein or (b) such petition,
application or proceeding is not dismissed within sixty (60) days.
9B. Consequences of Events of Noncompliance.
(i) If an Event of Noncompliance of the type described in
subparagraph 9A(i) and (ii) shall exist for thirty (30) consecutive days, and
after notice from the holders of at least an aggregate of 4,500,000 shares of
the Senior Convertible Preferred (as adjusted for stock splits, stock dividends
and recapitalizations) outstanding of such Event of Noncompliance, the
Corporation shall fail to cure such Event of Noncompliance within thirty (30)
days after receipt of such notice (a "Triggering Event"), the Conversion Price
of the Senior Convertible Preferred shall be reduced immediately by 10% of the
Conversion Price in effect immediately prior to such adjustment (the "First
Adjustment"). If a Triggering Event (other than a Triggering Event giving rise
to the First Adjustment) shall occur after the First Adjustment, the Conversion
Price shall be reduced immediately by 10% of what the Conversion Price would
have been immediately prior to such adjustment if the First Adjustment had not
been made (the "Second Adjustment"). If a Triggering Event (other than a
Triggering Event giving rise to the First or Second Adjustment) shall occur
after the Second Adjustment, the Conversion Price shall be reduced immediately
by 10% of what the Conversion Price would have been immediately prior to such
adjustment if the First and Second Adjustments had not been made. In no event
shall any Conversion Price adjustment be rescinded, and in no event shall there
be more than three Conversion Price adjustments pursuant to this subparagraph.
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For example, assume that the Conversion Price of the Senior
Convertible Preferred is $.68. If a Triggering Event occurs,
the Conversion Price would be reduced immediately by 10% of
$.68, or $.068, for a new Conversion Price of $.612. If a
second Triggering Event occurs, the existing Conversion Price
would be reduced by 10% of what the Conversion Price would have
been if there had been no previous adjustment pursuant to this
paragraph (i.e., $.68), or $.068, for a new Conversion Price of
$.544. Then assume that there is a two for one stock split, in
which case the Conversion Price would be decreased hereunder
from $.544 to $.272, and assume that a third Triggering Event
occurs, the Conversion Price would be reduced by 10% of what
the Conversion Price would have been immediately prior to such
adjustment if there had been no previous adjustments pursuant
to this paragraph (i.e. $.34), or $.034, for a new Conversion
Price of $.238.
(ii) If an Event of Noncompliance of the type described in
subparagraph 9A(iii) has occurred and if all amounts owing to the Lender (as
defined in the Loan Agreement) has been repaid or converted in full, all of the
Senior Convertible Preferred then outstanding shall be subject to immediate
redemption by the Corporation (without any action on the part of the holders of
the Senior Convertible Preferred) at a price per Share equal to the Liquidation
Value thereof. Provided that all indebtedness to the Lender (as defined in the
Loan Agreement) has been repaid or converted in full, the Corporation shall
immediately redeem all Senior Convertible Preferred upon the occurrence of such
Event of Noncompliance.
(iii) If any Event of Noncompliance exists, each holder of
Senior Convertible Preferred shall also have any other rights which such holder
is entitled to under any contract or agreement and any other rights which such
holder may have pursuant to applicable law.
Section 10. Registration of Transfer. The Corporation shall keep at
its principal office a register for the registration of Senior Convertible
Preferred. Upon the surrender of any certificate representing Senior Convertible
Preferred at such place, the Corporation shall, at the request of the record
holder of such certificate, execute and deliver (at the Corporation's expense) a
new certificate or certificates in exchange therefor representing in the
aggregate the number of shares of Senior Convertible Preferred represented by
the surrendered certificate. Each such new certificate shall be registered in
such name and shall represent such number of shares of Senior Convertible
Preferred as is requested by the holder of the surrendered certificate and shall
be substantially identical in form to the surrendered certificate.
Section 11. Replacement. Upon receipt of evidence reasonably
satisfactory to the Corporation (an affidavit of the registered holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing shares of Senior Convertible Preferred, and in the
case of any such loss, theft or destruction, upon receipt of indemnity
reasonably
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satisfactory to the Corporation (provided that if the holder is a financial
institution or other institutional investor its own agreement shall be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of Senior Convertible Preferred by such lost, stolen, destroyed or
mutilated certificate and dated the date of such lost, stolen, destroyed or
mutilated certificate.
Section 12. Non-Contravention with Loan Agreement. Nothing in this
Certificate of Designation Senior Convertible Preferred Stock shall have the
effect of contravening. derogating or superceding any rights of the Lender (as
defined in the Loan Agreement) pursuant to the Loan Agreement for as long as
such Loan Agreement is in effect.
Section 13. Definitions.
"Change in Ownership" means any sale, transfer or issuance or series
of sales, transfers and/or issuances of Common Stock by the Corporation or any
holders thereof which results in any Person or group of Persons (as the term
"group" is used under the Securities Exchange Act of 1934), other than Tennessee
Farmers Life Insurance Company and the holders of Common Stock and Senior
Convertible Preferred as of the date of the closing under the Merger Agreement,
owning more than 50% of the Common Stock outstanding at the time of such sale,
transfer or issuance or series of sales, transfers and/or issuances.
"Common Stock" means, collectively, the Corporation's Common Stock and
any capital stock of any class of the Corporation hereafter authorized which is
not limited to a fixed sum or percentage of par or stated value in respect to
the rights of the holders thereof to participate in dividends or in the
distribution of assets upon any liquidation, dissolution or winding up of the
Corporation.
"Conversion Price" means the conversion price determined in accordance
with Section 6B hereof.
"Conversion Stock" means shares of the Corporation's Common Stock, no
par value per share; provided that if there is a change such that the securities
issuable upon conversion of the Senior Convertible Preferred are issued by an
entity other than the Corporation or there is a change in the type or class of
securities so issuable, then the term "Conversion Stock" shall mean one share of
the security issuable upon conversion of the Senior Convertible Preferred if
such security is issuable in shares, or shall mean the smallest unit in which
such security is issuable if such security is not issuable in shares.
"Convertible Securities" means any stock or securities directly or
indirectly convertible into or exchangeable for Common Stock.
"Corporation" means Donlar Corporation, a corporation organized under
the laws of the State of Illinois.
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"Fundamental Change" means (a) any sale or transfer or more than 50%
of the assets of the Corporation and its Subsidiaries on a consolidated basis
(measured either by book value in accordance with generally accepted accounting
principles consistently applied or by fair market value determined in the
reasonable good faith judgment of the Corporation's Board of Directors) in any
transaction or series of transactions (other than sales in the ordinary course
of business) and (b) any merger or consolidation to which the Corporation is a
party, except for a merger in which the Corporation is the surviving
corporation, the terms of the Senior Convertible Preferred are not changed and
the Senior Convertible Preferred is not exchanged for cash, securities or other
property, and after giving effect to such merger, the holders of the
Corporation's outstanding capital stock possessing a majority of the voting
power (under ordinary circumstances) to elect a majority of the Corporation's
Board of Directors immediately prior to the merger shall continue to own the
Corporation's outstanding capital stock possessing the voting power (under
ordinary circumstances) to elect a majority of the Corporation's Board of
Directors.
"Intellectual Property Rights" means all (i) patents, patent
applications, patent disclosures and inventions, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data, data bases and documentation thereof, (vi) trade
secrets and other confidential information (including, without limitation,
ideas, formulas, compositions, inventions (whether patentable or unpatentable
and whether or not reduced to practice), know-how, manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial and marketing plans and customer and supplier lists and information),
(vii) other intellectual property rights and (viii) copies and tangible
embodiments thereof (in whatever form or medium), other than intellectual
property rights not having a material value.
"Junior Securities" means any capital stock or other equity securities
of the Corporation, except for the Senior Convertible Preferred.
"Liquidation Value" of any share of Senior Convertible Preferred as of
any particular date shall be equal to $1.
"Loan Agreement" means the Bridge and Consolidated Term Loan Agreement
as amended from time to time, dated as of March 18, 2002, among the Corporation
and Donlar Biosyntrex Corporation, and Tennessee Farmers Life Insurance Company,
including all exhibits and ancillary documents thereto.
"Market Price" of any security means the average of the closing prices
of such security's sales on all securities exchanges on which such security may
at the time be listed, or, if there has been no sales on any such exchange on
any day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day such security is not so
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listed, the average of the representative bid and asked prices quoted in the
NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security is
not quoted in the NASDAQ System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization,
in each such case averaged over a period of twenty-one (21) days consisting of
the day as of which "Market Price" is being determined and the twenty (20)
consecutive business days prior to such day. If at any time such security is not
listed on any securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the "Market Price" shall be the fair value thereof
determined jointly by the Corporation and the holders of a majority of the
Senior Convertible Preferred. If such parties are unable to reach agreement
within a reasonable period of time, such fair value shall be determined by an
independent appraiser experienced in valuing securities jointly selected by the
Corporation and the holders of a majority of the Senior Convertible Preferred.
The determination of such appraiser shall be final and binding upon the parties,
and the Corporation shall pay the fees and expenses of such appraiser.
"Merger Agreement" means the Agreement and Plan of Merger by and among
the Corporation and Donlar Biosyntrex, setting forth the terms and conditions by
which Donlar Biosyntrex shall be merged with and into the Corporation.
"Options" means any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.
"Organic Change" means an Organic Change as defined in Section 6E.
"Person" means an individual, a partnership, a corporation, a limited
liability Corporation, a limited liability, an association, a joint stock
Corporation, a trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political subdivision thereof.
"Restructuring Agreement" means the Agreement to Merge, dated as of
March 18, 2002, by and among the Corporation, Donlar Biosyntrex and certain
investors, as such agreement may from time to time be amended in accordance with
its terms.
"Senior Convertible Preferred" means the Senior Convertible Preferred
Stock..
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have
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a majority ownership interest in a limited liability company, partnership,
association or other business entity if such Person or Persons shall be
allocated a majority of limited liability company, partnership, association or
other business entity gains or losses or shall be or control the managing
general partner of such limited liability company, partnership, association or
other business entity.
Section 14. Amendment and Waiver. No amendment, modification or waiver
shall be binding or effective with respect to any provision of Sections 1 to 15
hereof without the prior written consent of the holders of at least 75% of the
Senior Convertible Preferred outstanding at the time such action is taken
provided that no change in the terms hereof may be accomplished by merger or
consolidation of the Corporation with another corporation or entity unless the
Corporation has obtained the prior written consent of the holders of at least
75% of the Senior Convertible Preferred then outstanding.
Section 15. Notices. Except as otherwise expressly provided hereunder,
all notices referred to herein shall be in writing and shall be delivered by
registered or certified mail, return receipt requested and postage prepaid, or
by reputable overnight courier service, charges prepaid, and shall be deemed to
have been given when so mailed or sent (i) to the Corporation, at its principal
executive offices and (ii) to any holder of Senior Convertible Preferred, at
such holder's address as it appears in the stock records of the Corporation
(unless otherwise indicated by any such holder).
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