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EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
NEOPROBE CORPORATION
(as corrected February 18, 1994 and
as amended June 27, 1994, July 25, 1995, June 3, 1996 and March 17, 1999)
ARTICLE ONE
The name of the corporation is Neoprobe Corporation.
ARTICLE TWO
The address of the corporation's registered office in the State of
Delaware is the Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is the Corporation Trust Company.
ARTICLE THREE
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
(Article Four was amended to increase the total number of shares
authorized to be outstanding from 22,000,000 to 55,000,000 , the total number
of shares of Common Stock from 20,000,000 to 50,000,000 and the total number of
shares of Preferred Stock from 2,000,000 to 5,000,000 by a resolution duly
adopted by the Board of Directors on March 3, 1994 and duly adopted by the
stockholders on May 26, 1994).
ARTICLE FOUR
4.1 Authorized Shares. The total number of shares of capital stock
which the Corporation has authority to issue is 55,000,000 shares, consisting
of:
(a) 50,000,000 shares of Common Stock, par value $.001 per share (the
"Common Stock");
(b) 5,000,000 shares of Preferred Stock, par value $.001 per share (the
"Preferred Stock").
4.2 Common Stock.
(a) Subject to such voting rights of any other class or series of
securities as may be granted from time to time pursuant to this certificate of
incorporation, any amendment thereto, or the provisions of the laws of the
State of Delaware governing corporations, voting rights shall be vested
exclusively in the holders of Common Stock. Each holder of Common Stock shall
have one vote in respect of each share of such stock held.
(b) Subject to the rights of any other class or series of stock, the
holders of shares of Common Stock shall be entitled to receive, when and as
declared by the board of directors, out of the assets of the Corporation
legally available therefor, such dividends as may be declared from time to time
by the board of directors.
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(c) Subject to such rights of any other class or series of securities
as may be granted from time to time, the holders of shares of Common Stock
shall be entitled to receive all the assets of the Corporation available for
distribution to shareholders in the event of the voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation, ratably, in
proportion to the number of shares of Common Stock held by them. Neither the
merger or consolidation of the Corporation into or with any other corporation,
nor the merger or consolidation of any other corporation into or with the
Corporation, nor the sale, lease, exchange or other disposition (for cash,
shares of stock, securities, or other consideration) of all or substantially
all the assets of the Corporation, shall be deemed to be a dissolution,
liquidation, or winding up, voluntary or involuntary, of the Corporation.
4.3 Preferred Stock. Shares of Preferred Stock may be issued from time
to time in one or more series. The board of directors of the Corporation is
hereby authorized to determine and alter all rights, preferences, and
privileges and qualifications, limitations, and restrictions thereof
(including, without limitation, voting rights and the limitation and exclusion
thereof) granted to or imposed upon any wholly unissued series of Preferred
Stock and the number of shares constituting any such series and the designation
thereof, and to increase or decrease (but not below the number of shares of
such series then outstanding) the number of shares of any series subsequent to
the issue of shares of that series then outstanding. In case the number of
shares of any series is so decreased, the shares constituting such reduction
shall resume the status which such shares had prior to the adoption of the
resolution originally fixing the number of shares of such series.
ARTICLE FIVE
The business and affairs of the Corporation shall be managed by or under
the direction of the board of directors, and the directors need not be elected
by ballot unless required by the by-laws of the Corporation. In furtherance and
not in limitation of the powers conferred by statute, the board of directors of
the Corporation is expressly authorized to adopt, amend, or repeal the by-laws
of the Corporation.
ARTICLE SIX
Action shall be taken by the stockholders of the Corporation only at
annual or special meetings of stockholders, and stockholders may not act by
written consent. Special meetings of the Corporation may be called only as
provided in the by-laws.
ARTICLE SEVEN
Meetings of the stockholders may be held within or without the State of
Delaware, as the by-laws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places
as may be designated from time to time by the board of directors or in the
by-laws of the Corporation. The board of directors shall from time to time
decide whether and to what extent and at what times and under what conditions
and requirements the accounts and books of the Corporation, or any of them,
except the stock book, shall be open to the inspection of the stockholders, and
no stockholder shall have any right to inspect any books or documents of the
Corporation except as conferred by the laws of the State of Delaware or as
authorized by the board of directors.
(Article Eight was amended in its entirety by a resolution duly adopted
by the Board of Directors on January 18, 1996 and duly adopted by the
stockholders at the Annual Meeting of Stockholders held on May 30, 1996).
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ARTICLE EIGHT
Notwithstanding any other provision set forth in the Certificate of
Incorporation of the Corporation or its By-laws, the board of directors shall
be divided into three classes; the term of office of those of the first class
to expire at the annual meeting next ensuing; of the second class one year
thereafter; of the third class two years thereafter; and at each annual
election held after the initial classification of the board of directors and
election of directors to such classes, directors shall be chosen for a full
term of three years, as the case may be, to succeed those whose terms expire.
The total number of directors constituting the full board of directors and the
number of directors in each class shall be fixed by, or in the manner provided
in the by-laws, but the total number of directors shall not exceed seventeen
(17) nor shall the number of directors in any class exceed six (6). Subject to
the foregoing, the classes of directors need not have the same number of
members. No reduction in the total number of directors or in the number of
directors in any class shall be effective to remove any director or to reduce
the term of any director. If the board of directors increases the number of
directors in a class, it may fill the vacancy created thereby for the full
remaining term of a director in that class even though such term may extend
beyond the next annual election. The board of directors may fill any vacancy
occurring for any other reason for the full remaining term of the director
whose death, resignation or removal caused the vacancy, even though such term
may extend beyond the next annual election.
ARTICLE NINE
(a) The Corporation shall, to the fullest extent permitted by the
General Corporation Law of the State of Delaware as the same exists or may
hereafter be amended, indemnify all persons whom it may indemnify pursuant
hereto.
(b) To the fullest extent permitted by the General Corporation Law of
the State of Delaware as the same exists or may hereafter be amended, a
director of this Corporation shall not be personally liable for the Corporation
or its Stockholders for monetary damages for breach of fiduciary duty as a
director. The modification or repeal of this Article Nine shall not affect the
restriction hereunder of a director's personal liability for any breach, act,
or omission occurring prior to such modification or repeal.
ARTICLE TEN
The Corporation is to have perpetual existence.
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(A Certificate of Correction was filed to correct a failure to set forth
in the Restated Certificate of Incorporation filed with the Secretary of State
of Delaware on November 9, 1992, the following resolutions duly adopted by the
Board and duly approved by the stockholders):
WHEREAS, the Board of Directors of the Corporation deems it to be
advisable and in the best interests of the Corporation that the Corporation
effectuates a reverse split of its common stock, par value $0.001 per share (the
"Common Stock"), to cause the total number of issued and outstanding shares of
Common Stock to be 5,162,762 prior to a contemplated public offering of the
securities of the Corporation; it is therefore:
RESOLVED, that, subject to approval by the Corporation's stockholders,
there is hereby declared a one-for-two reverse split of the issued and
outstanding shares of Common Stock, effective immediately prior to the effective
time of the contemplated public offering (the "Conversion Time"), pursuant to
which each issued and outstanding share of Common Stock shall automatically be
converted into one-half of the one share of Common Stock, and each stockholder
of record at the Conversion Time shall receive one or more certificates
representing the number of fully-paid and nonassessable shares of Common Stock
equal to the number of shares held after the Conversion Time as a result of the
foregoing reverse split;
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RESOLVED, FURTHER, that the shares of Common Stock that cease to be
outstanding as a result of the reverse stock split shall be authorized but
unissued shares;
RESOLVED, FURTHER, that fractions of a share existing after the reverse
stock split shall not be issued to the stockholders, and that such fractions
shall be paid in cash at their pro rata fair value, which the Board of Directors
hereby determines, after due consideration, to be $6.00 per share as of the
Conversion Time;
RESOLVED, FURTHER, that appropriate adjustment shall be made to the
applicable conversion or other ratios of the Corporation's outstanding warrants,
options or other convertible securities to take account of the change in the
outstanding Common Stock resulting from the reverse stock split; and
RESOLVED, FURTHER, that the Conversion Time for the one-for-two reverse
split of the issued and outstanding shares of Common Stock as authorized on July
22, 1992, and approved by the Corporation's stockholders, shall be at the close
of business on Monday, November 9, 1992.
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(The Board of Directors provided for a series of Preferred Stock on July
18, 1995 by the addition to the Certificate of Incorporation of the following
paragraphs which were incorporated in a Certificate of Designations,
Preferences and Rights of Series A Junior Participating Preferred Stock filed
on July 25, 1995 ):
RESOLVED, that pursuant to the authority vested in the Board of Directors
of this Corporation in accordance with the provisions of its Restated
Certificate of Incorporation, a series of Preferred Stock of the Corporation be
and it hereby is created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" and the number of
shares constituting such series shall be 500,000.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of
any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Junior Participating Preferred Stock with respect to
dividends, the holders of shares of Series A Junior Participating Preferred
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly dividends
payable in cash on the first day of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Junior Participating
Preferred Stock, in an amount per share (rounded to the nearest cent) equal to
the greater of (a) $.05 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock, par
value $.001 per share, of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Junior Participating Preferred Stock. In the
event the Corporation shall at any time after August 28, 1995 (the "Rights
Declaration Date") (i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares, then in each such
case the amount to which holders of shares of Series A Junior Participating
Preferred Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
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(B) The Corporation shall declare a dividend or distribution on
the Series A Junior Participating Preferred Stock as provided in paragraph (A)
above immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided that,
in the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $.05 per share
on the Series A Junior Participating Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series A Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue from
the date of issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the determination
of holders of shares of Series A Junior Participating Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Junior Participating Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Junior Participating Preferred Stock entitled
to receive payment of a dividend or distribution declared thereon, which record
date shall be no more than 30 days prior to the date fixed for the payment
thereof.
Section 3. Voting Rights. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Junior Participating Preferred Stock shall
entitle the holder thereof to 100 votes on all matters submitted to a vote of
the stockholders of the Corporation. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the number of votes to which holders of Class A Junior
Participating Preferred Stock were entitled immediately prior to such event
under the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders
of shares of Series A Junior Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount equal to six (6)
quarterly dividends thereon, the occurrence of such contingency shall mark the
beginning of a period (herein called a "default period") which shall extend
until such time when all accrued and unpaid dividends for all previous
quarterly dividend periods and for the current quarterly dividend period on all
shares of Series A Junior Participating Preferred Stock then outstanding shall
have been declared and paid or set apart for payment. During each default
period, all holders of Preferred Stock (including holders of the Series A
Junior Participating Preferred Stock) with dividends in arrears in an amount
equal to six (6) quarterly dividends thereon, voting as a class, irrespective
of series, shall have the right to elect two (2) Directors.
(ii) During any default period, such voting right of the
holders of Series A Junior Participating Preferred Stock may be exercised
initially at a special meeting called pursuant to subparagraph (iii) of this
Section 3(C) or at any annual meeting of stockholders, and thereafter at annual
meetings of stockholders, provided that neither such voting right nor the right
of the holders of any other series of Preferred Stock, if any, to increase, in
certain cases, the authorized number of Directors shall be exercised unless the
holders of ten percent (10%) in number of shares of Preferred Stock
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outstanding shall be present in person or by proxy. The absence of a quorum of
the holders of Common Stock shall not affect the exercise by the holders of
Preferred Stock of such voting right. At any meeting at which the holders of
Preferred Stock shall exercise such voting right initially during an existing
default period, they shall have the right, voting as a class, to elect
Directors to fill such vacancies, if any, in the Board of Directors as may then
exist up to two (2) Directors or, if such right is exercised at an annual
meeting, to elect two (2) Directors. If the number which may be so elected at
any special meeting does not amount to the required number, the holders of the
Preferred Stock shall have the right to make such increase in the number of
Directors as shall be necessary to permit the election by them of the required
number. After the holders of the Preferred Stock shall have exercised their
right to elect Directors in any default period and during the continuance of
such period, the number of Directors shall not be increased or decreased except
by vote of the holders of Preferred Stock as herein provided or pursuant to the
rights of any equity securities ranking senior to or pari passu with the Series
A Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during
an existing default period, have previously exercised their right to elect
Directors, the Board of Directors may order, or any stockholder or stockholders
owning in the aggregate not less than ten percent (10%) of the total number of
shares of Preferred Stock outstanding, irrespective of series, may request, the
calling of a special meeting of the holders of Preferred Stock, which meeting
shall thereupon be called by the Chairman of the Board, President or the
Secretary of the Corporation. Notice of such meeting and of any annual meeting
at which holders of Preferred Stock are entitled to vote pursuant to this
paragraph (C)(iii) shall be given to each holder of record of Preferred Stock
by mailing a copy of such notice to him at his last address as the same appears
on the books of the Corporation. Such meeting shall be called for a time not
earlier than 20 days and not later than 60 days after such order or request or
in default of the calling of such meeting within 60 days after such order or
request, such meeting may be called on similar notice by any stockholder or
stockholders owning in the aggregate not less than ten percent (10%) of the
total number of shares of Preferred Stock outstanding. Notwithstanding the
provisions of this paragraph (C)(iii), no such special meeting shall be called
during the period within 60 days immediately preceding the date fixed for the
next annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock,
and other classes of stock of the Corporation if applicable, shall continue to
be entitled to elect the whole number of Directors until the holders of
Preferred Stock shall have exercised their right to elect two (2) Directors
voting as a class, after the exercise of which right (x) the Directors so
elected by the holders of Preferred Stock shall continue in office until their
successors shall have been elected by such holders or until the expiration of
the default period, and (y) any vacancy in the Board of Directors may (except
as provided in paragraph (C)(ii) of this Section 3) be filled by vote of a
majority of the remaining Directors theretofore elected by the holders of the
class of stock which elected the Director whose office shall have become
vacant. References in this paragraph (C) to Directors elected by the holders of
a particular class of stock shall include Directors elected by such Directors
to fill vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period,
(x) the right of the holders of Preferred Stock as a class to elect Directors
shall cease, (y) the term of any Directors elected by the holders of Preferred
Stock as a class shall terminate, and (z) the number of Directors shall be such
number as may be provided for in the certificate of incorporation or by-laws
irrespective of any increase made pursuant to the provisions of paragraph
(C)(ii) of this Section 3 (such number being subject, however, to change
thereafter in any manner provided by law or in the certificate of incorporation
or by-laws). Any vacancies in the Board of Directors effected by the provisions
of clauses (y) and (z) in the preceding sentence may be filled by a majority of
the remaining Directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
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Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of
Series A Junior Participating Preferred Stock outstanding shall have been paid
in full, the Corporation shall not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred
Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Junior Participating Preferred Stock, except dividends paid ratably on the
Series A Junior Participating Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation ranking junior (either as
to dividends or upon dissolution, liquidation or winding up) to the Series A
Junior Participating Preferred Stock;
(iv) purchase or otherwise acquire for consideration any
shares of Series A Junior Participating Preferred Stock, or any shares of stock
ranking on a parity with the Series A Junior Participating Preferred Stock,
except in accordance with a purchase offer made in writing or by publication
(as determined by the Board of Directors) to all holders of such shares upon
such terms as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Junior
Participating Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and canceled promptly
after the acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock and may be reissued as
part of a new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
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Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution
or winding up of the Corporation, no distribution shall be made to the holders
of shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred Stock
unless, prior thereto, the holders of shares of Series A Junior Participating
Preferred Stock shall have received [$.10] per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series A Liquidation Preference").
Following the payment of the full amount of the Series A Liquidation
Preference, no additional distributions shall be made to the holders of shares
of Series A Junior Participating Preferred Stock unless, prior thereto, the
holders of shares of Common Stock shall have received an amount per share (the
"Common Adjustment") equal to the quotient obtained by dividing (i) the Series
A Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in
subparagraph C below to reflect such events as stock splits, stock dividends
and recapitalizations with respect to the Common Stock) (such number in clause
(ii), the "Adjustment Number"). Following the payment of the full amount of the
Series A Liquidation Preference and the Common Adjustment in respect to all
outstanding shares of Series A Junior Participating Preferred Stock and Common
Stock, respectively, holders of Series A Junior Participating Preferred Stock
and holders of shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio of
the Adjustment Number to 1 with respect to such Preferred Stock and Common
Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of preferred stock, if any,
which rank on a parity with the Series A Junior Participating Preferred Stock,
then such remaining assets shall be distributed ratably to the holders of such
parity shares in proportion to their respective liquidation preferences. In the
event, however, that there are not sufficient assets available to permit
payment in full of the Common Adjustment, then such remaining assets shall be
distributed ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 100 times the aggregate amount
of stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Junior Participating Preferred Stock
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
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Section 8. Optional Redemption.
(A) The Corporation shall have the option to redeem the whole or
any part of the Series A Junior Participating Preferred Stock at any time at a
redemption price equal to, subject to the provisions for adjustment hereinafter
set forth, 100 times the "current per share market price" of the Common Stock
on the date of the mailing of the notice of redemption, together with unpaid
accumulated dividends to the date of such redemption. In the event the
Corporation shall at any time after the Rights Declaration Date, (i) declare
any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide
the outstanding Common Stock or (iii) combine the outstanding Common Stock into
a smaller number of shares, then in each such case the amount to which holders
of shares of Series A Junior Participating Preferred Stock were otherwise
entitled immediately prior to such event under the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event. The "current per share market
price" on any date shall be deemed to be the average of the closing price per
share of such Common Stock for the 10 consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date. The closing price for each
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular
way, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading on
the New York Stock Exchange or, if the Common Stock is not listed or admitted
to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the principal national securities exchange on which the
Common Stock is listed or admitted to trading or, if the Common Stock is not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other
system then in use or, if on any such date the Common Stock is not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Common Stock
selected by the Board of Directors of the Corporation. If on such date no such
market maker is making a market in the Common Stock, the fair value of the
Common Stock on such date as determined in good faith by the Board of Directors
of the Corporation shall be used. The term "Trading Day" shall mean a day on
which the principal national securities exchange on which the Common Stock is
listed or admitted to trading is open for the transaction of business or, if
the Common Stock is not listed or admitted to trading on any national
securities exchange, a Monday, Tuesday, Wednesday, Thursday or Friday on which
banking institutions in the State of New York are not authorized or obligated
by law or executive order to close.
(B) Notice of any such redemption shall be given by mailing to
the holders of the Series A Junior Participating Preferred Stock a notice of
such redemption, first class postage prepaid, not later than the thirtieth day
and not earlier than the sixtieth day before the date fixed for redemption, at
their last address as the same shall appear upon the books of the Corporation.
Any notice which is mailed in the manner herein provided shall be conclusively
presumed to have been duly given, whether or not the stockholder received such
notice, and failure duly to give such notice by mail, or any defect in such
notice, to any holder of Series A Junior Participating Preferred Stock shall
not affect the validity of the proceedings for the redemption of such Series A
Junior Participating Preferred Stock are to be redeemed, the redemption shall
be made by lot as determined by the Board of Directors.
(C) If any such notice of redemption shall have been duly given
or if the Corporation shall have given to the bank or trust company hereinafter
referred to irrevocable written authorization promptly to give or complete such
notice, and if on or before the redemption date specified therein the funds
necessary for such redemption shall have been deposited by the Corporation with
the bank or trust company designated in such notice, doing business in the
United States of America and having a capital, surplus and undivided profits
aggregating at least $25,000,000 according to its last published statement of
condition, in trust for the benefit of the holders of Series A Junior
Participating Preferred Stock called for redemption, then, notwithstanding that
any certificate for such shares so called for redemption shall not have been
surrendered for cancellation, from and after the time of such deposit all such
shares called for redemption shall no longer be deemed outstanding and all
rights with respect to such shares shall no longer be deemed outstanding and
all rights with respect to such shares shall forthwith cease and terminate,
except the right of the holders thereof to receive from such bank or trust
company at any time after the time of such deposit the funds so deposited,
without
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10
interest, and the right to exercise, up to the close of business on the fifth
day before the date fixed for redemption, all privileges of conversion or
exchange if any. In case less than all the shares represented by any
surrendered certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. Any interest accrued on such funds shall be
paid to the Corporation from time to time. Any funds so deposited and unclaimed
at the end of six years from such redemption date shall be repaid to the
Corporation, after which the holders of shares of Series A Junior Participating
Preferred Stock called for redemption shall look only to the Corporation for
payment thereof; provided that any funds so deposited which shall not be
required for redemption because of the exercise of any privilege of conversion
or exchange subsequent to the date of deposit shall be repaid to the
Corporation forthwith.
Section 9. Ranking. The Series A Junior Participating Preferred Stock
shall rank junior to all other series of the Corporation's Preferred Stock as
to the payment of dividends and the distribution of assets, unless the terms of
any such series shall provide otherwise.
Section 10. Amendment. So long as any shares of Series A Junior
Participating Preferred Stock are outstanding, the Restated Certificate of
Incorporation of the Corporation shall not be further amended in any manner
which would materially alter or change the powers, preferences or special
rights of the Series A Junior Participating Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of a majority or
more of the outstanding shares of Series A Junior Participating Preferred
Stock, voting separately as a class.
Section 11. Fractional Shares. Series A Junior Participating Preferred
Stock may be issued in fractions of a share which shall entitle the holder, in
proportion to such holders fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Junior Participating Preferred Stock.
* * *
(The Board of Directors provided for a series of Preferred Stock on
February 11, 1999 by the addition to the Certificate of Incorporation of the
following paragraphs which were incorporated in a Certificate of Designations,
of 5% Series B Convertible Preferred Stock filed on March 17, 1999):
RESOLVED, that pursuant to the authority conferred on the Board of Directors of
this Corporation by its Certificate of Incorporation, a series of Preferred
Stock, par value $.001 per share, of the Corporation is hereby established and
created, and that the designation and number of shares thereof and the voting
and other powers, preferences and relative, participating, optional or other
rights of the shares of such series and the qualifications, limitations and
restrictions thereof are as follows:
5% Series B Convertible Preferred Stock
1 Designation and Amount and Definitions. (a) There shall be a
series of Preferred Stock designated as "5% Series B Convertible Preferred
Stock" and the number of shares constituting such series shall be 63,000. Such
series is referred to herein as the "Series B Preferred Stock".
Notwithstanding any other provision in this Certificate of Designations (this
"Certificate of Designations") to the contrary, such series shall be senior to
all other classes or series of stock of the Corporation with respect to the
receipt of dividends and the receipt of distributions of assets upon
liquidation, dissolution or winding up. Such number of shares may be increased
or decreased by resolution of the Board of Directors; provided, however, that
no decrease shall reduce the number of shares of Series B Preferred Stock to
fewer than the number of shares of Series B Preferred Stock then issued and
outstanding.
(b) As used in this Certificate of Designations, the following terms
shall have the following meanings:
"Additional Preferred Shares" shall mean any shares of Series B
Preferred Stock issued subsequent to the First Closing Date.
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11
The "Closing Bid Price" for any security of the Corporation, for
each Trading Day, shall be the reported closing bid price of such
security on the national securities exchange on which such security is
listed or admitted to trading, or, if such security is not listed or
admitted to trading on any national securities exchange, shall mean the
reported closing bid price of such security on the Nasdaq SmallCap
Market or the Nasdaq National Market System (collectively referred to as
"Nasdaq") or, if such security is not listed or admitted to trading on
any national securities exchange or quoted on Nasdaq, shall mean the
reported closing bid price of such security on the principal securities
exchange on which such security is listed or admitted to trading (based
on the aggregate dollar value of all securities listed or admitted to
trading) or, if such security is not listed or admitted to trading on a
national securities exchange, quoted on Nasdaq or listed or admitted to
trading on any other securities exchange, shall mean the closing bid
price in the over-the-counter market as furnished by any member firm of
the National Association of Securities Dealers, Inc. (the "NASD"),
selected from time to time by the Corporation for that purpose.
The "Closing Trade Price" for any security of the Corporation,
for each Trading Day, shall mean the price at which such security was
last exchanged on the Stock Market during such Trading Day, or, if there
were no transactions on such Trading Day, the average of the reported
closing bid and asked prices, regular way, of such security on the
relevant Stock Market on such Trading Day.
"Common Stock" shall mean the common stock, par value $.001 per
share, of the Corporation.
"Conversion Price" is defined in Section 4(a).
"Conversion Price Floor" shall mean (i) with respect to the
Initial Preferred Shares, the lesser of (x) $.55 and (y) 50% of the
average Closing Bid Price of the Common Stock for the five Trading Days
immediately prior to the First Closing Date and (ii) with respect to the
Additional Preferred Shares, 50% of the average Closing Bid Price of the
Common Stock for the five Trading Days immediately prior to the Second
Closing Date.
"Conversion Rate Ceiling" shall mean the rate at which a
particular share of Series B Preferred Stock shall be convertible when
the applicable Conversion Price is the Conversion Price Floor.
"Conversion Rate" shall mean the rate at which a particular share
of Series B Preferred Stock is convertible at any time into Common Stock
and shall be determined by dividing the then applicable Conversion Price
into the sum of (x) $100.00 plus (y) all accrued and unpaid dividends on
such share of Series B Preferred Stock.
"Fair Market Value" of any asset (including any security) means
the fair market value thereof as mutually determined by the Corporation
and the holders of a majority of the Series B Preferred Stock then
outstanding. If the Corporation and the holders of a majority of the
Series B Preferred Stock then outstanding are unable to reach agreement
on any valuation matter, such valuation shall be submitted to and
determined by a nationally recognized independent investment bank
selected by the Board of Directors and the holders of a majority of the
Series B Preferred Stock (or, if such selection cannot be agreed upon
promptly, or in any event within ten days, then such valuation shall be
made by a nationally recognized independent investment banking firm
selected by the American Arbitration Association in New York City in
accordance with its rules), the costs of which valuation shall be paid
for by the Corporation.
"First Closing Date" shall mean the date of the closing of the
purchase and sale of the Initial Preferred Shares.
"Fixed Conversion Price" is defined in Section 4(a).
"Initial Conversion Price" shall mean (i) with respect to the
Initial Preferred Shares, the lesser of (x) $1.03 and (y) 120% of the
average Closing Bid Price of the Common Stock for the five Trading Days
immediately prior to the First Closing Date and (ii) with respect to the
Additional Preferred Shares, the lesser of (x) the average Closing Bid
Price for the five Trading Days immediately prior to the Second Closing
Date and (y) the Market Price of the Common Stock as of the Second
Closing Date.
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12
"Initial Preferred Shares" shall mean any shares of Series B
Preferred Stock issued on the date of the first issuance of any shares
of Series B Preferred Stock.
"Initial Reset Date" shall mean the 12-month anniversary of the
First Closing Date.
"Investment Agreement" shall mean the Preferred Stock and Warrant
Purchase Agreement dated as of February 16, 1999, by and among the
Corporation and the purchasers signatory thereto.
"Junior Stock" shall mean the Common Stock and any shares of
preferred stock of any series or class of the Corporation, whether
presently outstanding or hereafter issued, which are junior to the
shares of Series B Preferred Stock with respect to (i) the distribution
of assets on any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, (ii) dividends or (iii) voting.
"Market Price" shall mean the average Closing Bid Price for 20
consecutive Trading Days ending with the Trading Day prior to the date
as of which the Market Price is being determined (with appropriate
adjustments for subdivisions or combinations of shares effected during
such period), provided that if the prices referred to in the definition
of Closing Bid Price cannot be determined for such period, "Market
Price" shall mean Fair Market Value.
"Registered Holders" shall mean, at any time, the holders of
record of the Series B Preferred Stock.
"Reset Date" shall mean (i) with respect to the Initial Preferred
Shares, the Initial Reset Date and (ii) with respect to the Additional
Preferred Shares, the Second Reset Date.
"Reset Trading Price" shall mean (i) with respect to the Initial
Preferred Shares, the Market Price of the Common Stock as of the Initial
Reset Date and (ii) with respect to the Additional Preferred Shares, the
Market Price as of the Second Reset Date.
"Second Closing Date" shall mean the date of the closing of the
purchase and sale of the Additional Preferred Shares.
"Second Reset Date" shall mean the 12-month anniversary of the
Second Closing Date.
"Stock Market" shall mean, with respect to any security, the
principal national securities exchange on which such security is listed
or admitted to trading or, if such security is not listed or admitted to
trading on any national securities exchange, shall mean Nasdaq or, if
such security is not quoted on Nasdaq, shall mean the OTC Bulletin Board
or, if such security is not quoted on the OTC Bulletin Board, shall mean
the over-the-counter market as furnished by any NASD member firm
selected from time to time by the Corporation for that purpose.
A "Trading Day" shall mean a day on which the relevant Stock
Market is open for the transaction of business.
The "Variable Conversion Price" with respect to any conversion of
Series B Preferred Stock shall equal the average of the three lowest
Closing Bid Prices of the Common Stock during the 10 consecutive Trading
Days ending on the Trading Day preceding the effective date of such
conversion; provided that any of such Trading Days on which the
applicable converting holder has sold Common Stock on the Stock Market
shall be disregarded for purposes of determining such three lowest
Closing Bid Prices, and the Trading Day(s) with the next lowest Closing
Bid Price(s) of the Common Stock during such 10-Trading Day period shall
be substituted in lieu thereof.
2 Dividends and Distributions. (a) The holders of the Series B
Preferred Stock shall be entitled to receive cumulative dividends on each share
of Series B Preferred Stock at the rate of 5% per annum of the Dividend Base
Amount (as defined below), payable on every six-month and one-year anniversary
of the First Closing Date in arrears; provided, however, that on any day on
which the Common Stock trades below the Conversion Price Floor, the rate at
which such dividends accrue shall increase to 10% per annum. Such dividends
shall accrue daily based on a 360-day year consisting of 12 30-day months.
Such dividends shall be paid, at the option of the Corporation, in either (i)
cash
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13
or (ii) shares of duly authorized, fully paid and non-assessable shares of
Common Stock. In calculating the number of shares of Common Stock to be paid
with respect to each dividend if payment in shares of Common Stock is elected
by the Corporation, each share of Common Stock shall be deemed to have the
value equal to the lower of (A) the Conversion Price (as defined in Section
4(a) hereof) or (B) the Market Price of the Common Stock at the time such
dividend is payable. Such dividends shall accrue and accumulate whether or not
they have been declared and whether or not there are profits, surplus or other
funds of the Corporation legally available for the payment of dividends. The
"Dividend Base Amount" shall be $100 plus all accrued but unpaid dividends on
the Series B Preferred Stock (subject to appropriate adjustment to reflect any
stock split, combination, reclassification or reorganization of the Series B
Preferred Stock).
(b) In addition to the foregoing, subject to the rights of the
holders of any shares of any series or class of capital stock ranking prior,
and superior to, or pari passu with, the shares of Series B Preferred Stock
with respect to dividends, the holders of shares of Series B Preferred Stock
shall be entitled to receive, as, when and if declared by the Board of
Directors, out of assets legally available for that purpose, dividends or
distributions in cash, stock or otherwise.
(c) The Corporation shall not declare any dividend or distribution
on any Junior Stock of the Corporation unless and until a special dividend or
distribution of $100.00 per share (subject to appropriate adjustment to reflect
any stock split, combination, reclassification or reorganization of the Series
B Preferred Stock), together with all accrued and unpaid dividends on the
Series B Preferred Stock, has been declared and paid on the Series B Preferred
Stock. Following payment in full of such special dividend or distribution, the
Corporation may declare dividends and distributions on Junior Stock or stock on
parity with the Series B Preferred Stock, provided that the Corporation shall
not declare any dividend or distribution on any Junior Stock or stock on parity
with the Series B Preferred Stock unless the Corporation shall, concurrently
with the declaration of such dividend or distribution on the Junior Stock or
stock on parity with the Series B Preferred Stock, declare a like dividend or
distribution, as the case may be, on the Series B Preferred Stock.
(d) Any dividend or distribution (other than that referenced in the
first sentence of Subsection 2(c)) payable to the holders of the Series B
Preferred Stock pursuant to this Section 2 shall be paid to such holders at the
same time as the dividend or distribution on the Junior Stock or any other
capital stock of the Corporation by which it is measured is paid.
(e) All dividends or distributions declared upon the Series B
Preferred Stock shall be declared pro rata per share.
(f) Any reference to "distribution" contained in this Section 2
shall not be deemed to include any distribution made in connection with or in
lieu of any Liquidation Event (as defined below).
(g) No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Series B
Preferred Stock which may be in arrears.
(h) So long as any shares of the Series B Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on any class or series of
stock of the Corporation ranking, as to dividends, on a parity with the Series
B Preferred Stock, for any period unless all dividends have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof set apart for such payment, on the Series B Preferred
Stock. When dividends are not paid in full or a sum sufficient for such
payment is not set apart, as aforesaid, upon the shares of the Series B
Preferred Stock and any other class or series of stock ranking on a parity as
to dividends with the Series B Preferred Stock, all dividends declared upon
such other stock shall be declared pro rata so that the amounts of dividends
per share declared on the Series B Preferred Stock and such other stock shall
in all cases bear to each other the same ratio that accrued dividends per share
on the shares of the Series B Preferred Stock and on such other stock bear to
each other.
(i) So long as any shares of the Series B Preferred Stock are
outstanding, no other stock of the Corporation ranking on a parity with the
Series B Preferred Stock as to dividends or upon liquidation, dissolution or
winding up shall be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for
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14
a sinking fund or otherwise for the purchase or redemption of any shares of any
such stock) by the Corporation unless the dividends, if any, accrued on all
outstanding shares of the Series B Preferred Stock shall have been paid or set
apart for payment.
3 Liquidation Preference. (a) In the event of a (i) liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
(ii) a sale or other disposition of all or substantially all of the assets of
the Corporation or (iii) any consolidation, merger, combination, reorganization
or other transaction in which the Corporation is not the surviving entity or
shares of Common Stock constituting in excess of 50% of the voting power of the
Corporation are exchanged for or changed into stock or securities of another
entity, cash and/or any other property (a "Merger Transaction") (items (i),
(ii) and (iii) of this sentence being collectively referred to as a
"Liquidation Event"), after payment or provision for payment of debts and other
liabilities of the Corporation, the holders of the Series B Preferred Stock
then outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders, whether such assets
are capital, surplus, or earnings, before any payment or declaration and
setting apart for payment of any amount shall be made in respect of any Junior
Stock of the Corporation, an amount equal to (x) $100.00 per share plus an
amount equal to all declared and/or unpaid dividends thereon plus (y) the
amount by which any per share amount payable with respect to the Series B
Preferred Stock pursuant to Section 13 of this Certificate of Designations or
Section 7.28 of the Investment Agreement exceeds the amount set forth in (x)
less (z) the amount of any special dividend or distribution paid on the Series
B Preferred Stock pursuant to Section 2(c) (other than any dividend component
thereof, which shall be deemed to have been paid prior to any payment of the
$100 per share distribution referenced therein); provided, however, that in the
case of a Merger Transaction, such amount may be paid in cash, property (valued
as provided in Subsection 3(b)) and/or securities (valued as provided in
Subsection 3(b)) of the entity surviving such Merger Transaction. In the case
of property or in the event that any such securities are subject to an
investment letter or other similar restriction on transferability, the value of
such property or securities shall be determined by agreement between the
Corporation and the holders of a majority of the Series B Preferred Stock then
outstanding. If upon any Liquidation Event, whether voluntary or involuntary,
the assets to be distributed to the holders of the Series B Preferred Stock
shall be insufficient to permit the payment to such shareholders of the full
preferential amounts aforesaid, then all of the assets of the Corporation to be
distributed shall be so distributed ratably to the holders of the Series B
Preferred Stock on the basis of the number of shares of Series B Preferred
Stock held. All shares of Series B Preferred Stock shall rank as to payment
upon the occurrence of any Liquidation Event senior to the Common Stock and all
other series of the Corporation's preferred stock. Notwithstanding item (iii)
of the first sentence of this Subsection 3(a), any consolidation, merger,
combination, reorganization or other transaction in which the Corporation is
not the surviving entity but the stockholders of the Corporation immediately
prior to such transaction own in excess of 50% of the voting power of the
Corporation surviving such transaction and own such interest in substantially
the same proportions as prior to such transaction, shall not be considered a
Liquidation Event provided that the Corporation shall have made provision for
the issuance pursuant to such consolidation, merger, combination,
reorganization or other transaction of securities in replacement of the Series
B Preferred Stock having rights, preferences and privileges (including, without
limitation, an aggregate liquidation preference) equal to the outstanding
shares of Series B Preferred Stock immediately prior to such consolidation,
merger, combination, reorganization or other transaction.
(b) Any securities or other property to be delivered to the holders
of the Series B Preferred Stock pursuant to Subsection 3(a) hereof shall be
valued as follows:
(i) Securities not subject to an investment letter or other
similar restriction on free marketability:
(A) If actively traded on a Stock Market, the value
shall be deemed to be the Market Price as of the third day prior
to the date of valuation.
(B) If not actively traded on a Stock Market, the
value shall be the Fair Market Value.
(ii) For securities for which there is an active public
market but which are subject to an investment letter or other
restrictions on free marketability, the value shall be the Fair Market
Value thereof, determined by discounting appropriately the Market Price
thereof.
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15
(iii) For all other securities or property, the value shall
be the Fair Market Value thereof.
4 Conversion.
(a) Right of Conversion. Subject to the limitations contained in
Section 7 and the limitations hereinafter set forth in this Section 4(a), the
shares of Series B Preferred Stock shall be convertible, in whole or in part,
at the option of the holder thereof and upon notice to the Corporation as set
forth in Subsection 4(b), into fully paid and non-assessable shares of Common
Stock and such other securities and property as hereinafter provided. At any
time, the conversion price per share of Common Stock (the "Conversion Price")
shall be equal to the lower of (i) the Variable Conversion Price and (ii) the
Fixed Conversion Price, as determined in accordance with the next paragraph.
The Fixed Conversion Price ("Fixed Conversion Price") shall initially be
equal to the Initial Conversion Price. If the Reset Trading Price is less than
the Initial Conversion Price, the Fixed Conversion Price (subject to adjustment
pursuant to the provisions of Subsection 4(c)) shall be adjusted and reset
effective as of the Reset Date (a "Reset Event"), to equal the greater of (x)
the Reset Trading Price and (y) 50% of the Initial Conversion Price. If there
is any change in the Fixed Conversion Price as a result of a Reset Event in
accordance with the preceding sentence, then the Corporation shall prepare a
certificate signed by the principal financial officer of the Corporation
setting forth the Fixed Conversion Price and the Conversion Rate in effect as
of the Reset Date, showing in reasonable detail the facts upon which such
Conversion Rate is based, and such certificate shall be mailed as promptly as
practicable (but in any event within 10 days) after the Reset Date by the
Corporation to all record holders of the Series B Preferred Stock at their last
addresses as they shall appear in the stock transfer books of the Corporation.
If the Conversion Price applicable on the effective date of any
conversion of Series B Preferred Stock is less than the Conversion Price Floor,
then, except as provided in the next succeeding paragraph, the Corporation
shall not be required to effect such conversion unless the holder of such
Series B Preferred Stock consents to conversion of such Series B Preferred
Stock at the Conversion Rate Ceiling. In such event, the Corporation shall, as
promptly as practicable (but in any event within three business days), notify
the holder of such Series B Preferred Stock that the Conversion Rate Ceiling is
in effect. The holder of such Series B Preferred Stock shall be deemed to have
revoked its conversion of such Series B Preferred Stock unless, within 15 days
of receipt of such notice, the holder delivers its written consent to
conversion of such Series B Preferred Stock at the Conversion Rate Ceiling to
the Corporation.
In the event that (a) the Common Stock trades at less than the
Conversion Price Floor on 60 or more Trading Days in any 12-month period
(irrespective of whether such Trading Days are consecutive), and (b) the
Conversion Price applicable to any conversion of Series B Preferred Stock that
is requested as of a date not later than the day following the 12-month
anniversary of the earliest of such 60 days is less than the Conversion Price
Floor, the Corporation shall either effect such conversion at the applicable
Conversion Price without regard to the immediately preceding paragraph or pay
to the holder of such Series B Preferred Stock, in cash, an amount (the "Cash
Pay-Out Amount") equal to the product of (x) the number of shares of Common
Stock that would otherwise be issuable upon conversion of the Series B
Preferred Stock at such lower Conversion Price and (y) the highest Closing
Trade Price for the Common Stock during the period commencing on the date of
the request for conversion and ending on the day immediately prior to the date
of payment of the Cash Pay-Out Amount. In no event shall the Cash Pay-Out
Amount be paid pursuant the preceding sentence more than 10 days after such
request for conversion.
The Corporation shall prepare a certificate signed by the Chairman or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary, of the Corporation setting forth the Fixed Conversion
Price, upon any adjustment thereto in connection with a Reset Event showing in
reasonable detail the facts upon which the Fixed Conversion Price is based, and
such certificate shall be mailed as promptly as practicable after the Reset
Date by the Corporation to all effected record holders of the Series B
Preferred Stock at their last addresses as they shall appear in the records of
the Corporation.
(b) Conversion Procedures. Any holder of shares of Series B
Preferred Stock desiring to convert such shares into Common Stock shall
surrender the certificate or certificates evidencing such shares of Series B
Preferred Stock at the office of the transfer agent (the "Transfer Agent") for
the Series B Preferred Stock, which certificate or certificates, if
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16
the Corporation shall so require, shall be duly endorsed to the Corporation or
in blank, or accompanied by proper instruments of transfer to the Corporation
or in blank, accompanied by irrevocable written notice to the Corporation that
the holder elects so to convert such shares of Series B Preferred Stock and
specifying the name or names (with address) in which a certificate or
certificates evidencing shares of Common Stock are to be issued. The
Corporation need not deem a notice of conversion to be received unless the
holder complies with all the provisions hereof. The Corporation will instruct
the Transfer Agent (which may be the Corporation) to make a notation of the
date that a notice of conversion is received, which date shall be deemed to be
the date of receipt for purposes hereof.
The Corporation shall, as soon as practicable after such deposit of
certificates evidencing shares of Series B Preferred Stock accompanied by the
written notice and compliance with any other conditions herein contained,
deliver at such office of such Transfer Agent to the person for whose account
such shares of Series B Preferred Stock were so surrendered, or to the nominee
or nominees of such person, certificates evidencing the number of full shares
of Common Stock to which such person shall be entitled as aforesaid, together
with a cash adjustment of any fraction of a share as hereinafter provided.
Subject to the following provisions of this paragraph, such conversion shall be
deemed to have been made as of the date of such surrender of the shares of
Series B Preferred Stock to be converted, and the person or persons entitled to
receive the Common Stock deliverable upon conversion of such Series B Preferred
Stock shall be treated for all purposes as the record holder or holders of such
Common Stock on such date; provided, however, that the Corporation shall not be
required to convert any shares of Series B Preferred Stock while the stock
transfer books of the Corporation are closed for any purpose, but the surrender
of Series B Preferred Stock for conversion during any period while such books
are so closed shall become effective for conversion immediately upon the
reopening of such books as if the surrender had been made on the date of such
reopening, and the conversion shall be at the conversion rate in effect on such
date. No adjustments in respect of any dividends on shares surrendered for
conversion or any dividend on the Common Stock issued upon conversion shall be
made upon the conversion of any shares of Series B Preferred Stock.
The Corporation shall at all times, reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series B Preferred Stock, such number
of shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of the Series B Preferred Stock.
Except as provided in the third paragraph of Section 4(a), all notices
of conversion shall be irrevocable; provided, however, that if the Corporation
has sent notice of an event pursuant to Subsection 4(g) hereof, a holder of
Series B Preferred Stock may, at its election, provide in its notice of
conversion that the conversion of its shares of Series B Preferred Stock shall
be contingent upon the occurrence of the record date or effectiveness of such
event (as specified by such holder), provided that such notice of conversion is
received by the Corporation prior to such record date or effective date, as the
case may be.
(c) Adjustment of Conversion Rate and Conversion Price.
(i) Except as otherwise provided herein, in the event the
Corporation shall, at any time or from time to time after the date
hereof, (1) sell or issue any shares of Common Stock for a consideration
per share less than either (A) the then applicable Conversion Price
(taking into account the limitation set forth in the third paragraph of
Section 4(a)) in effect on the date of such sale or issuance or (B) the
Market Price of the Common Stock as of the date of such sale or
issuance, (2) issue any shares of Common Stock as a stock dividend to
all or substantially all the holders of Common Stock, or (3) subdivide
or combine the outstanding shares of Common Stock into a greater or
lesser number of shares (any such sale, issuance, subdivision or
combination being herein called a "Change of Shares"), then, and
thereafter upon each further Change of Shares, for purposes of
determining the Conversion Price, the Initial Conversion Price or the
Reset Conversion Price, as applicable, in effect with respect to a share
of Series B Preferred Stock immediately prior to such Change of Shares
shall be adjusted to equal a price (rounded to the nearest cent)
determined by multiplying such Initial Conversion Price or Reset
Conversion Price, as applicable, by a fraction, the numerator of which
shall be the sum of the number of shares of Common Stock outstanding
immediately prior to the sale or issuance of such additional shares or
such subdivision or combination and the number of shares of Common Stock
which the aggregate consideration received (determined as provided
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17
in Subparagraph 4(c)(v)(E)) for the issuance of such additional shares
would purchase at the greater of (x) the then applicable Conversion
Price (taking into account the limitation set forth in the third
paragraph of Section 4(a)) in effect on the date of such issuance or (y)
the Market Price of the Common Stock as of such date, and the
denominator of which shall be the number of shares of Common Stock
outstanding immediately after the sale or issuance of such additional
shares or such subdivision or combination. Such adjustment shall be
made successively whenever such an issuance is made.
(ii) In case of any reclassification, capital reorganization
or other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Corporation with or into another entity
(other than a consolidation or merger in which the Corporation is the
continuing entity and which does not result in any reclassification,
capital reorganization or other change of outstanding shares of Common
Stock other than the number thereof), or in case of any sale or
conveyance to another entity of the property of the Corporation as, or
substantially as, an entirety (other than a sale/leaseback, mortgage or
other financing transaction), the Corporation shall cause effective
provision to be made so that each holder of a share of Series B
Preferred Stock shall be entitled to receive, upon conversion of such
share of Series B Preferred Stock, at the option of the holder of such
share of Series B Preferred Stock, either (a) the kind and number of
shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance by a holder of the
number of shares of Common Stock into which such share of Series B
Preferred Stock was convertible immediately prior to such
reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance or (b) in the case of any such
reclassification, capital reorganization or other change, consolidation
or merger, shares of common stock of the surviving entity in such
transaction, or in the case of any such sale or conveyance, shares of
common stock of the transferee in such transaction, at a conversion rate
determined by dividing the Conversion Price (determined by (1) taking
into account the trading price of the common stock of such surviving
entity or transferee for purposes of determining the Variable Conversion
Price, (2) in the case of any such reclassification, capital
reorganization, or other change, consolidation or merger, dividing the
Initial Conversion Price or the Reset Conversion Price, as applicable,
by the conversion ratio in such transaction, and effecting any
appropriate adjustment to take into account the receipt by holders of
Common Stock of any consideration other than common stock of such
surviving entity in such transaction and (3) in the event such
transaction takes place prior to the Reset Date, applying the reset
provisions of Section 4(a) to the trading price of the common stock of
the surviving entity or transferee in such transaction) into the sum of
(x) $100 plus (y) all accrued and unpaid dividends on such share of
Series B Preferred Stock. Any such provision shall include provision
for adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Subsection 4(c). The Corporation
shall not effect any such consolidation, merger or sale unless prior to
or simultaneously with the consummation thereof the successor (if other
than the Corporation) resulting from such consolidation or merger or the
entity purchasing assets or other appropriate entity shall assume, by
written instrument executed and delivered to the Transfer Agent, the
obligation to deliver to the holder of each share of Series B Preferred
Stock such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holders may be entitled to receive and
the other obligations under this Agreement. The foregoing provisions
shall similarly apply to successive reclassifications, capital
reorganizations and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales or conveyances.
(iii) If, at any time or from time to time, the Corporation
shall issue or distribute to all or substantially all the holders of
shares of Common Stock evidence of its indebtedness, any other
securities of the Corporation or any cash, property or other assets
(excluding an issuance or distribution governed by one of the preceding
paragraphs of this Subsection 4(c) and also excluding cash dividends or
cash distributions paid out of retained earnings of the Corporation
determined under generally accepted accounting principles consistently
applied (any such non-excluded event being herein called a "Special
Dividend")), then in each case the holders of the Series B Preferred
Stock shall be entitled to a proportionate share of any such Special
Dividend as though they were the holders of the number of shares of
Common Stock into which their shares of Series B Preferred Stock are
convertible (without giving effect to the limitation set forth in the
third paragraph of Section 4(a)) as of the record date or effective
date, as the case may be, fixed for the determination of the holders of
Common Stock entitled to receive such Special Dividend.
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18
(iv) After each adjustment of the Conversion Price pursuant
to this Subsection 4(c), the Corporation will promptly prepare a
certificate signed by the Chairman or President, and by the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant Secretary, of
the Corporation setting forth: (i) the Conversion Price as so adjusted,
(ii) the Conversion Rate corresponding to such Conversion and (iii) a
brief statement of the facts accounting for such adjustment. The
Corporation will promptly file such certificate with the Transfer Agent
and cause a brief summary thereof to be sent by ordinary first class
mail to each registered holder of Series B Preferred Stock at his or her
last address as it shall appear on the registry books of the Transfer
Agent. Neither failure to mail such notice nor any defect therein or in
the mailing thereof shall affect the validity of such adjustment. The
affidavit of an officer of the Transfer Agent or the Secretary or an
Assistant Secretary of the Corporation that such notice has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. The Transfer Agent may rely on the information in the
certificate as true and correct and has no duty or obligation to verify
independently the amounts or calculations set forth therein.
(v) For purposes of Paragraph 4(c)(i) hereof, the following
provisions (A) to (F) shall also be applicable:
(A) The number of shares of Common Stock deemed
outstanding at any given time shall include all shares of capital
stock convertible into, or exchangeable for, Common Stock (on an
as converted basis) as well as all shares of Common Stock
issuable upon the exercise of (x) any convertible debt, (y)
warrants outstanding on such date and (z) options outstanding on
such date.
(B) No adjustment of the Initial Conversion Price or
the Reset Conversion Price shall be made unless such adjustment
would require an increase or decrease of at least $.01 in such
price; provided that any adjustments which by reason of this
Subparagraph (B) are not required to be made shall be carried
forward and shall be made at the time of and together with the
next subsequent adjustment which, together with adjustments so
carried forward, shall require an increase or decrease of at
least $.01 in the Initial Conversion Price or the Reset
Conversion Price, as the case may be, then in effect.
(C) In case of (1) the sale or other issuance by the
Corporation (including as a component of a unit) of any rights or
warrants to subscribe for or purchase, or any options for the
purchase of, Common Stock or any securities convertible into or
exchangeable for Common Stock (such securities convertible,
exercisable or exchangeable into Common Stock being herein called
"Convertible Securities"), or (2) the issuance by the
Corporation, without the receipt by the Corporation of any
consideration therefor, of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock
or Convertible Securities, whether or not such rights, warrants
or options, or the right to convert or exchange such Convertible
Securities, are immediately exercisable, and the consideration
per share for which Common Stock is issuable upon the exercise of
such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities (determined by dividing
(x) the minimum aggregate consideration, as set forth in the
instrument relating thereto without regard to any antidilution or
similar provisions contained therein for a subsequent adjustment
of such amount, payable to the Corporation upon the exercise of
such rights, warrants or options, plus the consideration received
by the Corporation for the issuance or sale of such rights,
warrants or options, plus, in the case of such Convertible
Securities, the minimum aggregate amount, as set forth in the
instrument relating thereto without regard to any antidilution or
similar provisions contained therein for a subsequent adjustment
of such amount, of additional consideration, if any, other than
such Convertible Securities, payable upon the conversion or
exchange thereof, by (y) the total maximum number, as set forth
in the instrument relating thereto without regard to any
antidilution or similar provisions contained therein for a
subsequent adjustment of such amount, of shares of Common Stock
issuable upon the exercise of such rights, warrants or options or
upon the conversion or exchange of such Convertible Securities
issuable upon the exercise of such rights, warrants or options)
is less than either the Conversion Price (taking into account the
limitation set forth in the third paragraph of Section 4(a)) or
the Closing Bid Price of the Common Stock as of the date of the
issuance or sale of such rights, warrants or options, then such
total maximum number of shares of Common Stock issuable upon the
exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities (as of the
date of the issuance or sale of such rights, warrants or options)
shall be deemed to be
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19
"Common Stock" for purposes of Paragraph 4(c)(i) and shall be
deemed to have been sold for an amount equal to such
consideration per share and shall cause an adjustment to be made
in accordance with Paragraph 4(c)(i).
(D) In case of the sale by the Corporation of any
Convertible Securities, whether or not the right of conversion or
exchange thereunder is immediately exercisable, and the price per
share for which Common Stock is issuable upon the conversion or
exchange of such Convertible Securities (determined by dividing
(x) the total amount of consideration received by the Corporation
for the sale of such Convertible Securities, plus the minimum
aggregate amount, as set forth in the instrument relating thereto
without regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such amount, of
additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by
(y) the total maximum number, as set forth in the instrument
relating thereto without regard to any antidilution or similar
provisions contained therein for a subsequent adjustment of such
amount, of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities) is less than either the
Conversion Price (taking into account the limitation set forth in
the third paragraph of Section 4(a)) or the Market Price of the
Common Stock as of the date of the sale of such Convertible
Securities, then such total maximum number of shares of Common
Stock issuable upon the conversion or exchange of such
Convertible Securities (as of the date of the sale of such
Convertible Securities) shall be deemed to be "Common Stock" for
purposes of Paragraph 4(c)(i) and shall be deemed to have been
sold for an amount equal to such consideration per share and
shall cause an adjustment to be made in accordance with Paragraph
4(c)(i).
(E) In case the Corporation shall modify the rights of
conversion, exchange or exercise of any of the securities
referred to in (C) and (D) above or any other securities of the
Corporation convertible, exchangeable or exercisable for shares
of Common Stock, for any reason other than an event that would
require adjustment to prevent dilution, so that the consideration
per share received by the Corporation after such modification is
less than either the Conversion Price (taking into account the
limitation set forth in the third paragraph of Section 4(a)) or
the Market Price as of the date prior to such modification, then
such securities, to the extent not theretofore exercised,
converted or exchanged, shall be deemed to have expired or
terminated immediately prior to the date of such modification and
the Corporation shall be deemed for purposes of calculating any
adjustments pursuant to this Subsection 4(c) to have issued such
new securities upon such new terms on the date of modification.
Such adjustment shall become effective as of the date upon which
such modification shall take effect. On the expiration or
cancellation of any such right, warrant or option or the
termination or cancellation of any such right to convert or
exchange any such Convertible Securities, the Initial Conversion
Price or Reset Conversion Price, as applicable, then in effect
hereunder shall forthwith be readjusted to such Initial
Conversion Price or Reset Conversion Price, as the case may be,
as would have obtained (a) had the adjustments made upon the
issuance or sale of such rights, warrants, options or Convertible
Securities been made upon the basis of the issuance of only the
number of shares of Common Stock theretofore actually delivered
(and the total consideration received therefor) upon the exercise
of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities and (b) had adjustments
been made on the basis of the Initial Conversion Price or Reset
Conversion Price, as the case may be, as adjusted under item (a)
of this sentence for all transactions (which would have affected
such adjusted Initial Conversion Price or Reset Conversion Price,
as the case may be) made after the issuance or sale of such
rights, warrants, options or Convertible Securities.
(F) In case of the sale of any shares of Common Stock,
any Convertible Securities, any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock
or Convertible Securities, the consideration received by the
Corporation therefor shall be deemed to be the gross sales price
therefor without deducting therefrom any expense paid or incurred
by the Corporation or any underwriting discounts or commissions
or concessions paid or allowed by the Corporation in connection
therewith. In the event that any securities shall be issued in
connection with any other securities of the Corporation, together
comprising one integral transaction in which no specific
consideration is allocated among the securities, then each of
such securities shall be deemed to have been issued for such
consideration as the Board of Directors of the Corporation
determines in good faith; provided, however, that if the
Registered Holders of in excess of
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20
10% of the then outstanding Series B Preferred Stock disagree
with such determination, the Corporation shall retain, at its own
expense, an independent investment banking firm for the purpose
of obtaining an appraisal.
(vi) Notwithstanding any other provision hereof, no
adjustment to the Conversion Price will be made:
(A) upon the exercise of any of the options
outstanding on the date hereof under the Corporation's existing
stock option plans; or
(B) upon the issuance or exercise of options which may
hereafter be granted with the approval of the Board of Directors
and consented to by the holders of Series B Preferred Stock, or
their representatives, in accordance with the Investment
Agreement, or exercised, under any employee benefit plan of the
Corporation to officers, directors or employees, but only with
respect to such options as are exercisable at prices no lower
than the Market Price of the Common Stock as of the date of grant
thereof; or
(C) upon issuance or exercise of the Unit Purchase
Option for the Purchase of Shares of Preferred Stock and Warrants
(the "Unit Purchase Option") issued to Paramount Capital, Inc. in
connection with the issuance and sale of the Series B Preferred
Stock pursuant to the Investment Agreement or upon the issuance,
conversion or exercise of (i) the Series B Preferred Stock issued
pursuant to the Investment Agreement (ii) the shares of Common
Stock or Series B Preferred Stock issuable upon exercise of the
Unit Purchase Option or (iii) the Class L Warrants issued
pursuant to the Investment Agreement; or
(D) upon the issuance or sale of Common Stock or
Convertible Securities pursuant to the exercise of any rights,
options or warrants to receive, subscribe for or purchase, or any
options for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants or options were
outstanding on the date of the original issuance of the Series B
Preferred Stock or were thereafter issued or sold, provided that
an adjustment was either made or not required to be made in
accordance with Paragraph 4(c)(i) in connection with the issuance
or sale of such securities or any modification of the terms
thereof; or
(E) upon the issuance or sale of Common Stock upon
conversion or exchange of any Convertible Securities, provided
that any adjustments required to be made upon the issuance or
sale of such Convertible Securities or any modification of the
terms thereof were so made, and whether or not such Convertible
Securities were outstanding on the date of the original sale of
the Series B Preferred Stock or were thereafter issued or sold.
Subparagraph 4(c)(v)(E) shall nevertheless apply to any modification of the
rights of conversion, exchange or exercise of any of the securities referred to
in Subparagraphs (A), (B) and (C) of this Paragraph 4(c)(vi).
(vii) As used in this Subsection 4(c), the term "Common
Stock" shall mean and include the Corporation's Common Stock authorized
on the date of the original issue of the Series B Preferred Stock and
shall also include any capital stock of any class of the Corporation
thereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to
participate in dividends and in the distribution of assets upon the
voluntary liquidation, dissolution or winding up of the Corporation;
provided, however, that the shares issuable upon conversion of the
Series B Preferred Stock shall include only shares of such class
designated in the Certificate of Incorporation as Common Stock on the
date of the original issue of the Series B Preferred Stock or (i), in
the case of any reclassification, change, consolidation, merger, sale or
conveyance of the character referred to in Paragraph 4(c)(ii) hereof,
the stock, securities or property provided for in such section or (ii),
in the case of any reclassification or change in the outstanding shares
of Common Stock issuable upon conversion of the Series B Preferred Stock
as a result of a subdivision or combination or consisting of a change in
par value, or from par value to no par value, or from no par value to
par value, such shares of Common Stock as so reclassified or changed.
(d) No Fractional Shares. No fractional shares or scrip
representing fractional shares of Common Stock shall be issued upon conversion
of Series B Preferred Stock. If more than one certificate evidencing shares of
Series B
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21
Preferred Stock shall be surrendered for conversion at one time by the same
holder, the number of full shares issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series B Preferred
Stock so surrendered. Instead of any fractional share of Common Stock which
would otherwise be issuable upon conversion of any shares of Series B Preferred
Stock, the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to the same fraction of the Market Price
of the Common Stock as of the close of business on the day of conversion.
(e) Reservation of Shares; Transfer Taxes, Etc. The Corporation
shall at all times reserve and keep available, out of its authorized and
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the Series B Preferred Stock, such number of shares of its Common
Stock free of preemptive rights as shall be sufficient to effect the conversion
of all shares of Series B Preferred Stock from time to time outstanding
(including, without limitation, shares of Common Stock issuable upon conversion
of the Series B Preferred Stock in the case of a reset of the Initial
Conversion Price in accordance with Section 4(a)). The Corporation shall use
its best efforts from time to time, in accordance with the laws of the State of
Delaware to increase the authorized number of shares of Common Stock if at any
time the number of shares of authorized, unissued and unreserved Common Stock
shall not be sufficient to permit the conversion of all the then-outstanding
shares of Series B Preferred Stock.
The Corporation shall pay any and all issue or other taxes that may be payable
in respect of any issue or delivery of shares of Common Stock on conversion of
the Series B Preferred Stock. The Corporation shall not, however, be required
to pay any tax which may be payable in respect of any transfer involved in the
issue or delivery of Common Stock (or other securities or assets) in a name
other than that in which the shares of Series B Preferred Stock so converted
were registered, and no such issue or delivery shall be made unless and until
the person requesting such issue has paid to the Corporation the amount of such
tax or has established, to the satisfaction of the Corporation, that such tax
has been paid.
(f) Prior Notice of Certain Events. In case:
(viii) the Corporation shall declare any dividend (or any
other distribution); or
(ix) the Corporation shall authorize the granting to all or
substantially all the holders of Common Stock of rights or warrants to
subscribe for or purchase any shares of stock of any class or of any
other rights or warrants; or
(x) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a change
in par value, or from par value to no par value, or from no par value to
par value); or
(xi) of any consolidation or merger (including, without
limitation, a Merger Transaction) to which the Corporation is a party
and for which approval of any stockholders of the Corporation shall be
required, or of the sale or transfer of all or substantially all of the
assets of the Corporation or of any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or other
property; or
(xii) of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation (including, without
limitation, a Liquidation Event);
then the Corporation shall cause to be filed with the Transfer Agent for the
Series B Preferred Stock, and shall cause to be mailed to the Registered
Holders, at their last addresses as they shall appear upon the stock transfer
books of the Corporation, at least 20 days prior to the applicable record date
or effective date hereinafter specified, a notice stating (x) the date on which
a record (if any) is to be taken for the purpose of such dividend, distribution
or granting of rights or warrants or, if a record is not to be taken, the date
as of which all or substantially all the holders of Common Stock of record to
be entitled to such dividend, distribution, rights or warrants are to be
determined and a description of the cash, securities or other property to be
received by such holders upon such dividend, distribution or granting of rights
or warrants or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding up
or other Liquidation Event is expected to become effective, the date as of
which
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22
it is expected that such holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such exchange, dissolution, liquidation or winding up or other
Liquidation Event and the consideration, including securities or other
property, to be received by such holders upon such exchange; provided, however,
that no failure to mail such notice or any defect therein or in the mailing
thereof shall affect the validity of the corporate action required to be
specified in such notice.
(g) Other Changes in Conversion Rate. The Corporation from time to
time may increase the Conversion Rate by any amount for any period of time if
the period is at least 20 days and if the increase is irrevocable during the
period. Whenever the Conversion Rate is so increased, the Corporation shall
mail to the Registered Holders a notice of the increase at least 15 days before
the date the increased Conversion Rate takes effect, and such notice shall
state the increased Conversion Rate and the period it will be in effect.
The Corporation may make such increases in the Conversion Rate, in addition to
those required or allowed by this Section 4, as shall be determined by it, as
evidenced by a resolution of the Board of Directors, to be advisable in order
to avoid or diminish any income tax to holders of Common Stock resulting from
any dividend or distribution of stock or issuance of rights or warrants to
purchase or subscribe for stock or from any event treated as such for income
tax purposes.
(h) Ambiguities/Errors. Except as otherwise provided herein, the
Board of Directors of the Corporation shall have the power to resolve any
ambiguity or correct any error in the provisions relating to the convertibility
of the Series B Preferred Stock that shall not be adverse to the holders of
Series B Preferred Stock, and its actions in so doing shall be final and
conclusive absent manifest error.
5. Mandatory Conversion. (a) At any time on or after the later of
the Initial Reset Date and the date the registration statement to be filed
pursuant to Section 8 of the Investment Agreement becomes effective, the
Corporation at its option, may cause the Initial Preferred Shares to be
converted in whole or in part, on a pro rata basis, into fully paid and
nonassessable shares of Common Stock at the then effective Conversion Rate and
such other securities and property as herein provided if the Closing Trade
Price of the Common Stock shall have exceeded 300% of the Reset Conversion
Price on 20 Trading Days during any 30-Trading-Day period ending on the Trading
Day prior to the date notice of mandatory conversion is given to the holders of
the Initial Preferred Shares. Any shares of Series B Preferred Stock so
converted shall be treated as having been surrendered by the holder thereof for
conversion pursuant to Section 4 on the date of such mandatory conversion
(unless previously converted at the option of the holder).
(b) At any time on or after the later of the Second Reset Date and
the date the registration statement to be filed pursuant to Section 8 of the
Investment Agreement becomes effective, the Corporation at its option, may
cause the Additional Preferred Shares to be converted in whole or in part, on a
pro rata basis, into fully paid and nonassessable shares of Common Stock at the
then effective Conversion Rate and such other securities and property as herein
provided if the Closing Trade Price of the Common Stock shall have exceeded
300% of the Reset Conversion Price on 20 Trading Days during any 30-Trading-Day
period ending on the Trading Day prior to the date notice of mandatory
conversion is given to the holders of the Additional Preferred Shares. Any
shares of Series B Preferred Stock so converted shall be treated as having been
surrendered by the holder thereof for conversion pursuant to Section 4 on the
date of such mandatory conversion (unless previously converted at the option of
the holder).
(c) (i) No greater than 60 nor fewer than 20 days prior to the
date of any such mandatory conversion, notice by first class mail, postage
prepaid, shall be given to the holders of record of the Series B Preferred
Stock to be converted, addressed to such holders at their last addresses as
shown on the stock transfer books of the Corporation. Each such notice shall
specify the date fixed for conversion, the place or places for surrender of
shares of Series B Preferred Stock, and the then effective Conversion Rate
pursuant to Section 4.
(ii) Any notice which is mailed as herein provided shall be
conclusively presumed to have been duly given by the Corporation on the
date deposited in the mail, whether or not the holder of the Series B
Preferred Stock receives such notice; and failure properly to give such
notice by mail, or any defect in such notice, to the holders of the
shares to be converted shall not affect the validity of the proceedings
for the conversion of any other shares
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23
of Series B Preferred Stock. On or after the date fixed for conversion
as stated in such notice, each holder of shares called to be converted
shall surrender the certificate evidencing such shares to the
Corporation at the place designated in such notice for conversion.
Notwithstanding that the certificates evidencing any shares properly
called for conversion shall not have been surrendered, the shares shall
no longer be deemed outstanding and all rights whatsoever with respect
to the shares so called for conversion (except the right of the holders
to convert such shares upon surrender of their certificates therefor)
shall terminate.
6. Voting Rights.
(a) General. Except as otherwise provided herein, in the
Certificate of Incorporation or the By-laws of the Corporation, the holders of
shares of Series B Preferred Stock, the holders of shares of Common Stock and
the holders of any other class or series of shares entitled to vote with the
Common Stock shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation. In any such vote, each share of
Series B Preferred Stock shall entitle the holder thereof to cast the number of
votes equal to the number of votes which could be cast in such vote by a holder
of the Common Stock into which such share of Series B Preferred Stock is
convertible (without regard to the limitations set forth in the third paragraph
of Section 4(a)) on the record date for such vote or if no record date has been
established, on the date such vote is taken. Any shares of Series B Preferred
Stock held by the Corporation or any entity controlled by the Corporation shall
not have voting rights hereunder and shall not be counted in determining the
presence of a quorum.
(b) Class Voting Rights. In addition to any vote specified in
Section 6(a), the Corporation shall not, without the affirmative vote or
consent of the holders of at least a majority of all outstanding Series B
Preferred Stock voting separately as a class, (i) amend, alter or repeal any
provision of the Certificate of Incorporation or Bylaws of the Corporation so
as adversely to affect the relative rights, preferences, qualifications,
limitations or restrictions of the Series B Preferred Stock, (ii) approve the
alteration or change to the rights, preferences or privileges of the Series B
Preferred Stock, (iii) authorize or issue, or increase the authorized amount of
any security ranking prior to, or on a parity with, the Series B Preferred
Stock (A) upon a Liquidation Event, (B) with respect to the payment of any
dividends or distributions or (C) with respect to voting rights (except for
class voting rights required by law); or (iv) approve the incorporation of any
subsidiary company.
7. Limitation on Holder's Right to Convert or Vote. (a)
Notwithstanding anything to the contrary contained in Section 4 or Section 6,
no share of Series B Preferred Stock may be converted or voted by a holder to
the extent that, after giving effect to such conversion or vote, the total
number of shares of Common Stock beneficially owned by such holder, together
with all Common Shares deemed beneficially owned by the holder or any other
person or entity that would be aggregated for purposes of determining whether a
"group" exists under Section 13(d) of the Securities Exchange Act of 1934, as
amended, would exceed 4.9 of the total issued and outstanding shares of Common
Stock, provided that each holder shall have the right to waive this
restriction, in whole or in part, upon 61 days prior notice to the Corporation.
A transferee of shares of Series B Preferred Stock shall not be bound by this
provision unless it expressly agrees to be so bound.
(b) The Corporation shall not be obligated to issue, in the
aggregate, more than 4,539,582 shares of Common Stock as presently constituted
(the "NASD Cap") upon conversion of the Series B Preferred if issuance of a
larger number of shares would constitute a breach of the rules of the NASD.
Subject to the obligation to effect certain redemptions pursuant to the last
four sentences of this paragraph, if further issuances of shares of Common
Stock upon conversion of the Series B Preferred would constitute a breach of
the rules of the NASD (i.e., all of the shares permitted to be issued under the
NASD Cap shall have been so issued), then so long thereafter as such limitation
shall continue to be applicable, in the event any shares of Series B Preferred
Stock are submitted for conversion, such shares shall receive in cash an amount
equal to the Cash Pay-Out Amount (as defined in Section 4(a) hereof), in lieu
of the Common Stock which such shares would otherwise be entitled to receive
upon conversion. Payment of the Cash Pay-Out Amount shall be made no later than
10 days after such conversion would otherwise be effective and shall bear daily
interest from the date such conversion would otherwise be effective at the rate
of one-tenth of one percent per day until paid. The NASD Cap shall be
proportionately and equitably adjusted in the event of stock splits, stock
dividends, reverse stock splits, reclassifications or other such events, in
such manner as the Board of Directors of the Corporation shall
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reasonably determine. If (A) the Corporation is unable to (1) commence its
annual meeting of shareholders by May 28, 1999 and (2) obtain the requisite
shareholder approval concerning the issuance of shares of Common Stock upon
conversion of the Series B Preferred and exercise of the Warrants issued
pursuant to the Investment Agreement to satisfy the rules of the NASD at such
meeting or within 30 days of the commencement of such meeting (it being
understood that the Corporation shall use its best efforts to obtain such
shareholder approval by such dates), then the Corporation shall immediately
redeem the remaining shares of Series B Preferred Stock as provided in Section
13 of this Certificate of Designations. If there shall be a default in payment
of the redemption price pursuant to this Section, the amount so payable shall
bear daily interest from and after the date of such redemption at the rate of
one-twentieth of one percent per day until paid.
8. Outstanding Shares. For purposes of this Certificate of
Designations, a share of Series B Preferred Stock, when issued, shall be deemed
outstanding except (i) from the date, or the deemed date, of surrender of
certificates evidencing shares of Series B Preferred Stock, all shares of
Series B Preferred Stock converted into Common Stock and (ii) from the date of
registration of transfer, all shares of Series B Preferred Stock held of record
by the Corporation or any subsidiary of the Corporation.
9. Status of Acquired Shares. Shares of Series B Preferred Stock
received upon conversion pursuant to Section 4 or Section 5 or otherwise
acquired by the Corporation will be restored to the status of authorized but
unissued shares of Preferred Stock, without designation as to class, and may
thereafter be issued, but not as shares of Series B Preferred Stock.
10. Preemptive Rights. The Series B Preferred Stock is not entitled
to any preemptive or subscription rights in respect of any securities of the
Corporation.
11. Severability of Provisions. Whenever possible, each provision
hereof shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such changes
as shall be necessary to render the provision in question effective and valid
under applicable law.
12. No Amendment or Impairment. The Corporation shall not
participate in any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, for the
purpose of avoiding or seeking to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in carrying out all such action as may be
reasonably necessary or appropriate in order to protect the rights of the
holders of the Series B Preferred Stock against impairment. Nothing in this
Section 12 shall limit the right of the Corporation to amend its Certificate of
Incorporation in conformity with the other applicable provisions of this
Certificate of Designations.
13. Additional Redemption Events. In the event (i) the Corporation
fails to (a) timely file the registration statement required to be filed
pursuant to Section 8 of the Investment Agreement or maintain the effectiveness
of such registration statement in accordance with such provision, or (b) obtain
the shareholder approval required by Section 7(b) of this Certificate of
Designations on or prior to the dates specified therein, (ii) the Corporation
materially breaches any other provision of the Investment Agreement and such
breach continues for 20 days after notice thereof to the Corporation by any
holder of Series B Preferred Stock, (iii) any class of equity securities of the
Corporation that is at any time on or after the First Closing Date listed or
quoted on any Stock Market ceases to be so listed or quoted on such Stock
Market, (iv) the Corporation fails to deliver any of the shares of Series B
Preferred Stock or Class L Warrants sold pursuant to the Investment Agreement
in accordance with the terms thereof, (v) the Corporation receives an audit
opinion with respect to any audited financial statement that contains a
material limitation or qualification (including, without limitation, any going
concern qualification) or (vi) any Liquidation Event occurs (each of the
foregoing a "Redemption Event"), then, in each case, the Corporation shall be
required to (in the case of the Redemption Events specified in clauses (i),
(iv) and (vi)) or shall at the election of any holder of Series B Preferred
Stock (in the case of the
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Redemption Events specified in clauses (ii), (iii) and (v)) redeem all or any
portion of the shares of Series B Preferred Stock held by such holder for cash
at a price equal to 120% of the stated value thereof. In the event the
Corporation does not have sufficient funds to effect such redemption in full
(it being understood that such redemption shall be effected on a pro rata basis
with respect to all holders of Series B Preferred Stock electing redemption in
response to any Redemption Event), the Corporation shall apply such funds as
are available to it (including, without limitation, pursuant to the escrow
established by the Corporation for such purpose pursuant to Section 7.6(b) of
the Investment Agreement) to such redemption and the remainder of the
Corporation's redemption obligation to such holders shall thereafter be
represented by a promissory note bearing interest at the rate of 18% per annum
and which shall be secured by a security agreement covering substantially all
of the assets of the Corporation, which promissory note and security agreement
shall be in form and substance satisfactory to the "Purchaser Representative"
elected in accordance with Section 11.3 of the Investment Agreement in the sole
discretion of the Purchaser Representative. In connection therewith, the
Corporation shall make all filings and recordings of Uniform Commercial Code
financing statements and such documents and, if any, necessary or advisable, in
the discretion of the Purchaser Representative, including, without limitation,
the filings of financing statements in Ohio against the Corporation's accounts
that may be held there, in each case so as to establish and perfect the
holders' rights, title and interests in and to the assets of the Corporation
subject to the security agreement. The Corporation shall give written notice of
any Redemption Event to the holders of record of the Series B Preferred Stock
and to the Purchaser Representative within five days after such Redemption
Event.
14. Certain Legends. Each certificate or document evidencing any
share of Series B Preferred Stock shall bear a legend indicating (a) whether
such share is an Initial Preferred Share or Additional Preferred Share, as the
case may be, (b) that, depending on whether such share is an Initial Preferred
Share or Additional Preferred Share, such share has differing rights, including
the applicable Conversion Rate and (c) that such shares are subject to the
terms and conditions of this Certificate of Designations, a copy of which is on
file with the Company and the Transfer Agent, which shall be provided to the
holder of such share upon request and without charge.
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