1
EXHIBIT 2
AMENDED AND RESTATED
CERTIFICATE OF DESIGNATION
OF
SERIES B 6% CONVERTIBLE PREFERRED STOCK
OF
CVF TECHNOLOGIES CORPORATION
-----------------------------------------------------
Pursuant to Section 78.1955 of the
Private Corporation Law of the State of Nevada
The undersigned, being the President and Secretary of CVF Technologies
Corporation, a Nevada corporation (the "Corporation"), do hereby certify that:
(i) on October 5, 1999, the Corporation filed with the Nevada Secretary of State
a Certificate of Designation of Series B 6% Convertible Preferred Stock (the
"Original Certificate of Designation"); (ii) the Board of Directors of the
Corporation has adopted a resolution to amend and restate the Original
Certificate of Designation to read in its entirety as set forth in this
Certificate; and (iii) the sole stockholder holding all of the issued and
outstanding shares of Series B 6% Convertible Preferred Stock has approved, by
written consent, the amendments to and restatement of the Original Certificate
of Designation as set forth in this Certificate and that as of the date of this
Certificate there are no classes or series of stock senior to the Series B 6%
Convertible Preferred Stock.
Therefore, the Original Certificate of Designation is hereby amended
and restated to read in its entirety as follows:
The Corporation, hereby certifies that the following resolutions were
adopted by the Board of Directors of the Corporation on October 5, 1999 pursuant
to authority of the Board of Directors as required by Section 78.1955 of the
Private Corporation Law of the State of Nevada:
"RESOLVED, that pursuant to the authority granted to and
vested in the Board of Directors of this Corporation (the "BOARD OF
DIRECTORS" or the "BOARD") in accordance with the provisions of its
Articles of Incorporation, the Board of Directors hereby authorizes a
series of the Corporation's previously authorized Preferred Stock, par
value $0.001 per share (the "PREFERRED STOCK"), and hereby states the
designation and number of shares, and fixes the relative rights,
preferences, privileges, powers and restrictions thereof as follows:"
The Corporation further certifies, that on October 12, 1999, the Board
of Directors and sole stockholder of all issued and outstanding shares of Series
B 6% Convertible Preferred Stock of CVF Technologies Corporation, adopted and
approved resolutions to amend and restate the Original Certificate of
Designation to read in its entirety as follows:
2
- 2 -
Series B 6% Convertible Preferred Stock:
ARTICLE 1
DEFINITIONS
The terms defined in this Article whenever used in this Certificate of
Designation have the following respective meanings:
(a) "ADDITIONAL CAPITAL SHARES" has the meaning set forth in Section
6.1(c).
(b) "AFFILIATE" has the meaning ascribed to such term in Rule 12b-2
under the Securities Exchange Act of 1934, as amended.
(c) "AMEX" means the American Stock Exchange.
(d) "BUSINESS DAY" means a day other than Saturday, Sunday or any day
on which banks located in the State of New York are authorized or obligated to
close.
(e) "CAPITAL SHARES" means the Common Shares and any other shares of
any other class or series of common stock, whether now or hereafter authorized
and however designated, which have the right to participate in the distribution
of earnings and assets (upon dissolution, liquidation or winding-up) of the
Corporation.
(f) "COMMON SHARES" or "COMMON STOCK" means shares of common stock, par
value $0.001 per share, of the Corporation.
(g) "COMMON STOCK ISSUED AT CONVERSION", when used with reference to
the securities issuable upon conversion of the Series B Preferred Stock, means
all Common Shares now or hereafter Outstanding and securities of any other class
or series into which the Series B Preferred Stock hereafter shall have been
changed or substituted, whether now or hereafter created and however designated.
(h) "CONVERSION DATE" means any day on which all or any portion of
shares of the Series B Preferred Stock is converted in accordance with the
provisions hereof.
(i) "CONVERSION NOTICE" means a written notice of conversion
substantially in the form annexed hereto as Annex I.
(j) "CONVERSION PRICE" means on any date of determination the
applicable price for the conversion of shares of Series B Preferred Stock into
Common Shares on such day as set forth in Section 6.1.
3
- 3 -
(k) "CONVERSION RATIO" means on any date of determination the
applicable percentage of the Market Price for conversion of shares of Series B
Preferred Stock into Common Shares on such day as set forth in Section 6.1.
(l) "CORPORATION" means CVF Technologies Corporation, a Nevada
corporation, and any successor or resulting corporation by way of merger,
consolidation, sale or exchange of all or substantially all of the Corporation's
assets, or otherwise.
(m) "CURRENT MARKET PRICE" means on any date of determination the
closing sale price of a Common Share on such day as reported on the Amex;
provided, if such security is not listed or admitted to trading on the Amex, the
closing sale price or closing bid price, as the case may be, as reported on the
principal national security exchange or quotation system on which such security
is quoted or listed or admitted to trading, or, if not quoted or listed or
admitted to trading on any national securities exchange or quotation system, the
closing bid price of such security on the over-the-counter market on the day in
question as reported by Bloomberg LP, or a similar generally accepted reporting
service, as the case may be.
(n) "DEFAULT DIVIDEND RATE" is equal to the Dividend Rate plus an
additional 4% per annum.
(o) "DIVIDEND PERIOD" means each of (a) the period commencing on and
including the Issue Date and ending on and including December 31, 1999 and (b)
each period commencing on and including the day after the immediately preceding
Dividend Payment Due Date and ending on and including the immediately subsequent
Dividend Payment Due Date.
(p) "DIVIDEND PAYMENT DUE DATE" means June 30 and December 31 of each
year.
(q) "DIVIDEND RATE" means 6% per annum, computed on the basis of a
360-day year.
(r) "HOLDER" means The Shaar Fund Ltd., any successor thereto, or any
Person or Persons to whom the Series B Preferred Stock is subsequently
transferred in accordance with the provisions hereof.
(s) "INVESTMENT AMOUNTS" means $3,500,000.
(t) "ISSUE DATE" means, as to any share of Series B Preferred Stock,
the date of issuance of such share.
(u) "JUNIOR SECURITIES" means all capital stock of the Corporation
except for the Series B Preferred Stock.
4
- 4 -
(v) "LIQUIDATION PREFERENCE" means, with respect to a share of the
Series B Preferred Stock, an amount equal to the sum of (i) the Stated Value
thereof, plus (ii) an amount equal to 30% of such Stated Value, plus (iii) the
aggregate of all accrued and unpaid dividends on such share of Series B
Preferred Stock until the most recent Dividend Payment Due Date; provided that,
in the event of an actual liquidation, dissolution or winding up of the
Corporation, the amount referred to in clause (iii) above shall be calculated by
including accrued and unpaid dividends to the actual date of such liquidation,
dissolution or winding up, rather than the Dividend Payment Due Date referred to
above.
(w) "MANDATORY CONVERSION DATE" has the meaning set forth in Section
6.9.
(x) "MARKET PRICE" per Common Share means the arithmetic mean of the
closing sale prices of the Common Shares as reported on the Amex for the ten
Trading Days immediately preceding the Conversion Date or other date of
determination, as the case may be.
(y) "OPTIONAL REDEMPTION PRICE" has the meaning set forth in Section
6.5.
(z) "OUTSTANDING", when used with reference to Common Shares or Capital
Shares (collectively, "SHARES"), means, on any date of determination, all issued
and outstanding Shares, and includes all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that any such Shares directly or indirectly owned or
held by or for the account of the Corporation or any Subsidiary of the
Corporation shall not be deemed "OUTSTANDING" for purposes hereof.
(aa) "PERSON" means an individual, a corporation, a partnership, an
association, a limited liability company, an unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
(bb) "REDEMPTION DATE" has the meaning set forth in Section 6.6.
(cc) "REGISTRATION RIGHTS AGREEMENT" means that certain Registration
Rights Agreement dated a date even herewith between the Corporation and The
Shaar Fund Ltd.
(dd) "SEC" means the United States Securities and Exchange Commission.
(ee) "SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC thereunder, all as in effect at the time.
(ff) "SECURITIES PURCHASE AGREEMENT" means that certain Securities
Purchase Agreement dated as of a date even herewith between the Corporation and
The Shaar Fund Ltd.
5
- 5 -
(gg) "SERIES B PREFERRED SHARES" or "SERIES B PREFERRED STOCK" means
the shares of Series B 6% Convertible Preferred Stock, par value $0.001 per
share, of the Corporation or such other convertible Preferred Stock exchanged
therefor.
(hh) "STATED VALUE" has the meaning set forth in Article 2.
(ii) "SUBSIDIARY" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by the Corporation.
(jj) "TRADING DAY" means any day on which purchases and sales of
securities listed on the Amex are reported thereon and on which no event which
results in a material suspension or limitation of trading of the Common Shares
on the Amex has occurred.
(kk) "VALUATION EVENT" has the meaning set forth in Section 6.1.
(ll) "VALUATION PERIOD" means the period of ten Trading Days
immediately preceding the Conversion Date; provided, however, that if a
Valuation Event occurs during a Valuation Period on a date less than five
Trading Days before the Conversion Date, the Valuation Period shall be extended
until the date five Trading Days after the occurrence of the Valuation Event.
All references to "CASH" or "$" herein means currency of the United
States of America.
ARTICLE 2
DESIGNATION AND AMOUNT
The designation of this series, which consists of 350,000 shares of
Preferred Stock, shall be Series B 6% Convertible Preferred Stock (the "SERIES B
PREFERRED STOCK") and the stated value shall be $10 per share (the "STATED
VALUE").
ARTICLE 3
RANK
The Series B Preferred Stock shall rank prior to any other capital
stock of the Corporation.
ARTICLE 4
DIVIDENDS
(a) (i) The Holder shall be entitled to receive,
when, as and if declared by the Board of Directors, out of funds
legally available for the payment of dividends, dividends
6
- 6 -
at the Dividend Rate on the Stated Value of each share of Series B
Preferred Stock on and as of each Dividend Payment Due Date with
respect to each Dividend Period; provided, however, that if any
dividend is not paid in full on any Dividend Payment Due Date,
dividends shall thereafter accrue and be payable at the Default
Dividend Rate on the Stated Value of each share of Series B Preferred
Stock until all accrued dividends are paid in full. Dividends on the
Series B Preferred Stock shall be cumulative from the date of issue,
whether or not declared for any reason, including if such declaration
is prohibited under any outstanding indebtedness or borrowings of the
Corporation or any of its Subsidiaries, or any other contractual
provision binding on the Corporation or any of its Subsidiaries, and
whether or not there shall be funds legally available for the payment
thereof.
(ii) Each dividend shall be payable in equal semi-annual
amounts on each Dividend Payment Due Date, commencing December 31,
1999, to the Holders of record of shares of the Series B Preferred
Stock, as they appear on the stock records of the Corporation at the
close of business on such record date, not more than 60 days or less
than ten days preceding the payment dates thereof, as shall be fixed by
the Board of Directors. Accrued and unpaid dividends for any past
Dividend Period may be declared and paid at any time, without reference
to any Dividend Payment Due Date, to Holders of record, not more than
15 days preceding the payment date thereof, as may be fixed by the
Board of Directors.
(iii) At the option of the Corporation, the dividend shall be
paid either (x) in cash or (y) through the issuance of duly and validly
authorized and issued, fully paid and nonassessable shares of the
Common Stock valued at the Market Price and registered for resale in
open market transactions on the Registration Statement (as defined in
the Registration Rights Agreement), which Registration Statement shall
then be effective under the Securities Act; provided, however, that if
no funds are legally available for the payment of cash dividends on the
Series B Preferred Stock, dividends shall be paid as provided in clause
(y) above.
(b) Except as provided in Section 4(d) hereof, the Holder shall not be
entitled to any dividends in excess of the cumulative dividends, as herein
provided, on the Series B Preferred Stock.
(c) So long as any shares of the Series B Preferred Stock are
outstanding, no dividends shall be declared or paid or set apart for payment or
other distribution declared or made upon any Junior Securities, nor shall any
Junior Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of or pursuant to provisions contained in an employee incentive or
benefit plan (including a stock option plan) of the Corporation or any
Subsidiary), for any consideration by the Corporation, directly or indirectly,
nor shall any moneys be paid to or made available for a sinking fund for the
redemption of any shares of any Junior Securities, unless in each case (i) the
full cumulative dividends required to be paid in cash on all outstanding shares
of the Series B Preferred Stock shall have been paid or set apart for payment
for all past Dividend Periods with respect to the Series B Preferred Stock and
(ii) sufficient funds shall have been paid or set apart for the payment
7
- 7 -
of the dividend for the current Dividend Period with respect to the Series B
Preferred Stock.
(d) If the Corporation shall at any time or from time to time after the
Issue Date declare, order, pay or make a dividend or other distribution
(including, without limitation, any distribution of stock or other securities or
property or rights or warrants to subscribe for securities of the Corporation or
any of its Subsidiaries by way of dividend or spin-off) on shares of its Common
Stock, then, and in each such case, in addition to the dividend obligation of
the Corporation specified in paragraph (a) of this Article 4, the Corporation
shall declare, order, pay and make the same dividend or distribution to each
Holder of Series B Preferred Stock as would have been made with respect to the
number of Common Shares the Holder would have received had it converted all of
its Series B Preferred Shares, and exercised the Warrant held by it in full for
all the Common Shares then underlying the Warrant, immediately prior to such
dividend or distribution.
ARTICLE 5
LIQUIDATION PREFERENCE; MERGERS, CONSOLIDATIONS, ETC.
(a) If the Corporation shall commence a voluntary case under the
Federal bankruptcy laws or any other applicable Federal or state bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of 30 consecutive days and, on account of any such event, the Corporation
shall liquidate, dissolve or wind up, or if the Corporation shall otherwise
liquidate, dissolve or wind up, no distribution shall be made to the holders of
any shares of capital stock of the Corporation upon liquidation, dissolution or
winding-up unless prior thereto, the Holders of shares of Series B Preferred
Stock, subject to this Article 5, shall have received the Liquidation Preference
with respect to each share.
(b) In case the Corporation shall reorganize its capital, reclassify
its capital stock, consolidate or merge with or into another Person (where the
Company is not the survivor or where there is a change in or distribution with
respect to the Common Stock of the Company), sell, convey, transfer or otherwise
dispose of all or substantially all its property, assets or business to another
Person, or effectuate a transaction or series of related transactions in which
more than 50% of the voting power of the Corporation is disposed of (each, a
"FUNDAMENTAL CORPORATE CHANGE") and, pursuant to the terms of such Fundamental
Corporate Change, shares of common stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or property of any
nature whatsoever (including warrants or other subscription or purchase rights)
in addition to or in
8
- 8 -
lieu of common stock of the successor or acquiring corporation ("OTHER
PROPERTY"), are to be received by or distributed to the holders of Common Stock
of the Company, then each Holder of Series B Preferred Stock shall have the
right thereafter, at its sole option, either (x) to require the Corporation to
deem such Fundamental Corporate Change to be a liquidation, dissolution or
winding up of the Corporation pursuant to which the Corporation shall be
required to distribute, upon consummation of and as a condition to, such
Fundamental Corporate Change an amount equal to the Liquidation Preference with
respect to each outstanding share of Series B Preferred Stock in cancellation
thereof, (y) to receive the number of shares of common stock of the successor or
acquiring corporation or of the Corporation, if it is the surviving corporation,
and Other Property as is receivable upon or as a result of such Fundamental
Corporate Change by a holder of the number of shares of Common Stock into which
such Series B Preferred Stock may be converted at the Conversion Price
applicable immediately prior to such Fundamental Corporate Change or (z) require
the Corporation, or such successor, resulting or purchasing corporation, as the
case may be, to, without benefit of any additional consideration therefor, to
execute and deliver to the Holder shares of its Preferred Stock with substantial
identical rights, preferences, privileges, powers, restrictions and other terms
as the Series B Preferred Stock equal to the number of shares of Series B
Preferred Stock held by such Holder immediately prior to such Fundamental
Corporate Change; provided, that all Holders of Series B Preferred Stock shall
be deemed to elect the option set forth in clause (x) above if at least a
majority in interest of such Holders elect such option. The foregoing provisions
of this Section 5(b) shall similarly apply to successive Fundamental Corporate
Changes.
ARTICLE 6
CONVERSION OF PREFERRED STOCK
SECTION 6.1 CONVERSION; CONVERSION PRICE
At the option of the Holder, the shares of Series B Preferred Stock may
be converted, either in whole or in part, into Common Shares (calculated as to
each such conversion to the nearest 1/100th of a share) at any time and from
time to time on or following the date which is six months after the Issue Date
until the date which is nine months thereafter at a Conversion Price per share
of Common Stock equal to 85% of the Market Price; provided that on or following
the date which is nine months after the Issue Date until the date which is 12
months thereafter the Conversion Price per share of Common Stock shall be equal
to 82.5% of the Market Price; and provided, further, that on or following the
date which is 12 months after the Issue Date until the date which is 15 months
thereafter the Conversion Price per share of Common Stock shall be equal to 80%
of the Market Price; and provided, further, that on or following the date which
is 15 months after the Issue Date the Conversion Price per share of Common Stock
shall be equal to 78% of the Market Price; and provided, further, that if the
Corporation's Common Stock is delisted off the Amex for any reason, then any
remaining unconverted Series B Preferred Stock may be converted, at the sole
option of the Holder, at a Conversion Price per share of Common Stock equal to
50% of the Market Price.
9
- 9 -
Notwithstanding the foregoing, the Holder shall only be entitled to
convert the Series B Preferred Stock at a time when the Market Price is below
$3.00 subject to the following restrictions:
(i) If the Market Price is below $3 per share for a period of
1 day up to 30 days after the Issue Date (whether or not
consecutively), the Holders of Series B Preferred Stock, in the
aggregate, shall have the right to convert up to an aggregate amount of
Series B Preferred Stock having a Stated Value equal to 20% of the
Investment Amount at a time when the Market Price is below $3.
(ii) If the Market Price is below $3 per share for a period of
31 days up to 60 days after the Issue Date (whether or not
consecutively), the Holders of Series B Preferred Stock, in the
aggregate, shall have the right to convert up to an aggregate amount of
Series B Preferred Stock having a Stated Value equal to 40% of the
Investment Amount at a time when the Market Price is below $3.
(iii) If the Market Price is below $3 per share for a period
of 61 days up to 90 days after the Issue Date (whether or not
consecutively), the Holders of Series B Preferred Stock, in the
aggregate, shall have the right to convert up to an aggregate amount of
Series B Preferred Stock having a Stated Value equal to 60% of the
Investment Amount at a time when the Market Price is below $3.
(iv) If the Market Price is below $3 per share for a period of
91 days up to 120 days after the Issue Date (whether or not
consecutively), the Holders of Series B Preferred Stock, in the
aggregate, shall have the right to convert up to an aggregate amount of
Series B Preferred Stock having a Stated Value equal to 80% of the
Investment Amount at a time when the Market Price is below $3.
(v) If the Market Price is below $3 per share for a period of
121 days up to 150 days after the Issue Date (whether or not
consecutively), the Holders of Series B Preferred Stock, in the
aggregate, shall have the right to convert up to an aggregate amount of
Series B Preferred Stock having a Stated Value equal to 100% of the
Investment Amount at a time when the Market Price is below $3.
(vi) For the purpose of this paragraph, in the event that
within 30 days after the date on which the Market Price is below $3 per
share for the first time after the Issue Date, the Market Price is $3
or more, the Market Price shall be deemed to be below $3 for 30 days.
The restrictions on conversion specified in the immediately preceding
paragraph shall not apply (A) from and after the occurrence of a Valuation Event
and (B) during any period that the Corporation's Common Stock is delisted from
the Amex (unless the Corporation's Common Stock shall be listed at such time on
the New York Stock Exchange or the Nasdaq National Market
10
- 10 -
System). In addition, notwithstanding anything herein to the contrary, at any
time that the restrictions on conversion specified in the immediately preceding
paragraph shall apply, the Holder shall have the right to convert any and all
shares of Series B Preferred Stock utilizing a Market Price of $3.00.
At the Corporation's option, the amount of accrued and unpaid dividends
as of the Conversion Date shall not be subject to conversion but instead may be
paid in cash as of the Conversion Date; if the Corporation elects to convert the
amount of accrued and unpaid dividends at the Conversion Date into Common Stock,
the Common Stock issued to the Holder shall be valued at the applicable
Conversion Price.
The number of shares of Common Stock due upon conversion of Series B
Preferred Stock shall be (x) the number of shares of Series B Preferred Stock to
be converted, multiplied by (y) the Stated Value plus accrued and unpaid
dividends, to the extent the Corporation does not elect to pay, and pay, accrued
and unpaid dividends in cash, and divided by (z) the applicable Conversion
Price.
Within two Business Days of the occurrence of a Valuation Event, the
Corporation shall send notice thereof to each Holder. Notwithstanding anything
to the contrary contained herein, if a Valuation Event occurs during any
Valuation Period, the Holder may convert some or all of its Series B Preferred
Stock, at its sole option, at a Conversion Price equal to the Current Market
Price on any Trading Day during the Valuation Period.
A "VALUATION EVENT" shall mean an event in which the Corporation takes
any of the following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution on its Capital Shares;
(c) issues any additional Capital Shares (the "ADDITIONAL CAPITAL
SHARES"), otherwise than as provided in the foregoing Sections 6.1(a) and 6.1(b)
above, at a price per share less, or for other consideration lower, than the
Current Market Price in effect immediately prior to such issuances, or without
consideration, except for issuances under employee benefit plans and agreements
consistent with those presently in effect and issuances under presently
outstanding warrants, options or convertible securities;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price in effect immediately prior to such issuance;
11
- 11 -
(e) issues any securities convertible into or exchangeable or
exercisable for Additional Capital Shares and the consideration per share for
which Additional Capital Shares may at any time thereafter be issuable pursuant
to the terms of such convertible, exchangeable or exercisable securities shall
be less than the Current Market Price in effect immediately prior to such
issuance;
(f) announces or effects a Fundamental Corporate Change;
(g) makes a distribution of its assets or evidences of indebtedness to
the holders of its Capital Shares as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings or surplus
legally available for the payment of dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Corporation's assets (other than under the circumstances provided for
in the foregoing Sections 6.1(a) through 6.1(e)); or
(h) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Sections 6.1(a)
through 6.1(g) hereof, inclusive, which, in the opinion of the Holder determined
in good faith, would have a material adverse effect upon the rights of the
Holder at the time of any conversion of the Preferred Stock or is reasonably
likely to result in a decrease in the Market Price.
SECTION 6.2 EXERCISE OF CONVERSION PRIVILEGE
(a) Conversion of the Series B Preferred Stock may be exercised, in
whole or in part, by the Holder by telecopying an executed and completed
Conversion Notice to the Corporation. Each date on which a Conversion Notice is
telecopied to the Corporation in accordance with the provisions of this Section
6.2 shall constitute a Conversion Date. The Corporation shall convert the
Preferred Stock and issue the Common Stock Issued at Conversion, and all voting
and other rights associated with the beneficial ownership of the Common Stock
Issued at Conversion shall vest with the Holder, effective as of the Conversion
Date at the time specified in the Conversion Notice. The Conversion Notice also
shall state the name or names (with addresses) of the Persons who are to become
the holders of the Common Stock Issued at Conversion in connection with such
conversion. The Holder shall deliver the shares of Series B Preferred Stock to
the Corporation by express courier within 30 days following the date on which
the telecopied Conversion Notice has been transmitted to the Corporation. Upon
surrender for conversion, the Preferred Stock shall be accompanied by a proper
assignment thereof to the Corporation or be endorsed in blank. As promptly as
practicable after the receipt of the Conversion Notice as aforesaid, but in any
event not more than five Business Days after the Corporation's receipt of such
Conversion Notice, the Corporation shall (i) issue the Common Stock issued at
Conversion in accordance with the provisions of this Article 6, and (ii) cause
to be mailed for delivery by overnight courier to the Holder (x) a certificate
or certificate(s) representing the number of Common Shares to which the Holder
is entitled by virtue of such conversion, (y) cash, as provided in Section 6.3,
in respect of any fraction of a Common Share issuable upon such conversion and
(z) if the Corporation chooses to pay accrued and unpaid
12
- 12 -
dividends in cash, cash in the amount of accrued and unpaid dividends as of the
Conversion Date. Such conversion shall be deemed to have been effected at the
time at which the Conversion Notice indicates so long as the Series B Preferred
Stock shall have been surrendered as aforesaid at such time, and at such time
the rights of the Holder of the Series B Preferred Stock, as such, shall cease
and the Person or Persons in whose name or names the Common Stock Issued at
Conversion shall be issuable shall be deemed to have become the holder or
holders of record of the Common Shares represented thereby and all voting and
other rights associated with the beneficial ownership of such Common Shares
shall at such time vest with such Person or Persons. The Conversion Notice shall
constitute a contract between the Holder and the Corporation, whereby the Holder
shall be deemed to subscribe for the number of Common Shares which it will be
entitled to receive upon such conversion and, in payment and satisfaction of
such subscription (and for any cash adjustment to which it is entitled pursuant
to Section 6.3), to surrender the Series B Preferred Stock and to release the
Corporation from all liability thereon. No cash payment aggregating less than
$1.00 shall be required to be given unless specifically requested by the Holder.
(b) If, at any time (i) the Corporation challenges, disputes or denies
the right of the Holder hereof to effect the conversion of the Series B
Preferred Stock into Common Shares or otherwise dishonors or rejects any
Conversion Notice delivered in accordance with this Section 6.2 or (ii) any
third party commences any lawsuit or proceeding or otherwise asserts any claim
before any court or public or governmental authority which seeks to challenge,
deny, enjoin, limit, modify, delay or dispute the right of the Holder hereof to
effect the conversion of the Series B Preferred Stock into Common Shares, then
the Holder shall have the right, by written notice to the Corporation, to
require the Corporation to promptly redeem the Series B Preferred Stock for cash
at a redemption price equal to 135% of the Stated Value thereof together with
all accrued and unpaid dividends thereon (the "MANDATORY PURCHASE AMOUNT").
Under any of the circumstances set forth above, the Corporation shall be
responsible for the payment of all costs and expenses of the Holder, including
reasonable legal fees and expenses, as and when incurred in disputing any such
action or pursuing its rights hereunder (in addition to any other rights of the
Holder).
(c) The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C. sec. 101 et seq.
(the "BANKRUPTCY COde"). In the event the Corporation is a debtor under the
Bankruptcy Code, the Corporation hereby waives to the fullest extent permitted
any rights to relief it may have under 11 U.S.C. sec. 362 in respect of the
Holder's conversion privilege. The Corporation hereby waives to the fullest
extent permitted any rights to relief it may have under 11 U.S.C. sec. 362 in
respect of the conversion of the Series B Preferred Stock. The Corporation
agrees, without cost or expense to the Holder, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. sec. 362.
SECTION 6.3 FRACTIONAL SHARES
No fractional Common Shares or scrip representing fractional Common
Shares shall be issued upon conversion of the Series B Preferred Stock. Instead
of any fractional Common Shares which otherwise would be issuable upon
conversion of the Series B Preferred Stock, the
13
- 13 -
Corporation shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction.
SECTION 6.4 ADJUSTMENTS TO CONVERSION RATIO
For so long as any shares of the Series B Preferred Stock are
outstanding, if the Corporation issues and sells pursuant to an exemption from
registration under the Securities Act (A) Common Shares at a purchase price on
the date of issuance thereof that is lower than the Conversion Price, (B)
warrants or options with an exercise price on the date of issuance thereof that
is lower than the Conversion Price for the Holder on such date, except for
warrants or options issued pursuant to employee stock option agreements or stock
incentive agreements of the Corporation, or (C) convertible, exchangeable or
exercisable securities with a right to exchange at lower than the Current Market
Price on the date of issuance or conversion, as applicable, of such convertible,
exchangeable or exercisable securities, except for stock option agreements or
stock incentive agreements, then the Conversion Ratio shall be reduced to equal
the lowest of any such lower rates.
SECTION 6.5 OPTIONAL REDEMPTION
At any time after the date of issuance of the Series B Preferred Stock
until the Mandatory Conversion Date (as defined below), the Corporation, upon
notice delivered to the Holder as provided in Section 6.6, may redeem, in cash,
the Series B Preferred Stock in whole or in part (but only with respect to such
shares as to which the Holder has not theretofore furnished a Conversion Notice
in compliance with Section 6.2), at 120% of the Stated Value thereof (the
"OPTIONAL REDEMPTION PRICE"), together with all accrued and unpaid dividends
thereon to the date of redemption (the "REDEMPTION DATE"); provided, however,
that the Corporation may only redeem the Series B Preferred Stock under this
Section 6.5 if the Current Market Price is less than the Current Market Price on
the Issue Date. Except as set forth in this Section 6.5, the Corporation shall
not have the right to redeem the Series B Preferred Stock.
SECTION 6.6 NOTICE OF REDEMPTION
Notice of redemption pursuant to Section 6.5 shall be provided by the
Corporation to the Holder in writing (by registered mail or overnight courier at
the Holder's last address appearing in the Corporation's security registry) not
less than 10 nor more than 15 days prior to the Redemption Date, which notice
shall specify the Redemption Date and refer to Section 6.5 (including a
statement of the Current Market Price per Common Share) and this Section 6.6.
SECTION 6.7 SURRENDER OF PREFERRED STOCK
Upon any redemption of the Series B Preferred Stock pursuant to
Sections 6.5 and 6.6, the Holder shall either deliver the Series B Preferred
Stock by hand to the Corporation at its principal executive offices or surrender
the same to the Corporation at such address by express courier within 14 days
after the date that the Buyer receives payment therefore. Payment of the
14
- 14 -
Optional Redemption Price shall be made by the Corporation to the Holder by wire
transfer of immediately available funds to such account(s) as the Holder shall
specify to the Corporation. If payment of such Optional Redemption Price is not
made in full by the Redemption Date, the Holder shall again have the right to
convert the Series B Preferred Stock as provided in Article 6 hereof.
SECTION 6.8 MANDATORY CONVERSION
On the third anniversary of the Issue Date (the "MANDATORY CONVERSION
DATE"), the Corporation shall convert all Series B Preferred Stock outstanding,
at the Conversion Price utilizing the Stated Value (plus accrued and unpaid
dividends) as the value of each share of Series B Preferred Stock, into Common
Stock which is registered for resale in open market transactions on the
Registration Statement (as defined in the Registration Rights Agreement), which
Registration Statement shall then be effective under the Securities Act.
SECTION 6.9 CERTAIN CONVERSION LIMITATIONS
(a) Notwithstanding anything herein to the contrary, the Holder shall
not have the right, and the Corporation shall not have the obligation, to
convert all or any portion of the Series B Preferred Stock (and the Corporation
shall not have the right to pay dividends on the Series B Preferred Stock in
shares of Common Stock) if and to the extent that the issuance to the Holder of
shares of Common Stock upon such conversion (or payment of dividends) would
result in the Holder being deemed the "beneficial owner" of more than 5% of the
then Outstanding shares of Common Stock within the meaning of Section 13(d) of
the Securities Exchange Act of 1934, as amended, and the rules promulgated
thereunder. If any court of competent jurisdiction shall determine that the
foregoing limitation is ineffective to prevent a Holder from being deemed the
beneficial owner of more than 5% of the then Outstanding shares of Common Stock,
then the Corporation shall redeem so many of such Holder's shares (the
"REDEMPTION SHARES") of Series B Preferred Stock as are necessary to cause such
Holder to be deemed the beneficial owner of not more than 5% of the then
Outstanding shares of Common Stock. Upon such determination by a court of
competent jurisdiction, the Redemption Shares shall immediately and without
further action be deemed returned to the status of authorized but unissued
shares of Series B Preferred Stock, and the Holder shall have no interest in or
rights under such Redemption Shares. Any and all dividends paid on or prior to
the date of such determination shall be deemed dividends paid on the remaining
shares of Series B Preferred Stock held by the Holder. Such redemption shall be
for cash at a redemption price equal to the sum of (i) 125% of the Stated Value
of the Redemption Shares and (ii) any accrued and unpaid dividends to the date
of such redemption.
(b) Unless the Corporation shall have obtained the approval of its
voting stockholders to such issuance in accordance with the rules of the Amex or
such other stock market with which the Corporation shall be required to comply,
but only to the extent required thereby, the Corporation shall not issue shares
of Common Stock (i) upon conversion of any shares of Series B Preferred Stock or
(ii) as a dividend on the Series B Preferred Stock, if such issuance of Common
Stock, when added to the number of shares of Common Stock previously issued by
the Corporation
15
- 15 -
(i) upon conversion of shares of the Series B Preferred Stock, (ii) upon
exercise of the Warrants issued pursuant to the terms of the Securities Purchase
Agreement and (iii) in payment of dividends on the Series B Preferred Stock,
would equal or exceed 20% of the number of shares of the Corporation's Common
Stock which were issued and Outstanding on the Issue Date (the "MAXIMUM ISSUANCE
AMOUNT"). In the event that a properly executed Conversion Notice is received by
the Corporation which would require the Corporation to issue shares of Common
Stock equal to or in excess of the Maximum Issuance Amount, the Corporation
shall honor such conversion request by (i) converting the number of shares of
Series B Preferred Stock stated in the Conversion Notice not in excess of the
Maximum Issuance Amount and (ii) redeeming the number of shares of Series B
Preferred Stock stated in the Conversion Notice equal to or in excess of the
Maximum Issuance Amount in cash at a price equal to 125% of the Stated Value of
the shares of Series B Preferred Stock to be so redeemed, together with all
accrued and unpaid dividends thereon. In the event that the Corporation shall
elect to pay a dividend in shares of Common Stock which would require the
Corporation to issue shares of Common Stock equal to or in excess of the Maximum
Issuance Amount, the Corporation shall pay (i) a dividend in shares of Common
Stock equal to one less than an amount which would result in the Corporation
issuing shares equal to the Maximum Issuance Amount and (ii) the balance of the
dividend in cash.
ARTICLE 7
VOTING RIGHTS
The Holders of the Series B Preferred Stock have no voting power,
except as otherwise provided by the Private Corporation Law of the State of
Nevada ("NPCL"), in this Article 7, and in Article 8 below.
Notwithstanding the above, the Corporation shall provide each Holder of
Series B Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
Holder, at least 30 days prior to the consummation of the transaction or event,
whichever is earlier), of the date on which any such action is to be taken for
the purpose of such dividend, distribution, right or other event, and a brief
statement regarding, the amount and character of such dividend, distribution,
right or other event to the extent known at such time.
To the extent that under the NPCL the vote of the Holders of the Series
B Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the Holders of at least 85% of the outstanding
16
- 16 -
shares of Series B Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of 85% of the outstanding shares of
Series B Preferred Stock (except as a higher percentage may be required under
the NPCL) shall constitute the approval of such action by the class. To the
extent that under the NPCL Holders of the Series B Preferred Stock are entitled
to vote on a matter with holders of Common Stock, voting together as one class,
each share of Series B Preferred Stock shall be entitled to a number of votes
equal to the number of shares of Common Stock into which it is then convertible
using the record date for the taking of such vote of shareholders as the date as
of which the Conversion Price is calculated. Holders of the Series B Preferred
Stock shall be entitled to notice of all shareholder meetings or written
consents (and copies of proxy materials and other information sent to
shareholders) with respect to which they would be entitled to vote, which notice
would be provided pursuant to the Corporation's by-laws and the NPCL.
ARTICLE 8
PROTECTIVE PROVISIONS
So long as shares of Series B Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the NPCL) of the Holders of at least 85% of the then
outstanding shares of Series B Preferred Stock:
(a) alter or change the rights, preferences or privileges of the Series
B Preferred Stock;
(b) create any new class or series of capital stock having a preference
over the Series B Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation ("SENIOR SECURITIES") or alter or
change the rights, preferences or privileges of any Senior Securities so as to
affect adversely the Series B Preferred Stock;
(c) increase the authorized number of shares of Series B Preferred
Stock; or
(d) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the Holders of
shares of the Series B Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
In the event Holders of least 85% of the then outstanding shares of
Series B Preferred Stock agree to allow the Corporation to alter or change the
rights, preferences or privileges of the shares of Series Preferred Stock,
pursuant to subsection (a) above, so as to affect the Series B Preferred Stock,
then the Corporation will deliver notice of such approved change to the Holders
of the Series Preferred Stock that did not agree to such alteration or change
(the "DISSENTING HOLDERS") and Dissenting Holders shall have the right for a
period of 30 days to convert pursuant to the terms of this Certificate of
Designation as in effect prior to such alteration or change or continue to hold
their shares of Series B Preferred Stock.
17
- 17 -
Notwithstanding anything to the contrary herein, if at any time the
Corporation shall "spin-off" certain of its assets or businesses by
transferring, directly or indirectly, such assets or businesses to a Subsidiary
of the Corporation ("SPINCO") and making a dividend (the "SPIN-OFF DIVIDEND") to
the Corporation's stockholders of the shares of capital stock of Spinco, then
prior to making the Spin-off Dividend, the Corporation shall cause Spinco to
issue to each Holder that number of shares of preferred stock of Spinco with
substantially identical rights, preferences, privileges, powers, restrictions
and other terms as the Series B Preferred Stock equal to the number of shares of
Series B Preferred Shares held by such Holder immediately prior to the Spin-off
Dividend.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 Loss, Theft, Destruction of Preferred Stock
Upon receipt of evidence satisfactory to the Corporation of the loss,
theft, destruction or mutilation of shares of Series B Preferred Stock and, in
the case of any such loss, theft or destruction, upon receipt of indemnity or
security reasonably satisfactory to the Corporation, or, in the case of any such
mutilation, upon surrender and cancellation of the Series B Preferred Stock, the
Corporation shall make, issue and deliver, in lieu of such lost, stolen,
destroyed or mutilated shares of Series B Preferred Stock, new shares of Series
B Preferred Stock of like tenor. The Series B Preferred Stock shall be held and
owned upon the express condition that the provisions of this Section 9.1 are
exclusive with respect to the replacement of mutilated, destroyed, lost or
stolen shares of Series B Preferred Stock and shall preclude any and all other
rights and remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement of negotiable
instruments or other securities without the surrender thereof.
SECTION 9.2 Who Deemed Absolute Owner
The Corporation may deem the Person in whose name the Series B
Preferred Stock shall be registered upon the registry books of the Corporation
to be, and may treat it as, the absolute owner of the Series B Preferred Stock
for the purpose of receiving payment of dividends on the Series B Preferred
Stock, for the conversion of the Series B Preferred Stock and for all other
purposes, and the Corporation shall not be affected by any notice to the
contrary. All such payments and such conversion shall be valid and effectual to
satisfy and discharge the liability upon the Series B Preferred Stock to the
extent of the sum or sums so paid or the conversion so made.
SECTION 9.3 Notice of Certain Events
In the case of the occurrence of any event described in Sections 5(b),
6.5 or 6.6 of this Certificate of Designation, the Corporation shall cause to be
mailed to the Holder of the Series B Preferred Stock at its last address as it
appears in the Corporation's security registry, at least 20 days prior to the
applicable record, effective or expiration date hereinafter specified (or, if
such 20 days
18
- 18 -
notice is not possible, at the earliest possible date prior to any such record,
effective or expiration date), a notice stating (x) the date on which a record
is to be taken for the purpose of such corporate action, or if a record is not
to be taken, the date as of which the Holders of record of Series B Preferred
Stock to be entitled to such dividend, distribution, issuance or granting of
rights, options or warrants are to be determination or the date on which such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up is expected to become effective, and (y) the date as
of which it is expected that Holders of record of Series B Preferred Stock will
be entitled to exchange their shares for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale transfer,
dissolution, liquidation or winding-up.
SECTION 9.4 Register
The Corporation shall keep at its principal office a register in which
the Corporation shall provide for the registration of the Series B Preferred
Stock. Upon any transfer of the Series B Preferred Stock in accordance with the
provisions hereof, the Corporation shall register such transfer on the Series B
Preferred Stock register.
SECTION 9.5 Withholding
To the extent required by applicable law, the Corporation may withhold
amounts for or on account of any taxes imposed or levied by or on behalf of any
taxing authority in the United States having jurisdiction over the Corporation
from any payments made pursuant to the Series B Preferred Stock.
SECTION 9.6 Headings
The headings of the Articles and Sections of this Certificate of
Designation are inserted for convenience only and do not constitute a part of
this Certificate of Designation.
SECTION 9.7 Severability
If any provision of this Certificate of Designation, or the application
thereof to any person or entity or any circumstance, is invalid or
unenforceable, (i) a suitable and equitable provision shall be substituted
therefor in order to carry out, so far as may be valid and enforceable, the
intent and purpose of such invalid or unenforceable provision, and (ii) the
remainder of this Certificate of Designation and the application of such
provision to other persons, entities or circumstances shall not be affected by
such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
[SIGNATURE PAGE FOLLOWS.]
19
- 19 -
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its duly authorized officers on October 12, 1999.
CVF TECHNOLOGIES CORPORATION
By: /s/ Jeffrey I. Dreben
Name: Jeffrey I. Dreben
Title: President
By: /s/ Robert Nally
Name: Robert Nally
Title: Secretary
20
ANNEX I
FORM OF CONVERSION NOTICE
TO: CVF Technologies Corporation
916 Center Street
Lewiston, New York 14092
The undersigned owner of this Series B 6% Convertible
Preferred Stock (the "SERIES B PREFERRED STOCK") issued by CVF Technologies
Corporation (the "CORPORATION") hereby irrevocably exercises its option to
convert __________ shares of the Series B Preferred Stock into shares of the
common stock, par value $0.001 per share ("COMMON STOCK"), of the Corporation in
accordance with the terms of the Certificate of Designation. The undersigned
hereby instructs the Corporation to convert the number of shares of the Series B
Preferred Stock specified above into Shares of Common Stock Issued at Conversion
in accordance with the provisions of Article 6 of the Certificate of
Designation. The undersigned directs that the Common Stock issuable and
certificates therefor deliverable upon conversion, the Series B Preferred Stock
recertificated, if any, not being surrendered for conversion hereby, together
with any check in payment for fractional Common Stock, be issued in the name of
and delivered to the undersigned unless a different name has been indicated
below. All capitalized terms used and not defined herein have the respective
meanings assigned to them in the Certificate of Designation. So long as the
Series B Preferred Stock shall have been surrendered for conversion hereby, the
conversion pursuant hereto shall be deemed to have been effected at the date and
time specified below, and at such time the rights of the undersigned as a Holder
of the Series B Preferred Stock shall cease and the Person or Persons in whose
name or names the Common Stock Issued at Conversion shall be issuable shall be
deemed to have become the holder or holders of record of the Common Shares
represented thereby and all voting and other rights associated with the
beneficial ownership of such Common Shares shall at such time vest with such
Person or Persons.
Date and time:_______________________________
_______________________________________
Signature
(vii) Fill in for registration of Series B Preferred Stock:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Please print name and address (including zip code number)