EXHIBIT 3.2
CERTIFICATE OF DESIGNATIONS
OF
SERIES B CONVERTIBLE REDEEMABLE PREFERRED STOCK
(Pursuant to Section 151 of the General Corporation
Law of the State of Delaware)
Microcide Pharmaceuticals, Inc., a Delaware corporation (the
"Corporation"), in accordance with the provisions of Section 103 of the General
Corporation Law of the State of Delaware DOES HEREBY CERTIFY:
That pursuant to authority vested in the Board of Directors of the
Corporation (the "Board of Directors" or the "Board") by the Restated
Certificate of Incorporation, as amended, of the Corporation, the Board of
Directors, at a meeting held on July 19, 2001, adopted a resolution providing
for the creation of a series of the Corporation's Preferred Stock, par value
$0.001 per share, which series is designated "Series B Convertible Redeemable
Preferred Stock," which resolution is as follows:
Resolved, that pursuant to authority vested in the Board of Directors by
the Restated Certificate of Incorporation, as amended, the Board of Directors
does hereby provide for the creation of a series of the Preferred Stock, par
value of $0.001 per share (hereafter called the "Preferred Stock"), of the
Corporation, and to the extent that the voting powers and the designations,
preferences and relative, participating, optional or other special rights
thereof and the qualifications, limitations or restrictions of such rights have
not been set forth in the Restated Certificate of Incorporation, as amended, of
the Corporation, does hereby fix the same as follows:
SERIES B CONVERTIBLE REDEEMABLE PREFERRED STOCK
SECTION 1. CERTAIN DEFINED TERMS.
(a) All the agreements or instruments defined in this Certificate of
Designations shall mean such agreements or instruments as the same may from time
to time be supplemented or amended, or the terms thereof waived or modified, to
the extent permitted by, and in accordance with, the terms thereof and of this
Certificate of Designations.
(b) The following terms shall have the following meanings (such meanings to
be equally applicable to both the singular and plural forms of the terms
defined):
(c) "Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or under common control with the subject Person. For purposes of
the term "Affiliate," the term "control" (including the terms "controlling,"
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to direct or to cause the direction of the management and
policies of a Person, whether through the ownership of securities, by contract
or otherwise.
(d) "Auditors" means Ernst and Young LLP or another firm of independent
public accountants of recognized national standing selected by the Corporation's
Board of Directors to audit its annual financial statements.
(e) "Board of Directors" or "Board" means the Board of Directors of the
Corporation.
(f) "Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Corporation to have been duly adopted
by the Board of Directors, or duly authorized committee thereof
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(to the extent permitted by applicable law), and to be in full force and effect
on the date of such certification, and delivered to the Holders.
(g) "Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law or executive order to remain closed.
(h) "Common Stock" includes the Common Stock, $0.001 par value, of the
Corporation as authorized on the date hereof, and any other securities into
which or for which the Common Stock may be converted or exchanged pursuant to a
plan of recapitalization, reorganization, merger, sale of assets or otherwise
and any stock (other than the Common Stock of the Corporation) and other
securities of the Corporation or any other Person which any Holder at any time
shall be entitled to receive, or shall have received, on the exercise of
conversion rights of the Series B Preferred Stock, in lieu of or in addition to
the Common Stock of the Corporation.
(i) "Common Stock Equivalent" means any warrant, option, subscription or
purchase right with respect to shares of Common Stock, any security convertible
into, exchangeable for, or otherwise entitling the holder thereof to acquire,
shares of Common Stock or any warrant, option, subscription or purchase right
with respect to any such convertible, exchangeable or other security.
(j) "Conversion Date" means the date on which a Conversion Notice is given
by a Holder, whether by mail, courier, personal service, telephone line
facsimile transmission or other means, as provided in Section 10(a); provided,
that if the Conversion Notice is given after 12:00 noon California time on any
date, the Conversion Date shall mean the date following the date on which the
Conversion Notice is given.
(k) "Conversion Notice" means a Notice of Conversion of Series B
Convertible Redeemable Preferred Stock substantially in the form attached to the
Subscription Agreement as Annex H.
(l) "Conversion Price" means $3.00 per share, subject to adjustment as
provided in Section 10(c).
(m) "Corporation Certificate" means a certificate of the Corporation signed
by an Officer.
(n) "Corporation Notice" means a Corporation Notice substantially in the
form attached to the Subscription Agreement as Annex H.
(o) "Corporation Redemption Date" means the Business Day on which shares of
Series B Preferred Stock are to be redeemed pursuant to Section 9(a), determined
in accordance with Section 9(a).
(p) "Corporation Redemption Event" means that (1) the Market Price of the
Common Stock shall be greater than $20.00 (subject to appropriate adjustment in
the event of an adjustment in the Conversion Price) on each Trading Day during a
period of 40 consecutive Trading Days and (2) the Registration Statement shall
have been effective during the entire 40-Trading Day period.
(q) "Corporation Redemption Price" means an amount in cash equal to the sum
of (1) the Stated Value PLUS (2) an amount equal to the declared and unpaid
dividends on the share of Series B Preferred Stock to be redeemed to the
applicable Corporation Redemption Date.
(r) "Current Market Price" shall mean the arithmetic average of the daily
Market Prices (calculated without duplicating any adjustments referred to in the
proviso of such defined term) per share of Common Stock for the ten consecutive
Trading Days immediately prior to the date in question; PROVIDED, HOWEVER, that
(1) if the "ex" date (as hereinafter defined) for any event (other than the
issuance or distribution requiring such computation) that requires an adjustment
to the Conversion Price pursuant to Section 10(c)(1), (2), (3), (4), (5), (6),
or (7), occurs during such ten consecutive Trading Days, then the Market Price
for each Trading Day prior to the "ex" date for such other event shall be
adjusted by multiplying such Market Price by the same fraction by which the
Conversion Price is so required to be adjusted as a result of
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such other event, (2) if the "ex" date for any event (other than the issuance or
distribution requiring such computation) that requires an adjustment to the
Conversion Price pursuant to Section 10(c)(1), (2), (3), (4), (5), (6), or (7),
occurs on or after the "ex" date for the issuance or distribution requiring such
computation and prior to the day in question, the Market Price for each Trading
Day on and after the "ex" date for such other event shall be adjusted by
multiplying such Market Price by the reciprocal of the fraction by which the
Conversion Price is so required to be adjusted as a result of such other event,
and (3) if the "ex" date for the issuance or distribution requiring such
computation is prior to the day in question, after taking into account any
adjustment required pursuant to clause (1) or (2) of this proviso, the Market
Price for each Trading Day on or after such "ex" date shall be adjusted by
adding thereto the amount of any cash and the fair market value (as determined
by the Board of Directors in a manner consistent with any determination of such
value for purposes of Section 10(c)(4) or (6), whose determination shall be
conclusive and described in a Board Resolution) of the evidences of
indebtedness, shares of capital stock or assets being distributed applicable to
one share of Common Stock as of the close of business on the day before such
"ex" date. For purposes of any computation under Section 10(c)(6), the Current
Market Price of the Common Stock on any date shall be deemed to be the
arithmetic average of the daily Market Prices per share of Common Stock for such
day and the next two succeeding Trading Days; PROVIDED, HOWEVER, that if the
"ex" date for any event (other than the Tender Offer requiring such computation)
that requires an adjustment to the Conversion Price pursuant to Section
10(c)(1), (2), (3), (4), (5), (6), or (7), occurs on or after the Expiration
Time for the Tender Offer requiring such computation, the Market Price for each
Trading Day on and after the "ex" date for such other event shall be adjusted by
multiplying such Market Price by the reciprocal of the fraction by which the
Conversion Price is so required to be adjusted as a result of such other event.
For purposes of this paragraph, the term "ex" date, (1) when used with respect
to any issuance or distribution, means the first date on which the Common Stock
trades, regular way, on the relevant exchange or in the relevant market from
which the Market Price was obtained without the right to receive such issuance
or distribution, (2) when used with respect to any subdivision or combination of
shares of Common Stock, means the first date on which the Common Stock trades,
regular way, on such exchange or in such market after the time at which such
subdivision or combination becomes effective, and (3) when used with respect to
any Tender Offer means the first date on which the Common Stock trades, regular
way, on such exchange or in such market after the Expiration Time of such Tender
Offer. Notwithstanding the foregoing, whenever successive adjustments to the
Conversion Price are called for pursuant to Section 10(c), such adjustments
shall be made to the Current Market Price as may be necessary or appropriate to
effectuate the intent of Section 10(c) and to avoid unjust or inequitable
results as determined in good faith by the Board of Directors.
(s) "Eligible Bank" means a corporation organized or existing under the
laws of the United States or any state, having combined capital and surplus of
at least $100 million and subject to supervision by United States federal or
state authority and which has a branch located in New York, New York.
(t) "Eligible Marketable Securities" of the Corporation as of any date
means marketable securities which would be reflected on a consolidated balance
sheet of the Corporation and its subsidiaries prepared as of such date in
accordance with Generally Accepted Accounting Principles and which have been
purchased pursuant to the Corporation's Investment Guidelines delivered to Buyer
on or prior to the date hereof.
(u) "Expiration Time" shall have the meaning provided in Section 10(c)(6).
(v) "Final Mandatory Redemption Date" means October 24, 2007.
(w) "Fundamental Change" means: (1) any consolidation or merger of the
Corporation or any Subsidiary with or into another entity (other than a merger
or consolidation of a wholly-owned Subsidiary into the Corporation or a wholly-
owned Subsidiary) where the stockholders of the Corporation immediately prior to
such transaction do not collectively own at least 51% of the outstanding voting
securities of the surviving corporation of such consolidation or merger
immediately following such transaction; or the sale of all or substantially all
of the assets of the Corporation in a single transaction or a series of related
transactions; or (2) the occurrence of any transaction or event in connection
with which all or substantially all the Common
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Stock shall be exchanged for, converted into, acquired for or constitute the
right to receive consideration (whether by means of an exchange offer,
liquidation, tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) which is not all or substantially all common
stock which is (or will, upon consummation of or immediately following such
transaction or event, will be) listed on a national securities exchange or
approved for quotation on Nasdaq or any similar United States system of
automated dissemination of transaction reporting of securities prices; or (3)
the acquisition by a Person or entity or group of Persons or entities acting in
concert as a partnership, limited partnership, syndicate or group, as a result
of a tender or exchange offer, open market purchases, privately negotiated
purchases or otherwise, of beneficial ownership of securities of the Corporation
representing 50% or more of the combined voting power of the outstanding voting
securities of the Corporation ordinarily (and apart from rights accruing in
special circumstances) having the right to vote in the election of directors; or
(4) the disposal or sale of more than 50% of the assets of the Corporation; or
(5) the liquidation, dissolution or other winding up the affairs of the
Corporation; PROVIDED, HOWEVER, that in each case the Holders have not violated
any provision of Section 5(k)(x) of the Subscription Agreements.
(x) "Generally Accepted Accounting Principles" for any Person means the
United States generally accepted accounting principles and practices applied by
such Person from time to time in the preparation of its audited financial
statements.
(y) "Holder" means at any time with respect to any share of Series B
Preferred Stock the Person shown as the holder of record of such share of Series
B Preferred Stock on the records of the Corporation relating to the Series B
Preferred Stock which records are maintained in accordance with applicable law.
(z) "Holder Notice" means a Holder Notice substantially in the form
attached to the Subscription Agreement as Annex H.
(aa) "Holder Optional Repurchase Date" means the date which is five (5)
Business Days after a Holder who is entitled to repurchase rights under Section
11(a) and 11(b) gives a Holder Notice.
(bb) "Holder Optional Repurchase Event" means any one of the following
events:
(1) For any period of five (5) consecutive Trading Days following the
Issuance Date there shall be no reported sale price of the Common Stock on
any of the Nasdaq, the NYSE or the AMEX;
(2) For any period of five (5) consecutive Trading Days following the
Issuance Date the Common Stock is not listed for trading on any of the
Nasdaq, the NYSE or the AMEX;
(3) Any Fundamental Change;
(4) The Corporation fails to have the Registration Statement declared
effective within 90 days of the Issuance Date;
(5) On or after the SEC Effective Date and prior to the end of the
Registration Period for any Holder, such Holder shall not be able for 20
Trading Days (whether or not consecutive), in any period of 365 consecutive
days to sell shares of Common Stock issuable or issued upon conversion of
shares of Series B Preferred Stock pursuant to the Registration Statement
(A) by reason of the requirements of the 1933 Act, the 1934 Act or any of
the rules or regulations under either thereof or (B) due to the
Registration Statement or the Prospectus containing any untrue statement of
material fact or omitting to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or any
other failure of the Registration Statement or the Prospectus to comply
with the rules and regulations of the SEC;
(6) The Corporation fails to issue or cause to be issued shares of
Common Stock to any Holder upon exercise by such Holder of the conversion
rights of such Holder within five (5) Trading Days after the due date
therefor (i.e. six (6) Trading Days following the Conversion Date) in
accordance with the terms of Section 10 or fails to transfer any
certificate for shares of Common Stock issued to any Holder upon
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conversion of Series B Preferred Stock or upon exercise by such Holder of
any purchase rights of such Holder as and when required by this Certificate
of Designations or the Subscription Agreements; provided, that if such
failure occurs due to the failure of the Transfer Agent to comply with
timely instructions from the Corporation, a Holder Optional Repurchase
Event shall not occur unless such failure continues for two (2) additional
Trading Days;
(7) The Corporation (A) fails to comply with Sections 5(k)(i), (v) or
(vi) of the Subscription Agreements, or (B) fails to comply for a period of
45 days in any material respect with any of the other requirements set
forth in Section 5(k) of the Subscription Agreements or other material term
or provision of the Series B Preferred Stock;
(8) Any material representation or warranty of the Corporation made
herein or in any other Transaction Document shall be false or misleading in
any material respect when made;
(9) The Corporation or any Subsidiary shall (A) have received notice
that it is in default in any payment with respect to any indebtedness for
borrowed money which indebtedness has an outstanding principal amount in
excess of $1,000,000 individually or $2,000,000 in the aggregate for the
Corporation and the Subsidiaries, beyond the period of grace, if any,
provided in the instrument or agreement under which such indebtedness was
created or (B) have received notice that it is in default in the observance
or performance of any agreement, covenant or condition relating to any such
indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or condition
exist, the effect of which default or other event or condition is to cause,
or to permit the holder or holders of such indebtedness (or a trustee or
agent on behalf of such holder or holders) to cause, any such indebtedness
to become due prior to its stated maturity and such default or event shall
continue beyond the period of grace, if any, provided in the instrument or
agreement under which such indebtedness was created (after giving effect to
any consent or waiver obtained and then in effect thereunder) and, in each
case, such breach or default results in the acceleration of such
indebtedness or any other indebtedness of the Corporation; PROVIDED,
HOWEVER, that the events and conditions described in the preceding clauses
(A) and (B) shall not constitute a Holder Optional Repurchase Event if the
Corporation cures such breach or default within five days of notice of such
breach or default; PROVIDED FURTHER THAT, any breach or default for non-
payment of any indebtedness shall not constitute a Holder Optional
Repurchase Event if (i) the Corporation (with the unanimous approval of the
Board of Directors) is actively contesting such default in good faith, (ii)
prior to the expiration of such five-day period no other indebtedness of
the Corporation or any of its Subsidiaries shall, in accordance with its
terms, be declared to be due and payable, or required to be prepaid other
than by a regularly scheduled or required payment prior to the stated
maturity thereof, and (iii) the aggregate amount of any non-payment does
not exceed $1,000,000. The Corporation shall provide notice to the Holders
of any payment defaults that it intends to contest in good faith within
five (5) days of such obligation becoming due and payable.
(cc) "Holder Optional Repurchase Price" means an amount in cash equal to
the sum of (1) the Stated Value PLUS (2) an amount equal to any declared and
unpaid dividends on the share of Series B Preferred Stock to be redeemed at the
applicable Holder Optional Repurchase Date; PROVIDED, HOWEVER, that if a
Fundamental Change has occurred, then the Holder Optional Repurchase Price means
an amount in cash equal to the sum of (1) 150% of the Stated Value PLUS (2) an
amount equal to any declared and unpaid dividends on the share of Series B
Preferred Stock to be redeemed at the applicable Holder Optional Repurchase
Date.
(dd) "Initial Mandatory Redemption Date" means October 24, 2006.
(ee) "Issuance Date" means the first date of original issuance of any
shares of Series B Preferred Stock.
(ff) "Junior Dividend Stock" means, collectively, the Common Stock and any
other class or series of capital stock of the Corporation ranking, as to
dividends, junior to the Series B Preferred Stock.
(gg) "Junior Liquidation Stock" means, collectively, the Common Stock and
any other class or series of capital stock of the Corporation ranking junior as
to liquidation rights to the Series B Preferred Stock.
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(hh) "LIBOR Rate" shall mean the arithmetic average of rates of interest
per annum (rounded upwards, if necessary to the next 1/16 of 1%) at which
Citibank, F.S.B. is offered deposits of United States Dollars in the London
interbank market on or about 11:00 a.m. London time two (2) Business Days prior
to the commencement of an interest period.
(ii) "Liquidation Preference" means, for each share of Series B Preferred
Stock, the sum of (1) the Stated Value PLUS (2) an amount equal to any declared
and unpaid dividends thereon to the date of final distribution to the Holders in
connection with the liquidation, dissolution or winding up of the Corporation.
(jj) "Majority Holders" means at any time the Holders of outstanding shares
of Series B Preferred Stock which shares constitute 75% of the outstanding
shares of Series B Preferred Stock.
(kk) "Mandatory Redemption Notice" means a Mandatory Redemption Notice
substantially in the form attached to the Subscription Agreements as Annex H.
(ll) "Mandatory Redemption Price" means an amount in cash equal to the sum
of (1) the Stated Value PLUS (2) an amount equal to any declared and unpaid
dividends on the share of Series B Preferred Stock to the Initial Mandatory
Redemption Date or the Final Mandatory Redemption Date, as applicable.
(mm) "Market Price" of any security on any date means the closing price of
such security on such date on the Nasdaq or such other securities exchange or
other market on which such security is listed for trading which constitutes the
principal securities market for such security, as reported by Bloomberg, L.P.;
PROVIDED, HOWEVER, that during any period the Market Price is being determined,
the Market Price shall be subject to equitable adjustments from time to time on
terms consistent with Section 10(c) and otherwise reasonably acceptable to the
Majority Holders for (1) stock splits, (2) stock dividends, (3) combinations,
(4) capital reorganizations, (5) issuance to all holders of Common Stock of
rights or warrants to purchase shares of Common Stock, (6) distribution by the
Corporation to all holders of Common Stock of evidences of indebtedness of the
Corporation or cash (other than regular quarterly cash dividends), (7) Tender
Offers by the Corporation or any Subsidiary for, or other repurchases of shares
of, Common Stock in one or more transactions which, individually or in the
aggregate, result in the purchase of more than ten percent of the Common Stock
outstanding, and (8) similar events relating to the Common Stock, in each case
which occur, or with respect to which "ex-" trading of the Common Stock begins,
during such period.
(nn) "Merger Shares" shall have the meaning set forth in the Subscription
Agreements.
(oo) "Nasdaq" means the Nasdaq National Market.
(pp) "Nasdaq Stock Market" means The Nasdaq Stock Market, Inc.
(qq) "1934 Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute thereto.
(rr) "1933 Act" means the Securities Act of 1933, as amended, or any
successor statute thereto.
(ss) "NYSE" means the New York Stock Exchange, Inc.
(tt) "Officer" means the Chairman of the Board, the Chief Executive
Officer, the President or the Chief Financial Officer of the Corporation.
(uu) "Parity Dividend Stock" means any class or series of the Corporation's
capital stock ranking, as to dividends, on a parity with the Series B Preferred
Stock.
(vv) "Parity Liquidation Stock" means any class or series of the
Corporation's capital stock ranking on a parity as to liquidation rights with
the Series B Preferred Stock.
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(ww) "Permitted Indebtedness" means:
(1) Indebtedness not in excess of the aggregate principal amount which
is outstanding on the Issuance Date and which would be reflected on a
balance sheet of the Corporation as of the Issuance Date or in the notes
thereto prepared in accordance with Generally Accepted Accounting
Principles;
(2) Indebtedness of up to $5 million incurred after the Issuance Date
consisting of (A) equipment lease obligations or other equipment financings
for equipment used in the business of the Corporation and its Subsidiaries
which obligations or financings are required to be capitalized in
accordance with Generally Accepted Accounting Principles; and (B)
Indebtedness incurred in connection with acquisition of furniture, fixtures
and equipment used in the business of the Corporation and its Subsidiaries,
in each such case in an amount not in excess of the purchase price thereof;
(3) Indebtedness that is secured only by real property; and
(4) Indebtedness of up to $5 million that is unsecured.
(xx) "Person" means any natural person, partnership, corporation, limited
liability company, trust, incorporated organization, unincorporated association,
joint stock company or association or similar entity or any government,
governmental agency or political subdivision.
(yy) "QIB" means a "qualified institutional buyer" as defined in Rule 144A.
(zz) "Record Date" shall mean, with respect to any dividend, distribution
or other transaction or event in which the holders of Common Stock have the
right to receive any cash, securities or other property or in which the Common
Stock (or other applicable security) is exchanged for or converted into any
combination of cash, securities or other property, the date fixed for
determination of stockholders entitled to receive such cash, securities or other
property (whether such date is fixed by the Board of Directors or by statute,
contract or otherwise).
(aaa) "Redemption Notice" means a Redemption Notice substantially in the
form attached to the Subscription Agreement as Annex H.
(bbb) "Registrable Securities" means (1) the shares of Common Stock
issuable or issued upon conversion of shares of Series B Preferred Stock, (2) if
the Common Stock is changed, converted or exchanged by the Corporation or its
successor, as the case may be, into any other stock or other securities on or
after the date this Certificate of Designations is filed with the Secretary of
State of the State of Delaware, such other stock or other securities which are
issued or issuable in respect of or in lieu of the shares of Common Stock
issuable or issued upon conversion of shares of Series B Preferred Stock and (3)
if any other securities are issued to holders of the Common Stock (or such other
shares or other securities into which or for which the Common Stock is so
changed, converted or exchanged as described in the immediately preceding clause
(2)) upon any reclassification, share combination, share subdivision, share
dividend, merger, consolidation or similar transaction or event, such other
securities which are issued or issuable in respect of or in lieu of the shares
of Common Stock issuable or issued upon conversion of shares of Series B
Preferred Stock.
(ccc) "Registration Period" means the first to occur of the following time
frames: (1) the date which is five years after the SEC Effective Date, (2) the
date on which no Person who is entitled to the benefits of Section 8 of any
Subscription Agreement and who is or was a Holder any longer owns or has any
right to acquire any Registrable Securities or (3) the date on which each Person
who is entitled to the benefits of Section 8 of any Subscription Agreement and
who is or was a Holder may sell, pursuant to Rule 144 under the 1933 Act (or any
successor or replacement rule or regulation), all Registrable Securities owned
by such Person or which such Person has the right to acquire, without the filing
of any notice with the SEC and without restriction on the manner of sale or
amount of securities sold.
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(ddd) "Registration Statement" means the Registration Statement required to
be filed by the Corporation with the SEC pursuant to Section 8 of each
Subscription Agreement.
(eee) "Rule 144A" means Rule 144A as promulgated under the 1933 Act.
(fff) "SEC" means the United States Securities and Exchange Commission.
(ggg) "SEC Effective Date" means the date on which the Registration
Statement is first ordered effective by the SEC.
(hhh) "Securities" shall have the meaning provided in Section 10(c).
(iii) "Senior Dividend Stock" means any class or series of capital stock of
the Corporation ranking, as to dividends, senior to the Series B Preferred
Stock.
(jjj) "Senior Liquidation Stock" means any class or series of capital stock
of the Corporation ranking senior as to liquidation rights to the Series B
Preferred Stock.
(kkk) "Series B Preferred Stock" means the Series B Convertible Redeemable
Preferred Stock, $0.001 par value, of the Corporation.
(lll) "Stated Value" means $1,000 per share of Series B Preferred Stock (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to the shares of Series B Preferred Stock after the filing
date hereof).
(mmm) "Subscription Agreements" means the several Subscription Agreements,
dated as of July 27, 2001, by and between the Corporation and the several
original Holders pursuant to which the shares of Series B Preferred Stock were
issued.
(nnn) "Subsidiary" means any corporation or other entity of which a
majority of the capital stock or other ownership interests having ordinary
voting power to elect a majority of the Corporation's board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by the Corporation.
(ooo) "Tender Offer" means a tender offer or exchange offer.
(ppp) "Trading Day" means a day on whichever of (1) the national securities
exchange, (2) the Nasdaq or (3) such other securities market, in any such case
which at the time constitutes the principal securities market for the Common
Stock, is open for general trading of securities.
(qqq) "Transaction Documents" means, individually or collectively, the
Subscription Agreements, this Certificate of Designations, the Transfer Agent
Instruction and each other instrument, statement or certificate given in writing
in connection herewith or therewith.
(rrr) "Transfer Agent" means Mellon Investor Services LLC, or its duly
appointed successor who shall be serving as transfer agent and registrar for the
Common Stock and who shall have been authorized by the Corporation to act as
conversion agent for the Series B Preferred Stock in accordance with the
Transfer Agent Instruction and the name, address and telephone number of which
shall have been given to the Holders by notice from the Corporation.
(sss) "Transfer Agent Instruction" means the Transfer Agent Instruction,
dated October 24, 2001, from the Corporation to the Transfer Agent for the
benefit of the Holders.
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SECTION 2. DESIGNATION AND AMOUNT.
The shares of such series shall be designated as "Series B Convertible
Redeemable Preferred Stock", and the number of shares constituting the Series B
Preferred Stock shall be 60,000, and shall not be subject to increase. The
Corporation shall not issue any shares of Series B Preferred Stock other than
pursuant to the Subscription Agreements, unless such issuance shall have been
approved by the Majority Holders. Any shares of Series B Preferred Stock which
are redeemed by the Corporation and retired and any shares of Series B Preferred
Stock which are converted into shares of Common Stock in accordance with Section
10 shall be restored to the status of authorized, unissued and undesignated
shares of the Corporation's class of Preferred Stock and shall not be subject to
issuance, and shall not thereafter be outstanding, as shares of Series B
Preferred Stock.
SECTION 3. SERIES B PREFERRED STOCK CAPITAL.
The amount to be represented in the capital account for the Series B
Preferred Stock at all times for each outstanding share of Series B Preferred
Stock shall be an amount equal to the sum of (a) the Stated Value PLUS (b) an
amount equal to any declared and unpaid dividends on such share of Series B
Preferred Stock to the date of determination.
SECTION 4. RANK.
The shares of Series B Preferred Stock shall rank senior to the Common
Stock and any shares of any other series of Preferred Stock or any shares of any
other class of preferred stock of the Corporation, now or hereafter issued, as
to payment of dividends and distribution of assets upon liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
except as otherwise approved by the Majority Holders in accordance with Section
12(b). Nothing in this Section 4 shall prohibit the Corporation from issuing
shares of capital stock if such issuance is made in compliance with Section
12(b) and the applicable provisions of the General Corporation Law of the State
of Delaware.
SECTION 5. DIVIDENDS.
The holders of shares of Series B Preferred Stock shall be entitled to
receive dividends only when, as, and if declared by the Board of Directors out
of funds legally available for such purpose. No dividends shall be paid or
declared and set apart for payment on the Common Stock unless an equivalent
amount per share (based on the relative stated values) shall have been, or
contemporaneously are, paid or declared and set apart for such payment on the
Series B Preferred Stock.
SECTION 6. LIQUIDATION PREFERENCE.
In the event of a liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, the Holders shall be entitled to
receive out of the assets of the Corporation, whether such assets constitute
stated capital or surplus of any nature, an amount per share of Series B
Preferred Stock equal to the Liquidation Preference, and no more, before any
payment shall be made or any assets distributed to the holders of Junior
Liquidation Stock; PROVIDED, HOWEVER, that such rights shall accrue to the
Holders only in the event that the Corporation's payments with respect to the
liquidation preference of the holders of Senior Liquidation Stock that has been
issued consistent with this Certificate of Designations are fully met. After the
liquidation preferences of such Senior Liquidation Stock are fully met, the
remaining assets of the Corporation available for distribution shall be
distributed ratably among the Holders and the holders of any Parity Liquidation
Stock that has been issued consistent with this Certificate of Designations in
proportion to the respective preferential amounts to which each is entitled up
to the full extent of such preferential amounts. After payment in full of the
Liquidation Preference of the shares of the Series B Preferred Stock and the
liquidation preference of such Parity Liquidation Stock that has been issued
consistent with this Certificate of Designations, the Holders shall not be
entitled to any further participation in any distribution of assets by the
Corporation.
9
SECTION 7. MANDATORY REDEMPTION.
(a) The Corporation shall give a Mandatory Redemption Notice to the Holders
not less than 30 nor more than 45 Business Days prior to the Initial Mandatory
Redemption Date; PROVIDED, HOWEVER, that each Holder, with respect to its Series
B Preferred Stock, shall have the right but not the obligation to delay the
Initial Mandatory Redemption Date by one year. Any Holder desiring to extend the
Initial Mandatory Redemption Date shall provide the Corporation written notice
no later than 60 days prior to the Initial Mandatory Redemption Date. The
Corporation shall give a Mandatory Redemption Notice to the Holders of Series B
Preferred Stock which has not been redeemed on the Initial Mandatory Redemption
Date not less than 30 nor more than 45 Business Days prior to the Final
Mandatory Redemption Date. On the Initial Mandatory Redemption Date, the Series
B Preferred Stock outstanding on the date the Mandatory Redemption Notice is
sent and held by Holders who have not requested a delay in the Initial Mandatory
Redemption Date shall be redeemed at the Mandatory Redemption Price.
Notwithstanding the foregoing, the number of shares of Series B Preferred Stock
to be redeemed from each Holder on the Initial Mandatory Redemption Date shall
be reduced (and there shall be a corresponding reduction in the total number of
shares redeemed) by the number of shares with respect to which such Holder has
given a Conversion Notice (1) on or after the date the Mandatory Redemption
Notice is given and (2) prior to the Initial Mandatory Redemption Date. On the
Final Mandatory Redemption Date, all outstanding Series B Preferred Stock shall
be redeemed at the Mandatory Redemption Price. Any failure or defect in the
giving of the Mandatory Redemption Notice shall not affect the Corporation's
obligation to redeem the shares of Series B Preferred Stock pursuant to this
Section 7.
(b) On the Initial Mandatory Redemption Date or the Final Mandatory
Redemption Date (or such later date as a particular Holder shall surrender to
the Corporation the certificate(s) for the shares of Series B Preferred Stock
redeemed), the Corporation shall pay to or upon the order of each Holder by wire
transfer of immediately available funds to such account as shall be specified
for such purpose by such Holder an amount equal to the Mandatory Redemption
Price of all of such Holder's shares of Series B Preferred Stock to be redeemed
on the Initial Mandatory Redemption Date or the Final Mandatory Redemption Date,
as applicable. A Holder of such shares of Series B Preferred Stock shall not be
entitled to payment of the Mandatory Redemption Price of such shares of Series B
Preferred Stock until such Holder shall have surrendered the certificate(s) for
such shares of Series B Preferred Stock to the Corporation or, in the case of
the loss, theft or destruction of any such certificate, given indemnity in
accordance with Section 14(b).
(c) The Corporation shall not be entitled to give the Mandatory Redemption
Notice with respect to, or to redeem, any shares of Series B Preferred Stock
with respect to which a Conversion Notice has been given providing for a
Conversion Date which is on or prior to the date on which the Mandatory
Redemption Notice is given or after the date on which the Mandatory Redemption
Notice is given but prior to the Initial Mandatory Redemption Date. If a
Mandatory Redemption Notice has been given, thereafter the proceedings for such
Mandatory Redemption shall not affect the rights of the Holders to convert in
accordance with Section 10 any shares of Series B Preferred Stock at any time
prior to the Initial Mandatory Redemption Date or the Final Mandatory Redemption
Date. If on the applicable Initial Mandatory Redemption Date or the Final
Mandatory Redemption Date the Corporation fails to pay the Mandatory Redemption
Price of any outstanding shares of Series B Preferred Stock to be redeemed in
full to such Holder or to deposit the same with an Eligible Bank in accordance
with Section 14(c), such Holder shall be entitled to convert in accordance with
Section 10 such shares of Series B Preferred Stock of such Holder so called for
redemption at any time after the Initial Mandatory Redemption Date or the Final
Mandatory Redemption Date and prior to the date on which the Corporation pays
the Mandatory Redemption Price in full to such Holder for all shares of Series B
Preferred Stock to be redeemed from such Holder (together with any amount due to
such Holder pursuant to Section 14(d)) or so deposits the same (together with
any amount due to such Holder pursuant to Section 14(d)) and gives notice to
such Holder of such deposit and in the case of any such conversion of any share
of Series B Preferred Stock, upon delivery to the converting Holder of the
shares of Common Stock issuable upon such conversion the Corporation shall have
no further liability in respect of the Mandatory Redemption Price of such share
of Series B Preferred Stock so converted other than payment of the amount
payable pursuant to Section 14(d) in respect of the period from the Initial
Mandatory Redemption Date or the Final Mandatory
10
Redemption Date to the Conversion Date for such conversion; PROVIDED, HOWEVER,
that a Holder of such shares of Series B Preferred Stock shall not be entitled
to convert such shares of Series B Preferred Stock if the Corporation's failure
to pay the Mandatory Redemption Price is due to such Holder's failure to have
surrendered the certificate(s) for such shares of Series B Preferred Stock to
the Corporation or, in the case of the loss, theft or destruction of any such
certificate, given indemnity in accordance with Section 14(b).
SECTION 8. NO SINKING FUND.
The shares of Series B Preferred Stock shall not be entitled to the
benefits of any sinking fund for the redemption or repurchase of shares of
Series B Preferred Stock.
SECTION 9. REDEMPTION AT OPTION OF CORPORATION.
(a) Corporation Redemption.
(1) At any time after the second anniversary of the Issuance Date, the
Corporation shall have the right, if a Corporation Redemption Event shall
have occurred, on one occasion only with respect to such Corporation
Redemption Event to redeem on the applicable Corporation Redemption Date
all or any portion of the outstanding shares of Series B Preferred Stock so
long as on the date the Corporation gives the Redemption Notice and at all
times thereafter through such Corporation Redemption Date (A) the
Corporation shall be in compliance in all material respects with its
obligations to the Holders (including, without limitation, its obligations
under the Transaction Documents), (B) if such Redemption Notice is given
before the end of the Registration Period, the Registration Statement shall
be effective and available for use by the selling stockholders named
therein and shall reasonably be expected to remain effective and available
for such use for the 30 days following such Corporation Redemption Date,
(C) no Holder Optional Repurchase Event shall have occurred (i) with
respect to which any Holder shall be entitled to exercise redemption rights
under Section 11 or (ii) with respect to which any Holder shall have
exercised such rights and the Corporation shall not have paid, or deposited
in accordance with Section 14(c), the Holder Optional Repurchase Price and
(D) the Corporation has sufficient funds legally available to pay the
Corporation Redemption Price of the shares of Series B Preferred Stock to
be redeemed. Any redemption of outstanding shares of Series B Preferred
Stock pursuant to this Section 9(a) shall be made at the applicable
Corporation Redemption Price. To exercise its right of redemption under
this Section 9(a), the Corporation shall give a Redemption Notice to the
Holders within five (5) Trading Days after such Corporation Redemption
Event occurs and the Corporation Redemption Date shall be set by the
Corporation at not less than 30 nor more than 35 Trading Days after the
date of such Redemption Notice.
(2) On the Corporation Redemption Date (or such later date as a
particular Holder shall surrender to the Corporation the certificate(s) for
the shares of Series B Preferred Stock redeemed), the Corporation shall pay
to or upon the order of each Holder by wire transfer of immediately
available funds to such account as shall be specified for such purpose by
such Holder an amount equal to the Corporation Redemption Price of all of
such Holder's shares of Series B Preferred Stock to be redeemed on the
Corporation Redemption Date. A Holder of such shares of Series B Preferred
Stock shall not be entitled to payment of the Corporation Redemption Price
of such shares of Series B Preferred Stock until such Holder shall have
surrendered the certificate(s) for such shares of Series B Preferred Stock
to the Corporation or, in the case of the loss, theft or destruction of any
such certificate, given indemnity in accordance with Section 14(b).
(3) The Corporation shall not be entitled to give a Redemption Notice
with respect to, or to redeem, any shares of Series B Preferred Stock with
respect to which a Conversion Notice has been given providing for a
Conversion Date which is on or prior to the date on which a Redemption
Notice is given. If a Redemption Notice has been given, thereafter the
proceedings for such redemption shall not affect the rights of the Holders
to convert in accordance with Section 10 any shares of Series B Preferred
Stock called for redemption at any time prior to the Corporation Redemption
Date for such shares. If on the applicable Corporation Redemption Date the
Corporation fails to pay the Corporation Redemption Price of
11
any outstanding shares of Series B Preferred Stock to be redeemed in full
to such Holder or to deposit the same with an Eligible Bank in accordance
with Section 14(c), such Holder shall be entitled to convert in accordance
with Section 10 the shares of Series B Preferred Stock of such Holder so
called for redemption at any time after such Corporation Redemption Date
and prior to the date on which the Corporation pays the Corporation
Redemption Price in full to such Holder for all shares of Series B
Preferred Stock to be redeemed from such Holder (together with any amount
due to such Holder pursuant to Section 14(d)) or so deposits the same
(together with any amount due to such Holder pursuant to Section 14(d)) and
gives notice to such Holder of such deposit and in the case of any such
conversion of any share of Series B Preferred Stock, upon delivery to the
converting Holder of the shares of Common Stock issuable upon such
conversion the Corporation shall have no further liability in respect of
the Corporation Redemption Price of such share of Series B Preferred Stock
so converted, other than payment of the amount payable pursuant to Section
14(d) in respect of the period from the applicable Corporation Redemption
Date to the Conversion Date for such conversion; PROVIDED, HOWEVER, that a
Holder of such shares of Series B Preferred Stock shall not be entitled to
convert such shares of Series B Preferred Stock if the Corporation's
failure to pay the Corporation Redemption Price is due to such Holder's
failure to have surrendered the certificate(s) for such shares of Series B
Preferred Stock to the Corporation or, in the case of the loss, theft or
destruction of any such certificate, given indemnity in accordance with
Section 14(b).
(b) No Other Redemption at the Option of the Corporation. Except as
otherwise specifically provided in Section 9(a), the Corporation shall not have
any right to redeem any shares of Series B Preferred Stock at the option of the
Corporation.
SECTION 10. CONVERSION.
(a) Right to Convert. Subject to and upon compliance with the provisions of
this Section 10, each Holder shall have the right, at such Holder's option, at
any time (except that if such Holder shall have exercised redemption rights
under Section 11 or the Corporation shall have exercised its redemption rights
under Section 9, such conversion right shall terminate with respect to the
shares of Series B Preferred Stock to be redeemed at the close of business on
the last Trading Day prior to the date the Corporation pays or deposits in
accordance with Section 14(c) the applicable Holder Optional Repurchase Price or
Corporation Redemption Price unless the Corporation shall default in payment due
upon redemption of any share of Series B Preferred Stock (except in the case
where the Corporation's failure to pay the applicable Holder Optional Repurchase
Price or Corporation Redemption Price is due to such Holder's failure to have
surrendered the certificate(s) for such shares of Series B Preferred Stock to
the Corporation or, in the case of the loss, theft or destruction of any such
certificate, given indemnity in accordance with Section 14(b))) to convert the
outstanding shares of Series B Preferred Stock held by such Holder, or from time
to time any portion of such shares, plus an amount equal to any declared and
unpaid dividends on such share, into that number of fully paid and
non-assessable shares of Common Stock (as such shares shall then be constituted)
obtained by dividing (1) the sum of (A) the aggregate Stated Value of all shares
of Series B Preferred Stock being converted by such Holder on the same
Conversion Date PLUS (B) any declared and unpaid dividends on the shares of
Series B Preferred Stock being converted to the applicable Conversion Date BY
(2) the Conversion Price in effect on the applicable Conversion Date, by giving
a Conversion Notice in the manner provided in Section 10(b); PROVIDED, HOWEVER,
that, if at any time any share of Series B Preferred Stock is converted in whole
or in part pursuant to this Section 10(a), the Corporation does not have
available for issuance upon such conversion as authorized and unissued shares or
in its treasury at least the number of shares of Common Stock required to be
issued pursuant hereto, then, at the election of such Holder made by notice from
such Holder to the Corporation, such share of Series B Convertible Preferred
Stock, to the extent that sufficient shares of Common Stock are not then
available for issuance upon conversion, shall be converted into the right to
receive from the Corporation, in lieu of the shares of Common Stock into which
such share of Series B Convertible Preferred Stock would otherwise be converted
and which the Corporation is unable to issue, payment in an amount equal to the
product obtained by multiplying (1) the number of shares of Common Stock to
which the Holder is entitled which the Corporation is unable to issue TIMES (2)
the arithmetic average of the Market Price for the
12
Common Stock during the five consecutive Trading Days immediately prior to the
applicable Conversion Date. Any such payment shall, for all purposes of this
Certificate of Designations, be deemed to be satisfaction in full of the
Corporation's obligation to issue upon such conversion shares of Common Stock
that are not then available for issuance upon such conversion. A Holder is not
entitled to any rights of a holder of Common Stock until such Holder has
converted one or more shares of Series B Preferred Stock to Common Stock, and
only to the extent any such shares of Series B Preferred Stock are deemed to
have been converted to Common Stock under this Section 10. For purposes of
Sections 10(d) and 10(e), whenever a provision references the shares of Common
Stock into which any share of Series B Preferred Stock is convertible or the
shares of Common Stock issuable upon conversion of any share of Series B
Preferred Stock or words of similar import, any determination required by such
provision shall be made as if a sufficient number of shares of Common Stock were
then available for issuance upon conversion in full of all outstanding shares of
Series B Preferred Stock.
(b) Exercise of Conversion Privilege; Issuance of Common Stock on
Conversion; no Adjustment for Interest or Dividends.
(1) To exercise the conversion privilege with respect to the Series B
Preferred Stock, a Holder shall give a Conversion Notice (or such other
notice which is acceptable to the Corporation) to the Corporation and the
Transfer Agent or to the office or agency designated by the Corporation for
such purpose by notice to the Holders. A Conversion Notice may be given by
telephone line facsimile transmission to the numbers set forth on the form
of Conversion Notice.
(2) As promptly as practicable, but in no event later than three (3)
Trading Days, after a Conversion Date, the Corporation shall issue and
shall deliver to the Holder giving a Conversion Notice or such Holder's
designee the number of full shares of Common Stock issuable upon such
conversion of shares of Series B Preferred Stock in accordance with the
provisions of this Section 10 and deliver a check or cash in respect of any
fractional interest in respect of a share of Common Stock arising upon such
conversion, as provided in Section 10(b)(7) and, if applicable, any cash
payment required pursuant to the proviso to the first sentence of Section
10(a) (which payment, if any, shall be paid no later than three (3) Trading
Days after the applicable Conversion Date). The Holder shall promptly
surrender to the Corporation such Holder's certificates for the shares of
Series B Preferred Stock to be converted.
(3) Each conversion of shares of Series B Preferred Stock shall be
deemed to have been effected on the applicable Conversion Date, and the
person in whose name any certificate or certificates for shares of Common
Stock shall be issuable upon such conversion shall be deemed to have become
on such Conversion Date the holder of record of the shares represented
thereby; PROVIDED, HOWEVER, that if a Conversion Date is a date on which
the stock transfer books of the Corporation shall be closed such conversion
shall constitute the person in whose name the certificates are to be issued
as the record holder thereof for all purposes on the next succeeding day on
which such stock transfer books are open, but such conversion shall be at
the Conversion Price in effect on the applicable Conversion Date.
(4) The Corporation shall notify a Holder of any claim by the
Corporation of manifest error in a Conversion Notice within two (2) Trading
Days after such Holder gives such Conversion Notice and no such claim of
error shall limit or delay performance of the Corporation's obligation to
issue upon such conversion the number of shares of Common Stock which are
not in dispute. A Conversion Notice shall be deemed for all purposes to be
in proper form unless the Corporation notifies the Holder who gives a
Conversion Notice by telephone line facsimile transmission within three (3)
Trading Days after the Conversion Date (which notice from the Corporation
shall specify all defects in the Conversion Notice) and any Conversion
Notice containing any such defect shall nonetheless be effective on the
Conversion Date if such Holder promptly undertakes to correct all such
defects. The Corporation shall pay all expenses related to such issuances
(including any stamp taxes or issue taxes); provided that the Corporation
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of shares of Common Stock or
other securities or property on conversion of shares of Series B Preferred
Stock in a name other than that of such Holder, and the Corporation shall
not
13
be required to issue or deliver any such shares or other securities or
property unless and until the person or persons requesting the issuance
thereof shall have paid to the Corporation the amount of any such tax or
shall have established to the satisfaction of the Corporation that such tax
has been paid. The converting Holder shall be responsible for the amount of
any withholding tax payable in connection with any conversion of shares of
Series B Preferred Stock.
(5) If a Holder shall have given a Conversion Notice in accordance
with the terms of this Certificate of Designations, the Corporation's
obligation to issue and deliver the certificates for Common Stock shall be
absolute and unconditional, irrespective of any action or inaction by such
Holder to enforce the same, any waiver or consent with respect to any
provision hereof, the recovery of any judgment against any person or any
action to enforce the same, any failure or delay in the enforcement of any
other obligation of the Corporation to any Holder, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or
alleged breach by any Holder or any other person of any obligation to the
Corporation or any violation or alleged violation of law by any Holder or
any other person, and irrespective of any other circumstance which might
otherwise limit such obligation of the Corporation to such Holder in
connection with such conversion; PROVIDED, HOWEVER, that nothing herein
shall limit or prejudice the right of the Corporation to pursue any such
claim in any other manner permitted by applicable law. The occurrence of an
event which requires an adjustment of the Conversion Price as contemplated
by Section 10(c) shall in no way restrict or delay the right of any Holder
to receive certificates for Common Stock upon conversion of shares of
Series B Preferred Stock and the Corporation shall use its best efforts to
implement such adjustment on terms reasonably acceptable to the Majority
Holders within two (2) Trading Days after such occurrence.
(6) If the Corporation fails to issue and deliver the shares of Common
Stock to a converting Holder in connection with a particular conversion of
shares of Series B Preferred Stock within three (3) Trading Days after a
Conversion Date, in addition to any other liabilities the Corporation may
have hereunder and under applicable law (x) the Corporation shall pay or
reimburse such Holder on demand for all out-of-pocket expenses, including,
without limitation, reasonable fees and expenses of legal counsel, incurred
by the Holder as a result of such failure, (y) if as a result of such
failure such Holder shall suffer any direct damages or liabilities from
such failure (including, without limitation, margin interest and the cost
of purchasing securities to cover a sale (whether by such Holder or such
Holder's securities broker) or borrowing of shares of Common Stock by such
Holder for purposes of settling any trade involving a sale of shares of
Common Stock made by such Holder during the period beginning on the
Conversion Date and ending on the date the Corporation delivers or causes
to be delivered to such Holder such shares of Common Stock), then the
Corporation shall upon demand of such Holder pay to the Holder an amount
equal to the actual direct, out-of-pocket damages and liabilities suffered
by such Holder by reason thereof which such Holder documents to the
reasonable satisfaction of the Corporation, and (z) the Holder may by
written notice (which may be given by mail, courier, personal service or
telephone line facsimile transmission), given at any time prior to delivery
to such Holder of the shares of Common Stock issuable in connection with
such exercise of the Holder's conversion right, rescind such exercise and
the Conversion Notice relating thereto, in which case such Holder shall
thereafter be entitled to convert, in accordance with this Section 10 that
portion of such shares of Series B Preferred Stock as to which such
exercise is so rescinded. Notwithstanding the foregoing, the Corporation
shall not be liable to such Holder under clause (y) of the immediately
preceding sentence to the extent the failure of the Corporation to deliver
or to cause to be delivered such shares of Common Stock results from fire,
flood, storm, earthquake, shipwreck, strike, war, acts of terrorism, crash
involving facilities of a common carrier, acts of God, or any similar event
outside the control of the Corporation (it being understood that the action
or failure to act of the Transfer Agent shall not be deemed an event
outside the control of the Corporation except to the extent resulting from
fire, flood, storm, earthquake, shipwreck, strike, war, acts of terrorism,
crash involving facilities of a common carrier, acts of God, the
bankruptcy, liquidation or reorganization of the Transfer Agent under any
bankruptcy, insolvency or other similar law or any similar event outside
the control of the Transfer Agent). A converting Holder shall notify the
Corporation in writing (or by telephone conversation, confirmed in writing)
as promptly as practicable following the third Trading Day
14
after the Conversion Date if such Holder becomes aware that such shares of
Common Stock so issuable have not been received as provided herein, but any
failure so to give such notice shall not affect the Holder's rights under
this Certificate of Designations or otherwise.
(7) No fractional shares of Common Stock shall be issued upon
conversion of any shares of Series B Preferred Stock but, in lieu of any
fraction of a share of Common Stock which would otherwise be issuable in
respect of such conversion, the Corporation shall pay lawful money of the
United States of America for such fractional share, based on a value of one
share of Common Stock being equal to the Market Price of the Common Stock
on the applicable Conversion Date.
(8) If a portion of the shares of Series B Preferred Stock represented
by a particular certificate are to be converted, upon surrender of such
certificate to the Corporation, the Corporation shall execute and deliver
to the Holders of such certificate without service charge, a new
certificate or certificates, in such denomination or denominations as
requested by such Holder.
(c) Adjustment of Conversion Price. The Conversion Price shall be adjusted
from time to time by the Corporation as follows:
(1) In case the Corporation shall on or after the Issuance Date pay a
dividend or make a distribution to all holders of the outstanding Common
Stock in shares of Common Stock, the Conversion Price in effect at the
opening of business on the date following the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution shall be reduced by multiplying such Conversion Price by a
fraction of which the numerator shall be the number of shares of Common
Stock outstanding at the close of business on the Record Date fixed for
such determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or other
distribution, such reduction to become effective immediately after the
opening of business on the day following such Record Date. If any dividend
or distribution of the type described in this Section 10(c)(1) is declared
but not so paid or made, the Conversion Price shall again be adjusted to
the Conversion Price which would then be in effect if such dividend or
distribution had not been declared.
(2) In case the Corporation shall on or after the Issuance Date issue
rights or warrants (other than any rights or warrants referred to in
Section 10(c)(4)) to all holders of its outstanding shares of Common Stock
entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Conversion Price in effect on the Record Date
fixed for the determination of stockholders entitled to receive such rights
or warrants, the Conversion Price shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in effect at
the opening of business on the date after such Record Date by a fraction of
which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the applicable Record Date plus the
number of shares which the aggregate offering price of the total number of
shares so offered pursuant to such rights or warrants would purchase at
such current Conversion Price, and the denominator shall be the number of
shares of Common Stock outstanding on the close of business on such Record
Date plus the total number of additional shares of Common Stock so offered
for subscription or purchase. Such adjustment shall become effective
immediately after the opening of business on the day following the Record
Date fixed for determination of stockholders entitled to receive such
rights or warrants. To the extent that shares of Common Stock are not
delivered pursuant to such rights or warrants, upon the expiration or
termination of such rights or warrants, the Conversion Price shall be
readjusted to the Conversion Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made on
the basis of delivery of only the number of shares of Common Stock actually
delivered. In the event that such rights or warrants are not so issued, the
Conversion Price shall again be adjusted to be the Conversion Price which
would then be in effect if such Record Date had not been fixed. In
determining whether any rights or warrants entitle the holder to subscribe
for or purchase shares of Common Stock at less than such current Conversion
Price, and in determining the aggregate offering price of such shares of
Common Stock, there shall be taken into account any consideration received
for such rights or warrants, and the value of such consideration, if other
than cash, shall be determined by the Board of Directors.
15
(3) In case the outstanding shares of Common Stock shall on or after
the Issuance Date be subdivided into a greater number of shares of Common
Stock, the Conversion Price in effect at the opening of business on the
earlier of the day following the day upon which such subdivision becomes
effective and the day on which "ex-" trading of the Common Stock begins
with respect to such subdivision shall be proportionately reduced, and
conversely, in case outstanding shares of Common Stock shall be combined
into a smaller number of shares of Common Stock, the Conversion Price in
effect at the opening of business on the earlier of the day following the
day upon which such combination becomes effective and the day on which
"ex-" trading of the Common Stock with respect to such combination begins
shall be proportionately increased, such reduction or increase, as the case
may be, to become effective immediately after the opening of business on
the earlier of the day following the day upon which such subdivision or
combination becomes effective and the day on which "ex-" trading of the
Common Stock begins with respect to such subdivision or combination.
(4) In case the Corporation shall on or after the Issuance Date, by
dividend or otherwise, distribute to all holders of its Common Stock shares
of any class of capital stock of the Corporation (other than any dividends
or distributions to which Section 10(c)(1) applies), evidences of its
indebtedness, cash or other assets (including securities, but excluding (i)
any rights or warrants referred to in Section 10(c)(2), (ii) dividends and
distributions paid exclusively in cash and (iii) any capital stock,
evidences of indebtedness, cash or assets distributed upon a merger or
consolidation to which Section 10(d) applies) (the foregoing hereinafter in
this Section 10(c)(4) called the "Securities")), then, in each such case,
subject to the second paragraph of this Section 10(c)(4), the Conversion
Price shall be reduced so that the same shall be equal to the price
determined by multiplying the Conversion Price in effect immediately prior
to the close of business on the Record Date with respect to such
distribution by a fraction the numerator of which shall be the Current
Market Price on such date less the fair market value (as determined by the
Board of Directors, whose determination shall be conclusive and described
in a Board Resolution) on such date of the portion of the Securities so
distributed applicable to one share of Common Stock and the denominator
shall be such Current Market Price, such reduction to become effective
immediately prior to the opening of business on the day following such
Record Date; PROVIDED, HOWEVER, that in the event the then fair market
value (as so determined) of the portion of the Securities so distributed
applicable to one share of Common Stock is equal to or greater than the
Current Market Price on the Record Date, in lieu of the foregoing
adjustment, adequate provision shall be made so that the Holders shall have
the right to receive upon conversion of shares of Series B Preferred Stock
the amount of Securities such Holder would have received had such Holder
converted such Holder's shares of Series B Preferred Stock into shares of
Common Stock immediately prior to such Record Date. In the event that such
dividend or distribution is not so paid or made, the Conversion Price shall
again be adjusted to be the Conversion Price which would then be in effect
if such dividend or distribution had not been declared. If the Board of
Directors determines the fair market value of any distribution for purposes
of this Section 10(c)(4) by reference to the actual or when issued trading
market for any Securities comprising all or part of such distribution, it
must in doing so consider the prices in such market over the same period
used in computing the Current Market Price to the extent possible.
Rights or warrants distributed by the Corporation to all holders of
Common Stock entitling the holders thereof to subscribe for or purchase
shares of the Corporation's capital stock (either initially or under
certain circumstances), which rights or warrants, until the occurrence of a
specified event or events (a "Trigger Event"): (i) are deemed to be
transferred with such shares of Common Stock; (ii) are not exercisable; and
(iii) are also required to be issued in respect of future issuances of
Common Stock, shall not be deemed to have been distributed for purposes of
this Section 10(c) (and no adjustment to the Conversion Price under this
Section 10(c) will be required) until the occurrence of the earliest
Trigger Event; PROVIDED, HOWEVER, that the Holders have not violated any
provision of Section 5(k)(x) of the Subscription Agreements. If any such
rights or warrants, including any such existing rights or warrants
distributed prior to the Issuance Date, are subject to Trigger Events, upon
the satisfaction of each of which such rights or warrants shall become
exercisable to purchase different securities, evidences of indebtedness or
other assets, then the occurrence of each such Trigger Event shall be
deemed to be such date of
16
issuance and record date with respect to new rights or warrants (and a
termination or expiration of the existing rights or warrants without
exercise by the holder thereof) (so that, by way of illustration and not
limitation, the dates of issuance of any such rights shall be deemed to be
the dates on which such rights become exercisable to purchase capital stock
of the Corporation, and not the date on which such rights may be issued, or
may become evidenced by separate certificates, if such rights are not then
so exercisable). In addition, in the event of any distribution of rights or
warrants, or any Trigger Event with respect thereto, that was counted for
purposes of calculating a distribution amount for which an adjustment to
the Conversion Price under this Section 10(c) was made (i) in the case of
any such rights or warrants which shall all have been redeemed or
repurchased without exercise by any holders thereof, the Conversion Price
shall be readjusted upon such final redemption or repurchase to give effect
to such distribution or Trigger Event, as the case may be, as though it
were a cash distribution, equal to the per share redemption or repurchase
price received by a holder or holders of Common Stock with respect to such
rights or warrants (assuming such holder had retained such rights or
warrants), made to all holders of Common Stock as of the date of such
redemption or repurchase, and (ii) in the case of such rights or warrants
which shall have expired or been terminated without exercise by any holders
thereof, the Conversion Price shall be readjusted as if such rights and
warrants had not been issued.
For purposes of this Section 10(c)(4) and Sections 10(c)(1) and (2),
any dividend or distribution to which this Section 10(c)(4) is applicable
that also includes shares of Common Stock, or rights or warrants to
subscribe for or purchase shares of Common Stock to which Section 10(c)(2)
applies (or both), shall be deemed instead to be (i) a dividend or
distribution of the evidences of indebtedness, assets, shares of capital
stock, rights or warrants other than such shares of Common Stock or rights
or warrants to which Section 10(c)(2) applies (and any Conversion Price
reduction required by this Section 10(c)(4) with respect to such dividend
or distribution shall then be made) immediately followed by (ii) a dividend
or distribution of such shares of Common Stock or such rights or warrants
(and any further Conversion Price reduction required by Sections 10(c)(1)
and (2) with respect to such dividend or distribution shall then be made),
except (A) the Record Date of such dividend or distribution shall be
substituted as "the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution", "Record Date
fixed for such determination" and "Record Date" within the meaning of
Section 10(c)(1) and as "the date fixed for the determination of
stockholders entitled to receive such rights or warrants", "the Record Date
fixed for the determination of the stockholders entitled to receive such
rights or warrants" and "such Record Date" within the meaning of Section
10(c)(2) and (B) any shares of Common Stock included in such dividend or
distribution shall not be deemed "outstanding at the close of business on
the Record Date fixed for such determination" within the meaning of Section
10(c)(1).
(5) In case the Corporation shall on or after the Issuance Date, by
dividend or otherwise, distribute to all holders of its Common Stock cash
(excluding any cash that is distributed upon a merger or consolidation to
which Section 10(d) applies or as part of a distribution referred to in
Sections 10(c)(4) or 10(c)(6)) in an aggregate amount that, combined with
(A) the aggregate amount of any other such distributions to all holders of
its Common Stock made exclusively in cash within the 12 months preceding
the date of payment of such distribution, and in respect of which no
adjustment pursuant to this Section 10(c)(5) or Section 10(c)(6) has been
made, and (B) the aggregate of any cash plus the fair market value (as
determined by the Board of Directors, whose determination shall be
conclusive and set forth in a Board Resolution) of consideration payable in
respect of any Tender Offer by the Corporation or any Subsidiary for all or
any portion of the Common Stock concluded within the 12 months preceding
the date of payment of such distribution, and in respect of which no
adjustment pursuant to Section 10(c)(6) has been made, exceeds 10% of the
product of (x) the Current Market Price on the Record Date with respect to
such distribution TIMES (y) the number of shares of Common Stock
outstanding on such date, then, and in each such case, immediately after
the close of business on such date, unless the Corporation elects to
reserve such cash for distribution to the Holders upon the conversion of
shares of Series B Preferred Stock (and shall have made adequate provision)
so that the Holders will receive upon such conversion, in addition to the
shares of Common Stock to which the Holders are entitled, the amount of
cash which the Holders would have received if the Holders had, immediately
prior to the Record Date for such
17
distribution of cash, converted their shares of Series B Preferred Stock
into Common Stock, the Conversion Price shall be reduced so that the same
shall equal the price determined by multiplying the Conversion Price in
effect immediately prior to the close of business on such Record Date by a
fraction (i) the numerator of which shall be equal to the Current Market
Price on such Record Date less an amount equal to the quotient of (x) the
excess of such combined amount over such 10% and (y) the number of shares
of Common Stock outstanding on such Record Date and (ii) the denominator of
which shall be equal to the Current Market Price on such Record Date;
PROVIDED, HOWEVER, that in the event the portion of the cash so distributed
applicable to one share of Common Stock is equal to or greater than the
Current Market Price of the Common Stock on such Record Date, in lieu of
the foregoing adjustment, adequate provision shall be made so that the
Holders shall have the right to receive upon conversion of shares of Series
B Preferred Stock the amount of cash the Holders would have received had
the Holders converted all of their shares of Series B Preferred Stock
immediately prior to such Record Date. In the event that such dividend or
distribution is not so paid or made, the Conversion Price shall again be
adjusted to be the Conversion Price which would then be in effect if such
dividend or distribution had not been declared.
(6) In case a Tender Offer on or after the Issuance Date made by the
Corporation or any Subsidiary for all or any portion of the Common Stock
shall expire and such Tender Offer (as amended upon the expiration thereof)
shall require the payment to stockholders (based on the acceptance (up to
any maximum specified in the terms of the Tender Offer) of Purchased Shares
(as defined below)) of an aggregate consideration having a fair market
value (as determined by the Board of Directors, whose determination shall
be conclusive and described in a Board Resolution) that combined together
with (A) the aggregate of the cash plus the fair market value (as
determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution), as of the expiration of
such Tender Offer, of consideration payable in respect of any other Tender
Offers, by the Corporation or any Subsidiary for all or any portion of the
Common Stock expiring within the 12 months preceding the expiration of such
Tender Offer and in respect of which no adjustment pursuant to this Section
10(c)(6) has been made and (B) the aggregate amount of any distributions to
all holders of the Corporation's Common Stock made exclusively in cash
within 12 months preceding the expiration of such Tender Offer and in
respect of which no adjustment pursuant to Section 10(c)(5) has been made,
exceeds 10% of the product of the Current Market Price as of the last time
(the "Expiration Time") tenders could have been made pursuant to such
Tender Offer (as it may be amended) times the number of shares of Common
Stock outstanding (including any tendered shares) at the Expiration Time,
then, and in each such case, immediately prior to the opening of business
on the day after the date of the Expiration Time, the Conversion Price
shall be adjusted so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to close of
business on the date of the Expiration Time by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding
(including any tendered shares) at the Expiration Time multiplied by the
Current Market Price of the Common Stock on the Trading Day next succeeding
the Expiration Time and the denominator shall be the sum of (x) the fair
market value (determined as aforesaid) of the aggregate consideration
payable to stockholders based on the acceptance (up to any maximum
specified in the terms of the Tender Offer) of all shares validly tendered
and not withdrawn as of the Expiration Time (the shares deemed so accepted,
up to any such maximum, being referred to as the "Purchased Shares") and
(y) the product of the number of shares of Common Stock outstanding (less
any Purchased Shares) at the Expiration Time and the Current Market Price
of the Common Stock on the Trading Day next succeeding the Expiration Time,
such reduction (if any) to become effective immediately prior to the
opening of business on the day following the Expiration Time. In the event
that the Corporation is obligated to purchase shares pursuant to any such
Tender Offer, but the Corporation is permanently prevented by applicable
law from effecting any such purchases or all such purchases are rescinded,
the Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such Tender Offer had not been made. If
the application of this Section 10(c)(6) to any Tender Offer would result
in an increase in the Conversion Price, no adjustment shall be made for
such Tender Offer under this Section 10(c)(6). If any Tender Offer is
18
approved by the members of the Board of Directors elected by the Holders
pursuant to Section 12(c), no adjustment shall be made for such Tender
Offer under this Section 10(c)(6).
(7) (i) In case at any time on or after the Issuance Date the
Corporation shall issue shares of its Common Stock or Common Stock
Equivalents (collectively, the "Newly Issued Shares"), other than an
issuance pro rata to all holders of its outstanding Common Stock, at a
price per share below the Conversion Price in effect at the time of such
issuance, then following such issuance of Newly Issued Shares the
Conversion Price shall be adjusted as provided in this Section 10(c)(7).
The Conversion Price following any such adjustment shall be determined by
multiplying the Conversion Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the sum of (a) the number of
shares of Common Stock outstanding immediately prior to the issuance of the
Newly Issued Shares (calculated on a fully-diluted basis assuming the
conversion of all options, warrants, purchase rights or convertible
securities which are exercisable at the time of the issuance of the Newly
Issued Shares) PLUS (b) the number of shares of Common Stock which the
aggregate consideration, if any, received by the Corporation for the number
of Newly Issued Shares would purchase at a price per share equal to the
Conversion Price in effect at the time of such issuance, and the
denominator shall be the sum of (X) the number of shares of Common Stock
outstanding immediately prior to the issuance of the Newly Issued Shares
(calculated on a fully-diluted basis assuming the exercise or conversion of
all options, warrants, purchase rights or convertible securities which are
exercisable or convertible at the time of the issuance of the Newly Issued
Shares) PLUS (Y) the number of Newly Issued Shares. The adjustment provided
for in this Section 10(c)(7) may be expressed as the following mathematical
formula:
NCP = (O + (C / CP)) * CP
----------
(O + N)
where,
C = aggregate consideration received by the Corporation for the
Newly Issued Shares
N = number of Newly Issued Shares
O = number of shares of Common Stock outstanding (on a fully
diluted basis, as described above) immediately prior to the
issuance of the Newly Issued Shares
CP = Conversion Price immediately prior to the issuance of the
Newly Issued Shares
NCP = Conversion Price immediately after the issuance of the Newly
Issued Shares
(ii) Notwithstanding the foregoing, no adjustment shall be made under
this Section 10(c)(7) by reason of:
(A) the issuance by the Corporation of shares of Common Stock pro
rata to all holders of the Common Stock so long as (i) any adjustment
to the Conversion Price that is required by Section 10(c)(1) is made
and (ii) the Corporation shall have given notice of such issuance
thereof to the Holders pursuant to Section 10(e);
(B) the issuance by the Corporation of shares of Common Stock
upon conversion of the Series B Preferred Stock in accordance with the
terms hereof;
(C) the issuance by the Corporation of shares of Common Stock as
dividends on the Series B Preferred Stock, if any, in accordance with
the terms of Section 5;
(D) the issuance by the Corporation of shares of Common Stock to
any employee, officer or director of, or consultant to, the
Corporation pursuant to any stock option, incentive or employee stock
purchase plans or agreements approved by the Corporation's Board of
Directors; PROVIDED, HOWEVER, if the Board of Directors and/or its
stockholders within 12 months of the Issuance Date increase the number
of shares available for grant under the Corporation's 1993 Amended
Incentive Stock Option Plan, 1996 Director Stock Option Plan or 2001
Incentive
19
Stock Plan (each a "Plan"), other than any automatic increase provided
in any such Plans (so long as the calculation upon which such increase
is based, if it calculates the increase based on a percentage of the
outstanding capital stock of the Corporation, does not include the
Preferred Stock or Common Stock issued or issuable upon conversion of
the Preferred Stock), such increase shall be subject to adjustment
contemplated by this Section 10(c)(7);
(E) the issuance by the Corporation of shares of Common Stock or
other securities to any bank, equipment lessor or other similar
financial institution in connection with commercial credit
arrangements, equipment financing or similar transactions approved by
the Corporation's Board of Directors;
(F) the issuance by the Corporation of Newly Issued Shares in an
offering for cash for the account of the Corporation that is
underwritten on a firm commitment basis and (i) is registered under
the 1933 Act or (ii) is sold in an offering to "qualified
institutional buyers" as defined in, and in a transaction under, Rule
144A under the 1933 Act;
(G) the issuance by the Corporation for cash of Newly Issued
Shares in connection with a strategic alliance, collaboration, joint
venture or partnership of the Corporation with another Person which
strategic alliance, collaboration, joint venture or partnership
relates to the Corporation's business as conducted immediately prior
thereto and which Person is engaged in a business similar or related
to the business of the Corporation so long the number of shares issued
in such transaction does not exceed ten percent of the outstanding
capital stock of the Corporation (on a fully-diluted basis)
immediately prior to the issuance and such issuance is unanimously
approved by the directors of the Corporation elected pursuant to
Section 12(c)(1);
(H) the issuance by the Corporation of New Issued Shares in
connection with any merger, consolidation, business combination, share
exchange, acquisition of all or any portion of the business or assets
of another Person or any similar transaction and such issuance is
unanimously approved by the directors of the Corporation elected
pursuant to Section 12(c)(1);
(I) the issuance of any Merger Shares; and
(J) any other issuances by the Corporation that are unanimously
approved by the directors of the Corporation elected pursuant to
Section 12(c)(1).
(8) The Corporation may make such reductions in the Conversion Price,
in addition to those required by Sections 10(c)(1), (2), (3), (4), (5),
(6), or (7) as the Board of Directors considers to be advisable to avoid or
diminish any income tax to holders of Common Stock or rights to purchase
Common Stock resulting from any dividend or distribution of stock (or
rights to acquire stock) or from any event treated as such for income tax
purposes.
(9) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least 1% in
such price; PROVIDED, HOWEVER, that any adjustments which by reason of this
Section 10(c)(9) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under
this Section 10 shall be made by the Corporation and shall be made to the
nearest cent or to the nearest one hundredth of a share, as the case may
be.
No adjustment need be made for a change in the par value of the Common
Stock or from par value to no par value or from no par value to par value.
(10) Whenever the Conversion Price is adjusted as herein provided, the
Corporation shall promptly, but in no event later than five (5) Business
Days thereafter, give notice to the Holders setting forth the Conversion
Price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment, but which statement shall not include any
information which would be material non-public information for purposes of
the 1934 Act. Failure to deliver such notice shall not affect the legality
or validity of any such adjustment.
20
(11) In any case in which this Section 10(c) provides that an
adjustment shall become effective immediately after a Record Date for an
event, the Corporation may defer until the occurrence of such event (i)
issuing to the Holders in connection with any conversion of shares of
Series B Preferred Stock after such Record Date and before the occurrence
of such event the additional shares of Common Stock issuable upon such
conversion by reason of the adjustment required by such event over and
above the Common Stock issuable upon such conversion before giving effect
to such adjustment and (ii) paying to such Holders any amount in cash in
lieu of any fraction pursuant to Section 10(b)(6).
(12) For purposes of this Section 10(c), the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Corporation but shall include shares issuable in respect of
scrip certificates issued in lieu of fractions of shares of Common Stock.
The Corporation will not pay any dividend or make any distribution on
shares of Common Stock held in the treasury of the Corporation other than
dividends or distributions payable only in shares of Common Stock.
(13) Before taking any action which would cause an adjustment reducing
the Conversion Price below the then par value, if any, of the shares of
Common Stock issuable upon conversion of the Series B Preferred Stock, the
Corporation shall take all corporate action which may, in the opinion of
its counsel, be necessary in order that the Corporation may validly and
legally issue shares of such Common Stock at such adjusted Conversion
Price.
(d) Effect of Reclassification, Consolidation, Merger or Sale.
(1) If any of the following events occur, namely (A) any
reclassification or change of the outstanding shares of Common Stock (other
than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination),
(B) any consolidation, merger or combination of the Corporation with
another corporation or other entity as a result of which holders of Common
Stock shall be entitled to receive stock, securities or other property or
assets (including cash) with respect to or in exchange for such Common
Stock, or (C) any sale or conveyance of the properties and assets of the
Corporation as, or substantially as, an entirety to any other corporation
or other entity as a result of which holders of Common Stock shall be
entitled to receive stock, securities or other property or assets
(including cash) with respect to or in exchange for such Common Stock, then
the Corporation or the successor or purchasing corporation or other entity,
as the case may be, shall prior to such transaction amend its certificate
of incorporation or comparable instrument to provide that the shares of
Series B Preferred Stock, to the extent such shares shall remain
outstanding, shall following such transaction be convertible into the kind
and amount of shares of stock and other securities or property or assets
(including cash) receivable upon such reclassification, change,
consolidation, merger, combination, sale or conveyance by the holder of a
number of shares of Common Stock issuable upon conversion of shares of
Series B Preferred Stock immediately prior to such reclassification,
change, consolidation, merger, combination, sale or conveyance assuming
such holder of Common Stock did not exercise such holder's rights of
election, if any, as to the kind or amount of securities, cash or other
property receivable upon such consolidation, merger, statutory exchange,
sale or conveyance (PROVIDED that, if the kind or amount of securities,
cash or other property receivable upon such consolidation, merger,
statutory exchange, sale or conveyance is not the same for each share of
Common Stock in respect of which such rights of election shall not have
been exercised ("non-electing share"), then for the purposes of this
Section 10(d) the kind and amount of securities, cash or other property
receivable upon such consolidation, merger, statutory exchange, sale or
conveyance for each non-electing share shall be deemed to be the kind and
amount so receivable per share by a plurality of the non-electing shares).
Such written agreement shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in
this Section 10. If, in the case of any such reclassification, change,
consolidation, merger, combination, sale or conveyance, the stock or other
securities and assets receivable thereupon by a holder of shares of Common
Stock includes shares of stock or other securities and assets of a
corporation other than the successor or purchasing corporation or other
entity, as the case may be, in such reclassification, change,
consolidation, merger, combination, sale or conveyance, then such other
corporation or other entity shall also so amend its certificate of
incorporation or comparable instrument
21
and the certificate(s) of incorporation or comparable instruments so
amended shall also contain such additional provisions to protect the
interests of the Holders as the Board of Directors shall reasonably
consider necessary by reason of the foregoing, including, to the extent
practicable, the provisions providing for the redemption rights set forth
in Section 11.
(2) The above provisions of this Section shall similarly apply to
successive reclassifications, changes, consolidations, mergers,
combinations, sales and conveyances.
(3) If this Section 10(d) applies to any event or occurrence, Section
10(c) shall not apply.
(e) Notice to Holder Prior to Certain Actions. In case on or after the
Issuance Date:
(1) the Corporation shall declare a dividend (or any other
distribution) on its Common Stock (other than in cash out of retained
earnings); or
(2) the Corporation shall authorize the granting to the holders of its
Common Stock of rights or warrants to subscribe for or purchase any share
of any class or any other rights or warrants; or
(3) the Board of Directors shall authorize any reclassification of the
Common Stock (other than a subdivision or combination of its 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 any consolidation or merger or other
business combination transaction to which the Corporation is a party and
for which approval of any stockholders of the Corporation is required, or
the sale or transfer of all or substantially all of the assets of the
Corporation; or
(4) there shall be pending the voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation;
the Corporation shall give the Holders as promptly as possible but in any event
at least ten (10) Trading Days prior to the applicable date hereinafter
specified, a notice stating (A) the date on which a record is to be taken for
the purpose of such dividend, distribution or rights or warrants, or, if a
record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution or rights are to be
determined, or (B) the date on which such reclassification, consolidation,
merger, other business combination transaction, sale, transfer, dissolution,
liquidation or winding-up is expected to become effective or occur, and the date
as of which it is expected that holders of Common Stock of record who shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger, other business
combination transaction, sale, transfer, dissolution, liquidation or winding-up
shall be determined. Such notice shall not include any information which would
be material non-public information for purposes of the 1934 Act. Failure to give
such notice, or any defect therein, shall not affect the legality or validity of
such dividend, distribution, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up. In the case of any such action
of which the Corporation gives such notice to the Holders or is required to give
such notice to the Holders, the Holders shall be entitled to give a Conversion
Notice which is contingent on the completion of such action.
SECTION 11. REPURCHASE UPON HOLDER OPTIONAL REPURCHASE EVENT.
(a) Repurchase Right Upon Holder Optional Repurchase Event. If a Holder
Optional Repurchase Event shall occur at any time when any shares of Series B
Preferred Stock are outstanding, then, in addition to any other rights of the
Holders, each Holder shall have the right, at such Holder's option, to require
the Corporation to repurchase all of such Holder's shares of Series B Preferred
Stock, or from time to time any portion thereof, on the date that is five (5)
Business Days after the date such Holder gives a Holder Notice with respect to
such Holder Optional Repurchase Event. Each share of Series B Preferred Stock
required to be so repurchased shall be repurchased at a price equal to the
Holder Optional Repurchase Price.
22
(b) Notices; Method Of Exercising Optional Repurchase Rights, Etc.
(1) On or before the fifth Business Day after the occurrence of an
Holder Optional Repurchase Event, the Corporation shall give to each Holder
a Corporation Notice of the occurrence of such Holder Optional Repurchase
Event and of the repurchase right set forth herein arising as a result
thereof. The Corporation Notice shall set forth:
(i) the date by which the optional repurchase right must be
exercised, and
(ii) a description of the procedure (set forth below) which each
such Holder must follow to exercise such Holder's optional repurchase
right. No failure of the Corporation to give a Corporation Notice or
defect therein shall limit the right of any Holder to exercise the
Holder Optional Repurchase right or affect the validity of the
proceedings for the repurchase of such Holder's shares of Series B
Preferred Stock.
(2) To exercise its optional repurchase right, a Holder shall deliver
to the Corporation on or before the thirtieth day after a Corporation
Notice is given to such Holder (or if no Corporation Notice has been given
to such Holder, within 40 days after such Holder first learns of the Holder
Optional Repurchase Event) a Holder Notice to the Corporation setting forth
the name of such Holder, and number of such Holder's shares of Series B
Preferred Stock to be repurchased. A Holder Notice may be revoked by the
Holder giving such Holder Notice by giving notice of such revocation to the
Corporation at any time prior to the time the Corporation pays the
applicable Holder Optional Repurchase Price to such Holder.
(3) If a Holder shall have given a Holder Notice, then on the
applicable Holder Optional Repurchase Date (or such later date as such
Holder surrenders such Holder's certificates for the shares of Series B
Preferred Stock repurchased) the Corporation shall make payment in
immediately available funds of the applicable Holder Optional Repurchase
Price to such account as specified by such Holder in writing to the
Corporation at least one (1) Business Day prior to the applicable Holder
Optional Repurchase Date. The Holder of such shares of Series B Preferred
Stock shall not be entitled to payment of the Holder Optional Repurchase
Price of such shares of Series B Preferred Stock until such Holder shall
have surrendered the certificate(s) for such shares of Series B Preferred
Stock to the Corporation or, in the case of the loss, theft or destruction
of any such certificate, given indemnity in accordance with Section 14(b).
(c) Other.
(1) A Holder Notice given by a Holder shall be deemed for all purposes
to be in proper form unless the Corporation notifies such Holder in writing
within three (3) Business Days after such Holder Notice has been given
(which notice shall specify all defects in such Holder Notice), and any
Holder Notice containing any such defect shall nonetheless be effective on
the date given if such Holder promptly undertakes to correct all such
defects. Notwithstanding the absence of any such undertaking from such
Holder, no such claim of error shall limit or delay performance of the
Corporation's obligation to repurchase all shares of Series B Preferred
Stock not in dispute.
(2) If on or before the applicable date for repurchase pursuant to
this Section 11 the Corporation shall have failed to pay in full the Holder
Optional Repurchase Price for any shares of Series B Preferred Stock to be
repurchased to the holders thereof or to deposit the same with an Eligible
Bank in accordance with Section 14(c), then without in any way relieving
the Corporation of its obligation to pay such amount in accordance herewith
(except to the extent expressly provided in this Section 11(c)(2)), the
Holder of any such share of Series B Preferred Stock shall continue to have
the right to convert such share of Series B Preferred Stock into Common
Stock in accordance with Section 10(a) at any time prior to the date on
which the Corporation pays the Holder Optional Repurchase Price, as the
case may be, of such share of Series B Preferred Stock to such Holder
(together with any amount due to such holder pursuant to Section 14(d)) or
so deposits the same (together with any amount due to such Holder pursuant
to Section 14(d)) and gives notice to such Holder of such deposit;
PROVIDED, HOWEVER, that the shares of Common Stock received by such Holder
upon any such conversion in certain circumstances may be subject to
restrictions on resale by such Holder arising under applicable securities
laws to the extent not
23
registered for resale by such Holder pursuant to the Registration
Statement. If a Holder converts all or any portion of such Holder's shares
of Series B Preferred Stock as permitted by this Section 11(c)(2), the
amount of the Holder Optional Repurchase Price due to such Holder with
respect to the number of shares of Series B Preferred Stock so converted
shall be reduced by the Stated Value for each share of Series B Preferred
Stock so converted.
(3) If a portion of the shares of Series B Preferred Stock represented
by a particular certificate are to be repurchased, upon surrender of such
certificate to the Corporation in accordance with the terms of this Section
11, the Corporation shall execute and deliver to the Holders of such
certificate without service charge, a new certificate or certificates, in
such denomination or denominations as requested by such Holder.
SECTION 12. VOTING RIGHTS; CERTAIN RESTRICTIONS AND COVENANTS.
(a) Voting Rights. Each Holder of Series B Preferred Stock shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which such shares of Series B Preferred Stock could be converted (pursuant
to Section 10) immediately after the close of business on the record date fixed
for such meeting or the effective date of such written consent and shall have
voting rights and powers equal to the voting rights and powers of the Common
Stock and shall be entitled to notice of any stockholders' meeting in accordance
with the bylaws of the Corporation; PROVIDED, HOWEVER, that except as set forth
in clause (c) below, the Holders shall have no voting rights with respect to any
other seats on the Board of Directors. Except as otherwise provided herein or as
required by law, the Series B Preferred Stock shall vote together with the
Common Stock at any annual or special meeting of the stockholders and not as a
separate class, and may act by written consent in the same manner as the Common
Stock.
(b) Certificate Of Incorporation; Certain Stock. The affirmative vote or
written consent of the Majority Holders, voting separately as a class, will be
required for (1) any amendment, alteration, or repeal, whether by merger or
consolidation or otherwise, of the Corporation's Certificate of Incorporation or
this Certificate of Designations if the amendment, alteration, or repeal
materially and adversely affects the powers, preferences, or special rights of
the Series B Preferred Stock, or (2) the creation or issuance of any Senior
Dividend Stock, Senior Liquidation Stock, Parity Dividend Stock or Parity
Liquidation Stock; PROVIDED, HOWEVER, that any increase in the authorized
Preferred Stock of the Corporation or the creation and issuance of any stock
which is both Junior Dividend Stock and Junior Liquidation Stock shall not be
deemed to affect materially and adversely such powers, preferences, or special
rights and any such increase or creation and issuance may be made without any
such vote by the Holders except as otherwise required by law; and PROVIDED
FURTHER, HOWEVER, that no such amendment, alteration or repeal shall (i) reduce
the Mandatory Redemption Price, Holder Optional Repurchase Price or Corporation
Redemption Price or the amount payable, if any, to a holder of shares of Series
B Preferred Stock pursuant to Section 5, (ii) change the definition of Majority
Holders, (iii) change the method of calculating the Conversion Price in a manner
adverse to the Holders or reduce the number of shares of Common Stock issuable
upon any conversion of shares of Series B Preferred Stock (other than any
reduction in the number of shares of Common Stock so issuable pursuant to an
amendment of the Certificate of Incorporation which effects a combination of the
outstanding shares of Common Stock and results in an adjustment in the
Conversion Price pursuant to Section 10(c)(3)), or (iv) amend, modify or repeal
any provision of this Section 12(b), unless in each such case referred to in the
preceding clauses (i) through (iv) such amendment, modification or repeal has
been approved by the affirmative vote or written consent of the Majority
Holders, voting separately as a class.
(c) Election of Directors. For so long as any shares of Series B Preferred
Stock remain outstanding: (1) the Holders, voting as a separate class, shall be
entitled to elect three (3) members of the Corporation's Board of Directors at
each meeting or pursuant to each consent of the Corporation's stockholders for
the election of directors, and to remove from office such directors and to fill
any vacancy caused by the resignation, death or removal of such directors; and
(2) the holders of Common Stock and the Holders, voting together as a single
class on an as-converted basis, shall be entitled to elect the remaining members
of the Board of Directors
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at each meeting or pursuant to each consent of the Corporation's stockholders
for the election of directors, and to remove from office such directors and to
fill any vacancy caused by the resignation, death or removal of such directors.
(d) Repurchases of Series B Preferred Stock. The Corporation shall not
repurchase or otherwise acquire any shares of Series B Preferred Stock (other
than pursuant to Section 7(a), Section 9(a) or Section 11) unless the
Corporation offers to repurchase or otherwise acquire simultaneously a pro rata
portion of each Holder's shares of Series B Preferred Stock based on the ratio
of the number of shares of Series B Preferred Stock held by such Holder to the
total number of shares of Series B Preferred Stock outstanding for cash at the
same price per share.
SECTION 13. OUTSTANDING SHARES.
For purposes of this Certificate of Designations, all shares of Series B
Preferred Stock shall be deemed outstanding except (a) from the date a
Conversion Notice is given by a holder of Series B Preferred Stock, all shares
of Series B Preferred Stock converted into Common Stock (so long as the
Corporation shall issue the shares of Common Stock issuable upon such conversion
as and when required by this Certificate of Designations); (b) from the date of
registration of transfer, all shares of Series B Preferred Stock held of record
by the Corporation or any subsidiary or Affiliate (as defined herein) of the
Corporation (other than any original holder of shares of Series B Preferred
Stock) and (c) from the applicable Initial Mandatory Redemption Date and Final
Mandatory Redemption Date, Holder Optional Repurchase Date or Corporation
Redemption Date, all shares of Series B Preferred Stock which are redeemed, so
long as in each case the Mandatory Redemption Price, Holder Optional Repurchase
Price or Corporation Redemption Price, as the case may be, of such shares of
Series B Preferred Stock shall have been paid by the Corporation as and when due
hereunder or deposited in accordance with Section 14(c).
SECTION 14. MISCELLANEOUS.
(a) Notices. Any notices required or permitted to be given under the terms
of this Certificate of Designations shall be in writing and shall be delivered
by telephone line facsimile transmission or if no telephone line facsimile
transmission number shall have been provided for such purpose, shall be
delivered personally or by courier or by mail and shall be deemed given upon
receipt, if delivered by telephone line facsimile transmission, personally or by
courier or five days after being placed in the mail (certified mail, return
receipt requested, in the case of any such notice to a Person at an address in
the United States of America), if mailed (1) in the case of the Corporation,
addressed to the Corporation at 850 Maude Avenue, Mountain View, California
94043, Attention: Chief Financial Officer (telephone line facsimile transmission
number (650) 428-3545), or, (2) in the case of any Holder, at such Holder's
address or telephone line facsimile transmission number or address shown on the
stock books maintained by the Corporation with respect to the Series B Preferred
Stock or such other telephone line facsimile transmission number or address as
the Corporation shall have provided by notice to the Holders in accordance with
this Section 14(a) or any Holder shall have provided to the Corporation in
accordance with this Section 14(a).
(b) Replacement of Certificates. Upon receipt by the Corporation of
evidence reasonably satisfactory to the Corporation of the ownership of and the
loss, theft, destruction or mutilation of any certificate for shares of Series B
Preferred Stock and (1) in the case of loss, theft or destruction, of indemnity
from the Holder of the certificate for such shares of Series B Preferred Stock
reasonably satisfactory in form to the Corporation (and without the requirement
to post any bond or other security) or (2) in the case of mutilation, upon
surrender and cancellation of the certificate for such shares of Series B
Preferred Stock, the Corporation will execute and deliver to such Holder a new
certificate for such shares of Series B Preferred Stock without charge to such
Holder.
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(c) Payment on Redemption; Deposit of Redemption Price. If any share of
Series B Preferred Stock is to be redeemed and any notice required in connection
therewith shall have been timely given as provided therein, the applicable
redemption price of such share of Series B Preferred Stock to be so redeemed and
with respect to which any such notice has been given shall become due and
payable on the applicable redemption date. On and after such redemption date,
provided that the Corporation shall have paid such redemption price to the
respective Holders who are entitled thereto on or prior to the applicable
redemption date or shall have deposited with an Eligible Bank on or prior to
such redemption date, to be held in trust for the respective Holders entitled
thereto, an amount sufficient to pay the applicable redemption price, then on
such redemption date the dividends on such share of Series B Preferred Stock
shall cease to accrue, and such share of Series B Preferred Stock shall be
deemed not to be outstanding and the Holder thereof shall not be entitled to any
rights of a Holder except to receive payment of the applicable redemption price
and all other rights hereunder with respect to such share of Series B Preferred
Stock shall cease. So long as the Corporation shall have so paid or deposited
the full amount of the applicable redemption price on a timely basis, no Holder
shall be entitled to interest on the amount so held by such Eligible Bank and,
so long as the Corporation shall be in compliance in all material respects with
its obligations to the Holders (including, without limitation, its obligations
under the Transaction Documents), the Corporation shall be entitled to any
interest paid by such Eligible Bank on the funds so deposited, subject to
applicable abandoned property and escheat laws. On presentation and surrender of
the certificate for such share of Series B Preferred Stock, such share shall be
redeemed at the applicable redemption price.
(d) Overdue Amounts. If the Corporation fails to pay when due or to deposit
with an Eligible Bank in accordance with Section 14(c) the full amount of the
Mandatory Redemption Price, the Holder Optional Repurchase Price or the
Corporation Redemption Price on or before the respective Initial Mandatory
Redemption Date and Final Mandatory Redemption Date, Holder Optional Repurchase
Date, Corporation Redemption Date or the date of redemption specified in Section
11(b), in each such case for the number of shares of Series B Preferred Stock to
be redeemed on such date or to pay any other amount to any Holder when due, then
the amount thereof shall bear interest at a rate of 5% per annum in excess of
the LIBOR Rate (or such lesser rate as shall be the maximum rate allowed by
applicable law) from such date until paid or so deposited in full or until such
share of Series B Preferred Stock is converted in accordance with this
Certificate of Designations (in which case such interest shall remain due and
payable).
(e) Certain Changes in Law. To the extent that the 1933 Act or the 1934 Act
or any statutes, rules or regulations promulgated thereunder relating to the
registration for public sale of securities and/or the registration of issuers
thereof are superseded, replaced or repealed, the requirements of this
Certificate of Designations relating to such statutes, rules and regulations
shall be applied as nearly as practicable with respect to such successor
statutes, rules or regulations, if any, to achieve the purposes intended hereby.
In Witness Whereof, Microcide Pharmaceuticals, Inc., has caused this
certificate to be signed by one of its officers thereunto duly authorized as of
the 24th day of October, 2001.
MICROCIDE PHARMACEUTICALS, INC.
By: /s/ James E. Rurka
------------------------
Name: James E. Rurka
Title: President and Chief Executive
Officer
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