CERTIFICATE OF DESIGNATION, PREFERENCES,
AND RIGHTS OF
SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK
OF
SUNPHARM CORPORATION
SUNPHARM CORPORATION, a Delaware corporation (the "Corporation"), does
hereby certify that, pursuant to authority conferred on the Board of Directors
of the Corporation by the Certificate of Incorporation of the Corporation, as
amended, and pursuant to the provisions of Section 151 of Title 8 of the
Delaware Code, the Board of Directors, by a unanimous consent dated March 31,
1999 in lieu of a special meeting, adopted a resolution providing for the
designation, preferences and relative, participating, optional or other rights,
and qualifications, limitations or restrictions thereof, of 200,000 shares of
the Corporation's Preferred Stock, par value $.001 per share, which resolution
is as follows:
RESOLVED: That pursuant to the authority granted to and vested in the
Board of Directors of the Corporation in accordance with the
provisions of the Certificate of Incorporation, as amended, of
the Corporation, the Board hereby designates a series of
Preferred Stock of the Corporation, par value $.001 per share
(the "Preferred Stock"), consisting of 200,000 shares of the
authorized unissued Preferred Stock, as Series B Redeemable
Convertible Preferred Stock (the "Series B Preferred"), and
hereby fixes such designation and number of shares, and the
powers, preferences and relative, participating, optional or
other rights, and the qualifications, limitations and
restrictions thereof as set forth below, and that the officers
of the Corporation, and each acting singly, are hereby
authorized, empowered and directed to file with the Secretary
of State of the State of Delaware a Certificate of
Designation, Preferences and Rights of the Series B Redeemable
Convertible Preferred Stock, as such officer or officers shall
deem necessary or advisable to carry out the purposes of this
Resolution.
SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK. The preferences,
privileges and restrictions granted to or imposed upon the Corporation's Series
B Redeemable Convertible Preferred Stock, par value $.001 per share, or the
holders thereof, are as follows:
1. LIQUIDATION RIGHTS.
(a) TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP.
(i) Except as otherwise provided in Section 1(b) below, in the
event of any liquidation, dissolution or winding up of the affairs
(each event, a "Liquidation Event") of
the Corporation, whether voluntary or involuntary, the holders of
Series B Preferred shall be entitled to be paid first out of the assets
of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes, before payment or
distribution of any of such assets to the holders of any other class or
series of the Corporation's capital stock designated to be junior to
the Series B Preferred, an amount equal to the original purchase price
of $4.00 per share of Series B Preferred (which amount shall be subject
to equitable adjustment whenever there shall occur a stock dividend,
distribution, combination of shares, reclassification or other similar
event with respect to Series B Preferred and, as so adjusted from time
to time, is hereinafter referred to as the "Base Liquidation Price")
plus all dividends accrued or declared but unpaid, to and including the
date full payment shall be tendered to the holders of Series B
Preferred with respect to such Liquidation Event.
(ii) Following payment in full to the holders of Series B
Preferred of all amounts distributable to them under Section 1(a)(i)
hereof, the remaining assets of the Corporation available for
distribution to holders of the Corporation's capital stock shall be
distributed on a pro rata basis among the holders of the Series B
Preferred on an as converted basis and the holders of the Common Stock.
(iii) If the assets of the Corporation shall be insufficient
to permit the payment in full to the holders of Series B Preferred of
all amounts distributable to them under Section 1(a)(i) hereof, then
the entire assets of the Corporation available for such distribution
shall be distributed ratably among the holders of Series B Preferred.
(b) TREATMENT OF REORGANIZATIONS, CONSOLIDATIONS, MERGERS AND
SALES OF ASSETS. Except as otherwise provided in Subsection 2(d)(vii) hereof, a
Reorganization (as defined in Subsection 2(d)(vii) hereof) shall be regarded as
a Liquidation Event of the Corporation within the meaning of this Section 1,
provided, however, that the holders of at least a majority of the outstanding
shares of the Series B Preferred upon the occurrence of a Reorganization shall
have the option to elect the benefits of Subsection 2(d)(vii) hereof for the
Series B Preferred in lieu of receiving payment in a Liquidation Event of the
Corporation pursuant to this Section 1. The provisions of this Subsection 1(b)
shall not apply to any reorganization, merger or consolidation involving (1)
only a change in the state of incorporation of the Corporation, (2) a merger of
the Corporation with or into a wholly-owned subsidiary of the Corporation which
is incorporated in the United States of America, or (3) an acquisition by
merger, reorganization or consolidation, in which the Corporation is
substantively the surviving corporation and operates as a going concern, of
another corporation which is incorporated in the United States of America and
which is engaged in a business similar to or related to the business of the
Corporation and which does not involve a change in the terms of the Series B
Preferred or of the Common Stock.
(c) DISTRIBUTIONS OTHER THAN CASH. The amount deemed distributed
to the holders of Series B Preferred upon any Liquidation Event (including any
Reorganization treated as a Liquidation Event pursuant to Section 1(b)) shall be
the cash or the fair market value of the property, rights, or securities
distributed to such holders by the acquiring person, firm, or other entity. The
value of such property, rights, or other securities shall be determined in good
faith by the Board of Directors of the Corporation; provided, however, that in
the event that the amounts
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paid pursuant to Section 1(b) consist of securities of an acquiring corporation,
(i) any shares received that have been registered under the Securities Act of
1933, as amended (the "Securities Act"), shall be valued at the average closing
price per share for such securities on the 10 days ending on the fifth day prior
to the consummation of the Reorganization (the "Closing Price"), (ii) any
securities of a class that is registered under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the offer and sale of which shares have
not been registered under the Securities Act shall be valued at 80% of the
Closing Price and (iii) securities of a class that has not been registered under
the Exchange Act shall be valued based on a valuation mutually acceptable to the
Board of Directors of the Corporation and holders of at least a majority of the
Series B Preferred.
2. CONVERSION. The holders of Series B Preferred shall have
conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT; CONVERSION PRICE. Each share of Series B
Preferred shall be convertible, without the payment of any additional
consideration by the holder thereof and at the option of the holder thereof, at
any time after the date of issuance of such share, at the office of the
Corporation or any transfer agent for the Series B Preferred, into such number
of fully paid and non-assessable shares of Common Stock as is determined by
dividing $2.00 by the Conversion Price, determined as hereinafter provided, in
effect at the time of conversion. The Conversion Price for purposes of
calculating the number of shares of Common Stock deliverable upon conversion
without the payment of any additional consideration by the holder of Series B
Preferred (the "Conversion Price") shall initially be $2.00. Such initial
Conversion Price shall be subject to adjustment, in order to adjust the number
of shares of Common Stock into which Series B Preferred is convertible, as
hereinafter provided.
(b) MECHANICS OF CONVERSION. Before any holder of Series B
Preferred shall be entitled to convert the same into full shares of Common
Stock, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for the
Series B Preferred, and shall give written notice to the Corporation at such
office that such holder elects to convert the same and shall state therein the
name of such holder or the name or names of the nominees of such holder in which
such holder wishes the certificate or certificates for shares of Common Stock to
be issued. No fractional shares of Common Stock shall be issued upon conversion
of any shares of Series B Preferred. In lieu of any fractional shares of Common
Stock to which the holder would otherwise be entitled, the Corporation shall pay
cash equal to such fraction multiplied by the then effective Conversion Price.
The Corporation shall, as soon as practicable thereafter, issue and deliver at
such office to such holder of Series B Preferred, or to such holder's nominee or
nominees, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled as aforesaid, together with cash in lieu
of any fraction of a share. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series B Preferred to be converted, and the person or persons entitled
to receive the shares of Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such shares of Common Stock
on such date.
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(c) [intentionally omitted]
(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of this Section
2(d), the following definitions shall apply:
(A) "OPTION" shall mean rights, options or warrants
to subscribe for, purchase or otherwise acquire Common Stock
or Convertible Securities.
(B) "ORIGINAL ISSUE DATE" shall mean the date on
which shares of Series B Preferred were first issued.
(C) "CONVERTIBLE SECURITIES" shall mean any evidences
of indebtedness, shares (other than Common Stock and Series B
Preferred) or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(D) "ADDITIONAL SHARES OF COMMON STOCK" shall mean
all shares of Common Stock issued (or, pursuant to Section
2(d)(iii), deemed to be issued) by the Corporation after the
Original Issue Date, other than the following (collectively,
"EXCLUDED SHARES"):
(I) shares of Common Stock issued or
issuable upon the conversion of Series B Preferred;
(II) shares of Common Stock issued or
issuable as a dividend on the Series B Preferred:
(III) by reason of a dividend, stock split
or other distribution on shares of Common Stock;
(IV) Options to purchase shares of Common
Stock issued or issuable to officers, employees or
directors of, or consultants to, the Corporation
pursuant to the Corporation's Amended and Restated
1994 Stock Option Plan, the Corporation's Amended and
Restated 1995 Nonemployee Directors' Stock Option
Plan or any stock option plan of the Corporation
adopted by the Board of Directors of the Corporation
and approved by the stockholders of the Corporation
after the Original Issue Date;
(V) shares of Common Stock issued or
issuable upon the exercise of Options outstanding on
the Original Issue Date or upon the exercise of the
Options referred to in the foregoing clause (IV).
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(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in
the number of shares of Common Stock into which a share of Series B
Preferred is convertible shall be made by adjustment in the Conversion
Price in respect of the issuance of Additional Shares of Common Stock
or otherwise unless (i) the consideration per share for an Additional
Share of Common Stock issued or deemed to be issued by the Corporation
is less than the Conversion Price in effect on the date of, and
immediately prior to, the issue of such Additional Shares of Common
Stock and (ii), prior to such issuance, the Corporation fails to
receive written notice from the holders of at least a majority of the
then outstanding shares of Series B Preferred agreeing that no such
adjustment shall be made as the result of the issuance of Additional
Shares of Common Stock.
(iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES
OF COMMON STOCK.
(A) OPTIONS AND CONVERTIBLE SECURITIES. In
the event the Corporation at any time after the Original Issue
Date shall issue any Options or Convertible Securities or
shall fix a record date for the determination of holders of
any class of securities entitled to receive any such Options
or Convertible Securities, then the maximum number of shares
(as set forth in the instrument relating thereto without
regard to any provisions contained therein for a subsequent
adjustment of such number) of Common Stock (other than
Excluded Shares) issuable upon the exercise of such Options
or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common
Stock issued as of the time of such issue or, in case such a
record date shall have been fixed, as of the close of business
on such record date, provided that Additional Shares of Common
Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section
2(d)(v) hereof) of such Additional Shares of Common Stock
would be less than the Conversion Price in effect on the date
of and immediately prior to such issue, or such record date,
as the case may be, and provided further that in any such case
in which Additional Shares of Common Stock are deemed to be
issued:
(I) No further adjustment in the Conversion
Price shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock upon
the exercise of such Options or conversion or
exchange of such Convertible Securities;
(II) If such Options or Convertible
Securities by their terms provide, with the passage
of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease
in the number of shares of Common Stock issuable upon
the exercise, conversion or exchange thereof, the
Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments
based thereon, shall, upon any such increase or
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decrease becoming effective, be recomputed to reflect
such increase or decrease insofar as it affects such
Options or the rights of conversion or exchange under
such Convertible Securities;
(III) Upon the expiration of any such
options or any rights of conversion or exchange under
such Convertible Securities which shall not have been
exercised, the Conversion Price computed upon the
original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(a) In the case of Convertible
Securities or Options for Common Stock the
only Additional Shares of Common Stock
issued were the shares of Common Stock, if
any, actually issued upon the exercise of
such Options or the conversion or exchange
of such Convertible Securities and the
consideration received therefor was the
consideration actually received by the
Corporation for the issue of all such
Options, whether or not exercised, plus the
consideration actually received by the
Corporation upon such exercise, or for the
issue of all such Convertible Securities
which were actually converted or exchanged,
plus the additional consideration, if any,
actually received by the Corporation upon
such conversion or exchange; and
(b) In the case of Options for
Convertible Securities only the Convertible
Securities, if any, actually issued upon the
exercise thereof were issued at the time of
issue of such Options, and the consideration
received by the Corporation for the
Additional Shares of Common Stock deemed to
have been then issued was the consideration
actually received by the Corporation for the
issue of all such Options, whether or not
exercised, plus the consideration deemed to
have been received by the Corporation
(determined pursuant to Section 2(d)(v))
upon the issue of the Convertible Securities
with respect to which such Options were
actually exercised;
(IV) No readjustment pursuant to clause (II)
or (III) above shall have the effect of increasing
the Conversion Price to an amount which exceeds the
lower of (a) the Conversion Price on the original
adjustment date, or (b) the Conversion Price that
would have resulted from any issuance of Additional
Shares of Common Stock between the original
adjustment date and such readjustment date;
(V) In the case of any Options which expire
by their terms not more than 30 days after the date
of issue thereof, no adjustment of the Conversion
Price shall be made until the expiration or exercise
of all such
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Options, whereupon such adjustment shall be made in
the same manner provided in clause (III) above; and
(VI) If such record date shall have been
fixed and such Options or Convertible Securities are
not issued on the date fixed therefor, the adjustment
previously made in the Conversion Price which became
effective on such record date shall be canceled as of
the close of business on such record date, and
thereafter the Conversion Price shall be adjusted
pursuant to this Section 2(d)(iii) as of the actual
date of their issuance.
(B) STOCK DIVIDENDS, STOCK DISTRIBUTIONS AND
SUBDIVISIONS. In the event the Corporation at any time or from
time to time after the Original Issue Date shall declare or
pay any dividend or make any other distribution on the Common
Stock payable in Common Stock or effect a subdivision of the
outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock), then
and in any such event, Additional Shares of Common Stock shall
be deemed to have been issued:
(I) In the case of any such dividend or
distribution, immediately after the close of business
on the record date for the determination of holders
of any class of securities entitled to receive such
dividend or distribution, or
(II) In the case of any such subdivision, at
the close of business on the date immediately prior
to the date upon which corporate action becomes
effective.
If such record date shall have been fixed and no part
of such dividend shall have been paid on the date fixed
therefor, the adjustment previously made for the Conversion
Price which became effective on such record date shall be
canceled as of the close of business on such record date, and
thereafter the Conversion Price shall be adjusted pursuant to
this Section 2(d)(iii) as to the time of actual payment of
such dividend.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK.
(A) In the event the Corporation shall issue
Additional Shares of Common Stock (including, without
limitation, Additional Shares of Common Stock deemed to be
issued pursuant to Section 2(d)(iii) but excluding Additional
Shares of Common Stock deemed to be issued pursuant to Section
2(d)(iii)(B), which event is dealt with in Section 2(d)(vi)
hereof), without consideration or for a consideration per
share less than the applicable Conversion Price in effect on
the date of and immediately prior to such issue, then and in
such event, such Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the
nearest cent) determined by multiplying such Conversion Price
by a fraction, the numerator of
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which shall be (I) the number of shares of Common Stock
outstanding immediately prior to such issue plus (II) the
number of shares of Common Stock which the aggregate
consideration received or deemed to have been received by the
corporation for the total number of Additional Shares of
Common Stock so issued would purchase at such Conversion
Price, and the denominator of which shall be (I) the number of
shares of Common Stock outstanding immediately prior to such
issue plus (II) the number of Additional Shares of Common
Stock so issued or deemed to be issued.
(B) For the purposes of Section 2(d)(iv)(A) hereof,
(i) all shares of Common Stock issuable upon conversion of
shares of Series B Preferred and upon exercise of Options or
conversion or exchange of Convertible Securities outstanding
immediately prior to any issue of Additional Shares of Common
Stock, or any event with respect to which Additional Shares of
Common Stock shall be deemed to be issued, shall be deemed to
be outstanding and (ii) immediately after any Additional
Shares of Common Stock are deemed issued pursuant to Section
2(d)(iii), such Additional Shares of Common Stock shall be
deemed to be outstanding.
(C) Notwithstanding anything to the contrary
contained herein, the applicable Conversion Price in effect at
the time Additional Shares of Common Stock are issued or
deemed to be issued shall not be reduced pursuant to Section
2(d)(iv)(A) hereof at such time if the amount of such
reduction would be an amount less than $0.01, but any such
amount shall be carried forward and reduction with respect
thereto made at the time of and together with any subsequent
reduction which, together with such amount and any other
amount or amounts so carried forward, shall aggregate $0.01 or
more.
(v) DETERMINATION OF CONSIDERATION. For purposes of this
Section 2(d), the consideration received by the Corporation for the
issue of any Additional Shares of Common Stock shall be computed as
follows:
(A) CASH AND PROPERTY. Such consideration shall:
(I) Insofar as it consists of cash, be
computed at the aggregate amounts of cash received by
the Corporation excluding amounts paid or payable for
accrued interest or accrued dividends at the time of
such issue;
(II) Insofar as it consists of property
other than cash, be computed at the fair market value
thereof at the time of such issue, as determined in
good faith by the Board of Directors; and
(III) In the event that Additional Shares of
Common Stock are issued together with other shares or
securities or other assets of the
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Corporation for consideration which covers both, be
the proportion of such consideration so received,
computed as provided in clauses (I) and (II) above,
as determined in good faith by the Board of
Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for
Additional Shares of Common Stock deemed to have been issued
pursuant to Section 2(d)(iii)(A), relating to Options and
Convertible Securities, shall be determined by dividing (I)
the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration)
payable to the Corporation upon the exercise of such Options
or the conversion or exchange of such Convertible Securities,
or in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by (II)
the maximum number of shares of Common Stock (as set forth in
the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
(vi) ADJUSTMENT FOR DIVIDENDS, DISTRIBUTIONS,
SUBDIVISIONS, COMBINATIONS OR CONSOLIDATIONS OF COMMON STOCK.
(A) STOCK DIVIDENDS, DISTRIBUTIONS OR SUBDIVISIONS.
In the event the Corporation shall issue Additional Shares of
Common Stock pursuant to Section 2(d)(iii)(B) in a stock
dividend, stock distribution or subdivision, the Conversion
Price in effect immediately prior to such stock dividend,
stock distribution or subdivision shall, concurrently with the
effectiveness of such stock dividend, stock distribution or
subdivision, be proportionately decreased.
(B) COMBINATIONS OR CONSOLIDATIONS. In the event the
outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser
number of shares of Common Stock, the Conversion Price in
effect immediately prior to such combination or consolidation
shall, concurrently with the effectiveness of such combination
or consolidation, be proportionately increased.
(vii) CAPITAL REORGANIZATION, MERGER OR SALE OF ASSETS. If at
any time or from time to time there shall be a capital reorganization
of the Common Stock (other than a subdivision, combination,
recapitalization, reclassification or exchange of shares provided for
elsewhere in this Section 2) or a consolidation or merger of the
Corporation, or a sale of all or substantially all of the assets of the
Corporation, other than a merger, consolidation or sale of all or
substantially all of the assets of the Corporation in a transaction in
which the shareholders of the Corporation immediately prior to the
transaction possess more than 50%
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of the voting securities of the surviving entity (or parent, if any)
immediately after the transaction (a "Reorganization"), then, as a part
of and as a condition to such Reorganization, provision shall be made
so that the holders of shares of the Series B Preferred shall
thereafter be entitled to receive upon conversion of the shares of the
Series B Preferred the same kind and amount of stock or other
securities or property (including cash) of the Corporation, or of the
successor corporation resulting from such Reorganization, to which such
holder would have been entitled if such holder had converted its shares
of the Series B Preferred immediately prior to the effective time of
such Reorganization. In any such case, appropriate adjustment shall be
made in the application of the provisions of this Section 2 to the end
that the provisions of this Section 2 (including adjustment of the
Conversion Price then in effect and the number of shares of Common
Stock or other securities issuable upon conversion of the shares of the
Series B Preferred) shall be applicable after such Reorganization in as
nearly equivalent manner as may be reasonably practicable.
In the case of a transaction to which both this Subsection
2(d)(vii) and Subsection 1(b) hereof apply, the holders of at least a
majority of the outstanding shares of the Series B Preferred upon the
occurrence of a Reorganization shall have the option to elect treatment
either under this Subsection 2(d)(vii) or under Subsection 1(b) hereof,
notice of which election shall be given in writing to the Corporation
not less than five (5) business days prior to the effective date of
such Reorganization. If no such election is timely made, the provisions
of Subsection 1(b) and not of this Subsection 2(d)(vii) shall apply.
The provisions of this Subsection 2(d)(vii) shall not apply to
any reorganization, merger or consolidation involving (1) only a change
in the state of incorporation of the Corporation, (2) a merger of the
Corporation with or into a wholly-owned subsidiary of the Corporation
which is incorporated in the United States of America, or (3) an
acquisition by merger, reorganization or consolidation, in which the
Corporation is substantively the surviving corporation and operates as
a going concern, of another corporation which is incorporated in the
United States of America and which is engaged in a business similar to
or related to the business of the Corporation and which does not
involve a change in the terms of the Series B Preferred or of the
Common Stock.
(e) NO IMPAIRMENT. The Corporation shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but shall at
all times in good faith assist in the carrying out of all the provisions of this
Section 2 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of Series B
Preferred against impairment.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 2,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each affected
holder of Series B Preferred, a certificate setting forth such adjustment or
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readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any affected holder of Series B Preferred furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price at the time in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon conversion of each share of Series B Preferred.
(g) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid in
previous quarters) or other distribution, the Corporation shall mail to each
holder of Series B Preferred at least ten (10) days prior to such record date a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend or distribution.
(h) COMMON STOCK RESERVED. The Corporation shall reserve and keep
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series B Preferred.
(i) CERTAIN TAXES. The Corporation shall pay any issue or transfer
taxes payable in connection with the conversion of any shares of Series B
Preferred, provided, however, that the Corporation shall not be required to pay
any tax which may be payable in respect of any transfer to a name other than
that of the holder of such Series B Preferred.
(j) CLOSING OF BOOKS. The corporation shall at no time close its
transfer books against the transfer of any Series B Preferred, or of any shares
of Common Stock issued or issuable upon the conversion of any shares of Series B
Preferred in any manner which interferes with the timely conversion or transfer
of such Series B Preferred.
3. VOTING RIGHTS.
(a) Except as otherwise required by law or this Certificate of
Incorporation the holders of Series B Preferred and the holders of Common Stock
shall be entitled to notice of any stockholders' meeting and to vote as a single
class upon any matter submitted to the stockholders for a vote, on the following
basis:
(i) Holders of Common Stock shall have one vote per share
of Common Stock held by them; and
(ii) Holders of Series B Preferred shall have that number
of votes per share of Series B Preferred as is equal to the number of
shares of Common Stock into which each such share of Series B Preferred
held by such holder could be converted on the date for determination of
stockholders entitled to vote at the meeting.
(b) ELECTION OF DIRECTORS. In addition to voting as a single class
with the holders of the Common Stock for the election of directors, so long as
there shall be outstanding at least 100,000
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shares of Series B Preferred (adjusted for any stock splits, dividend or similar
events affecting the Series B Preferred after the date of this Certificate), a
majority of the holders of the Series B Preferred voting separately from the
holders of Common Stock shall at all times be entitled to elect one member of
the Board of Directors.
4. DIVIDEND RIGHTS.
(a) From and after the Original Issue Date, dividends shall accrue
on each share of the Series B Preferred, whether or not funds are legally
available therefor and whether or not declared by the Board of Directors, at the
rate per annum equal to $0.32 per share of Series B Preferred (the "Series B
Dividends"). From time to time the Board of Directors of the Corporation may
declare and pay dividends or distributions on shares of the Common Stock,
provided that no such dividend or other distribution may be declared or paid on
the Common Stock (other than a dividend payable entirely in shares of the Common
Stock of the Corporation) unless (1) all accrued Series B Dividends shall have
been paid in full prior to the date of any such declaration, payment or
distribution and (2) no shares of Series B Preferred remain outstanding on the
date of any such declaration, payment or distribution.
(b) If, with the consent of the holders of at least a majority of
the outstanding Series B Preferred, the Board of Directors of the Corporation
shall declare a dividend payable upon the then outstanding shares of the Common
Stock (other than a dividend payable entirely in shares of the Common Stock of
the Corporation), then the Board of Directors shall declare at the same time a
dividend upon the then outstanding shares of the Series B Preferred payable at
the same time as the dividend paid on the Common Stock, in an amount equal to
the amount of dividends per share of Series B Preferred as would have been
payable on the largest number of whole shares of Common Stock which each share
of Series B Preferred held by each holder thereof would have received if such
Series B Preferred had been converted to Common Stock pursuant to the provisions
of Section 2 hereof as of the record date for the determination of holders of
Common Stock entitled to receive such dividends.
(c) In the event the Board of Directors of the Corporation shall
declare a dividend payable upon any class or series of capital stock of the
corporation other than Common Stock, the Board of Directors shall declare at the
same time a dividend upon the then outstanding shares of Series B Preferred,
payable at the same time as such dividend on such other class or series of
capital stock in an amount equal to (i) in the case of any series or class
convertible into Common Stock, that dividend per share of Series B Preferred as
would equal the dividend payable on such other class or series determined as if
all such shares of such class or series had been converted to Common Stock and
all shares of Series B Preferred have been converted to Common Stock on the
record date for the determination of holders entitled to receive such dividend
or (ii) if such class or series of capital stock is not convertible into Common
Stock, at a rate per share of Series B Preferred determined by dividing the
amount of the dividend payable on each share of such class or series of capital
stock by the original issuance price of such class or series of capital stock
and multiplying such fraction by the Base Liquidation Price then in effect.
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(d) Notwithstanding the foregoing provisions of this Section 4:
(i) upon any conversion of the Series B Preferred pursuant to Section 2 above,
all accrued and unpaid dividends on such shares of Series B Preferred to and
until the date of such conversion shall be forfeited and shall not be due and
payable; and (ii) the payment of all or any portion of accrued and unpaid
dividends on Series B Preferred may be waived by the affirmative vote of holders
of not less than a majority in interest of the Series B Preferred, voting as a
separate class.
5. COVENANTS.
The Corporation shall not, without first having obtained the
affirmative vote or written consent of the holders of not less than two-thirds
in voting power of the outstanding shares of Series B Preferred:
(i) Amend, alter or repeal any provision of, or add any
provision to, the Corporation's Certificate of Incorporation or
By-Laws;
(ii) Alter or change the preferences, rights, privileges
or powers of, or the restrictions provided for the benefit of, the
Series B Preferred;
(iii) Increase the authorized number of shares of the
Series B Preferred or any other series of capital stock of the
Corporation;
(iv) Reclassify any shares of any class or series of the
capital stock of the Corporation into shares having any preference or
priority superior to or on a parity with any such preference or
priority of the Series B Preferred;
(v) Create, authorize or issue any other class or series
of capital stock or any security convertible into or evidencing the
right to purchase shares of any class or series of capital stock of the
Corporation having any preference or priority superior to or on a
parity with any such preference or priority of the Series B Preferred;
or
(vi) Effect (A) any Liquidation Event of the Corporation
or any of its subsidiaries, (B) any sale, lease, assignment, transfer
or other conveyance (other than the grant of a mortgage or security
interest in connection with indebtedness for borrowed money) of all or
substantially all the assets of the Corporation, or (C) any
consolidation or merger of the Corporation with or into any other
entity.
6. NO REISSUANCE OF SERIES B PREFERRED. No share or shares of
Series B Preferred acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the corporation shall
be authorized to issue.
7. REDEMPTION.
(a) At the written request in the form of notice to the
Corporation (the
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"Redemption Notice") of the holder or holders of at least a majority of the
shares of Series B Preferred then outstanding made at any time after March 31,
2001 , the Corporation shall redeem on the Redemption Date (as such term is
defined below), at a redemption price per share equal to the greater of the
original Conversion Price, being $2.00 per share, or the Conversion Price as
adjusted at the Redemption Date for such Series B Preferred, plus an amount
equal to any accrued or declared but unpaid dividends thereon (the "Redemption
Price"), all of the outstanding Series B Preferred. The Redemption Price may be
payable, at the Corporation's option, in cash or a number of shares of Common
Stock, as determined pursuant to Section 7(d) below.
(b) On and after the Redemption Date, all rights of all
holders with respect to those shares of Series B Preferred being redeemed by the
Corporation pursuant to Section 7(a), except the right to receive the Redemption
Price per share of Series B Preferred as hereinafter provided, shall cease and
terminate, and such shares of Series B Preferred shall no longer be deemed to be
outstanding, whether or not the certificates representing such shares have been
received by the Corporation; PROVIDED, HOWEVER, that, notwithstanding anything
to the contrary set forth herein, if the Corporation defaults in the payment of
the Redemption Price in respect of any share of Series B Preferred, then the
rights of the holder or holders with respect to such shares of Series B
Preferred shall continue until the Corporation cures such default.
(c) On the twentieth (20th) business day following the
date upon which the Corporation received the Redemption Notice (the "Redemption
Date") from a majority of holders of Series B Preferred the Corporation shall
pay each holder of Series B Preferred the applicable Redemption Price pursuant
to the terms of Section 7(a), provided that the Corporation or its transfer
agent has received the certificate(s) representing the shares of Series B
Preferred to be redeemed.
(d) The Redemption Price shall be payable, at the
Corporation's option, in cash or in shares of Common Stock, or any combination
thereof; PROVIDED that if the Corporation elects to pay the aggregate Redemption
Price in cash and shares of Common Stock, the cash portion shall be allocated
pro rata to all holders of Series B Preferred. In the event that the Corporation
elects to pay all or any portion of the Redemption Price in shares of Common
Stock, such shares of Common Stock shall be valued at the lowest of (i) the
Market Price Per Share (as defined below) of the Common Stock on March 31, 1999,
(ii) the Market Price Per Share of the Common Stock on the original issue date
of the Series B Preferred and (iii) the Market Price Per Share of the Common
Stock on the date which is two business days prior to the Redemption Date. The
"Market Price Per Share" of the Common Stock on any date shall mean the average
of the daily closing prices per share of Common Stock for the 20 consecutive
Trading Days immediately prior to such date; PROVIDED that in the event that the
current market price per share of Common Stock is determined during a period
following the announcement by the Corporation of (A) a dividend or distribution
on the Common Stock payable in shares of Common Stock or securities convertible
into shares of Common Stock or (B) any subdivision, combination or
reclassification of the Common Stock and prior to the expiration of 20 Trading
Days after the ex-dividend date for such dividend or distribution, or the record
date for such subdivision, combination or reclassification, then, and in each
such
14
case, the Current Market Price Per Share shall be appropriately adjusted to
reflect ex-dividend trading or such subdivision, combination or
reclassification. The closing price for each day shall be (i) if the Common
Stock is then quoted on the Nasdaq National Market, the Nasdaq SmallCap Market
or another primary national securities exchange, the closing bid price of the
Common Stock as reported by the Nasdaq National Market, the Nasdaq SmallCap
Market or such primary national securities exchange (as the case may be), (ii)
if the Common Stock is not then traded on the Nasdaq National Market, the Nasdaq
SmallCap Market nor on a national securities exchange, the closing bid price in
the over-the-counter market as reported by the National Association of
Securities Dealers' Automated Quotation System or, if not so reported, the price
as reported by the National Quotation Bureau, Inc., or any organization
performing a similar function or (iii) if no such prices are then furnished, the
fair market value of a share of Common Stock as mutually determined by the Board
of Directors of the Corporation and holders of at least a majority of the Series
B Preferred.
8. RESIDUAL RIGHTS. All rights accruing to the outstanding shares
of the Corporation not expressly provided for in the terms of the Series B
Preferred shall be vested in the Common Stock.
The holders of the Series B Preferred shall vote as a separate class
with respect to any matter or proposed action as to which applicable law or this
Certificate of Incorporation require the vote, consent, or approval of the
holders of the Series B Preferred.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its duly authorized officer this 31st day of March,
1999.
SUNPHARM CORPORATION
By: /s/ STEFAN BORG
---------------------------------
Name: Stefan Borg
Title: President