SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
LIFEPOINT, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
________________________________________________________________________________
1) Title of each class of securities to which transaction applies:
________________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
________________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________________________________
5) Total fee paid:
[_] Fee paid previously with preliminary materials:
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[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount previously paid:
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LIFEPOINT, INC.
1205 SOUTH DUPONT STREET
ONTARIO, CALIFORNIA 91761
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NOTICE OF CONSENT SOLICITATION
To the Stockholders of LifePoint, Inc.:
You are being asked to consider and provide written consent to the
following three proposals:
1. To approve the issuance and sale by LifePoint, Inc., up to
approximately 13,500 shares of Series D Convertible Preferred Stock (each with a
face amount of $1,000 per share and each convertible into 3,333 shares of Common
Stock) and Warrants to purchase shares of Common Stock (each share of Series D
Convertible Preferred Stock receives Warrants exercisable into 6,666 shares of
Common Stock), to a limited number of investors in private offerings and related
transactions as described in the accompanying consent statement. The requested
approval also includes approval of: (i) the issuance of an indeterminate number
of additional shares of Series D Preferred Stock and Common Stock that may be
issued in accordance with the terms of the Series D Preferred Stock and
Warrants, (ii) the issuance of an indeterminate number shares of Common Stock to
allow for the full conversion and exercise of the Series D Preferred Stock and
Warrants, and (iii) the potential issuance of up to an additional 31 million
shares of Common Stock resulting from existing anti-dilution provisions for the
Series C Preferred Stock resulting from the Series D Preferred Stock
transaction. The initial offering of Series D Preferred Stock and Warrants
closed on July 14, 2003. The number of shares of Common Stock issuable upon
conversion or exercise of the securities issued was in excess of 20% of our
currently outstanding shares of Common Stock and the shares were sold at a
discount to the market price of our Common Stock. As a result, the transaction
requires the approval of our stockholders under American Stock Exchange Company
Guide Rule ss.713 in order for us to obtain the required approval of the listing
application for the underlying shares.
2. To approve an amendment to the Company's Restated Certificate of
Incorporation increasing the total number of shares of our common stock, $.001
value per share (the "Common Stock"), authorized for issuance by 175,000,000
shares, so that the total number of shares of Common Stock authorized for
issuance will be 250,000,000 shares.
3. To approve an Amended and Restated Certificate of Incorporation to
incorporate revisions to the terms of our Series C Convertible Preferred Stock
that have previously been agreed to by holders of the Series C Convertible
Preferred Stock and to consolidate our charter into a single instrument.
Both Proposals 1 and 2 must be approved in order for the Company to
fulfill its obligations under the terms of the private offering described in
Proposal 1 above. Accordingly, if a stockholder withholds consent from either
Proposal 1 or 2, he or she is effectively withholding consent from both
proposals.
1
Attached is a consent statement that more fully describes the
proposals. Please give this information your careful attention.
THE BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE PROPOSALS AND
RECOMMENDS THAT STOCKHOLDERS CONSENT TO THEM.
Please act promptly in marking, signing, and dating the enclosed
consent card solicited by your board of directors, and delivering it by
facsimile to the Company (909-418-3003) or returning it in the return envelope
provided, which requires no postage if mailed in the United States.
Only stockholders of record at the close of business on the record date
set by the board of directors, July 6, 2003, are entitled to vote on the
proposals.
/s/ Linda H. Masterson
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Linda H. Masterson
President and Chief Executive Officer
August __, 2003
2
LIFEPOINT, INC.
1205 SOUTH DUPONT STREET
ONTARIO, CALIFORNIA 91761
(909) 418-3000
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CONSENT STATEMENT
August __, 2003
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This consent statement and related solicitation materials are being
furnished to you in connection with the solicitation of executed consents of the
stockholders of LifePoint, Inc. by the board of directors. This information is
being released to stockholders on or about August __, 2003.
We are soliciting consents to act upon the following proposals:
1. To approve the issuance and sale by LifePoint, Inc., of up to
approximately 13,500 shares of Series D Convertible Preferred Stock (each with a
face amount of $1,000 per share and each convertible into 3,333 shares of Common
Stock) and Warrants to purchase shares of Common Stock (each share of Series D
Convertible Preferred Stock receives Warrants exercisable into 6,666 shares of
Common Stock), to a limited number of investors in private offerings and related
transactions as described in the accompanying consent statement. The requested
approval also includes approval of: (i) the issuance of an indeterminate number
of additional shares of Series D Preferred Stock and Common Stock that may be
issued in accordance with the terms of the Series D Preferred Stock and
Warrants, (ii) the issuance of an indeterminate number shares of Common Stock to
allow for the full conversion and exercise of the Series D Preferred Stock and
Warrants, and (iii) the potential issuance of up to an additional 31 million
shares of Common Stock resulting from existing anti-dilution provisions for the
Series C Preferred Stock resulting from the Series D Preferred Stock
transaction. The initial offering of Series D Preferred Stock and Warrants
closed on July 14, 2003. The number of shares of Common Stock issuable upon
conversion or exercise of the securities issued was in excess of 20% of our
currently outstanding shares of Common Stock and the shares were sold at a
discount to the market price of our Common Stock. As a result, the transaction
requires the approval of our stockholders under American Stock Exchange Company
Guide Rule ss.713 in order for us to obtain the required approval of the listing
application for the underlying shares.
2. To approve an amendment to the Company's Restated Certificate of
Incorporation increasing the total number of shares of our common stock, $.001
value per share (the "Common Stock"), authorized for issuance by 175,000,000
shares, so that the total number of shares of Common Stock authorized for
issuance will be 250,000,000 shares.
3. To approve an Amended and Restated Certificate of Incorporation to
incorporate revisions to the terms of our Series C Convertible Preferred Stock
that have previously been agreed to by holders of the Series C Convertible
Preferred Stock and to consolidate our charter into a single instrument.
3
Both Proposals 1 and 2 must be approved in order for us to fulfill our
obligations under the terms of the private offering described in Proposal 1
above. Accordingly, if a stockholder withholds consent from either Proposal 1 or
2, he or she is effectively withholding consent from both proposals. If
Proposals 1 and 2 are not approved, the second closing of the Series D Preferred
Stock offering will not occur, and we will be obligated to repurchase all of the
shares Series D Preferred Stock sold in the first closing, plus accrued and
unpaid dividends on such shares through such date, for an aggregate repurchase
price of $2,246,500.
THE BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE PROPOSALS AND
RECOMMENDS THAT THE STOCKHOLDERS CONSENT TO THEM.
Each member of our Board of Directors who owns shares of our Common
Stock and our largest stockholder, the General Conference Corporation of
Seventh-Day Adventists, have indicated that they will consent to each of the
proposals. These shares total approximately 23% of our outstanding voting stock
as of July 6, 2003, the record date for this consent solicitation.
An explanation of the consent solicitation process, including the date
on which consents expire and the revocability of consents is provided in the
section of this consent statement entitled "Voting Rights and Solicitation."
A form of consent is enclosed. Stockholders are requested to mark,
sign, and date the enclosed form of consent and return it as promptly as
possible by facsimile (909-418-3003) or in the envelope provided with these
materials, which requires no postage if mailed in the United States.
Stockholders of record at the close of business on July 6, 2003 are
entitled to vote on the proposals. At the record date, 38,027,320 shares of
Common Stock, which is the only class entitled to vote, were issued, outstanding
and entitled to vote. Each stockholder of record is entitled to one vote for
each share of Common Stock held as of the close of business on the record date.
Our outstanding shares of Series C Convertible Preferred Stock have no voting
rights, except as required by Delaware law. The holders of the outstanding
Series C Convertible Preferred Stock did, however, previously consent pursuant
to our Restated Certification of Incorporation to the offering of Series D
Convertible Preferred Stock and Warrants (Proposal 1) and the changes to the
terms of the Series C Convertible Preferred Stock reflected in Proposal 3. Since
the record date of July 6, 2003 was established prior to the issuance of any
shares of Series D Preferred Stock, the holders of Series D Preferred Stock are
not entitled to vote for or against any of the three proposals contained in this
consent solicitation. Only holders of our Common Stock on the record date are
entitled to vote for these proposals.
THE CONSENT PROCEDURES
The matters being considered by the stockholders are being submitted
for action by written consent, rather than by votes cast at a meeting. Section
228 of the General Corporation Law of the State of Delaware states that, unless
otherwise provided in the certificate of incorporation, any action that may be
taken at any annual or special meeting of stockholders, may be taken without a
meeting, without prior notice and without a vote, if:
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- consents in writing, setting forth the action so taken, are
signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize
or take the action at a meeting at which all shares entitled to
vote on the matter were present and voted; and
- those consents are delivered to the corporation by delivery to
its registered office in Delaware, its principal place of
business, or an officer or agent of the corporation having
custody of the book in which proceedings of meetings of
stockholders are recorded.
Section 213(b) of the Delaware General Corporation Law sets forth the
rules for ascertaining the record date to determine which stockholders of a
corporation are eligible to consent to action by written consent under to
Section 228 of the Delaware General Corporation Law. Section 213(b) provides in
relevant part:
(b) In order that the corporation may determine the
stockholders entitled to consent to corporate action in
writing without a meeting, the board of directors may fix a
record date, which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the
board of directors, and which date shall not be more than ten
days after the date upon which the resolution fixing the
record date is adopted by the board of directors. If no record
date has been fixed by the board of directors, the record date
for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by
the board of directors is required by this chapter, shall be
the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the
corporation by delivery to its registered office in this
State, its principal place of business, or an officer or agent
of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded.
Our Board set July 6, 2003 as the record date for this Consent
Solicitation. Our restated certificate of incorporation contains no provision or
language in any way limiting the right of stockholders to take action by written
consent.
VOTING RIGHTS AND SOLICITATION
WHAT VOTE IS REQUIRED?
In the case of this consent solicitation, written, unrevoked consents
of the holders of a majority of the shares of the Common Stock outstanding and
entitled to vote on July 6, 2003, the record date for determining stockholders
entitled to express consent to the actions proposed in this solicitation, are
required for approval of each proposal.
These consents must be delivered to us as described above to effect the
proposals for which stockholder consents are being solicited.
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WHAT IF I SIGN A CONSENT BUT DO NOT INDICATE MY VOTE?
If a shareholder specifies how the consent card is to be voted with
respect to the proposals, the consent card will be voted in accordance with that
specification. If a shareholder fails to so specify, the consent card will be
deemed a consent to each of the proposals.
HOW ARE ABSTENTIONS AND BROKER NON-VOTES TREATED?
Consent cards that reflect abstentions, withheld votes, and broker
non-votes will be treated as voted for purposes of determining the affirmative
vote necessary to approve the proposals. As such, abstentions, withheld votes,
and broker non-votes have the effect of votes against the proposals.
WHAT IF I DO NOT CONSENT BUT THE PROPOSAL IS STILL APPROVED?
Stockholders who do not consent to the approval of the proposals by
execution of the consent card will nonetheless be bound by the proposals if
sufficient written consents are received by us to approve the proposals as set
forth above. No dissenters' or similar rights apply to stockholders who do not
approve the proposals.
HOW WILL CONSENTS BE SOLICITED?
We will bear the entire cost of solicitation, including the
preparation, assembly, printing, and mailing of this consent statement, the
consent, and any additional solicitation material furnished to stockholders.
Copies of solicitation material will be furnished to fiduciaries and custodians
holding shares in their names that are beneficially owned by others. The
original solicitation of consents by mail may be supplemented by a solicitation
by telephone, telegram, or other means by our directors, officers, or employees.
No additional compensation will be paid to these individuals for any of those
services. Except as described above, we do not presently intend to solicit
consents other than by mail.
CAN I REVOKE MY CONSENT?
A consent executed by a stockholder may be revoked at any time up until
signed unrevoked consents by the holders of a majority of the votes of our
Common Stock outstanding on the consent record date have been delivered to us in
accordance with Section 228 of the General Corporation Law of the State of
Delaware. To revoke a consent, a stockholder must deliver a written, signed and
dated revocation prior to that time. A revocation may be in any written form
validly signed by the record holder as long as it clearly states that the
consent previously given is no longer effective. The revocation must be
delivered to our principal executive offices or any other address provided by us
for that purpose.
WHEN DO THE CONSENTS EXPIRE?
All consents, regardless of when dated, will expire unless valid,
unrevoked consents constituting the requisite number of outstanding shares of
our Common Stock are delivered to us on or before 60 days of the earliest dated
consent delivered to us as required by Delaware law.
WILL NON-CONSENTING STOCKHOLDERS RECEIVE NOTICE OF APPROVAL OF THE PROPOSALS?
If the proposals described in this consent statement are approved, we
will notify promptly the stockholders who have not consented to the actions
taken as required by Delaware law.
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PROPOSAL 1
APPROVAL OF THE ISSUANCE OF SERIES D PREFERRED STOCK
AND WARRANTS AND RELATED TRANSACTIONS
We are seeking stockholder approval for the purposes of AMEX Company
Guide Rule ss.713 of the issuance and sale of up to approximately 13,500 shares
of Series D Convertible Preferred Stock (each with a face amount of $1,000 per
share and each convertible into 3,333 shares of Common Stock") and Warrants to
purchase shares of Common Stock (each share of Series D Convertible Preferred
Stock receives Warrants exercisable into 6,666 shares of Common Stock), in
connection with a private placement of Series D Preferred Stock and Warrants.
The requested approval also includes approval of: (i) the issuance of an
indeterminate number of additional shares of Series D Preferred Stock and Common
Stock that may be issued in accordance with the terms of the Series D Preferred
Stock and Warrants, including shares of Series D Preferred Stock convertible
into approximately 9,000,000 shares of Common Stock that may be issued for the
6% dividend on the Series D Preferred Stock, (ii) the issuance of approximately
135 million shares of Common Stock to allow for the full conversion and exercise
of the Series D Preferred Stock and Warrants, and (iii) the potential issuance
of up to an additional 31 million shares of Common Stock resulting from existing
anti-dilution provisions for the Series C Preferred Stock resulting from the
Series D Preferred Stock transaction, as more fully described below. These
transactions are collectively referred to as the "Financing Transaction". The
initial closing of the Financing Transaction occurred on July 14, 2003. The
principal terms of the Financing Transaction are described further below.
In November 2002, we obtained $2.5 million of a secured debt financing
under $10 million working capital line of credit with our largest investor, the
General Conference Corporation of Seventh-Day Adventists. In January 2003, this
investor notified us that it was exercising its right to not extend the
remaining $7.5 million under the credit facility. We believe that this investor
took such action due to a change in its internal investment parameters and
management and that this investor took similar actions with at least one
additional small cap investment. The $2.5 million already drawn under the credit
facility has remained in place in accordance with its terms. Under the credit
facility, interest accrues at a rate of 16% per year, 6% of which is payable
quarterly and 10% of which compounds quarterly and is payable at maturity, and
all amounts outstanding are past due.
In February 2003, we obtained a $1.0 million secured bridge loan from a
current investor, Jonathan J. Pallin. Subsequently, Mr. Pallin has increased the
amount of the bridge loan to $1,120,000. Under the bridge loan, interest accrues
at a rate of 3% per year and is payable at maturity, and all amounts outstanding
are due on the earlier to occur of September 30, 2003 or our next equity
financing in which we raise $4 million.
The holders of our secured indebtedness, the General Conference
Corporation of Seventh-Day Adventists and Jonathan J. Pallin, have agreed to
convert the approximately $3.6 million of principal of secured indebtedness
described above, plus all accrued interest and fees, which are currently
$636,000, into Series D Preferred Stock and Warrants at the second closing of
the Financing Transaction. As such, we will have no indebtedness of borrowed
money outstanding following the second closing of the Financing Transaction. We
do expect, however, to have approximately $2.5 million of outstanding trade
payables (approximately $500,000 of which will be classified as long-term
indebtedness) and $100,000 capitalized lease obligations outstanding following
the second closing of the Financing Transaction.
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From January through July, 2003, we engaged in an extensive search for
long-term financing, in conjunction with two investment bankers. We also made
immediate changes to reduce our cash usage, including making significant
reductions in headcount and employee furloughs and reducing facilities expenses,
certain research and development expenses and certain outside consulting and
contract costs. Nonetheless, we continued to deplete significantly our existing
cash balance. By the time of the initial closing of the Financing Transaction on
July 14, 2003, our cash balance had essentially been exhausted and we had a
significant negative working capital balance. The initial closing of the
Financing Transaction was the only alternative for us to continue our business
outside of a Chapter 11 bankruptcy proceeding.
In the initial closing of the Financing Transaction, we issued 2,112
shares of Series D Preferred Stock and Warrants to purchase 14,078,592 shares of
Common Stock. The terms of the transaction are described below under "Principal
Terms of Financing Transaction." The shares of Common Stock initially issuable
upon conversion or exercise of the Series D Preferred Stock and Warrants issued
in the initial closing of the Financing Transaction constitute more than 20% of
the number of shares of our Common Stock outstanding. In addition, the
conversion and exercise prices of those securities was less than the market
value of our Common Stock at the date of issuance.
Our Common Stock is listed for trading on The American Stock Exchange
("Amex") Company Guide. As a result, we must comply with Amex corporate
governance rules contained in the Amex Company Guide.
Amex Company Guide Rule 713 requires stockholder approval as a
prerequisite to approval of applications to list additional shares issued in a
non-public offering where:
(1) the securities issued are common stock or securities
convertible into or exercisable for common stock;
(2) the price of the securities is less than the greater
of book or market value of the common stock; and
(3) the proposed issuance would result in the issuance of
20% or more of our common stock before the issuance.
Additionally, Amex interprets Amex Company Guide Rule 713 to require
stockholder approval as a prerequisite to approval of applications to list
additional shares issued that would result in a change of control. There is no
concrete test to determine the amount of securities that we may issue to a party
without triggering this rule.
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The exigent nature of our financial condition did not allow us
sufficient time to solicit the consent of the holders of our Common Stock prior
to the sale of the Series D Preferred Stock and Warrants in the initial closing
of the Financing Transaction. As such, after consultation with AMEX
representatives we determined to complete the initial closing of the Financing
Transaction. The second closing of the Financing Transaction is, however,
expressly conditioned upon, among other things, obtaining stockholder approval.
Principal Terms of Financing Transaction
The following summary of the principal terms of the Financing
Transaction is qualified in its entirety by the Certificate of Designations of
Series D Convertible Preferred Stock, Securities Purchase Agreement,
Registration Rights Agreement and form of Warrants which were filed as exhibits
to our Current Report on Form 8-K dated July 15, 2003 filed with the Securities
and Exchange Commission and are incorporated herein by reference. We urge you to
read such documents when deciding whether to consent to approval of the
Financing Transaction.
In July 2003, we closed a $2.1 million private placement of Series D
Preferred Stock and Warrants. At this initial closing of the Financing
Transaction, we issued 2,112 shares of Series D Preferred Stock and Warrants to
purchase 14,078,592 shares of Common Stock. The investors also agreed to
purchase an additional $6.3 million of Series D Preferred Stock and Warrants at
a second closing. In addition to this commitment of an additional $6.3 million
from the Series D investors at the second closing, the holders of our secured
indebtedness have also agreed to convert their approximately $3.6 million of
principal of secured indebtedness, plus all accrued interest and fees, which are
currently $636,000, into Series D Preferred Stock and Warrants at the second
closing. The second closing is subject to the satisfaction of the following
closing conditions: (i) our receipt of stockholder approval of the private
placement under AMEX rules (Proposal 1 in this Consent Statement) and of an
amendment to our Restated Certificate of Incorporation increasing the amount of
our authorized Common Stock (Proposal 2 in this Consent Statement), (ii) our
negotiating certain compromise agreements with holders representing at least 75%
of our outstanding trade payables, and (iii) other customary closing conditions.
With respect to negotiating compromise agreements with holders of our
outstanding trade payables, we have retained a company who specializes in
negotiating such compromise agreements, such negotiations have begun and are
ongoing.
If the second closing does not occur, before September 30, 2003, we
will be obligated to repurchase all of the shares Series D Preferred Stock sold
in the first closing, plus accrued and unpaid dividends on such shares through
such date, for an aggregate repurchase price of $2,246,500. In that event, we
believe that the only alternative for the Company would be to liquidate its
assets or file for bankruptcy under Chapter 11.
The Series D Preferred Stock has an aggregate stated value of $1,000
per share and is entitled to a quarterly dividend at a rate of 6% per annum,
payable in additional shares of Series D Preferred Stock or cash at our option.
The Series D Preferred Stock is entitled to a liquidation preference over the
Common Stock and our Series C Convertible Preferred Stock upon a liquidation,
dissolution, or winding up of the Company. The stockholder approval sought
through this Consent Statement would permit the issuance of up to13,500 shares
of Series D Preferred Stock (approximately $13.5 million aggregate stated
value).
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The Series D Preferred Stock is convertible at the option of the holder
into Common Stock at a conversion price of $0.30 per share, subject to (i)
full-ratchet anti-dilution adjustment upon any issuance of equity securities at
a price less than the conversion price of the Series D Preferred Stock
(excluding issuances to directors, officers, employees or consultants under a
Board approved equity incentive plan, issuance of Common Stock upon conversion
of the Series D Preferred Stock, or issuance of securities in connection with a
bona fide business acquisition or financing) and (ii) non-price based
anti-dilution adjustments (e.g., for stock splits, dividends, mergers, etc.).
During negotiations, the Series D investors negotiated for a conversion price of
$0.30 per share in order to consummate the transaction. We evaluated our lack of
alternatives and determined to accept this conversion price.
Following the second anniversary of the closing, we generally have the
right to force conversion of all of the shares of Series D Preferred Stock
provided that a registration statement covering the underlying shares of Common
Stock is in effect and the 20-day volume weighted average price of our Common
Stock is at least 200% of the conversion price.
We are required to redeem any shares of Series D Preferred Stock that
remain outstanding on the third anniversary of the Closing Date, generally at
our option, in either (i) cash equal to the face amount of the Series D
Preferred Stock plus the amount of accrued dividends, or (ii) shares of our
Common Stock equal to the lesser of the then applicable conversion price or 90%
of the 90-day volume weighted average price of the Common Stock ending on the
date prior to such third anniversary.
Each share of Series D Preferred Stock is generally entitled to vote
together with the Common Stock on an as-converted basis. However, since the
record date of July 6, 2003 was established prior to the issuance of any shares
of Series D Preferred Stock, the holders of Series D Preferred Stock are not
entitled to vote for or against any of the three proposals contained in this
consent solicitation.
During negotiations, in order to consummate the transaction, one of the
investors in the Financing Transaction, New England Partners, insisted upon
appointing a representative to our Board of Directors, and another investor in
the Financing Transaction, BayStar Capital II, LP, insisted on appointing a
representative to attend our Board of Directors meetings in a non-voting
observer capacity. BayStar and New England Partners were the lead investors in
the Financing Transaction. If they had not agreed to the terms of the Financing
Transaction, the Financing Transaction would not have been consummated. We
evaluated our lack of alternatives and determined that such appointments were
not unreasonable under the circumstances. As such, we agreed to allow New
England Partners to appoint a representative to our Board of Directors, and
BayStar Capital II, LP is entitled to appoint a representative to attend our
Board of Directors meetings in a non-voting observer capacity. Neither investor
has selected their respective representative, and we did not specify a time
period by which such representatives must be selected.
Upon any change of control, the holders of the Series D Preferred Stock
may require us to redeem their shares for cash at a redemption price equal to
the greater of (i) the fair market value of such Series D Preferred Stock and
(ii) the liquidation preference for the Series D Preferred Stock. For a
three-year period following the Closing, each holder of Series D Preferred Stock
generally has a right to purchase its pro rata portion of any securities we may
offer in a privately negotiated transaction.
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The purchasers of the Series D Preferred Stock in the initial closing
of the Financing Transaction also received for no additional consideration
warrants exercisable for an aggregate of 14,078,592 shares of Common Stock at an
initial exercise price of $0.50 per share, subject to non-price based
anti-dilution adjustments (e.g., for stock splits, dividends, mergers, etc.). If
the Warrants are exercised within 12 months of the closing of the Financing
Transaction, however, the exercise price will be $0.30 per share, subject to
non-price based anti-dilution adjustments (e.g., for stock splits, dividends,
mergers, etc.). The Warrants expire on July 13, 2008. The stockholder approval
sought through this Consent Statement would permit the issuance of warrants to
purchase up to approximately 90 million shares of Common Stock.
We plan to use the proceeds from the Financing Transaction for general
corporate purposes, working capital, and the partial payment of outstanding
accounts payable. The terms of the Financing Transaction limit our ability to
use the proceeds from the Financing Transaction for the payment of outstanding
accounts payable. We may use up to $350,000 of the proceeds from the first
closing to pay vendors determined to be critical and up to $1,500,000 (including
the aforesaid $350,000) in total from the proceeds of both the first and second
closings to pay vendors also determined to be critical.
As a condition to the initial closing of the Financing Transaction, the
holders of our Series C Convertible Preferred Stock (the "Series C Preferred
Stock") consented to the issuance of the Series D Preferred Stock and Warrants
and agreed to the following modifications of their rights: (i) the conversion
price of the Series C Preferred Stock was permanently set at $3.00 per share,
and all reset and price-based anti-dilution provisions were eliminated; (ii)
each holder of Series C Preferred Stock was offered the opportunity to purchase
Series D Preferred Stock, and for each $1 of Series D Preferred Stock so
purchased, $2 of Series C Preferred Stock retained a one-time conversion price
reset to $0.30 per share, and the same portion of warrants held by any such
holders received a reset on the exercise price of warrants held by such holder
to $0.50 per share, with the number of shares issuable upon exercise of the
warrants remaining the same; (iii) the Series C Preferred Stock would convert
into Common Stock at maturity, unless earlier converted; (iv) all future
dividends on the Series C Preferred Stock would be accrued and paid at
conversion; and (v) the Series C Preferred Stock would become junior to the
shares of Series D Preferred Stock upon liquidation. With respect to clause (ii)
above, the holders of our Series C Preferred Stock negotiated this arrangement
directly with the Series D investors in connection with granting their consent
to the Financing Transaction in order to limit the dilutive effect the Financing
Transaction would have on the Series C Preferred Stock. If Proposal 3 is
approved, these amendments will be reflected in an amended and restated
certificate of incorporation. If Proposal 3 is not approved, we and the holders
of our Series C Preferred Stock will still remain contractually bound to the
preceding amendments, however, such amendments will not be reflected in our
certificate of incorporation.
11
Pursuant to the opportunity to purchase Series D Preferred Stock
described in clause (ii) of the preceding paragraph, holders of our Series C
Preferred Stock committed to invest an aggregate of $4,201,000 in Series D
Preferred Stock and Warrants in the Financing Transaction. Accordingly, as a
result of the initial closing of the Financing Transaction, 30,873 shares of
Series C Preferred Stock ($35 stated value) received a one-time conversion price
reset to $0.30 per share and warrants to purchase an aggregate of 360,291 shares
of Common Stock held by those holders received a reset on the exercise price of
the warrants to $0.50 per share. In the event that the second closing of the
Financing Transaction is consummated, an additional 89,155 shares of Series C
Preferred Stock ($35 stated value) will receive a one-time conversion price
reset to $0.30 per share and warrants to purchase an aggregate of an additional
1,040,443 shares of Common Stock held by those holders will receive a reset on
the exercise price of the warrants to $0.50 per share.
Effect on Existing Stockholders
The Financing Transaction treats all existing holders of our Common
Stock identically. The investors are purchasing the Series D Preferred Stock and
Warrants from us and not from any existing holder of Common Stock. As a result,
all existing holders of our Common Stock will be diluted proportionately. The
shares of Series D Preferred Stock and Warrants issued in the initial closing of
the Financing Transaction, plus the shares issued as a result of applicable
anti-dilution adjustments, represent approximately 31% of our outstanding Common
Stock on a fully diluted basis. If the second closing of the Financing
Transaction is consummated, the shares of Series D Preferred Stock and Warrants
issued in both closings, plus the shares issued as a result of applicable
anti-dilution adjustments, will represent approximately 71% of our outstanding
Common Stock on a fully diluted basis. Therefore, all existing holders of our
capital stock, other than the new investors, will have their ownership interests
in the Company diluted by an aggregate of 28% or 71% following the completion of
the initial closing and second closing of the Financing Transaction,
respectively. In other words, the existing holders of our capital stock, who as
a group-owned 100% of our capital stock prior to the Financing Transaction, will
own as a group only approximately 72% and 29% of our outstanding Common Stock as
a fully-diluted basis following the completion of the initial closing and second
closing of the Financing Transaction, respectively. In addition, if the second
closing of the Financing Transaction is consummated, our largest stockholder, by
virtue of its existing holdings and the conversion of its secured indebtedness
into Series D Preferred Stock and Warrants, will own approximately 18% of our
Common Stock on a fully diluted basis.
We are obligated to file a registration statement covering the
underlying shares of Common Stock issuable upon conversion of the Series D
Preferred Stock and exercise of the Warrants. We must file the registration
statement (i) within 30 days following the first closing if this Consent
Statement is not subject to review by the Commission, or (ii) within 60 days
following the first closing if this Consent Statement is subject to review by
the Commission (the "Filing Date"). If the registration statement is not filed
with the Commission prior to the Filing Date or declared effective by the
Commission within 90 days from the Filing Date, then we will be obligated to pay
a penalty to each holder of registrable securities in an amount equal to the
aggregate purchase price of the Series D Preferred Stock and Warrants purchased
by such holder, multiplied by (A) one one-hundredth for the first 30 day period
following such date or (B) one and one half hundredth for each thirty day period
thereafter.
12
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 10, 2003, certain information
with respect to (1) any person known to us who or which beneficially owned more
than 5% of the Common Stock, (2) each director of the Company, (3) the Chief
Executive Officer and (3) all directors and executive officers as a group. Each
beneficial owner who is a natural person has advised us that he or she has sole
voting and investment power as to the shares of the Common Stock, except that,
until a common stock purchase warrant or an option is exercised, or a share of
preferred stock is converted, there is no voting right.
Percentage of
Number of Shares Common Stock
of Common Stock Beneficially
Name and Address of Beneficial Owner Beneficially Owned Owned (1)
- ------------------------------------------------------------------------------------------------------------
General Conference Corporation of Seventh-day Adventists 9,473,189 (2) 19.9%
12501 Old Columbia Pike
Silver Spring, MD 20804-6600
Linda H. Masterson (3) 1,637,384 (4) 4.3%
1205 South Dupont Street
Ontario, CA 91761
Peter S. Gold (5) 929,167 (6) 2.4%
1205 South Dupont Street
Ontario, CA 91761
Paul Sandler (5) 615,805 (7) 1.6%
1205 South Dupont Street
Ontario, CA 91761
Charles J. Casamento (5) 17,292 (8) nil
1205 South Dupont Street
Ontario, CA 91761
Stan Yakatan (5) 17,292 (8) nil
1205 South Dupont Street
Ontario, CA 91761
Roger Stoll (5) 4,375 (9) nil
1205 South Dupont Street
Ontario, CA 91761
All directors and executive 3,570,177 (10) 9.2%
Officers as a group (8 persons)
13
1. The percentages computed in this column of the table are based
upon 38,027,320 shares of the Common Stock which were
outstanding on July 10, 2003. Effect is given, pursuant to
Rule 13d-3(1)(i) under the Exchange Act, to shares issuable
upon the exercise of common stock purchase warrants and
options currently exercisable or exercisable within 60 days of
July 10, 2003, and to the shares issuable upon the conversion
of shares of the Company's Series C Preferred Stock, $.001 par
value (the "Series C Preferred Stock"), all of which shares
are currently.
2. The shares of the Common Stock reported in the table include
(a) 240,000 shares issuable upon the exercise by this holder
and its affiliate at $3.00 per share of a common stock
purchase warrant expiring February 28, 2005; (b) 333,424
shares issuable upon the conversion of 28,571 shares of the
Series C Preferred Stock; (c) 333,424 shares issuable upon the
exercise at $3.00 per share of a common stock purchase warrant
expiring June 19, 2006; (d) 500,000 shares issuable upon the
exercise at $3.25 per share of a common stock purchase warrant
expiring January 29, 2007; (e) 333,424 shares estimated to be
issued upon the future redemptions of premium with respect to
the 28,571 shares of the Series C Preferred Stock; (f)
1,500,000 shares issuable upon the exercise at $3.00 per share
of a common stock purchase warrant expiring November 11, 2007;
and (g) 25,000 shares issuable upon the exercise at $3.00 per
share of a common stock purchase warrant expiring March 30,
2008.
3. A director of the Company since May 31, 1996; effective August
1, 1996, its President; effective May 23, 1997, its Chief
Executive Officer; and, effective June 16, 2000, its Chairman
of the Board.
4. The shares of the Common Stock reported in this table as being
beneficially owned by Ms. Masterson are held, or, following
exercise, will be held by Robert P. Masterson and Linda H.
Masterson, Trustees of Masterson Family Trust, dated September
23, 2000 and include (a) 6,992 shares issuable upon the
exercise at $.50 per share of an option expiring June 29,
2008; (b) 52,500 shares issuable upon the exercise at $1.67
per share of an option expiring October 9, 2009; (c) 85,000
shares issuable upon the exercise at $6.00 per share of an
option expiring October 19, 2010 and (d) 75,340 shares
issuable upon the exercise at $3.17 per share of two options
each expiring December 6, 2011.
5. A director of the Company.
6. The shares of the Common Stock reported in the table include
(a) 15,000 shares issuable upon the exercise at $1.81 per
share of an option expiring April 15, 2009; (b) 8,333 shares
issuable upon the exercise at $3.22 per share of an option
expiring April 15, 2010; and (c) 5,833 shares issuable upon
the exercise at $4.09 per share of an option expiring April
15, 2011.
14
7. The shares of the Common Stock reported in the table include
(a) 15,000 shares issuable upon the exercise at $1.81 per
share of an option expiring April 15, 2009; (b) 8,333 shares
issuable upon the exercise at $3.22 per share of an option
expiring April 15, 2010; (c) 3,921 shares issuable upon the
exercise at $2.55 per share of an option expiring January 20,
2010; (d) 5,833 shares issuable upon the exercise at $4.09 per
share of an option expiring April 15, 2011; (e) 3,183 shares
issuable upon the exercise at $3.77 per share of an option
expiring December 14, 2010; and (f) 4,380 shares issuable upon
the exercise at $2.64 per share of an option expiring December
6, 2011. The shares reported in the table also include (w)
105,030 shares issuable upon the conversion of 9,000 shares of
the Series C Preferred Stock and (x) 105,030 shares issuable
upon the exercise at $3.00 per share of a common stock
purchase warrant expiring September 27, 2006, both of which
securities being held in the name of PMLDSS Ltd., a family
partnership of which Dr. Sandler is the President of the
corporate general partner and, accordingly, may be deemed the
beneficial owner of such securities. The table also reflects
as beneficially owned: (y) the Company's estimate as to an
aggregate of 105,030 shares to be issued to PMLDSS Ltd. upon
the future redemptions of premium with respect to the shares
of the Series C Preferred Stock.
8. The shares of the Common Stock reported reflected in the table
reflect (a) 11,875 shares issuable upon the exercise at $6.56
per share of an option expiring June 15, 2010 and (b) 5,417
shares issuable upon the exercise at $3.48 per share of an
option expiring June 15, 2011.
9. The shares of the Common Stock reported reflected in the
tables reflect 4,375 shares issuable upon the exercise at
$1.85 per share of an option expiring July 8, 2012.
10. The shares of the Common Stock reported in the table include
(a) those issuable upon the exercise of the common stock
purchase warrants and the options described in Notes (5), (7),
(8) and (9) to the table; (b) an aggregate of 145,008 shares
issuable to an executive officer upon his exercise at $.50 per
share of two options expiring March 19, 2008 and one option
expiring June 30, 2008; (c) 36,250 shares issuable to the same
executive officer upon his exercise at $1.67 per share of an
option expiring October 9, 2009; (d) 42,500 shares issuable to
the same executive officer upon his exercise at $6.00 per
share of an option expiring October 19, 2010; and (e) 44,145
shares issuable to the same executive officer upon his
exercise at $3.17 per share of two options each expiring
December 6, 2011.
15
SECURITY OWNERSHIP OF PARTICIPANTS IN THE
SERIES D PREFERRED FINANCING
The following table sets forth, as of July 10, 2003, certain information
with respect to the participants in the Series D financing. Effect is given,
pursuant to Rule 13d-3(1)(i), under the Securities Exchange Act of 1934, to
shares issuable upon the conversion of shares of our Series C and Series D
preferred stock, exercises of the investor warrants and our estimate as to the
amount of premium to be paid to holders of the Series C and Series D preferred
stock.
Each of the following symbols as used in the following table shall have
the meaning assigned to it as indicated below:
Symbol Meaning
- --------------------------------------------------------------------------------
OS Shares of our common stock beneficially owned by the stockholders
acquired other than in connection with the Series C or Series D
Preferred stock transactions.
- --------------------------------------------------------------------------------
OW Shares of our common stock issuable upon exercise of our investor
warrants acquired other than in connection with the Series C or Series
D Preferred stock transactions.
- --------------------------------------------------------------------------------
CS Shares of common stock issuable upon the conversion of our Series C
preferred stock at the original conversion price of $3.00 per share.
- --------------------------------------------------------------------------------
CW Shares of common stock issuable upon exercise of our investor warrants
issued in connection with the Series C private placement.
- --------------------------------------------------------------------------------
CP Shares of common stock estimated to be issuable upon redemption of
premium on our Series C preferred stock.
- --------------------------------------------------------------------------------
CA Shares of common stock issuable to the Series C preferred stock holders
who, by virtue of their participation in the Series D preferred stock
placement, had their conversion price reset to $0.30 per share.
- --------------------------------------------------------------------------------
DS Shares of common stock issuable upon the conversion of our Series D
preferred stock at the original conversion price of $0.30 per share.
- --------------------------------------------------------------------------------
DW Shares of common stock issuable upon exercise of our investor warrants
issued in connection with the Series D private placement.
- --------------------------------------------------------------------------------
DP Shares of common stock etimated to be issuable upon redemption of
premium on our Series D preferred stock.
- --------------------------------------------------------------------------------
NO Shares of our common stock issuable upon exercise of our investor
warrants originally acquired in connection with our two debt
transactions.
- --------------------------------------------------------------------------------
ND Shares of common stock issuable to the debt holders who, by agreement
with the Series D preferred investors, have agreed to convert their
debt into shares of the Series D preferred stock.
- --------------------------------------------------------------------------------
16
NW Shares of common stock issuable upon exercise of our investor warrants
issued to the debt holders who, by agreement with the Series D
preferred investors, have agreed to convert their debt into shares of
the Series D preferred stock.
- --------------------------------------------------------------------------------
NP Shares of common stock estimated to be issuable upon redemption of
premium on our Series D preferred stock.
- --------------------------------------------------------------------------------
TS The total of all of the foregoing shares of our common stock
- --------------------------------------------------------------------------------
Where a particular symbol is not shown the stockholder, her, she or it does not
own shares falling in that category. In addition, because a stockholder may
convert his, her or its shares of our Series C and Series D preferred stock
prior to the respective maturity date, the stockholder may not receive all of
the shares shown in the table for the symbols CP and DP. If this occurs, the
stockholder's total shown in the table for the symbol TS would also be reduced.
TABLE OF SERIES D PARTICIPANTS
Beneficial ownership Beneficial ownership Beneficial ownership at
Name at July 6, 2003 after initial closing second closing
- ------------------------------- ----------------------- ------------------------ --------------------------
# Shares % # Shares % # Shares %
St Cloud Investments Ltd.
OS 956,511 956,511 956,511
OW 87,500 87,500 87,500
CS 1,252,017 1,252,017 1,252,017
CW 1,252,017 1,252,017 1,252,017
CP - 1,251,658 1,251,658
CA - 2,816,142 11,264,568
DS - 1,666,500 6,262,707
DW - 3,333,000 12,525,414
DP - 286,001 1,144,003
---------------- ---------------- ----------------
TS 3,548,045 8.7% 12,654,440 25.3% 35,749,489 48.9%
General Conference Corporation of Seventh-day Adventists
OS 6,211,137 6,211,137 6,211,137
OW 740,000 740,000 740,000
CS 333,424 333,424 333,424
CW 333,424 333,424 333,424
CP - 333,328 333,328
NO 1,525,000 1,525,000 1,525,000
ND - - 9,039,096
NW - - 18,078,192
NP - - 1,608,658
---------------- ---------------- ----------------
TS 9,142,985 22.3% 9,476,313 22.9% 38,202,259 54.6%
17
Beneficial ownership Beneficial ownership Beneficial ownership at
Name at July 6, 2003 after initial closing second closing
- ------------------------------- ----------------------- ------------------------ --------------------------
# Shares % # Shares % # Shares %
Jonathan J. Pallin Revocable Trust
OS 662,000 662,000 662,000
NO 1,120,000 1,120,000 1,120,000
ND - - 5,146,152
NW - - 10,292,304
NP - - 915,844
---------------- ---------------- ----------------
TS 1,782,000 4.6% 1,782,000 4.6% 18,136,300 32.7%
BayStar Capital II, L.P.
DS - 833,250 3,333,000
DW - 1,666,500 6,666,000
DP - 151,972 607,887
---------------- ---------------- ----------------
TS - 0.0% 2,651,722 6.5% 10,606,887 21.8%
Lagunitas Partners L.P.
DS - 749,925 2,999,700
DW - 1,499,850 5,999,400
DP - 136,775 547,099
---------------- ---------------- ----------------
TS - 0.0% 2,386,550 5.9% 9,546,199 20.1%
New England Partners Capital, L.P.
OS 187,117 187,117 187,117
CS 333,424 333,424 333,424
CW 333,424 333,424 333,424
CP 333,328 333,328
CA 749,965 2,999,860
DS 416,625 1,666,500
DW 833,250 3,333,000
DP 75,986 303,944
---------------- ---------------- ----------------
TS 853,965 2.2% 3,263,119 7.9% 9,490,597 20.1%
Omicron Partners
OS 189,378 189,378 189,378
CS 828,570 828,570 828,570
CW 828,570 828,570 828,570
CP - 828,334 828,334
CA - 449,990 1,799,958
DS - 249,975 999,900
DW - 499,950 1,999,800
DP - 45,592 182,366
---------------- ---------------- ----------------
TS 1,846,518 4.7% 3,920,359 9.4% 7,656,876 16.8%
Zanett Lombardier Master Fund II, L.P.
OS 127,417 127,417 127,417
CS 666,859 666,859 666,859
CW 646,852 646,852 646,852
CP - 666,668 666,668
CA - 1,499,956 5,999,825
DS - 833,250 3,333,000
DW - 1,666,500 6,666,000
DP - 151,972 607,887
---------------- ---------------- ----------------
TS 1,441,128 3.7% 6,259,474 14.2% 18,714,508 33.1%
18
Beneficial ownership Beneficial ownership Beneficial ownership at
Name at July 6, 2003 after initial closing second closing
- ------------------------------- ----------------------- ------------------------ --------------------------
# Shares % # Shares % # Shares %
SF Capital Partners, Ltd.
DS - 416,625 1,666,500
DW - 833,250 3,333,000
DP - 75,986 303,944
---------------- ---------------- ----------------
TS - 0.0% 1,325,861 3.4% 5,303,444 12.2%
Gamma Opportunity Capital Partners, L.P.
DS - 333,300 1,333,200
DW - 666,600 2,666,400
DP - 60,789 243,155
---------------- ---------------- ----------------
TS - 0.0% 1,060,689 2.7% 4,242,755 10.0%
Alpha Capital Aktiengesellschaft
DS - 333,300 1,333,200
DW - 666,600 2,666,400
DP - 60,789 243,155
---------------- ---------------- ----------------
TS - 0.0% 1,060,689 2.7% 4,242,755 10.0%
OTATO Limited Partnership
OS 30,408 30,408 30,408
CS 133,038 133,038 133,038
CW 133,038 133,038 133,038
CP - 133,000 133,000
CA - 299,240 1,196,962
DS - 166,650 666,600
DW - 333,300 1,333,200
DP - 30,394 121,577
---------------- ---------------- ----------------
TS 296,484 0.8% 1,259,068 3.2% 3,747,823 9.0%
Bristol Investment Fund, Ltd.
DS - 289,971 1,166,550
DW - 579,942 2,333,100
DP - 53,190 212,761
---------------- ---------------- ----------------
TS - 0.0% 923,103 2.4% 3,712,411 8.9%
Crestview Capital Fund II, L.P.
DS - 249,975 999,900
DW - 499,950 1,999,800
DP - 45,592 182,366
---------------- ---------------- ----------------
TS - 0.0% 795,517 2.0% 3,182,066 7.7%
19
Beneficial ownership Beneficial ownership Beneficial ownership at
Name at July 6, 2003 after initial closing second closing
- ------------------------------- ----------------------- ------------------------ --------------------------
# Shares % # Shares % # Shares %
Gruber & McBaine International
DS - 249,975 999,900
DW - 499,950 1,999,800
DP - 45,592 182,366
---------------- ---------------- ----------------
TS - 0.0% 795,517 2.0% 3,182,066 7.7%
McCarthy Family Partners
OS 41,556 41,556 41,556
CS 81,690 81,690 81,690
CW 81,690 81,690 81,690
CP - 81,667 81,667
CA - 183,744 734,977
DS - 99,990 409,959
DW - 199,980 819,918
DP - 18,693 74,770
---------------- ---------------- ----------------
TS 204,936 0.5% 789,010 2.0% 2,326,227 5.8%
Jon D. Gruber & Linda W. Gruber
DS - 123,321 499,950
DW - 246,642 999,900
DP - 22,796 91,183
---------------- ---------------- ----------------
TS - 0.0% 392,759 1.0% 1,591,033 4.0%
J. Patterson McBaine
DS - 123,321 499,950
DW - 246,642 999,900
DP - 22,796 91,183
---------------- ---------------- ----------------
TS - 0.0% 392,759 1.0% 1,591,033 4.0%
RHP Master Fund, Ltd.
DS - 83,325 333,300
DW - 166,650 666,600
DP - 15,197 60,789
---------------- ---------------- ----------------
TS - 0.0% 265,172 0.7% 1,060,689 2.7%
H&B Wilson Interests, Ltd.
OS 117,255 117,255 117,255
CS 23,340 23,340 23,340
CW 23,340 23,340 23,340
CP - 23,333 23,333
CA - 52,498 209,993
DS - 29,997 116,655
DW - 59,994 233,310
DP - 5,323 21,291
---------------- ---------------- ----------------
TS 163,935 0.4% 335,080 0.9% 768,517 2.0%
20
Beneficial ownership Beneficial ownership Beneficial ownership at
Name at July 6, 2003 after initial closing second closing
- ------------------------------- ----------------------- ------------------------ --------------------------
# Shares % # Shares % # Shares %
Gary Blum
OS 15,688 15,688 15,688
CS 29,175 29,175 29,175
CW 29,175 29,175 29,175
CP - 29,167 29,167
CA - 65,623 262,492
DS - 33,330 113,322
DW - 66,660 226,644
DP - 6,686 26,743
---------------- ---------------- ----------------
TS 74,038 0.2% 275,504 0.7% 732,406 1.9%
AWINN Ltd.
OS 49,146 49,146 49,146
CS 23,340 23,340 23,340
CW 23,340 23,340 23,340
CP 23,333 23,333
CA 52,498 209,993
DS 26,664 116,655
DW 53,328 233,310
DP 5,319 21,276
---------------- ---------------- ----------------
TS 95,826 0.3% 256,968 0.7% 700,393 1.8%
Scorpion Acquisition LLC
OS 11,501 11,501 11,501
CS 20,423 20,423 20,423
CW 20,423 20,423 20,423
CP - 20,417 20,417
CA - 45,936 183,744
DS - 23,331 103,323
DW - 46,662 206,646
DP - 4,711 18,845
---------------- ---------------- ----------------
TS 52,347 0.1% 193,404 0.5% 585,322 1.5%
The Michael S. McCord GST Trust
OS 18,606 18,606 18,606
OW 12,500 12,500 12,500
CS 11,670 11,670 11,670
CW 11,670 11,670 11,670
CP - 11,667 11,667
CA - 26,249 104,997
DS - 13,332 59,994
DW - 26,664 119,988
DP - 2,736 10,942
---------------- ---------------- ----------------
TS 54,446 0.1% 135,094 0.4% 362,034 0.9%
21
Beneficial ownership Beneficial ownership Beneficial ownership at
Name at July 6, 2003 after initial closing second closing
- ------------------------------- ----------------------- ------------------------ --------------------------
# Shares % # Shares % # Shares %
Stifel Nicolaus, Custodian for A. Ray Cecrle IRA
OS 6,809 6,809 6,809
CS 11,670 11,670 11,670
CW 11,670 11,670 11,670
CP - 11,667 11,667
CA - 26,249 104,997
DS - 13,332 59,994
DW - 26,664 119,988
DP - 2,736 10,942
---------------- ---------------- ----------------
TS 30,149 0.1% 110,797 0.3% 337,737 0.9%
Dos Cunados
OS 6,349 6,349 6,349
CS 11,670 11,670 11,670
CW 11,670 11,670 11,670
CP - 11,667 11,667
CA - 26,249 104,997
DS - 13,332 59,994
DW - 26,664 119,988
DP - 2,734 10,935
---------------- ---------------- ----------------
TS 29,689 0.1% 110,335 0.3% 337,270 0.9%
Total Shares as a Group
OS 8,630,878 8,630,878 8,630,878
OW 840,000 840,000 840,000
CS 3,760,310 3,760,310 3,760,310
CW 3,740,303 3,740,303 3,740,303
CP - 3,759,234 3,759,234
CA - 6,294,340 25,177,363
DS - 7,372,596 29,167,083
DW - 14,745,192 58,334,166
DP - 1,330,357 5,321,409
NO 2,645,000 2,645,000 2,645,000
ND - - 14,185,248
NW - - 28,370,496
NP - - 2,524,502
---------------- ---------------- ----------------
TS 19,616,491 40.0% 53,118,210 64.4% 186,455,992 86.4%
22
Principal Effects of Approval or Nonapproval
In the event that stockholder approval is obtained, we believe that
AMEX will approve the listing application for the shares of Common Stock
underlying the securities issued in the Financing Transaction.
If stockholder approval is not obtained, the second closing of the
Financing Transaction will not occur, and we will be obligated to repurchase all
of the shares Series D Preferred Stock sold in the first closing, plus accrued
and unpaid dividends on such shares through such date, for an aggregate
repurchase price of $2,246,500. In such event, we believe that our only
alternative would be to liquidate our assets or file for bankruptcy under
Chapter 11.
Components of Approval of the Financing Transaction
The approval of the Financing Transaction will encompass approval of
all of the following:
(i) the issuance and sale of up to approximately 13,500 shares of Series D
Convertible Preferred Stock (each with a face amount of $1,000 per share and
each convertible into 3,333 shares of Common Stock) and Warrants to purchase
shares of Common Stock (each share of Series D Convertible Preferred Stock
receives Warrants exercisable into 6,666 shares of Common Stock);
(ii) the issuance of an indeterminate number of additional shares of
Series D Preferred Stock and Common Stock that may be issued in accordance with
the terms of the Series D Preferred Stock and Warrants, including shares of
Series D Preferred Stock convertible into approximately 9,000,000 shares of
Common Stock that may be issued for the 6% dividend on the Series D Preferred
Stock;
(iii)the issuance of approximately 135 million shares of Common Stock to
allow for the full conversion and exercise of the Series D Preferred Stock and;
and
(iv) the issuance of up to an additional 31 million shares of Common Stock
resulting from existing anti-dilution provisions for the Series C Preferred
Stock resulting from the Series D Preferred Stock transaction, as described
above.
VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS
The approval of the Financing Transaction requires the affirmative vote
of a majority of our outstanding Common Stock. Our outstanding shares of Series
C Convertible Preferred Stock previously consented to the Financing Transaction
pursuant to the protective provisions of our Restated Certificate of
Incorporation. Since the record date of July 6, 2003 was established prior to
the issuance of any shares of Series D Preferred Stock, the holders of Series D
Preferred Stock are not entitled to vote for or against any of the three
proposals contained in this consent solicitation. Only holders of our Common
Stock on the record date are entitled to vote for these proposals.
THE BOARD RECOMMENDS THE TIMELY EXECTUION OF THE ENCLOSED CONSENT TO
THIS PROPOSAL.
23
PROPOSAL 2
TO APPROVE AN AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION INCREASING THE TOTAL NUMBER OF SHARES OF COMMON
STOCK AUTHORIZED FOR ISSUANCE
The Board of Directors has approved an amendment, subject to
stockholder approval, to the Company's Restated Certificate of Incorporation
(the "Certificate of Incorporation") increasing the total number of shares of
Common Stock authorized for issuance by 175,000,000 shares, so that the total
number of shares of Common Stock authorized for issuance will be 250,000,000
shares. Our Certificate of Incorporation currently provides for 75,000,000
shares of Common Stock authorized for issuance. As of July 10, 2003, we had
approximately 61.4 million shares of Common Stock issued and outstanding on a
fully-diluted basis, consisting of:
o 38,027,320 shares of our Common Stock outstanding; and
o 23,419,195 shares of our Common Stock reserved for issuance
pursuant to options, warrants, contractual commitments and
other arrangements.
Prior to the first closing of the Financing Transaction, we had
approximately 13.6 million shares of authorized and unissued Common Stock not
reserved for any specific use and available for issuance. In the first closing,
we issued Series D Preferred Stock and Warrants convertible and exercisable into
an aggregate of approximately 21 million shares of Common Stock, which exceeded
the number of shares we had available for issuance. Further, if the second
closing occurs, we will be issuing Series D Preferred Stock and Warrants
convertible and exercisable into an aggregate of approximately 114 million
additional shares of Common Stock.
The proposed increase in the number of shares of Common Stock
authorized for issuance will provide the Company with (i) the ability to fulfill
its obligations to issue shares of Common Stock upon the conversion or exercise
of the securities issued or to be issued in, and anti-dilution adjustments
resulting from, the Financing Transaction, and (ii) the flexibility necessary to
enable it to: (a) raise additional capital through one or more public offerings
or private placements of shares of Common Stock or options, warrants,
convertible debt, convertible preferred stock, or other securities exercisable
or convertible into shares of Common Stock; (b) acquire additional assets or
businesses by using shares of Common Stock for a portion of or all of the
consideration paid to the sellers; (c) repay existing indebtedness by issuing
shares of Common Stock in lieu of cash; or (d) attract and retain directors,
officers, and key employees and motivate such persons to exert their best
efforts on behalf of the Company by issuing options to acquire shares of Common
Stock. The number of shares of Common Stock authorized for issuance is not
adequate to provide for the conversion or exercise of securities issued or to be
issued in the Financing Transaction. In addition, the Board of Directors
believes that the number of additional shares of Common Stock proposed to be
authorized for issuance is advisable to provide for other transactions such as
those described above as and when they may arise in the future. Accordingly, the
Board of Directors believes that the proposed amendment to the Certificate of
Incorporation is appropriate and in the best interests of the Company and its
stockholders generally.
24
While the Board of Directors believes it important that we have the
flexibility that would be provided by having available additional authorized
Common Stock, other than pursuant to the conversion or exercise of securities
issued or to be issued in the Financing Transaction as described in Proposal 1,
we do not now have any commitments, arrangements or understandings which would
require the issuance of such additional shares of Common Stock (above the amount
necessary to fulfill obligations under the Financing Transaction). The
availability of additional authorized Common Stock would simply permit the Board
of Directors to respond in a timely manner to future opportunities and business
needs as they may arise and would avoid the possible necessity and expense of a
special meeting of shareholders to increase the authorized Common Stock.
If the authorized shares of Common Stock are increased as proposed, the
shares would be available for issuance from time to time upon such terms and for
such purposes as the Board of Directors may deem advisable without further
action by our stockholders except as may be required by law or the rules of any
stock exchange on which the Common Stock may be listed. Such an issuance may
decrease or increase the book value per share of Common Stock presently issued
and outstanding, depending upon whether the consideration paid for such newly
issued shares is less or more than the book value per share of the Common Stock
prior to such issuance. The issuance of additional shares of Common Stock could
dilute the voting power and equity of the holders of outstanding Common Stock
and may have the effect of discouraging attempts by a person or group to take
control of the Company.
If stockholder approval is not obtained, the second closing of the
Financing Transaction will not occur, and we will be obligated to repurchase
from each holder of the Series D Preferred Stock, at a per share price equal to
the original purchase price paid for each share of Series D Preferred Stock,
together with accrued and unpaid dividends through such date, all of shares of
Series D Preferred Stock (together with the Warrants) issued in the initial
closing of the Financing Transaction. In such event, we believe that our only
alternative would be to liquidate our assets or file for bankruptcy under
Chapter 11.
The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock will be required to approve the amendment to the
Certificate of Incorporation. If approved by the stockholders, such amendment
will become effective upon the filing with the Delaware Secretary of State of
the Certificate of Amendment to Certificate of Incorporation in the form of
Exhibit A attached hereto.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS CONSENT TO THE AMENDMENT TO
THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION.
25
PROPOSAL 3
APPROVAL OF THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
We are seeking stockholder approval of our Amended and Restated
Certificate of Incorporation (the "Amended and Restated Certificate") in the
form attached as Exhibit B hereto. The requested approval of the Amended and
Restated Certificate is being sought in order to allow us to (i) reflect in the
Amended and Restated Certificate certain amendments previously agreed to by us
and the holders of our Series C Preferred Stock and (ii) consolidate the Series
D Preferred Stock Certificate of Designation and all of our other charter
documents into a single instrument.
We entered into a series of amendment agreements with the requisite
holders of our Series C Preferred Stock, whereby we and the holders of our
shares of Series C Preferred Stock are bound by certain amended provisions with
respect to the Series C Preferred Stock. Under the terms of the Series C
Preferred Stock and the amendment agreements, all of the holders of the Series C
Preferred Stock are bound by the amendment agreements, even those holders that
are not participating in the Financing Transaction and those that did not
expressly agree to such amendment agreements. The Certificate reflects the
following amendments previously agreed to by us and the holders of our Series C
Preferred Stock pursuant to the amendment agreements:
o The Series C Preferred Stock shall rank junior to the Series D
Preferred Stock as distribution of assets upon liquidation or
dissolution.
o The definition of "Conversion Price" has been changed to $3.00
from $3.50, subject to non-price based anti-dilution
adjustments. All price-based anti-dilution and reset
provisions have been eliminated.
o As described in Proposal 1, "Principal Terms of the Financing
Transaction" above, each holder of Series C Preferred Stock
had the opportunity to purchase Series D Preferred Stock, and
for each $1 of Series D Preferred Stock so purchased, $2 of
Series C Preferred Stock retained a one-time conversion price
reset to $0.30 per share, and the same portion of warrants
held by any such holders received a reset on the exercise
price of warrants held by such holder to $0.50 per share, with
the number of shares issuable upon exercise of the warrants
remaining the same. To date, none of the warrants related to
the Series C Preferred Stock have been exercised.
o Unless earlier converted, the Series C Preferred Stock will
convert to Common Stock on June 30, 2004.
o All future dividends will be accrued and paid at conversion,
rather than quarterly. Further, upon conversion, any and all
outstanding dividends will be redeemed by us on any applicable
conversion date by the issuance of a number of shares of our
Common Stock equal to the quotient obtained by dividing (i)
the aggregate amount of dividends outstanding as of such
26
conversion date on the shares being converted by (ii) the
greater of (a) $0.30 or (b) the average of the closing sales
prices for the Common Stock for the twenty (20) consecutive
trading days immediately preceding such date.
o Since the Conversion Price is to be fixed at $3.00, Article
V.B of the Restated Certificate, which required us to take
certain actions to reserve additional shares of our Common
Stock in the event the Conversion Price was adjusted, and
provided remedies in the event we did not take such actions,
has been deleted in its entirety.
o Article VII.A of the Restated Certificate has been amended to
delete subparagraph (i) thereto, which provided remedies to
the holders of Series C Preferred Stock if we failed to redeem
the Series C Preferred Stock in the event we were prohibited
by the rules or regulations of the AMEX from listing or
issuing a number of shares of Common Stock in excess of 110%
of the Common Stock issuable upon conversion of the Series C
Preferred Stock. The effect of the deletion is to eliminate a
circumstance in which the holders of Series C Preferred Stock
would be entitled to receive additional shares, hence limiting
potential future dilution on the holders of Series D Preferred
Stock.
o The definition of "Redemption Event" has been amended to
delete as Redemption Events (i) our default or breach of any
material term of the Securities Purchase Agreement or the
Registration Rights Agreement entered into in connection with
the issuance of the Series C Preferred Stock, and (ii) the
ownership of fifty percent or more of our voting stock by a
single person, entity or group. The effect of the deletion is
to eliminate events which would require the Company to redeem
the Series C Preferred Stock prior to maturity, which protects
the Company's assets and cash from being used for such
purposes.
The Amended and Restated Certificate also reflects the increase in our
authorized Common Stock as described in Proposal 2. If Proposal 2 is not
approved, we do not intend to file the Amended and Restated Certificate.
If stockholder approval is not obtained, our rights and the rights of
the holders of our Series C Preferred Stock with respect to the Series C
Preferred Stock will not be affected, and we and the holders of our Series C
Preferred Stock will still remain contractually bound to the preceding
amendments pursuant to the amendment agreements. Such amendments will not,
however, be reflected in our certificate of incorporation. In addition, if
stockholder approval is not obtained, the Series D Preferred Stock Certificate
of Designation will continue to be deemed by law to form a part of our
certificate of incorporation, however, it will not be consolidated with our
other charter documents into a single instrument. Our rights and the rights of
the holders of our Series D Preferred Stock will, however, not be affected.
Therefore, because we believe that approval of the Certificate will not affect
the legal rights of our existing common stockholders, but will allow us to
consolidate the amendments described above and the Series D Preferred Stock
Certificate of Designation into a single instrument, our Board of Directors
recommends that stockholders approve the Certificate.
27
The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock will be required to approve the Amended and Restated
Certificate. If approved by the stockholders, the Amended and Restated
Certificate will become effective upon the filing with the Delaware Secretary of
State.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS CONSENT TO THE AMENDED AND
RESTATED CERTIFICATE.
28
79
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of LifePoint that are intended to be
presented by those stockholders at our 2003 annual meeting of stockholders must
have been received by us no later than April 11, 2003 in order to be considered
for inclusion in the proxy statement and form of proxy relating to that meeting.
If a stockholder intended to submit a proposal for consideration at the
Annual Meeting in 2003 by means other than the inclusion of the proposal in the
Company's proxy statement for such Annual Meeting, the stockholder must have
notified the Company on or before June 28, 2003 of such intention or risk
management exercising discretionary voting authority with respect to the
management proxies to defeat such proposal when and if presented at the Annual
Meeting.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2003, filed with the Securities and Exchange Commission on July 14,
2003, is hereby incorporated by reference into this Consent Statement. A copy of
such Annual Report is being delivered to you together with this Consent
Statement.
OTHER MATTERS
No other matters will be submitted to the stockholders in this consent
solicitation and no discretionary authority with respect to any other matters is
being solicited.
By Order of the Board of Directors
LIFEPOINT, INC.
/s/ Donald W. Rutherford
------------------------
Donald W. Rutherford
Secretary
Ontario, California
August __, 2003
29
CONSENT CARD
CONSENT BY STOCKHOLDER
OF
LIFEPOINT, INC. TO ACTION WITHOUT A MEETING
THIS CONSENT IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
LIFEPOINT, INC.
The undersigned, a stockholder of record of LifePoint, Inc. on July 6,
2003, hereby consents, pursuant to Section 228 of the Delaware General
Corporation Law, with respect to all shares of common stock, par value $.001 per
share, of LifePoint held by the undersigned and as indicated below, to the
following actions without a meeting, without prior notice and without a vote.
LIFEPOINT STRONGLY RECOMMENDS THAT THE STOCKHOLDERS CONSENT TO THE
FOLLOWING RESOLUTIONS:
1. To approve the issuance and sale by LifePoint, Inc., of up to
approximately 13,500 shares of Series D Convertible Preferred Stock (each with a
face amount of $1,000 per share and each convertible into 3,333 shares of Common
Stock) and Warrants to purchase shares of Common Stock (each share of Series D
Convertible Preferred Stock receives Warrants exercisable into 6,666 shares of
Common Stock), to a limited number of investors in private offerings and related
transactions as described in the accompanying consent statement. The requested
approval also includes approval of: (i) the issuance of an indeterminate number
of additional shares of Series D Preferred Stock and Common Stock that may be
issued in accordance with the terms of the Series D Preferred Stock and
Warrants, (ii) the issuance of an indeterminate number shares of Common Stock to
allow for the full conversion and exercise of the Series D Preferred Stock and
Warrants, and (iii) the potential issuance of up to an additional 31 million
shares of Common Stock resulting from existing anti-dilution provisions for the
Series C Preferred Stock resulting from the Series D Preferred Stock
transaction. The initial offering of Series D Preferred Stock and Warrants
closed on July 14, 2003. The number of shares of Common Stock issuable upon
conversion or exercise of the securities issued was in excess of 20% of our
currently outstanding shares of Common Stock and the shares were sold at a
discount to the market price of our Common Stock. As a result, the transaction
requires the approval of our stockholders under American Stock Exchange Company
Guide Rule ss.713 in order for us to obtain the required approval of the listing
application for the underlying shares. A consent vote for Proposal 1 without a
consent vote for Proposal 2 in effect is a vote against the Proposal - both must
be voted for in order to obtain the benefit of the Financing Transaction.
[ ] [ ] [ ]
CONSENT CONSENT WITHHELD ABSTAIN
If no box is marked above, the undersigned will be deemed to consent to the
foregoing resolution.
30
2. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation increasing the total number of shares of our Common
Stock, authorized for issuance by 175,000,000 shares, so that the total number
of shares of Common Stock authorized for issuance will be 250,000,000 shares. A
consent vote for Proposal 2 without a consent vote for Proposal 1 in effect is a
vote against the Proposal - both must be voted for in order to obtain the
benefit of the additional shares.
[ ] [ ] [ ]
CONSENT CONSENT WITHHELD ABSTAIN
If no box is marked above, the undersigned will be deemed to consent to the
foregoing resolution.
3. To approve an Amended and Restated Certificate of Incorporation to
incorporate revisions to the terms of our Series C Convertible Preferred Stock
that have previously been agreed to by holders of the Series C Convertible
Preferred Stock and to consolidate our charter into a single instrument.
[ ] [ ] [ ]
CONSENT CONSENT WITHHELD ABSTAIN
If no box is marked above, the undersigned will be deemed to consent to the
foregoing resolution.
31
The invalidity, illegality or unenforceability of any particular
provision of this consent will be construed in all respects as if such invalid,
illegal or unenforceable provision were omitted without affecting the validity,
legality or enforceability of the remaining provisions hereof.
PLEASE SIGN, DATE AND RETURN THIS CONSENT PROMPTLY BEFORE AUGUST __,
2003, USING THE ENCLOSED ENVELOPE.
32
PLEASE SIGN BELOW EXACTLY AS NAME APPEARS ON THIS CONSENT. If shares
are registered in more than one name the signatures of all such persons are
required. A corporation should sign in its full corporate name by a duly
authorized officer, stating his title. Trustees guardians, executors and
administrators should sign in their official capacity giving their full title as
such. If a partnership, please sign in the partnership name by authorized
persons. MAKE SURE THAT THE NAME ON YOUR CERTIFICATE(S) AND THE NUMBER OF SHARES
ARE EXACTLY AS YOU INDICATE BELOW.
---------------------------------
Number of Common Shares
---------------------------------
Name
---------------------------------
Signature
---------------------------------
Dated
---------------------------------
Signature (if held jointly)
---------------------------------
Title or authority, if applicable
*THIS IS YOUR CONSENT CARD*
33
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF THE
RESTATED CERTIFICATE OF INCORPORATION
OF
LIFEPOINT, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter the "Corporation") is:
LifePoint, Inc.
2. The Restated Certificate of Incorporation of the Corporation is
hereby amended by striking out Section A of Article Fourth thereof and by
substituting in lieu of said Section the following new Section:
"A. The total number of shares of stock (hereinafter
referred to as the `Capital Stock') which the Corporation shall have authority
to issue is 253,000,000, all of which shares shall have the par value of $.001
per share, and the Capital Stock shall be divided into two classes:
1. 3,000,000 of the shares shall be Preferred Stock.
2. 250,000,000 of the shares shall be Common Stock."
3. This amendment of the Restated Certificate of Incorporation herein
certified has been duly adopted and written consent has been given in accordance
with the provisions of Sections 141, 228 and 242 of the General Corporation Law
of the State of Delaware.
Signed on _________ ___, 2003.
Donald W. Rutherford,
Secretary
A-1
EXHIBIT B
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
LIFEPOINT, INC.
LifePoint, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware, hereby certifies that:
FIRST: The present name of the corporation (hereinafter called the
"Corporation") is LifePoint, Inc. The name under which the Corporation was
originally incorporated is U.S. Drug Testing, Inc. The original Certificate of
Incorporation of the Corporation was filed with the Secretary of State of the
State of Delaware on October 8, 1992. A Restated Certificate of Incorporation of
the Corporation was filed with the Secretary of State of the State of Delaware
on January 28, 2002.
SECOND: This Amended and Restated Certificate of Incorporation of the
Corporation has been duly adopted and approved in accordance with the provisions
of Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware by the directors and stockholders of the Corporation, and prompt
written notice was duly given pursuant to Section 228 of the General Corporation
Law of the State of Delaware to those stockholders who did not approve the
Amended and Restated Certificate of Incorporation by written consent.
THIRD: The Amended and Restated Certificate of Incorporation as
heretofore amended or supplemented and so adopted is hereby amended and restated
now to read in full as follows:
"Amended and Restated Certificate of Incorporation
of
LifePoint, Inc.
FIRST: The name of the Corporation (hereinafter called the "Corporation")
is LifePoint, Inc.
SECOND: The address, including street number, city, and county, of the
registered office of the Corporation in the State of Delaware is 1013 Centre
Road, City of Wilmington, County of New Castle; and the name of the registered
agent of the Corporation in the State of Delaware at such address is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: A. The total number of shares of stock (hereinafter referred to as
the "Capital Stock") which the Corporation shall have authority to issue is
253,000,000, all of which shares shall have the par value of $.001 per share,
and the Capital Stock shall be divided into two classes:
1. 3,000,000 of the shares shall be Preferred Stock.
2. 250,000,000 of the shares shall be Common Stock.
B-1
B. The relative rights, powers, privileges, preferences, participations,
qualifications, limitations and restrictions of the classes of the Capital Stock
are as follows:
1. SERIES C CONVERTIBLE PREFERRED STOCK
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 430,000 shares of
Preferred Stock, is the Series C Convertible Preferred Stock (the "Series C
Preferred Stock") and the stated value shall be $35.00 per share (the "Stated
Value").
II. NO DIVIDENDS
The Series C Preferred Stock will bear no dividends, and the holders of
the Series C Preferred Stock shall not be entitled to receive dividends on the
Series C Preferred Stock.
III. CERTAIN DEFINITIONS
For purposes of this Section 1, the following terms shall have the
following meanings:
A. "Closing Sales Price" as of any date, (i) means the closing sales
price for the shares of the Common Stock as reported on The American Stock
Exchange ("AMEX") by Bloomberg Financial Markets or if Bloomberg Financial
Markets is not then reporting Closing Sales Prices of such security, a
comparable reporting service of national reputation selected by the Company and
reasonably acceptable to holders of a majority of the then outstanding shares of
Series C Preferred Stock (collectively "Bloomberg"), or (ii) if the AMEX is not
the principal trading market for the shares of the Common Stock, the closing
sales price, or, if not so reported, the average of the closing bid and asked
prices as reported by Bloomberg on the principal trading market for the Common
Stock during the same period, or, if there is no sale price for such period, the
last reported bid price as reported by Bloomberg for such period, or (iii) if
the Closing Sales Price cannot be calculated as of such date on any of the
foregoing bases, the Closing Sales Price on any such date shall be the fair
market value as reasonably determined by an investment banking firm selected by
the Company and reasonably acceptable to holders of a majority of the then
outstanding shares of Series C Preferred Stock, with the costs of the
determination to be borne by the Company. The manner of determining the Closing
Sales Price of the Common Stock set forth in the foregoing definition shall
apply with respect to any other security in respect of which a determination as
to market value must be made hereunder.
B. "Redemption at Maturity" means the Company's option to redeem at
the Maturity Date (as herein defined) in cash the Series C Preferred Stock
pursuant to Article VIII.E
C. "Conversion Date" means, for any Conversion (as defined below),
the date on which the notice of conversion in the form attached hereto (the
"Notice of Conversion") is delivered by fax, as evidenced by a mechanically or
electronically generated confirmation thereof (or delivered by other means
resulting in notice) to the Company before 4:30 p.m., Pacific time, on the
Conversion Date indicated in the Notice of Conversion. The holder shall confirm,
by overnight courier, in person (by courier or otherwise) or by telephone (to an
authorized officer of the Company or his or her administrative assistant), the
delivery of the Notice of Conversion to the Company on the date on which the
Notice of Conversion is delivered or before 9:00 a.m., Pacific time, on the
trading day immediately succeeding such date; provided that an overnight courier
B-2
delivery which is signed for or refused by the Company prior to 12:00 noon,
Pacific time, on a given day shall be deemed to have been delivered before 9:00
a.m., Pacific time, on such day. If the Notice of Conversion is not so faxed or
otherwise delivered or the overnight courier, in-person or telephone
confirmation is not so made or deemed to be made before such applicable times,
then the Conversion Date shall be the date as of which both such conditions are
satisfied (i.e., the Notice of Conversion is delivered on or before 4:30 p.m.,
Pacific time, on a given day and the overnight courier, in-person or telephone
confirmation is made or deemed to be made either on such day of delivery or
before 9:00 a.m., Pacific time, on the immediately succeeding trading day).
D. "Conversion Default" means (i) following the submission by a
holder of shares of Series C Preferred Stock of a Notice of Conversion, the
Company fails for any reason (other than because of an event described in clause
(iii) below) to deliver, on or prior to the tenth (10th) business day following
the expiration of the Delivery Period (as defined below) for such conversion,
such number of shares of the Common Stock without a restrictive legend (other
than a prospectus delivery requirement legend) covered by an effective
registration statement to which such holder is entitled upon such conversion
including shares issuable in payment of the redemption of Premium on the Series
C Preferred Stock, (ii) the Company provides notice to any holder of Series C
Preferred Stock at any time of its intention not to issue freely tradeable
shares of the Common Stock upon exercise by any holder of its conversion rights
in accordance with the terms of this Certificate of Designation (other than
because of an event described in clause (iii) below), or (iii) the Company is
prohibited, at any time, from listing shares of the Common Stock or from issuing
shares of the Common Stock upon conversion of Series C Preferred Stock
(including shares issuable upon redemption of Premium) to any holder because the
Company (A) does not at the date of such conversion have available a sufficient
number of authorized and reserved shares of the Common Stock or (B) such listing
or issuance would exceed the then unissued portion of such holder's Cap Amount
(as defined below); provided that so long as a conversion dispute is being
resolved as provided in Article IV.B(v), no Conversion Default shall occur.
E. "Conversion Price" means $3.00, subject to adjustment as provided
only in Article XII, Sections A, B, C and E; provided, however, that with
respect to any holder of Series C Preferred Stock that invests in Senior
Securities, a portion of the shares of Series C Preferred Stock held by such
holder (determined on the basis of $2 in stated value of Series C Preferred
Stock for each $1 invested in Senior Securities) shall receive a one-time reset
of the Conversion Price to the initial conversion price applicable to such
Senior Securities, subject to further adjustment only pursuant to Article XII,
Sections A, B, C and E. Unless earlier converted, the Series C Preferred Stock
will convert to Common Stock at the Maturity Date.
F. "Issuance Date" means, with respect to each share of Series C
Preferred Stock, the date of the Closing under that certain Securities Purchase
Agreement dated as of June 20, 2001 by and among the Company and the other
signatories thereto (the "Securities Purchase Agreement"), in which such share
of Series C Preferred Stock was issued.
G. "Market Price," as of any date, means the average of the Closing
Sales Prices for the shares of the Common Stock for the twenty (20) consecutive
trading days immediately preceding such date. The manner of determining the
Market Price of the Common Stock set forth in the foregoing definition shall
apply with respect to any other security in respect of which a determination as
to market value must be made hereunder.
H. "N" means, with respect to each share of Series C Preferred Stock,
the number of days from, but excluding, the Issuance Date until the date Premium
is first redeemed in accordance with Article IV.D hereof on such share and
thereafter the number of days from and including the date on which Premium was
last redeemed in accordance with Article IV.D hereof until the date Premium is
next redeemed on such share.
B-3
I. "Premium" means an amount equal to (.1)x(N/365) x (Stated Value),
provided, however, if after the third anniversary of the Issuance Date (the
"Maturity Date"), the Premium shall mean an amount equal to (.05)x(n/365) x
(Stated Value).
IV. CONVERSION: REDEMPTION OF PREMIUM
A. Conversion at the Option of the Holder. Subject to the limitations on
conversions contained in Paragraph C of this Article IV, each holder of shares
of Series C Preferred Stock may, at any time and from time to time on or after
the Issuance Date, convert (a "Conversion") each of its outstanding shares of
Series C Preferred Stock and any unpaid Premium thereon into a number of fully
paid and nonassessable shares of the Common Stock determined in accordance with
the following formula:
Stated Value
----------------------
Conversion Price
B. Mechanics of Conversion.
(i) In order to effect a Conversion, a holder shall: (x) fax (or
otherwise deliver) a copy of the fully executed Notice of Conversion to the
Company or the transfer agent for the Common Stock and (y) surrender or cause to
be surrendered the original certificates representing the Series C Preferred
Stock being converted (the "Preferred Stock Certificates"), duly endorsed, along
with a copy of the Notice of Conversion as soon as practicable thereafter to the
Company or the transfer agent. The holder shall confirm by overnight courier, in
person (by courier or otherwise) or by telephone (to an authorized officer of
the Company or his or her administrative assistant), the delivery of the Notice
of Conversion to the Company on the date on which the Notice of Conversion is
delivered or before 9:00 a.m., Pacific time, on the trading day immediately
succeeding such date; provided that an overnight courier delivery which is
signed for or refused by the Company prior to 12:00 noon, Pacific time, on a
given day shall be deemed to have been delivered before 9:00 a.m., Pacific time,
on such day. Upon receipt by the Company of the Notice of Conversion by fax from
a holder, the Company shall, within one business day following the later of the
Company's receipt of such Notice of Conversion and the holder's overnight
courier, in-person or telephone confirmation of the delivery of such Notice of
Conversion, send, via fax, a confirmation (the "Notice of Conversion
Confirmation") to such holder stating that the Notice of Conversion has been
received, the date upon which the Company expects to deliver the shares of the
Common Stock issuable upon such conversion, and the name and telephone number of
a contact person at the Company regarding the conversion. The Company shall not
be obligated to issue shares of the Common Stock upon a conversion unless either
the Preferred Stock Certificates are delivered to the Company or the transfer
agent as provided above, or the holder notifies the Company or the transfer
agent that such certificates have been lost, stolen or destroyed and delivers
the documentation to the Company required by Article XVI.B hereof.
(ii) Delivery of Common Stock Upon Conversion. Upon the surrender of
Preferred Stock Certificates from a holder of Series C Preferred Stock
accompanied or preceded by a Notice of Conversion, the Company shall, subject to
the Company's redemption rights set forth in Article VIII.D, no later than the
later of (a) the third (3rd) business day following the Conversion Date and (b)
the business day following the date of such surrender (or, in the case of lost,
stolen or destroyed certificates, after provision of documentation pursuant to
Article XV.B) (the "Delivery Period"), issue and deliver to the holder or its
nominee, after registration of the resale of such shares under the Securities
B-4
Act of 1933, as amended, or any similar successor statute (the "Securities
Act"), or delivery of documentation reasonably satisfactory to the Company that
the registration of such shares is not required, to such holder's nominee, (x)
that number of shares of the Common Stock issuable upon conversion of such
shares of Series C Preferred Stock being converted and (y) a certificate
representing the number of shares of Series C Preferred Stock not being
converted, if any. If the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program, and
so long as the certificates therefor do not bear a legend and the holder thereof
is not then required to return such certificate for the placement of a legend
thereon, the Company may cause its transfer agent to electronically transmit the
shares of the Common Stock issuable upon conversion to the holder by crediting
the account of the holder or its nominee with DTC through its Deposit Withdrawal
Agent Commission system ("DTC Transfer"). If the aforementioned conditions to a
DTC Transfer are not satisfied or a DTC Transfer is otherwise not effected, the
Company shall deliver to the holder physical certificates representing the
shares of the Common Stock issuable upon conversion. Further, a holder may
instruct the Company to deliver to the holder physical certificates representing
the shares of the Common Stock issuable upon conversion in lieu of delivering
such shares by way of DTC Transfer.
(iii) Taxes. The Company shall pay any and all taxes which may be
imposed upon the Company with respect to the issuance and delivery of the shares
of the Common Stock upon the conversion of the Series C Preferred Stock other
than transfer taxes due upon conversion, if such holder has transferred to
another party the Series C Preferred Stock or the right to receive the shares of
the Common Stock upon the holder's conversion thereof.
(iv) No Fractional Shares. If any conversion of Series C Preferred
Stock would result in the issuance of a fractional share of the Common Stock,
such fractional share shall be disregarded and the number of shares of the
Common Stock issuable upon conversion of the Series C Preferred Stock shall be
rounded up or down to the nearest whole share, it being understood that .5 of
one (1) share shall be rounded up to the next highest share.
(v) Conversion Disputes. In the case of any dispute with respect to a
conversion, the Company shall promptly issue such number of shares of the Common
Stock as are not disputed in accordance with subparagraph (ii) above. If such
dispute involves the calculation of the Conversion Price, the Company shall
submit the disputed calculations to the Company's outside auditors reasonably
acceptable to the holder of Series C Preferred Stock being converted via
facsimile at any time prior to the expiration of the Delivery Period. Such
auditors, at the Company's expense, shall review the calculations and notify the
Company and the holder of the results as soon as practicable following the date
it receives the disputed calculations. The auditors' determination shall be
deemed conclusive, absent manifest error. The Company shall then issue the
appropriate number of shares of the Common Stock in accordance with subparagraph
(i) above.
C. Limitations on Conversions. The conversion of shares of Series C
Preferred Stock shall be subject to the following limitations (each of which
limitations shall be applied independently):
(i) Cap Amount. If, notwithstanding the representations and
warranties of the Company contained in the Securities Purchase Agreement, the
Company is prohibited by the rules or regulations of the AMEX or of any
securities exchange or quotation system on which the Common Stock is then listed
or traded, from listing or issuing a number of shares of the Common Stock in
excess of a prescribed amount (the "Cap Amount") without the approval of the
Company's stockholders, then the Company shall not be required to list or issue,
as applicable, shares in excess of the Cap Amount unless the Company has
obtained the required approvals. The Cap Amount shall be allocated pro rata to
the holders of Series C Preferred Stock as provided in Article XVI.C. In the
event a holder of Series C Preferred Stock submits a Notice of Conversion and
the Company is prohibited from listing or issuing shares of the Common Stock to
satisfy such Notice of Conversion as a result of the operation of this
subparagraph (i), such holder shall be entitled to the rights set forth in
Article VII hereof.
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(ii) No Five Percent Holders. Unless a holder of shares of Series C
Preferred Stock delivers a waiver in accordance with the second to last sentence
of this subparagraph (ii), in no event shall a holder of shares of Series C
Preferred Stock be entitled to receive shares of the Common Stock upon a
conversion to the extent that the sum of (x) the number of shares of the Common
Stock beneficially owned by the holder and its affiliates (exclusive of shares
issuable upon conversion of the unconverted portion of the shares of Series C
Preferred Stock or the unexercised or unconverted portion of any other
securities of the Company (including, without limitation, those certain stock
purchase warrants (the "Warrants") issued pursuant to the Securities Purchase
Agreement (as defined herein)) subject to a limitation on conversion or exercise
analogous to the limitations contained herein) and (y) the number of shares of
the Common Stock issuable upon the conversion of the shares of Series C
Preferred Stock with respect to which the determination of this subparagraph is
being made, would result in beneficial ownership by the holder and its
affiliates of more than 4.99% of the outstanding shares of the Common Stock. For
purposes of this subparagraph, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and Regulation 13 D-G thereunder, except as otherwise
provided in clause (x) above. Except as provided in the immediately succeeding
sentence, the restriction contained in this subparagraph (ii) shall not be
altered, amended, deleted or changed in any manner whatsoever unless the holders
of a majority of the outstanding shares of the Common Stock and each holder of
outstanding shares of Series C Preferred Stock shall approve such alteration,
amendment, deletion or change. Notwithstanding the foregoing, a holder of shares
of Series C Preferred Stock may, by providing written notice to the Company, (x)
adjust the restriction set forth in this subparagraph (ii) so that the
limitations on beneficial ownership of 4.99% of the outstanding shares of the
Common Stock referred to above shall not be applicable to such holder, which
adjustment shall not take effect until the 61st day after the date of such
notice and (y) irrevocably waive the right to deliver a waiver in accordance
with clause (x) of this sentence. Notwithstanding the foregoing, this Article
IV.C(ii) shall not apply to any holder who owns more than 4.99% of the
outstanding shares of the Common Stock prior to the Issuance Date.
D. Redemption of Premium. No quarterly Premiums will be paid until the
Conversion Date. Upon conversion, any and all outstanding Premium with respect
to the shares of the Series C Preferred Stock being converted shall be redeemed
by the Company as of such Conversion Date by the issuance of a number of shares
of the Common Stock equal to the quotient obtained by dividing (i) the aggregate
amount of Premium as of such Conversion Date on the shares being converted by
(ii) the greater of (a) $0.30 or (b) the Market Price on such Conversion Date.
Any fractional shares resulting from the redemption of Premium shall be rounded
to the nearest whole share in accordance with Article IV.B(iv).
E. Mandatory Conversion. Subject to the limitations set forth in Paragraph
C(i) and (ii) of this Article IV, and provided all shares of the Common Stock
issuable upon conversion of all outstanding shares of Series C Preferred Stock
are then (i) authorized and reserved for issuance, (ii) registered under the
Securities Act for resale by the holders of such shares of Series C Preferred
Stock and (iii) eligible to be traded on either the AMEX, The New York Stock
Exchange (the "NYSE"), the NASD National Market (the "NNM"), the Nasdaq Small
Cap Market (the "NSCM") or the successors of any of them, and provided no
Redemption Event has occurred and is continuing, the Company may, by delivery of
a Notice of Conversion to each of the holders of Series C Preferred Stock,
require the holders of the Series C Preferred Stock to convert no more than 20%
of their outstanding shares of the Series C Preferred Stock, on a pro-rata
basis, pursuant to the applicable conversion procedures set forth in Article
IV.B (a "Mandatory Conversion") upon each of the following occurrences: if the
Closing Sales Prices of the Common Stock for ten (10) consecutive trading days
immediately preceding the date of the Notice of Conversion (which Notice shall
be delivered within three (3) business days of its date) is at or above $7.50,
$8.50, $9.50, $10.50 and $11.50, respectively, (as adjusted to reflect any stock
B-6
dividends, distributions, combinations, reclassifications and other similar
transactions effected by the Company with respect to its Common Stock);
provided, however that the holders of Series C Preferred Stock are not required
to deliver a Notice of Conversion to the Company or its transfer agent.
Notwithstanding the foregoing, in the event the Company elects to effect a
Mandatory Conversion with respect to any of the trigger prices provided for
above, thereafter, the Company will have no further right to elect a Mandatory
Conversion with respect to such trigger price. For example, if the Closing Sales
Price of the Common Stock for the ten (10) consecutive trading day period
immediately preceding the date of the Notice of Conversion is at or above $7.50
and the Company elects a Mandatory Conversion, thereafter the Company will have
no further right to elect another Mandatory Conversion unless and until the
Closing Sales Price for another ten (10) consecutive trading day period is at or
above $8.50. In the event the Company elects to exercise its Mandatory
Conversion rights with respect to only some of the outstanding Series C
Preferred Stock, such Series C Preferred Stock shall be converted pro rata among
the holders thereof based upon the percentage of Series C Preferred Stock held
by such holders against the then total outstanding shares of Series C Preferred
Stock.
F. Additional Mandatory Conversion. Subject to the limitations set forth
in paragraph C(i) and (ii) of this Article IV, and provided all shares of the
Common Stock issuable upon conversion of all outstanding shares of Series C
Preferred Stock are then (i) authorized and reserved for issuance, (ii)
registered under the Securities Act for resale by the holders of such shares of
Series C Preferred Stock and (iii) eligible to be traded on either the AMEX, the
NYSE, NMN, the NSCM or the successors of any of them, and provided no Redemption
Event has occurred and is continuing, the Company may, by delivery of a Notice
of Conversion to each of the holders of Series C Preferred Stock, if, an
underwriter requires as a condition precedent to an underwritten public offering
by such underwriter of securities of the Company, provided that the offering
will provide to the Company net proceeds of at least $20,000,000 and the
offering price to the public, net of underwriting discount and commissions, is
not less than ten dollars ($10.00) per share of the Common Stock (as adjusted to
reflect any stock dividends, distributions, combinations, reclassifications and
other similar transactions effected by the Company with respect to its Common
Stock), require such holders to convert all of the outstanding shares of Series
C Preferred Stock pursuant to the applicable conversion procedures set forth in
Article IV.B (a "Mandatory Conversion"); provided, however, that the holders of
Series C Preferred Stock are not required to deliver a Notice of Conversion to
the Company or its transfer agent and provided, further, that such conversion
shall occur contemporaneously with the closing of such public offering.
G. Additional Optional Conversion. If at any time after the Issuance Date
the Common Stock (including, from and after the Conversion Date, any of the
shares of the Common Stock issuable upon conversion of the Series C Preferred
Stock) is suspended from trading on any of, or is not listed (and authorized)
for trading on at least one of, the NSCM, the NNM, the NYSE or the AMEX for an
aggregate of ten (10) full trading days in any nine (9)-month period (a
"Delisting Event"), each holder of shares of Series C Preferred Stock may
convert each of its outstanding shares of Series C Preferred Stock and any
unpaid Premium thereon into shares of the Common Stock in accordance with
Article IV.A and Article IV.B hereof.
V. RESERVATION OF SHARES OF COMMON STOCK
On the Issuance Date, the Company shall reserve 110% of the number of
shares of the Common Stock which would be issuable if the outstanding shares of
Series C Preferred Stock were converted in their entirety on the such Issuance
Date based on the Conversion Price in effect on such Issuance Date of the
authorized, unreserved and unissued shares of the Common Stock for issuance upon
conversion of the Series C Preferred Stock and thereafter the number of
authorized, unreserved and unissued shares of the Common Stock so reserved (the
"Reserved Amount") shall not be decreased and shall at all times be sufficient
to provide for the conversion of the Series C Preferred Stock outstanding at the
then current Conversion Price thereof. The Reserved Amount shall be allocated to
the holders of Series C Preferred Stock as provided in Article XVI.C.
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VI. FAILURE TO SATISFY CONVERSION
A. Buy-In Cure. Unless the Company has notified the applicable holder in
writing prior to the delivery by such holder of a Notice of Conversion that the
Company is unable to honor conversions due to the limitations contained in
Article IV.C, if (i) (a) the Company fails for any reason to deliver during the
Delivery Period shares of the Common Stock to a holder upon a conversion of
shares of Series C Preferred Stock or (b) there shall occur a Legend Removal
Failure (as defined in Article VIII.A(ii) below) and (ii) thereafter, such
holder purchases (in an open market transaction or otherwise) shares of the
Common Stock to make delivery in satisfaction of a sale by such holder of the
unlegended shares of the Common Stock (the "Sold Shares") which such holder
anticipated receiving upon such conversion (a "Buy-In"), the Company shall pay
such holder (in addition to any other remedies available to the holder) the
amount by which (x) such holder's total purchase price (including brokerage
commissions, if any) for the unlegended shares of the Common Stock so purchased
exceeds (y) the net proceeds received by such holder from the sale of the Sold
Shares. For example, if a holder purchases unlegended shares of the Common Stock
having a total purchase price of $11,000 to cover a Buy-In with respect to
shares of the Common Stock it sold for $10,000, the Company will be required to
pay the holder $1,000. A holder shall provide the Company written notification
indicating any amounts payable to such holder pursuant to this Paragraph A. The
Company shall make any payments required pursuant to this Paragraph A in
accordance with and subject to the provisions of Article XVI.E.
B. Redemption Right. If the Company fails, and such failure continues
uncured for seven (7) business days after the Company has been notified thereof
in writing by the holder, for any reason to issue shares of the Common Stock
within the applicable Delivery Period with respect to any conversion of Series C
Preferred Stock, then the holder may elect at any time and from time to time
prior to the Default Cure Date (as defined below) for such Conversion Default,
by delivery of a Redemption Notice to the Company, to have all of such holder's
shares of Series C Preferred Stock for which a Notice of Conversion was given to
the holder and for which such failure exists purchased by the Company for cash,
at an amount per share equal to the Redemption Amount (as defined in Article
VIII.B). If the Company fails to redeem any of such shares within seven (7)
business days after its receipt of such Redemption Notice, then such holder
shall be entitled to the remedies provided in Article VIII.C. "Default Cure
Date" means (i) with respect to a Conversion Default described in clause (i) of
its definition, the date the Company effects the conversion of the full number
of shares of Series C Preferred Stock, (ii) with respect to a Conversion Default
described in clause (ii) of its definition, the date the Company issues shares
of the Common Stock, without a restrictive legend (other than a prospectus
delivery requirement legend) when covered by an effective registration
statement, in satisfaction of all conversions of Series C Preferred Stock in
accordance with Article IV.A, and (iii) with respect to a Conversion Default
described in clause (i) or clause (ii) of its definition, the date on which the
Company redeems shares of Series C Preferred Stock held by such holder pursuant
to paragraph C of this Article VI.
C. Void Notice of Conversion. If for any reason a holder has not received
all of the shares of the Common Stock prior to the tenth (10th) business day
after the expiration of the Delivery Period with respect to a conversion of
Series C Preferred Stock (including shares of the Common Stock issued in
redemption of Premium on shares of Series C Preferred Stock being converted) and
such shares are not subject to a redemption notice from the holder thereof, then
the holder, upon written notice to the Company's transfer agent, with a copy to
the Company, may void its Notice of Conversion with respect to, and retain or
have returned, as the case may be, any shares of Series C Preferred Stock that
have not been converted pursuant to such holder's Notice of Conversion; provided
that the voiding of a holder's Notice of Conversion shall not affect such
holders rights and remedies which have accrued prior to the date of such notice
pursuant to Article VI hereof or otherwise.
B-8
VII. INABILITY TO LIST OR CONVERT DUE TO CAP AMOUNT
If at any time after the Issuance Date the then unissued portion of any
holder's Cap Amount is less than 110% of the number of shares of the Common
Stock then issuable upon conversion of such holder's shares of Series C
Preferred Stock (a "Trading Market Trigger Event"), the Company shall
immediately notify the holders of Series C Preferred Stock of such occurrence
and shall take immediate action (including, if necessary, seeking the approval
of its stockholders to authorize the listing or issuance of the full number of
shares of the Common Stock which would be issuable upon the conversion of the
then outstanding shares of Series C Preferred Stock but for the Cap Amount) to
eliminate any prohibitions under applicable law or the rules or regulations of
any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or any of its securities on the
Company's ability to list or issue shares of the Common Stock in excess of the
Cap Amount ("Trading Market Prohibitions"). In the event the Company fails to
eliminate all such Trading Market Prohibitions within one hundred twenty (120)
days after the Trading Market Trigger Event, then each holder of Series C
Preferred Stock shall thereafter have the option, exercisable in whole or in
part at any time and from time to time until such date that all such Trading
Market Prohibitions are eliminated, by delivery of a Redemption Notice (as
defined in Article VIII.C) to the Company, to require the Company to purchase
for cash, at an amount per share equal to the Redemption Amount, a number of the
holder's shares of Series C Preferred Stock such that, after giving effect to
such redemption, the then unissued portion of such holder's Cap Amount exceeds
110% of the total number of shares of the Common Stock issuable upon conversion
of such holder's shares of Series C Preferred Stock.
VIII. REDEMPTION
A. Redemption by Holder. In the event (each of the events described in
clauses (i)-(iii) below after expiration of the applicable cure period (if any)
being a "Redemption Event"):
(i) the Company fails to remove any restrictive legend (other than a
prospectus delivery legend) on any certificate or any shares of the Common Stock
issued to the holders of Series C Preferred Stock (a "Legend Removal Failure")
upon conversion of the Series C Preferred Stock as and when required by this
Certificate of Designation, the Securities Purchase Agreement or the
Registration Rights Agreement and any such failure continues uncured for ten
(10) business days after the Company has been notified thereof in writing by the
holder;
(ii) the Company provides notice to any holder of Series C Preferred
Stock, including by way of public announcement, at any time, of its intention
not to issue, or otherwise refuses to issue, shares of the Common Stock to any
holder of Series C Preferred Stock upon conversion in accordance with the terms
of this Certificate of Designation (other than due to the circumstances
contemplated by Articles V or VII for which the holders shall have the remedies
set forth in such Articles);
(iii) the Company shall:
(a) sell, convey or dispose of all or substantially all of its
assets (the presentation of any such transaction for stockholder approval being
conclusive evidence that such transaction involves the sale of all or
substantially all of the assets of the Company); or
(b) merge, consolidate or engage in any other business
combination with any other entity (other than pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Company and other than pursuant to a merger in which the Company is the
surviving or continuing entity and the voting capital stock of the Company
immediately prior to such merger represents at least 50% of the voting power of
the capital stock of the Company after the merger) and its capital stock is
unchanged.
B-9
Then, upon the occurrence of any such Redemption Event, each holder of
shares of Series C Preferred Stock shall thereafter have the option, exercisable
in whole at any time or in part from time to time by delivery of a Redemption
Notice (as defined in Paragraph C below) to the Company while such Redemption
Event continues, to require the Company to purchase for cash any or all of the
then outstanding shares of Series C Preferred Stock held by such holder for an
amount per share equal to the Redemption Amount (as defined in Paragraph B
below) in effect at the time of the redemption hereunder. The occurrence of any
event described in clauses (ii) or (iii) above shall immediately constitute a
Redemption Event and there shall be no cure period. Upon the Company's receipt
of any Redemption Notice hereunder (other than during the three-trading-day
period following the Company's delivery of a Redemption Announcement (as defined
below) to all of the holders in response to the Company's initial receipt of a
Redemption Notice from a holder of Series C Preferred Stock), the Company shall
immediately (and in any event within three (3) business days following such
receipt) deliver a written notice (a "Redemption Announcement") to all holders
of Series C Preferred Stock stating the date upon which the Company received
such Redemption Notice and the amount of Series C Preferred Stock covered
thereby. Subject to Article VIII.D, the Company shall not redeem any shares of
Series C Preferred Stock during the three trading day period following the
delivery of a required Redemption Announcement hereunder. At any time and from
time to time during such three trading day period, each holder of Series C
Preferred Stock may request (either orally or in writing) information from the
Company with respect to the instant redemption (including, but not limited to,
the aggregate number of shares of Series C Preferred Stock covered by Redemption
Notices received by the Company) and the Company shall furnish (either orally or
in writing) as soon as practicable such requested information to such requesting
holder.
B. Definition of Redemption Amount. The "Redemption Amount" with respect
to a share of Series C Preferred Stock means an amount equal to the greater of:
V
(i) --------------- x M
C P
and (ii) V x 1.20
where:
"V" means the Stated Value thereof, plus the accrued and unpaid Premium
thereon through the date of payment of the Redemption Amount;
"CP" means the Conversion Price in effect on the date on which the
Company receives the Redemption Notice; and
"M" means the higher of (i) the highest Closing Sales Price of the
Company's Common Stock during the period beginning on the date on which
the Company receives the Redemption Notice and ending on the date
immediately preceding the date of payment of the Redemption Amount and
(ii) the fair market value, as of the date on which the Company
receives the Redemption Notice, of the consideration payable to the
holder of a share of the Common Stock pursuant to the transaction which
triggers the redemption. For purposes of this definition, "fair market
value" shall be determined by the mutual agreement of the Company and
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holders of a majority of the shares of Series C Preferred Stock then
outstanding, or if such agreement cannot be reached within five (5)
business days prior to the date of redemption, by an investment banking
firm selected by the Company and reasonably acceptable to holders of a
majority of the then outstanding shares of Series C Preferred Stock,
with the costs of such appraisal to be borne by the Company.
C. Redemption Defaults. If the Company fails to pay any holder the
Redemption Amount with respect to any share of Series C Preferred Stock within
ten (10) business days after its receipt of a notice requiring such redemption
(a "Redemption Notice"), then the holder of Series C Preferred Stock delivering
such Redemption Notice (i) shall be entitled to interest on the Redemption
Amount at a per annum rate equal to the lower of twenty-four percent (24%) and
the highest interest rate permitted by applicable law from the date on which the
Company receives the Redemption Notice until the date of payment of the
Redemption Amount hereunder, and (ii) shall have the right, at any time and from
time to time, to require the Company, upon written notice, to immediately
convert (in accordance with the terms of Paragraph A of Article IV) all or any
portion of the Redemption Amount, plus interest as aforesaid, into shares of the
Common Stock at the Conversion Price in effect during such period. In the event
the Company is not able to redeem all of the shares of Series C Preferred Stock
subject to Redemption Notices delivered prior to the date upon which such
redemption is to be effected, the Company shall redeem shares of Series C
Preferred Stock from each holder pro rata, based on the total number of shares
of Series C Preferred Stock outstanding at the time of redemption included by
such holder in all Redemption Notices delivered prior to the date upon which
such redemption is to be effected relative to the total number of shares of
Series C Preferred Stock outstanding at the time of redemption included in all
of the Redemption Notices delivered prior to the date upon which such redemption
is to be effected.
D. Optional Redemption by Company.
(i) Provided all shares of the Common Stock issuable upon conversion
of all outstanding shares of Series C Preferred Stock are then (i) authorized
and reserved for issuance, (ii) registered under the Securities Act for resale
by the holders of such shares of Series C Preferred Stock and (iii) eligible to
be traded on either the NSCM, the AMEX, the NYSE, the NNM or the successors of
any of them, and provided no Redemption Event has occurred and is continuing,
if, at any time after the Issuance Date, the Closing Sales Price of the Common
Stock is less than $3.00 for 11 or more consecutive trading days, the Company
shall have the right, during the next five (5) trading days, to call all or part
of the then outstanding shares of the Series C Preferred Stock for redemption at
a redemption price per share of the Stated Value, plus all accrued but unpaid
Premium with respect to such share to the date of redemption (hereinafter
referred to as the "Optional Redemption Date") designated in the Notice of
Redemption, payable in cash on the basis of the Market Price of the Common Stock
on such date.
(ii) Company may not deliver to a holder of Series C Preferred Stock
an Optional Redemption Notice unless on or prior to the date of delivery of such
Optional Redemption Notice (as defined below), the Company shall have segregated
on the books and records of the Company an amount of cash sufficient to pay all
amounts to which the holders of Series C Preferred Stock are entitled upon such
redemption pursuant to subparagraph (i) of this Paragraph D. Any Optional
Redemption Notice delivered shall be irrevocable and shall be accompanied by a
statement executed by a duly authorized officer of the Company.
(iii) The redemption amount payable under this Section D shall be
paid to the holders of the Series C Preferred Stock being redeemed within three
(3) business days of the Optional Redemption Date; provided, however, that the
Company shall not be obligated to deliver any portion of such redemption amount
until either the certificates evidencing the Series C Preferred Stock being
redeemed are delivered to the office of the Company or the escrow agent or the
holder notifies the Company or the escrow agent that such certificates have been
lost, stolen or destroyed and delivers the documentation in accordance with
B-11
Article XV.B hereof. Notwithstanding anything herein to the contrary, in the
event that the certificates evidencing the Series C Preferred Stock being
redeemed are not delivered to the Company or the escrow agent prior to the third
business day following the Optional Redemption Date, the redemption of the
Series C Preferred Stock pursuant to this Article VIII.D shall still be deemed
effective as of the Optional Redemption Date and such redemption amount shall be
paid to the holder of Series C Preferred Stock being redeemed within five (5)
business days of the date the certificates evidencing the Series C Preferred
Stock being redeemed are actually delivered to the Company or the escrow agent.
E. Optional Redemption by Company at Maturity.
(i) Provided all shares of the Common Stock issuable upon conversion
of all outstanding shares of Series C Preferred Stock are then (i) authorized
and reserved for issuance, (ii) registered under the Securities Act for resale
by the holders of such shares of Series C Preferred Stock and (iii) eligible to
be traded on either the AMEX, the NYSE, the NNM, the NSCM, or the successors of
any of them, and provided no Redemption Event has occurred and is continuing,
each share of Series C Preferred Stock issued and outstanding on and after the
Maturity Date, the Company may elect to redeem by providing written notice to
the holders thereof on or after the Maturity Date of such election on not less
than ten (10) but more than twenty (20) days' notice (the "Notice of Redemption
at Maturity"), at a redemption price per share equal to the Stated Value, plus
all accrued and unpaid Premium to the date of such redemption (the "Redemption
at Maturity"). Notwithstanding the delivery of a Notice of Redemption at
Maturity, a holder may convert such shares of Series C Preferred Stock subject
to such notice by the delivery prior to the date set forth in such notice on
which the Company intends to redeem such shares of a Notice of Conversion to the
Company or its transfer agent pursuant to the procedures set forth in Article
IV.B. In the event the Company elects to exercise a Redemption at Maturity with
respect to only some of the outstanding Series C Preferred Stock, such Series C
Preferred Stock shall be redeemed pro rata among the holders thereof based upon
the percentage of Series C Preferred Stock held by such holders against the then
total outstanding shares of Series C Preferred Stock.
(ii) The Company may not deliver to a holder of Series C Preferred
Stock a Notice of Redemption at Maturity unless on or prior to the date of
delivery of such Notice of Redemption at Maturity, the Company shall have
segregated on the books and records of the Company an amount of cash sufficient
to pay all amounts to which the holders of Series C Preferred Stock are entitled
upon such redemption pursuant to subparagraph (i) of this Paragraph E. Any
Notice of Redemption at Maturity delivered shall be irrevocable and shall be
accompanied by a statement executed by a duly authorized officer of the Company.
(iii) The redemption amount payable under this Section E shall be
paid to the holders of the Series C Preferred Stock being redeemed within three
(3) business days of the redemption date specified in the Notice of Redemption
at Maturity Date; provided, however, that the Company shall not be obligated to
deliver any portion of such redemption amount until either the certificates
evidencing the Series C Preferred Stock being redeemed are delivered to the
office of the Company or the escrow agent or the holder notifies the Company or
the escrow agent that such certificates have been lost, stolen or destroyed and
delivers the documentation in accordance with Article XV.B hereof.
Notwithstanding anything herein to the contrary, in the event that the
certificates evidencing the Series C Preferred Stock being redeemed are not
delivered to the Company or the escrow agent prior to the third business day
following the Optional Redemption Date, the redemption of the Series C Preferred
Stock pursuant to this Article VIII.E shall still be deemed effective as of the
redemption date specified in the Notice of Redemption at Maturity and the
applicable redemption amount shall be paid to the holder of Series C Preferred
Stock being redeemed within five (5) business days of the date the certificates
evidencing the Series C Preferred Stock being redeemed are actually delivered to
the Company or the escrow agent.
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F. Void Redemption. In the event that the Company does not pay the
applicable redemption amount within the time period set forth in Article VIII.A,
Article VIII.D or Article VIII.E, at any time thereafter and until the Company
pays such unpaid applicable redemption amount in full, a holder of Series C
Preferred Stock shall have the option (the "Void Optional Redemption Option")
to, in lieu of redemption, require the Company to promptly return to such holder
any or all of the shares of Series C Preferred Stock that were submitted for
redemption by such holder under this Article VIII and for which the applicable
Redemption Amount (together with any interest thereon) has not been paid, by
sending written notice thereof to the Company via facsimile and confirmed by
overnight courier, in person (by courier or otherwise) or by telephone (to an
authorized officer of the Company or his or her administrative assistant) (the
"Void Optional Redemption Notice). Upon the Company's receipt of such Void
Optional Redemption Notice and overnight courier, in-person or telephone
confirmation, (i) the Notice of Redemption shall be null and void with respect
to those shares of Series C Preferred Stock subject to the Void Optional
Redemption Notice, and (ii) the Company shall immediately return any shares of
Series C Preferred Stock subject to the Void Optional Redemption Notice.
G. Limitation on Redemption. Anything in this Article VIII to the contrary
notwithstanding, if the Redemption Event is any event described in clause (iii)
of Article VIII.A, then, upon delivery of a Redemption Notice to the Company,
the Company shall not be obligated to pay the Redemption Amount in cash, but
shall instead, at its option, have the unconditional right, in redemption of the
shares of the Series C Preferred Stock which would otherwise be entitled to a
cash payment, either (i) to issue to each such holder that number of shares of
the Common Stock as is equal to the quotient of (a) the product of the
Redemption Amount and the number of shares of the Series C Preferred Stock to be
redeemed held by such holder and (b) the average of the three (3) lowest Closing
Sales Prices for the twenty (20) consecutive trading days immediately preceding
delivery of the Redemption Notice or (ii) to limit the amount of the cash
redemption to all holders to be not more than the cash proceeds to be received
from a new equity offering of shares of the Common Stock.
IX. RANK
The Series C Preferred Stock shall rank (i) prior to the Common Stock;
(ii) prior to any class or series of capital stock of the Company hereafter
created that, by its terms, ranks junior to the Series C Preferred Stock
("Junior Securities"); (iii) junior to any class or series of capital stock of
the Company hereafter created (with the consent of the holders of Series C
Preferred Stock, obtained in accordance with Article XIV hereof) specifically
ranking, by its terms, senior to the Series C Preferred Stock, including without
limitation the Series D Preferred Stock ("Senior Securities"); and (iv) pari
passu with any other class or series of capital stock of the Company hereafter
created (with the consent of the holders of the Series C Preferred Stock
obtained in accordance with Article XIV hereof) specifically ranking by its
terms on parity with the Series C Preferred Stock ("Pari Passu Securities"), in
each case as to distribution of assets upon liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary.
X. LIQUIDATION PREFERENCE
A. If the Company shall commence a voluntary case under the U.S. Federal
bankruptcy laws or any other applicable bankruptcy, insolvency or similar law,
or consent to the entry of an order for relief in an involuntary case under any
law or to the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Company or of any
substantial part of its property, or make an assignment for the benefit of its
creditors, or admit in writing its inability to pay its debts generally as they
become due, or if a decree or order for relief in respect of the Company shall
be entered by a court having jurisdiction in the premises in an involuntary case
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under the U.S. Federal bankruptcy laws or any other applicable bankruptcy,
insolvency or similar law resulting in the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Company or of any substantial part of its property, or ordering
the winding up or liquidation of its affairs, and any such decree or order shall
be unstayed and in effect for a period of 60 consecutive days and, on account of
any such event, the Company shall liquidate, dissolve or wind up, or if the
Company shall otherwise liquidate, dissolve or wind up, including, but not
limited to, the sale or transfer of all or substantially all of the Company's
assets in one transaction or in a series of related transactions (a "Liquidation
Event"), no distribution shall be made to the holders of any shares of capital
stock of the Company (other than Senior Securities and Pari Passu Securities)
upon liquidation, dissolution or winding up unless prior thereto the holders of
shares of Series C Preferred Stock shall have received the Liquidation
Preference (as defined below) with respect to each share. If, upon the
occurrence of a Liquidation Event, the assets and funds available for
distribution among the holders of the Series C Preferred Stock and holders of
Pari Passu Securities shall be insufficient to permit the payment to such
holders of the preferential amounts payable thereon, then the entire assets and
funds of the Company legally available for distribution to the Series C
Preferred Stock and the Pari Passu Securities shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate Liquidation Preference payable on all
such shares.
B. The purchase or redemption by the Company of stock of any class, in any
manner permitted by law, shall not, for the purposes hereof, be regarded as a
liquidation, dissolution or winding up of the Company. Neither the consolidation
or merger of the Company with or into any other entity nor the sale or transfer
by the Company of less than substantially all of its assets shall, for the
purposes hereof, be deemed to be a liquidation, dissolution or winding up of the
Company.
C. The "Liquidation Preference" with respect to a share of Series C
Preferred Stock means an amount equal to the Stated Value thereof, plus the
accrued Premium thereon through the date of final distribution. The Liquidation
Preference with respect to any Pari Passu Securities shall be as set forth in
the Certificate of Designation filed in respect thereof.
XI. CONSENT OF SERIES B PREFERRED STOCK HOLDER
In the event that a holder seeks to have the Company redeem the holder's
shares of the Series C Preferred Stock in cash pursuant to Article V.B, Article
VI.A and B, Article VII and Article VIII.A, then the Company shall
simultaneously make such required payments pro rata to the holders of the Series
B Preferred Stock.
XII. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time as
follows:
A. Stock Splits, Stock Dividends, Etc. If, at any time on or after the
Issuance Date, the number of outstanding shares of the Common Stock is increased
by a stock split, stock dividend, combination, reclassification or other similar
event, the Conversion Price shall be proportionately reduced, or if the number
of outstanding shares of the Common Stock is decreased by a reverse stock split,
combination or reclassification of shares, or other similar event, the
Conversion Price shall be proportionately increased. In such event, the Company
shall notify the Company's transfer agent of such change on or before the
effective date thereof.
B. Adjustment Due to Merger, Consolidation, Etc. If, at any time after the
Issuance Date, there shall be (i) any reclassification or change of the
outstanding shares of the 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), (ii) any consolidation or merger of the
Company with any other entity (other than a merger in which the Company is the
surviving or continuing entity and its capital stock is unchanged), (iii) any
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sale or transfer of all or substantially all of the assets of the Company or
(iv) any share exchange pursuant to which all of the outstanding shares of the
Common Stock are converted into other securities or property (each of (i)-(iv)
above being a "Corporate Change"), then the holders of Series C Preferred Stock
shall thereafter have the right to receive upon conversion, in lieu of the
shares of the Common Stock otherwise issuable, such shares of stock, securities
and/or other property as would have been issued or payable in such Corporate
Change with respect to or in exchange for the number of shares of the Common
Stock which would have been issuable upon conversion (without giving effect to
the limitations contained in Article IV.C) had such Corporate Change not taken
place, and in any such case, appropriate provisions (in form and substance
reasonably satisfactory to the holders of a majority of the Series C Preferred
Shares then outstanding) shall be made with respect to the rights and interests
of the holders of the Series C Preferred Stock to the end that the economic
value of the shares of Series C Preferred Stock are in no way diminished by such
Corporate Change and that the provisions hereof (including, without limitation,
in the case of any such consolidation, merger or sale in which the successor
entity or purchasing entity is not the Company, an immediate adjustment of the
Conversion Price so that the Conversion Price immediately after the Corporate
Change reflects the same relative value as compared to the value of the
surviving entity's common stock that existed between the Conversion Price at the
value of the Common Stock immediately prior to such Corporate Change shall
thereafter be applicable, as nearly as may be practicable in relation to any
shares of stock or securities thereafter deliverable upon the conversion
thereof. The Company shall not effect any Corporate Change unless (i) each
holder of Series C Preferred Stock has received written notice of such
transaction along with the notice sent to the holders of the Common Stock of the
Company, but in no event later than twenty (20) days prior to the record date
for the determination of stockholders entitled to vote with respect thereto,
(ii) the resulting, successor or acquiring entity (if not the Company) assumes
by written instrument (in form and substance reasonably satisfactory to the
holders of a majority of the Series C Preferred Shares then outstanding) the
obligations of this Certificate of Designation, and (iii) the securities
issuable upon conversion of the Series C Preferred Stock (or replacement
security) are (i) either registered with the Securities and Exchange Commission
or exempt from all applicable federal and state registration requirements and
such securities are listed for trading on the NYSE, the AMEX, the NNM or the
NSCM, and (ii) the average weekly reported volume of trading of such securities
on the principal exchange or market on which such securities are traded for the
twelve (12) calendar weeks immediately preceding the public announcement of such
transaction, is greater than the product of the aggregate number of shares
issuable upon conversion of all such shares of Series C Preferred Stock (or
replacement securities) following such event and ten (10). The above provisions
shall apply regardless of whether or not there would have been a sufficient
number of shares of the Common Stock authorized and available for issuance upon
conversion of the shares of Series C Preferred Stock outstanding as of the date
of such transaction, and shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges.
C. Adjustment Due to Distribution. If, at any time after the Issuance
Date, the Company shall declare or make any distribution of its assets (or
rights to acquire its assets) to holders of the Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Company's common stockholders in shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off))
(a "Distribution"), then the holders of Series C Preferred Stock shall be
entitled to receive in such Distribution the amount of such assets payable to
the holder on an as-converted basis (without giving effect to the limitations
contained in Article IV.C) as of the record date for the determination of
stockholders entitled to such Distribution.
D. Purchase Rights. If, at any time after the Issuance Date, the Company
issues any securities which are convertible into or exchangeable for shares of
the Common Stock, or rights to purchase stock, warrants, securities or other
property (the "Purchase Rights") pro rata to the record holders of any class of
the Common Stock, then the holders of Series C Preferred Stock will be entitled
to acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
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the number of shares of the Common Stock acquirable upon complete conversion of
the Series C Preferred Stock (without giving effect to the limitations contained
in Article IV.C) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of the Common Stock are to be determined
for the grant, issue or sale of such Purchase Rights.
E. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article XII, the Company,
at its expense, shall promptly compute such adjustment or readjustment and
prepare and furnish to each holder of Series C Preferred Stock a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the
written request at any time of any holder of Series C Preferred Stock, furnish
to such holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of the Common Stock and the amount, if any, of other securities
or property which at the time would be received upon conversion of a share of
Series C Preferred Stock.
XIII. VOTING RIGHTS
The holders of the Series C Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Delaware General Corporation Law
(the "General Corporation Law") and in Article XIV below.
Notwithstanding the above, the Company shall provide each holder of Series
C Preferred Stock with prior notification of any meeting of the stockholders
(and copies of proxy materials and other information sent to stockholders) at
the same time such notice and materials are provided to the holders of Common
Stock. If the Company takes a record of its stockholders for the purpose of
determining stockholders entitled to (a) receive payment of any dividend or
other distribution, any right to subscribe for, purchase or otherwise acquire
(including by way of merger consolidation or recapitalization) any share of any
class or any other securities or property, or to receive any other right, or (b)
to vote in connection with any proposed sale, lease or conveyance of all or
substantially all of the assets of the Company, or any proposed merger,
consolidation, liquidation, dissolution or winding up of the Company, the
Company shall mail a notice to each holder, at least twenty (20) days prior to
the record date specified therein (but in no event earlier than public
announcement of such proposed transaction), of the date on which any such record
is to be taken for the purpose of such dividend, distribution, right or other
event, and a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
To the extent that under the General Corporation Law the vote of the
holders of the Series C Preferred Stock, voting separately as a class or series,
as applicable, is required to authorize a given action of the Company, the
affirmative vote or consent of the holders of at least a majority of the then
outstanding shares of the Series C Preferred Stock represented at a duly held
meeting at which a quorum is present or by written consent of the holders of at
least a majority of the then outstanding shares of Series C Preferred Stock
(except as otherwise may be required under the General Corporation Law) shall
constitute the approval of such action by the class. To the extent that under
the General Corporation Law holders of the Series C Preferred Stock are entitled
to vote on a matter with holders of Common Stock, voting together as one class,
each share of Series C Preferred Stock shall be entitled to a number of votes
equal to the number of shares of the Common Stock into which it is then
convertible (subject to the limitations contained in Article IV.C) using the
record date for the taking of such vote of stockholders as the date as of which
the Conversion Price is calculated.
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XIV. PROTECTION PROVISIONS
So long as any shares of Series C Preferred Stock are outstanding, the
Company shall not without first obtaining the approval (by vote or written
consent, as provided by the General Corporation Law) of holders of a majority of
the then outstanding shares of Series C Preferred Stock:
(a) alter or change the rights, preferences or privileges of the
Series C Preferred Stock;
(b) alter or change the rights, preferences or privileges of any
previously issued shares of capital stock of the Company so as to affect
adversely the Series C Preferred Stock;
(c) create any new class or series of capital stock having a
preference over the Series C Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Company (as previously defined in
Article IX hereof, "Senior Securities");
(d) create any new class or series of capital stock ranking pari
passu with the Series C Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Company (as previously defined in
Article IX hereof, "Pari Passu Securities");
(e) increase the authorized number of shares of Series C Preferred
Stock;
(f) issue any shares of Senior Securities;
(g) issue any shares of Series C Preferred Stock other than pursuant
to the Securities Purchase Agreement;
(h) redeem, or declare or pay any cash dividend or distribution on,
any Junior Securities;
(i) redeem, or declare or pay any cash dividend or distribution on,
any Pari Passu Securities while any redemption of Series C Preferred Stock is
pending or when any Redemption Event exists, or
(j) increase the par value of the Common Stock.
Notwithstanding the foregoing, no change pursuant to this Article XIV
shall be effective to the extent that, by its terms, it applies to less than all
of the holders of shares of Series C Preferred Stock then outstanding.
XV. LIMITATION ON COMPANY'S ACTIONS
Anything in this Certificate of Designation to the contrary
notwithstanding, the Company shall not be obligated to make any redemption or
payment hereunder or to issue shares of the Common Stock in lieu thereof, if
such action is not permitted by the General Corporation Law or any successor
statute; provided, however, the Company will permit any holder of the Series C
Preferred Stock to pay an amount equivalent to the par value of any shares of
the Common Stock to be issued to fulfill the Company's obligation if such action
by the holder will make the action permissible under the General Corporation Law
and, upon receipt of such payment, the Company will promptly issue the shares to
the holder.
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XVI. MISCELLANEOUS
A. Cancellation of Series C Preferred Stock. If any shares of Series C
Preferred Stock are converted pursuant to Article IV or redeemed, the shares so
converted or redeemed shall be canceled, shall return to the status of
authorized, but unissued preferred stock of no designated series, and shall not
be issuable by the Company as Series C Preferred Stock.
B. Lost or Stolen Certificates. Upon receipt by the Company of (i)
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity (without any bond or other security) reasonably satisfactory to the
Company, or (z) in the case of mutilation, upon surrender and cancellation of
the Preferred Stock Certificate(s), the Company shall execute and deliver new
Preferred Stock Certificate(s) of like tenor and date. However, the Company
shall not be obligated to reissue such lost or stolen Preferred Stock
Certificate(s) if the holder contemporaneously requests the Company to convert
such Series C Preferred Stock.
C. Allocation of Cap Amount and Reserved Amount. The initial Cap Amount
and Reserved Amount shall be allocated pro rata among the holders of Series C
Preferred Stock based on the number of shares of Series C Preferred Stock issued
to each holder. Each increase to the Cap Amount and the Reserved Amount shall be
allocated pro rata among the holders of Series C Preferred Stock based on the
number of shares of Series C Preferred Stock held by each holder at the time of
the increase in the Cap Amount or Reserved Amount. In the event a holder shall
sell or otherwise transfer any of such holder's shares of Series C Preferred
Stock, each transferee shall be allocated a pro rata portion of such
transferor's Cap Amount and Reserved Amount. Any portion of the Cap Amount or
Reserved Amount which remains allocated to any person or entity which does not
hold any Series C Preferred Stock shall be allocated to the remaining holders of
shares of Series C Preferred Stock, pro rata based on the number of shares of
Series C Preferred Stock then held by such holders.
D. Quarterly Statements of Available Shares. For each calendar quarter
beginning in the quarter in which the initial registration statement required to
be filed pursuant to the Registration Rights Agreement is declared effective and
thereafter so long as any shares of Series C Preferred Stock are outstanding,
the Company shall deliver (or cause its transfer agent to deliver) to each
holder a written report notifying the holders of any occurrence which prohibits
the Company from issuing shares of the Common Stock upon any such conversion.
The report shall also specify (i) the total number of shares of Series C
Preferred Stock outstanding as of the end of such quarter, (ii) the total number
of shares of the Common Stock issued upon all conversions of Series C Preferred
Stock prior to the end of such quarter, (iii) the total number of shares of the
Common Stock which are reserved for issuance upon conversion of the Series C
Preferred Stock as of the end of such quarter and (iv) the total number of
shares of the Common Stock which may thereafter be listed or issued by the
Company upon conversion of the Series C Preferred Stock before the Company would
exceed the Cap Amount and the Reserved Amount. The Company (or its transfer
agent) shall deliver the report for each quarter to each holder prior to the
tenth (10th) day of the calendar month following the quarter to which such
report relates. In addition, the Company (or its transfer agent) shall provide,
within fifteen (15) days after delivery to the Company of a written request by
any holder, any of the information enumerated in clauses (i) - (iv) of this
Paragraph D as of the date of such request.
E. Payment of Cash; Defaults. Whenever the Company is required to make any
cash payment to a holder under this Certificate of Designation (upon redemption
or otherwise), such cash payment shall be made to the holder within five (5)
business days after delivery by such holder of a notice specifying that the
holder elects to receive such payment in cash and the method (e.g., by check,
wire transfer) in which such payment should be made. If such payment is not
delivered within such five (5) business day period, such holder shall thereafter
be entitled to interest on the unpaid amount at a per annum rate equal to the
lower of twenty-four percent (24%) and the highest interest rate permitted by
applicable law until such amount is paid in full to the holder.
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F. Status as Stockholder. Upon submission of a Notice of Conversion by a
holder of Series C Preferred Stock, (i) the shares covered thereby (other than
the shares, if any, which cannot be issued because their listing or issuance
would exceed such holder's allocated portion of the Reserved Amount or Cap
Amount) shall be deemed converted into shares of the Common Stock and (ii) the
holder's rights as a holder of such converted shares of Series C Preferred Stock
shall cease and terminate, excepting only the right to receive certificates for
such shares of the Common Stock and to any remedies provided herein or otherwise
available at law or in equity to such holder because of a failure by the Company
to comply with the terms of this Certificate of Designation. Notwithstanding the
foregoing, if a holder has not received certificates for all shares of the
Common Stock prior to the tenth (10th) business day after the expiration of the
Delivery Period with respect to a conversion of Series C Preferred Stock for any
reason, then (unless the holder otherwise elects to retain its status as a
holder of the Common Stock by so notifying the Company within five (5) business
days after the expiration of such ten (10) business day period) the holder shall
regain the rights of a holder of Series C Preferred Stock with respect to such
unconverted shares of Series C Preferred Stock and the Company shall, as soon as
practicable, return such unconverted shares to the holder. In all cases, the
holder shall retain all of its rights and remedies (including, without
limitation, the right to have the Conversion Price with respect to subsequent
conversions determined in accordance with Article VI) for the Company's failure
to convert Series C Preferred Stock.
G. Remedies Cumulative. The remedies provided in this Certificate of
Designation shall be cumulative and in addition to all other remedies available
under this Certificate of Designation, at law or in equity (including a decree
of specific performance and/or other injunctive relief), and nothing herein
shall limit a holder's right to pursue actual damages for any failure by the
Company to comply with the terms of this Certificate of Designation. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the holders of Series C Preferred Stock and that the remedy
at law for any such breach may be inadequate. The Company therefore agrees, in
the event of any such breach or threatened breach, that the holders of Series C
Preferred Stock shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach, without the necessity of showing
economic loss and without any bond or other security being required.
2. SERIES D CONVERTIBLE PREFERRED STOCK
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 20,000 shares of
Preferred Stock, is the Series D Convertible Preferred Stock (the "SERIES D
PREFERRED STOCK") and the face amount shall be One Thousand U.S. Dollars
($1,000.00) per share (the "FACE AMOUNT").
II. DIVIDENDS
The Series D Preferred Stock will bear dividends and the holders of the
Series D Preferred Stock shall be entitled to receive dividends on the Series D
Preferred Stock as set forth in Article IV.
III. CERTAIN DEFINITIONS
For purposes of this Section 2, the following terms shall have the
following meanings:
A. "Affiliate" has the meaning assigned to such term in Rule 12b-2,
promulgated under the Securities Exchange Act of 1934, as amended.
B. "Change of Control Event" means (a) a consolidation or merger of the
Corporation with or into any person or entity, acting individually or in concert
with others, that results in the holders of the voting securities of the
Corporation immediately prior thereto (together with their respective
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Affiliates) holding or having the right to direct the voting of less than fifty
percent (50%) of the total outstanding voting securities of the Corporation or
such other surviving entity immediately following such Change of Control Event,
(b) a sale or other disposition, in one transaction or a series of related
transactions, of all or substantially all of the assets of the Corporation, or
(c) the (i) sale or issuance, in one transaction or a series of related
transactions, by the Corporation or any of its stockholders of any securities to
any person or entity, or (ii) acquisition or right to acquire or control, in one
transaction or a series of related transactions, by any person or entity, in
either case acting individually or in concert with others, such that, following
the consummation of such transaction(s), such person(s) or entity(ies) (together
with their respective Affiliates) would own or have the right to acquire greater
than fifty percent (50%) of the outstanding shares of Common Stock (calculated
on a fully-diluted basis).
C. "Common Stock" shall mean the Corporation's Common Stock, par value
$0.001 per share.
D. "Common Stock Deemed Outstanding" shall mean the number of shares of
Common Stock outstanding (not including shares of Common Stock held in the
treasury of the Corporation), if any.
E. "Conversion Date" means, for (i) any Optional Conversion (as defined
below), the date specified in the notice of conversion in the form attached
hereto as Exhibit A (the "Notice of Conversion"), so long as a copy of the
Notice of Conversion is faxed (or delivered by other means resulting in notice)
to the Corporation before 5:00 p.m., New York City time, on the Conversion Date
indicated in the Notice of Conversion; provided, however, that if the Notice of
Conversion is not so faxed or otherwise delivered before such time, then the
Conversion Date shall be the date the holder faxes or otherwise delivers the
Notice of Conversion to the Corporation and if the Notice of Conversion is faxed
or otherwise delivered after 5:00 p.m., New York City time, on the Conversion
Date indicated in the Notice of Conversion, the Conversion Date shall be the
next business day, and (ii) for any Mandatory Conversion, that date specified in
the notice delivered to the holders of the Series D Preferred Stock being
converted pursuant to Article IV.C in the event that such Mandatory Conversion
occurs.
F. "Conversion Price" means $0.30, and shall be subject to adjustment as
provided herein.
G. "Issuance Date" means, with respect to each share of Series D Preferred
Stock, the date of the closing under the Securities Purchase Agreement by and
among the Corporation and the purchasers named therein (the "SECURITIES PURCHASE
AGREEMENT") pursuant to which such share of Series D Preferred Stock was issued.
H. "Measurement Date" means for purposes of any issuance of securities,
the date of issuance thereof.
I. "Market Price" means, for any security as of any date, the volume
weighted average price of such security on the American Stock Exchange (the
"AMEX") or other principal trading market where such security is listed or
traded as reported by Bloomberg Financial Markets (or a comparable reporting
service of national reputation selected by the Corporation and reasonably
acceptable to holders of at least sixty six and two-thirds percent (66 2/3%) of
the then outstanding shares of Series D Preferred Stock ("MAJORITY HOLDERS") if
Bloomberg Financial Markets is not then reporting closing sales prices of such
security) (collectively, "BLOOMBERG"), or if the foregoing does not apply, the
last reported sales price of such security on a national exchange or in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no such price is reported for such security by
Bloomberg, the average of the bid prices of all market makers for such security
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as reported in the "pink sheets" by the National Quotation Bureau, Inc., in each
case for such date or, if such date was not a trading day for such security, on
the next preceding date which was a trading day. If the Market Price cannot be
calculated for such security as of either of such dates on any of the foregoing
bases, the Market Price of such security on such date shall be the fair market
value as reasonably determined by an investment banking firm selected by the
Corporation and reasonably acceptable to the Majority Holders, with the costs of
such appraisal to be borne by the Corporation.
J. "National Securities Market" means AMEX, New York Stock Exchange
("NYSE"), the Nasdaq National Market ("NNM"), or the NASDAQ SmallCap Market
("SMALLCAP") (or the successor to any of them).
K. "Warrants" shall mean the warrants issued by the Corporation to the
initial holders pursuant to the Securities Purchase Agreement.
IV. PAYMENT OF DIVIDENDS; CONVERSION
A. Dividends; Conversion at the Option of the Holder.
(i) Dividends shall be payable cumulatively out of funds legally
available therefor, at the rate of six percent (6%) per annum from the Issuance
Date, as to each outstanding share of Series D Preferred Stock on every
successive September 30, December 31, March 31 and June 30 and upon conversion
or redemption of such share (each such date or occurrence, a "DIVIDEND DATE").
Payment of a Dividend shall be made, (x) in cash or (y) at the option of the
Corporation by the issuance of shares of Series D Preferred Stock by the
Corporation, determined by dividing the amount of the Dividends that are payable
by the Face Amount immediately proceeding the applicable Dividend Date. If the
payment of any Dividend would result in the issuance of a fractional share of
Series D Preferred Stock, such fractional share shall be payable in cash based
upon the Face Amount at such time. If the Corporation is unable to make such a
cash payment, the holder shall be entitled to receive, in lieu of the fraction
of a share of Series D Preferred Stock a whole share of Series D Preferred
Stock.
(ii) Subject to the limitations on conversions contained in Paragraph
D of this Article IV, each holder of shares of Series D Preferred Stock may, at
any time and from time to time, convert (an "Optional Conversion") each of its
shares of Series D Preferred Stock into a number of fully paid and nonassessable
shares of Common Stock determined in accordance with the following formula:
Face Amount (plus accrued, but unpaid, Dividends, if any)
Conversion Price
B. Mechanics of Conversion. In order to effect an Optional Conversion, a
holder shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice
of Conversion to the Corporation (Attention: Secretary) and (y) surrender or
cause to be surrendered the original certificates representing the Series D
Preferred Stock being converted (the "PREFERRED STOCK CERTIFICATES"), duly
endorsed, along with a copy of the Notice of Conversion as soon as practicable
thereafter to the Corporation. Upon receipt by the Corporation of a facsimile
copy of a Notice of Conversion from a holder, the Corporation shall promptly
send, via facsimile, a confirmation to such holder stating that the Notice of
Conversion has been received, the date upon which the Corporation expects to
deliver the Common Stock issuable upon such conversion and the name and
telephone number of a contact person at the Corporation regarding the
conversion. The Corporation shall not be obligated to issue shares of Common
Stock upon a conversion unless either the Preferred Stock Certificates are
delivered to the Corporation as provided above, or the holder notifies the
Corporation that such Preferred Stock Certificates have been lost, stolen or
destroyed and delivers the documentation to the Corporation required by Article
XIV.B hereof.
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(i) Delivery of Common Stock Upon Conversion. Upon the surrender of
Preferred Stock Certificates accompanied by a Notice of Conversion, the
Corporation (itself, or through its transfer agent) shall, no later than the
later of (a) the second business day following the Conversion Date and (b) the
business day following the date of such surrender (or, in the case of lost,
stolen or destroyed certificates, after provision of indemnity pursuant to
Article XIV.B) (the "DELIVERY PERIOD"), issue and deliver (i.e., deposit with a
nationally recognized overnight courier service postage prepaid) to the holder
or its nominee (x) that number of shares of Common Stock issuable upon
conversion of such shares of Series D Preferred Stock being converted and (y) a
certificate representing the number of shares of Series D Preferred Stock not
being converted, if any. Notwithstanding the foregoing, if the Corporation's
transfer agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program, and so long as the certificates therefore
do not bear a legend (pursuant to the terms of the Securities Purchase
Agreement) and the holder thereof is not then required to return such
certificate for the placement of a legend thereon (pursuant to the terms of the
Securities Purchase Agreement), the Corporation shall cause its transfer agent
to promptly electronically transmit the Common Stock issuable upon conversion to
the holder by crediting the account of the holder or its nominee with DTC
through its Deposit Withdrawal Agent Commission system ("DTC TRANSFER"). If the
aforementioned conditions to a DTC Transfer are not satisfied, the Corporation
shall deliver as provided above to the holder physical certificates representing
the Common Stock issuable upon conversion. Further, a holder may instruct the
Corporation to deliver to the holder physical certificates representing the
Common Stock issuable upon conversion in lieu of delivering such shares by way
of DTC Transfer. Notwithstanding the foregoing, in no event shall the Company be
required to effect a conversion of Series D Preferred Stock into less than 1,000
shares of Common Stock, unless such conversion would result in the conversion of
all shares of Series D Preferred Stock then held by such holder.
(ii) Taxes. The Corporation shall pay any and all taxes that may be
imposed upon it with respect to the issuance and delivery of the shares of
Common Stock upon the conversion of the Series D Preferred Stock, provided
however, 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 any
shares of Common Stock in a name other than the holder of the Series D Preferred
Stock.
(iii)No Fractional Shares. If any conversion of Series D Preferred
Stock would result in the issuance of a fractional share of Common Stock, such
fractional share shall be payable in cash based upon the ten (10) day average
Market Price at such time, and the number of shares of Common Stock issuable
upon conversion of the Series D Preferred Stock shall be the next lower whole
number of shares. If the Corporation is unable to make such a cash payment, the
holder shall be entitled to receive, in lieu of the fraction of a share of
Common Stock a whole share of Common Stock.
(iv) Conversion Disputes. In the case of any dispute with respect to
a conversion, the Corporation shall promptly issue such number of shares of
Common Stock as are not disputed in accordance with subparagraph (i) above. If
such dispute involves the calculation of the Conversion Price, and such dispute
is not promptly resolved by discussion between the relevant holder and the
Corporation, the Corporation shall submit the disputed calculations to an
independent outside accountant via facsimile within three business days of
receipt of the Notice of Conversion. The accountant shall promptly audit the
calculations and notify the Corporation and the holder of the results no later
than three business days from the date it receives the disputed calculations.
The accountant's calculation shall be deemed conclusive, absent manifest error.
The Corporation shall then issue the appropriate number of shares of Common
Stock in accordance with subparagraph (i) above. The fees of the accountant
shall be borne (i) by the Corporation if the holder's calculation of the
Conversion Price is closer to the accountant's calculation of the Conversion
Price, and (ii) by the holder if the reverse is true.
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C. Mandatory Conversion by Corporation.
(i) At any time after the second anniversary of the Issuance Date and
subject to Article IV.D hereof, if all of the Required Conditions are satisfied,
at the option of the Corporation exercised by the delivery of written notice (a
"Mandatory Conversion Notice") to all holders of the shares of Series D
Preferred Stock, the Company may require the holders of Series D Preferred Stock
to convert all of the outstanding shares of Series D Preferred Stock into Common
Stock pursuant to the applicable conversion procedures in Article IV.B.
(ii) The "Required Conditions" shall consist of the following:
(a) the Market Price of the Common Stock for the twenty
(20) trading days prior to the date of delivery of the Mandatory Conversion
Notice equals or exceeds two hundred percent (200%) of the then applicable
Conversion Price;
(b) the registration statement required to be filed by the
Corporation pursuant to Section 2(a) of the Registration Rights Agreement,
dated as of the Issuance Date, by and among the Corporation and the initial
holders (the "REGISTRATION RIGHTS AGREEMENT") shall have been declared effective
by the United States Securities and Exchange Commission (the date on which such
registration statement is declared effective is hereinafter referred to as the
"REGISTRATION STATEMENT EFFECTIVE DATE") and continues to be effective up
through and including the date of the Mandatory Conversion contemplated by this
Article IV.C (it being understood that the Corporation shall comply with its
obligations under Article 3 of the Registration Rights Agreement relating to the
effectiveness of such registration statement);
(c) all shares of Common Stock issuable upon conversion of
the Series D Preferred Stock and exercise of the Warrants are then (a)
authorized and reserved for issuance, (b) registered under the Securities Act
for resale by the holders and (c) listed or traded on any National Securities
Market;
(d) no Redemption Event (as defined in Article VIII below)
shall have occurred without having been cured; and
(e) all amounts, if any, then accrued or payable under
this Certificate of Designation or the Registration Rights Agreement shall have
been paid.
D. Limitations on Conversions. The conversion of shares of Series D
Preferred Stock shall be subject to the following limitations (each of which
limitations shall be applied independently):
(i) Cap Amount. If the Corporation is prohibited by Rule 713
of the AMEX Company Guide, or any successor or similar rule, or the rules or
regulations of any other securities exchange or automated quotation system on
which the Common Stock is then listed or traded, from issuing a number of shares
of Common Stock upon conversion of Series D Preferred Stock (together with any
shares of Common Stock issuable as Dividends payable on the Series D Preferred
Stock or issuable upon exercise of the Warrants, or securities convertible into
or exercisable for Common Stock issued pursuant to the Securities Purchase
Agreement or other agreements entered in connection therewith) in excess of a
prescribed amount (the "CAP AMOUNT") (without stockholder approval or
otherwise), then the Corporation shall not issue shares upon conversion of
Series D Preferred Stock in excess of the Cap Amount. The Cap Amount shall be
allocated pro rata to the holders of Series D Preferred Stock as provided in
Article XIV.C. In the event the Corporation is prohibited from issuing shares of
Common Stock as a result of the operation of this subparagraph (i), the
Corporation shall comply with Article VII.
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(ii) No Five Percent Holders. In no event shall a holder of
shares of Series D Preferred Stock of the Corporation have the right to convert
shares of Series D Preferred Stock into shares of Common Stock or to dispose of
any shares of Series D Preferred Stock, nor shall the Company have the right to
redeem shares of Series D Preferred Stock for Common Stock, to the extent that
such right to effect such conversion, disposition, or redemption would result in
the holder or any of its affiliates beneficially owning more than 4.99% of the
outstanding shares of Common Stock. For purposes of this subparagraph,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder.
The restriction contained in this subparagraph may not be altered, amended,
deleted or changed in any manner whatsoever unless the holders of a majority of
the outstanding shares of Common Stock and the Majority Holders shall approve,
in writing, such alteration, amendment, deletion or change. Notwithstanding the
forgoing, this Article IV.D(ii) shall not apply to (a) the following
individuals: the General Conference Corporation of Seventh-day Adventists,
Jonathan J. Pallin, and Pierre Caland and affiliates, or (b) any individual not
a party to the Securities Purchase Agreement who becomes a holder of Preferred
Stock after July 10, 2003, and who notifies the Corporation in writing that this
Article IV.D(ii) shall not be applicable to such holder.
V. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. As promptly as practicable following the issuance
date, but in no event later than 75 days following the First Closing (as defined
in the Securities Purchase Agreement), the Corporation shall use its best
efforts to obtain stockholder approval of an increase in its authorized but
unissued shares of Common Stock in accordance with Section 3(c) of the
Securities Purchase Agreement and upon such approval shall reserve 110% of the
number of shares of its authorized but unissued shares of Common Stock for
issuance upon conversion of the Series D Preferred Stock and exercise of the
Warrants. Thereafter, the number of authorized but unissued shares of Common
Stock so reserved (the "Reserved Amount") shall at all times be sufficient to
provide for the conversion of all of the Series D Preferred Stock outstanding at
the then current Conversion Price thereof and exercise the Warrants of the then
current Exercise Price (as defined in the Warrants). The Reserved Amount shall
be allocated to the holders of Series D Preferred Stock as provided in Article
XIV.C.
B. Increases to Reserved Amount. If at any time following the Company's
receipt of the stockholder approval referred to in Article V.A above the
Reserved Amount for any three consecutive trading days (the last of such three
trading days being the "Authorization Trigger Date") shall be less than 100% of
the number of shares of Common Stock issuable upon conversion of the then
outstanding shares of Series D Preferred Stock and upon exercise of the then
outstanding Warrants, the Corporation shall immediately notify the holders of
Series D Preferred Stock of such occurrence and shall take immediate action
(including, if necessary, seeking stockholder approval to authorize the issuance
of additional shares of Common Stock) to increase the Reserved Amount to 110% of
the number of shares of Common Stock then issuable upon conversion of all of the
outstanding Series D Preferred Stock at the then current Conversion Price. In
the event the Corporation fails to so increase the Reserved Amount within 90
days after an Authorization Trigger Date, each holder of Series D Preferred
Stock shall thereafter have the option, exercisable in whole or in part at any
time and from time to time by delivery of a Redemption Notice (as defined in
Article VIII.C) to the Corporation, to require the Corporation to purchase for
cash, at an amount per share equal to the Redemption Amount (as defined in
Article VIII.B), a portion of the holder's Series D Preferred Stock such that,
after giving effect to such purchase, the holder's allocated portion of the
Reserved Amount exceeds 100% of the total number of shares of Common Stock
issuable to such holder upon conversion of its Series D Preferred Stock. If the
Corporation fails to redeem any of such shares within five (5) business days
after its receipt of such Redemption Notice, then such holder shall be entitled
to the remedies provided in Article VIII.C.
B-24
VI. FAILURE TO SATISFY CONVERSIONS
A. Conversion Defaults. If, at any time, (x) a holder of shares of Series
D Preferred Stock submits a Notice of Conversion and the Corporation fails for
any reason (other than because such issuance would exceed such holder's
allocated portion of the Reserved Amount or Cap Amount, for which failures the
holders shall have the remedies set forth in Articles V and VII, respectively)
to deliver, on or prior to the fifth business day following the expiration of
the Delivery Period for such conversion (or if there is a dispute with respect
to such conversion, the fifth business day after such dispute is resolved in
accordance with Article IV.B), such number of shares of Common Stock to which
such holder is entitled upon such conversion, or (y) the Corporation provides
written notice to any holder of Series D Preferred Stock (or makes a public
announcement via press release) at any time of its intention not to issue shares
of Common Stock upon exercise by any holder of its conversion rights in
accordance with the terms of this Certificate of Designation (other than because
such issuance would exceed such holder's allocated portion of the Reserved
Amount or Cap Amount) (each of (x) and (y) being a "Conversion Default") then
the holder may elect at any time and from time to time prior to the Default Cure
Date (as defined below) for such Conversion Default, by delivery of a Redemption
Notice to the Corporation, to have all or any portion of such holder's
outstanding shares of Series D Preferred Stock purchased by the Corporation for
cash, at an amount per share equal to the Redemption Amount (as defined in
Article VIII.B). If the Corporation fails to redeem any of such shares within
five business days after its receipt of such Redemption Notice, then such holder
shall be entitled to the remedies provided in Article VIII.C.
"Default Cure Date" means, as applicable, (i) with respect to a Conversion
Default described in clause (x) of its definition, the date the Corporation
effects the conversion of the full number of shares of Series D Preferred Stock,
and (ii) with respect to a Conversion Default described in clause (y) of its
definition, the date the Corporation issues shares of Common Stock in
satisfaction of all conversions of Series D Preferred Stock in accordance with
Article IV.A, or (iii) with respect to either type of a Conversion Default, the
date on which the Corporation redeems shares of Series D Preferred Stock held by
such holder pursuant to this Article VI.A.
B. Buy-In Cure. Unless the Corporation has notified the applicable holder
in writing prior to the delivery by such holder of a Notice of Conversion that
the Corporation is unable to honor conversions, if (i) (a) the Corporation fails
to promptly deliver during the Delivery Period shares of Common Stock to a
holder upon a conversion of shares of Series D Preferred Stock or (b) there
shall occur a Legend Removal Failure (as defined in Article VIII.A(iii) below)
and (ii) thereafter, such holder purchases (in an open market transaction or
otherwise) shares of Common Stock to make delivery in satisfaction of a sale by
such holder of the unlegended shares of Common Stock (the "SOLD SHARES") which
such holder anticipated receiving upon such conversion (a "BUY-IN"), the
Corporation shall pay such holder (in addition to any other remedies available
to the holder) the amount by which (x) such holder's total purchase price
(including brokerage commissions, if any) for the unlegended shares of Common
Stock so purchased exceeds (y) the net proceeds received by such holder from the
sale of the Sold Shares. For example, if a holder purchases unlegended shares of
Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to shares of Common Stock it sold for $10,000, the Corporation will be
required to pay the holder $1,000. A holder shall provide the Corporation
written notification and supporting documentation indicating any amounts payable
to such holder pursuant to this Paragraph B. The Corporation shall make any
payments required pursuant to this Paragraph B in accordance with and subject to
the provisions of Article XIV.E.
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VII. INABILITY TO CONVERT DUE TO CAP AMOUNT
A. If the Stockholder Approvals have not been obtained within 75 days
following the First Closing (the "Repurchase Event"), the Corporation shall
immediately notify the holders of such failure and, within five days after the
occurrence of the Repurchase Event, purchase from each holder of Series D
Preferred Stock, at a per share price equal to the Face Amount plus accrued
Dividends (the "PER SHARE REPURCHASE PRICE"), all shares of Series D Preferred
Stock (together with Warrants to purchase that number of Warrant Shares issuable
with such number of shares) held by each Purchaser.
B. If at any time following receipt of the stockholder approval referred
to in Article VII.A. above, the Corporation is prohibited by Rule 713 of the
AMEX Company Guide or any successor or similar rule, or the rules of any other
securities exchange or automated quotation system on which the Common Stock is
then listed or traded (a "TRIGGERING EVENT"), from issuing all of the shares of
Common Stock issuable upon complete conversion of the Series D Preferred Stock
and complete exercise of the Warrants (without giving effect to the limitations
on conversion and exercise contained in Article IV.D of this Certificate of
Designation and Section 7(g) of the Warrants), the Corporation shall immediately
notify the holders of such Triggering Event and, within a period of five (5)
days after the occurrence of such Triggering Event, purchase from each holder of
the Series D Preferred Stock, at a per share purchase price equal to the greater
of (i)(a) the quotient of the Face Amount plus accrued Dividends (b) divided by
the Conversion Price and (c) multiplied by the Market Price of the Common Stock
for the twenty (20) trading days prior to such purchase and (ii)(a) the Face
Amount together with accrued Dividends through the repurchase date (b)
multiplied by 1.25 (the "PER SHARE PRICE"), such whole number of Series D
Preferred Stock such that the Common Stock issuable upon complete conversion of
the Series D Preferred Stock and complete exercise of the Warrants (without
giving effect to the limitations on conversion and exercise contained in Article
IV.D in this Certificate of Designations and Section 7(g) of the Warrants) is no
longer prohibited by Rule 713 of the AMEX Company Guide (or any successor or
similar rule) or the rules of any other securities exchange or automated
quotation system on which the Common Stock is then listed or traded.
VIII. REDEMPTION
A. Redemption by Holder. In the event (each of the events described in
clauses (i) - (x) below after expiration of the applicable cure period (if any)
being a "REDEMPTION EVENT"):
(i) the Common Stock (including any of the shares of Common
Stock issuable upon conversion of the Series D Preferred Stock) is suspended
from trading on any of, or is not listed (and authorized) for trading on at
least one of, the NYSE, the AMEX, the NNM, or the SmallCap, for an aggregate of
10 trading days in any nine month period;
(ii) the registration statement required to be filed by the
Corporation pursuant to Section 2(a) of the Registration Rights Agreement has
not been declared effective by the 270th day following the Issuance Date or such
registration statement, after being declared effective, cannot be utilized by
the holders of Series D Preferred Stock for resale of all of their Registrable
Securities (as defined in the Registration Rights Agreement) for an aggregate
amount of time more than the time period permitted under Section 3(g) of the
Registration Rights Agreement;
(iii) the Corporation fails to remove any restrictive legend
on any certificate or any shares of Common Stock issued to the holders of Series
D Preferred Stock upon conversion of the Series D Preferred Stock as and when
required by this Certificate of Designation, the Securities Purchase Agreement
or the Registration Rights Agreement (a "LEGEND REMOVAL FAILURE"), and any such
failure continues uncured for five business days after the Corporation has been
notified thereof in writing by the holder that the holder;
(iv) the Corporation provides written notice (or otherwise
indicates) to any holder of Series D Preferred Stock, or states by way of public
announcement distributed via a press release, at any time, of its intention not
to issue, or otherwise refuses to issue, shares of Common Stock to any holder of
Series D Preferred Stock upon conversion in accordance with the terms of this
Certificate of Designation (other than due to the circumstances contemplated by
Articles V or VII for which the holders shall have the remedies set forth in
such Articles);
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(v) the Corporation or any subsidiary of the Corporation shall
make an assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business, or such a receiver or trustee shall otherwise be
appointed;
(vi) bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for the relief of debtors shall be instituted
by or against the Corporation or any subsidiary of the Corporation and if
instituted against the Corporation by a third party, shall not be dismissed
within 90 days of their initiation;
(vii) the Corporation shall either
(a)(i) fail to pay, when due, or within any
applicable grace period, any payment with respect to any indebtedness of the
Corporation in excess of $250,000 (other than that set forth on Schedule 4(d) of
the Schedule of Exceptions to the Securities Purchase Agreement) due to any
third party, other than payments contested by the Corporation in good faith, or
otherwise is in breach or violation of any agreement for monies owed or owing in
an amount in excess of $250,000 (other than that set forth on Schedule 4(d) of
the Schedule of Exceptions to the Securities Purchase Agreement) which breach or
violation permits the other party thereto to declare a default or otherwise
accelerate amounts due thereunder, or (ii) suffer to exist any other default or
event of default under any agreement binding the Corporation which default or
event of default would or is likely to have a material adverse effect on the
business, operations, properties, prospects or financial condition of the
Corporation; or
(b) consummate a Change of Control Event;
(viii) the Corporation shall fail to pay in full Dividends on
any Dividend Date;
(ix) no Second Closing (as that term is defined in the
Securities Purchase Agreement) has occurred within 75 days following the First
Closing; or
(x) except with respect to matters covered by subparagraphs
(i) - (ix) above, as to which such applicable subparagraphs shall apply, the
Corporation otherwise shall materially breach any term or provision hereunder or
under the Securities Purchase Agreement, the Registration Rights Agreement or
the Warrants (as defined in the Securities Purchase Agreement), including,
without limitation, the representations and warranties contained therein (i.e.,
in the event of a material breach as of the date such representation and
warranty was made) and if such breach is curable, shall fail to cure such breach
within 10 business days after the Corporation has been notified thereof in
writing by the holder;
then, upon the occurrence of any such Redemption Event, each holder of shares of
Series D Preferred Stock shall thereafter have the option, exercisable in whole
or in part at any time and from time to time by delivery of a Redemption Notice
(as defined in Paragraph C below) to the Corporation while such Redemption Event
continues, to require the Corporation to purchase for cash any or all of the
then outstanding shares of Series D Preferred Stock held by such holder for an
amount per share equal to the Redemption Amount (as defined in Paragraph B
below) in effect at the time of the redemption hereunder. For the avoidance of
doubt, the occurrence of any event described in clauses (i), (ii), (iv), (v) or
(ix) above shall immediately constitute a Redemption Event and there shall be no
cure period. Upon the Corporation's receipt of any Redemption Notice hereunder
(other than during the three trading day period following the Corporation's
delivery of a Redemption Announcement (as defined below) to all of the holders
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in response to the Corporation's initial receipt of a Redemption Notice from a
holder of Series D Preferred Stock), the Corporation shall immediately (and in
any event within one business day following such receipt) deliver a written
notice (a "REDEMPTION ANNOUNCEMENT") to all holders of Series D Preferred Stock
stating the date upon which the Corporation received such Redemption Notice and
the amount of Series D Preferred Stock covered thereby. The Corporation shall
not redeem any shares of Series D Preferred Stock during the three trading day
period following the delivery of a required Redemption Announcement hereunder.
At any time and from time to time during such three trading day period, each
holder of Series D Preferred Stock may request (either orally or in writing)
information from the Corporation with respect to the instant redemption
(including, but not limited to, the aggregate number of shares of Series D
Preferred Stock covered by Redemption Notices received by the Corporation) and
the Corporation shall furnish (either orally or in writing) as soon as
practicable such requested information to such requesting holder.
B. Definition of Redemption Amount. The "Redemption Amount" with respect
to a share of Series D Preferred Stock means an amount equal to:
(i) in the case of any Redemption Event described in Article
VIII.A (other than the Redemption Event described in either Article
VIII.A(vii)(b) or Article VIII.A(ix)), an amount equal to V multiplied by 1.25;
(ii) in the case of the Redemption Event described in Article
VIII.A(vii)(b), the greater of (x) V or (y) V/Conversion Price (without giving
effect to the limitations contained in Article IV.D hereof); or
(iii)in the case of the Redemption Event described in Article
VIII.A(ix), an amount equal to V;
where:
"V" means the Face Amount thereof plus the accrued Dividends thereon through the
date of payment of the Redemption Amount.
C. Redemption Defaults. If the Corporation fails to pay any holder the
Redemption Amount with respect to any share of Series D Preferred Stock within
five business days after its receipt of a notice requiring such redemption (a
"REDEMPTION NOTICE"), then the holder of Series D Preferred Stock entitled to
redemption (i) shall be entitled to interest on the Redemption Amount at a per
annum rate equal to the lower of eighteen percent (18%) and the highest interest
rate permitted by applicable law from the date on which the Corporation receives
the Redemption Notice, until the date of payment of the Redemption Amount
hereunder, and (ii) provided that the Corporation can then legally do so, shall
have the right, at any time and from time to time, to require the Corporation,
upon written notice, to immediately convert (in accordance with the terms of
Paragraph A of Article IV) all or any portion of the Redemption Amount into
shares of Common Stock, at the Conversion Price then in effect, during the
period beginning on the date on which the Corporation receives the Redemption
Notice and ending on the Conversion Date with respect to the conversion of such
Redemption Amount. In the event the Corporation is not able to redeem all of the
shares of Series D Preferred Stock subject to Redemption Notices delivered prior
to the date upon which such redemption is to be effected, the Corporation shall
redeem shares of Series D Preferred Stock from each holder pro rata, based on
the total number of shares of Series D Preferred Stock outstanding at the time
of redemption included by such holder in all Redemption Notices delivered prior
to the date upon which such redemption is to be effected relative to the total
number of shares of Series D Preferred Stock outstanding at the time of
redemption included in all of the Redemption Notices delivered prior to the date
upon which such redemption is to be effected.
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D. Mandatory Redemption by Company at Maturity.
(i) On the third anniversary of the Issuance Date (the
"Maturity Date"), the Company shall redeem each share of Series D Preferred
Stock issued and outstanding on the Maturity Date, at a redemption price per
share equal to the Face Amount, plus all accrued Dividends to the date of such
redemption (the "Mandatory Redemption Price"). The Corporation may, at its
option, pay the Mandatory Redemption Price in (i) cash or (ii) if clauses
(b)-(e) of the Required Conditions in Article IV.C(ii) are met, and subject to
Article IV.D, in shares of the Company's Common Stock, valued at the lesser of
the then applicable Conversion Price or ninety percent (90%) of the Market Price
of the Common Stock for the ninety (90) trading days prior to the Maturity Date.
Within thirty (30) days of the Maturity Date, the Company shall send a notice to
the holders of the Series D Preferred Stock ("Notice of Redemption at Maturity")
stating the date set for redemption (which shall be no later than twenty (20)
days after the Maturity Date) and whether the Corporation has elected to pay the
Mandatory Redemption Price in cash or in shares of Common Stock. Notwithstanding
the delivery of a Notice of Redemption at Maturity, a holder may convert such
shares of Series D Preferred Stock subject to such notice by the delivery prior
to the date set forth in such notice on which the Company intends to redeem such
shares of a Notice of Conversion to the Company or its transfer agent pursuant
to the procedures set forth in Article IV.B
(ii) The Company may not deliver to a holder of Series D
Preferred Stock a Notice of Redemption at Maturity unless on or prior to the
date of delivery of such Notice of Redemption at Maturity, the Company shall
have segregated on the books and records of the Company an amount of cash
sufficient to pay all amounts to which the holders of Series D Preferred Stock
are entitled upon such redemption pursuant to subparagraph (i) of this Section
D. Any Notice of Redemption at Maturity delivered shall be irrevocable and shall
be accompanied by a statement executed by a duly authorized officer of the
Company or the holder otherwise complies with Article XIV.B hereof.
(iii) The redemption amount payable under this Section D shall
be paid to the holders of the Series D Preferred Stock being redeemed within
five (5) business days of the redemption date specified in the Notice of
Redemption at Maturity Date; provided, however, that the Company shall not be
obligated to deliver any portion of such redemption amount until either the
certificates evidencing the Series D Preferred Stock being redeemed are
delivered to the office of the Company or the holder notifies the Company that
such certificates have been lost, stolen or destroyed and delivers the
documentation in accordance with Article XIV.B hereof. Notwithstanding anything
herein to the contrary, in the event that the certificates evidencing the Series
D Preferred Stock being redeemed are not delivered to the Company prior to the
third business day following the redemption date specified in the Notice of
Redemption at Maturity, the redemption of the Series D Preferred Stock pursuant
to this Article VIII.D shall still be deemed effective as of the redemption date
specified in the Notice of Redemption at Maturity and the applicable redemption
amount shall be paid to the holder of Series D Preferred Stock being redeemed
within five (5) business days of the date the certificates evidencing the Series
D Preferred Stock being redeemed are actually delivered to the Company or the
holder otherwise complies with Article XIV.B hereof.
IX. RANK
All shares of the Series D Preferred Stock shall rank (i) prior to (a) the
Corporation's Common Stock; (b) the Corporation's Series C Convertible Preferred
Stock; and (c) any class or series of capital stock of the Corporation hereafter
created (unless, with the consent of the Majority Holders obtained in accordance
with Article XIII hereof, such class or series of capital stock specifically, by
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its terms, ranks senior to or pari passu with the Series D Preferred Stock)
(collectively with the Common Stock and Series C Convertible Preferred Stock,
"Junior Securities"); (ii) pari passu with any other class or series of capital
stock of the Corporation hereafter created (with the written consent of the
Majority Holders obtained in accordance with Article XIII hereof) specifically
ranking, by its terms, on parity with the Series D Preferred Stock (the "Pari
Passu Securities"); and (iii) junior to any class or series of capital stock of
the Corporation hereafter created (with the written consent of the Majority
Holders obtained in accordance with Article XIII hereof) specifically ranking,
by its terms, senior to the Series D Preferred Stock (collectively, the "Senior
Securities"), in each case as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
X. LIQUIDATION PREFERENCE
A. If the Corporation shall commence a voluntary case under the U.S.
Federal bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the U.S. Federal bankruptcy laws or any other
applicable bankruptcy, insolvency or similar law resulting in the appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of 90 consecutive days and,
on account of any such event, the Corporation shall liquidate, dissolve or wind
up, or if the Corporation shall otherwise liquidate, dissolve or wind up,
including, but not limited to, a Change of Control Event (only in the event a
holder does not elect its rights with respect to such a Change of Control Event
as set forth in Article VIII.A) (a "LIQUIDATION EVENT"), no distribution shall
be made to the holders of any shares of capital stock of the Corporation (other
than Senior Securities pursuant to the rights, preferences and privileges
thereof, if any ) upon liquidation, dissolution or winding up unless prior
thereto the holders of shares of Series D Preferred Stock shall have received
the Liquidation Preference with respect to each share. If, upon the occurrence
of a Liquidation Event, the assets and funds available for distribution among
the holders of the Series D Preferred Stock and holders of PariPassu Securities,
if any, shall be insufficient to permit the payment to such holders of the
preferential amounts payable thereon, then the entire assets and funds of the
Corporation legally available for distribution to the Series D Preferred Stock
and the Pari Passu Securities, if any, shall be distributed ratably among such
shares in proportion to the ratio that the Liquidation Preference payable on
each such share bears to the aggregate Liquidation Preference payable on all
such shares.
B. The purchase or redemption by the Corporation of stock of any class, in
any manner permitted by law, shall not, for the purposes hereof, be regarded as
a liquidation, dissolution or winding up of the Corporation.
C. The "Liquidation Preference" with respect to a share of Series D
Preferred Stock means an amount equal to the Face Amount thereof plus the
accrued but unpaid Dividends thereon (whether or not declared) through the date
of final distribution, or upon the occurrence of Change in Control Event (if a
holder does not elect its rights with respect to such Change in Control Event as
set forth in Article VIII.A) the Liquidation Preference shall be the greater of
(i) V or (ii) V/Conversion Price (without giving effect to the limitation
contained in Article IV.D hereof). The Liquidation Preference with respect to
any Pari Passu Securities, if any, shall be as set forth in the Certificate of
Designation filed in respect thereof.
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XI. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time as
follows:
A. Stock Splits, Stock Dividends, Etc. If, at any time on or after the
Issuance Date, the number of outstanding shares of Common Stock is increased by
a stock split, stock dividend, combination, reclassification or other similar
event, the Conversion Price shall be proportionately reduced, or if the number
of outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares, or other similar event, the
Conversion Price shall be proportionately increased. In such event, the
Corporation shall notify the Corporation's transfer agent of such change on or
before the effective date thereof.
B. Adjustment Due to Merger, Consolidation, Etc. If, at any time after the
Issuance Date, there shall be (i) 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), (ii) any consolidation or merger of the
Corporation with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged), (iii)
any sale or transfer of all or substantially all of the assets of the
Corporation or (iv) any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property (each of
(i) - (iv) above being a "CORPORATE CHANGE"), then the holders of Series D
Preferred Stock shall thereafter have the right to receive upon conversion, in
lieu of the shares of Common Stock otherwise issuable, such shares of stock,
securities and/or other property as would have been issued or payable in such
Corporate Change with respect to or in exchange for the number of shares of
Common Stock which would have been issuable upon conversion had such Corporate
Change not taken place (without giving effect to the limitation contained in
Article IV.D hereof), and in any such case, appropriate provisions (in form and
substance reasonably satisfactory to the holders of a majority of the Series D
Preferred Stock then outstanding) shall be made with respect to the rights and
interests of the holders of the Series D Preferred Stock to the end that the
economic value of the shares of Series D Preferred Stock are in no way
diminished by such Corporate Change and that the provisions hereof (including,
without limitation, in the case of any such consolidation, merger or sale in
which the successor entity or purchasing entity is not the Corporation, an
immediate adjustment of the Conversion Price so that the Conversion Price
immediately after the Corporate Change reflects the same relative value as
compared to the value of the surviving entity's common stock that existed
between the Conversion Price and the value of the Corporation's Common Stock
immediately prior to such Corporate Change shall thereafter be applicable, as
nearly as may be practicable in relation to any shares of stock or securities
thereafter deliverable upon the conversion thereof. The Corporation shall not
effect any Corporate Change unless (i) each holder of Series D Preferred Stock
has received written notice of such transaction at least 30 days prior to the
consummation of the transaction or event (or 30 days prior to the date of the
meeting or other formal action of shareholders relating thereto, whichever is
earlier, but in no event earlier than public announcement of such proposed
transaction), and (ii) the resulting successor or acquiring entity (if not the
Corporation) assumes by written instrument (in form and substance reasonable
satisfactory to the holders of a majority of the Series D Preferred Stock) the
obligations of this Certificate of Designation. The above provisions shall apply
regardless of whether or not there would have been a sufficient number of shares
of Common Stock authorized and available for issuance upon conversion of the
shares of Series D Preferred Stock outstanding as of the date of such
transaction, and shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges.
C. Adjustment Due to Distribution. If, at any time after the Issuance
Date, the Corporation shall declare or make any distribution of its assets (or
rights to acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's stockholders in cash or shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off))
(a "DISTRIBUTION"), then the holders of Series D Preferred Stock shall be
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entitled, upon any conversion of shares of Series D Preferred Stock after the
date of record for determining stockholders entitled to such Distribution, to
receive the amount of such assets which would have been payable to the holder
with respect to the shares of Common Stock issuable upon such conversion had
such holder been the holder of such shares of Common Stock on the record date
for the determination of stockholders entitled to such Distribution. If the
Distribution involves rights, warrants, options or any other form of convertible
securities and the right to exercise or convert such securities would expire in
accordance with its terms prior to the conversion of the Series D Preferred
Stock, then the terms of such securities shall provide that such exercise or
convertibility right shall remain in effect until 30 days after the date the
holder of Series D Preferred Stock receives such securities pursuant to the
conversion hereof.
D. Issuance of Other Securities.
(i) If at any time after the Issuance Date and on or before the
Maturity Date the Company issues or sells or in accordance with Article XI.D(ii)
is deemed to have issued and sold any shares of the Common Stock for no
consideration or for a consideration per share less than the Dilutive Price (as
defined in this subparagraph) on the date of issuance or deemed issuance of the
Common Stock (a "DILUTIVE ISSUANCE"), then effective immediately upon the
Dilutive Issuance, the Conversion Price will be reduced, as of the close of
business on the date of such Dilutive Issuance, to the price at which such
shares of the Common Stock are so issued or sold or deemed issued or sold. For
purposes of this subparagraph, "DILUTIVE PRICE" means, at any time, the
Conversion Price then in effect.
(ii) Effect on Conversion Price of Certain Events. For purposes of
determining the adjusted Conversion Price under Article XI.D(i) hereof, the
following will be applicable:
(a) Issuance of Rights or Options. If the Company in any
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase shares of the Common
Stock or other securities exercisable, convertible into or exchangeable for
shares of the Common Stock ("CONVERTIBLE SECURITIES") (such warrants, rights and
options to purchase shares of the Common Stock or Convertible Securities are
hereinafter referred to as "OPTIONS") and the price per share for which a share
of the Common Stock is issuable upon the exercise of such Options is less than
the Dilutive Price in effect on the date of issuance of such Options ("BELOW
MARKET OPTIONS"), then the maximum total number of shares of the Common Stock
issuable upon the exercise of all such Below Market Options (assuming full
exercise, conversion or exchange of Convertible Securities, if applicable) will,
as of the date of the issuance or grant of such Below Market Options, be deemed
to be outstanding and to have been issued and sold by the Company for such price
per share. For purposes of the preceding sentence, the "price per share for
which a share of the Common Stock is issuable upon the exercise, conversion or
exchange of such Below Market Options is determined by dividing (i) the total
amount, if any, received or receivable by the Company as consideration for the
issuance or granting of all such Below Market Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the exercise of all such Below Market Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Below Market Options,
the minimum aggregate amount of additional consideration payable upon the
exercise, conversion or exchange thereof at the time such Convertible Securities
first become exercisable, convertible or exchangeable, (determined in accordance
with the calculation method set forth in Article XI.D(ii)(c), if applicable) by
(ii) the maximum total number of shares of the Common Stock issuable upon the
exercise of all such Below Market Options (assuming full conversion of
Convertible Securities, if applicable). No further adjustment to the Conversion
Price will be made upon the actual issuance of such shares of the Common Stock
upon the exercise of such Below Market Options or upon the exercise, conversion
or exchange of Convertible Securities issuable upon exercise of such Below
Market Options.
B-32
(b) Issuance of Convertible Securities. If the Company in
any manner issues or sells any Convertible Securities, whether or not
immediately convertible and the price per share for which a share of the Common
Stock is issuable upon such exercise, conversion or exchange (as determined
pursuant to Article XI.D(ii)(c) if applicable) is less than the Dilutive Price
in effect on the date of issuance of such Convertible Securities, then the
maximum total number of shares of the Common Stock issuable upon the exercise,
conversion or exchange of all such Convertible Securities will, as of the date
of the issuance of such Convertible Securities, be deemed to be outstanding and
to have been issued and sold by the Company for such price per share. For the
purposes of the preceding sentence, the "price per share for which a share of
the Common Stock is issuable upon such exercise, conversion or exchange" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of the Common Stock
issuable upon the exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Conversion Price will be made upon the
actual issuance of such shares of the Common Stock upon exercise, conversion or
exchange of such Convertible Securities.
(c) If the Company in any manner issues or sells any
Convertible Securities with a fluctuating conversion or exercise price or
exchange ratio (a "VARIABLE RATE CONVERTIBLE SECURITY"), then the "price per
share for which Common Stock is issuable upon such exercise, a conversion or
exchange" for purposes of the calculation contemplated by Article XI.D(ii)(a)
shall be deemed to be the lowest price per share which would be applicable
(assuming all holding period and other conditions to any discounts contained in
such Variable Rate Convertible Security have been satisfied) if the Conversion
Price on such date of issuance or sale of such Variable Rate Convertible
Security was seventy-five percent (75%) of the Dilutive Price on such date (the
"ASSUMED VARIABLE MARKET PRICE"). Further, if the Conversion Price at any time
or times thereafter is less than or equal to the Assumed Variable Market Price
last used for making any adjustment under this Article XI.D with respect to any
Variable Rate Convertible Security, the Conversion Price in effect at such time
shall be readjusted to equal the Conversion Price which would have resulted if
the Assumed Variable Market Price at the time of issuance of the Variable Rate
Convertible Security had been 75% of the Market Price of the Common Stock for
the twenty (20) trading days prior the time of the adjustment required by this
sentence.
(d) Change in Option Price or Conversion Rate. If there is
a reduction at any time in (i) the amount of additional consideration
payable to the Company upon the exercise of any Options; (ii) the amount of
additional consideration, if any, payable to the Company upon the exercise,
conversion or exchange of any Convertible Securities; or (iii) the rate at which
any Convertible Securities are convertible into or exchangeable for shares of
the Common Stock (in each such case, other than under or by reason of provisions
designed to protect against dilution and except when an adjustment is made
pursuant to Article XI.D(ii)(c)), the Conversion Price in effect at the time of
such change will be readjusted to the Conversion Price which would have been in
effect at such time had such Options or Convertible Securities still outstanding
provided for such changed additional consideration or changed conversion,
exercise or exchange rate, as the case may be, at the time initially granted,
issued or sold.
(e) Treatment of Expired Options and Unexercised
Convertible Securities. If, in any case, the total number of shares of the
Common Stock issuable upon exercise of any Option or upon exercise, conversion
or exchange of any Convertible Securities is not, in fact, issued and the rights
to exercise such Option or to exercise, convert or exchange such Convertible
Securities shall have expired or terminated, the Conversion Price then in effect
will be readjusted to the Conversion Price which should be in effect at the time
of such expiration or termination had such Option or Convertible Securities, to
the extent outstanding immediately prior to such expiration or termination
(other than in respect of the actual number of shares of the Common Stock issued
B-33
upon exercise or conversion thereof), never been issued. Any readjustment in the
Conversion Price pursuant to this Article XI.D(ii)(e) shall have no effect on
shares of the Series D Preferred Stock converted in accordance with the terms of
this Certificate of Designations, Preferences and Rights.
(f) Calculation of Consideration Received. If any shares
of the Common Stock, Options or Convertible Securities are issued, granted
or sold for cash, the consideration received therefor for purposes hereof will
be the amount received by the Company therefor, after deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any shares of the Common Stock, Options or Convertible Securities are
issued or sold for a consideration part or all of which shall be other than
cash, the amount of the consideration other than cash (including the net present
value of the consideration expected by the Company for the provided or purchased
services) received by the Company will be the fair market value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Company will be the Market
Price of the Common Stock for the twenty (20) trading days prior to the date of
receipt. In case any shares of the Common Stock, Options or Convertible
Securities are issued in connection with any merger or consolidation in which
the Company is the surviving Company, the amount of consideration therefor will
be deemed to be the fair market value of such portion of the net assets and
business of the non-surviving Company as is attributable to such shares of the
Common Stock, Options or Convertible Securities, as the case may be. The fair
market value of any consideration other than cash or securities will be
determined in good faith by an investment banker or other appropriate expert of
national reputation selected by the Company and reasonably acceptable to the
holder hereof, with the costs of such determination to be borne by the Company.
In case any shares of the Common Stock, Options or Convertible Securities are
issued in connection with the issuance of debt securities the amount of
consideration therefor shall be the cash received by the Company and the value
of the securities issued by the Company shall be the fair market value of all
securities and instruments issued in such transaction, with fair market value
being determined by agreement between the holder hereof and the Company or if no
such agreement is reached, pursuant to the immediately preceding sentence. For
all Options the fair market value thereof shall be determined in accordance with
the Black-Scholes methodology.
(g) Exceptions to Adjustment of Conversion Price. No
adjustment to the Conversion Price will be made (i) upon the grant or exercise
of any stock, options or warrants which may hereafter be granted or exercised
under any equity incentive plan of the Company now existing or to be implemented
in the future which is approved in good faith by the Board of Directors of the
Company or a committee of non-employee directors established for such purpose;
(ii) the conversion of the Series D Preferred Stock or the exercise of the
Warrants; (iii) the issuance of securities in connection with a bona fide
business acquisition; (iv) the issuance of securities in connection with
strategic transactions involving the Corporation and other entities, including
joint ventures, manufacturing, marketing or distribution arrangements (but
excluding any sale of substantially all of the Corporation's assets or any
merger or consolidation of the Corporation into or with another entity in which
the holders of the capital stock of the Corporation immediately prior to such
merger or consolidation do not hold at least fifty percent (50%) in voting power
of the surviving corporation); or (v) the issuance of stock, warrants or other
securities or rights to persons or entities in connection with commercial lease
lines or bank financing provided that such issuances are primarily for purposes
other than equity financing.
E. Purchase Rights. If, at any time after the Issuance Date, the
Corporation issues any Convertible Securities or rights to purchase stock,
warrants, securities or other property (the "Purchase Rights") pro rata to the
record holders of any class of Common Stock, then the holders of Series D
Preferred Stock will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
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acquired if such holder had held the number of shares of Common Stock acquirable
upon complete conversion of the Series D Preferred Stock (without giving effect
to the limitations contained in Article IV.D) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.
F. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article XI amounting to
more than a 1% change in such Conversion Price, the Company, at its expense,
shall promptly compute such adjustment or readjustment and prepare and furnish
to each holder of the Series D Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written request
at any time of any holder of the Series D Preferred Stock, furnish to such
holder a like certificate setting forth (i) such adjustment or readjustment,
(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 securities or property which at
the time would be received upon conversion of any shares of Series D Preferred
Stock.
G. Other Action Affecting Conversion Price. If the Corporation takes any
action affecting the Common Stock after the date hereof that would be covered by
Article XI.A through E, but for the manner in which such action is taken or
structured, which would in any way diminish the value of the Series D Preferred
Stock, then the Conversion Price shall be adjusted in such manner as the Board
of Directors of the Corporation shall in good faith determine to be equitable
under the circumstances.
XII. VOTING RIGHTS
A. General. Except as otherwise expressly provided elsewhere in this
Certificate of Designations, Preferences and Rights or as otherwise required by
the Delaware General Corporation Law (the "DGCL"), (a) each holder of Series D
Preferred Stock shall be entitled to vote on all matters submitted to a vote of
the stockholders of the Corporation and shall be entitled to that number of
votes equal to the largest number of whole shares of Common Stock into which
such holder's shares of Series D Preferred Stock could be converted, pursuant to
the provisions of Section IV hereof (subject to the limitations contained in
Article IV.D(ii)), at the record date for the determination of stockholders
entitled to vote on such matters or, if no such record date is established, at
the date such vote is taken or any written consent of stockholders is solicited,
and (b) except as otherwise provided herein, the holders of shares of Series D
Preferred Stock and Common Stock shall vote together (or tender written consents
in lieu of a vote) as a single class on all matters submitted to the
stockholders of the Corporation.
B. Notification. The Corporation shall provide each holder of Series D
Preferred Stock with prior notification of any meeting of the stockholders (and
copies of proxy materials and other information sent to stockholders) and a
brief statement regarding the business to be transacted at the meeting to the
extent known at such time, at least 30 days prior to the date of the meeting or
other formal action of shareholders (or 30 days prior to the consummation of the
transaction or event if a transaction or fundamental corporate event is to be
voted upon, whichever is earlier, but in no event earlier than public
announcement of such proposed transaction).
C. Class Voting. To the extent that under the DGCL the vote of the holders
of the Series D Preferred Stock, voting separately as a class or series, as
applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the then
outstanding shares of the Series D Preferred Stock represented at a duly held
meeting at which a quorum is present or by written consent of the holders of at
least a majority of the then outstanding shares of Series D Preferred Stock
(except as otherwise may be required under the DGCL) shall constitute the
approval of such action by the class.
B-35
XIII. PROTECTION PROVISIONS
So long as any shares of Series D Preferred Stock are outstanding, the
Corporation shall not without first obtaining the approval (by vote or written
consent, as provided by the DGCL) of the Majority Holders:
(a) alter or change the rights, preferences or privileges of
the Series D Preferred Stock, whether through merger, sale, consolidation or
otherwise (unless such event is a Change of Control Event, in which case no
special approval shall be required upon consummation of such Change of Control
Event);
(b) alter or change the rights, preferences or privileges of
any capital stock of the Corporation so as to affect adversely the Series D
Preferred Stock, whether through merger, sale, consolidation or otherwise
(unless such event is a Change of Control Event, in which case no special
approval shall be required upon consummation of such Change of Control Event);
(c) create any Senior Securities;
(d) create any Pari Passu Securities;
(e) increase or decrease the authorized number of shares of
Series D Preferred Stock or Warrants;
(f) issue any shares of Senior Securities or Pari Passu
Securities;
(g) issue any Units other than pursuant to the Securities
Purchase Agreement;
(h) redeem or repurchase, or declare or pay any cash dividend,
distribution or interest on, any Junior Securities or other outstanding
securities of the Company, except pursuant to this Certificate of Designations,
Preferences and Rights or for repurchases pursuant to an equity incentive plan
approved by the Corporation's Board of Directors in good faith;
(i) permit any subsidiary now or hereinafter existing to issue
any securities, other than to the Corporation; or
(j) sell or otherwise transfer any independently significant
asset or Intangible (as defined in the Securities Purchase Agreement) to any
other person(s) or entity(ies) (including, without limitation, to any
subsidiary(ies), now or hereinafter existing, of the Corporation), unless such
sale or transfer is a Change of Control Event, in which case no special approval
shall be required pursuant to this section upon consummation of such Change of
Control Event.
Furthermore, notwithstanding the foregoing, no change pursuant to this Article
XIII shall be effective to the extent that, by its terms, it applies to less
than all of the holders of shares of Series D Preferred Stock then outstanding.
B-36
XIV. MISCELLANEOUS
A. Cancellation of Series D Preferred Stock. If any shares of Series D
Preferred Stock are converted pursuant to Article IV, the shares so converted
shall be canceled, shall return to the status of authorized, but unissued
preferred stock of no designated series, and shall not be issuable by the
Corporation as Series D Preferred Stock.
B. Lost or Stolen Certificates. Upon receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity (without any bond or other security) reasonably satisfactory to the
Corporation, or (z) in the case of mutilation, upon surrender and cancellation
of the Preferred Stock Certificate(s), the Corporation shall execute and deliver
new Preferred Stock Certificate(s) of like tenor and date. However, the
Corporation shall not be obligated to reissue such lost or stolen Preferred
Stock Certificate(s) if the holder contemporaneously requests the Corporation to
convert such Series D Preferred Stock.
C. Allocation of Cap Amount and Reserved Amount. The initial Cap Amount
and Reserved Amount shall be allocated pro rata among the holders of Series D
Preferred Stock based on the number of shares of Series D Preferred Stock issued
to each holder. Each increase to the Cap Amount and the Reserved Amount shall be
allocated pro rata among the holders of Series D Preferred Stock based on the
number of shares of Series D Preferred Stock held by each holder at the time of
the increase in the Cap Amount or Reserved Amount. In the event a holder shall
sell or otherwise transfer any of such holder's shares of Series D Preferred
Stock, each transferee shall be allocated a pro rata portion of such
transferor's Cap Amount and Reserved Amount. Any portion of the Cap Amount or
Reserved Amount which remains allocated to any person or entity which does not
hold any Series D Preferred Stock shall be allocated to the remaining holders of
shares of Series D Preferred Stock, pro rata based on the number of shares of
Series D Preferred Stock then held by such holders.
D. Quarterly Statements of Available Shares. For each calendar quarter
beginning in the quarter in which the initial registration statement required to
be filed pursuant to Section 2(a) of the Registration Rights Agreement is
declared effective and thereafter so long as any shares of Series D Preferred
Stock are outstanding, if requested by a holder, the Corporation shall deliver
(or cause its transfer agent to deliver) to such holder a written report
notifying such holder of any occurrence which prohibits the Corporation from
issuing Common Stock upon any such conversion. If issued, the report shall also
specify (i) the total number of shares of Series D Preferred Stock outstanding
as of the end of such quarter, (ii) the total number of shares of Common Stock
issued upon all conversions of Series D Preferred Stock prior to the end of such
quarter, (iii) the total number of shares of Common Stock which are reserved for
issuance upon conversion of the Series D Preferred Stock as of the end of such
quarter and (iv) the total number of shares of Common Stock which may thereafter
be issued by the Corporation upon conversion of the Series D Preferred Stock
before the Corporation would exceed the Cap Amount and the Reserved Amount. If
requested, the Corporation (or its transfer agent) shall use its best efforts to
deliver the report for each quarter to each requesting holder prior to the tenth
day of the calendar month following the quarter to which such report relates. In
addition, the Corporation (or its transfer agent) shall provide, as promptly as
practicable delivery to the Corporation of a written request by any holder, any
of the information enumerated in clauses (i) - (iv) of this Paragraph D as of
the date of such request.
E. Payment of Cash; Defaults. Whenever the Corporation is required to make
any cash payment to a holder under this Certificate of Designation (as payment
of any Dividend, upon redemption or otherwise), such cash payment shall be made
to the holder within five business days after delivery by such holder of a
notice specifying that the holder elects to receive such payment in cash and the
method (e.g., by check, wire transfer) in which such payment should be made. If
such payment is not delivered within such five business day period, such holder
shall thereafter be entitled to interest on the unpaid amount at a per annum
rate equal to the lower of eighteen percent (18%) and the highest interest rate
permitted by applicable law until such amount is paid in full to the holder.
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F. Status as Stockholder. Upon submission of a Notice of Conversion by a
holder of Series D Preferred Stock, (i) the shares covered thereby (other than
the shares, if any, which cannot be issued because their issuance would exceed
such holder's allocated portion of the Reserved Amount or Cap Amount) shall be
deemed converted into shares of Common Stock and (ii) the holder's rights as a
holder of such converted shares of Series D Preferred Stock shall cease and
terminate, excepting only the right to receive certificates for such shares of
Common Stock and to any remedies provided herein or otherwise available at law
or in equity to such holder because of a failure by the Corporation to comply
with the terms of this Certificate of Designation. In situations where Article
VI.B is applicable, the number of shares of Common Stock referred to in clauses
(i) and (ii) of the immediately preceding sentence shall be determined on the
date on which such shares of Common Stock are delivered to the holder.
Notwithstanding the foregoing, if a holder has not received certificates for all
shares of Common Stock prior to the sixth business day after the expiration of
the Delivery Period with respect to a conversion of Series D Preferred Stock for
any reason, then (unless the holder otherwise elects to retain its status as a
holder of Common Stock by so notifying the Corporation within five business days
after the expiration of such 6 business day period after expiration of the
Delivery Period) the holder shall regain the rights of a holder of Series D
Preferred Stock with respect to such unconverted shares of Series D Preferred
Stock and the Corporation shall, as soon as practicable, return such unconverted
shares to the holder. In all cases, the holder shall retain all of its rights
and remedies for the Corporation's failure to convert Series D Preferred Stock.
G. Transfer. Subject to applicable law and the legend, if any, on the
certificate(s) to be transferred, the Series D Preferred Stock may be
transferred at any time and from time to time by the holder thereof.
Notwithstanding anything to the contrary, the Series D Preferred Stock may
transferred at any time and from time to time to the General Conference
Corporation of Seventh-Day Adventists and Jonathan J. Pallin.
H. Remedies Cumulative. The remedies provided in this Certificate of
Designation shall be cumulative and in addition to all other remedies available
under this Certificate of Designation, at law or in equity (including a decree
of specific performance and/or other injunctive relief), and nothing herein
shall limit a holder's right to pursue actual damages for any failure by the
Corporation to comply with the terms of this Certificate of Designation. The
Corporation acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the holders of Series D Preferred Stock and that the
remedy at law for any such breach may be inadequate. The Corporation therefore
agrees, in the event of any such breach or threatened breach, that the holders
of Series D Preferred Stock shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.
3. PREFERRED STOCK.
(a) Designation of Series. With respect to the 2,550,000 shares of the
Preferred Stock not designated as the Series C Preferred Stock or Series D
Preferred Stock, or any or all of the 450,000 shares of the Series C Preferred
Stock or Series D Preferred Stock that, after redemption, conversion or other
acquisition by the Corporation shall be restored to the status of shares of the
Preferred Stock without series, the Board of Directors of the Corporation is
authorized, subject to the limitations prescribed by the General Corporation Law
of the State of Delaware and the provisions of this subparagraph Fourth B.3, to
provide for the issuance of the shares of the Preferred Stock in series and, by
filing a certificate pursuant to the General Corporation Law of the State of
Delaware, to establish from time to time the number of shares to be included in
each such series, and to fix the designations, powers, preferences and shares to
be included in each such series, and to fix the designations, powers,
preferences and rights of the shares of each such series and the qualifications,
limitations or restrictions thereof;
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(b) Priority. Each series into which the Preferred Stock shall be
subdivided by the Board of Directors subsequent to the date hereof, as herein
provided, shall, to the extent of its relative rights, powers and preferences,
be senior to the Common Stock and each subsequently created series of the
Preferred Stock unless a provision is otherwise made by the Board of Directors;
provided, however, the Preferred Stock and each series thereof shall in any
event be junior to the Series D Preferred Stock except as may otherwise be
consented to by the holders of at least the majority of the then outstanding
shares of the Series D Preferred Stock; provided, further, the Preferred Stock
and each series thereof shall in any event be junior to the Series C Preferred
Stock except as may otherwise be consented to by the holders of at least the
majority of the then outstanding shares of the Series C Preferred Stock.
(c) Board Designation. The authority of the Board of Directors with
respect to each series of the Preferred Stock shall include, but not be limited
to, determination of the following:
(i) The number of shares constituting that series and the distinctive
designation of that series;
(ii) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of that
series;
(iii) Whether that series shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of such voting rights;
(iv) Whether that series shall have conversion privileges, and, if
so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors shall
determine;
(v) Whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the date upon
or after which they shall be redeemable, and the amount per share payable in
case of redemption, which amount may vary under different conditions and at
different redemption dates;
(vi) Whether the series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(vii) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of shares
of that series; and
(viii) Any other relative rights, preferences and limitations of that
series.
(d) Dividends. Dividends on the outstanding shares of the Preferred Stock
shall be paid or declared and set apart for payment before any dividends shall
be paid or declared and set apart for payment on the shares of the Common Stock
with respect to the same dividend period.
(e) Preference on Liquidation. If upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation the assets available
for distribution to the holders of shares of the Preferred Stock of all series
shall be insufficient to pay such holders the full preferential amount to which
they are entitled, then such assets shall be distributed ratably among the
shares of all series of the Preferred Stock in accordance with the respective
preferential amounts (including unpaid cumulative dividends, if any) payable
with respect thereto.
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4. COMMON STOCK.
(a) Designation and Dividends. The Common Stock shall be designated
"Common Stock." Subject to all of the rights of the Preferred Stock, dividends
may be paid upon the Common Stock as and when declared by the Board of Directors
out of any funds legally available for the payment of dividends.
(b) Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
and subject to the prior rights of creditors and after the holders of any then
outstanding series of the Preferred Stock shall have been paid in full amounts
to which they shall be entitled, or an amount sufficient to pay the aggregate
amount to which the holders of any then outstanding series of the Preferred
Stock shall be entitled shall have been deposited with a bank or trust company
having a capital surplus and undivided profits of at least $25,000,000 as a
trust fund for the benefit of the holders of any then outstanding series of the
Preferred Stock, the remaining net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock. For the purposes of
this subparagraph Fourth B.3(b), the consolidation or merger of the Corporation
with any other corporation or corporations shall not be deemed a liquidation or
dissolution of the Corporation.
(c) Voting Right. Each holder of the Common Stock shall be entitled to one
vote per share thereof held upon all matters.
5. DEFINITIONS.
(i) The term "Business Day" shall mean any day on which national
banks in the City of Los Angeles, State of California are open.
(ii) The term "Common Stock" shall mean the Corporation's currently
authorized Common Stock and any shares into which such Common Stock may
hereafter be changed.
FIFTH: The corporation is to have perpetual existence.
SIXTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Sec. 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of Sec. 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
this Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
SEVENTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation, and
regulation of the powers of the Corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
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1. The management of the business and the conduct of the affairs of
the Corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be not less
than three (3) nor more than nine (9). The exact number of directors shall be
determined from time to time by a majority of the whole Board and such number
shall be five (5) until otherwise determined by a resolution adopted by the
majority of the whole Board. In the event that the number of directors is
increased by such a resolution of the whole Board, the vacancy or vacancies so
resulting shall be filled by a vote of a majority of the directors then in
office. No decrease in the number of directors shall shorten the term of any
incumbent director. The phrase "whole Board" and the phrase "total number of
directors" shall be deemed to have the same meaning, to wit, the total number of
directors which the Corporation would have if there were no vacancies. No
election of directors need be by written ballot.
2. After the original or other Bylaws of the Corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of sec.109 of the General Corporation Law of the State of Delaware,
and, after the Corporation has received any payment for any of its stock, the
power to adopt, amend, or repeal the Bylaws of the Corporation may be exercised
by the Board of Directors of the Corporation; provided, however, that any
provision for the classification of directors of the Corporation for staggered
terms pursuant to the provisions of subsection (d) of sec.141 of the General
Corporation Law of the State of Delaware shall be set forth in an initial Bylaw
or in a Bylaw adopted by the stockholders entitled to vote of the Corporation
unless provisions for such classification shall be set forth in this Certificate
of Incorporation.
3. Whenever the Corporation shall be authorized to issue only one
class of stock, each outstanding share shall entitle the holder thereof to
notice of, and the right to vote at, any meeting of stockholders. Whenever the
Corporation shall be authorized to issue more than one class of stock, no
outstanding share of any class of stock which is denied voting power under the
provisions of the Certificate of Incorporation shall entitle the holder thereof
to the right to vote at any meeting of stockholders except as the provisions of
paragraph (2) of subsection (b) of sec.242 of the General Corporation Law of the
State of Delaware shall otherwise require; provided, that no share of any such
class which is otherwise denied voting power shall entitle the holder thereof to
vote upon the increase or decrease in the number of authorized shares of said
class.
4. The Board of Directors shall be divided into three (3) classes as
nearly equal in number as possible, with the term of office of Class A expiring
at the annual meeting of stockholders in 2001, of Class B expiring at the annual
meeting of stockholders in 2002, and of Class C expiring at the annual meeting
of stockholders in 2003. At each annual meeting of stockholders beginning with
the annual meeting of stockholders held in 2001, directors chosen to succeed
those whose terms then expire shall be elected for a term of office expiring at
the third succeeding annual meeting of stockholders after their election. When
the number of directors is changed, any newly created directorships or any
decreases in directorships shall be so apportioned among the classes as to make
all classes as nearly equal in numbers as possible. When the number of directors
is increased by the Board of Directors and the resultant vacancies are filled by
the Board of Directors, such additional directors shall serve only until the
next annual meeting of stockholders, at which time they shall be subject to
election and classification by the stockholders. In the event that any director
is elected by the Board to fill a vacancy, which occurs as a result of the
death, resignation or removal of another director, such director will hold
office until the annual meeting of stockholders at which the director who died,
resigned or was removed would have been required, in the regular order of
business, to stand for re-election, even though such term may thereby extend
beyond the next annual meeting of stockholders. Each director who is elected as
provided in this paragraph 4 of Article SEVENTH shall serve until his or her
successor is duly elected and qualifies.
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EIGHT: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by the provisions of paragraph
(7) of subsection (b) of sec.102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
NINTH: The Corporation shall, to the fullest extent permitted by the
provisions of sec.145 of the General Corporation Law of the State of Delaware,
as the same may be amended and supplemented, indemnify any and all persons whom
it shall have power to indemnify under said section from and against any and all
of the expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrators of such a person.
TENTH: From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article TENTH."
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IN WITNESS WHEREOF, LifePoint, Inc. has caused this Amended
and Restated Certificate of Incorporation to be signed by Donald W. Rutherford,
its Secretary, this __ day of August, 2003.
LIFEPOINT, INC.,
a Delaware Corporation
By:
Donald W. Rutherford
Secretary
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