Exhibit 4.1
Certificate of the Powers, Designations,
Preferences and Relative, Participating,
Optional and Other Special Rights of the
SERIES E CONVERTIBLE
PREFERRED STOCK
OF
THE ARISTOTLE CORPORATION
and the Qualifications, Limitations
or Restrictions Thereof, Which
Have Not Been Set Forth in the
Certificate of Incorporation
or in Any Amendment Thereto
(Pursuant to Section 151 of the General
Corporation Law of the State of Delaware)
The undersigned, John J. Crawford, President and Chief Executive Officer of
The Aristotle Corporation, a corporation organized and existing under the laws
of the State of Delaware (hereinafter the "Corporation"), DOES HEREBY CERTIFY:
That pursuant to authority conferred upon the Board of Directors of the
Corporation by the Certificate of Incorporation and pursuant to the provisions
of Section 151 of the General Corporation Law of the State of Delaware, the
Board of Directors. of the Corporation, at a meeting duly called and held on
August 28, 1997, duly authorized the following resolutions.
"RESOLVED, that, pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation by the provisions of
its Certificate of Incorporation, the Board of Directors of the Corporation
hereby creates a series of Preferred Stock of the Corporation to consist of
489,131 of the 3,000,000 shares of Preferred Stock, $.01 par value per
share, which the Corporation now has authority to issue, and the Board of
Directors of the Corporation hereby fixes the designations, powers,
preferences and relative, participating, optional and other special rights,
and the qualifications, limitations or restrictions thereof, of the shares
of such series of Preferred Stock (in addition to the designations, powers,
preferences and relative, participating, optional and other special rights,
and the qualifications, limitations or restrictions thereof, set forth in
the Certificate of Incorporation of the Corporation which are applicable to
Preferred Stock of all series) as follows:
Designation and Number. The distinctive designation of the series
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shall be Series E Convertible Preferred Stock (hereinafter, "Series E
Preferred"); the number of
shares of Series E Preferred which the Corporation is authorized to
issue shall be 489,131.
l. Definitions. For purposes of this Certificate of Designation, the
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following terms shall have the meanings indicated.
(a) The term "Acceleration Event" means the occurrence at any time of
any of the following (it being understood that the Corporation shall
provide the holders of Series E Preferred with prompt written notice
thereof):
(1) the Corporation's Tangible Net Worth at the end of any
calendar month is less than $1,250,000 for any reason whatsoever,
and remains below $1,250,000 for a period of 60 days subsequent
thereto, provided, however, that if the Corporation has not
received a written notice declaring the foregoing to be an
Acceleration Event from holders of Series E Preferred within 90
days from the date such holders are notified of the foregoing,
then no Acceleration Event shall be deemed to have occurred; or
(2) the Corporation's Consolidated Tangible Net Worth at the end
of any calendar month is less than $4,000,000 as a result of
actions by the Corporation not in the ordinary course of
business, and remains below $4,000,000 for a period of 60 days
subsequent thereto, provided, however, that if the Corporation
has not received a written notice declaring the foregoing to be
an Acceleration Event from holders of the Series E Preferred
within 90 days from the date such holders are notified of the
foregoing, then no Acceleration Event shall be deemed to have
occurred; or
(3) the Corporation's failure to maintain cash or cash
equivalents of at least $540,000 against which no provider of
credit (other than trade creditors of the Corporation in the
ordinary course of business) has any recourse; or
(4) a default in any of the covenants and provisions of Section
5.06 of that certain Preferred Stock Purchase Agreement dated as
of October 21, 1997 between the Corporation and Geneve
Corporation; or
(5) there being fewer than two representatives of the' holders of
Series E Preferred on the Corporation's Board of Directors; or
(6) the issuance of shares of stock (other than Excluded Shares)
such that the issued and outstanding shares of the Corporation
owned by the holders of Series E Preferred represents less than
30% of the outstanding value of the stock of the Corporation at
any testing date; provided,
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however, that in the event that the Corporation issues any
Excluded Shares which would cause the holders of Series E
Preferred to have less than 30% of the outstanding value of the
stock of the Corporation at any testing date, the holders of
Series E Preferred shall have the right to purchase, as of the
testing date, such number of shares of Common Stock from the
Corporation at the then Fair Market Value thereof so that such
holders have not less than 30% of the outstanding value of the
stock of the Corporation at such testing date; provided further,
however, that such holders have determined, in their sole
reasonable discretion, that they are unable to purchase in the
open market such shares of Common Stock at the Fair Market Value
thereof as of the testing date (all of the foregoing within the
meaning of Section 382 of the Internal Revenue Code of 1986 and
the regulations pertaining thereto); or
(7) the issuance of shares of stock or rights, warrants or
options entitling the holders thereof to subscribe for or
purchase shares of stock such as to cause an ownership change
(within the meaning of Section 382 of the Internal Revenue Code
of 1986 and the regulations pertaining thereto).
(b) The term "Consolidated Tangible Net Worth" means the excess of the
tangible assets (as defined under GAAP) over the liabilities (as
defined under GAAP) of the Corporation and its subsidiaries, on a
consolidated basis, excluding the issued and outstanding shares of
Series E Preferred.
(c) The term "Excluded Shares" means shares of Common Stock issued or
issuable (1) in connection with an offering by the Corporation of
shares of its Common Stock to its then current holders of shares of
Common Stock pursuant to which offering the holders of Series E
Preferred shall have an opportunity to participate on a then pro rata
basis; (2) to officers, employees or directors of the Corporation or
any of its subsidiaries pursuant to a stock option plan approved by
the shareholders of the Corporation; (3) to directors of the
Corporation in connection with grants of shares of Common Stock as
compensation; and (4) upon conversion of any shares of Preferred Stock
of the Corporation issued and outstanding as of October 21, 1997.
(d) The term "Fair Market Value" means the average of the Market
Prices per share of Common Stock for the ten (10) consecutive Trading
Days ending on the day before the day in question, or if such Market
Prices per share of Common Stock are not so available, the fair market
price per share of Common Stock as determined by the Board of
Directors of the Corporation, whose determination shall be final,
binding and conclusive if made in good faith.
(e) The term "GAAP" means generally accepted accounting principles,
consistently applied.
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(f) The term "Junior Stock" means the Common Stock, and all those
classes and series of preferred or special stock and all those series
of Preferred Stock which, by the terms of the Certificate of
Incorporation (as the same may hereafter be amended) or of the
instrument by which the Board of Directors of the Corporation, acting
pursuant to authority granted in the Certificate of Incorporation (as
the same may hereafter be amended), shall designate the special rights
and limitations of each such class and series of preferred or special
stock or series of Preferred Stock, shall be subordinate to Series E
Preferred with respect to the right of the holders thereof to receive
dividends or to participate in the assets of the Corporation
distributable to stockholders upon any liquidation, dissolution or
winding-up of the Corporation.
(g) The term "Market Prices per share of Common Stock" for any Trading
Day means (i) the closing bid price for the Common Stock (as defined
in Section 7(g) hereof) on such Trading Day as published by the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") (or, if such prices are not so published by NASDAQ, the
average of the high and low bid prices for the Common Stock on such
Trading Day, as furnished by any New York Stock Exchange member firm
selected from time to time by the Corporation for such purpose) or
(ii) if the Common Stock is then listed or admitted to trading on a
national securities exchange, the last sale price regular way for the
Common Stock on such Trading Day as reported in the consolidated
transaction reporting system for securities listed or traded on such
exchange, or, in case no such reported sale takes place on such
Trading Day, the reported closing bid price regular way for the Common
Stock on such Trading Day on the principal national securities
exchange on which the Common Stock is then listed or admitted to
trading.
(h) The term "Parity Stock" means Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
and all those classes and series of preferred or special stock and all
those series of Preferred Stock which, by the terms of the Certificate
of Incorporation (as the same may hereinafter be amended) or of the
instrument by which the Board of Directors of the Corporation, acting
pursuant to authority granted in the Certificate of Incorporation (as
the same may hereafter be amended), shall designate the special rights
and limitations of each such class and series of preferred or special
stock or series of Preferred Stock, shall be on a parity with Series E
Preferred with respect to the right of the holders thereof to receive
dividends and to participate in the assets of the Corporation
distributable to stockholders upon any liquidation, dissolution or
winding-up of the Corporation.
(i) The term "Senior Stock" means all those classes and series of
preferred or special stock and all those series of Preferred Stock
which, by the terms of the Certificate of Incorporation (as the same
may hereafter be amended) or of the
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instrument by which the Board of Directors of the Corporation, acting
pursuant to authority granted in the Certificate of Incorporation (as
the same may hereafter be amended), shall designate the special rights
and limitations of each such class and series of preferred or special
stock or series of Preferred Stock, shall be, senior to Series E
Preferred with respect to the right of the holders thereof to receive
dividends or to participate in the assets of the Corporation
distributable to stockholders upon any liquidation, dissolution or
winding-up of the Corporation.
(j) The term "Tangible Net Worth" means the total common stockholders'
equity of the Corporation on a parent company basis (per Schedule 1 of
the Corporation's Annual Report on Form 10-K) adjusted as follows:
(i) decrease (subtract) for the recorded amount of the direct
and/or indirect investment in the equity of The Strouse,
Adler Company ("Strouse") or any other subsidiary of the
Corporation (excluding Aristotle Sub., Inc., not including
Strouse);
(ii) increase (add) for the recorded amount of minority
interest in the equity of any subsidiary of the
Corporation; and
(iii) increase (add) for the recorded amount of the Series E
Preferred,
all in accordance with GAAP. By way of example only, as at June 30,
1997, on a pro-forma basis, the Corporation's Tangible Net Worth is
$2,551,160 computed as follows:
Corporation's total common stockholders' equity $ 6,510,711
Subtract indirect investment in the equity of
Strouse (6,403,576)
Add minority interest in the equity of
subsidiary 194,025
Add Series E Preferred 2,250,000
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$ 2,551,160
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(k) The term "Trading Day" means any day on which trading takes place
(i) in the over-the-counter market and prices reflecting such trading
are published by NASDAQ, or (ii) if the Common Stock is then listed or
admitted to trading on a national securities exchange, on the
principal national securities exchange on which the Common Stock is
then listed or admitted to trading.
2. Dividends. (a) The holders of Series E Preferred, in preference to
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the holders of Junior Stock, shall be entitled, in conjunction with
any provision then being made for the holders of Parity Stock, to
receive cumulative cash dividends at, but not exceeding, the rate of
$.3680 per share per annum, payable when, as and if declared by the
Board of Directors of the Corporation out of any assets of the
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Corporation lawfully available for the payment of dividends, payable
quarterly on the last days of March, June, September and December in
each year, commencing with the last day of March, 1998; provided,
however, in the event that (i) the Corporation fails to pay in full
dividends for two consecutive quarters or (ii) the Corporation fails
to redeem the shares of Series E Preferred in accordance with the
provisions of Section 6 hereof, the dividend rate set forth above
shall be $.5520 per share per annum, but only for the period or
periods during which the events set forth in (i) and/or (ii) remain
unremedied. Such dividends on Series E Preferred shall accrue and be
cumulative with respect to any shares issued on or after the date of
the initial issuance of shares of Series E Preferred, so that the
first dividend on shares of Series E Preferred, payable on the last
day of March, 1998, shall be in an amount per share (computed to the
nearest whole cent) determined by multiplying $.3680 by a fraction,
the numerator of which is the number of days from the date of the
initial issuance of shares of Series E Preferred to March 31, 1998,
and the denominator of which is 365. Such dividends on Series E
Preferred shall accrue and be cumulative with respect to shares issued
subsequent to March 31, 1998 from the dividend payment date next
preceding the date on which such shares are issued. Dividends shall
accrue and be cumulative on a day to day basis, whether or not earned
or declared, on each share of Series E Preferred from the date on
which dividends thereon are cumulative; it is understood, however,
that dividends shall not compound. If the stated dividends on shares
of Series E Preferred are not paid in full, shares of Series E
Preferred and all Parity Stock, if any, shall share ratably in the
payment of dividends, including accumulations thereof, if any, on such
shares in accordance with the sums which would be payable on such
shares if all dividends were paid in full.
(b) So long as any Series E Preferred is outstanding, no dividends
whatever shall be paid or declared, nor shall any distribution be
made, on any Junior Stock, other than a dividend or distribution
payable in Junior Stock or warrants or other rights to purchase Junior
Stock, unless all dividends on Series E Preferred for all past
quarterly dividend periods shall have been paid or declared and a sum
sufficient for the payment thereof set apart.
3. Liquidation Preference. Series E Preferred shall be preferred as to
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assets over Junior Stock so that, in the event of any liquidation,
dissolution or winding up of the Corporation, the holders of Series E
Preferred shall be entitled, in conjunction with any provision then
being made for the holders of Parity Stock, to have set apart for them
or to be paid out of the assets of the Corporation, after provision
for the holders of Senior Stock, if any, but before any distribution
is made to or set apart for the holders of Junior Stock, upon such
liquidation, dissolution or winding up, an amount in cash equal to,
and in no event more than, $4.60 per share of Series E Preferred plus
a sum of money equal to all dividends accrued and unpaid thereon to
the date that payment is made available to the holders of Series E
Preferred. If, upon such liquidation, dissolution or winding-up of
the Corporation, the assets of the Corporation available for
distribution to the holders
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of its stock shall, after provision for the holders of Senior Stock,
if any, be insufficient to permit the distribution in full of the
amounts receivable as aforesaid by the holders of Series E Preferred
and the amounts receivable by the holders of Parity Stock, if any,
then all such assets of the Corporation shall be distributed ratably
among the holders of Series E Preferred and the holders of Parity
Stock, if any, in proportion to the amounts which each would have been
entitled to receive if such assets were sufficient to permit
distribution in full as aforesaid. Neither the consolidation nor
merger of the Corporation nor the sale, lease or transfer by the
Corporation of all or any part of its assets shall be deemed to be a
liquidation, dissolution or winding-up of the Corporation for the
purposes of this Section 4.
4. Voting Rights. (a) In addition to the rights hereinafter specified in
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this Section 5 and any other rights provided by law, a holder of
Series E Preferred shall be entitled (i) to the number of votes per
share equal to the number of whole shares of Common Stock into which
each share of Series E Preferred is convertible as of the record date
for the determination of stockholders entitled to vote, (ii) to vote
on all matters upon which the holders of Common Stock are entitled to
vote, other than the election of directors and appointment of the
Corporation's independent auditors, and (iii) to notice of any
stockholders meeting in accordance with the By-laws of the
Corporation. Fractional votes shall not be permitted and any
fractional voting rights resulting from the above formula (after
aggregating all shares of Series E Preferred held by each holder)
shall be rounded to' the nearest whole number (with one-half being
rounded upward). Except as otherwise provided in the Certificate of
Incorporation or as expressly required by law, the holders of Series E
Preferred and the holders of Common Stock shall vote together as a
single class on all matters presented to stockholders and not as
separate classes.
(b) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of Series E Preferred so as to affect
adversely Series E Preferred or increase or decrease the number of
shares of Series E Preferred authorized hereby, without the written
consent or affirmative vote of the holders of a majority of the then
outstanding shares of Series E Preferred, given in writing or by vote
at a meeting, consenting or voting (as the case may be) separately as
a class. For this purpose, without limiting the generality of the
foregoing, (i) the authorization of any shares of capital stock with
preference or priority over Series E Preferred as to the right to
receive either dividends or amounts distributable upon liquidation,
dissolution or winding up of the Corporation and (ii) any merger or
consolidation of the Corporation into or with another entity, the sale
or conveyance to another entity of the property of the Corporation as
an entirety or substantially as an entirety (other than the sale of
the stock or all or substantially all of the assets of Strouse for
fair value as determined by the Board of Directors of the Corporation)
or the liquidation or dissolution of the Corporation, shall be deemed
to affect adversely Series E Preferred for purposes of this Section
5(b).
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5. Redemption of Series E Preferred.
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(a) Mandatory Redemption. On December 31, 2007 (the "Maturity Date"),
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the holder(s) of outstanding shares of Series E Preferred shall be
entitled to receive an amount in cash equal to $4.60 per share,
subject to equitable adjustments whenever there shall occur a stock
dividend, stock split, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the
Series E Preferred Stock (the "Redemption Price"), plus all accrued
and unpaid dividends on such shares of Series E Preferred to the
Maturity Date, whether or not declared, out of funds legally available
for the payment of dividends, subject to the prior redemption of
Series E Preferred or the conversion of Series E Preferred at the
option of the holder at any time prior to the Maturity Date. As of the
Maturity Date, dividends on Series E Preferred shall cease to accrue,
all voting rights and privileges of the Series E Preferred herein and
all rights of the holders thereof as stockholders of the Corporation
shall cease and such shares shall cease to be outstanding. The
Corporation shall make appropriate arrangements for the payment of
cash in respect of the Redemption Price plus an amount in cash equal
to all dividends accrued but unpaid thereon to the date of redemption,
if any, in exchange for and contingent upon surrender of certificates
representing Series E Preferred, and the Corporation may defer the
payment of the Redemption Price or dividends on such shares of Series
E Preferred until, and make such payment contingent upon, the
surrender of such certificates representing Series E Preferred,
provided that the Corporation shall give the holders of Series E
Preferred such notice of any such actions as the Corporation deems
appropriate and upon such surrender such holders shall be entitled to
receive such dividends declared and paid on such shares of Series E
Preferred subsequent to the Maturity Date. Amounts payable in cash in
respect of shares of Series E Preferred shall not bear interest.
(b) Redemption at Option of the Corporation. Subject to the
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provisions of Section 6(d) hereof, the Corporation, at its option, may
(except as otherwise provided in Section 7 hereof) redeem, at any time
after December 31, 2001, the whole or, from time to time, any part of
Series E Preferred at the Redemption Price, plus an amount in cash
equal to all dividends accrued but unpaid thereon to the date of
redemption.
(c) Redemption at Option of Holder. At any time after the earlier to
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occur of (i) an Acceleration Event or (ii) December 31, 2001, the
Corporation shall redeem, at the option of a holder of Series E
Preferred, the whole or, from time to time, any part of Series E
Preferred at the Redemption Price, plus an amount in cash equal to all
dividends accrued but unpaid thereon to the date of redemption. If the
funds of the Corporation legally available for redemption of shares of
Series E Preferred are insufficient to redeem the total number of
shares of Series E Preferred submitted for redemption, those funds
which are legally available shall be used first to redeem the maximum
possible number of whole shares of Series E
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Preferred ratably among the holders of such shares of Series E
Preferred in proportion to the full amount such holders of Series E
Preferred would otherwise be entitled to receive in redemption of such
shares and only after payment of the full amount such holders of
Series E Preferred would otherwise be entitled to receive in full
redemption of such shares shall any payment in redemption be made to
holders of any other class or series of the capital stock of the
Corporation. The shares of Series E Preferred not redeemed shall
remain outstanding and entitled to all rights and preferences provided
herein, including, but not limited to, the accrual of dividends
pursuant to Section 3 hereof. At any time thereafter when additional
funds of the Corporation are legally available for the redemption of
such shares of Series E Preferred, such funds shall be used, at the
end of the next succeeding fiscal quarter, to redeem the balance of
such shares, or such portion thereof for which funds are then legally
available.
(d) Not less than fifteen (15) days nor more than forty-five (45)
days prior to the date fixed for any redemption of Series E Preferred
(the "Redemption Date"), (x) pursuant to Section 6(a) or 6(b), a
notice specifying the Redemption Date, time and place thereof shall be
given by mail to the holders of record of the shares to be redeemed at
their respective addresses as shown on the stock records of the
Corporation or (y) pursuant to Section 6(c), a notice specifying the
Redemption Date, time and place thereof shall be given by mail to the
Corporation at its principal business address. If less than all shares
of Series E Preferred then outstanding are being redeemed, the notice
of redemption mailed to each holder of shares of Series E Preferred to
be redeemed or to the Corporation, as the case may be, shall identify
the shares of Series E Preferred held by such holder to be redeemed.
Except as provided above, no failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity of
the proceedings for such redemption except as to a holder (i) to whom
the Corporation has failed to mail such notice or (ii) whose notice
was defective. An affidavit of the Secretary of the Corporation (or of
a transfer agent for Series E Preferred, if one has been appointed)
that notice of redemption has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
(e) From and after the Redemption Date determined pursuant to Section
6(b) or 6(c) (unless default be made by the Corporation in providing
monies for the payment of the Redemption Price, plus an amount in cash
equal to all dividends accrued but unpaid thereon to the date of
redemption, except due to the failure of the holders of such shares to
surrender such certificates representing the Series E Preferred to be
redeemed), all dividends on shares of Series E Preferred thereby
called for redemption shall cease to accrue, such shares shall cease
to be outstanding and all voting rights and privileges as set forth
herein and all rights of the holders thereof as stockholders of the
Corporation (except the right to receive payment of the Redemption
Price, plus an amount in cash equal to all dividends accrued but
unpaid thereon to the date of redemption) shall cease.
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(f) If the Corporation shall, with respect to shares of Series E
Preferred called for redemption, irrevocably deposit, in trust for the
account of the holders of shares of Series E Preferred to be redeemed,
a sum sufficient to redeem such shares upon surrender of certificates
therefor, then no dividends shall accrue with respect to such shares
which have been called for redemption and such shares shall not be
deemed to be outstanding shares for the purpose of voting or
determining the total number of shares entitled to vote on any matter
on and after the date on which written notice of redemption has been
sent to holders thereof and such deposit has been made. Any monies so
deposited by the Corporation which shall not be required for
redemption because of the exercise of any right of conversion
subsequent to the date of the deposit, and any interest accrued on any
monies so deposited, shall be repaid to the Corporation upon request.
(g) Subject to the terms and provisions of Section 6(f), on' each
Redemption Date, the Corporation shall, at the place specified in the
notice of redemption, upon presentation and surrender to the
Corporation by the holder thereof of one or more certificates
representing shares of Series E Preferred to be redeemed, deliver or
cause to be delivered to or upon the written order of such holder a
sum in cash equal to the Redemption Price, plus an amount in cash
equal to all dividends accrued but unpaid thereon to the date of
redemption, of the shares of such holder to be redeemed on such date,
together with, if the certificate(s) presented and surrendered by such
holder represent a greater number of shares than the number of shares
to be redeemed from such holder, one or more new certificates
registered in the name of such holder and representing the shares of
Series E Preferred not redeemed.
(h) Shares of Series E Preferred redeemed pursuant to this Section 6
or converted pursuant to Section 7 hereof shall thereupon be deemed
retired and shall resume the status of authorized but unissued shares
of Preferred Stock (without serial designation) and may, subject to
the provisions hereof, be reissued as shares of Series E Preferred or
shares of any other series of Preferred Stock as determined' by the
Board of Directors of the Corporation.
7. Conversion.
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(a) Subject to the provisions of Section 6 hereof regarding
redemption and to the terms and conditions of this Section 7, each
share of Series E Preferred shall be convertible, at the option of the
holder thereof (except that, in respect of any such shares which shall
have been called for redemption by the Corporation, such option shall
terminate at the close of business on the second full business day
prior to the date fixed for redemption unless the Corporation shall
default in the payment of the Redemption Price, plus an amount in cash
equal to all dividends accrued but unpaid thereon to the date of
redemption, unless due to the failure of the holders of such shares to
surrender such certificates representing the Series E Preferred to be
redeemed), into the number of whole shares (calculated to the
10
nearest whole share with 5/10ths of a share being considered as nearer
to the next higher whole share) of fully paid and nonassessable Common
Stock as is determined by dividing $4.60 by the then applicable
conversion price fixed or determined pursuant to the provisions of
Section 7(d) hereof, by surrender of a certificate or certificates for
shares of Series E Preferred so to be converted at the principal place
of business of the Corporation to the attention of the Secretary (or
at such other place or places, or to such other person's attention, as
may be designated by the Corporation) at any time during usual
business hours, together with written notice that the holder elects to
convert all such shares of Series E Preferred, or a stated number of
shares thereof, in accordance with the provisions of this Section 7.
Such notice shall also state the name or names (with addresses) in
which the certificate or certificates for Common Stock shall be
issued.
(b) As promptly as practicable after exercise by any holder of such
holder's option to convert any shares of Series E Preferred pursuant
to the provisions of this Section 7, the Corporation shall deliver or
cause to be delivered to or upon the written order of such holder one
or more certificates representing the number of shares of Common Stock
issuable upon such conversion, issued in such name or names as such
holder may direct, together with, if the certificate(s) surrendered
evidence a greater number of shares than the number of shares to be
converted, one or more certificates evidencing the shares of Series E
Preferred not to be converted. Each such conversion shall be deemed
to have been made immediately prior to the close of business on the
day the option to convert is exercised, and all rights of the
converting holder as a holder of the shares of Series E Preferred
surrendered for conversion shall cease at such time and the person or
persons in whose name or names the certificate(s) for the shares of
Common Stock issuable upon conversion are to be issued shall be
treated for all purposes as having become the record holder or holders
thereof at such time.
(c) If the last day for the exercise of the conversion option be, in
the jurisdiction where the principal place of business of the
Corporation (or other place designated by the Corporation as a place
for conversion of shares of Series E Preferred) is located, a
Saturday, Sunday or legal holiday, then such conversion option may be
exercised, at the conversion price in effect on such last day, upon
the next succeeding day not a Saturday, Sunday or legal holiday, in
such jurisdiction.
(d) The conversion price for shares of Series E Preferred shall be
$4.60 per share, provided that, if adjustment of the conversion price
is required pursuant to Sections 7(d)(i) through 7(d)(v) hereof, the
conversion price shall be such adjusted price.
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(i) In case any of the following shall occur:
(x) any reclassification or change in 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); or
(y) any consolidation or merger other than involving a
subsidiary of the Corporation (other than Strouse) to which the
Corporation is a party (other than a merger in which the
Corporation is the surviving corporation and which does not
result in any reclassification of, or change in, the outstanding
shares of Common Stock); or
(z) any sale or conveyance to another entity of the
property of the Corporation as an entirety or substantially as
an entirety, other than a sale/leaseback, mortgage or other
similar financing transaction,
then, in each such case, appropriate provision shall be made,
effective as of the effective date of any such reclassification,
change, consolidation, merger, sale or conveyance, as the case may be,
whereby the holders of Series E Preferred then outstanding shall have
the right to convert such shares of Series E Preferred into the kind
and amount of shares of stock and other securities and property which
would have been receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of shares of
Common Stock which would have been issuable upon conversion of the
shares of Series E Preferred immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance.
In connection with any provision made pursuant to the terms of the
preceding sentence, provision shall also be made for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 7. The above provisions of this Section
7(d)(i) shall similarly apply to successive reclassifications,
changes, consolidations, mergers, sales or conveyances.
(ii) In case the Corporation shall at any time subdivide or combine
the outstanding shares of Common Stock issuable upon conversion
of Series E Preferred, then, in each such case, the conversion
price in effect immediately prior to such subdivision or
combination shall, effective as of the effective date of such
subdivision or combination, be proportionately decreased in the
case of subdivision or proportionately increased in the case of
combination.
(iii) In case the Corporation shall issue rights, warrants or options
entitling the holder to subscribe for or purchase shares of
Common Stock (other than Excluded Shares), (A) at a price per
share of Common Stock less than 85% of the Fair Market Value of
a share of Common Stock on the record
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date mentioned below or (B) at a price per share of Common Stock
less than the conversion price in effect on the record date
mentioned below, the conversion price shall be reduced to the
lower of the prices determined by:
(y) multiplying the conversion price in effect immediately
prior to the record date mentioned below by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding on the record date mentioned below plus the number of
shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered for
subscription or purchase would purchase at 85% of. the Fair
Market Value of a share of Common Stock on such record date, and
the denominator of which shall be the number of shares of Common
Stock outstanding on such record date plus the maximum number of
additional shares of Common Stock offered for subscription or
purchase; and
(z) multiplying the conversion price in effect immediately
prior to the record date mentioned below by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding on the record date mentioned below plus the number of
shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered for
subscription or purchase would purchase at the conversion price
then in effect and the denominator of which shall be the number
of shares of Common Stock outstanding on such record date plus
the maximum number of additional shares of Common Stock offered
for subscription or purchase.
Such adjustment shall be made whenever such rights, warrants or
options are issued; and, to the extent that such rights, warrants or
options expire unexercised, the conversion price shall be readjusted
to the conversion price which would then be in effect had the'
adjustments made as of the record date for the issuance of such
rights, warrants or options been made upon the basis of the issuance
of rights, warrants or options to subscribe for or purchase only the
number of shares of Common Stock as to which such rights, warrants or
options were actually exercised. In case the Corporation shall issue
rights, warrants or options entitling the holder to subscribe for or
purchase securities convertible into, exchangeable for or carrying a
right to purchase shares of Common Stock (such securities being
referred to herein as "Convertible Securities"), (A) such issuance
shall be deemed to be an issuance of rights, warrants or options to
such holders entitling them to subscribe for or purchase Common Stock
at the price per share for which Common Stock is issuable upon
conversion, exchange or exercise of such Convertible Securities
(determined by. dividing (x) the minimum aggregate consideration
payable to the Corporation upon the issuance of such rights, warrants
or options, plus the minimum aggregate amount of additional
consideration, if any, other than such Convertible Securities, payable
upon the
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conversion, exchange or exercise thereof, by (y) the total maximum
number of shares of Common Stock issuable upon the conversion,
exchange or exercise of such Convertible Securities issuable upon the
exercise of such rights, warrants or options), and (B) the total
maximum number of shares of Common Stock issuable upon conversion,
exchange or exercise of such Convertible Securities shall be deemed to
be the number of shares of Common Stock offered for subscription or
purchase. To the extent that such Convertible Securities expire or
otherwise terminate without being converted, exercised or exchanged,
the conversion price shall be readjusted to the conversion price which
would then be in effect had the adjustments made as of the record date
for the issuance of such rights, warrants or options been made upon
the basis of the issuance of the number of shares of Common Stock that
were actually issued upon the conversion, exercise or exchange of such
Convertible Securities.
(iv) In case the Corporation shall pay a dividend or make a
distribution to all holders of shares of Common Stock, as such,
of shares of its stock, evidences of its indebtedness, assets or
rights, warrants or options (excluding dividends or distributions
payable in cash out of retained earnings of the Corporation,
distributions relating to sub-divisions and combinations covered
by Section 7(d) (ii) hereof and rights, warrants or options to
purchase or subscribe for shares of Common Stock or Convertible
Securities covered by Section 7(d) (iii) hereof), then in each
such case the conversion price shall be adjusted so that the same
shall equal the price determined by multiplying the conversion
price in effect immediately prior to the record date mentioned
below by a fraction, the numerator of which shall be the total
number of shares' of Common Stock outstanding immediately prior
to such record date multiplied by the Fair Market Value of a
share of Common Stock on such record date, less the fair market
value (as determined by the Board of Directors of the
Corporation) as of such record date of said shares of stock,
evidences of indebtedness or assets so paid or distributed or of
such rights, warrants or options, and the denominator of which
shall be the total number of shares of Common Stock outstanding
immediately prior to such record date multiplied by the Fair
Market Value of a share of Common Stock on such record date.
Such adjustment shall be made whenever any such dividend is paid
or such distribution is made and shall become effective
immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution.
(v) In case the Corporation shall issue shares of Common Stock, other
than Excluded Shares, (A) at a price per share of Common Stock
less than 85% of the Fair Market Value of a share of Common Stock
on the record date mentioned below or (B) at a price per share of
Common Stock less than the conversion price in effect on the
record date mentioned below, the conversion price shall be
reduced to the lower of the prices determined by:
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(y) multiplying the conversion price in effect immediately
prior to the record date mentioned below by a fraction, the
numerator of which shall. be the number of shares of Common Stock
outstanding on the record date mentioned below plus the number of
shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so issued would purchase
at 85% of the Fair Market Value of a share of Common Stock on
such record date, and the denominator of which shall be the
number of shares of Common Stock outstanding on such record date
plus the number of additional shares of Common Stock so issued;
and
(z) multiplying the conversion price in effect immediately
prior to the record date mentioned below by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding on the record date mentioned below plus the number of
shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so issued would purchase
at the conversion price then in effect, and the denominator of
which shall be the number of shares of Common Stock outstanding
on such record date plus the number of additional shares of
Common Stock so issued.
Such adjustment shall be made whenever such shares are issued. In case
the Corporation shall issue Convertible Securities (A) such issuance
shall be deemed to be an issuance of Common Stock at the price per
share for which Common Stock is issuable upon conversion, exchange or
exercise of such Convertible Securities (determined by dividing (x)
the minimum aggregate consideration payable to the Corporation upon
the conversion, exchange or exercise thereof, by (y) the total maximum
number of shares of Common Stock issuable upon the conversion,
exchange or exercise of such Convertible Securities), and (B) the
total maximum number of shares of Common Stock issuable upon
conversion, exchange or exercise of such Convertible Securities shall
be deemed to be the number of shares of Common Stock so issued. To
the extent that such Convertible Securities expire or otherwise
terminate without being converted, exercised or exchanged, the
conversion price shall be readjusted to the conversion price which
would then be in effect had the adjustments made as of the record date
for the issuance of such Convertible Securities been made upon the
basis of the issuance of the number of shares of Common Stock that
were actually issued upon the conversion, exercise or exchange of such
Convertible Securities.
(vi) For purposes of Sections 7(d) (iii) through 7(d)(v) hereof, the
following provisions (A) to (D) shall also be applicable:
(A) The number of shares of Common Stock outstanding at any
given time shall include shares of Common Stock owned or held by
or for
15
the account of the Corporation or any of its subsidiaries, and
the issuance of rights, warrants or options to purchase or
subscribe for such treasury shares (or securities convertible
into, exchangeable for or carrying a right to purchase such
treasury shares) or the distribution of any such treasury shares
shall not be considered an issuance, dividend or distribution for
purposes of Sections 7(d)(iii) through (v) hereof.
(B) No adjustment of the conversion price shall be made
unless such adjustment would require an increase or decrease of
at least one percent (1%) in such price; provided that any
adjustments which by reason of this clause (B) are not required
to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which,
together with any adjustment(s) so carried forward, shall require
an increase or decrease of at least one percent in the conversion
price then in effect hereunder.
(C) In any case in which this Section 7(d) shall require
that an adjustment shall become effective immediately after a
record date for an event, the Corporation may defer until the
occurrence of such event issuing to the holder of Series E
Preferred converted after such record date and before the
occurrence of such event the additional shares of Common Stock
issuable upon such conversion by reason of the adjustment
required by such event over and above the shares issuable upon
such conversion before giving effect to such adjustment.
(D) Except as otherwise expressly provided in this Section
7(d), no adjustment in the conversion price shall be made by
reason of the issuance or sale, in exchange for cash, property or
services, of shares of Common Stock, or any Convertible
Securities.
(e) Whenever the conversion price is adjusted as provided in this
Section 7, then, in each such case, the Corporation shall mail, or
cause to be mailed, to the holders of Series E Preferred, of record
not more than ten (10) days before the date of mailing, a notice in
writing stating the adjusted conversion price then and thereafter
effective under the provisions hereof, the method of calculating such
adjusted conversion price shown in reasonable detail, and the facts on
which such calculation is based. An affidavit of the Secretary of the
Corporation (or of a transfer agent for the Series E Preferred, if one
has been appointed) that any such notice has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(f) As used in this Section 7, the term "Common Stock" shall mean and
include the Corporation's Common Stock authorized on the date of the
original issue of shares of Series E Preferred and shall also include
any capital stock of any class of the Corporation thereafter
authorized which shall not be limited to a
16
fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends and in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding
up of the Corporation.
(g) The Corporation shall pay cash in lieu of issuing a fractional
share of Common Stock upon the conversion of any Series E Preferred.
(h) Upon any conversion, no adjustment shall be made for dividends on
Series E Preferred surrendered for conversion or on Common Stock
delivered.
(i) The Corporation will at all times reserve and keep available out
of its authorized but unissued stock, solely for the purpose of issue
upon conversion of Series E Preferred, as provided in this Section 7,
such number of shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of
Series E Preferred, and, upon the issuance thereof upon conversion,
all in accordance with the provisions hereof, such shares of Common
Stock when issued upon receipt of certificates representing such
shares of Series E Preferred, plus any additional consideration, shall
be duly and validly issued, fully paid and nonassessable.
(j) The issuance of certificates for shares of Common Stock shall be
made without charge for any tax in respect of such issuance. However,
if any such certificate is to be issued in a name other than that of
the holder of the converted Series E Preferred, the Corporation shall
not be required to issue or deliver any stock certificate or
certificates unless and until the holder has paid to the Corporation
the amount of any tax which may be payable in respect of any transfer
involved in such issuance or shall establish to the' satisfaction of
the Corporation that such tax has been paid.
(k) In the event of (i) any taking by the Corporation of a record of
the holders of any class of securities for the purpose of determining
the holders of such securities who are entitled to receive any
dividend (other than a cash dividend) or other distribution on Common
Stock or any right, warrant or option to subscribe for or purchase any
shares of Common Stock or any Convertible Securities, or (ii) any
reclassification or recapitalization of the capital stock of the
Corporation, any consolidation or merger of the Corporation with or
into another corporation, any transfer of all or substantially all of
the assets of the Corporation to any other corporation, entity or
person, or any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation, the Corporation shall mail to each
holder of Series E Preferred at least ten (10) days prior to the
record date, effective date, or exchange date specified in such
notice, a notice specifying (A) the date on which any such record is
to be taken for the purpose of such dividend, distribution, rights,
warrants, or options, (B) the date on which any such reclassification,
recapitalization, consolidation, merger, transfer, dissolution,
liquidation, or winding-up is expected to become effective, and (C)
the time, if
17
any is to be fixed, as to when the holders of record of Common Stock
(or other securities) shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding up.
8. General. The section headings contained in this Certificate of
-------
Designations are for reference purposes only and shall not affect in
any way the meaning of this Certificate of Designations.
THE UNDERSIGNED, the President and Chief Executive Officer of The Aristotle
Corporation, hereby make this certificate, declaring and certifying that this is
the duly authorized act and deed of the Corporation and the facts herein stated
are true, and accordingly have hereunto set his hand this 22nd day of
October, 1997.
THE ARISTOTLE CORPORATION
By: /s/ John J. Crawford
---------------------------
Name: John J. Crawford
Title: President and Chief
Executive Officer
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