Exhibit 4.1
CERTIFICATE OF DESIGNATIONS
OF
SERIES B CONVERTIBLE REDEEMABLE PREFERRED STOCK
(Pursuant to Section 151 of the General Corporation
Law of the State of Delaware)
Microcide Pharmaceuticals, Inc., a Delaware corporation (the
"Corporation"), in accordance with the provisions of Section 103 of the General
Corporation Law of the State of Delaware DOES HEREBY CERTIFY:
That pursuant to authority vested in the Board of Directors of the
Corporation (the "Board of Directors" or the "Board") by the Restated
Certificate of Incorporation, as amended, of the Corporation, the Board of
Directors, at a meeting held on July 19, 2001, adopted a resolution providing
for the creation of a series of the Corporation's Preferred Stock, par value
$0.001 per share, which series is designated "Series B Convertible Redeemable
Preferred Stock," which resolution is as follows:
Resolved, that pursuant to authority vested in the Board of Directors by
the Restated Certificate of Incorporation, as amended, the Board of Directors
does hereby provide for the creation of a series of the Preferred Stock, par
value of $0.001 per share (hereafter called the "Preferred Stock"), of the
Corporation, and to the extent that the voting powers and the designations,
preferences and relative, participating, optional or other special rights
thereof and the qualifications, limitations or restrictions of such rights have
not been set forth in the Restated Certificate of Incorporation, as amended, of
the Corporation, does hereby fix the same as follows:
SERIES B CONVERTIBLE REDEEMABLE PREFERRED STOCK
SECTION 1. CERTAIN DEFINED TERMS.
(a) All the agreements or instruments defined in this Certificate of
Designations shall mean such agreements or instruments as the same may from time
to time be supplemented or amended, or the terms thereof waived or modified, to
the extent permitted by, and in accordance with, the terms thereof and of this
Certificate of Designations.
(b) The following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
(c) "Affiliate" means, with respect to any Person, any other Person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by or under common control with the subject Person. For purposes of
the term "Affiliate," the term "control" (including the terms "controlling,"
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to direct or to cause the direction of the management and
policies of a Person, whether through the ownership of securities, by contract
or otherwise.
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(d) "Auditors" means Ernst and Young LLP or another firm of
independent public accountants of recognized national standing selected by the
Corporation's Board of Directors to audit its annual financial statements.
(e) "Board of Directors" or "Board" means the Board of Directors of
the Corporation.
(f) "Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Corporation to have been duly adopted
by the Board of Directors, or duly authorized committee thereof (to the extent
permitted by applicable law), and to be in full force and effect on the date of
such certification, and delivered to the Holders.
(g) "Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in The City of New York are authorized or
required by law or executive order to remain closed.
(h) "Common Stock" includes the Common Stock, $0.001 par value, of
the Corporation as authorized on the date hereof, and any other securities into
which or for which the Common Stock may be converted or exchanged pursuant to a
plan of recapitalization, reorganization, merger, sale of assets or otherwise
and any stock (other than the Common Stock of the Corporation) and other
securities of the Corporation or any other Person which any Holder at any time
shall be entitled to receive, or shall have received, on the exercise of
conversion rights of the Series B Preferred Stock, in lieu of or in addition to
the Common Stock of the Corporation.
(i) "Common Stock Equivalent" means any warrant, option, subscription
or purchase right with respect to shares of Common Stock, any security
convertible into, exchangeable for, or otherwise entitling the holder thereof to
acquire, shares of Common Stock or any warrant, option, subscription or purchase
right with respect to any such convertible, exchangeable or other security.
(j) "Conversion Date" means the date on which a Conversion Notice is
given by a Holder, whether by mail, courier, personal service, telephone line
facsimile transmission or other means, as provided in Section 10(a); provided,
that if the Conversion Notice is given after 12:00 noon California time on any
date, the Conversion Date shall mean the date following the date on which the
Conversion Notice is given.
(k) "Conversion Notice" means a Notice of Conversion of Series B
Convertible Redeemable Preferred Stock substantially in the form attached to the
Subscription Agreement as Annex H.
(l) "Conversion Price" means $3.00 per share, subject to adjustment
as provided in Section 10(c).
(m) "Corporation Certificate" means a certificate of the Corporation
signed by an Officer.
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(n) "Corporation Notice" means a Corporation Notice substantially in
the form attached to the Subscription Agreement as Annex H.
(o) "Corporation Redemption Date" means the Business Day on which
shares of Series B Preferred Stock are to be redeemed pursuant to Section 9(a),
determined in accordance with Section 9(a).
(p) "Corporation Redemption Event" means that (1) the Market Price of
the Common Stock shall be greater than $20.00 (subject to appropriate adjustment
in the event of an adjustment in the Conversion Price) on each Trading Day
during a period of 40 consecutive Trading Days and (2) the Registration
Statement shall have been effective during the entire 40-Trading Day period.
(q) "Corporation Redemption Price" means an amount in cash equal to
the sum of (1) the Stated Value PLUS (2) an amount equal to the declared and
unpaid dividends on the share of Series B Preferred Stock to be redeemed to the
applicable Corporation Redemption Date.
(r) "Current Market Price" shall mean the arithmetic average of the
daily Market Prices (calculated without duplicating any adjustments referred to
in the proviso of such defined term) per share of Common Stock for the ten
consecutive Trading Days immediately prior to the date in question; PROVIDED,
HOWEVER, that (1) if the "ex" date (as hereinafter defined) for any event (other
than the issuance or distribution requiring such computation) that requires an
adjustment to the Conversion Price pursuant to Section 10(c)(1), (2), (3), (4),
(5), (6), or (7), occurs during such ten consecutive Trading Days, then the
Market Price for each Trading Day prior to the "ex" date for such other event
shall be adjusted by multiplying such Market Price by the same fraction by which
the Conversion Price is so required to be adjusted as a result of such other
event, (2) if the "ex" date for any event (other than the issuance or
distribution requiring such computation) that requires an adjustment to the
Conversion Price pursuant to Section 10(c)(1), (2), (3), (4), (5), (6), or (7),
occurs on or after the "ex" date for the issuance or distribution requiring such
computation and prior to the day in question, the Market Price for each Trading
Day on and after the "ex" date for such other event shall be adjusted by
multiplying such Market Price by the reciprocal of the fraction by which the
Conversion Price is so required to be adjusted as a result of such other event,
and (3) if the "ex" date for the issuance or distribution requiring such
computation is prior to the day in question, after taking into account any
adjustment required pursuant to clause (1) or (2) of this proviso, the Market
Price for each Trading Day on or after such "ex" date shall be adjusted by
adding thereto the amount of any cash and the fair market value (as determined
by the Board of Directors in a manner consistent with any determination of such
value for purposes of Section 10(c)(4) or (6), whose determination shall be
conclusive and described in a Board Resolution) of the evidences of
indebtedness, shares of capital stock or assets being distributed applicable to
one share of Common Stock as of the close of business on the day before such
"ex" date. For purposes of any computation under Section 10(c)(6), the Current
Market Price of the Common Stock on any date shall be deemed to be the
arithmetic average of the daily Market Prices per share of Common Stock for such
day and the next two succeeding Trading Days; PROVIDED, HOWEVER, that if the
"ex" date for any event (other than the Tender Offer requiring such computation)
that requires an adjustment to the Conversion Price pursuant to Section
10(c)(1), (2), (3), (4), (5), (6),
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or (7), occurs on or after the Expiration Time for the Tender Offer requiring
such computation, the Market Price for each Trading Day on and after the "ex"
date for such other event shall be adjusted by multiplying such Market Price by
the reciprocal of the fraction by which the Conversion Price is so required to
be adjusted as a result of such other event. For purposes of this paragraph, the
term "ex" date, (1) when used with respect to any issuance or distribution,
means the first date on which the Common Stock trades, regular way, on the
relevant exchange or in the relevant market from which the Market Price was
obtained without the right to receive such issuance or distribution, (2) when
used with respect to any subdivision or combination of shares of Common Stock,
means the first date on which the Common Stock trades, regular way, on such
exchange or in such market after the time at which such subdivision or
combination becomes effective, and (3) when used with respect to any Tender
Offer means the first date on which the Common Stock trades, regular way, on
such exchange or in such market after the Expiration Time of such Tender Offer.
Notwithstanding the foregoing, whenever successive adjustments to the Conversion
Price are called for pursuant to Section 10(c), such adjustments shall be made
to the Current Market Price as may be necessary or appropriate to effectuate the
intent of Section 10(c) and to avoid unjust or inequitable results as determined
in good faith by the Board of Directors.
(s) "Eligible Bank" means a corporation organized or existing under
the laws of the United States or any state, having combined capital and surplus
of at least $100 million and subject to supervision by United States federal or
state authority and which has a branch located in New York, New York.
(t) "Eligible Marketable Securities" of the Corporation as of any
date means marketable securities which would be reflected on a consolidated
balance sheet of the Corporation and its subsidiaries prepared as of such date
in accordance with Generally Accepted Accounting Principles and which have been
purchased pursuant to the Corporation's Investment Guidelines delivered to Buyer
on or prior to the date hereof.
(u) "Expiration Time" shall have the meaning provided in Section
10(c)(6).
(v) "Final Mandatory Redemption Date" means [insert date six years
after the Issuance Date].
(w) "Fundamental Change" means: (1) any consolidation or merger of
the Corporation or any Subsidiary with or into another entity (other than a
merger or consolidation of a wholly-owned Subsidiary into the Corporation or a
wholly-owned Subsidiary) where the stockholders of the Corporation immediately
prior to such transaction do not collectively own at least 51% of the
outstanding voting securities of the surviving corporation of such consolidation
or merger immediately following such transaction; or the sale of all or
substantially all of the assets of the Corporation in a single transaction or a
series of related transactions; or (2) the occurrence of any transaction or
event in connection with which all or substantially all the Common Stock shall
be exchanged for, converted into, acquired for or constitute the right to
receive consideration (whether by means of an exchange offer, liquidation,
tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) which is not all or substantially all common
stock which is (or will, upon consummation of or immediately following such
transaction or event, will be) listed on a national securities exchange or
approved
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for quotation on Nasdaq or any similar United States system of automated
dissemination of transaction reporting of securities prices; or (3) the
acquisition by a Person or entity or group of Persons or entities acting in
concert as a partnership, limited partnership, syndicate or group, as a result
of a tender or exchange offer, open market purchases, privately negotiated
purchases or otherwise, of beneficial ownership of securities of the Corporation
representing 50% or more of the combined voting power of the outstanding voting
securities of the Corporation ordinarily (and apart from rights accruing in
special circumstances) having the right to vote in the election of directors; or
(4) the disposal or sale of more than 50% of the assets of the Corporation; or
(5) the liquidation, dissolution or other winding up the affairs of the
Corporation; PROVIDED, HOWEVER, that in each case the Holders have not violated
any provision of Section 5(k)(x) of the Subscription Agreements.
(x) "Generally Accepted Accounting Principles" for any Person means
the United States generally accepted accounting principles and practices applied
by such Person from time to time in the preparation of its audited financial
statements.
(y) "Holder" means at any time with respect to any share of Series B
Preferred Stock the Person shown as the holder of record of such share of Series
B Preferred Stock on the records of the Corporation relating to the Series B
Preferred Stock which records are maintained in accordance with applicable law.
(z) "Holder Notice" means a Holder Notice substantially in the form
attached to the Subscription Agreement as Annex H.
(aa) "Holder Optional Repurchase Date" means the date which is five
(5) Business Days after a Holder who is entitled to repurchase rights under
Section 11(a) and 11(b) gives a Holder Notice.
(bb) "Holder Optional Repurchase Event" means any one of the following
events:
(1) For any period of five (5) consecutive Trading Days
following the Issuance Date there shall be no reported sale price of the Common
Stock on any of the Nasdaq, the NYSE or the AMEX;
(2) For any period of five (5) consecutive Trading Days
following the Issuance Date the Common Stock is not listed for trading on any of
the Nasdaq, the NYSE or the AMEX;
(3) Any Fundamental Change;
(4) The Corporation fails to have the Registration Statement
declared effective within 90 days of the Issuance Date;
(5) On or after the SEC Effective Date and prior to the end of
the Registration Period for any Holder, such Holder shall not be able for 20
Trading Days (whether or not consecutive), in any period of 365 consecutive days
to sell shares of Common Stock issuable or issued upon conversion of shares of
Series B Preferred Stock pursuant to the
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Registration Statement (A) by reason of the requirements of the 1933 Act, the
1934 Act or any of the rules or regulations under either thereof or (B) due to
the Registration Statement or the Prospectus containing any untrue statement of
material fact or omitting to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or any other failure
of the Registration Statement or the Prospectus to comply with the rules and
regulations of the SEC;
(6) The Corporation fails to issue or cause to be issued shares
of Common Stock to any Holder upon exercise by such Holder of the conversion
rights of such Holder within five (5) Trading Days after the due date therefor
(i.e. six (6) Trading Days following the Conversion Date) in accordance with the
terms of Section 10 or fails to transfer any certificate for shares of Common
Stock issued to any Holder upon conversion of Series B Preferred Stock or upon
exercise by such Holder of any purchase rights of such Holder as and when
required by this Certificate of Designations or the Subscription Agreements;
provided, that if such failure occurs due to the failure of the Transfer Agent
to comply with timely instructions from the Corporation, a Holder Optional
Repurchase Event shall not occur unless such failure continues for two (2)
additional Trading Days;
(7) The Corporation (A) fails to comply with Sections 5(k)(i),
(v) or (vi) of the Subscription Agreements, or (B) fails to comply for a period
of 45 days in any material respect with any of the other requirements set forth
in Section 5(k) of the Subscription Agreements or other material term or
provision of the Series B Preferred Stock;
(8) Any material representation or warranty of the Corporation
made herein or in any other Transaction Document shall be false or misleading in
any material respect when made;
(9) The Corporation or any Subsidiary shall (A) have received
notice that it is in default in any payment with respect to any indebtedness for
borrowed money which indebtedness has an outstanding principal amount in excess
of $1,000,000 individually or $2,000,000 in the aggregate for the Corporation
and the Subsidiaries, beyond the period of grace, if any, provided in the
instrument or agreement under which such indebtedness was created or (B) have
received notice that it is in default in the observance or performance of any
agreement, covenant or condition relating to any such indebtedness or contained
in any instrument or agreement evidencing, securing or relating thereto, or any
other event shall occur or condition exist, the effect of which default or other
event or condition is to cause, or to permit the holder or holders of such
indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause, any such indebtedness to become due prior to its stated maturity and such
default or event shall continue beyond the period of grace, if any, provided in
the instrument or agreement under which such indebtedness was created (after
giving effect to any consent or waiver obtained and then in effect thereunder)
and, in each case, such breach or default results in the acceleration of such
indebtedness or any other indebtedness of the Corporation; PROVIDED, HOWEVER,
that the events and conditions described in the preceding clauses (A) and (B)
shall not constitute a Holder Optional Repurchase Event if the Corporation cures
such breach or default within five days of notice of such breach or default;
PROVIDED FURTHER THAT, any breach or default for non-payment of any indebtedness
shall not constitute a Holder Optional Repurchase Event if (i) the Corporation
(with the unanimous approval of the Board of Directors) is actively
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contesting such default in good faith, (ii) prior to the expiration of such
five-day period no other indebtedness of the Corporation or any of its
Subsidiaries shall, in accordance with its terms, be declared to be due and
payable, or required to be prepaid other than by a regularly scheduled or
required payment prior to the stated maturity thereof, and (iii) the aggregate
amount of any non-payment does not exceed $1,000,000. The Corporation shall
provide notice to the Holders of any payment defaults that it intends to contest
in good faith within five (5) days of such obligation becoming due and payable.
(cc) "Holder Optional Repurchase Price" means an amount in cash
equal to the sum of (1) the Stated Value PLUS (2) an amount equal to any
declared and unpaid dividends on the share of Series B Preferred Stock to be
redeemed at the applicable Holder Optional Repurchase Date; PROVIDED, HOWEVER,
that if a Fundamental Change has occurred, then the Holder Optional Repurchase
Price means an amount in cash equal to the sum of (1) 150% of the Stated Value
PLUS (2) an amount equal to any declared and unpaid dividends on the share of
Series B Preferred Stock to be redeemed at the applicable Holder Optional
Repurchase Date.
(dd) "Initial Mandatory Redemption Date" means [insert date five
years after the Issuance Date].
(ee) "Issuance Date" means the first date of original issuance of
any shares of Series B Preferred Stock.
(ff) "Junior Dividend Stock" means, collectively, the Common
Stock and any other class or series of capital stock of the Corporation ranking,
as to dividends, junior to the Series B Preferred Stock.
(gg) "Junior Liquidation Stock" means, collectively, the Common
Stock and any other class or series of capital stock of the Corporation ranking
junior as to liquidation rights to the Series B Preferred Stock.
(hh) "LIBOR Rate" shall mean the arithmetic average of rates of
interest per annum (rounded upwards, if necessary to the next 1/16 of 1%) at
which Citibank, F.S.B. is offered deposits of United States Dollars in the
London interbank market on or about 11:00 a.m. London time two (2) Business Days
prior to the commencement of an interest period.
(ii) "Liquidation Preference" means, for each share of Series B
Preferred Stock, the sum of (1) the Stated Value PLUS (2) an amount equal to any
declared and unpaid dividends thereon to the date of final distribution to the
Holders in connection with the liquidation, dissolution or winding up of the
Corporation.
(jj) "Majority Holders" means at any time the Holders of
outstanding shares of Series B Preferred Stock which shares constitute 75% of
the outstanding shares of Series B Preferred Stock.
(kk) "Mandatory Redemption Notice" means a Mandatory Redemption
Notice substantially in the form attached to the Subscription Agreements as
Annex H.
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(ll) "Mandatory Redemption Price" means an amount in cash equal
to the sum of (1) the Stated Value PLUS (2) an amount equal to any declared and
unpaid dividends on the share of Series B Preferred Stock to the Initial
Mandatory Redemption Date or the Final Mandatory Redemption Date, as applicable.
(mm) "Market Price" of any security on any date means the closing
price of such security on such date on the Nasdaq or such other securities
exchange or other market on which such security is listed for trading which
constitutes the principal securities market for such security, as reported by
Bloomberg, L.P.; PROVIDED, HOWEVER, that during any period the Market Price is
being determined, the Market Price shall be subject to equitable adjustments
from time to time on terms consistent with Section 10(c) and otherwise
reasonably acceptable to the Majority Holders for (1) stock splits, (2) stock
dividends, (3) combinations, (4) capital reorganizations, (5) issuance to all
holders of Common Stock of rights or warrants to purchase shares of Common
Stock, (6) distribution by the Corporation to all holders of Common Stock of
evidences of indebtedness of the Corporation or cash (other than regular
quarterly cash dividends), (7) Tender Offers by the Corporation or any
Subsidiary for, or other repurchases of shares of, Common Stock in one or more
transactions which, individually or in the aggregate, result in the purchase of
more than ten percent of the Common Stock outstanding, and (8) similar events
relating to the Common Stock, in each case which occur, or with respect to which
"ex-" trading of the Common Stock begins, during such period.
(nn) "Merger Shares" shall have the meaning set forth in the
Subscription Agreements.
(oo) "Nasdaq" means the Nasdaq National Market.
(pp) "Nasdaq Stock Market" means The Nasdaq Stock Market, Inc.
(qq) "1934 Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute thereto.
(rr) "1933 Act" means the Securities Act of 1933, as amended, or
any successor statute thereto.
(ss) "NYSE" means the New York Stock Exchange, Inc.
(tt) "Officer" means the Chairman of the Board, the Chief
Executive Officer, the President or the Chief Financial Officer of the
Corporation.
(uu) "Parity Dividend Stock" means any class or series of the
Corporation's capital stock ranking, as to dividends, on a parity with the
Series B Preferred Stock.
(vv) "Parity Liquidation Stock" means any class or series of the
Corporation's capital stock ranking on a parity as to liquidation rights with
the Series B Preferred Stock.
(ww) "Permitted Indebtedness" means:
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(1) Indebtedness not in excess of the aggregate principal
amount which is outstanding on the Issuance Date and which would be reflected on
a balance sheet of the Corporation as of the Issuance Date or in the notes
thereto prepared in accordance with Generally Accepted Accounting Principles;
(2) Indebtedness of up to $5 million incurred after the
Issuance Date consisting of (A) equipment lease obligations or other equipment
financings for equipment used in the business of the Corporation and its
Subsidiaries which obligations or financings are required to be capitalized in
accordance with Generally Accepted Accounting Principles; and (B) Indebtedness
incurred in connection with acquisition of furniture, fixtures and equipment
used in the business of the Corporation and its Subsidiaries, in each such case
in an amount not in excess of the purchase price thereof;
(3) Indebtedness that is secured only by real property;
and
(4) Indebtedness of up to $5 million that is unsecured.
(xx) "Person" means any natural person, partnership,
corporation, limited liability company, trust, incorporated organization,
unincorporated association, joint stock company or association or similar entity
or any government, governmental agency or political subdivision.
(yy) "QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
(zz) "Record Date" shall mean, with respect to any dividend,
distribution or other transaction or event in which the holders of Common Stock
have the right to receive any cash, securities or other property or in which the
Common Stock (or other applicable security) is exchanged for or converted into
any combination of cash, securities or other property, the date fixed for
determination of stockholders entitled to receive such cash, securities or other
property (whether such date is fixed by the Board of Directors or by statute,
contract or otherwise).
(aaa) "Redemption Notice" means a Redemption Notice substantially
in the form attached to the Subscription Agreement as Annex H.
(bbb) "Registrable Securities" means (1) the shares of Common
Stock issuable or issued upon conversion of shares of Series B Preferred Stock,
(2) if the Common Stock is changed, converted or exchanged by the Corporation or
its successor, as the case may be, into any other stock or other securities on
or after the date this Certificate of Designations is filed with the Secretary
of State of the State of Delaware, such other stock or other securities which
are issued or issuable in respect of or in lieu of the shares of Common Stock
issuable or issued upon conversion of shares of Series B Preferred Stock and (3)
if any other securities are issued to holders of the Common Stock (or such other
shares or other securities into which or for which the Common Stock is so
changed, converted or exchanged as described in the immediately preceding clause
(2)) upon any reclassification, share combination, share subdivision, share
dividend, merger, consolidation or similar transaction or event, such other
securities which are issued or issuable in respect of or in lieu of the shares
of Common Stock issuable or issued upon conversion of shares of Series B
Preferred Stock.
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(ccc) "Registration Period" means the first to occur of the
following time frames: (1) the date which is five years after the SEC Effective
Date, (2) the date on which no Person who is entitled to the benefits of Section
8 of any Subscription Agreement and who is or was a Holder any longer owns or
has any right to acquire any Registrable Securities or (3) the date on which
each Person who is entitled to the benefits of Section 8 of any Subscription
Agreement and who is or was a Holder may sell, pursuant to Rule 144 under the
1933 Act (or any successor or replacement rule or regulation), all Registrable
Securities owned by such Person or which such Person has the right to acquire,
without the filing of any notice with the SEC and without restriction on the
manner of sale or amount of securities sold.
(ddd) "Registration Statement" means the Registration Statement
required to be filed by the Corporation with the SEC pursuant to Section 8 of
each Subscription Agreement.
(eee) "Rule 144A" means Rule 144A as promulgated under the 1933
Act.
(fff) "SEC" means the United States Securities and Exchange
Commission.
(ggg) "SEC Effective Date" means the date on which the
Registration Statement is first ordered effective by the SEC.
(hhh) "Securities" shall have the meaning provided in Section
10(c).
(iii) "Senior Dividend Stock" means any class or series of
capital stock of the Corporation ranking, as to dividends, senior to the Series
B Preferred Stock.
(jjj) "Senior Liquidation Stock" means any class or series of
capital stock of the Corporation ranking senior as to liquidation rights to the
Series B Preferred Stock.
(kkk) "Series B Preferred Stock" means the Series B Convertible
Redeemable Preferred Stock, $0.001 par value, of the Corporation.
(lll) "Stated Value" means $1,000 per share of Series B Preferred
Stock (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to the shares of Series B Preferred
Stock after the filing date hereof).
(mmm) "Subscription Agreements" means the several Subscription
Agreements, dated as of July 27, 2001, by and between the Corporation and the
several original Holders pursuant to which the shares of Series B Preferred
Stock were issued.
(nnn) "Subsidiary" means any corporation or other entity of which
a majority of the capital stock or other ownership interests having ordinary
voting power to elect a majority of the Corporation's board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by the Corporation.
(ooo) "Tender Offer" means a tender offer or exchange offer.
(ppp) "Trading Day" means a day on whichever of (1) the national
securities exchange, (2) the Nasdaq or (3) such other securities market, in any
such case which at the time
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constitutes the principal securities market for the Common Stock, is open for
general trading of securities.
(qqq) "Transaction Documents" means, individually or
collectively, the Subscription Agreements, this Certificate of Designations, the
Transfer Agent Instruction and each other instrument, statement or certificate
given in writing in connection herewith or therewith.
(rrr) "Transfer Agent" means Mellon Investor Services LLC, or its
duly appointed successor who shall be serving as transfer agent and registrar
for the Common Stock and who shall have been authorized by the Corporation to
act as conversion agent for the Series B Preferred Stock in accordance with the
Transfer Agent Instruction and the name, address and telephone number of which
shall have been given to the Holders by notice from the Corporation.
(sss) "Transfer Agent Instruction" means the Transfer Agent
Instruction, dated [________ __, 2001], from the Corporation to the Transfer
Agent for the benefit of the Holders.
SECTION 2. DESIGNATION AND AMOUNT.
The shares of such series shall be designated as "Series B Convertible
Redeemable Preferred Stock", and the number of shares constituting the Series B
Preferred Stock shall be 60,000, and shall not be subject to increase. The
Corporation shall not issue any shares of Series B Preferred Stock other than
pursuant to the Subscription Agreements, unless such issuance shall have been
approved by the Majority Holders. Any shares of Series B Preferred Stock which
are redeemed by the Corporation and retired and any shares of Series B Preferred
Stock which are converted into shares of Common Stock in accordance with Section
10 shall be restored to the status of authorized, unissued and undesignated
shares of the Corporation's class of Preferred Stock and shall not be subject to
issuance, and shall not thereafter be outstanding, as shares of Series B
Preferred Stock.
SECTION 3. SERIES B PREFERRED STOCK CAPITAL.
The amount to be represented in the capital account for the Series B
Preferred Stock at all times for each outstanding share of Series B Preferred
Stock shall be an amount equal to the sum of (a) the Stated Value PLUS (b) an
amount equal to any declared and unpaid dividends on such share of Series B
Preferred Stock to the date of determination.
SECTION 4. RANK.
The shares of Series B Preferred Stock shall rank senior to the Common
Stock and any shares of any other series of Preferred Stock or any shares of any
other class of preferred stock of the Corporation, now or hereafter issued, as
to payment of dividends and distribution of assets upon liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
except as otherwise approved by the Majority Holders in accordance with Section
12(b). Nothing in this Section 4 shall prohibit the Corporation from issuing
shares of capital stock if such issuance is made in compliance with Section
12(b) and the applicable provisions of the General Corporation Law of the State
of Delaware.
11
SECTION 5. DIVIDENDS.
The holders of shares of Series B Preferred Stock shall be entitled to
receive dividends only when, as, and if declared by the Board of Directors out
of funds legally available for such purpose. No dividends shall be paid or
declared and set apart for payment on the Common Stock unless an equivalent
amount per share (based on the relative stated values) shall have been, or
contemporaneously are, paid or declared and set apart for such payment on the
Series B Preferred Stock.
SECTION 6. LIQUIDATION PREFERENCE.
In the event of a liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, the Holders shall be entitled to
receive out of the assets of the Corporation, whether such assets constitute
stated capital or surplus of any nature, an amount per share of Series B
Preferred Stock equal to the Liquidation Preference, and no more, before any
payment shall be made or any assets distributed to the holders of Junior
Liquidation Stock; PROVIDED, HOWEVER, that such rights shall accrue to the
Holders only in the event that the Corporation's payments with respect to the
liquidation preference of the holders of Senior Liquidation Stock that has been
issued consistent with this Certificate of Designations are fully met. After the
liquidation preferences of such Senior Liquidation Stock are fully met, the
remaining assets of the Corporation available for distribution shall be
distributed ratably among the Holders and the holders of any Parity Liquidation
Stock that has been issued consistent with this Certificate of Designations in
proportion to the respective preferential amounts to which each is entitled up
to the full extent of such preferential amounts. After payment in full of the
Liquidation Preference of the shares of the Series B Preferred Stock and the
liquidation preference of such Parity Liquidation Stock that has been issued
consistent with this Certificate of Designations, the Holders shall not be
entitled to any further participation in any distribution of assets by the
Corporation.
SECTION 7. MANDATORY REDEMPTION.
(a) The Corporation shall give a Mandatory Redemption Notice to the
Holders not less than 30 nor more than 45 Business Days prior to the Initial
Mandatory Redemption Date; PROVIDED, HOWEVER, that each Holder, with respect to
its Series B Preferred Stock, shall have the right but not the obligation to
delay the Initial Mandatory Redemption Date by one year. Any Holder desiring to
extend the Initial Mandatory Redemption Date shall provide the Corporation
written notice no later than 60 days prior to the Initial Mandatory Redemption
Date. The Corporation shall give a Mandatory Redemption Notice to the Holders of
Series B Preferred Stock which has not been redeemed on the Initial Mandatory
Redemption Date not less than 30 nor more than 45 Business Days prior to the
Final Mandatory Redemption Date. On the Initial Mandatory Redemption Date, the
Series B Preferred Stock outstanding on the date the Mandatory Redemption Notice
is sent and held by Holders who have not requested a delay in the Initial
Mandatory Redemption Date shall be redeemed at the Mandatory Redemption Price.
Notwithstanding the foregoing, the number of shares of Series B Preferred Stock
to be redeemed from each Holder on the Initial Mandatory Redemption Date shall
be reduced (and there shall be a corresponding reduction in the total number of
shares redeemed) by the number of shares with respect to which such Holder has
given a Conversion
12
Notice (1) on or after the date the Mandatory Redemption Notice is given and (2)
prior to the Initial Mandatory Redemption Date. On the Final Mandatory
Redemption Date, all outstanding Series B Preferred Stock shall be redeemed at
the Mandatory Redemption Price. Any failure or defect in the giving of the
Mandatory Redemption Notice shall not affect the Corporation's obligation to
redeem the shares of Series B Preferred Stock pursuant to this Section 7.
(b) On the Initial Mandatory Redemption Date or the Final Mandatory
Redemption Date (or such later date as a particular Holder shall surrender to
the Corporation the certificate(s) for the shares of Series B Preferred Stock
redeemed), the Corporation shall pay to or upon the order of each Holder by wire
transfer of immediately available funds to such account as shall be specified
for such purpose by such Holder an amount equal to the Mandatory Redemption
Price of all of such Holder's shares of Series B Preferred Stock to be redeemed
on the Initial Mandatory Redemption Date or the Final Mandatory Redemption Date,
as applicable. A Holder of such shares of Series B Preferred Stock shall not be
entitled to payment of the Mandatory Redemption Price of such shares of Series B
Preferred Stock until such Holder shall have surrendered the certificate(s) for
such shares of Series B Preferred Stock to the Corporation or, in the case of
the loss, theft or destruction of any such certificate, given indemnity in
accordance with Section 14(b).
(c) The Corporation shall not be entitled to give the Mandatory
Redemption Notice with respect to, or to redeem, any shares of Series B
Preferred Stock with respect to which a Conversion Notice has been given
providing for a Conversion Date which is on or prior to the date on which the
Mandatory Redemption Notice is given or after the date on which the Mandatory
Redemption Notice is given but prior to the Initial Mandatory Redemption Date.
If a Mandatory Redemption Notice has been given, thereafter the proceedings for
such Mandatory Redemption shall not affect the rights of the Holders to convert
in accordance with Section 10 any shares of Series B Preferred Stock at any time
prior to the Initial Mandatory Redemption Date or the Final Mandatory Redemption
Date. If on the applicable Initial Mandatory Redemption Date or the Final
Mandatory Redemption Date the Corporation fails to pay the Mandatory Redemption
Price of any outstanding shares of Series B Preferred Stock to be redeemed in
full to such Holder or to deposit the same with an Eligible Bank in accordance
with Section 14(c), such Holder shall be entitled to convert in accordance with
Section 10 such shares of Series B Preferred Stock of such Holder so called for
redemption at any time after the Initial Mandatory Redemption Date or the Final
Mandatory Redemption Date and prior to the date on which the Corporation pays
the Mandatory Redemption Price in full to such Holder for all shares of Series B
Preferred Stock to be redeemed from such Holder (together with any amount due to
such Holder pursuant to Section 14(d)) or so deposits the same (together with
any amount due to such Holder pursuant to Section 14(d)) and gives notice to
such Holder of such deposit and in the case of any such conversion of any share
of Series B Preferred Stock, upon delivery to the converting Holder of the
shares of Common Stock issuable upon such conversion the Corporation shall have
no further liability in respect of the Mandatory Redemption Price of such share
of Series B Preferred Stock so converted other than payment of the amount
payable pursuant to Section 14(d) in respect of the period from the Initial
Mandatory Redemption Date or the Final Mandatory Redemption Date to the
Conversion Date for such conversion; PROVIDED, HOWEVER, that a Holder of such
shares of Series B Preferred Stock shall not be entitled to convert such shares
of Series B Preferred Stock if the Corporation's failure to pay the Mandatory
Redemption Price is due to such Holder's failure to have surrendered the
certificate(s) for such
13
shares of Series B Preferred Stock to the Corporation or, in the case of the
loss, theft or destruction of any such certificate, given indemnity in
accordance with Section 14(b).
SECTION 8. NO SINKING FUND.
The shares of Series B Preferred Stock shall not be entitled to the
benefits of any sinking fund for the redemption or repurchase of shares of
Series B Preferred Stock.
SECTION 9. REDEMPTION AT OPTION OF CORPORATION.
(a) Corporation Redemption.
(1) At any time after the second anniversary of the Issuance
Date, the Corporation shall have the right, if a Corporation Redemption Event
shall have occurred, on one occasion only with respect to such Corporation
Redemption Event to redeem on the applicable Corporation Redemption Date all or
any portion of the outstanding shares of Series B Preferred Stock so long as on
the date the Corporation gives the Redemption Notice and at all times thereafter
through such Corporation Redemption Date (A) the Corporation shall be in
compliance in all material respects with its obligations to the Holders
(including, without limitation, its obligations under the Transaction
Documents), (B) if such Redemption Notice is given before the end of the
Registration Period, the Registration Statement shall be effective and available
for use by the selling stockholders named therein and shall reasonably be
expected to remain effective and available for such use for the 30 days
following such Corporation Redemption Date, (C) no Holder Optional Repurchase
Event shall have occurred (i) with respect to which any Holder shall be entitled
to exercise redemption rights under Section 11 or (ii) with respect to which any
Holder shall have exercised such rights and the Corporation shall not have paid,
or deposited in accordance with Section 14(c), the Holder Optional Repurchase
Price and (D) the Corporation has sufficient funds legally available to pay the
Corporation Redemption Price of the shares of Series B Preferred Stock to be
redeemed. Any redemption of outstanding shares of Series B Preferred Stock
pursuant to this Section 9(a) shall be made at the applicable Corporation
Redemption Price. To exercise its right of redemption under this Section 9(a),
the Corporation shall give a Redemption Notice to the Holders within five (5)
Trading Days after such Corporation Redemption Event occurs and the Corporation
Redemption Date shall be set by the Corporation at not less than 30 nor more
than 35 Trading Days after the date of such Redemption Notice.
(2) On the Corporation Redemption Date (or such later date as
a particular Holder shall surrender to the Corporation the certificate(s) for
the shares of Series B Preferred Stock redeemed), the Corporation shall pay to
or upon the order of each Holder by wire transfer of immediately available funds
to such account as shall be specified for such purpose by such Holder an amount
equal to the Corporation Redemption Price of all of such Holder's shares of
Series B Preferred Stock to be redeemed on the Corporation Redemption Date. A
Holder of such shares of Series B Preferred Stock shall not be entitled to
payment of the Corporation Redemption Price of such shares of Series B Preferred
Stock until such Holder shall have surrendered the certificate(s) for such
shares of Series B Preferred Stock to the Corporation or, in the case of the
loss, theft or destruction of any such certificate, given indemnity in
accordance with Section 14(b).
14
(3) The Corporation shall not be entitled to give a Redemption
Notice with respect to, or to redeem, any shares of Series B Preferred Stock
with respect to which a Conversion Notice has been given providing for a
Conversion Date which is on or prior to the date on which a Redemption Notice is
given. If a Redemption Notice has been given, thereafter the proceedings for
such redemption shall not affect the rights of the Holders to convert in
accordance with Section 10 any shares of Series B Preferred Stock called for
redemption at any time prior to the Corporation Redemption Date for such shares.
If on the applicable Corporation Redemption Date the Corporation fails to pay
the Corporation Redemption Price of any outstanding shares of Series B Preferred
Stock to be redeemed in full to such Holder or to deposit the same with an
Eligible Bank in accordance with Section 14(c), such Holder shall be entitled to
convert in accordance with Section 10 the shares of Series B Preferred Stock of
such Holder so called for redemption at any time after such Corporation
Redemption Date and prior to the date on which the Corporation pays the
Corporation Redemption Price in full to such Holder for all shares of Series B
Preferred Stock to be redeemed from such Holder (together with any amount due to
such Holder pursuant to Section 14(d)) or so deposits the same (together with
any amount due to such Holder pursuant to Section 14(d)) and gives notice to
such Holder of such deposit and in the case of any such conversion of any share
of Series B Preferred Stock, upon delivery to the converting Holder of the
shares of Common Stock issuable upon such conversion the Corporation shall have
no further liability in respect of the Corporation Redemption Price of such
share of Series B Preferred Stock so converted, other than payment of the amount
payable pursuant to Section 14(d) in respect of the period from the applicable
Corporation Redemption Date to the Conversion Date for such conversion;
PROVIDED, HOWEVER, that a Holder of such shares of Series B Preferred Stock
shall not be entitled to convert such shares of Series B Preferred Stock if the
Corporation's failure to pay the Corporation Redemption Price is due to such
Holder's failure to have surrendered the certificate(s) for such shares of
Series B Preferred Stock to the Corporation or, in the case of the loss, theft
or destruction of any such certificate, given indemnity in accordance with
Section 14(b).
(b) No Other Redemption at the Option of the Corporation. Except as
otherwise specifically provided in Section 9(a), the Corporation shall not have
any right to redeem any shares of Series B Preferred Stock at the option of the
Corporation.
SECTION 10. CONVERSION.
(a) Right to Convert. Subject to and upon compliance with the
provisions of this Section 10, each Holder shall have the right, at such
Holder's option, at any time (except that if such Holder shall have exercised
redemption rights under Section 11 or the Corporation shall have exercised its
redemption rights under Section 9, such conversion right shall terminate with
respect to the shares of Series B Preferred Stock to be redeemed at the close of
business on the last Trading Day prior to the date the Corporation pays or
deposits in accordance with Section 14(c) the applicable Holder Optional
Repurchase Price or Corporation Redemption Price unless the Corporation shall
default in payment due upon redemption of any share of Series B Preferred Stock
(except in the case where the Corporation's failure to pay the applicable Holder
Optional Repurchase Price or Corporation Redemption Price is due to such
Holder's failure to have surrendered the certificate(s) for such shares of
Series B Preferred Stock to the Corporation or, in the case of the loss, theft
or destruction of any such certificate, given indemnity in accordance with
Section 14(b))) to convert the outstanding shares of Series B Preferred Stock
held by such
15
Holder, or from time to time any portion of such shares, plus an amount equal to
any declared and unpaid dividends on such share, into that number of fully paid
and non-assessable shares of Common Stock (as such shares shall then be
constituted) obtained by dividing (1) the sum of (A) the aggregate Stated Value
of all shares of Series B Preferred Stock being converted by such Holder on the
same Conversion Date PLUS (B) any declared and unpaid dividends on the shares of
Series B Preferred Stock being converted to the applicable Conversion Date BY
(2) the Conversion Price in effect on the applicable Conversion Date, by giving
a Conversion Notice in the manner provided in Section 10(b); PROVIDED, HOWEVER,
that, if at any time any share of Series B Preferred Stock is converted in whole
or in part pursuant to this Section 10(a), the Corporation does not have
available for issuance upon such conversion as authorized and unissued shares or
in its treasury at least the number of shares of Common Stock required to be
issued pursuant hereto, then, at the election of such Holder made by notice from
such Holder to the Corporation, such share of Series B Convertible Preferred
Stock, to the extent that sufficient shares of Common Stock are not then
available for issuance upon conversion, shall be converted into the right to
receive from the Corporation, in lieu of the shares of Common Stock into which
such share of Series B Convertible Preferred Stock would otherwise be converted
and which the Corporation is unable to issue, payment in an amount equal to the
product obtained by multiplying (1) the number of shares of Common Stock to
which the Holder is entitled which the Corporation is unable to issue TIMES (2)
the arithmetic average of the Market Price for the Common Stock during the five
consecutive Trading Days immediately prior to the applicable Conversion Date.
Any such payment shall, for all purposes of this Certificate of Designations, be
deemed to be satisfaction in full of the Corporation's obligation to issue upon
such conversion shares of Common Stock that are not then available for issuance
upon such conversion. A Holder is not entitled to any rights of a holder of
Common Stock until such Holder has converted one or more shares of Series B
Preferred Stock to Common Stock, and only to the extent any such shares of
Series B Preferred Stock are deemed to have been converted to Common Stock under
this Section 10. For purposes of Sections 10(d) and 10(e), whenever a provision
references the shares of Common Stock into which any share of Series B Preferred
Stock is convertible or the shares of Common Stock issuable upon conversion of
any share of Series B Preferred Stock or words of similar import, any
determination required by such provision shall be made as if a sufficient number
of shares of Common Stock were then available for issuance upon conversion in
full of all outstanding shares of Series B Preferred Stock.
(b) Exercise of Conversion Privilege; Issuance of Common Stock on
Conversion; no Adjustment for Interest or Dividends.
(1) To exercise the conversion privilege with respect to the
Series B Preferred Stock, a Holder shall give a Conversion Notice (or such other
notice which is acceptable to the Corporation) to the Corporation and the
Transfer Agent or to the office or agency designated by the Corporation for such
purpose by notice to the Holders. A Conversion Notice may be given by telephone
line facsimile transmission to the numbers set forth on the form of Conversion
Notice.
(2) As promptly as practicable, but in no event later than
three (3) Trading Days, after a Conversion Date, the Corporation shall issue and
shall deliver to the Holder giving a Conversion Notice or such Holder's designee
the number of full shares of Common Stock issuable upon such conversion of
shares of Series B Preferred Stock in
16
accordance with the provisions of this Section 10 and deliver a check or cash in
respect of any fractional interest in respect of a share of Common Stock arising
upon such conversion, as provided in Section 10(b)(7) and, if applicable, any
cash payment required pursuant to the proviso to the first sentence of Section
10(a) (which payment, if any, shall be paid no later than three (3) Trading Days
after the applicable Conversion Date). The Holder shall promptly surrender to
the Corporation such Holder's certificates for the shares of Series B Preferred
Stock to be converted.
(3) Each conversion of shares of Series B Preferred Stock
shall be deemed to have been effected on the applicable Conversion Date, and the
person in whose name any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become on such
Conversion Date the holder of record of the shares represented thereby;
PROVIDED, HOWEVER, that if a Conversion Date is a date on which the stock
transfer books of the Corporation shall be closed such conversion shall
constitute the person in whose name the certificates are to be issued as the
record holder thereof for all purposes on the next succeeding day on which such
stock transfer books are open, but such conversion shall be at the Conversion
Price in effect on the applicable Conversion Date.
(4) The Corporation shall notify a Holder of any claim by the
Corporation of manifest error in a Conversion Notice within two (2) Trading Days
after such Holder gives such Conversion Notice and no such claim of error shall
limit or delay performance of the Corporation's obligation to issue upon such
conversion the number of shares of Common Stock which are not in dispute. A
Conversion Notice shall be deemed for all purposes to be in proper form unless
the Corporation notifies the Holder who gives a Conversion Notice by telephone
line facsimile transmission within three (3) Trading Days after the Conversion
Date (which notice from the Corporation shall specify all defects in the
Conversion Notice) and any Conversion Notice containing any such defect shall
nonetheless be effective on the Conversion Date if such Holder promptly
undertakes to correct all such defects. The Corporation shall pay all expenses
related to such issuances (including any stamp taxes or issue taxes); provided
that the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of shares of
Common Stock or other securities or property on conversion of shares of Series B
Preferred Stock in a name other than that of such Holder, and the Corporation
shall not be required to issue or deliver any such shares or other securities or
property unless and until the person or persons requesting the issuance thereof
shall have paid to the Corporation the amount of any such tax or shall have
established to the satisfaction of the Corporation that such tax has been paid.
The converting Holder shall be responsible for the amount of any withholding tax
payable in connection with any conversion of shares of Series B Preferred Stock.
(5) If a Holder shall have given a Conversion Notice in
accordance with the terms of this Certificate of Designations, the Corporation's
obligation to issue and deliver the certificates for Common Stock shall be
absolute and unconditional, irrespective of any action or inaction by such
Holder to enforce the same, any waiver or consent with respect to any provision
hereof, the recovery of any judgment against any person or any action to enforce
the same, any failure or delay in the enforcement of any other obligation of the
Corporation to any Holder, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by any Holder or any other
person of any obligation to the Corporation or any
17
violation or alleged violation of law by any Holder or any other person, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Corporation to such Holder in connection with such conversion;
PROVIDED, HOWEVER, that nothing herein shall limit or prejudice the right of the
Corporation to pursue any such claim in any other manner permitted by applicable
law. The occurrence of an event which requires an adjustment of the Conversion
Price as contemplated by Section 10(c) shall in no way restrict or delay the
right of any Holder to receive certificates for Common Stock upon conversion of
shares of Series B Preferred Stock and the Corporation shall use its best
efforts to implement such adjustment on terms reasonably acceptable to the
Majority Holders within two (2) Trading Days after such occurrence.
(6) If the Corporation fails to issue and deliver the shares
of Common Stock to a converting Holder in connection with a particular
conversion of shares of Series B Preferred Stock within three (3) Trading Days
after a Conversion Date, in addition to any other liabilities the Corporation
may have hereunder and under applicable law (x) the Corporation shall pay or
reimburse such Holder on demand for all out-of-pocket expenses, including,
without limitation, reasonable fees and expenses of legal counsel, incurred by
the Holder as a result of such failure, (y) if as a result of such failure such
Holder shall suffer any direct damages or liabilities from such failure
(including, without limitation, margin interest and the cost of purchasing
securities to cover a sale (whether by such Holder or such Holder's securities
broker) or borrowing of shares of Common Stock by such Holder for purposes of
settling any trade involving a sale of shares of Common Stock made by such
Holder during the period beginning on the Conversion Date and ending on the date
the Corporation delivers or causes to be delivered to such Holder such shares of
Common Stock), then the Corporation shall upon demand of such Holder pay to the
Holder an amount equal to the actual direct, out-of-pocket damages and
liabilities suffered by such Holder by reason thereof which such Holder
documents to the reasonable satisfaction of the Corporation, and (z) the Holder
may by written notice (which may be given by mail, courier, personal service or
telephone line facsimile transmission), given at any time prior to delivery to
such Holder of the shares of Common Stock issuable in connection with such
exercise of the Holder's conversion right, rescind such exercise and the
Conversion Notice relating thereto, in which case such Holder shall thereafter
be entitled to convert, in accordance with this Section 10 that portion of such
shares of Series B Preferred Stock as to which such exercise is so rescinded.
Notwithstanding the foregoing, the Corporation shall not be liable to such
Holder under clause (y) of the immediately preceding sentence to the extent the
failure of the Corporation to deliver or to cause to be delivered such shares of
Common Stock results from fire, flood, storm, earthquake, shipwreck, strike,
war, acts of terrorism, crash involving facilities of a common carrier, acts of
God, or any similar event outside the control of the Corporation (it being
understood that the action or failure to act of the Transfer Agent shall not be
deemed an event outside the control of the Corporation except to the extent
resulting from fire, flood, storm, earthquake, shipwreck, strike, war, acts of
terrorism, crash involving facilities of a common carrier, acts of God, the
bankruptcy, liquidation or reorganization of the Transfer Agent under any
bankruptcy, insolvency or other similar law or any similar event outside the
control of the Transfer Agent). A converting Holder shall notify the Corporation
in writing (or by telephone conversation, confirmed in writing) as promptly as
practicable following the third Trading Day after the Conversion Date if such
Holder becomes aware that such shares of Common Stock so issuable have not been
received as provided herein, but any failure so to give such notice shall not
affect the Holder's rights under this Certificate of Designations or otherwise.
18
(7) No fractional shares of Common Stock shall be issued upon
conversion of any shares of Series B Preferred Stock but, in lieu of any
fraction of a share of Common Stock which would otherwise be issuable in respect
of such conversion, the Corporation shall pay lawful money of the United States
of America for such fractional share, based on a value of one share of Common
Stock being equal to the Market Price of the Common Stock on the applicable
Conversion Date.
(8) If a portion of the shares of Series B Preferred Stock
represented by a particular certificate are to be converted, upon surrender of
such certificate to the Corporation, the Corporation shall execute and deliver
to the Holders of such certificate without service charge, a new certificate or
certificates, in such denomination or denominations as requested by such Holder.
(c) Adjustment of Conversion Price. The Conversion Price shall be
adjusted from time to time by the Corporation as follows:
(1) In case the Corporation shall on or after the Issuance
Date pay a dividend or make a distribution to all holders of the outstanding
Common Stock in shares of Common Stock, the Conversion Price in effect at the
opening of business on the date following the date fixed for the determination
of stockholders entitled to receive such dividend or other distribution shall be
reduced by multiplying such Conversion Price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on the Record Date fixed for such determination and the denominator
shall be the sum of such number of shares and the total number of shares
constituting such dividend or other distribution, such reduction to become
effective immediately after the opening of business on the day following such
Record Date. If any dividend or distribution of the type described in this
Section 10(c)(1) is declared but not so paid or made, the Conversion Price shall
again be adjusted to the Conversion Price which would then be in effect if such
dividend or distribution had not been declared.
(2) In case the Corporation shall on or after the Issuance
Date issue rights or warrants (other than any rights or warrants referred to in
Section 10(c)(4)) to all holders of its outstanding shares of Common Stock
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than the Conversion Price in effect on the Record Date fixed for
the determination of stockholders entitled to receive such rights or warrants,
the Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect at the opening of
business on the date after such Record Date by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding at the close of
business on the applicable Record Date plus the number of shares which the
aggregate offering price of the total number of shares so offered pursuant to
such rights or warrants would purchase at such current Conversion Price, and the
denominator shall be the number of shares of Common Stock outstanding on the
close of business on such Record Date plus the total number of additional shares
of Common Stock so offered for subscription or purchase. Such adjustment shall
become effective immediately after the opening of business on the day following
the Record Date fixed for determination of stockholders entitled to receive such
rights or warrants. To the extent that shares of Common Stock are not delivered
pursuant to such rights or warrants, upon the expiration or termination of such
rights or warrants,
19
the Conversion Price shall be readjusted to the Conversion Price which would
then be in effect had the adjustments made upon the issuance of such rights or
warrants been made on the basis of delivery of only the number of shares of
Common Stock actually delivered. In the event that such rights or warrants are
not so issued, the Conversion Price shall again be adjusted to be the Conversion
Price which would then be in effect if such Record Date had not been fixed. In
determining whether any rights or warrants entitle the holder to subscribe for
or purchase shares of Common Stock at less than such current Conversion Price,
and in determining the aggregate offering price of such shares of Common Stock,
there shall be taken into account any consideration received for such rights or
warrants, and the value of such consideration, if other than cash, shall be
determined by the Board of Directors.
(3) In case the outstanding shares of Common Stock shall on or
after the Issuance Date be subdivided into a greater number of shares of Common
Stock, the Conversion Price in effect at the opening of business on the earlier
of the day following the day upon which such subdivision becomes effective and
the day on which "ex-" trading of the Common Stock begins with respect to such
subdivision shall be proportionately reduced, and conversely, in case
outstanding shares of Common Stock shall be combined into a smaller number of
shares of Common Stock, the Conversion Price in effect at the opening of
business on the earlier of the day following the day upon which such combination
becomes effective and the day on which "ex-" trading of the Common Stock with
respect to such combination begins shall be proportionately increased, such
reduction or increase, as the case may be, to become effective immediately after
the opening of business on the earlier of the day following the day upon which
such subdivision or combination becomes effective and the day on which "ex-"
trading of the Common Stock begins with respect to such subdivision or
combination.
(4) In case the Corporation shall on or after the Issuance
Date, by dividend or otherwise, distribute to all holders of its Common Stock
shares of any class of capital stock of the Corporation (other than any
dividends or distributions to which Section 10(c)(1) applies), evidences of its
indebtedness, cash or other assets (including securities, but excluding (i) any
rights or warrants referred to in Section 10(c)(2), (ii) dividends and
distributions paid exclusively in cash and (iii) any capital stock, evidences of
indebtedness, cash or assets distributed upon a merger or consolidation to which
Section 10(d) applies) (the foregoing hereinafter in this Section 10(c)(4)
called the "Securities")), then, in each such case, subject to the second
paragraph of this Section 10(c)(4), the Conversion Price shall be reduced so
that the same shall be equal to the price determined by multiplying the
Conversion Price in effect immediately prior to the close of business on the
Record Date with respect to such distribution by a fraction the numerator of
which shall be the Current Market Price on such date less the fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution) on such date of the portion of
the Securities so distributed applicable to one share of Common Stock and the
denominator shall be such Current Market Price, such reduction to become
effective immediately prior to the opening of business on the day following such
Record Date; PROVIDED, HOWEVER, that in the event the then fair market value (as
so determined) of the portion of the Securities so distributed applicable to one
share of Common Stock is equal to or greater than the Current Market Price on
the Record Date, in lieu of the foregoing adjustment, adequate provision shall
be made so that the Holders shall have the right to receive upon conversion of
shares of Series B Preferred Stock the amount of Securities such Holder would
have received had such Holder converted such Holder's shares of
20
Series B Preferred Stock into shares of Common Stock immediately prior to such
Record Date. In the event that such dividend or distribution is not so paid or
made, the Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such dividend or distribution had not been
declared. If the Board of Directors determines the fair market value of any
distribution for purposes of this Section 10(c)(4) by reference to the actual or
when issued trading market for any Securities comprising all or part of such
distribution, it must in doing so consider the prices in such market over the
same period used in computing the Current Market Price to the extent possible.
Rights or warrants distributed by the Corporation to all holders of Common
Stock entitling the holders thereof to subscribe for or purchase shares of the
Corporation's capital stock (either initially or under certain circumstances),
which rights or warrants, until the occurrence of a specified event or events (a
"Trigger Event"): (i) are deemed to be transferred with such shares of Common
Stock; (ii) are not exercisable; and (iii) are also required to be issued in
respect of future issuances of Common Stock, shall not be deemed to have been
distributed for purposes of this Section 10(c) (and no adjustment to the
Conversion Price under this Section 10(c) will be required) until the occurrence
of the earliest Trigger Event; PROVIDED, HOWEVER, that the Holders have not
violated any provision of Section 5(k)(x) of the Subscription Agreements. If any
such rights or warrants, including any such existing rights or warrants
distributed prior to the Issuance Date, are subject to Trigger Events, upon the
satisfaction of each of which such rights or warrants shall become exercisable
to purchase different securities, evidences of indebtedness or other assets,
then the occurrence of each such Trigger Event shall be deemed to be such date
of issuance and record date with respect to new rights or warrants (and a
termination or expiration of the existing rights or warrants without exercise by
the holder thereof) (so that, by way of illustration and not limitation, the
dates of issuance of any such rights shall be deemed to be the dates on which
such rights become exercisable to purchase capital stock of the Corporation, and
not the date on which such rights may be issued, or may become evidenced by
separate certificates, if such rights are not then so exercisable). In addition,
in the event of any distribution of rights or warrants, or any Trigger Event
with respect thereto, that was counted for purposes of calculating a
distribution amount for which an adjustment to the Conversion Price under this
Section 10(c) was made (i) in the case of any such rights or warrants which
shall all have been redeemed or repurchased without exercise by any holders
thereof, the Conversion Price shall be readjusted upon such final redemption or
repurchase to give effect to such distribution or Trigger Event, as the case may
be, as though it were a cash distribution, equal to the per share redemption or
repurchase price received by a holder or holders of Common Stock with respect to
such rights or warrants (assuming such holder had retained such rights or
warrants), made to all holders of Common Stock as of the date of such redemption
or repurchase, and (ii) in the case of such rights or warrants which shall have
expired or been terminated without exercise by any holders thereof, the
Conversion Price shall be readjusted as if such rights and warrants had not been
issued.
For purposes of this Section 10(c)(4) and Sections 10(c)(1) and (2), any
dividend or distribution to which this Section 10(c)(4) is applicable that also
includes shares of Common Stock, or rights or warrants to subscribe for or
purchase shares of Common Stock to which Section 10(c)(2) applies (or both),
shall be deemed instead to be (i) a dividend or distribution of the evidences of
indebtedness, assets, shares of capital stock, rights or warrants other than
such shares of Common Stock or rights or warrants to which Section 10(c)(2)
applies (and any
21
Conversion Price reduction required by this Section 10(c)(4) with respect to
such dividend or distribution shall then be made) immediately followed by (ii) a
dividend or distribution of such shares of Common Stock or such rights or
warrants (and any further Conversion Price reduction required by Sections
10(c)(1) and (2) with respect to such dividend or distribution shall then be
made), except (A) the Record Date of such dividend or distribution shall be
substituted as "the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution", "Record Date fixed for such
determination" and "Record Date" within the meaning of Section 10(c)(1) and as
"the date fixed for the determination of stockholders entitled to receive such
rights or warrants", "the Record Date fixed for the determination of the
stockholders entitled to receive such rights or warrants" and "such Record Date"
within the meaning of Section 10(c)(2) and (B) any shares of Common Stock
included in such dividend or distribution shall not be deemed "outstanding at
the close of business on the Record Date fixed for such determination" within
the meaning of Section 10(c)(1).
(5) In case the Corporation shall on or after the Issuance
Date, by dividend or otherwise, distribute to all holders of its Common Stock
cash (excluding any cash that is distributed upon a merger or consolidation to
which Section 10(d) applies or as part of a distribution referred to in Sections
10(c)(4) or 10(c)(6)) in an aggregate amount that, combined with (A) the
aggregate amount of any other such distributions to all holders of its Common
Stock made exclusively in cash within the 12 months preceding the date of
payment of such distribution, and in respect of which no adjustment pursuant to
this Section 10(c)(5) or Section 10(c)(6) has been made, and (B) the aggregate
of any cash plus the fair market value (as determined by the Board of Directors,
whose determination shall be conclusive and set forth in a Board Resolution) of
consideration payable in respect of any Tender Offer by the Corporation or any
Subsidiary for all or any portion of the Common Stock concluded within the 12
months preceding the date of payment of such distribution, and in respect of
which no adjustment pursuant to Section 10(c)(6) has been made, exceeds 10% of
the product of (x) the Current Market Price on the Record Date with respect to
such distribution TIMES (y) the number of shares of Common Stock outstanding on
such date, then, and in each such case, immediately after the close of business
on such date, unless the Corporation elects to reserve such cash for
distribution to the Holders upon the conversion of shares of Series B Preferred
Stock (and shall have made adequate provision) so that the Holders will receive
upon such conversion, in addition to the shares of Common Stock to which the
Holders are entitled, the amount of cash which the Holders would have received
if the Holders had, immediately prior to the Record Date for such distribution
of cash, converted their shares of Series B Preferred Stock into Common Stock,
the Conversion Price shall be reduced so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the close of business on such Record Date by a fraction (i) the numerator of
which shall be equal to the Current Market Price on such Record Date less an
amount equal to the quotient of (x) the excess of such combined amount over such
10% and (y) the number of shares of Common Stock outstanding on such Record Date
and (ii) the denominator of which shall be equal to the Current Market Price on
such Record Date; PROVIDED, HOWEVER, that in the event the portion of the cash
so distributed applicable to one share of Common Stock is equal to or greater
than the Current Market Price of the Common Stock on such Record Date, in lieu
of the foregoing adjustment, adequate provision shall be made so that the
Holders shall have the right to receive upon conversion of shares of Series B
Preferred Stock the amount of cash the Holders would have received had the
Holders converted all of their shares of Series B Preferred Stock immediately
22
prior to such Record Date. In the event that such dividend or distribution is
not so paid or made, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such dividend or distribution
had not been declared.
(6) In case a Tender Offer on or after the Issuance Date made
by the Corporation or any Subsidiary for all or any portion of the Common Stock
shall expire and such Tender Offer (as amended upon the expiration thereof)
shall require the payment to stockholders (based on the acceptance (up to any
maximum specified in the terms of the Tender Offer) of Purchased Shares (as
defined below)) of an aggregate consideration having a fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a Board Resolution) that combined together with (A) the
aggregate of the cash plus the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution), as of the expiration of such Tender Offer, of consideration payable
in respect of any other Tender Offers, by the Corporation or any Subsidiary for
all or any portion of the Common Stock expiring within the 12 months preceding
the expiration of such Tender Offer and in respect of which no adjustment
pursuant to this Section 10(c)(6) has been made and (B) the aggregate amount of
any distributions to all holders of the Corporation's Common Stock made
exclusively in cash within 12 months preceding the expiration of such Tender
Offer and in respect of which no adjustment pursuant to Section 10(c)(5) has
been made, exceeds 10% of the product of the Current Market Price as of the last
time (the "Expiration Time") tenders could have been made pursuant to such
Tender Offer (as it may be amended) times the number of shares of Common Stock
outstanding (including any tendered shares) at the Expiration Time, then, and in
each such case, immediately prior to the opening of business on the day after
the date of the Expiration Time, the Conversion Price shall be adjusted so that
the same shall equal the price determined by multiplying the Conversion Price in
effect immediately prior to close of business on the date of the Expiration Time
by a fraction of which the numerator shall be the number of shares of Common
Stock outstanding (including any tendered shares) at the Expiration Time
multiplied by the Current Market Price of the Common Stock on the Trading Day
next succeeding the Expiration Time and the denominator shall be the sum of (x)
the fair market value (determined as aforesaid) of the aggregate consideration
payable to stockholders based on the acceptance (up to any maximum specified in
the terms of the Tender Offer) of all shares validly tendered and not withdrawn
as of the Expiration Time (the shares deemed so accepted, up to any such
maximum, being referred to as the "Purchased Shares") and (y) the product of the
number of shares of Common Stock outstanding (less any Purchased Shares) at the
Expiration Time and the Current Market Price of the Common Stock on the Trading
Day next succeeding the Expiration Time, such reduction (if any) to become
effective immediately prior to the opening of business on the day following the
Expiration Time. In the event that the Corporation is obligated to purchase
shares pursuant to any such Tender Offer, but the Corporation is permanently
prevented by applicable law from effecting any such purchases or all such
purchases are rescinded, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such Tender Offer had not been
made. If the application of this Section 10(c)(6) to any Tender Offer would
result in an increase in the Conversion Price, no adjustment shall be made for
such Tender Offer under this Section 10(c)(6). If any Tender Offer is approved
by the members of the Board of Directors elected by the Holders pursuant to
Section 12(c), no adjustment shall be made for such Tender Offer under this
Section 10(c)(6).
23
(7) (i) In case at any time on or after the Issuance Date the
Corporation shall issue shares of its Common Stock or Common Stock Equivalents
(collectively, the "Newly Issued Shares"), other than an issuance pro rata to
all holders of its outstanding Common Stock, at a price per share below the
Conversion Price in effect at the time of such issuance, then following such
issuance of Newly Issued Shares the Conversion Price shall be adjusted as
provided in this Section 10(c)(7). The Conversion Price following any such
adjustment shall be determined by multiplying the Conversion Price immediately
prior to such adjustment by a fraction, of which the numerator shall be the sum
of (a) the number of shares of Common Stock outstanding immediately prior to the
issuance of the Newly Issued Shares (calculated on a fully-diluted basis
assuming the conversion of all options, warrants, purchase rights or convertible
securities which are exercisable at the time of the issuance of the Newly Issued
Shares) PLUS (b) the number of shares of Common Stock which the aggregate
consideration, if any, received by the Corporation for the number of Newly
Issued Shares would purchase at a price per share equal to the Conversion Price
in effect at the time of such issuance, and the denominator shall be the sum of
(X) the number of shares of Common Stock outstanding immediately prior to the
issuance of the Newly Issued Shares (calculated on a fully-diluted basis
assuming the exercise or conversion of all options, warrants, purchase rights or
convertible securities which are exercisable or convertible at the time of the
issuance of the Newly Issued Shares) PLUS (Y) the number of Newly Issued Shares.
The adjustment provided for in this Section 10(c)(7) may be expressed as the
following mathematical formula:
NCP = (O +(C / CP)) * CP
--------------
(O + N)
where,
C = aggregate consideration received by the Corporation for the
Newly Issued Shares
N = number of Newly Issued Shares
O = number of shares of Common Stock outstanding (on a fully
diluted basis, as described above) immediately prior to the
issuance of the Newly Issued Shares
CP = Conversion Price immediately prior to the issuance of the Newly
Issued Shares
NCP = Conversion Price immediately after the issuance of the Newly
Issued Shares
(ii) Notwithstanding the foregoing, no adjustment shall be made under this
Section 10(c)(7) by reason of:
(A) the issuance by the Corporation of shares of Common Stock pro
rata to all holders of the Common Stock so long as (i) any adjustment
to the Conversion Price that is required by Section 10(c)(1) is made
and (ii) the Corporation shall
24
have given notice of such issuance thereof to the Holders pursuant to
Section 10(e);
(B) the issuance by the Corporation of shares of Common Stock upon
conversion of the Series B Preferred Stock in accordance with the
terms hereof;
(C) the issuance by the Corporation of shares of Common Stock as
dividends on the Series B Preferred Stock, if any, in accordance with
the terms of Section 5;
(D) the issuance by the Corporation of shares of Common Stock to any
employee, officer or director of, or consultant to, the Corporation
pursuant to any stock option, incentive or employee stock purchase
plans or agreements approved by the Corporation's Board of Directors;
PROVIDED, HOWEVER, if the Board of Directors and/or its stockholders
within 12 months of the Issuance Date increase the number of shares
available for grant under the Corporation's 1993 Amended Incentive
Stock Option Plan, 1996 Director Stock Option Plan or 2001 Incentive
Stock Plan (each a "Plan"), other than any automatic increase provided
in any such Plans (so long as the calculation upon which such increase
is based, if it calculates the increase based on a percentage of the
outstanding capital stock of the Corporation, does not include the
Preferred Stock or Common Stock issued or issuable upon conversion of
the Preferred Stock), such increase shall be subject to adjustment
contemplated by this Section 10(c)(7);
(E) the issuance by the Corporation of shares of Common Stock or
other securities to any bank, equipment lessor or other similar
financial institution in connection with commercial credit
arrangements, equipment financing or similar transactions approved by
the Corporation's Board of Directors;
(F) the issuance by the Corporation of Newly Issued Shares in an
offering for cash for the account of the Corporation that is
underwritten on a firm commitment basis and (i) is registered under
the 1933 Act or (ii) is sold in an offering to "qualified
institutional buyers" as defined in, and in a transaction under, Rule
144A under the 1933 Act;
(G) the issuance by the Corporation for cash of Newly Issued Shares
in connection with a strategic alliance, collaboration, joint venture
or partnership of the Corporation with another Person which strategic
alliance, collaboration, joint venture or partnership relates to the
Corporation's business as conducted immediately prior thereto and
which Person is engaged in a business similar or related to the
business of the Corporation so long the number of shares issued in
such transaction does not exceed ten percent of the outstanding
capital stock of the Corporation (on a fully-diluted basis)
immediately prior to the issuance and such issuance is unanimously
approved by the directors of the Corporation elected pursuant to
Section 12(c)(1);
(H) the issuance by the Corporation of New Issued Shares in
connection with any merger, consolidation, business combination, share
exchange, acquisition of
25
all or any portion of the business or assets of another Person or any
similar transaction and such issuance is unanimously approved by the
directors of the Corporation elected pursuant to Section 12(c)(1);
(I) the issuance of any Merger Shares; and
(J) any other issuances by the Corporation that are unanimously
approved by the directors of the Corporation elected pursuant to
Section 12(c)(1).
(8) The Corporation may make such reductions in the Conversion
Price, in addition to those required by Sections 10(c)(1), (2), (3), (4), (5),
(6), or (7) as the Board of Directors considers to be advisable to avoid or
diminish any income tax to holders of Common Stock or rights to purchase Common
Stock resulting from any dividend or distribution of stock (or rights to acquire
stock) or from any event treated as such for income tax purposes.
(9) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
such price; PROVIDED, HOWEVER, that any adjustments which by reason of this
Section 10(c)(9) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section
10 shall be made by the Corporation and shall be made to the nearest cent or to
the nearest one hundredth of a share, as the case may be.
No adjustment need be made for a change in the par value of the Common
Stock or from par value to no par value or from no par value to par value.
(10) Whenever the Conversion Price is adjusted as herein
provided, the Corporation shall promptly, but in no event later than five (5)
Business Days thereafter, give notice to the Holders setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment, but which statement shall not include any
information which would be material non-public information for purposes of the
1934 Act. Failure to deliver such notice shall not affect the legality or
validity of any such adjustment.
(11) In any case in which this Section 10(c) provides that an
adjustment shall become effective immediately after a Record Date for an event,
the Corporation may defer until the occurrence of such event (i) issuing to the
Holders in connection with any conversion of shares of Series B Preferred Stock
after such Record Date and before the occurrence of such event the additional
shares of Common Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock issuable upon such
conversion before giving effect to such adjustment and (ii) paying to such
Holders any amount in cash in lieu of any fraction pursuant to Section 10(b)(6).
(12) For purposes of this Section 10(c), the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Corporation but shall include shares issuable in respect of
scrip certificates issued in lieu of fractions of shares of Common Stock. The
Corporation will not pay any dividend or make any distribution on shares of
Common Stock held in the treasury of the Corporation other than dividends or
distributions payable only in shares of Common Stock.
26
(13) Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value, if any, of the shares of
Common Stock issuable upon conversion of the Series B Preferred Stock, the
Corporation shall take all corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue shares of such Common Stock at such adjusted Conversion Price.
(d) Effect of Reclassification, Consolidation, Merger or Sale.
(1) If any of the following events occur, namely (A) any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value, or from par value to no par value, or from no par value
to par value, or as a result of a subdivision or combination), (B) any
consolidation, merger or combination of the Corporation with another corporation
or other entity as a result of which holders of Common Stock shall be entitled
to receive stock, securities or other property or assets (including cash) with
respect to or in exchange for such Common Stock, or (C) any sale or conveyance
of the properties and assets of the Corporation as, or substantially as, an
entirety to any other corporation or other entity as a result of which holders
of Common Stock shall be entitled to receive stock, securities or other property
or assets (including cash) with respect to or in exchange for such Common Stock,
then the Corporation or the successor or purchasing corporation or other entity,
as the case may be, shall prior to such transaction amend its certificate of
incorporation or comparable instrument to provide that the shares of Series B
Preferred Stock, to the extent such shares shall remain outstanding, shall
following such transaction be convertible into the kind and amount of shares of
stock and other securities or property or assets (including cash) receivable
upon such reclassification, change, consolidation, merger, combination, sale or
conveyance by the holder of a number of shares of Common Stock issuable upon
conversion of shares of Series B Preferred Stock immediately prior to such
reclassification, change, consolidation, merger, combination, sale or conveyance
assuming such holder of Common Stock did not exercise such holder's rights of
election, if any, as to the kind or amount of securities, cash or other property
receivable upon such consolidation, merger, statutory exchange, sale or
conveyance (PROVIDED that, if the kind or amount of securities, cash or other
property receivable upon such consolidation, merger, statutory exchange, sale or
conveyance is not the same for each share of Common Stock in respect of which
such rights of election shall not have been exercised ("non-electing share"),
then for the purposes of this Section 10(d) the kind and amount of securities,
cash or other property receivable upon such consolidation, merger, statutory
exchange, sale or conveyance for each non-electing share shall be deemed to be
the kind and amount so receivable per share by a plurality of the non-electing
shares). Such written agreement shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Section 10. If, in the case of any such reclassification, change, consolidation,
merger, combination, sale or conveyance, the stock or other securities and
assets receivable thereupon by a holder of shares of Common Stock includes
shares of stock or other securities and assets of a corporation other than the
successor or purchasing corporation or other entity, as the case may be, in such
reclassification, change, consolidation, merger, combination, sale or
conveyance, then such other corporation or other entity shall also so amend its
certificate of incorporation or comparable instrument and the certificate(s) of
incorporation or comparable instruments so amended shall also contain such
additional provisions to protect the interests of the Holders as the Board of
Directors shall reasonably consider necessary by reason of the foregoing,
including, to the extent practicable, the provisions providing for the
redemption rights set forth in Section 11.
27
(2) The above provisions of this Section shall similarly apply
to successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances .
(3) If this Section 10(d) applies to any event or occurrence,
Section 10(c) shall not apply.
(e) Notice to Holder Prior to Certain Actions. In case on or after
the Issuance Date:
(1) the Corporation shall declare a dividend (or any other
distribution) on its Common Stock (other than in cash out of retained earnings);
or
(2) the Corporation shall authorize the granting to the holders
of its Common Stock of rights or warrants to subscribe for or purchase any share
of any class or any other rights or warrants; or
(3) the Board of Directors shall authorize any reclassification
of the Common Stock (other than a subdivision or combination of its outstanding
Common Stock, or a change in par value, or from par value to no par value, or
from no par value to par value), or any consolidation or merger or other
business combination transaction to which the Corporation is a party and for
which approval of any stockholders of the Corporation is required, or the sale
or transfer of all or substantially all of the assets of the Corporation; or
(4) there shall be pending the voluntary or involuntary
dissolution, liquidation or winding-up of the Corporation;
the Corporation shall give the Holders as promptly as possible but in any event
at least ten (10) Trading Days prior to the applicable date hereinafter
specified, a notice stating (A) the date on which a record is to be taken for
the purpose of such dividend, distribution or rights or warrants, or, if a
record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution or rights are to be
determined, or (B) the date on which such reclassification, consolidation,
merger, other business combination transaction, sale, transfer, dissolution,
liquidation or winding-up is expected to become effective or occur, and the date
as of which it is expected that holders of Common Stock of record who shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger, other business
combination transaction, sale, transfer, dissolution, liquidation or winding-up
shall be determined. Such notice shall not include any information which would
be material non-public information for purposes of the 1934 Act. Failure to give
such notice, or any defect therein, shall not affect the legality or validity of
such dividend, distribution, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up. In the case of any such action
of which the Corporation gives such notice to the Holders or is required to give
such notice to the Holders, the Holders shall be entitled to give a Conversion
Notice which is contingent on the completion of such action.
SECTION 11. REPURCHASE UPON HOLDER OPTIONAL REPURCHASE EVENT.
28
(a) Repurchase Right Upon Holder Optional Repurchase Event. If a
Holder Optional Repurchase Event shall occur at any time when any shares of
Series B Preferred Stock are outstanding, then, in addition to any other rights
of the Holders, each Holder shall have the right, at such Holder's option, to
require the Corporation to repurchase all of such Holder's shares of Series B
Preferred Stock, or from time to time any portion thereof, on the date that is
five (5) Business Days after the date such Holder gives a Holder Notice with
respect to such Holder Optional Repurchase Event. Each share of Series B
Preferred Stock required to be so repurchased shall be repurchased at a price
equal to the Holder Optional Repurchase Price.
(b) Notices; Method Of Exercising Optional Repurchase Rights, Etc.
(1) On or before the fifth Business Day after the occurrence of
an Holder Optional Repurchase Event, the Corporation shall give to each Holder a
Corporation Notice of the occurrence of such Holder Optional Repurchase Event
and of the repurchase right set forth herein arising as a result thereof. The
Corporation Notice shall set forth:
(i) the date by which the optional repurchase right must be
exercised, and
(ii) a description of the procedure (set forth below) which
each such Holder must follow to exercise such Holder's optional repurchase
right. No failure of the Corporation to give a Corporation Notice or defect
therein shall limit the right of any Holder to exercise the Holder Optional
Repurchase right or affect the validity of the proceedings for the repurchase of
such Holder's shares of Series B Preferred Stock.
(2) To exercise its optional repurchase right, a Holder shall
deliver to the Corporation on or before the thirtieth day after a Corporation
Notice is given to such Holder (or if no Corporation Notice has been given to
such Holder, within 40 days after such Holder first learns of the Holder
Optional Repurchase Event) a Holder Notice to the Corporation setting forth the
name of such Holder, and number of such Holder's shares of Series B Preferred
Stock to be repurchased. A Holder Notice may be revoked by the Holder giving
such Holder Notice by giving notice of such revocation to the Corporation at any
time prior to the time the Corporation pays the applicable Holder Optional
Repurchase Price to such Holder.
(3) If a Holder shall have given a Holder Notice, then on the
applicable Holder Optional Repurchase Date (or such later date as such Holder
surrenders such Holder's certificates for the shares of Series B Preferred Stock
repurchased) the Corporation shall make payment in immediately available funds
of the applicable Holder Optional Repurchase Price to such account as specified
by such Holder in writing to the Corporation at least one (1) Business Day prior
to the applicable Holder Optional Repurchase Date. The Holder of such shares of
Series B Preferred Stock shall not be entitled to payment of the Holder Optional
Repurchase Price of such shares of Series B Preferred Stock until such Holder
shall have surrendered the certificate(s) for such shares of Series B Preferred
Stock to the Corporation or, in the case of the loss, theft or destruction of
any such certificate, given indemnity in accordance with Section 14(b).
29
(c) Other.
(1) A Holder Notice given by a Holder shall be deemed for all
purposes to be in proper form unless the Corporation notifies such Holder in
writing within three (3) Business Days after such Holder Notice has been given
(which notice shall specify all defects in such Holder Notice), and any Holder
Notice containing any such defect shall nonetheless be effective on the date
given if such Holder promptly undertakes to correct all such defects.
Notwithstanding the absence of any such undertaking from such Holder, no such
claim of error shall limit or delay performance of the Corporation's obligation
to repurchase all shares of Series B Preferred Stock not in dispute.
(2) If on or before the applicable date for repurchase pursuant
to this Section 11 the Corporation shall have failed to pay in full the Holder
Optional Repurchase Price for any shares of Series B Preferred Stock to be
repurchased to the holders thereof or to deposit the same with an Eligible Bank
in accordance with Section 14(c), then without in any way relieving the
Corporation of its obligation to pay such amount in accordance herewith (except
to the extent expressly provided in this Section 11(c)(2)), the Holder of any
such share of Series B Preferred Stock shall continue to have the right to
convert such share of Series B Preferred Stock into Common Stock in accordance
with Section 10(a) at any time prior to the date on which the Corporation pays
the Holder Optional Repurchase Price, as the case may be, of such share of
Series B Preferred Stock to such Holder (together with any amount due to such
holder pursuant to Section 14(d)) or so deposits the same (together with any
amount due to such Holder pursuant to Section 14(d)) and gives notice to such
Holder of such deposit; PROVIDED, HOWEVER, that the shares of Common Stock
received by such Holder upon any such conversion in certain circumstances may be
subject to restrictions on resale by such Holder arising under applicable
securities laws to the extent not registered for resale by such Holder pursuant
to the Registration Statement. If a Holder converts all or any portion of such
Holder's shares of Series B Preferred Stock as permitted by this Section
11(c)(2), the amount of the Holder Optional Repurchase Price due to such Holder
with respect to the number of shares of Series B Preferred Stock so converted
shall be reduced by the Stated Value for each share of Series B Preferred Stock
so converted.
(3) If a portion of the shares of Series B Preferred Stock
represented by a particular certificate are to be repurchased, upon surrender of
such certificate to the Corporation in accordance with the terms of this Section
11, the Corporation shall execute and deliver to the Holders of such certificate
without service charge, a new certificate or certificates, in such denomination
or denominations as requested by such Holder.
SECTION 12. VOTING RIGHTS; CERTAIN RESTRICTIONS AND COVENANTS.
(a) Voting Rights. Each Holder of Series B Preferred Stock shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which such shares of Series B Preferred Stock could be converted (pursuant
to Section 10) immediately after the close of business on the record date fixed
for such meeting or the effective date of such written consent and shall have
voting rights and powers equal to the voting rights and powers of the Common
Stock and shall be entitled to notice of any stockholders' meeting in accordance
with the bylaws of the Corporation; PROVIDED, HOWEVER, that except as set forth
in clause (c) below, the Holders shall have no voting rights with respect to any
other seats on the Board of
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Directors. Except as otherwise provided herein or as required by law, the Series
B Preferred Stock shall vote together with the Common Stock at any annual or
special meeting of the stockholders and not as a separate class, and may act by
written consent in the same manner as the Common Stock.
(b) Certificate Of Incorporation; Certain Stock. The affirmative vote
or written consent of the Majority Holders, voting separately as a class, will
be required for (1) any amendment, alteration, or repeal, whether by merger or
consolidation or otherwise, of the Corporation's Certificate of Incorporation or
this Certificate of Designations if the amendment, alteration, or repeal
materially and adversely affects the powers, preferences, or special rights of
the Series B Preferred Stock, or (2) the creation or issuance of any Senior
Dividend Stock, Senior Liquidation Stock, Parity Dividend Stock or Parity
Liquidation Stock; PROVIDED, HOWEVER, that any increase in the authorized
Preferred Stock of the Corporation or the creation and issuance of any stock
which is both Junior Dividend Stock and Junior Liquidation Stock shall not be
deemed to affect materially and adversely such powers, preferences, or special
rights and any such increase or creation and issuance may be made without any
such vote by the Holders except as otherwise required by law; and PROVIDED
FURTHER, HOWEVER, that no such amendment, alteration or repeal shall (i) reduce
the Mandatory Redemption Price, Holder Optional Repurchase Price or Corporation
Redemption Price or the amount payable, if any, to a holder of shares of Series
B Preferred Stock pursuant to Section 5, (ii) change the definition of Majority
Holders, (iii) change the method of calculating the Conversion Price in a manner
adverse to the Holders or reduce the number of shares of Common Stock issuable
upon any conversion of shares of Series B Preferred Stock (other than any
reduction in the number of shares of Common Stock so issuable pursuant to an
amendment of the Certificate of Incorporation which effects a combination of the
outstanding shares of Common Stock and results in an adjustment in the
Conversion Price pursuant to Section 10(c)(3)), or (iv) amend, modify or repeal
any provision of this Section 12(b), unless in each such case referred to in the
preceding clauses (i) through (iv) such amendment, modification or repeal has
been approved by the affirmative vote or written consent of the Majority
Holders, voting separately as a class.
(c) Election of Directors. For so long as any shares of Series B
Preferred Stock remain outstanding: (1) the Holders, voting as a separate class,
shall be entitled to elect three (3) members of the Corporation's Board of
Directors at each meeting or pursuant to each consent of the Corporation's
stockholders for the election of directors, and to remove from office such
directors and to fill any vacancy caused by the resignation, death or removal of
such directors; and (2) the holders of Common Stock and the Holders, voting
together as a single class on an as-converted basis, shall be entitled to elect
the remaining members of the Board of Directors at each meeting or pursuant to
each consent of the Corporation's stockholders for the election of directors,
and to remove from office such directors and to fill any vacancy caused by the
resignation, death or removal of such directors.
(d) Repurchases of Series B Preferred Stock. The Corporation shall not
repurchase or otherwise acquire any shares of Series B Preferred Stock (other
than pursuant to Section 7(a), Section 9(a) or Section 11) unless the
Corporation offers to repurchase or otherwise acquire simultaneously a pro rata
portion of each Holder's shares of Series B Preferred Stock based on the ratio
of the number of shares of Series B Preferred Stock held by such Holder to the
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total number of shares of Series B Preferred Stock outstanding for cash at the
same price per share.
SECTION 13. OUTSTANDING SHARES.
For purposes of this Certificate of Designations, all shares of Series B
Preferred Stock shall be deemed outstanding except (a) from the date a
Conversion Notice is given by a holder of Series B Preferred Stock, all shares
of Series B Preferred Stock converted into Common Stock (so long as the
Corporation shall issue the shares of Common Stock issuable upon such conversion
as and when required by this Certificate of Designations); (b) from the date of
registration of transfer, all shares of Series B Preferred Stock held of record
by the Corporation or any subsidiary or Affiliate (as defined herein) of the
Corporation (other than any original holder of shares of Series B Preferred
Stock) and (c) from the applicable Initial Mandatory Redemption Date and Final
Mandatory Redemption Date, Holder Optional Repurchase Date or Corporation
Redemption Date, all shares of Series B Preferred Stock which are redeemed, so
long as in each case the Mandatory Redemption Price, Holder Optional Repurchase
Price or Corporation Redemption Price, as the case may be, of such shares of
Series B Preferred Stock shall have been paid by the Corporation as and when due
hereunder or deposited in accordance with Section 14(c).
SECTION 14. MISCELLANEOUS.
(a) Notices. Any notices required or permitted to be given under the
terms of this Certificate of Designations shall be in writing and shall be
delivered by telephone line facsimile transmission or if no telephone line
facsimile transmission number shall have been provided for such purpose, shall
be delivered personally or by courier or by mail and shall be deemed given upon
receipt, if delivered by telephone line facsimile transmission, personally or by
courier or five days after being placed in the mail (certified mail, return
receipt requested, in the case of any such notice to a Person at an address in
the United States of America), if mailed (1) in the case of the Corporation,
addressed to the Corporation at 850 Maude Avenue, Mountain View, California
94043, Attention: Chief Financial Officer (telephone line facsimile transmission
number (650) 428-3545), or, (2) in the case of any Holder, at such Holder's
address or telephone line facsimile transmission number or address shown on the
stock books maintained by the Corporation with respect to the Series B Preferred
Stock or such other telephone line facsimile transmission number or address as
the Corporation shall have provided by notice to the Holders in accordance with
this Section 14(a) or any Holder shall have provided to the Corporation in
accordance with this Section 14(a).
(b) Replacement of Certificates. Upon receipt by the Corporation of
evidence reasonably satisfactory to the Corporation of the ownership of and the
loss, theft, destruction or mutilation of any certificate for shares of Series B
Preferred Stock and (1) in the case of loss, theft or destruction, of indemnity
from the Holder of the certificate for such shares of Series B Preferred Stock
reasonably satisfactory in form to the Corporation (and without the requirement
to post any bond or other security) or (2) in the case of mutilation, upon
surrender and cancellation of the certificate for such shares of Series B
Preferred Stock, the Corporation will execute and deliver to such Holder a new
certificate for such shares of Series B Preferred Stock without charge to such
Holder.
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(c) Payment on Redemption; Deposit of Redemption Price. If any share
of Series B Preferred Stock is to be redeemed and any notice required in
connection therewith shall have been timely given as provided therein, the
applicable redemption price of such share of Series B Preferred Stock to be so
redeemed and with respect to which any such notice has been given shall become
due and payable on the applicable redemption date. On and after such redemption
date, provided that the Corporation shall have paid such redemption price to the
respective Holders who are entitled thereto on or prior to the applicable
redemption date or shall have deposited with an Eligible Bank on or prior to
such redemption date, to be held in trust for the respective Holders entitled
thereto, an amount sufficient to pay the applicable redemption price, then on
such redemption date the dividends on such share of Series B Preferred Stock
shall cease to accrue, and such share of Series B Preferred Stock shall be
deemed not to be outstanding and the Holder thereof shall not be entitled to any
rights of a Holder except to receive payment of the applicable redemption price
and all other rights hereunder with respect to such share of Series B Preferred
Stock shall cease. So long as the Corporation shall have so paid or deposited
the full amount of the applicable redemption price on a timely basis, no Holder
shall be entitled to interest on the amount so held by such Eligible Bank and,
so long as the Corporation shall be in compliance in all material respects with
its obligations to the Holders (including, without limitation, its obligations
under the Transaction Documents), the Corporation shall be entitled to any
interest paid by such Eligible Bank on the funds so deposited, subject to
applicable abandoned property and escheat laws. On presentation and surrender of
the certificate for such share of Series B Preferred Stock, such share shall be
redeemed at the applicable redemption price.
(d) Overdue Amounts. If the Corporation fails to pay when due or to
deposit with an Eligible Bank in accordance with Section 14(c) the full amount
of the Mandatory Redemption Price, the Holder Optional Repurchase Price or the
Corporation Redemption Price on or before the respective Initial Mandatory
Redemption Date and Final Mandatory Redemption Date, Holder Optional Repurchase
Date, Corporation Redemption Date or the date of redemption specified in Section
11(b), in each such case for the number of shares of Series B Preferred Stock to
be redeemed on such date or to pay any other amount to any Holder when due, then
the amount thereof shall bear interest at a rate of 5% per annum in excess of
the LIBOR Rate (or such lesser rate as shall be the maximum rate allowed by
applicable law) from such date until paid or so deposited in full or until such
share of Series B Preferred Stock is converted in accordance with this
Certificate of Designations (in which case such interest shall remain due and
payable).
(e) Certain Changes in Law. To the extent that the 1933 Act or the
1934 Act or any statutes, rules or regulations promulgated thereunder relating
to the registration for public sale of securities and/or the registration of
issuers thereof are superseded, replaced or repealed, the requirements of this
Certificate of Designations relating to such statutes, rules and regulations
shall be applied as nearly as practicable with respect to such successor
statutes, rules or regulations, if any, to achieve the purposes intended hereby.
In Witness Whereof, Microcide Pharmaceuticals, Inc., has caused this
certificate to be signed by one of its officers thereunto duly authorized as of
the [__] day of [_________], 2001.
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MICROCIDE PHARMACEUTICALS, INC.
By: ___________________________________________
Name: _________________________________________
Title: ________________________________________
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