Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
ACCENT COLOR SCIENCES, INC.
FIRST. The name of the corporation is Accent Color Sciences, Inc.
SECOND. The nature of the business to be transacted, or the purposes to be
promoted or carried out by the corporation, are as follows:
To have and exercise all of the powers now or hereafter conferred by
the laws of the State of Connecticut upon a corporation organized
pursuant to the Connecticut Stock Corporation Act, and any and all acts
amending said Act, in substitution therefor or supplementing such Act.
THIRD. The designation of each class of shares, the authorized number of shares
of each such class, and the par value of each share thereof, are as follows:
The corporation shall have one (1) class of stock designated as Common
Stock and consisting of Twenty Five Million (25,000,000) authorized
shares. Each share of Common Stock shall be without par value.
The corporation shall have one (1) class of stock designated as
Preferred Stock and consisting of Five Hundred Thousand (500,000)
authorized shares. Each share of Preferred Stock shall be without par
value.
FOURTH. The terms, limitations and relative rights and preferences of each class
of shares and series thereof, or an express grant of authority to the Board of
Directors pursuant to Section 33-341(b) of the Connecticut Stock Corporation Act
are as follows:
A. AUTHORITY OF THE BOARD OF DIRECTORS
The Board of Directors may, before their issuance, fix and determine
the terms, limitations or relative rights or preferences of Preferred Stock, or
establish series of such shares and fix and determine the variations as among
such series, to the extent the certificate of incorporation has not or does not
in the future do so.
B. COMMON STOCK
1. Dividends. Subject to the prior right of the Preferred Stock, the
holders of outstanding shares of Common Stock ("Common Stock Holders") shall be
entitled to receive dividends as, when and in the amount declared by the Board
of Directors, out of any funds legally available therefor.
2. Liquidation, Dissolution and Winding Up. Subject to the prior and
superior right of the Preferred Stock, in the event of any liquidation,
dissolution or winding up of the affairs of the corporation, whether voluntary
or involuntary, the Common Stock Holders shall be entitled to receive, out of
the net assets of the corporation, after payment or provision for payment of the
debts and other liabilities of
the corporation, that portion of the remaining funds to be distributed. Such
funds shall be paid to the Common Stock Holders on the basis of the number of
shares of Common Stock held by each of them. Neither the consolidation nor
merger of the corporation into or with any other corporation nor the sale or
transfer by the corporation of all or any part of its assets shall be deemed a
liquidation, dissolution or winding up of the affairs of the corporation within
the meaning of the provisions of this subparagraph 2.
3. Voting. Each share of Common Stock shall entitle the holder thereof
to one vote, in person or by proxy, on any matter on which action of the
shareholders is sought.
C. PREFERRED STOCK
1. Series. The shares of Preferred Stock may be divided into and issued
in one or more series, and each series shall be so designated so as to
distinguish the shares thereof from the shares of all other series. All shares
of Preferred Stock shall be identical except in respect of particulars which may
be fixed by the Board of Directors as hereinafter provided pursuant to authority
which is hereby expressly vested in the Board of Directors. Each share of a
series shall be identical in all respects with all other shares of such series,
except as to the date from which dividends thereon shall be cumulative on any
series as to which dividends are cumulative. Shares of Preferred Stock of any
series which have been retired in any manner, including shares redeemed or
reacquired by the corporation and shares which have been converted into or
exchanged for shares of any other class, or any series of the same or any other
class shall have the status of authorized but unissued shares of Preferred Stock
and may be reissued as shares of the series of which they were originally a part
or may be issued as shares of a new series or any other series of the same
class.
2. Voting Rights. Shares of Preferred Stock shall not entitle the
holder thereof to any voting rights except that with respect to all shares of
Preferred Stock which may be convertible into shares of Common Stock, the holder
thereof shall be entitled to as many votes with respect to all matters brought
before the shareholders of the corporation as such Preferred Stockholder would
have been entitled had such holder converted his or her shares of Preferred
Stock into Common Stock immediately prior to the record date for determining
shareholders entitled to vote on any such matter. All such voting rights of any
Preferred Stock shall be exercised together with the voting rights of all
holders of Common Stock as a single class and no holders of Preferred Stock
shall have any separate voting rights with respect to the class of Preferred
Stock or any series thereof, except as otherwise provided by law.
3. Provisions. Before any shares of Preferred Stock of any series shall
be issued, the Board of Directors, pursuant to authority hereby expressly vested
in it, shall fix by resolution or resolutions the following provisions in
respect of the shares of each such series so far as the same are not
inconsistent with the provisions of this Article Fourth applicable to all series
of Preferred Stock:
(a) the distinctive designations of such series and the number of
shares which shall constitute such series, which number may be increased (except
where otherwise provided by the Board of Directors in creating such series) or
decreased (but
not below the number of shares thereof then outstanding) from time to time by
like action of the Board of Directors;
(b) the annual rate or amount of dividends, if any, payable on
shares of such series (which dividends would be payable in preference to any
dividends on Common Stock), whether such dividends shall be cumulative or
non-cumulative and the conditions upon which and/or the dates when such
dividends shall be payable;
(c) whether the shares of such series shall be redeemable and, if
so, the terms and conditions of such redemption, including the time or times
when and the price or prices at which shares of such series may be redeemed;
(d) the amount, if any, payable on shares of such series in the
event of liquidation of the corporation;
(e) whether the shares of such series shall be convertible into or
exchangeable for shares of any other class, or any series of the same or any
other class, and, if so, the terms and conditions thereof, including the date or
dates when such shares shall be convertible into or exchangeable for shares of
any other class, or any series of the same or any other class, the price or
prices or the rate or rates at which shares of such series shall be so
convertible or exchangeable, and the adjustments which shall be made, and the
circumstances in which such adjustments shall be made, in such conversion or
exchange prices or rates; and
(f) any other preferences and relative, participating, optional or
other special rights, and any qualifications, limitations and restrictions
thereof.
D. SERIES A PREFERRED STOCK
1. Designation. There is hereby created a series of the Preferred Stock
consisting of 350,000 shares having the designation, voting powers, preferences,
relative, participating, optional and other special rights and the
qualifications, limitations and restrictions thereof as are set forth in this
Paragraph D. This series is designated "Series A Convertible Voting Preferred
Stock" (hereinafter called "Series A Stock");
2. Cash Dividend.
(a) The record holders of the outstanding shares of Series A Stock
("Series A Holders") shall be entitled to receive noncumulative cash dividends
when and as declared by the Board of Directors.
(b) Upon the payment or setting apart for payment of any dividends
upon the outstanding shares of Series A Stock, the Board of Directors may
declare and pay dividends upon the Common Stock up to an amount with respect to
each share of Common Stock equal to the amount paid or set aside for payment
with respect to each share of Series A Stock divided by the number of shares of
Common Stock into which each such share of Preferred Stock shall then be
convertible.
3. Redemption. The Series A Stock may not be redeemed, in whole or in
part.
4. Liquidation.
(a) In the event of any voluntary or involuntary liquidation of
the corporation, the Series A Holders shall be entitled to be paid an amount
equal to all dividends thereon remaining unpaid up to the date of such
liquidation whether or not at such times the corporation shall have surplus
available for the payment of dividends.
(b) After payment to the Series A Holders of the amounts payable
under subpart (a) above, the Series A Holders shall be entitled to be paid as a
liquidating distribution Five Dollars ($5.00) per share (the "Liquidation
Preference") prior to any liquidating distribution to the Common Stock Holders
but shall not participate further in any liquidating distributions to such
Common Stock Holders.
5. Conversion.
(a) Conversion Option. At the option of the Series A Holders,
their holdings of such Series A Stock shall be convertible into shares of Common
Stock and cash in lieu of fractional shares upon the terms and conditions of
subparagraph (c) below.
(b) Mandatory Conversion. The holdings of the Series A Holders
shall automatically convert into shares of Common Stock and cash in lieu of
fractional shares upon the terms and conditions of subparagraph (c) below (1)
upon the affirmative vote of 70% or more of the Series A Holders or (2) upon the
effectiveness of a registration statement registering the sale by the Company of
shares of Common Stock to the public pursuant to which (A) Common Stock is
offered to the public at a price of at least 1.4 times the conversion price
(which may be adjusted downward at the discretion of the Board of Directors) and
(B) the gross proceeds to the Company and/or the selling stockholders are at
least $5,000,000.
(c) Conversion Rate.
(i) The shares shall be convertible from and after the date
of their issuance under the terms and conditions outlined in subparagraphs (a)
and (b) above at the office of any Transfer Agent for the Series A Stock (or
such other place as may be designated by the corporation) into fully paid and
nonassessable shares of Common Stock (as such Common Stock shall then be
constituted) at the rate of 1.4 shares of Common Stock for each one (1) share of
Series A Stock but such rate shall be adjusted to the extent provided in subpart
(b) of this subparagraph 5.
(ii) In order to convert shares of Series A Stock into Common
Stock, the holder thereof shall surrender the certificate or certificates for
Series A Stock, duly endorsed to the corporation or in blank, at the office of
any Transfer Agent for the Series A Stock (or such other place as may be
designated by the corporation), and shall give written notice to the corporation
at said office that he elects to convert the same and shall state in writing
therein the name or names in which he wishes the certificate or certificates for
Common Stock to be issued. The corporation will, as soon as practicable
thereafter, deliver at said office to such holder of shares of the Series A
Stock or to his nominee or nominees, a certificate or certificates for the
number of full shares of Common Stock to which he shall be entitled as
aforesaid. Shares of the Series A Stock
shall be deemed to have been converted as of the date of the surrender of such
certificate or certificates for conversion as provided above, and the person or
persons entitled to receive the Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder or holders of such Common Stock
on such date.
(d) Conversion Adjustment Provisions. The conversion rate provided
in subpart (a)(i) above shall be subject to adjustment to the extent provided
below:
(i) Stock Dividends, Subdivisions and Combinations. In the
event the corporation shall (a) pay a dividend of Common Stock, or of any
capital stock convertible into Common Stock, on its outstanding Common Stock;
(b) subdivide its outstanding Common Stock into a larger number of shares of
Common Stock by reclassification or otherwise; or (c) combine its outstanding
Common Stock into a smaller number of shares of Common Stock by reclassification
or otherwise; the conversion rate in effect immediately prior thereto shall be
proportionately adjusted so that the holder of any Series A Stock thereafter
surrendered for conversion shall be entitled to receive the number of shares of
Common Stock (and, in the case of a dividend payable in capital stock
convertible into Common Stock, the number of shares of such capital stock) which
he would have owned or have been entitled to receive after the happening of any
of the events described above had such Series A Stock been converted immediately
prior to the happening of such event. Such adjustment shall be made whenever any
of the events described above shall occur. In the case of a dividend, any such
adjustment shall be made as of the record date thereof and in the case of a
subdivision or combination, any such adjustment shall be made as of the
effective date thereof.
(ii) Issuance of Additional Securities. In the event that the
corporation shall issue shares of Common Stock (other than Excluded Securities)
or other securities convertible into or exchangeable for shares of Common Stock
(other than Excluded Securities) at a price per share in the case of issuances
of Common Stock less than the conversion rate then in effect or at a price per
share in the case of securities other than Common Stock which, when divided by
the number of shares of Common Stock into which each such share of such other
securities is convertible or exchangeable, is less than the conversion rate then
in effect, the conversion rate shall be reduced to the result obtained by
multiplying the conversion rate in effect immediately prior to such issuance by
a fraction, the numerator of which is equal to the number of outstanding shares
of Common Stock and shares of Common Stock issuable pursuant to then existing
conversion or exchange rights multiplied by the conversion rate then in effect
plus the total consideration received for the Common Stock or other securities
issued and the denominator of which is the total number of shares of Common
Stock and shares of Common Stock issuable pursuant to all rights of conversion
or exchange immediately following such issuance. For purposes of the preceding
sentence, the term "Excluded Securities" means Common Stock or other securities
issued to employees, consultants, directors and officers of the corporation,
securities issued as a dividend or distribution on the Preferred Stock and
securities issued in the event of a stock split, reverse stock split, Common
Stock dividend on Common Stock or other subdivision or consolidation or
reclassification of the Common Stock.
(iii) Minimum Adjustment. Notwithstanding the provisions of
(i) or (ii) of this subpart (b), no adjustment in the conversion rate shall be
required unless
such adjustment would require an increase or decrease of at
least 2% of such rate; provided, however, that any such adjustments which are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations required by any provision of this
subpart (b) shall be made to the nearest cent or to the nearest one-hundredth of
a share, as the case may be.
(e) Fractional Shares. No fraction of a share of Common Stock
shall be issued upon any conversion of Series A Stock but, in lieu thereof,
there shall be paid an amount in cash equal to the same fraction of the market
value of a full share of Common Stock. For such purpose, the market value of a
share of Common Stock shall be the prevailing market value or other as
determined by the Board in the open market, as conclusively determined by the
corporation.
(f) Reservation of Common Stock. The corporation shall at all
times reserve and keep available out of its authorized but unissued Common Stock
solely for the purposes of effecting the conversion of the shares of the Series
A Stock, the full number of shares of Common Stock then deliverable upon the
conversion of all shares of Series A Stock at the time outstanding.
E. SERIES B CONVERTIBLE PREFERRED STOCK
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 4,500 shares of
Preferred Stock, is the Series B Convertible Preferred Stock (the "Series B
Preferred Stock") and the face amount shall be One Thousand U.S. Dollars
($1000.00) per share (the "Face Amount").
II. DIVIDENDS
The Series B Preferred Stock shall bear no dividends, and the holders
of the Series B Preferred Stock shall not be entitled to receive dividends on
the Series B Preferred Stock.
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms
shall have the following meanings:
A. "Average Price" means, as of any date, the average of the Closing
Prices for the Common Stock during the five (5) consecutive trading days ending
on the trading day immediately preceding such date of determination (subject to
equitable adjustment for any stock splits, stock dividends, reclassifications or
similar events during such five (5) trading day period).
B. "Closing Price" means, for any security as of any date, the last
sale price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Corporation and reasonably acceptable to holders of a majority
of the then outstanding shares of Series B Preferred Stock if Bloomberg
Financial Markets is not then reporting closing bid prices of such security
(collectively, "Bloomberg"), or if the foregoing does not apply, the last
reported sale price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Price cannot be calculated
for such security on such date on any of the foregoing bases, the Closing Price
of such security on such date shall be the fair market value as reasonably
determined by an investment banking firm selected by the Corporation and
reasonably acceptable to holders of a majority of the then outstanding shares of
Series B Preferred Stock, with the costs of such appraisal to be borne by the
Corporation.
C. "Conversion Date" means, for any Conversion, the date specified in
the notice of conversion in the form attached hereto (the "Notice of
Conversion"), so long as the copy of the Notice of Conversion is faxed (or
delivered by other means resulting in notice) to the Corporation before 11:59
p.m., New York City time, on the Conversion Date indicated in the Notice of
Conversion. If the Notice of Conversion is not so faxed or otherwise delivered
before such time, then the Conversion Date shall be the date the holder faxes or
otherwise delivers the Notice of Conversion to the Corporation.
D. "Conversion Percentage" shall initially mean eighty- five percent
(85%). In the event the Corporation's Common Stock is no longer designated for
quotation on the Nasdaq National Market ("NNM") and is designated for quotation
on the Nasdaq SmallCap Market ("SmallCap"), the Conversion Percentage shall be
permanently reduced by two percent (2%) to 83%. In addition, in the event that
the Corporation fails to obtain the Shareholder Approval contemplated by Section
4(m) of the Securities Purchase Agreement (as defined herein) on or before May
31, 1998, the Conversion Percentage shall be permanently reduced by ten percent
(10%) to 75%. The Conversion Percentage also shall be subject to adjustment as
provided herein and as provided in Section 2(c) of the Registration Rights
Agreement entered into in connection with and pursuant to the Securities
Purchase Agreement (the "Registration Rights Agreement").
E. "Conversion Price" means, with respect to any Conversion Date, the
lower of (i) the Variable Conversion Price in effect as of such date and (ii) in
the event that the Average Price as of such date is greater than the Fixed
Conversion Price in effect as of such date, the arithmetic average between the
Fixed Conversion Price in effect as of such date and the Average Price (but in
no event greater than $5.00).
F. "Fixed Conversion Price" means $2.75, and shall be subject to
adjustment as provided herein.
G. "Floor Price" means $2.50, and shall be subject to adjustment as
provided herein.
H. "Issuance Date" means the date of the closing under that certain
Securities Purchase Agreement by and among the Corporation and the purchasers
named therein with respect to the issuance of the Series B Preferred Stock (the
"Securities Purchase Agreement").
I. "N" means the number of days from, but excluding, the Issuance Date.
J. "Premium" means an amount equal to(.06)x(N/365)x(1,000).
K. "Variable Conversion Price" means, as of any date of determination,
the amount obtained by multiplying the Conversion Percentage then in effect by
the Average Price as of such date, and shall be subject to adjustment as
provided herein.
IV. CONVERSION
A. Conversion at the Option of the Holder. (i) Subject to the
limitations on conversions contained in Paragraph C of this Article IV, each
holder of shares of Series B Preferred Stock may, at any time and from time to
time after the Issuance Date, convert (a "Conversion") each of its shares of
Series B Preferred Stock into a number of fully paid and nonassessable shares of
Common Stock determined in accordance with the following formula if the
Corporation timely redeems the Premium thereon in cash in accordance with
subparagraph (ii) below:
1,000
-------------------
Conversion Price
or in accordance with the following formula if the Corporation does not timely
redeem the Premium thereon in accordance with subparagraph (ii) below:
1,000 + the Premium
----------------------
Conversion Price
(ii) (a) The Corporation shall have the right, in its sole discretion,
upon receipt of a Notice of Conversion, to redeem the Premium subject to such
conversion for a sum of cash equal to the amount of the Premium being so
redeemed. All cash redemption payments hereunder shall be paid in lawful money
of the United States of America at such address for the holder as appears on the
record books of the Corporation (or at such other address as such holder shall
hereafter give to the Corporation by written notice). In the event the
Corporation so elects to redeem the Premium in cash and fails to pay such holder
the applicable redemption amount to which such holder is entitled by depositing
a check in the U.S. Mail to such holder within three (3) business days of
receipt by the Corporation of a Notice of Conversion, the Corporation shall
thereafter forfeit its right to redeem such Premium in cash and such Premium
shall thereafter be converted into shares of Common Stock in accordance with
Article IV.A(i).
(b) Each holder of Series B Preferred Stock shall have the right to
require the Corporation to provide advance notice to such holder stating whether
the Corporation will elect to redeem the Premium in cash pursuant to the
Corporation's redemption rights discussed in subparagraph (a) of this Article
IV.A(ii). A holder may exercise such right from time to time by sending notice
(an "Election Notice") to the Corporation, by facsimile, requesting that the
Corporation disclose to such holder whether the Corporation would elect to
redeem the Premium for cash in lieu of issuing shares of Common Stock therefor
if such holder were to exercise its right of conversion pursuant to this Article
IV.A. The Corporation shall, no later than the close of business on the second
business day following receipt of an Election Notice, disclose to such holder
whether the Corporation would elect to redeem the Premium in connection with a
conversion
pursuant to a Notice of Conversion delivered over the subsequent five
(5) business day period. If the Corporation does not respond to such holder
within such two (2) business day period via facsimile, the Corporation shall,
with respect to any conversion pursuant to a Conversion Notice delivered within
the subsequent five (5) business day period, forfeit its right to redeem such
Premium in accordance with subparagraph (a) of this d Article IV.A(ii) and shall
be required to convert such Premium into shares of Common Stock.
B. Mechanics of Conversion. In order to effect a Conversion, a holder
shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice of
Conversion to the Corporation or the transfer agent for the Common Stock and (y)
surrender or cause to be surrendered the original certificates representing the
Series B Preferred Stock being converted (the "Preferred Stock Certificates"),
duly endorsed, along with a copy of the Notice of Conversion as soon as
practicable thereafter to the Corporation or the transfer agent. Upon receipt by
the Corporation of a facsimile copy of a Notice of Conversion from a holder, the
Corporation shall immediately send, via facsimile, a confirmation to such holder
stating that the Notice of Conversion has been received, the date upon which the
Corporation expects to deliver the Common Stock issuable upon such conversion
and the name and telephone number of a contact person at the Corporation
regarding the conversion. The Corporation shall not be obligated to issue shares
of Common Stock upon a conversion unless either the Preferred Stock Certificates
are delivered to the Corporation or the transfer agent as provided above, or the
holder notifies the Corporation or the transfer agent that such certificates
have been lost, stolen or destroyed and delivers the documentation to the
Company required by Article XIV.B hereof.
(i) Delivery of Common Stock Upon Conversion. Upon the
surrender of Preferred Stock Certificates from a holder of Series B Preferred
Stock accompanied by a Notice of Conversion, the Corporation shall, no later
than the later of (a) the second business day following the Conversion Date and
(b) the business day following the date of such surrender (or, in the case of
lost, stolen or destroyed certificates, after provision of indemnity pursuant to
Article XIV.B) (the "Delivery Period"), issue and deliver to the holder or its
nominee (x) that number of shares of Common Stock issuable upon conversion of
such shares of Series B Preferred Stock being converted and (y) a certificate
representing the number of shares of Series B Preferred Stock not being
converted, if any. If the Corporation's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program, and
so long as the certificates therefor do not bear a legend and the holder thereof
is not obligated to return such certificate for the placement of a legend
thereon, the Corporation shall cause its transfer agent to electronically
transmit the Common Stock issuable upon conversion to the holder by crediting
the account of the holder or its nominee with DTC through its Deposit Withdrawal
Agent Commission system ("DTC Transfer"). If the aforementioned conditions to a
DTC Transfer are not satisfied, the Corporation shall deliver to the holder
physical certificates representing the Common Stock issuable upon conversion.
Further, a holder may instruct the Corporation to deliver to the holder physical
certificates representing the Common Stock issuable upon conversion in lieu of
delivering such shares by way of DTC Transfer.
(ii) Taxes. The Corporation shall pay any and all taxes which
may be imposed upon it with respect to the issuance and delivery of the shares
of Common Stock upon the conversion of the Series B Preferred Stock.
(iii) No Fractional Shares. If any conversion of Series B
Preferred Stock would result in the issuance of a fractional share of Common
Stock, such fractional share shall be disregarded and the number of shares of
Common Stock issuable upon conversion of the Series B Preferred Stock shall be
the next higher whole number of shares.
(iv) Conversion Disputes. In the case of any dispute with
respect to a conversion, the Corporation shall promptly issue such number of
shares of Common Stock as are not disputed in accordance with subparagraph (i)
above. If such dispute involves the calculation of the Conversion Price, the
Corporation shall submit the disputed calculations to an independent outside
accountant via facsimile within two (2) business days of receipt of the Notice
of Conversion. The accountant, at the Corporation's sole expense, shall audit
the calculations and notify the Corporation and the holder of the results no
later than two (2) business days from the date it receives the disputed
calculations. The accountant's calculation shall be deemed conclusive, absent
manifest error. The Corporation shall then issue the appropriate number of
shares of Common Stock in accordance with subparagraph (i) above.
C. Limitations on Conversions. The conversion of shares of Series B
Preferred Stock shall be subject to the following limitations (each of which
limitations shall be applied independently):
(i) Cap Amount. Unless permitted by the applicable rules and
regulations of the principal securities market on which the Common Stock is
listed or traded, in no event shall the total number of shares of Common Stock
issued upon conversion of the Series B Preferred Stock exceed the maximum number
of shares of Common Stock that the Corporation can so issue pursuant to Rule
4460(i) of the National Association of Securities Dealers ("NASD") (or any
successor rule) (the "Cap Amount") which, as of the date of issuance of the
Series B Preferred Stock, shall be 2,397,000 shares. The Cap Amount shall be
allocated pro-rata to the holders of Series B Preferred Stock as provided in
Article XIV.C. In the event the Corporation is prohibited from issuing shares of
Common Stock as a result of the operation of this subparagraph (i), the
Corporation shall comply with Article VII.
(ii) No Five Percent Holders. Unless a holder of shares of Series
B Preferred Stock delivers a waiver in accordance with the last sentence of this
subparagraph (ii), in no event shall a holder of shares of Series B Preferred
Stock be entitled to receive shares of Common Stock upon a conversion to the
extent that the sum of (x) the number of shares of Common Stock beneficially
owned by the holder and its affiliates (exclusive of shares issuable upon
conversion of the unconverted portion of the shares of Series B Preferred Stock
or the unexercised or unconverted portion of any other securities of the
Corporation (including, without limitation, the warrants (the "Warrants") issued
by the Corporation pursuant to the Securities Purchase Agreement) subject to a
limitation on conversion or exercise analogous to the limitations contained
herein) and (y) the number of shares of Common Stock issuable upon the
conversion of the shares of Series B Preferred Stock with respect to which the
determination of this subparagraph is being made, would result in beneficial
ownership by the holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock. For purposes of this subparagraph, beneficial ownership
shall be determined in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended, and Regulation 13 D-G
thereunder, except as otherwise provided in clause (x) above. Except as provided
in the immediately succeeding sentence, the restriction contained in this
subparagraph (ii) shall not be altered, amended, deleted or changed in any
manner whatsoever unless the holders of a majority of the outstanding shares of
Common Stock and each holder of outstanding shares of Series B Preferred Stock
shall approve such alteration, amendment, deletion or change. Notwithstanding
the foregoing, a holder of shares of Series B Preferred Stock may waive the
restriction set forth in this subparagraph (ii) by written notice to the
Corporation upon not less than sixty-one (61) days prior notice (with such
waiver taking effect only upon the expiration of such sixty-one (61) day
period).
(iii) Conversions Below Floor Price.
(a) For purposes hereof, "Below Floor Conversion" means any
Conversion occurring on a Conversion Date on which the Average Price in effect
as of such date is less than the Floor Price in effect as of such date.
(b) So long as no Conversion Default (as defined in Article
VI hereof) or Mandatory Redemption Event (as defined in Article VIII.A hereof)
has occurred and is then continuing, holders of shares of Series B Preferred
Stock shall not be entitled to effect a Below Floor Conversion on or before
March 31, 1998 (the "Lockup Expiration Date"). Following the Lockup Expiration
Date, there shall be no restrictions pursuant to this Article IV.C.(iii) on the
ability of holders of shares of Series B Preferred Stock to effect Below Floor
Conversions.
(c) Notwithstanding the foregoing, the restrictions on
conversion set forth in subparagraph (b) of this Article IV.C.(iii) shall not
apply to conversions taking place on any Conversion Date (I) on or after the
date the Corporation makes a public announcement that it intends to merge or
consolidate with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged) or to
sell or transfer all or substantially all of the assets of the Corporation or
(II) on or after the date any person, group or entity (including the
Corporation) publicly announces a tender offer, exchange offer or another
transaction to purchase 50% or more of the Corporation's Common Stock or
otherwise publicly announces an intention to replace a majority of the
Corporation's Board of Directors by waging a proxy battle or otherwise.
V. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. Upon the initial issuance of the shares of Series B
Preferred Stock, the Corporation shall reserve 4,800,000 shares of the
authorized but unissued shares of Common Stock for issuance upon conversion of
the Series B Preferred Stock and thereafter the number of authorized but
unissued shares of Common Stock so reserved (the "Reserved Amount") shall not be
decreased and shall at all times be sufficient to provide for the conversion of
the Series B Preferred Stock outstanding at the then current Conversion Price
thereof. The Reserved Amount shall be allocated to the holders of Series B
Preferred Stock as provided in Article XIV.C.
B. Increases to Reserved Amount. If the Reserved Amount for any three
(3) consecutive trading days (the last of such three (3) trading days being the
"Authorization
Trigger Date") shall be less than 135% of the number of shares of Common Stock
issuable upon conversion of the then outstanding shares of Series B Preferred
Stock, the Corporation shall immediately notify the holders of Series B
Preferred Stock of such occurrence and shall take immediate action (including,
if necessary, seeking shareholder approval to authorize the issuance of
additional shares of Common Stock) to increase the Reserved Amount to 200% of
the number of shares of Common Stock then issuable upon conversion of the
outstanding Series B Preferred Stock. In the event the Corporation fails to so
increase the Reserved Amount within ninety (90) days after an Authorization
Trigger Date, each holder of Series B Preferred Stock shall thereafter have the
option, exercisable in whole or in part at any time and from time to time by
delivery of a Mandatory Redemption Notice (as defined in Article VIII.C) to the
Corporation, to require the Corporation to purchase for cash, at an amount per
share equal to the Mandatory Redemption Amount (as defined in Article VIII.B), a
portion of the holder's Series B Preferred Stock such that, after giving effect
to such purchase, the holder's allocated portion of the Reserved Amount exceeds
135% of the total number of shares of Common Stock issuable to such holder upon
conversion of its Series B Preferred Stock. If the Corporation fails to redeem
any of such shares within five (5) business days after its receipt of such
Mandatory Redemption Notice, then such holder shall be entitled to the remedies
provided in Article VIII.C.
C. Limitations on Redemption Right. Notwithstanding the provisions of
Paragraph B of this Article V, the holders of Series B Preferred Stock shall
have no right to require the Corporation to effect a redemption of their
outstanding shares of Series B Preferred Stock as provided in Paragraph B of
this Article V so long as (i) the Corporation has not, at any time, decreased
the Reserved Amount below 4,800,000 shares of Common Stock; (ii) the Corporation
shall have taken immediate action following the applicable Authorization Trigger
Date (including, if necessary, seeking shareholder approval to authorize the
issuance of additional shares of Common Stock) to increase the Reserved Amount
to 200% of the number of shares of Common Stock then issuable upon conversion of
the outstanding Series B Preferred Stock; and (iii) the Corporation continues to
use its good faith best efforts (including the resolicitation of shareholder
approval to authorize the issuance of additional shares of Common Stock) to
increase the Reserved Amount to 200% of the number of shares of Common Stock
then issuable upon conversion of the outstanding Series B Preferred Stock. The
Corporation will be deemed to be using "its good faith best efforts" to increase
the Reserved Amount so long as it solicits shareholder approval to authorize the
issuance of additional shares of Common Stock not less than three (3) times
during each twelve month period following the applicable Authorization Trigger
Date during which any shares of Series B Preferred Stock remain outstanding.
VI. FAILURE TO SATISFY CONVERSIONS
A. Conversion Default Payments. If, at any time, (x) a holder of shares
of Series B Preferred Stock submits a Notice of Conversion and the Corporation
fails for any reason (other than because such issuance would exceed such
holder's allocated portion of the Reserved Amount or Cap Amount, for which
failures the holders shall have the remedies set forth in Articles V and VII,
respectively) to deliver, on or prior to the fourth (4th) business day following
the expiration of the Delivery Period for such conversion, such number of freely
tradeable shares of Common Stock to which such holder is entitled upon such
conversion, or (y) the Corporation provides notice to any
holder of Series B Preferred Stock at any time of its intention not to issue
freely tradeable shares of Common Stock upon exercise by any holder of its
conversion rights in accordance with the terms of this Certificate of
Designation (other than because such issuance would exceed such holder's
allocated portion of the Reserved Amount or Cap Amount) (each of (x) and (y)
being a "Conversion Default"), then the Corporation shall pay to the affected
holder, in the case of a Conversion Default described in clause (x) above, and
to all holders, in the case of a Conversion Default described in clause (y)
above, an amount equal to:
(.24) x (D/365) x (the Default Amount)
where:
"D" means the number of days after the expiration of the Delivery
Period through and including the Default Cure Date;
"Default Amount" means (i) the total Face Amount of all shares of
Series B Preferred Stock held by such holder, plus (ii) the total accrued
Premium as of the first day of the Conversion Default on all shares of Series B
Preferred Stock included in clause (i) of this definition; and
"Default Cure Date" means (i) with respect to a Conversion Default
described in clause (x) of its definition, the date the Corporation effects the
conversion of the full number of shares of Series B Preferred Stock and (ii)
with respect to a Conversion Default described in clause (y) of its definition,
the date the Corporation begins to issue freely tradeable shares of Common Stock
in satisfaction of all conversions of Series B Preferred Stock in accordance
with Article IV.A, and (iii) with respect to either type of a Conversion
Default, the date on which the Corporation redeems shares of Series B Preferred
Stock held by such holder pursuant to Paragraph D of this Article VI.
The payments to which a holder shall be entitled pursuant to this
Paragraph A are referred to herein as "Conversion Default Payments." A holder
may elect to receive accrued Conversion Default Payments in cash or to convert
all or any portion of such accrued Conversion Default Payments, at any time,
into Common Stock at the lowest Conversion Price in effect during the period
beginning on the date of the Conversion Default through the Conversion Date with
respect to such Conversion Default Payments. In the event a holder elects to
receive any Conversion Default Payments in cash, it shall so notify the
Corporation in writing. Such payment shall be made in accordance with and be
subject to the provisions of Article XIV.E. In the event a holder elects to
convert all or any portion of the Conversion Default Payments into Common Stock,
the holder shall indicate on a Notice of Conversion such portion of the
Conversion Default Payments which such holder elects to so convert and such
conversion shall otherwise be effected in accordance with the provisions of
Article IV.
B. Adjustment to Conversion Price. If a holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Delivery Period with respect to a conversion of
Series B Preferred Stock for any reason (other than because such issuance would
exceed such holder's allocated portion of the Reserved Amount or Cap Amount, for
which failures the holders shall have the remedies set forth in Articles V and
VII), then the Fixed Conversion Price in respect of
any shares of Series B Preferred Stock held by such holder (including shares of
Series B Preferred Stock submitted to the Corporation for conversion, but for
which shares of Common Stock have not been issued to such holder) shall
thereafter be the lesser of (i) the Fixed Conversion Price on the Conversion
Date specified in the Notice of Conversion which resulted in the Conversion
Default and (ii) the lowest Conversion Price in effect during the period
beginning on, and including, such Conversion Date through and including the
earlier of (x) the day such shares of Common Stock are delivered to the holder
and (y) the day on which the holder regains its rights as a holder of Series B
Preferred Stock with respect to such unconverted shares of Series B Preferred
Stock pursuant to the provisions of Article XIV.F hereof. If there shall occur a
Conversion Default of the type described in clause (y) of Article VI.A, then the
Fixed Conversion Price with respect to any conversion thereafter shall be the
lowest Conversion Price in effect at any time during the period beginning on,
and including, the date of the occurrence of such Conversion Default through and
including the Default Cure Date. The Fixed Conversion Price shall thereafter be
subject to further adjustment for any events described in Article XI.
C. Buy-In Cure. Unless the Corporation has notified the applicable
holder in writing prior to the delivery by such holder of a Notice of Conversion
that the Corporation is unable to honor conversions, if (i) (a) the Corporation
fails for any reason to deliver during the Delivery Period shares of Common
Stock to a holder upon a conversion of shares of Series B Preferred Stock or (b)
there shall occur a Legend Removal Failure (as defined in Article VIII.A(iii)
below) and (ii) thereafter, such holder purchases (in an open market transaction
or otherwise) shares of Common Stock to make delivery in satisfaction of a sale
by such holder of the unlegended shares of Common Stock (the "Sold Shares")
which such holder anticipated receiving upon such conversion (a "Buy-In"), the
Corporation shall pay such holder (in addition to any other remedies available
to the holder) the amount by which (x) such holder's total purchase price
(including brokerage commissions, if any) for the unlegended shares of Common
Stock so purchased exceeds (y) the net proceeds received by such holder from the
sale of the Sold Shares. For example, if a holder purchases unlegended shares of
Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to shares of Common Stock it sold for $10,000, the Corporation will be
required to pay the holder $1,000. A holder shall provide the Corporation
written notification and supporting documentation indicating any amounts payable
to such holder pursuant to this Paragraph C. The Corporation shall make any
payments required pursuant to this Paragraph C in accordance with and subject to
the provisions of Article XIV.E.
D. Redemption Right. If the Corporation fails, and such failure
continues uncured for five (5) business days after the Corporation has been
notified thereof in writing by the holder, for any reason (other than because
such issuance would exceed such holder's allocated portion of the Reserved
Amount or Cap Amount, for which failures the holders shall have the remedies set
forth in Articles V and VII) to issue shares of Common Stock within ten (10)
business days after the expiration of the Delivery Period with respect to any
conversion of Series B Preferred Stock, then the holder may elect at any time
and from time to time prior to the Default Cure Date for such Conversion
Default, by delivery of a Mandatory Redemption Notice to the Corporation, to
have all or any portion of such holder's outstanding shares of Series B
Preferred Stock purchased by the Corporation for cash, at an amount per share
equal to the Mandatory Redemption Amount (as defined in Article VIII.B). If the
Corporation fails to redeem
any of such shares within five (5) business days after its receipt of such
Mandatory Redemption Notice, then such holder shall be entitled to the remedies
provided in Article VIII.C.
VII. INABILITY TO CONVERT DUE TO CAP AMOUNT
A. Obligation to Cure. If at any time after March 2, 1998 the then
unissued portion of any holder's Cap Amount is less than 135% of the number of
shares of Common Stock then issuable upon conversion of such holder's shares of
Series B Preferred Stock (a "Trading Market Trigger Event"), the Corporation
shall immediately notify the holders of Series B Preferred Stock of such
occurrence and shall take immediate action (including, if necessary, seeking the
approval of its shareholders to authorize the issuance of the full number of
shares of Common Stock which would be issuable upon the conversion of the then
outstanding shares of Series B Preferred Stock but for the Cap Amount) to
eliminate any prohibitions under applicable law or the rules or regulations of
any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Corporation or any of its securities on
the Corporation's ability to issue shares of Common Stock in excess of the Cap
Amount.
B. Remedies. In the event the Corporation fails to eliminate all
prohibitions on its ability to issue shares of Common Stock in excess of the Cap
Amount within ninety (90) days after the Trading Market Trigger Event and
thereafter the Corporation is prohibited, at any time, from issuing shares of
Common Stock upon conversion of Series B Preferred Stock to any holder because
such issuance would exceed the then unissued portion of such holder's Cap Amount
because of applicable law or the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Corporation or its securities, any holder who is so
prohibited from converting its Series B Preferred Stock may elect either or both
of the following remedies:
(i) to require, with the consent of holders of at least fifty
percent (50%) of the outstanding shares of Series B Preferred Stock (including
any shares of Series B Preferred Stock held by the requesting holder), the
Corporation to terminate the listing of its Common Stock on the NNM (or any
other stock exchange, interdealer quotation system or trading market) and to
cause its Common Stock to be eligible for trading on the Nasdaq SmallCap Market
or on the over-the-counter electronic bulletin board, at the option of the
requesting holder; or
(ii) to require the Corporation to issue shares of Common
Stock in accordance with such holder's Notice of Conversion at a conversion
price equal to the greater of (x) the Average Price and (y) the book value per
share of Common Stock, each in effect as of the date of the holder's written
notice to the Corporation of its election to receive shares of Common Stock
pursuant to this subparagraph (ii);
provided, however, that the Corporation may, at its option, by delivery of an
Optional Redemption Notice within five (5) business days after the Corporation's
receipt of any notice of election delivered by a holder pursuant to this Article
VII.B, elect to purchase for cash, at an amount per share equal to the Optional
Redemption Amount, a number of the holder's shares of Series B Preferred Stock
such that, after giving effect to such redemption, the then unissued portion of
such holder's Cap Amount exceeds 135% of the
total number of shares of Common Stock issuable upon conversion of such holder's
shares of Series B Preferred Stock.
VIII. REDEMPTION DUE TO CERTAIN EVENTS
A. Redemption by Holder. In the event (each of the events described in
clauses (i)-(v) below after expiration of the applicable cure period (if any)
being a "Mandatory Redemption Event"):
(i) the Common Stock (including any of the shares of Common Stock
issuable upon conversion of the Series B Preferred Stock) is suspended from
trading on any of, or is not listed (and authorized) for trading on at least one
of, the New York Stock Exchange, the American Stock Exchange, the NNM or the
SmallCap for an aggregate of ten (10) trading days in any nine (9) month period;
(ii) the Corporation fails to remove any restrictive legend on any
certificate or any shares of Common Stock issued to the holders of Series B
Preferred Stock upon conversion of the Series B Preferred Stock as and when
required by this Certificate of Designation, the Securities Purchase Agreement
or the Registration Rights Agreement (a "Legend Removal Failure"), and any such
failure continues uncured for five (5) business days after the Corporation has
been notified thereof in writing by the holder;
(iii) the Corporation provides notice to any holder of Series B
Preferred Stock, including by way of public announcement, at any time, of its
intention not to issue shares of Common Stock to any holder of Series B
Preferred Stock upon conversion in accordance with the terms of this Certificate
of Designation (other than due to the circumstances contemplated by Articles V
or VII for which the holders shall have the remedies set forth in such
Articles);
(iv) the Corporation shall:
(a) sell, convey or dispose of all or substantially all of
its assets;
(b) merge, consolidate or engage in any other business
combination with any other entity (other than pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Corporation); or
(c) have approved, recommended or otherwise consented to any
transaction or series of related transactions which result in fifty percent
(50%) or more of the voting power of the Corporation's capital stock being owned
beneficially by one person, entity or "group" (as such term is used under
Section 13(d) of the Securities Exchange Act of 1934, as amended);
(v) the Corporation otherwise shall breach any other material term
hereunder or under the Securities Purchase Agreement or the Registration Rights
Agreement and such breach continues uncured for ten (10) business days after the
Corporation has been notified thereof in writing by the holder; then, upon the
occurrence of any such Mandatory Redemption Event, each holder of shares of
Series B Preferred Stock shall thereafter have the option, exercisable in whole
or in part at any time and
from time to time by delivery of a Mandatory Redemption Notice (as defined in
Paragraph C below) to the Corporation while such Mandatory Redemption Event
continues, to require the Corporation to purchase for cash any or all of the
then outstanding shares of Series B Preferred Stock held by such holder for an
amount per share equal to the Mandatory Redemption Amount (as defined in
Paragraph B below) in effect at the time of the redemption hereunder. For the
avoidance of doubt, the occurrence of any event described in clauses (i), (iii)
or (iv) above shall immediately constitute a Mandatory Redemption Event and
there shall be no cure period; provided, however, that the holders of Series B
Preferred Stock shall have no right to deliver a Mandatory Redemption Notice
following the occurrence of a Mandatory Redemption Event specified in clause (i)
above if the Corporation pays to each holder within five (5) business days after
the occurrence of such Mandatory Redemption Event, as liquidated damages for the
decrease in the value of the Series B Preferred Stock (and the shares of the
Corporation's Common Stock issuable upon conversion thereof) which will result
from the occurrence of such Mandatory Redemption Event, an amount (the "Damages
Amount") equal to twenty-five percent (25%) of the aggregate Face Amount of the
shares of Series B Preferred Stock then held by each such holder. The Damages
Amount shall be payable, at the Corporation's option, in cash or shares of
Common Stock (based upon a price per share of Common Stock equal to fifty
percent (50%) of the Average Price as of the date of such Mandatory Redemption
Event). Upon the initial issuance of shares of Series B Preferred Stock, the
Corporation shall reserve 1,500,000 shares of Common Stock to satisfy its
obligation with respect to the Damages Amount and thereafter the number of
authorized but unissued shares of Common Stock so reserved shall not be
decreased. In the event that the number of shares required to be issued by the
Corporation with respect to the Damages Amount exceeds 1,500,000 shares of
Common Stock and the Corporation does not have a sufficient number of shares of
Common Stock authorized and available for issuance to satisfy its obligation
with respect to the Damages Amount, the Corporation shall issue and deliver to
the holders, on a pro-rata basis based on the number of shares of Series B
Preferred Stock then held by each such holder, a number of shares of Common
Stock equal to the greater of (i) the number of shares authorized and available
for issuance by the Corporation to satisfy such obligation and (ii) all
1,500,000 shares of Common Stock so reserved for such purpose and, upon such
issuance, the holders shall have no right of redemption with respect to such
Mandatory Redemption Event, but shall retain all other remedies to which they
may be entitled at law or in equity (which remedies shall not include the right
of redemption).
Upon the Corporation's receipt of any Mandatory Redemption Notice
hereunder (other than during the three (3) trading day period following the
Corporation's delivery of a Mandatory Redemption Announcement (as defined below)
to all of the holders in response to the Corporation's initial receipt of a
Mandatory Redemption Notice from a holder of Series B Preferred Stock), the
Corporation shall immediately (and in any event within one (1) business day
following such receipt) deliver a written notice (a "Mandatory Redemption
Announcement") to all holders of Series B Preferred Stock stating the date upon
which the Corporation received such Mandatory Redemption Notice and the amount
of Series B Preferred Stock covered thereby. The Corporation shall not redeem
any shares of Series B Preferred Stock during the three (3) trading day period
following the delivery of a required Mandatory Redemption Announcement
hereunder. At any time and from time to time during such three (3) trading day
period, each holder of Series B Preferred Stock may request (either orally or in
writing) information from the Corporation with respect to the instant redemption
(including, but not limited to, the aggregate number
of shares of Series B Preferred Stock covered by Mandatory Redemption Notices
received by the Corporation) and the Corporation shall furnish (either orally or
in writing) as soon as practicable such requested information to such requesting
holder.
B. Definition of Mandatory Redemption Amount. The "Mandatory Redemption
Amount" with respect to a share of Series B Preferred Stock means an amount
equal to the greater of:
(i) V x M
-----------------
C P
and
(ii) The sum of (x) the product of (I) one hundred percent
(100%) divided by the Conversion Percentage in effect on the date on which the
Corporation receives the Mandatory Redemption Notice, times (II) the Face Amount
thereof, plus (y) the accrued Premium thereon and all unpaid Conversion Default
Payments owing (if any) with respect thereto through the date of payment of the
Mandatory Redemption Amount.
where:
"V" means the Face Amount thereof plus the accrued Premium thereon and
all unpaid Conversion Default Payments owing (if any) with respect thereto
through the date of payment of the Mandatory Redemption Amount;
"CP" means the Conversion Price in effect on the date on which the
Corporation receives the Mandatory Redemption Notice; and
"M" means (i) with respect to all redemptions other than redemptions
pursuant to Article VIII.A(iv) hereof, the highest Closing Price of the
Corporation's Common Stock during the period beginning on the date on which the
Corporation receives the Mandatory Redemption Notice and ending on the date
immediately preceding the date of payment of the Mandatory Redemption Amount and
(ii) with respect to redemptions pursuant to Article VIII.A(iv) hereof, the
greater of (a) the amount determined pursuant to clause (i) of this definition
or (b) the fair market value, as of the date on which the Corporation receives
the Mandatory Redemption Notice, of the consideration payable to the holder of a
share of Common Stock pursuant to the transaction which triggers the redemption.
For purposes of this definition, "fair market value" shall be determined by the
mutual agreement of the Company and holders of a majority-in-interest of the
shares of Series B Preferred Stock then outstanding, or if such agreement cannot
be reached within five (5) business days prior to the date of redemption, by an
investment banking firm selected by the Corporation and reasonably acceptable to
holders of a majority-in-interest of the then outstanding shares of Series B
Preferred Stock, with the costs of such appraisal to be borne by the
Corporation.
C. Redemption Defaults. If the Corporation fails to pay any holder the
Mandatory Redemption Amount with respect to any share of Series B Preferred
Stock within five (5) business days after its receipt of a notice requiring such
redemption (a "Mandatory Redemption Notice"), then the holder of Series B
Preferred Stock delivering such Mandatory Redemption Notice (i) shall be
entitled to interest on the Mandatory
Redemption Amount at a per annum rate equal to the lower of twenty-four percent
(24%) and the highest interest rate permitted by applicable law from the date on
which the Corporation receives the Mandatory Redemption Notice until the date of
payment of the Mandatory Redemption Amount hereunder, and (ii) shall have the
right, at any time and from time to time prior to payment thereof in cash, to
require the Corporation, upon written notice, to immediately convert (in
accordance with the terms of Paragraph A of Article IV) all or any portion of
the Mandatory Redemption Amount, plus interest as aforesaid, into shares of
Common Stock at the lowest Conversion Price in effect during the period
beginning on the date on which the Corporation receives the Mandatory Redemption
Notice and ending on the Conversion Date with respect to the conversion of such
Mandatory Redemption Amount. In the event the Corporation is not able to redeem
all of the shares of Series B Preferred Stock subject to Mandatory Redemption
Notices delivered prior to the date upon which such redemption is to be
effected, the Corporation shall redeem shares of Series B Preferred Stock from
each holder pro rata, based on the total number of shares of Series B Preferred
Stock outstanding at the time of redemption included by such holder in all
Mandatory Redemption Notices delivered prior to the date upon which such
redemption is to be effected relative to the total number of shares of Series B
Preferred Stock outstanding at the time of redemption included in all of the
Mandatory Redemption Notices delivered prior to the date upon which such
redemption is to be effected.
D. Redemption at the Corporation's Option.
(i) The Corporation shall have the right, at any time, so long as
no Conversion Default or Mandatory Redemption Event shall have occurred and be
continuing, to redeem (an "Optional Redemption") all, but not less than all, of
the then outstanding shares of Series B Preferred Stock (excluding shares of
Series B Preferred Stock subject to a Notice of Conversion delivered to the
Corporation prior to the date of the Optional Redemption Notice (as defined in
subparagraph (iii) below)) for cash, at an amount per share equal to the
Optional Redemption Amount (as defined below), by delivering an Optional
Redemption Notice to the holders of Series B Preferred Stock. Subject to the
provisions of Article IV.C hereof, holders of Series B Preferred Stock may
convert all or any part of their shares of Series B Preferred Stock selected for
redemption hereunder into Common Stock by delivering a Notice of Conversion to
the Corporation at any time prior to the Effective Date of Redemption. For
purposes hereof, the "Optional Redemption Amount" with respect to a share of
Series B Preferred Stock means an amount equal to the greater of:
(a) V x M
--------------------------
C P
and
(b) The sum of (x) the product of (I) one hundred percent
(100%) divided by the Conversion Percentage in effect on the date of the
Optional Redemption Notice, times (II) the Face Amount thereof, plus (y) the
accrued Premium thereon and all unpaid Conversion Default Payments owing (if
any) with respect thereto through the Effective Date of Redemption (as defined
in subparagraph (iii) below).
where:
"V" means the Face Amount thereof plus the accrued Premium thereon and
all unpaid Conversion Default Payments owing (if any) with respect thereto
through the Effective Date of Redemption;
"CP" means the Conversion Price in effect on the date of the Optional
Redemption Notice; and
"M" means the Closing Price of the Corporation's Common Stock on the
date of the Optional Redemption Notice.
(ii) The Corporation may not deliver an Optional Redemption
Notice to the holders of Series B Preferred Stock unless on or prior to the date
of delivery of such Optional Redemption Notice, the Corporation shall have
deposited with an escrow agent reasonably acceptable to holders of a majority of
the outstanding shares of Series B Preferred Stock, as a trust fund, cash
sufficient in amount to pay all amounts to which the holders of Series B
Preferred Stock are entitled upon such redemption pursuant to subparagraph (i)
of this Paragraph D, with irrevocable instructions and authority to such escrow
agent to complete the redemption thereof in accordance with this Paragraph D.
Any Optional Redemption Notice delivered in accordance with the immediately
preceding sentence shall be accompanied by a statement executed by a duly
authorized officer of its escrow agent, certifying the amount of funds which
have been deposited with such escrow agent and that the escrow agent has been
instructed and agrees to act as redemption agent hereunder.
(iii) The Corporation shall effect an Optional Redemption
under this Section VIII.D by giving at least thirty (30) business days prior
written notice (the "Optional Redemption Notice") of the date on which such
redemption is to become effective (the "Effective Date of Redemption") and the
Optional Redemption Amount to (i) the holders of Series B Preferred Stock at the
address and facsimile number of each holder appearing in the Corporation's
register for the Series B Preferred Stock and (ii) the transfer agent for the
Common Stock, which Optional Redemption Notice shall be deemed to have been
delivered on the business day after the Corporation's fax (with a copy sent by
overnight courier to the holders of Series B Preferred Stock) of such notice to
the holders of Series B Preferred Stock.
(iv) The Optional Redemption Amount shall be paid to the
holder of the Series B Preferred Stock being redeemed within three (3) business
days of the Effective Date of Redemption; provided, however, that the
Corporation shall not be obligated to deliver any portion of the Optional
Redemption Amount until either the certificates evidencing the Series B
Preferred Stock being redeemed are delivered to the office of the Corporation or
the escrow agent or the holder notifies the Corporation or the escrow agent that
such certificates have been lost, stolen or destroyed and delivers the
documentation in accordance with Article XIV.B hereof. Notwithstanding anything
herein to the contrary, in the event that the certificates evidencing the Series
B Preferred Stock being redeemed are not delivered to the Corporation or the
escrow agent prior to the third business day following the Effective Date of
Redemption, the redemption of the Series B Preferred Stock pursuant to this
Article VIII.D shall still be deemed effective as of the Effective Date of
Redemption and the Optional Redemption Amount shall be paid to the holder of
Series B Preferred Stock being redeemed within five (5) business days of
the date the certificates evidencing the Series B Preferred Stock being redeemed
are actually delivered to the Corporation or the escrow agent.
E. Redemptions Below Floor Price. In the event that any holder of
Series B Preferred Stock attempts to effect a Below Floor Conversion, the
Corporation shall have the option, in lieu of issuing shares of Common Stock to
the converting holder, to redeem all or any portion of the shares of Series B
Preferred Stock submitted for conversion for an amount per share in cash equal
to the Optional Redemption Amount (treating, for purposes of this Article
VIII.E, the Conversion Date applicable to such Below Floor Conversion as the
"date of the Optional Redemption Notice" and the date on which the Corporation
delivers the Optional Redemption Amount to the holder as the "Effective Date of
Redemption"). From time to time, the holders may request advance notice as to
whether the Corporation will issue shares of Common Stock, deliver cash in
redemption or any combination thereof in respect of the shares of Series B
Preferred Stock submitted for conversion. Such request shall be made in writing
and the Corporation shall respond in writing as promptly as practicable but in
any event within three (3) business days of receipt of the request. The
Corporation will be bound by such response for a period of thirty (30) trading
days from the date of its response. A failure to respond within three (3)
business days shall be deemed to be an election to issue Common Stock on
conversion. Any amounts payable hereunder shall be paid to the converting holder
within five (5) business days of the applicable Conversion Date. If the
Corporation fails to pay any holder the Optional Redemption Amount with respect
to any share of Series B Preferred Stock within such five (5) business day
period, then the Corporation shall thereafter be deemed to have forfeited all of
its rights to effect redemptions under this Article VIII.E and under Article
VIII.D above and the holder (i) shall be entitled to interest on the Optional
Redemption Amount at a per annum rate equal to the lower of twenty-four percent
(24%) and the highest interest rate permitted by applicable law, and (ii) shall
have the right, at any time and from time to time, to require the Corporation,
upon written notice, to immediately convert (in accordance with the terms of
Paragraph A of Article IV) all or any portion of such Optional Redemption
Amount, plus interest as aforesaid, into shares of Common Stock at the lowest
Conversion Price in effect during the period beginning on and including the
Conversion Date with respect to such attempted Below Floor Conversion and ending
on the Conversion Date with respect to the conversion of such Optional
Redemption Amount.
IX. RANK
All shares of the Series B Preferred Stock shall rank (i) prior to the
Corporation's Common Stock and Series A Convertible Preferred Stock; (ii) prior
to any class or series of capital stock of the Corporation hereafter created
(unless, with the consent of the holders of Series B Preferred Stock obtained in
accordance with Article XIII hereof, such class or series of capital stock
specifically, by its terms, ranks senior to or pari passu with the Series B
Preferred Stock) (collectively with the Common Stock and Series A Convertible
Preferred Stock, "Junior Securities"); (iii) pari passu with any class or series
of capital stock of the Corporation hereafter created (with the consent of the
holders of Series B Preferred Stock obtained in accordance with Article XIII
hereof) specifically ranking, by its terms, on parity with the Series
B Preferred Stock (the "Pari Passu Securities"); and (iv) junior to any class or
series of capital stock of the Corporation hereafter created (with the consent
of the holders of Series B Preferred Stock obtained in accordance with Article
XIII hereof) specifically ranking, by its terms, senior to the Series B
Preferred Stock (the "Senior Securities"), in each case as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
X. LIQUIDATION PREFERENCE
A. If the Corporation shall commence a voluntary case under the U.S.
Federal bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the U.S. Federal bankruptcy laws or any other
applicable bankruptcy, insolvency or similar law resulting in the appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of sixty (60) consecutive
days and, on account of any such event, the Corporation shall liquidate,
dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve
or wind up, including, but not limited to, the sale or transfer of all or
substantially all of the Corporation's assets in one transaction or in a series
of related transactions (a "Liquidation Event"), no distribution shall be made
to the holders of any shares of capital stock of the Corporation (other than
Senior Securities) upon liquidation, dissolution or winding up unless prior
thereto the holders of shares of Series B Preferred Stock shall have received
the Liquidation Preference with respect to each share. If, upon the occurrence
of a Liquidation Event, the assets and funds available for distribution among
the holders of the Series B Preferred Stock and holders of Pari Passu Securities
shall be insufficient to permit the payment to such holders of the preferential
amounts payable thereon, then the entire assets and funds of the Corporation
legally available for distribution to the Series B Preferred Stock and the Pari
Passu Securities shall be distributed ratably among such shares in proportion to
the ratio that the Liquidation Preference payable on each such share bears to
the aggregate Liquidation Preference payable on all such shares.
B. The purchase or redemption by the Corporation of stock of any class,
in any manner permitted by law, shall not, for the purposes hereof, be regarded
as a liquidation, dissolution or winding up of the Corporation. Neither the
consolidation or merger of the Corporation with or into any other entity nor the
sale or transfer by the Corporation of less than substantially all of its assets
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Corporation.
C. The "Liquidation Preference" with respect to a share of Series B
Preferred Stock means an amount equal to the Face Amount thereof plus the
accrued Premium thereon through the date of final distribution. The Liquidation
Preference with respect to any Pari Passu Securities shall be as set forth in
the Certificate of Designation filed in respect thereof.
XI. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price and the Floor Price shall be subject to adjustment
from time to time as follows:
A. Stock Splits, Stock Dividends, Etc. If at any time on or after the
Issuance Date, the number of outstanding shares of Common Stock is increased by
a stock split, stock dividend, combination, reclassification or other similar
event, the Fixed Conversion Price and the Floor Price shall be proportionately
reduced, or if the number of outstanding shares of Common Stock is decreased by
a reverse stock split, combination or reclassification of shares, or other
similar event, the Fixed Conversion Price and the Floor Price shall be
proportionately increased. In such event, the Corporation shall notify the
Corporation's transfer agent of such change on or before the effective date
thereof.
B. Adjustment Due to Merger, Consolidation, Etc. If, at any time after
the Issuance Date, there shall be (i) any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged), (iii)
any sale or transfer of all or substantially all of the assets of the
Corporation or (iv) any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property (each of
(i) - (iv) above being a "Corporate Change"), then the holders of Series B
Preferred Stock shall thereafter have the right to receive upon conversion, in
lieu of the shares of Common Stock otherwise issuable, such shares of stock,
securities and/or other property as would have been issued or payable in such
Corporate Change with respect to or in exchange for the number of shares of
Common Stock which would have been issuable upon conversion (without giving
effect to the limitations contained in Article IV.C) had such Corporate Change
not taken place, and in any such case, appropriate provisions shall be made with
respect to the rights and interests of the holders of the Series B Preferred
Stock to the end that the provisions hereof (including, without limitation,
provisions for adjustment of the Conversion Price and the Floor Price and of the
number of shares of Common Stock issuable upon conversion of the Series B
Preferred Stock) shall thereafter be applicable, as nearly as may be practicable
in relation to any shares of stock or securities thereafter deliverable upon the
conversion thereof.
The Corporation shall not effect any Corporate Change unless (i) each holder of
Series B Preferred Stock has received written notice of such transaction at
least seventy-five (75) days prior thereto, but in no event later than twenty
(20) days prior to the record date for the determination of shareholders
entitled to vote with respect thereto, and (ii) the resulting successor or
acquiring entity (if not the Corporation) assumes by written instrument the
obligations of this Certificate of Designation. The above provisions shall apply
regardless of whether or not there would have been a sufficient number of shares
of Common Stock authorized and available for issuance upon conversion of the
shares of Series B Preferred Stock outstanding as of the date of such
transaction, and shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges.
C. Adjustment Due to Major Announcement. In the event the Corporation
at any time after the Issuance Date (i) makes a public announcement that it
intends to
consolidate or merge with any other entity (other than a merger in which the
Corporation is the surviving or continuing entity and its capital stock is
unchanged) or to sell or transfer all or substantially all of the assets of the
Corporation or (ii) any person, group or entity (including the Corporation)
publicly announces a tender offer, exchange offer or another transaction to
purchase 50% or more of the Corporation's Common Stock or otherwise publicly
announces an intention to replace a majority of the Corporation's Board of
Directors by waging a proxy battle or otherwise (the date of the announcement
referred to in clause (i) or (ii) of this Paragraph C is hereinafter referred to
as the "Announcement Date"), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the sixth (6th) trading day following
the earlier of the consummation of the proposed transaction or tender offer,
exchange offer or another transaction or the Abandonment Date (as defined
below), be equal to the lower of (x) the Conversion Price which would have been
applicable for a Conversion occurring on the Announcement Date and (y) the
Conversion Price determined in accordance with Article III.E on the Conversion
Date set forth in the Notice of Conversion for the Conversion. From and after
the sixth (6th) trading day following the Abandonment Date, the Conversion Price
shall be determined as set forth in Article III.E. "Abandonment Date" means with
respect to any proposed transaction or tender offer, exchange offer or another
transaction for which a public announcement as contemplated by this Paragraph C
has been made, the date upon which the Corporation (in the case of clause (i)
above) or the person, group or entity (in the case of clause (ii) above)
publicly announces the termination or abandonment of the proposed transaction or
tender offer, exchange offer or another transaction which caused this Paragraph
C to become operative.
D. Adjustment Due to Distribution. If at any time after the Issuance
Date the Corporation shall declare or make any distribution of its assets (or
rights to acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's shareholders in cash or shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e. a spin-off)) (a
"Distribution"), then the holders of Series B Preferred Stock shall be entitled,
upon any conversion of shares of Series B Preferred Stock after the date of
record for determining shareholders entitled to such Distribution, to receive
the amount of such assets which would have been payable to the holder with
respect to the shares of Common Stock issuable upon such conversion (without
giving effect to the limitations contained in Article IV.C) had such holder been
the holder of such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.
E. Issuance of Other Securities With Variable Conversion Price. If the
Corporation shall issue any securities which are convertible into or
exchangeable for Common Stock ("Convertible Securities") at a conversion or
exchange rate based on a discount to the market price of the Common Stock at the
time of conversion or exercise, then the Conversion Percentage in respect of any
conversion of Series B Preferred Stock after such issuance shall be calculated
utilizing the higher of the greatest discount applicable to any such Convertible
Securities and the difference between one hundred percent (100%) and the
Conversion Percentage then in effect hereunder.
F. Purchase Rights. If at any time after the Issuance Date, the
Corporation issues any Convertible Securities or rights to purchase stock,
warrants, securities or other property (the "Purchase Rights") pro rata to the
record holders of any class of Common
Stock, then the holders of Series B Preferred Stock will be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which such holder could have acquired if such holder had held the number of
shares of Common Stock acquirable upon complete conversion of the Series B
Preferred Stock (without giving effect to the limitations contained in Article
IV.C) immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
G. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price and/or Floor Price pursuant to this Article
XI, the Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to each holder of Series B Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of Series
B Preferred Stock, furnish to such holder a like certificate setting forth (i)
such adjustment or readjustment, (ii) the Conversion Price and/or Floor Price at
the time in effect and (iii) the number of shares of Common Stock and the
amount, if any, of other securities or property which at the time would be
received upon conversion of a share of Series B Preferred Stock.
XII. VOTING RIGHTS
Except as otherwise provided herein, the holders of the Series B
Preferred Stock shall have such voting rights as are provided in the
Corporation's Certificate of Incorporation as in effect on the date hereof and
as the same may be amended or restated hereafter (the "Certificate of
Incorporation") and as otherwise provided by the Connecticut Business
Corporation Act (the "Business Corporation Act") and in Article XIII below.
The Corporation shall provide each holder of Series B Preferred Stock
with prior notification of any meeting of the shareholders (and copies of proxy
materials and other information sent to shareholders). If the Corporation takes
a record of its shareholders for the purpose of determining shareholders
entitled to (a) receive payment of any dividend or other distribution, any right
to subscribe for, purchase or otherwise acquire (including by way of merger,
consolidation or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or (b) to vote in
connection with any proposed sale, lease or conveyance of all or substantially
all of the assets of the Corporation, or any proposed merger, consolidation,
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder, at least twenty (20) days prior to the record date
specified therein (or seventy- five (75) days prior to the consummation of the
transaction or event, whichever is earlier, but in no event earlier than public
announcement of such proposed transaction), of the date on which any such record
is to be taken for the purpose of such vote, dividend, distribution, right or
other event, and a brief statement regarding the amount and character of such
vote, dividend, distribution, right or other event to the extent known at such
time.
To the extent that under the Business Corporation Act or the
Certificate of Incorporation the vote of the holders of the Series B Preferred
Stock, voting separately as a class or series, as applicable, is required to
authorize a given action of the Corporation,
the affirmative vote or consent of the holders of at least a majority of the
then outstanding shares of the Series B Preferred Stock represented at a duly
held meeting at which a quorum is present or by written consent of the holders
of at least a majority of the then outstanding shares of Series B Preferred
Stock (except as otherwise may be required hereunder or under the Business
Corporation Act or the Certificate of Incorporation) shall constitute the
approval of such action by the class. To the extent that under the Business
Corporation Act or the Certificate of Incorporation holders of the Series B
Preferred Stock are entitled to vote on a matter with holders of Common Stock,
voting together as one class, each share of Series B Preferred Stock shall be
entitled to a number of votes equal to the number of shares of Common Stock into
which it is then convertible (subject to the limitations contained in Article
IV.C(ii)) using the record date for the taking of such vote of shareholders as
the date as of which the Conversion Price is calculated.
XIII. PROTECTION PROVISIONS
So long as any shares of Series B Preferred Stock are outstanding, the
Corporation shall not without first obtaining the approval (by vote or written
consent, as provided by the Business Corporation Act) of the holders of (i) all
of the then outstanding shares of Series B Preferred Stock with respect to
subsection (a) below or (ii) at least 67% of the then outstanding shares of
Series B Preferred Stock with respect to subsections (b) through (h) below:
(a) alter or change the rights, preferences or privileges of the
Series B Preferred Stock;
(b) alter or change the rights, preferences or privileges of any
capital stock of the Corporation so as to affect adversely the Series B
Preferred Stock;
(c) create any new class or series of capital stock having a
preference over the Series B Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Article IX hereof, "Senior Securities");
(d) create any new class or series of capital stock ranking pari
passu with the Series B Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Article IX hereof, "Pari Passu Securities");
(e) increase the authorized number of shares of Series B Preferred
Stock;
(f) issue any shares of Senior Securities or Pari Passu
Securities;
(g) issue any shares of Series B Preferred Stock other than
pursuant to the Securities Purchase Agreement; or
(h) redeem, or declare or pay any cash dividend or distribution
on, any Junior Securities.
Notwithstanding the foregoing, no change pursuant to this Article XIII shall be
effective to the extent that, by its terms, it applies to less than all of the
holders of shares of Series B Preferred Stock then outstanding.
XIV. MISCELLANEOUS
A. Cancellation of Series B Preferred Stock. If any shares of Series B
Preferred Stock are converted pursuant to Article IV, the shares so converted
shall be cancelled, shall return to the status of authorized, but unissued
preferred stock of no designated series, and shall not be issuable by the
Corporation as Series B Preferred Stock.
B. Lost or Stolen Certificates. Upon receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to the Corporation, or (z) in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Corporation shall execute and deliver new Preferred Stock
Certificate(s) of like tenor and date. However, the Corporation shall not be
obligated to reissue such lost or stolen Preferred Stock Certificate(s) if the
holder contemporaneously requests the Corporation to convert such Series B
Preferred Stock.
C. Allocation of Cap Amount and Reserved Amount. The initial Cap Amount
and Reserved Amount shall be allocated pro rata among the holders of Series B
Preferred Stock based on the number of shares of Series B Preferred Stock issued
to each holder. Each increase to the Cap Amount and Reserved Amount shall be
allocated pro rata among the holders of Series B Preferred Stock based on the
number of shares of Series B Preferred Stock held by each holder at the time of
the increase in the Cap Amount or Reserved Amount. In the event a holder shall
sell or otherwise transfer any of such holder's shares of Series B Preferred
Stock, each transferee shall be allocated a pro rata portion of such
transferor's Cap Amount and Reserved Amount. Any portion of the Cap Amount or
Reserved Amount which remains allocated to any person or entity which does not
hold any Series B Preferred Stock shall be allocated to the remaining holders of
shares of Series B Preferred Stock, pro rata based on the number of shares of
Series B Preferred Stock then held by such holders.
D. Quarterly Statements of Available Shares. For each calendar quarter
beginning in the quarter in which the registration statement required to be
filed pursuant to Section 2(a) of the Registration Rights Agreement is declared
effective and thereafter so long as any shares of Series B Preferred Stock are
outstanding, the Corporation shall deliver (or cause its transfer agent to
deliver) to each holder a written report notifying the holders of any occurrence
which prohibits the Corporation from issuing Common Stock upon any such
conversion. The report shall also specify (i) the total number of shares of
Series B Preferred Stock outstanding as of the end of such quarter, (ii) the
total number of shares of Common Stock issued upon all conversions of Series B
Preferred Stock prior to the end of such quarter, (iii) the total number of
shares of Common Stock which are reserved for issuance upon conversion of the
Series B Preferred Stock as of the end of such quarter and (iv) the total number
of shares of Common Stock which may thereafter be issued by the Corporation upon
conversion of the Series B Preferred Stock before the Corporation would exceed
the Cap Amount and the Reserved Amount. The Corporation (or its transfer agent)
shall deliver the report for each quarter to each holder prior to the
tenth (10th) day of the calendar month following the quarter to which such
report relates. In addition, the Corporation (or its transfer agent) shall
provide, within fifteen (15) days after delivery to the Corporation of a written
request by any holder, any of the information enumerated in clauses (i) - (iv)
of this Paragraph D as of the date of such request.
E. Payment of Cash; Defaults. Whenever the Corporation is required to
make any cash payment to a holder under this Certificate of Designation (as a
Conversion Default Payment, upon redemption or otherwise), such cash payment
shall be made to the holder within five (5) business days after delivery by such
holder of a notice specifying that the holder elects to receive such payment in
cash and the method (e.g., by check, wire transfer) in which such payment should
be made. If such payment is not delivered within such five (5) business day
period, such holder shall thereafter be entitled to interest on the unpaid
amount at a per annum rate equal to the lower of twenty-four percent (24%) and
the highest interest rate permitted by applicable law until such amount is paid
in full to the holder.
F. Status as Stockholder. Upon submission of a Notice of Conversion by
a holder of Series B Preferred Stock, (i) the shares covered thereby (other than
the shares, if any, which cannot be issued because their issuance would exceed
such holder's allocated portion of the Reserved Amount or Cap Amount) shall be
deemed converted into shares of Common Stock and (ii) the holder's rights as a
holder of such converted shares of Series B Preferred Stock shall cease and
terminate, excepting only the right to receive certificates for such shares of
Common Stock and to any remedies provided herein or otherwise available at law
or in equity to such holder because of a failure by the Corporation to comply
with the terms of this Certificate of Designation. In situations where Article
VI.B is applicable, the number of shares of Common Stock referred to in clauses
(i) and (ii) of the immediately preceding sentence shall be determined on the
date on which such shares of Common Stock are delivered to the holder.
Notwithstanding the foregoing, if a holder has not received certificates for all
shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Delivery Period with respect to a conversion of Series B
Preferred Stock for any reason, then (unless the holder otherwise elects to
retain its status as a holder of Common Stock by so notifying the Corporation
within five (5) business days after the expiration of such ten (10) business day
period after expiration of the Delivery Period) the holder shall regain the
rights of a holder of Series B Preferred Stock with respect to such unconverted
shares of Series B Preferred Stock and the Corporation shall, as soon as
practicable, return such unconverted shares to the holder. In all cases, the
holder shall retain all of its rights and remedies (including, without
limitation, (i) the right to receive Conversion Default Payments pursuant to
Article VI.A to the extent required thereby for such Conversion Default and any
subsequent Conversion Default and (ii) the right to have the Conversion Price
with respect to subsequent conversions determined in accordance with Article
VI.B) for the Corporation's failure to convert Series B Preferred Stock.
G. Remedies Cumulative. The remedies provided in this Certificate of
Designation shall be cumulative and in addition to all other remedies available
under this Certificate of Designation, at law or in equity (including a decree
of specific performance and/or other injunctive relief), and nothing herein
shall limit a holder's right to pursue actual damages for any failure by the
Corporation to comply with the terms of this Certificate of Designation. The
Corporation acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the holders of Series B Preferred
Stock and that the remedy at law for any such breach may be inadequate. The
Corporation therefore agrees, in the event of any such breach or threatened
breach, that the holders of Series B Preferred Stock shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
FIFTH. The minimum amount of stated capital with which the corporation shall
commence business is One Thousand Dollars.
SIXTH.
A. The personal liability of a director to the corporation or its
shareholders for monetary damages for breach of duty as a director shall be
limited to an amount that is equal to the compensation received by the director
for serving the corporation during the year of the violation if such breach did
not (A) involve a knowing and culpable violation of law by the director, (B)
enable the director, or an associated, as defined in subdivision (3) of section
33-374d of the Connecticut General Statutes, to receive an improper personal
economic gain, (C) show a lack of good faith and conscious disregard for the
duty of the director to the corporation under the circumstances in which the
director was aware that his conduct or omission created an unjustifiable risk of
serious injury to the corporation, (D) constitute a sustained or unexcused
pattern of inattention that amounted to an abdication of the director's duty to
the corporation, or (E) create liability under section 33-321 of the Connecticut
General Statutes. Nothing herein shall limit or preclude the liability of a
director for any act or omission occurring prior to the effective date of this
provision.
B. As permitted by Section 33-343(f) of the Connecticut Stock
Corporation Act, all preemptive rights of shareholders are hereby denied, and no
holder of any shares of stock of the corporation shall be entitled as a matter
of right to subscribe for, purchase or receive any shares of stock of the
corporation (or any obligation convertible into, or warrant or other instrument
entitling the holder to purchase, any stock of the (corporation) which the
corporation may issue or sell, whether out of the number of shares of stock now
authorized, or whenever authorized, or out of shares of stock of the corporation
acquired by it after issuance.
C. The terms of the directors shall be staggered by dividing the total
number of directors into three classes, with each class comprising as nearly as
possible the same percentage of the total as each other class. The classes shall
be formally referenced as Class 1, Class 2 and Class 3. The terms of the
directors in Class 1 expire at the first annual shareholders' meeting after
their election, the terms of the directors in Class 2 expire at the second
annual shareholders' meeting after their election, and the terms of the
directors of Class 3 expire at the third annual shareholders' meeting after
their election. At each annual shareholders' meeting following the annual
meeting at which directors are first elected to such three classes, directors
shall be elected for terms of three years to succeed those whose terms expire at
such annual meeting. If the number of directorships is changed, any increase or
decrease in directors shall be apportioned among the classes so that each class
comprises as nearly as possible the same percentage of the total as each other
class. Upon a change in the number of directorships, the term of any newly
elected director or any director reallocated to a different class shall be for
the period until such class stands for election. Notwithstanding the preceding
sentence, no decrease in the
number of directorships shall shorten the term of any director. Any director
elected to fill a vacancy not resulting from an increase in the number of
directorships shall have the same remaining term as that of his or her
predecessor. No director shall be removed except by the affirmative vote of
two-thirds (2/3) or more of the issued and outstanding shares of capital stock
of the corporation entitled to vote for the election of directors generally.