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EXHIBIT 3.1(a)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
THIRD WAVE TECHNOLOGIES, INC.
The following have been adopted as the Amended and Restated Articles of
Incorporation of THIRD WAVE TECHNOLOGIES, INC., a Wisconsin corporation (the
"Company"), which supersede and take the place of the existing Articles of
Incorporation of the Company:
ARTICLE I
NAME
The name of the corporation is THIRD WAVE TECHNOLOGIES, INC.
ARTICLE II
PURPOSES
The purposes for which the Company is organized are to engage in any
lawful activity within the purposes for which a corporation may be organized
under the Wisconsin Business Corporation Law, Chapter 180 of the Wisconsin
Statutes.
ARTICLE III
CAPITAL STOCK
COMMON STOCK
The aggregate number of shares of common stock which the Company shall
have authority to issue is Thirty Thousand (30,000), consisting of one class
only, designated as "Common Stock," of the par value of One Dollar ($1.00) per
share. Each holder of Common Stock shall be entitled to one vote for each share
of Common Stock upon each matter submitted to a vote at a shareholders' meeting,
except as otherwise required herein or by the Wisconsin Business Corporation
Law, Chapter 180 of the Wisconsin Statutes. Whenever dividends upon the
outstanding preferred stock, to the extent of the preference to which such stock
is entitled, shall have been paid in full for all past dividend periods or
declared and set apart for payment, such dividends, payable in cash, stock, or
otherwise, as may be determined by the Board of Directors, may be declared by
the Board of Directors and paid from time to time to the holders of the Common
Stock out of the remaining net profits or surplus of the Company. In the event
of any liquidation, dissolution, or winding up of the
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Company, or any bankruptcy or insolvency proceeding, whether voluntary or
involuntary, all assets and funds of the Company remaining after payment in full
to the holders of the preferred stock of the amounts to which they shall be
entitled, as herein provided, shall be divided and distributed among the holders
of the Common Stock according to their respective number of shares.
PREFERRED STOCK
The aggregate number of shares of preferred stock which the Company
shall have the authority to issue is Twelve Thousand Three Hundred Seventeen
(12,317), consisting of six series, each series with the designations, par
value, rights, preferences and limitations hereinafter described (collectively,
the "Preferred Stock").
SERIES A PREFERRED STOCK
1.1 Authorized Series A Preferred Shares. The Company shall have the
authority to issue Nine Hundred Forty-Three (943) shares of preferred stock
designated as the "Series A Convertible Preferred Stock" (and hereinafter
referred to as the "Series A Preferred Stock"), having the rights, preferences
and limitations hereinafter described, and having a par value of Ten Dollars
($10.00) per share.
1.2 Dividends.
(a) The Company shall not declare, pay or set aside for payment
any dividend or make any distribution on the Common Stock, other than dividends
or distributions payable in additional shares of Common Stock, unless at the
time of such dividend or distribution the Board of Directors of the Company
shall declare and pay a dividend on each then outstanding share of Series A
Preferred Stock equal to, in the case of a dividend or distribution on the
Common Stock, the dividend that would be declared and paid on the largest number
of whole shares of Common Stock into which each share of Series A Preferred
Stock held by each holder thereof could be converted pursuant to the provisions
of Section 1.5 hereof as of the record date for the determination of holders of
Common Stock entitled to receive such dividend or distribution.
(b) The Company shall not declare, pay or set aside for payment
any dividend or make any distribution on the Series B Preferred Stock, the
Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred
Stock, or the Series F Preferred Stock other than (i) any cumulative dividend
payable to holders of Series E Preferred Stock and Series F Preferred Stock in
accordance with Sections 5.2(b) and 6.2(b) hereof or (ii) dividends or
distributions payable in additional shares of each such series to holders of
shares of the corresponding series of preferred stock, unless at the time of
such dividend or distribution the Board of Directors of the Company shall
declare and pay a dividend on each then outstanding share of Series A Preferred
Stock that bears the same relationship to the fixed liquidation value per share
set forth in Section 1.3(a)(i) of the Series A Preferred Stock as the dividend
or distribution paid on each other series of preferred stock bears to the fixed
liquidation value per share of such series set forth in Section 2.3(a)(i),
3.3(a)(i), 4.3(a)(i), 5.3(a)(i), or 6.3(a)(i), as the case may be.
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1.3 Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of
the Company, or any bankruptcy or insolvency proceeding, whether voluntary or
involuntary, holders of each share of Series A Preferred Stock shall be entitled
to be paid first out of the assets of the Company available for distribution to
holders of the Company's capital stock of all classes, whether such assets are
capital, surplus, or earnings, before any sums shall be paid or any assets
distributed among the holders of any other shares of capital stock of the
Company (which includes any other class or series of preferred stock, except the
Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock, the Series E Preferred Stock, and the Series F Preferred Stock, except as
otherwise provided in Section 5.3 or Section 6.3 hereof), an amount equal to the
greater of (i) $318.13 per share of Series A Preferred Stock plus all declared
and unpaid dividends thereon, up to and including the date full payment shall be
rendered to the holders of the Series A Preferred Stock with respect to such
liquidation, dissolution or winding up, or (ii) such amount per share of Series
A Preferred Stock as would have been payable had each such share been converted
to Common Stock pursuant to the provisions of Section 1.5 hereof immediately
prior to such event of liquidation, dissolution or winding up; provided,
however, that payment shall first be made to the Series E Preferred Stock and
the Series F Preferred Stock as provided in Section 5.3 and Section 6.3 hereof.
For purposes of computing the amount per share described in (ii) of the
preceding sentence, all shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E
Preferred Stock then outstanding shall be assumed to have been converted to
Common Stock immediately prior to such event of liquidation, dissolution or
winding up, but in the event the amount per share calculated with this
assumption is greater than the amount set forth in (i) of the preceding sentence
but less than the amount set forth in one or more of Sections 2.3(a)(i),
3.3(a)(i), 4.3(a)(i), or 5.3(a)(i) respectively, then the shares of each of the
above series for whom the amount so calculated is less than the amount provided
to it in its corresponding Section 2.3(a)(i), 3.3(a)(i), 4.3(a)(i), or 5.3(a)(i)
shall then be assumed to be paid at the amount set forth in its corresponding
Section 2.3(a)(i), 3.3(a)(i), 4.3(a)(i), or 5.3(a)(i) and the computation of the
amount per share described in (ii) of the preceding sentence shall again be made
with the assumption that the shares of only the remaining series not so paid
will have been converted to Common Stock immediately prior to such event of
liquidation, dissolution or winding up. Following payment to the holders of the
Series E Preferred Stock pursuant to Section 5.3(a) hereof and the payment to
the holders of Series F Preferred Stock pursuant to Section 6.3(a) hereof, if
the assets of the Company shall be insufficient to permit the payment in full to
the holders of the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock and the Series D Preferred Stock of the amount
distributable in accordance with Sections 1.3(a), 2.3(a), 3.3(a), and 4.3(a)
then the remaining assets of the Company available for such distribution shall
be distributed ratably among the holders of the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, and the Series D
Preferred Stock in proportion to the total amounts to which such holders are
entitled upon such liquidation, dissolution or winding up of the Company. After
such payment shall have been made in full to the holders of the Series A
Preferred Stock or funds necessary for such payment shall have been set aside by
the Company in trust for the account of holders of the Series A Preferred Stock
so as to be available for such payment, holders of the Series A Preferred Stock
shall be entitled to no further participation in the distribution of the assets
of the Company and shall have no further rights
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of conversion, and the remaining assets available for distribution shall be
distributed ratably among the holders of the Company's other capital stock
(other than Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock, the Series E Preferred Stock, and the Series F Preferred
Stock).
(b) A reorganization of the Common Stock as provided in Section
1.5(g) or a consolidation or merger of the Company or a sale of all or
substantially all of the assets of the Company shall be regarded as a
liquidation, dissolution or winding up of the affairs of the Company within the
meaning of this Section 1.3; provided, however, each holder of Series A
Preferred Stock, at the option of such holder, shall be entitled to the rights
provided to them under Section 1.5(g) hereof in lieu of receiving payment in
liquidation, dissolution or winding up of the Company pursuant to this Section
1.3.
(c) Any distribution in connection with the liquidation,
dissolution or winding up of the Company, or any bankruptcy or insolvency
proceeding, shall be made in cash to the extent possible. Whenever any such
distribution shall be paid in property other than cash, then the Company at its
expense will promptly cause an independent investment bank selected by the
Company and approved by the holders of a majority of the outstanding shares of
Preferred Stock to value such property, whereupon such value shall be given to
such consideration and shall be recorded on the books of the Company with
respect to the distribution of such property.
1.4 Voting Power. Except as otherwise expressly provided in Section 1.7
hereof, or as required by law, each holder of Series A Preferred Stock shall be
entitled to vote on all matters submitted to shareholders of the Company and
shall be entitled to that number of votes equal to the largest number of whole
shares of Common Stock into which such holder's shares of Series A Preferred
Stock could be converted, pursuant to the provisions of Section 1.5 hereof, at
the record date for the determination of shareholders entitled to vote on such
matter or, if no such record date is established, at the date such vote is taken
or any written consent of shareholders is solicited. Except as otherwise
expressly provided herein or as required by law, the holders of shares of Series
A Preferred Stock and Common Stock shall be entitled to vote together as a class
on all matters.
1.5 Conversion Rights. The holders of the Series A Preferred Stock shall
have the following conversion rights:
(a) General. Subject to and in compliance with the provisions of
this Section 1.5, any shares of the Series A Preferred Stock may, at the option
of the holder, be converted at any time or from time to time into fully-paid and
nonassessable shares (calculated as to each conversion to the largest whole
share) of Common Stock. The number of shares of Common Stock to which a holder
of Series A Preferred Stock shall be entitled upon conversion shall be the
product obtained by multiplying the Applicable Conversion Rate (determined as
provided in Section 1.5(c)) by the number of shares of Series A Preferred Stock
being converted.
(b) Conversion Following Underwritten Public Offering.
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(i) All outstanding shares of Series A Preferred Stock
shall, upon the closing of an underwritten public offering pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account of
the Company in which the aggregate price of the shares of Common Stock
into which each share of Series A Preferred Stock may be converted in
compliance with this Section 1.5 is not less than $1,590.90 (five times
the initial Applicable Conversion Value of the Series A Preferred Stock)
and in which the aggregate gross proceeds to the Company exceed
$7,500,000, be converted automatically into the number of shares of
Common Stock into which such Series A Preferred Stock is convertible
pursuant to Section 1.5(a) hereof without any further action by the
holders of such shares and whether or not the certificates representing
such shares are surrendered to the Company or its transfer agent for the
Common Stock.
(ii) Upon the occurrence of the conversion specified
in Section 1.5(b)(i), the holders of such Series A Preferred Stock shall
surrender the certificates representing such shares at the office of the
Company or of its transfer agent for the Common Stock. The certificate
or certificates for shares of Series A Preferred Stock surrendered for
conversion shall be accompanied by proper assignment thereof to the
Company or in blank. As promptly as practicable thereafter, the Company
shall issue and shall deliver to the holder of the shares of Series A
Preferred Stock being converted, or on its written order, such
certificate or certificates for the number of whole shares of Common
Stock issuable upon the conversion of such shares of Series A Preferred
Stock in accordance with the provisions of this Section 1.5, cash in the
amount of all declared and unpaid dividends on such shares of Series A
Preferred Stock, up to and including the Series A Conversion Date as
defined in Section 1.5(i) below, and cash, as provided in Section
1.5(j), in respect of any fraction of a share of Common Stock issuable
upon such conversion. The Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such
conversion unless certificates evidencing such shares of the Series A
Preferred Stock being converted are either delivered to the Company or
any such transfer agent or the holder notifies the Company or any such
transfer agent that such certificates have been lost, stolen or
destroyed and executed an agreement satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection
therewith. The Company shall pay all issue and other taxes (other than
income taxes) that may be payable in respect of any issuance or delivery
of shares of Common Stock or other securities upon conversion of Series
A Preferred Stock.
(c) Applicable Conversion Rate. The conversion rate in effect at
any time (the "Applicable Conversion Rate") shall be the quotient obtained by
dividing $318.13 by the Applicable Conversion Value, calculated as provided in
Section 1.5(d).
(d) Applicable Conversion Value. The Applicable Conversion Value
in effect from time to time, except as adjusted in accordance with Section
1.5(e) hereof, shall be $318.13.
(e) Adjustments to Applicable Conversion Value.
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(i) Upon Issuance or Sale of Common Stock. If the
Company shall, while there are any shares of Series A Preferred Stock
outstanding, issue or sell shares of its Common Stock or any other
series or class of capital stock convertible into Common Stock without
consideration or at a price per share for Common Stock less than the
Applicable Conversion Value in effect immediately prior to such issuance
or sale, then in each such case the Applicable Conversion Value upon
each such issuance or sale, except as hereinafter provided, shall be
adjusted to an amount determined by multiplying the Applicable
Conversion Value by a fraction:
(A) the numerator of which shall be (a) the number
of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock, plus (b) the
number of shares of Common Stock which the net aggregate
consideration received by the Company for the total number of
such additional shares of Common Stock so issued would purchase
at the Applicable Conversion Value, and
(B) the denominator of which shall be (a) the
number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares of Common Stock, plus (b)
the number of such additional shares of Common Stock so issued
or, if convertible securities are being issued, the number of
shares of Common Stock that could be issued if all such
convertible securities were converted into Common Stock at the
lowest applicable exercise or conversion price.
The Company's issuance of options for the purchase of Common Stock
pursuant to incentive stock option plans and/or nonqualified stock option plans
approved by the Company's Board of Directors, providing for the issuance of
options to purchase Common Stock for the recruitment and retention of senior
personnel and to compensate advisors and members of the Board of Directors,
which aggregate number of all issuable and issued shares of Common Stock shall
at no time exceed 2,098 shares of Common Stock on an as converted basis, which
amount shall be subject to adjustment to reflect any Extraordinary Common Stock
Event (as defined herein below) in accordance with Section 1.5(e)(ii), shall not
give rise to an adjustment pursuant to this Section 1.5(e)(i) unless such shares
or stock options are issued or granted to any shareholder who holds Common Stock
or other capital stock convertible into Common Stock, or warrants, options or
other rights to acquire Common Stock or other capital stock convertible into
Common Stock, which in the aggregate represents (when exercised and/or
converted) more than ten percent (10%) of the Company's issued and outstanding
Common Stock. Notwithstanding anything to the contrary herein, neither (i) the
issuance of the Series E Preferred Stock or the Series F Preferred Stock, nor
(ii) any adjustment to the Applicable Conversion Value for the Series E
Preferred Stock pursuant to Section 5.5(h) and any issuance of additional Common
Stock pursuant thereto, nor (iii) the issuance of Common Stock upon conversion
of the Series A, B, C, D, E, or F Preferred Stock, shall give rise to an
adjustment pursuant to this Section 1.5(e)(i).
For the purposes of this Section 1.5(e)(i), the issuance of any
warrants, options, subscriptions or purchase rights with respect to shares of
Common Stock and the issuance of any securities
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convertible into or exchangeable for shares of Common Stock (or the issuance of
any warrants, options or rights with respect to such convertible or exchangeable
securities) shall be deemed an issuance at such time of such Common Stock if the
Net Consideration Per Share (as hereinafter determined) which may be received by
the Company for such Common Stock shall be less than the Applicable Conversion
Value at the time of such issuance. Any obligation, agreement or undertaking to
issue warrants, options, subscriptions or purchase rights at any time in the
future shall be deemed to be an issuance at the time such obligation, agreement
or undertaking is made or arises. No adjustment of the Applicable Conversion
Value shall be made under this Section 1.5(e)(i) upon the issuance of any shares
of Common Stock which are issued pursuant to the exercise of any warrants,
options, subscriptions or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any convertible securities if any adjustment
shall previously have been made upon the issuance of any such warrants, options,
subscriptions or purchase rights or upon the issuance of any convertible
securities (or upon the issuance of any warrants, options or any rights
therefor) as above provided. Any adjustment of the Applicable Conversion Value
with respect to this paragraph which relates to warrants, options, subscriptions
or purchase rights with respect to shares of Common Stock shall be disregarded
if, as and when such warrants, options, subscriptions or purchase rights expire
or are canceled without being exercised, so that the Applicable Conversion Value
effective immediately upon such cancellation or expiration shall be equal to the
Applicable Conversion Value in effect immediately prior to the issuance of the
expired or canceled warrants, options, subscriptions or purchase rights. For
purposes of this paragraph, the "Net Consideration Per Share" which may be
received by the Company shall be determined as follows:
(A) The "Net Consideration Per Share" shall mean
the amount equal to the total amount of consideration, if any,
received by the Company for the issuance of such warrants,
options, subscriptions or other purchase rights or convertible or
exchangeable securities, plus the minimum amount of
consideration, if any, payable to the Company upon exercise or
conversion thereof, divided by the aggregate number of shares of
Common Stock that would be issued if all such warrants, options,
subscriptions or other purchase rights or convertible or
exchangeable securities were exercised, exchanged or converted.
(B) The Net Consideration Per Share which may be
received by the Company shall be determined in each instance as
of the date of issuance of warrants, options, subscriptions or
other purchase rights or convertible or exchangeable securities
without giving effect to any possible future price adjustments or
rate adjustments which may be applicable with respect to such
warrants, options, subscriptions or other purchase rights or
convertible or exchangeable securities (until such time as such
adjustments are actually made).
For purposes of this Section 1.5(e)(i), if part or all of the
consideration received by the Company in connection with the issuance of shares
of the Common Stock or the issuance of any of the securities described in
Section 1.5(e)(i) consists of property other than cash, the Company at its
expense will promptly cause an independent investment bank selected by the
Company and approved by the holders of a majority of the outstanding shares of
Series A Preferred Stock to value
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such property, whereupon such value shall be given to such consideration and
shall be recorded on the books of the Company with respect to receipt of such
property.
This Section 1.5(e)(i) shall not apply under any of the circumstances
which would constitute an Extraordinary Common Stock Event (as hereinafter
defined in Section 1.5(e)(ii)).
(ii) Upon Extraordinary Common Stock Event. Upon the
happening of an Extraordinary Common Stock Event (as hereinafter
defined), the Applicable Conversion Value (and all other conversion
values set forth in paragraph (e)(i) above) shall, simultaneously with
the happening of such Extraordinary Common Stock Event, be adjusted by
multiplying the then effective Applicable Conversion Value by a
fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such Extraordinary Common Stock
Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common
Stock Event. The Applicable Conversion Value, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive
Extraordinary Common Stock Event or Events.
"Extraordinary Common Stock Event" shall mean (i) the
issue of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, (ii) subdivision of
outstanding shares of Common Stock into a greater number of shares of
the Common Stock, or (iii) combination of outstanding shares of the
Common Stock into a smaller number of shares of the Common Stock.
(f) Recapitalization or Reclassification. If the Common Stock
issuable upon the conversion of the Series A Preferred Stock shall be changed
into the same or different number of shares of any class or classes of stock of
the Company, whether by recapitalization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
elsewhere in Section 1.5, or reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 1.5), then and in each such event
the holder of each share of Series A Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock and
other securities and property that such holder would have owned or been entitled
to receive after the occurrence of any such event had such share of Series A
Preferred Stock been surrendered for conversion into Common Stock immediately
prior thereto.
(g) Capital Reorganization, Merger or Sale of Assets. If at any
time or from time to time there shall be a capital reorganization of the Common
Stock (other than a subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section 1.5), or a merger or consolidation
of the Company with or into another company, or the sale of all or substantially
all of the Company's properties and assets to any other person, then, as a part
of such reorganization, merger, consolidation or sale, provision shall be made
so that the holders of the Series A Preferred Stock shall thereafter be entitled
to receive upon conversion of the Series A Preferred Stock, the number of shares
of stock or other securities or property of the Company, or of the successor
Company resulting from such a merger, consolidation or sale, that such holder
would have owned or been entitled to receive after the occurrence of any such
event had such share of
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Series A Preferred Stock been surrendered for conversion into Common Stock
immediately prior thereto. In any such case, appropriate adjustment shall be
made in the application of the provisions of this Section 1.5 with respect to
the rights of the holders of the Series A Preferred Stock after the
reorganization, merger, consolidation or sale to the end that the provisions of
this Section 1.5 (including adjustment of the Applicable Conversion Value then
in effect and the number of shares purchasable upon conversion of the Series A
Preferred Stock) shall be applicable after that event in as nearly equivalent a
manner as may be practicable.
Each holder of Series A Preferred Stock upon the occurrence of a
capital reorganization, merger or consolidation of the Company, or the sale of
all or substantially all its assets and properties as such events are more fully
set forth in the first paragraph of Section 1.5(g), shall have the option of
electing treatment of his shares of Series A Preferred Stock under either this
Section 1.5(g) or Section 1.3(b) hereof. Notice of such election shall be
submitted in writing to the Company at its principal offices no later than five
(5) days before the effective date of such event.
(h) Accountant's Certificate as to Adjustments. In each case of
an adjustment or readjustment of the Applicable Conversion Value, the Company
shall furnish each holder of Series A Preferred Stock with a certificate,
prepared by independent public accountants of recognized standing showing such
adjustment or readjustment, and stating in detail the facts upon which such
adjustment or readjustment is based.
(i) Exercise of Conversion Privilege. To exercise the conversion
privilege, a holder of Series A Preferred Stock shall surrender the certificate
or certificates representing the shares being converted to the Company at its
principal office, and shall give written notice to the Company at that office
that such holder elects to convert such shares. Such notice shall also state the
name or names (with address or addresses) in which the certificate or
certificates for shares of Common Stock issuable upon such conversion shall be
issued. The certificate or certificates for shares of Series A Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Company or in blank. The date when such written notice is received by the
Company, together with the certificate or certificates representing the shares
of Series A Preferred Stock being converted, shall be the "Series A Conversion
Date." As promptly as practicable after the Series A Conversion Date, the
Company shall issue and shall deliver to the holder of the shares of Series A
Preferred Stock being converted, or on its written order, such certificate or
certificates as it may request for the number of whole shares of Common Stock
issuable upon the conversion of such shares of Series A Preferred Stock in
accordance with the provisions of this Section 1.5, cash in the amount of all
declared and unpaid dividends on such shares of Series A Preferred Stock, up to
and including the Series A Conversion Date, and cash, as provided in Section
1.5(j), in respect of any fraction of a share of Common Stock issuable upon such
conversion. Such conversion shall be deemed to have been effected immediately
prior to the close of business on the Series A Conversion Date, and at such time
the rights of the holder as holder of the converted shares of Series A Preferred
Stock shall cease and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Common Stock represented thereby. The Company shall pay all
issue and other taxes (other than income taxes) that
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may be payable in respect of any issuance or delivery of shares of Common Stock
or other securities upon conversion of Series A Preferred Stock.
(j) Cash in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series A Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Series A Preferred Stock, the Company shall pay to the holder of the shares of
Series A Preferred Stock which were converted a cash adjustment in respect of
such fractional shares in an amount equal to the same fraction of the market
price per share of the Common Stock (as determined in a reasonable manner
prescribed by the Board of Directors) at the close of business on the Conversion
Date. The determination as to whether or not fractional shares are issuable
shall be based upon the total number of shares of Series A Preferred Stock being
converted at any one time by any holder thereof, not upon each share of Series A
Preferred Stock being converted.
(k) Partial Conversion. In the event some but not all of the
shares of Series A Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Company shall execute and deliver to
or on the order of the holder, at the expense of the Company, a new certificate
representing the number of shares of Series A Preferred Stock which were not
converted.
(l) Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Series A Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series A Preferred Stock, and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series A Preferred Stock,
the Company shall take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
1.6 No Reissuance of Convertible Series A Preferred Stock. No share or
shares of Series A Preferred Stock acquired by the Company by reason of
redemption, purchase, conversion or otherwise shall be reissued, and all such
shares shall be canceled, retired and eliminated from the shares which the
Company shall be authorized to issue. The Company may from time to time take
such appropriate corporate action as may be necessary to reduce the authorized
number of shares of Series A Preferred Stock accordingly.
1.7 Restriction and Limitations.
(a) Except as expressly provided herein or as required by law, so
long as any shares of the Series A Preferred Stock remain outstanding, the
Company shall not, and shall not permit any subsidiary (which shall mean any
company or trust of which the Company directly or indirectly owns at the time a
majority of the outstanding voting shares of every class of such
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company or trust other than directors' qualifying shares) to, without the vote
or written consent by the holders of at least 66-2/3% of the then outstanding
shares of the Series A Preferred Stock:
(i) Redeem, purchase or otherwise acquire for value
(or pay into or set aside for a sinking fund for such purpose), any
share or shares of Series A Preferred Stock, except upon an event of
default as provided in the Investment Agreement, dated as of January 12,
1996, among the Company, Venture Investors of Wisconsin, Inc., M & I
Ventures Corporation and the individuals named therein (the "Investment
Agreement");
(ii) Authorize or issue, or obligate itself to
authorize or issue, any other equity security senior to or on a parity
with the Series A Preferred Stock as to dividend rights, liquidation
preferences, conversion rights, voting rights or otherwise, or any
security convertible into or exchangeable for any such equity security;
(iii) Effect any sale, lease, assignment, transfer or
other conveyance of all or substantially all of the assets of the
Company or any subsidiary thereof, or any consolidation or merger
involving the Company or any subsidiary thereof, or any reclassification
or other change of stock, or any recapitalization or any dissolution,
liquidation or winding up of the Company; or
(iv) Amend its Articles of Incorporation if such
amendment would change any of the preferences, limitations or relative
rights of the Series A Preferred Stock, including without limitation,
(A) Change the relative seniority rights of the
holders of Series A Preferred Stock as to the payment of
dividends in relation to the holders of any other capital stock
of the Company;
(B) Reduce the amount payable to the holders of
Series A Preferred Stock upon the voluntary or involuntary
liquidation, dissolution or winding up of the Company, or change
the relative seniority of the liquidation preferences of the
holders of Series A Preferred Stock to the rights upon
liquidation of the holders of any other capital stock of the
Company or change the dividend rights of the holders of Series A
Preferred Stock;
(C) Cancel or modify the conversion rights of the
holders of Series A Preferred Stock provided for in Section 1.5
herein; or
(D) Increase or decrease (except as provided in
Section 1.6) the authorized number of shares of Series A
Preferred Stock or authorize, approve, or adopt an amendment to
its Articles of Incorporation therefor.
1.8 No Dilution or Impairment. The Company will not, by amendment of its
Articles of Incorporation, or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or
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performance of any of the terms of the Series A Preferred Stock set forth
herein, but will at all times in good faith carry out all such terms and take
all such action as may be necessary or appropriate in order to protect the
rights of the holders of the Series A Preferred Stock against dilution or other
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any shares of stock receivable on the
conversion of the Series A Preferred Stock above the amount payable therefor on
such conversion, (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of stock on the conversion of all Series A Preferred
Stock from time to time outstanding, and (c) will not transfer all or
substantially all of its properties and assets to any other person (corporate or
otherwise), or consolidate with or merge into the Company (if the Company is not
the surviving person), unless such other person shall expressly assume in
writing and will be bound by all terms of the Series A Preferred Stock set forth
herein.
1.9 Notices of Record Date. In the event of:
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right; or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company, or any transfer of all or substantially
all of the assets of the Company to any other Company, or any other entity or
person; or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Company, then and in each such event the Company shall mail or
cause to be mailed to each holder of Series A Preferred Stock a notice
specifying (i) the date on which any such record is to be taken for the purpose
of such dividend, distribution or right and a description of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective, and
(iii) the time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up. Such notice shall
be mailed at least 30 days prior to the date specified in such notice on which
such action is to be taken.
SERIES B PREFERRED STOCK
2.1 Authorized Series B Preferred Shares. The Company shall have the
authority to issue Five Hundred (500) shares of preferred stock designated as
the "Series B Convertible Preferred Stock" (and hereinafter referred to as the
"Series B Preferred Stock"), having the rights, preferences and limitations
hereinafter described, and having a par value of Ten Dollars ($10.00) per share.
2.2 Dividends.
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(a) The Company shall not declare, pay or set aside for payment
any dividend or make any distribution on the Common Stock, other than dividends
or distributions payable in additional shares of Common Stock, unless at the
time of such dividend or distribution the Board of Directors of the Company
shall declare and pay a dividend on each then outstanding share of Series B
Preferred Stock equal to the dividend that would be declared and paid on the
largest number of whole shares of Common Stock into which each share of Series B
Preferred Stock held by each holder thereof could be converted pursuant to the
provisions of Section 2.5 hereof as of the record date for the determination of
holders of Common Stock entitled to receive such dividend or distribution.
(b) The Company shall not declare, pay or set aside for payment
any dividend or make any distribution on the Series A Preferred Stock, the
Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred
Stock, or the Series F Preferred Stock, other than (i) any cumulative dividend
payable to holders of Series E Preferred Stock and Series F Preferred Stock in
accordance with Sections 5.2(b) and 6.2(b) hereof or (ii) dividends or
distributions payable in additional shares of each such series to the holders of
shares of the corresponding series of preferred stock, unless at the time of
such dividend or distribution the Board of Directors of the Company shall
declare and pay a dividend on each then outstanding share of Series B Preferred
Stock that bears the same relationship to the fixed liquidation value per share
set forth in Section 2.3(a)(i) of the Series B Preferred Stock as the dividend
or distribution paid on each other series of preferred stock bears to the fixed
liquidation value per share of such series set forth in Section 1.3(a)(i),
3.3(a)(i), 4.3(a)(i), 5.3(a)(i), or 6.3(a)(i), as the case may be.
2.3 Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of
the Company, or any bankruptcy or insolvency proceeding, whether voluntary or
involuntary, holders of each share of Series B Preferred Stock shall be entitled
to be paid first out of the assets of the Company available for distribution to
holders of the Company's capital stock of all classes, whether such assets are
capital, surplus, or earnings, before any sums shall be paid or any assets
distributed among the holders of any other shares of capital stock of the
Company (which includes any other class or series of preferred stock, except the
Series A Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock, the Series E Preferred Stock, and the Series F Preferred Stock, except as
otherwise provided in Section 5.3 or Section 6.3 hereof), an amount equal to the
greater of (i) $1,200 per share of Series B Preferred Stock plus all declared
and unpaid dividends thereon, up to and including the date full payment shall be
rendered to the holders of the Series B Preferred Stock with respect to such
liquidation, dissolution or winding up, or (ii) such amount per share of Series
B Preferred Stock as would have been payable had each such share been converted
to Common Stock pursuant to the provisions of Section 2.5 hereof immediately
prior to such event of liquidation, dissolution or winding up; provided,
however, that payment shall first be made to the Series E Preferred Stock and
the Series F Preferred Stock as provided in Section 5.3 and Section 6.3 hereof.
For purposes of computing the amount per share described in (ii) of the
preceding sentence, all shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E
Preferred Stock then outstanding shall be assumed to have been converted to
Common
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<PAGE> 14
Stock immediately prior to such event of liquidation, dissolution or winding up,
but in the event the amount per share calculated with this assumption is greater
than the amount set forth in (i) of the preceding sentence but less than the
amount set forth in one or more of Sections 1.3(a)(i), 3.3(a)(i), Section
4.3(a)(i), or Section 5.3(a), then the shares of each of the above series for
whom the amount so calculated is less than the amount provided to it in its
corresponding Section 1.3(a)(i), 3.3(a)(i), 4.3(a)(i), 5.3(a)(i) shall then be
assumed to be paid at the amount set forth in its corresponding Section 1.3(a),
3.3(a), 4.3(a), 5.3(a), and the computation of the amount per share described in
(ii) of the preceding sentence shall again be made with the assumption that the
shares of only the remaining series not so paid will have been converted to
Common Stock immediately prior to such event of liquidation, dissolution or
winding up. Following payment to the holders of the Series E Preferred Stock
pursuant to Section 5.3(a) hereof, and the payment to the holders of Series F
Preferred Stock pursuant to Section 6.3(a) hereof, if the assets of the Company
shall be insufficient to permit the payment in full to the holders of the Series
A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock
and the Series D Preferred Stock of the amount distributable in accordance with
Sections 1.3(a), 2.3(a), 3.3(a), and 4.3(a), then the remaining assets of the
Company available for such distribution shall be distributed ratably among the
holders of the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock and the Series D Preferred Stock in proportion to the
total amounts to which such holders are entitled upon such liquidation,
dissolution or winding up of the Company. After such payment shall have been
made in full to the holders of the Series B Preferred Stock or funds necessary
for such payment shall have been set aside by the Company in trust for the
account of holders of the Series B Preferred Stock so as to be available for
such payment, holders of the Series B Preferred Stock shall be entitled to no
further participation in the distribution of the assets of the Company and shall
have no further rights of conversion, and the remaining assets available for
distribution shall be distributed ratably among the holders of the Company's
other capital stock (other than the Series A Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock, and Series F
Preferred Stock).
(b) A reorganization of the Common Stock as provided in Section
2.5(g) or a consolidation or merger of the Company or a sale of all or
substantially all of the assets of the Company shall be regarded as a
liquidation, dissolution or winding up of the affairs of the Company within the
meaning of this Section 2.3; provided, however, each holder of Series B
Preferred Stock, at the option of such holder, shall be entitled to the rights
provided to them under Section 2.5(g) hereof in lieu of receiving payment in
liquidation, dissolution or winding up of the Company pursuant to this Section
2.3.
(c) Any distribution in connection with the liquidation,
dissolution or winding up of the Company, or any bankruptcy or insolvency
proceeding, shall be made in cash to the extent possible. Whenever any such
distribution shall be paid in property other than cash, then the Company at its
expense will promptly cause an independent investment bank selected by the
Company and approved by the holders of a majority of the outstanding shares of
Preferred Stock to value such property, whereupon such value shall be given to
such consideration and shall be recorded on the books of the Company with
respect to the distribution of such property.
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<PAGE> 15
2.4 Voting Power. Except as otherwise expressly provided in Section 2.7
hereof, or as required by law, each holder of Series B Preferred Stock shall be
entitled to vote on all matters submitted to shareholders of the Company and
shall be entitled to that number of votes equal to the largest number of whole
shares of Common Stock into which such holder's shares of Series B Preferred
Stock could be converted, pursuant to the provisions of Section 2.5 hereof, at
the record date for the determination of shareholders entitled to vote on such
matter or, if no such record date is established, at the date such vote is taken
or any written consent of shareholders is solicited. Except as otherwise
expressly provided herein or as required by law, the holders of shares of Series
B Preferred Stock and Common Stock shall be entitled to vote together as a class
on all matters.
2.5 Conversion Rights. The holders of the Series B Preferred Stock shall
have the following conversion rights:
(a) General. Subject to and in compliance with the provisions of
this Section 2.5, any shares of the Series B Preferred Stock may, at the option
of the holder, be converted at any time or from time to time into fully-paid and
nonassessable shares (calculated as to each conversion to the largest whole
share) of Common Stock. The number of shares of Common Stock to which a holder
of Series B Preferred Stock shall be entitled upon conversion shall be the
product obtained by multiplying Applicable Conversion Rate (determined as
provided in Section 2.5(c)) by the number of shares of Series B Preferred Stock
being converted.
(b) Conversion Following Underwritten Public Offering.
(i) All outstanding shares of Series B Preferred Stock
shall, upon the closing of an underwritten public offering pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account of
the Company in which the aggregate price of the shares of Common Stock
into which each share of Series B Preferred Stock may be converted in
compliance with this Section 2.5 is not less than $6,000 (five times the
initial Applicable Conversion Value of the Series B Preferred Stock) and
in which the aggregate gross proceeds to the Company exceed $7,500,000,
be converted automatically into the number of shares of Common Stock
into which such Series B Preferred Stock is convertible pursuant to
Section 2.5(a) hereof without any further action by the holders of such
shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent for the Common Stock.
(ii) Upon the occurrence of the conversion specified
in Section 2.5(b)(i), the holders of such Series B Preferred Stock shall
surrender the certificates representing such shares at the office of the
Company or of its transfer agent for the Common Stock. The certificate
or certificates for shares of Series B Preferred Stock surrendered for
conversion shall be accompanied by proper assignment thereof to the
Company or in blank. As promptly as practicable thereafter, the Company
shall issue and shall deliver to the holder of the shares of Series B
Preferred Stock being converted, or on its written order, such
certificate or certificates for the number of whole shares of Common
Stock issuable upon the conversion of such shares of Series B Preferred
Stock in accordance with the provisions of this
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<PAGE> 16
Section 2.5, cash in the amount of all declared and unpaid dividends on
such shares of Series B Preferred Stock, up to and including the Series
B Conversion Date as defined in Section 2.5(i) below, and cash, as
provided in Section 2.5(j), in respect of any fraction of a share of
Common Stock issuable upon such conversion. The Company shall not be
obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless certificates evidencing such shares
of the Series B Preferred Stock being converted are either delivered to
the Company or any such transfer agent or the holder notifies the
Company or any such transfer agent that such certificates have been
lost, stolen or destroyed and executed an agreement satisfactory to the
Company to indemnify the Company from any loss incurred by it in
connection therewith. The Company shall pay all issue and other taxes
(other than income taxes) that may be payable in respect of any issuance
or delivery of shares of Common Stock or other securities upon
conversion of Series B Preferred Stock.
(c) Applicable Conversion Rate. The conversion rate in effect at
any time (the "Applicable Conversion Rate") shall be the quotient obtained by
dividing $1,200 by the Applicable Conversion Value, calculated as provided in
Section 2.5(d).
(d) Applicable Conversion Value. The Applicable Conversion Value
in effect from time to time, except as adjusted in accordance with Section
2.5(e) hereof, shall be $1,200.
(e) Adjustments to Applicable Conversion Value.
(i) Upon Issuance or Sale of Common Stock. If the
Company shall, while there are any shares of Series B Preferred Stock
outstanding, issue or sell shares of its Common Stock or any other
series or class of capital stock convertible into Common Stock without
consideration or at a price per share for Common Stock less than the
Applicable Conversion Value in effect immediately prior to such issuance
or sale, then in each such case the Applicable Conversion Value upon
each such issuance or sale, except as hereinafter provided, shall be
adjusted to an amount determined by multiplying the Applicable
Conversion Value by a fraction:
(A) the numerator of which shall be (a) the number
of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock, plus (b) the
number of shares of Common Stock which the net aggregate
consideration received by the Company for the total number of
such additional shares of Common Stock so issued would purchase
at the Applicable Conversion Value, and
(B) the denominator of which shall be (a) the
number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares of Common Stock, plus (b)
the number of such additional shares of Common Stock so issued
or, if convertible securities are being issued, the number of
shares of Common Stock that could be issued if all such
convertible securities were converted into Common Stock at the
lowest applicable exercise or conversion price.
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The Company's issuance of options for the purchase of Common Stock
pursuant to incentive stock option plans and/or nonqualified stock option plans
approved by the Company's Board of Directors, providing for the issuance of
options to purchase Common Stock for the recruitment and retention of senior
personnel and to compensate advisors and members of the Board of Directors,
which aggregate number of all issuable and issued shares of Common Stock shall
at no time exceed 2,098 shares of Common Stock on an as converted basis, which
amount shall be subject to adjustment to reflect any Extraordinary Common Stock
Event (as defined herein below) in accordance with Section 2.5(e)(ii), shall not
give rise to an adjustment pursuant to this Section 2.5(e)(i) unless such shares
or stock options are issued or granted to any shareholder who holds Common Stock
or other capital stock convertible into Common Stock, or warrants, options or
other rights to acquire Common Stock or other capital stock convertible into
Common Stock, which in the aggregate represents (when exercised and/or
converted) more than ten percent (10%) of the Company's issued and outstanding
Common Stock. Notwithstanding anything to the contrary herein, neither (i) the
issuance of the Series E Preferred Stock or the Series F Preferred Stock, nor
(ii) any adjustment to the Applicable Conversion Value for the Series E
Preferred Stock pursuant to Section 5.5(h) and any issuance of additional Common
Stock pursuant thereto, nor (iii) the issuance of Common Stock upon conversion
of the Series A, B, C, D, E, or F Preferred Stock, shall give rise to an
adjustment pursuant to this Section 2.5(e)(i).
For the purposes of this Section 2.5(e)(i), the issuance of any
warrants, options, subscriptions or purchase rights with respect to shares of
Common Stock and the issuance of any securities convertible into or exchangeable
for shares of Common Stock (or the issuance of any warrants, options or rights
with respect to such convertible or exchangeable securities) shall be deemed an
issuance at such time of such Common Stock if the Net Consideration Per Share
(as hereinafter determined) which may be received by the Company for such Common
Stock shall be less than the Applicable Conversion Value at the time of such
issuance. Any obligation, agreement or undertaking to issue warrants, options,
subscriptions or purchase rights at any time in the future shall be deemed to be
an issuance at the time such obligation, agreement or undertaking is made or
arises. No adjustment of the Applicable Conversion Value shall be made under
this Section 2.5(e)(i) upon the issuance of any shares of Common Stock which are
issued pursuant to the exercise of any warrants, options, subscriptions or
purchase rights or pursuant to the exercise of any conversion or exchange rights
in any convertible securities if any adjustment shall previously have been made
upon the issuance of any such warrants, options, subscriptions or purchase
rights or upon the issuance of any convertible securities (or upon the issuance
of any warrants, options or any rights therefor) as above provided. Any
adjustment of the Applicable Conversion Value with respect to this paragraph
which relates to warrants, options, subscriptions or purchase rights with
respect to shares of Common Stock shall be disregarded if, as and when such
warrants, options, subscriptions or purchase rights expire or are canceled
without being exercised, so that the Applicable Conversion Value effective
immediately upon such cancellation or expiration shall be equal to the
Applicable Conversion Value in effect immediately prior to the issuance of the
expired or canceled warrants, options, subscriptions or purchase rights. For
purposes of this paragraph, the "Net Consideration Per Share" which may be
received by the Company shall be determined as follows:
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<PAGE> 18
(x) The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any,
received by the Company for the issuance of such warrants,
options, subscriptions or other purchase rights or convertible or
exchangeable securities, plus the minimum amount of
consideration, if any, payable to the Company upon exercise or
conversion thereof, divided by the aggregate number of shares of
Common Stock that would be issued if all such warrants, options,
subscriptions or other purchase rights or convertible or
exchangeable securities were exercised, exchanged or converted.
(y) The Net Consideration Per Share which may be received
by the Company shall be determined in each instance as of the
date of issuance of warrants, options, subscriptions or other
purchase rights or convertible or exchangeable securities without
giving effect to any possible future price adjustments or rate
adjustments which may be applicable with respect to such
warrants, options, subscriptions or other purchase rights or
convertible or exchangeable securities (until such time as such
adjustments are actually made).
For purposes of this Section 2.5(e)(i), if part or all of the
consideration received by the Company in connection with the issuance of shares
of the Common Stock or the issuance of any of the securities described in
Section 2.5(e)(i) consists of property other than cash, the Company at its
expense will promptly cause an independent investment bank selected by the
Company and approved by the holders of a majority of the outstanding shares of
Series B Preferred Stock to value such property, whereupon such value shall be
given to such consideration and shall be recorded on the books of the Company
with respect to receipt of such property.
This Section 2.5(e)(i) shall not apply under any of the circumstances
which would constitute an Extraordinary Common Stock Event (as hereinafter
defined in Section 2.5(e)(ii)).
(ii) Upon Extraordinary Common Stock Event. Upon the
happening of an Extraordinary Common Stock Event (as hereinafter
defined), the Applicable Conversion Value (and all other conversion
values set forth in paragraph (e)(i) above) shall, simultaneously with
the happening of such Extraordinary Common Stock Event, be adjusted by
multiplying the then effective Applicable Conversion Value by a
fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such Extraordinary Common Stock
Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common
Stock Event. The Applicable Conversion Value, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive
Extraordinary Common Stock Event or Events.
"Extraordinary Common Stock Event" shall mean (i) the
issue of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, (ii) subdivision of
outstanding shares of Common Stock into a greater number of shares of
the Common Stock, or (iii) combination of outstanding shares of the
Common Stock into a smaller number of shares of the Common Stock.
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(f) Recapitalization or Reclassification. If the Common Stock
issuable upon the conversion of the Series B Preferred Stock shall be changed
into the same or different number of shares of any class or classes of stock of
the Company, whether by recapitalization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
elsewhere in Section 2.5, or reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 2.5), then and in each such event
the holder of each share of Series B Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock and
other securities and property that such holder would have owned or been entitled
to receive after the occurrence of any such event had such share of Series B
Preferred Stock been surrendered for conversion into Common Stock immediately
prior thereto.
(g) Capital Reorganization, Merger or Sale of Assets. If at any
time or from time to time there shall be a capital reorganization of the Common
Stock (other than a subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section 2.5), or a merger or consolidation
of the Company with or into another company, or the sale of all or substantially
all of the Company's properties and assets to any other person, then, as a part
of such reorganization, merger, consolidation or sale, provision shall be made
so that the holders of the Series B Preferred Stock shall thereafter be entitled
to receive upon conversion of the Series B Preferred Stock, the number of shares
of stock or other securities or property of the Company, or of the successor
Company resulting from such a merger, consolidation or sale, that such holder
would have owned or been entitled to receive after the occurrence of any such
event had such share of Series B Preferred Stock been surrendered for conversion
into Common Stock immediately prior thereto. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
2.5 with respect to the rights of the holders of the Series B Preferred Stock
after the reorganization, merger, consolidation or sale to the end that the
provisions of this Section 2.5 (including adjustment of the Applicable
Conversion Value then in effect and the number of shares purchasable upon
conversion of the Series B Preferred Stock) shall be applicable after that event
in as nearly equivalent a manner as may be practicable.
Each holder of Series B Preferred Stock upon the occurrence of a
capital reorganization, merger or consolidation of the Company, or the sale of
all or substantially all its assets and properties as such events are more fully
set forth in the first paragraph of this Section 2.5(g), shall have the option
of electing treatment of his shares of Series B Preferred Stock under either
this Section 2.5(g) or Section 2.3(b) hereof. Notice of such election shall be
submitted in writing to the Company at its principal offices no later than five
(5) days before the effective date of such event.
(h) Accountant's Certificate as to Adjustments. In each case of
an adjustment or readjustment of the Applicable Conversion Value, the Company
shall furnish each holder of Series B Preferred Stock with a certificate,
prepared by independent public accountants of recognized standing showing such
adjustment or readjustment, and stating in detail the facts upon which such
adjustment or readjustment is based.
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<PAGE> 20
(i) Exercise of Conversion Privilege. To exercise the conversion
privilege, a holder of Series B Preferred Stock shall surrender the certificate
or certificates representing the shares being converted to the Company at its
principal office, and shall give written notice to the Company at that office
that such holder elects to convert such shares. Such notice shall also state the
name or names (with address or addresses) in which the certificate or
certificates for shares of Common Stock issuable upon such conversion shall be
issued. The certificate or certificates for shares of Series B Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Company or in blank. The date when such written notice is received by the
Company, together with the certificate or certificates representing the shares
of Series B Preferred Stock being converted, shall be the "Series B Conversion
Date." As promptly as practicable after the Series B Conversion Date, the
Company shall issue and shall deliver to the holder of the shares of Series B
Preferred Stock being converted, or on its written order, such certificate or
certificates as it may request for the number of whole shares of Common Stock
issuable upon the conversion of such shares of Series B Preferred Stock in
accordance with the provisions of this Section 2.5, cash in the amount of all
declared and unpaid dividends on such shares of Series B Preferred Stock, up to
and including the Series B Conversion Date, and cash, as provided in Section
2.5(j), in respect of any fraction of a share of Common Stock issuable upon such
conversion. Such conversion shall be deemed to have been effected immediately
prior to the close of business on the Series B Conversion Date, and at such time
the rights of the holder as holder of the converted shares of Series B Preferred
Stock shall cease and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Common Stock represented thereby. The Company shall pay all
issue and other taxes (other than income taxes) that may be payable in respect
of any issuance or delivery of shares of Common Stock or other securities upon
conversion of Series B Preferred Stock.
(j) Cash in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series B Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Series B Preferred Stock, the Company shall pay to the holder of the shares of
Series B Preferred Stock which were converted a cash adjustment in respect of
such fractional shares in an amount equal to the same fraction of the market
price per share of the Common Stock (as determined in a reasonable manner
prescribed by the Board of Directors) at the close of business on the Conversion
Date. The determination as to whether or not fractional shares are issuable
shall be based upon the total number of shares of Series B Preferred Stock being
converted at any one time by any holder thereof, not upon each share of Series B
Preferred Stock being converted.
(k) Partial Conversion. In the event some but not all of the
shares of Series B Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Company shall execute and deliver to
or on the order of the holder, at the expense of the Company, a new certificate
representing the number of shares of Series B Preferred Stock which were not
converted.
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(l) Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Series B Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series B Preferred Stock, and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series B Preferred Stock,
the Company shall take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
2.6 No Reissuance of Convertible Series B Preferred Stock. No share or
shares of Series B Preferred Stock acquired by the Company by reason of
redemption, purchase, conversion or otherwise shall be reissued, and all such
shares shall be canceled, retired and eliminated from the shares which the
Company shall be authorized to issue. The Company may from time to time take
such appropriate corporate action as may be necessary to reduce the authorized
number of shares of Series B Preferred Stock accordingly.
2.7 Restriction and Limitations.
(a) Except as expressly provided herein or as required by law, so
long as any shares of the Series B Preferred Stock remain outstanding, the
Company shall not, and shall not permit any subsidiary (which shall mean any
company or trust of which the Company directly or indirectly owns at the time a
majority of the outstanding voting shares of every class of such company or
trust other than directors' qualifying shares) to, without the vote or written
consent by the holders of at least 66 2/3% of the then outstanding shares of the
Series B Preferred Stock:
(i) Redeem, purchase or otherwise acquire for value
(or pay into or set aside for a sinking fund for such purpose), any
share or shares of Series B Preferred Stock, except upon an Event of
Default as provided in the Investment Agreement;
(ii) Authorize or issue, or obligate itself to
authorize or issue, any other equity security senior to or on a parity
with the Series B Preferred Stock as to dividend rights, liquidation
preferences, conversion rights, voting rights or otherwise, or any
security convertible into or exchangeable for any such equity security;
(iii) Effect any sale, lease, assignment, transfer or
other conveyance of all or substantially all of the assets of the
Company or any subsidiary thereof, or any consolidation or merger
involving the Company or any subsidiary thereof, or any reclassification
or other change of stock, or any recapitalization or any dissolution,
liquidation or winding up of the Company; or
(iv) Amend its Articles of Incorporation if such
amendment would change any of the preferences, limitations or relative
rights of the Series B Preferred Stock, including without limitation,
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(A) Change the relative seniority rights of the
holders of Series B Preferred Stock as to the payment of
dividends in relation to the holders of any other capital stock
of the Company;
(B) Reduce the amount payable to the holders of
Series B Preferred Stock upon the voluntary or involuntary
liquidation, dissolution or winding up of the Company, or change
the relative seniority of the liquidation preferences of the
holders of Series B Preferred Stock to the rights upon
liquidation of the holders of any other capital stock of the
Company or change the dividend rights of the holders of Series B
Preferred Stock;
(C) Cancel or modify the conversion rights of the
holders of Series B Preferred Stock provided for in Section 2.5
herein; or
(D) Increase or decrease (except as provided in
Section 2.6) the authorized number of shares of Series B
Preferred Stock or authorize, approve, or adopt an amendment to
its Articles of Incorporation therefor.
2.8 No Dilution or Impairment. The Company will not, by amendment of its
Articles of Incorporation, or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Series B Preferred Stock set forth herein, but will at all
times in good faith carry out all such terms and take all such action as may be
necessary or appropriate in order to protect the rights of the holders of the
Series B Preferred Stock against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) will not increase the par value
of any shares of stock receivable on the conversion of the Series B Preferred
Stock above the amount payable therefor on such conversion, (b) will take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of stock on the
conversion of all Series B Preferred Stock from time to time outstanding, and
(c) will not transfer all or substantially all of its properties and assets to
any other person (corporate or otherwise), or consolidate with or merge into any
other person (if the Company is not the surviving person), unless such other
person shall expressly assume in writing and will be bound by all terms of the
Series B Preferred Stock set forth herein.
2.9 Notices of Record Date. In the event of:
(a) Any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right; or
(b) Any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company, or any transfer of all or substantially
all of the assets of the Company to any other Company, or any other entity or
person; or
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(c) Any voluntary or involuntary dissolution, liquidation or
winding up of the Company, then and in each such event the Company shall mail or
cause to be mailed to each holder of Series B Preferred Stock a notice
specifying (i) the date on which any such record is to be taken for the purpose
of such dividend, distribution or right and a description of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective, and
(iii) the time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up. Such notice shall
be mailed at least 30 days prior to the date specified in such notice on which
such action is to be taken.
SERIES C PREFERRED STOCK
3.1 Authorized Series C Preferred Shares. The Company shall have the
authority to issue Four Hundred Sixty-Seven (467) shares of preferred stock
designated as the "Series C Convertible Preferred Stock" (and hereinafter
referred to as the "Series C Preferred Stock"), having the rights, preferences
and limitations hereinafter described, and having a par value of Ten Dollars
($10.00) per share.
3.2 Dividends.
(a) The Company shall not declare, pay or set aside for payment
any dividend or make any distribution on the Common Stock, other than dividends
or distributions payable in additional shares of Common Stock, unless at the
time of such dividend or distribution the Board of Directors of the Company
shall declare and pay a dividend on each then outstanding share of Series C
Preferred Stock equal to the dividend that would be declared and paid on the
largest number of whole shares of Common Stock into which each share of Series C
Preferred Stock held by each holder thereof could be converted pursuant to the
provisions of Section 3.5 hereof as of the record date for the determination of
holders of Common Stock entitled to receive such dividend or distribution.
(b) The Company shall not declare, pay or set aside for payment
any dividend or make any distribution on the Series A Preferred Stock, the
Series B Preferred Stock, the Series D Preferred Stock, the Series E Preferred
Stock, or the Series F Preferred Stock, other than (i) any cumulative dividend
payable to holders of Series E Preferred Stock and Series F Preferred Stock in
accordance with Sections 5.2(b) and 6.2(b) hereof or (ii) dividends or
distributions payable in additional shares of each such series to the holders of
shares of the corresponding series of preferred stock, unless at the time of
such dividend or distribution the Board of Directors of the Company shall
declare and pay a dividend on each then outstanding share of Series C Preferred
Stock that bears the same relationship to the fixed liquidation value per share
of the Series C Preferred Stock set forth in Section 3.3(a)(i) as the dividend
or distribution paid on each other series of preferred stock bears to the fixed
liquidation value per share of such series set forth in Section 1.3(a)(i),
2.3(a)(i), 4.3(a)(i), 5.3(a)(i), or 6.3(a)(i), as the case may be.
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3.3 Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of
the Company, or any bankruptcy or insolvency proceeding, whether voluntary or
involuntary, holders of each share of Series C Preferred Stock shall be entitled
to be paid first out of the assets of the Company available for distribution to
holders of the Company's capital stock of all classes, whether such assets are
capital, surplus, or earnings, before any sums shall be paid or any assets
distributed among the holders of any other shares of capital stock of the
Company (which includes any other class or series of preferred stock, except the
Series A Preferred Stock, Series B Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, and Series F Preferred Stock, except as otherwise
provided in Section 5.3 or Section 6.3 hereof), an amount equal to the greater
of (i) $1,200 per share of Series C Preferred Stock plus all declared and unpaid
dividends thereon, up to and including the date full payment shall be rendered
to the holders of the Series C Preferred Stock with respect to such liquidation,
dissolution or winding up, or (ii) such amount per share of Series C Preferred
Stock as would have been payable had each such share been converted to Common
Stock pursuant to the provisions of Section 3.5 hereof immediately prior to such
event of liquidation, dissolution or winding up; provided, however, that payment
shall first be made to the holders of the Series E Preferred Stock and Series F
Preferred Stock as provided in Section 5.3 and Section 6.3 hereof. For purposes
of computing the amount per share described in (ii) of the preceding sentence,
all shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock then
outstanding shall be assumed to have been converted to Common Stock immediately
prior to such event of liquidation, dissolution or winding up, but in the event
the amount per share calculated with this assumption is greater than the amount
set forth in (i) of the preceding sentence but less than the amount set forth in
one or more of Sections 1.3(a)(i), 2.3(a)(i), 4.3(a)(i), or 5.3(a)(i)
respectively, then the shares of each of the above series for whom the amount so
calculated is less than the amount provided to it in its corresponding Section
1.3(a)(i), 2.3(a)(i), 4.3(a)(i), 5.3(a)(i) shall then be assumed to be paid at
the amount set forth in its corresponding Section 1.3(a)(i), 2.3(a)(i),
4.3(a)(i), 5.3(a)(i) and the computation of the amount per share described in
(ii) of the preceding sentence shall again be made with the assumption that the
shares of only the remaining series not so paid will have been converted to
Common Stock immediately prior to such event of liquidation, dissolution or
winding up. Following payment to the holders of the Series E Preferred Stock
pursuant to Section 5.3(a) hereof, and the payment to the holders of Series F
Preferred Stock pursuant to Section 6.3(a) hereof, if the assets of the Company
shall be insufficient to permit the payment in full to the holders of the Series
A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock,
and the Series D Preferred Stock of the amount distributable in accordance with
Sections 1.3(a), 2.3(a), 3.3(a), and 4.3(a), then the remaining assets of the
Company available for such distribution shall be distributed ratably among the
holders of the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock, and the Series D Preferred Stock, in proportion to the
total amounts to which such holders are entitled upon such liquidation,
dissolution or winding up of the Company. After such payment shall have been
made in full to the holders of the Series C Preferred Stock or funds necessary
for such payment shall have been set aside by the Company in trust for the
account of holders of the Series C Preferred Stock so as to be available for
such payment, holders of the Series C Preferred Stock shall be entitled to no
further participation in the distribution of the assets of the Company and shall
have
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<PAGE> 25
no further rights of conversion, and the remaining assets available for
distribution shall be distributed ratably among the holders of the Company's
other capital stock (other than the Series A Preferred Stock, the Series B
Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock, and
the Series F Preferred Stock).
(b) A reorganization of the Common Stock as provided in Section
3.5(g) or a consolidation or merger of the Company or a sale of all or
substantially all of the assets of the Company shall be regarded as a
liquidation, dissolution or winding up of the affairs of the Company within the
meaning of this Section 3; provided, however, each holder of Series C Preferred
Stock, at the option of such holder, shall be entitled to the rights provided to
them under Section 3.5(g) hereof in lieu of receiving payment in liquidation,
dissolution or winding up of the Company pursuant to this Section 3.3.
(c) Any distribution in connection with the liquidation,
dissolution or winding up of the Company, or any bankruptcy or insolvency
proceeding, shall be made in cash to the extent possible. Whenever any such
distribution shall be paid in property other than cash, then the Company at its
expense will promptly cause an independent investment bank selected by the
Company and approved by the holders of a majority of the outstanding shares of
Preferred Stock to value such property, whereupon such value shall be given to
such consideration and shall be recorded on the books of the Company with
respect to the distribution of such property.
3.4 Voting Power. Except as otherwise expressly provided in Section 3.7
hereof, or as required by law, each holder of Series C Preferred Stock shall be
entitled to vote on all matters submitted to shareholders of the Company and
shall be entitled to that number of votes equal to the largest number of whole
shares of Common Stock into which such holder's shares of Series C Preferred
Stock could be converted, pursuant to the provisions of Section 3.5 hereof, at
the record date for the determination of shareholders entitled to vote on such
matter or, if no such record date is established, at the date such vote is taken
or any written consent of shareholders is solicited. Except as otherwise
expressly provided herein or as required by law, the holders of shares of Series
C Preferred Stock and Common Stock shall be entitled to vote together as a class
on all matters.
3.5 Conversion Rights. The holders of the Series C Preferred Stock shall
have the following conversion rights:
(a) General. Subject to and in compliance with the provisions of
this Section 3.5, any shares of the Series C Preferred Stock may, at the option
of the holder, be converted at any time or from time to time into fully-paid and
nonassessable shares (calculated as to each conversion to the largest whole
share) of Common Stock. The number of shares of Common Stock to which a holder
of Series C Preferred Stock shall be entitled upon conversion shall be the
product obtained by multiplying the Applicable Conversion Rate (determined as
provided in Section 3.5(c)) by the number of shares of Series C Preferred Stock
being converted.
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<PAGE> 26
(b) Conversion Following Underwritten Public Offering.
(i) All outstanding shares of Series C Preferred Stock
shall, upon the closing of an underwritten public offering pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account of
the Company in which the aggregate price of the shares of Common Stock
into which each share of Series C Preferred Stock may be converted in
compliance with this Section 3.5 is not less than $6,000 (five times the
initial Applicable Conversion Value of the Series C Preferred Stock) and
in which the aggregate gross proceeds to the Company exceed $7,500,000,
be converted automatically into the number of shares of Common Stock
into which such Series C Preferred Stock is convertible pursuant to
Section 3.5(a) hereof without any further action by the holders of such
shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent for the Common Stock.
(ii) Upon the occurrence of the conversion specified
in Section 3.5(b)(i), the holders of such Series C Preferred Stock shall
surrender the certificates representing such shares at the office of the
Company or of its transfer agent for the Common Stock. The certificate
or certificates for shares of Series C Preferred Stock surrendered for
conversion shall be accompanied by proper assignment thereof to the
Company or in blank. As promptly as practicable thereafter, the Company
shall issue and shall deliver to the holder of the shares of Series C
Preferred Stock being converted, or on its written order, such
certificate or certificates for the number of whole shares of Common
Stock issuable upon the conversion of such shares of Series C Preferred
Stock in accordance with the provisions of this Section 3.5, cash in the
amount of all declared and unpaid dividends on such shares of Series C
Preferred Stock, up to and including the Series C Conversion Date as
defined in Section 3.5(i) below, and cash, as provided in Section
3.5(j), in respect of any fraction of a share of Common Stock issuable
upon such conversion. The Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such
conversion unless certificates evidencing such shares of the Series C
Preferred Stock being converted are either delivered to the Company or
any such transfer agent or the holder notifies the Company or any such
transfer agent that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection
therewith. The Company shall pay all issue and other taxes (other than
income taxes) that may be payable in respect of any issuance or delivery
of shares of Common Stock or other securities upon conversion of Series
C Preferred Stock.
(c) Applicable Conversion Rate. The conversion rate in effect at
any time (the "Applicable Conversion Rate") shall be the quotient obtained by
dividing $1,200 by the Applicable Conversion Value, calculated as provided in
Section 3.5(d).
(d) Applicable Conversion Value. The Applicable Conversion Value
in effect from time to time, except as adjusted in accordance with Section
3.5(e) hereof, shall be $1,200.
(e) Adjustments to Applicable Conversion Value.
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<PAGE> 27
(i) Upon Issuance or Sale of Common Stock. If the
Company shall, while there are any shares of Series C Preferred Stock
outstanding, issue or sell shares of its Common Stock or any other
series or class of capital stock convertible into Common Stock without
consideration or at a price per share for Common Stock less than the
Applicable Conversion Value in effect immediately prior to such issuance
or sale, then in each such case the Applicable Conversion Value upon
each such issuance or sale, except as hereinafter provided, shall be
adjusted to an amount determined by multiplying the Applicable
Conversion Value by a fraction:
(A) the numerator of which shall be (a) the number
of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock, plus (b) the
number of shares of Common Stock which the net aggregate
consideration received by the Company for the total number of
such additional shares of Common Stock so issued would purchase
at the Applicable Conversion Value, and
(B) the denominator of which shall be (a) the
number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares of Common Stock, plus (b)
the number of such additional shares of Common Stock so issued
or, if convertible securities are being issued, the number of
shares of Common Stock that could be issued if all such
convertible securities were converted into Common Stock at the
lowest applicable exercise or conversion price.
The Company's issuance of options for the purchase of Common Stock
pursuant to incentive stock option plans and/or nonqualified stock option plans
approved by the Company's Board of Directors, providing for the issuance of
options to purchase Common Stock for the recruitment and retention of senior
personnel and to compensate advisors and members of the Board of Directors,
which aggregate number of all issuable and issued shares of Common Stock shall
at no time exceed 2,098 shares of Common Stock on an as converted basis, which
amount shall be subject to adjustment to reflect any Extraordinary Common Stock
Event (as defined herein below) in accordance with Section 3.5(e)(ii), shall not
give rise to an adjustment pursuant to this Section 3.5(e)(i) unless such shares
or stock options are issued or granted to any shareholder who holds Common Stock
or other capital stock convertible into Common Stock, or warrants, options or
other rights to acquire Common Stock or other capital stock convertible into
Common Stock, which in the aggregate represents (when exercised and/or
converted) more than ten percent (10%) of the Company's issued and outstanding
Common Stock. Notwithstanding anything to the contrary herein, neither (i) the
issuance of the Series E Preferred Stock or the Series F Preferred Stock, nor
(ii) any adjustment to the Applicable Conversion Value for the Series E
Preferred Stock pursuant to Section 5.5(h) and any issuance of additional Common
Stock pursuant thereto, nor (iii) the issuance of Common Stock upon conversion
of the Series A, B, C, D, E, or F Preferred Stock, shall give rise to an
adjustment pursuant to this Section 3.5(e)(i).
For the purposes of this Section 3.5(e)(i), the issuance of any
warrants, options, subscriptions or purchase rights with respect to shares of
Common Stock and the issuance of any securities
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convertible into or exchangeable for shares of Common Stock (or the issuance of
any warrants, options or rights with respect to such convertible or exchangeable
securities) shall be deemed an issuance at such time of such Common Stock if the
Net Consideration Per Share (as hereinafter determined) which may be received by
the Company for such Common Stock shall be less than the Applicable Conversion
Value at the time of such issuance. Any obligation, agreement or undertaking to
issue warrants, options, subscriptions or purchase rights at any time in the
future shall be deemed to be an issuance at the time such obligation, agreement
or undertaking is made or arises. No adjustment of the Applicable Conversion
Value shall be made under this Section 3.5(e)(i) upon the issuance of any shares
of Common Stock which are issued pursuant to the exercise of any warrants,
options, subscriptions or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any convertible securities if any adjustment
shall previously have been made upon the issuance of any such warrants, options,
subscriptions or purchase rights or upon the issuance of any convertible
securities (or upon the issuance of any warrants, options or any rights
therefor) as above provided. Any adjustment of the Applicable Conversion Value
with respect to this paragraph which relates to warrants, options, subscriptions
or purchase rights with respect to shares of Common Stock shall be disregarded
if, as and when such warrants, options, subscriptions or purchase rights expire
or are canceled without being exercised, so that the Applicable Conversion Value
effective immediately upon such cancellation or expiration shall be equal to the
Applicable Conversion Value that would have applied without giving effect to the
issuance of the expired or canceled warrants, options, subscriptions or purchase
rights. For purposes of this paragraph, the "Net Consideration Per Share" which
may be received by the Company shall be determined as follows:
(x) The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any,
received by the Company for the issuance of such warrants,
options, subscriptions or other purchase rights or convertible or
exchangeable securities, plus the minimum amount of
consideration, if any, payable to the Company upon exercise or
conversion thereof, divided by the aggregate number of shares of
Common Stock that would be issued if all such warrants, options,
subscriptions or other purchase rights or convertible or
exchangeable securities were exercised, exchanged or converted.
(y) The Net Consideration Per Share which may be received
by the Company shall be determined in each instance as of the
date of issuance of warrants, options, subscriptions or other
purchase rights or convertible or exchangeable securities without
giving effect to any possible future price adjustments or rate
adjustments which may be applicable with respect to such
warrants, options, subscriptions or other purchase rights or
convertible or exchangeable securities (until such time as such
adjustments are actually made).
For purposes of this Section 3.5(e)(i), if part or all of the
consideration received by the Company in connection with the issuance of shares
of the Common Stock or the issuance of any of the securities described in
Section 3.5(e)(i) consists of property other than cash, the Company at its
expense will promptly cause an independent investment bank selected by the
Company and
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approved by the holders of a majority of the outstanding shares of Series C
Preferred Stock to value such property, whereupon such value shall be given to
such consideration and shall be recorded on the books of the Company with
respect to receipt of such property.
This Section 3.5(e)(i) shall not apply under any of the circumstances
which would constitute an Extraordinary Common Stock Event (as hereinafter
defined in Section 3.5(e)(ii)).
(ii) Upon Extraordinary Common Stock Event. Upon the
happening of an Extraordinary Common Stock Event (as hereinafter
defined), the Applicable Conversion Value (and all other conversion
values set forth in paragraph (e)(i) above) shall, simultaneously with
the happening of such Extraordinary Common Stock Event, be adjusted by
multiplying the then effective Applicable Conversion Value by a
fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such Extraordinary Common Stock
Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common
Stock Event. The Applicable Conversion Value, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive
Extraordinary Common Stock Event or Events.
"Extraordinary Common Stock Event" shall mean (i) the
issue of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, (ii) subdivision of
outstanding shares of Common Stock into a greater number of shares of
the Common Stock, or (iii) combination of outstanding shares of the
Common Stock into a smaller number of shares of the Common Stock.
(f) Recapitalization or Reclassification. If the Common Stock
issuable upon the conversion of the Series C Preferred Stock shall be changed
into the same or different number of shares of any class or classes of stock of
the Company, whether by recapitalization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
elsewhere in Section 3.5, or reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 3.5), then and in each such event
the holder of each share of Series C Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock and
other securities and property that such holder would have owned or been entitled
to receive after the occurrence of any such event had such share of Series C
Preferred Stock been surrendered for conversion into Common Stock immediately
prior thereto.
(g) Capital Reorganization, Merger or Sale of Assets. If at any
time or from time to time there shall be a capital reorganization of the Common
Stock (other than a subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section 3.5), or a merger or consolidation
of the Company with or into another company, or the sale of all or substantially
all of the Company's properties and assets to any other person, then, as a part
of such reorganization, merger, consolidation or sale, provision shall be made
so that the holders of the Series C Preferred Stock shall thereafter be entitled
to receive upon conversion of the Series C Preferred Stock, the number of shares
of stock or other securities or property of the Company, or of the successor
Company resulting from such a merger, consolidation or sale, that such holder
would
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have owned or been entitled to receive after the occurrence of any such event
had such share of Series C Preferred Stock been surrendered for conversion into
Common Stock immediately prior thereto. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 3.5 with
respect to the rights of the holders of the Series C Preferred Stock after the
reorganization, merger, consolidation or sale to the end that the provisions of
this Section 3.5 (including adjustment of the Applicable Conversion Value then
in effect and the number of shares purchasable upon conversion of the Series C
Preferred Stock) shall be applicable after that event in as nearly equivalent a
manner as may be practicable.
Each holder of Series C Preferred Stock upon the occurrence of a
capital reorganization, merger or consolidation of the Company, or the sale of
all or substantially all its assets and properties as such events are more fully
set forth in the first paragraph of this Section 3.5(g), shall have the option
of electing treatment of his shares of Series C Preferred Stock under either
this Section 3.5(g) or Section 3.3(b) hereof. Notice of such election shall be
submitted in writing to the Company at its principal offices no later than five
(5) days before the effective date of such event.
(h) Accountant's Certificate as to Adjustments. In each case of
an adjustment or readjustment of the Applicable Conversion Value, the Company
shall furnish each holder of Series C Preferred Stock with a certificate,
prepared by independent public accountants of recognized standing showing such
adjustment or readjustment, and stating in detail the facts upon which such
adjustment or readjustment is based.
(i) Exercise of Conversion Privilege. To exercise the conversion
privilege, a holder of Series C Preferred Stock shall surrender the certificate
or certificates representing the shares being converted to the Company at its
principal office, and shall give written notice to the Company at that office
that such holder elects to convert such shares. Such notice shall also state the
name or names (with address or addresses) in which the certificate or
certificates for shares of Common Stock issuable upon such conversion shall be
issued. The certificate or certificates for shares of Series C Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Company or in blank. The date when such written notice is received by the
Company, together with the certificate or certificates representing the shares
of Series C Preferred Stock being converted, shall be the "Series C Conversion
Date." As promptly as practicable after the Series C Conversion Date, the
Company shall issue and shall deliver to the holder of the shares of Series C
Preferred Stock being converted, or on its written order, such certificate or
certificates as it may request for the number of whole shares of Common Stock
issuable upon the conversion of such shares of Series C Preferred Stock in
accordance with the provisions of this Section 3.5, cash in the amount of all
declared and unpaid dividends on such shares of Series C Preferred Stock, up to
and including the Series C Conversion Date, and cash, as provided in Section
3.5(j), in respect of any fraction of a share of Common Stock issuable upon such
conversion. Such conversion shall be deemed to have been effected immediately
prior to the close of business on the Series C Conversion Date, and at such time
the rights of the holder as holder of the converted shares of Series C Preferred
Stock shall cease and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion
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<PAGE> 31
shall be deemed to have become the holder or holders of record of the shares of
Common Stock represented thereby. The Company shall pay all issue and other
taxes (other than income taxes) that may be payable in respect of any issuance
or delivery of shares of Common Stock or other securities upon conversion of
Series C Preferred Stock.
(j) Cash in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series C Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Series C Preferred Stock, the Company shall pay to the holder of the shares of
Series C Preferred Stock which were converted a cash adjustment in respect of
such fractional shares in an amount equal to the same fraction of the market
price per share of the Common Stock (as determined in a reasonable manner
prescribed by the Board of Directors) at the close of business on the Conversion
Date. The determination as to whether or not fractional shares are issuable
shall be based upon the total number of shares of Series C Preferred Stock being
converted at any one time by any holder thereof, not upon each share of Series C
Preferred Stock being converted.
(k) Partial Conversion. In the event some but not all of the
shares of Series C Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Company shall execute and deliver to
or on the order of the holder, at the expense of the Company, a new certificate
representing the number of shares of Series C Preferred Stock which were not
converted.
(l) Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Series C Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series C Preferred Stock, and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series C Preferred Stock,
the Company shall take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
3.6 No Reissuance of Series C Preferred Stock. No share or shares of
Series C Preferred Stock acquired by the Company by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the Company shall be
authorized to issue. The Company may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of Series C Preferred Stock accordingly.
3.7 Restriction and Limitations.
(a) Except as expressly provided herein or as required by law, so
long as any shares of the Series C Preferred Stock remain outstanding, the
Company shall not, and shall not permit any subsidiary (which shall mean any
company or trust of which the Company directly or
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indirectly owns at the time a majority of the outstanding voting shares of every
class of such company or trust other than directors' qualifying shares) to,
without the vote or written consent by the holders of at least 66-2/3% of the
then outstanding shares of the Series C Preferred Stock:
(i) Redeem, purchase or otherwise acquire for value
(or pay into or set aside for a sinking fund for such purpose), any
share or shares of Series C Preferred Stock, except upon an Event of
Default as provided in the Investment Agreement;
(ii) Authorize or issue, or obligate itself to
authorize or issue, any other equity security senior to or on a parity
with the Series C Preferred Stock as to dividend rights, liquidation
preferences, conversion rights, voting rights or otherwise, or any
security convertible into or exchangeable for any such equity security;
(iii) Effect any sale, lease, assignment, transfer or
other conveyance of all or substantially all of the assets of the
Company or any subsidiary thereof, or any consolidation or merger
involving the Company or any subsidiary thereof, or any reclassification
or other change of stock, or any recapitalization or any dissolution,
liquidation or winding up of the Company; or
(iv) Amend its Articles of Incorporation if such
amendment would change any of the preferences, limitations or relative
rights of the Series C Preferred Stock, including without limitation,
(A) Change the relative seniority rights of the
holders of Series C Preferred Stock as to the payment of
dividends in relation to the holders of any other capital stock
of the Company;
(B) Reduce the amount payable to the holders of
Series C Preferred Stock upon the voluntary or involuntary
liquidation, dissolution or winding up of the Company, or change
the relative seniority of the liquidation preferences of the
holders of Series C Preferred Stock to the rights upon
liquidation of the holders of any other capital stock of the
Company or change the dividend rights of the holders of Series C
Preferred Stock;
(C) Cancel or modify the conversion rights of the
holders of Series C Preferred Stock provided for in Section 3.5
herein; or
(D) Increase or decrease (except as provided in
Section 3.6) the authorized number of shares of Series C
Preferred Stock or authorize, approve, or adopt an amendment to
its Articles of Incorporation therefor.
3.8 No Dilution or Impairment. The Company will not, by amendment of its
Articles of Incorporation, or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Series C Preferred Stock set forth herein, but will at all
times
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in good faith carry out all such terms and take all such action as may be
necessary or appropriate in order to protect the rights of the holders of the
Series C Preferred Stock against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) will not increase the par value
of any shares of stock receivable on the conversion of the Series C Preferred
Stock above the amount payable therefor on such conversion, (b) will take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of stock on the
conversion of all Series C Preferred Stock from time to time outstanding, and
(c) will not transfer all or substantially all of its properties and assets to
any other person (corporate or otherwise), or consolidate with or merge into any
other person (if the Company is not the surviving person), unless such other
person shall expressly assume in writing and will be bound by all terms of the
Series C Preferred Stock set forth herein.
3.9 Notices of Record Date. In the event of:
(a) Any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right; or
(b) Any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company, or any transfer of all or substantially
all of the assets of the Company to any other Company, or any other entity or
person; or
(c) Any voluntary or involuntary dissolution, liquidation or
winding up of the Company, then and in each such event the Company shall mail or
cause to be mailed to each holder of Series C Preferred Stock a notice
specifying (i) the date on which any such record is to be taken for the purpose
of such dividend, distribution or right and a description of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective, and
(iii) the time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up. Such notice shall
be mailed at least 30 days prior to the date specified in such notice on which
such action is to be taken.
SERIES D PREFERRED STOCK
4.1 Authorized Series D Preferred Shares. The Company shall have the
authority to issue Nine Hundred Eighty-Eight (988) shares of preferred stock
designated as the "Series D Convertible Preferred Stock" (and hereinafter
referred to as the "Series D Preferred Stock"), having the rights, preferences
and limitations hereinafter described, and having a par value of Ten Dollars
($10.00) per share.
4.2 Dividends.
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(a) The Company shall not declare, pay or set aside for payment
any dividend or make any distribution on the Common Stock, other than dividends
or distributions payable in additional shares of Common Stock, unless at the
time of such dividend or distribution the Board of Directors of the Company
shall declare and pay a dividend on each then outstanding share of Series D
Preferred Stock equal to the dividend that would be declared and paid on the
largest number of whole shares of Common Stock into which each share of Series D
Preferred Stock held by each holder thereof could be converted pursuant to the
provisions of Section 4.5 hereof as of the record date for the determination of
holders of Common Stock entitled to receive such dividend or distribution.
(b) The Company shall not declare, pay or set aside for payment
any dividend or make any distribution on the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, the Series E Preferred
Stock, or the Series F Preferred Stock, other than (i) any cumulative dividend
payable to holders of Series E Preferred Stock and Series F Preferred Stock in
accordance with Sections 5.2(b) and 6.2(b) hereof or (ii) dividends or
distributions payable in additional shares of each such series to the holders of
shares of the corresponding series of preferred stock, unless at the time of
such dividend or distribution the Board of Directors of the Company shall
declare and pay a dividend on each then outstanding share of Series D Preferred
Stock that bears the same relationship to the fixed liquidation value per share
of the Series D Preferred Stock as the dividend or distribution paid on each
other series of preferred stock bears to the fixed liquidation value per share
of such series set forth in Section 1.3(a)(i), 3.3(a)(i), 4.3(a)(i), 5.3(a)(i),
or 6.3(a)(i), as the case may be.
4.3 Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of
the Company, or any bankruptcy or insolvency proceeding, whether voluntary or
involuntary, holders of each share of Series D Preferred Stock shall be entitled
to be paid first out of the assets of the Company available for distribution to
holders of the Company's capital stock of all classes, whether such assets are
capital, surplus, or earnings, before any sums shall be paid or any assets
distributed among the holders of any other shares of capital stock of the
Company (which includes any other class or series of preferred stock, except the
Series A Preferred Stock, Series B Preferred Stock, the Series C Preferred
Stock, the Series E Preferred Stock, and the Series F Preferred Stock, except as
otherwise provided in Section 5.3 and Section 6.3 hereof), an amount equal to
the greater of (i) $4,044 per share of Series D Preferred Stock plus all
declared and unpaid dividends thereon, up to and including the date full payment
shall be rendered to the holders of the Series D Preferred Stock with respect to
such liquidation, dissolution or winding up, or (ii) such amount per share of
Series D Preferred Stock as would have been payable had each such share been
converted to Common Stock pursuant to the provisions of Section 4.5 hereof
immediately prior to such event of liquidation, dissolution or winding up;
provided, however, that payment in full shall first be made to the holders of
the Series E Preferred Stock and Series F Preferred Stock as provided in Section
5.3 and Section 6.3 hereof. For purposes of computing the amount per share
described in (ii) of the preceding sentence, all shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, and Series E Preferred Stock then outstanding shall be assumed to have
been converted to
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Common Stock immediately prior to such event of liquidation, dissolution or
winding up, but in the event the amount per share calculated with this
assumption is greater than the amount set forth in (i) of the preceding sentence
but less than the amount set forth in one or more of Sections 1.3(a)(i),
2.3(a)(i), 3.3(a)(i), or 5.3(a)(i) respectively, then the shares of each of the
above series for whom the amount so calculated is less than the amount provided
to it in its corresponding Section 1.3(a)(i), 2.3(a)(i), 3.3(a)(i) or 5.3(a)(i)
shall then be assumed to be paid at the amount set forth in its corresponding
Section 1.3(a)(i), 2.3(a)(i), 3.3(a)(i), or 5.3(a)(i) and the computation of the
amount per share described in (ii) of the preceding sentence shall again be made
with the assumption that the shares of only the remaining series not so paid
will have been converted to Common Stock immediately prior to such event of
liquidation, dissolution or winding up. Following payment to the holders of the
Series E Preferred Stock pursuant to Section 5.3(a) hereof, and the payment to
the holders of Series F Preferred Stock as provided in Section 6.3(a) hereof, if
the assets of the Company shall be insufficient to permit the payment in full to
the holders of the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock, and the Series D Preferred Stock, of the amount
distributable in accordance with Sections 1.3(a), 2.3(a), 3.3(a), and 4.3(a),
then the remaining assets of the Company available for such distribution shall
be distributed ratably among the holders of the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, and the Series D
Preferred Stock in proportion to the total amounts to which such holders are
entitled upon such liquidation, dissolution or winding up of the Company. After
such payment shall have been made in full to the holders of the Series D
Preferred Stock or funds necessary for such payment shall have been set aside by
the Company in trust for the account of holders of the Series D Preferred Stock
so as to be available for such payment, holders of the Series D Preferred Stock
shall be entitled to no further participation in the distribution of the assets
of the Company and shall have no further rights of conversion, and the remaining
assets available for distribution shall be distributed ratably among the holders
of the Company's other capital stock (other than the Series A Preferred Stock,
the Series B Preferred Stock, the Series C Preferred Stock, the Series E
Preferred Stock, and the Series F Preferred Stock).
(b) A reorganization of the Common Stock as provided in Section
4.5(g) or a consolidation or merger of the Company or a sale of all or
substantially all of the assets of the Company shall be regarded as a
liquidation, dissolution or winding up of the affairs of the Company within the
meaning of this Section 4; provided, however, each holder of Series D Preferred
Stock, at the option of such holder, shall be entitled to the rights provided to
them under Section 4.5(g) hereof in lieu of receiving payment in liquidation,
dissolution or winding up of the Company pursuant to this Section 4.3.
(c) Any distribution in connection with the liquidation,
dissolution or winding up of the Company, or any bankruptcy or insolvency
proceeding, shall be made in cash to the extent possible. Whenever any such
distribution shall be paid in property other than cash, then the Company at its
expense will promptly cause an independent investment bank selected by the
Company and approved by the holders of a majority of the outstanding shares of
Preferred Stock to value such property, whereupon such value shall be given to
such consideration and shall be recorded on the books of the Company with
respect to the distribution of such property.
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4.4 Voting Power. Except as otherwise expressly provided in Section 4.7
hereof, or as required by law, each holder of Series D Preferred Stock shall be
entitled to vote on all matters submitted to shareholders of the Company and
shall be entitled to that number of votes equal to the largest number of whole
shares of Common Stock into which such holder's shares of Series D Preferred
Stock could be converted, pursuant to the provisions of Section 4.5 hereof, at
the record date for the determination of shareholders entitled to vote on such
matter or, if no such record date is established, at the date such vote is taken
or any written consent of shareholders is solicited. Except as otherwise
expressly provided herein or as required by law, the holders of shares of Series
D Preferred Stock and Common Stock shall be entitled to vote together as a class
on all matters.
4.5 Conversion Rights. The holders of the Series D Preferred Stock shall
have the following conversion rights:
(a) General. Subject to and in compliance with the provisions of
this Section 4.5, any shares of the Series D Preferred Stock may, at the option
of the holder, be converted at any time or from time to time into fully-paid and
nonassessable shares (calculated as to each conversion to the largest whole
share) of Common Stock. The number of shares of Common Stock to which a holder
of Series D Preferred Stock shall be entitled upon conversion shall be the
product obtained by multiplying the Applicable Conversion Rate (determined as
provided in Section 4.5(c)) by the number of shares of Series D Preferred Stock
being converted.
(b) Conversion Following Underwritten Public Offering.
(i) All outstanding shares of Series D Preferred Stock
shall, upon the closing of an underwritten public offering pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account of
the Company in which the aggregate price of the shares of Common Stock
into which each share of Series D Preferred Stock may be converted in
compliance with this Section 4.5 is not less than $6,066 (1.5 times the
initial Applicable Conversion Value of the Series D Preferred Stock) and
in which the aggregate gross proceeds to the Company exceed $7,500,000,
be converted automatically into the number of shares of Common Stock
into which such Series D Preferred Stock is convertible pursuant to
Section 4.5(a) hereof without any further action by the holders of such
shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent for the Common Stock.
(ii) Upon the occurrence of the conversion specified
in Section 4.5(b)(i), the holders of such Series D Preferred Stock shall
surrender the certificates representing such shares at the office of the
Company or of its transfer agent for the Common Stock. The certificate
or certificates for shares of Series D Preferred Stock surrendered for
conversion shall be accompanied by proper assignment thereof to the
Company or in blank. As promptly as practicable thereafter, the Company
shall issue and shall deliver to the holder of the shares of Series D
Preferred Stock being converted, or on its written order, such
certificate or certificates for the number of whole shares of Common
Stock issuable upon the conversion of such shares of Series D Preferred
Stock in accordance with the provisions of this
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Section 4.5, cash in the amount of all declared and unpaid dividends on
such shares of Series D Preferred Stock, up to and including the Series
D Conversion Date as defined in Section 4.5(i) , and cash, as provided
in Section 4.5(j), in respect of any fraction of a share of Common Stock
issuable upon such conversion. The Company shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon
such conversion unless certificates evidencing such shares of the Series
D Preferred Stock being converted are either delivered to the Company or
any such transfer agent or the holder notifies the Company or any such
transfer agent that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection
therewith. The Company shall pay all issue and other taxes (other than
income taxes) that may be payable in respect of any issuance or delivery
of shares of Common Stock or other securities upon conversion of Series
D Preferred Stock.
(c) Applicable Conversion Rate. The conversion rate in effect at
any time (the "Applicable Conversion Rate") shall be the quotient obtained by
dividing $4,044 by the Applicable Conversion Value, calculated as provided in
Section 4.5(d).
(d) Applicable Conversion Value. The Applicable Conversion Value
in effect from time to time, except as adjusted in accordance with Section
4.5(e) hereof, shall be $4,044.
(e) Adjustments to Applicable Conversion Value.
(i) Upon Issuance or Sale of Common Stock. If the
Company shall, while there are any shares of Series D Preferred Stock
outstanding, issue or sell shares of its Common Stock or any other
series or class of capital stock convertible into Common Stock without
consideration or at a price per share for Common Stock less than the
Applicable Conversion Value in effect immediately prior to such issuance
or sale, then in each such case the Applicable Conversion Value upon
each such issuance or sale, except as hereinafter provided, shall be
adjusted to an amount determined by multiplying the Applicable
Conversion Value by a fraction:
(A) the numerator of which shall be (a) the number
of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock, plus (b) the
number of shares of Common Stock which the net aggregate
consideration received by the Company for the total number of
such additional shares of Common Stock so issued would purchase
at the Applicable Conversion Value, and
(B) the denominator of which shall be (a) the
number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares of Common Stock, plus (b)
the number of such additional shares of Common Stock so issued
or, if convertible securities are being issued, the number of
shares of Common Stock that could be issued if all such
convertible securities were converted into Common Stock at the
lowest applicable exercise or conversion price.
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The Company's issuance of options for the purchase of Common Stock
pursuant to incentive stock option plans and/or nonqualified stock option plans
approved by the Company's Board of Directors, providing for the issuance of
options to purchase Common Stock for the recruitment and retention of senior
personnel and to compensate advisors and members of the Board of Directors,
which aggregate number of all issuable and issued shares of Common Stock shall
at no time exceed 2,098 shares of Common Stock on an as converted basis, which
amount shall be subject to adjustment to reflect any Extraordinary Common Stock
Event (as defined herein below) in accordance with Section 4.5(e)(ii), shall not
give rise to an adjustment pursuant to this Section 4.5(e)(i) unless such shares
or stock options are issued or granted to any shareholder who holds Common Stock
or other capital stock convertible into Common Stock, or warrants, options or
other rights to acquire Common Stock or other capital stock convertible into
Common Stock, which in the aggregate represents (when exercised and/or
converted) more than ten percent (10%) of the Company's issued and outstanding
Common Stock. Notwithstanding anything to the contrary herein, neither (i) the
issuance of the Series E Preferred Stock or the Series F Preferred Stock, nor
(ii) any adjustment to the Applicable Conversion Value for the Series E
Preferred Stock pursuant to Section 5.5(h) and any issuance of additional Common
Stock pursuant thereto, nor (iii) the issuance of Common Stock upon conversion
of the Series A, B, C, D, E, or F Preferred Stock, shall give rise to an
adjustment pursuant to this Section 4.5(e)(i).
For the purposes of this Section 4.5(e)(i), the issuance of any
warrants, options, subscriptions or purchase rights with respect to shares of
Common Stock and the issuance of any securities convertible into or exchangeable
for shares of Common Stock (or the issuance of any warrants, options or rights
with respect to such convertible or exchangeable securities) shall be deemed an
issuance at such time of such Common Stock if the Net Consideration Per Share
(as hereinafter determined) which may be received by the Company for such Common
Stock shall be less than the Applicable Conversion Value at the time of such
issuance. Any obligation, agreement or undertaking to issue warrants, options,
subscriptions or purchase rights at any time in the future shall be deemed to be
an issuance at the time such obligation, agreement or undertaking is made or
arises. No adjustment of the Applicable Conversion Value shall be made under
this Section 4.5(e)(i) upon the issuance of any shares of Common Stock which are
issued pursuant to the exercise of any warrants, options, subscriptions or
purchase rights or pursuant to the exercise of any conversion or exchange rights
in any convertible securities if any adjustment shall previously have been made
upon the issuance of any such warrants, options, subscriptions or purchase
rights or upon the issuance of any convertible securities (or upon the issuance
of any warrants, options or any rights therefor) as above provided. Any
adjustment of the Applicable Conversion Value with respect to this paragraph
which relates to warrants, options, subscriptions or purchase rights with
respect to shares of Common Stock shall be disregarded if, as and when such
warrants, options, subscriptions or purchase rights expire or are canceled
without being exercised, so that the Applicable Conversion Value effective
immediately upon such cancellation or expiration shall be equal to the
Applicable Conversion Value that would have applied without giving effect to the
issuance of the expired or canceled warrants, options, subscriptions or purchase
rights. For purposes of this paragraph, the "Net Consideration Per Share" which
may be received by the Company shall be determined as follows:
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(x) The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any,
received by the Company for the issuance of such warrants,
options, subscriptions or other purchase rights or convertible or
exchangeable securities, plus the minimum amount of
consideration, if any, payable to the Company upon exercise or
conversion thereof, divided by the aggregate number of shares of
Common Stock that would be issued if all such warrants, options,
subscriptions or other purchase rights or convertible or
exchangeable securities were exercised, exchanged or converted.
(y) The Net Consideration Per Share which may be received
by the Company shall be determined in each instance as of the
date of issuance of warrants, options, subscriptions or other
purchase rights or convertible or exchangeable securities without
giving effect to any possible future price adjustments or rate
adjustments which may be applicable with respect to such
warrants, options, subscriptions or other purchase rights or
convertible or exchangeable securities (until such time as such
adjustments are actually made).
For purposes of this Section 4.5(e)(i), if part or all of the
consideration received by the Company in connection with the issuance of shares
of the Common Stock or the issuance of any of the securities described in
Section 4.5(e)(i) consists of property other than cash, the Company at its
expense will promptly cause an independent investment bank selected by the
Company and approved by the holders of a majority of the outstanding shares of
Series D Preferred Stock to value such property, whereupon such value shall be
given to such consideration and shall be recorded on the books of the Company
with respect to receipt of such property.
This Section 4.5(e)(i) shall not apply under any of the circumstances
which would constitute an Extraordinary Common Stock Event (as hereinafter
defined in Section 4.5(e)(ii)).
(ii) Upon Extraordinary Common Stock Event. Upon the
happening of an Extraordinary Common Stock Event (as hereinafter
defined), the Applicable Conversion Value (and all other conversion
values set forth in paragraph (e)(i) above) shall, simultaneously with
the happening of such Extraordinary Common Stock Event, be adjusted by
multiplying the then effective Applicable Conversion Value by a
fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such Extraordinary Common Stock
Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common
Stock Event. The Applicable Conversion Value, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive
Extraordinary Common Stock Event or Events.
"Extraordinary Common Stock Event" shall mean (i) the
issue of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, (ii) subdivision of
outstanding shares of Common Stock into a greater number of shares of
the Common Stock, or (iii) combination of outstanding shares of the
Common Stock into a smaller number of shares of the Common Stock.
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(f) Recapitalization or Reclassification. If the Common Stock
issuable upon the conversion of the Series D Preferred Stock shall be changed
into the same or different number of shares of any class or classes of stock of
the Company, whether by recapitalization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
elsewhere in Section 4.5, or reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 4.5), then and in each such event
the holder of each share of Series D Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock and
other securities and property that such holder would have owned or been entitled
to receive after the occurrence of any such event had such share of Series D
Preferred Stock been surrendered for conversion into Common Stock immediately
prior thereto.
(g) Capital Reorganization, Merger or Sale of Assets. If at any
time or from time to time there shall be a capital reorganization of the Common
Stock (other than a subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section 4.5), or a merger or consolidation
of the Company with or into another company, or the sale of all or substantially
all of the Company's properties and assets to any other person, then, as a part
of such reorganization, merger, consolidation or sale, provision shall be made
so that the holders of the Series D Preferred Stock shall thereafter be entitled
to receive upon conversion of the Series D Preferred Stock, the number of shares
of stock or other securities or property of the Company, or of the successor
Company resulting from such a merger, consolidation or sale, that such holder
would have owned or been entitled to receive after the occurrence of any such
event had such share of Series D Preferred Stock been surrendered for conversion
into Common Stock immediately prior thereto. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
4.5 with respect to the rights of the holders of the Series D Preferred Stock
after the reorganization, merger, consolidation or sale to the end that the
provisions of this Section 4.5 (including adjustment of the Applicable
Conversion Value then in effect and the number of shares purchasable upon
conversion of the Series D Preferred Stock) shall be applicable after that event
in as nearly equivalent a manner as may be practicable.
Each holder of Series D Preferred Stock upon the occurrence of a
capital reorganization, merger or consolidation of the Company, or the sale of
all or substantially all its assets and properties as such events are more fully
set forth in the first paragraph of this Section 4.5(g), shall have the option
of electing treatment of his shares of Series D Preferred Stock under either
this Section 4.5(g) or Section 4.3(b) hereof. Notice of such election shall be
submitted in writing to the Company at its principal offices no later than five
(5) days before the effective date of such event.
(h) Accountant's Certificate as to Adjustments. In each case of
an adjustment or readjustment of the Applicable Conversion Value, the Company
shall furnish each holder of Series D Preferred Stock with a certificate,
prepared by independent public accountants of recognized standing showing such
adjustment or readjustment, and stating in detail the facts upon which such
adjustment or readjustment is based.
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(i) Exercise of Conversion Privilege. To exercise the conversion
privilege, a holder of Series D Preferred Stock shall surrender the certificate
or certificates representing the shares being converted to the Company at its
principal office, and shall give written notice to the Company at that office
that such holder elects to convert such shares. Such notice shall also state the
name or names (with address or addresses) in which the certificate or
certificates for shares of Common Stock issuable upon such conversion shall be
issued. The certificate or certificates for shares of Series D Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Company or in blank. The date when such written notice is received by the
Company, together with the certificate or certificates representing the shares
of Series D Preferred Stock being converted, shall be the "Series D Conversion
Date." As promptly as practicable after the Series D Conversion Date, the
Company shall issue and shall deliver to the holder of the shares of Series D
Preferred Stock being converted, or on its written order, such certificate or
certificates as it may request for the number of whole shares of Common Stock
issuable upon the conversion of such shares of Series D Preferred Stock in
accordance with the provisions of this Section 4.5, cash in the amount of all
declared and unpaid dividends on such shares of Series D Preferred Stock, up to
and including the Series D Conversion Date, and cash, as provided in Section
4.5(j), in respect of any fraction of a share of Common Stock issuable upon such
conversion. Such conversion shall be deemed to have been effected immediately
prior to the close of business on the Series D Conversion Date, and at such time
the rights of the holder as holder of the converted shares of Series D Preferred
Stock shall cease and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Common Stock represented thereby. The Company shall pay all
issue and other taxes (other than income taxes) that may be payable in respect
of any issuance or delivery of shares of Common Stock or other securities upon
conversion of Series D Preferred Stock.
(j) Cash in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series D Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Series D Preferred Stock, the Company shall pay to the holder of the shares of
Series D Preferred Stock which were converted a cash adjustment in respect of
such fractional shares in an amount equal to the same fraction of the market
price per share of the Common Stock (as determined in a reasonable manner
prescribed by the Board of Directors) at the close of business on the Conversion
Date. The determination as to whether or not fractional shares are issuable
shall be based upon the total number of shares of Series D Preferred Stock being
converted at any one time by any holder thereof, not upon each share of Series D
Preferred Stock being converted.
(k) Partial Conversion. In the event some but not all of the
shares of Series D Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Company shall execute and deliver to
or on the order of the holder, at the expense of the Company, a new certificate
representing the number of shares of Series D Preferred Stock which were not
converted.
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(l) Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Series D Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series D Preferred Stock, and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series D Preferred Stock,
the Company shall take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
4.6 No Reissuance of Series D Preferred Stock. No share or shares of
Series D Preferred Stock acquired by the Company by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the Company shall be
authorized to issue. The Company may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of Series D Preferred Stock accordingly.
4.7 Restriction and Limitations.
(a) Except as expressly provided herein or as required by law, so
long as any shares of the Series D Preferred Stock remain outstanding, the
Company shall not, and shall not permit any subsidiary (which shall mean any
company or trust of which the Company directly or indirectly owns at the time a
majority of the outstanding voting shares of every class of such company or
trust other than directors' qualifying shares) to, without the vote or written
consent by the holders of at least 66 2/3% of the then outstanding shares of the
Series D Preferred Stock:
(i) Redeem, purchase or otherwise acquire for value
(or pay into or set aside for a sinking fund for such purpose), any
share or shares of Series D Preferred Stock, except upon an Event of
Default as provided in the Investment Agreement;
(ii) Authorize or issue, or obligate itself to
authorize or issue, any other equity security senior to or on a parity
with the Series D Preferred Stock as to dividend rights, liquidation
preferences, conversion rights, voting rights or otherwise, or any
security convertible into or exchangeable for any such equity security;
(iii) Effect any sale, lease, assignment, transfer or
other conveyance of all or substantially all of the assets of the
Company or any subsidiary thereof, or any consolidation or merger
involving the Company or any subsidiary thereof, or any reclassification
or other change of stock, or any recapitalization or any dissolution,
liquidation or winding up of the Company; or
(iv) Amend its Articles of Incorporation if such
amendment would change any of the preferences, limitations or relative
rights of the Series D Preferred Stock, including without limitation,
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(A) Change the relative seniority rights of the
holders of Series D Preferred Stock as to the payment of
dividends in relation to the holders of any other capital stock
of the Company;
(B) Reduce the amount payable to the holders of
Series D Preferred Stock upon the voluntary or involuntary
liquidation, dissolution or winding up of the Company, or change
the relative seniority of the liquidation preferences of the
holders of Series D Preferred Stock to the rights upon
liquidation of the holders of any other capital stock of the
Company or change the dividend rights of the holders of Series D
Preferred Stock;
(C) Cancel or modify the conversion rights of the
holders of Series D Preferred Stock provided for in Section 4.5
herein; or
(D) Increase or decrease (except as provided in
Section 4.6) the authorized number of shares of Series D
Preferred Stock or authorize, approve, or adopt an amendment to
its Articles of Incorporation therefor.
4.8 No Dilution or Impairment. The Company will not, by amendment of its
Articles of Incorporation, or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Series D Preferred Stock set forth herein, but will at all
times in good faith carry out all such terms and take all such action as may be
necessary or appropriate in order to protect the rights of the holders of the
Series D Preferred Stock against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) will not increase the par value
of any shares of stock receivable on the conversion of the Series D Preferred
Stock above the amount payable therefor on such conversion, (b) will take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of stock on the
conversion of all Series D Preferred Stock from time to time outstanding, and
(c) will not transfer all or substantially all of its properties and assets to
any other person (corporate or otherwise), or consolidate with or merge into any
other person (if the Company is not the surviving person), unless such other
person shall expressly assume in writing and will be bound by all terms of the
Series D Preferred Stock set forth herein.
4.9 Notices of Record Date. In the event of:
(a) Any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right; or
(b) Any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company, or any transfer of all or substantially
all of the assets of the Company to any other Company, or any other entity or
person; or
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(c) Any voluntary or involuntary dissolution, liquidation or
winding up of the Company, then and in each such event the Company shall mail or
cause to be mailed to each holder of Series D Preferred Stock a notice
specifying (i) the date on which any such record is to be taken for the purpose
of such dividend, distribution or right and a description of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective, and
(iii) the time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up. Such notice shall
be mailed at least 30 days prior to the date specified in such notice on which
such action is to be taken.
SERIES E PREFERRED STOCK
5.1 Authorized Series E Preferred Shares. The Company shall have the
authority to issue Four Thousand Eight Hundred Nineteen (4,819) shares of
preferred stock designated as the "Series E Convertible Preferred Stock" (and
hereinafter referred to as the "Series E Preferred Stock"), having the rights,
preferences and limitations hereinafter described, and having a par value of Ten
Dollars ($10.00) per share.
5.2 Dividends.
(a) The Company shall not declare, pay or set aside for payment
any dividend or make any distribution on the Common Stock, other than dividends
or distributions payable in additional shares of Common Stock, unless at the
time of such dividend or distribution the Board of Directors of the Company
shall declare and pay a dividend on each then outstanding share of Series E
Preferred Stock equal to the dividend that would be declared and paid on the
largest number of whole shares of Common Stock into which each share of Series E
Preferred Stock held by each holder thereof could be converted pursuant to the
provisions of Section 5.5 hereof as of the record date for the determination of
holders of Common Stock entitled to receive such dividend or distribution.
(b) A deemed cumulative cash dividend equal to ten percent (10%)
of the purchase price of the Series E Preferred Stock ($4,044.00 per share) per
annum compounded annually from the date of issuance shall accrue on each
outstanding share of Series E Preferred Stock from the date of issuance and
shall be payable only upon liquidation, dissolution, or winding up of the
Company in accordance with Section 5.3(a). Dividends on the Series E Preferred
Stock shall accumulate and accrue on each such share from the date of its
original issue and from day to day thereafter, whether or not earned or
declared. The Company shall not declare, pay or set aside for payment any
dividend or make any distribution on the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, or
the Series F Preferred Stock other than (i) any cumulative dividend payable to
holders of Series F Preferred Stock in accordance with Section 6.2(b) hereof, or
(ii) dividends or distributions payable in additional shares of each such series
to the holders of shares of the corresponding series of preferred stock, unless
at
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the time of such dividend or distribution the Board of Directors of the Company
shall declare and pay a dividend on each then outstanding share of Series E
Preferred Stock that bears the same relationship to the fixed liquidation value
per share of the Series E Preferred Stock as the dividend or distribution paid
on each other series of preferred stock bears to the fixed liquidation value per
share of such series set forth in Section 1.3(a)(i), 2.3(a)(i), 3.3(a)(i),
4.3(a)(i), or 6.3(a)(i), as the case may be.
5.3 Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of
the Company, or any bankruptcy or insolvency proceeding, whether voluntary or
involuntary, holders of each share of Series E Preferred Stock shall be entitled
to be paid first out of the assets of the Company available for distribution to
holders of the Company's capital stock of all classes, whether such assets are
capital, surplus, or earnings, before any sums shall be paid or any assets
distributed among the holders of any other shares of capital stock of the
Company (which includes any other class or series of preferred stock), an amount
equal to a deemed cumulative dividend of ten percent (10%) per annum, which
amount in the aggregate shall not exceed $3,033 ("Series E Dividend").
Thereafter, holders of each share of Series E Preferred Stock shall be entitled
to be paid first out of the assets of the Company available for distribution to
holders of the Company's capital stock of all classes, whether such assets are
capital, surplus, or earnings, before any sums shall be paid or any assets
distributed among the holders of any other shares of capital stock of the
Company (which includes any other class or series of preferred stock, except the
Series F Preferred Stock as provided in Section 6.3(a)), the greater of (i)
$4,044 per share of Series E Preferred Stock; or (ii) such amount per share of
Series E Preferred Stock as would have been payable had each such share been
converted to Common Stock pursuant to the provisions of Section 5.5 hereof
(including Section 5.5(h) to the extent applicable) immediately prior to such
event of liquidation, dissolution or winding up. For purposes of computing the
amount per share described in (ii) of the preceding sentence, all shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
and Series D Preferred Stock then outstanding shall be assumed to have been
converted to Common Stock immediately prior to such event of liquidation,
dissolution or winding up. Following payment to the holders of the Series E
Preferred Stock pursuant to this Section 5.3(a) and the payment to the holders
of Series F Preferred Stock pursuant to Section 6.3 hereof, if the assets of the
Company shall be insufficient to permit the payment in full to the holders of
the Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock, and the Series D Preferred Stock of the amount distributable in
accordance with Sections 1.3(a)(i), 2.3(a)(i), 3.3(a)(i), and 4.3(a)(i) then the
remaining assets of the Company available for such distribution shall be
distributed ratably among the holders of the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, and the Series D
Preferred Stock in proportion to the total amounts to which such holders are
entitled upon such liquidation, dissolution or winding up of the Company. After
such payment shall have been made to the holders of the Series E Preferred Stock
or funds necessary for such payment shall have been set aside by the Company in
trust for the account of holders of the Series E Preferred Stock so as to be
available for such payment, holders of the Series E Preferred Stock shall be
entitled to no further participation in the distribution of the assets of the
Company and shall have no further rights of conversion, and the remaining assets
available for distribution shall be distributed ratably
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among the holders of the Company's other capital stock (other than Series A
Preferred Stock, Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock, the Series E Preferred Stock, and the Series F
Preferred Stock).
(b) A reorganization of the Common Stock as provided in Section
5.5(g), or a consolidation or merger of the Company or a sale of all or
substantially all of the assets of the Company but excluding a Qualified Sale as
such term is defined in Sections 5.5(b)(ii) and (iv), shall be regarded as a
liquidation, dissolution or winding up of the affairs of the Company within the
meaning of this Section 5.3; provided, however, each holder of Series E
Preferred Stock, at the option of such holder, shall be entitled to the rights
provided to them under Section 5.5(g) hereof in lieu of receiving payment in
liquidation, dissolution or winding up of the Company pursuant to this Section
5.3. Notwithstanding the foregoing, in the case of a merger or consolidation of
the Company with or into another company, or the sale of all or substantially
all of its assets and properties as such events are more fully described in
Section 5.5(g), if the holders of at least fifty percent (50%) of the then
outstanding shares of Series E Preferred Stock elect, by vote or by written
consent in connection with such event, to convert all outstanding shares of
Series E Preferred Stock to Common Stock, then all such outstanding Series E
Preferred Stock shall be automatically converted upon the closing of such
transaction at the then Applicable Conversion Rate as provided in Section 5.5(a)
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Company or its
transfer agent for the Common Stock, and neither this Section 5.3(b) nor Section
5.5(g) shall apply. Written notice of such election must be delivered by the
electing holders of shares of Series E Preferred Stock to the Company and to the
other holders, if any, of Series E Preferred Stock no later than five (5) days
prior to the closing of such transaction for the election to be effective.
(c) Any distribution in connection with the liquidation,
dissolution or winding up of the Company, or any bankruptcy or insolvency
proceeding, shall be made in cash to the extent possible. Whenever any such
distribution shall be paid in property other than cash, then the Company at its
expense will promptly cause an independent investment bank selected by the
Company and approved by the holders of a majority of the outstanding shares of
Preferred Stock to value such property, whereupon such value shall be given to
such consideration and shall be recorded on the books of the Company with
respect to the distribution of such property.
5.4 Voting Power. Except as otherwise expressly provided in Section 5.7
hereof, or as required by law, each holder of Series E Preferred Stock shall be
entitled to vote on all matters submitted to shareholders of the Company and
shall be entitled to that number of votes equal to the largest number of whole
shares of Common Stock into which such holder's shares of Series E Preferred
Stock could be converted, pursuant to the provisions of Section 5.5 hereof, at
the record date for the determination of shareholders entitled to vote on such
matter or, if no such record date is established, at the date such vote is taken
or any written consent of shareholders is solicited. Except as otherwise
expressly provided herein or as required by law, the holders of shares of Series
E Preferred Stock and Common Stock shall be entitled to vote together as a class
on all matters.
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5.5 Conversion Rights. The holders of the Series E Preferred Stock shall
have the following conversion rights:
(a) General. Subject to and in compliance with the provisions of
this Section 5.5, any shares of the Series E Preferred Stock may, at the option
of the holder, be converted at any time or from time to time into fully-paid and
nonassessable shares (calculated as to each conversion to the largest whole
share) of Common Stock. In connection with the conversions in which the
adjustment for a Below Projection Liquidity Event occurs pursuant to the terms
of Section 5.5(h), the number of shares of Common Stock to which a holder of
Series E Preferred Stock shall be entitled upon conversion shall be the product
obtained by multiplying the Applicable Conversion Rate (determined as provided
in Section 5.5(c)) by the number of shares of Series E Preferred Stock being
converted. In connection with conversions in which the adjustment for a Below
Projection Liquidity Event set forth in Section 5.5(h) does not occur, the
number of shares of Common Stock to which a holder of Series E Preferred Stock
shall be entitled upon conversion shall be the number of shares of Series E
Preferred Stock being converted, plus the quotient obtained by the division of
the sum of the two values determined in accordance with paragraphs (i) and (ii)
below by two (2).
(i) A value determined by multiplying the Applicable
Conversion Rate (determined as provided in Section 5.5(c)) by the number
of shares of Series E Preferred Stock being converted, and then
subtracting the number of shares of Series E Preferred Stock being
converted.
(ii) A value determined in connection with one or more
issuances or sales by the Company of shares of its Common Stock or any
other series or class of capital stock convertible into Common Stock at
a price per share for Common Stock less than the original issue price
per share ($4,044.00) of shares of Series E Preferred Stock ("Newly
Issued Shares") (which original issue price shall be adjusted to reflect
any Extraordinary Common Stock Event as defined in Section 5.5(e)(ii)
below), calculated by multiplying the number of shares of Series E
Preferred Stock being converted by the aforesaid original issue price of
such shares (as adjusted), then dividing the product of the preceding
multiplication by the lowest per share consideration received or deemed
received by the Company for any of the Newly Issued Shares, and then
subtracting from the quotient resulting from the preceding division
(expressed in the nearest whole number) the number of shares of Series E
Preferred Stock being converted. The value expressed in this subsection
(ii) will not be calculated or used in any way if the value expressed in
the preceding subsection (i) is not calculated and used. For purposes of
this Section 5.5(a)(ii), the issuance of any warrants, options,
subscriptions or purchase rights with respect to shares of Common Stock
and the issuance of any securities convertible into or exchangeable for
shares of Common Stock (or the issuance of any warrants, options or
rights with respect to such convertible or exchangeable securities)
shall be deemed an issuance at such time of such Common Stock if the Net
Consideration Per Share which may be received by the Company for such
Common Stock shall be less than the original issue price set forth above
for the Series E Preferred Stock (as adjusted) at the time of such
issuance, which issuances shall be subject to the same terms,
conditions, and limitations as those set forth for such issuances in
Section 5.5(e)(i) for purposes of this
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Section. If part or all of the consideration received by the Company in
connection with the issuance of shares of the Common Stock or the
issuance of any of the securities described in this Section 5.5(a)(ii)
consists of property other than cash, the provisions set forth for such
issuances in Section 5.5(e)(i) for purposes of that Section shall also
apply to such issuances for purposes of this Section 5.5(a)(ii).
(b) Automatic Conversion in Connection with Qualified Public
Offerings, Qualified Sales, and Certain Other Mergers and Sales. All outstanding
shares of Series E Preferred Stock shall, upon the closing of a Qualified Public
Offering or immediately prior to the closing of a Qualified Sale, both as
defined herein, be converted automatically upon the delivery of the notice of a
Qualified Public Offering and upon the closing of a Qualified Sale into the
number of shares of Common Stock into which such Series E Preferred Stock is
convertible pursuant to Section 5.5(a) hereof without any further action by the
holders of such shares and whether or not the certificates representing such
shares are surrendered to the Company or its transfer agent for the Common
Stock. In addition, in the case of a merger or consolidation of the Company with
or into another company, or the sale of all or substantially all of its assets
and properties as such events are more fully described in Section 5.5(g), if the
holders of at least fifty percent (50%) of the then outstanding shares of Series
E Preferred Stock elect, by vote or by written consent in connection with such
event, to convert all outstanding shares of Series E Preferred Stock to Common
Stock, then all such outstanding Series E Preferred Stock shall be automatically
converted upon the closing of such transaction at the then Applicable Conversion
Rate as provided in Section 5.5(a) without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent for the Common Stock. Written
notice of such election must be delivered by the electing holders of shares of
Series E Preferred Stock to the Company and to the other holders, if any, of
Series E Preferred Stock no later than five (5) days prior to the closing of
such transaction for the election to convert to be effective.
(i) "Qualified Public Offering" shall mean an offering
of Common Stock that meets the following requirements: (A) the offering
is made pursuant to an effective registration statement filed with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account of
the Company; (B) the offering is made pursuant to a firm commitment
underwriting agreement; (C) the aggregate proceeds to the Company of the
offering are at least $15,000,000 (net of underwriting discounts and
commissions); and (D) the holders of Series E Preferred Stock receive
upon conversion of each share of Series E Preferred Stock, pursuant to
this Section 5.5(b), Common Stock with an aggregate value of at least
the then applicable Value Target (as determined based on the offering
price to the public of Common Stock) as defined in Section 5.5(h),
including public offerings that achieve the applicable Value Target for
holders of Series E Preferred Stock by operation of the adjustment for a
Below Projection Public Offering as set forth in Section 5.5(h);
provided, however, that if the adjustment provided for in Section 5.5(h)
is waived in accordance with Section 5.5(h), then such Below Projection
Offering shall not be deemed to be a Qualified Public Offering unless
the offering price per share of the Common Stock to the public is not
less than the applicable Value Target adjusted for Extraordinary Stock
Events.
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(ii) "Qualified Sale" shall mean a sale of all or
substantially all of the assets of the Company to another person or
entity, or a merger or consolidation of the Company with or into another
company resulting in a Change in Control as defined below, where as a
result of such transaction the holders of the Series E Preferred Stock
receive upon conversion of each share of Series E Preferred Stock
pursuant to this Section 5.5(b), cash or cash equivalents with an
aggregate value of at least the then applicable Value Target as defined
in Section 5.5(h), including transactions that achieve the applicable
Value Target for holders of Series E Preferred Stock resulting from the
operation of the adjustment for a Below Projection Sale as set forth in
Section 5.5(h). In the event that consideration received upon conversion
of the Series E Preferred Stock consists of other than cash, the value
of such cash equivalents shall be determined by an independent
investment bank selected by the Company and approved by the holders of a
majority of the outstanding shares of Series E Preferred Stock that
would receive a distribution pursuant to such a sale.
(iii) For purposes of this Section 5.5, "Change in
Control" shall mean the occurrence of any of the following events after
July 15, 1999: (A) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 promulgated under the Securities
Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the total voting power
represented by the Company's then outstanding voting securities; (B) a
merger or consolidation in which the Company is a party and in which the
holders of Company Capital Stock before such merger or consolidation do
not retain, directly or indirectly, at least a majority of the
beneficial interest in the voting securities of the Company after such
transaction; or (C) the sale or other disposition by the Company of all
or substantially all the Company's assets.
(iv) Notwithstanding the provisions of subsections (i)
and (ii) above, the holders of at least fifty percent (50%) of the then
outstanding shares of Series E Preferred Stock may by written agreement:
(A) deem any public offering to be a Qualified Public Offering for the
purpose of effecting an automatic conversion pursuant to this Section
5.5(b); (B) deem any sale of all or substantially all of the assets of
the Company to another person or entity, or merger or consolidation of
the Company with or into another company where the result of such
transaction is a Change in Control, to be a Qualified Sale for the
purpose of effecting an automatic conversion pursuant to this Section
5.5(b); or (C) deem any transaction meeting the requirements herein of a
Qualified Sale not to be a Qualified Sale for the purpose of permitting
each holder of shares of Series E Preferred Stock the option of treating
such transaction as a liquidation pursuant to Section 5.3(b) or
otherwise under the terms of Section 5.5(g). Written notice of such
written agreement must be delivered by the agreeing holders of shares of
Series E Preferred Stock to the Company and to the other holders, if
any, of Series E Preferred Stock no later than five (5) days prior to
the closing of such transaction for the agreement to be effective. Any
such written agreement shall only be effective with respect to the
specific transaction to which such agreement relates and only for the
period of time specified therein. In the event that the transaction is
not completed within the time period specified in such written
agreement, then such agreement shall be void and of
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no further force and effect, and all rights of the holders of Series E
Preferred Stock waived by such agreement shall be reinstated in full
force and effect. In no event shall any such agreement be deemed to be a
continuing waiver of such rights with respect to any other transaction
or beyond the date specified in such written agreement.
(v) Upon the occurrence of the automatic conversion
specified in this Section 5.5(b), the holders of such Series E Preferred
Stock shall surrender the certificates representing such shares at the
office of the Company or of its transfer agent for the Common Stock. The
certificate or certificates for shares of Series E Preferred Stock
surrendered for conversion shall be accompanied by proper assignment
thereof to the Company or in blank. As promptly as practicable
thereafter, the Company shall issue and shall deliver to the holder of
the shares of Series E Preferred Stock being converted, or on its
written order, such certificate or certificates for the number of whole
shares of Common Stock issuable upon the conversion of such shares of
Series E Preferred Stock in accordance with the provisions of this
Section 5.5, cash in the amount of all declared and unpaid dividends on
such shares of Series E Preferred Stock, up to and including the Series
E Conversion Date as defined in Section 5.5(j) below, and cash, as
provided in Section 5.5(k), in respect of any fraction of a share of
Common Stock issuable upon such conversion. The Company shall not be
obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless certificates evidencing such shares
of the Series E Preferred Stock being converted are either delivered to
the Company or any such transfer agent or the holder notifies the
Company or any such transfer agent that such certificates have been
lost, stolen or destroyed and executes an agreement satisfactory to the
Company to indemnify the Company from any loss incurred by it in
connection therewith. The Company shall pay all issue and other taxes
(other than income taxes) that may be payable in respect of any issuance
or delivery of shares of Common Stock or other securities upon
conversion of Series E Preferred Stock.
(c) Applicable Conversion Rate. The conversion rate in effect at
any time (the "Applicable Conversion Rate") shall be the quotient obtained by
dividing $4,044 by the Applicable Conversion Value, calculated as provided in
Section 5.5(d).
(d) Applicable Conversion Value. The Applicable Conversion Value
in effect from time to time, except as adjusted in accordance with Section
5.5(e) and Section 5.5(h), as applicable, hereof, shall be $4,044.
(e) Adjustments to Applicable Conversion Value. In addition to
any adjustment made on account of a Below Projection Liquidity Event in
accordance with Section 5.5(h), the Applicable Conversion Value shall be subject
to adjustment as follows:
(i) Upon Issuance or Sale of Common Stock. If the
Company shall, while there are any shares of Series E Preferred Stock
outstanding, issue or sell shares of its Common Stock or any other
series or class of capital stock convertible into Common Stock without
consideration or at a price per share for Common Stock less than the
Applicable Conversion Value in effect immediately prior to such issuance
or sale, then in each such case the Applicable Conversion Value upon
each such issuance or sale, except as hereinafter
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provided, shall be adjusted to an amount determined by multiplying the
Applicable Conversion Value by a fraction:
(A) the numerator of which shall be (a) the number
of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock, plus (b) the
number of shares of Common Stock which the net aggregate
consideration received by the Company for the total number of
such additional shares of Common Stock so issued would purchase
at the Applicable Conversion Value, and
(B) the denominator of which shall be (a) the
number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares of Common Stock, plus (b)
the number of such additional shares of Common Stock so issued
or, or if convertible securities are being issued, the number of
shares of Common Stock that could be issued if all such
convertible securities were converted into Common Stock at the
lowest applicable exercise or conversion price.
The Company's issuance of options for the purchase of Common Stock and
the Company's issuance of such securities pursuant to the exercise of such
options, all pursuant to incentive stock option plans and/or nonqualified stock
option plans approved by the Company's Board of Directors, providing for the
issuance of options to purchase Common Stock for the recruitment and retention
of senior personnel and to compensate advisors and members of the Board of
Directors, which aggregate number of all issuable and issued shares of Common
Stock shall at no time exceed 2,098 shares of Common Stock on an as converted
basis, which amount shall be subject to adjustment to reflect any Extraordinary
Common Stock Event (as defined herein below) in accordance with Section
5.5(e)(ii), shall not give rise to an adjustment pursuant to this Section
5.5(e)(i) unless such shares or stock options are issued or granted to any
shareholder who holds Common Stock or other capital stock convertible into
Common Stock, or warrants, options or other rights to acquire Common Stock or
other capital stock convertible into Common Stock, which in the aggregate
represents (when exercised and/or converted) more than ten percent (10%) of the
Company's then issued and outstanding Common Stock. Notwithstanding anything to
the contrary herein, the issuance of Common Stock upon conversion of the Series
A, B, C, D, E, or F Preferred Stock shall not give rise to an adjustment
pursuant to this Section 5.5(e)(i).
For the purposes of this Section 5.5(e)(i), the issuance of any
warrants, options, subscriptions or purchase rights with respect to shares of
Common Stock and the issuance of any securities convertible into or exchangeable
for shares of Common Stock (or the issuance of any warrants, options or rights
with respect to such convertible or exchangeable securities) shall be deemed an
issuance at such time of such Common Stock if the Net Consideration Per Share
(as hereinafter determined) which may be received by the Company for such Common
Stock shall be less than the Applicable Conversion Value at the time of such
issuance. Any obligation, agreement or undertaking to issue warrants, options,
subscriptions or purchase rights at any time in the future shall be deemed to be
an issuance at the time such obligation, agreement or undertaking is made or
arises. No adjustment of the Applicable Conversion Value shall be made under
this Section 5.5(e)(i) upon
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the issuance of any shares of Common Stock which are issued pursuant to the
exercise of any warrants, options, subscriptions or purchase rights or pursuant
to the exercise of any conversion or exchange rights in any convertible
securities if any adjustment shall previously have been made upon the issuance
of any such warrants, options, subscriptions or purchase rights or upon the
issuance of any convertible securities (or upon the issuance of any warrants,
options or any rights therefor) as above provided. Any adjustment of the
Applicable Conversion Value with respect to this paragraph which relates to
warrants, options, subscriptions or purchase rights with respect to shares of
Common Stock shall be disregarded if, as and when such warrants, options,
subscriptions or purchase rights expire or are canceled without being exercised,
so that the Applicable Conversion Value effective immediately upon such
cancellation or expiration shall be equal to the Applicable Conversion Value
that would have applied without giving effect to the issuance of the expired or
canceled warrants, options, subscriptions or purchase rights. For purposes of
this paragraph, the "Net Consideration Per Share" which may be received by the
Company shall be determined as follows:
(x) The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any,
received by the Company for the issuance of such warrants,
options, subscriptions or other purchase rights or convertible or
exchangeable securities, plus the minimum amount of
consideration, if any, payable to the Company upon exercise or
conversion thereof, divided by the aggregate number of shares of
Common Stock that would be issued if all such warrants, options,
subscriptions or other purchase rights or convertible or
exchangeable securities were exercised, exchanged or converted.
(y) The Net Consideration Per Share which may be received
by the Company shall be determined in each instance as of the
date of issuance of warrants, options, subscriptions or other
purchase rights or convertible or exchangeable securities without
giving effect to any possible future price adjustments or rate
adjustments which may be applicable with respect to such
warrants, options, subscriptions or other purchase rights or
convertible or exchangeable securities (until such time as such
adjustments are actually made).
For purposes of this Section 5.5(e)(i), if part or all of the
consideration received by the Company in connection with the issuance of shares
of the Common Stock or the issuance of any of the securities described in
Section 5.5(e)(i) consists of property other than cash, the Company at its
expense will promptly cause an independent investment bank selected by the
Company and approved by the holders of a majority of the outstanding shares of
Series E Preferred Stock to value such property, whereupon such value shall be
given to such consideration and shall be recorded on the books of the Company
with respect to receipt of such property.
Notwithstanding anything herein to the contrary, this Section 5.5(e)(i)
shall not apply under any of the circumstances which would constitute an
Extraordinary Common Stock Event (as hereinafter defined in Section 5.5(e)(ii)).
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(ii) Upon Extraordinary Common Stock Event. Upon the
happening of an Extraordinary Common Stock Event (as hereinafter
defined), the Applicable Conversion Value (and all other conversion
values set forth in Section 5.5(e)(i) above) shall, simultaneously with
the happening of such Extraordinary Common Stock Event, be adjusted by
multiplying the then effective Applicable Conversion Value by a
fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such Extraordinary Common Stock
Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common
Stock Event. The Applicable Conversion Value, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive
Extraordinary Common Stock Event or Events.
For Purposes of this Section 5.5(e)(ii), "Extraordinary Common Stock
Event" shall mean (A) the issue of additional shares of Common Stock as a
dividend or other distribution on outstanding Common Stock, (B) subdivision of
outstanding shares of Common Stock into a greater number of shares of the Common
Stock, or (C) combination of outstanding shares of the Common Stock into a
smaller number of shares of the Common Stock.
(f) Recapitalization or Reclassification. If the Common Stock
issuable upon the conversion of the Series E Preferred Stock shall be changed
into the same or different number of shares of any class or classes of stock of
the Company, whether by recapitalization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
elsewhere in Section 5.5, or reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 5.5), then and in each such event
the holder of each share of Series E Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock and
other securities and property that such holder would have owned or been entitled
to receive after the occurrence of any such event had such share of Series E
Preferred Stock been surrendered for conversion into Common Stock immediately
prior thereto.
(g) Capital Reorganization, Merger or Sale of Assets. Subject to
the provisions of the second paragraph of this Section 5.5(g) and to the
provisions of Section 5.3(b) and Section 5.5(b), if at any time or from time to
time there shall be a capital reorganization of the Common Stock (other than a
subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Section 5.5), or a merger or consolidation of the Company with
or into another company, or the sale of all or substantially all of the
Company's properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the holders of the Series E Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series E Preferred Stock, the number of shares of
stock or other securities or property of the Company, or of the successor
Company resulting from such a merger, consolidation or sale, that such holder
would have owned or been entitled to receive after the occurrence of any such
event had such share of Series E Preferred Stock been surrendered for conversion
into Common Stock immediately prior thereto. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
5.5 with respect to the rights of the holders of the Series E Preferred Stock
after the reorganization, merger, consolidation or sale to the end that the
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provisions of this Section 5.5 (including adjustment of the Applicable
Conversion Value then in effect and the number of shares purchasable upon
conversion of the Series E Preferred Stock) shall be applicable after that event
in as nearly equivalent a manner as may be practicable.
Subject to the provisions of Sections 5.3(b) and 5.5(b), each
holder of Series E Preferred Stock upon the occurrence of a capital
reorganization, merger or consolidation of the Company with or into another
company, or the sale of all or substantially all its assets and properties as
such events are more fully set forth in the first paragraph of this Section
5.5(g), shall have the option of electing treatment of his shares of Series E
Preferred Stock under either this Section 5.5(g) or Section 5.3(b) hereof.
Notice of such election shall be submitted in writing to the Company at its
principal offices no later than five (5) days before the effective date of such
event.
(h) Adjustment for Below Projection Liquidity Events. Immediately
prior to the closing of a Below Projection Liquidity Event, the Applicable
Conversion Value of the Series E Preferred Stock then in effect shall
automatically be adjusted to the value required to ensure that the Applicable
Conversion Value will yield an Adjusted Series E Value upon conversion equal to
the applicable Value Target (after giving effect to such Below Projection
Liquidity Event). The adjustment set forth in this Section 5.5(h) may be waived
by the written agreement of the holders of at least 50% of the then outstanding
shares of Series E Preferred Stock. Written notice of such waiver must be
delivered by the waiving holders of shares of Series E Preferred Stock to the
Company and to the other holders, if any, of Series E Preferred Stock no later
than five (5) days prior to the closing of such transaction for the waiver to be
effective.
(i) "Below Projection Liquidity Event" shall mean (A)
a public offering of the Company's Common Stock (a "Below Projection
Public Offering"); or (B) a sale of all or substantially all of the
assets of, or merger or consolidation of the Company resulting in a
Change in Control as defined in Section 5.5(e) (a "Below Projection
Sale") where, in either case, the Series E Value is less than the
applicable Value Target.
(ii) "Series E Value" shall mean, on a per share
basis, (A) in the case of a Below Projection Public Offering, the
aggregate value of the Common Stock received upon conversion of each
share of Series E Preferred Stock at the completion of such offering
(assuming that such Series E Preferred Stock is converted to Common
Stock at the Applicable Conversion Value, without taking into
consideration the operation of this Section 5.5(h)) based on the
offering price per share of Common Stock to the public in such offering;
or (B) in the case of a Below Projection Sale, the aggregate value of
the cash, securities and other consideration that each share of Series E
Stock would be entitled to receive if converted to Common Stock at the
Applicable Conversion Value (without taking into consideration the
operation of this Section 5.5(h)) immediately prior to such Below
Projection Sale and assuming the participation of each holder of Common
Stock.
(iii) "Adjusted Series E Value" shall mean the Series
E Value following the applicable Below Projection Liquidity Event after
giving effect to the adjustment to the Applicable Conversion Value
contemplated by this Section 5.5(h).
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(iv) "Value Target" shall mean, for each share of
Series E Preferred Stock, (A) $7,077.00, with respect to a transaction
occurring on or before July 30, 2000; (B) $7,582.50, with respect to a
transaction occurring after July 30, 2000 and on or before July 30,
2001; (C) $8,088.00, with respect to a transaction occurring after July
30, 2001 and on or before July 30, 2002; (D) $10,110.00, with respect to
a transaction occurring after July 30, 2002 and on or before July 30,
2003; and (E) $12,132.00, with respect to a transaction occurring after
July 30, 2003.
(i) Accountant's Certificate as to Adjustments. In each case of
an adjustment or readjustment of the Applicable Conversion Value, the Company
shall furnish each holder of Series E Preferred Stock with a certificate,
prepared by independent public accountants of recognized standing showing such
adjustment or readjustment, and stating in detail the facts upon which such
adjustment or readjustment is based.
(j) Exercise of Conversion Privilege. To exercise the conversion
privilege, a holder of Series E Preferred Stock shall surrender the certificate
or certificates representing the shares being converted to the Company at its
principal office, and shall give written notice to the Company at that office
that such holder elects to convert such shares. Such notice shall also state the
name or names (with address or addresses) in which the certificate or
certificates for shares of Common Stock issuable upon such conversion shall be
issued. The certificate or certificates for shares of Series E Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Company or in blank. The date when such written notice is received by the
Company, together with the certificate or certificates representing the shares
of Series E Preferred Stock being converted, shall be the "Series E Conversion
Date." As promptly as practicable after the Series E Conversion Date, the
Company shall issue and shall deliver to the holder of the shares of Series E
Preferred Stock being converted, or on its written order, such certificate or
certificates as it may request for the number of whole shares of Common Stock
issuable upon the conversion of such shares of Series E Preferred Stock in
accordance with the provisions of this Section 5.5, cash in the amount of all
declared and unpaid dividends on such shares of Series E Preferred Stock, up to
and including the Series E Conversion Date, and cash, as provided in Section
5.5(j), in respect of any fraction of a share of Common Stock issuable upon such
conversion. Such conversion shall be deemed to have been effected immediately
prior to the close of business on the Series E Conversion Date, and at such time
the rights of the holder as holder of the converted shares of Series E Preferred
Stock shall cease and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Common Stock represented thereby. The Company shall pay all
issue and other taxes (other than income taxes) that may be payable in respect
of any issuance or delivery of shares of Common Stock or other securities upon
conversion of Series E Preferred Stock.
(k) Cash in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series E Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Series E Preferred Stock, the Company shall pay to the holder of the
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shares of Series E Preferred Stock which were converted a cash adjustment in
respect of such fractional shares in an amount equal to the same fraction of the
market price per share of the Common Stock (as determined in a reasonable manner
prescribed by the Board of Directors) at the close of business on the Conversion
Date. The determination as to whether or not fractional shares are issuable
shall be based upon the total number of shares of Series E Preferred Stock being
converted at any one time by any holder thereof, not upon each share of Series E
Preferred Stock being converted.
(l) Partial Conversion. In the event some but not all of the
shares of Series E Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Company shall execute and deliver to
or on the order of the holder, at the expense of the Company, a new certificate
representing the number of shares of Series E Preferred Stock which were not
converted.
(m) Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Series E Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series E Preferred Stock, and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series E Preferred Stock,
the Company shall take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
5.6 No Reissuance of Series E Preferred Stock. No share or shares of
Series E Preferred Stock acquired by the Company by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the Company shall be
authorized to issue. The Company may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of Series E Preferred Stock accordingly.
5.7 Restriction and Limitations.
(a) Except as expressly provided herein or as required by law, so
long as any shares of the Series E Preferred Stock remain outstanding, the
Company shall not, and shall not permit any subsidiary (which shall mean any
company or trust of which the Company directly or indirectly owns at the time a
majority of the outstanding voting shares of every class of such company or
trust other than directors' qualifying shares) to, without the vote or written
consent by the holders of at least a majority of the then outstanding shares of
the Series E Preferred Stock:
(i) Redeem, purchase or otherwise acquire for value
(or pay into or set aside for a sinking fund for such purpose), any
share or shares of Series E Preferred Stock, except as expressly
provided herein;
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(ii) Authorize or issue, or obligate itself to
authorize or issue, any other equity security senior to or on a parity
with the Series E Preferred Stock as to dividend rights, liquidation
preferences, conversion rights, voting rights or otherwise, or any
security convertible into or exchangeable for any such equity security;
(iii) Except for a Qualified Sale (as defined in
Section 5.5(b) above), effect any sale, lease, assignment, transfer or
other conveyance of all or substantially all of the assets of the
Company or any subsidiary thereof, or any consolidation or merger
involving the Company or any subsidiary thereof, or any reclassification
or other change of stock, or any recapitalization or any dissolution,
liquidation or winding up of the Company; or
(iv) Amend its Articles of Incorporation or Bylaws.
5.8 Intentionally Deleted.
5.9 No Dilution or Impairment. The Company will not, by amendment of its
Articles of Incorporation, or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Series E Preferred Stock set forth herein, but will at all
times in good faith carry out all such terms and take all such action as may be
necessary or appropriate in order to protect the rights of the holders of the
Series E Preferred Stock against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) will not increase the par value
of any shares of stock receivable on the conversion of the Series E Preferred
Stock above the amount payable therefor on such conversion, (b) will take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of stock on the
conversion of all Series E Preferred Stock from time to time outstanding, and
(c) will not transfer all or substantially all of its properties and assets to
any other person (corporate or otherwise), or consolidate with or merge into any
other person (if the Company is not the surviving person), unless such other
person shall expressly assume in writing and will be bound by all terms of the
Series E Preferred Stock set forth herein.
5.10 Notices of Record Date. In the event of:
(a) Any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right; or
(b) Any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company, or any transfer of all or substantially
all of the assets of the Company to any other Company, or any other entity or
person; or
(c) Any voluntary or involuntary dissolution, liquidation or
winding up of the Company, then and in each such event the Company shall mail or
cause to be mailed to each holder
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of Series E Preferred Stock a notice specifying (i) the date on which any such
record is to be taken for the purpose of such dividend, distribution or right
and a description of such dividend, distribution or right, (ii) the date on
which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, and (iii) the time, if any, that is to be fixed, as to when
the holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be mailed at least 30 days prior to the date
specified in such notice on which such action is to be taken.
SERIES F PREFERRED STOCK
6.1 Authorized Series F Preferred Shares. The Company shall have the
authority to issue Four Thousand Six Hundred (4,600) shares of preferred stock
designated as the "Series F Convertible Preferred Stock" (and hereinafter
referred to as the "Series F Preferred Stock"), having the rights, preferences
and limitations hereinafter described, and having a par value of Ten Dollars
($10.00) per share.
6.2 Dividends.
(a) The Company shall not declare, pay or set aside for payment
any dividend or make any distribution on the Common Stock, other than dividends
or distributions payable in additional shares of Common Stock, unless at the
time of such dividend or distribution the Board of Directors of the Company
shall declare and pay a dividend on each then outstanding share of Series F
Preferred Stock equal to the dividend that would be declared and paid on the
largest number of whole shares of Common Stock into which each share of Series F
Preferred Stock held by each holder thereof could be converted pursuant to the
provisions of Section 6.5 hereof as of the record date for the determination of
holders of Common Stock entitled to receive such dividend or distribution.
(b) A deemed cumulative cash dividend equal to ten percent (10%)
of the purchase price of the Series F Preferred Stock ($10,533.71 per share) per
annum compounded annually from the date of issuance shall accrue on each
outstanding share of Series F Preferred Stock from the date of issuance and
shall be payable only upon liquidation, dissolution, or winding up of the
Company in accordance with Section 6.3(a). Dividends on the Series F Preferred
Stock shall accumulate and accrue on each such share from the date of its
original issue and from day to day thereafter, whether or not earned or
declared. The Company shall not declare, pay or set aside for payment any
dividend or make any distribution on the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, or
the Series E Preferred Stock, other than dividends or distributions payable in
additional shares of each such series to the holders of shares of the
corresponding series of preferred stock, unless at the time of such dividend or
distribution the Board of Directors of the Company shall declare and pay a
dividend on each then outstanding share of Series F Preferred Stock that bears
the same relationship to the fixed liquidation value per share set forth in
Section 6.3(a)(i) of the Series F Preferred Stock as the dividend or
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distribution paid on each other series of preferred stock bears to the fixed
liquidation value per share of such series set forth in Section 1.3(a)(i),
2.3(a)(i), 3.3(a)(i), 4.3(a)(i), or 5.3(a)(i), as the case may be.
6.3 Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of
the Company, or any bankruptcy or insolvency proceeding, whether voluntary or
involuntary, after payment of the Series E Dividend payable to holders of Series
E Preferred Stock pursuant to Section 5.3 hereof, holders of each share of
Series F Preferred Stock shall be entitled to be paid first out of the assets of
the Company available for distribution to holders of the Company's capital stock
of all classes, whether such assets are capital, surplus, or earnings, before
any sums shall be paid or any assets distributed among the holders of any other
shares of capital stock of the Company (which includes any other class or series
of preferred stock, except for payment of the Series E Dividend as provided in
Section 5.3), an amount equal to the greater of (i) 10,533.71 per share of
Series F Preferred Stock, or (ii) such amount per share of Series F Preferred
Stock as would have been payable had each such share been converted to Common
Stock pursuant to the provisions of Section 6.5 hereof immediately prior to such
event of liquidation, dissolution or winding up. For purposes of computing the
amount per share described in (ii) of the preceding sentence, all shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, and Series E Preferred Stock then outstanding shall be
assumed to have been converted to Common Stock immediately prior to such event
of liquidation, dissolution or winding up. If the assets and funds of the
Company available for distribution to the holders of Series F Preferred Stock
shall be insufficient to permit the payment of the full preferential amount
(after payment of the Series E Dividend payable to holders of Series E Preferred
Stock pursuant to Section 5.3 hereof) set forth in this Section 6.3(a), then all
the assets of the Company available for distribution shall be distributed to the
holders of Series F Preferred Stock pro rata so that each share of Series F
Preferred Stock receives the same percentage of its respective liquidation
interest. Following payment of such liquidation preference, and after all
payments have been made pursuant to Sections 1.3(a), 2.3(a), 3.3(a), 4.3(a), and
5.3(a), the holders of each share of Series F Preferred Stock shall be entitled
to be paid first out of the assets of the Company available for distribution to
holders of the Company's capital stock of all classes, whether such assets are
capital, surplus, or earnings, before any sums shall be paid or any assets
distributed among the holders of any other shares of capital stock of the
Company (which includes any other class or series of preferred stock, except the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock, the Series D Preferred Stock, and the Series E Preferred Stock), a deemed
cumulative divided of ten percent (10%) per annum, such amount not to exceed in
the aggregate $7,900.28 per share. After such payment shall have been made in
full to the holders of the Series F Preferred Stock or funds necessary for such
payment shall have been set aside by the Company in trust for the account of
holders of the Series F Preferred Stock so as to be immediately available for
such payment, holders of the Series F Preferred Stock shall be entitled to no
further participation in the distribution of the assets of the Company and shall
have no further rights of conversion, and the remaining assets available for
distribution shall be distributed ratably among the holders of the Company's
other capital stock.
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(b) A reorganization of the Common Stock as provided in Section
6.5(g), or a consolidation or merger of the Company or a sale of all or
substantially all of the assets of the Company, shall be regarded as a
liquidation, dissolution or winding up of the affairs of the Company within the
meaning of this Section 6.3; provided, however, each holder of Series F
Preferred Stock, at the option of such holder, shall be entitled to the rights
provided to them under Section 6.5(g) hereof in lieu of receiving payment in
liquidation, dissolution or winding up of the Company pursuant to this Section
6.3.
(c) Any distribution in connection with the liquidation,
dissolution or winding up of the Company, or any bankruptcy or insolvency
proceeding, shall be made in cash to the extent possible. Whenever any such
distribution shall be paid in property other than cash, then the Company at its
expense will promptly cause an independent investment bank selected by the
Company and approved by the holders of a majority of the outstanding shares of
Preferred Stock to value such property, whereupon such value shall be given to
such consideration and shall be recorded on the books of the Company with
respect to the distribution of such property.
6.4 Voting Power. Except as otherwise expressly provided in Section 6.7
hereof, or as required by law, each holder of Series F Preferred Stock shall be
entitled to vote on all matters submitted to shareholders of the Company and
shall be entitled to that number of votes equal to the largest number of whole
shares of Common Stock into which such holder's shares of Series F Preferred
Stock could be converted, pursuant to the provisions of Section 6.5 hereof, at
the record date for the determination of shareholders entitled to vote on such
matter or, if no such record date is established, at the date such vote is taken
or any written consent of shareholders is solicited. Except as otherwise
expressly provided herein or as required by law, the holders of shares of Series
F Preferred Stock and Common Stock shall be entitled to vote together as a class
on all matters.
6.5 Conversion Rights. The holders of the Series F Preferred Stock shall
have the following conversion rights:
(a) General. Subject to and in compliance with the provisions of
this Section 6.5, any shares of the Series F Preferred Stock may, at the option
of the holder, be converted at any time or from time to time into fully-paid and
nonassessable shares (calculated as to each conversion to the largest whole
share) of Common Stock. The number of shares of Common Stock to which a holder
of Series F Preferred Stock shall be entitled upon conversion shall be the
product obtained by multiplying the Applicable Conversion Rate (determined as
provided in Section 6.5(c)) by the number of shares of Series F Preferred Stock
being converted.
(b) Automatic Conversion in Connection with Qualified Public
Offerings. All outstanding shares of Series F Preferred Stock shall, upon the
closing of a Qualified Public Offering, as defined herein, be converted
automatically upon the delivery of the notice of a Qualified Public Offering
into the number of shares of Common Stock into which such Series F Preferred
Stock is convertible pursuant to Section 6.5(a) hereof without any further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Company or its transfer agent
for the Common Stock.
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(i) For the purposes of this Section 6.5, "Qualified
Public Offering" shall mean an offering of Common Stock that meets the
following requirements: (A) the offering is made pursuant to an
effective registration statement filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, covering the
offer and sale of Common Stock for the account of the Company; (B) the
offering is made pursuant to a firm commitment underwriting agreement;
(C) the aggregate proceeds to the Company of the offering are at least
$30,000,000 (net of underwriting discounts and commissions).
(ii) Upon the occurrence of the automatic conversion
specified in this Section 6.5(b), the holders of such Series F Preferred
Stock shall surrender the certificates representing such shares at the
office of the Company or of its transfer agent for the Common Stock. The
certificate or certificates for shares of Series F Preferred Stock
surrendered for conversion shall be accompanied by proper assignment
thereof to the Company or in blank. As promptly as practicable
thereafter, the Company shall issue and shall deliver to the holder of
the shares of Series F Preferred Stock being converted, or on its
written order, such certificate or certificates for the number of whole
shares of Common Stock issuable upon the conversion of such shares of
Series F Preferred Stock in accordance with the provisions of this
Section 6.5, cash in the amount of all declared and unpaid dividends on
such shares of Series F Preferred Stock, up to and including the Series
F Conversion Date as defined in Section 6.5(j) below, and cash, as
provided in Section 6.5(k), in respect of any fraction of a share of
Common Stock issuable upon such conversion. The Company shall not be
obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless certificates evidencing such shares
of the Series F Preferred Stock being converted are either delivered to
the Company or any such transfer agent or the holder notifies the
Company or any such transfer agent that such certificates have been
lost, stolen or destroyed and executes an agreement satisfactory to the
Company to indemnify the Company from any loss incurred by it in
connection therewith. The Company shall pay all issue and other taxes
(other than income taxes) that may be payable in respect of any issuance
or delivery of shares of Common Stock or other securities upon
conversion of Series F Preferred Stock.
(c) Applicable Conversion Rate. The conversion rate in effect at
any time (the "Applicable Conversion Rate") shall be the quotient obtained by
dividing $10,533.71 by the Applicable Conversion Value, calculated as provided
in Section 6.5(d).
(d) Applicable Conversion Value. The Applicable Conversion Value
in effect from time to time, except as adjusted in accordance with Section
6.5(e), as applicable, hereof, shall be $10,533.71.
(e) Adjustments to Applicable Conversion Value. The Applicable
Conversion Value shall be subject to adjustment as follows:
(i) Upon Issuance or Sale of Common Stock. If the
Company shall, while there are any shares of Series F Preferred Stock
outstanding, issue or sell shares of its Common Stock or any other
series or class of capital stock convertible into Common Stock without
consideration or at a price per share for Common Stock less than the
Applicable
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Conversion Value in effect immediately prior to such issuance or sale,
then in each such case the Applicable Conversion Value upon each such
issuance or sale, except as hereinafter provided, shall be adjusted to
an amount determined by multiplying the Applicable Conversion Value by a
fraction:
(A) the numerator of which shall be (a) the number
of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock, plus (b) the
number of shares of Common Stock which the net aggregate
consideration received by the Company for the total number of
such additional shares of Common Stock so issued would purchase
at the Applicable Conversion Value, and
(B) the denominator of which shall be (a) the
number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares of Common Stock, plus (b)
the number of such additional shares of Common Stock so issued
or, or if convertible securities are being issued, the number of
shares of Common Stock that could be issued if all such
convertible securities were converted into Common Stock at the
lowest applicable exercise or conversion price.
The Company's issuance of options for the purchase of Common Stock and
the Company's issuance of such securities pursuant to the exercise of such
options, all pursuant to incentive stock option plans and/or nonqualified stock
option plans approved by the Company's Board of Directors, providing for the
issuance of options to purchase Common Stock for the recruitment and retention
of senior personnel and to compensate advisors and members of the Board of
Directors, which aggregate number of all issuable and issued shares of Common
Stock shall at no time exceed 2,098 shares of Common Stock on an as converted
basis, which amount shall be subject to adjustment to reflect any Extraordinary
Common Stock Event (as defined herein below) in accordance with Section
6.5(e)(ii), shall not give rise to an adjustment pursuant to this Section
6.5(e)(i) unless such shares or stock options are issued or granted to any
shareholder who holds Common Stock or other capital stock convertible into
Common Stock, or warrants, options or other rights to acquire Common Stock or
other capital stock convertible into Common Stock, which in the aggregate
represents (when exercised and/or converted) more than ten percent (10%) of the
Company's then issued and outstanding Common Stock. Notwithstanding anything to
the contrary herein, the issuance of Common Stock upon conversion of the Series
A, B, C, D, E, or F Preferred Stock shall not give rise to an adjustment
pursuant to this Section 6.5(e)(i).
For the purposes of this Section 6.5(e)(i), the issuance of any
warrants, options, subscriptions or purchase rights with respect to shares of
Common Stock and the issuance of any securities convertible into or exchangeable
for shares of Common Stock (or the issuance of any warrants, options or rights
with respect to such convertible or exchangeable securities) shall be deemed an
issuance at such time of such Common Stock if the Net Consideration Per Share
(as hereinafter determined) which may be received by the Company for such Common
Stock shall be less than the Applicable Conversion Value at the time of such
issuance. Any obligation, agreement or undertaking to issue warrants, options,
subscriptions or purchase rights at any time in the future shall
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be deemed to be an issuance at the time such obligation, agreement or
undertaking is made or arises. No adjustment of the Applicable Conversion Value
shall be made under this Section 6.5(e)(i) upon the issuance of any shares of
Common Stock which are issued pursuant to the exercise of any warrants, options,
subscriptions or purchase rights or pursuant to the exercise of any conversion
or exchange rights in any convertible securities if any adjustment shall
previously have been made upon the issuance of any such warrants, options,
subscriptions or purchase rights or upon the issuance of any convertible
securities (or upon the issuance of any warrants, options or any rights
therefor) as above provided. Any adjustment of the Applicable Conversion Value
with respect to this paragraph which relates to warrants, options, subscriptions
or purchase rights with respect to shares of Common Stock shall be disregarded
if, as and when such warrants, options, subscriptions or purchase rights expire
or are canceled without being exercised, so that the Applicable Conversion Value
effective immediately upon such cancellation or expiration shall be equal to the
Applicable Conversion Value that would have applied without giving effect to the
issuance of the expired or canceled warrants, options, subscriptions or purchase
rights. For purposes of this paragraph, the "Net Consideration Per Share" which
may be received by the Company shall be determined as follows:
(x) The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any,
received by the Company for the issuance of such warrants,
options, subscriptions or other purchase rights or convertible or
exchangeable securities, plus the minimum amount of
consideration, if any, payable to the Company upon exercise or
conversion thereof, divided by the aggregate number of shares of
Common Stock that would be issued if all such warrants, options,
subscriptions or other purchase rights or convertible or
exchangeable securities were exercised, exchanged or converted.
(y) The Net Consideration Per Share which may be received
by the Company shall be determined in each instance as of the
date of issuance of warrants, options, subscriptions or other
purchase rights or convertible or exchangeable securities without
giving effect to any possible future price adjustments or rate
adjustments which may be applicable with respect to such
warrants, options, subscriptions or other purchase rights or
convertible or exchangeable securities (until such time as such
adjustments are actually made).
For purposes of this Section 6.5(e)(i), if part or all of the
consideration received by the Company in connection with the issuance of shares
of the Common Stock or the issuance of any of the securities described in
Section 6.5(e)(i) consists of property other than cash, the Company at its
expense will promptly cause an independent investment bank selected by the
Company and approved by the holders of a majority of the outstanding shares of
Series F Preferred Stock to value such property, whereupon such value shall be
given to such consideration and shall be recorded on the books of the Company
with respect to receipt of such property.
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Notwithstanding anything herein to the contrary, this Section 6.5(e)(i)
shall not apply under any of the circumstances which would constitute an
Extraordinary Common Stock Event (as hereinafter defined in Section 6.5(e)(ii)).
(ii) Upon Extraordinary Common Stock Event. Upon the
happening of an Extraordinary Common Stock Event (as hereinafter
defined), the Applicable Conversion Value (and all other conversion
values set forth in Section 6.5(e)(i) above) shall, simultaneously with
the happening of such Extraordinary Common Stock Event, be adjusted by
multiplying the then effective Applicable Conversion Value by a
fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such Extraordinary Common Stock
Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common
Stock Event. The Applicable Conversion Value, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive
Extraordinary Common Stock Event or Events.
For Purposes of this Section 6.5(e)(ii), "Extraordinary Common Stock
Event" shall mean (A) the issue of additional shares of Common Stock as a
dividend or other distribution on outstanding Common Stock, (B) subdivision of
outstanding shares of Common Stock into a greater number of shares of the Common
Stock, or (C) combination of outstanding shares of the Common Stock into a
smaller number of shares of the Common Stock.
(f) Recapitalization or Reclassification. If the Common Stock
issuable upon the conversion of the Series F Preferred Stock shall be changed
into the same or different number of shares of any class or classes of stock of
the Company, whether by recapitalization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
elsewhere in Section 6.5, or reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 6.5), then and in each such event
the holder of each share of Series F Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock and
other securities and property that such holder would have owned or been entitled
to receive after the occurrence of any such event had such share of Series F
Preferred Stock been surrendered for conversion into Common Stock immediately
prior thereto.
(g) Capital Reorganization, Merger or Sale of Assets. If at any
time or from time to time there shall be a capital reorganization of the Common
Stock (other than a subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section 6.5), or a merger or consolidation
of the Company with or into another company, or the sale of all or substantially
all of the Company's properties and assets to any other person, then, as a part
of such reorganization, merger, consolidation or sale, provision shall be made
so that the holders of the Series F Preferred Stock shall thereafter be entitled
to receive upon conversion of the Series F Preferred Stock, the number of shares
of stock or other securities or property of the Company, or of the successor
Company resulting from such a merger, consolidation or sale, that such holder
would have owned or been entitled to receive after the occurrence of any such
event had such share of Series F Preferred Stock been surrendered for conversion
into Common Stock immediately prior
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thereto. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 6.5 with respect to the rights of
the holders of the Series F Preferred Stock after the reorganization, merger,
consolidation or sale to the end that the provisions of this Section 6.5
(including adjustment of the Applicable Conversion Value then in effect and the
number of shares purchasable upon conversion of the Series F Preferred Stock)
shall be applicable after that event in as nearly equivalent a manner as may be
practicable.
Each holder of Series F Preferred Stock upon the occurrence of a
capital reorganization, merger or consolidation of the Company with or into
another company, or the sale of all or substantially all its assets and
properties as such events are more fully set forth in the first paragraph of
this Section 6.5(g), shall have the option of electing treatment of his shares
of Series F Preferred Stock under either this Section 6.5(g) or Section 6.3(b)
hereof. Notice of such election shall be submitted in writing to the Company at
its principal offices no later than five (5) days before the effective date of
such event.
(h) Accountant's Certificate as to Adjustments. In each case of
an adjustment or readjustment of the Applicable Conversion Value, the Company
shall furnish each holder of Series F Preferred Stock with a certificate,
prepared by independent public accountants of recognized standing showing such
adjustment or readjustment, and stating in detail the facts upon which such
adjustment or readjustment is based.
(i) Exercise of Conversion Privilege. To exercise the conversion
privilege, a holder of Series F Preferred Stock shall surrender the certificate
or certificates representing the shares being converted to the Company at its
principal office, and shall give written notice to the Company at that office
that such holder elects to convert such shares. Such notice shall also state the
name or names (with address or addresses) in which the certificate or
certificates for shares of Common Stock issuable upon such conversion shall be
issued. The certificate or certificates for shares of Series F Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Company or in blank. The date when such written notice is received by the
Company, together with the certificate or certificates representing the shares
of Series F Preferred Stock being converted, shall be the "Series F Conversion
Date." As promptly as practicable after the Series F Conversion Date, the
Company shall issue and shall deliver to the holder of the shares of Series F
Preferred Stock being converted, or on its written order, such certificate or
certificates as it may request for the number of whole shares of Common Stock
issuable upon the conversion of such shares of Series F Preferred Stock in
accordance with the provisions of this Section 6.5, cash in the amount of all
declared and unpaid dividends on such shares of Series F Preferred Stock, up to
and including the Series F Conversion Date, and cash, as provided in Section
6.5(j), in respect of any fraction of a share of Common Stock issuable upon such
conversion. Such conversion shall be deemed to have been effected immediately
prior to the close of business on the Series F Conversion Date, and at such time
the rights of the holder as holder of the converted shares of Series F Preferred
Stock shall cease and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Common Stock represented thereby. The Company shall pay all
issue and other taxes (other than income taxes) that
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may be payable in respect of any issuance or delivery of shares of Common Stock
or other securities upon conversion of Series F Preferred Stock.
(j) Cash in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series F Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Series F Preferred Stock, the Company shall pay to the holder of the shares of
Series F Preferred Stock which were converted a cash adjustment in respect of
such fractional shares in an amount equal to the same fraction of the market
price per share of the Common Stock (as determined in a reasonable manner
prescribed by the Board of Directors) at the close of business on the Conversion
Date. The determination as to whether or not fractional shares are issuable
shall be based upon the total number of shares of Series F Preferred Stock being
converted at any one time by any holder thereof, not upon each share of Series F
Preferred Stock being converted.
(k) Partial Conversion. In the event some but not all of the
shares of Series F Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Company shall execute and deliver to
or on the order of the holder, at the expense of the Company, a new certificate
representing the number of shares of Series F Preferred Stock which were not
converted.
(l) Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Series F Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series F Preferred Stock, and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series F Preferred Stock,
the Company shall take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
6.6 No Reissuance of Series F Preferred Stock. No share or shares of
Series F Preferred Stock acquired by the Company by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the Company shall be
authorized to issue. The Company may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of Series F Preferred Stock accordingly.
6.7 Restriction and Limitations.
(a) Except as expressly provided herein or as required by law, so
long as any shares of the Series F Preferred Stock remain outstanding, the
Company shall not, and shall not permit any subsidiary (which shall mean any
company or trust of which the Company directly or indirectly owns at the time a
majority of the outstanding voting shares of every class of such
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company or trust other than directors' qualifying shares) to, without the vote
or written consent by the holders of at least a majority of the then outstanding
shares of the Series F Preferred Stock:
(i) Redeem, purchase or otherwise acquire for value
(or pay into or set aside for a sinking fund for such purpose), any
share or shares of Series F Preferred Stock, except as expressly
provided herein;
(ii) Authorize or issue, or obligate itself to
authorize or issue, any other equity security senior to or on a parity
with the Series F Preferred Stock as to dividend rights, liquidation
preferences, conversion rights, voting rights or otherwise, or any
security convertible into or exchangeable for any such equity security;
(iii) Effect any sale, lease, assignment, transfer or
other conveyance of all or substantially all of the assets of the
Company or any subsidiary thereof, or any consolidation or merger
involving the Company or any subsidiary thereof, or any reclassification
or other change of stock, or any recapitalization or any dissolution,
liquidation or winding up of the Company; or
(iv) Amend its Articles of Incorporation or Bylaws.
6.8 Intentionally Deleted.
6.9 No Dilution or Impairment. The Company will not, by amendment of its
Articles of Incorporation, or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Series F Preferred Stock set forth herein, but will at all
times in good faith carry out all such terms and take all such action as may be
necessary or appropriate in order to protect the rights of the holders of the
Series F Preferred Stock against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) will not increase the par value
of any shares of stock receivable on the conversion of the Series F Preferred
Stock above the amount payable therefor on such conversion, (b) will take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of stock on the
conversion of all Series F Preferred Stock from time to time outstanding, and
(c) will not transfer all or substantially all of its properties and assets to
any other person (corporate or otherwise), or consolidate with or merge into any
other person (if the Company is not the surviving person), unless such other
person shall expressly assume in writing and will be bound by all terms of the
Series F Preferred Stock set forth herein.
6.10 Notices of Record Date. In the event of:
(a) Any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right; or
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(b) Any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company, or any transfer of all or substantially
all of the assets of the Company to any other Company, or any other entity or
person; or
(c) Any voluntary or involuntary dissolution, liquidation or
winding up of the Company, then and in each such event the Company shall mail or
cause to be mailed to each holder of Series F Preferred Stock a notice
specifying (i) the date on which any such record is to be taken for the purpose
of such dividend, distribution or right and a description of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective, and
(iii) the time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up. Such notice shall
be mailed at least 30 days prior to the date specified in such notice on which
such action is to be taken.
ARTICLE IV
BOARD OF DIRECTORS
The number of directors constituting the Board of Directors of the
Company shall be such number as is fixed, from time to time, or in the manner
prescribed by the Bylaws. The Company shall, to the fullest extent authorized by
the Wisconsin Business Corporation Law, Chapter 180 of the Wisconsin Statutes
("Chapter 180"), indemnify any director or officer of the Company against
reasonable expenses and against liability incurred by a director or officer in a
proceeding in which he or she is or was a party because he or she is or was a
director or officer of the Company. These indemnification rights shall not be
deemed to exclude any other rights to which the director or officer may
otherwise be entitled. The Company may, to the fullest extent authorized by
Chapter 180, indemnify, reimburse, or advance expenses of directors or officers.
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ARTICLE V
REGISTERED OFFICE AND AGENT
The address of the registered office of the Company is 502 South Rosa
Road, Madison, Dane County, Wisconsin 53719-1256, and the name of its registered
agent at such address is Lance Fors.
------------------------------
The undersigned officer of Third Wave Technologies, Inc., a Wisconsin
corporation with registered offices in Dane County, Wisconsin, certifies that
the foregoing Amended and Restated Articles of Incorporation of said
corporation, containing amendments requiring shareholder approval, were adopted
in accordance with Section 180.1003 of the Wisconsin Statutes.
-----------------------------------
Ian Edvalson, Secretary
This instrument is returnable to:
Michael E. Skindrud
LaFollette Godfrey & Kahn
One East Main Street
P.O. Box 2719
Madison, WI 53701-2719
(608) 257-3911
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