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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report:
SEPTEMBER 17, 1999
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
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(Exact Name of Registrant as Specified in Charter)
MARYLAND 1-12748 52-1176514
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(State of Incorporation) (Commission File Number) (IRS Employer
Identification No.)
1111 South Paca Street
BALTIMORE, MARYLAND 21230
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(Address of principal executive offices) (Zip Code)
(410) 843-5000
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(Registrant's telephone number)
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Item 5. OTHER EVENTS.
Effective September 14, 1999, all of the holders of the Company's
Series A Convertible Preferred Stock exchanged their shares for a like number of
shares of the Company's Series A-1 Convertible Preferred Stock. The terms of the
Series A-1 Convertible Preferred Stock are identical to the Series A Convertible
Preferred Stock except for the following items:
- dividends will be paid beginning on May 31, 2001 rather than May 31,
2000;
- Series A-1 Convertible Preferred Stock does not carry Dividend
Warrants (as defined in the Articles Supplementary filed with the May
24, 1999 8-K); and
- If the Company fails to redeem the Series A-1 Convertible Preferred
Stock by May 31, 2004, the Series A-1 Convertible Preferred Stock will
carry additional cash dividends at an annual rate of 20%.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
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<CAPTION>
EXHIBIT NO. DESCRIPTION
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<S> <C>
3.01 Articles Supplementary
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: September 17, 1999 CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
By: /s/ Thomas P Rice
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Thomas P. Rice, President and CEO
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CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
FORM 8-K
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
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<S> <C>
3.01 Articles Supplementary
</TABLE>
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Exhibit 3.01
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
ARTICLES SUPPLEMENTARY
Chesapeake Biological Laboratories, Inc., a Maryland corporation,
having its principal office in Baltimore, Maryland (hereinafter called the
"CORPORATION"), hereby certifies to the State Department of Assessments and
Taxation of Maryland (the "SDAT") that:
FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation (the "BOARD") by Article SEVENTH of the Articles of
Incorporation of the Corporation, as amended (the "CHARTER"), the Board has duly
reclassified and designated 15,510 authorized but unissued shares of the Class A
Common Stock, par value $0.01 per share, of the Corporation into a series
designated as Series A-1 Convertible Preferred Stock and has provided for the
issuance of such series.
SECOND: The terms of the Series A-1 Convertible Preferred Stock
(including the preferences, conversions or other rights, voting powers,
restrictions, limitations as to dividends and other distributions,
qualifications, or terms or conditions of redemption) as set by the Board are as
follows:
1. ISSUANCE; RANK. The issuance price of the Series A-1
Convertible Preferred Stock (the "SERIES A-1 PREFERRED STOCK") shall be $100 per
share (the "ORIGINAL PURCHASE PRICE"). The Series A-1 Preferred Stock shall rank
senior to the Common Stock and any other class or series of capital stock of the
Corporation ranking junior to the Series A-1 Preferred Stock as to dividends and
upon liquidation, dissolution or winding up. The date on which any share of
Series A-1 Preferred Stock was issued shall hereinafter be referred to as the
"ORIGINAL ISSUE DATE" with respect to such share.
2. DIVIDENDS.
(a) Beginning on May 31, 2001, annually on May 31st, the holders
of record of shares of Series A-1 Preferred Stock as of May 10th of such year
(the "DIVIDEND RECORD DATE") shall be entitled to receive, out of funds legally
available for that purpose, prior and in preference to any declaration or
payment of any dividends (payable other than in Common Stock or other securities
convertible into or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock) on the Common Stock, cumulative
dividends ("CUMULATIVE DIVIDENDS"), at an annual rate of 6% of the Original
Purchase Price per share, as adjusted for stock splits, stock dividends,
recapitalizations, combinations, reclassifications and similar events which
affect such shares of Series A-1 Preferred Stock (each an "ADJUSTMENT").
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If the Board fails to declare a Cumulative Dividend, the Cumulative Dividend
shall cumulate and become part of the Liquidation Preference (as defined below)
and Cumulative Dividends shall be payable pro rata for partial year periods and
shall not be payable upon conversion of the Series A-1 Preferred Stock in
accordance with the terms of Sections 5 or 6 or upon a Redemption in accordance
with the terms of Section 7.
(b) If the Corporation fails to redeem the Series A-1 Preferred
Stock by May 31, 2004, then on and annually after May 31, 2004, the holders of
record of shares of Series A-1 Preferred Stock as of the Dividend Record Date of
such year shall be entitled to receive, out of funds legally available for that
purpose, prior and in preference to any declaration or payment of any dividends
(payable other than in Common Stock or other securities convertible into or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock) on the Common Stock and in addition to the dividends
described in Section 2(a), an additional annual dividend, at a rate of 20% of
the Original Purchase Price per share, subject to an Adjustment (the "ADDITIONAL
DIVIDENDS").
3. LIQUIDATION EVENTS.
(a) Upon the occurrence of any Liquidation Event (defined
herein), the assets of the Corporation available for distribution to its
stockholders, whether from capital, surplus or earnings (the "CORPORATE ASSETS")
shall be distributed as follows: before any distribution of assets shall be made
to the holders of Common Stock, the holder of each share of Series A-1 Preferred
Stock then outstanding shall be entitled to be paid out of the Corporate Assets
an amount per share equal to the Original Purchase Price (subject to any
Adjustment) plus all dividends, including any accrued and unpaid Cumulative
Dividends on such share up to the date of distribution of the assets of the
Corporation (the "LIQUIDATION PREFERENCE"). If upon the occurrence of a
Liquidation Event, the Corporate Assets shall be insufficient to pay the holders
of shares of Series A-1 Preferred Stock the Liquidation Preference, the holders
of shares of Series A-1 Preferred Stock and any class or series of stock ranking
on liquidation on a parity with the shares of Series A-1 Preferred Stock shall
share ratably in the distribution of the entire remaining Corporate Assets in
proportion to the respective amounts which would otherwise be payable in respect
of the shares held by them upon such distribution if the full Liquidation
Preference payable on or with respect to such shares were paid in full.
(b) For purposes of this Section 3, the term "LIQUIDATION
EVENT" shall mean (i) any liquidation, dissolution or winding up of the
Corporation or (ii) the merger or consolidation of the Corporation into or with
another corporation (except if the Corporation is the surviving entity) or other
similar transaction or series of related transactions in which all or
substantially all of the assets of the Corporation are sold, transferred or
otherwise disposed.
(c) The amount available for distribution for purposes of
satisfying the obligation to pay the Liquidation Preference and other amounts
payable under Section 3(a) to the holders of shares of Series A-1 Preferred
Stock upon any Liquidation Event described in Section 3(b)(ii) shall be the cash
or the value of the property, rights or securities distributed to such
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holders by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined in good faith by the
Board of Directors of the Corporation.
(d) Written notice of such Liquidation Event, stating a
payment date, the Liquidation Preference and other amounts payable under Section
3(a), and the place where said Liquidation Preference and other amounts shall be
payable, shall be delivered in person, mailed by certified or registered mail,
return receipt requested, or sent by telecopier or electronic mail, not less
than 20 days prior to the payment date stated therein, to the holders of record
of the Series A-1 Preferred Stock, such notice to be addressed to each such
holder at its address as shown by the records of the Corporation.
4. VOTING.
(a) Each holder of outstanding shares of Series A-1
Preferred Stock shall be entitled to the number of votes equal to the number of
whole shares of Common Stock into which the shares of Series A-1 Preferred Stock
held of record by such holder are convertible (as adjusted from time to time
pursuant to Section 5), at each meeting of stockholders of the Corporation (and
written actions of stockholders in lieu of meetings) with respect to any and all
matters presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law and by the provisions of Sections 4(b),
the holders of shares of Series A-1 Preferred Stock shall vote together with the
holders of Common Stock as a single class.
(b) So long as at least 1,551 shares of Series A-1
Preferred Stock (subject to any Adjustment) are outstanding, the holders of the
Series A-1 Preferred Stock shall have the right, voting together as a single
class, to elect one director of the Corporation. Such right to vote separately
as a class shall be in addition to all other rights of the holders of Series A-1
Preferred Stock to vote with other classes of stock in the election of members
of the Corporation's Board of Directors.
(c) So long as at least 1,551 shares of Series A-1
Preferred Stock (subject to any Adjustment) are outstanding, if and whenever (i)
the Corporation breaches the terms and conditions contained herein, or (ii) an
Event of Default (as defined in the Preferred Stock Purchase Agreement between
the Corporation and the original purchasers of the Series A-1 Preferred Stock
named therein) occurs and is continuing, the holders of any outstanding shares
of Series A-1 Preferred Stock shall have the exclusive and special right, voting
as a single class, to elect by a plurality of the votes cast the largest whole
number of directors of the Corporation that, together with the director elected
by the holders of the Series A-1 Preferred Stock pursuant to Section 4(b), shall
not constitute a majority of the total number of directors of the Corporation
(and if there are not a sufficient number of resignations by the members of the
Board of Directors at the time of such default, the Board of Directors shall be
expanded as is necessary to give effect to the foregoing right). The right
granted to the holders of Series A-1 Preferred Stock in this Section 4(c) (the
"DEFAULT RIGHT") shall continue until the breach or Event of Default has been
cured or waived and, when so cured or waived the Default Right shall cease until
such time as the Corporation commits another breach or Event of Default. At any
time the Default Right
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becomes applicable, the Corporation may, upon receipt of a written request from
the holders in interest of at least 20% of the outstanding shares of Series A-1
Preferred Stock, call a special meeting of shareholders for the election of
directors. Such meeting, if called, shall be held (i) no later than 45 days
after the receipt of the request and (ii) at the place and upon the notice
required by law and the bylaws of the Corporation; PROVIDED, HOWEVER, that the
Corporation shall not call such a special meeting if such request is received
less than 60 days prior to the date fixed for any annual meeting of the
shareholders of the Corporation. Directors elected pursuant to this Section 4(c)
shall serve until the next annual meeting of the shareholders of the Corporation
or until their respective successors shall be elected and qualify.
(d) Any director elected by the holders of the Series A-1
Preferred Stock (each, a "PREFERRED DIRECTOR") may be removed only by the vote
of the holders of record of a plurality of the outstanding shares of Series A-1
Preferred Stock, voting together as a single class, at a meeting of the holders
of shares of Series A-1 Preferred Stock called for such purpose. Any vacancy in
the office of a Preferred Director may be filled only in accordance with Section
4(b) or 4(c) as the case may be.
(e) At any meeting held for the purpose of electing
directors, the presence in person or by proxy of the holders of a majority of
the shares of Series A-1 Preferred Stock then outstanding shall constitute a
quorum of the Series A-1 Preferred Stock for the purpose of electing any
directors to be elected solely by the holders of Series A-1 Preferred Stock and
for all such other matters upon which the holders of shares of Series A-1
Preferred Stock vote as a single class, and the presence in person or by proxy
of the holders of a majority of the shares of Common Stock then outstanding
shall constitute a quorum of the Common Stock for the purpose of electing any
directors to be elected solely by the holders of the Common Stock.
(f) So long as 1,551 or more shares of Series A-1
Preferred Stock (subject to any Adjustments) are outstanding, the Corporation
shall not, without first obtaining the written consent or affirmative vote of
the holders of at least a majority of the then outstanding shares of Series A-1
Preferred Stock, given in writing or by vote at a meeting, consenting or voting,
as the case may be, separately as a class:
(i) authorize any series of preferred stock or
other security of the Corporation having (i) dividend rights or liquidation
preference senior to the Series A-1 Preferred Stock or (ii) voting rights
entitling the holders thereof to more than one vote per share of Common Stock on
an as-converted basis;
(ii) amend, alter or repeal any rights of the
Series A-1 Preferred Stock; or
(iii) approve any liquidation, dissolution, merger
or sale of the all or substantially all of the assets of the Corporation if such
event would result in a payment to the holders of Series A-1 Preferred Stock of
less than the Liquidation Preference.
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5. OPTIONAL CONVERSION. The holders of shares of Series A-1
Preferred Stock shall have conversion rights as follows (the "CONVERSION
RIGHTS"):
(a) RIGHT TO CONVERT. Each share of Series A-1 Preferred
Stock shall be convertible, at the option of the holder thereof, at any time and
from time to time, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing the Original Purchase Price by the
Conversion Price (as defined herein) in effect at the time of conversion. The
conversion price at which shares of Common Stock shall be deliverable upon
conversion of Series A-1 Preferred Stock without payment of additional
consideration by the holder thereof (the "CONVERSION PRICE") shall initially be
$1.50. The Conversion Price in effect from time to time, and the rate at which
shares of Series A-1 Preferred Stock may be converted into shares of Common
Stock, shall be subject to adjustment as provided herein. Upon a Liquidation
Event or a Redemption, the Conversion Rights shall terminate at the close of
business on the first full day preceding the date fixed for the payment of any
amounts distributable upon such Liquidation Event or Redemption to the holders
of shares of Series A-1 Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common
Stock shall be issued upon conversion of the shares of Series A-1 Preferred
Stock. In lieu of any fractional shares to which the holder would otherwise be
entitled, the Corporation shall pay cash equal to such fraction multiplied by
the then effective Conversion Price. Whether or not a holder would otherwise be
entitled to a fractional share shall be determined on the basis of the total
number of shares of Series A-1 Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion.
(c) MECHANICS OF CONVERSION.
(i) In order for a holder to convert shares of
Series A-1 Preferred Stock into shares of Common Stock, such holder shall
surrender the certificate or certificates for such shares of Series A-1
Preferred Stock at the office of the transfer agent for such shares (or at the
principal office of the Corporation if the Corporation serves as its own
transfer agent), together with written notice that such holder elects to convert
all or any number of the shares of the Series A-1 Preferred Stock represented by
such certificate or certificates. Such notice shall state such holder's name or
the names of the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. If required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his
or its attorney-in-fact duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date (the
"CONVERSION DATE"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of shares of
Series A-1 Preferred Stock, or to his or its nominees, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled, together with cash in lieu of any fraction of a share. Such
conversion shall be deemed to have
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been made immediately prior to the close of business on the date of such
surrender of the shares of Series A-1 Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. Other than as set forth
in Section 6, if the conversion is in connection with an underwritten offer of
securities registered pursuant to the Securities Act of 1933, as amended (the
"SECURITIES ACT"), the conversion may, at the option of any holder tendering
shares of Series A-1 Preferred Stock for conversion, be conditioned upon the
closing of the sale of securities pursuant to such offering, in which event the
person entitled to receive the Common Stock issuable upon such conversion of the
shares of Series A-1 Preferred Stock shall not be deemed to have converted such
shares of Series A-1 Preferred Stock until immediately prior to the closing of
such sale of securities.
(ii) The Corporation shall, at all times when the
Series A-1 Preferred Stock shall be outstanding, reserve and keep available out
of its authorized but unissued stock, for the purpose of effecting the
conversion of the shares of Series A-1 Preferred Stock, such number of its duly
authorized shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of Series A-1 Preferred Stock.
Before taking any action that would cause an adjustment reducing the Conversion
Price below the then par value of the shares of Common Stock issuable upon
conversion of the shares of Series A-1 Preferred Stock, the Corporation will
take any corporate action that may, in the opinion of its counsel, be necessary
in order that the Corporation may validly and legally issue fully paid and
nonassessable shares of Common Stock at such adjusted Conversion Price. 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 Series
A-1 Preferred Stock, in addition to such other remedies as shall be available to
the holder of such shares of Series A-1 Preferred Stock, the Corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
(iii) Upon any such conversion, no adjustment to
the Conversion Price shall be made for, nor shall any payment be made of, any
declared and unpaid dividends on the shares of Series A-1 Preferred Stock
surrendered for conversion or on the Common Stock delivered upon conversion.
(iv) All shares of Series A-1 Preferred Stock
that shall have been surrendered for conversion as herein provided shall no
longer be deemed to be outstanding and all rights with respect to such shares,
including the rights, if any, to receive notices and to vote, shall immediately
cease and terminate on the Conversion Date, except only the right of the holders
thereof to receive shares of Common Stock in exchange therefor. Any shares of
Series A-1 Preferred Stock so converted shall be retired and canceled and shall
not be reissued, and the Corporation may from time to time take such appropriate
action as may be necessary to eliminate the authorized Series A-1 Preferred
Stock or reduce the authorized number thereof as may be appropriate accordingly.
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(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES:
(i) SPECIAL DEFINITIONS. For purposes of this
Section 5(d), the "FIRST ORIGINAL ISSUE DATE" means the Original Issue Date of
the first issued share of Series A-1 Preferred Stock.
(ii) ADJUSTMENT FOR COMBINATIONS OR CONSOLIDATION
OF COMMON STOCK. If, at any time after the First Original Issue Date the number
of shares of Common Stock outstanding are decreased by a combination of the
outstanding shares of Common Stock, then following the record date fixed for
such combination (or the date of such combination, if no record date is fixed),
the applicable Conversion Price shall be increased so that the number of shares
of Common Stock issuable on conversion of each share of Series A-1 Preferred
Stock shall be decreased in proportion to such decrease in outstanding shares of
Common Stock.
(iii) ADJUSTMENT FOR STOCK DIVIDENDS, SPLITS, ETC.
If the Corporation shall at any time after the applicable First Original Issue
Date fix a record date for the subdivision, split-up or stock dividend of shares
of Common Stock, then, following the record date fixed for the determination of
holders of shares of Common Stock entitled to receive such subdivision, split-up
or dividend (or the date of such subdivision, split-up or dividend, if no record
date is fixed), the Conversion Price shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each share of
Series A-1 Preferred Stock shall be increased in proportion to such increase in
outstanding shares; PROVIDED, HOWEVER, that the Conversion Price shall not be
decreased at such time if the amount of such reduction would be an amount less
than $.01, but any such amount shall be carried forward and reduction with
respect thereto made at the time of and together with any subsequent reduction
that, together with such amount and any other amount or amounts so carried
forward, shall aggregate $.01 or more.
(iv) ADJUSTMENT FOR MERGER OR REORGANIZATION,
ETC. In case of any consolidation, recapitalization or merger of the Corporation
with or into another corporation or the sale of all or substantially all of the
assets of the Corporation to another corporation (other than a subdivision or
combination provided for elsewhere in this Section 5 and other than a
consolidation, merger or sale that is treated as a Liquidation Event pursuant to
Section 3), each share of Series A-1 Preferred Stock shall thereafter be
convertible into the kind and amount of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such shares of Series A-1 Preferred
Stock would have been entitled upon such consolidation, merger or sale; and, in
such case, appropriate adjustment (as determined in good faith by the Board of
Directors ) shall be made in the application of the provisions in this Section 5
set forth with respect to the rights and interest thereafter of the holders of
the shares of Series A-1 Preferred Stock, to the end that the provisions set
forth in this Section 5 (including provisions with respect to changes in and
other adjustments of the Conversion Price) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the shares of Series A-1
Preferred Stock.
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(e) NO IMPAIRMENT. The Corporation 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 to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
shares of Series A-1 Preferred Stock against impairment.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to this Section
5, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
shares of Series A-1 Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A-1 Preferred Stock, furnish or cause to be
furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price then in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property that then would be received upon the conversion of the shares of Series
A-1 Preferred Stock.
(g) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation takes 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 (other than a cash dividend) or
any other distribution, 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;
(ii) that the Corporation subdivides or combines
its outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock
of the Corporation (other than a subdivision or combination of its outstanding
shares of Common Stock or a stock dividend or stock distribution thereon), or of
any consolidation or merger of the Corporation into or with another corporation,
or of the sale of all or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or
at the office of the transfer agent of the Series A-1 Preferred Stock, and shall
cause to be mailed to the holders of the Series A-1 Preferred Stock at their
last addresses as shown on the records of the Corporation or
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such transfer agent, at least ten days prior to the record date specified in (A)
below or twenty days before the date specified in (B) below, a notice stating
(A) the record date of such dividend,
distribution, subdivision or combination, or, if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distribution, subdivision or combination are to be determined, or
(B) the date on which such
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, sale, dissolution or winding up.
6. AUTOMATIC CONVERSION.
(a) TRIGGERING EVENT. All outstanding shares of Series
A-1 Preferred Stock shall automatically convert to shares of Common Stock, at
the then effective Conversion Price pursuant to Section 5, if, at any time after
the first anniversary of the First Original Issue Date, (i) the average closing
bid price of the Common Stock for twenty (20) consecutive trading days is
greater than four times the then current Conversion Price and the average daily
trading volume (as reported by Nasdaq) for the same twenty day period is not
less than 35,000 shares or (ii) upon the date of the consummation of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act, resulting in at least $20,000,000 of gross proceeds to
the Corporation, at a per share price of at least four times the then current
Conversion Price.
(b) NO FURTHER ACTION. In the case of an automatic
conversion pursuant to this Section 6, the outstanding shares of Series A-1
Preferred Stock shall be converted automatically without any further action by
the holders of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent; PROVIDED, that
the Corporation shall not be obligated to issue to any holder certificates
evidencing the shares of Common Stock issuable upon such conversion unless
certificates evidencing such shares of Series A-1 Preferred Stock are delivered
either to the Corporation or any transfer agent of the Corporation.
(c) SURRENDER OF CERTIFICATES; RETIREMENT AND
CANCELLATION OF CONVERTED SHARES. All certificates evidencing shares of Series
A-1 Preferred Stock that are required to be promptly surrendered for conversion
in accordance with the provisions hereof shall, from and after the date such
certificates are so required to be surrendered, be deemed to have been retired
and canceled and the shares of Series A-1 Preferred Stock represented thereby
converted into Common Stock for all purposes, notwithstanding the failure of the
holder or holders thereof to surrender such certificates on or prior to such
date. The Corporation may thereafter take such
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appropriate action as may be necessary to reduce the authorized Series A-1
Preferred Stock accordingly.
7. REDEMPTION.
(a) The Corporation may, at its option redeem any or all
of the then outstanding shares of Series A-1 Preferred Stock, out of funds
legally available for such purpose, on or after April 1, 2004, by providing
notice to the holders of outstanding shares of Series A-1 Preferred Stock (a
"REDEMPTION NOTICE").
The Redemption Notice shall specify the Redemption Date, the
Redemption Price, the aggregate number of shares to be redeemed, and with expect
to each holder of record, the number of shares to be redeemed; shall state that
payment of the Redemption Price will be made at the principal office of the
Corporation or if an agent for redemption if appointed, the office of the agent
for redemption, upon presentation and surrender of certificates for such shares;
that dividends accrued to the Redemption Date will be paid as specified in the
Redemption Notice and that on and after the Redemption Date dividends will cease
to accrue; shall state that the right to convert the shares to be redeemed into
shares of Common Stock in accordance with the provisions hereof will terminate
on the last business day prior to the redemption Date which date shall be
specified in the Redemption Notice; and shall state the then current Conversion
Price. In case of the redemption of a part only of the Series A-1 Preferred
Stock at the time outstanding, the shares to be redeemed shall be selected by
lot or in such other manner as the Board of Directors may determine to be
equitable;
(b) The date of any Redemption Notice shall be the
"REDEMPTION NOTICE DATE." The Corporation shall, no later than 30 days after the
applicable Redemption Notice Date (the "REDEMPTION DATE"), redeem the shares of
Series A-1 Preferred Stock set forth in the notice (such redeemed shares being
referred to as the "REDEMPTION SHARES"), by paying in cash, out of funds legally
available therefor, a sum per share equal to the Liquidation Preference (the
"Redemption Price");
(c) If the Corporation delivers a Redemption Notice to
the holders of Series A-1 Preferred Stock, each such holder shall, no later than
the close of business on the last business day before the Redemption Date,
surrender his or its certificate or certificates representing the applicable
Redemption Shares to the Corporation. From and after the Redemption Date and the
holders' receipt of the Redemption Price, all rights of each holder with respect
to such applicable Redemption Shares shall cease and such shares shall not be
deemed to be outstanding for any purpose whatsoever. Such Redemption Shares
shall not be reissued, and the Corporation may from time to time take such
appropriate action as may be necessary to reduce the authorized Series A-1
Preferred Stock accordingly;
THIRD: As a result of the reclassifications described herein, the
Corporation's authorized capital stock currently consists of the following:
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7,968,980 shares of Class A Common Stock, par value $.01 per share;
2,000,000 shares of Class B Common Stock, par value $.01 per share;
15,510 shares of Series A Convertible Preferred Stock, par value $.01
per share; and
15,510 shares of Series A-1 Convertible Preferred Stock, par value $.01
per share.
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