SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 15, 1997
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BIOJECT MEDICAL TECHNOLOGIES INC.
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(Exact Name of Registrant as Specified in Charter)
Oregon
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(State or Other Jurisdiction of Incorporation)
0-15360 93-1099680
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(Commission File Number) (IRS Employer Identification No.)
7620 SW Bridgeport Road
Portland, Oregon 97224
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (503) 639-7221
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N/A
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(Former Name or Former Address, if Changed Since Last Report)
Item 5. Other Events
On September 30, 1997, the Company executed a binding letter
agreement with Elan Corporation, plc ("Elan plc") and Elan
International Services, Ltd. ("Elan"), a wholly-owned subsidiary
of Elan plc, covering various investments in the Company by Elan,
the formation of the Company's new subsidiary, Bioject JV
Subsidiary Inc. ("JV Sub"), and a license (the "License") by
Elan plc to JV Sub of certain patents and know-how (the
"Technology") related to systems for the continuous monitoring of
glucose levels in persons with diabetes. The parties anticipate
that an ambulatory monitoring system will be developed under the
License. The system is expected to include a patch-like sensor
coupled with a wrist watch-type monitoring device to measure
glucose levels. Human clinical trials of the system are
presently expected to begin in early 1998. The final
documentation for the License and related transactions described
below was executed on October 15, 1997. Elan plc is a worldwide
drug delivery and biopharmaceutical company with its principal
research and manufacturing facilities in Ireland, the United
States and Israel. Elan plc's shares trade on the New York,
London and Dublin Stock Exchanges.
JV Sub is owned 80.1 percent by the Company and 19.9 percent by
Elan. Elan has invested approximately $3 million in JV Sub's
Common Stock and the Company has invested $12.015 million in JV
Sub's Common Stock.
Elan loaned the Company the funds the Company has invested in JV
Sub. The loan is evidenced by a promissory note issued by the
Company (the "Note"). The Note bears interest from and after
October 15, 1997 at the rate of 9% until December 31, 1997 and
12% thereafter.
The Company will be calling a special meeting of its shareholders
to approve (i) the exchange of the Note for the Company's
convertible preferred stock, (ii) the issuance of convertible
preferred stock to fund future financing obligations of JV
Sub and (iii) the issuance of a warrant to the Company's
agent in connection with the transactions with Elan (the "Proposal").
If the Proposal is approved, the Note will be canceled and exchanged
for the Company's Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock. Of the total outstanding principal
and accrued interest on the Note at the date of exchange, $10
million plus accrued interest on the Note will be exchanged for
Series A Convertible Preferred Stock at $15.00 per share. The
Series A Convertible Preferred Stock will accrue dividends at the
rate of 9% per annum (compounded semi-annually). The remaining
$2.015 million outstanding under the Note will be exchanged for
Series B Convertible Preferred Stock at $15.00 per share, which
will not accrue dividends. Each share of the Series A and
Series B Convertible Preferred Stock is convertible into 10
shares of the Company's Common Stock, subject to adjustment.
At the end of seven years the orginal issuance price and
accrued and unpaid dividends of any Series A and Series B
Convertible Preferred Stock not previously converted or redeemed
will convert automatically to common stock at a conversion price
equal to the lesser of $1.50 per share or 80% of the then
market price.
Elan plc has agreed to conduct at its expense certain research
and development efforts related to the Technology
until the first to occur of (i) commencement of human trials,
(ii) April 1, 1998 or (iii) the devotion by Elan plc to such further
research and development efforts of aggregate Elan plc resources equal
to $2.5 million. Following the completion of such research efforts at
Elan plc, the responsibility for funding the project shifts to JV
Sub. Elan plc has agreed to make itself available to conduct
other development and commercialization efforts as may be
describe for it in one or more development plans to be agreed in
good faith by JV Sub and Elan plc. JV Sub will be required to
pay Elan plc for such further work, but if the Proposal is
approved by the Company's shareholders, JV Sub would be receive a
discounted price for such further work by Elan plc.
JV Sub intends to obtain up to $5 million of the funds required
for the further development and commercialization of the
Technology in the form of the further investment in JV Sub equity
of approximately $4 million by the Company and approximately $1
million by Elan. The Company and Elan have indicated their
intention to make these further investments in JV Sub, provided
that JV Sub's Board of Directors determines that such funds are
required for development of the Technology pursuant to a
development plan which has been approved by Elan. Each of the Company
and Elan have reserved the right to withhold its share of the
additional funding, but each has agreed not to do so
unreasonably. Elan will in any event not be obligated to fund
any amount in excess of 25% of the amount of such additional
investments by the Company, nor to make any further investments
following the expiration of 30 months after the earlier of (i)
February 1, 1998 and (ii) the date of the Company's shareholders
approve the Proposal.
Provided that the Company's shareholders approve the Proposal,
the Company intends to obtain approximately $4
million necessary for its further investment in JV Sub equity by the sale
to Elan of convertible preferred stock in that amount. The
agreement by EIS to purchase such Series C Preferred Stock will
expire 30 months after the date the Company's shareholders
approve the Proposal.
The Company and JV Sub anticipate that significant levels of
funding will be required to develop the Technology in addition to
the funding that is described above. The additional funding
will be raised through the future issuances of debt or equity by
either or both of the Company and JV Sub.
Subject to certain conditions, Elan has also agreed
to loan JV Sub further funds to support
the research, development and commercialization of the
Technology after JV Sub has expended a specified amount
on research and development and provided that JV Sub
is not readily able to obtain such funds from other
sources. Such funding would constitute senior indebtedness
of JV Sub.
Under the License, Elan plc has granted JV Sub an exclusive
license to the Technology in North America for use in glucose
monitoring. If the Company's shareholders approve the Proposal,
this will become an exclusive worldwide license for such use.
The continued exclusivity of JV Sub's License is contingent, on a
country-by-country basis, on JV Sub's refraining from commercializing
products which would compete with the products covered by the licensed
Elan plc Technology. Further, the License itself is contingent, on a
country-by-country basis, on JV Sub's diligently seeking and
obtaining regulatory marketing approval for licensed products and
on JV Sub's timely commercial launch of the licensed products in
countries where such approval has been obtained.
The Company believes that the License is likely to run for most
of the useful life of the products that may be
commercialized under it. In the event that a significant
percentage of JV Sub's equity is acquired by any one of a number
of specified companies identified as actual or potential competitors of
Elan plc, or any other entity to which Elan plc does not consent
(which consent shall not be unreasonably withheld), the license
agreement may be immediately terminated at the option of Elan
plc.
JV Sub has paid Elan plc an initial royalty under the License
equal to $15 million. In addition, JV Sub is required under the
License to pay Elan plc substantial further royalties in stated
amounts as certain milestones are achieved, including
commencement and completion of certain product trials, the filing
of applications for regulatory marketing approval, and the grant
of such approval. If the Company's shareholders approve the
Proposal described herein, thereby extending the territory of the
License to be worldwide, the royalty payment called for upon the
grant of US marketing approval will be split into two payments,
one to be paid upon the grant of such US marketing approval and the other
to be paid upon the grant of marketing approval in any other of certain
major nations listed. Additionally, JV Sub will be required under the
License to pay Elan plc a continuing royalty equal to a percentage of the
net revenues from sublicenses of the Technology or from the sale
by JV Sub or its sublicensees of products covered by the licensed
patents or that incorporate or apply the licensed know-how. The
percentage royalty will increase in stages as the aggregate net
revenues in a given fiscal year exceed stated levels. These
stated levels will be greater if the Company's shareholders
approve the Proposal, reflecting the larger
potential market for such products under the License once its
territory has been expanded to be worldwide.
Elan has invested $3 million in the Company in exchange for
2,727,273 shares of the Company's Common Stock and a five-year
warrant to purchase an additional 1,750,000 shares of Common
Stock at $2.50 per share. The Company has agreed that it will use
its best efforts to cause a nominee of Elan to be elected to its
Board of Directors for as long as Elan owns at least a 5 percent
equity position in the Company (this level will increase to 10%
in seven years). The Company's Board of Directors added Michael
Sember, Elan's Vice President of Planning, Investment and
Development, as a director effective October 16, 1997, the day
following the closing of the transactions contemplated by the
letter agreement.
Elan has agreed that for a period of three years it will not (i)
purchase shares or assets of the Company from third parties (ii)
participate in a tender or exchange offer, merger or other
business acquisition involving the Company, (iii) participate in
any recapitalization, restructuring, liquidation, dissolution or
other extraordinary transaction with respect to the Company, (iv)
solicit proxies or consents to vote any voting securities or the
Company, (v) attempt to influence management or control of the
Company or (vi) change the composition of the Company's Board of
Directors; provided that such agreement will not apply if a
tender offer or a proxy solicitation with respect to an
acquisition proposal is made by a party which has been invited in
writing by the Company or is unaffiliated with Elan.
Elan has also agreed to fund $500,000 of development expenses for
the development of pre-filled medication applications for the
Company's needle-free injection technology. The funding will
commence in the first quarter of fiscal 1998, upon written
request from the Company, in the form of grants to the Company
in four equal, quarterly (in arrears) payments of $125,000.
For its services in connection with the transactions described
above and the introduction of the Company to Elan, Raphael LLC, a
management consulting company, will receive a cash payment in the
amount of $150,000 and, subject to shareholder approval requested
in the Proposal, a five-year warrant to purchase 100,000 shares
of the Company's Common Stock at an exercise price of $0.85 per
share. If shareholder approval is not received, Raphael LLC will
receive an additional cash payment in an amount to be negotiated
in lieu of the warrant. For the period ended September 30, 1997, the
Company has taken a charge to expense for the amount of the $15 million
licensing fee, of which $12.015 million is reportable against the Company's
consolidated results of operations. The difference between the aggregate
amount of the licensing fee and the reportable net amount by the
Company represents the portion of the fee allocable to the minority
interest in JV Sub.
Certain statements in this report, including statements concerning the
development, testing, marketing and product characteristics of glucose
monitoring and pre-filled needle-free injection products intended to
be developed, and other statements that are not statements of historical
fact, are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. There are a number of factors
which could cause actual events in differ materially from those projected
in the forward-looking statements, including uncertainties as to the
parties' ability to develop the products presently contemplated, the
possibility of delays, the availability of adequate additional
financing, the ownership and protection of proprietary technology,
the possibilities that competing technology could be developed by
others and other risks and uncertainties described in Bioject's
report on Form 10-K for the year ended March 31, 1997 and other
reports filed with the Securities and Exchange Commission.
Item 7. Exhibits
10.40** License Agreement between Elan Corporation, plc and
Bioject JV Subsidiary Inc. dated October 15, 1997.
Confidential treatment has been requested with respect to
certain portions of this exhibit pursuant to an Application
for Confidential Treatment filed with the Commission under
Rule 24b-2(b) under the Securities Exchange Act of 1934, as
amended.
10.41* Securities Purchase Agreement between Elan
International Services, Ltd. and Bioject Medical Technologies
Inc. dated October 15, 1997.
10.42* Bioject Medical Technologies Inc. Registration Rights
Agreement between Elan International Services, Ltd. and
Bioject Medical Technologies Inc. dated October 15, 1997.
10.43* Series K Warrant to Purchase Shares of Common Stock
dated October 15, 1997.
10.44** Promissory Note dated October 15, 1997 in favor of
Elan International Services, Ltd.
10.45** Newco Subscription and Stockholders Agreement between
Elan International Services, Ltd., Bioject Medical
Technologies Inc. and Bioject JV Subsidiary Inc. dated October
15, 1997. Confidential treatment has been requested with
respect to certain portions of this exhibit pursuant to an
Application for Confidential Treatment filed with the
Commission under Rule 24b-2(b) under the Securities Exchange
Act of 1934, as amended.
10.46** Bioject JV Subsidiary Inc. Registration Rights Agreement
between Elan International Services, Ltd. and Bioject JV
Subsidiary Inc. dated October 15, 1997.
10.47 Proposed terms of the Series A Convertible Preferred Stock,
Series B Convertible Preferred Stock and Series C Convertible
Preferred Stock.
* Previously filed with the Company's Form 8-K filed on October 31, 1997.
** Previously filed.
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 hereunto duly authorized.
BIOJECT MEDICAL TECHNOLOGIES INC.
Date: November 14, 1997 By /s/ Peggy J. Miller
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Peggy J. Miller
Vice President, Chief Financial
Officer, Secretary/Treasurer
LIST OF EXHIBITS ATTACHED TO THIS FORM 8-K/A
10.47 Proposed terms of the Series A Convertible Preferred Stock,
Series B Convertible Preferred Stock and Series C Convertible
Preferred Stock.
<PAGE>
Exhibit 10.47
PROPOSED TERMS OF THE
SERIES A CONVERTIBLE PREFERRED STOCK,
SERIES B CONVERTIBLE PREFERRED STOCK
AND
SERIES C CONVERTIBLE PREFERRED STOCK
SECTION 1. Definitions. The following terms shall have the
respective meanings ascribed to them below.
"Board" shall mean the Board of Directors of the Corporation.
"Business Day" shall mean any day other than Saturday, Sunday or
a day on which federally-chartered banks located in New York, New
York or Portland, Oregon are permitted by law to be closed.
"Closing Date" shall mean October 15, 1997.
"Closing Price" at any date shall mean the last reported sale
price of the Common Stock on the NASDAQ Stock Market or other
principal market of the Common Stock on such date.
"Common Stock" shall mean, collectively, the Corporation's Common
Stock and any capital stock of any class of the Corporation
(other than any Preferred Stock) hereafter authorized that is not
limited to a fixed amount of percentage of par or stated value in
respect of the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation,
dissolution or winding up of the Corporation.
"Conversion Stock" shall mean shares of the Corporation's Common
Stock issuable upon the conversion of any shares of Preferred
Stock.
"Excluded Stock" shall mean (i) shares of Common Stock issued or
reserved for issuance by the Corporation as a stock dividend
payable in shares of Common Stock, or upon any subdivision or
split-up of the outstanding shares of Common Stock, or upon
conversion of shares of the Preferred Stock, (ii) up to 3,650,000
shares of Common Stock (or Rights (as defined below)) therefor
issued to directors, officers or employees of the Corporation or
its affiliates (or in the case of options, granted at an
exercise price) at less than Fair Value under a duly-enacted
stock option or compensation plan, or (iii) any shares of Common
Stock issuable upon exercise of any warrants currently
outstanding or warrants which the Corporation has committed, as
of October 15, 1997, to issue in the future.
"Fair Value" shall mean the fair market value of any securities
or assets as reasonably and in good faith determined by the
Board.
"Junior Securities" shall mean any of the Corporation's equity
securities (whether or not currently authorized) that are junior
in liquidation preference to the Preferred Stock.
"Liquidation Value" of any share of Series A Preferred Stock or
Series B Preferred Stock as of any particular date shall be equal
to $15.00 per share. Liquidation Value of Series C Preferred
Stock is the Series C Issuance Price.
"Market Price" of any security shall mean the average of the
closing prices of such security's sales on all securities
exchanges on which such security may at the time be listed, or,
if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day such security
is not so listed, the average of the representative bid and asked
prices quoted in the NASDAQ Stock Market as of 4:00 p.m., New
York time, or, if on any day such security is not quoted in the
NASDAQ Stock Market, the average of the highest bid and lowest
asked prices on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or
any similar successor organization, in each such case averaged
over a period of the 10 trading days preceding the determination
date. If at any time such security is not listed on any
securities exchange or quoted in the NASDAQ Stock Market or the
over-the-counter market, the "Market Price" shall be the Fair
Value thereof.
"Person" shall mean an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture,
an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Stock" shall mean the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock, or, as
the context requires, all such series of preferred stock of the
Corporation.
"Preferred Issuance Price" shall mean the purchase price per
share for the Series A Preferred Stock, which is $15.00, and the
purchase price per share for the Series B Preferred Stock, which
is $15.00.
"Series C Issuance Price" means the original price per share at
which Series C Preferred Stock is issued.
"Subsidiary" shall mean any Person of which the shares of
outstanding capital stock or other equity interests, as the case
may be, possessing the voting power under ordinary circumstances
in electing the board of directors are, at the time as of which
any determination is being made, owned by the Corporation either
directly or indirectly through subsidiaries.
SECTION 2. Preferred Stock. (a) Series A Preferred Stock.
1,235,000 shares of the preferred stock, without par value, of
the Corporation are hereby constituted as a series of preferred
stock of the Corporation designated as Series A Convertible
Preferred Stock (the "Series A Preferred Stock"). Such amount
shall be adjusted by the Corporation in the event that any
adjustments to the Series A Preferred Stock are required as set
forth herein, including Section 7 hereof, and, in connection
therewith, the Corporation shall promptly take all necessary or
appropriate actions and make all necessary or appropriate filings
in connection therewith.
(b) Series B Preferred Stock. 200,000 shares of the preferred
stock , without par value, of the Corporation are hereby
constituted as a series of preferred stock of the Corporation
designated as Series B Convertible Preferred Stock (the "Series B
Preferred Stock"). Such amount shall be adjusted by the
Corporation in the event that any adjustments to the Series B
Preferred Stock are required as set forth herein, including
Section 7 hereof, and, in connection therewith, the Corporation
shall promptly take all necessary or appropriate action and make
all necessary or appropriate filings in connection therewith.
(c) Series C Preferred Stock. 200,000 shares of the preferred
stock , without par value, of the Corporation are hereby
constituted as a series of preferred stock of the Corporation
designated as Series C Convertible Preferred Stock (the "Series C
Preferred Stock"). Such amount shall be adjusted by the
Corporation in the event that any adjustments to the Series C
Preferred Stock are required as set forth herein, including
Section 7 hereof, and, in connection therewith, the Corporation
shall promptly take all necessary or appropriate action and make
all necessary or appropriate filings in connection therewith.
SECTION 3. Dividends. (a) General. (1) Series A Preferred
Stock. Each outstanding share of Series A Preferred Stock shall
accrue a dividend equal to 9% per annum of the Preferred Issuance
Price of Series A Preferred Stock, compounded semi-annually
beginning six months from the date of first issuance of Series A
Preferred Stock; such dividend shall be paid by issuance of
additional shares of Series A Preferred Stock, based upon a value
equal to the Preferred Issuance Price.
(2) Series B Preferred Stock. The holder of each share of
Series B Preferred Stock shall be entitled to receive, pro rata
among such holders and on a pari passu basis with the holders of
the Series C Preferred Stock and the holders of Common Stock, as
if the Series B Preferred Stock had been converted into Common
Stock immediately prior to the record date in respect thereof,
when and as declared by the Board out of funds legally available
for the declaration and payment of dividends, cash dividends at
the same rate and in the same amount per share as any and all
dividends declared and paid in respect of the Common Stock.
Except as set forth above, such holders shall not be entitled to
receive any dividends.
(3) Series C Preferred Stock. The holder of each share of
Series +C Preferred Stock shall be entitled to receive, pro rata
among such holders and on a pari passu basis with the holders of
the Series B Preferred Stock and the holders of Common Stock, as
if the Series C Preferred Stock had been converted into Common
Stock immediately prior to the record date in respect thereof,
when and as declared by the Board out of funds legally available
for the declaration and payment of dividends, cash dividends at
the same rate and in the same amount per share as any and all
dividends declared and paid in respect of the Common Stock.
Except as set forth above, such holders shall not be entitled to
receive any dividends.
(b) Payment of Dividends. (1) Series A Preferred Stock.
Dividends accrued and unpaid on shares of Series A Preferred
Stock as of the Mandatory Conversion Date (as defined in Section
6(a)(1) below) shall be payable in accordance with Section 6
below.
(2) Series B Preferred Stock. Dividends payable in respect of
the Series B Preferred Stock shall be paid as and when dividends
are paid in respect of the Common Stock.
(3) Series C Preferred Stock. Dividends payable in respect of
the Series C Preferred Stock shall be paid as and when dividends
are paid in respect of the Common Stock.
(4) Change in Dividend Rate. If the Corporation shall fail to
declare or pay a dividend on a date on which dividends are to be
compounded pursuant to Section 3(a)(1) hereof, dividends on each
share of Series A Preferred Stock shall thereupon begin to accrue
at the rate of 9% of the sum of (a) the Preferred Issuance Price
and (b) accrued and unpaid dividends on such date. If a dividend
that was accrued and unpaid on a date dividends are to be
compounded is subsequently paid, the rate at which dividends
accrue shall thereupon be lowered to reflect such payment.
SECTION 4. Liquidation. Upon any liquidation, dissolution or
winding up of the Corporation, each holder of Preferred Stock
shall be entitled to receive from amounts remaining after
satisfaction of creditors and holders of securities (if any) with
liquidation preferences senior to the Preferred Stock, and pro
rata based on the respective outstanding liquidation preferences
with holders of securities with a liquidation preference pari
passu to the Preferred Stock, an amount equal to the Liquidation
Value, plus accrued and unpaid dividends thereon, per share
multiplied by the number of shares of Preferred Stock, held by
such holder, until paid in full, in preference and priority to
any distribution to any holder of Junior Securities. The
Corporation shall provide written notice of such liquidation,
dissolution or winding up, not less than 30 days prior to the
payment date stated therein, to each record holder of any shares
of Preferred Stock.
SECTION 5. Voting Rights. (a) No Voting. Except as provided
in Section 5(b) below or as required by the Oregon Business
Corporation Act, the outstanding shares of Preferred Stock shall
not be entitled to vote on any matter as to which stockholders of
the Corporation shall be entitled to vote.
(b) Special Voting Rights. The Corporation shall not, without
first obtaining the affirmative vote or written consent of a
majority in interest of the Series A Preferred Stock, voting as a
class:
(1) amend or repeal any provision of, or add any provision to,
the Corporation's Articles of Incorporation or By-laws if such
action would adversely alter preferences, rights, privileges or
powers of, or the restrictions provided herein for the benefit
of, the Series A Preferred Stock;
(2) create a series of Preferred Stock with a liquidation
preference senior to the Series A Preferred Stock;
(3) effect any merger, consolidation or similar transaction; or
(4) increase or decrease the number of authorized shares of
Series A Preferred Stock, except as required by Section 2 hereof.
SECTION 6. Conversion. (a) Series A Preferred Stock.
(1) Mandatory Conversion. All holders of Series A Preferred
Stock shall be required to convert all of the outstanding shares
of Series A Preferred Stock as of the seventh anniversary of the
Closing Date (the "Mandatory Conversion Date"), in which case the
aggregate Preferred Issuance Price of all shares of the Series A
Preferred Stock plus accrued and unpaid dividends thereon held by
each holder shall be converted into a number of shares of Common
Stock determined by dividing such sum by a price per share of
Common Stock (the "Fixed Conversion Floor Price") equal to 80% of
the average of the Closing Prices for the 10 trading days ending
on the day that is two business days prior to the Mandatory
Conversion Date thereof; provided, that if the average of such
Closing Prices is greater than or equal to $1.80, such conversion
price shall be equal to $1.50 per share (the "Fixed Mandatory
Conversion Rate").
(2) Conversion Prior to Mandatory Conversion Date. Prior to the
Mandatory Conversion Date, all holders of Series A Preferred
Stock shall have the right to convert each share of Series A
Preferred Stock into ten shares of Common Stock, without giving
effect to accrued and unpaid dividends, but subject to Section
6(e) below (the "Anti-dilution Adjustments").
(b) Series B Preferred Stock. Series B Preferred Stock is
convertible in the same manner and subject to the same terms and
conditions as provided for in Section 6(a) above with respect to
the holders of Series A Preferred Stock.
(c) Series C Preferred Stock. (1) Mandatory Conversion. All
holders of Series C Preferred Stock shall be required to convert
all of the outstanding shares of Series C Preferred Stock as of
the Mandatory Conversion Date, in which case the aggregate
Preferred Issuance Price of all shares of the Series C Preferred
Stock plus accrued and unpaid dividends thereon held by each
holder shall be converted into a number of shares of Common Stock
determined by dividing such sum by the Series C Issuance Price.
(2) Conversion Prior to Mandatory Conversion Date. Prior to the
Mandatory Conversion Date, all holders of Series C Preferred
Stock shall have the right to convert each share of Series C
Preferred Stock into ten shares of Common Stock, without giving
effect to accrued and unpaid dividends, but subject to the
"Anti-dilution Adjustments".
(c) Conversion Procedure. (1) Before any holder of shares of
Preferred Stock shall be entitled to convert any of such shares
into shares of Common Stock, such holder shall surrender the
certificate or certificates, duly endorsed, at the office of the
Corporation or of any transfer agent for the Preferred Stock, and shall give
written notice to the Corporation at its principal
corporate office of the election to convert such shares and shall
state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued.
(2) Each conversion of any shares of Preferred Stock shall be
deemed to have been effected on the close of business on the date
on which the certificate or certificates representing such
Preferred Stock to be converted have been surrendered at the
principal corporate office of the Corporation or the office of
any transfer agent for the Preferred Stock. At such time as such
conversion has been effected, the rights of the holder of such
Preferred Stock as a holder shall cease, the Person or Persons in
whose name or names any certificate or certificates for shares of
Conversion Stock are to be issued upon such conversion shall be
deemed to have become the holder or holders of record of the
shares of Conversion Stock represented thereby.
(3) As soon as possible after a conversion has been effected (but
in any event within five business days in the case of clause (6)
below), the Corporation or its transfer agent shall deliver to
the converting holder:
(i) a certificate or certificates representing the number of
shares of Conversion Stock issuable by reason of such conversion
in such name or names and such denomination or denominations as
the converting holder has specified; and
(ii) payment in an amount equal to the amount payable under
clause (6) below with respect to such conversion.
(4) The issuance of certificates for shares of Conversion Stock
upon conversion of the Preferred Stock shall be made without
charge to the holders of such Preferred Stock for any cost
incurred by the Corporation in connection with such conversion
and the related issuance of shares of Conversion Stock. Upon
conversion of each share of Preferred Stock, the Corporation
shall take all such actions as are necessary in order to ensure
that the Conversion Stock issuable with respect to such
conversion shall be validly issued, fully paid and nonassessable.
(5) The Corporation shall not close its books against the
transfer of the Preferred Stock or of Conversion Stock issued or
issuable upon conversion of the Preferred Stock in any manner
which interferes with the timely conversion of the Preferred
Stock. The Corporation shall assist and cooperate with any
holder of the Preferred Stock or Conversion Stock required to
make any governmental filings or obtain any governmental approval
prior to or in connection with any conversion of shares hereunder
(including, without limitations, making any filings required to
be made by the Corporation).
(6) If any fractional interest in a share of Conversion Stock
would, except for the provisions of this clause (6), be
deliverable upon any conversion of the Preferred Stock, the
Corporation, in lieu of delivering the fractional share therefor,
shall pay an amount to the holder thereof equal to the Market Price of such
fractional interest as of the date of conversion.
(7) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Conversion
Stock, solely for the purpose of issuance upon the conversion of
the Preferred Stock, such number of shares of Conversion Stock
issuable upon the conversion of all outstanding shares of
Preferred Stock. All shares of Conversion Stock which are so
issuable shall, when issued, be duly and validly issued, fully
paid and nonassessable and free from all taxes, liens and
charges. The Corporation shall take all such actions as may be
necessary to ensure that all such shares of Conversion Stock may
be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic
securities exchange or market upon which shares of Conversion
Stock may be listed (except for official notice of issuance which
shall be immediately delivered by the Corporation upon each such
issuance and except for filings, notices of applicability and
permissions solely within the control of, or laws and regulations
solely applicable to, the holders of the Preferred Stock).
(e) Anti-dilution Adjustments. (1) Changes in Common Stock.
In case the Corporation shall at any time or from time to time
after the date of filing these Articles of Amendment (i) pay a
dividend or make any other distribution with respect to its
Common Stock in shares of Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a greater number of
shares of Common Stock, (iii) combine its outstanding shares of
Common Stock or (iv) issue any shares of its capital stock or
other assets in a reclassification or reorganization of the
Common Stock (including any such reclassification in connection
with a consolidation or merger in which the Corporation is the
continuing entity), then the number and kind of shares of capital
stock of the Corporation or other assets that may be received
upon the conversion of the Preferred Stock shall be adjusted to
the number of shares of Conversion Stock and amount of any such
securities, cash or other property of the Corporation which the
holders would have owned or have been entitled to receive after
the happening of any of the events described above had the
Preferred Stock been converted immediately prior to the record
date (or, if there is no record date, the effective date) for
such event. An adjustment made pursuant to this clause (1) shall
become effective upon the effective date of such payment,
sub-division, combination or issuance as described above. Any
Conversion Stock or other assets to be acquired as a result of
such adjustment shall not be issued prior to the effective date
of such event. For the purposes of this clause (1), the number
of shares of Common Stock at any time outstanding shall not
include shares held in the treasury of the Corporation.
Notwithstanding any other provision of this Section 6(e)(1), an
action described in Section 6(e)(1)(i), (ii) or (iii) hereof
shall not affect the number of shares of Conversion Stock issued
upon mandatory conversion of the Preferred Stock except by
operation of Section 6(e)(5) hereof.
(2) Issuance of Rights. In case the Corporation shall issue to
all holders of its Common Stock rights, options or warrants to
subscribe for or purchase, or other securities exchangeable for
or convertible into, shares of Common Stock that are not
distributed to holders of Preferred Stock (any such rights,
options, warrants or other securities, collectively, "Rights")
(excluding rights to purchase Common Stock pursuant to a
Corporation plan for reinvestment of dividends or interest and
excluding any Excluded Stock) at a subscription offering,
exercise or conversion price per share (as defined below, the
"offering price per share") which, before deduction of customary
discounts and commissions, is lower than the current Market Price
per share of Common Stock on the record date of such issuance or
grant, whether or not, in the case of Rights, such Rights are
immediately exercisable or convertible, then the number of shares
of Conversion Stock issuable upon conversion of the Preferred
Stock shall be adjusted by multiplying the number of shares of
Conversion Stock issuable upon conversion of the Preferred Stock
immediately prior to any adjustment in connection with such
issuance or grant by a fraction, the denominator of which shall
be the number of shares of Common Stock outstanding (exclusive of
any treasury shares) on the record date of issuance or grant of
such Rights plus the number of shares which the aggregate
offering price (as defined below) of the total number of shares
of Common Stock so offered would purchase at the current Market
Price per share of Common Stock on the record date, and the
numerator of which is the number of shares of Common Stock
outstanding plus the aggregate number of shares of Common Stock
issuable upon exercise of the rights. Such adjustment shall be
made immediately after the record date for the issuance or
granting of such Rights. For purposes of this clause, the
"offering price per share" of Common Stock shall, in the case of
Rights, be determined by dividing (x) the total amount received
or receivable by the Corporation in consideration of the issuance
of such Rights plus the total consideration payable to the
Corporation upon exercise thereof (the "aggregate offering
price"), by (y) the total number of shares of Common Stock
covered by such Rights.
(3) Dividends and Distributions. In case the Corporation shall
distribute to all holders of Common Stock any dividend or other
distribution of evidences of its indebtedness or other assets (in
each case other than cash dividends and other than as provided in
clause (1) above in which the holders of the Preferred Stock are
otherwise entitled to share, as provided herein) or Rights, then,
in each case, all holders of the Preferred Stock shall be
entitled to receive all of the same dividends, distributions or
Rights, as the case may be, as the holders of Common Stock, on an
as-converted basis, as and when distributed to the holders of
Common Stock, at such time, if any, that the holders of the
Preferred Stock shall have elected to convert such stock to
Common Stock, as provided herein.
(4) Computations. For the purpose of any computation under
clauses (1) and (2) above, the current Market Price per share of
Common Stock at any date shall be as set forth in (i) the
definition of Market Price for the 10 consecutive trading days
commencing 20 trading days prior to the earlier to occur of
(A) the date as of which the Market Price is to be computed or
(B) the last full trading day before the commencement of
"ex-dividend" trading in the Common Stock relating to the event
giving rise to the adjustment required by clause (1) or (2) or
(ii) any other arm's-length adjustment formula that the Board may
use in good faith. In the event the Common Stock is not then
publicly traded or if for any other reason the current market
price per share cannot be determined pursuant to the foregoing
provisions of this clause (4) the current market price per share
shall be the Fair Value thereof.
(5) Adjustment. Whenever the number of shares of Conversion
Stock issuable upon voluntary conversion of the Series A
Preferred Stock and Series B Preferred Stock is adjusted as
provided under clause (1) or (2), the Fixed Mandatory Conversion
Rate and the Fixed Conversion Floor Price shall be adjusted by
multiplying such prices immediately prior to such adjustment by a
fraction, the numerator of which shall be the number of shares of
Conversion Stock issuable upon voluntary conversion of any shares
of Series A Preferred Stock or Series B Preferred Stock
immediately prior to such adjustment, and the denominator of
which shall be the number of shares of Conversion Stock issuable
upon voluntary conversion of any shares of Series A Preferred
Stock or Series C Preferred Stock immediately thereafter.
Whenever the number of shares of Conversion Stock issuable upon
voluntary conversion of the Series C Preferred Stock is adjusted
as provided under clause (1) or (2), the Series C Issuance Price
shall be adjusted by multiplying such prices immediately prior to
such adjustment by a fraction, the numerator of which shall be
the number of shares of Conversion Stock issuable upon voluntary
conversion of any shares of Series C Preferred Stock immediately
prior to such adjustment, and the denominator of which shall be
the number of shares of Conversion Stock issuable upon voluntary
conversion of any shares of Series C Preferred Stock immediately
thereafter.
(6) Securities. For the purpose of this Section 6, the term
"shares of Common Stock" shall mean (i) the class of stock
designated as Common Stock, without par value, of the Corporation
on the date of filing this Certificate or (ii) any other class of
stock resulting from successive changes or reclassifications of
such shares consisting solely of changes in par value, or from
par value to no par value, or from no par value to par value.
(7) Re-Adjustment. If, at any time after any adjustment to the
number of Shares of Conversion Stock issuable upon conversion of
the Preferred Stock and the Conversion Price shall have been made
pursuant to clause (2) of this Section 6, any rights, options,
warrants or other securities convertible into or exchangeable for
shares of Common Stock shall have expired, or any thereof shall
not have been exercised, the Conversion Price and the number of
shares of Conversion Stock issuable upon conversion of the
Preferred Stock shall, upon such expiration, be readjusted and
shall thereafter be such as it would have been had it been
originally adjusted (or had the original adjustment not been
required, as the case may be) as if (A) the only shares of Common
Stock offered were the shares of Common Stock, if any, actually
issued or sold upon the exercise of such rights, options or
warrants and (B) such shares of Common Stock, if any, were issued
or sold for the consideration actually received by the
Corporation for the issuance, sale or grant of all such rights,
options or warrants whether or not exercised; provided, further
that no such readjustment shall have the effect of increasing the
Conversion Price or decreasing the number of shares of Conversion
Stock issuable upon conversion of the Preferred Stock by an
amount (calculated by adjusting such increase or decrease as
appropriate to account for all other adjustments pursuant to this
Section 6 following the date of the original adjustment referred
to above) in excess of the amount of the adjustment initially
made in respect of the issuance, sale or grant of such rights,
options or warrants.
(e) Reorganization, Reclassification Consolidation, Merger or
Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the
Corporation's assets to another Person or other transaction which
is effected in such a manner that holders of Common Stock are
entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "Organic
Change". Prior to the consummation of any Organic Change, the
Corporation shall make appropriate provisions to ensure that each
of the holders of each share of the Preferred Stock shall
thereafter have the right to acquire and receive, in lieu of or
in addition to (as the case may be) the shares of Conversion
Stock immediately theretofore acquirable and receivable upon the
conversion of such holder's Preferred Stock, such shares of
stock, securities or assets as such holder would have received in
connection with such Organic Change if such holder had converted
its Preferred Stock immediately prior to such Organic Change. In
each such case, the Corporation shall also make appropriate
provisions to ensure that the provisions of this Section 6 hereof
shall thereafter be applicable to the Preferred Stock. The
Corporation shall not effect any such consolidation, merger or
sale, unless prior to the consummation thereof, the successor
corporation (if other than the Corporation) resulting from
consolidation or merger or the corporation purchasing such assets
assumes by written instrument the obligation to deliver to each
such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be
entitled to acquire.
(f) Notices. (1) Immediately upon any adjustment of the number
of shares issuable upon conversion of the Preferred Stock, the
Corporation shall give written notice thereof to all holders of
the Preferred Stock, setting forth in reasonable detail and
certifying the calculation of such adjustment.
(2) The Corporation shall give written notice to all holders of
the Preferred Stock at least 10 days prior to the date on which
the Corporation closes its books or takes a record of determining
rights to receive any dividends or distributions. The
Corporation shall also give written notice to the holders of the
Preferred Stock at least 30 days prior to the date on which
Organic Change shall occur.
SECTION 7. Redemption. (a) Series A Preferred Stock.
(i) General. Subject to the provisions of Section 6 above,
shares of Series A Preferred Stock may be redeemed by the
Corporation, as follows, upon at least 45 days' and no more than
90 days' prior written notice, at a price equal to the sum of the
aggregate Preferred Issuance Price of the Series A Preferred
Stock plus accrued and unpaid dividends. From and after the
third anniversary of the Closing Date, if the Closing Price shall
be equal to or greater than $2.25 (subject to the anti-dilution
adjustments described in Section 6(e)(1) above) for 20 out of any
30 consecutive trading days on or prior to any such applicable
date (or, if thereafter, prior to any date for such a redemption
if not effected prior thereto) (the "Redemption Price
Condition"), the Corporation shall have the right to redeem
one-third of the Series A Preferred Stock (as to the Preferred
Issuance Price thereof), together with one-third of the
then-accrued and unpaid dividends through such date. From and
after the fourth anniversary of the Closing Date, if the
Redemption Price Condition is met, the Corporation shall have the
right to redeem an additional one-third of the Series A Preferred
Stock (as to the Preferred Issuance Price thereof), together with
one-half of the then-accrued and unpaid dividends at such date
(or two-thirds of then-accrued and unpaid dividend at the second
date if no Series A Preferred Stock was previously redeemed at or
after the first such date). From and after the fifth anniversary
of the Closing Date, if the Redemption Price Condition is met,
the Corporation shall have the right to redeem the balance of the
Series A Preferred Stock, together with the remaining accrued and
unpaid dividends at such date. Prior to redemption, the
Corporation must provide the applicable redemption notice within
60 days of the achievement of the Redemption Price Condition.
(ii) Early Redemption. The Series A Preferred Stock (or any
portion thereof) may be redeemed by the Corporation prior to such
three, four or five-year period, as applicable, only in the event
the Corporation shall have reasonably determined, in good faith,
after consultation with the original holder of shares of Series A
Preferred Stock to abandon the development of the Technology (as
defined in the Securities Purchase Agreement dated as of the
Closing Date among the Corporation and Elan International
Services, Ltd., a Bermuda corporation) or products based on the
Technology.
(iii) Notice of Redemption. Not less than 45 days but not more
than 90 days prior to the date of any redemption (each, a
"Redemption Date"), as permitted by this Section 7(a), the
Corporation shall send a written notice of redemption (the
"Notice") to each holder of Series A Preferred Stock to be
redeemed in the manner provided herein. The notice shall
identify:
(1) the Redemption Date;
(2) the redemption price to be paid to such holder, as provided
above (the "Redemption Price"), and applicable to such Series A
Preferred Stock;
(3) the number of shares of Common Stock into which a share of
Series A Preferred Stock, Series C Preferred Stock or Series C
Preferred Stock, as the case may be, is convertible;
(4) the name and address of the transfer agent, if any, in
respect of the Series A Preferred Stock;
(5) that Series A Preferred Stock called for redemption may be
converted by the holder, as otherwise provided herein, at any
time before the close of business on the Redemption Date; and
(6) that Series A Preferred Stock called for redemption must be
surrendered to the transfer agent at the office of the
Corporation or its transfer agent to collect the Redemption
Price.
(iv) Effect of Notice of Redemption. Upon the Notice, Series A
Preferred Stock called for redemption shall become due and
payable on the Redemption Date, unless converted prior to such
date, and at the Redemption Price stated in the Notice. Upon
surrender to the Corporation or transfer agent shares shall be
redeemed and the Redemption Price stated in the Notice shall be
paid in cash in full.
(b) Series B Preferred Stock. Shares of Series B Preferred
Stock shall be redeemable by the Corporation in the same manner
and subject to the same terms and conditions as set forth for
redemption of shares of Series A Preferred Stock in Section 7(a)
above.
(c) Series C Preferred Stock. Shares of Series C Preferred
Stock shall be redeemable by the Corporation in the same manner
and subject to the same terms and conditions as set forth for
redemption of shares of Series A Preferred Stock in Section 7(a)
above, except that shares of Series C Preferred Stock shall be
redeemed at a price equal to the sum of the aggregate Series C
Issuance Price plus accrued and unpaid dividends.
SECTION 8. Registration of Transfer. The Corporation shall keep
a register for the registration of the record holders of the
Preferred Stock. Upon the surrender of any certificate
representing any shares of Preferred Stock, the Corporation
shall, at the request of the record holder of such certificate,
execute and deliver (at the Corporation's expense, provided that
the holder will be responsible for any transfer taxes if the
certificate is register in a new name) a new certificate or
certificates in exchange therefore representing in the aggregate
the number of shares of the Preferred Stock, as applicable,
represented by the surrendered certificate. Each such new
certificate shall be registered in such name and shall represent
such number of shares of the Preferred Stock, as applicable, as
is requested by the holder of the surrendered certificate and
shall be substantially identical in form to the surrendered
certificate, and dividends shall accrue on the Preferred Stock
represented by such new certificate from the date to which
dividends have been fully paid on such Preferred Stock
represented by the surrendered certificate.
SECTION 9. Replacement. Upon receipt of evidence reasonably
satisfactory to the Corporation (an affidavit of the registered
holder and an undertaking of indemnity from a creditworthy
indemnitor shall be satisfactory) of the ownership and the loss,
theft, destruction or mutilation of any certificate evidencing
shares of the Preferred Stock, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation, or, in the case of any such
mutilation upon surrender of such certificate, the Corporation
shall (at its expense) execute and deliver in lieu of such
certificate a new certificate of like kind representing the
number of shares of such series represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such
lost, stolen, destroyed or mutilated certificate, and dividends
shall accrue on the Preferred Stock represented by such new
certificate from the date to which dividends have been fully paid
on such lost, stolen, destroyed or mutilated certificate.
SECTION 10. Amendment and Waiver. No amendment, modification or
waiver shall be binding or effective with respect to any
provision of these Articles of Amendment without the prior
written consent of a Majority in Interest of each of the Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock outstanding at the time such action is taken.
SECTION 11. Notices. Except as otherwise expressly provided
hereunder, all notices referred to herein shall be in writing and
shall be delivered by registered or certified mail, return
receipt requested and postage prepaid, or by reputable overnight
courier or telecopy service, charges prepaid, and shall be deemed
to have been given when so mailed or sent (a) to the Corporation,
at its principal executive offices and (b) to any stockholder, at
such holder's address as it appears in the stock records of the Corporation
(unless otherwise indicated by any such holder).
