<PAGE> 1
10-Q/A
AMENDMENT NO. 1 TO
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: June 30, 1998;
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-11352
DynaGen, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3029787
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
840 Memorial Drive
Cambridge, MA 02139
----------------------------------------------------------
(Address of principal executive offices, including zip code)
(617) 491-2527
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of August 8, 1998, there were outstanding 22,527,583 shares of common stock,
$.01 par value per share.
Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, the
Registrant hereby amends its Annual Report on Form 10-Q for the quarter ended
June 30, 1998 by amending and restating Items 1 and 6 in their entirety as
follows:
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DYNAGEN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 230,488 $ 697,045
Accounts receivable, net of
allowance for doubtful accounts
of $100,536 and $43,118 3,602,971 3,152,779
Rebates 694,333 713,976
Inventory (Note 3) 7,411,686 9,111,324
Notes receivable 110,000 110,000
Prepaid expenses and other
current assets 107,760 147,972
----------- -----------
Total current assets 12,157,238 13,933,096
----------- -----------
Property and equipment, net 1,972,631 1,772,878
----------- -----------
Other assets:
Customer lists, net of accumulated
amortization of $2,771,013 and
$1,361,200 (Note 2) 11,570,192 12,250,800
Goodwill, net of accumulated
amortization of $35,658 and
$22,751 (Note 2) 350,560 363,468
Patents and trademarks, net of
accumulated amortization of
$102,930 and $89,164 293,778 345,381
Deferred debt financing costs,
net of accumulated amortization 361,429 359,621
Deposits and other assets 379,440 322,870
----------- -----------
Total other assets 12,955,399 13,642,140
----------- -----------
$27,085,268 $29,348,114
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 3
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Current liabilities:
Bank overdraft $ -0- $ 142,616
Notes payable (Note 4) 8,958,807 8,348,333
Loan payable - bank 4,883,423 6,584,710
Accounts payable 3,612,365 6,390,421
Accrued payroll and
payroll taxes 247,800 95,312
Acquisition obligation (Note 2) 4,083,000 4,083,000
------------ ------------
Total current liabilities 21,785,395 25,644,392
Warrant put liability 802,705 750,594
Long term debt 328,500 328,500
------------ ------------
Total liabilities 22,916,600 26,723,486
------------ ------------
Stockholders' equity (Notes 1 and 2):
Preferred stock, $.01 par value,
10,000,000 shares authorized,
56,012 and 63,522 shares of
Series A through H outstanding
(liquidation value $5,601,271 and
$6,348,417 respectively) 560 635
Common stock, $.01 par value,
75,000,000 shares authorized,
22,527,583 and 4,315,137 shares
issued and outstanding
respectively 225,276 43,151
Additional paid-in capital 44,373,894 39,137,311
Accumulated deficit (40,431,062) (36,556,469)
------------ ------------
Total stockholders' equity 4,168,668 2,624,628
------------ ------------
$ 27,085,268 $ 29,348,114
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE> 4
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
June 30, June 30,
1998 1997
------------ -----------
<S> <C> <C>
Revenues:
Product sales $ 6,429,839 $ 1,229,846
Fees and Royalties 323 50,426
------------ -----------
Total revenues 6,430,162 1,280,272
------------ -----------
Costs and expenses:
Cost of sales 5,509,938 1,754,509
Research and development 93,670 1,159,267
Selling, general and
administrative 2,763,864 1,066,743
------------ -----------
Total costs and expenses 8,367,472 3,980,519
------------ -----------
Operating loss (1,937,310) (2,700,247)
------------ -----------
Other income (expense):
Investment income, net 101,604 16,704
Interest expense (330,795) (102,947)
Warrant put expense (26,492) --
Amortization of debt
financing costs (2,266) (9,186)
------------ -----------
Other income, net (257,949) (95,429)
------------ -----------
Net loss (2,195,259) (2,795,676)
Less, returns to preferred
stockholders:
Beneficial conversion
feature 275,042 203,000
Dividends paid and
accrued 35,425 21,000
------------ -----------
Net loss applicable to
common stock $ (2,505,726) $(3,019,676)
============ ===========
Net loss per share - basic $ (0.13) $ (0.99)
============ ===========
Weighted average shares outstanding
18,935,650 3,041,151
============ ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
8
<PAGE> 5
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------
June 30, June 30,
1998 1997
------------ -----------
<S> <C> <C>
Revenues:
Product sales $ 13,391,422 $1,783,857
Fees and Royalties 365 50,658
------------ -----------
Total revenues 13,391,787 1,834,515
------------ -----------
Costs and expenses:
Cost of sales 11,068,500 2,707,667
Research and development 320,287 1,646,679
Selling, general and
administrative 5,231,053 2,248,649
------------ -----------
Total costs and expenses 16,619,840 6,602,995
------------ -----------
Operating loss (3,228,053) (4,768,480)
------------ -----------
Other income (expense):
Investment income, net 154,611 109,035
Interest expense (679,749) (116,487)
Warrant put expense (52,111) --
Amortization of debt
financing costs (69,291) (18,372)
------------ -----------
Other income, net (646,540) (25,824)
------------ -----------
Net loss (3,874,593) (4,794,304)
Less, returns to preferred stockholders:
Beneficial conversion feature 325,042 1,432,000
Dividends paid and accrued 97,649 94,000
------------ -----------
Net loss applicable to Common stock $ (4,297,284) $(6,320,304)
============ ===========
Net loss per share - basic $ (0.33) $ (2.09)
============ ===========
Weighted average shares outstanding
13,219,985 3,019,571
============ ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
9
<PAGE> 6
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMPREHENSIVE COMMON STOCK PREFERRED STOCK PAID-IN ACCUMULATED COMPREHENSIVE
INCOME SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT INCOME
------------- ----------- -------- -------- --------- ------------ ------------ ------------
Balance at
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996 2,910,623 $ 29,106 -- $ -- $ 29,338,794 $(24,315,191) $ 1,307
Shares issued in private
placements 37,500 375 48,500 485 4,322,357 -- --
Stock issued for
Superior acquisition 166,667 1,667 -- -- 4,998,333 -- --
Exercise of stock options 150 2 -- -- 1,123 -- --
Issuance of common stock
purchase warrants -- -- -- -- 450 -- --
Stock options issued for
services -- -- -- -- 156,918 -- --
Stock issued for interest
obligation 2,515 25 -- -- 38,413 -- --
Conversion of note payable 98,959 990 -- -- 984,775 -- --
Net loss $(4,794,304) -- -- -- -- -- (4,794,304) --
Decrease in unrealized
gain on investment
securities (1,307) -- -- -- -- -- -- (1,307)
---------- ----------- -------- -------- --------- ------------ ------------ ---------
($4,795,611)
==========
Balance at June 30, 1997 3,216,414 $ 32,165 48,500 485 $ 39,841,163 $(29,109,495) $ --
=========== ======== ======== ========= ============ ============ =========
Balance at
December 31, 1997 4,315,137 $ 43,151 63,522 $ 635 $ 39,137,311 $(36,556,469) --
Stock issued for GDI
acquisition -- -- 12,000 120 1,199,880 -- --
Shares issued in private
placements -- -- 29,250 293 2,776,739 -- --
Stock issued for services 1,165,175 11,651 -- -- 511,063 -- --
Delayed registration
penalty -- -- -- -- (175,000) -- --
Conversion of note payable 1,798,526 17,986 -- -- 412,014 -- --
Conversion of family loans 1,560,000 15,600 -- -- 179,400 -- --
Conversion of preferred
stock 13,688,745 136,888 (48,760) (488) (136,400) -- --
Adjustment due to change in
ownership of former subsidiary 468,888
Net loss 3,874,593 -- -- -- -- -- (3,874,593) --
---------- ----------- -------- -------- --------- ------------ ------------ ---------
3,874,593
==========
Balance at June 30, 1998 22,527,583 $225,276 56,012 $ 560 $ 44,373,894 ($40,431,062) $ --
=========== ======== ======== ========= ============ ============ =========
</TABLE>
<TABLE>
<CAPTION>
TOTAL
------------
Balance at
<S> <C>
December 31, 1996 $ 5,054,016
Shares issued in private
placements 4,323,217
Stock issued for
Superior acquisition 5,000,000
Exercise of stock options 1,125
Issuance of common stock
purchase warrants 450
Stock options issued for
services 156,918
Stock issued for interest
obligation 38,438
Conversion of note payable 985,765
Net loss $ (4,794,304)
Decrease in unrealized
gain on investment
securities (1,307)
------------
Balance at June 30, 1997 $ 10,764,318
============
Balance at
December 31, 1997
$ 2,624,628
Stock issued for GDI
acquisition 1,200,000
Shares issued in private
placements 2,777,032
Stock issued for services 522,714
Delayed registration
penalty (175,000)
Conversion of note payable 430,000
Conversion of family loans 195,000
Conversion of preferred
stock --
Adjustment due to change in
ownership of former
subsidiary 468,888
Net loss (3,874,593)
------------
Balance at June 30, 1998 $ 4,168,668
============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
10
<PAGE> 7
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
June 30, June 30,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,874,593) $(4,794,304)
Adjustments to reconcile
net loss to net cash used for
operating activities:
Stock options issued
for services 522,714 156,918
Depreciation and amortization 1,684,434 134,477
Amortization and accretion
of (discounts) premiums on
investment securities -- (10,154)
Stock issued for
interest obligation -- 38,438
(Increase) decrease in operating
assets:
Accounts receivable 287,062 (142,722)
Rebates 19,643 --
Inventory 2,751,422 (1,033,686)
Prepaid expenses and
other current assets 50,604 37,147
Deposits and other assets (71,092) --
Increase (decrease) in operating liabilities:
Accounts payable and
accrued expenses (2,949,566) 3,008,065
----------- -----------
Net cash used for
operating activities (1,579,372) (2,605,821)
----------- -----------
Cash flows from investing activities:
Acquisition of Superior -- (6,250,000)
Acquisition of GDI (756,406) --
Purchase of investment securities (1,186,455)
Proceeds from sales and maturities
of investment securities -- 4,200,000
Decrease in deposits -- (200,000)
Purchase of property and equipment (297,242) (586,906)
Increase in deferred financing
and acquisition costs (50,000) --
----------- -----------
Net cash provided (used) by
investing activities (1,103,648) (2,849,549)
----------- -----------
</TABLE>
(Continued)
See accompanying notes to unaudited consolidated financial statements.
11
<PAGE> 8
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
June 30, June 30,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from financing activities:
Net proceeds from issuance of
common stock and warrants $ -- $ 854,250
Net proceeds from preferred stock -- 4,847,750
Net proceeds from private
stock placements 2,777,032
Net proceeds from debt placements 500,000
Proceeds from bank loan 1,200,000 2,696,898
Net repayments of loan payable-bank (1,701,287) (1,594,108)
Repayment of Superior note payable (416,666) --
Increase in deferred financing
costs -- (328,123)
Decrease in bank overdraft (142,616) --
----------- -----------
Net cash provided by
financing activities 2,216,463 6,476,667
----------- -----------
Net change in cash and cash equivalents (466,557) (7,378,703)
Cash and cash equivalents,
beginning of period 697,045 2,112,300
----------- -----------
Cash and cash equivalents,
end of period $ 230,488 $ 576,881
=========== ===========
Supplemental cash flow information:
Common stock issued for
convertible note payable $ 450,000 $ 1,065,000
Debt issued for delayed registration
penalty 262,500 --
Interest paid 498,737 --
Schedule of non-cash investing and financing
activities:
On June 18, 1997, the Company purchased all of the
common stock of Superior Pharmaceutical Company, Inc.
for $16,250,000. In connection with the acquisition,
non cash financing activities, liabilities assumed and
goodwill were as follows:
Fair value of assets acquired -- $10,913,834
Cash paid for common stock -- (6,250,000)
Fair value of common stock issued -- (5,000,000)
Note payable issued -- (5,000,000)
Liabilities assumed -- (8,263,477)
-----------
Goodwill (exclusive of other acquisition
costs of ($694,890) $13,599,643
===========
March 2, 1998, the Company purchased the net assets of GDLP
for $2,350,000. In connection with the acquisition,
non cash financing activities, liabilities assumed and
customer lists were as follows: fair value of assets
acquired $ 2,375,274 --
Cash paid (1,200,000) --
Preferred stock issued (1,150,000) --
Liabilities assumed (658,274) --
----------
Customer lists (exclusive of other acquisition costs of
$96,628) $ 633,000 --
==========
Note payable
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
12
<PAGE> 9
DYNAGEN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
-------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of DynaGen,
Inc. (the Company) and its wholly-owned subsidiaries, Able Laboratories, Inc.
(Able), which is engaged in the manufacture of generic pharmaceuticals, Superior
Pharmaceutical Company (Superior) and Generic Distributors Incorporated (GDI),
which are engaged in the distribution of generic pharmaceuticals, and Apex
Pharmaceuticals, Inc., which is developing therapeutic products. The
consolidated financial statements no longer include the accounts of BioTrack for
the reason described below. The accompanying unaudited consolidated financial
statements of the Company have been prepared in accordance with generally
accepted accounting principles for interim financial information and in
accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statement
presentation. All significant intercompany balances and transactions have been
eliminated in consolidation. In March 1998, the Company acquired Generic
Distributors Limited Partnership which is engaged in the distribution of generic
pharmaceuticals. (See Note 2.)
During the first and second quarter of 1998, the Company sold 300,000
shares of its BioTrack subsidiary's common stock, recognizing a gain of
$150,000, which is included in investment income. In addition, during this same
period, BioTrack sold shares of its common stock directly to outside investors.
Also, BioTrack redeemed 3,930,000 shares of its common stock held by the Company
for a $1,000,000 promissory note. This note has not been recognized in the
accompanying financial statements because of the uncertainty and risks inherent
in technology start-up companies. As a result of the ownership changes in
BioTrack described above, the Company adjusted its investment in BioTrack by
approximately $469,000 which was added to additional paid-in capital. The
Company's ownership interest in BioTrack at June 30, 1998 was approximately 29%.
Accordingly, BioTrack's financial statements are not included in the
accompanying consolidated financial statements. The Company's remaining
investment is carried on the equity basis of accounting.
The results of operations for the periods reported are not necessarily
indicative of those that may be expected for a full year. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
which are necessary for a fair statement of operating results for the interim
periods presented have been made.
The financial information included in this report has been prepared in
conformity with the accounting policies reflected in the financial statements
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
REVERSE STOCK SPLIT
On March 4, 1998 the Company's Stockholders approved a 1 for 10 reverse
stock split of the common shares. All common stock information presented herein
has been retroactively adjusted to reflect the reverse stock split.
USE OF ESTIMATES
In preparing consolidated financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the balance sheet date and reported amounts of revenues and
expenses during the reporting period. Material estimates that are particularly
13
<PAGE> 10
susceptible to significant change in the near term relate to the carrying values
of rebates receivable and intangible assets, the valuation of equity instruments
issued by the Company and the amount of obligations due as a result of defaults
on certain debt obligations. Actual results could differ from those estimates.
REBATES
Rebates represent incentives provided by pharmaceutical suppliers to
the distributors based on purchases. Management has estimated its rebates based
upon agreements and purchases during the year. Actual rebates could be different
due to market volatility and whether the Company continues to use these
suppliers.
INVENTORY
Inventory is valued at the lower of average cost or market on a
first-in first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation expense is
provided over the estimated useful lives of the assets using the straight-line
method. Leasehold improvements are amortized on the straight-line method over
the shorter of the estimated useful life of the asset or the life of the related
lease term.
CUSTOMER LISTS AND GOODWILL
Customer lists and goodwill are being amortized over estimated lives of
five and fifteen years, respectively. (See Note 2.)
REVENUE RECOGNITION
Revenues from product sales are recognized when products are
shipped. Revenues from license fees and royalties are recognized as the terms of
the agreements are met.
EARNINGS PER SHARE
In February 1997, FASB issued SFAS No. 128, Earnings per Share which
requires that earnings per share be calculated on a basic and a dilutive
basis. Basic earnings per share represents income available to common stock
divided by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share reflects additional common shares that would
have been outstanding if dilutive potential common shares had been issued, as
well as any adjustment to income that would result from the assumed
conversion. The Statement is effective for interim and annual periods ending
after December 15, 1997, and requires the restatement of all prior-period
earnings per share data presented. Accordingly, the Company has restated all
earnings per share data presented herein.
14
<PAGE> 11
For the three and six months ended June 30, 1998 and 1997 options,
warrants and put warrants, were anti-dilutive and excluded from the diluted
earnings per share computations.
The loss applicable to common stockholders has been increased by the
stated dividends on the convertible preferred stock and the amortization of
discounts on the convertible preferred stock due to the beneficial conversion
feature. Shares of common stock contingently issuable to the former stockholders
of Superior have not been included in diluted EPS because to do so would have
been anti-dilutive.
COMPREHENSIVE INCOME
In June 1997, FASB issued SFAS No. 130, Reporting Comprehensive Income,
effective for fiscal years beginning after December 15, 1997. Accounting
principles generally require that recognized revenue, expenses, gains and losses
be included in net income. Certain FASB statements, however, require entities to
report specific changes in assets and liabilities, such as unrealized gains and
losses on available-for-sale securities, as a separate component of the equity
section of the balance sheet. Such items, along with net income, are components
of comprehensive income. SFAS No. 130 requires that all items of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. Additionally, SFAS No. 130 requires
that the accumulated balance of other comprehensive income be displayed
separately from retained earnings and additional paid-in capital in the equity
section of the balance sheet. The Company adopted these disclosure requirements
in the first quarter of 1998 and has presented comparative disclosure for the
quarter ended March 31, 1997. There is no other comprehensive income in the
quarter ended June 30, 1998.
2. BUSINESS ACQUISITIONS
SUPERIOR PHARMACEUTICAL COMPANY
On June 18, 1997, the Company acquired all of the outstanding stock of
Superior Pharmaceutical Company (Superior), a distributor of generic
pharmaceutical products. The Company paid the shareholders of Superior
$6,250,000 in cash, $5,000,000 in three-year secured promissory notes and
166,667 shares of the Company's Common Stock with a guaranteed value of
$5,000,000. The secured promissory notes were subsequently reduced by $400,000
due to a deficiency in the required net worth of Superior as of the acquisition
date. DynaGen is obligated to issue to the shareholders up to an additional
1,666,667 shares of its common stock after twelve months if its common stock is
not trading at an average of at least $30.00 per share for 10 consecutive
trading days. The merger agreement provides further that DynaGen shall pay to
the former Superior stockholders the difference between $5,000,000 and the
current aggregate market value of the shares issued to the former Superior
stockholders. DynaGen is obligated to register the shares within eleven months
after the closing of the acquisition. The Company recorded a $4,083,000
acquisition obligation at December 31, 1997 based on the difference between the
current estimated fair value of the 1,833,334 shares of common stock issued and
issuable and the guaranteed value of $5,000,000. The former shareholders of
Superior, who remain as senior management at Superior, may also receive certain
incentive payments based on Superior's performance during the three years
following the closing of the acquisition. Any such payments will be charged to
expense when incurred. DynaGen contributed $1,750,000 in additional capital to
Superior immediately following the closing.
On July 31, 1998, the Company signed a contingent settlement agreement
with the selling shareholders of Superior which provides for an overall
15
<PAGE> 12
reduction in purchase price of $4,900,000 through waiver of any additional stock
or cash payment. If the settlement agreement is finalized, the company will
reduce its liabilities to the selling shareholders and reduce the acquired
intangible assets by the amount of the settlement. The agreement also provides
for, and is contingent upon, a payment of $4,200,000, which represents the
remaining amount due on the original selling shareholder notes by September 30,
1998.
The Superior acquisition has been accounted for as a purchase. The
results of operations of Superior have been included in the Company's
consolidated financial statements since the date of acquisition. The purchase
price allocation was based on the estimated fair values at the date of
acquisition. The Company allocated $13,612,000 of the purchase price to customer
lists based on an independent appraisal, which is being amortized on a
straight-line basis over five years. Amortization of customer lists amounted to
$1,361,200 for the six months ended June 30, 1998. In addition, the Company
recorded goodwill of $386,219, which is being amortized on a straight-line basis
over 15 years. Amortization expense for the six months ended June 30, 1998 was
$12,908.
GENERIC DISTRIBUTORS, INC.
On March 2, 1998 the Company, through its subsidiary, Generic
Distributors, Incorporated (GDI), completed the acquisition of substantially all
of the assets and liabilities of Generic Distributors Limited Partnership
(GDLP), of Monroe, LA. In connection with the acquisition, the Company paid the
limited partnership $1,200,000 in cash, and $1,050,000 in Series E Convertible
Preferred Shares and 1,500 shares of Series F Convertible Preferred Stock valued
at $100,000, for a total purchase price of $2,350,000. The Series E Preferred
Shares are convertible beginning 12 months from the closing into the Company's
common shares at the then prevailing market prices. The Series F Preferred Stock
is convertible into $100,000 in value of the Company's Common Stock commencing
120 days after the closing. In connection with the transaction, GDI received
$1,200,000 in a five-year term loan from Fleet Bank. The loan carries interest
of LIBOR plus 3%, is payable in quarterly installments of principal and interest
and matures on April 26, 2003. Fleet Bank also established a revolving line of
credit for general working capital in the amount of $300,000. The line bears
interest at LIBOR plus 2-1/2%. The loans are secured by all of the assets of GDI
and the Company's subsidiary, Able Laboratories, Inc., and a pledge of all of
the common stock of GDI, and are guaranteed by the Company. In addition, the
Company entered into employment and consulting agreements with the sellers which
provide, among other things, for annual compensation and a signing bonus of
1,500 shares of Series F Preferred Stock, convertible into $100,000 of the
Company's Common Stock commencing 120 days after the closing.
The GDI acquisition has been accounted for as a purchase. The results
of operations of GDI have been included in the Company's consolidated financial
statements since the date of acquisition. The purchase price allocation was
based on the estimated fair values at the date of acquisition. The Company
allocated $729,618 of the purchase price to customer lists, based on an
independent appraisal, which is being amortized on a straight line basis over
five years. Amortization of customer lists amounted to $48,613 for the six
months ended June 30, 1998.
Unaudited pro forma consolidated operating results for the Company,
assuming the acquisitions of Superior and GDI had been made as of the beginning
of the most recent fiscal year for each of the periods presented, are as
follows:
16
<PAGE> 13
<TABLE>
<CAPTION>
Six months ended
----------------
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Revenues $ 14,572,510 $ 17,105,176
Net loss (4,288,211) (5,753,710)
Net loss per share (0.32) (1.91)
</TABLE>
<TABLE>
<CAPTION>
Three months ended
------------------
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Revenues $ 6,430,162 $ 7,707,558
Net loss (2,506,597) (3,948,290)
Net loss per share (0.13) (1.30)
</TABLE>
The unaudited pro forma information is not necessarily indicative
either of the actual results of operations that would have occurred had the
purchases been made as of the beginning of each of the fiscal periods presented
or of future results of operations of the combined companies.
17
<PAGE> 14
3. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
June 30,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Raw materials $ 340,945 $ 311,166
Work-in-progress 180,717 136,240
Finished goods 6,890,024 8,663,918
---------- ----------
$7,411,686 $9,111,324
========== ==========
</TABLE>
4. DEBT
Notes payable consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- -----------
<S> <C> <C>
Convertible note payable $ 535,000 $ 535,000
Bridge loans 500,000 630,000
Notes payable - Superior
acquisition 3,766,667 4,183,333
Secured debt - Fleet Bank 1,157,140 --
Senior subordinated debt 3,000,000 3,000,000
---------- ----------
$8,958,807 $8,348,333
========== ==========
</TABLE>
5. SUBSEQUENT EVENTS
In July 1998, the Company, through its Able Laboratories, Inc.
subsidiary (Able), entered into a short-term financing agreement with Porter
Capital (Porter) whereby Able will finance its outstanding accounts receivable
through Porter. Porter will advance funds equal to 70% of invoice value upon
receipt of invoices from Able. Upon payment in full from Able's customers,
Porter will remit the balance due Able less Porter's net charge of 2% per 30
days outstanding. Porter has the right to reject any or all accounts receivable
tendered from Able. No assurance can be given that Porter will accept any or all
of Able's outstanding accounts receivable. The term of this agreement is six
months.
On July 25, 1998, the Company issued 4,750 shares of its Series H
Convertible Preferred Stock to an unaffiliated investor. The aggregate purchase
price was $475,000. Under the terms of the purchase agreement, the Series H
Stock is convertible beginning 90 days after issuance into shares of Common
Stock at a price of 80% of the trading price of the Common Stock for the five
trading days preceding conversion.
On July 31, 1998, the Company entered into a contingent settlement
agreement with the selling shareholders of Superior which provides for an
overall reduction in purchase price of $4,900,000 through waiver of any
additional stock or cash payment. This agreement also provides for, and is
contingent upon, a payment by DynaGen of $4,200,000, which represents the
remaining amount due on the original selling shareholder notes, by September 30,
1998. There can be no assurance that the Company will be able to obtain
financing to meet the obligations to pay the selling shareholders. The Company's
inability to meet any such obligation or other fixed or contingent obligations
of the Company as they become due could have a material adverse effect on the
Company's ability to continue its operations.
18
<PAGE> 15
Item 6. Exhibits and Reports on Form 8-K
(a)List of Exhibits:
The following exhibits, required by Item 601 of Regulation S-K, are filed as
part of this Amendment No. 1 to Quarterly Report on Form 10-Q. Exhibit numbers,
where applicable, in the left column correspond to those of Item 601 of
Regulation S-K.
Exhibit
No. Description of Exhibit
- ------- ----------------------
3a Restated Certificate of Incorporation
19
<PAGE> 16
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.
DYNAGEN, INC.
By: /s/ DHANANJAY G. WADEKER
----------------------------------
Dhanenjay G. Wadeker
Executive Vice President
Date: September 11, 1998
20
<PAGE> 17
Exhibit Index
Exhibit
No. Description of Exhibit
- -------- ----------------------
3a Restated Certificate of Incorporation
21
<PAGE> 1
Exhibit 3(a)
RESTATED CERTIFICATE OF INCORPORATION
OF
DYNAGEN, INC.
* * * * *
The following Restated Certificate of Incorporation of DynaGen, Inc.
(the "Corporation) (i) only restates and integrates and does not further amend
the provisions of the Certificate of Incorporation of the Corporation originally
filed with the Secretary of State of the State of Delaware on November 11, 1988,
as heretofore amended or supplemented; (ii) contains no discrepancy with the
provisions of such Certificate of Incorporation, as heretofore amended or
supplemented; and (iii) has been duly adopted by the Board of Directors of the
Corporation in accordance with the provisions of Section 245 of the Delaware
General Corporation Law.
1. The name of the corporation is DynaGen, Inc.
2. The address of its registered office in the State of Delaware is 1209 Orange
Street, City of Wilmington, County of New Castle, 1980. The name of its
registered agent at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issue is 85,000,000 shares, consisting of 75,000,000 shares of
common stock, $.01 par value per share (the "Common Stock") and 10,000,000
shares of preferred stock, $0.01 par value per share (the "Preferred Stock").
The Preferred Stock may be issued in one or more series. Voting rights and
other rights and preferences and the qualifications, limitations or restrictions
with respect to each series of Preferred Stock of the corporation shall be as
determined by the Board of Directors from time to time, to the full extent
permitted under the General Corporate Law of Delaware.
A. DESCRIPTION AND DESIGNATION OF SERIES A PREFERRED STOCK
1. DESIGNATION AND DEFINITIONS.
(a) DESIGNATION. A total of 50,000 shares of the Corporation's
previously undesignated Preferred Stock, $.01 par value, shall be designated as
the "Series A Preferred Stock."
<PAGE> 2
The original issue price per share of the Series A Preferred Stock shall be
$100.00 (the "ORIGINAL ISSUE PRICE").
(b) CERTAIN DEFINITIONS. As used herein, the following terms,
unless the context otherwise requires, have the following respective meanings:
(i) "AVERAGE QUOTED PRICE" means the average of the
closing bid price of the Common Stock of the Corporation as reported by the
Nasdaq SmallCap Market or Nasdaq National Market or, if the Corporation's Common
Stock is no longer traded on a Nasdaq market, such other exchange on which the
Corporation's Common Stock is then traded, for the five (5) trading days
immediately preceding any holder's Conversion Date or Mandatory Conversion Date
(as defined in Section 5(c) below), as the case may be.
(ii) "CONVERSION DATE" means each date on which the
Corporation receives by telecopy written notice in accordance with Section 5(j)
hereof from a holder of Series A Preferred Stock that such holder elects to
convert shares of its Series A Preferred Stock.
(iii) "CORPORATION FAILURE" means the failure to have
the Registration Statement declared effective by the SEC other than due to the
material failure, whether by act or omission, by a holder or holders of Series A
Preferred Stock to fulfill its or their obligations under the Registration
Rights Agreement between the Corporation and the initial purchasers of the
Series A Preferred Stock (the "REGISTRATION RIGHTS AGREEMENT").
(iv) "EFFECTIVE PRICE" means the average of the
closing bid price of the Common Stock of the Corporation as reported by the
Nasdaq SmallCap Market or Nasdaq National Market or, if the Corporation's Common
Stock is no longer traded on a Nasdaq market, such other exchange on which the
Corporation's Common Stock is then traded, for the five (5) trading days
immediately preceding the date on which the SEC declares effective the
Registration Statement.
(v) "ISSUE DATE" means, with respect to each share of
Series A Preferred Stock held by any holder, the date on which the Corporation
originally issued such share to such holder (irrespective of any subsequent
transfer or other disposition of such share to any other holder).
(vi) "REGISTRATION STATEMENT" means the registration
statement to be filed by the Corporation under the Securities Act of 1933, as
amended, to register the shares of Common Stock issuable upon conversion of the
Series A Preferred Stock in accordance with the terms of the Registration Rights
Agreement.
(vii) "SEC" means the United States Securities and
Exchange Commission.
2
<PAGE> 3
2. DIVIDENDS.
(a) STATED DIVIDEND. Commencing on the Issue Date and
continuing thereafter, a dividend will accrue quarterly in arrears at the rate
of five dollars ($5.00) per annum (the "STATED DIVIDEND") with respect to each
issued share of Series A Preferred Stock and shall be payable on the last
trading day of each fiscal quarter of the Corporation. Stated Dividends shall be
cumulative and shall be payable upon conversion, whether or not earned or
declared.
(b) PAYMENT UPON CONVERSION. On the date on which any holder
of Series A Preferred Stock converts any of its Series A Preferred Stock into
Common Stock, the accrued Stated Dividend with respect to the shares so
converted shall be paid to such holder. All accrued Stated Dividends also shall
be payable upon the liquidation, dissolution or winding up of the Corporation.
(c) PAYMENT IN COMMON STOCK. The Corporation, at its sole
discretion, may pay the Stated Dividends in cash or in shares of Common Stock at
the then fair market value per share of Common Stock as of the date on which the
Stated Dividend is payable. For purposes of this paragraph 2(c), fair market
value shall be the average of the closing bid price of the Common Stock of the
Corporation as reported by the Nasdaq SmallCap Market or Nasdaq National Market
or, if the Corporation's Common Stock is no longer traded on a Nasdaq market,
such other exchange on which the Corporation's Common Stock is then traded, for
the five (5) trading days immediately preceding the date on which the Stated
Dividend is payable.
(d) FRACTIONAL SHARES. Notwithstanding anything herein to the
contrary, no fractional shares shall be issued pursuant to this Section 2, and
the number of shares of Common Stock issued upon the payment of the Stated
Dividend shall be rounded to the nearest whole share.
(e) DECLARED DIVIDENDS. If the Board of Directors shall
declare a cash dividend payable upon the then outstanding shares of Common Stock
(other than a stock dividend on the Common Stock distributed solely in the form
of additional shares of Common Stock), the holders of the Series A Preferred
Stock shall be entitled to the amount of dividends on the Series A Preferred
Stock as would be declared payable on the largest number of whole shares of
Common Stock into which the shares of Series A Preferred Stock held by each
holder thereof could be converted pursuant to the provisions of Section 5
hereof, such number determined as of the record date for the determination of
holders of Common Stock entitled to receive such dividend. Such determination of
"whole shares" shall be based upon the aggregate number of shares of Series A
Preferred Stock held by each holder, and not upon each share of Series A
Preferred Stock so held by the holder.
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. In
the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, or in the event of its insolvency, before any
distribution or payment is made to any holders of Common Stock or any other
class or series of capital stock of the Corporation designated to be junior to
the Series A
3
<PAGE> 4
Preferred Stock, and subject to the liquidation rights and preferences of any
class or series of Preferred Stock designated by the Board of Directors in the
future to be senior to, or on a parity with the Series A Preferred Stock with
respect to liquidation preferences, the holders of each share of Series A
Preferred Stock shall be entitled to be paid first out of the assets of the
Corporation available for distribution to holders of the Corporation's capital
stock of all classes, whether such assets are capital, surplus or earnings, an
amount equal to the Original Issue Price per share of Series A Preferred Stock
held by any holder, plus the Stated Dividend accruing to the Series A Preferred
Stock pursuant to Section 2 above (the "LIQUIDATION VALUE").
If, upon liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of the Series A Preferred
Stock the full amount to which they otherwise would be entitled, the holders of
Series A Preferred Stock shall share ratably in any distribution of available
assets pro rata in proportion to the respective liquidation preference amounts
which would otherwise be payable upon liquidation with respect to the
outstanding shares of the Series A Preferred Stock if all liquidation preference
amounts with respect to such shares were paid in full, based upon the aggregate
Liquidation Value payable upon all shares of Series A Preferred Stock then
outstanding.
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 Corporation in trust for the account of holders of the
Series A Preferred Stock so as to be available for such payment, the remaining
assets available for distribution shall be distributed ratably among the holders
of the Common Stock and any class or series of capital stock designated to be
junior to the Series A Preferred Stock (if any) in right of payment upon any
liquidation, dissolution or winding up of the Corporation.
The amounts set forth above shall be subject to equitable
adjustment by the Board of Directors whenever there shall occur a stock
dividend, stock split, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the capital
structure of the Common Stock or Series A Preferred Stock.
(b) DISTRIBUTIONS OTHER THAN CASH. Whenever the distributions
provided for in this Section shall be payable in property other than cash, the
value of such distribution shall be the fair market value of such property as
determined in good faith by the Board of Directors. All distributions (including
distributions other than cash) made hereunder shall be made pro rata to the
holders of Series A Preferred Stock.
4. VOTING POWER.
(a) GENERAL. Except as otherwise expressly provided in this
Section 4 or as otherwise required by the General Corporation Law of the State
of Delaware, each holder of Series A Preferred Stock shall be entitled to vote
on all matters 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
4
<PAGE> 5
Series A Preferred Stock could be converted, pursuant to the provisions of
Section 5 hereof, at the record date for the determination of stockholders
entitled to vote on any matter or, if no such record date is established, at the
date such vote is taken or any written consent of stockholders is solicited.
Except as otherwise required by law, the holders of shares of Series A Preferred
Stock and Common Stock shall vote together (or render written consents in lieu
of a vote) as a single class on all matters submitted to the stockholders of the
Corporation.
Such determination of "whole shares" shall be based upon the
aggregate number of shares of Series A Preferred Stock held by each holder, and
not upon each share of Series A Preferred Stock so held by the holder.
(b) AMENDMENTS TO CHARTER. For so long as there are any shares
of Series A Preferred Stock outstanding, the Corporation shall not amend its
Certificate of Incorporation or this Certificate of Designation without the
approval, by vote or written consent, of the holders of at least a majority of
the then outstanding shares of Series A Preferred Stock, voting together as a
class, each share of Series A Preferred Stock to be entitled to one vote in each
instance, if such amendment would adversely affect the rights of the holders of
Series A Preferred Stock.
5. CONVERSION RIGHTS.
(a) OPTIONAL CONVERSION. No shares of Series A Preferred Stock
held by any holder shall be convertible by such holder prior to ninety (90) days
after the Issue Date to such holder. Beginning ninety (90) days after the Issue
Date to such holder, each such holder of Series A Preferred Stock shall have the
right, at such holder's option, to convert during any five (5) trading day
period up to twenty percent (20%) of the shares of Series A Preferred Stock held
by such holder into such number of fully paid and nonassessable shares of Common
Stock as shall be determined by multiplying the number of shares of Series A
Preferred Stock to be converted by a fraction, the numerator of which is the
Original Issue Price, and the denominator of which is the applicable Conversion
Price (as defined below).
(b) CONVERSION PRICE. The conversion price per share (the
"CONVERSION PRICE") shall be equal to the lesser of subsections (i) and (ii)
below.
(i) One hundred twenty percent (120%) of the
Effective Price.
(ii) (A) Beginning on the 90th day after the Issue
Date and ending on the 120th day after the Issue Date, eighty percent (80%) of
the Average Quoted Price, unless the SEC shall not have declared effective the
Registration Statement as of such Conversion Date due to a Corporation Failure,
in which case such percentage shall be seventy-eight percent (78%);
(B) Beginning on the 121st day after the Issue
Date and ending on the 150th day after the Issue Date, eighty percent (80%) of
the Average Quoted Price, unless the
5
<PAGE> 6
SEC shall not have declared effective the Registration Statement as of such
Conversion Date due to a Corporation Failure, in which case such percentage
shall be seventy-six percent (76%);
(C) Beginning on the 151st day after the Issue Date
and ending on the 180th day after the Issue Date, seventy-eight percent (78%) of
the Average Quoted Price, unless the SEC shall not have declared effective the
Registration Statement as of such Conversion Date due to a Corporation Failure,
in which case such percentage shall be seventy-two percent (72%);
(D) Beginning on the 181st day after the Issue Date
and ending on the 210th day after the Issue Date, seventy-eight percent (78%) of
the Average Quoted Price, unless the SEC shall not have declared effective the
Registration Statement as of such Conversion Date due to a Corporation Failure,
in which case such percentage shall be seventy percent (70%);
(E) Beginning on the 211th day after the Issue Date
and ending on the 365th day after the Issue Date, seventy-six percent (76%) of
the Average Quoted Price, unless the SEC shall not have declared effective the
Registration Statement as of such Conversion Date due to a Corporation Failure,
in which case such percentage shall be sixty-six percent (66%); and
(F) Beginning on the 366th day after the Issue Date
and ending on the second anniversary of the Issue Date, seventy-four (74%) of
the Average Quoted Price, unless the SEC shall not have declared effective the
Registration Statement as of such Conversion Date or Mandatory Conversion Date,
as the case may be, due to a Corporation Failure, in which case such percentage
shall be sixty-four (64%).
(c) MANDATORY CONVERSION. On the date that is two (2) years
from the Issue Date for each holder of Series A Preferred Stock (the "MANDATORY
CONVERSION DATE"), all shares of the Series A Preferred Stock then held by such
holder shall, without any action on the part of such holder, be automatically
converted into such number of fully paid and nonassessable shares of Common
Stock as shall be determined by multiplying the number of shares of Series A
Preferred Stock then held by such holder by a fraction, the numerator of which
is the Original Issue Price and the denominator of which is the applicable
Conversion Price.
(d) LIMITATION ON NUMBER OF SHARES. Additionally,
notwithstanding anything set forth in this Section 5 to the contrary, in no
event shall any holder of Series A Preferred Stock, prior to the Mandatory
Conversion Date, be entitled to convert Series A Preferred Stock into shares of
Common Stock to the extent that (x) the number of shares of the Corporation's
Common Stock beneficially owned by such holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the shares of Series A Preferred Stock
held by such holder) plus (y) the number of shares of Common Stock issuable upon
such conversion would result in beneficial ownership by the holder and its
affiliates of more than 4.9% of the shares of Common Stock then outstanding. For
purposes of this Section 5(d), beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D and 13G promulgated thereunder, except as otherwise
6
<PAGE> 7
provided in clause (x) of this Section 5(d). Each holder shall, upon delivering
to the Corporation a notice of election to convert shares of Series A Preferred
Stock in accordance with Section 5(j) hereof, be required to provide the
Corporation with a certification in form and substance reasonably satisfactory
to the Corporation, that the conversion of the Series A Preferred Stock being
converted will not result in such holder and its affiliates beneficially holding
more than 4.9%, determined as heretofore provided, of the outstanding shares of
Common Stock on such Conversion Date. If the holder cannot make such
certification, the shares of Series A Preferred Stock to be converted shall not
be convertible. Notwithstanding the foregoing, upon the Mandatory Conversion
Date, all such shares of Series A Preferred Stock then outstanding shall be
converted into Common Stock in accordance with Section 5(c) hereof.
(e) EQUITABLE ADJUSTMENT. If the Corporation at any time
subdivides (by any stock split, stock dividend or otherwise) its outstanding
shares of Common Stock into a greater number of shares, the Conversion Price
shall be proportionately reduced, and, conversely, if the outstanding shares of
Common Stock are combined into a smaller number of shares, the Conversion Price
shall be proportionately increased.
(f) DIVIDENDS OTHER THAN COMMON STOCK DIVIDENDS. In the event
the Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock entitled to receive a dividend or other
distribution (other than a distribution in liquidation or other distribution
otherwise provided for herein) with respect to the Common Stock payable in (i)
securities of the Corporation other than shares of Common Stock, or (ii) other
assets (excluding cash dividends or distributions), then and in each such event
provision shall be made so that the holders of the Series A Preferred Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the number of securities or such other assets
of the Corporation which they would have received had their Series A Preferred
Stock been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
Conversion Date, retained such securities or such other assets receivable by
them during such period, giving application to all other adjustments called for
during such period under this Section 5 with respect to the rights of the
holders of the Series A Preferred Stock.
(g) CAPITAL REORGANIZATION 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
capital stock, whether by capital reorganization, recapitalization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for elsewhere in this Section 5, or the sale of all
or substantially all of the Corporation's capital stock or assets to any other
person), then and in each such event the holders of Series A Preferred Stock
shall have the right thereafter to convert such shares into the kind and amount
of shares of capital stock and other securities and property receivable upon
such reorganization, recapitalization, reclassification or other change by the
holders of the number of shares of Common Stock into which such shares of Series
A Preferred Stock might have been
7
<PAGE> 8
converted immediately prior to such reorganization, recapitalization,
reclassification or change, all subject to further adjustment as provided
herein.
(h) 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, recapitalization,
reclassification or exchange of shares provided for elsewhere in this Section 5)
or a merger or consolidation of the Corporation with or into another corporation
(other than a merger or reorganization involving only a change in the state of
incorporation of the Corporation or the acquisition by the Corporation of other
businesses where the Corporation survives as a going concern), or the sale of
all or substantially all of the Corporation's capital stock or assets to any
other person, then, as a part of such reorganization, merger, or 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
(including cash) of the Corporation, or of the successor corporation resulting
from such merger, consolidation or sale, to which such holder would have been
entitled if such holder had converted its shares of Series A Preferred Stock
into Common Stock pursuant to Section 5(a) hereof.
(i) CERTIFICATE AS TO ADJUSTMENTS; NOTICE BY CORPORATION. In
each case of an adjustment or readjustment of the Original Issue Price, the
Corporation at its expense will furnish each holder of Series A Preferred Stock
so affected with a certificate prepared by an officer of the Corporation,
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 its
conversion privilege, a holder of Series A Preferred Stock shall give written
notice by telecopy to the Corporation at its principal office that such holder
elects to convert shares of its Series A Preferred Stock and shall thereafter
surrender the original certificate(s) representing the shares being converted to
the Corporation at its principal office together with an originally executed
copy of such notice. Such notice shall also state the name or names (with its
address or addresses, as well as the address(es) for delivery) in which the
certificate(s) for shares of Common Stock issuable upon such conversion shall be
issued. The certificate(s) for the shares of Series A Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Corporation or in blank. As promptly as practicable after the Corporation
receives the original certificate(s) for the shares of Series A Preferred Stock
surrendered for conversion, the proper assignment thereof to the Corporation or
in blank and the original notice of conversion (collectively, the "ORIGINAL
DOCUMENTATION"), but in no event more than three (3) trading days after the
Corporation's receipt of the Original Documentation, the Corporation shall issue
and shall deliver to the holder of the shares of Series A Preferred Stock being
converted, at the addresses set forth therefor by the holder, such
certificate(s) 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 5, and cash, as provided in
Section 5(k), 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 Conversion Date, and at such
time the rights of the holder as holder of the converted shares of
8
<PAGE> 9
Series A Preferred Stock shall cease and the person(s) in whose name(s) any
certificate(s) for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder(s) of record of the shares of Common
Stock represented thereby. If the Corporation fails to issue and deliver to such
holder such certificate(s) for shares of Common Stock within three (3) trading
days after the Corporation's receipt of the Original Documentation, the
Corporation shall pay the liquidated damages set forth in Sections 16 and 17 of
the Securities Purchase Agreement between the Corporation and the initial
purchasers of the Series A 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 A Preferred Stock. Instead of any fractional
shares of Common Stock that would otherwise be issuable upon conversion of
Series A Preferred Stock, the Corporation shall pay to the holder of the shares
of Series A Preferred Stock being 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 any fractional shares are issuable shall be
based upon the aggregate 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.
(l) PARTIAL CONVERSION. In the event some but not all of the
shares of Series A Preferred Stock represented by a certificate(s) surrendered
by a holder are converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series A Preferred Stock which were not
converted. Such new certificate shall be so delivered on or prior to the date
set forth in Section 5(j) for the delivery of certificates for shares of Common
Stock.
(m) RESERVATION OF COMMON STOCK. The Corporation 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 (including any shares of
Series A Preferred Stock represented by any warrants, options, subscription or
purchase rights for 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 (including any shares of Series A Preferred Stock represented by any
warrants, options, subscriptions or purchase rights for the Series A Preferred
Stock), then the Corporation shall be deemed to be in breach and default of its
obligations hereunder, and in addition to all charges, claims and rights at law
or in equity that each holder shall be entitled to, the Corporation shall use
all means reasonably available to it, and promptly take any and all actions 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. NOTICES OF RECORD DATE. In the event of any:
9
<PAGE> 10
(a) taking by the Corporation 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 capital stock of any
class or any other securities or property, or to receive any other right, or
(b) capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other Corporation, or
any other entity or person, or
(c) voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation shall telecopy and thereafter 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 telecopied and thereafter mailed by first class mail, postage prepaid, or by
express overnight courier service, at least ten (10) days prior to the date
specified in such notice on which such action is to be taken.
B. DESCRIPTION AND DESIGNATION OF SERIES B PREFERRED STOCK
1. DESIGNATION AND DEFINITIONS.
(a) DESIGNATION. A total of 12,515 shares of the Corporation's
previously undesignated Preferred Stock, $.01 par value, shall be designated as
the "Series B Preferred Stock" and authorized for issuance. The original issue
price per share of the Series B Preferred Stock shall be $99.70 (the "SERIES B
ORIGINAL ISSUE PRICE").
(b) CERTAIN DEFINITIONS. As used herein, the following terms,
unless the context otherwise requires, have the following respective meanings:
"COMMON STOCK" means the common stock of the
Corporation, $.01 par value.
"DIVIDEND PAYMENT DATE" is defined in Section 2(a).
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"SEC" means the United States Securities and Exchange
Commission.
"SERIES B AVERAGE QUOTED PRICE" means the average of
the closing bid price of the Common Stock of the Corporation as reported by the
Nasdaq SmallCap Market for the five (5) trading days immediately preceding any
holder's Series B Conversion Date, Dividend Payment Date or Series B Mandatory
Conversion Date, as applicable.
"SERIES B CONVERSION DATE" means each date on which
the Corporation receives by telecopy written notice in accordance with Section
5(j) hereof from a holder of Series B Preferred Stock that such holder elects to
convert shares of its Series B Preferred Stock, provided that if the Corporation
does not receive the original certificate(s) representing the shares of Series B
Preferred Stock being converted together with an originally executed copy of the
notice of conversion within two (2) trading days after receipt of such
telecopied notice, then the date on which the Corporation receives such original
certificate(s) and notice shall be the Series B Conversion Date with respect to
such conversion.
"SERIES B CONVERSION PRICE" is defined in Section
5(b).
"SERIES B EFFECTIVE PRICE" means the average of the
closing bid price of the Common Stock of the Corporation as reported by the
Nasdaq SmallCap Market for the five (5) trading days immediately preceding the
date on which the SEC declares effective the Series B Registration Statement.
"SERIES B ISSUE DATE" means, with respect to each
share of Series B Preferred Stock held by any holder, the date on which the
Corporation originally issued such share to such holder (irrespective of any
subsequent transfer or other disposition of such share to any other holder).
"SERIES B LIQUIDATION PREFERENCE" is defined in
Section 3(a).
"SERIES B REGISTRATION RIGHTS AGREEMENT" means the
Registration Rights Agreement between the Corporation and the initial
purchaser(s) of the Series B Preferred Stock.
"SERIES B REGISTRATION STATEMENT" means the
registration statement to be filed by the Corporation under the Securities Act
of 1933, as amended, to register the shares of Common Stock issuable upon
conversion of the Series B Preferred Stock in accordance with the terms of the
Series B Registration Rights Agreement.
"SERIES B STATED DIVIDEND" is defined in
Section 2(a).
2. DIVIDENDS.
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(a) STATED DIVIDEND. Commencing on the Series B Issue Date and
continuing thereafter, each holder of Series B Preferred Stock will be entitled
to receive a dividend of Seven Dollars ($7.00) per share per annum (the "SERIES
B STATED DIVIDEND"). The Series B Stated Dividend will accrue daily on the basis
of a 360-day year of twelve 30-day months, whether or not the Corporation has
earnings or surplus, and the dividend payable to the holder of a share of Series
B Preferred Stock on the first Dividend Payment Date after the share is issued
will be the accrued dividend from the day the share is issued to the Dividend
Payment Date. The Series B Stated Dividend will be payable in shares of Common
Stock in accordance with Section 2(c) on the last trading day of each fiscal
quarter of the Corporation (a "DIVIDEND PAYMENT DATE"). Series B Stated
Dividends shall be cumulative and to the extent not previously paid, shall be
paid upon conversion, liquidation, dissolution, or winding-up of the
Corporation, whether or not earned or declared.
(b) PAYMENT OF ACCRUED DIVIDENDS UPON CONVERSION, LIQUIDATION,
DISSOLUTION, OR WINDING-UP. On each Series B Conversion Date and each Series B
Mandatory Conversion Date, all Series B Stated Dividends accrued since the last
Dividend Payment Date with respect to the converted shares of Series B Preferred
Stock shall be paid to the holder of record of such converted shares. All Series
B Stated Dividends accrued since the last Dividend Payment Date with respect to
any outstanding share of Series B Preferred Stock shall be paid to the holder of
record thereof upon the liquidation, dissolution, or winding-up of the
Corporation.
(c) PAYMENT IN COMMON STOCK. The Corporation shall pay the
Series B Stated Dividends in shares of Common Stock at the then Series B Average
Quoted Price as of the relevant Dividend Payment Date.
(d) FRACTIONAL SHARES. Notwithstanding anything herein to the
contrary, no fractional shares shall be issued pursuant to this Section 2, and
the number of shares of Common Stock issued upon the payment of the Series B
Stated Dividend shall be rounded up to the nearest whole share.
(e) DECLARED DIVIDENDS. If the Board of Directors shall
declare a cash dividend payable upon the then outstanding shares of Common
Stock, the holders of the Series B Preferred Stock shall be entitled to the
amount of cash dividends on the Series B Preferred Stock as would be declared
payable on the largest number of whole shares of Common Stock into which the
shares of Series B Preferred Stock held by each holder thereof could be
converted pursuant to the provisions of Section 5 hereof, such number determined
as of the record date for the determination of holders of Common Stock entitled
to receive such cash dividend, provided that the Series B Preferred Stock shall
rank as to dividends junior to the Series A Preferred Stock. Such determination
of "whole shares" shall be based upon the aggregate number of shares of Series B
Preferred Stock held by each holder, and not upon each share of Series B
Preferred Stock so held by the holder.
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
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(a) TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. In
the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, or in the event of its insolvency, before any
distribution or payment is made to any holders of Common Stock or any other
class or series of capital stock of the Corporation designated to be junior to
the Series B Preferred Stock, and subject to the liquidation rights and
preferences of the Series A Preferred Stock and any other class or series of
Preferred Stock designated by the Board of Directors, after the date hereof and
in accordance with the provisions of Section 4(b) hereof, to be senior to the
Series B Preferred Stock with respect to liquidation preferences, the holders of
each share of Series B Preferred Stock shall be entitled to be paid first out of
the assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes, whether such assets are capital,
surplus or earnings, an amount equal to the Series B Original Issue Price per
share of Series B Preferred Stock held by any holder, plus all Series B Stated
Dividends that have become due but have not been paid, and all accrued but not
yet due dividends, to the date of final distribution (whether earned or not)
(the "SERIES B LIQUIDATION PREFERENCE"). For purposes hereof, the Series B
Preferred Stock shall rank on liquidation junior to the Series A Preferred
Stock.
If, upon liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation, or proceeds of those assets,
available for distribution to the holders of the Series B Preferred Stock and of
the shares of all other classes or series that are on a parity as to
distributions on liquidation with the Series B Preferred Stock are not
sufficient to pay in full the preferential amount required to be distributed to
the holders of the Series B Preferred Stock and of all other classes or series
that are on a parity as to distributions on liquidation with the Series B
Preferred Stock, then the assets, or the proceeds of those assets, that are
available for distribution to the holders of Series B Preferred Stock and of the
shares of all other classes or series that are on a parity as to distributions
on liquidation with the Series B Preferred Stock will be distributed to the
holders of the Series B Preferred Stock and of the shares of all other classes
or series that are on a parity as to distributions on liquidation with the
Series B Preferred Stock ratably in accordance with the respective amount of the
Series B liquidation preferences of the shares held by each of them. After
payment of the full amount of the Series B Liquidation Preference (including
accumulated unpaid dividends and accrued dividends) and accumulated and accrued
dividends to which holders of Series B Preferred Stock are entitled, the holders
of Series B Preferred Stock will not be entitled to any further distribution of
assets of the Corporation. For the purposes of this Section, neither a
consolidation or merger of the Corporation with another corporation, nor a sale
or transfer of all or any part of the Corporation's assets for cash or
securities, will be considered a liquidation, dissolution, or winding-up of the
Corporation.
(b) DISTRIBUTIONS OTHER THAN CASH. Whenever the distributions
provided for in this Section shall be payable in property other than cash, the
value of such distribution shall be the fair market value of such property as
determined in good faith by the Board of Directors.
4. VOTING POWER.
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(a) GENERAL. Except as otherwise expressly provided in this
Section 4 or as otherwise required by the General Corporation Law of the State
of Delaware, each holder of Series B Preferred Stock shall be entitled to vote
on all matters 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 5 hereof, at the record date for the determination of stockholders
entitled to vote on any matter or, if no such record date is established, at the
date such vote is taken or any written consent of stockholders is solicited.
Except as otherwise required by law, the holders of shares of Series B Preferred
Stock and Common Stock shall vote together (or render written consents in lieu
of a vote) as a single class on all matters submitted to the stockholders of the
Corporation.
Such determination of "whole shares" shall be based upon the
aggregate number of shares of Series B Preferred Stock held by each holder, and
not upon each share of Series B Preferred Stock so held by the holder.
(b) AMENDMENTS. While any shares of Series B Preferred Stock
are outstanding, the Corporation will not, directly or indirectly, or through a
merger or consolidation with any other corporation, without the affirmative vote
at a meeting or the written consent of the holders of at least a majority of the
outstanding shares of Series B Preferred Stock, (i) create or increase the
authorized number of shares of any class or series of stock ranking prior to or
on a parity with the Series B Preferred Stock either as to dividends or upon
liquidation; provided, however that, without the consent of the holders of
Series B Preferred Stock, the Corporation may issue up to (x) $2,000,000 in any
class or series of stock ranking senior to the Series B Preferred Stock and (y)
$3,000,000 in any class or series of stock ranking on a parity with the Series B
Preferred Stock, (ii) create or increase the authorized shares of any class or
series of stock that entitles the holder to vote in the election of directors,
other than (x) Common Stock or (y) securities that are convertible into or
exchangeable for shares of Common Stock, that are voted with regard to the
election of directors together with the Common Stock and that do not entitle the
holders to cast more than one vote for each share of Common Stock into which
those securities may be converted, or for which they may be exchangeable, (iii)
amend, alter, or repeal any of the provisions of the Certificate of
Incorporation or By-laws of the Corporation, or of this resolution, so as to
affect adversely the preferences, special rights or powers of the Series B
Preferred Stock, (iv) authorize any reclassification of the Series B Preferred
Stock, (v) require the exchange of Series B Preferred Stock for other securities
(whether or not issued by the Corporation) or assets, or (vi) increase the
number of shares of Series B Preferred Stock that the Corporation is authorized
to issue pursuant to this resolution.
5. CONVERSION RIGHTS.
(a) OPTIONAL CONVERSION. No shares of Series B Preferred Stock
held by any holder shall be convertible by such holder prior to one hundred
fifty (150) days after the Series B Issue Date to such holder. Beginning one
hundred fifty (150) days after the Series B Issue Date to such holder, each such
holder of Series B Preferred Stock shall have the right, at such holder's
option, to convert during any five (5) trading day period not more than twenty
percent (20%) of the
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shares of Series B Preferred Stock originally issued or transferred to the
holder, into such number of fully paid and nonassessable shares of Common Stock
as shall be determined by multiplying the number of shares of Series B Preferred
Stock to be converted by a fraction, the numerator of which is the Series B
Original Issue Price, and the denominator of which is the applicable Series B
Conversion Price (as defined below).
(b) CONVERSION PRICE. The conversion price per share (the
"SERIES B CONVERSION PRICE") shall be equal to the lesser of subsections (i) and
(ii) below.
(i) One hundred twenty-five percent (125%) of the
Series B Effective Price.
(ii) (A) Beginning on the 150th day after the Series
B Issue Date and ending on the 180th day after the Series B Issue Date, eighty
percent (80%) of the Series B Average Quoted Price;
(B) Beginning on the 181st day after the Series
B Issue Date and ending on the 270th day after the Series B Issue Date,
seventy-eight percent (78%) of the Series B Average Quoted Price;
(C) Beginning on the 271st day after the Series
B Issue Date and ending on the second anniversary of the Series B Issue Date,
seventy-five percent (75%) of the Series B Average Quoted Price.
(c) MANDATORY CONVERSION. On the date that is two (2) years
from a Series B Issue Date to any holder of Series B Preferred Stock (the
"SERIES B MANDATORY CONVERSION DATE"), all shares of the Series B Preferred
Stock then held by such holder and issued on such Series B Issue Date shall,
without any action on the part of such holder, be automatically converted into
such number of fully paid and nonassessable shares of Common Stock as shall be
determined by multiplying the number of shares of Series B Preferred Stock then
held by such holder and issued on such Series B Issue Date by a fraction, the
numerator of which is the Series B Original Issue Price and the denominator of
which is the applicable Series B Conversion Price.
(d) LIMITATION ON NUMBER OF SHARES. Additionally,
notwithstanding anything set forth in this Section 5 to the contrary, in no
event shall any holder of Series B Preferred Stock, prior to the Series B
Mandatory Conversion Date, be entitled to convert Series B Preferred Stock into
shares of Common Stock to the extent that (x) the number of shares of the
Corporation's Common Stock beneficially owned by such holder and its affiliates
(other than shares of Common Stock that may be deemed beneficially owned through
the ownership of the unconverted portion of the shares of Series B Preferred
Stock held by such holder) plus (y) the number of shares of Common Stock
issuable upon such conversion would result in beneficial ownership by the holder
or any person controlling the holder of more than 4.9% of the shares of Common
Stock then outstanding. For purposes of this Section 5(d), beneficial ownership
shall be determined in accordance with Section
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13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D and
13G promulgated thereunder. Each holder shall, upon delivering to the
Corporation a notice of election to convert shares of Series B Preferred Stock
in accordance with Section 5(j) hereof, be required to provide the Corporation
with a completed certificate in the form of Annex 1 hereto. If the holder cannot
make such certification, the shares of Series B Preferred Stock to be converted
shall not be convertible. Notwithstanding the foregoing, upon the Series B
Mandatory Conversion Date, all such shares of Series B Preferred Stock then
outstanding shall be converted into Common Stock in accordance with Section 5(c)
hereof.
(e) EQUITABLE ADJUSTMENT. If the Corporation (i) pays a
dividend or makes a distribution on its Common Stock in shares of its Common
Stock, (ii) subdivides its outstanding Common Stock into a greater number of
shares, or (iii) combines its outstanding Common Stock into a smaller number of
shares, the Series B Conversion Price in effect immediately prior to that event
will be adjusted so that the holder of a share of Series B Preferred Stock
surrendered for conversion after that event will receive the number of shares of
Common Stock of the Corporation which the holder would have received if the
share of Series B Preferred Stock had been converted immediately before the
happening of the event (or, if there is more than one such event, if the share
of Series B Preferred Stock had been converted immediately before the first of
those events and the holder had retained all the Common Stock or other
securities or assets received after the conversion). An adjustment made pursuant
to this Subparagraph 5(e) will become effective immediately after the record
date in the case of a dividend or distribution, except as provided in
Subparagraph 5(h), and will become effective immediately after the effective
date in the case of a subdivision or combination. If such dividend or
distribution is declared but is not paid or made, the Series B Conversion Price
then in effect will be appropriately readjusted. However, a readjustment of the
Series B Conversion Price will not affect any conversion which takes place
before the readjustment.
(f) DIVIDENDS OTHER THAN COMMON STOCK DIVIDENDS. In the event
the Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock entitled to receive a dividend or other
distribution (other than a distribution in liquidation or other distribution
otherwise provided for herein) with respect to the Common Stock payable in (i)
securities of the Corporation other than shares of Common Stock, or (ii) other
assets (excluding cash dividends or distributions), then and in each such event
provision shall be made so that the holders of the Series B Preferred Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the number of securities or such other assets
of the Corporation that they would have received had their Series B Preferred
Stock been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
Series B Conversion Date, retained such securities or such other assets
receivable by them during such period, giving application to all other
adjustments called for during such period under this Section 5 with respect to
the rights of the holders of the Series B Preferred Stock.
(g) CAPITAL REORGANIZATION, ETC. If there is a capital
reorganization, recapitalization, reclassification, or change of outstanding
shares of Common Stock (other than a
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change in par value, or as a result of a subdivision or combination), or a
merger or consolidation of the Corporation with any other entity that results in
a reclassification, change, conversion, exchange, or cancellation of outstanding
shares of Common Stock, or a sale or transfer of all or substantially all of the
assets of the Corporation, upon any subsequent conversion of Series B Preferred
Stock, each holder of the Series B Preferred Stock will be entitled to receive
the kind and amount of securities, cash and other property which the holder
would have received if the holder had converted the shares of Series B Preferred
Stock into Common Stock immediately before the first of those events and had
retained all the securities, cash and other assets received as a result of all
those events.
(h) DEFERRALS. In any case in which this Section 5 provides
that an adjustment will become effective immediately after a record date for an
event, the Corporation may defer until the occurrence of the event (i) issuing
to the holder of any share of Series B Preferred Stock converted after the
record date and before the occurrence of the event the additional shares of
Common Stock issuable upon the conversion by reason of the adjustment over and
above the Common Stock issuable upon the conversion before giving effect to the
adjustment; and (ii) paying to the holder any cash in lieu of any fractional
share pursuant to Subsection 5(k).
(i) CERTIFICATE AS TO ADJUSTMENTS; NOTICE BY CORPORATION. In
each case of an adjustment or readjustment of the type described in Paragraphs
(e), (f), (g), or (h) of this Section 5, the Corporation at its expense will
furnish each holder of Series B Preferred Stock so affected with a certificate
prepared by an officer of the Corporation, 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 its
conversion privilege, a holder of Series B Preferred Stock shall give written
notice by telecopy to the Corporation at its principal office that such holder
elects to convert shares of its Series B Preferred Stock and, within two (2)
trading days thereafter, shall surrender the certificate(s) representing the
shares being converted to the Corporation at its principal office together with
an originally executed copy of such notice. Such notice shall also state the
name or names (with address or addresses) in which the certificate(s) for shares
of Common Stock issuable upon such conversion shall be issued. The reverse side
of the certificate(s) for shares of Series B Preferred Stock surrendered for
conversion shall be completed and executed by the holder or such certificate(s)
shall be accompanied by other proper assignment thereof to the Corporation or in
blank. As promptly as practicable after the Series B Conversion Date, but in no
event more than three (3) trading days after the Series B Conversion Date, the
Corporation 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(s)
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 5, and cash, as provided in Section 5(k), 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(s) in whose name(s) any certificate(s) for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become the
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holder(s) of record of the shares of Common Stock represented thereby. If the
Corporation fails to issue and deliver to such holder such certificate(s) for
shares of Common Stock within three (3) trading days after the Series B
Conversion Date, the Corporation shall pay the liquidated damages set forth in
Section 18, and make the payments required by Section 19, of the Securities
Purchase Agreement between the Corporation and the initial purchaser(s) of the
Series B Preferred Stock with respect to the sale and issuance of the Series B
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 B Preferred Stock. Instead of any fractional
shares of Common Stock that would otherwise be issuable upon conversion of
Series B Preferred Stock, the Corporation shall pay to the holder of the shares
of Series B Preferred Stock being 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 Series B Conversion
Date. The determination as to whether or not any fractional shares are issuable
shall be based upon the aggregate 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.
(l) PARTIAL CONVERSION. In the event some but not all of the
shares of Series B Preferred Stock represented by a certificate(s) surrendered
by a holder are converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series B Preferred Stock that were not
converted.
(m) RESERVATION OF COMMON STOCK. The Corporation 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 (including any shares of
Series B Preferred Stock represented by any warrants, options, subscription or
purchase rights for 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 (including any shares of Series B Preferred Stock represented by any
warrants, options, subscriptions or purchase rights for the Series B Preferred
Stock), the Corporation shall use all reasonable efforts and take such 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. STATUS. Upon any conversion, exchange or redemption of shares of
Series B Preferred Stock, the shares of Series B Preferred Stock that are
converted, exchanged, or redeemed will have the status of authorized and
unissued shares of preferred stock, and the number of shares of preferred stock
that the Corporation will have authority to issue will not be decreased by the
conversion, exchange or redemption of shares of Series B Preferred Stock, but
the number of shares of Series B
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Preferred Stock that the Corporation will have authority to issue will be
reduced so that the shares of Series B Preferred Stock that were converted,
exchanged, or redeemed may not be re-issued.
7. NOTICES OF RECORD DATE. In the event of any:
(a) taking by the Corporation 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 capital stock of any
class or any other securities or property, or to receive any other right, or
(b) capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other Corporation, or
any other entity or person, or
(c) voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation 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 by
first class mail, postage prepaid, or by express overnight courier service, at
least ten (10) days prior to the date specified in such notice on which such
action is to be taken.
8. MISCELLANEOUS.
(a) The headings of the various subdivisions of this
resolution are for convenience only and will not affect the meaning or
interpretation of any of the provisions of this resolution.
(b) The preferences, special rights, or powers of the Series B
Preferred Stock may be waived, and any of the provisions of the Series B
Preferred Stock may be amended, only by the affirmative vote at a meeting or the
written consent of holders of record of at least a majority of the outstanding
shares of Series B Preferred Stock.
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C. DESCRIPTION AND DESIGNATION OF SERIES C PREFERRED STOCK
1. DESIGNATION AND DEFINITIONS.
(a) DESIGNATION. A total of 7,500 shares of the Corporation's
previously undesignated Preferred Stock, $.01 par value, shall be designated as
the "Series C Preferred Stock." The original issue price per share of the Series
C Preferred Stock shall be $100.00 (the "ORIGINAL ISSUE PRICE").
(b) CERTAIN DEFINITIONS. As used herein, the following terms,
unless the context otherwise requires, have the following respective meanings:
(i) "AVERAGE QUOTED PRICE" means the average of the
closing bid price of the Common Stock of the Corporation as reported by the
Nasdaq SmallCap Market or Nasdaq National Market or, if the Corporation's Common
Stock is no longer traded on a Nasdaq market, such other exchange on which the
Corporation's Common Stock is then traded, for the five (5) Trading Days
immediately preceding any holder's Conversion Date, the Mandatory Conversion
Date (as defined in Section 5(c) below) or the date of the consummation or
closing of a Fundamental Change, as the case may be.
(ii) "COMMON STOCK" means the common stock, par value
$.01 per share, of the Corporation.
(iii) "CONVERSION DATE" means each date on which the
Corporation receives by telecopy written notice in accordance with Section 5(i)
hereof from a holder of Series C Preferred Stock that such holder elects to
convert shares of its Series C Preferred Stock.
(iv) "FUNDAMENTAL CHANGE" means: (i) any sale, lease,
exchange or other transfer of all or substantially all of the assets of the
Corporation; or (ii) any merger or consolidation to which the Corporation is a
party. Notwithstanding the foregoing, the following shall not be a Fundamental
Change: A merger or consolidation (a) to which the Corporation is a party; (b)
in which it is the surviving corporation and there is no resulting
reclassification of the outstanding Common Stock; and (c) after giving effect to
which, persons who were, immediately before the consummation or closing of such
merger or consolidation, holders of outstanding Common Stock will be the direct
or indirect owners of securities of the Corporation possessing, on a fully
diluted basis, at least seventy-five percent (75%) of the voting power of all
voting securities of the Corporation (excluding, for purposes of such
computation, any such person who also is a party to such merger or
consolidation).
(v) "ISSUE DATE" means, with respect to each share of
Series C Preferred Stock held by any holder, the date on which the Corporation
originally issued such share to such holder (regardless of the number of times
transfer of such share is made on the stock transfer books maintained by or for
the Corporation, and regardless of the number of certificates which may be
issued to evidence such share, and irrespective of any subsequent transfer or
other disposition of such share to any other holder).
(vi) "TRADING DAY" means a day on which the principal
national securities exchange on which the Common Stock is listed or admitted to
trading is open for the transaction of business; or, if the Common Stock is not
listed or admitted to trading on any national securities exchange but is listed
on the Nasdaq system (or such other trading system then
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in use by the National Association of Securities Dealers, Inc.), a day on which
such system is open for the transaction of business; or, if the foregoing does
not apply, any Business Day.
2. DIVIDENDS.
(a) PREFERRED DIVIDEND - CASH AND/OR IN-KIND. When and as
declared by the Board of Directors and to the extent permitted by the General
Corporation Law of the State of Delaware, the Corporation shall pay preferential
dividends to the holders of the Series C Preferred Stock as provided in this
Section 2(a).
(i) PREFERRED DIVIDEND. Except as otherwise provided
herein, dividends on each share of Series C Preferred Stock shall accrue,
cumulatively, at the rate of seven percent (7.0%) per annum of the Original
Issue Price, from and including the Issue Date of such share to and including
the date on which the Liquidation Value of such share is paid or such share is
converted in accordance with the provisions hereof (the "PREFERRED DIVIDEND").
Such Preferred Dividend will accrue whether or not it has been declared and
whether or not there are profits, surplus or other funds of the Corporation
legally available for its payment.
(ii) SEMI-ANNUAL PAYMENTS. Commencing on July 31,
1998, the Preferred Dividend shall be payable in cash (subject to Section
2(a)(v) below) semi-annually, for the actual number of days elapsed, on each
July 31 and January 31, to the holders of record of shares of Series C Preferred
Stock as of the tenth (10th) trading day preceding the applicable dividend
payment date.
(iii) NO INTEREST. Accrued but unpaid Preferred
Dividends shall not bear interest. Preferred Dividends paid in cash in an amount
less than the total amount of such dividends at the time accrued and payable
shall be allocated on a share-by-share basis among all shares of Series C
Preferred Stock at the time outstanding.
(iv) PAYMENT UPON CONVERSION. On the date on which
any holder's shares of Series C Preferred Stock are converted into Common Stock
pursuant to Section 5 hereof, the accrued Preferred Dividend with respect to the
shares so converted shall be paid to such holder. All accrued Preferred
Dividends also shall be payable upon the liquidation, dissolution or winding up
of the Corporation.
(v) PAYMENT IN COMMON STOCK. The Corporation, at its
sole discretion, may pay the Preferred Dividends in cash or in shares of Common
Stock at the then fair market value per share of Common Stock as of the date on
which the Preferred Dividend is payable. For purposes of this Section 2(a)(v),
fair market value shall be the average of the closing bid price of the Common
Stock of the Corporation as reported by the Nasdaq SmallCap Market or Nasdaq
National Market or, if the Corporation's Common Stock is no longer traded on a
Nasdaq market, such other exchange on which the Corporation's Common Stock is
then traded, for the ten (10) Trading Days immediately preceding the date on
which the Preferred Dividend is payable.
(vi) FRACTIONAL SHARES. Notwithstanding anything
herein to the contrary, no fractional shares shall be issued pursuant to this
Section 2, and the number of shares of Common Stock issued upon the payment of
the Preferred Dividend shall be rounded up or down to the nearest whole share.
(b) DECLARED DIVIDENDS ON COMMON STOCK. If the Board of
Directors shall declare a cash dividend payable upon the then outstanding shares
of Common Stock (other than a
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stock dividend on the Common Stock distributed solely in the form of additional
shares of Common Stock), the holders of the Series C Preferred Stock shall be
entitled to the amount of dividends on the Series C Preferred Stock as would be
declared payable on the largest number of whole shares of Common Stock into
which the shares of Series C Preferred Stock held by each holder thereof could
be converted pursuant to the provisions of Section 5 hereof, such number
determined as of the record date for the determination of holders of Common
Stock entitled to receive such dividend. Such determination of "whole shares"
shall be based upon the aggregate number of shares of Series C Preferred Stock
held by each holder, and not upon each share of Series C Preferred Stock so held
by the holder.
(c) DIVIDENDS ON OTHER SECURITIES. Subject to the foregoing
provisions of this Section 2, the Board of Directors may declare and the
Corporation may pay or set apart for payment, or cause the accrual of, stated or
cumulative dividends and other distributions on the Series A Preferred Stock or
the Series B Preferred Stock of the Corporation, or any other series of
preferred stock hereafter designated, and may purchase or otherwise redeem any
of the same (or any warrants, rights, options or other securities exercisable
therefor or convertible or exchangeable thereinto), and the holders of Series C
Preferred Stock shall not be entitled to share therein.
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. In
the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, or in the event of its insolvency, before any
distribution or payment is made to any holders of Common Stock or any other
class or series of capital stock of the Corporation designated to be junior to
the Series C Preferred Stock, and subject to the liquidation rights and
preferences of any class or series of Preferred Stock designated by the Board of
Directors in the future to be senior to or on a parity with the Series C
Preferred Stock with respect to liquidation preferences, the holder of each
share of Series C Preferred Stock shall be entitled to be paid first out of the
assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes, whether such assets are capital,
surplus or earnings, an amount equal to the Original Issue Price per share of
Series C Preferred Stock held by any holder, plus the Preferred Dividend
accruing to the Series C Preferred Stock pursuant to Section 2 above (the
"LIQUIDATION VALUE"). For purposes hereof, the Series C Preferred Stock shall
rank on liquidation junior to the Series A Preferred Stock and on parity with
the Series B Preferred Stock.
If, upon liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of the Series C Preferred
Stock the full amount to which they otherwise would be entitled, the holders of
Series C Preferred Stock shall share ratably in any distribution of available
assets pro rata in proportion to the respective liquidation preference amounts
which would otherwise be payable upon liquidation with respect to the
outstanding shares of the Series C Preferred Stock if all liquidation preference
amounts with respect to such shares were paid in full, based upon the aggregate
Liquidation Value payable upon all shares of Series C Preferred Stock then
outstanding.
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 Corporation in trust for the account of holders of the
Series C Preferred Stock so as to be available for such payment, the remaining
assets available for distribution shall be distributed ratably among the holders
of the Common Stock and any class or series of capital stock designated to be
junior to the Series C
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Preferred Stock (if any) in right of payment upon any liquidation, dissolution
or winding up of the Corporation.
The amounts set forth above shall be subject to equitable
adjustment by the Board of Directors whenever there shall occur a stock
dividend, stock split, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the capital
structure of the Series C Preferred Stock.
(b) DISTRIBUTIONS OTHER THAN CASH. Whenever the distributions
provided for in this Section shall be payable in property other than cash, the
value of such distribution shall be the fair market value of such property as
determined in good faith by the Board of Directors. All distributions (including
distributions other than cash) made hereunder shall be made pro rata to the
holders of Series C Preferred Stock.
(c) EVENTS NOT DEEMED A LIQUIDATION. Neither the merger or
consolidation of the Corporation into or with any other corporation(s), nor the
sale or transfer by the Corporation of all or any part of its assets, nor the
reduction of the capital stock of the Corporation, will be deemed to be a
liquidation, dissolution or winding up of the Corporation under this Section 3.
4. VOTING POWER.
(a) GENERAL. Except as otherwise expressly provided in this
Section 4 or as otherwise required by the General Corporation Law of the State
of Delaware, each holder of Series C Preferred Stock shall be entitled to vote
on all matters 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 5 hereof, at the record date for the determination of stockholders
entitled to vote on any matter or, if no such record date is established, at the
date such vote is taken or any written consent of stockholders is solicited.
Except as otherwise expressly required by law, the holders of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Common
Stock shall vote together (or render written consents in lieu of a vote) as a
single class on all matters submitted to the stockholders of the Corporation.
Such determination of "whole shares" shall be based upon the
aggregate number of shares of Series C Preferred Stock held by each holder, and
not upon each share of Series C Preferred Stock so held by the holder.
(b) AMENDMENTS TO CHARTER. For so long as there are any shares
of Series C Preferred Stock outstanding, the Corporation shall not amend its
Certificate of Incorporation or this Certificate of Designation without the
approval, by vote or written consent, of the holders of at least a majority of
the then outstanding shares of Series C Preferred Stock, voting together as a
class, each share of Series C Preferred Stock to be entitled to one vote in each
instance, if such amendment would adversely affect the rights of the holders of
Series C Preferred Stock. Without limiting the generality of the foregoing, the
creation, or increase in the authorized number of shares, of any class or series
of stock ranking prior to or on a parity with the Series C Preferred Stock
either as to dividends or upon liquidation shall be deemed to adversely affect
the rights of the holders of Series C Preferred Stock for purposes of this
Section 4(b).
5. CONVERSION RIGHTS.
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(a) CONVERSION AT THE OPTION OF HOLDERS. Each holder of Series
C Preferred Stock shall have the right, at such holder's option, to convert at
any time any of the shares of Series C Preferred Stock held by such holder into
such number of fully paid and nonassessable shares of Common Stock as shall be
determined by multiplying the number of shares of Series C Preferred Stock to be
converted by a fraction, the numerator of which is the Original Issue Price, and
the denominator of which is the applicable Conversion Price (as defined below).
(b) CONVERSION PRICE. The conversion price per share (the
"CONVERSION PRICE") shall be equal to the lesser of subsections (i) and (ii)
below.
(i) One hundred twenty-five percent (125%) of the
average of the closing bid price of the Common Stock of the Corporation as
reported by the Nasdaq SmallCap Market or Nasdaq National Market or, if the
Corporation's Common Stock is no longer traded on a Nasdaq market, such other
exchange on which the Corporation's Common Stock is then traded, for the five
(5) Trading Days immediately preceding the Issue Date.
(ii) (A) Beginning on the 60th day after the Issue
Date and ending on the 150th day after the Issue Date, eighty percent (80%) of
the Average Quoted Price;
(B) Beginning on the 151st day after the Issue
Date and ending on the 210th day after the Issue Date, seventy-eight percent
(78%) of the Average Quoted Price;
(C) Beginning on the 211th day after the Issue
Date and ending on the 365th day after the Issue Date, seventy-six percent (76%)
of the Average Quoted Price; and
(D) Beginning on the 366th day after the Issue
Date, seventy-four (74%) of the Average Quoted Price.
(c) CONVERSION AT OPTION OF CORPORATION. At any time after the
close of business on the one (1) year anniversary of the date on which the
Securities and Exchange Commission declares effective the registration statement
registering the shares of Common Stock issuable upon conversion of the Series C
Preferred Stock, all of the shares of Series C Preferred Stock shall be
convertible, at the option of the Corporation, into such number of fully paid
and nonassessable shares of Common Stock as shall be determined by multiplying
the number of shares of Series C Preferred Stock outstanding on the Mandatory
Conversion Date (as defined below) by a fraction, the numerator of which is the
Original Issue Price, and the denominator of which is the applicable Conversion
Price.
The Corporation shall give notice of its exercise of such
conversion option to all holders of Series C Preferred Stock no later than five
(5) Trading Days before the date as of which the Corporation has elected to make
such conversion effective (such effective date of the conversion, the "MANDATORY
CONVERSION DATE"). Each holder of Series C Preferred Stock as of the Mandatory
Conversion Date shall, promptly after such date, surrender for conversion to the
Corporation at its principal office or to any transfer agent for the Series C
Preferred Stock or the Common Stock all certificates representing all shares of
Series C Preferred Stock held by such holder, accompanied by a written notice
specifying the name or names in which such holder wishes the certificate(s) for
shares of Common Stock to be issued.
Effective as of the close of business on the Mandatory
Conversion Date, each share of Series C Preferred Stock then outstanding shall
be (and be deemed to have been) converted
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automatically, without any further action by the holders thereof, into shares of
Common Stock. Such conversion shall be deemed to have occurred whether or not
the certificates representing such shares are surrendered to the Corporation or
its transfer agent.
(d) LIMITATION ON NUMBER OF SHARES. Additionally,
notwithstanding anything set forth in this Section 5 to the contrary, in no
event shall any holder of Series C Preferred Stock, prior to earlier to occur of
the Mandatory Conversion Date or the date of the consummation or closing of a
Fundamental Change, be entitled to convert Series C Preferred Stock into shares
of Common Stock to the extent that (x) the number of shares of the Corporation's
Common Stock beneficially owned by such holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the shares of Series C Preferred Stock
held by such holder) plus (y) the number of shares of Common Stock issuable upon
such conversion would result in beneficial ownership by the holder and its
affiliates of more than 4.9% of the shares of Common Stock then outstanding. For
purposes of this Section 5(d), beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D and 13G promulgated thereunder, except as otherwise
provided in clause (x) of this Section 5(d). Each holder shall, upon delivering
to the Corporation a notice of election to convert shares of Series C Preferred
Stock in accordance with Section 5(i) hereof, be required to provide the
Corporation with a certification in form and substance reasonably satisfactory
to the Corporation, that the conversion of the Series C Preferred Stock being
converted will not result in such holder and its affiliates beneficially holding
more than 4.9%, determined as heretofore provided, of the outstanding shares of
Common Stock on such Conversion Date. If the holder cannot make such
certification, the shares of Series C Preferred Stock to be converted shall not
be convertible. Notwithstanding the foregoing, upon the Mandatory Conversion
Date or upon the consummation or closing of a Fundamental Change, all such
shares of Series C Preferred Stock then outstanding shall be converted into
Common Stock in accordance with Section 5(c) or 5(g), as applicable.
(e) DIVIDENDS OTHER THAN COMMON STOCK DIVIDENDS. In the event
the Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock entitled to receive a dividend or other
distribution (other than a distribution in liquidation or other distribution
otherwise provided for herein) with respect to the Common Stock payable in (i)
securities of the Corporation other than shares of Common Stock, or (ii) other
assets (excluding cash dividends or distributions), then and in each such event
provision shall be made so that the holders of the Series C Preferred Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the number of securities or such other assets
of the Corporation which they would have received had their Series C Preferred
Stock been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
Conversion Date, retained such securities or such other assets receivable by
them during such period, giving application to all other adjustments called for
during such period under this Section 5 with respect to the rights of the
holders of the Series C Preferred Stock.
(f) CAPITAL REORGANIZATION 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
capital stock, whether by capital reorganization, recapitalization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for elsewhere in this Section 5, or the sale of all
or substantially all of the Corporation's capital stock or assets to any other
person), then and in each such event the holders
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of Series C Preferred Stock shall have the right thereafter to convert such
shares into the kind and amount of shares of capital stock and other securities
and property receivable upon such reorganization, recapitalization,
reclassification or other change by the holders of the number of shares of
Common Stock into which such shares of Series C Preferred Stock might have been
converted immediately prior to such reorganization, recapitalization,
reclassification or change, all subject to further adjustment as provided
herein.
(g) MANDATORY CONVERSION - FUNDAMENTAL CHANGE. If any
Fundamental Change shall occur, then each share of Series C Preferred Stock
outstanding as of the date of the consummation or closing thereof shall be (and
be deemed to have been) converted automatically, without any further action by
the holders thereof, into such number of fully paid and nonassessable shares of
Common Stock as shall be determined by multiplying the number of shares of
Series C Preferred Stock outstanding on the on the date of such consummation or
closing date by a fraction, the numerator of which is the Original Issue Price,
and the denominator of which is the applicable Conversion Price. Such conversion
shall be deemed to have occurred whether or not the certificates representing
such shares are surrendered to the Corporation or its transfer agent.
The Corporation shall give notice of a proposed or anticipated
Fundamental Change to all holders of the Series C Preferred Stock not later than
thirty (30) days before the expected closing or consummation of such Fundamental
Change, provided that at all times during such thirty-day period a registration
statement shall be in effect to permit the registration of the Common Stock
issuable upon conversion of the Series C Preferred Stock under the Securities
Act of 1933, as amended. The Corporation also shall give prompt notice of the
closing or consummation of such Fundamental Change to all holders of record of
the Series C Preferred Stock as of the date of such closing or consummation.
Each holder of Series C Preferred Stock shall thereupon promptly surrender for
conversion, to the Corporation at its principal office or to any transfer agent
for the Series C Preferred Stock or the Common Stock, all certificates
representing all shares of Series C Preferred Stock held by such holder,
accompanied by a written notice specifying the name or names in which such
holder wishes the certificate(s) for shares of Common Stock to be issued.
(h) CERTIFICATE AS TO ADJUSTMENTS; NOTICE BY CORPORATION. In
each case of an adjustment or readjustment of the Original Issue Price, the
Corporation at its expense will furnish each holder of Series C Preferred Stock
so affected with a certificate prepared by an officer of the Corporation,
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 its
conversion privilege, a holder of Series C Preferred Stock shall give written
notice by telecopy to the Corporation at its principal office that such holder
elects to convert shares of its Series C Preferred Stock and shall thereafter
surrender the original certificate(s) representing the shares being converted to
the Corporation at its principal office together with an originally executed
copy of such notice. Such notice shall also state the name or names (with its
address or addresses, as well as the address(es) for delivery) in which the
certificate(s) for shares of Common Stock issuable upon such conversion shall be
issued. The certificate(s) for the shares of Series C Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Corporation or in blank. As promptly as practicable after the Corporation
receives the original certificate(s) for the shares of Series C Preferred Stock
surrendered for conversion, the proper assignment thereof to the Corporation or
in blank and the original notice of conversion (collectively, the "ORIGINAL
DOCUMENTATION"), but in no
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event more than three (3) Trading Days after the Corporation's receipt of the
Original Documentation, the Corporation shall issue and shall deliver to the
holder of the shares of Series C Preferred Stock being converted, at the
addresses set forth therefor by the holder, such certificate(s) 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 5, and cash, as provided in Section 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 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(s) in whose name(s) any certificate(s) for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder(s) of
record of the shares of Common Stock represented thereby. If the Corporation
fails to issue and deliver to such holder such certificate(s) for shares of
Common Stock within three (3) Trading Days after the Corporation's receipt of
the Original Documentation, the Corporation shall pay the liquidated damages set
forth in the Stock Purchase Agreement between the Corporation and the initial
purchasers of the 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 that would otherwise be issuable upon conversion of
Series C Preferred Stock, the Corporation shall pay to the holder of the shares
of Series C Preferred Stock being 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 any fractional shares are issuable shall be
based upon the aggregate 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(s) surrendered
by a holder are converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series C Preferred Stock which were not
converted. Such new certificate shall be so delivered on or prior to the date
set forth in Section 5(i) for the delivery of certificates for shares of Common
Stock.
(l) RESERVATION OF COMMON STOCK. The Corporation 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 (including any shares of
Series C Preferred Stock represented by any warrants, options, subscription or
purchase rights for 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 (including any shares of Series C Preferred Stock represented by any
warrants, options, subscriptions or purchase rights for the Series C Preferred
Stock), then the Corporation shall be deemed to be in breach and default of its
obligations hereunder, and in addition to all charges, claims and rights at law
or in equity that each holder shall be entitled to, the Corporation shall use
all means reasonably available to it, and promptly take any and all actions 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.
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6. REDEMPTION AND REPURCHASE RIGHTS. The Corporation shall have no
right to redeem, and holders of shares of Series C Preferred Stock shall have no
right to cause the Corporation to redeem, any or all of the outstanding shares
of Series C Preferred Stock.
7. NOTICES OF RECORD DATE. In the event of any:
(a) taking by the Corporation 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 capital stock of any
class or any other securities or property, or to receive any other right, or
(b) capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other Corporation, or
any other entity or person, or
(c) voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation shall telecopy and thereafter 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 telecopied and thereafter mailed by first class mail, postage prepaid, or by
express overnight courier service, at least ten (10) days prior to the date
specified in such notice on which such action is to be taken.
8. GENERAL.
(a) REPLACEMENT OF CERTIFICATES. Upon the Corporation's
receipt, from the holder of any certificate evidencing shares of Series C
Preferred Stock, of evidence reasonably satisfactory to the Corporation (an
affidavit of such holder will be satisfactory) of the ownership and the loss,
theft, destruction or mutilation of such certificate, and in the case of any
such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation, and in the case of any such mutilation, upon
surrender of such certificate, the Corporation (at its expense) shall execute
and deliver to such holder, in lieu of such certificate, a new certificate that
represents the number of shares represented by, is dated the date of, is issued
in the name of the holder of, and is substantially identical in form of, such
lost, stolen, destroyed or mutilated certificate.
(b) PAYMENT OF TAXES. The Corporation shall pay all taxes
(other than taxes based upon income) and other governmental charges that may be
imposed in connection with the issuance or delivery of any shares of Common
Stock (or other of the Corporation's securities) that results from (i) the
conversion of shares of Series C Preferred Stock pursuant to this Certificate of
Designations or (ii) the application of Section 2(a)(v) hereof. Notwithstanding
the foregoing, if the Corporation, pursuant to a notice from a holder of any
shares of Series C Preferred Stock, effects the
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issuance or delivery of any shares of Common Stock (or other of the
Corporation's securities) in any name(s) other than such holder's name, then
such holder shall deliver to the Corporation with the aforesaid notice (A) all
transfer taxes and other governmental charges payable upon the issuance or
delivery of securities in such other name(s) or (B) evidence satisfactory to the
Corporation that such taxes and charges have been or shall be paid in full.
(c) STATUS OF REDEEMED OR CONVERTED SHARES. Shares of Series C
Preferred Stock that are redeemed, converted or otherwise acquired by the
Corporation in any manner (including by purchase or exchange) shall be canceled
and upon cancellation (i) shall no longer be deemed to be outstanding, (ii)
shall become authorized but unissued shares of preferred stock undesignated as
to series and (iii) may be reissued as part of another series of preferred
stock.
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D. DESCRIPTION AND DESIGNATION OF SERIES D PREFERRED STOCK
1. DESIGNATION AND DEFINITIONS.
(a) DESIGNATION. A total of 60,000 shares of the Corporation's
previously undesignated Preferred Stock, $.01 par value, shall be designated as
the "Series D Preferred Stock." The original issue price per share of the Series
D Preferred Stock shall be $100.00 (the "ORIGINAL ISSUE PRICE").
(b) CERTAIN DEFINITIONS. As used herein, the following terms,
unless the context otherwise requires, have the following respective meanings:
"CLOSING DATE" means the original issue date of the Series C
Preferred Stock pursuant to a certain Stock Purchase Agreement in which the
Corporation agreed to issue, and the purchasers named therein agreed to
purchase, shares of Series C Preferred Stock and Series D Preferred Stock.
"COMMON STOCK" means the common stock, par value $.01 per
share, of the Corporation.
"CONVERSION DATE" means each date on which the Corporation
receives by telecopy written notice in accordance with Section 4(i) hereof from
a holder of Series D Preferred Stock that such holder elects to convert shares
of its Series D Preferred Stock.
"EFFECTIVE DATE" means the date as of which the Securities and
Exchange Commission has issued a declaration or order of effectiveness relating
to a registration statement filed, in compliance with the Securities Act of
1933, as amended, and Rule 415 thereunder, with respect to shares of Common
Stock issued or issuable on conversion of the Series D Preferred Stock pursuant
to Section 4 below.
"FUNDAMENTAL CHANGE" means: (i) any sale, lease, exchange or
other transfer of all or substantially all of the assets or capital stock of the
Corporation; or (ii) any merger or consolidation to which the Corporation is a
party. Notwithstanding the foregoing, the following shall not be a Fundamental
Change: A merger or consolidation to which the Corporation is a party and in
which it is the surviving corporation and there is no resulting reclassification
of the outstanding Common Stock; and after giving effect to which, persons who
were, immediately before the consummation or closing of such merger or
consolidation, holders of outstanding Common Stock will be the direct or
indirect owners of securities of the Corporation possessing, on a fully diluted
basis, at least seventy-five percent (75%) of the voting power of all voting
securities of the Corporation (excluding, for purposes of such computation, any
such person who also is a party to such merger or consolidation).
"ISSUE DATE" means, with respect to each share of Series D
Preferred Stock held by any holder, the date on which the Corporation originally
issued such share to such holder (regardless of the number of times transfer of
such share is made on the stock transfer books maintained by or for the
Corporation, and regardless of the number of certificates which may be issued to
evidence such share, and irrespective of any subsequent transfer or other
disposition of such share to any other holder), pursuant to a periodic issuance
of the Series D Preferred Stock (not less than thirty (30) days apart) under the
Stock Purchase Agreement in which the Corporation has the right to request a
purchase of the Series D Preferred Stock during any thirty-day period.
"MARKET PRICE" means the average of the closing bid price of
the Common Stock of the Corporation as reported by the Nasdaq SmallCap Market or
Nasdaq National Market or, if the
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Corporation's Common Stock is no longer traded on a Nasdaq market, such other
exchange on which the Corporation's Common Stock is then traded, for the five
(5) Trading Days prior to the Closing Date, Effective Date, any Issue Date, or
any date of conversion of the series D Preferred Stock.
"TRADING DAY" means a day on which the principal national
securities exchange on which the Common Stock is listed or admitted to trading
is open for the transaction of business; or, if the Common Stock is not listed
or admitted to trading on any national securities exchange but is listed on the
Nasdaq system (or such other trading system then in use by the National
Association of Securities Dealers, Inc.), a day on which such system is open for
the transaction of business; or, if the foregoing does not apply, any business
day.
2. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. In
the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, or in the event of its insolvency, before any
distribution or payment is made to any holders of Common Stock or any other
class or series of capital stock of the Corporation designated to be junior to
the Series D Preferred Stock, and subject to the liquidation rights and
preferences of any class or series of Preferred Stock designated by the Board of
Directors in the future to be senior to or on a parity with the Series D
Preferred Stock with respect to liquidation preferences, the holder of each
share of Series D Preferred Stock shall be entitled to be paid first out of the
assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes, whether such assets are capital,
surplus or earnings, an amount equal to the Original Issue Price per share of
Series D Preferred Stock held by any holder (the "LIQUIDATION VALUE"). For
purposes hereof, the Series D Preferred Stock shall rank on liquidation junior
to the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock.
If, upon liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of the Series D Preferred
Stock the full amount to which they otherwise would be entitled, the holders of
Series D Preferred Stock shall share ratably in any distribution of available
assets pro rata in proportion to the respective liquidation preference amounts
which would otherwise be payable upon liquidation with respect to the
outstanding shares of the Series D Preferred Stock if all liquidation preference
amounts with respect to such shares were paid in full, based upon the aggregate
Liquidation Value payable upon all shares of Series D Preferred Stock then
outstanding.
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 Corporation in trust for the account of holders of the
Series D Preferred Stock so as to be available for such payment, the remaining
assets available for distribution shall be distributed ratably among the holders
of the Common Stock and any class or series of capital stock designated to be
junior to the Series D Preferred Stock (if any) in right of payment upon any
liquidation, dissolution or winding up of the Corporation.
The amounts set forth above shall be subject to equitable
adjustment by the Board of Directors whenever there shall occur a stock
dividend, stock split, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the capital
structure of the Series D Preferred Stock.
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(b) DISTRIBUTIONS OTHER THAN CASH. Whenever the distributions
provided for in this Section shall be payable in property other than cash, the
value of such distribution shall be the fair market value of such property as
determined in good faith by the Board of Directors. All distributions (including
distributions other than cash) made hereunder shall be made pro rata to the
holders of Series D Preferred Stock.
(c) EVENTS NOT DEEMED A LIQUIDATION. Neither the merger or
consolidation of the Corporation into or with any other corporation(s), nor the
sale or transfer by the Corporation of all or any part of its assets, nor the
reduction of the capital stock of the Corporation, will be deemed to be a
liquidation, dissolution or winding up of the Corporation under this Section 2.
3. VOTING POWER.
(a) GENERAL. Except as otherwise expressly provided in this
Section 3 or as otherwise required by the General Corporation Law of the State
of Delaware, each holder of Series D Preferred Stock shall be entitled to vote
on all matters 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 hereof, at the record date for the determination of stockholders
entitled to vote on any matter or, if no such record date is established, at the
date such vote is taken or any written consent of stockholders is solicited.
Except as otherwise expressly required by law, the holders of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Common Stock shall vote together (or render written consents
in lieu of a vote) as a single class on all matters submitted to the
stockholders of the Corporation.
Such determination of "whole shares" shall be based upon the
aggregate number of shares of Series D Preferred Stock held by each holder, and
not upon each share of Series D Preferred Stock so held by the holder.
(b) AMENDMENTS TO CHARTER. For so long as there are any shares
of Series D Preferred Stock outstanding, the Corporation shall not amend its
Certificate of Incorporation or this Certificate of Designation without the
approval, by vote or written consent, of the holders of at least a majority of
the then outstanding shares of Series D Preferred Stock, voting together as a
class, each share of Series D Preferred Stock to be entitled to one vote in each
instance, if such amendment would adversely affect the rights of the holders of
Series D Preferred Stock. Without limiting the generality of the foregoing, the
creation, or increase in the authorized number of shares, of any class or series
of stock ranking prior to or on a parity with the Series D Preferred Stock
either as to dividends or upon liquidation shall be deemed to adversely affect
the rights of the holders of Series D Preferred Stock for purposes of this
Section 3(b).
4. CONVERSION RIGHTS.
(a) CONVERSION AT THE OPTION OF HOLDERS. Each holder of Series
D Preferred Stock shall have the right at any time, at such holder's option, to
convert the shares of Series D Preferred Stock held by such holder into such
number of fully paid and nonassessable shares of Common Stock as shall be
determined by multiplying the number of shares of Series D Preferred Stock to be
converted by a fraction, the numerator of which is the Original Issue Price, and
the denominator of which is the applicable Conversion Price (as defined below).
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(b) CONVERSION PRICE. The conversion price per share (the
"CONVERSION PRICE") shall be equal to the lesser of subsections (i) and (ii)
below:
(i) Eighty-five percent (85%) of the Market Price
prior to any conversion of the Series D Preferred Stock; or
(ii) one hundred twenty-five percent (125%) of the
Market Price on the Closing Date.
(c) CONVERSION AT OPTION OF CORPORATION. At any time after the
close of business on the two-year anniversary of the Effective Date, all of the
shares of Series D Preferred Stock shall be convertible, at the option of the
Corporation, into such number of fully paid and nonassessable shares of Common
Stock as shall be determined by multiplying the number of shares of Series D
Preferred Stock outstanding on the Mandatory Conversion Date (as defined below)
by a fraction, the numerator of which is the Original Issue Price, and the
denominator of which is the applicable Conversion Price.
The Corporation shall give notice of its exercise of such
conversion option to all holders of Series D Preferred Stock no later than five
(5) Trading Days before the date as of which the Corporation has elected to make
such conversion effective (such effective date of the conversion, the "MANDATORY
CONVERSION DATE"). Each holder of Series D Preferred Stock as of the Mandatory
Conversion Date shall, promptly after such date, surrender for conversion to the
Corporation at its principal office or to any transfer agent for the Series D
Preferred Stock or the Common Stock all certificates representing all shares of
Series D Preferred Stock held by such holder, accompanied by a written notice
specifying the name or names in which such holder wishes the certificate(s) for
shares of Common Stock to be issued.
Effective as of the close of business on the Mandatory
Conversion Date, each share of Series D Preferred Stock then outstanding shall
be (and be deemed to have been) converted automatically, without any further
action by the holders thereof, into shares of Common Stock. Such conversion
shall be deemed to have occurred whether or not the certificates representing
such shares are surrendered to the Corporation or its transfer agent.
(d) LIMITATION ON NUMBER OF SHARES. Additionally,
notwithstanding anything set forth in this Section 4 to the contrary, in no
event shall any holder of Series D Preferred Stock, prior to earlier to occur of
the Mandatory Conversion Date or the date of the consummation or closing of a
Fundamental Change, be entitled to convert Series D Preferred Stock into shares
of Common Stock to the extent that (x) the number of shares of the Corporation's
Common Stock beneficially owned by such holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the shares of Series D Preferred Stock
held by such holder) plus (y) the number of shares of Common Stock issuable upon
such conversion would result in beneficial ownership by the holder and its
affiliates of more than 4.9% of the shares of Common Stock then outstanding. For
purposes of this Section 4(d), beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D and 13G promulgated thereunder, except as otherwise
provided in clause (x) of this Section 4(d). Each holder shall, upon delivering
to the Corporation a notice of election to convert shares of Series D Preferred
Stock in accordance with Section 4(i) hereof, be required to provide the
Corporation with a certification in form and substance reasonably satisfactory
to the Corporation, that the conversion of the Series D Preferred Stock being
converted will not result in such holder and its affiliates beneficially holding
more than 4.9%, determined as
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heretofore provided, of the outstanding shares of Common Stock on such
Conversion Date. If the holder cannot make such certification, the shares of
Series D Preferred Stock to be converted shall not be convertible.
Notwithstanding the foregoing, upon the Mandatory Conversion Date or upon the
consummation or closing of a Fundamental Change, all such shares of Series D
Preferred Stock then outstanding shall be converted into Common Stock in
accordance with Section 4(c) or 4(g), as applicable.
(e) DIVIDENDS OTHER THAN COMMON STOCK DIVIDENDS. In the event
the Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock entitled to receive a dividend or other
distribution (other than a distribution in liquidation or other distribution
otherwise provided for herein) with respect to the Common Stock payable in (i)
securities of the Corporation other than shares of Common Stock, or (ii) other
assets (excluding cash dividends or distributions), then and in each such event
provision shall be made so that the holders of the Series D Preferred Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the number of securities or such other assets
of the Corporation which they would have received had their Series D Preferred
Stock been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
Conversion Date, retained such securities or such other assets receivable by
them during such period, giving application to all other adjustments called for
during such period under this Section 4 with respect to the rights of the
holders of the Series D Preferred Stock.
(f) CAPITAL REORGANIZATION 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
capital stock, whether by capital reorganization, recapitalization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for elsewhere in this Section 4, or the sale of all
or substantially all of the Corporation's capital stock or assets to any other
person), then and in each such event the holders of Series D Preferred Stock
shall have the right thereafter to convert such shares into the kind and amount
of shares of capital stock and other securities and property receivable upon
such reorganization, recapitalization, reclassification or other change by the
holders of the number of shares of Common Stock into which such shares of Series
D Preferred Stock might have been converted immediately prior to such
reorganization, recapitalization, reclassification or change, all subject to
further adjustment as provided herein.
(g) MANDATORY CONVERSION - FUNDAMENTAL CHANGE. If any
Fundamental Change shall occur, then each share of Series D Preferred Stock
outstanding as of the date of the consummation or closing thereof shall be (and
be deemed to have been) converted automatically, without any further action by
the holders thereof, into such number of fully paid and nonassessable shares of
Common Stock as shall be determined by multiplying the number of shares of
Series D Preferred Stock outstanding on the on the date of such consummation or
closing date by a fraction, the numerator of which is the Original Issue Price,
and the denominator of which is the applicable Conversion Price. Such conversion
shall be deemed to have occurred whether or not the certificates representing
such shares are surrendered to the Corporation or its transfer agent.
The Corporation shall give notice of a proposed or anticipated
Fundamental Change to all holders of the Series D Preferred Stock not later than
thirty (30) days before the expected closing or consummation of such Fundamental
Change, provided that at all times during such thirty-day period a registration
statement shall be in effect to permit the registration of the
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Common Stock issuable upon conversion of the Series D Preferred Stock under the
Securities Act of 1933, as amended. The Corporation also shall give prompt
notice of the closing or consummation of such Fundamental Change to all holders
of record of the Series D Preferred Stock as of the date of such closing or
consummation. Each holder of Series D Preferred Stock shall thereupon promptly
surrender for conversion, to the Corporation at its principal office or to any
transfer agent for the Series D Preferred Stock or the Common Stock, all
certificates representing all shares of Series D Preferred Stock held by such
holder, accompanied by a written notice specifying the name or names in which
such holder wishes the certificate(s) for shares of Common Stock to be issued.
(h) CERTIFICATE AS TO ADJUSTMENTS; NOTICE BY CORPORATION. In
each case of an adjustment or readjustment of the Original Issue Price, the
Corporation at its expense will furnish each holder of Series D Preferred Stock
so affected with a certificate prepared by an officer of the Corporation,
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 its
conversion privilege, a holder of Series D Preferred Stock shall give written
notice by telecopy to the Corporation at its principal office that such holder
elects to convert shares of its Series D Preferred Stock and shall thereafter
surrender the original certificate(s) representing the shares being converted to
the Corporation at its principal office together with an originally executed
copy of such notice. Such notice shall also state the name or names (with its
address or addresses, as well as the address(es) for delivery) in which the
certificate(s) for shares of Common Stock issuable upon such conversion shall be
issued. The certificate(s) for the shares of Series D Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Corporation or in blank. As promptly as practicable after the Corporation
receives the original certificate(s) for the shares of Series D Preferred Stock
surrendered for conversion, the proper assignment thereof to the Corporation or
in blank and the original notice of conversion (collectively, the "ORIGINAL
DOCUMENTATION"), but in no event more than three (3) Trading Days after the
Corporation's receipt of the Original Documentation, the Corporation shall issue
and shall deliver to the holder of the shares of Series D Preferred Stock being
converted, at the addresses set forth therefor by the holder, such
certificate(s) 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, and cash, as provided in
Section 4(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 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(s) in whose name(s) any
certificate(s) for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder(s) of record of the shares of Common
Stock represented thereby. If the Corporation fails to issue and deliver to such
holder such certificate(s) for shares of Common Stock within three (3) Trading
Days after the Corporation's receipt of the Original Documentation, the
Corporation shall pay the liquidated damages set forth in the Stock Purchase
Agreement between the Corporation and the initial purchasers of the 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 that would otherwise be issuable upon conversion of
Series D Preferred Stock, the Corporation shall pay to the holder of the shares
of Series D Preferred Stock being converted a cash adjustment in respect of such
fractional shares
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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 any fractional shares are issuable shall be based upon the
aggregate 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(s) surrendered
by a holder are converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series D Preferred Stock which were not
converted. Such new certificate shall be so delivered on or prior to the date
set forth in Section 4(i) for the delivery of certificates for shares of Common
Stock.
(l) RESERVATION OF COMMON STOCK. The Corporation 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 (including any shares of
Series D Preferred Stock represented by any warrants, options, subscription or
purchase rights for 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 (including any shares of Series D Preferred Stock represented by any
warrants, options, subscriptions or purchase rights for the Series D Preferred
Stock), then the Corporation shall be deemed to be in breach and default of its
obligations hereunder, and in addition to all charges, claims and rights at law
or in equity that each holder shall be entitled to, the Corporation shall use
all means reasonably available to it, and promptly take any and all actions 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. REDEMPTION AND REPURCHASE RIGHTS. The Corporation shall have no
right to redeem, and holders of shares of Series D Preferred Stock shall have no
right to cause the Corporation to redeem, any or all of the outstanding shares
of Series D Preferred Stock.
6. NOTICES OF RECORD DATE. In the event of any:
(a) taking by the Corporation 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 capital stock of any
class or any other securities or property, or to receive any other right, or
(b) capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other Corporation, or
any other entity or person, or
(c) voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation shall telecopy and thereafter 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
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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 telecopied and thereafter mailed by first class mail, postage prepaid, or by
express overnight courier service, at least ten (10) days prior to the date
specified in such notice on which such action is to be taken.
7. GENERAL.
(a) REPLACEMENT OF CERTIFICATES. Upon the Corporation's
receipt, from the holder of any certificate evidencing shares of Series D
Preferred Stock, of evidence reasonably satisfactory to the Corporation (an
affidavit of such holder will be satisfactory) of the ownership and the loss,
theft, destruction or mutilation of such certificate, and in the case of any
such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation, and in the case of any such mutilation, upon
surrender of such certificate, the Corporation (at its expense) shall execute
and deliver to such holder, in lieu of such certificate, a new certificate that
represents the number of shares represented by, is dated the date of, is issued
in the name of the holder of, and is substantially identical in form of, such
lost, stolen, destroyed or mutilated certificate.
(b) PAYMENT OF TAXES. The Corporation shall pay all taxes
(other than taxes based upon income) and other governmental charges that may be
imposed in connection with the issuance or delivery of any shares of Common
Stock (or other of the Corporation's securities) that results from the
conversion of shares of Series D Preferred Stock pursuant to this Certificate of
Designations. Notwithstanding the foregoing, if the Corporation, pursuant to a
notice from a holder of any shares of Series D Preferred Stock, effects the
issuance or delivery of any shares of Common Stock (or other of the
Corporation's securities) in any name(s) other than such holder's name, then
such holder shall deliver to the Corporation with the aforesaid notice (A) all
transfer taxes and other governmental charges payable upon the issuance or
delivery of securities in such other name(s) or (B) evidence satisfactory to the
Corporation that such taxes and charges have been or shall be paid in full.
(c) STATUS OF REDEEMED OR CONVERTED SHARES. Shares of Series D
Preferred Stock that are redeemed, converted or otherwise acquired by the
Corporation in any manner (including by purchase or exchange) shall be canceled
and upon cancellation (i) shall no longer be deemed to be outstanding, (ii)
shall become authorized but unissued shares of preferred stock undesignated as
to series and (iii) may be reissued as part of another series of preferred
stock.
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E. DESCRIPTION AND DESIGNATION OF SERIES E PREFERRED STOCK
1. DESIGNATION. A total of 10,500 shares of the Corporation's
previously undesignated Preferred Stock, $.01 par value, shall be designated as
the "Series E Preferred Stock." The original issue price per share of the Series
E Preferred Stock shall be $100.00 (the "ORIGINAL ISSUE PRICE").
2. NON-TRANSFERABILITY. Series E Preferred Stock shall be
non-transferable because there does not exist an established trading market for
said stock and the Series E Preferred Stock may only be converted by the
original holder of the stock certificates evidencing ownership of such shares.
3. PARTICIPATING DIVIDENDS. In the event that the Board of Directors
shall declare a cash dividend payable upon the then outstanding shares of Common
Stock (other than a stock dividend on the Common Stock distributed solely in the
form of additional shares of Common Stock), the holders of the Series E
Preferred Stock shall be entitled to the amount of dividends on the Series E
Preferred Stock as would be declared payable on the largest number of whole
shares of Common Stock into which the shares of Series E Preferred Stock held by
each holder thereof could be converted pursuant to the provisions of Section 6
hereof, such number to be determined as of the record date for the determination
of holders of Common Stock entitled to receive such dividend. Such determination
of "whole shares" shall be based upon the aggregate number of shares of Series E
Preferred Stock held by each holder, and not upon each share of Series E
Preferred Stock so held by the holder.
4. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. In
the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, or in the event of its insolvency, before any
distribution or payment is made to any holders of Common Stock or any other
class or series of capital stock of the Corporation designated to be junior to
the Series E Preferred Stock (if any), and subject to the liquidation rights and
preferences of any class or series of preferred stock issued in the future and
designated by the Board of Directors to be senior to, or on a parity with the
Series E Preferred with respect to liquidation preferences, the holders of each
share of Series E Preferred Stock shall be entitled to be paid first out of the
assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes, whether such assets are capital,
surplus or earnings, an aggregate amount equal to $1,050,000 minus the aggregate
amount of all actual cash proceeds received from the sale of the Converted
Shares of Common Stock as that term is defined in Section 6(c)(i) (the
"LIQUIDATION VALUE"), which liquidation value shall be distributed pro rata to
the holders of the Series E Preferred Stock in proportion to the number of
shares held by each such holder of Series E Preferred Stock. The Series E
Preferred Stock will rank junior to all classes of preferred stock currently
outstanding but senior to the Common Stock.
If, upon liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of the Series E Preferred
Stock the full amounts to which they otherwise would be entitled, the holders of
Series E Preferred Stock shall share ratably in any distribution of available
assets pro rata in proportion to the respective liquidation preference amounts
which would otherwise be payable upon liquidation with respect to the
outstanding shares of the Series E Preferred Stock if all liquidation preference
amounts with respect to such shares were paid in full, based upon the aggregate
Liquidation Value payable upon all shares of Series E Preferred Stock then
outstanding.
After such payment shall have been made in full to the holders
of the Series E Preferred Stock, or funds necessary for such payment shall have
been set aside by the Corporation
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in trust for the account of holders of the Series E Preferred Stock so as to be
available for such payment, the remaining assets available for distribution
shall be distributed ratably among the holders of the Common Stock and any other
class or series of capital stock designated to be junior to the Series E
Preferred Stock (if any) in right of payment upon any liquidation, dissolution
or winding up of the Corporation.
The amounts set forth above shall be subject to equitable
adjustment by the Board of Directors whenever there shall occur a stock
dividend, stock split, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the capital
structure of the Series E Preferred Stock.
(b) DISTRIBUTIONS OTHER THAN CASH. Whenever the distributions
provided for in this Section shall be payable in property other than cash, the
value of such distribution shall be the fair market value of such property as
determined in good faith by the Board of Directors. All distributions (including
distributions other than cash) made hereunder shall be made pro rata to the
holders of Series E Preferred Stock.
(c) DESIGNATION OF SENIOR PREFERRED STOCK. The Corporation
shall not create or designate a series of preferred stock senior to the Series E
Preferred Stock if the sole purpose of such new series of preferred stock is the
acquisition of the capital stock or assets of another corporation in any
business combination where the Corporation is the acquiror. The Corporation may
create or designate a new series of preferred stock senior to or on a parity
with the Series E Preferred Stock if the purpose of such new series of preferred
stock is a financing for the Corporation's working capital obligations or
general corporate purposes.
5. VOTING POWER.
(a) GENERAL. Except as otherwise expressly provided in this
Section 5 or as otherwise required by the General Corporation Law of the State
of Delaware, each holder of Series E Preferred Stock shall be entitled to vote
on all matters 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 and
limitations of Section 5 hereof, at the record date for the determination of
stockholders entitled to vote on any matter or, if no such record date is
established, at the date such vote is taken or any written consent of
stockholders is solicited. Except as otherwise required by law, the holders of
shares of Series E Preferred Stock and Common Stock shall vote together (or
render written consents in lieu of a vote) as a single class on all matters
submitted to the stockholders of the Corporation.
Such determination of "whole shares" shall be based upon the
aggregate number of shares of Series E Preferred Stock held by each holder, and
not upon each share of Series E Preferred Stock so held by the holder.
6. CONVERSION RIGHTS. The holders of the Series E Preferred Stock shall
have the following rights with respect to the conversion of such shares into
shares of Common Stock:
(a) OPTIONAL CONVERSION. No shares of Series E Preferred Stock
held by any holder shall be convertible by such holder prior to three hundred
and sixty-five (365) days after the original date of issue of the Series E
Preferred Stock (the "ORIGINAL ISSUE DATE"). Beginning three hundred and
sixty-five (365) days after the Original Issue Date, each such holder of Series
E Preferred Stock shall have the right, at such holder's option, to convert
during any five (5) trading day period up to
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a maximum of 420 shares of Series E Preferred Stock held by such holder into
such number of fully paid and nonassessable shares of Common Stock as shall be
determined by multiplying the number of shares of Series E Preferred Stock to be
converted by a fraction, the numerator of which is the Original Issue Price, and
the denominator of which is the applicable Conversion Price (as defined below).
(b) "CONVERSION PRICE" shall equal the average of the closing
bid price of the Common Stock of the Corporation as reported in the National
Association of Securities Dealers Automated Quotation ("NASDAQ") system for the
SmallCap Market for the three (3) trading days immediately prior to the day of
the conversion.
(c) AUTOMATIC CANCELLATION OF PREFERRED STOCK.
(i) AUTOMATIC CANCELLATION. Subject to the
limitations set forth in Section 6(a) above, if a Series E Preferred Stock
holder converts Series E Preferred Stock into Common Stock (the "CONVERTED
SHARES OF COMMON STOCK") pursuant to this Section 6 and thereafter sells the
Converted Shares of Common Stock within five (5) trading days of the Conversion
Date as defined in Section 6(f), the dollar amount of the net proceeds from this
sale (after brokers' commissions and expenses but before payment of any tax
liabilities resulting from the sale) will be added to an account of the selling
Series E Preferred Stock holder(s), that for purposes of this section shall be
called the "STOCKHOLDER'S TOTAL VALUE ACCOUNT." If a Series E Preferred Stock
holder converts Series E Preferred Stock into Common Stock pursuant to Section 6
and thereafter does not sell the Converted Shares of Common Stock within five
(5) trading days of the Conversion Date, a dollar amount, equal to the
Conversion Price for such Converted Shares of Common Stock multiplied by the
number of such Converted Shares of Common Stock held in excess of five (5)
trading days, will be added to the Stockholder's Total Value Account. Once the
aggregate dollar amount of all Stockholders' Total Value Accounts exceeds
$1,050,000, any and all remaining, unconverted shares of Series E Preferred
Stock will be automatically canceled by the Corporation without consideration
(ii) EXAMPLE. By way of example and illustration of
the foregoing conversion mechanics, if a holder of Series E Preferred Stock
converts 420 shares of Series E Preferred Stock on the first day possible under
Section 6(a) above, at a Conversion Price of $1.00 (thereby receiving 42,000
shares of Common Stock) and resells all of those shares within the next five (5)
trading days at a sale price of $0.75 per share, $31,500 (a sale price of $0.75
multiplied by 42,000 shares sold), less any costs of the transaction (that is,
broker's commissions and expenses but not payment of any tax liability resulting
from the sale) will be added to the Stockholder's Total Value Account. If, after
waiting five (5) trading days the holder of Series E Preferred Stock converts
another 420 shares of Series E Preferred Stock, at a Conversion Price of $2.00
(thereby receiving 21,000 shares of Common Stock) and resells only 10,000 shares
within the next five (5) trading days at a sale price of $1.50 per share,
$15,000 (a sale price of $1.50 multiplied by 10,000 shares sold) less any costs
of the transaction will be added to the Stockholder's Total Value Account.
Additionally, $22,000 will be added to the Stockholder's Total Value Account
reflecting the 11,000 unsold shares of Common Stock valued at the $2.00
Conversion Price. This value applies because the shares of Common Stock were
held for more than five (5) trading days. Once the aggregate amount of all
Stockholders' Total Value Accounts reaches or exceeds $1,050,000, all the
remaining shares of unconverted Series E Preferred Stock will be automatically
canceled by the Corporation without any further action by the holder(s) of
Series E Preferred Stock.
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(iii) SURRENDER OF CERTIFICATES UPON AUTOMATIC
CANCELLATION. Upon the occurrence of the cancellation events specified in the
preceding paragraph (i), the holders of the Series E Preferred Stock shall, upon
notice from the Corporation, surrender the certificates representing such shares
at the office of the Corporation or of its transfer agent for the Common Stock.
(d) CAPITAL REORGANIZATION 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
capital stock, whether by capital reorganization, recapitalization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for elsewhere in this Section 6, or the sale of all
or substantially all of the Corporation's capital stock or assets to any other
person), then and in each such event the holders of Series E Preferred Stock
shall have the right thereafter to convert such shares into the kind and amount
of shares of capital stock and other securities and property receivable upon
such reorganization, recapitalization, reclassification or other change by the
holders of the number of shares of Common Stock into which such shares of Series
E Preferred Stock might have been converted immediately prior to such
reorganization, recapitalization, reclassification or change, all subject to
further adjustment as provided herein.
(e) 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, recapitalization,
reclassification or exchange of shares provided for elsewhere in this Section 6)
or a merger or consolidation of the Corporation with or into another corporation
(other than a merger or reorganization involving only a change in the state of
incorporation of the Corporation or the acquisition by the Corporation of other
businesses where the Corporation survives as a going concern), or the sale of
all or substantially all of the Corporation's capital stock or assets to any
other person, then, as a part of such reorganization, merger, or 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 total number of shares of stock or other securities or
property (including cash) of the Corporation, or of the successor corporation
resulting from such merger, consolidation or sale, to which such holder would
have been entitled if such holder had converted all of their shares of Series E
Preferred Stock into Common Stock at the Conversion Price (notwithstanding the
limitations on conversion set forth in Section 6(a) above).
(f) EXERCISE OF CONVERSION PRIVILEGE. To exercise its
conversion privilege in accordance with the time limitations of Section 6(a), a
holder of Series E Preferred Stock shall surrender the certificate(s)
representing the shares being converted to the Corporation at its principal
office, and shall give written notice to the Corporation 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(s) for shares of
Common Stock issuable upon such conversion shall be issued. The certificate(s)
for shares of Series E Preferred Stock surrendered for conversion shall be
accompanied by proper assignment thereof to the Corporation or in blank. The
date when such written notice is received by the Corporation, together with the
certificate(s) representing the shares of Series E Preferred Stock being
converted, shall be the "CONVERSION DATE." As promptly as practicable after the
Conversion Date, the Corporation 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(s) 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 6, and cash, as provided in
Section 6(g), 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
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the 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(s) in
whose name(s) any certificate(s) for shares of Common Stock shall be issuable
upon such conversion shall be deemed to have become the holder(s) of record of
the shares of Common Stock represented thereby.
(g) 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 Corporation shall pay to the holder of the 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 any fractional shares are issuable
shall be based upon the aggregate 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.
(h) PARTIAL CONVERSION. In the event some but not all of the
shares of Series E Preferred Stock represented by a certificate(s) surrendered
by a holder are converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series E Preferred Stock which were not
converted.
(i) RESERVATION OF COMMON STOCK. The Corporation 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 (including any shares of
Series E Preferred Stock represented by any warrants, options, subscription or
purchase rights for 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 (including any shares of Series E Preferred Stock represented by any
warrants, options, subscriptions or purchase rights for the Series E Preferred
Stock), the Corporation shall use all reasonable efforts and take such 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.
(j) NO REISSUANCE OF PREFERRED STOCK. Until the cancellation
of all issued and outstanding shares of Series E Preferred Stock as set forth in
Section 6(c) above, no share or shares of Series E Preferred Stock acquired by
the Corporation by reason of redemption, purchase, conversion or otherwise shall
be reissued, and all such shares shall be canceled, retired and eliminated from
the shares of Series E Preferred Stock which the Corporation shall be authorized
to issue. The Corporation shall from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of the Series E Preferred Stock. Any shares of Series E Preferred Stock so
canceled or retired may be added to the Corporation's reserve of authorized but
undesignated Preferred Stock.
7. NOTICES OF RECORD DATE. In the event of any:
(a) taking by the Corporation 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 capital stock of any
class or any other securities or property, or to receive any other right, or
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(b) capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other Corporation, or
any other entity or person, or
(c) voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation shall mail or cause to be mailed to
each holder 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 by
first class mail, postage prepaid, or by express overnight courier service, at
least ten (10) days prior to the date specified in such notice on which such
action is to be taken.
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F. DESCRIPTION AND DESIGNATION OF SERIES F PREFERRED STOCK
1. DESIGNATION. A total of 5,000 shares of the Corporation's previously
undesignated Preferred Stock, $.01 par value, shall be designated as the "Series
F Preferred Stock." The original issue price per share of the Series F Preferred
Stock shall be $100.00 (the "ORIGINAL ISSUE PRICE").
2. NON-TRANSFERABILITY. Series F Preferred Stock shall be
non-transferable because there does not exist an established trading market for
said stock and the Series F Preferred Stock may only be converted by the
original holder of the stock certificates evidencing ownership of such shares.
3. PARTICIPATING DIVIDENDS. In the event that the Board of Directors
shall declare a cash dividend payable upon the then outstanding shares of Common
Stock (other than a stock dividend on the Common Stock distributed solely in the
form of additional shares of Common Stock), the holders of the Series F
Preferred Stock shall be entitled to the amount of dividends on the Series F
Preferred Stock as would be declared payable on the largest number of whole
shares of Common Stock into which the shares of Series F Preferred Stock held by
each holder thereof could be converted pursuant to the provisions of Section 6
hereof, such number to be determined as of the record date for the determination
of holders of Common Stock entitled to receive such dividend. Such determination
of "whole shares" shall be based upon the aggregate number of shares of Series F
Preferred Stock held by each holder, and not upon each share of Series F
Preferred Stock so held by the holder.
4. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. In
the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, or in the event of its insolvency, before any
distribution or payment is made to any holders of Common Stock or any other
class or series of capital stock of the Corporation designated to be junior to
the Series F Preferred Stock (if any), and subject to the liquidation rights and
preferences of any class or series of preferred stock issued in the future and
designated by the Board of Directors to be senior to, or on a parity with the
Series F Preferred with respect to liquidation preferences, the holders of each
share of Series F Preferred Stock shall be entitled to be paid first out of the
assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes, whether such assets are capital,
surplus or earnings, an aggregate amount equal to $500,000, minus the aggregate
amount of all actual cash proceeds received from the sale of the Converted
Shares of Common Stock as that term is defined in Section 6(c)(i) (the
"LIQUIDATION VALUE"). The Liquidation Value shall be distributed pro rata to the
holders of the Series F Preferred Stock in proportion to the number of shares
held by each such holder of Series F Preferred Stock. The Series F Preferred
Stock will rank junior to all classes of preferred stock currently outstanding
but senior to the Common Stock (with the exception of the Series E Preferred
Stock, in which case the Series F Preferred Stock shall rank on a parity with
the Series E Preferred Stock).
If, upon liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of the Series F Preferred
Stock the full Liquidation Value to which they otherwise would be entitled, the
holders of Series F Preferred Stock shall share ratably in any distribution of
available assets pro rata in proportion to the respective Liquidation Value
amount which would otherwise be payable upon liquidation with respect to the
outstanding shares of the Series F Preferred Stock if all liquidation preference
amounts with respect to such shares were paid in full, based upon the aggregate
Liquidation Value amount payable upon all shares of Series F Preferred Stock
then outstanding.
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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 Corporation in trust for the account of holders of the
Series F Preferred Stock so as to be available for such payment, the remaining
assets available for distribution shall be distributed ratably among the holders
of the Common Stock and any other class or series of capital stock designated to
be junior to the Series F Preferred Stock (if any) in right of payment upon any
liquidation, dissolution or winding up of the Corporation.
The amounts set forth above shall be subject to equitable
adjustment by the Board of Directors whenever there shall occur a stock
dividend, stock split, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the capital
structure of the Series F Preferred Stock.
(b) DISTRIBUTIONS OTHER THAN CASH. Whenever the distributions
provided for in this Section shall be payable in property other than cash, the
value of such distribution shall be the fair market value of such property as
determined in good faith by the Board of Directors. All distributions (including
distributions other than cash) made hereunder shall be made pro rata to the
holders of Series F Preferred Stock.
(c) DESIGNATION OF SENIOR PREFERRED STOCK. Without the consent
of the holders of a majority of the outstanding shares of Series F Preferred
Stock, and during the period of time in which the Series F Preferred Stock is
outstanding, the Corporation shall not create or designate a series of preferred
stock senior to the Series F Preferred Stock if the sole purpose of such new
series of preferred stock is the acquisition of the capital stock or assets of
another corporation in any business combination where the Corporation is the
acquiror. The Corporation may create or designate a new series of preferred
stock senior to or on a parity with the Series F Preferred Stock if the purpose
of such new series of preferred stock is a financing for the Corporation's
working capital obligations or general corporate purposes (on a consolidated
basis).
5. VOTING POWER.
(a) GENERAL. Except as otherwise expressly provided in this
Section 5 or as otherwise required by the General Corporation Law of the State
of Delaware, each holder of Series F Preferred Stock shall be entitled to vote
on all matters 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 hereof (but determined as if all shares of the Series F Preferred
Stock could otherwise convert all of such Series F Preferred Stock into Common
Stock, notwithstanding the conversion limitations of Section 6(a) hereof) at the
record date for the determination of stockholders entitled to vote on any matter
or, if no such record date is established, at the date such vote is taken or any
written consent of stockholders is solicited. Except as otherwise expressly
required by law, the holders of shares of Series F Preferred Stock and Common
Stock shall vote together (or render written consents in lieu of a vote) as a
single class on all matters submitted to the stockholders of the Corporation.
Such determination of "whole shares" shall be based upon the
aggregate number of shares of Series F Preferred Stock held by each holder, and
not upon each share of Series F Preferred Stock so held by the holder.
6. CONVERSION RIGHTS. The holders of the Series F Preferred Stock
shall have the following rights with respect to the conversion of such shares
into shares of Common Stock:
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(a) OPTIONAL CONVERSION. No shares of Series F Preferred Stock
held by any holder shall be convertible by such holder prior to June 30, 1998.
Beginning on June 30, 1998, a maximum aggregate amount of 200 shares of Series F
Preferred Stock (calculated for all holders of Series F Preferred Stock) may be
convertible in any five (5) trading day period. Each holder of Series F
Preferred Stock shall have the right, at such holder's option, to convert the
shares of Series F Preferred Stock held by such holder (subject to the maximum
aggregate amount of 200 shares of Series F Preferred Stock convertible into
Common Stock during each five (5) day trading period) into such number of fully
paid and nonassessable shares of Common Stock as shall be determined by
multiplying the number of shares of Series F Preferred Stock to be converted by
a fraction, the numerator of which is the Original Issue Price, and the
denominator of which is the applicable Conversion Price (as defined below).
(b) "CONVERSION PRICE" shall equal the average of the closing
bid price of the Common Stock of the Corporation as reported in the National
Association of Securities Dealers Automated Quotation ("NASDAQ") system for the
SmallCap Market for the three (3) trading days immediately prior to the day of
the conversion.
(c) AUTOMATIC CANCELLATION OF PREFERRED STOCK.
(i) AUTOMATIC CANCELLATION. Subject to the
limitations set forth in Section 6(a) above, if a Series F Preferred Stock
holder converts Series F Preferred Stock into Common Stock (the "CONVERTED
SHARES OF COMMON STOCK") pursuant to this Section 6 and thereafter sells the
Converted Shares of Common Stock within five (5) trading days of the Conversion
Date as defined in Section 6(f), the dollar amount of the net proceeds from this
sale (after brokers' commissions and expenses but before payment of any tax
liabilities resulting from the sale) will be added to the account of the selling
holder(s) of Series F Preferred Stock that for purposes of this section shall be
called the following: (1) the "GDLP TOTAL VALUE ACCOUNT" (reflecting the
conversion of up to 1,500 shares of Series F Preferred Stock issued to Generic
Distributors Limited Partnership ("GDLP") in connection with a certain Asset
Purchase Agreement by and among DynaGen, Generic Distributors Incorporated,
GDLP, United Pharmacists Inc., and Mr. Donald Couvillon ("COUVILLON"), dated as
of December 15, 1997, as amended (the "ASSET PURCHASE AGREEMENT"); (2) the "GDLP
DEFICIENCY IN NET PROCEEDS TOTAL VALUE ACCOUNT" (reflecting the issuance of any
Additional Series F Shares (as that term is defined in Amendment No. 1 to the
Asset Purchase Agreement) to GDLP in connection with any Deficiency in Net
Proceeds, (as that term is defined in such Amendment No. 1); (3) the "COUVILLON
TOTAL VALUE ACCOUNT" (reflecting the conversion of up to 700 shares of Series F
Preferred Stock issued to Couvillon pursuant to the Asset Purchase Agreement);
and (4) the "JOHNSON TOTAL VALUE ACCOUNT" (reflecting the conversion of up to
700 shares of Series F Preferred Stock issued to Mr. Sidney Johnson ("JOHNSON")
pursuant to the Asset Purchase Agreement). The GDLP Total Value Account, the
GDLP Deficiency in Net Proceeds Total Value Account, the Couvillon Total Value
Account and the Johnson Total Value Account shall be collectively known as the
"STOCKHOLDERS' TOTAL VALUE ACCOUNTS".
If a holder of Series F Preferred Stock converts Series F Preferred
Stock into Common Stock pursuant to Section 6(a) and thereafter does not sell
the Converted Shares of Common Stock within five (5) trading days of the
Conversion Date, then a dollar amount, equal to the Conversion Price for such
Converted Shares of Common Stock multiplied by the number of such Converted
Shares of Common Stock held in excess of such five (5) trading days, will be
added to the applicable Stockholder's Total Value Account (that is, the GDLP
Total Value Account, the GDLP Deficiency in Net Proceeds Total Value Account,
the Couvillon Total Value Account or the Johnson Total Value Account, as the
case may be). Once the aggregate dollar amount of the GDLP Total Value Account
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equals or exceeds $100,000, any and all remaining unconverted shares of Series F
Preferred Stock held by GDLP (with the exception of any Additional Series F
Shares issued pursuant to Section 1.05(e) of the Asset Purchase Agreement) will
be automatically canceled by the Corporation without consideration. Once the
aggregate dollar amount of the GDLP Deficiency in Net Proceeds Total Value
Account equals or exceeds the Deficiency in Net Proceeds, any and all remaining
unconverted Additional Series F Shares held by GDLP will be automatically
canceled by the Corporation without consideration. Once the aggregate dollar
amount of the Couvillon Total Value Account exceeds $50,000, any and all
remaining, unconverted shares of Series F Preferred Stock held by Couvillon will
be automatically canceled by the Corporation without consideration. Once the
aggregate dollar amount of the Johnson Total Value Account exceeds $50,000, any
and all remaining, unconverted shares of Series F Preferred Stock held by
Johnson will be automatically canceled by the Corporation without consideration.
(ii) EXAMPLE. By way of example and illustration of
the foregoing conversion mechanics, if a holder of Series F Preferred Stock
converts 100 shares of Series F Preferred Stock on the first day eligible for
conversion under Section 6(a) above, at a Conversion Price of $1.00 (thereby
receiving 10,000 shares of Common Stock) and resells all of those shares within
the next five (5) trading days at a sale price of $0.75 per share, then $7,500
(a sale price of $0.75 multiplied by 10,000 shares sold), less any costs of the
transaction (that is, broker's commissions and expenses but not payment of any
tax liability resulting from the sale) will be added to the Stockholders' Total
Value Account. If, after waiting five (5) trading days, the holder of Series F
Preferred Stock converts another 100 shares of Series F Preferred Stock, at a
Conversion Price of $2.00 (thereby receiving 5,000 shares of Common Stock) but
resells only 2,500 of the 5,000 shares within the next five (5) trading days at
a sale price of $1.50 per share, then $3,750 (a sale price of $1.50 multiplied
by 2,500 shares of Common Stock sold) less any costs of the transaction will be
added to the Stockholder's Total Value Account. Additionally, $5,000 will be
added to the Stockholders' Total Value Account, reflecting the 2,500 unsold
shares of Common Stock valued at the $2.00 Conversion Price. This value applies
because the 2,500 shares of Common Stock were held, and not sold, for more than
five (5) trading days. Once the aggregate amount of the Stockholders' Total
Value Accounts reaches or exceeds amounts mentioned in Section 6(c)(i) above,
all the remaining shares of unconverted Series F Preferred Stock, held by that
holder will be automatically canceled in accordance with 6(c)(i) above, by the
Corporation without any further action by the holder(s) of Series F Preferred
Stock.
(iii) SURRENDER OF CERTIFICATES UPON AUTOMATIC
CANCELLATION. Upon the occurrence of the cancellation events specified in the
preceding paragraph (i), the holders of the Series F Preferred Stock shall, upon
notice from the Corporation, surrender the certificates representing such shares
at the office of the Corporation or of its transfer agent for the Common Stock.
(d) CAPITAL REORGANIZATION 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
capital stock, whether by capital reorganization, recapitalization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for elsewhere in this Section 6, or the sale of all
or substantially all of the Corporation's capital stock or assets to any other
person), then and in each such event the holders of Series F Preferred Stock
shall have the right thereafter to convert such shares into the kind and amount
of shares of capital stock and other securities and property receivable upon
such reorganization, recapitalization, reclassification or other change by the
holders of the number of shares of Common Stock into which such shares of Series
F Preferred Stock might have been
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converted immediately prior to such reorganization, recapitalization,
reclassification or change, all subject to further adjustment as provided
herein.
(e) 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, recapitalization,
reclassification or exchange of shares provided for elsewhere in this Section 6)
or a merger or consolidation of the Corporation with or into another corporation
(other than a merger or reorganization involving only a change in the state of
incorporation of the Corporation or the acquisition by the Corporation of other
businesses where the Corporation survives as a going concern), or the sale of
all or substantially all of the Corporation's capital stock or assets to any
other person, then, as a part of such reorganization, merger, or 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 total number of shares of stock or other securities or
property (including cash) of the Corporation, or of the successor corporation
resulting from such merger, consolidation or sale, to which such holder would
have been entitled if such holder had converted all of their shares of Series F
Preferred Stock into Common Stock at the Conversion Price (notwithstanding the
limitations on conversion set forth in Section 6(a) above).
(f) EXERCISE OF CONVERSION PRIVILEGE. To exercise its
conversion privilege in accordance with the time limitations of Section 6(a), a
holder of Series F Preferred Stock shall surrender the certificate(s)
representing the shares being converted to the Corporation at its principal
office, and shall give written notice to the Corporation 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(s) for shares of
Common Stock issuable upon such conversion shall be issued. The certificate(s)
for shares of Series F Preferred Stock surrendered for conversion shall be
accompanied by proper assignment thereof to the Corporation or in blank. The
date when such written notice is received by the Corporation, together with the
certificate(s) representing the shares of Series F Preferred Stock being
converted, shall be the "CONVERSION DATE." As promptly as practicable after the
Conversion Date, the Corporation 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(s) 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, and cash, as provided in
Section 6(g), 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 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(s) in whose name(s) any
certificate(s) for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder(s) of record of the shares of Common
Stock represented thereby.
(g) 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 Corporation 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 any fractional shares are issuable
shall be based upon the aggregate 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.
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(h) PARTIAL CONVERSION. In the event some but not all of the
shares of Series F Preferred Stock represented by a certificate(s) surrendered
by a holder are converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series F Preferred Stock which were not
converted.
(i) RESERVATION OF COMMON STOCK. The Corporation 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 (including any shares of
Series F Preferred Stock represented by any warrants, options, subscription or
purchase rights for 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 (including any shares of Series F Preferred Stock represented by any
warrants, options, subscriptions or purchase rights for the Series F Preferred
Stock), the Corporation shall use all reasonable efforts and take such 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.
(j) NO REISSUANCE OF PREFERRED STOCK. Until the cancellation
of all issued and outstanding shares of Series F Preferred Stock as set forth in
Section 6(c) above, no share or shares of Series F Preferred Stock acquired by
the Corporation by reason of redemption, purchase, conversion or otherwise shall
be reissued, and all such shares shall be canceled, retired and eliminated from
the shares of Series F Preferred Stock which the Corporation shall be authorized
to issue. The Corporation shall from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of the Series F Preferred Stock. Any shares of Series F Preferred Stock so
canceled or retired may be added to the Corporation's reserve of authorized but
undesignated Preferred Stock.
7. NOTICES OF RECORD DATE. In the event of any:
(a) taking by the Corporation 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 capital stock of any
class or any other securities or property, or to receive any other right, or
(b) capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other Corporation, or
any other entity or person, or
(c) voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation 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,
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transfer, consolidation, merger, dissolution, liquidation or winding up. Such
notice shall be mailed by first class mail, postage prepaid, or by express
overnight courier service, at least ten (10) days prior to the date specified in
such notice on which such action is to be taken.
G. DESCRIPTION AND DESIGNATION OF SERIES G PREFERRED STOCK
1. DESIGNATION AND DEFINITIONS.
(a) DESIGNATION. A total of 10,000 shares of the Corporation's
previously undesignated Preferred Stock, $.01 par value, shall be designated as
the "SERIES G PREFERRED STOCK." The original issue price per share of the Series
G Preferred Stock shall be $100.00 (the "ORIGINAL ISSUE PRICE").
(b) CERTAIN DEFINITIONS. As used herein, the following terms,
unless the context otherwise requires, have the following respective meanings:
(i) "COMMON STOCK" means the Common Stock, $.01 par
value of the Corporation.
(ii) "CONVERSION DATE" means the date on which the
Corporation receives written notice together with the certificate(s)
representing the shares of Series G Preferred Stock being converted in
accordance with Section 5(f) hereof, from a holder of Series G Preferred Stock
that such holder elects to convert shares of its Series G Preferred Stock.
(iii) "CONVERSION PRICE" means the average of the
closing bid price of the Common Stock of the Corporation as reported by the
Nasdaq SmallCap Market or Nasdaq National Market or, if the Corporation's Common
Stock is no longer traded on a Nasdaq market, such other exchange on which the
Corporation's Common Stock is then traded, for the three (3) trading days
immediately preceding any holder's Conversion Date.
(iv) "NET PROCEEDS" means an amount equal to the
dollar amount realized by any holder of Series G Preferred Stock upon the sale
of Converted Shares of Common Stock (as defined below in Section 5(b)), minus 2%
of such dollar amount to account for any commissions and fees related to the
sale of such Converted Shares of Common Stock.
(v) "ORIGINAL ISSUE DATE" means the date upon which
each holder of Series G Preferred Stock first receives shares of Series G
Preferred Stock from the Corporation. With respect to each such holder, this
date will be that holder's Original Issue Date.
(vi) " AVERAGE DAILY TRADING VOLUME" means the
average of the daily trading volume of the Common Stock of the Corporation as
reported by the Nasdaq SmallCap Market or Nasdaq National Market or, if the
Corporation's Common Stock is no longer traded on a Nasdaq market, such other
exchange on which the Corporation's Common Stock is then traded, for the three
(3) trading days immediately preceding any holder's Conversion Date.
2. DIVIDENDS.
(a) STATED DIVIDEND. Commencing on the Original Issue Date and
continuing thereafter until there are no shares of Series G Preferred Stock
outstanding, each holder of Series G Preferred Stock will be entitled to receive
a dividend of Six Dollars ($6.00) per share per annum (the "SERIES G STATED
DIVIDEND"). The Series G Stated Dividend shall be payable on the last day of
each month after the Original Issue Date. Stated Dividends shall be payable by
the Corporation in cash or
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Common Stock of the Corporation, at the sole discretion of the Corporation,
whether or not earned or declared.
(b) DECLARED DIVIDENDS. In the event that the Board of Directors shall
declare a cash dividend payable upon the then outstanding shares of Common Stock
(other than a stock dividend on the Common Stock distributed solely in the form
of additional shares of Common Stock), the holders of the Series G Preferred
Stock shall be entitled to the amount of dividends on the Series G Preferred
Stock as would be declared payable on the largest number of whole shares of
Common Stock into which the shares of Series G Preferred Stock held by each
holder thereof could be converted pursuant to the provisions of Section 5
hereof, such number to be determined as of the record date for the determination
of holders of Common Stock entitled to receive such dividend. Such determination
of "whole shares" shall be based upon the aggregate number of shares of Series G
Preferred Stock held by each holder, and not upon each share of Series G
Preferred Stock so held by the holder.
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. In the event
of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, or in the event of its insolvency, before any
distribution or payment is made to any holders of Common Stock or any other
class or series of capital stock of the Corporation designated to be junior to
the Series G Preferred Stock (if any), and subject to the liquidation rights and
preferences of any class or series of preferred stock issued in the future and
designated by the Board of Directors to be senior to, or on a parity with the
Series G Preferred Stock with respect to liquidation preferences, the holders of
each share of Series G Preferred Stock shall be entitled to be paid first out of
the assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes, whether such assets are capital,
surplus or earnings, an aggregate amount equal to the number of unconverted
shares of Series G Preferred Stock then held by such holder multiplied by $100,
minus the aggregate amount of all actual cash proceeds received from the sale of
the Converted Shares of Common Stock as that term is defined in Section 5(c)(i)
(the "LIQUIDATION VALUE"). The Liquidation Value shall be distributed pro rata
to the holders of the Series G Preferred Stock in proportion to the number of
shares held by each such holder of Series G Preferred Stock. The Series G
Preferred Stock will rank junior to all classes of preferred stock currently
outstanding or hereafter created but senior to the Common Stock.
If, upon liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation available for distribution to its stockholders shall
be insufficient to pay the holders of the Series G Preferred Stock the full
Liquidation Value to which they otherwise would be entitled, the holders of
Series G Preferred Stock shall share ratably in any distribution of available
assets pro rata in proportion to the respective Liquidation Value amount which
would otherwise be payable upon liquidation with respect to the outstanding
shares of the Series G Preferred Stock if all liquidation preference amounts
with respect to such shares were paid in full, based upon the aggregate
Liquidation Value amount payable upon all shares of Series G Preferred Stock
then outstanding.
After such payment shall have been made in full to the holders of the
Series G Preferred Stock, or funds necessary for such payment shall have been
set aside by the Corporation in trust for the account of holders of the Series G
Preferred Stock so as to be available for such payment, the remaining assets
available for distribution shall be distributed ratably among the holders of the
Common Stock and any other class or series of capital stock designated to be
junior to the Series G Preferred Stock (if any) in right of payment upon any
liquidation, dissolution or winding up of the Corporation.
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The amounts set forth above shall be subject to equitable
adjustment by the Board of Directors whenever there shall occur a stock
dividend, stock split, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the capital
structure of the Series G Preferred Stock.
(b) DISTRIBUTIONS OTHER THAN CASH. Whenever the distributions provided
for in this Section shall be payable in property other than cash, the value of
such distribution shall be the fair market value of such property as determined
in good faith by the Board of Directors. All distributions (including
distributions other than cash) made hereunder shall be made pro rata to the
holders of Series G Preferred Stock.
4. VOTING POWER.
(a) GENERAL. The Series G Preferred Stock shall have no voting rights.
5. CONVERSION RIGHTS. The holders of the Series G Preferred Stock shall
have the following rights with respect to the conversion of such shares into
shares of Common Stock:
(a) OPTIONAL CONVERSION. No shares of Series G Preferred Stock held by
any holder shall be convertible by such holder prior to ninety (90) days after
the Original Issue Date. Beginning ninety (90) days after the Original Issue
Date, each holder of Series G Preferred Stock shall be entitled to convert (i)
100 shares of Series G Preferred Stock, or (ii) 5% of the Average Daily Trading
Volume of the Common Stock of DynaGen, Inc., whichever amount shall be larger,
in any three (3) day trading period. Each holder of Series G Preferred Stock
shall have the right, at such holder's option, to convert the shares of Series G
Preferred Stock held by such holder (subject to the maximum aggregate amount
convertible into Common Stock during each three (3) day trading period, as set
forth above in this Section 5(a)) into such number of fully paid and
nonassessable shares of Common Stock as shall be determined by multiplying the
number of shares of Series G Preferred Stock to be converted by a fraction, the
numerator of which is the Original Issue Price, and the denominator of which is
the applicable Conversion Price.
(b) AUTOMATIC CANCELLATION OF PREFERRED STOCK.
(i) AUTOMATIC CANCELLATION. Subject to the limitations set
forth in Section 5(a) above, if a holder of Series G Preferred Stock converts
Series G Preferred Stock into Common Stock (the "CONVERTED SHARES OF COMMON
STOCK") pursuant to this Section 5 and thereafter sells the Converted Shares of
Common Stock within two (2) trading days of the Conversion Date, the Net
Proceeds from this sale will be added to the account of the selling holder(s) of
Series G Preferred Stock that for purposes of this section shall be called the
"STOCKHOLDER'S TOTAL VALUE ACCOUNT." If a holder of Series G Preferred Stock
converts Series G Preferred Stock into Common Stock pursuant to Section 5(a) and
thereafter does not sell the Converted Shares of Common Stock within two (2)
trading days of the Conversion Date, then a dollar amount, equal to the
Conversion Price for such Converted Shares of Common Stock multiplied by the
number of such Converted Shares of Common Stock held in excess of such two (2)
trading days, will be added to the applicable Stockholder's Total Value Account.
Once the aggregate dollar amount of the Stockholder's Total Value Account equals
or exceeds an amount equal to the number of shares of Series G Preferred Stock
issued by the Corporation on the $550,000, any and all remaining unconverted
shares of Series G Preferred Stock will be automatically canceled by the
Corporation without consideration.
(ii) EXAMPLE. By way of example and illustration of the
foregoing conversion mechanics, if a holder of Series G Preferred Stock converts
100 shares of Series G Preferred Stock on the first day eligible for conversion
under Section 5(a) above, at a Conversion Price of $1.00
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(thereby receiving 10,000 shares of Common Stock) and resells all of those
shares within the next two (2) trading days at a sale price of $0.75 per share,
then a Net Proceeds amount of $7,350, (a sale price of $0.75 multiplied by
10,000 shares sold, or $7,500, less 2% of the proceeds to account for costs of
the transaction, or $150) will be added to the Stockholders' Total Value
Account. If, after waiting five (5) trading days, the holder of Series G
Preferred Stock converts another 100 shares of Series G Preferred Stock, at a
Conversion Price of $2.00 (thereby receiving 5,000 shares of Common Stock) but
resells only 2,500 of the 5,000 shares within the next two (2) trading days at a
sale price of $1.50 per share, then a Net Proceeds amount of $3,675 (a sale
price of $1.50 multiplied by 2,500 shares of Common Stock sold, or $3,750, less
2% of the proceeds to account for costs of the transaction, or $75) will be
added to the Stockholder's Total Value Account. Additionally, $5,000 will be
added to the Stockholders' Total Value Account, reflecting the 2,500 unsold
shares of Common Stock valued at the $2.00 Conversion Price. This value applies
because the 2,500 shares of Common Stock were held, and not sold, for more than
two (2) trading days. Once the aggregate amount of the Stockholders' Total Value
Accounts reaches or exceeds $550,000, all the remaining shares of unconverted
Series G Preferred Stock will be automatically canceled in accordance with
5(b)(i) above, by the Corporation without any further action by the holder(s) of
Series G Preferred Stock.
(iii) SURRENDER OF CERTIFICATES UPON AUTOMATIC CANCELLATION.
Upon the occurrence of the cancellation events specified in the preceding
paragraph (i), the holders of the Series G Preferred Stock shall, upon notice
from the Corporation, surrender the certificates representing such shares at the
office of the Corporation or of its transfer agent for the Common Stock.
(c) CAPITAL REORGANIZATION OR RECLASSIFICATION. If the Common Stock
issuable upon the conversion of the Series G Preferred Stock shall be changed
into the same or different number of shares of any class or classes of capital
stock, whether by capital reorganization, recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for elsewhere in this Section 5, or the sale of all or substantially
all of the Corporation's capital stock or assets to any other person), then and
in each such event the holders of Series G Preferred Stock shall have the right
thereafter to convert such shares into the kind and amount of shares of capital
stock and other securities and property receivable upon such reorganization,
recapitalization, reclassification or other change by the holders of the number
of shares of Common Stock into which such shares of Series G Preferred Stock
might have been converted immediately prior to such reorganization,
recapitalization, reclassification or change, all subject to further adjustment
as provided herein.
(d) 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, recapitalization, reclassification or
exchange of shares provided for elsewhere in this Section 5) or a merger or
consolidation of the Corporation with or into another corporation (other than a
merger or reorganization involving only a change in the state of incorporation
of the Corporation or the acquisition by the Corporation of other businesses
where the Corporation survives as a going concern), or the sale of all or
substantially all of the Corporation's capital stock or assets to any other
person, then, as a part of such reorganization, merger, or consolidation or
sale, provision shall be made so that the holders of the Series G Preferred
Stock shall thereafter be entitled to receive upon conversion of the Series G
Preferred Stock the total number of shares of stock or other securities or
property (including cash) of the Corporation, or of the successor corporation
resulting from such merger, consolidation or sale, to which such holder would
have been entitled if such holder
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had converted all of their shares of Series G Preferred Stock into Common Stock
at the Conversion Price (notwithstanding the limitations on conversion set forth
in Section 5(a) above).
(e) EXERCISE OF CONVERSION PRIVILEGE. To exercise its conversion
privilege in accordance with the time limitations of Section 5(a), a holder of
Series G Preferred Stock shall surrender the certificate(s) representing the
shares being converted to the Corporation at its principal office, and shall
give written notice to the Corporation 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(s) for shares of Common Stock
issuable upon such conversion shall be issued. The certificate(s) for shares of
Series G Preferred Stock surrendered for conversion shall be accompanied by
proper assignment thereof to the Corporation or in blank. As promptly as
practicable after the Conversion Date, the Corporation shall issue and shall
deliver to the holder of the shares of Series G Preferred Stock being converted,
or on its written order, such certificate(s) as it may request for the number of
whole shares of Common Stock issuable upon the conversion of such shares of
Series G Preferred Stock in accordance with the provisions of this Section 5,
and cash, as provided in Section 5(f), 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 Conversion
Date, and at such time the rights of the holder as holder of the converted
shares of Series G Preferred Stock shall cease and the person(s) in whose
name(s) any certificate(s) for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder(s) of record of the
shares of Common Stock represented thereby.
(f) 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 G Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Series G Preferred Stock, the Corporation shall pay to the holder of the shares
of Series G 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 a member of the Board of Directors) at the close of business on
the Conversion Date. The determination as to whether or not any fractional
shares are issuable shall be based upon the aggregate number of shares of Series
G Preferred Stock being converted at any one time by any holder thereof, not
upon each share of Series G Preferred Stock being converted.
(g) PARTIAL CONVERSION. In the event some but not all of the shares of
Series G Preferred Stock represented by a certificate(s) surrendered by a holder
are converted, the Corporation shall execute and deliver to or on the order of
the holder, at the expense of the Corporation, a new certificate representing
the number of shares of Series G Preferred Stock which were not converted.
(h) RESERVATION OF COMMON STOCK. The Corporation 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 G 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 G Preferred Stock (including any shares of Series G
Preferred Stock represented by any warrants, options, subscription or purchase
rights for the Series G 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 G Preferred Stock
(including any shares of Series G Preferred Stock represented by any warrants,
options, subscriptions or purchase rights for the Series G Preferred Stock), the
Corporation shall use all reasonable efforts and take such 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.
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(i) NO REISSUANCE OF PREFERRED STOCK. Until the cancellation or
redemption of all issued and outstanding shares of Series G Preferred Stock as
set forth in Sections 5(b) above and 6(a) below, respectively, no share or
shares of Series G Preferred Stock acquired by the Corporation by reason of
redemption, purchase, conversion or otherwise shall be reissued, and all such
shares shall be canceled, retired and eliminated from the shares of Series G
Preferred Stock which the Corporation shall be authorized to issue. The
Corporation shall from time to time take such appropriate corporate action as
may be necessary to reduce the authorized number of shares of the Series G
Preferred Stock. Any shares of Series G Preferred Stock so canceled or retired
may be added to the Corporation's reserve of authorized but undesignated
Preferred Stock.
6. REDEMPTION. The shares of Series G Preferred Stock shall be redeemed
as follows:
(a) OPTIONAL REDEMPTION. At any time after the Original Issue Date and
at the sole discretion of the Corporation, the Corporation may redeem from each
holder of shares of Series G Preferred Stock, any number of shares of Series G
Preferred Stock as so determined by the Corporation.
(b) REDEMPTION PRICE AND PAYMENT. The Series G Preferred Stock shall be
redeemed by paying for each share in cash an amount equal to the Original Issue
Price for each such share (the "REDEMPTION PRICE"). Any amount paid by the
Corporation to the holders of Series G Preferred Stock pursuant to a redemption
under this Section 6 shall be added to the Stockholder's Total Value Account
described above in Section 5(b)(i) and such amount shall be used in calculating
the automatic cancellation provisions of Section 5(b).
(c) REDEMPTION MECHANICS. At least three (3) but not more than twenty
(20) days prior to any Optional Redemption by the Corporation, written or oral
notice (the "REDEMPTION NOTICE") shall be given by the Corporation
telephonically or by mail or facsimile transmission, to each holder of record
(at the close of business on the business day next preceding the day on which
the Redemption Notice is given) of shares of Series G Preferred Stock notifying
such holder of the redemption, the number of shares to be redeemed, the total
amount to be paid by the Corporation for such redemption, the place where said
Redemption Price shall be paid and the date upon which such shares shall be
redeemed (the "REDEMPTION DATE"). The Redemption Notice shall be addressed to
each holder at the address of such holder as shown by the records of the
Corporation. From and after the close of business on the Redemption Date, unless
there shall have been a default in the payment of the Redemption Price, all
rights of holders of shares of Series G Preferred Stock shall cease with respect
to such shares, and such shares shall not thereafter be transferred on the books
of the Corporation or be deemed to be outstanding for any purpose whatsoever.
7. NOTICES OF RECORD DATE. In the event of any:
(a) taking by the Corporation 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 capital stock of any
class or any other securities or property, or to receive any other right, or
(b) capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other Corporation, or any other entity or
person, or
(c) voluntary or involuntary dissolution, liquidation or winding up of
the Corporation,
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then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Series G 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 by
first class mail, postage prepaid, or by express overnight courier service, at
least ten (10) days prior to the date specified in such notice on which such
action is to be taken.
H. DESCRIPTION AND DESIGNATION OF SERIES H PREFERRED STOCK
a. DESIGNATION AND DEFINITIONS.
i. DESIGNATION. A total of 20,000 shares of the Corporation's
previously undesignated Preferred Stock, $.01 par value, shall be designated as
the "Series H. Preferred Stock." The original issue price per share of the
Series H Preferred Stock shall be $100 (the "ORIGINAL ISSUE PRICE").
ii. CERTAIN DEFINITIONS. As used herein, the following terms,
unless the context otherwise requires, have the following respective meanings:
(1) "AVERAGE QUOTED PRICE" means the average of the
closing bid price of the Common Stock of the Corporation as reported by the
Nasdaq SmallCap Market or Nasdaq National Market or if the Corporation's Common
Stock is no longer traded on a Nasdaq market, such other exchange on which the
Corporation's Common Stock is then traded, for the five (5)Trading Days
immediately preceding any holder's Conversion Date, the Mandatory Redemption
Date or the date of the consummation or closing of a Fundamental Change, as a
the case may be.
(2) "COMMON STOCK" means the common stock, par value
$.01 per share, of the Corporation
(3) "CONVERSION DATE" means (a) three days after each
date on which the Corporation receives by telecopy written notice in accordance
with Section 5(g) hereof from a holder of Series H Preferred Stock that such
holder elects to convert shares of its Series H Preferred Stock or (b) the
Second Anniversary of the date hereof (in the case of a Mandatory Conversion).
(4) "CONVERSION PRICE" means 67% of the Average
Quoted Price.
(5) "FUNDAMENTAL CHANGE" means: (i) any sale, lease,
exchange or other transfer of all or substantially all of the assets of the
Corporation; or (ii) any merger or consolidation to which the Corporation is a
party. Notwithstanding the foregoing, the following shall not be a Fundamental
Change: A merger of consolidation (a) to which the Corporation is a party; (b)
in which it is the surviving corporation and there is no resulting
reclassification of the outstanding Common Stock; and (c) after giving effect to
which, persons who were, immediately before the consummation or closing of such
merger or consolidation, holders of outstanding Common Stock will be the direct
or indirect owners of securities of the Corporation possessing, on a fully
diluted basis, at least fifty-one percent (51%) of the voting power of all
voting securities of the Corporation (excluding, for purposes of such
computation, any such person who also is a party to such merger or
consolidation).
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(6) "ISSUE DATE" means, with respect to each share of
Series H Preferred Stock held by any holder, the date on which the Corporation
originally issued such share to such holder (regardless of the number of times
transfer of such share is made on the stock transfer books maintained by or for
the Corporation, and regardless of the number of certificates which may be
issued to evidence such share, and irrespective of any subsequent transfer or
other disposition of such share to any other holder).
(7) "TRADING DAY" means a day on which the principal
national securities exchange on which the Common Stock is listed or admitted to
trading is open for the transaction of business; or, if the Common Stock is not
listed or admitted to trading on any national securities exchange but is listed
on the Nasdaq system (or such other trading system then in use by the National
Association of Securities Dealers, Inc.), a day on which such system is open for
the transaction of business; or, if the foregoing does not apply, any Business
Day.
b. DIVIDENDS. Except as expressly provided herein the holders of shares
of Series H Preferred Stock shall not be entitled to dividends.
i. DECLARED DIVIDENDS ON COMMON STOCK. If the Board of
Directors shall declare a cash dividend payable upon the then outstanding shares
of Common Stock (other than a stock dividend on the Common Stock distributed
solely in the form of additional shares of Common Stock), the holders of the
Series H Preferred Stock shall be entitled to the amount of dividends on the
Series H Preferred Stock as would be declared payable on the largest number of
whole shares of Common Stock into which the shares of Series H Preferred Stock
held by each holder thereof could be converted pursuant to the provisions of
Section 5 hereof, such number determined as of the record date for the
determination of holders of Common Stock entitled to receive such dividend. Such
determination of "whole shares" shall be based upon the aggregate number of
shares of Series H Preferred Stock held by each holder, and not upon each share
of Series H Preferred Stock so held by the holder.
ii. DIVIDENDS ON OTHER SECURITIES. The Board of Directors may
declare and the Corporation may pay or set apart for payment, or cause the
accrual of, stated or cumulative dividends and other distributions on any other
series of preferred stock, and may purchase or otherwise redeem any of the same
(or any warrants, rights, options or other securities exercisable therefor or
convertible or exchangeable therein), and the holders of Series H Preferred
Stock shall not be entitled to share therein.
c. LIQUIDATION, DISSOLUTION OR WINDING UP.
i. TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. In the
event of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, or in the event of its insolvency, before any
distribution or payment is made to any holders of Common Stock or any other
class or series of capital stock of the Corporation designated to be junior to
the Series H Preferred Stock, and subject to the liquidation rights and
preferences of any class or series of Preferred Stock designated by the Board of
Directors in the future to be senior to or on a parity with the Series H
Preferred Stock with respect to liquidation preferences, the holder of each
share of Series H Preferred Stock shall be entitled to be paid first out of the
assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes, whether such assets are capital,
surplus or earnings, an amount equal to the Original Issue Price per share of
Series H Preferred Stock held by any holder, plus the Preferred Dividend
accruing to the Series H Preferred
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Stock pursuant to Section 2 above (the "LIQUIDATION VALUE"). For purposes
hereof, the Series H Preferred Stock shall rank on liquidation junior to the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock, the Series D Preferred Stock, the Series E Preferred Stock, the Series F
Preferred Stock and the Series G Preferred Stock.
If, upon liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation available for distribution to its stockholders shall
be insufficient to pay the holders of the Series H Preferred Stock the full
amount to which they otherwise would be entitled, the holders of Series H
Preferred Stock shall share ratably in any distribution of available assets pro
rata in proportion to the respective liquidation preference amounts which would
otherwise be payable upon liquidation with respect to the outstanding shares of
the Series H Preferred Stock if all liquidation preference amounts with respect
to such shares were paid in full, based upon the aggregate Liquidation Value
payable upon all shares of Series H Preferred Stock then outstanding.
After such payment shall have been made in full to the holders of the
Series H Preferred Stock, or funds necessary for such payment shall have been
set aside by the Corporation in trust for the account of holders of the Series H
Preferred Stock so as to be available for such payment, the remaining assets
available for distribution shall be distributed ratably among the holders of the
Common Stock and any class or series of capital stock designated to be junior to
the Series H Preferred Stock (if any) in right of payment upon any liquidation,
dissolution or winding up of the Corporation.
The amounts set forth above shall be subject to equitable adjustment by
the Board of Directors whenever there shall occur a stock dividend, stock split,
combination, reorganization, recapitalization, reclassification or other similar
event involving a change in the capital structure of the Series H Preferred
Stock.
ii. DISTRIBUTIONS OTHER THAN CASH. Whenever the distributions
provided for in this Section shall be payable in property other than cash, the
value of such distribution shall be the fair market value of such property as
determined in good faith by the Board of Directors. All distributions (including
distributions other than cash) made hereunder shall be made pro rata to the
holders of Series H Preferred Stock.
iii. EVENTS NOT DEEMED A LIQUIDATION. Neither the merger or
consolidation of the Corporation into or with any other corporation(s), nor the
sale or transfer by the Corporation of all or any part of its assets, nor the
reduction of the capital stock of the Corporation, will be deemed to be a
liquidation, dissolution or winding up of the Corporation under this Section 3.
D. VOTING POWER.
i. GENERAL. Except as otherwise required by the General
Corporation Law of the State of Delaware, the Series H Preferred Stock shall not
be entitled to vote on any matter.
ii. AMENDMENTS TO CHARTER. For so long as there are any shares
of Series H Preferred Stock outstanding, the Corporation shall not amend its
Certificate of Incorporation or this Certificate of Designation without the
approval, by vote or written consent, of the holders of at least a majority of
the then outstanding shares of Series H Preferred Stock, voting together as a
class, each share of Series H Preferred Stock to be entitled to one vote in each
instance, if such amendment would adversely affect the rights of the holders of
Series H Preferred Stock; provided that the creation, or increase in the
authorized number of shares, of any class or series of stock ranking prior to or
on a parity with the Series H Preferred Stock either as to dividends or upon
liquidation shall not
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be deemed to adversely affect the rights of the holders of Series H Preferred
Stock for purposes of this Section 4(b).
e. CONVERSION RIGHTS,
i. CONVERSION. Subject to Section 6 and as provided elsewhere
in this Section 5, each holder of Series H Preferred Stock shall have the right,
at such holder's option, to convert at any time after one year from the date
hereof any of the shares of Series H Preferred Stock held by such holder into
such number of fully paid and nonassessable shares of Common Stock as shall be
determined by multiplying the number of shares of Series H Preferred Stock to be
converted by a fraction, the numerator of which is the Original Issue Price, and
the denominator of which is the applicable Conversion Price; provided that in no
event shall any holder of Series H Preferred Stock convert more than twenty
percent (20%) of such holder's shares of Series H Preferred Stock in any period
of seven (7) consecutive days. On the second anniversary of the date hereof, all
outstanding shares of Series H Preferred Stock shall automatically be converted
into such number of fully paid and non-assessable shares of Common Stock as
shall be determined by multiplying the number of shares of Series H Preferred
Stock to be converted by a fraction, the numerator of which is the Original
Issue Price, and the denominator of which is the applicable Conversion Price.
ii. LIMITATION ON NUMBER OF SHARES. Additionally,
notwithstanding anything set forth in this Section 5 to the contrary, and except
as provided in this Section 5(b), in no event shall any holder of Series H
Preferred Stock, prior to earlier to occur of the delivery of a Mandatory
Redemption Notice or the date of the consummation or closing of a Fundamental
Change, be entitled to convert Series H Preferred Stock into shares of Common
Stock to the extent that such conversions when taken together with all other
conversions of shares of Series H Preferred Stock shall exceed 19.9% of the
issued and outstanding shares of Common Stock of the Corporation on the date
hereof; provided that if such conversions exceed 19.9% the Corporation at its
sole option shall either (i) redeem any shares of Series H Preferred Stock
submitted for conversion in excess of 19.9% for an amount equal to 150% of the
Original Issue Price, (ii) obtain approval of its stockholders for the issuance
of such additional shares of Common Stock or (iii) do a combination of any of
the foregoing. Notwithstanding the foregoing, upon the delivery of a Mandatory
Redemption Notice or upon the consummation or closing of a Fundamental Change,
all such shares of Series H Preferred Stock then outstanding shall be converted
into Common Stock in accordance with Section 5 or Section 6, as applicable.
iii. DIVIDENDS OTHER THAN COMMON STOCK DIVIDENDS. In the event
the Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock entitled to receive a dividend or other
distribution (other than a distribution in liquidation or other distribution
otherwise provided for herein) with respect to the Common Stock payable in (i)
securities of the Corporation other than shares of Common Stock or (ii) other
assets (excluding cash dividends or distributions), then and in each such event
provision shall be made so that the holders of the Series H Preferred Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the number of securities or such other assets
of the Corporation which they would have received had their Series H Preferred
Stock been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
Conversion Date, retained such securities or such other assets receivable by
them during such period, giving application to all other adjustments called for
during such period under this Section 5 with respect to the rights of the
holders of the Series H Preferred Stock.
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iv. CAPITAL REORGANIZATION OR RECLASSIFICATION. If the Common
Stock issuable upon the conversion of the Series H Preferred Stock shall be
changed into the same or different number of shares of any class or classes of
capital stock, whether by capital reorganization, recapitalization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for elsewhere in this Section 5, or the sale of all
or substantially all of the Corporation's capital stock or assets to any other
person), then and in each such event the holders of Series H Preferred Stock
shall have the right thereafter to convert such shares into the kind and amount
of shares of capital stock and other securities and property receivable upon
such reorganization, recapitalization, reclassification or other change by the
holders of the number of shares of Common Stock into which such shares of Series
H Preferred Stock might have been converted immediately prior to such
reorganization, recapitalization, reclassification or change, all subject to
further adjustment as provided herein.
v. MANDATORY CONVERSION - FUNDAMENTAL CHANGE. If any
Fundamental Change shall occur, then each share of Series H Preferred Stock
outstanding as of the date of the consummation or closing thereof shall be (and
be deemed to have been) converted automatically, without any further action by
the holders thereof, into such number of fully paid and nonassessable shares of
Common Stock as shall be determined by multiplying the number of shares of
Series H Preferred Stock outstanding on the date of such consummation or closing
date by a fraction, the numerator of which is the Original Issue Price, and the
denominator of which is the Conversion Price. Such conversion shall be deemed to
have occurred whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent.
The Corporation shall give notice of a proposed or anticipated
Fundamental Change to all holders of the Series H Preferred Stock not later than
thirty (30) days before the expected closing or consummation of such Fundamental
Change. The Corporation also shall give prompt notice of the closing or
consummation of such Fundamental Change to all holders of record of the Series H
Preferred Stock as of the date of such closing or consummation. Each holder of
Series H Preferred Stock shall thereupon promptly surrender for conversion, to
the Corporation at its principal office or to any transfer agent for the Series
H Preferred Stock or the Common Stock, all certificates representing all shares
of Series H Preferred Stock held by such holder, accompanied by a written notice
specifying the name or names in which such holder wishes the certificate(s) for
shares of Common Stock to be issued.
vi. CERTIFICATE AS TO ADJUSTMENTS; NOTICE BY CORPORATION. In
each case of an adjustment or readjustment of the Original Issue Price, the
Corporation at its expense will furnish each holder of Series H Preferred Stock
so affected with a certificate prepared by an officer of the Corporation,
showing such adjustment or readjustment, and stating in detail the facts upon
which such adjustment or readjustment is based.
vii. EXERCISE OF CONVERSION PRIVILEGE. To exercise its
conversion privilege, a holder of Series H Preferred Stock shall give three days
(3) days' prior written notice by telecopy to the Corporation at its principal
office that such holder elects to convert shares of its Series H Preferred Stock
and shall thereafter surrender the original certificate(s) representing the
shares being converted to the Corporation at its principal office together with
an originally executed copy of such notice. Such notice shall also state the
name or names (with its address or addresses, as well as the address(es) for
delivery) in which the certificate(s) for shares of Common Stock issuable upon
such conversion shall be issued. The certificate(s) for the shares of Series H
Preferred Stock surrendered for conversion shall be accompanied by proper
assignment thereof to the Corporation or in blank. As promptly as practicable
after the Corporation receives the original certificate(s) for the shares of
Series
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H Preferred Stock surrendered for conversion, the proper assignment thereof to
the Corporation or in blank and the original notice of conversion (collectively,
the "ORIGINAL DOCUMENTATION"), but in no event more than three (3) Trading Days
after the Corporation's receipt of the Original Documentation, the Corporation
shall issue and shall deliver to the holder of the shares of Series H Preferred
Stock being converted, at the addresses set forth therefor by the holder, such
certificate(s) as it may request for the number of whole shares of Common Stock
issuable upon the conversion of such shares of Series H Preferred Stock in
accordance with the provisions of this Section 5, and cash, as provided in
Section 5(h), in respect of any fraction of a share of Common Stock issuable
upon such conversion. Such conversion shall be deemed to have been affected
immediately prior to the close of business on the Conversion Date, and at such
time the rights of the holder as holder of the converted shares of Series H
Preferred Stock shall cease and the person(s) in whose name(s) any
certificate(s) for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder(s) of record of the shares of Common
Stock represented thereby.
viii. 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 H Preferred Stock. Instead of any fractional
shares of Common Stock that would otherwise be issuable upon conversion of
Series H Preferred Stock, the Corporation shall pay to the holder of the share
of Series H Preferred Stock being 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 any fractional shares are issuable shall be
based upon the aggregate number of shares of Series H Preferred Stock being
converted at any one time by any holder thereof, not upon each share of Series H
Preferred Stock being converted.
ix. PARTIAL CONVERSION. In the event some but not all of the
shares of Series H Preferred Stock represented by a certificate(s) surrendered
by a holder are converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series H Preferred Stock which were not
converted. Such new certificate shall be so delivered on or prior to the date
set forth in Section 5 for the delivery of certificates for shares of Common
Stock.
x. RESERVATION OF COMMON STOCK. The Corporation 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 H 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 H Preferred Stock (including any shares of
Series H Preferred Stock represented by any warrants, options, subscription or
purchase rights for the Series H 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 H Preferred
Stock (including any shares of Series H Preferred Stock represented by any
warrants, options, subscriptions or purchase rights for the Series H Preferred
Stock), then Corporation shall use all means reasonably available to it, and
promptly take any and all actions 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.
f. REDEMPTION AND REPURCHASE RIGHTS.
(a) REDEMPTION AT OPTION OF CORPORATION. The Corporation may
redeem all or any of the then outstanding shares of Series H Preferred Stock by
notifying the holders of shares of
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Series H Preferred Stock to be redeemed in writing prior to the Conversion Date
for such shares (the "Mandatory Redemption Notice") of its election to redeem
such shares. The Corporation shall pay in cash an amount equal to 150% of the
Original Issue Price of the shares to be redeemed within 30 days after the
Mandatory Redemption Notice.
Each holder of shares of Series H Preferred Stock being redeemed shall,
promptly after receipt of the Mandatory Redemption Notice surrender for
redemption to the Corporation at its principal office or to any transfer agent
for the Series H Preferred Stock or the Common Stock all certificates
representing all shares of Series H Preferred Stock held by such holder,
accompanied by a written notice specifying the name or names and address or wire
transfer information in which such holder wishes the redemption payment to be
made.
Effective as of the close of business on the date of the Mandatory
Redemption Notice, each share of Series H Preferred Stock then outstanding shall
be (and be deemed to have been) redeemed automatically, without any further
action by the holders. Such redemption shall be deemed to have occurred whether
or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent and shall cut off and supercede any pending
conversion.
g. NOTICES OF RECORD DATE. In the event of any:
i. taking by the Corporation 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 capital stock of any
class or any other securities or property, or to receive any other right, or
ii. capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other Corporation, or
any other entity or person, or
iii. voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation shall telecopy and thereafter mail
or cause to be mailed to each holder of Series H 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 telecopied and thereafter mailed by first class mail, postage prepaid, or by
express overnight courier service, at least ten (10) days prior to the date
specified in such notice on which such action is to be taken.
h. GENERAL.
i. REPLACEMENT OF CERTIFICATES. Upon the Corporation's
receipt, from the holder of any certificate evidencing shares of Series H
Preferred Stock, of evidence reasonably satisfactory to the Corporation (an
affidavit of such holder will be satisfactory) of the ownership and the loss,
theft, destruction or mutilation of such certificate, and in the case of any
such loss, theft or destruction, upon
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receipt of indemnity reasonably satisfactory to the Corporation, and in the case
of any such mutilation, upon surrender of such certificate, the Corporation (at
its expense) shall execute and deliver to such holder, in lieu of such
certificate, a new certificate that represents the number of shares represented
by, is dated the date of, is issued in the name of the holder of, and is
substantially identical in form of, such lost, stolen, destroyed or mutilated
certificate.
ii. PAYMENT OF TAXES. The Corporation shall pay all taxes
(other than taxes based upon income) and other governmental charges that may be
imposed in connection with the issuance or delivery of any shares of Common
Stock (or other of the Corporation's securities) that results from the
conversion of shares of Series H Preferred Stock pursuant to this Certificate of
Designations. If the Corporation, pursuant to a notice from a holder of any
shares of Series H Preferred Stock, effects the issuance or delivery of any
shares of Common Stock (or other of the Corporation's securities) in any name(s)
other than such holder's name, then such holder shall deliver to the Corporation
with the aforesaid notice (A) all transfer taxes and other governmental charges
payable upon the issuance or delivery of securities in such other name(s) or (B)
evidence satisfactory to the Corporation that such taxes and charges have been
or shall be paid in full.
iii. STATUS OF REDEEMED OR CONVERTED SHARES. Shares of Series
H Preferred Stock that are redeemed, converted or otherwise acquired by the
Corporation in any manner (including by purchase or exchange) shall be canceled
and upon cancellation (i) shall no longer be deemed to be outstanding, (ii)
shall become authorized but unissued shares of preferred stock undesignated as
to series and (iii) may be reissued as part of another series of preferred
stock.
5. The corporation is to have perpetual existence.
6. In furtherance and not in limitation of the powers conferred by statute, the
board of directors is expressly authorized:
To make, alter or repeal the bylaws of the corporation.
To authorize and cause to be executed mortgages and liens upon the real
and personal property of the corporation.
To set apart out of any of the funds of the corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
By a majority of the whole board, to designate one or more committees,
each committee to consist of one or more of the directors of the corporation.
The board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. The bylaws may provide that in the absence or disqualification of
a member of a committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the board of directors to act at the
meeting in the place of any such agent or disqualified member. Any such
committee, to the extent provided in the resolution of the board of directors,
or in the bylaws of the corporation, shall have and may exercise all the powers
and authority of the board of directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the certificate of incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease, or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
bylaws of the
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corporation; and, unless the resolution or bylaws expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
When and as authorized by the stockholders in accordance with statute,
to sell, lease or exchange all or substantially all of the property and assets
of the corporation, including its goodwill and its corporate franchises, upon
such terms and conditions and for such consideration, which may consist in whole
or in part of money or property, including shares of stock in, and/or other
securities of, any other corporation or corporations, as its board of directors
shall deem expedient and for the best interests of the corporation.
7. To the maximum extent permitted by Section 102(b)(7) of the General
Corporation Law of Delaware, a director of this Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit.
8. Whenever a compromise or arrangement is proposed between this corporation and
its creditors or any class of them and/or between this corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
corporation or of any creditor or stockholder thereof, or on the application of
any receiver or receivers appointed for this corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation under
the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting
of the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement to any reorganization of this corporation
as consequences of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders of
this corporation, as the case may be, and also on this corporation.
9. Meetings of the stockholders may be held within or without the State of
Delaware, as the bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the bylaws of the corporation. Elections of directors
need not be by written ballot unless the bylaws of the corporation shall no
provide.
10. The corporation reserves the right to amend, alter, change, or repeal any
provision contained in this certificate of incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
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IN WITNESS WHEREOF, the undersigned, being duly elected and acting
Executive Vice President of DynaGen, Inc., has hereunto set his hand this 11th
day of June, 1998.
/S/ Dhananjay G. Wadekar
----------------------------
Dhananjay G. Wadekar
Executive Vice President
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ANNEX I
CONVERSION CERTIFICATE
[Date]
DynaGen, Inc.
99 Erie Street
Cambridge, MA 02139
Dear Sir or Madam:
The undersigned holder of the Series B Preferred Stock (the "Holder")
of DynaGen, Inc. (the "Company") has submitted a notice of election to convert
_____ shares of the Company's Series B Preferred Stock. The Holder hereby
certifies that the conversion of such shares of Series B Preferred Stock will
not result in the Holder holding more than 4.9% of the outstanding shares of the
Company's Common Stock on the Series B Conversion Date for such converted shares
of Series B Preferred Stock.
All capitalized terms used herein and not defined herein shall have the
meaning ascribed to them in the Company's Certificate of Designations,
Preferences, and Rights of Series B Preferred Stock.
[HOLDER]
By: _____________________________
Name:
Title:
66
