- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1997
Commission File Number 1-12584
----------------------------
SHEFFIELD PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT IN ITS CHARTER)
Delaware 13-3808303
(State of Incorporation) (IRS Employer Identification No.)
30 Rockefeller Plaza, Suite 4515
New York, New York 10112
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 957-6600
Indicate by check 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 _____
The number of shares outstanding of the issuer's Common Stock is
11,988,274 shares of Common Stock as of June 30, 1997.
- --------------------------------------------------------------------------------
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a Development stage enterprise)
INDEX
Page
PART I. Financial Information
ITEM 1. Financial Statements.
Consolidated Balance Sheets - 1
June 30, 1997 and December 31,
1996.
Consolidated Statements of 2
Operations for the three and
six months ended June 30, 1997
and 1996 and for the period
from October 17, 1986
(inception) to June 30, 1997.
Consolidated Statements of Cash 3
Flows for the three and six
months ended June 30, 1997 and
1996 and for the period from
October 17, 1986 (inception) to
June 30, 1997.
Notes to Consolidated Financial 4
Statements.
ITEM 2. Management's Discussion and 6
Analysis of Financial Condition
and Results of Operations.
PART II. Other Information.
ITEM 2. Changes in Securities. 10
ITEM 4. Submission of Matters to a Vote 11
of Security-Holders.
ITEM 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ -------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 539,287 $ 1,979,871
Marketable securities 174,407 460,768
Prepaid expenses and other current assets 104,420 43,975
------------ ------------
Total current assets 818,114 2,484,614
------------ ------------
Property and equipment:
Laboratory equipment 185,852 185,852
Office equipment 82,243 89,019
Leasehold improvements 61,390 61,390
------------ ------------
329,485 336,261
Less accumulated depreciation and amortization 189,162 162,007
------------ ------------
Net property and equipment 140,323 174,254
------------ ------------
Segregated cash 75,000 75,000
Other assets 39,416 40,016
------------ ------------
Total assets $ 1,072,853 $ 2,773,884
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable and accrued liabilities $ 504,870 $ 446,965
Sponsored research payable 331,634 580,157
Stock dividends payable 83,301 --
Capital lease obligation-current portion 25,694 23,719
------------ ------------
Total current liabilities 945,499 1,050,841
Capital lease obligation - non-current portion 11,790 27,206
Cumulative convertible redeemable preferred stock, $.01 par value. Authorized,
3,000,000 shares; issued and outstanding, 35,700 and 0 shares, at
June 30, 1997 and December 31, 1996, respectively 357 --
Additional paid-in capital associated with cumulative convertible
redeemable preferred stock 3,211,779 --
Stockholders' equity (net capital deficiency):
Common stock, $.01 par value. Authorized, 50,000,000 and 30,000,000
shares at June 30, 1997 and December 31, 1996, respectively;
issued and outstanding, 11,988,274 and 11,388,274
shares at June 30, 1997 and December 31, 1996, respectively 119,883 113,883
Notes receivable in connection with sale of stock (110,000) (110,000)
Additional paid-in capital 29,955,576 28,319,838
Unrealized loss on marketable securities (300,593) (39,232)
Deficit accumulated during development stage (32,761,438) (26,588,652)
------------ ------------
(3,096,572) 1,695,837
------------ ------------
Total liabilities and stockholders' equity (net capital deficiency) $ 1,072,853 $ 2,773,884
============ ============
</TABLE>
1
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE
30, 1997 AND 1996 AND FOR THE PERIOD
FROM OCTOBER 17, 1986 (INCEPTION) TO JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
October 17, 1986
Three months ended Six months ended (inception) to
June 30, June 30, June 30,
--------------------------- ---------------------------- -------------
1997 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Sub-license revenue $ -- $ -- $ -- $ -- $ 510,000
Interest income 21,747 52,724 39,972 69,239 436,885
------------ ------------ ------------ ------------ ------------
Total revenue
21,747 52,724 39,972 69,239 946,885
Expenses:
Acquisition of R & D in-process
technology 1,650,000 -- 1,650,000 -- 1,650,000
Research and development 786,165 924,439 2,724,202 2,164,230 18,247,399
General and administrative 1,004,892 783,675 1,750,489 1,214,223 13,645,181
Interest 2,089 2,567 4,768 4,396 125,231
------------ ------------ ------------ ------------ ------------
Total expenses 3,443,147 1,710,681 6,129,459 3,382,849 33,667,811
------------ ------------ ------------ ------------ ------------
Loss before extraordinary item (3,421,400) (1,657,957) (6,089,487) (3,313,610) (32,720,926)
Extraordinary item -- -- -- -- 42,787
------------ ------------ ------------ ------------ ------------
Net loss $ (3,421,400) $ (1,657,957) $ (6,089,487) $ (3,313,610) $(32,678,139)
============ ============ ============ ============ ============
Loss per share of common stock:
Loss before extraordinary item $ (0.29) $ (0.15) $ (0.52) $ (0.32) $ (7.12)
Extraordinary item -- -- -- -- 0.01
------------ ------------ ------------ ------------ ------------
Net loss $ (0.29) $ (0.15) $ (0.52) $ (0.32) $ (7.11)
============ ============ ============ ============ ============
Weighted average common shares outstanding 11,823,439 10,873,102 11,607,059 10,264,818 4,598,365
============ ============ ============ ============ ============
2
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Cash Flows
For the three and six months ended June 30, 1997 and 1996 and for the period
from October 17, 1986 (inception) to June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
October 17, 1986
Three months ended Six months ended (inception) to
June 30, June 30, June 30,
-------------------------- -------------------------- ------------
1997 1996 1997 1996 1997
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash outflows from development stage activities and
extraordinary gain:
Loss before extraordinary item $(3,421,399) $(1,657,957) $(6,089,487) $(3,313,610) $(32,720,926)
Extraordinary gain on extinguishment of debt -- -- -- -- 42,787
----------- ----------- ----------- ----------- ------------
Net loss (3,421,399) (1,657,957) (6,089,487) (3,313,610) (32,678,139)
Adjustments to reconcile net loss to net cash used by
development stage activities:
Issuance of common stock, stock
options/warrants for services -- -- -- -- 1,541,003
Non-cash interest expense -- -- -- -- 50,000
Issuance of common stock for license -- -- -- -- 5,216
Non-cash acquisition of R & D in process
technology 1,650,000 -- 1,650,000 -- 1,650,000
Transfer of securities for services 25,000 -- 25,000 -- 25,000
Securities acquired under sub-license agreement -- -- -- -- (500,000)
Issuance of common stock for intellectual
property rights -- -- -- -- 866,250
Amortization of organizational and debt
issuance costs -- -- -- -- 77,834
Depreciation 13,126 17,835 25,785 36,372 167,329
Amortization 5,116 -- 10,232 -- 30,695
Increase in debt issuance and organizational
costs -- -- -- -- (77,834)
Decrease (increase) in prepaid expenses and
other current assets (75,451) (22,266) (60,445) 69,418 (163,461)
Decrease (increase) in other assets -- (33,696) 600 (150,416) 19,625
Increase (decrease) in accounts payable,
accrued liabilities 172,305 72,960 57,905 46,384 (72,200)
Increase (decrease) in sponsored
research payable (840,676) 170,061 (248,523) 187,598 908,704
Increase in deferred license fee -- 100,000 -- 100,000 --
----------- ----------- ----------- ----------- ------------
Net cash used by development stage
activities (2,471,979) (1,353,063) (4,628,933) (3,024,254) (28,149,978)
----------- ----------- ----------- ----------- ------------
Cash flows from investing activities:
Acquisition of laboratory and office equipment (2,087) (3,502) (2,087) (47,816) (265,896)
Increase in segregated cash -- -- -- -- (75,000)
Increase in notes receivable in connection with
sale of stock -- -- -- -- (240,000)
Payments of notes receivable -- -- -- -- 130,000
Acquisition of Camelot Pharmacal, L.L.C. (net) (8,259) -- (8,259) -- (8,259)
----------- ----------- ----------- ----------- ------------
Net cash used by investing activities (10,346) (3,502) (10,346) (47,816) (459,155)
----------- ----------- ----------- ----------- ------------
Cash flows from financing activities:
Principal payments under capital lease (5,891) (7,549) (13,441) (13,040) (34,969)
Conversion of convertible, subordinated notes -- -- -- -- 749,976
Proceeds from issuance of debt -- -- -- -- 550,000
Proceeds from issuance of common stock -- -- -- -- 13,268,035
Proceeds from issuance of cumulative
convertible redeemable preferred stock -- -- 3,212,136 -- 3,212,136
Proceeds from exercise of stock options -- -- -- 137,175 1,337,677
Proceeds from exercise of warrants -- 4,480,106 -- 6,246,109 10,064,481
----------- ----------- ----------- ----------- ------------
Net cash and cash equivalents provided by
financing activities (5,891) 4,472,557 3,198,695 6,370,244 29,147,336
----------- ----------- ----------- ----------- ------------
Net increase in cash and cash equivalents (2,488,216) 3,115,992 (1,440,584) 3,298,174 538,203
Cash and cash equivalents at beginning of period 3,027,503 2,042,759 1,979,871 1,860,577 1,084
----------- ----------- ----------- ----------- ------------
Cash and cash equivalents at end of period $ 539,287 $ 5,158,751 $ 539,287 $ 5,158,751 $ 539,287
=========== =========== =========== =========== ============
Noncash investing and financing activities:
Common stock, stock options and warrants
issued for services $ -- $ -- $ -- $ -- $ 1,541,003
Common stock issued for license -- -- -- -- 5,216
Common stock issued for intellectual
property rights -- -- -- -- 866,250
Common stock issued to retire debt -- -- -- -- 600,000
Securities acquired under sub-license agreement -- -- -- -- 500,000
Transfer of securities for services 25,000 -- 25,000 -- 25,000
Acquisition of R & D in-process technology 1,650,000 -- 1,650,000 -- 1,650,000
Unrealized depreciation of investments 20,178 -- 261,361 -- 300,593
Equipment acquired under capital lease -- -- -- 72,453 72,453
Notes payable converted to common stock -- -- -- -- 749,976
=========== =========== =========== =========== ============
Supplemental disclosure of cash flow information:
Interest paid $ 2,089 $ 2,567 $ 4,768 $ 4,396 $ 125,231
=========== =========== =========== =========== ============
</TABLE>
3
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated balance sheets as of June 30, 1997 and
December 31, 1996 and the accompanying consolidated statements of
operations and cash flows for the three and six months ended June 30, 1997
and 1996 and for the period from October 17, 1986 (inception) to June 30,
1997, have been prepared by Sheffield Pharmaceuticals, Inc. (the
"Company"), without audit. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary to present fairly
the financial position, results of operations, and cash flows at June 30,
1997 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's annual report on
Form 10-KSB for the year ended December 31, 1996. The results of operations
for the three and six months ended June 30, 1997 and 1996 are not
necessarily indicative of the operating results for the full years.
The Company was incorporated on October 17, 1986, under the Canada Business
Corporations Act. The Company's wholly-owned subsidiary, U-Tech Medical
Corporation ("U-Tech") was incorporated in the state of Texas on January
13, 1992 and has been substantially inactive for two years as of June 30,
1997. On July 30, 1997 U-Tech was dissolved. On January 10, 1996, Ion
Pharmaceuticals, Inc., a Delaware corporation ("Ion"), was formed as a
wholly-owned subsidiary of the Company. At that time, Ion acquired the
Company's rights with respect to its anti-proliferative technology. On
April 17, 1997, CP Pharmaceuticals, Inc. ("CP") was formed for the purpose
of acquiring Camelot Pharmacal, L.L.C., which acquisition was consummated
on April 25, 1997. Unless the context requires otherwise, Sheffield, U-Tech
, Ion and CP are referred to as "the Company". The Company commenced its
biotechnology operations in the United States in January 1992 under new
management and Sheffield became domesticated as a Wyoming corporation in
May 1992. At the Annual Meeting of shareholders of the Company held on
January 26, 1995, the Company's shareholders approved the proposal to
reincorporate the Company in Delaware, which was effected on June 13, 1995.
All significant intercompany transactions are eliminated in consolidation.
At the Annual Meeting of shareholders of the Company held on June 26, 1997,
the Company's shareholders approved the proposal to change the name of the
Company from "Sheffield Medical Technologies Inc." to "Sheffield
Pharmaceuticals, Inc."
The Company is in the development stage and as such has been principally
engaged in licensing and research efforts. The Company has generated
minimal operating revenue and requires additional capital, which the
Company intends to obtain through equity and debt offerings to continue to
operate its business. The Company's ability to meet its obligations as they
become due and to continue as a going concern must be considered in light
of the expenses, difficulties and delays frequently encountered in starting
a new business, particularly since the Company will focus on research,
development and unproven technology which may require a lengthy period of
time and substantial expenditures to complete. Even if the Company is able
to successfully develop new products or technologies, there can be no
assurance the Company will generate sufficient revenues from the sale or
licensing of such products and technologies to be profitable. Management
believes that the Company's ability to meet its obligations as they become
due and to continue as a going concern through December 1997 are dependent
upon obtaining additional financing.
4
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
2. NET LOSS PER COMMON SHARE
Net loss per common share is based on net loss for the relevant period
divided by the weighted average number of shares issued and outstanding
during the period. Stock options, common stock issuable upon conversion of
warrants and common stock issuable upon the conversion of cumulative
convertible redeemable preferred stock are not reflected as their effect
would be antidilutive for both primary and fully diluted earnings per share
computations.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, EARNINGS PER SHARE, which is required to be adopted on December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. The impact of Statement 128 on the calculation of primary and
fully diluted earnings per share is not expected to be material.
3. SUPPLY AND LICENSE AGREEMENTS
In March 1997, the Company exercised its option and entered into exclusive
supply and license agreements for the world-wide rights to the multi-dose
inhaler technology (MSI) of Siemens A.G. The agreements call for Siemens to
be the exclusive supplier of the MSI system, a hand-held, portable
pulmonary delivery system. The Company paid a licensing fee of $1.1 million
in April 1997 to Siemens pursuant to its agreements and is required to make
additional payments to Siemens of DM 2.0 million on January 1, 1998 and
1999.
4. ACQUISITION
On April 25, 1997, the Company acquired Camelot Pharmacal, L.L.C., of St.
Louis, Missouri, a privately held emerging pharmaceutical company. The
members of Camelot's management team have been appointed officers of the
Company and Loren G. Peterson, a principal of Camelot, has been named Chief
Executive Officer of the Company and has joined the Company's Board of
Directors. Consideration for this transaction was 600,000 shares of Company
common stock. In addition, the members of the Camelot management team have
been granted options to acquire 1.2 million common shares exercisable at
market price as of the date of grant.
5
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company, being a development stage enterprise, has incurred a net loss in
each of the fiscal years since its inception and has had to rely on outside
sources of funds to maintain its liquidity. Substantial operating losses are
expected to be incurred for the next several years as the Company expends its
resources for product acquisition, research and development and preclinical and
clinical testing.
As a development stage company without significant revenues, the Company has
financed its technology development activities and operations primarily through
public and private offerings of securities, from which it has raised an
aggregate of approximately $28.4 million through June 30, 1997. On February 28,
1997, the Company completed a private offering of 35,000 shares of its 7% Series
A Cumulative Convertible Redeemable Preferred Stock, which raised total gross
proceeds of $3.5 million. The proceeds of this offering are to be used to fund
research and development, patent prosecution and for working capital and general
corporate purposes. Such proceeds may also be used for the possible acquisition
of rights in new technologies in the Company's ordinary course of business. The
Company's operating results have fluctuated significantly during each quarter
since its inception, and the Company anticipates that such fluctuations, largely
attributable to varying sponsored research and development commitments and
expenditures, will continue into the foreseeable future.
The Company continues to conduct scientific research, clinical trials,
development, and intellectual property protection. During the three months ended
June 30, 1997, the Company funded $786,165 for research and development on its
projects. During the succeeding 12-month period, approximately $8.3 million in
additional funding is projected to be incurred on clinical and laboratory
research and development. Of this estimated funding of $8.3 million,
approximately $7,500,000 is expected to be applied to the MSI, $675,000 to the
Ion Pharmaceuticals Technologies, $25,000 to the HIV/AIDS Vaccines, $40,000 to
the UGIF Technology-Prostate Cancer, and $60,000 to the Membrane Attack Complex
(MAC)/Complement Technology.
In addition to clinical and laboratory research development, the Company expects
to incur ongoing costs in connection with its intellectual property protection
and patent prosecution, which costs are expected to approximate $100,000 over
the next 12 months.
6
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
REVENUES AND EXPENSES
Revenues:
From inception through the period ended June 30, 1997, the Company has earned
sub-license revenue of $510,000 primarily from the sub-license agreement for its
liposome-CD4 technology.
From inception through the period ended June 30, 1997, the Company has earned
interest income of $436,885 and an extraordinary item from gain on early
extinguishment of debt of $42,787. The Company's ability to generate material
revenues is contingent on the successful commercialization its technologies and
other technologies which it may acquire, followed by the successful marketing
and commercialization of such technologies through licenses, joint ventures or
other arrangements.
Interest income for the three months ended June 30, 1997 was $21,747 compared to
$52,724 for the same period ended June 30, 1996. The decrease in interest earned
is attributable to a decrease of cash invested in short-term investments Except
for the sub-license revenue mentioned above, interest income represented all of
the Company's income in each of the prior periods.
Operating Expenses:
From inception through the period ended June 30, 1997, the Company incurred
$33,667,811 of operating expenses. Of the total operating expenses for that
period, $18,247,399 were costs of research and development for the Company's
technologies and $1,650,000 for the acquisition of R & D in-process technology.
The remainder of expenses for the same period were incurred principally as
consulting costs, costs of management, legal and other professional fees and
expenses relating to the Company's technologies, and for its completed and
proposed financing plans. Research and development costs are expected to remain
high as the Company implements later-stage research projects of its technologies
and such costs will continue to be expensed for financial reporting purposes.
Operating expenses for the three months ended June 30, 1997, were $3,443,146
compared to $1,710,681 for the same period ended June 30, 1996. The increase in
operating expenses was primarily due to the acquisition of R & D in-process
technology, in the amount of $1,650,000, as a result of the acquisition of
Camelot Pharmacal, L.L.C. in April 1997. The increase in general and
administrative expenses was primarily due to increased salary expense as a
result of the additions to the Company's management team and higher professional
fees. The major items included in general and administrative expenses for the
three months ended June 30, 1997, were (i) salaries of $320,174 which increased
by $111,669 as compared to 1996, primarily due to the increase in management and
staff, (ii) professional fees of $262,005 or $167,061 higher than the same
period in 1996, primarily due to increased patent and financing activities,
(iii) consulting fees of $131,952 or $29,996 higher than 1996 and (iv) other
expenses of $290,761.
The table below indicates (i) the Company's direct research and development
expenses by project for the six months ended June 30, 1997 and from the
Company's inception to June 30, 1997, (ii) the Company's current estimate by
project of committed and/or anticipated funding requirements after June 30, 1997
and (iii) revenues received to date by project.
7
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Direct Research and Development Expenses
(in dollars)
<TABLE>
<CAPTION>
Three months Committed and/or
ended Inception to anticipated R & D Revenue
R & D Projects 6/30/97 6/30/97 funding after 6/30/97 received
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Multi-Dose Inhaler (MSI) 171,201 1,445,926 15,256,074 0
Ion Pharmaceuticals, Inc. 267,016 4,599,183 671,690 10,000
Technologies
RBC-CD4 Electroinsertion 6,736 6,254,185 0 0
Technology
Lipsome-CD4 Technology 0 2,322,322 0 500,000
HIV/AIDS Vaccine 100,000 1,199,118 25,000 0
UGIF Technology 60,018 163,419 40,000 0
Membrane Attack Complex 60,936 304,682 80,000 0
(MAC)/Complement
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
On February 28, 1997, the Company completed a private offering of 35,000 shares
of its 7% Series A Cumulative Convertible Redeemable Preferred Stock, which
raised total gross proceeds of $3.5 million. The proceeds of this offering are
being used to fund research and development, patent prosecution and for working
capital and general corporate purposes. Such proceeds may also be used for the
possible acquisition of rights in new technologies in the Company's ordinary
course of business.
In March 1997, the Company exercised its option and entered into exclusive
supply and license agreements for the world-wide rights to Siemens' multi-dose
inhaler (MSI). The agreements call for Siemens to be the exclusive supplier of
the MSI system, a hand-held, portable pulmonary drug delivery system. The
Company paid Siemens a license fee of $1.1 million in April 1997 pursuant to the
agreements and is required to make additional payments of DM 2.0 million on
January 1, 1998 and 1999.
The Company has historically financed its operations through public offerings
and private placements of its securities. In addition to the potential
commercialization of its technologies, the Company plans to seek additional
funds through bridge loans, security financings, joint ventures or other
commercial arrangements to obtain necessary working capital. It is not uncommon,
for instance, for a third-party commercial partner to enter into a license
agreement with a technology development company, on the merits of successful
research relating to a given technology, which would yield up-front royalty
advances to such company before market-ready products are developed. It is also
not uncommon for a third-party commercial partner to enter into an agreement
with a development company whereby a third party will contribute funds in
support of the research and operating needs of such development companies in
consideration for rights related to the technologies.
The Company's ability to continue its operations as planned will be dependent on
the Company's ability to obtain additional funds, particularly through the
public offering and/or private placement of its securities. The Company is
currently involved in negotiations with interested parties over the terms of
proposed financings. However, there can be no assurance that any such financings
will actually be consummated. In the event that proposed financings are not
completed, there can be no assurance that other sources of capital may become
available in amounts and upon terms acceptable to the Company. The failure by
the Company to obtain such funds will require the Company to significantly
reduce or delay its funding of current technology development projects (which
may result in the Company's loss of rights in the related technologies) and
delay the making of commitments for future projects.
8
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
THIS REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, WHICH ARE INTENDED TO BE COVERED BY
THE SAFE HARBORS CREATED HEREBY. ALL FORWARD-LOOKING STATEMENTS INVOLVE RISKS
AND UNCERTAINTY, INCLUDING WITHOUT LIMITATION, THE SUCCESSFUL DEVELOPMENT AND
LICENSING OF THE COMPANY'S TECHNOLOGIES AND THE SUCCESSFUL COMPLETION OF PLANNED
FINANCINGS. ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE REASONABLE, ANY OF THE
ASSUMPTIONS COULD BE INACCURATE, AND THEREFORE, THERE CAN BE NO ASSURANCE THAT
THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS REPORT WILL PROVE TO BE
ACCURATE. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE
FORWARD-LOOKING STATEMENTS INCLUDED HEREIN, THE INCLUSION OF SUCH INFORMATION
SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON
THAT THE OBJECTIVES AND PLANS OF THE COMPANY WILL BE ACHIEVED.
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
PART II: OTHER INFORMATION
Item 2. CHANGES IN SECURITIES.
The following unregistered securities were issued by the
Company during the quarter ended June 30, 1997:
<TABLE>
<CAPTION>
Number of Shares
Sold/Issued
/Subject to
Description Options or Offering/Exercise
Date of Sale/Issuance of Securities Issued Warrants Price Per Share ($) Purchaser or Class
--------------------- -------------------- -------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
April - June 1997 Common Stock Options 220,000 2 11/16 - 3 Advisors
April 25, 1997 Common Stock 600,000 2 3/4 Officers of the
Company
April 25, 1997 Common Stock Options 50,000 2 3/4 Issuance to Directors
pursuant to 1996 Directors
Stock Option Plan
June 1997 Common Stock Options 300,000 2 3/4 - 4 1/2 Issuance to employees
pursuant to 1993 Stock Option
Plan
April 25, 1997 Common Stock Options 1,200,000 2 3/4 Issuance to employees
pursuant to 1993 Stock Option
Plan
</TABLE>
The issuance of these securities is claimed to be exempt from
registration pursuant to Section 4 (2) of the Securities Act of
1933, as amended, as transactions by an issuer not involving a
public offering. There were no underwriting discounts or commissions
paid in connection with the issuance of any of these securities.
10
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
An annual Meeting of Stockholders was held on June 26, 1997. All
management's nominees for director, as listed in the Proxy Statement
for the Annual Meeting, were elected. Listed below are the matters
voted on by stockholders and the number of votes cast at the Annual
Meeting:
(a) ELECTION OF FIVE MEMBERS OF THE BOARD OF DIRECTORS.
Voted Votes Broker Non-Votes
Name Voted for Against Withheld and Abstentions
Douglas R. Eger 9,164,375 0 1,237,364 0
Loren G. Peterson 10,072,889 0 328,850 0
Thomas M. Fitzgerald 10,072,890 0 328,849 0
John M. Bailey 10,071,890 0 329,849 0
Digby W. Barrios 10,070,990 0 330,749 0
(b) APPROVAL OF THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER AUTHORIZED SHARES OF THE COMPANY'S COMMON STOCK;
Voted For: 10,021,014
Voted Against: 333,666
Voted Abstained: 47,059
Broker Non-Votes 0
(c) APPROVAL OF THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO
CHANGE THE NAME OF THE COMPANY FROM "SHEFFIELD MEDICAL TECHNOLOGIES INC."
TO "SHEFFIELD PHARMACEUTICALS, INC."
Voted For: 10,314,220
Voted Against: 75,610
Voted Abstained: 11,909
Broker Non-Votes 0
(d) APPROVAL OF CERTAIN AMENDMENTS TO THE COMPANY'S 1993 STOCK OPTION PLAN.
Voted For: 3,284,922
Voted Against: 867,539
Voted Abstained: 49,659
Broker Non-Votes 6,199,619
(e) RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1997.
Voted For: 10,317,481
Voted Against: 43,849
Voted Abstained: 40,409
Broker Non-Votes 0
11
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS
NO. DESCRIPTION
3.1 Certificate of Incorporation of the Company, as amended
3.2 By-laws of the Company, as amended
27 Financial Data Schedule
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1997
12
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SHEFFIELD PHARMACEUTICALS, INC.
Dated: August 14, 1997 /S/ LOREN G. PETERSON
----------------------
Loren G. Peterson
Chief Executive Officer
Dated: August 14, 1997 /S/ GEORGE LOMBARDI
-------------------
George Lombardi
Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
EXHIBIT 3.1 TO FORM 10-Q
Certificate of Incorporation of the Company, as Amended
<PAGE>
CERTIFICATE OF INCORPORATION
OF
SHEFFIELD MERGER CO.
The undersigned, a natural person, for the purpose of
organizing a corporation for conducting the business and promoting the purposes
hereinafter stated, under the provisions of subject to the requirements of the
laws of the State of Delaware (particularly Chapter 1, Title 8 of the Delaware
Code and the acts amendatory thereof and supplemental thereto, and known,
identified and referred to as the "General Corporation Law of the State of
Delaware"), hereby certifies that:
FIRST: The name of the corporation (hereinafter sometimes
called the "Corporation") is Sheffield Merger Co.
SECOND: The address, including street, number, city and county
of the registered office of the Corporation in the State of Delaware is 32
Loockerman Square, Suite L-100, City of Dover 19901, County of Kent; and the
name of the registered agent of the Corporation in the State of Delaware at such
address is The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the
Corporation shall have the authority to issue is (i) 15,000,000 shares of Common
Stock, $.01 par value ("Common Stock") and (ii) 1,000,000 shares of Preferred
Stock, $.01 par value ("Preferred Stock").
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation
rights of the holders of Common Stock are subject to and qualified by the rights
of the holders of the Preferred Stock of any series as may be designated by the
Board of Directors upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of Common Stock are entitled
to one vote for each share held at all meetings of stockholders (and written
actions in lieu of meetings). There shall be no cumulative voting.
3. DIVIDENDS. Dividends may be declared and paid on
the Common Stock from funds lawfully available therefor as and when determined
by the Board of Directors and subject to any
<PAGE>
preferential dividend rights of any then outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation
of the Corporation, whether voluntary or involuntary, holders of Common Stock
will be entitled to receive all assets of the Corporation available for
distribution to its stockholders after payment of creditors and subject to any
preferential and/or participating rights of any then outstanding Preferred
Stock.
B. PREFERRED STOCK.
Authority is hereby expressly granted to the Board of
Directors from time to time to issue the Preferred Stock in one or more series,
and in connection with the creation of any such series, by resolution or
resolutions providing for the issue of the shares thereof, to determine and fix
such voting powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as shall be stated and expressed in such
resolutions, all to the full extent not or hereafter permitted by the General
Corporation Law of Delaware. Without limiting the generality of the foregoing,
the resolutions providing for issuance of any series of Preferred Stock may
provide that such series shall be superior or rank equally or junior to the
Preferred Stock of any other series to the extent permitted by law. Except as
expressly provided elsewhere in this Article FOURTH, no vote of the holders of
the Preferred Stock or Common Stock shall be required in connection with the
designation or the issuance of any shares of any series of any Preferred Stock
authorized by and complying with the conditions herein, the right to have such
being vote being expressly waived by all present and future holders of the
capital stock of the Corporation.
FIFTH: The name and the mailing address of the incorporator is
as follows:
Gary Weston
Olshan Grundman Frome & Rosenzweig
505 Park Avenue
New York, New York 10022
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed
between the Corporation and its creditors or any class of them and/or between
the 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 the
-2-
<PAGE>
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under the provisions of
ss.291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of ss.279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors, and/or the stockholders or class of
stockholders of the 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 the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as consequence 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 the Corporation, as the case may be, and also on the
Corporation.
EIGHTH: For the management of the business and for the conduct
of the affairs of the Corporation, and in further definition, limitation and
regulation of the powers of the Corporation and of its directors and its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of
the affairs of the Corporation shall be vested in its
Board of Directors. The number of directors which
shall constitute the whole Board of Directors shall
be fixed by, or in the manner provided in, the
By-Laws. The phrase "whole Board" and the phrase
"total number of directors" shall be deemed to have
the same meaning, to wit, the total number of
directors which the Corporation would have if there
were no vacancies. No election of directors need be
by written ballot.
2. After the original or other By-laws of the
Corporation have been adopted, amended, or repealed,
as the case may be, in accordance with the provisions
of ss.109 of the General Corporation Law of the State
of Delaware, and, after the Corporation has received
any payment for any of its stock, the power to adopt,
amend, or repeal the By-laws of the Corporation may
be exercised by the Board of Directors of the
Corporation; provided, however, that any provision
for the classification of directors of the
Corporation for staggered terms pursuant to the
provisions of subsection (d) of ss.141 of the General
Corporation Law of the State of Delaware shall be set
forth in an initial By-law or
-3-
<PAGE>
in a By-law adopted by the stockholders entitled to
vote of the Corporation unless provisions for such
classification shall be set forth in this Certificate
of Incorporation.
3. Whenever the Corporation shall be authorized to
issue only one class of stock, each outstanding share
shall entitle the holder thereof to notice of, and
the right to vote at, any meeting of stockholders.
Whenever the Corporation shall be authorized to issue
more than one class of stock, no outstanding share of
any class of stock which is denied voting power under
the provisions of the Certificate of Incorporation
shall entitle the holder thereof to the right to vote
at any meeting of stockholders except as the
provisions of paragraph (2) of subsection (b) of
ss.242 of the General Corporation Law of the State of
Delaware shall otherwise require; provided, that no
share of any such class which is otherwise denied
voting power shall entitle the holder thereof to vote
upon the increase or decrease in the number of
authorized shares of said class.
NINTH: The personal liability of the directors of the
Corporation is hereby eliminated to the fullest extent permitted by paragraph
(7) of subsection (b) of ss.102 of the General Corporation Law of the State of
Delaware, as same may be amended and supplemented.
TENTH: The Corporation shall, to the fullest extent permitted
by ss.145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, indemnify any and all persons whom it shall
have power to indemnify under said section from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-Law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
ELEVENTH: From time to time any of the provisions of this
Certificate of Incorporation may be amended, altered or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the
-4-
<PAGE>
manner and at the time prescribed by said laws, and all rights at any time
conferred upon the stockholders of the Corporation by this Certificate of
Incorporation are granted subject to the provisions of this Article ELEVENTH.
Signed on September 20, 1993
/S/ GARY WESTON
Gary Weston, Incorporator
-5-
<PAGE>
Certificate of Amendment
of
Certificate of Incorporation
of
SHEFFIELD MERGER CO.
Under Section 242 of the General Corporation Law
It is hereby certified that:
1. The name of the corporation is Sheffield Merger Co. (the
"Corporation").
2. The certificate of incorporation of the Corporation is hereby
amended by striking out Article FOURTH thereof and by substituting in lieu of
said Article the following new Article FOURTH:
"FOURTH: The total number of shares of stock which the
Corporation shall have the authority to issue is (i) twenty
million (20,000,000) shares of Common Stock, $.01 par value
("Common Stock") and (ii) 3,000,000 shares of Preferred Stock,
$.01 par value ("Preferred Stock").
COMMON STOCK.
GENERAL. The voting, dividend and liquidation rights of the
holders of Common Stock are subject to and qualified by the rights of the
holders of the Preferred Stock of any series as may be designated by the Board
of Directors upon any issuance of the Preferred Stock of any series.
VOTING. The holders of Common Stock are entitled to one vote
for each share held at all meetings of stockholders (and written actions in lieu
of meetings). There shall be no cumulative voting.
DIVIDENDS. Dividends may be declared and paid on the Common
Stock from funds lawfully available therefor as and when determined by the Board
of Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
LIQUIDATION. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation
<PAGE>
available for distribution to its stockholders after payment of creditors and
subject to any preferential and/or participating rights of any outstanding
Preferred Stock.
PREFERRED STOCK.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative, participating, option or other special rights and qualifications,
limitations or restrictions thereof, including without limitation thereof,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as shall be stated and expressed in such resolutions, all to the
full extent now or hereafter permitted by the General Corporation Law of
Delaware. Without limiting the generality of the foregoing, the resolutions
providing for issuance of any series of Preferred Stock may provide that such
series shall be superior or rank equally or junior to the Preferred Stock of any
other series to the extent permitted by law. Except as expressly provided
elsewhere in this Article FOURTH no vote of the holders of the Preferred Stock
or Common Stock shall be required in connection with the designation or the
issuance of any shares of any series of any Preferred Stock authorized by and
complying with the conditions herein, the right to have such vote being
expressly waived by all present and future holders of the capital stock of the
Corporation."
3. The amendment of the certificate of incorporation herein certified
has been duly adopted in accordance with the provisions of Sections 228 and 242
of the General Corporation Law of the State of Delaware.
Signed on January 25, 1995. SHEFFIELD MERGER CO.
By: /S/ DOUGLAS R. EGER
Douglas R. Eger, Chairman
Attest:
/S/ HARVEY L. KELLMAN
Harvey L. Kellman, Secretary
-2-
<PAGE>
CERTIFICATE OF MERGER
OF
SHEFFIELD MEDICAL TECHNOLOGIES INC.
INTO
SHEFFIELD MERGER CO.
(Under Section 252 of the
General Corporation Law of the State of Delaware)
-----------------------------------
Sheffield Merger Co., a Delaware corporation, hereby certifies
as follows:
FIRST: The name and state of incorporation of each of the
constituent corporations of the merger is as follows:
NAME STATE OF INCORPORATION
Sheffield Medical Technologies Inc. Wyoming
Sheffield Merger Co. Delaware
SECOND: An Agreement of Merger has been approved, adopted,
certified, executed and acknowledged by each of the constituent corporations in
accordance with Section 252(c) of the General Corporation Law of the State of
Delaware.
THIRD: The name of the surviving corporation (the
"Surviving Corporation") is Sheffield Merger Co.
FOURTH: The Certificate of Incorporation of the
Surviving Corporation is hereby amended by striking out Article
FIRST thereof and by substituting in lieu of said Article the
following new Article FIRST as follows:
FIRST: The name of the corporation (hereinafter
sometimes called the "Corporation") is Sheffield Medical
Technologies Inc.
FIFTH: An executed copy of the Agreement of Merger is on file
at the principal place of business of the Surviving Corporation, 666 Fifth
Avenue, New York, New York 10103, and a copy of the Agreement of Merger will be
furnished by the Surviving Corporation, on request and without cost, to any
stockholder of either of the constituent corporations.
SIXTH: The authorized capital stock of Sheffield Medical
Technologies Inc., a Wyoming corporation, consists of
<PAGE>
50,000,000 shares of common stock, no par value, and 10,000,000 shares of
preferred stock, no par value.
SEVENTH: This Certificate of Merger shall be effective
upon filing with the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, Sheffield Merger Co. has caused this
Certificate of Merger to be executed in its corporate name by its Chairman of
the Board and attested by its Secretary this 12th day of June, 1995.
SHEFFIELD MERGER CO.
By: /S/ DOUGLAS R. EGER
Douglas R. Eger
Chairman of the Board
[SEAL]
Attest:
By: /S/ KATHLEEN RAWLINSON
Kathleen Rawlinson
Secretary
-2-
<PAGE>
CERTIFICATE OF AMENDMENT
of
CERTIFICATE OF INCORPORATION
of
SHEFFIELD MEDICAL TECHNOLOGIES INC.
Under Section 242 of the General Corporation Law
It is hereby certified that:
1. The name of the corporation is Sheffield Medical Technologies Inc.
(the "Corporation").
2. The certificate of incorporation of the Corporation is hereby
amended to increase the authorized shares of common stock of the Corporation by
striking out Article FOURTH thereof and by substituting in lieu of said Article
FOURTH the following new Article FOURTH:
"FOURTH: The total number of shares of stock that the
Corporation shall have the authority to issue is (i) thirty
million (30,000,000) shares of Common Stock, $.01 par value
("Common Stock"), and (ii) three million (3,000,000) shares of
Preferred Stock, $.01 par value ("Preferred Stock").
COMMON STOCK.
GENERAL. The voting, dividend and liquidation rights of the
holders of Common Stock are subject to and qualified by the rights of the
holders of the Preferred Stock of any series as may be designated by the Board
of Directors upon any issuance of the Preferred Stock of any series.
VOTING. The holders of Common Stock are entitled to one vote
for each share held at all meetings of stockholders (and written actions in lieu
of meetings). There shall be no cumulative voting.
DIVIDENDS. Dividends may be declared and paid on the Common
Stock from funds lawfully available therefor as and when determined by the Board
of Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
LIQUIDATION. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation
<PAGE>
available for distribution to its stockholders after payment of creditors and
subject to any preferential and/or participating rights of any outstanding
Preferred Stock.
PREFERRED STOCK.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative, participating, option or other special rights and qualifications,
limitations or restrictions thereof, including without limitation thereof,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as shall be stated and expressed in such resolutions, all to the
full extent now or hereafter permitted by the General Corporation Law of
Delaware. Without limiting the generality of the foregoing, the resolutions
providing for issuance of any series of Preferred Stock may provide that such
series shall be superior or rank equally or junior to the Preferred Stock of any
other series to the extent permitted by law. Except as expressly provided
elsewhere in this Article FOURTH no vote of the holders of the Preferred Stock
or Common Stock shall be required in connection with the designation or the
issuance of any shares of any series of any Preferred Stock authorized by and
complying with the conditions herein, the right to have such vote being
expressly waived by all present and future holders of the capital stock of the
Corporation."
3. The amendment of the certificate of incorporation herein certified
has been duly adopted in accordance with the provisions of Sections 228 and 242
of the General Corporation Law of the State of Delaware.
Signed on February 5, 1997 SHEFFIELD MEDICAL TECHNOLOGIES INC.
By: /S/ GEORGE LOMBARDI
-----------------------------
George Lombardi
Vice President and Chief
Financial Officer
Attest:
/S/ JACQUELINE BOVA
- -------------------
Jacqueline Bova
Assistant Secretary
-2-
<PAGE>
CERTIFICATE OF DESIGNATION
OF
SERIES A CUMULATIVE CONVERTIBLE REDEEMABLE
PREFERRED STOCK
OF
SHEFFIELD MEDICAL TECHNOLOGIES INC.
(Pursuant to Section 151 of the
General Corporation Law of the State of Delaware)
---------------------
Sheffield Medical Technologies Inc., a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation:
RESOLVED, that pursuant to the authority expressly granted to
and vested in the Board of Directors of the Corporation (the "Board of
Directors") by the provisions of the Certificate of Incorporation of the
Corporation (the "Certificate of Incorporation"), there hereby is created, out
of the 3,000,000 shares of preferred stock of the Corporation authorized in
Article FOURTH of the Certificate of Incorporation (the "Preferred Stock"), a
series of Preferred Stock consisting of 40,800 shares, which series shall have
the following powers, designations, preferences and relative, participating,
optional or other rights, and the following qualifications, limitations and
restrictions (in addition to the powers, designations, preferences and relative,
participating, optional or other rights, and the qualifications, limitations and
restrictions, set forth in the Certificate of Incorporation which are applicable
to the Preferred Stock).
Section 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series A Cumulative Convertible Redeemable Preferred
Stock" (the "Series A Preferred Stock") and the authorized number of shares
constituting such series shall be 40,800. The par value of the Series A
Preferred Stock shall be
$.01 per share.
Section 2. DIVIDENDS.
Subject to Section 4(d), the holders of shares of the Series A
Preferred Stock will be entitled to receive, when, as and if declared by the
Board of Directors, cumulative stock dividends on the shares of the Series A
Preferred Stock, payable in shares of the Corporation's common stock, $.01 par
value per share ("Common Stock"), at the rate per share of 7.0% per annum of the
original $100.00 purchase price per share of the Series A Preferred
<PAGE>
Stock, and no more. Such stock dividends shall be cumulative from the date of
the initial issuance of shares of Series A Preferred Stock (the "Closing Date")
or the most recent date on which the full amount of accrued stock dividends have
been paid, as the case may be, on the Series A Preferred Stock by the
Corporation. Subject to, and as provided in, Section 4, the Corporation shall
pay all cumulative stock dividends on the shares of Series A Preferred Stock
held by a holder on the Conversion Date (as defined below) in respect of such
holder's election to convert Series A Preferred Stock. The number of shares of
Common Stock to be issued as cumulative stock dividends on any such Conversion
Date shall equal the cash value of such cumulative dividends divided by the
current market price per share of Common Stock (determined as provided in
Section 5) as of such Conversion Date. The cash value of stock dividends payable
on shares of Series A Preferred Stock for any full annual dividend period shall
be computed by multiplying the original $100.00 purchase price per share by
7.0%. The cash value of dividends payable on shares of the Series A Preferred
Stock for any period less than a full annual dividend period shall be computed
on the basis of a 360-day year of twelve 30-day months and the actual number of
days elapsed in the period for which payable.
If stock dividends are not paid in full, or declared
in full, upon the shares of the Series A Preferred Stock and shares of any other
preferred stock ranking on a parity as to payment of stock dividends with the
Series A Preferred Stock, all dividends declared upon shares of the Series A
Preferred Stock and any other preferred stock ranking on a parity as to payment
of dividends with the Series A Preferred Stock shall be paid or declared PRO
RATA so that in all cases the amount of dividends paid or declared per share on
the Series A Preferred Stock and such other shares of preferred stock ranking on
a parity as to payment of dividends with the Series A Preferred Stock shall bear
to each other the same ratio that accumulated stock dividends per share,
including dividends accrued or in arrears, if any, on the shares of the Series A
Preferred Stock and such other shares of preferred stock bear to each other.
Except as provided in the preceding sentence, unless full cumulative stock
dividends on the shares of the Series A Preferred Stock have been paid or
declared in full, no dividends (other than dividends in shares of Common Stock,
or in shares of any other capital stock of the Corporation ranking junior to the
Series A Preferred Stock as to payment of dividends and distribution of assets
upon liquidation) shall be paid or declared and set aside for payment or other
distribution upon the Common Stock or, except as provided above, on any other
capital stock of the Corporation ranking junior to or on a parity with the
Series A Preferred Stock as to dividends, nor shall any shares of Common Stock
or shares of any other capital stock of the Corporation ranking junior to or on
a parity with the Series A Preferred Stock as to dividends be redeemed,
purchased or otherwise acquired for any consideration (or any payment made to or
available for a sinking fund for the redemption of any such shares) by the
Corporation or any subsidiary of the Corporation (except by conversion into or
exchange for shares of capital stock of the
-2-
<PAGE>
Corporation ranking junior to the Series A Preferred Stock as to dividends and
distribution of assets upon liquidation). Holders of shares of the Series A
Preferred Stock shall not be entitled to any dividends, whether payable in
capital stock, cash or property, in excess of full accrued and cumulative stock
dividends as herein provided. No interest or sum of money in lieu of interest
shall be payable in respect of any stock dividend payment or payments on the
shares of the Series A Preferred Stock that may be in arrears; provided,
however, that if, on an applicable Conversion Date (as defined herein), stock
dividends that would have been payable on such date are not paid solely due to
the failure of the Corporation's Board of Directors to declare such dividends,
then the rate of conversion of the Series A Preferred Stock to be converted on
such Conversion Date shall be adjusted so that the holders would receive the
same amount of shares of Common Stock on such Conversation Date as such holder
would have received if the Corporation's Board of Directors had timely declared
such stock dividends.
The terms "accrued dividends," "dividends accrued" and
"dividends in arrears," whenever used herein with reference to shares of
preferred stock shall be deemed to mean an amount which shall be equal to
dividends thereon at the applicable annual dividend rates per share for the
respective series thereof from the date or dates on which such dividends
commence to accrue to the applicable payment date less the amount of all
dividends paid, or declared in full and sums set aside for the payment thereof,
upon such shares of preferred stock.
Section 3. LIQUIDATION RIGHTS.
(a) In the event of any liquidation, dissolution or winding up
of the affairs of the Corporation, whether voluntary or otherwise, after payment
or provision for payment of the debts and other liabilities of the Corporation,
the holders of shares of the Series A Preferred Stock shall be entitled to
receive, in cash, out of the remaining net assets of the Corporation (whether
from capital or from earnings available for distribution to shareholders), the
amount of One Hundred Dollars ($100.00) for each share of the Series A Preferred
Stock, plus the cash value determined in accordance with Section 2 above of all
stock dividends accrued and unpaid at the applicable rate on each such share up
to the date fixed for distribution, before any distribution shall be made to the
holders of shares of Common Stock or any other capital stock of the Corporation
ranking (as to any such distribution) junior to the Series A Preferred Stock. If
upon any liquidation, dissolution or winding up of the Corporation, the assets
distributable among the holders of shares of the Series A Preferred Stock and
all other classes and series of preferred stock ranking (as to any such
distribution) on a parity with the Series A Preferred Stock are insufficient to
permit the payment in full to the holders of all such shares of all preferential
amounts payable to all such holders, then the entire assets of the Corporation
thus distributable shall be distributed ratably among the holders of the shares
of the Series A Preferred Stock and such other classes and
-3-
<PAGE>
series of preferred stock ranking (as to any such distribution) on a parity with
the Series A Preferred Stock in proportion to the respective amounts that would
be payable per share if such assets were sufficient to permit payment in full.
(b) For purposes of this Section 3, a distribution of assets
in any dissolution, winding up or liquidation shall not include (i) any
consolidation or merger of the Corporation with or into any other corporation or
other entity, (ii) any dissolution, liquidation, winding up or reorganization of
the Corporation immediately followed by reincorporation of another corporation
or other entity or (iii) a sale or other disposition of all or substantially all
of the Corporation's assets to another corporation or other entity; PROVIDED,
HOWEVER, that, in each case, effective provision is made in the certificate of
incorporation of the resulting and surviving corporation or otherwise for the
protection of the relative rights of the holders of shares of the Series A
Preferred Stock.
(c) After the payment of the full preferential amounts
provided for herein to the holders of shares of the Series A Preferred Stock or
funds necessary for such payment have been set aside in trust for the holders
thereof, such holders shall be entitled to no other or further participation in
the distribution of the assets of the Corporation.
Section 4. CONVERSION AND REDEMPTION OF SERIES A
PREFERRED STOCK.
(a) Each holder of Series A Preferred Stock shall have the
right, exercisable at any time and from time to time during the period
commencing on the date that is ninety (90) days after the Closing Date and
ending on the date that is two years after the Closing Date (the "Mandatory
Conversion Date"), to convert any or all of the Series A Preferred Stock owned
by such holder for shares of Common Stock, at a conversion rate determined by
multiplying the number of shares of Series A Preferred Stock to be converted by
a fraction, the numerator of which shall equal one hundred (100) and the
denominator of which (a "Denominator") shall equal (i) the current market price
per share of the Common Stock (determined as provided in Section 5) as of the
Closing Date (such current market price being referred to herein as the "Closing
Price"), if the applicable Conversion Date (as defined below) occurs on or
before the 119th day following the Closing Date, (ii) the lessor of (A) 100% of
the Closing Price or (B) the current market price per share of Common Stock
(determined as provided in Section 5) as of the applicable Conversion Date, if
the applicable Conversion Date occurs on or after the 120th day after the
Closing Date and on or before the 179th day after the Closing Date or (iii) the
lesser of (A) 100% of the Closing Price and (ii) 85% of the current market price
per share of Common Stock (determined as provided in Section 5) as of the
applicable Conversion Date for any Conversion Date occurring on or after the
180th day after the Closing Date, subject to adjustment and the conditions
described herein.
-4-
<PAGE>
(b) (i) Any holder of shares of the Series A Preferred Stock
electing to convert shares thereof pursuant to Section 4(a) shall (A)
transmit by facsimile, for receipt on the proposed date of conversion,
a copy of a fully completed and executed notice of conversion ("Notice
of Conversion") to the Corporation at the office of the Corporation or
its designated transfer agent (the "Transfer Agent"), in the form
attached as Exhibit A hereto, and (B) surrender to a common carrier for
delivery to the office of the Corporation or the Transfer Agent, the
original certificates representing the Series A Preferred Stock being
converted (the "Preferred Stock Certificates"), duly endorsed for
cancellation. The Corporation shall, upon the timely written request of
a holder of shares of the Series A Preferred Stock, promptly provide in
writing to such holder, via facsimile transmission, the appropriate
numbers for the Corporation and the Transfer Agent to be used to effect
an election in accordance with this subparagraph (i).
(ii) Upon receipt by the Corporation of transmission
of a facsimile copy of such Notice of Conversion, the Corporation shall
as soon as practicable (but in no event later than 12:00 noon on the
next business day after receipt thereof) send, via facsimile, a
confirmation of receipt of such Notice of Conversion to such holder,
which shall specify that the Notice of Conversion has been received and
the name and telephone number of a contact person at the Corporation
whom the holder should contact regarding information related to such
conversion. Upon receipt by the Corporation or the Transfer Agent of
the certificate(s) representing the shares of Series A Preferred Stock
to be converted pursuant to such Notice of Conversion (or an
indemnification undertaking in form and substance reasonably
satisfactory to the Corporation with respect to such shares in the case
of their loss, theft or destruction) together with the originally
executed and completed Notice of Conversion (such date of the
Corporation's receipt of all such documents being referred to herein as
the "Final Receipt Date"), the Corporation or Transfer Agent (as
applicable) shall, as soon as possible on or after the applicable Final
Receipt Date, but in any event within two (2) business days after the
applicable Final Receipt Date, issue and surrender to a common carrier
for either overnight delivery (if delivery is to be made inside the
United States) or two (2) day delivery (if delivery is to be made
outside the United States) to such holder at the address specified in
the Notice of Conversion, a certificate for the number of shares of
Common Stock to which such holder shall be entitled as in respect of
the related conversion. In the event of a partial conversion of shares
of Series A Preferred Stock represented by certificate(s) delivered to
the Corporation in respect of any conversion, the Corporation will
return to the applicable holder a certificate representing such
holder's remaining shares of Series A Preferred Stock that were not so
converted. In the case of any dispute between the Corporation and such
holder as to the calculation of the applicable Conversion
-5-
<PAGE>
Price evidenced by a notice to such effect (a "Dispute Notice")
delivered to the Corporation by such holder prior to the Final Receipt
Date, the Corporation shall promptly issue to such holder the number of
shares of Common Stock that is not disputed and shall submit the
disputed calculations to its outside accountant within two (2) business
days after the Final Receipt Date. The Corporation shall cause such
accountant to perform the calculations and notify the Corporation and
the holder of the results no later than two (2) business days after the
date that such outside accountant is delivered a copy of such holder's
Dispute Notice by the Corporation pursuant to the preceding sentence.
Such accountant's calculation shall be deemed conclusive and binding on
the Corporation and such holder absent manifest error.
(iii) The effective date of a particular conversion
(the "Conversion Date") other than pursuant to Section 4(c) shall be
deemed to be the date on which the advance copy of the related Notice
of Conversion in respect of such conversion is received by either the
Corporation or the Transfer Agent by facsimile transmission as provided
in paragraph (ii) above, provided that (A) such advance copy of the
Notice of Conversion is transmitted by facsimile to and received by the
Corporation before 11:59 p.m., New York City time, on such date and (B)
the original certificates representing the Series A Preferred Stock to
be converted (or an indemnification undertaking in form and substance
reasonably satisfactory to the Corporation with respect to such shares
in the case of their loss, theft or destruction), together with the
originally executed and completed Notice of Conversion, are surrendered
by depositing such certificates and Notice of Conversion with a common
carrier, as provided above, and received by the Corporation or the
Transfer Agent on or before the second (2nd) business day following the
date that the related advance copy of the related Notice of Conversion
is received by the Corporation or the Transfer Agent. In the event that
all such documents are not received within two (2) business days after
such date, such Notice of Conversion shall be deemed null and void and
no conversion of Series A Preferred Stock shall be effected thereby.
(iv) As of any Conversion Date, the person or persons
entitled to receive the shares of the Common Stock issuable upon the
related conversion of shares of Series A Preferred Stock pursuant to
this Section 4 shall be treated for all purposes as the record holder
or holders of the shares of Common Stock issuable in respect of such
conversion on said date. From and after the Conversion Date in respect
of such shares of Series A Preferred Stock, all such shares of Series A
Preferred Stock shall be deemed to have been converted into shares of
Common Stock at the applicable conversion rate, all stock dividends on
such shares of the Series A Preferred Stock shall cease to accrue, and
all rights of the holders thereof as holders of Series A Preferred
Stock, except the right to
-6-
<PAGE>
receive all accrued and unpaid stock dividends to such Conversion Date
at the applicable rate for such shares of Series A Preferred Stock and
the right to receive certificates representing shares of Common Stock
issuable upon conversion of such shares (including, without limitation,
with respect to such stock dividends), shall cease and terminate, such
shares of Series A Preferred Stock shall not thereafter be transferred
(except with the consent of the Corporation) on the books of the
Corporation and such shares shall not be deemed to be outstanding for
any purpose whatsoever. The rights of a holder to elect to convert
shares of Series A Preferred Stock under this Section 4(a) and 4(b)
shall cease and terminate immediately after the Mandatory Conversion
Date.
(c) Subject to Section 4(d), to the extent that any shares of
Series A Preferred Stock held by a holder thereof have not been converted
pursuant to Sections 4(a) and 4(b) as of the Mandatory Conversion Date, such
holder shall be deemed to have elected to convert such remaining shares of
Series A Preferred Stock as of the Mandatory Conversion Date (without any action
required by such holder) and the Corporation shall issue shares of Common Stock
to such holder and satisfy its other obligations under Section 4(a) and (b) as
if such holder had elected to convert such remaining shares of Series A
Preferred Stock pursuant to Sections 4(a) and 4(b) as of the Mandatory
Conversion Date.
(d) Notwithstanding anything herein to the contrary, in the
event that (i) a holder of Series A Preferred Stock elects (or is deemed to have
elected) to convert shares of Series A Preferred Stock pursuant to Sections 4(a)
and 4(b) or pursuant to Section 4(c) for which a Denominator that is less than
the Closing Price is utilized in the calculation (pursuant to Section 4(a)) of
the number of shares of Common Stock to be issued in such conversion and (ii)
such conversion would result in such holder receiving, as a result of such
conversion, a number of shares of Common Stock that, together with other shares
of Common Stock issued to such holder (or any affiliate of such holder) in any
prior conversion(s) of Series A Preferred Stock that utilized a Denominator that
was less than the Closing Price in the calculation (pursuant to Section 4(a)) of
the number of shares of Common Stock to be issued in such conversion, would
equal or exceed twenty percent (20%) of the shares of Common Stock of the
Corporation outstanding on the Closing Date (the "Threshold Amount"), the
Corporation shall (i) issue to such holder the number of shares of Common Stock
otherwise required to be issued to such holder as a result of such conversion
(including any shares of Common Stock representing cumulative stock dividends
accrued to the applicable Conversion Date pursuant to Section 2) LESS the number
of shares of Common Stock otherwise issuable to such holder pursuant to such
conversion in excess of the Threshold Amount (the "Excess Shares") and (ii)
shall remit to such holder, in lieu of the Excess Shares, an amount of cash
equal to the number of Excess Shares multiplied by the current market price per
share of Common Stock (determined as provided in Section 5) determined as of
such Conversion Date. Upon such issuance of Common Stock and payment of such
cash to the holder in lieu of the
-7-
<PAGE>
Excess Shares, the Corporation's obligations to such holder arising as a result
of such conversion (including the Corporation's obligation to pay cumulative
stock dividends through the applicable Conversion Date) shall be deemed fully
satisfied.
(e) No fractional shares of Common Stock or scrip representing
fractional shares shall be issued upon conversion of shares of the Series A
Preferred Stock pursuant to this Section 4. If more than one share of the Series
A Preferred Stock shall be surrendered for conversion by the same holder, the
number of full shares of Common Stock which shall be issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of the
Series A Preferred Stock so surrendered. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of any shares of
the Series A Preferred Stock, the Corporation shall pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction of the closing
bid price for Common Stock determined as of the last business day preceding the
Conversion Date in respect of such shares. The closing bid price for such day
shall be the last reported bid price on the American Stock Exchange, or if
Common Stock is not listed or admitted to trading on such exchange, on the
principal national securities exchange on which Common Stock is listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange, the closing bid price of Common Stock on NASDAQ or any
comparable system. If Common Stock is not quoted on NASDAQ or any comparable
system, the Board of Directors of the Corporation shall in good faith determine
the current market price on such basis as it considers appropriate.
(f) When shares of Series A Preferred Stock are converted (or
deemed converted) by a holder pursuant to this Section 4, the Corporation shall
pay any documentary, stamp or similar issue or transfer tax due on the issue of
Common Stock upon such conversion.
(g) The Corporation shall reserve at all times out of the
Corporation's authorized but unissued shares of Common Stock a sufficient number
of shares of Common Stock to permit the conversion of the then outstanding
shares of the Series A Preferred Stock pursuant to this Section 4 and such
reserved shares shall not be used for any other purpose. All shares of Common
Stock which may be issued upon conversion of shares of the Series A Preferred
Stock pursuant to this Section 4 shall be validly issued, fully paid and
nonassessable. In order that shares of Common Stock may be issued upon
conversion of shares of the Series A Preferred Stock, the Corporation shall
comply with all applicable Federal and State securities laws and use its best
efforts to list such shares of Common Stock to be issued upon conversion on each
securities exchange on which Common Stock is listed.
(h) The conversion rate (and the components thereof) in effect
at any time for conversion of Series A Preferred Stock into Common Stock
pursuant to this Section 4 shall be subject to adjustment from time to time as
follows:
-8-
<PAGE>
(i) In the event that the Corporation shall (1) pay a dividend
in shares of Common Stock to holders of Common Stock, (2) make a
distribution in shares of Common Stock to holders of Common Stock, (3)
subdivide the outstanding shares of Common Stock into a greater number
of shares of Common Stock, (4) combine the outstanding shares of Common
Stock into a smaller number of shares of Common Stock or (5) otherwise
increase or decrease the number of outstanding shares of Common Stock
through reclassification or any other event similar to the events
described in clauses (1) through (4) above, the conversion rate (and
the components thereof) in effect pursuant to this Section 4
immediately prior to such action shall be adjusted to the extent
required to give effect to the impact of any such event so that the
holder of any shares of the Series A Preferred Stock thereafter
surrendered for conversion pursuant to this Section 4 shall be entitled
to receive the number of shares of Common Stock which he would have
owned immediately following such action had such shares of the Series A
Preferred Stock been converted immediately prior thereto. Such
adjustment shall be made whenever any event listed above shall occur
and shall become effective (A) immediately after the record date in the
case of a dividend or a distribution or other applicable event for
which a record date is used and (B) immediately after the effective
date in the case of a subdivision or combination or other applicable
event for which a record date is not used.
(ii) In case the Corporation shall distribute to all
holders of the Common Stock shares of any class of capital stock other
than Common Stock, evidences of indebtedness or other assets (other
than non-extraordinary cash dividends out of current or retained
earnings), or shall distribute to substantially all holders of Common
Stock rights or warrants to subscribe for securities, then in each such
case the number of shares of the Common Stock into which each share of
the Series A Preferred Stock shall be converted shall be adjusted (and
appropriate adjustments shall be made to the component parts of the
applicable conversion rate) so that such number shall equal the number
determined by multiplying the number of shares of Common Stock into
which such share of the Series A Preferred Stock was convertible
immediately prior to the date of such distribution by a fraction of
which the numerator shall be the current market price of Common Stock
(determined as provided in Section 5) on the record date mentioned
below, and of which the denominator shall be such current market price
of Common Stock, less the then fair market value (as determined in good
faith by the Board of Directors of the Corporation, whose determination
shall be conclusive evidence of such fair market value) of the portion
of the assets so distributed or of such subscription rights or warrants
applicable to one share of Common Stock. Such adjustment shall become
effective immediately after the record date for the determination of
the holders of Common Stock entitled to receive such distribution.
-9-
<PAGE>
(iii) The Corporation shall provide at least 10
business days advance notice to holders of Series A Preferred Stock of
any record date or other applicable date for determining shareholders
entitled to participate in any of the events described in this Section
4(h) or other similar events not described in this Section 4(h) which
would have a dilutive effect on the Series A Preferred Stock or the
Common Stock into which the Series A Preferred Stock is convertible.
(i) No adjustment in the conversion rate (or its component
parts) under this Section 4 shall be required until cumulative adjustments
result in a concomitant change of 1% or more of the conversion rate as in effect
prior to the last adjustment of the conversion rate; PROVIDED, HOWEVER, that any
adjustments which by reason of this Section 4(i) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 4 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be. No adjustment to the
conversion rate shall be made for non-extraordinary cash dividends.
(j) In the event that, as a result of an adjustment made
pursuant to Section 4(h), the holder of any share of the Series A Preferred
Stock thereafter surrendered for conversion shall become entitled to receive any
shares of capital stock of the Corporation other than shares of Common Stock,
thereafter the number of such other shares so receivable upon conversion of any
shares of the Series A Preferred Stock shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in this Section 4.
(k) The Corporation may make such increases in the conversion
rate, in addition to those required by Sections 4(h)(i) and (ii), as it
considers to be advisable in order that any event treated for Federal income tax
purposes as a dividend of stock or stock rights shall not be taxable to the
recipients thereof.
(l) Whenever the conversion rate (or any components thereof)
is adjusted pursuant to this Section 4, the Corporation shall promptly mail to
all holders of record of shares of the Series A Preferred Stock a notice of the
adjustment and shall cause to be prepared a certificate signed by the chief
financial officer of the Corporation or, if requested in writing by holders of a
majority of the shares of Series A Preferred Stock then outstanding, the
Corporation's outside accountants or a reputable investment banking firm
selected by the Corporation setting forth the adjusted conversion rate (and the
component parts thereof) and a brief statement of the facts requiring such
adjustment and the computation thereof. Such certificate shall forthwith be
filed with each transfer agent for the shares of the Series A Preferred Stock.
(m) If any of the following shall occur: (i) any
reclassification or change of outstanding shares of Common Stock
-10-
<PAGE>
issuable upon conversion of shares of the Series A Preferred Stock (other than a
change in par value, or from par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination), (ii) any
consolidation or merger to which the Corporation is a party other than a merger
in which the Corporation is the continuing corporation and which does not result
in any reclassification of, or change (other than a change in name, or par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination) in, outstanding shares of Common
Stock or (iii) any sale or conveyance of all or substantially all of the
property or business of the Corporation as an entirety, then the Corporation, or
such successor or purchasing corporation, as the case may be, shall, as a
condition precedent to such reclassification, change, consolidation, merger,
sale or conveyance, provide in its certificate of incorporation or other charter
document that each share of the Series A Preferred Stock shall be convertible
under this Section 4 into the kind and amount of shares of capital stock and
other securities and property (including cash) receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of shares of Common Stock deliverable upon conversion of such
share of the Series A Preferred Stock immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance. Such
certificate of incorporation or other charter document shall provide for
adjustments and protection which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 4. If, in the case
of any such consolidation, merger, sale or conveyance, the stock or other
securities and property (including cash) receivable thereupon by a holder of
Common Stock includes shares of capital stock or other securities and property
of a corporation other than the successor purchasing corporation, as the case
may be, in such consolidation, merger, sale or conveyance, then the certificate
of incorporation or other charter document of such other corporation shall
contain such additional provisions to protect the interests of the holders of
shares of the Series A Preferred Stock as the Board of Directors of the
Corporation shall reasonably consider necessary by reason of the foregoing. The
provision of this Section 4(m) shall similarly apply to successive
consolidations, mergers, sales or conveyances.
(n) No sooner than fifteen (15) business days nor later than
five (5) business days prior to the consummation of a transaction referred to in
clauses (ii) or (iii) of Section 4(m) (a "Major Transaction"), but not prior to
the public announcement of such Major Transaction, the Corporation shall deliver
written notice (a "Notice of Major Transaction") to each holder of Series A
Preferred Stock, which Notice of Major Transaction shall be deemed to have been
delivered to the holder one (1) business day after the Corporation's sending of
such notice (for overnight delivery) by a common carrier, if such delivery is to
be made in the United States, or two (2) business days after the Corporation's
sending of such notice (for two (2) day delivery) by common carrier, if such
notice is to be delivered outside the United States. Such Notice of Major
Transaction shall indicate the amount
-11-
<PAGE>
and type(s) of consideration (the "Major Transaction Consideration") the holders
of Series A Preferred Stock would receive for their shares of Series A Preferred
Stock in the related Major Transaction. Such holder may elect to redeem all or a
portion of such holder's shares of Series A Preferred Stock for an amount in
cash equal to $125 per share of Series A Preferred Stock held by such holder to
be so redeemed in lieu of the Major Transaction Consideration or other
securities and/or property that would otherwise be payable to such holder
pursuant to Section 4(m). A holder may exercise such election by delivering
written notice of such election to the Corporation, together with certificates
for the shares of Series A Preferred Stock to be redeemed in connection with
such election, within five (5) business days of the holder's receipt of the
related Notice of Major Transaction, which notice shall be deemed given one (1)
business day after the holder sends such notice (together with such
certificates) from the United States by common carrier for overnight delivery or
two (2) business days after the holder sends such notice (together with such
certificates) from outside the United States by common carrier for two (2) day
delivery. In the event that such Major Transaction is not completed within
fifteen (15) business days after the Corporation is given a holder's related
notice of election pursuant to the prior sentence, such election shall be null
and void and the Corporation shall promptly return the certificate(s)
representing the Series A Preferred Stock delivered by such holder to such
holder; provided, that the Corporation will comply with the notice provisions of
this Section 4(n) with respect to any later consummation of such Major
Transaction. This Section 4(n) shall not apply in respect of any Major
Transaction that occurs after the second anniversary of the Closing Date.
(o) (i) After the occurrence of a Change in Control (as
defined below), other than in connection with a Major Transaction, each
holder of Series A Preferred Stock shall have the right, at such
holder's option, to require the Corporation to redeem all or a portion
of such holder's Series A Preferred Stock for an amount per share in
cash equal to the greater of (A) $125 and (B) the product of the
aggregate number of shares of Common Stock into which a share of Series
A Preferred Stock is convertible (assuming such conversion were to
occur on the last day preceding the effective date for the Change of
Control) multiplied by the current market price per share of Common
Stock (determined as provided in Section 5) as of the last date
preceding the effective date of such Change of Control. As used in this
Section 4(o), a "Change in Control" shall be deemed to have occurred at
such time as either Douglas R. Eger or Thomas M. Fitzgerald cease to be
either a director or officer of the Corporation. The rights of holders
of Series A Preferred Stock under this Section 4(o) shall not apply in
respect of any Change of Control that occurs after the first
anniversary of the Closing Date.
(ii) The Corporation shall provide each holder of
Series A Preferred Stock with written notice of the occurrence of any
Change of Control (a "Change of Control Notice") within
-12-
<PAGE>
two (2) business days after the occurrence of such Change of Control.
Each holder may require the Corporation to redeem all or a portion of
such holder's shares of Series A Preferred Stock pursuant to this
Section 4(o) by delivering written notice (a "Notice of Redemption at
Option of Holder") to the Corporation to such effect within ten (10)
business days after receipt of the applicable Change of Control Notice,
which Notice of Redemption at Option of Holder shall be deemed to have
been delivered one (1) business day after such holder's sending, if
such notice is sent within the United States for overnight delivery by
a common carrier, or two (2) business days after such holder's sending,
if such notice is sent from outside the United States by two (2) day
delivery by a common carrier. Each such Notice of Redemption at Option
of Holder shall indicate the number of shares of Series A Preferred
Stock that have been selected by such holder for redemption.
(iii) Each holder submitting certificate(s)
representing shares of Series A Preferred Stock for redemption under
this Paragraph 4(o) shall send such holder's Preferred Stock
Certificates to be redeemed to the Corporation or its Transfer Agent
and the Corporation shall pay the applicable redemption price to that
holder within thirty (30) business days after the Corporation's receipt
of such holder's Notice of Redemption at Option of Holder; provided
that such holder's certificate(s) representing shares of Series A
Preferred Stock to be redeemed (or an indemnification undertaking with
respect to such shares in the case of their loss, theft or destruction)
shall have been so delivered to the Corporation or its Transfer Agent.
(p) As used herein, "business day" means a day of the year on
which banks are not required or authorized to close in New York City, New York.
(q) It is understood that the restrictions on any holder's
ability to convert such holder's shares of Series A Preferred Stock contained
herein may be supplemented by separate written agreement between such holder and
the Corporation.
Section 5. CALCULATIONS OF CURRENT MARKET PRICE OF COMMON
STOCK. For purposes of calculations relating to the Series A Preferred Stock
that refer to the current market price per share of Common Stock, the current
market price per share of Common Stock on or as of any day shall be deemed to be
the average of the closing bid prices for the ten (10) consecutive trading days
ending the last trading day before the day in question. The closing bid price
for each day shall be the last reported bid price on the American Stock
Exchange, or if Common Stock is not listed or admitted to trading on such
exchange, on the principal national securities exchange on which Common Stock is
listed or admitted to trading or, if not listed or admitted to trading on any
national securities exchange, the closing bid price of Common Stock on NASDAQ or
any comparable system, or if Common Stock is not quoted
-13-
<PAGE>
on NASDAQ or any comparable system, the closing bid price as furnished by any
two members of the National Association of Securities Dealers, Inc. selected
from time to time by the Corporation for that purpose. If Common Stock is not so
quoted on NASDAQ or any comparable system, the Board of Directors of the
Corporation shall reasonably and in good faith determine the current market
price on such basis as it considers appropriate. For example, in the event that
the current market price per share of Common Stock is to be determined as of a
Conversion Date, the current market price per share of Common Stock shall equal
the average of the last reported bid price as reported by the American Stock
Exchange for the ten (10) consecutive trading days ending the last trading day
before such Conversion Date (assuming that the Common Stock is listed and
admitted for trading on the American Stock Exchange and a reported bid price for
Common Stock is placed on the American Stock Exchange on each such trading day).
Section 6. LIMITATIONS. (a) In addition to any other rights
provided by applicable law, so long as any shares of the Series A Preferred
Stock are outstanding, the Corporation shall not, without the affirmative vote,
or the written consent as provided by law, of the holders of at least two-thirds
(2/3) of the outstanding shares of the Series A Preferred Stock, voting as a
separate class,
(i) create, authorize or issue any class or series of
capital stock, or rights to subscribe to or acquire, or any
security convertible into, any class or series of capital
stock ranking as to payment of dividends, distribution of
assets upon liquidation or voting rights, prior to the Series
A Preferred Stock; or
(ii) amend, alter or appeal, whether by merger,
consolidation or otherwise, any of the provisions of the
Certificate of Incorporation (including this Certificate of
Designation) that would change the preferences, rights or
powers with respect to the Series A Preferred Stock so as to
affect the Series A Preferred Stock adversely.
(b) In addition to any other rights provided by applicable
law, so long as any shares of the Series A Preferred Stock are outstanding, the
Corporation shall not, without the affirmative vote, or the written consent as
provided by law, of the holders of at least two-thirds (2/3) of the outstanding
shares of the Series A Preferred Stock, voting as a separate class, issue or
agree to issue any Common Stock or any security convertible or otherwise
exchangeable, directly or indirectly, for Common Stock if such shares of Common
Stock are to be issued, or such convertible securities are to be converted to or
exchanged for shares of Common Stock, at a price per share less than the current
market price for the Common Stock (determined as provided in Section 5) as of
the day immediately preceding the date of the issuance of such Common Stock or
such convertible or exchangeable security (as the case may be); provided,
however, that the restrictions contained in this paragraph (b) shall not apply
(i) to the issuance of any such
-14-
<PAGE>
convertible or exchangeable securities that are convertible or exchangeable at a
fixed price (and not a floating price) per share equal to or greater than the
current market price for the Common Stock (determined as provided in Section 5)
as of the date of issuance of such convertible or exchangeable security, (ii) to
the issuance of Common Stock and other securities of the Corporation issuable
upon the exercise or conversion of options, warrants on other rights to purchase
securities of the Corporation outstanding as of the date hereof, (iii) to the
issuance of any securities to officers, directors or employees of the
Corporation or any of its subsidiaries, (iv) to the issuance of any securities
of the Corporation in an underwritten public offering or (v) to any other
issuance of securities after the date that is 90 days after the Closing Date if
the holders of Series A Preferred Stock are first delivered a written notice (a
"Right of First Refusal Notice") from the Corporation offering such holders on a
PRO RATA basis the right to purchase all or a portion of the related securities
at the same price (and on the same terms and conditions, offered to other
proposed investors (which notice shall set forth such price, terms and
conditions). In the event that the Corporation delivers a Right of First Refusal
Notice to any holder of Series A Preferred Stock, the failure by such holder to
commit in writing to purchase such holder's pro rata portion of the securities
identified in such Right of First Refusal Notice within five (5) business days
of delivery thereof may be deemed by the Corporation to constitute such holder's
determination not to so purchase such securities and the Corporation shall then
be permitted to sell such securities to other investors at the price and on the
terms and conditions set forth in such notice. The rights of holders of Series A
Preferred Stock under this paragraph (b) shall terminate on the first
anniversary of the Closing Date.
(c) Notwithstanding the foregoing, except as otherwise
required by applicable law, nothing herein contained shall require a vote or
consent of the holders of Series A Preferred Stock in connection with any
increase in the total number of authorized shares of Common Stock. The holders
of Series A Preferred Stock shall not be entitled to vote on any matter except
(i) as provided in this Section 6 and (ii) as required by law.
Section 7. LOST OR STOLEN CERTIFICATES. Upon (i) receipt by
the Corporation from a holder of evidence satisfactory to the Corporation of the
loss, theft, destruction of any certificate(s) representing shares of Series A
Preferred Stock and of an indemnification undertaking by the holder to the
Corporation that is reasonably satisfactory to the Corporation or (ii) upon
surrender and cancellation of certificate(s) representing shares of Series A
Preferred Stock that have been mutilated, the Corporation shall execute and
deliver to such holder new certificate(s) representing shares of Series A
Preferred Stock of like tenor and date. However, the Corporation shall not be
obligated to re-issue such lost, stolen, destroyed or mutilated certificate(s)
representing shares of Series A Preferred Stock if such holder contemporaneously
requests the Corporation to convert such shares
-15-
<PAGE>
of Series A Preferred Stock into shares of Common Stock or otherwise redeem such
shares pursuant to the terms hereof.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Designation to be signed by Douglas R. Eger, its Chairman and
Chief Executive Officer, and attested by George Lombardi, its Secretary, this
28th day of February, 1997.
SHEFFIELD MEDICAL TECHNOLOGIES INC.
By: /S/ DOUGLAS R. EGER
Douglas R. Eger
Chairman and Chief Executive
Officer
Attested:
By: /S/ GEORGE LOMBARDI
George Lombardi
Secretary
-16-
<PAGE>
EXHIBIT A
TO CERTIFICATE
OF DESIGNATION
NOTICE OF CONVERSION
(To be completed, executed and delivered upon
conversion of shares of Series A Preferred Stock)
TO: Sheffield Medical Technologies Inc.
Attention: Chief Financial Officer
The undersigned holder of shares of Series A Cumulative
Convertible Redeemable Preferred Stock ("Series A Preferred Stock") of Sheffield
Medical Technologies Inc. (the "Company") hereby converts ________ shares of
Series A Preferred Stock into Common Stock of the Company at the applicable
conversion rate on the terms and conditions specified in the Certificate of
Designation for the Series A Preferred Stock. The undersigned surrenders
herewith certificate(s) representing such number of shares of Series A Preferred
Stock to be converted and all right, title and interest therein to the Company
and directs that the Common Stock deliverable upon the conversion of such shares
of Series A Preferred Stock be registered or placed in the name and at the
address specified below and delivered thereto.
[Insert Common Stock Registration Information]
In the event that the certificate(s) surrendered represent a
number of shares of Series A Preferred Stock in excess of the shares of Series A
Preferred Stock converted pursuant to this notice, you are advised to issue and
deliver to the undersigned holder a certificate representing the remaining
balance of shares of Series A Preferred Stock represented by the surrendered
certificate(s) not so converted.
Date: _____________________.
Your Signature: ________________________________________
(Sign exactly as your name appears on the
certificate representing the Shares of Series A
Preferred Stock being converted)
-17-
<PAGE>
Certificate of Amendment
of
Certificate of Incorporation
of
SHEFFIELD MEDICAL TECHNOLOGIES INC.
Under Section 242 of the General Corporation Law
It is hereby certified that:
1. The certificate of incorporation of Sheffield Medical Technologies
Inc. (the "Corporation") is hereby amended by striking Article FIRST thereof and
by substituting in lieu of said Article the following new Article FIRST:
FIRST: The name of the corporation (hereinafter
sometimes called the "Corporation") is Sheffield
Pharmaceuticals, Inc. (the "Corporation").
2. The certificate of incorporation of the Corporation is hereby
amended by striking out Article FOURTH thereof and by substituting in lieu of
said Article the following new Article FOURTH:
"FOURTH: The total number of shares of stock that the
Corporation shall have the authority to issue is (i) fifty
million (50,000,000) shares of Common Stock, $.01 par value
("Common Stock"), and (ii) three million (3,000,000) shares of
Preferred Stock, $.01 par value ("Preferred Stock").
(a) COMMON STOCK.
(i) GENERAL. The voting, dividend and liquidation rights of the holders
of Common Stock are subject to and qualified by the rights of the holders of the
Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
(ii) VOTING. The holders of Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
(iii) DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
<PAGE>
(iv) LIQUIDATION. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation available for distribution to
its stockholders after payment of creditors and subject to any preferential
and/or participating rights of any outstanding Preferred Stock.
(b) PREFERRED STOCK.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative, participating, option or other special rights and qualifications,
limitations or restrictions thereof, including without limitation thereof,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as shall be stated and expressed in such resolutions, all to the
full extent now or hereafter permitted by the General Corporation Law of
Delaware. Without limiting the generality of the foregoing, the resolutions
providing for issuance of any series of Preferred Stock may provide that such
series shall be superior or rank equally or junior to the Preferred Stock of any
other series to the extent permitted by law. Except as expressly provided
elsewhere in this Article FOURTH no vote of the holders of the Preferred Stock
or Common Stock shall be required in connection with the designation or the
issuance of any shares of any series of any Preferred Stock authorized by and
complying with the conditions herein, the right to have such vote being
expressly waived by all present and future holders of the capital stock of the
Corporation."
3. The amendment of the certificate of incorporation herein certified
has been duly adopted in accordance with the provisions of Sections 228 and 242
of the General Corporation Law of the State of Delaware.
Signed on June 26, 1997. SHEFFIELD MEDICAL TECHNOLOGIES
INC.
By: /S/ LOREN G. PETERSON
Name: Loren G. Peterson
Title: CEO
Attest:
/S/ GEORGE LOMBARI
George Lombardi, Secretary
-2-
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC.
(a Delaware corporation)
BY-LAWS
(as amended through June 27, 1997)
ARTICLE ONE
STOCKHOLDERS
SECTION 1.1. ANNUAL MEETINGS. An annual meeting of
stockholders to elect directors and transact such other business as may properly
be presented to the meeting shall be held at such place as the Board of
Directors may from time to time fix, if that day shall be a legal holiday in the
jurisdiction in which the meeting is to be held, then on the next day not a
legal holiday or as soon thereafter as may be practical, determined by the Board
of Directors.
SECTION 1.2. SPECIAL MEETINGS. A special meeting of
stockholders may be called at any time by the Board of Directors or the
President and shall be called by any of them or by the Secretary upon receipt of
a written request to do so specifying the matter or matters, appropriate for
action at such a meeting, proposed to be presented at the meeting and signed by
holders of record of a majority of the shares of stock that would be entitled to
be voted on such matter or matters if the meeting were held on the day such
request is received and the record date for such meeting were the close of
business on the preceding day. Any such meeting shall be held at such time and
at such place, within or without the State of Delaware, as shall be determined
by the body or person calling such meeting and as shall be stated in the notice
of such meeting.
SECTION 1.3. NOTICE OF MEETING. For each meeting of
stockholders written notice shall be given stating the place, date and hour and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Except as otherwise provided by Delaware law, the written notice of
any meeting shall be given not less than 10 or more than 60 days before the date
of the meeting to each stockholder entitled to vote at such meeting. If mailed,
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the Corporation.
SECTION 1.4. QUORUM. Except as otherwise required by Delaware
law or the Certificate of Incorporation, the holders of record of a majority of
the shares of stock entitled to be voted present in person or represented by
proxy at a meeting shall constitute a quorum for the transaction of business at
the
<PAGE>
meeting, but in the absence of a quorum the holders of record present or
represented by proxy at such meeting may vote to adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is obtained. At any such adjourned session of the meeting at which there shall
be present or represented the holders of record of the requisite number of
shares, any business may be transacted that might have been transacted at the
meeting as originally called.
SECTION 1.5. CHAIRMAN AND SECRETARY AT MEETING. At each
meeting of stockholders the President, or in his absence the person designated
in writing by the President, or if no person is so designated, then a person
designated by the Board of Directors, shall preside as chairman of the meeting;
if no person is so designated, then the meeting shall choose a chairman by
plurality vote. The Secretary, or in his absence a person designated by the
chairman of the meeting, shall act as secretary of the meeting.
SECTION 1.6. VOTING; PROXIES. Except as otherwise provided by
Delaware law or the Certificate of Incorporation, and subject to the provisions
of Section 1.10:
(a) Each stockholder shall at every meeting of the
stockholders be entitled to one vote for each share of capital stock held by
him.
(b) Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
(c) Directors shall be elected by a plurality vote.
(d) Each matter, other than election of directors,
properly presented to any meeting shall be decided by a majority of the votes
cast on the matter.
(e) Election of directors and the vote on any other
matter presented to a meeting shall be by written ballot only if so ordered by
the chairman of the meeting or if so requested by any stockholder present or
represented by proxy at the meeting entitled to vote in such election or on such
matter, as the case may be.
SECTION 1.7. ADJOURNED MEETINGS. A meeting of stockholders may
be adjourned to another time or place as provided in Section 1.4 or 1.6(d).
Unless the Board of Directors fixes a new record date, stockholders of record
for an adjourned
-2-
<PAGE>
meeting shall be as originally determined for the meeting from which the
adjournment was taken. If the adjournment is for more than 30 days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote. At the adjourned meeting any business may be transacted that might have
been transacted at the meeting as originally called.
SECTION 1.8. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Any
action that may be taken at any annual or special meeting of stockholders may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Notice of the taking of such
action shall be given promptly to each stockholder that would have been entitled
to vote thereon at a meeting of stockholders and that did not consent thereto in
writing.
SECTION 1.9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. At least
10 days before every meeting of stockholders a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder, shall be prepared and shall be open to the examination of any
stockholder for any purpose germane to the meeting, during ordinary business
hours, for a period of at least 10 days prior to the meeting, at a place within
the city where the meeting is to be held. Such list shall be produced and kept
at the time and place of the meeting during the whole time thereof and may be
inspected by any stockholder who is present.
SECTION 1.10. FIXING OF RECORD DATE. In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than 60 or less than 10 days
before the date of such meeting, nor more than 60 days prior to any other
action. If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held; the record date for determining
-3-
<PAGE>
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the Board of Directors is necessary, shall be
the day on which the first written consent is expressed; and the record date for
any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
ARTICLE TWO
DIRECTORS
SECTION 2.1. NUMBER; TERM OF OFFICE; QUALIFICATIONS;
VACANCIES. The number of directors that shall constitute the whole Board of
Directors shall be four, which number may be changed from time to time as
determined by action of the Board of Directors taken by the affirmative vote of
a majority of the whole Board of Directors. Directors shall be elected at the
annual meeting of stockholders to hold office, subject to Sections 2.2 and 2.3,
until the next annual meeting of stockholders and until their respective
successors are elected and qualified. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, although less than a quorum, or
by the sole remaining director, and the directors so chosen shall hold office,
subject to Sections 2.2 and 2.3, until the next annual meeting of stockholders
and until their respective successors are elected and qualified.
SECTION 2.2. RESIGNATION. Any director of the Corporation may
resign at any time by giving written notice of such resignation to the Board of
Directors, the President or the Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein or, if no time be
specified, upon receipt thereof by the Board of Directors or one of the
above-named officers; and, unless specified therein, the acceptance of such
resignation shall not be necessary to make it effective. When one or more
directors shall resign from the Board of Directors effective at a future date, a
majority of the directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
director so chosen shall hold office as provided in these By-Laws in the filling
of other vacancies.
SECTION 2.3. REMOVAL. Any one or more directors may be
removed, with or without cause, by the vote or written consent of the holders of
a majority of the shares entitled to vote at an election of directors.
-4-
<PAGE>
SECTION 2.4. REGULAR AND ANNUAL MEETINGS; NOTICE. Regular
meetings of the Board of Directors shall be held at such time and at such place,
within or without the State of Delaware, as the Board of Directors may from time
to time prescribe. No notice need be given of any regular meeting, and a notice,
if given, need not specify the purposes thereof. A meeting of the Board of
Directors may be held without notice immediately after an annual meeting of
stockholders at the same place as that at which such meeting was held.
SECTION 2.5. SPECIAL MEETINGS; NOTICE. A special meeting of
the Board of Directors may be called at any time by the Board of Directors, its
Chairman, the Executive Committee, the President or any person acting in the
place of the President and shall be called by any one of them or by the
Secretary upon receipt of a written request to do so specifying the matter or
matters, appropriate for action at such a meeting, proposed to be presented at
the meeting and signed by at least two directors. Any such meeting shall be held
at such time and at such place, within or without the State of Delaware, as
shall be determined by the body or person calling such meeting. Notice of such
meeting stating the time and place thereof shall be given (a) by deposit of the
notice in the United States mail, first class, postage prepaid, at least two
days before the day fixed for the meeting addressed to each director at his
address as it appears on the Corporation's records or at such other address as
the director may have furnished the Corporation for that purpose, or (b) by
delivery of the notice similarly addressed for dispatch by telegraph, cable or
radio or by delivery of the notice by telephone or in person, in each case at
least 24 hours before the time fixed for the meeting.
SECTION 2.6. CHAIRMAN OF THE BOARD; PRESIDING OFFICER AND
SECRETARY AT MEETINGS. The Board of Directors may elect one of its members to
serve at its pleasure as Chairman of the Board. Each meeting of the Board of
Directors shall be presided over by the Chairman of the Board or in his absence
by the President, if a director, or if neither is present by such member of the
Board of Directors as shall be chosen at the meeting. The Secretary, or in his
absence an Assistant Secretary, shall act as secretary of the meeting, or if no
such officer is present, a secretary of the meeting shall be designated by the
person presiding over the meeting.
SECTION 2.7. QUORUM. A majority of the whole Board of
Directors shall constitute a quorum for the transaction of business, but in the
absence of a quorum a majority of those present (or if only one be present, then
that one) may adjourn the meeting, without notice other than announcement at the
meeting, until such time as a quorum is present. Except as otherwise required by
the Certificate of Incorporation or the By-Laws, the vote of the majority of the
directors present at a
-5-
<PAGE>
meeting at which a quorum is present shall be the act of the Board of Directors.
SECTION 2.8. MEETING BY TELEPHONE. Members of the Board of
Directors or of any committee thereof may participate in meetings of the Board
of Directors or of such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at such meeting.
SECTION 2.9. ACTION WITHOUT MEETING. Unless otherwise
restricted by the Certificate of Incorporation, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board of Directors or of
such committee, as the case may be, consent thereto in writing and the writing
or writings are filed with the minutes of proceedings of the Board of Directors
or of such committee.
SECTION 2.10. EXECUTIVE AND OTHER COMMITTEES. The Board of
Directors may, by resolution passed by a majority of the whole Board of
Directors, designate an Executive Committee and one or more other committees,
each such committee to consist of one or more directors as the Board of
Directors may from time to time determine. Any such committee, to the extent
provided in such resolution or resolutions, 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, including the power to authorize the seal of the
Corporation to be affixed to all papers that may require it but no such
committee shall have such power of 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 By-Laws; and unless the resolution shall expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. 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 absent or disqualified member. Each such
committee other than the Executive Committee shall have such name as may be
determined from time to time by the Board of Directors.
SECTION 2.11. COMPENSATION. No director shall receive any
stated salary for his services as a director or as a member of a committee but
shall receive such sum, if any, as may from
-6-
<PAGE>
time to time be fixed by the action of a majority of the stockholders.
ARTICLE THREE
OFFICERS
SECTION 3.1. ELECTION; QUALIFICATION. The officers of the
Corporation shall be a President, one or more Vice Presidents, a Secretary and a
Treasurer, each of whom shall be selected by the Board of Directors. The Board
of Directors may elect a Controller, one or more Assistant Secretaries, one or
more Assistant Treasurers, one or more Assistant Controllers and such other
officers as it may from time to time determine. Two or more offices may be held
by the same person.
SECTION 3.2. TERM OF OFFICE. Each officer shall hold office
from the time of his election and qualification to the time at which his
successor is elected and qualified, unless he shall die or resign or shall be
removed pursuant to Section 3.4 at any time sooner.
SECTION 3.3. RESIGNATION. Any officer of the Corporation may
resign at any time by giving written notice of such resignation to the Board of
Directors, the President or the Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein or, if no time be
specified, upon receipt thereof by the Board of Directors or one of the
above-named officers; and, unless specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 3.4. REMOVAL. Any officer may be removed at any time,
with or without cause, by the vote of two directors if there are three directors
or less, or the vote of a majority of the whole Board of Directors if there are
more than three directors.
SECTION 3.5. VACANCIES. Any vacancy however caused in any
office of the Corporation may be filled by the Board of Directors.
SECTION 3.6. COMPENSATION. The compensation of each officer
shall be such as the Board of Directors may from time to time determine.
SECTION 3.7. CHAIRMAN OF THE BOARD. The Chairman of the Board
shall be the chairman of all meetings of the Board of Directors.
-7-
<PAGE>
SECTION 3.8. CHIEF EXECUTIVE OFFICER. The Chief Executive
Officer shall be the chief executive officer of the Corporation and shall have
general charge of the business and affairs of the Corporation, subject however
to the right of the Board of Directors to confer specified powers on officers
and subject generally to the direction of the Board of Directors and the
Executive Committee, if any.
SECTION 3.9. PRESIDENT. The President shall have such powers
and duties as generally pertain to the office of President and as the Board of
Directors or the President may from time to time prescribe. During the absence
of the Chief Executive Officer or his inability to act, the President shall
exercise the powers and shall perform the duties of the Chief Executive Officer,
subject to the direction of the Board of Directors and the Executive Committee,
if any.
SECTION 3.10. VICE PRESIDENT. Each Vice President shall have
such powers and duties as generally pertain to the office of Vice President and
as the Board of Directors or the President may from time to time prescribe.
During the absence of the President or his inability to act, the Vice President,
or if there shall be more than one Vice President, then that one designated by
the Board of Directors, shall exercise the powers and shall perform the duties
of the President, subject to the direction of the Board of Directors and the
Executive Committee, if any.
SECTION 3.11. SECRETARY. The Secretary shall keep the minutes
of all meetings of stockholders and of the Board of Directors. He shall be
custodian of the corporate seal and shall affix it or cause it to be affixed to
such instruments as require such seal and attest the same and shall exercise the
powers and shall perform the duties incident to the office of Secretary, subject
to the direction of the Board of Directors and the Executive Committee, if any.
SECTION 3.12. OTHER OFFICERS. Each other officer of the
Corporation shall exercise the powers and shall perform the duties incident to
his office, subject to the direction of the Board of Directors and the Executive
Committee, if any.
ARTICLE FOUR
CAPITAL STOCK
SECTION 4.1. STOCK CERTIFICATES. The interest of each holder
of stock of the Corporation shall be evidenced by a certificate or certificates
in such form as the Board of Directors may from time to time prescribe. Each
certificate shall be signed by or in the name of the Corporation by the
-8-
<PAGE>
President or a Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary. Any of or all the signatures appearing
on such certificate or certificates may be a facsimile. If any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
SECTION 4.2. TRANSFER OF STOCK. Shares of stock shall be
transferable on the books of the Corporation pursuant to applicable law and such
rules and regulations as the Board of Directors shall from time to time
prescribe.
SECTION 4.3. HOLDERS OF RECORD. Prior to due presentment for
registration of transfer the Corporation may treat the holder of record of a
share of its stock as the complete owner thereof exclusively entitled to vote,
to receive notifications and otherwise entitled to all the rights and powers of
a complete owner thereof, notwithstanding notice to the contrary.
SECTION 4.4. LOST, STOLEN, DESTROYED OR MUTILATED
CERTIFICATES. The Corporation shall issue a new certificate of stock to replace
a certificate theretofore issued by it alleged to have been lost, destroyed or
wrongfully taken, if the owner or his legal representative (i) requests
replacement, before the Corporation has notice that the stock certificate has
been acquired by a bona fide purchaser; (ii) files with the Corporation a bond
sufficient to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss or destruction of any such stock
certificate or the issuance of any such new stock certificate; and (iii)
satisfies such other terms and conditions as the Board of Directors may from
time to time prescribe.
ARTICLE FIVE
MISCELLANEOUS
SECTION 5.1. INDEMNITY. (a) The Corporation shall indemnify,
subject to the requirements of subsection (d) of this Section, any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation),
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer,
-9-
<PAGE>
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify, subject to the
requirements of subsection (d) of this Section, any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery of the State of Delaware or such other court shall deem
proper.
(c) To the extent that a director, officer, employee
or agent of the Corporation, or a person serving in any other enterprise at the
request of the Corporation, has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in subsection (a) and (b)
of this Section, or in defense of any claim, issue or matter therein, the
Corporation shall indemnify him against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
-10-
<PAGE>
(d) Any indemnification under subsections (a) and (b)
of this Section (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of this Section. Such determination shall be made (1) by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (2) if such a quorum
is not obtainable, or, even if obtainable a quorum of disinterested directors,
or (3) by independent legal counsel in a written opinion, or (4) by the
stockholders.
(e) Expenses incurred by a director, officer,
employee or agent in defending a civil or criminal action, suit or proceeding
may be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding as authorized by the Board of Directors upon receipt
of an undertaking by or on behalf of the director, officer, employee or agent to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation as authorized in this Section.
(f) The indemnification and advancement of expenses
provided by or granted pursuant to, the other subsections of this Section shall
not limit the Corporation from providing any other indemnification or
advancement of expenses permitted by law nor shall it be deemed exclusive of any
other rights to which those seeking indemnification may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
(g) The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or who is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Section.
(h) The indemnification and advancement of expenses
provided by, or granted pursuant to this section shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
-11-
<PAGE>
(i) For the purposes of this Section, references
to "the Corporation" shall include, in addition to the resulting corporation,
any constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its directors,
officers, employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was serving
at the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Section with respect to the resulting or surviving corporation as he would have
with respect to such constituent corporation if its separate existence had
continued.
(j) This Section 5.1 shall be construed to give
the Corporation the broadest power permissible by the Delaware General
Corporation Law, as it now stands and as heretofore amended.
SECTION 5.2. WAIVER OF NOTICE. Whenever notice is required by
the Certificate of Incorporation, the By-Laws or any provision of the General
Corporation Law of the State of Delaware, a written waiver thereof, signed by
the person entitled to notice, whether before or after the time required for
such notice, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders, directors or
members of a committee of directors need be specified in any written waiver of
notice.
SECTION 5.3. FISCAL YEAR. The fiscal year of the Corporation
shall start on such date as the Board of Directors shall from time to time
prescribe.
SECTION 5.4. CORPORATE SEAL. The corporate seal shall be in
such form as the Board of Directors may from time to time prescribe, and the
same may be used by causing it or a facsimile thereof to be impressed or affixed
or in any other manner reproduced.
-12-
<PAGE>
ARTICLE SIX
AMENDMENT OF BY-LAWS
SECTION 6.1. AMENDMENT. The By-Laws may be altered, amended or
repealed by the stockholders or by the Board of Directors by a majority vote.
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS FOR THE QUARTER ENDED JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 539,287
<SECURITIES> 174,407
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 818,114
<PP&E> 329,485
<DEPRECIATION> 189,162
<TOTAL-ASSETS> 1,072,853
<CURRENT-LIABILITIES> 945,499
<BONDS> 0
3,212,136
0
<COMMON> 119,883
<OTHER-SE> (3,216,455)
<TOTAL-LIABILITY-AND-EQUITY> 1,072,853
<SALES> 0
<TOTAL-REVENUES> 21,747
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,441,058
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,089
<INCOME-PRETAX> (3,421,400)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,421,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,421,400)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> (.29)
</TABLE>
