SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): APRIL 15, 1998
SHEFFIELD PHARMACEUTICALS INC.
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(Exact name of Registrant as specified in its charter)
Delaware 1-12584 13-3808303
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification
Number)
425 WOODSMILL ROAD, ST. LOUIS, MISSOURI 63017
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(Address of Principal executive offices) (Zip Code)
(314) 579-9899
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Registrant's telephone number, including area code
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(Former Name or Former Address; if Changed Since Last Report)
<PAGE>
ITEM 5. OTHER EVENTS.
On April 15, 1998, Sheffield Pharmaceuticals, Inc. (the
"Company") announced that it had entered into an option agreement to form a
strategic arrangement with Zambon Group SpA of Milan, Italy for the worldwide
development and commercialization of drugs to treat respiratory disease in the
Company's proprietary Metered Solution Inhaler (MSI) system. A copy of the press
release disclosing information relating to the option agreement and certain
other matters is attached as an exhibit to this report.
On April 16, 1998, the Company announced its financial results
for the fourth quarter and year ended December 31, 1998. In addition, the
Company announced that it had completed the offering and sale of its Series B
Cumulative Convertible Redeemable Preferred Stock ("Series B Preferred Stock")
for gross proceeds of $1.25 million. Copies of (i) the related press release and
(ii) the Certificate of Designations, Preferences and Rights of the Series B
Preferred Stock are attached as exhibits to this report.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS.
(c) EXHIBITS
1. Press Release of the Company dated April 15, 1998.
2. Press Release of the Company dated April 16, 1998.
3. Certificate of Designations, Preferences and Rights
of Series B Cumulative Convertible Redeemable
Preferred Stock of the Company dated April 15, 1998.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SHEFFIELD PHARMACEUTICALS INC.
Date: April 17, 1998 By: /s/ Judy Roeske Bullock
----------------------------------
Judy Roeske Bullock
Vice President and Chief Financial
Officer
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For further information:
SHEFFIELD PHARMACEUTICALS, INC. COFFIN COMMUNICATIONS GROUP
425 South Woodsmill Road, Suite 270 15300 Ventura Blvd. #303
St. Louis, MO 63017 Sherman Oaks, CA 91403
579-9899 (818) 789-0100
Contact: Loren G. Peterson Contact: John Muir
President & CEO Partner
Email: [email protected]
SHEFFIELD ANNOUNCES OPTION AGREEMENT WITH ZAMBON ON
RESPIRATORY ALLIANCE FOR MSI DELIVERY SYSTEM
ST. LOUIS, APRIL 15, 1998 -- Sheffield Pharmaceuticals, Inc. (AMEX:SHM)
announced today that it has entered into an option agreement to form a strategic
arrangement with Zambon Group SpA of Milan, Italy for the worldwide development
and commercialization of drugs to treat respiratory disease in Sheffield's
proprietary Metered Solution Inhaler (MSI) system. Zambon is among the top five
prescription respiratory companies in Europe. Terms of the contemplated
collaboration will include an equity investment by Zambon in Sheffield, funding
to develop four respiratory compounds for delivery in the MSI, royalties,
milestone payments, and retention by Sheffield of co-promotion rights for the
respiratory drugs in the United States. Sheffield will continue to retain all
rights to non-respiratory disease applications of the MSI. Mehta Partners
advised Zambon Group SpA on this transaction.
The option agreement represents the basis upon which the parties will negotiate
a definitive agreement expected to close within 60 days. Sheffield is receiving
a $650,000 option fee from Zambon in the form of an equity investment.
Sheffield's Chairman, Thomas Fitzgerald, in making the announcement said, "We
are very pleased to achieve this foundation transaction with Zambon. It is a
notable step forward in validating Sheffield's business model. Zambon is a
recognized leader within the world respiratory market, having a significant
presence throughout Europe.
Specifically, this transaction will provide Sheffield with:
An equity investment by Zambon
Funding of development of the four respiratory drugs for the USA and
Europe
Co-promotion rights in the USA for respiratory drugs developed
for the MSI system
Retention of all non-respiratory disease applications of the MSI
delivery platform for further collaboration and commercialization
Sheffield will also be able to continue its plans to acquire additional
strategic assets for eventual commercial exploitation. This arrangement provides
our shareholders with a solid international partner for development and
commercialization of a key therapeutic application of Sheffield's platform MSI
delivery system."
<PAGE>
Commenting on the option agreement, Dr. Daniel Sher, Zambon Vice President of
Worldwide Strategic Planning, stated, "I believe the MSI system represents an
exciting opportunity to develop a broad respiratory product range on a global
basis. Its advanced pulmonary delivery system offers tangible patient benefits.
This is an important step in the continued growth and development of Zambon's
worldwide respiratory business."
Zambon Group is a research-intensive, multinational pharmaceutical firm. The
group develops and manufactures human and veterinary healthcare products,
hospital devices and fine chemicals which it markets worldwide either directly
or through license. The Zambon strategic growth plan calls for focusing its
efforts, products and services in the respiratory area.
Sheffield Pharmaceuticals, Inc., headquartered in St. Louis, Missouri, is a
specialty pharmaceutical company focused on the development and
commercialization of later stage, lower risk pharmaceutical opportunities which
target patient markets having unmet medical needs.
This press release 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. Investors are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the ability of the company to successfully develop and commercialize
its technologies. Although the Company believes that the assumptions underlying
the forward-looking statements contained herein are reasonable, any assumptions
could be inaccurate, and therefore, there can be no assurance that the
forward-looking statements included in this press release 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.
###
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For further information:
SHEFFIELD PHARMACEUTICALS, INC. COFFIN COMMUNICATIONS GROUP
425 South Woodsmill Road, Suite 270 15300 Ventura Blvd. #303
St. Louis, MO 63017 Sherman Oaks, CA 91403
579-9899 (818) 789-0100
Contact: Loren G. Peterson Contact: John Muir
President & CEO Partner
Email: [email protected]
SHEFFIELD PHARMACEUTICALS, INC. REPORTS YEAR-END AND FOURTH
QUARTER FINANCIAL RESULTS
ST. LOUIS, APRIL 16, 1998 -- Sheffield Pharmaceuticals (AMEX:SHM) announced
today its financial results for the fourth quarter and year ended December 31,
1997. The Company reported a net loss for the year of $9.5 million, or $0.80 per
share, compared to a net loss of $7.0 million, or $0.65 per share, for the same
period last year. The Company also reported a net loss of $1.5 million, or $0.13
per share in the December quarter, compared to a net loss of $2.1 million, or
$0.19 per share for the same period last year. At December 31, 1997, total
assets were $690 thousand of which $394 thousand were cash and cash equivalents;
the Company's long-term debt was $1.6 million. The Company does not meet certain
of the American Stock Exchange's continued listing guidelines, and, as a result,
there can be no assurance that the Company's common stock will continue to be
listed on the AMEX.
Separately, the Company announced that it has made the DM 2.0 million
(approximately $1.1 million) payment to Siemens A.G. that was originally due in
January 1998 under the terms of the metered solution inhaler (MSI) license
agreement. This payment was made from the proceeds of a $1.25 million 6%
redeemable convertible preferred stock offering. Under the terms of this
offering, the preferred stock must be redeemed at the time the Company completes
a definitive sub-license agreement on the MSI or other financing.
Sheffield Pharmaceuticals, Inc., headquartered in St. Louis, Missouri, is a
specialty pharmaceutical company focused on the development and
commercialization of later stage, lower risk pharmaceutical opportunities which
target patient markets having unmet medical needs.
This press release 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. Investors are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the ability of the company to successfully develop and commercialize
its technologies. Although the Company believes that the assumptions underlying
the forward-looking statements contained herein are reasonable, any assumptions
could be inaccurate, and therefore, there can be no assurance that the
forward-looking statements included in this press release 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
Consolidated Statements of Operations
For the three months and years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Three months ended Years ended
December 31, December 31,
1997 1996 1997 1996
----------------------------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Sub-license revenue $ 500,000 $ 10,000 $ 500,000 $ 510,000
Interest income 7,551 39,150 56,914 163,664
----------- ----------- ----------- -----------
Total revenue 507,551 49,150 556,914 673,664
Acquisition of R & D in-process technology -- -- 1,650,000 --
Research and development 445,561 983,713 3,729,193 3,841,818
General and administrative 1,540,464 1,181,468 4,627,567 3,831,204
Interest 32,341 2,952 39,292 9,531
----------- ----------- ----------- -----------
Net loss $1,510,815 $ 2,118,983 $ 9,489,138 $ 7,008,889
=========== =========== =========== ===========
Net loss per share of common stock $ 0.13 $ 0.19 $ 0.80 $ 0.65
=========== =========== =========== ===========
Weighted average common shares 12,600,548 11,388,274 11,976,090 10,806,799
outstanding
=========== =========== =========== ===========
</TABLE>
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CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF
SERIES B CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK
OF
SHEFFIELD PHARMACEUTICALS, INC.
---------------
Pursuant to Section 151 of
the General Corporation Law of the State of Delaware
---------------
Sheffield Pharmaceuticals, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
hereby certifies that the following resolutions were adopted by the Board of
Directors of the Corporation on April 13, 1998 pursuant to authority of the
Board of Directors as required by Section 151 of the General Corporation Law of
the State of Delaware:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation (the "Board" or 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 1,250 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, rights, and the
qualifications, limitations and restrictions, set forth in the Certificate of
Incorporation which are applicable to the Preferred Stock).
<PAGE>
ARTICLE 1
DESIGNATION AND AMOUNT
The shares of such series shall be designated as "Series B
Cumulative Convertible Redeemable Preferred Stock" (the "Series B Preferred
Stock") and the authorized number of shares constituting such series shall be
1,250 shares. The par value of the Series B Preferred Stock shall be $.01 per
share. The stated value of the Series B Preferred Stock shall be One Thousand
Dollars ($1,000) per share (the "Stated Value").
ARTICLE 2
DEFINITIONS
SECTION 2.1 DEFINITIONS. The terms defined in this Article whenever
used in this Certificate of Designations have the following respective meanings:
(a) "ADDITIONAL CAPITAL SHARES" has the meaning set forth in
Section 6.1(c).
(b) "AFFILIATE" has the meaning ascribed to such term in Rule
12b-2 under the Securities Exchange Act of 1934, as amended.
(c) "BUSINESS DAY" means a day other than Saturday, Sunday or
any day on which banks located in the State of New York are authorized or
obligated to close.
(d) "CAPITAL SHARES" means the Common Shares and any other
shares of any other class or series of common stock, whether now or hereafter
authorized and however designated, which have the right to participate in the
distribution of earnings and assets (upon dissolution, liquidation or
winding-up) of the Corporation.
(e) "CLOSING DATE" means the date of issuance of the first
share of Series B Preferred Stock.
(f) "COMMON SHARES" or "COMMON STOCK" means shares of common
stock, $.01 par value, of the Corporation.
(g) "COMMON STOCK ISSUED AT CONVERSION" when used with
reference to the securities issuable upon conversion of the Series B Preferred
Stock, means all Common Shares now or hereafter Outstanding and securities of
any other class or
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<PAGE>
series into which the Series B Preferred Stock hereafter shall have been changed
or substituted, whether now or hereafter created and however designated.
(h) "CONVERSION DATE" means any day on which all or any
portion of shares of the Series B Preferred Stock is converted in accordance
with the provisions hereof.
(i) "CONVERSION NOTICE" has the meaning set forth in Section
6.2.
(j) "CONVERSION PRICE" means on any date of determination the
applicable price for the conversion of shares of Series B Preferred Stock into
Common Shares on such day as set forth in Section 6.1.
(k) "CONVERSION RATIO" means on any date of determination the
applicable percentage of the Market Price for conversion of shares of Series B
Preferred Stock into Common Shares on such day as set forth in Section 6.1.
(l) "CORPORATION" means Sheffield Pharmaceuticals, Inc. a
Delaware corporation, and any successor or resulting corporation by way of
merger, consolidation, sale or exchange of all or substantially all of the
Corporation's assets, or otherwise.
(m) "CURRENT MARKET PRICE" on any date of determination means
the closing price of a Common Share on such day as reported on the AMEX, or, if
such security is not listed or admitted to trading on the AMEX, on the principal
national security exchange or quotation system on which such security is quoted
or listed or admitted to trading, or, if not quoted or listed or admitted to
trading on any national securities exchange or quotation system, the closing
price of such security on the over-the-counter market on the day in question as
reported by the National Quotation Bureau Incorporated, or a similar generally
accepted reporting service, or if not so available, in such manner as furnished
by any Nasdaq member firm of the National Association of Securities Dealers,
Inc. selected from time to time by the Board of Directors of the Corporation for
that purpose, or a price determined in good faith by the Board of Directors of
the Corporation as being equal to the fair market value thereof, as the case may
be.
(n) "DEFAULT DIVIDEND RATE" shall be equal to the Preferred
Stock Dividend Rate plus an additional 4% per annum.
3
<PAGE>
(o) "HOLDER" means The Shaar Fund Ltd., any successor thereto,
or any Person to whom the Series B Preferred Stock is subsequently transferred
in accordance with the provisions hereof.
(p) "ISSUE DATE" means the date of original issuance of the
applicable share of Series B Preferred Stock.
(q) "MARKET DISRUPTION EVENT" means any event that results in
a material suspension or limitation of trading of Common Shares on the AMEX.
(r) "MARKET PRICE" per Common Share means the average of the
closing prices of the Common Shares as reported on the AMEX for the five Trading
Days in any Valuation Period.
(s) "OUTSTANDING" when used with reference to Common Shares or
Capital Shares (collectively, "Shares"), means, on any date of determination,
all issued and outstanding Shares, and includes all such Shares issuable in
respect of outstanding scrip or any certificates representing fractional
interests in such Shares; PROVIDED, HOWEVER, that any such Shares directly or
indirectly owned or held by or for the account of the Corporation or any
Subsidiary of the Corporation shall not be deemed "Outstanding" for purposes
hereof.
(t) "PERSON" means an individual, a corporation, a
partnership, an association, a limited liability company, a unincorporated
business organization, a trust or other entity or organization, and any
government or political subdivision or any agency or instrumentality thereof.
(u) "SEC" means the United States Securities and Exchange
Commission.
(v) "SECURITIES ACT" means the Securities Act of 1933, as
amended, and the rules and regulations of the SEC thereunder, all as in effect
at the time.
(w) "SERIES B PREFERRED STOCK" means the Series B Cumulative
Convertible Redeemable Preferred Stock of the Corporation created by this
Certificate of Designations or such other convertible Preferred Stock exchanged
therefor as provided in Section 6.4.
4
<PAGE>
(aa) "STATED VALUE" has the meaning set forth in Article 1.
(bb) "SUBSIDIARY" means any entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are owned
directly or indirectly by the Corporation.
(cc) "TRADING DAY" means any day on which purchases and sales
of securities authorized for quotation on the AMEX are reported thereon and on
which no Market Disruption Event has occurred or, if the Common Stock is not
listed or admitted to trading on the AMEX, a day on which the principal national
securities exchange on which the Common Stock is listed or admitted to trading
is open for the transaction of business, or, if the Common Stock is not so
listed or admitted to trading on any national securities exchange, a day on
which the Nasdaq National Market (or any successor thereto) or such other system
then in use is open for the transaction of business, or, if the Common Stock is
not quoted by any such organization, any day other than a Saturday, Sunday or a
day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
(dd) "VALUATION EVENT" has the meaning set forth in Section
6.1.
(ee) "VALUATION PERIOD" means the five Trading Day period
immediately preceding the applicable Conversion Date.
All references to "cash" or "$" herein means currency of the
United States of America.
ARTICLE 3
RANK
The Series B Preferred Stock shall rank (i) prior to the Common Stock;
(ii) prior to any class or series of capital stock of the Corporation hereafter
created other than "Pari Passu Securities" (collectively, with the Common Stock,
"Junior Securities"); (iii) pari passu with the Corporation's Series A
Cumulative Convertible Redeemable Preferred Stock (the "Series A Preferred
Stock"); and (iv) pari passu with any class or series of capital stock of the
Corporation hereafter created specifically ranking on parity
5
<PAGE>
with the Series B Preferred Stock (collectively, with the Series A Preferred
Stock, "Pari Passu Securities").
ARTICLE 4
DIVIDENDS
SECTION 4.1
(a) (i) Subject to Article 6, the Holder shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available for the payment of dividends, dividends (subject to Sections
4(a)(ii) hereof) at the rate of 6% per annum (computed on the basis of a 360-day
year) (the "Dividend Rate") on the Liquidation Value (as defined below) of each
share of Series B Preferred Stock on and as of the most recent Dividend Payment
Due Date (as defined below) with respect to each Dividend Period (as defined
below). Dividends on the Series B Preferred Stock shall be cumulative from the
date of issue, whether or not declared for any reason, including if such
declaration is prohibited under any outstanding indebtedness or borrowings of
the Corporation or any of its Subsidiaries, or any other contractual provision
binding on the Corporation or any of its Subsidiaries, and whether or not there
shall be funds legally available for the payment thereof.
(ii) Each dividend shall be payable in equal quarterly
amounts on each March 31, June 30, September 30 and December 31 of each year
(each, a "Dividend Payment Due Date"), commencing September 30, 1998, to the
holders of record of shares of the Series B Preferred Stock, as they appear on
the stock records of the Corporation at the close of business on any record
date, not more than 60 days or less than 10 days preceding the payment dates
thereof, as shall be fixed by the Board of Directors. For the purposes hereof,
"Dividend Period," in respect of any share of Series B Preferred Stock, shall
mean (i) the period commencing on and including the Issue Date of such share and
including September 30, 1998 and, thereafter, the quarterly period commencing on
and including the day after the immediately preceding Dividend Payment Date and
ending on and including the immediately subsequent Dividend Payment Date.
Accrued and unpaid dividends for any past Dividend Period may be declared and
paid at any time, without reference to any Dividend Payment Due Date, to holders
of record on such date, not more than 15 days preceding the payment date
thereof, as may be fixed by the Board of Directors.
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<PAGE>
(iii) At the option of the Corporation, the dividend shall be
paid in cash or through the issuance of duly and validly authorized and issued,
fully paid and non-assessable shares of the Common Stock valued at the Market
Price. Notwithstanding the foregoing, until the shares of Common Stock issuable
as dividends on the Series B Preferred Stock have been registered for resale
under a registration statement that has been declared effective under the
Securities Act by the SEC, payment of dividends on the Series B Preferred Stock
shall be in cash.
(b) The Holder shall not be entitled to any dividends in
excess of the cumulative dividends, as herein provided, on the Series B
Preferred Stock. Except as provided in this Article 4, no interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
or payments on the Series B Preferred Stock that may be in arrears.
(c) So long as any shares of the Series B Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on Pari Passu Securities for
any period unless full cumulative dividends required to be paid in cash have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Series B Preferred
Stock for all Dividend Periods terminating on or prior to the date of payment of
the dividend on such class or series of Pari Passu Securities. When dividends
are not paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, all dividends declared upon shares of the Series B Preferred Stock
and all dividends declared upon any other class or series of Pari Passu
Securities shall be declared ratably in proportion to the respective amounts of
dividends accumulated and unpaid on the Series B Preferred Stock and accumulated
and unpaid on such Pari Passu Securities.
(d) So long as any shares of the Series B Preferred Stock are
outstanding, no dividends shall be declared or paid or set apart for payment or
other distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan (including a stock option
plan) of the Corporation or any Subsidiary,
7
<PAGE>
(all such dividends, distributions, redemptions or purchases being hereinafter
referred to as a "Junior Securities Distribution") for any consideration (or any
moneys be paid to or made available for a sinking fund for the redemption of any
shares of any such stock) by the Corporation, directly or indirectly, unless in
each case (i) the full cumulative dividends required to be paid in cash on all
outstanding shares of the Series B Preferred Stock and any other Pari Passu
Securities shall have been paid or set apart for payment for all past Dividend
Periods with respect to the Series B Preferred Stock and all past dividend
periods with respect to such Pari Passu Securities, and (ii) sufficient funds
shall have been paid or set apart for the payment of the dividend for the
current Dividend Period with respect to the Series B Preferred Stock and the
current dividend period with respect to such Pari Passu Securities.
ARTICLE 5
LIQUIDATION PREFERENCE
SECTION 5.1
(a) If the Corporation shall commence a voluntary case under
the Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of sixty (60) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidation Event"), no distribution shall be made to the holders of any Junior
Securities of the Corporation upon liquidation, dissolution or winding up unless
prior thereto, the holders of shares of Series B Preferred Stock, subject to
Article 5, shall have received the Liquidation Preference (as defined in Article
5(b)) with respect to each share. If upon the occurrence of a Liquidation Event,
the assets and funds available for distribution among the holders of the Series
B Preferred Stock and holders of Pari Passu Securities shall be insufficient to
permit the payment to such holders of the preferential amounts payable thereon,
then the entire assets and funds of the Corporation legally available for
distribution to the Series B Preferred Stock and the Pari Passu Securities shall
be distributed ratably among such shares in proportion to the ratio that the
Liquidation Preference payable on each such share bears to the aggregate
liquidation Preference payable on all such shares.
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<PAGE>
(b) For purposes hereof, the "Liquidation Preference" with
respect to a share of the Series B Preferred Stock shall mean an amount equal to
the sum of (i) the Stated Value thereof, plus (ii) the aggregate of all accrued
and unpaid dividends on such share of Series B Preferred Stock until the most
recent Dividend Payment Date; PROVIDED that, in the event of an actual
liquidation, dissolution or winding up of the Corporation, the amount referred
to in clause (iii) above shall be calculated by including accrued and unpaid
dividends to the actual date of such liquidation, dissolution or winding up,
rather than the Dividend Payment Due Date referred to above.
ARTICLE 6
CONVERSION AND REDEMPTION OF PREFERRED STOCK
SECTION 6.1 CONVERSION; CONVERSION PRICE. At the option of the Holder,
the shares of Preferred Stock may be converted, either in whole or in part, into
Common Shares (calculated as to each such conversion to the nearest 1/100th of a
share), at any time, and from time to time after the 90th day following the
Issue Date at a Conversion Price equal to 75% of the Market Price; provided,
however, that the Holder shall not have the right to convert any portion of the
Series B Preferred Stock to the extent that the issuance to the Holder of Common
Shares upon such conversion would result in the Holder being deemed the
"beneficial owner" of 5% or more of the then outstanding Common Shares within
the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended,
provided, however, that the Corporation shall have no obligation to determine
whether or not a Holder is a "beneficial owner" of 5% or more of the outstanding
Common Stock in connection with any conversion of Series B Preferred Stock. At
the Corporation's option, the amount of accrued and unpaid dividends as of the
Conversion Date shall not be subject to conversion but instead may be paid in
cash as of the Conversion Date; if the Corporation elects to convert the amount
of accrued and unpaid dividends at the Conversion Date into Common Stock, the
Common Stock issued to the Holder shall be valued at the Conversion Price as of
the applicable Conversion Date. Notwithstanding the previous sentence, in no
event shall the Holder have the right to convert that portion of the Series B
Preferred Stock to the extent that the issuance of Common Shares upon the
conversion of such Series B Preferred Stock, when combined with shares of Common
Stock received upon other conversions of Series B Preferred Stock and exercise
of the Warrants by such Holder and any other holders of Series B Preferred Stock
and the Warrants, would exceed 19.99% of the Common Stock outstanding on the
Closing Date. Within ten (10) Business Days after the receipt of the Conversion
Notice which upon conversion would, when combined with shares of Common Stock
received upon other conversions of Series B Preferred Stock and exercise of the
Warrants by such Holder and any other holders of Series B Preferred Stock and
Warrants, exceed 19.99% of the Common Stock outstanding on the Closing Date, the
Corporation shall redeem all remaining outstanding shares of Series B Preferred
Stock at one hundred and fifteen percent (115%) of the Stated Value thereof,
together with all accrued and unpaid dividends thereon, in cash, to the date of
such redemption.
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The number of shares of Common Stock due upon conversion of Series B
Preferred Stock in respect of any Conversion Date shall be (i) the number of
shares of Series B Preferred Stock to be converted, multiplied by (ii) the
Stated Value and divided by (iii) the applicable Conversion Price for such
Conversion Date.
Within two (2) Business Days of the occurrence of a Valuation
Event, the Corporation shall send notice (the "Valuation Event Notice") of such
occurrence to the Holder. Notwithstanding anything to the contrary contained
herein, if a Valuation Event occurs during any Valuation Period, a new Valuation
Period shall begin on the Trading Day immediately following the occurrence of
such Valuation Event and end on the Conversion Date; PROVIDED that, if a
Valuation Event occurs on the fifth day of any Valuation Period, then the
Conversion Price shall be the Current Market Price of the Common Shares on such
day; and PROVIDED, FURTHER, that the Holder may, in its discretion, postpone
such Conversion Date to a Trading Day which is no more than five (5) Trading
Days after the occurrence of the latest Valuation Event by delivering a
notification to the Corporation within two (2) Business Days of the receipt of
the Valuation Event Notice. In the event that the Holder deems the Valuation
Period to be other than the five (5) Trading Days immediately prior to the
Conversion Date, the Holder shall give written notice of such fact to the
Corporation in the related Conversion Notice at the time of conversion.
For purposes of this Section 6.1, a "VALUATION EVENT" shall mean an event in
which the Corporation at any time during a Valuation Period takes any of the
following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution of its Capital Shares;
(c) issues any additional Capital Shares (the "Additional
Capital Shares"), otherwise than as provided in the foregoing Sections 6.1(a)
and 6.1(b) above, at a price per share less, or for other consideration lower,
than the Current Market Price in effect immediately prior to such issuances, or
without consideration, except for the issuance of (i) Common Stock and other
securities of the Corporation issuable upon the exercise or conversion of
options, warrants or other rights to purchase securities of the Corporation
outstanding as of the date hereof and (ii)
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securities to officers, directors or employees of the Corporation or any of its
Subsidiaries;
(d) issues any warrants, options or other rights to subscribe
for or purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price in effect immediately prior to such issuance; except for the issuance of
(i) 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 and (ii)
securities to officers, directors or employees of the Corporation or any of its
Subsidiaries;
(e) issues any securities convertible into or exchangeable or
exercisable for Capital Shares and the consideration per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to the
terms of such convertible, exchangeable or exercisable securities shall be less
than the Current Market Price in effect immediately prior to such issuance
except for the issuance of (i) 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 and (ii) securities to officers, directors or employees of the
Corporation or any of its subsidiaries;
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of its Capital Shares as a dividend in liquidation
or by way of return of capital or other than as a dividend payable out of
earnings or surplus legally available for the payment of dividends under
applicable law or any distribution to such holders made in respect of the sale
of all or substantially all of the Corporation's assets (other than under the
circumstances provided for in the foregoing Sections 6.1(a) through 6.1(e)); or
(g) takes any action affecting the number of Outstanding
Capital Shares, other than an action described in any of the foregoing Sections
6.1(a) through 6.1(f) hereof, inclusive, which in the opinion of the
Corporation's Board of Directors, determined in good faith, would have a
material adverse effect upon the rights of the Holder at the time of a
conversion of the Series B Preferred Stock.
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SECTION 6.2 EXERCISE OF CONVERSION PRIVILEGE. (a) Conversion of the
Series B Preferred Stock may be exercised, in whole or in part, by the Holder by
telecopying an executed and completed notice of conversion in the form annexed
hereto as Annex I (the "Conversion Notice") to the Corporation and delivering a
copy of the Conversion Notice to the Corporation by nationally recognized
overnight courier not later than five (5) Business Days next following the date
on which the telecopied Conversion Notice has been transmitted to the
Corporation. Each date on which a Conversion Notice is telecopied to and
received by the Corporation in accordance with the provisions of this Section
6.2 shall be deemed a Conversion Date. The Corporation shall convert the
Preferred Stock and issue the Common Stock Issued at Conversion effective as of
the Conversion Date. The Conversion Notice also shall state the name or names
(with addresses) of the persons who are to become the holders of the Common
Stock Issued at Conversion in connection with such conversion. The applicable
Holder shall deliver the stock certificate representing the shares of Series B
Preferred Stock so converted to the Corporation by nationally recognized
overnight courier service within 15 days following the date on which the
telecopied Conversion Notice has been transmitted to the Corporation. Upon
surrender for conversion, the Preferred Stock shall be accompanied by a proper
assignment hereof to the Corporation or be endorsed in blank. As promptly as
practicable after the delivery to the Corporation of the applicable Conversion
Notice as aforesaid, but in any event not more than five (5) Business Days after
the Corporation's delivery to the Corporation of the applicable Conversion
Notice, the Corporation shall (i) issue the Common Stock issued at Conversion in
accordance with the provisions of this Article 6, and (ii) cause to be mailed
for delivery by overnight courier to the Holder (X) a certificate or
certificate(s) representing the number of Common Shares to which the Holder is
entitled by virtue of such conversion, (Y) cash, as provided in Section 6.3, in
respect of any fraction of a Share issuable upon such conversion and (Z) cash or
Common Stock, as applicable representing the amount of accrued and unpaid
dividends as of the Conversion Date. Such conversion shall be deemed to have
been effected at the time at which the Conversion Notice indicates so long as
the Corporation shall have been delivered the applicable Conversion Notice in
accordance with this Section 6.2, and at such time the rights of the Holder of
the Preferred Stock, as such, shall cease and the Person and Persons in whose
name or names the Common Stock Issued at Conversion shall be issuable shall be
deemed to have become the holder or holders of record of the
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Common Shares represented thereby. The Conversion Notice shall constitute a
contract between the Holder and the Corporation, whereby the Holder shall be
deemed to subscribe for the number of Common Shares which it will be entitled to
receive upon such conversion and, in consideration of such conversion, to
surrender the Preferred Stock and to release the Corporation from all liability
thereon.
(b) From and after the delivery of the Conversion Notice in
respect of any conversion of shares of Series B Preferred Stock, all such shares
of Series B Preferred Stock shall be deemed to have been converted into shares
of Common Stock as of the applicable Conversion Date at the applicable
conversion rate, all stock dividends on such shares of the Series B Preferred
Stock shall cease to accrue, and all rights of the holders thereof as holders of
Series B Preferred Stock, except the right to receive all accrued and unpaid
stock dividends to such Conversion Date at the applicable rate for such shares
of Series B Preferred Stock and the right to receive certificates representing
shares of Common Stock issuable upon the conversion of such shares (including,
without limitation, with respect to such stock dividends, as applicable), shall
cease and terminate, such shares of Series B Preferred Stock shall not
thereafter be transferred (except with the consent of the Corporation) and such
shares shall not be deemed to be outstanding for any purpose whatsoever.
(c) If, at any time (i) the Corporation challenges, disputes
or denies the right of the Holder hereof to effect the conversion of the
Preferred Stock into Common Shares or otherwise dishonors or rejects any
Conversion Notice delivered in accordance with this Section 6.2 or (ii) any
third party who is not and has never been an Affiliate of the Holder commences
any lawsuit or proceeding or otherwise asserts any claim before any court or
public or governmental authority which seeks to challenge, deny, enjoin, limit,
modify, delay or dispute the right of the Holder hereof to effect the conversion
of the Preferred Stock into Common Shares, then the Holder shall have the right,
by written notice to the Corporation, to require the Corporation to promptly
redeem the Preferred Stock for cash at a redemption price equal to 125% of the
Stated Value thereof together with all accrued and unpaid dividends thereon.
Under any of the circumstances set forth above, the Corporation shall be
responsible for the payment of all costs and expenses of the Holder, including
reasonable legal fees and expenses, as and when incurred in disputing any such
action or pursuing its rights hereunder (in addition to any other rights of the
Holder).
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(d) Notwithstanding the preceeding paragraph (c), in the event
a dispute arises over whether a Conversion Notice was delivered to the
Corporation by the Holder pursuant to Section 6.2, the Holder purporting to have
telecopied such notice shall have the burden of proving that such notice was
telecopied to the Corporation.
SECTION 6.3 FRACTIONAL SHARES. No fractional Common Shares or scrip
representing fractional Common Shares shall be issued upon conversion of the
Series B Preferred Stock. Instead of any fractional Common Shares which
otherwise would be issuable upon conversion of the Series B Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction. No cash payment of less than $1.50 shall be required
to be given unless specifically requested by the Holder.
SECTION 6.4 ADJUSTMENTS. The Conversion Price and the number of shares
issuable upon conversion of the Series B Preferred Stock are subject to
adjustment from time to time as follows.
(a) MERGER, SALE OF ASSETS, ETC. If at any time while the
Series B Preferred Stock, or any portion thereof, is outstanding there shall be
(i) a reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Corporation with or into another corporation in which the
Corporation is the surviving entity but the shares of the Corporation's capital
stock outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, or (iii) a sale or transfer of the Corporation's properties and
assets as, or substantially as, an entirety to any other person, then as a part
of such reorganization, merger, consolidation, sale or transfer lawful provision
shall be made so that the Holder shall thereafter be entitled to receive upon
conversion of the Series B Preferred Stock, during the period specified herein,
the number of shares of stock or other securities or property of the successor
corporation resulting from such reorganization, merger, consolidation, sale or
transfer that the Holder would have been entitled to receive in such
reorganization, consolidation, merger, sale or transfer if the Series B
Preferred Stock had been converted immediately before such
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reorganization, merger, consolidation, sale or transfer, all subject to further
adjustment as provided in this Section 6.4. The foregoing provisions of this
Section 6.4 shall similarly apply to successive reclassification, changes,
consolidations, mergers, mandatory share exchanges and sales and transfers. If
the per share consideration payable to the holder hereof for shares in
connection with any such transaction is in a form other than cash or marketable
securities, then the value of such consideration shall be determined in good
faith by the Board of Directors. In all events, appropriate adjustment (as
determined in good faith by the Board of Directors) shall be made in the
application of the provisions of this Certificate of Designations with respect
to the rights and interests of the Holder after the transaction, to the end that
the provisions of this Certificate of Designations shall be applicable after
that event, as near as reasonably may be, in relation to any shares or other
property deliverable after that event upon conversion of the Series B Preferred
Stock.
(b) RECLASSIFICATION, ETC. If the Corporation, at any time
while the Series B Preferred Stock, or any portion thereof, remains outstanding,
shall change any of the securities as to which conversion rights under this
Certificate of Designations exist into the same or a different number of
securities of any other class or classes, the Series B Preferred Stock shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the conversion rights under this Certificate of
Designations immediately prior to such reclassification or other change and the
Conversion Price therefor shall be appropriately adjusted, all subject to
further adjustment as provided in this Certificate of Designations.
(c) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the
Corporation at any time while the Series B Preferred Stock, or any portion
thereof, remains outstanding shall split, subdivide or combine the securities as
to which conversion rights under this Certificate of Designations exist, into a
different number of securities of the same class, the Conversion Price shall be
proportionately decreased in the case of a split or subdivision or
proportionately increased in the case of a combination.
(d) ADJUSTMENTS FOR DIVIDENDS IN STOCK AND OTHER SECURITIES OR
PROPERTY. If while the Series B Preferred Stock, or any portion hereof, remains
outstanding, the
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holders of the securities as to which conversion rights under this Certificate
of Designations exist at the time shall have received, or, on or after the
record date fixed for the determination of eligible stockholders of the
Corporation, shall have become entitled to receive, without payment therefor,
other or additional stock or other securities or property (other than cash) of
the Corporation by way of dividend, then and in each case, the Series B
Preferred Stock shall represent the right to acquire, upon conversion, in
addition to the number of shares of the security receivable upon conversion of
the Series B Preferred Stock, and without payment of any additional
consideration therefor, the amount of such other or additional stock or other
securities or property (other than cash) of the Corporation that the Holder
would hold on the date of such conversion had it been the holder of record of
the security receivable upon conversion of the Series B Preferred Stock on the
date hereof and had thereafter, during the period from the date hereof to and
including the date of such conversion, retained such shares and/or additional
stock available by it as aforesaid during such period, giving effect to all
adjustments called for during such period by the provisions of this Section 6.4.
(e) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 6.4, the Corporation at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to the Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.
SECTION 6.5 MANDATORY REDEMPTION UNDER CERTAIN CIRCUMSTANCES. (a) If at
anytime from the Closing Date until the 90th day after the Closing Date (the
"Mandatory Redemption Termination Date"), the Corporation shall be a party to a
transaction or a series of transactions involving the issuance of equity
securities, the incurrence of debt of the Corporation, the sale of licensing
rights, the entering into of joint ventures or any other similar infusion of
cash (collectively, a "Cash Infusion") as a result of which the Corporation
shall receive funds in an aggregate amount in excess of $300,000, the
Corporation shall immediately upon receipt of such Cash Infusion redeem the
Series B Preferred Stock at the applicable Mandatory Redemption Price (as
defined below), together with all accrued and unpaid dividends thereon to the
date of the Corporation's receipt of such funds (the "Mandatory Redemption
Date") by the
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amount of such excess funds; PROVIDED, HOWEVER, that any funds received by the
Corporation from Zambon Group, SpA (or any affiliate thereof) shall not be
required to be aggregated to satisfy the $300,000 amount provided for in the
preceding clause but shall be used immediately for redemption under this Section
6.5; PROVIDED FURTHER, HOWEVER, should the amounts received by the Corporation
from any of the foregoing transactions be lower than the amount needed to redeem
the Series B Preferred Stock in full, then any amounts so received shall be used
to redeem shares on a pro rata basis. The proceeds available for redemption
under this Section 6.5 shall be applied first to accrued and unpaid dividends
thereon to the date of redemption and second to the redemption of Series B
Preferred Stock.
(b) For purposes hereof, the "Mandatory Redemption Price"
shall mean as follows: (i) with respect to each share of Series B Preferred
Stock redeemed during the period beginning on the Issue Date of each such share
and ending on the 45th day after such Issue Date, an amount equal to 106% of the
Stated Value thereof; and (ii) with respect to each share of Series B Preferred
Stock redeemed during the period beginning on the 46th day after the Issue Date
of each such share and ending on or before the Mandatory Redemption Termination
Date, an amount equal to the sum of (A) 106% of the Stated Value thereof for the
period from the Issue Date until the 45th day after the Issue Date and (B)
0.1334% of the Stated Value of each such share for each day, if any, from the
46th day after the Issue Date through and including the Mandatory Redemption
Date.
(c) After the Mandatory Redemption Termination Date, the
Corporation shall cease to have any obligation to redeem shares of Series B
Preferred Stock under this Section 6.5.
SECTION 6.6 OPTIONAL REDEMPTION UNDER CERTAIN CIRCUMSTANCES. At any
time after the date of issuance of the Series B Preferred Stock until the
Mandatory Conversion Date (as defined below), the Corporation, upon notice
delivered to the Holder as provided in Section 6.7, may redeem the Series B
Preferred Stock (but only with respect to such shares as to which the Holder has
not theretofore furnished a Conversion Notice in compliance with Section 6.2),
at 125% of the Stated Value thereof (the "Optional Redemption Price"), together
with all accrued and unpaid dividends thereon to the date of redemption (the
"Redemption Date"); PROVIDED, HOWEVER, that the Corporation may only
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redeem the Series B Preferred Stock under this Section 6.6 if the Current Market
Price on the date the notice of redemption pursuant to this Section 6.6 is less
than the Current Market Price on the Closing Date. Except as set forth in
Sections 6.5 and 6.6, the Corporation shall not have the right to prepay or
redeem the Series B Preferred Stock.
SECTION 6.7 NOTICE OF REDEMPTION. (a) Notice of redemption pursuant to
Sections 6.5 and 6.6 shall be provided by the Corporation to the Holder in
writing (by registered mail or overnight courier at the Holder's last address
appearing in the Corporation's security registry) not less than ten (10) nor
more than fifteen (15) days prior to the proposed Mandatory Redemption Date or
the Redemption Date, as the case may be, which notice shall specify the proposed
Mandatory Redemption Date or the Redemption Date, as the case may be, and refer
to Section 6.5 or 6.6 (including, with respect to Section 6.6, a statement of
the Market Price) and this Section 6.7.
(b) Any notice of redemption delivered by the Corporation in
connection with a redemption under Section 6.5 may state that such redemption is
conditioned on the consummation of the transactions giving rise to such
redemption and may be revoked by the Corporation by notice to the Holder in the
event that such transaction is not consummated, whereupon the Corporation's
obligation to redeem shares of Series B Preferred Stock in respect thereof shall
terminate.
SECTION 6.8 SURRENDER OF PREFERRED STOCK. Upon any redemption of the
Series B Preferred Stock pursuant to Sections 6.5 or 6.6, the Holder, within 15
days of the date of any such redemption, shall either deliver the Series B
Preferred Stock by hand to the Corporation at its principal executive offices or
surrender the same to the Corporation at such address by express courier.
Payment of the Mandatory Redemption Price or the Optional Redemption Price
specified in Section 6.5 or 6.6, as the case may be, shall be made by the
Corporation to the Holder by wire transfer of immediately available funds to
such account(s) as the Holder shall specify to the Corporation. If payment of
such redemption price is not made in full by the Mandatory Redemption Date or
the Redemption Date, as the case may be, the Holder shall again have the right
to convert the Series B Preferred Stock as provided in Article 6 hereof.
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SECTION 6.9 MANDATORY CONVERSION. On the third anniversary of the date
of this Agreement (the "Mandatory Conversion Date"), the Corporation shall
convert all Series B Preferred Stock outstanding at the Conversion Price.
Notwithstanding the previous sentence, in no event shall the Corporation convert
that portion of the Series B Preferred Stock to the extent that the issuance of
Common Shares upon the conversion of such Series B Preferred Stock, when
combined with shares of Common Stock received upon other conversions of Series B
Preferred Stock and exercise of the Warrants by such Holder and any other
holders of Series B Preferred Stock and Warrants, would exceed 19.99% of the
Common Stock outstanding on the Closing Date. Within ten (10) Business Days
after the Mandatory Conversion Date, the Corporation shall redeem all remaining
outstanding Series B Preferred Stock at one hundred and twenty-five percent
(125%) of the Stated Value thereof, together with all accrued and unpaid
dividends thereon, in cash, to the date of redemption.
ARTICLE 7
VOTING RIGHTS
The holders of the Series B Preferred Stock have no voting
power, except as otherwise provided by the General Corporation Law of the State
of Delaware ("DGCL"), in this Article 7, and in Article 8 below.
The Corporation shall provide each holder of Series B
Preferred Stock with prior notification of any meeting of the shareholders (and
copies of proxy materials and other information sent to shareholders). In the
event of any taking by the Corporation of a record of its shareholders for the
purpose of determining shareholders who are entitled to receive payment of any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
holder, at least thirty (30) days prior to the consummation of the transaction
or event, whichever is earlier), of the date on which any such actin is to be
taken for the purpose of such dividend, distribution, right or other event, and
a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
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To the extent that under the DGCL the vote of the holders of
the Series B Preferred Stock, voting separately as a class or series as
applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the shares
of the Series B Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of a majority of the shares of Series B
Preferred Stock (except as otherwise may be required under the DGCL) shall
constitute the approval of such action by the class. To the extent that under
the DGCL holders of the Series B Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share of
Series B Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which convertible the record date for the
taking of such vote of shareholders as the date as of which the Conversion Price
is calculated. Holders of the Series B Preferred Stock shall be entitled to
notice of all shareholder meetings or written consents (and copies of proxy
materials and other infirmation sent to shareholders) with respect to which they
would be entitled as of right under the DGCL which notice would be provided
pursuant to the Corporation's bylaws and the DGCL.
ARTICLE 8
PROTECTIVE PROVISIONS
So long as shares of Series B Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the DGCL) of the holders of at least a majority of the
then outstanding shares of Series B Preferred Stock:
(a) alter or change the rights, preferences or privileges of
the Series B Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the Series B Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation ("Senior Securities")
or alter or change the rights, preferences or privileges of any Senior
Securities so as to affect adversely the Series B Preferred Stock;
(c) increase the authorized number of shares of Series B
Preferred Stock; or
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(d) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the holders of
shares of the Series B Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
In the event holders of at least a majority of the then
outstanding shares of Series B Preferred Stock agree to allow the Corporation to
alter or change the rights, preferences or privileges of the shares of Series B
Preferred Stock, pursuant to subsection (a) above, so as to affect the Series B
Preferred Stock, then the Corporation will deliver notice of such approved
change to the holders of the Series B Preferred Stock that did not agree to such
alteration or change (the "Dissenting Holders") and Dissenting Holders shall
have the right for a period of thirty (30) days to convert pursuant to the terms
of this Certificate of Designations as they exist prior to such alteration or
change or continue to hold their shares of Series B Preferred Stock.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 LOSS, THEFT, DESTRUCTION OF PREFERRED STOCK. Upon receipt
of evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of shares of Series B Preferred Stock and, in the case of any such
loss, theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Corporation, or, in the case of any such mutilation, upon
surrender and cancellation of the Series B Preferred Stock, the Corporation
shall make, issue and deliver, in lieu of such lost, stolen, destroyed or
mutilated shares of Series B Preferred Stock, new shares of Series B Preferred
Stock of like date and tenor.
SECTION 9.2 WHO DEEMED ABSOLUTE OWNER. The Corporation may deem the
Person in whose name the Series B Preferred Stock shall be registered upon the
registry books of the Corporation to be, and may treat it as, the absolute owner
of the Series B Preferred Stock for the purpose of receiving payment of
dividends on the Series B Preferred Stock, for the conversion of the Series B
Preferred Stock
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and for all other purposes, and the Corporation shall not be affected by any
notice to the contrary. All such payments and such conversion shall be valid and
effectual to satisfy and discharge the liability upon the Series B Preferred
Stock to the extent of the sum or sums so paid or the conversion so made.
SECTION 9.3 REGISTER. The Corporation shall keep at its principal
office a register in which the Corporation shall provide for the registration of
the Series B Preferred Stock. Upon any transfer of the Series B Preferred Stock
in accordance with the provisions hereof, the Corporation shall register such
transfer on the Series B Preferred Stock register.
SECTION 9.4 WITHHOLDING. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the Series
B Preferred Stock.
SECTION 9.5 HEADINGS. The headings of the Articles and Sections of this
Certificate of Designations are inserted for convenience only and do not
constitute a part of this Certificate of Designations.
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations, Preferences and Rights to be signed by Loren G. Peterson, its
President and Chief Executive Officer, and attested by Judy Roeske Bullock, its
Secretary, on this 15th day of April, 1998.
SHEFFIELD PHARMACEUTICALS, INC.
By:/s/ Loren G. Peterson
----------------------------------------
Loren G. Peterson
President and Chief Executive Officer
Attested:
By:/s/ Judy Roeske Bullock
-----------------------
Judy Roeske Bullock
Secretary
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FORM OF CONVERSION NOTICE
TO: Sheffield Pharmaceuticals, Inc.
Attention: Chief Financial Officer
The undersigned owner of shares of Series B Cumulative
Convertible Redeemable Preferred Stock (the "Series B Preferred Stock") issued
by Sheffield Pharmaceuticals, Inc. (the "Corporation") hereby irrevocably
exercises its option to convert __________ shares of the Series B Preferred
Stock into shares of the common stock, $.01 par value, of the Corporation
("Common Stock"), in accordance with the terms of the Certificate of
Designations of the Series B Preferred Stock. The undersigned hereby instructs
the Corporation to convert the number of shares of the Series B Preferred Stock
specified above into shares of Common Stock in accordance with the provisions of
Article 6 of such Certificate of Designations. The undersigned directs that the
Common Stock issuable and certificates therefor deliverable upon conversion, the
Series B Preferred Stock recertificated, if any, not being surrendered for
conversion hereby, together with any check in payment for fractional Common
Stock, be issued in the name of and delivered to the undersigned unless a
different name has been indicated below. All capitalized terms used and not
defined herein have the respective meanings assigned to them in such Certificate
of Designations.
Dated:___________________
- -----------------------------------------------------
Signature
Fill in for registration of Series B Preferred Stock:
Please print name and address
(including zip code number) :
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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