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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, 1998
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.)
425 SOUTH WOODSMILL ROAD, SUITE 270
ST. LOUIS, MISSOURI 63017-3441
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (314) 579-9899
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
26,853,537 shares of Common Stock as of June 30, 1998.
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<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX
Page
PART I. Financial Information
ITEM 1. Financial Statements.
Consolidated Balance Sheets - June 30, 1998 1
and December 31, 1997.
Consolidated Statements of Operations for the 2
three and six months ended June 30, 1998 and
1997 and for the period from October 17, 1986
(inception) to June 30, 1998.
Consolidated Statements of Cash Flows for the 3
three and six months ended June 30, 1998 and
1997 and for the period from October 17, 1986
(inception) to June 30, 1998.
Consolidated Statements of Stockholders' Equity 4
(Net Capital Deficiency) for the period from
October 17, 1986 (inception) to June 30, 1988
Notes to Consolidated Financial Statements. 5
ITEM 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II. Other Information.
ITEM 2. Changes in Securities. 12
ITEM 6. Exhibits and Reports on Form 8-K. 13
SIGNATURES 14
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1998 December 31,
(Unaudited) 1997
----------------- ---------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 5,421,662 $ 393,608
Marketable securities 350,000 --
Loan receivable - former officer 65,000 80,000
Prepaid expenses and other current assets 33,451 47,378
------------ ------------
Total current assets 5,870,113 520,986
------------ ------------
Property and equipment:
Laboratory equipment 185,853 185,852
Office equipment 111,598 142,562
------------ ------------
297,451 328,414
Less accumulated depreciation and amortization 211,578 185,201
------------ ------------
Net property and equipment 85,872 143,213
------------ ------------
Other assets 5,680 25,738
------------ ------------
Total assets $ 5,961,665 $ 689,937
============ ============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
<S> <C> <C>
Accounts payable and accrued liabilities $ 716,505 $ 887,782
Sponsored research payable 470,180 470,768
------------ ------------
Total current liabilities 1,186,685 1,358,550
6% convertible subordinated debenture -- 1,551,000
Interest payable on debenture -- 28,875
Preferred stock, $.01 par value, authorized 3,000,000 shares:
Series A cumulative convertible redeemable preferred stock,
0 and 10,000 shares issued and oustanding at June 30, 1998
and December 31, 1997, respectively -- 2,468,263
Series B cumulative convertible redeemable preferred stock,
1,250 and 0 shares issued and oustanding at June 30, 1998
and December 31, 1997, respectively 1,250,000 --
Commitments and contingencies
Stockholders' equity (net capital deficiency):
Series C convertible preferred stock, 11,500 and 0 shares
issued and outstanding at June 30, 1998 and December 31,
1997, respectively 115 --
Common stock, $.01 par value. Authorized, 50,000,000 shares;
issued and outstanding, 26,853,537 and 12,649,539
shares at June 30, 1998 and December 31, 1997, respectively 268,534 126,495
Notes receivable in connection with sale of stock (25,400) (72,600)
Additional paid-in capital 55,029,090 31,386,644
Deficit accumulated during development stage (51,747,359) (36,157,290)
------------ ------------
3,524,980 (4,716,751)
------------ ------------
Total liabilities and stockholders' equity (net capital deficiency) $ 5,961,665 $ 689,937
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
1
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND FOR THE PERIOD
FROM OCTOBER 17, 1986 (INCEPTION) TO JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
October 17, 1986
Three months ended Six months ended (inception) to
June 30, June 30, June 30,
-----------------------------------------------------------------------------
1998 1997 1998 1997 1998
---- ---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C> <C>
Sub-license revenue $ 350,000 $ -- $ 350,000 $ -- 1,360,000
Interest income 2,562 21,747 3,515 39,972 457,342
------------ ------------ ------------ ------------ ------------
Total revenue 352,562 21,747 353,515 39,972 1,817,342
Expenses:
Acquisition of R & D in-process
technology 12,500,000 1,650,000 12,500,000 1,650,000 14,150,000
Research and development 187,063 786,165 1,796,104 2,724,202 21,048,494
General and administrative 882,409 1,004,893 1,494,899 1,750,489 18,017,158
Interest 86,211 2,089 128,681 4,768 288,436
------------ ------------ ------------ ------------ ------------
Total expenses 13,655,683 3,443,147 15,919,684 6,129,459 53,504,088
------------ ------------ ------------ ------------ ------------
Loss before extraordinary item (13,303,121) (3,421,400) (15,566,169) (6,089,487) (51,686,746)
Extraordinary item -- -- -- -- 42,787
============ ============ ============ ============ ============
Net loss $(13,303,121) $ (3,421,400) $(15,566,169) $ (6,089,487) (51,643,959)
============ ============ ============ ============ ============
Accretion of mandatorily redeemable
preferred stock -- -- (23,900) -- (103,400)
============ ============ ============ ============ ============
Net loss - attributable to common shares $(13,303,121) $ (3,421,400) $(15,590,069) $ (6,089,487) $(51,747,359)
============ ============ ============ ============ ============
Loss per share of common stock - basic and diluted:
Loss before extraordinary item $ (0.67) $ (0.29) $ (0.93) $ (0.52) $ (9.50)
Extraordinary item -- -- -- -- 0.01
============ ============ ============ ============ ============
Basic and diluted net loss per share $ (0.67) $ (0.29) $ (0.93) $ (0.52) (9.49)
============ ============ ============ ============ ============
Weighted average common shares
outstanding - basic and diluted: 19,950,354 11,823,439 16,820,359 11,607,059 5,448,993
============ ============ ============ ============ ============
</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, 1998 AND 1997 AND FOR THE PERIOD
FROM OCTOBER 17, 1986 (INCEPTION) TO JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
October 17, 1986
Three months ended Six months ended (inception) to
June 30, June 30, June 30,
-------------------------- ------------------------ ----------------
1998 1997 1998 1997 1998
------------ ------------ ------------ ---------- -------------
Cash outflows from development stage activities and
extraordinary gain:
<S> <C> <C> <C> <C> <C>
Loss before extraordinary item $(13,303,121) $(3,421,400) $(15,566,169) $(6,089,487) $(51,686,746)
Extraordinary gain on extinguishment of debt -- -- -- -- 42,787
------------ ----------- ------------ ----------- ------------
Net loss (13,303,121) (3,421,400) (15,566,169) (6,089,487) (51,643,959)
Adjustments to reconcile net loss to net cash used by
development stage activities:
Issuance of common stock, stock options/warrants
for fees/services -- 25,000 16,389 25,000 1,938,448
Non-cash interest expense 4,793 -- 46,174 -- 125,049
Non-cash acquisition of R&D in process technology -- 1,650,000 -- 1,650,000 1,650,000
Securities aquired under sub-license agreement (350,000) -- (350,000) -- (850,000)
Issuance of common stock for intellectual property rights -- -- -- -- 866,250
Amortization of organizational and debt issuance costs -- -- -- -- 77,834
Depreciation and amortization 12,895 18,243 26,377 36,017 272,968
Increase in debt issuance and organizational costs -- -- -- -- (77,834)
Loss realized on sale of marketable securities -- -- -- -- 324,915
Decrease (increase) in prepaid expenses and other
current assets 6,878 (75,451) 13,927 (60,445) (92,492)
Decrease (increase) in other assets 6,188 -- 20,057 600 53,360
Increase (decrease) in accounts payable,
accrued liabilities (1,892,651) 172,305 (171,277) 57,905 144,651
Increase (decrease) in sponsored research payable -- (840,676) (588) (248,523) 1,047,250
------------ ----------- ------------ ----------- ------------
Net cash used by development stage activities (15,515,018) (2,471,979) (15,965,110) (4,628,933) (46,163,560)
------------ ----------- ------------ ----------- ------------
Cash flows from investing activities:
Proceeds on sale of marketable securities -- -- -- -- 175,085
Acquisition of laboratory and office equipment (2,596) (2,087) (2,596) (2,087) (319,948)
Disposition of office equipment -- -- 33,560 -- 33,560
Increase in notes receivable in connection with
sale of stock -- -- -- -- (240,000)
Decrease (increase) in loan receivable - former
officer 7,500 -- 15,000 -- (65,000)
Payments on notes receivable 23,900 -- 47,200 -- 214,600
Purchase of Camelot Pharmacal L.L.C., net of
cash acquired -- (8,259) -- (8,259) (46,687)
------------ ----------- ------------ ----------- ------------
Net cash provided (used) by investing activities 28,804 (10,346) 93,164 (10,346) (248,390)
------------ ----------- ------------ ----------- ------------
Cash flows from financing activities:
Principal payments under capital lease -- (5,891) -- (13,441) (72,453)
Conversion of convertible, subordinated notes -- -- -- -- 749,976
Proceeds from issuance of convertible debenture -- -- -- -- 2,300,000
Proceeds from issuance of common stock 8,150,000 -- 8,150,000 -- 21,418,035
Proceeds from issuance of preferred stock 12,750,000 -- 12,750,000 3,212,136 16,034,812
Proceeds from exercise of stock options -- -- -- -- 1,337,677
Proceeds from exercise of warrants -- -- -- -- 10,064,481
------------ ----------- ------------ ----------- ------------
Net cash provided (used) by financing activities 20,900,000 (5,891) 20,900,000 3,198,695 51,832,528
------------ ----------- ------------ ----------- ------------
Net increase (decrease) in cash and cash equivalents 5,413,786 (2,488,216) 5,028,054 (1,440,584) 5,420,578
Cash and cash equivalents at beginning of period 7,876 3,027,503 393,608 1,979,871 1,084
============ =========== ============ =========== ============
Cash and cash equivalents at end of period $ 5,421,662 $ 539,287 $ 5,421,662 $ 539,287 $ 5,421,662
============ =========== ============ =========== ============
Noncash investing and financing activities:
Common stock, stock options and warrants issued
for services $ -- $ 25,000 $ -- $ 25,000 $ 1,937,648
Acquisiton of R&D in-process technology -- 1,650,000 -- 1,650,000 1,655,216
Common stock issued for intellectual property rights -- -- -- -- 866,250
Common stock issued to retire debt -- -- -- -- 600,000
Common stock issued to redeem convertible securities 1,882,479 -- 4,019,263 -- 5,353,368
Securities acquired under sub-license agreement 350,000 -- 350,000 -- 850,000
Unrealized (realized) depreciation of investments -- 20,178 -- 261,361 --
Equipment acquired under capital lease -- -- -- -- 72,453
Notes payable converted to common stock -- -- -- -- 749,976
Stock dividends 77,914 -- 182,195 -- 364,547
============= =========== ============ =========== ============
Supplemental disclosure of cash flow information:
Interest paid $ 6,330 $ 2,089 $ 7,419 $ 4,768 $ 138,299
============= =========== ============ =========== ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
FOR THE PERIOD FROM OCTOBER 17, 1986 (INCEPTION) TO JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Notes Unrealized Deficit Total
receivable gain (loss) accumulated stockholders'
in connection Additional on during equity
Common Preferred with sale paid-in marketable development (Net capital
stock stock of stock capital securities stage deficiency)
-------------------------- --------------------------- ------------------------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance at October 17, 1986 -- -- -- -- -- -- --
Common stock issued $ 11,288,329 -- -- $ 254,864 -- -- 11,543,193
Common stock options issued -- -- -- 75,000 -- -- 75,000
Net loss -- -- -- -- -- (12,192,046) (12,192,046)
------------ --- -------- ----------- ---------- ----------- -----------
Balance at December 31, 1994 11,288,329 -- -- 329,864 -- (12,192,046) (573,853)
Reincorporation in Delaware
at $.01 par value (11,220,369) -- -- 11,220,369 -- -- --
Common stock issued 27,656 -- -- 9,726,277 -- -- 9,753,933
Net loss -- -- -- -- -- (7,387,717) (7,387,717)
------------ --- -------- ----------- ---------- ----------- -----------
Balance at December 31, 1995 95,616 -- -- 21,276,510 -- (19,579,763) 1,792,363
Common stock issued 18,267 -- -- 7,043,328 -- -- 7,061,595
Common stock subscribed -- -- (110,000) -- -- -- (110,000)
Unrealized loss on marketable
securities -- -- -- -- (39,232) -- (39,232)
Net loss -- -- -- -- -- (7,008,889) (7,008,889)
------------ --- -------- ----------- ---------- ----------- -----------
Balance at December 31, 1996 113,883 -- (110,000) 28,319,838 (39,232) (26,588,652) 1,695,837
Issuance of common stock in
connection with
acquisition of Camelot
Pharmacal, L.L.C 6,000 -- -- 1,644,000 -- -- 1,650,000
Common stock issued 6,612 -- 37,400 1,041,750 -- -- 1,085,762
Common stock options and
warrants issued -- -- -- 165,868 -- -- 165,868
Common stock options extended -- -- -- 215,188 -- -- 215,188
Accretion of issuance costs for
cumulative convertible
redeemable preferred stock -- -- -- -- -- (79,500) (79,500)
Unrealized gain on marketable
securities -- -- -- -- 39,232 -- 39,232
Net loss -- -- -- -- -- (9,489,138) (9,489,138)
------------ --- -------- ----------- ---------- ----------- -----------
Balance at December 31, 1997 126,495 -- (72,600) 31,386,644 -- (36,157,290) (4,716,751)
Common stock issued 30,933 -- 23,300 2,216,397 2,270,630
Accretion of issuance costs for
cumulative convertible redeemable
preferred stock -- -- -- -- -- (23,900) (23,900)
Net loss -- -- -- -- -- (2,263,048) (2,263,048)
------------ --- -------- ----------- ---------- ----------- -----------
Balance at March 31, 1998 157,428 -- (49,300) 33,603,041 -- (38,444,238) (4,733,069)
Common stock issued 111,106 -- 23,900 9,926,164 -- -- 10,061,170
Preferred stock issued -- 115 -- 11,499,885 -- -- 11,500,000
Net loss -- -- -- -- -- (13,303,121) (13,303,121)
------------ --- -------- ----------- ---------- ----------- -----------
Balance at June 30, 1998 268,534 115 (25,400) 55,029,090 -- (51,747,359) 3,524,980
============ === ======== =========== ========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated balance sheets as of June 30, 1998 and
December 31, 1997 and the accompanying consolidated statements of
operations and cash flows for the three and six months ended June 30,
1998 and 1997 and for the period from October 17, 1986 (inception) to
June 30, 1998, 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, 1998 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-K, as amended, for the year ended
December 31, 1997. The results of operations for the three and six
months ended June 30, 1998 and 1997 are not necessarily indicative of
the operating results for the full years.
Sheffield Medical Technologies Inc. ("Sheffield") was incorporated on
October 17, 1986. The Company's wholly-owned subsidiary, U-Tech Medical
Corporation ("U-Tech") was incorporated on January 13, 1992 and was
liquidated on June 30, 1997. On January 26, 1995, the Company's
shareholders approved the proposal to reincorporate Sheffield in
Delaware, which was effected on June 13, 1995. On January 10, 1996, Ion
Pharmaceuticals, Inc. ("Ion"), was formed as a wholly-owned subsidiary
of the Company. At that time, Ion acquired the Company's rights to
certain early-stage biomedical technologies. On April 17, 1997, CP
Pharmaceuticals, Inc. ("CP") was formed for the purpose of acquiring
Camelot Pharmacal, L.L.C., a privately held pharmaceutical development
company, which acquisition was consummated on April 25, 1997. On June
26, 1997, the Company's shareholders approved the proposal to change
Sheffield's name from Sheffield Medical Technologies Inc. to Sheffield
Pharmaceuticals, Inc. As part of an agreement with Elan Corporation,
plc, on June 30, 1998, Systemic Pulmonary Delivery, Ltd. ("SPD") was
formed as a wholly-owned subsidiary of the Company. At that time, SPD
acquired the Company's rights to the systemic applications of the
Metered Solution Inhaler ("MSI") and acquired Elan's rights to certain
pulmonary delivery technologies. Unless the context requires otherwise,
Sheffield, U-Tech, Ion, CP and SPD are referred herein to as "the
Company." All significant intercompany transactions are eliminated in
consolidation.
The Company is in the development stage and to date has been
principally engaged in research, development and licensing efforts. The
Company has generated minimal operating revenue and requires additional
capital that the Company intends to obtain through out-licensing as
well as 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
developing a new business, particularly since the Company will focus on
product development that may require a lengthy period of time and
substantial expenditures to complete. Even if the Company is able to
successfully develop new products, there can be no assurance that the
Company will generate sufficient revenues from the sale or licensing of
such products to be profitable. Management believes that the Company
has the ability to meet its obligations as they become due and to
continue as a going concern through December 1998.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
2. LOSS PER COMMON SHARE
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings
Per Share. SFAS No. 128 replaced the previously reported primary and
fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. Basic net loss
per share is based upon the weighted average Common Stock outstanding
during each year. Options, warrants and convertible securities are not
included as their effect is antidilutive. The effect of adoption of
SFAS No. 128 had no financial impact, and accordingly, no restatement
of loss per share for prior periods was necessary.
3. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
On January 1, 1998 the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes
standards for the reporting and display of comprehensive income and its
components and is applied to all enterprises. The adoption of SFAS No.
130 had no impact on the Company's consolidated results of operations,
financial position or cash flows.
In June 1997, the FASB issued SFAS No. 131. "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No.
131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports
issued to stockholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for
fiscal years beginning after December 15, 1997. The Company will adopt
the new requirements in conjunction with its 1998 Form 10-K. The
adoption of SFAS No.131 will have no significant impact on the
Company's financial reporting.
4. RESEARCH AND DEVELOPMENT
On June 15, 1998, the Company entered into an agreement with Zambon
Group SpA ("Zambon") of Milan, Italy for a sublicense to the Company's
proprietary MSI drug delivery system. Zambon received an exclusive
world-wide marketing and development sub-license for respiratory
products to be delivered by the metered solution inhaler ("MSI")
including four drugs previously under development by Sheffield.
Sheffield will maintain certain co-promotion rights in the U.S. for
respiratory drugs as well as the world-wide marketing and development
rights for all applications of the MSI delivery system outside the
respiratory therapeutic area. As part of this transaction, Zambon
agreed to fund all remaining development costs relating to these
respiratory products, paid the Company an up-front fee in the form of
an equity investment as well as will pay the Company milestone payments
upon marketing approval for each of the four products and royalties
upon commercialization. In addition, Zambon will provide Sheffield with
an interest free line of credit upon the achievement of certain early
milestones. Relative to the agreement, on April 15, 1998, the Company
issued 800,000 shares of Common Stock, for the sum of $650,000 in cash,
pursuant to an option agreement and on June 15, 1998, the Company
entered into the definitive agreement which resulted in the issuance of
an additional 1,846,153 shares of Common Stock for $1,500,000.
On June 30, 1998, the Company issued 5,571,428 shares of Common Stock
and 11,500 shares of Series C Cumulative Convertible Preferred Stock,
convertible into shares of Common Stock of the Company or of its
wholly-owned subsidiary, SPD, for $17.5 million pursuant to a
definitive agreement with an affiliate of Elan Corporation, plc, Elan
International Services ("Elan"). Elan also received warrants to
purchase 990,000 shares of Common Stock of the Company with an exercise
price of $2.00 per share. Under the terms of the agreement, the
Company, through SPD, acquired certain pulmonary delivery technologies
for the sum of $12.5 million in cash.
<PAGE>
The Company is responsible for the development of these technologies.
All of the outstanding common stock of SPD is pledged to Elan during
the term of the agreement, and Elan agreed to make available to the
Company an additional $2 million in funding in the form of a
convertible note, at the option of the Company.
5. CAPITAL TRANSACTIONS
On April 15, 1998, the Company issued 1,250 shares of its Series B
Cumulative Convertible Redeemable Preferred Stock in a private
placement for an aggregate purchase price of $1,250,000. As of June 30,
1998, all of the Series B Preferred Stock remained to be redeemed or
available for conversion. On July 31, 1998, all of the Series B
Preferred Stock was redeemed by the Company.
On April 15, 1998, the Company made the DM 2.0 million payment to
Siemens, A.G. that was originally due in January 1998 under the terms
of its license agreement with Siemens, A.G. concerning the MSI
technology. This payment was made with the proceeds of the Series B
Preferred Stock offering.
For the period January 1, 1998 through April 15, 1998, a total of
4,075,797 shares of common stock were issued as a result of conversion
of the Company's Series A Preferred Stock. As of April 15, 1998, all
outstanding shares of the Series A Preferred Stock had been converted.
For the period January 1, 1998 through June 3, 1998, a total of
2,925,941 shares of common stock were issued as a result of conversion
and interest payments made on the Company's 6% subordinated convertible
debentures. As of June 3, 1998, all principal had been converted into
shares of common stock.
6. SUBSEQUENT EVENTS
On July 15, 1998, the Company, through SPD, acquired from Aeroquip
Corporation a new generation metered dose inhaler (MDI) system called
the Aerosol Drug Delivery System ("ADDS") in a cash transaction. SPD
holds the rights to all systemic disease applications of the ADDS
technology. Sheffield retains the rights to develop respiratory disease
applications of this ADDS technology. In connection with the ADDS
acquisition, the three member technology team at Aeroquip that
developed the ADDS system have joined Sheffield.
On July 15, 1998, in connection with an annual Meeting of Stockholders,
stockholders approved certain amendments to the Company's 1993 Stock
Option Plan, increasing the number of shares of Common Stock available
for issuance thereunder from 3,000,000 shares to 4,000,000 shares.
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
OVERVIEW
The Company is a specialty pharmaceutical company focused on the development and
commercialization of later stage, lower risk pharmaceutical opportunities,
particularly those utilizing unique pulmonary delivery technologies over a range
of therapeutic areas. The Company is focusing its resources on the development
and commercialization of pharmaceutical products whose utility and commercial
potential can be exploited or enhanced by delivery in one of the Company's
proprietary pulmonary delivery systems. The Company has established strategic
alliances with Siemens AG, Zambon Group Spa, and Elan Corporation, plc. for the
development of these systems. The Company through its wholly-owned subsidiary,
Systemic Pulmonary Delivery, Ltd. ("SPD") has expanded its portfolio of
proprietary pulmonary delivery technologies with the recent acquisitions of the
UPDAS(TM) and Enhancing Technology from Elan Corporation, plc and the ADDS
system from Aeroquip Corporation. The Company will seek to acquire additional
novel platform drug delivery systems and technologies.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company, 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. Additional operating losses are expected to be
incurred for the next few 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 development activities and operations primarily through public and
private offerings of securities, from which it has raised an aggregate of
approximately $51.9 million through June 30, 1998.
The Company continues to conduct scientific research, clinical trials,
development, and intellectual property protection. During the three months ended
June 30, 1998, the Company funded $47,729 for direct research and development
costs on its projects. The Company continues to seek appropriate sub-licensing
partners for its remaining early-stage technologies.
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
REVENUES AND EXPENSES
Revenues:
From inception through the period ended June 30, 1998, the Company has earned
sub-license revenue of $1,360,000 relative to various early-stage technologies.
The Company earned sub-license revenue of $350,000 for the quarter ended June
30, 1998.
From inception through the period ended June 30, 1998, the Company has earned
interest income of $457,342 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 of its technologies
and other technologies and products that 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, 1998 was $2,562 compared to
$21,747 for the same period ended June 30, 1997. 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, 1998, the Company incurred
$55,768,089 of operating expenses. Of the total operating expenses for that
period, $21,048,494 were costs of research and development for the Company's
technologies and $14,150,000 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 the cost of completing
its financings. Research and development costs are expected to remain high as
the Company develops its current technologies and acquires additional
technologies. Such costs will continue to be expensed for financial reporting
purposes.
Operating expenses for the three months ended June 30, 1998, were $13,655,683
compared to $3,443,147 for the same period ended June 30, 1997. During the
quarter ended June 30, 1998, the Company recognized a $12.5 million expense
related to the acquisition of R&D in-process technology under its agreement with
Elan Corporation, plc, as discussed below. During the quarter ended June 30,
1997, the Company recognized a $1.65 million expense related to the acquisition
of R&D in-process technology pursuant to the merger with Camelot Pharmacal,
L.L.C.
The Company's direct research and development expenses were $12,547,729 and
$31,208,038 for the three months ended June 30, 1998 and from the Company's
inception to June 30, 1998, respectively. The Company's committed direct
research and development funding after June 30, 1998 is currently $2.0 million
and relates primarily to the development of certain pulmonary delivery
technologies by SPD (i.e., systemic applications of the MSI, UPDAS(TM),
Enhancing Technology, ADDS). The Company anticipates funding the development
costs associated with the respiratory applications of the UPDAS(TM) and ADDS
technologies, the anticipated costs of which have not been determined at the
time of this filing. The Company continues to out-license the early-stage
technologies remaining in its portfolio, seeking organizations having the
interest and resources to continue development accordingly.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash available for funding its operations as of June 30, 1998 was
$5,421,662. As of such date, the Company had trade payables of $716,505 and
current research obligations of $470,180. As a result of its development and
growth plans, the Company will need to obtain additional funds for its business
through operations or equity or debt financings, collaborative arrangements with
corporate partners or from other resources. No assurance can be given that these
funds will be available for the Company to finance its development on acceptable
terms, if at all. If adequate funds are not available from operations or
additional sources of funding, the Company's business will suffer a material
adverse effect.
The Company's operations to date have consumed substantial and increasing
amounts of cash. The negative cash flow from operations is expected to continue
in the foreseeable future. The Company has not yet begun to generate revenues
from the sale of products. The Company's products will require significant
additional development, clinical testing and investment prior to
commercialization. The Company does not expect regulatory approval for
commercial sales of any of its products in the immediate future. There can be no
assurance that such products will be successfully developed, proven to be safe
and efficacious in clinical trials, able to meet applicable regulatory
standards, able to obtain required regulatory approvals, or produced in
commercial quantities at reasonable costs or be successfully commercialized and
marketed.
The owners and licensors of the technology rights acquired by the Company are
entitled to receive a certain percentage of all royalties and payments in lieu
of royalties received by the Company from commercialization, if any, of products
in respect of which the Company holds licenses. Accordingly, in addition to its
substantial investment in product development, the Company will be required to
make substantial payments to others in connection with revenues derived from
commercialization of products, if any, developed under licenses the Company
holds. Consequently, the Company will not receive the full amount of any
revenues that may be derived from commercialization of products to fund ongoing
operations.
Under the terms of existing agreements, the Company is obligated to make certain
payments to its licensors. In the event that the Company defaults on the payment
of an installment under the terms of an existing licensing agreement, its rights
thereunder could be forfeited. As a consequence, the Company could lose all
rights under a license agreement to the related licensed technology,
notwithstanding the total investment made through the date of the default. There
can be no assurance that unforeseen obligations or contingencies will not
deplete the Company's financial resources and, accordingly, sufficient resources
may not be available to fulfill the Company's commitments
On April 15, 1998, the Company issued 800,000 shares of Common Stock, for
$650,000 pursuant to an option agreement with an affiliate of the Zambon
Corporation, Inpharzam International, S.A., relative to certain MSI respiratory
applications. On June 15, 1998, the Company entered into the definitive
agreement with Inpharzam, which resulted in the issuance of an additional
1,846,153 shares of Common Stock for $1,500,000. Under the terms of the
agreement, Inpharzam will fund all development costs associated with the subject
MSI respiratory applications.
On April 15, 1998, the Company issued 1,250 shares of its Series B Cumulative
Convertible Redeemable Preferred Stock in a private placement for an aggregate
purchase price of $1,250,000, plus warrants to purchase 300,000 shares of Common
Stock with an exercise price of $1.00 per share. As of June 30, 1998, all of the
Series B Preferred Stock remained to be redeemed or available for conversion. On
July 31, 1998, all of the Series B Preferred Stock was redeemed by the Company.
On June 30, 1998, the Company issued 5,571,428 shares of Common Stock and 11,500
shares of Series C Cumulative Convertible Preferred Stock, convertible into
shares of Common Stock of the Company or of its wholly-owned subsidiary, SPD,
for $17.5 million pursuant to a definitive agreement with an affiliate of Elan
Corporation, plc, Elan International Services ("Elan"). Elan also received
warrants to purchase 990,000 shares of Common Stock of the Company with an
exercise price of $2.00 per share. Under the terms of the agreement, the
Company, through SPD, acquired certain pulmonary delivery technologies for the
sum of $12.5 million in cash. The Company is responsible for the development of
these technologies. All of the outstanding common stock of SPD is pledged to
Elan during the term of the agreement, and Elan agreed to make available to the
Company an additional $2 million in funding in the form of a convertible note,
at the option of the Company.
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
PART II: OTHER INFORMATION
Item 2. CHANGES IN SECURITIES.
The following unregistered securities were issued by the Company during
the quarter ended June 30, 1998:
<TABLE>
<CAPTION>
Number of
Shares
Sold/Issued
Description /Subject to
Date of of Securities Options or Offering/Exercise
Sale/Issucane Issued Warrants Price per Share ($) Purchaser of Class
------------- ------ -------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
April-June 1998 Common Stock 3,908,512 $0.5156-$0.7125 Holders of Preferred
Stock and Convertible
Debentures
April 1998 Common Stock 800,000 $0.8125 Investor/Licensor
April 1998 Common Stock Warrants 300,000 $1.00 Holder of Preferred Stock
May 1998 Common Stock Warrants 52,410 $1.375-$1.625 Advisors
May 1998 Common Stock Options 30,000 $1.375 Issuance to eligible Directors
pursuant to the 1996 Directors
Stock Option Plan
June 1998 Common Stock 1,846,153 $0.8125 Investor/Licensor
June 1998 Common Stock 4,571,428 $1.3125 Investor/Licensor
June 1998 Common Stock Warrants 990,000 $2.00 Investor/Licensor
</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.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
NO. DESCRIPTION
3.1 Certificate of Incorporation, as amended
4.1 Certificate of Designations defining the powers,
designations, rights, preferences, limitations and
restrictions applicable to the Company's Series B
Cumulative Convertible Redeemable Preferred Stock.
4.2 Certificate of Designations defining the powers,
designations, rights, preferences, limitations and
restrictions applicable to the Company's Series C
Cumulative Convertible Preferred Stock.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K with the Securities and
Exchange Commission on April 17, 1998 relating to (i) the Company's entering
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 MSI system, (ii) the
announcement of the Company's financial results for the fourth quarter and year
ended December 31, 1997, (iii) the completion of the offering and sale of the
Company's Series B Cumulative Convertible Redeemable Preferred Stock for gross
proceeds of $1.25 million, and (iv) certain other matters.
The Company filed a current Report on Form 8-K with the Securities and
Exchange Commission on June 22, 1998 relating to the Company's entering into a
sublicense and development agreement with Inpharzam International, S.A. of
Switzerland (an affiliate of Zambon Group, SpA) for the testing and development
of the Company's rights in its MSI technology in respect of therapies for
respiratory diseases.
The Company filed a current Report on Form 8-K with the Securities and
Exchange Commission on July 16, 1998 relating to the Company's consummation of a
license and financing transaction with Elan International Services, Ltd.
("Elan") (an affiliate of Elan Corporation plc, an Irish pharmaceutical company)
in accordance with the terms of the binding letter of intent dated June 3, 1998.
<PAGE>
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, 1998 /S/ LOREN G. PETERSON
----------------------
Loren G. Peterson
President & Chief Executive Officer
Dated: August 14, 1998 /S/ JUDY ROESKE BULLOCK
------------------------
Judy Roeske Bullock
Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
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
Section291 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 Section279 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 Section109 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 Section141 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
Section242 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 Section102 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 Section145 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
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<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
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<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
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<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.
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<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
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<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
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<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
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<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:
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<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.
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<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
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<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
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<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
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<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
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<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
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<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
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<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
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<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)
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<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 Lombardi
- --------------------------
George Lombardi, Secretary
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<PAGE>
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).
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").
<PAGE>
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 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
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<PAGE>
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.
(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.
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<PAGE>
(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.
(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 with the Series B Preferred Stock (collectively, with the Series A
Preferred Stock, "Pari Passu Securities").
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<PAGE>
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.
(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.
-5-
<PAGE>
(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, (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
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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.
(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
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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.
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;
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(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) 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.
SECTION 6.2 EXERCISE OF CONVERSION PRIVILEGE. (a) Conversion of the
Series B Preferred Stock may be exercised, in whole or in part, by
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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 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
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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).
(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
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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 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 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
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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 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
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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 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
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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.
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
(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
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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 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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- --------------------------------------------------------------------------------
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FORM OF
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF
SERIES C CUMULATIVE CONVERTIBLE 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 by unanimous written consent dated
June 26, 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 23,000 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 C Cumulative
Convertible Preferred Stock" (the "Series C Preferred Stock") and the authorized
number of shares constituting such series shall be 23,000 shares. The par value
of the Series C Preferred Stock shall be $.01 per share. The stated value of the
Series C Preferred Stock shall be One Thousand Dollars ($1,000) per share (the
"Stated Value").
ARTICLE 2
DEFINITIONS
The terms defined in this Article whenever used in this Certificate of
Designations have the following respective meanings:
(a) "AMEX" means the American Stock Exchange.
(b) "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.
(c) "COMMON SHARES" or "COMMON STOCK" means shares of common stock,
$.01 par value, of the Corporation.
(d) "CONVERSION DATE" means any day on which all or any portion of
shares of the Series C Preferred Stock is converted in accordance with the
provisions hereof.
(e) "CONVERSION NOTICE" has the meaning set forth in Section 6.1.
(f) "CONVERSION PRICE" has the meaning set forth in Section 6.1.
(g) "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.
(h) "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 average of
the closing bid and ask prices 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
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<PAGE>
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.
(i) "DIVIDEND PAYMENT DATE" has the meaning set forth in Section 4.1.
(j) "DIVIDEND PERIOD" has the meaning set forth in Section 4.1.
(k) "DIVIDEND SHARES" means the shares of Series C Preferred Stock
issued as dividends on outstanding shares of Series C Preferred stock in
accordance with Article 4 hereof.
(l) "DOLLARS" or "$" means currency of the United States of America.
(m) "EXCHANGE DATE" has the meaning set forth in Article 7.
(n) "EXCHANGE NOTICE" has the meaning set forth in Article 7.
(o) "HOLDER" OR "HOLDERS" means Elan International Services, Ltd., a
Bermuda corporation, any successor thereto, or any Person(s) to whom the Series
C 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 C Preferred Stock.
(q) "JUNIOR SECURITIES" has the meaning set forth in Article 3.
(r) "LIQUIDATION PREFERENCE" has the meaning set forth in Section
5.1(b).
(s) "MANDATORY CONVERSION DATE" has the meaning set forth in Section
6.3.
(t) "PARI PASSU SECURITIES" has the meaning set forth in Article 3.
(u) "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.
(v) "RIGHTS" has the meaning set forth in Section 6.2(e).
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(w) "SERIES C PREFERRED STOCK" means the Series C Cumulative
Convertible Preferred Stock of the Corporation created by this Certificate of
Designations.
(x) "SPD" Systemic Pulmonary Delivery, Ltd., a Bermuda corporation.
(y) "STATED VALUE" has the meaning set forth in Article 1.
(z) "TRADING DAY" means any day on which purchases and sales of
securities authorized for quotation on the AMEX are reported thereon 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.
ARTICLE 3
RANK
The Series C 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 B
Cumulative Convertible Redeemable Preferred Stock (the "Series B Preferred
Stock"); and (iv) pari passu with any class or series of capital stock of the
Corporation hereafter created specifically ranking on parity with the Series C
Preferred Stock (collectively, with the Series B Preferred Stock, "Pari Passu
Securities").
ARTICLE 4
DIVIDENDS
SECTION 4.1
(a) (i) Subject to Article 6, the Holder shall be entitled to
receive, out of funds legally available for the payment of dividends, dividends
at the rate of 7.0% per annum (computed on the basis of a 360-day year) (the
"Dividend Rate") on the Stated Value of each outstanding share of Series C
Preferred Stock payable on and as of the most recent Dividend Payment Date with
respect to each Dividend Period. Dividends on the Series C Preferred Stock shall
be cumulative from the date of issue or the most recent
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Dividend Payment Date upon which dividends have been paid on the Series C
Preferred Stock by the Corporation.
(ii) Dividend on the Series C Preferred Stock 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 Date"), commencing
September 30, 1998, to the holders of record of shares of the Series C 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 C 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 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.
(iii) Dividends on the outstanding shares of Series C
Preferred Stock shall be paid through the issuance of duly and validly
authorized and issued, fully paid and non-assessable additional shares of Series
C Preferred Stock to be issued at the rate of one (1) share of Series C
Preferred Stock for each $1,000 of dividend due and payable. No fractional
shares of the Series C Preferred Stock shall be issued as Dividend Shares.
Instead of any fractional shares of Series C Preferred Stock which would
otherwise be issuable as Dividend Shares, the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount equal to 1,000
times the fractional interest.
(b) The Holder shall not be entitled to any dividends in
excess of the cumulative dividends, as herein provided, on the Series C
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 C Preferred Stock that may be in arrears.
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
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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 ninety (90) 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, subject to Article 5, shall have received the
Liquidation Preference (as defined in Article 5.1(b)) with respect to each
share. If upon the occurrence of a Liquidation Event, the assets and funds
available for distribution among the Holders and holders of shares 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 C Preferred Stock
and the Pari Passu Securities shall be distributed ratably among such shares in
proportion to the ratio that the preferential amounts payable on each such share
bears to the aggregate preferential amounts payable on all such shares.
(b) For purposes hereof, the "Liquidation Preference" with
respect to a share of the Series C Preferred Stock shall mean an amount equal to
(i) the Stated Value thereof, plus (ii) the aggregate of all accrued and unpaid
stock dividends on such share of Series C 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 stock dividends
to the actual date of such liquidation, dissolution or winding up, rather than
the applicable Dividend Payment Due Date referred to above.
ARTICLE 6
CONVERSION OF SERIES C PREFERRED STOCK
SECTION 6.1 CONVERSION.
(a) Holders of shares of the Series C Preferred Stock shall
have the right, exercisable at any time and from time to time through the
Mandatory Conversion Date, to convert all or any such shares of the Series C
Preferred Stock into shares of the Common Stock (calculated as to each
conversion to the nearest 1/100th of a share) at the conversion price of $1.41
per share of the Common Stock (equivalent to a conversion rate of 709.22 shares
of Common
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<PAGE>
Stock for each share of the Series C Preferred Stock so converted), subject to
adjustment as described below (the "Conversion Price"). Upon conversion, no
adjustment or payment will be made for dividends, but if any holder surrenders a
share of the Series C Preferred Stock for conversion after the close of business
on the record date for the payment of a dividend and prior to the opening of
business on the next Dividend Payment Date, then, notwithstanding such
conversion, the dividend payable on such Dividend Payment Date will be paid to
the registered holder of such share on such record date. In such event, such
share, when surrendered for conversion during the period between the close of
business on any dividend payment record date and the opening of business on the
corresponding Dividend Payment Date, must be accompanied by payment of an amount
equal to the dividend payable on such Dividend Payment Date on the share so
converted.
(b) Any holder of a share or shares of the Series C Preferred
Stock electing to convert such share or shares thereof shall deliver the
certificate or certificates therefor to the principal office of the Corporation
or any transfer agent for the Common Stock, with the form of notice of election
to convert attached to this Certificate of Designations (the "Conversion
Notice"), fully completed and duly executed and (if such required by the
Corporation or any conversion agent) accompanied by instruments of transfer in
form satisfactory to the Corporation and to any conversion agent, duly executed
by the registered Holder of his duly authorized attorney. The conversion right
with respect to any such shares shall be deemed to have been exercised at the
date upon which the certificates therefore accompanied by such duly executed
notice of election and instruments of transfer and such taxes, stamps, funds, or
evidence of payment shall have been so delivered, and the Person or Persons
entitled to receive the shares of the Common Stock issuable upon such conversion
shall be treated for all purposes as the record Holder or Holders of such shares
of the Common Stock upon said date.
(c) From and after the delivery of the Conversion Notice in
respect of any conversion of shares of Series C Preferred Stock, all such shares
of Series C 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 C Preferred
Stock shall cease to accrue, and all rights of the Holders thereof as holders of
Series C 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 C 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 C 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.
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(d) No fractional shares of the Common Stock or scrip
representing fractional shares shall be issued upon conversion of shares of the
Series C Preferred Stock. If more than one share of the Series C Preferred Stock
shall be surrendered for conversion at one time by the same holder, the number
of full shares of the Common Stock which shall be issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of the
Series C Preferred Stock so surrendered. Instead of any fractional shares of the
Common Stock which would otherwise be issuable upon conversion of any shares of
the Series C Preferred Stock, the Corporation shall pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction of the Current
Market Price for the Common Stock on the last Trading Day preceding the
applicable date of conversion.
(e) Each Conversion Notice under this Section 6.1 shall
request the conversion of at least 500 shares of Series C Preferred Stock or the
remaining balance of Series C Preferred Stock held by the converting Holder,
whichever is less.
SECTION 6.2 ADJUSTMENTS. The Conversion Price and the number of shares
issuable upon conversion of the Series C 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 C 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 C 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 C
Preferred Stock had been converted immediately before such reorganization,
merger, consolidation, sale or transfer, all subject to further adjustment as
provided in this Section 6.2(a). The foregoing provisions of this Section 6.2(a)
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
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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 C Preferred Stock.
(b) RECLASSIFICATION, ETC. If the Corporation, at any time
while the Series C 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 C 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 C 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 C Preferred Stock, or any portion hereof, remains
outstanding, the 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 C
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 C 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 C 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 6.2.
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(e) REPURCHASES OR REDEMPTIONS OF COMMON STOCK OR OPTIONS. If
the Corporation at any time while shares of Series C Preferred Stock are
outstanding, shall repurchase or redeem any outstanding shares of Common Stock
or rights, options or warrants granting the holder thereof the right to acquire
shares of Common Stock (collectively, the "Rights") in a single transaction or a
series of related transactions involving an aggregate repurchase or redemption
price in excess of $500,000 at a price (on a per share basis) which is greater
than 125% of the Current Market Price as of the day prior to such repurchase or
redemption, the Conversion Price shall thereupon be adjusted by multiplying the
Conversion Price in effect immediately prior to the applicable repurchase or
redemption by a fraction (i) the numerator of which shall be the Conversion
Price in effect immediately prior to such repurchase or redemption and (ii) the
denominator of which shall be the fair market value of the consideration paid by
the Corporation for each share of Common Stock (or each share of Common Stock
issuable upon exercise of the Right(s) subject to such repurchase or redemption)
in such repurchase or redemption.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 6.2, 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.
(g) CUMULATIVE ADJUSTMENTS. No adjustment in the Conversion
Price shall be required until cumulative adjustments result in a concomitant
change of 1% or more of the Conversion Price as in effect prior to the last
adjustment of the Conversion Price; PROVIDED, HOWEVER, that any adjustments
which by reason of this Section 6.2 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 6.2 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
Price shall be made for cash dividends.
SECTION 6.3 MANDATORY CONVERSION. On the tenth anniversary of the Issue
Date (the "Mandatory Conversion Date"), all Series C Preferred Stock outstanding
on such date shall be automatically converted at the Conversion Price in effect
as of the Mandatory Conversion Date. For purposes of such conversion, each
Holder shall be deemed to have delivered a Notice of Conversion to the
Corporation in accordance with Section 6.1, with the applicable Conversion Date
being the Mandatory Conversion Date.
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ARTICLE 7
EXCHANGE RIGHTS
Holders of at least a majority of the then outstanding shares
of Series C Preferred Stock shall have the right, by written notice delivered to
the Corporation in the form of notice of election to exchange attached to this
Certificate of Designations (the "Exchange Notice"), fully completed and duly
executed by the requisite Holders, to require the Corporation to exchange all
outstanding shares of Series C Preferred Stock as of any Dividend Payment Date
(such date being the "Exchange Date") for fifty percent (50%) of the then
outstanding capital stock of SPD owned by the Corporation as of the Exchange
Date, with such capital stock to be delivered to all Holders on a pro rata basis
based on their respective holdings of Series C Preferred Stock on the Exchange
Date. The Exchange Notice shall be delivered at least 30 days prior to the
Exchange Date. Upon receipt of the Exchange Notice, the Corporation shall
promptly notify all Holders of its receipt of thereof and all Holders will
promptly deliver the certificate or certificates therefor to the principal
office of the Corporation or any transfer agent for the Common Stock for
cancellation.
From and after the delivery of the Exchange Notice, all shares
of Series C Preferred Stock (other than Dividend Shares) shall be deemed to have
been exchanged for fifty percent (50%) of the then outstanding capital stock of
SPD (in the aggregate) as of Exchange Date, all stock dividends on such shares
of the Series C Preferred Stock shall cease to accrue, and all rights of the
Holders thereof as holders of Series C Preferred Stock, except the right to
receive all accrued and unpaid stock dividends to the Exchange Date at the
applicable rate for such shares of such shares of Series C Preferred Stock and
the right to receive certificates representing the applicable shares of SPD
capital stock issuable in respect of the exchange, shall cease and terminate,
such shares of Series C 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.
The Rights of Holders under this Article 7 shall terminate and
such Holders shall not be entitled to exchange shares of Series C Preferred
Stock under this Article 7 after a Conversion Notice has been delivered to the
Corporation pursuant to this Section 6.1. Notwithstanding anything to the
contrary in this Article 7, the delivery of the exchange notice shall not effect
any Holder's rights to convert Dividend Shares held by such holder pursuant to
Section 6.2 hereof, except that any conversion of Dividend Shares must occur
within thirty months from the Exchange Date.
ARTICLE 8
VOTING RIGHTS
The holders of the Series C Preferred Stock have no voting
power, except as otherwise provided by the General
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<PAGE>
Corporation Law of the State of Delaware ("DGCL"), in this Article 8, and in
Article 9 below.
The Corporation shall provide each Holder of Series C
Preferred Stock with prior notification of any meeting of the shareholders of
the Corporation (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 action 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.
To the extent that under the DGCL the vote of the Holders of
the Series C 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 C 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 C
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 C Preferred Stock are entitled to vote on a
matter with Holders of Common Stock, voting together as one class, each share of
Series C 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 C 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 9
PROTECTIVE PROVISIONS
So long as shares of Series C 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 C Preferred Stock:
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<PAGE>
(a) create any new class or series of capital stock having a
preference over the Series C 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 C Preferred Stock; or
(b) amend or alter whether by merger, consolidation or
otherwise, any of the provisions of the Certificate of Incorporation (including
this Certificate of Designations) that would change the preferences, rights or
privileges with respect to the Series C Preferred Stock so as to affect the
Series C Preferred Stock adversely.
In the event holders of at least a majority of the then
outstanding shares of Series C Preferred Stock agree to allow the Corporation to
amend or alter the preferences, rights or privileges of the shares of Series C
Preferred Stock, pursuant to subsection (b) above, so as to affect adversely the
Series C Preferred Stock, then the Corporation will deliver notice of such
approved change to the Holders of the Series C Preferred Stock that did not
agree to such amendment or change (the "Dissenting Holders") and Dissenting
Holders shall have the right for a period of thirty (30) days to convert
pursuant to Section 6.2 of this Certificate of Designations as they exist prior
to such alteration or change or continue to hold their shares of Series C
Preferred Stock.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1 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 C 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 C Preferred Stock, the Corporation
shall make, issue and deliver, in lieu of such lost, stolen, destroyed or
mutilated shares of Series C Preferred Stock, new shares of Series C Preferred
Stock of like date and tenor.
SECTION 10.2 WHO DEEMED ABSOLUTE OWNER. The Corporation may deem the
Person in whose name the Series C 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 C Preferred Stock for the purpose of receiving payment of
dividends on the Series C Preferred Stock, for the conversion of the Series C
Preferred Stock 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 C Preferred Stock to the extent of the sum or sums so paid or the
conversion so made.
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<PAGE>
SECTION 10.3 REGISTER. The Corporation shall keep at its principal
office a register in which the Corporation shall provide for the registration of
the Series C Preferred Stock. Upon any transfer of the Series C Preferred Stock
in accordance with the provisions hereof, the Corporation shall register such
transfer on the Series C Preferred Stock register.
SECTION 10.4 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
C Preferred Stock.
SECTION 10.5 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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<PAGE>
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 30th day of June, 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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<PAGE>
FORM OF CONVERSION NOTICE
TO: Sheffield Pharmaceuticals, Inc.
Attention: Chief Financial Officer
The undersigned owner of shares of Series C Cumulative
Convertible Preferred Stock (the "Series C Preferred Stock") issued by Sheffield
Pharmaceuticals, Inc. (the "Corporation") hereby irrevocably exercises its
option to convert __________ shares of the Series C 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 C
Preferred Stock. The undersigned hereby instructs the Corporation to convert the
number of shares of the Series C 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 C 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 C Preferred Stock:
Please print name and address
(including zip code number) :
- --------------------------------------------------------------------------------
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<PAGE>
FORM OF EXCHANGE NOTICE
TO: Sheffield Pharmaceuticals, Inc.
Attention: Chief Financial Officer
The undersigned owner(s) of shares of Series C Cumulative
Convertible Preferred Stock (the "Series C Preferred Stock") issued by Sheffield
Pharmaceuticals, Inc. (the "Corporation") hereby irrevocably exercise its option
to cause the Corporation to exchange 11,500 shares of Series C Preferred Stock
for 50% of the outstanding capital stock Systemic Pulmonary Delivery, Ltd. ("SPD
Stock") in accordance with the terms of the Certificate of Designations of the
Series C Preferred Stock. The undersigned hereby instructs the Corporation to
advise all other holders of Series C Preferred Stock, if any, of this exercise
by the undersigned owner(s). The undersigned direct that the SPD Stock issuable
and certificates therefor deliverable to the undersigned upon such exchange 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 SPD Stock:
Please print name and address
(including zip code number) :
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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).
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
<PAGE>
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 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.
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<PAGE>
(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.
(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.
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<PAGE>
(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.
(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.
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<PAGE>
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 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, (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.
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<PAGE>
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.
(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.
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<PAGE>
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.
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
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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) 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
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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.
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 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
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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).
(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.
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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 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
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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 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 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
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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 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.
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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.
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
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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.
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
(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).
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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 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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FORM OF
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF
SERIES C CUMULATIVE CONVERTIBLE 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 by unanimous written consent dated
June 26, 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 23,000 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).
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ARTICLE 1
DESIGNATION AND AMOUNT
The shares of such series shall be designated as "Series C
Cumulative Convertible Preferred Stock" (the "Series C Preferred Stock") and the
authorized number of shares constituting such series shall be 23,000 shares. The
par value of the Series C Preferred Stock shall be $.01 per share. The stated
value of the Series C Preferred Stock shall be One Thousand Dollars ($1,000) per
share (the "Stated Value").
ARTICLE 2
DEFINITIONS
The terms defined in this Article whenever used in this
Certificate of Designations have the following respective meanings:
(a) "AMEX" means the American Stock Exchange.
(b) "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.
(c) "COMMON SHARES" or "COMMON STOCK" means shares of common
stock, $.01 par value, of the Corporation.
(d) "CONVERSION DATE" means any day on which all or any
portion of shares of the Series C Preferred Stock is converted in accordance
with the provisions hereof.
(e) "CONVERSION NOTICE" has the meaning set forth in Section
6.1.
(f) "CONVERSION PRICE" has the meaning set forth in Section
6.1.
(g) "CORPORATION" means Sheffield Pharmaceuticals, Inc. a
Delaware corporation, and any successor or resulting corporation by way of
merger, consolidation, sale or exchange of all or substantially all of the
Corporation's assets, or otherwise.
(h) "CURRENT MARKET PRICE" on any date of determination means
the closing price of a Common Share on such day as reported on the AMEX, or, if
such security is not listed or admitted to trading on the AMEX, on the principal
national security exchange or quotation system on which such security is quoted
or listed or admitted to trading, or, if not quoted or listed or admitted to
trading on any national securities exchange or quotation system, the average of
the closing bid and ask prices of such security on the over-the-counter market
on the day in question as reported by the National Quotation Bureau
Incorporated, or a similar generally accepted reporting service, or if not so
available, in such manner as furnished by any Nasdaq member firm of the National
Association of Securities Dealers, Inc. selected from time to time
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by the Board of Directors of the Corporation for that purpose, or a price
determined in good faith by the Board of Directors of the Corporation as being
equal to the fair market value thereof, as the case may be.
(i) "DIVIDEND PAYMENT DATE" has the meaning set forth in
Section 4.1.
(j) "DIVIDEND PERIOD" has the meaning set forth in Section
4.1.
(k) "DIVIDEND SHARES" means the shares of Series C Preferred
Stock issued as dividends on outstanding shares of Series C Preferred stock in
accordance with Article 4 hereof.
(l) "DOLLARS" or "$" means currency of the United States of
America.
(m) "EXCHANGE DATE" has the meaning set forth in Article 7.
(n) "EXCHANGE NOTICE" has the meaning set forth in Article 7.
(o) "HOLDER" OR "HOLDERS" means Elan International Services,
Ltd., a Bermuda corporation, any successor thereto, or any Person(s) to whom the
Series C 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 C Preferred Stock.
(q) "JUNIOR SECURITIES" has the meaning set forth in Article
3.
(r) "LIQUIDATION PREFERENCE" has the meaning set forth in
Section 5.1(b).
(s) "MANDATORY CONVERSION DATE" has the meaning set forth in
Section 6.3.
(t) "PARI PASSU SECURITIES" has the meaning set forth in
Article 3.
(u) "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.
(v) "RIGHTS" has the meaning set forth in Section 6.2(e).
(w) "SERIES C PREFERRED STOCK" means the Series C Cumulative
Convertible Preferred Stock of the Corporation created by this Certificate of
Designations.
(x) "SPD" Systemic Pulmonary Delivery, Ltd., a Bermuda
corporation.
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(y) "STATED VALUE" has the meaning set forth in Article 1.
(z) "TRADING DAY" means any day on which purchases and sales
of securities authorized for quotation on the AMEX are reported thereon 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.
ARTICLE 3
RANK
The Series C 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 B Cumulative Convertible Redeemable Preferred Stock (the
"Series B Preferred Stock"); and (iv) pari passu with any class or series of
capital stock of the Corporation hereafter created specifically ranking on
parity with the Series C Preferred Stock (collectively, with the Series B
Preferred Stock, "Pari Passu Securities").
ARTICLE 4
DIVIDENDS
SECTION 4.1
(a) (i) Subject to Article 6, the Holder shall be entitled to
receive, out of funds legally available for the payment of dividends, dividends
at the rate of 7.0% per annum (computed on the basis of a 360-day year) (the
"Dividend Rate") on the Stated Value of each outstanding share of Series C
Preferred Stock payable on and as of the most recent Dividend Payment Date with
respect to each Dividend Period. Dividends on the Series C Preferred Stock shall
be cumulative from the date of issue or the most recent Dividend Payment Date
upon which dividends have been paid on the Series C Preferred Stock by the
Corporation.
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(ii) Dividend on the Series C Preferred Stock 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 Date"), commencing
September 30, 1998, to the holders of record of shares of the Series C 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 C 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 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.
(iii) Dividends on the outstanding shares of Series C
Preferred Stock shall be paid through the issuance of duly and validly
authorized and issued, fully paid and non-assessable additional shares of Series
C Preferred Stock to be issued at the rate of one (1) share of Series C
Preferred Stock for each $1,000 of dividend due and payable. No fractional
shares of the Series C Preferred Stock shall be issued as Dividend Shares.
Instead of any fractional shares of Series C Preferred Stock which would
otherwise be issuable as Dividend Shares, the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount equal to 1,000
times the fractional interest.
(b) The Holder shall not be entitled to any dividends in
excess of the cumulative dividends, as herein provided, on the Series C
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 C Preferred Stock that may be in arrears.
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
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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 ninety (90) 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, subject to Article 5, shall have received the
Liquidation Preference (as defined in Article 5.1(b)) with respect to each
share. If upon the occurrence of a Liquidation Event, the assets and funds
available for distribution among the Holders and holders of shares 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 C Preferred Stock
and the Pari Passu Securities shall be distributed ratably among such shares in
proportion to the ratio that the preferential amounts payable on each such share
bears to the aggregate preferential amounts payable on all such shares.
(b) For purposes hereof, the "Liquidation Preference" with
respect to a share of the Series C Preferred Stock shall mean an amount equal to
(i) the Stated Value thereof, plus (ii) the aggregate of all accrued and unpaid
stock dividends on such share of Series C 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 stock dividends
to the actual date of such liquidation, dissolution or winding up, rather than
the applicable Dividend Payment Due Date referred to above.
ARTICLE 6
CONVERSION OF SERIES C PREFERRED STOCK
SECTION 6.1 CONVERSION.
(a) Holders of shares of the Series C Preferred Stock shall
have the right, exercisable at any time and from time to time through the
Mandatory Conversion Date, to convert all or any such shares of the Series C
Preferred Stock into shares of the Common Stock (calculated as to each
conversion to the nearest 1/100th of a share) at the conversion price of $1.41
per share of the Common Stock (equivalent to a conversion rate of 709.22 shares
of Common Stock for each share of the Series C Preferred Stock so converted),
subject to adjustment as described below (the "Conversion Price"). Upon
conversion, no adjustment or payment will be made for dividends, but if any
holder surrenders a share of the Series C Preferred Stock for conversion after
the close of business on the record date for the payment of a dividend and prior
to the opening of business on the next Dividend Payment Date, then,
notwithstanding such conversion, the dividend payable on such Dividend Payment
Date will be paid to the registered holder of such share on such record date. In
such event, such share, when
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surrendered for conversion during the period between the close of business on
any dividend payment record date and the opening of business on the
corresponding Dividend Payment Date, must be accompanied by payment of an amount
equal to the dividend payable on such Dividend Payment Date on the share so
converted.
(b) Any holder of a share or shares of the Series C Preferred
Stock electing to convert such share or shares thereof shall deliver the
certificate or certificates therefor to the principal office of the Corporation
or any transfer agent for the Common Stock, with the form of notice of election
to convert attached to this Certificate of Designations (the "Conversion
Notice"), fully completed and duly executed and (if such required by the
Corporation or any conversion agent) accompanied by instruments of transfer in
form satisfactory to the Corporation and to any conversion agent, duly executed
by the registered Holder of his duly authorized attorney. The conversion right
with respect to any such shares shall be deemed to have been exercised at the
date upon which the certificates therefore accompanied by such duly executed
notice of election and instruments of transfer and such taxes, stamps, funds, or
evidence of payment shall have been so delivered, and the Person or Persons
entitled to receive the shares of the Common Stock issuable upon such conversion
shall be treated for all purposes as the record Holder or Holders of such shares
of the Common Stock upon said date.
(c) From and after the delivery of the Conversion Notice in
respect of any conversion of shares of Series C Preferred Stock, all such shares
of Series C 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 C Preferred
Stock shall cease to accrue, and all rights of the Holders thereof as holders of
Series C 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 C 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 C 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.
(d) No fractional shares of the Common Stock or scrip
representing fractional shares shall be issued upon conversion of shares of the
Series C Preferred Stock. If more than one share of the Series C Preferred Stock
shall be surrendered for conversion at one time by the same holder, the number
of full shares of the Common Stock which shall be issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of the
Series C Preferred Stock so surrendered. Instead of any fractional shares of the
Common Stock which would otherwise be issuable upon conversion of any shares of
the Series C Preferred Stock, the Corporation shall pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction of the Current
Market Price for the Common Stock on the last Trading Day preceding the
applicable date of conversion.
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(e) Each Conversion Notice under this Section 6.1 shall
request the conversion of at least 500 shares of Series C Preferred Stock or the
remaining balance of Series C Preferred Stock held by the converting Holder,
whichever is less.
SECTION 6.2 ADJUSTMENTS. The Conversion Price and the number of shares
issuable upon conversion of the Series C 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 C 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 C 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 C
Preferred Stock had been converted immediately before such reorganization,
merger, consolidation, sale or transfer, all subject to further adjustment as
provided in this Section 6.2(a). The foregoing provisions of this Section 6.2(a)
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 C Preferred Stock.
(b) RECLASSIFICATION, ETC. If the Corporation, at any time
while the Series C 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 C 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.
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(c) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the
Corporation at any time while the Series C 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 C Preferred Stock, or any portion hereof, remains
outstanding, the 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 C
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 C 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 C 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 6.2.
(e) REPURCHASES OR REDEMPTIONS OF COMMON STOCK OR OPTIONS. If
the Corporation at any time while shares of Series C Preferred Stock are
outstanding, shall repurchase or redeem any outstanding shares of Common Stock
or rights, options or warrants granting the holder thereof the right to acquire
shares of Common Stock (collectively, the "Rights") in a single transaction or a
series of related transactions involving an aggregate repurchase or redemption
price in excess of $500,000 at a price (on a per share basis) which is greater
than 125% of the Current Market Price as of the day prior to such repurchase or
redemption, the Conversion Price shall thereupon be adjusted by multiplying the
Conversion Price in effect immediately prior to the applicable repurchase or
redemption by a fraction (i) the numerator of which shall be the Conversion
Price in effect immediately prior to such repurchase or redemption and (ii) the
denominator of which shall be the fair market value of the consideration paid by
the Corporation for each share of Common Stock (or each share of Common Stock
issuable upon exercise of the Right(s) subject to such repurchase or redemption)
in such repurchase or redemption.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 6.2, 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.
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(g) CUMULATIVE ADJUSTMENTS. No adjustment in the Conversion
Price shall be required until cumulative adjustments result in a concomitant
change of 1% or more of the Conversion Price as in effect prior to the last
adjustment of the Conversion Price; PROVIDED, HOWEVER, that any adjustments
which by reason of this Section 6.2 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 6.2 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
Price shall be made for cash dividends.
SECTION 6.3 MANDATORY CONVERSION. On the tenth anniversary of the Issue
Date (the "Mandatory Conversion Date"), all Series C Preferred Stock outstanding
on such date shall be automatically converted at the Conversion Price in effect
as of the Mandatory Conversion Date. For purposes of such conversion, each
Holder shall be deemed to have delivered a Notice of Conversion to the
Corporation in accordance with Section 6.1, with the applicable Conversion Date
being the Mandatory Conversion Date.
ARTICLE 7
EXCHANGE RIGHTS
Holders of at least a majority of the then outstanding shares
of Series C Preferred Stock shall have the right, by written notice delivered to
the Corporation in the form of notice of election to exchange attached to this
Certificate of Designations (the "Exchange Notice"), fully completed and duly
executed by the requisite Holders, to require the Corporation to exchange all
outstanding shares of Series C Preferred Stock as of any Dividend Payment Date
(such date being the "Exchange Date") for fifty percent (50%) of the then
outstanding capital stock of SPD owned by the Corporation as of the Exchange
Date, with such capital stock to be delivered to all Holders on a pro rata basis
based on their respective holdings of Series C Preferred Stock on the Exchange
Date. The Exchange Notice shall be delivered at least 30 days prior to the
Exchange Date. Upon receipt of the Exchange Notice, the Corporation shall
promptly notify all Holders of its receipt of thereof and all Holders will
promptly deliver the certificate or certificates therefor to the principal
office of the Corporation or any transfer agent for the Common Stock for
cancellation.
From and after the delivery of the Exchange Notice, all shares
of Series C Preferred Stock (other than Dividend Shares) shall be deemed to have
been exchanged for fifty percent (50%) of the then outstanding capital stock of
SPD (in the aggregate) as of Exchange Date, all stock dividends on such shares
of the Series C Preferred Stock shall cease to accrue, and all rights of the
Holders thereof as holders of Series C Preferred Stock, except the right to
receive all accrued and unpaid stock dividends to the Exchange Date at the
applicable rate for such shares of such shares of Series C Preferred Stock and
the right to receive certificates representing the applicable shares of SPD
capital stock issuable in respect of the exchange, shall cease and terminate,
such shares of Series C 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.
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The Rights of Holders under this Article 7 shall terminate and
such Holders shall not be entitled to exchange shares of Series C Preferred
Stock under this Article 7 after a Conversion Notice has been delivered to the
Corporation pursuant to this Section 6.1. Notwithstanding anything to the
contrary in this Article 7, the delivery of the exchange notice shall not effect
any Holder's rights to convert Dividend Shares held by such holder pursuant to
Section 6.2 hereof, except that any conversion of Dividend Shares must occur
within thirty months from the Exchange Date.
ARTICLE 8
VOTING RIGHTS
The holders of the Series C Preferred Stock have no voting
power, except as otherwise provided by the General Corporation Law of the State
of Delaware ("DGCL"), in this Article 8, and in Article 9 below.
The Corporation shall provide each Holder of Series C
Preferred Stock with prior notification of any meeting of the shareholders of
the Corporation (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 action 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.
To the extent that under the DGCL the vote of the Holders of
the Series C 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 C 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 C
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 C Preferred Stock are entitled to vote on a
matter with Holders of Common Stock, voting together as one class, each share of
Series C 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 C 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
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would be entitled as of right under the DGCL which notice would be provided
pursuant to the Corporation's bylaws and the DGCL.
ARTICLE 9
PROTECTIVE PROVISIONS
So long as shares of Series C 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 C Preferred Stock:
(a) create any new class or series of capital stock
having a preference over the Series C 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 C Preferred Stock; or
(b) amend or alter whether by merger, consolidation
or otherwise, any of the provisions of the Certificate of Incorporation
(including this Certificate of Designations) that would change the preferences,
rights or privileges with respect to the Series C Preferred Stock so as to
affect the Series C Preferred Stock adversely.
In the event holders of at least a majority of the then
outstanding shares of Series C Preferred Stock agree to allow the Corporation to
amend or alter the preferences, rights or privileges of the shares of Series C
Preferred Stock, pursuant to subsection (b) above, so as to affect adversely the
Series C Preferred Stock, then the Corporation will deliver notice of such
approved change to the Holders of the Series C Preferred Stock that did not
agree to such amendment or change (the "Dissenting Holders") and Dissenting
Holders shall have the right for a period of thirty (30) days to convert
pursuant to Section 6.2 of this Certificate of Designations as they exist prior
to such alteration or change or continue to hold their shares of Series C
Preferred Stock.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1 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 C 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 C Preferred Stock, the Corporation
shall make, issue and deliver, in lieu of such lost, stolen, destroyed or
mutilated shares of Series C Preferred Stock, new shares of Series C Preferred
Stock of like date and tenor.
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SECTION 10.2 WHO DEEMED ABSOLUTE OWNER. The Corporation may deem the
Person in whose name the Series C 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 C Preferred Stock for the purpose of receiving payment of
dividends on the Series C Preferred Stock, for the conversion of the Series C
Preferred Stock 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 C Preferred Stock to the extent of the sum or sums so paid or the
conversion so made.
SECTION 10.3 REGISTER. The Corporation shall keep at its principal
office a register in which the Corporation shall provide for the registration of
the Series C Preferred Stock. Upon any transfer of the Series C Preferred Stock
in accordance with the provisions hereof, the Corporation shall register such
transfer on the Series C Preferred Stock register.
SECTION 10.4 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
C Preferred Stock.
SECTION 10.5 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.
-13-
<PAGE>
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 30th day of June, 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
-14-
<PAGE>
FORM OF CONVERSION NOTICE
TO: Sheffield Pharmaceuticals, Inc.
Attention: Chief Financial Officer
The undersigned owner of shares of Series C Cumulative
Convertible Preferred Stock (the "Series C Preferred Stock") issued by Sheffield
Pharmaceuticals, Inc. (the "Corporation") hereby irrevocably exercises its
option to convert __________ shares of the Series C 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 C
Preferred Stock. The undersigned hereby instructs the Corporation to convert the
number of shares of the Series C 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 C 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 C Preferred Stock:
Please print name and address (including zip code number) :
-15-
<PAGE>
FORM OF EXCHANGE NOTICE
TO: Sheffield Pharmaceuticals, Inc.
Attention: Chief Financial Officer
The undersigned owner(s) of shares of Series C Cumulative
Convertible Preferred Stock (the "Series C Preferred Stock") issued by Sheffield
Pharmaceuticals, Inc. (the "Corporation") hereby irrevocably exercise its option
to cause the Corporation to exchange 11,500 shares of Series C Preferred Stock
for 50% of the outstanding capital stock Systemic Pulmonary Delivery, Ltd. ("SPD
Stock") in accordance with the terms of the Certificate of Designations of the
Series C Preferred Stock. The undersigned hereby instructs the Corporation to
advise all other holders of Series C Preferred Stock, if any, of this exercise
by the undersigned owner(s). The undersigned direct that the SPD Stock issuable
and certificates therefor deliverable to the undersigned upon such exchange 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 SPD Stock:
Please print name and address (including zip code number) :
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,421,662
<SECURITIES> 350,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,870,113
<PP&E> 297,451
<DEPRECIATION> 211,578
<TOTAL-ASSETS> 5,961,665
<CURRENT-LIABILITIES> 1,186,685
<BONDS> 0
1,250,000
115
<COMMON> 268,534
<OTHER-SE> 3,256,331
<TOTAL-LIABILITY-AND-EQUITY> 5,961,665
<SALES> 0
<TOTAL-REVENUES> 350,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 13,569,472
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86,211
<INCOME-PRETAX> (13,303,121)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,303,121)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,303,121)
<EPS-PRIMARY> (0.67)
<EPS-DILUTED> (0.67)
</TABLE>
