U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[ X ] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1998.
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _______________ to _______________.
Commission file number 1-12580.
THE VERMONT TEDDY BEAR CO., INC.
(Exact name of small business issuer as specified in its charter)
New York 03-0291679
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6655 Shelburne Road, Post Office Box 965
Shelburne, Vermont 05482
(Address of principal executive offices)
(802) 985-3001
(Issuer's telephone number)
Not Applicable
(Former name, former address, and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 .
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuers classes of
common equity, as of the latest practicable date: 5,183,733 shares of
Common Stock, $.05 par value per share, as of September 30, 1998.
Transitional Small Business Disclosure Format (check one):
Yes ; No X .
<PAGE>
The Vermont Teddy Bear Co., Inc.
Index to Form 10-QSB
September 30, 1998
Page No.
Part I - Financial Information
Financial Statements
Balance Sheet as of September 30, 1998 3
Statements of Operations for the Three
Months ended September 30, 1998 4
Statements of Cash Flows for the Three
Months ended September 30, 1998 5
Notes to Financial Statements 6
Management's Discussion and Analysis 9
Part II - Other Information
Item 4. Submission of Matters to a Vote of Stockholders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 18
<PAGE
The Vermont Teddy Bear Co., Inc.
Balance Sheets
September 30, 1998 and 1997
(Unaudited)
1998 1997
ASSETS
Current Assets:
Cash and cash equivalents (includes
restrictedcash of $362,000) $ 787,540 $ 778,666
Accounts receivable, trade 86,368 73,958
Inventories 2,380,167 3,440,529
Prepaid expenses and other current assets 595,060 543,276
Deferred income taxes 233,203 259,016
------------ -----------
Total Current Assets 4,082,338 5,095,445
Property and equipment, net 8,652,851 9,649,616
Deposits and other assets 919,352 875,097
Note receivable 80,000 95,000
----------- -----------
Total Assets $13,734,541 $15,715,158
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ - $ 241,405
Current portion of:
Long-term debt 226,371 148,482
Capital lease obligations 231,281 209,923
Accounts payable 1,417,570 1,813,284
Accrued expenses 850,401 596,262
----------- -----------
Total Current Liabilities 2,725,623 3,009,356
Long-term debt,net of current portion 295,447 335,853
Capital lease obligations, net of current portion 5,688,241 5,919,176
Deferred income taxes 233,203 259,016
----------- -----------
Total Liabilities $ 8,942,514 $ 9,523,401
Stockholders' Equity:
Preferred stock, $.05 par value:
Authorized 90 Series A; $ 1,062,000 $ 990,000
issued and outstanding, 90 shares.
Authorized 375,000 Series B;
issued and outstanding, 204,912 shares. 10,245 10,245
Common stock, $.05 par value:
Authorized 20,000,000 shares; issued
5,195,733 shares, outstanding 5,183,733 shares 259,787 259,105
Additional paid-in capital 10,587,316 10,574,353
Treasury stock, at cost, 12,000 shares (106,824) (106,824)
Accumulated deficit (7,020,497) (5,535,122)
----------- -----------
Total Stockholders' Equity $ 4,792,027 $ 6,191,757
Total Liabilities and Stockholders' Equity $13,734,541 $15,715,158
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
The Vermont Teddy Bear Co., Inc.
Statements of Operations
For the Three Months Ended September 30, 1998 and 1997
(Unaudited)
1998 1997
Net Revenues $ 3,046,720 $ 2,941,704
Cost of Goods Sold 1,259,474 1,214,041
----------- -----------
Gross Profit 1,787,246 1,727,663
Selling, General and Administrative Expenses:
Selling Expenses 1,097,946 1,357,272
General and Administrative Expenses 653,493 601,363
----------- -----------
1,751,439 1,958,635
----------- -----------
Operating Income (Loss) 35,807 (230,972)
Interest Income 10,525 7,325
Interest Expense (157,853) (159,805)
Other Income 605 2,242
----------- -----------
Loss Before Income Taxes (110,916) (381,210)
Income Tax Provision - -
----------- -----------
Net Loss (110,916) (381,210)
Preferred Stock Dividends (18,000) (18,000)
----------- -----------
Net Loss -- Common Stockholders $ (128,916) $ (399,210)
=========== ===========
Basic Net Loss Per Common Share $ (0.02) $ (0.08)
=========== ===========
Diluted Net Loss Per Common Share $ (0.02) $ (0.08)
=========== ===========
Weighted Average Number of Common
Shares Outstanding 5,183,733 5,163,133
=========== ===========
Weighted Average Number of Diluted
Common Shares Outstanding 5,183,733 5,163,133
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
The Vermont Teddy Bear Co., Inc.
Statements of Cash Flows
For the Three Months Ended September 30, 1998 and 1997
(Unaudited)
1998 1997
Cash Flows From Operating Activities:
Net Loss $ (110,916) $ (381,210)
Adjustments to reconcile net loss to net cash
used for operating activities
Depreciation and amortization 247,339 234,304
Loss on sale/disposal of fixed assets - (179)
Changes in assets and liabilities:
Accounts receivable, trade (34,830) (27,654)
Inventories 16,078 (138,216)
Prepaid and other current assets (150,831) (156,329)
Deposits and other assets (24,933) (602,749)
Note receivable 7,500 -
Accounts payable (428,472) (749,252)
Accrued expenses and other liabilities (65,790) 10,915
----------- -----------
Net cash used for operating activities (544,855) (1,810,370)
Cash Flows From Investing Activities:
Acquisition of property and equipment (47,024) (43,844)
Proceeds from sale of fixed assets - 6,038
----------- -----------
Net cash used for investing activities (47,024) (37,806)
Cash Flows From Financing Activities:
Borrowings of short-term debt - 313,136
Payments of short-term debt (45,603) (621,731)
Payments of long-term debt (47,632) (3,331,760)
Proceeds from sale-leaseback of building and property - 5,863,874
Principal payments on capital lease obligations (54,398) (47,588)
Issuance of common stock, exercise of stock option - 9,338
----------- -----------
Net cash provided by(used for) financing activities(147,633) 2,185,269
Net Increase(Decrease) in Cash and Cash Equivalents(739,512) 337,093
Cash and Cash Equivalents, Beginning of Period 1,527,052 441,573
----------- -----------
Cash and Cash Equivalents, End of Period $ 787,540 $ 778,666
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ 157,328 $ 163,870
Cash paid for taxes - -
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Capital lease from sale-leaseback of building and property
$ - $ 5,863,874
The accompanying notes are an integral part of these financial statements.
<PAGE>
Notes to Financial Statements
Basis of Presentation
The interim financial statements of The Vermont Teddy Bear Co., Inc.
(the "Company") included herein have been prepared, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission
("SEC") and, in the opinion of management, reflect all adjustments necessary
to present fairly the financial condition and results of operations for such
interim periods. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. It is suggested that these financial statements be
read in conjunction with the audited financial statements and notes thereto
for the fiscal year ended June 30, 1998, included in the Company's filing with
the SEC on Form 10-KSB. The Company's sales are seasonal in nature and,
therefore, the results for these interim periods are not necessarily
indicative of the results for the respective years.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Earnings Per Share
In accordance with SFAS No. 128, Earnings Per Share, basic and diluted
net income (loss) per common share is calculated by dividing net income (loss)
by the weighted number of common shares outstanding for all periods presented.
SFAS No. 128 establishes standards for computing and presenting earnings per
share and applies to entities with publicly held common stock or potential
common stock. The Company has applied the provisions of SFAS No. 128 and
Staff Accounting Bulletin (SAB) No. 98 retroactively to all periods presented.
The following table reconciles the weighted average common shares
outstanding to the shares used in the computation of basic and weighted
average common shares outstanding:
Three Months Ended
9/30/98 9/30/97
Weighted average
number of shares used
in basic EPS calculation 5,183,733 5,163,133
Add: Incremental weighted
average common shares
issuable upon exercise of
stock options and warrants
outstanding -- --
--------- ---------
Weighted average
number of shares used in
diluted EPS calculation 5,183,733 5,163,133
========= =========
Diluted weighted average shares outstanding for 1998 and 1997 exclude
all potential common shares from stock options and convertible preferred stock
because to include such shares would have been anti-dilutive due to the
Company's net loss in both years. The Company had 1,581,102 and 1,463,259
potential common shares outstanding as of September 30, 1998 and 1997,
respectively, that were excluded from the net loss per common share
computation as their effect would have been anti-dilutive.
New Accounting Pronouncements
As of January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes new rules for the reporting
and display of comprehensive income and its components. The adoption of SFAS
No. 130 had no impact on the Company's net loss or shareholders' equity for
the twelve months ended June 30, 1998.
The Financial Accounting Standards Board issued SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information, in June
1997. The statement establishes standards for the way that public business
enterprises report information and operating segments in annual financial
statements and requires reporting of selected information in interim financial
reports. The required disclosures for SFAS No. 131, which are effective for
fiscal years beginning after December 15, 1997, will be included in the
Company's 1999 annual report on Form 10-K.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, requiring computer software
costs associated with internal use software to be expensed as incurred until
certain capitalization criteria are met. The Company will adopt SOP 98-1
beginning July 1, 1999. Adoption of this Statement is not expected to have a
material impact on the Company's financial position or results of operations.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting on Costs of Start-Up Activities,
requiring all costs associated with pre-opening, pre-operating, and
organization activities to be expensed as incurred. The Company will adopt
SOP 98-5 beginning July 1, 1999. Adoption of this Statement is not expected
to have a material impact on the Company's financial position or results of
operations.
Income Taxes
The Company accounts for income taxes in accordance with the Statement
of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes,
which requires the use of the liability method. This standard determines
deferred income taxes based on the estimated future tax effects of any
differences between the financial statement and the basis of tax assets and
liabilities, given the provisions of the enacted tax laws. In view of the
Company's recent losses, a valuation allowance has been provided to fully
reserve its deferred tax assets due to the uncertainty of their realization.
If the Company is able to achieve sufficient profitability to realize all or a
portion of its deferred assets, the valuation allowance will be reduced
through a credit to the income tax provision in future periods.
Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Inventories
Inventories are stated at the lower of cost or market using the first-
in, first-out method. Inventories consisted of the following at September 30,
1998:
Raw materials $ 487,533
Work in process 62,525
Finished goods 1,830,109
-------------
$ 2,380,167
=============
Debt and Borrowings
The Company has been operating without a working capital line of credit
since July 18, 1997.
On December 31, 1997, the Company borrowed $200,000 from Green Mountain
Capital L.P. in the form of a five-year term note. The note bears interest at
12 percent per annum, is repayable in monthly installments through December 31,
2002, and is secured by a security interest in the Company's real and personal
property. In conjunction with the issuance of the notes, Green Mountain Capital
received warrants to purchase 100,000 shares of Common Stock at an exercise
price of $1.00 per share, subject to certain anti-dilution provisions. (Prior
warrants granted to Green Mountain Capital to purchase 20,000 shares at $3.375
were canceled upon the issuance of this new note.) The right to exercise these
warrants begins December 31, 1999, and expires the earlier of December 31, 2004
or five years after the full repayment of the loan and existing notes. No
value has been ascribed to these warrants, as the amount would not be material
to the financial statements.
On July 18, 1997, the Company completed a sale-leaseback transaction
involving its factory headquarters and a portion of its property located in
Shelburne, Vermont. This financing replaced the Company's mortgage and line of
credit agreement with the Vermont National Bank. The Company received
approximately $5.9 million in cash, of which approximately $3.3 million was
used to pay off the existing mortgage with the Vermont National Bank. The
balance, approximately $2.6 million, was used for general working capital
purposes, to pay down a $600,000 balance on the Company's line of credit (which
was retired as the result of the termination of the original mortgage loan),
and transaction costs of $591,000 associated with the sale-leaseback. The lease
obligation, secured by the business assets of the Company, is payable on a
twenty-year amortization schedule through July 2017. The transaction was
accounted for under the financing method in accordance with Statement of
Financial Accounting Standard No. 98, "Accounting for Leases."
As of June 30, 1997, the Company had a $1,000,000 revolving line of
credit from a bank, which was terminated on July 18, 1997, pursuant to the
Company's sale-leaseback transaction.
Management's Discussion and Analysis
The following discussion and analysis provides information that the
Company's management believes is relevant to an assessment and understanding
of the Company's results of operations and financial condition. The
discussion should be read in conjunction with the financial statements and
footnotes which appear elsewhere in this report, as well as the 10-KSB filing
for the fiscal year ending June 30, 1998. This report contains forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995, Section 27A of the Securities Act of 1993 and Section 21E
of the Securities Exchange Act of 1934. The words "believe," "expect,"
"anticipate," "intend," "estimate," and other expressions which are
predictions of or indicate future events and trends and which do not relate to
historical matters identify forward-looking statements. Such statements
involve risks and uncertainties that could cause actual results to differ
materially from those set forth in such forward-looking statements. The
Company undertakes no obligation to publicly update or revise any forward-
looking statement, whether as a result of new information, future events or
otherwise.
Results of Operations
Comparison of the three-month periods ended September 30, 1998 and 1997.
Net revenues for the Company for the three-month period ended September
30, 1998 totaled $3,047,000, an 3.6 percent increase from net revenues of
$2,942,000 for the three-month period ended September 30, 1997. By business
segment, Bear-Gram revenues, which include internet revenues, rose $162,000,
attributable primarily to increased sales from the Company's www.vtbear.com
website. Direct mail revenues rose $99,000, due to improved demand-per-
catalog residual performance from the Company's 1998 Mother's Day catalog.
Wholesale revenues rose $52,000, while licensing revenues increased $4,000.
Retail revenues decreased $210,000. Revenue for the quarter ended September
30, 1997 included results from the Company's New York City retail store, which
was not in operation during the quarter ended September 30, 1998, as well as
results form the Company's Freeport, Maine retail store, which was closed
during the September 30, 1998 quarter.
Gross margin increased to $1,787,000 for the quarter ended September 30,
1998, from $1,727,000 for the quarter ended September 30, 1997. As a
percentage of net revenues, gross margin was constant at 58.7 percent for the
three-month periods ended September 30, 1998, and 1997.
Selling expenses decreased to $1,098,000 for the three-month period
September 30, 1998, from $1,357,000 for the three-month period ended September
30, 1997. This $259,000 reduction was primarily due to the curtailment of
operational expenses related to the Company's New York City and Freeport,
Maine retail locations, as well as reduced spending on radio and other
advertising media. As a percentage of net revenues, selling expenses were
36.0 percent and 46.1 percent for the three months ended September 30, 1998,
and 1997, respectively.
General and administrative expenses were $653,000 for the quarter ended
September 30, 1998, compared to $601,000 for the quarter ended September 30,
1997. This $52,000 increase was largely due to higher legal fees and costs
associated with the Company's Special Meeting of Stockholders held on
September 11, 1998. As a percentage of net revenues, general and
administrative expenses were 21.4 percent and 20.4 percent for the three
months ended September 30, 1998, and 1997, respectively.
As a result of the foregoing factors, net loss to common stockholders
totaled $129,000, or two cents per common share, for the quarter ended
September 30, 1998, compared to a net loss to common stockholders of $399,000,
or eight cents per common share for the quarter ended September 30, 1997.
Liquidity and Capital Resources
The Company has been operating without a working capital line of credit
facility since July 18, 1997.
As of September 30, 1998, the Company's cash position decreased to
$788,000, from $1,527,000 at June 30, 1998. Restricted cash balances at these
dates were $362,000 and $359,000, respectively. The largest component of
restricted cash at September 30, 1998 and June 30, 1998 was a $300,000
certificate of deposit required in connection with the Company's sale-
leaseback transaction on July 18, 1997. Cash decreased as the result of a
decrease in accounts payable and payments on debts and capital leases.
Inventories decreased to $2,380,000 at September 30, 1998, from
$2,396,000 at June 30, 1998. Accounts payable totaled $1,418,000 at September
30, 1998, compared to $1,846,000 at June 30, 1998.
On September 25, 1998, after receiving Common stockholder approval on
September 11, 1998, the Company entered into an agreement to privately place
$600,000 of Series C Convertible Redeemable Preferred Stock. Consummation of
the agreement is subject to certain conditions. Each of the sixty Series C
shares will have a liquidation value of $10,000 per share, and will be
convertible into 8,264 shares of the Company's Common Stock. The Series C
Stock will require redemption upon the tenth anniversary of its issuance, with
both the Company and the Series C Stockholders having call and put rights,
respectively, beginning on the fifth anniversary of issuance. The Series C
Stock will carry voting rights on an as-converted basis, and, as a class, will
have the right to elect two members to the Company's Board of Directors.
Accompanying the issuance of the Series C Stock will be warrants to purchase
495,868 shares of the Company's Common Stock at an exercise price of $1.21 per
share, which will expire seven years from the date of issuance. Both the
Series C Stock and the accompanying warrants will carry certain anti-dilution
provisions. (See "Item 5 - Other Information" for additional information.)
On December 31, 1997, the Company borrowed $200,000 from Green Mountain
Capital L.P. in the form of a five-year term note. The note bears interest at
12 percent per annum, is repayable in monthly installments through December 31,
2002, and is secured by a security interest in the Company's real and personal
property. In conjunction with the issuance of the notes, Green Mountain Capital
received warrants to purchase 100,000 shares of Common Stock at an exercise
price of $1.00 per share, subject to certain anti-dilution provisions. (Prior
warrants granted to Green Mountain Capital to purchase 20,000 shares at $3.375
were canceled upon the issuance of this new note.) The right to exercise these
warrants begins December 31, 1999, and expires the earlier of December 31, 2004
or five years after the full repayment of the loan and existing notes.
On July 18, 1997, the Company completed a sale-leaseback transaction,
involving its factory headquarters and a portion of its property located in
Shelburne, Vermont. This financing replaced the Company's mortgage and line of
credit agreement with the Vermont National Bank. The Company received
approximately $5.9 million in cash, of which approximately $3.3 million was
used to pay off the existing mortgage with the Vermont National Bank. The
balance, approximately $2.6 million, was used for general working capital
purposes, to pay down a $600,000 balance on the Company's line of credit (which
was retired as the result of the termination of the original mortgage loan),
and transaction costs of $679,000 associated with the sale-leaseback. The lease
obligation, secured by the business assets of the Company, is payable on a
twenty-year amortization schedule through July 2017.
The Company has been operating without a working capital line of credit
facility since July 18, 1997. The Company believes that its existing cash and
cash equivalent balances, together with funds generated from operations, will
be sufficient to finance the Company's operations for at least the next twelve
months.
Contingency
On October 24, 1996, the company entered into a ten-year lease for 2,600
square feet on Madison Avenue in New York City. On December 7, 1997, the
Company's 538 Madison Avenue location was closed due to structural problems at
neighboring 540 Madison Avenue. On December 16, the Company announced that it
was permanently closing that retail location. The City of New York deemed the
538 Madison Avenue building uninhabitable from December 8, 1997 to April 9,
1998, and as such, the Company incurred no rent expense during that period, and
the landlord's insurance carrier covered the rent payments on behalf of the
Company from April 10, 1998 to July 31, 1998. The Company is currently making
its best efforts to find a replacement tenant for its space, and, as of
September 30, 1998, has accrued $145,000 for this contingency, which is
included in accrued expenses in the accompanying financial statements. (If no
replacement tenant is found, the annual rent for the Company's New York City
location will increase to $330,000, effective January 1, 2000, and to
$363,000, effective January 1, 2003.)
Year 2000 Disclosure
The Company has been addressing computer software modifications or
replacements to enable transactions to process properly in the year 2000.
Based on currently available information, all necessary changes are expected to
occur in a timely manner. The cost of these changes, which incorporates
amounts to handle additional capacity, is expected to be approximately
$500,000, which is based on management's best estimates and may be changed as
additional information becomes available. If the project is not completed on
time, the Company is subject to certain risks, including the manual processing
and fulfillment of orders, which could detract from efficiency. Although the
Company is working with suppliers and customers regarding this issue, no
assurance can be given with respect to any potential adverse effects on the
Company of any failure by other parties to achieve year 2000 compliance.
Item 4. Submission of Matters to a Vote of Stockholders
On September 11, 1998, the Company held a Special Meeting of
Shareholders, at which the following matters were voted upon:
(1) Amendment of the Company's Certificate of Incorporation to eliminate
preemptive rights subject to the condition that dissenters' rights were not
exercised by a number of the Company's shareholders determined by the Board of
Directors, in its discretion, to be excessive.
Votes cast for: 2,953,839 Votes cast against: 60,260 Abstentions: 11,906
(2) Approval of the sale of Series C Redeemable Convertible Preferred
Stock and Warrants to the Shepherd Investors.
Votes cast for: 2,943,877 Votes cast against: 53,971 Abstentions: 28,517
Both matters were approved by the Company's Shareholders.
Item 5. Other Information
On November 3, 1998, the Company closed on its Series C Preferred Stock
private placement with The Shepherd Group LLC. The final terms of the private
placement had three adjustments from the original Securities Purchase
Agreement. First, the conversion ratio on the Series C Preferred Stock was
adjusted from 8,264 Common Shares per Preferred Series C Share to 9,523 Common
Shares per Preferred Series C Share. Second, the exercise price for the
warrants to purchase 495,868 shares of Common Stock was adjusted to $1.05 per
share. Third, the requirement that the Company pay dividends on the Preferred
Series C Stock in additional shares of Preferred Series C Stock for the first
five years was adjusted. The Company is now only required to pay dividends on
the Preferred Series C Stock in additional shares of Preferred Series C Stock
for the first two and one-half years.
As of November 10, 1998, the Company and Ms. Robert signed an agreement
providing for her continued employment as President and Chief Executive Officer
of the Company through October 22, 2001. Under this new agreement, Ms. Robert
is entitled to receive: i) A base salary of $120,000, increasing to $135,000 on
October 23, 1999, and to $150,000 on October 23, 2000; ii) an annual cash bonus
equal to three percent of the Company's pre-tax profit, so long as the
Company's pre-tax profit is at least $100,000; iii) options to purchase 225,000
shares of Common stock at an exercise price of $1.00 per share, being above the
fair market value on the date of grant, with 75,000 shares vesting when the
Company's closing stock price averages $2.00 for a three-month period, 75,000
shares vesting when the Company's closing stock price averages $3.00 for a
three-month period, and 75,000 shares vesting when the Company's closing stock
price averages $4.00 for a three-month period, except that the options will
fully vest seven years from date of grant if Ms. Robert remains employed by the
Company; iv) any benefits generally available to the officers of the Company
from time to time, including, without limitation, a $30,000 life insurance
policy, and a company car of Ms. Robert's choice. The agreement prohibits Ms.
Robert from directly or indirectly engaging in any business that competes with
the Company, during the course of her employment agreement and for a period of
eighteen months thereafter. Ms. Robert's existing agreement for her employment
as Treasurer and Chief Financial Officer of the Company was cancelled upon the
signing of this new agreement, though Ms. Robert continues to serve as
Treasurer and Chief Financial Officer of the Company.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
3.5 Restated Certificate of Incorporation of the Company (filed herein).
3.6 Amended and Restated By-Laws of the Company (filed herein).
4.1 Representative's Warrant issued to Barington Capital Group, L.P. upon the
consummation of the initial public offering of the Company's Common Stock in
November 1993 (filed with the Securities and Exchange Commission as exhibit 4.1
to the Company's 1993 Annual Report on Form 10-KSB (File No. 33-69898) and
incorporated herein by reference).
4.3 Form of Warrant, issued in connection with the private placement of
204,912 shares of the Company's Series B Convertible Preferred Stock (filed
with the Securities and Exchange Commission as exhibit 4.3 to the Company's
1996 Annual Report on Form 10-KSB (File No. 33-69898) and incorporated herein
by reference).
4.4 Form of Subscription Agreement issued in connection with the private
placement of 204,912 shares of the Company's Series B Convertible Preferred
Stock (filed with the Securities and Exchange Commission as exhibit 4.4 to the
Company's 1996 Annual Report on Form 10-KSB (File No. 33-69898) and
incorporated herein by reference).
4.5 Waiver of Joan H. Martin, dated April 12, 1996, issued in connection with
waiver of accrued dividends on Series A Preferred Stock (filed with the
Securities and Exchange Commission as exhibit 4.5 to the Company's 1996
Annual Report on Form 10-KSB (File No. 33-69898) and incorporated herein by
reference).
4.6 Warrant to purchase 43,826.087 shares of the Company's Common Stock,
dated April 12, 1996, issued in connection with Joan H. Martin's waiver of
accrued dividends on Series A Preferred Stock (filed with the Securities and
Exchange Commission as exhibit 4.6 to the Company's 1996 Annual Report on Form
10-KSB (File No. 33-69898) and incorporated herein by reference).
4.7 Stock Purchase Warrant Agreement, dated July 10, 1997, between the
Company and URSA (VT) QRS-30, Inc., in conjunction with the sale-leaseback
of the Company's headquarters in Shelburne, Vermont (filed herein).
4.8 Stock Purchase Warrant Agreement, dated December 31, 1997, in connection
with the $200,000 Term Loan of Green Mountain Capital (filed with the
Securities and Exchange Commission as exhibit 4.8 to the Company's 10-QSB for
the quarter ended December 31, 1997, and incorporated herein by reference.)
4.9 Securities Purchase Agreement, dated September 25, 1998, between the
Company and The Shepherd Group LLC, in connection with the Company's private
placement of sixty shares of Series C Convertible Redeemable Preferred Stock
(filed with the Securities and Exchange Commission as exhibit 10.47 to the
Company's 1998 Annual Report 10-KSB (File No. 33-69898) and incorporated herein
by reference).
4.10 Amendment, dated November 3, 1998, between the Company and The Shepherd
Group LLC, to the Securities Purchase Agreement dated September 25, 1998 (filed
herein).
4.11 Form of Warrant, issued in connection with the private placement of the
Company's Series C Convertible Redeemable Preferred Stock (filed herein).
10.2 Stock warrants issued to Edmund H. Shea, Jr. IRA, Allan Lyons and William
Maines in connection with the bridge financing prior to the initial public
offering of the Company's Common Stock in November 1993 (a form of which was
filed with the Securities and Exchange Commission as exhibit 10.2 to the
Company's Registration Statement on Form SB-2 (File No. 33-69898) and
incorporated herein by reference).
10.10 Incentive Stock Option Plan adopted by the Company on August 16, 1993,
with form of Incentive Stock Option Agreement (filed with the Securities and
Exchange Commission as exhibit 10.10 to the Company's Registration Statement on
Form SB-2 (File No. 33-69898) and incorporated herein by reference).
10.12 Agreement, dated as of June 19, 1995, between the Company and John N.
Sortino, providing the terms of Mr. Sortino's separation agreement with the
Company (filed with the Securities and Exchange Commission as exhibit 10.12 to
the Company's 10-KSB for the transition period ended June 30, 1995 and
incorporated herein by reference).
10.24 Amended 1993 Incentive Stock Option Plan of the Company, amended as of
November 28, 1995 (filed with the Securities and Exchange Commission as exhibit
10.24 to the Company's 10-QSB for the quarter ended March 31, 1995 and
incorporated herein by reference).
10.25 Loan Agreement, dated December 26, 1995, between Green Mountain Capital,
L.P. and the Company, in connection with a $500,000 Term Loan (filed with the
Securities and Exchange Commission as exhibit 10.25 to the Company's 10-QSB for
the quarter ended December 31, 1995 and incorporated herein by reference).
10.26 Convertible Note, dated December 26, 1995, in the principal amount of
$200,000, issued in connection with the $500,000 Term Loan of Green Mountain
Capital (filed with the Securities and Exchange Commission as exhibit 10.26 to
the Company's 10-QSB for the quarter ended December 31, 1995 and incorporated
herein by reference).
10.27 Stock Purchase Warrant Agreement, dated December 26, 1995, in connection
with the $500,000 Term Loan of Green Mountain Capital (filed with the
Securities and Exchange Commission as exhibit 10.27 to the Company's 10-QSB for
the quarter ended December 31, 1995 and incorporated herein by reference).
10.28 Employment and Loan Agreements, dated June 30, 1996, between the Company
and R. Patrick Burns (filed with the Securities and Exchange Commission as
exhibit 10.28 to the Company's 1996 Annual Report on Form 10-KSB (File No. 33-
69898) and incorporated herein by reference).
10.29 Employment Agreement, dated July 1, 1996, between the Company and
Elisabeth B. Robert (filed with the Securities and Exchange Commission as
exhibit 10.29 to the Company's 1996 Annual Report on Form 10-KSB (File No. 33-
69898) and incorporated herein by reference).
10.30 Amended 1993 Incentive Stock Option Plan of the Company, amended as of
November 22, 1996 (filed with the Securities and Exchange Commission as exhibit
10.30 to the Company's 10-QSB for the quarter ended December 31, 1996 and
incorporated herein by reference).
10.31 Non-Employee Directors Stock Option Plan adopted by the Company on
November 22, 1996 (filed with the Securities and Exchange Commission as exhibit
10.31 to the Company's 10-QSB for the quarter ended December 31, 1996 and
incorporated herein by reference).
10.32 Employment Agreement, dated as of July 1, 1996, between the Company and
Spencer C. Putnam (filed with the Securities and Exchange Commission as exhibit
10.32 to the Company's 10-QSB for the quarter ended December 31, 1996 and
incorporated herein by reference).
10.33 Convertible Note, dated November 19, 1996, in the principal amount of
$300,000, issued in connection with the $500,000 Term Loan of Green Mountain
Capital (filed with the Securities and Exchange Commission as exhibit 10.33 to
the Company's 10-QSB for the quarter ended December 31, 1996 and incorporated
herein by reference).
10.34 Lease Agreement, dated October 24, 1996, in connection with the Company's
lease of 2,600 square feet at 538 Madison Avenue in New York, New York (filed
with the Securities and Exchange Commission as exhibit 10.34 to the Company's
1997 Annual Report 10-KSB (File No. 33-69898) and incorporated herein by
reference).
10.35 Consulting Agreement, dated December 31, 1996, between the Company and
Venture Management Group, Inc., regarding the provision of consulting services
to the Company (filed with the Securities and Exchange Commission as exhibit
10.35 to the Company's 1997 Annual Report 10-KSB (File No. 33-69898) and
incorporated herein by reference).
10.36 Lease Agreement, dated January 17, 1997, in connection with the Company's
lease of 6,000 square feet at 55 Main Street in Freeport, Maine (filed with the
Securities and Exchange Commission as exhibit 10.36 to the Company's 1997
Annual Report 10-KSB (File No. 33-69898) and incorporated herein by reference).
10.37 Lease Agreement, dated July 10, between the Company and URSA (VT) QRS-30,
Inc., regarding the sale-leaseback of the Company's headquarters in Shelburne,
Vermont (filed with the Securities and Exchange Commission as exhibit 10.37 to
the Company's 1997 Annual Report 10-KSB (File No. 33-69898) and incorporated
herein by reference).
10.38 Binding commitment letter, dated October 10, 1997, from Green Mountain
Capital LP, in connection with a $200,000 term loan (filed with the Securities
and Exchange Commission as exhibit 10.38 to the Company's 1997 Annual Report
10-KSB (File No. 33-69898) and incorporated herein by reference).
10.39 Agreement, dated as of October 10, 1997, between the Company and R.
Patrick Burns, providing the terms of Mr. Burns' separation and consulting
agreement with the Company (filed with the Securities and Exchange Commission
as exhibit 10.39 to the Company's 10-QSB for the quarter ended September 30,
1997 and incorporated herein by reference).
10.40 Employment Agreement, dated December 3, 1997, between the Company and
Elisabeth B. Robert (filed with the Securities and Exchange Commission as
exhibit 10.40 to the Company's 10-QSB for the quarter ended December 31, 1997
and incorporated herein by reference).
10.41 Loan Agreement, dated December 31, 1997, between Green Mountain Capital,
L.P. and the Company, in connection with a $200,000 Term Loan (filed with the
Securities and Exchange Commission as exhibit 10.41 to the Company's 10-QSB for
the quarter ended December 31, 1997 and incorporated herein by reference).
10.42 Convertible Note, dated December 31, 1997, in the principal amount of
$200,000, issued in connection with the $200,000 Term Loan of Green Mountain
Capital (filed with the Securities and Exchange Commission as exhibit 10.42 to
the Company's 10-QSB for the quarter ended December 31, 1997 and incorporated
herein by reference).
10.43 Employment Agreement, dated March 13, 1998, between the Company and
Spencer C. Putnam (filed with the Securities and Exchange Commission as exhibit
10.43 to the Company's 10-QSB for the quarter ended March 31, 1998 and
incorporated herein by reference).
10.44 Employment Agreement, dated April 30, 1998, between the Company and
Robert D. Delsandro, Jr. (filed with the Securities and Exchange Commission as
exhibit 10.44 to the Company's 10-QSB for the quarter ended March 31, 1998 and
incorporated herein by reference).
10.45 Non-Binding Proposal and Management Agreement, dated May 21, 1998,
between the Company and The Shepherd Group LLC, in connection with the
Company's private placement of sixty shares of Series C Convertible Redeemable
Preferred Stock (filed with the Securities and Exchange Commission as Exhibits
A and B to the Company's definitive proxy statement for its Special Meeting of
Stockholders held September 11, 1998 and incorporated herein by reference).
10.46 Amendment to Employment Agreement, dated June 1, 1998, between the
Company and Elisabeth B. Robert (filed with the Securities and Exchange
Commission as exhibit 10.46 to the Company's 1998 Annual Report 10-KSB (File
No. 33-69898) and incorporated herein by reference).
10.48 Employment Agreement, dated November 9, 1998, between the Company and
Elisabeth B. Robert (filed herein).
Reports on Form 8-K
There were no reports filed on Form 8-K during the three-month period
ended September 30, 1998.
Signatures
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.
The Vermont Teddy Bear Co., Inc.
Date: November 12, 1998 /s/ Elisabeth B. Robert
- -----------------------
Elisabeth B. Robert,
Chief Executive Officer and
Chief Financial Officer
EXHIBIT 3.5
- -----------
AMENDED BY-LAWS
of
THE VERMONT TEDDY BEAR CO., INC.
(as amended October 16, 1998)
ARTICLE I - OFFICES
The principal office of the corporation shall be in the Town of
Shelburne, County of Chittenden, State of Vermont. The corporation may also
have offices at such other places within or without the State of Vermont as
the Board may from time to time determine or the business of the corporation
may require.
ARTICLE II SHAREHOLDERS
1. PLACE OF MEETINGS.
Meetings of the shareholders shall be held at the principal office of
the corporation or at such place within or without the State of Vermont as the
Board shall authorize.
2. ANNUAL MEETING.
The annual meeting of the shareholders shall be held each year at such
date, time and place as may be specified by the Directors at which meeting the
shareholders shall elect a Board and transact such other business as may
properly come before the meeting.
3. SPECIAL MEETINGS.
Special meetings of the shareholders may be called by the Board or by
the president and shall be called by the president or the secretary at the
request in writing of a majority of the Board or at the request in writing by
shareholders owning a majority in amount of the shares issued and outstanding.
Such request shall state the purpose or purposes of the proposed meeting.
Business transacted at a special meeting shall be confined to the purposes
stated in the notice.
4. FIXING RECORD DATE.
For the purpose of determining the shareholders entitled to notice of or
to vote at any meeting of shareholders or any adjournment thereof, or to
express consent to or dissent from any proposal without a meeting, or for the
purpose of determining shareholders entitled to receive payment of any
dividend or the allotment of any rights, or for the purpose of any other
action, the Board shall fix, in advance, a date as the record date for any
such determination of shareholders. Such date shall not be more than fifty
nor less than ten days before the date of such meeting, nor more than fifty
days prior to any other action. If no record date is fixed it shall be
determined in accordance with the provisions of law.
5. NOTICE OF MEETINGS OF SHAREHOLDERS.
Written notice of each meeting of shareholders shall state the purpose
or purposes for which the meeting is called, the place, date and hour of the
meeting and unless it is the annual meeting, shall indicate that it is being
issued by or at the direction of the person or persons calling the meeting.
Notice shall be given either personally or by mail to each shareholder
entitled to vote at such meeting, not less than ten nor more than fifty days
before the date of the meeting. If action is proposed to be taken that might
entitle shareholders to payment for their shares, the notice shall include a
statement of that purpose and to that effect. If mailed, the notice is given
when deposited in the United States mail, with postage thereon prepaid,
directed to the shareholder at his address as it appears on the record of
shareholders, or, if he shall have filed with the secretary a written request
that notices to him be mailed to some other address, then directed to him at
such other address.
6. WAIVERS.
Notice of meeting need not be given to any shareholder who signs a
waiver of notice, in person or by proxy, whether before or after the meeting.
The attendance of any shareholder at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting the lack of notice of such
meeting, shall constitute a waiver of notice by him.
7. QUORUM OF SHAREHOLDERS.
Except as otherwise provided by law or in the Certificate of
Incorporation or these By-laws, the holders of a majority of the issued and
outstanding shares of stock of the corporation eligible to vote, present and
voting, shall constitute a quorum at a meeting of shareholders for the
transaction of any business. When a quorum is once present to organize a
meeting, it is not broken by the subsequent withdrawal of any shareholders.
The shareholders present may adjourn the meeting despite the absence of a
quorum.
8. PROXIES.
Every shareholder entitled to vote at a meeting of shareholders or to
express consent or dissent without a meeting may authorize another person or
persons to act for him by proxy.
Every proxy must be signed by the shareholder or his attorney-in-fact.
No proxy shall be valid after expiration of eleven months from the date
thereof unless otherwise provided in the proxy. Every proxy shall be
revocable at the pleasure of the shareholder executing it, except as otherwise
provided by law.
9. QUALIFICATION OF VOTERS.
Every shareholder of record shall be entitled at every meeting of
shareholders to one vote for every share of common stock standing in his name
on the record of shareholders and, in the case of holders of the Company's
Series C Convertible Redeemable Preferred Stock ("Series C Preferred Stock")
eligible to vote, every holder of Series C Preferred Stock shall be entitled
to one vote for every share of common stock into which such shareholder's
Series C Preferred Stock may be converted.
10. VOTE OF SHAREHOLDERS.
Except as otherwise provided by law or in the Certificate of
Incorporation or these By-Laws and except for the election of directors, at
any meeting duly called and held at which a quorum is present, a majority of
the votes cast at such meeting upon a given question by the holders of
outstanding shares of stock of all classes of stock of the Corporation
entitled to vote thereon who are present in person or by proxy shall decide
such question. At any meeting duly called and held for the election of
directors at which a quorum is present, directors shall be elected by a
plurality of the votes cast by the holders (acting as such) of shares of stock
of the Corporation entitled to elect such directors.
11. WRITTEN CONSENT OF SHAREHOLDERS.
Any action that may be taken by vote may be taken without a meeting on
written consent, setting forth the action so taken, signed by the holders of
all the outstanding shares entitled to vote thereon.
ARTICLE III - DIRECTORS
1. BOARD OF DIRECTORS.
The business of the corporation shall be managed by its Board of
Directors, each of whom shall be at least 18 years of age.
2. NUMBER OF DIRECTORS.
The number of directors shall be nine; provided, however, that the
number of directors may be increased or decreased by a resolution adopted by
the vote of a majority of the entire Board. A minimum of two of the directors
shall neither be an officer nor employee of the Corporation and shall have no
other relationship with the Corporation which, in the opinion of the Board,
would interfere with the exercise of independent judgment in carrying out the
responsibilities of a director. In accordance with the Company's Certificate
of Incorporation, two of the directors (the "Series C Preferred Stock
Director Designees") shall be elected by the holders of the Series C
Preferred Stock. The remaining directors shall be elected by the holders of
shares entitled to vote thereon. All of the directors shall be elected by the
holders of shares entitled to vote thereon at the annual meeting of
shareholders, and each shall serve (subject to the provisions of Article
III.5) until the next succeeding annual meeting of shareholders and until his
or her respective successor has been elected and qualified.
3. ELECTION AND TERM OF DIRECTORS.
At each annual meeting of shareholders, the shareholders shall elect
directors to hold office until the next annual meeting. Each director shall
hold office until the expiration of the term for which he is elected and until
his successor has been elected and qualified, or until his prior resignation
or removal.
4. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Newly created directorships resulting from an increase in the number of
directors and vacancies occurring in the Board for any reason except the
removal of directors without cause may be filled by a vote of a majority of
the directors then in office, although less than a quorum exists, unless
otherwise provided in the Certificate of Incorporation. Vacancies occurring
by reason of the removal of directors without cause shall be filled by vote of
the shareholders unless otherwise provided in the Certificate of
Incorporation. Should any Series C Preferred Stock Director Designee cease to
be a director, such vacancy shall be filled by the holders of the Series C
Preferred Stock. A director elected to fill a vacancy caused by resignation,
death or removal shall be elected to hold office for the unexpired term of his
predecessor.
5. REMOVAL OF DIRECTORS.
Directors may be removed or replaced only by the vote of the holders of
at least a majority of the issued and outstanding common stock of the
corporation entitled to elect such directors.
6. RESIGNATION.
A director may resign at any time by giving written notice to the Board,
the president or the secretary of the corporation. Unless otherwise specified
in the notice, the resignation shall take effect upon receipt thereof by the
Board or such officer, and the acceptance of the resignation shall not be
necessary to make it effective.
7. QUORUM OF DIRECTORS.
A majority of the Board of Directors, present in person or by proxy,
shall constitute a quorum for the transaction of business or of any specified
item of business.
At the discretion of the Chairman or other members of the Board of
Directors, any director may participate in any meeting of the Board of
Directors by means of a conference telephone or similar communications
equipment such that all persons participating in the meeting can hear each
other, and participation in a meeting in such manner shall constitute presence
in person at such meeting.
8. ACTION OF THE BOARD.
Except as otherwise provided by law or in the Certificate of
Incorporation or by these By-laws, action of the Board of Directors of any
meeting shall require the affirmative vote of a majority of all of the
Directors, not simply a majority of those present at the meeting.
Additionally, any action consented to in writing by each and every director
shall be as valid as if the Board of Directors had adopted such action at a
duly held meeting thereof, provided such written consent is inserted in the
minute book of the corporation.
9. PLACE AND TIME OF BOARD MEETINGS.
The Board may hold its meetings at the office of the corporation or at
such other places, either within or without the State of Vermont, as it may
from time to time determine.
10. ANNUAL MEETING.
A regular annual meeting of the Board shall be held immediately
following the annual meeting of shareholders at the place of such annual
meeting of shareholders.
11. NOTICE OF MEETINGS OF THE BOARD, ADJOURNMENT.
(a) Regular meetings of the Board may be held without notice at such
time and place as the Board shall from time to time determine. Special
meetings may be called by the Chairman or by the secretary on written request
of two directors. Notice of special meetings of the directors shall be given
in writing to each director either personally or by mail or facsimile
transmission at least 3 days in advance of the meeting, and shall include a
written agenda of the meeting. No business shall be conducted at a special
meeting except as set forth in the agenda. Notice of a meeting need not be
given to any director who submits a waiver of notice whether before or after
the meeting or who attends the meeting without protesting prior thereto or at
its commencement, the lack of notice to him.
(b) A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place. Notice of the
adjournment shall be given all directors who were absent at the time of the
adjournment and, unless such time and place are announced at the meeting, to
the other directors.
12. CHAIRMAN.
At all meetings of the Board the Chairman, or in his absence, a chairman
chosen by the Board shall preside.
13. EXECUTIVE AND OTHER COMMITTEES.
a. The Board of Directors shall designate and appoint an executive
committee, consisting of the President of the Corporation, the Chairman of the
Board, and one of the other directors. The executive committee shall have and
may exercise such powers of the Board of Directors in the management of the
business and affairs of the Corporation as the Board may from time to time
confer upon the executive committee. This committee shall constitute a
standing committee of the Corporation, and a majority of its members may
determine its action and fix the time and place of its meetings unless the
Board of Directors shall otherwise provide.
b. The Board of Directors shall designate and appoint an audit
committee consisting of three directors. The Chief Executive Officer and two
additional members who shall be directors who are neither officers nor
employees of the Corporation and are free from all other relationships that,
in the opinion of the Board of Directors, would interfere with their exercise
of independent judgment as committee members. It shall be the duty of the
audit committee to act on behalf of the Board in meeting and reviewing with
the Corporation's independent auditors, internal auditor and appropriate
corporate officers matters relating to corporate financial reporting and
accounting procedures and policies, adequacy of financial, accounting and
operating controls and the scope of the respective audits of the independent
auditors and the internal auditor. The committee shall review the results of
such audits with the respective auditors and shall promptly report thereon to
the Board of Directors. The committee shall additionally submit to the Board
any recommendations it may have from time to time with respect to the
independent auditors, financial reporting and accounting practices and
policies and financial, accounting, and operation controls and safeguards.
c. The Board of Directors may also, by resolution adopted by a
majority of the entire Board, designate from among its members one or more
other committees, each consisting of three or more directors, and each of
which, to the extent provided in such resolution, shall have all the authority
of the Board except as otherwise provided by law or in the Certificate of
Incorporation or these By-Laws. No such committee shall have authority as to
any of the following matters:
(a) the submission to shareholders of any action as to
which shareholders' authorization or approval is
required by law, the Certificate of Incorporation, or
these By-Laws;
(b) the filling of vacancies in the Board of Directors or
in any committee;
(c) the fixing of compensation of the directors for
serving on the Board or on any committee;
(d) the amendment or repeal of these By-Laws, or the
adoption of new By-Laws; or
(e) the amendment or repeal of any resolution of the Board
of Directors which by its terms shall not be so
amendable or repealable.
The Board may designate one or more directors as alternate members of
any such committee, who may replace any absent member or members at any
meeting of such committee.
Each such committee shall serve at the pleasure of and be responsible to
the Board. It shall keep minutes of its meetings and report the same to the
Board.
14. COMPENSATION.
Directors shall be entitled to compensation for their services, as
approved by the Company's Shareholders, including, but not limited to, a fixed
sum and expenses for actual attendance at each regular or special meeting of
the Board or any committee meeting thereof. Nothing herein contained shall
be construed to preclude any director from serving the corporation in any
other capacity and receiving compensation therefor.
ARTICLE IV - OFFICERS
1. OFFICES, ELECTION, TERM.
(a) Unless otherwise provided for in the Certificate of Incorporation,
the Board may elect or appoint a president, one or more vice-presidents, a
secretary and a treasurer, and such other officers as it may determine, who
shall have such duties, powers and functions as hereinafter provided.
(b) All officers shall be elected or appointed to hold office until the
meeting of the Board following the annual meeting of shareholders.
(c) Each officer shall hold office for the term for which he is elected
or appointed and until his successor has been elected or appointed and
qualified.
2. REMOVAL, RESIGNATION, SALARY, ETC.
(a) Any officer elected or appointed by the Board may be removed by the
Board without cause.
(b) In the event of the death, resignation or removal of an officer,
the Board in its discretion may elect or appoint a successor to fill the
unexpired term.
(c) Any two or more offices may be held by the same person, except the
offices of president and secretary. When all of the issued and outstanding
stock of the corporation is owned by one person, such person may hold all or
any combination of offices.
(d) The salaries of all officers shall be fixed by the Board.
(e) The directors may require any officer to give security for the
faithful performance of his duties.
3. PRESIDENT.
The president shall be the chief executive officer of the corporation;
he shall preside at all meetings of the shareholders: he shall have the
management of the business of the corporation and shall see that all orders
and resolutions of the Board are carried into effect.
4. VICE-PRESIDENTS.
During the absence or disability of the president, the vice-president,
or if there are more than one, the executive vice-president, shall have all
the powers and functions of the president. Each vice-president shall perform
such other duties as the Board shall prescribe.
5. SECRETARY.
The secretary shall:
(a) attend all meetings of the Board and of the shareholders;
(b) record all votes and minutes of all proceedings in a book to be
kept for that purpose;
(c) give or cause to be given notice of all meetings of shareholders
and of special meetings of the Board;
(d) keep in safe custody the seal of the corporation and affix it to
any instrument when authorized by the Board;
(e) when required, prepare or cause to be prepared and available at
each meeting of shareholders a certified list in alphabetical order of the
names of shareholders entitled to vote thereat, indicating the number of
shares of each respective class held by each;
(f) keep all the documents and records of the corporation as required
by law or otherwise in a proper and safe manner;
(g) perform such other duties as may be prescribed by the Board.
6. ASSISTANT-SECRETARIES.
During the absence or disability of the secretary, the
assistant-secretary, or if there are more than one, the one so designated by
the secretary or by the Board, shall have all the powers and functions of the
secretary.
7. TREASURER.
The treasurer shall:
(a) have the custody of the corporate funds and securities;
(b) keep full and accurate accounts of receipts and disbursements in
the corporate books;
(c) deposit all money and other valuables in the name and to the credit
of the corporation in such depositories as may be designated by the Board;
(d) disburse the funds of the corporation as may be ordered or
authorized by the Board and preserve proper vouchers for such disbursements;
(e) render to the Chairman, the president and Board at the regular
meetings of the Board, or whenever they require it, an account of all his
transactions as treasurer and of the financial condition of the corporation;
(f) render a full financial report at the annual meeting of the
shareholders if so requested;
(g) be furnished by all corporate officers and agents at his request,
with such reports and statements as he may require as to all financial
transactions of the corporation;
(h) perform such other duties as are given to him by these By-Laws or
as from time to time are assigned to him by the Board, the Chairman or the
president.
8. ASSISTANT-TREASURER.
During the absence or disability of the treasurer, the
assistant-treasurer, or if there are more than one, the one so designated by
the secretary or by the Board, shall have all the powers and functions of the
treasurer.
9. SURETIES AND BONDS.
In case the Board shall so require, any officer or agent of the
corporation shall execute to the corporation a bond in such sum and with such
surety or sureties as the Board may direct, conditioned upon the faithful
performance of his duties to the corporation and including responsibility for
negligence and for the accounting for all property, funds or securities of the
corporation which may come into his hands.
ARTICLE V - CERTIFICATES FOR SHARES
1. CERTIFICATES.
The shares of the corporation shall be represented by certificates.
They shall be numbered and entered in the books of the corporation as they are
issued. They shall exhibit the holder's name and the number of shares and
shall be signed by the president or a vice-president and the treasurer or the
secretary and shall bear the corporate seal.
2. LOST OR DESTROYED CERTIFICATES.
The Board may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the
corporation, alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing such issue of a new certificate or certificates,
the Board may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to advertise the same in such
manner as it shall require and/or give the corporation a bond in such sum and
with such surety or sureties as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate
alleged to have been lost of destroyed.
3. TRANSFER OF SHARES.
(a) Shares of capital stock of the Corporation may be transferred on
the books for the Corporation only by the holder of such shares or by his duly
authorized attorney, upon the surrender to the Corporation or its transfer
agent of the certificate representing such stock properly endorsed.
(b) Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer shall be entered
on the transfer book of the corporation which shall be kept at its principal
office. No transfer shall be made within ten days next preceding the annual
meeting of shareholders.
(c) The corporation shall be entitled to treat the holder of record of
any share as the holder in fact thereof and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share on the
part of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of New York.
4. CLOSING TRANSFER BOOKS.
The Board shall have the power to close the share transfer books of the
corporation for a period of not more than ten days during the thirty-day
period immediately preceding (1) any shareholders' meeting, or (2) any date
fixed for the payment of a dividend or any other form of distribution, and
only those shareholders of record at the time the transfer books are closed,
shall be recognized as such for the purpose of (i) receiving notice of or
voting at such meeting, or (ii) allowing them to take appropriate action, or
(iii) entitling them to receive any dividend or other form of distribution.
ARTICLE VI - DIVIDENDS
Subject to the provisions of the Certificate of Incorporation and to
applicable law, dividends on the outstanding shares of the corporation may be
declared in such amounts and at such time or times as the Board may determine.
Before payment of any dividend, there may be set aside out of the net profits
of the corporation available for dividends such sum or sums as the Board from
time to time in its absolute discretion deems proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the corporation, or for such other purpose as the Board shall
think conducive to the interests of the corporation, and the Board may modify
or abolish any such reserve.
ARTICLE VII - CORPORATE SEAL
The seal of the corporation shall be circular in form and bear the name
of the corporation, the year of its organization and the words "Corporate
Seal, New York." The seal may be used by causing it to be impressed directly
on the instrument or writing to be sealed, or upon adhesive substance affixed
thereto. The seal on the certificates for shares or on any corporate
obligation for the payment of money may be a facsimile, engraved or printed.
ARTICLE VIII - EXECUTION OF INSTRUMENTS
All corporate instruments and documents shall be signed or
counter-signed, executed, verified or acknowledged by such officer of officers
or other person or persons as the Board may from time to time designate.
ARTICLE IX - FISCAL YEAR
The fiscal year shall begin the first day of July in each year.
ARTICLE X - REFERENCES TO CERTIFICATE OF INCORPORATION
Reference to the Certificate of Incorporation in these By-Laws shall
include all amendments thereto or changes thereof unless specifically
excepted.
ARTICLE XI - INDEMNIFICATION
Except to the extent expressly prohibited by the New York Business
Corporation Law, the Corporation may indemnify each person made or threatened
to be made a party to any action or proceeding, whether civil or criminal, by
reason of the fact that such person or such person's testator or intestate is
or was a director, officer, incorporator, employee or agent of the
Corporation, or serves or served at the request of the Corporation, any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity, against judgments, fines, penalties, amounts paid
in settlement and reasonable expenses, including attorneys' fees, incurred in
connection with such action or proceeding, or any appeal therein; provided,
however, that no such indemnification shall be made if a judgment or other
final adjudication adverse to such person establishes that his or her acts
were committed in bad faith or were the result of active and deliberate
dishonesty and were material to the cause of action so adjudicated, or that he
or she personally gained in fact a financial profit or other advantage to
which he or she was not legally entitled, and provided further that no such
indemnification shall be required with respect to any settlement or other non-
adjudicated disposition of any threatened or pending action or proceeding
unless the Corporation has given its prior consent to such settlement or other
disposition.
The Corporation shall advance or promptly reimburse upon request any
person entitled to indemnification hereunder for all expenses, including
attorneys' fees, reasonably incurred in defending any action or proceeding in
advance of the final disposition thereof upon receipt of an undertaking by or
on behalf of such person to repay such amount if such person is ultimately
found not to be entitled to indemnification or, where indemnification is
granted, to the extent the expenses so advanced or reimbursed exceed the
amount to which such person is entitled; provided, however, that such person
shall cooperate in good faith with any request by the Corporation that common
counsel be utilized by the parties to an action or proceeding who are
similarly situated unless to do so would be inappropriate due to actual or
potential differing interests between or among such parties.
Nothing herein shall limit or affect any right of any person, otherwise
than hereunder, to indemnification or expenses, including attorneys' fees,
under any statute, rule, regulation, certificate of incorporation, by-law,
insurance policy, contract or otherwise.
Anything in these By-Laws to the contrary notwithstanding, no
elimination of this By-Law, and no amendment of this By-Law adversely
affecting the right of any person to indemnification or advancement of
expenses hereunder shall be effective until the 60th day following notice to
such person of such action, and no elimination of or amendment to this By-Law
shall deprive any person of his or her rights hereunder arising out of alleged
or actual occurrences, acts or failures to act prior to such 60th day.
The Corporation shall not, except by elimination or amendment of this
By-law in a manner consistent with the preceding paragraph, take any corporate
action or enter into any agreement which prohibits, or otherwise limits the
rights of any person to, indemnification in accordance with the provisions of
this By-Law. The indemnification of any person provided by this By-Law shall
continue after such person has ceased to be a director, officer, incorporator,
employee or agent of the Corporation and shall inure to the benefit of such
person's heirs, executors, administrators and legal representatives.
The Corporation is authorized to enter into agreements with any of its
directors, officers, incorporators, employees or agents extending rights to
indemnification and advancement of expenses to such person to the fullest
extent permitted by applicable law, but the failure to enter into any such
agreement shall not affect or limit the rights of such person pursuant to this
By-Law, it being expressly recognized hereby that all directors, officers,
incorporators, employees and agents of the Corporation, by serving as such
after the adoption hereof, are acting in reliance hereon and that the
Corporation is estopped to contend otherwise.
In case any provision in this By-Law shall be determined at any time to
be unenforceable in any respect, the other provisions shall not in any way be
affected or impaired thereby, and the affected provision shall be given the
fullest possible enforcement in the circumstances, it being the intention of
the Corporation to afford indemnification and advancement of expenses to its
directors, officers, incorporators, employees or agents acting in such
capacities or in the other capacities mentioned herein, to the fullest extent
permitted by law.
For purposes of this By-Law, the Corporation shall be deemed to have
requested a person to serve an employee benefit plan where the performance by
such person of his or her duties to the Corporation also imposes duties on, or
otherwise involves services by, such person to the plan or participants or
beneficiaries of the plan, and excise taxes assessed on a person with respect
to an employee benefit plan pursuant to applicable law shall be considered
indemnifiable expenses. For purposes of this By-Law, the term "Corporation"
shall include any legal successor to the Corporation, including any
corporation which acquires all or substantially all of the assets of the
Corporation in one or more transactions.
A person who has been wholly successful, on the merits or otherwise, in
the defense of a civil or criminal action or proceeding of the character
described in the first paragraph of this By-Law shall be entitled to
indemnification as authorized in such paragraph. Except as provided in the
preceding sentence and unless ordered by a court, any indemnification under
this By-Law shall be made by the Corporation if, and only if, authorized in
the specific case:
1. By the Board of Directors acting by a quorum
consisting of directors who are not parties to such action or
proceeding upon a finding that the director, officer or employee
has met the standard of conduct set forth in the first paragraph
of this By-Law, or,
2. If such a quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs:
a. By the Board of Directors upon the opinion in
writing of independent legal counsel that indemnification is
proper in the circumstances because the standard of conduct
set forth in the first paragraph of this By-Law has been met
by such director, officer or employee, or
b. By the shareholders upon a finding that the
director, officer or employee has met the applicable
standard of conduct set forth in such paragraph.
If any action with respect to indemnification of directors and officers
is taken by way of amendment of these By-Laws, resolution of directors or by
agreement, then the Corporation shall, not later than the next annual meeting
of shareholders, unless such meeting is held within three months from the date
of such action, and, in any event, within fifteen months from the date of such
action, mail to its shareholders of recorded at the time entitled to vote for
the election of directors a statement specifying the action taken.
ARTICLE VIII - AMENDMENTS
The holders of shares entitled at the time to vote for the election of
directors shall have power to adopt, amend, or repeal the By-Laws of the
Corporation by vote of not less than a majority of such shares, and the Board
of Directors by vote of not less than a majority of the entire Board shall
have power equal in all respects to that of the shareholders to adopt, amend
or repeal the By-Laws; provided, however, that any By-Law adopted by the Board
may be amended or repealed by vote of the holders of a majority of the shares
entitled at the time to vote for the election of directors.
If any By-Law regulating an impending election of directors is adopted,
amended or repealed by the Board of Directors, there shall be set forth in the
notice of the next meeting of shareholders for the election of directors the
By-Law or By-Laws so adopted, amended or repealed, together with a concise
statement of the changes made.
EXHIBIT 3.6
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AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
THE VERMONT TEDDY BEAR CO., INC.
UNDER
SECTION 807 OF THE BUSINESS CORPORATION LAW
Pursuant to Section 807 of the Business Corporation Law, the
undersigned, being the Chairman of the Board, Chief Executive Officer and
Secretary of The Vermont Teddy Bear Co., Inc. (the "Corporation"), hereby
certify that:
1. The name of the Corporation is The Vermont Teddy Bear Co., Inc.
2. The Certificate of Incorporation was filed by the Department of State on
January 27, 1984, and Certificates of Amendment of the Certificate of
Incorporation were filed by the Department of State on May 7, 1993,
August 2, 1993, a Restated Certificate of Incorporation was filed with
the Department of State on September 24, 1993, Certificate of Amendment
of the Restated Certificate of Incorporation was filed with the
Department of State on March 11, 1996, a Restated Certificate of
Incorporation was filed with the Department of State on June 28, 1996
and an Amended and Restated Certificate of Incorporation was filed with
the Department of State on October 23, 1998.
3. The Certificate of Incorporation, as previously amended, is further
amended by amending Section 4 to provide for the authorization of One
Hundred Ten (110) shares of Series C Convertible Redeemable Preferred
Stock, as follows:
C. Series C Convertible Redeemable Preferred Stock. The designations
and the powers, preferences and rights of the Series C
Convertible Redeemable Preferred Stock are as follows:
1. Designation and Amount. The shares of this series of
Preferred Stock of the Corporation shall be designated as
"Series C Convertible Redeemable Preferred Stock" (the
"Series C Preferred Stock") and the number of shares
constituting such series shall be 110, with a par value per
share of $.05.
2. Accumulation and Payment of Dividends. The holders of the
Series C Preferred Stock shall be entitled to
receive, out of funds legally available therefor, cumulative
dividends at an annual rate of six percent (6%) compounded
on a quarterly basis (the "Series C Preferred Dividends")
on the sum of (i) each outstanding share of the Series C
Preferred Stock multiplied by (ii) $10,000. Series C
Preferred Dividends shall accrue on outstanding shares of
the Series C Preferred Stock from the date of issuance of
such shares on a daily basis whether or not the Corporation
shall have earnings or surplus at any time. The
accumulation of Series C Preferred Dividends shall not bear
interest or accrue additional Series C Preferred
Dividends. In addition to Series C Preferred Dividends, the
holders of the Series C Preferred Stock shall be entitled to
receive dividends at the same rate as dividends (other than
dividends paid in additional shares of Common Stock) are
paid with respect to the Common Stock (treating each share
of Series C Preferred Stock as being equal to the number of
shares of Common Stock into which each such share of Series
C Preferred Stock could be converted (regardless of whether
such shares of Series C Preferred Stock are then presently
convertible) pursuant to the provisions of Section 5 hereof
with such number determined as of the record date for the
determination of holders of Common Stock entitled to receive
such dividend) (the "Participating Dividends")). So long
as any shares of the Series C Preferred Stock shall be
outstanding, the Corporation shall not declare or pay or set
apart for payment any dividends or make any other
distributions on, or make any payment on account of the
purchase, redemption, exchange or other retirement of any
other class of stock or series thereof of the Corporation
ranking junior to the Series C Preferred Stock as to the
payment of dividends unless each of the holders of the
Series C Preferred Stock shall have been paid all accrued
Series C Preferred Dividends in full with respect to each
share of Series C Preferred Stock. For the period
commencing on November 3, 1998 and ending on the date that
is the second (2nd) anniversary thereof, annually on each
such anniversary, the Series C Preferred Dividends shall be
paid to the holders of the Series C Preferred Stock in
additional shares of Series C Preferred Stock in a number
equal to the quotient of (A) the amount equal to accrued and
unpaid Series C Preferred Dividends through the relevant
anniversary divided by (B) $10,000. On the third (3rd)
anniversary of the date hereof, the Series C Preferred
Dividends shall be paid to the holders of the Series C
Preferred Stock in additional shares of Series C Preferred
Stock for the first six months of the third year and
thereafter, in the discretion of the Corporation, the Series
C Preferred Dividends shall be paid to the holders of the
Series C Preferred Stock in (i) additional shares of Series
C Preferred Stock in a number of shares calculated as
provided in the immediately preceding sentence or (ii) cash.
3. Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding
up of the Corporation or any subsidiary,
whether voluntary or involuntary, each holder of outstanding
shares of Series C Preferred Stock shall be entitled to be
paid out of the assets of the Corporation available for
distribution to stockholders, whether such assets are
capital, surplus, or earnings as
follows, and before any amount shall be paid or distributed
to the holders of any class of Common Stock or of any other
stock ranking on liquidation junior to the Series C
Preferred Stock, the greater of: (i) an amount in cash
equal to $10,000 per share (adjusted appropriately for stock
splits, stock dividends and the like) together with accrued
but unpaid dividends (including all Series C Preferred
Dividends and Participating Dividends) to which the holders
of outstanding shares of Series C Preferred Stock are
entitled pursuant to Section 2 hereof (the "Minimum
Liquidation Amount"); provided, however, that if, upon any
liquidation, dissolution or winding up of the Corporation,
the amounts payable with respect to the Series C Preferred
Stock and any other stock ranking as to any such
distribution on a parity with the Series C Preferred Stock
are not paid in full, the holders of the Series C Preferred
Stock and such other stock shall share ratably in any
distribution of assets in proportion to the full respective
preferential amounts to which they are entitled; or
(ii) cash in an amount equal to the portion of the assets of
the Corporation remaining for distribution to stockholders
which such holder would have received if each share of
Series C Preferred Stock had been converted into the number
of shares of Common Stock issuable upon the conversion of a
share of Series C Preferred Stock immediately prior to any
such liquidation, dissolution or winding up of the
Corporation after taking into account the rights of holders
of any other class or series of capital stock of the
Corporation (including the Common Stock) entitled to share
in such distribution in either case, plus any declared but
unpaid dividends (including Series C Preferred Dividends and
Participating Dividends) to which the holders of outstanding
shares of Series C Preferred Stock are entitled pursuant to
Section 2 hereof (the "Aggregate Liquidation Amount").
(b) A consolidation, merger or capital reorganization of
the Corporation (except (i) into or with a
wholly-owned subsidiary of the Corporation with requisite
shareholder approval or (ii) a merger in which the
beneficial owners of the Corporation's outstanding capital
stock immediately prior to such transaction hold no less
than fifty-one percent (51%) of the voting power in the
resulting entity) or a sale of all or substantially all of
the assets of the Corporation or any subsidiary thereof
shall be regarded as a liquidation, dissolution or winding
up of the affairs of the Corporation within the meaning of
this Section 3; provided, however, that each holder of the
Series C Preferred Stock shall have the right to elect the
benefits of the provisions of Section 5(i) hereof in lieu of
receiving payment in liquidation, dissolution or winding up
of the Corporation pursuant to this Section 3.
For purposes of this Section 3 "capital reorganization"
shall mean any reorganization of the capital
stock of the Company such that the powers, preferences and
rights of the Series C Preferred Stock are materially
altered, changed or impaired so as to adversely affect the
holders thereof.
4. Voting Power.
(a) Election of Directors. The Board of Directors of the
Corporation shall consist of not greater
than nine (9) members as long as any shares of Series C
Preferred Stock are outstanding. For so long as at least
fifteen percent (15%) of the shares of Series C Preferred
Stock issued on the date hereof remain issued and
outstanding, the holders of outstanding shares of Series C
Preferred Stock shall, voting as a separate class, be
entitled to elect two (2) of the nine (9) (or such lesser
number) Directors of the Corporation. Such Directors shall
be the candidates receiving the highest number of
affirmative votes (with each holder of Series C Preferred
Stock entitled to cast one vote for or against each
candidate with respect to each share of Series C Preferred
Stock) of the outstanding shares of Series C Preferred Stock
(the "Series C Preferred Stock Director Designees"), with
votes cast against such candidates and votes withheld having
no legal effect. The election of the Series C Preferred
Stock Director Designees by the holders of the Series C
Preferred Stock shall occur (i) at the annual meeting of
holders of capital stock, (ii) at any special meeting of
holders of capital stock, (iii) at any special meeting of
holders of Series C Preferred Stock called by holders of a
majority of the outstanding shares of Series C Preferred
Stock or (iv) by the written consent of the holders of
two-thirds of the outstanding shares of Series C Preferred
Stock. If at any time when any share of Series C Preferred
Stock is outstanding any Series C Preferred Stock Director
Designee should cease to be a Director for any reason, the
vacancy shall only be filled by the vote or written consent
of the holders of the outstanding shares of Series C
Preferred Stock, voting as a separate class, in the manner
and on the basis specified above. The holders of
outstanding shares of Series C Preferred Stock may, in their
sole discretion, determine to elect fewer than two (2)
Series C Preferred Stock Director Designees from time to
time, and during any such period the Board of Directors
nonetheless shall be deemed duly constituted.
(b) Other Voting. Except as otherwise expressly provided
herein or as required by law, the holder of
each share of Series C Preferred Stock shall be entitled to
vote on all matters on which any holder of Common Stock is
entitled to vote. Each share of Series C Preferred Stock
shall entitle the holder thereof to such number of votes per
share as shall equal the number of shares of Common Stock
into which each share of Series C Preferred Stock would be
converted if it were converted pursuant to the provisions of
Section 5 hereof, regardless of whether such shares of
Series C Preferred Stock are then presently convertible.
Except as otherwise expressly provided herein (including
without limitation the provisions of Section 7 hereof) or as
required by law, the holders of shares of the Series C
Preferred Stock and the Common Stock shall vote together as
a single class on all matters.
5. Conversion. The holders of the Series C Preferred Stock
shall have the following conversion rights:
(a) Optional Conversion. Each holder of shares of Series
C Preferred Stock may elect to convert
each share of Series C Preferred Stock then held by such
holder into a number of shares of Common Stock computed by
multiplying the number of shares of Series C Preferred Stock
to be converted by $10,000 and dividing the result by the
applicable Conversion Price then in effect. The"Conversion
Price" shall be $1.05. The Conversion Price shall be
subject to adjustment from time to time pursuant to this
Section 5. If a holder of Series C Preferred Stock elects
to convert Series C Preferred Stock at a time when there are
any accrued and unpaid dividends or other amounts due on
such shares (including Series C Preferred Dividends and
Participating Dividends), such dividends and other amounts
shall be paid in full by the Corporation in connection with
such conversion.
(b) Conversion Procedures. The holders of Series C
Preferred Stock shall surrender the
certificate or certificates representing the Series C
Preferred Stock being converted, duly assigned or endorsed
for transfer to the Corporation (or accompanied by duly
executed stock powers relating thereto), at the principal
executive office of the Corporation or the offices of the
transfer agent for the Series C Preferred Stock or such
office or offices in the continental United States of an
agent for conversion as may from time to time be designated
by notice to the holders of the Series C Preferred Stock by
the Corporation, accompanied by written notice of conversion
and the payment to the Corporation of a sum sufficient to
cover any tax or governmental charge imposed with respect to
the issuance of Common Stock in a name other than that of
the holder of the Series C Preferred Stock being converted.
Such notice of conversion shall specify (i) the number of
shares of Series C Preferred Stock to be converted, (ii) the
name or names in which such holder wishes the certificate or
certificates for Common Stock and for any shares of Series C
Preferred Stock not to be so converted to be issued and
(iii) the address to which such holder wishes delivery to be
made of such new certificates to be issued upon such
conversion. Upon surrender of a certificate representing
Series C Preferred Stock for conversion, the Corporation
shall issue and send by hand delivery, by courier or by
first class mail (postage prepaid) to the holder thereof or
to such holder's designee, at the address designated by such
holder in the notice, a certificate or certificates for the
number of shares of Common Stock to which such holder shall
be entitled upon conversion. In the event that there shall
have been surrendered a certificate or certificates
representing Series C Preferred Stock, only part of which
are to be converted, the Corporation shall issue and send to
such holder or such holder's designee, in the manner set
forth in the preceding sentence, a new certificate or
certificates representing the number of shares of Series C
Preferred Stock which shall not have been converted.
(c) Effective Date of Conversion. The issuance by the
Corporation of shares of Common Stock upon a
conversion of Series C Preferred Stock into shares of Common
Stock pursuant to Section 5(a) hereof shall be effective as
of the date of the surrender of the certificate or
certificates representing the Series C Preferred Stock to be
converted, duly assigned or endorsed for transfer to the
Corporation (or accompanied by duly executed stock powers
relating thereto). On and after the effective date of
conversion, the person or persons entitled to receive the
Common Stock issuable upon such conversion shall be treated
for all purposes as the record holder or holders of such
shares of Common Stock.
(d) Fractional Shares. The Corporation shall not be
obligated to deliver to holders of Series C
Preferred Stock any fractional share of Common Stock
issuable upon any conversion of such Series C Preferred
Stock, but in lieu thereof may make a cash payment in
respect thereof in any manner permitted by law.
(e) Reservation of Common Stock. The Corporation shall at
all times reserve and keep available out of
its authorized and unissued Common Stock, solely for
issuance upon the conversion of Series C Preferred Stock as
herein provided, free from any preemptive rights or other
obligations, such number of shares of Common Stock as shall
from time to time be issuable upon the conversion of all the
Series C Preferred Stock then outstanding. The Corporation
shall prepare and shall use its best efforts to obtain and
keep in force such governmental or regulatory permits or
other authorizations as may be required by law, and shall
comply with all requirements as to registration,
qualification or listing of the Common Stock, in order to
enable the Corporation lawfully to issue and deliver to each
holder of record of Series C Preferred Stock such number of
shares of its Common Stock as shall from time to time be
sufficient to effect the conversion of all Series C
Preferred Stock then outstanding and convertible into shares
of Common Stock.
(f) Adjustments to Conversion Price. The Conversion Price
in effect from time to time shall
be subject to adjustment as follows:
i. Stock Dividends, Subdivisions and Combinations.
Upon the issuance of additional
shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, the
subdivision of outstanding shares of Common Stock into
a greater number of shares of Common Stock, or the
combination of outstanding shares of Common Stock into
a smaller number of shares of the Common Stock, the
Conversion Price shall, simultaneously with the
happening of such dividend, subdivision or split be
adjusted by multiplying the then effective Conversion
Price by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of
which shall be the number of shares of Common Stock
outstanding immediately after such event. An
adjustment made pursuant to this Section 5(f)(i) shall
be given effect, upon payment of such a dividend or
distribution, as of the record date for the
determination of stockholders entitled to receive such
dividend or distribution (on a retroactive basis) and
in the case of a subdivision or combination shall
become effective immediately as of the effective date
thereof.
ii. Sale of Common Stock. In the event the
Corporation shall at any time
or from time to time, issue, sell or exchange any
shares of Common Stock (including shares held in the
Corporation's treasury but excluding (i) any Common
Stock which may be issued upon conversion of the
Series B Preferred Stock or the Series C Preferred
Stock (including shares of Common Stock issuable upon
exercise of warrants associated therewith); (ii) up to
2,400,000 shares of Common Stock to be issued upon
exercise of options to be issued to officers,
directors, employees, consultants or agents of the
Company pursuant to the terms of the Company's
Employee Stock Option Plan or Non-Employee Directors'
Stock Option Plan; (iii) up to 100,000 shares of
Common Stock to be issued to Green Mountain Capital,
L.P. upon exercise of warrants; (iv) up to 30,000
shares of Common Stock to be issued to David Garret
upon exercise of warrants; (v) up to 124,431 shares of
Common Stock to be issued to Barington Capital Group,
L.P. upon exercise of warrants; (vi) up to 223,971
shares of Common Stock to be issued to URSA (VT)
QRS 12-30, Inc. upon exercise of warrants; and
(vii) up to 54,822 shares of Common Stock to be issued
to Joan H. Martin upon exercise of warrants (subject
in each case to appropriate adjustments for stock
splits, stock dividends, anti-dilution rights and the
like) (collectively, the "Excluded Shares"), for a
consideration per share less than the Conversion Price
then in effect immediately prior to the issuance, sale
or exchange of such shares, then, and thereafter
successively upon each such issuance, sale or
exchange, the Conversion Price in effect immediately
prior to the issuance, sale or exchange of such shares
shall forthwith be decreased to an amount determined
by multiplying the Conversion Price by a fraction:
(1) the numerator of which shall be (i) the
number of shares of
Common Stock of all classes outstanding
immediately prior to the
issuance of such additional shares of Common
Stock (excluding treasury shares, but including
all shares of Common Stock issuable upon
conversion or exercise of any outstanding
Preferred Stock (regardless of whether such
shares of Preferred Stock are then presently
convertible), options, warrants, rights or
convertible securities), plus (ii) the number of
shares of Common Stock which the net aggregate
consideration received by the Corporation for
the total number of such additional shares of
Common Stock so issued would purchase at the
then effective Conversion Price (prior to
adjustment) per share; and
(2) the denominator of which shall be (i) the
number of shares of
Common Stock of all classes outstanding
immediately prior to the issuance of such
additional shares of Common Stock (excluding
treasury shares, but including all shares of
Common Stock issuable upon conversion or
exercise of any outstanding Preferred Stock
(regardless of whether such shares of Preferred
Stock are then presently convertible), options,
warrants, rights or convertible securities),
plus (ii) the number of such additional shares
of Common Stock so issued.
iii. Sale of Options, Rights or Convertible Securities. In
the event the Corporation shall at any time
or from time to time, issue options, warrants or rights to
subscribe for shares of Common Stock (other than any options
or warrants for Excluded Shares), or issue any securities
convertible into or exchangeable for shares of Common Stock,
for a consideration per share (determined by dividing the
Net Aggregate Consideration (as determined below) by the
aggregate number of shares of Common Stock that would be
issued if all such options, warrants, rights or convertible
securities were exercised or converted to the fullest extent
permitted by their terms) less than the Conversion Price per
share in effect immediately prior to the issuance of such
options, warrants or rights or securities, then the
Conversion Price in effect immediately prior to such
issuance shall be decreased to an amount determined by
multiplying the Conversion Price by a fraction:
(1) the numerator of which shall be (i) the number
of shares of Common Stock of
all classes outstanding immediately prior to the
issuance of such options, rights or convertible
securities (excluding treasury shares, but including
all shares of Common Stock issuable upon conversion or
exercise of any outstanding Preferred Stock
(regardless of whether such shares of Preferred Stock
are then presently convertible), options, warrants,
rights or convertible securities), plus (ii) the
number of shares of Common Stock which the total
amount of consideration received by the Corporation
for the issuance of such options, warrants, rights or
convertible securities, plus the minimum amount set
forth in the terms of such security as payable to the
Corporation upon the exercise or conversion thereof
(the "Net Aggregate Consideration"), would purchase
at the Conversion Price prior to adjustment; and
(2) the denominator of which shall be (i) the number
of shares of Common Stock of all
classes outstanding immediately prior to the issuance
of such options, warrants, rights or convertible
securities (excluding treasury shares, but including
all shares of Common Stock issuable upon conversion or
exercise of any outstanding Preferred Stock
(regardless of whether such shares of Preferred Stock
are then presently convertible), options, warrants,
rights or convertible securities), plus (ii) the
aggregate number of shares of Common Stock that would
be issued if all such options, warrants, rights or
convertible securities were exercised or converted.
iv. Expiration or Change in Price. If the
consideration per share provided
for in any options or rights to subscribe
for shares of Common Stock or any
securities exchangeable for or convertible into shares
of Common Stock, changes at any time, the Conversion
Price in effect at the time of such change shall be
readjusted to the Conversion Price which would have
been in effect at such time had such options or
convertible securities provided for such changed
consideration per share (determined as provided in
Section 5(f)(iii) hereof), at the time initially
granted, issued or sold; provided, that such
adjustment of the Conversion Price will be made only
as and to the extent that the Conversion Price
effective upon such adjustment remains greater than or
equal to the Conversion Price that would be in effect
if such options, rights or securities had not been
issued. No adjustment of the Conversion Price shall
be made under this Section 5 upon the issuance of any
additional shares of Common Stock which are issued
pursuant to the exercise of any warrants, options or
other subscription or purchase rights or pursuant to
the exercise of any conversion or exchange rights in
any convertible securities if an adjustment shall
previously have been made upon the issuance of such
warrants, options or other rights. Any adjustment of
the Conversion Price shall be disregarded if, as, and
when the rights to acquire shares of Common Stock upon
exercise or conversion of the warrants, options,
rights or convertible securities which gave rise to
such adjustment expire or are canceled without having
been exercised, so that the Conversion Price effective
immediately upon such cancellation or expiration shall
be equal to the Conversion Price in effect at the time
of the issuance of the expired or canceled warrants,
options, rights or convertible securities, with such
additional adjustments as would have been made to that
Conversion Price had the expired or canceled warrants,
options, rights or convertible securities not been
issued.
(g) Other Adjustments. If the Common Stock issuable upon
the conversion of the Series C Preferred Stock
shall be changed into the same or different number of shares
of any class or classes of stock, whether by
reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend provided for above,
or a reorganization, merger, consolidation or sale of assets
provided for elsewhere in Section 3(b) or in this Section
5), then and in each such event the holder of each share of
Series C Preferred Stock shall have the right thereafter to
convert such share into (i) the right to receive the Minimum
Liquidation Amount, or (ii) the kind and amount of shares of
stock and other securities and property receivable upon such
reorganization, reclassification or other change, by holders
of the number of shares of Common Stock into which such
shares of Series C Preferred Stock might have been converted
immediately prior to such reorganization, reclassification
or change (regardless of whether such shares of Series C
Preferred Stock are then presently convertible), all subject
to further adjustment as provided herein.
(h) Mergers and Other Reorganizations. If at any time or
from time to time there shall be a capital
reorganization of the Common Stock (other than a
subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section 5) or a merger
or consolidation of the Corporation or any subsidiary with
or into another corporation or the sale of all or
substantially all of the assets of the Corporation or any
subsidiary thereof to any other person, then, as a part of
and as a condition to the effectiveness of such
reorganization, merger, consolidation or sale, lawful and
adequate provision shall be made so that the holders of the
Series C Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series C Preferred Stock (1)
the Minimum Liquidation Amount or (2) the number of shares
of stock or other securities or property of the Corporation
or of the successor corporation resulting from such merger
or consolidation or sale, to which a holder of Common Stock
deliverable upon such conversion would have been entitled on
such capital reorganization, merger, consolidation, or sale.
In any such case, appropriate provisions shall be made with
respect to the rights of the holders of the Series C
Preferred Stock after the reorganization, merger,
consolidation or sale to the end that the provisions of this
Section 5 (including without limitation provisions for
adjustment of the Conversion Price and the number of shares
purchasable upon conversion of the Series C Preferred Stock)
shall thereafter be applicable, as nearly as may be, with
respect to any shares of stock, securities or assets to be
deliverable thereafter upon the conversion of the Series C
Preferred Stock.
Each holder of Series C Preferred Stock upon the occurrence of a
capital reorganization, merger or consolidation of the Corporation
or any subsidiary thereof or the sale of all or substantially all
of the assets of the Corporation or any subsidiary thereof as such
events are more fully set forth in the first paragraph of this
Section 5(h), shall have the option of electing treatment of his,
her or its shares of Series C Preferred Stock under either this
Section 5(h) or Section 3 hereof, notice of which election shall
be submitted in writing to the Corporation at its principal
offices no later than ten (10) days before the effective date of
such event, provided that any such notice shall be effective if
given not later than fifteen (15) days after the date of the
Corporation's notice pursuant to Section 9 hereof, with respect to
such event.
(i) Certificate as to Adjustments. In each case of an
adjustment or readjustment of the Conversion
Price, the Corporation at its expense will
furnish each holder of Series C Preferred Stock with a
certificate, prepared by the chief financial officer of the
Corporation, showing such adjustment or readjustment in
accordance with the terms hereof, and stating in detail the
facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time
of any holder of Series C Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting
forth (i) such adjustments and readjustments, (ii) the
Conversion Price at the time in effect, and (iii) the number
of shares of Common Stock, the Minimum Liquidation Amount
and the amount, if any, of other property which at the time
would be received upon the conversion of Series C Preferred
Stock.
6. Redemption.
(a) Redemption Events.
i. On or After November 3, 2003 Upon Election of
Holders. Upon the election of any
holder of shares of Series C Preferred Stock at any
time following November 3, 2003, the Corporation
shall redeem some or all, as specified by such holder,
of such holder's outstanding shares of Series C
Preferred Stock at the Redemption Price specified in
Section 6(b) below; provided, however, the Corporation
shall not be required to redeem in the aggregate
shares of Series C Preferred Stock with an aggregate
Redemption Price in excess of the greater of
(I) twenty-five percent (25%) of the Net Earnings (as
defined below) of the Corporation for the twelve (12)
consecutive calendar month period ended immediately
prior to such redemption or (II) (25%) of the
Corporation's Net Worth (as defined below) determined
as of the end of the twelve (12) month period referred
to in clause (I). The foregoing election shall be
made by such holder giving the Corporation not less
than thirty (30) days prior written notice, which
notice shall set forth the date for such redemption
and the number of shares to be redeemed. "Net
Earnings" shall mean with respect to the period in
question, the after tax net income of the Corporation
as determined in accordance with generally accepted
accounting principles consistently applied. "Net
Worth" shall mean for the period in question, the
stockholders' equity in the Corporation as of the end
of such period, as determined in accordance with
generally accepted accounting principles consistently
applied.
ii. On or After November 3, 2003 Upon Election of
Corporation. At any time
following November 3, 2003 upon the
election of the Corporation, the Corporation may
redeem all (and not less than all) of the outstanding
shares of Series C Preferred Stock at the Traded FMV
Redemption Price, specified in Section 6(b) below. The
foregoing election shall be made by the Corporation
giving each of the holders of Series C Preferred Stock
not less than thirty (30) days prior written notice,
which notice shall set forth the date for such
redemption.
iii. On November 3, 2008. On November 3, 2008 the
Corporation shall,
without any further action by the holders
of the outstanding
shares of Series C Preferred Stock, redeem
all (and not less than
all) of the outstanding shares of Series C
Preferred Stock at the Traded Redemption Price
or the Non-Traded FMV Redemption Price, as
applicable, specified in Section 6(b) below.
(b) Redemption Date; Redemption Price. Any date upon
which a redemption shall actually occur in
accordance with this Section 6 shall be referred to as a
"Redemption Date." The redemption price for each share of
Series C Preferred Stock redeemed pursuant to Section
6(a)(i) shall be the per share Minimum Liquidation Amount
(the "Redemption Price").
The redemption price for each share of Series C Preferred
Stock redeemed pursuant to Section 6(a)(ii)
hereof shall be the greater of (i) the per share Minimum
Liquidation Amount or (ii) the product of the number of
shares of Common Stock into which a share of Series C
Preferred Stock is then convertible pursuant to Section 5
hereof on the Redemption Date (the "Conversion Shares")
and the average of the closing price of the Common Stock on
the sixty (60) days preceding the Redemption Date in which
an actual trade was executed (the greater of (i) or (ii) the
"Traded FMV Redemption Price"); provided, however, that in
the event the Common Stock of the Corporation is not listed
on The Nasdaq Stock Market, Inc.'s SmallCap Market
("Nasdaq") or its successor, if any, or on any
over-the-counter market, on the Redemption Date for the
redemption of Series C Preferred Stock pursuant to Section
6(a)(ii) hereof, then the redemption price for each share of
Series C Preferred Stock redeemed pursuant to
Section 6(a)(ii) hereof shall be the greater of (i) the per
share Minimum Liquidation Amount or (ii) the Fair Market
Value of the Conversion Shares, as determined pursuant to
Section 6(b)(i) below (the greater of (i) or (ii) the "Non-
Traded FMV Redemption Price").
The redemption price for each share of Series C
Preferred Stock redeemed pursuant to Section 6(a)(iii)
hereof shall be the per share Minimum Liquidation Amount
(the "Traded Redemption Price"); provided, however, that
in the event the Common Stock of the Corporation is not
listed on Nasdaq or its successor, if any, or on any
over-the-counter market, on the Redemption Date for the
redemption of Series C Preferred Stock pursuant to Section
6(a)(iii), then the redemption price for each share of
Series C Preferred Stock redeemed pursuant to Section
6(a)(iii) hereof shall be equal to the Non-Traded FMV
Redemption Price.
If at a Redemption Date shares of Series C Preferred Stock
are unable to be redeemed (as contemplated by Section 6(c)
below), then holders of Series C Preferred Stock shall also
be entitled to dividends and interest pursuant to Sections
6(c) and (d). The aggregate applicable redemption price
shall be payable in cash in immediately available funds to
the respective holders of the Series C Preferred Stock on
the applicable Redemption Date (subject to Section 6(c)).
Upon any redemption of the Series C Preferred Stock as
provided herein, holders of fractional shares shall receive
proportionate amounts in respect thereof. Until the
aggregate applicable redemption price has been paid for all
shares of Series C Preferred Stock being redeemed pursuant
to this Section 6: (A) no dividend whatsoever shall be paid
or declared, and no distribution shall be made, on any
capital stock of the Corporation ranking on liquidation
junior to the Series C Preferred Stock; and (B) no shares of
capital stock of the Corporation (other than the Series C
Preferred Stock in accordance with this Section 6) shall be
purchased, redeemed or acquired by the Corporation and no
monies shall be paid into or set aside or made available for
a sinking fund for the purchase, redemption or acquisition
thereof.
i. Fair Market Value. The Fair Market Value of the
Conversion Shares shall be
determined according to the following procedure:
(1) The Board of Directors of the Corporation
and the holders of a
majority in interest of the then outstanding
shares of Series C Convertible Preferred Stock
shall negotiate in good faith in an effort to
reach an agreement upon the Fair Market Value of
the Conversion Shares for a period of ten (10)
days beginning at any time or times following
written notice of the holders of a majority in
interest of the then outstanding shares of
Series C Convertible Preferred Stock to the
Corporation, or vice versa, of its desire to
determine the Fair Market Value at that time.
(2) If the Board of Directors and such holders
of Series C
Convertible Preferred Stock are unable to reach
agreement under the foregoing subsection (A),
the Fair Market Value of the Conversion Shares
shall be determined by appraisal. Within
fifteen (15) days after the expiration of the
ten-day period in subsection (A) above, the
Board of Directors and holders of the Conversion
Shares to be redeemed shall elect as an
appraiser (the "Selected Appraiser") a third
party who is a nationally recognized investment
banking firm and that is experienced in the
appraisal of companies. The Selected Appraiser
shall establish the Fair Market Value of the
Conversion Shares. Such Fair Market Value of
the Conversion Shares shall be calculated with
no discount for minority interests or lack of
marketability thereof. The Selected Appraiser
shall render his, her or its appraisal within
twenty (20) days of his, her or its appointment
hereunder. The Fair Market Value of the
Conversion Shares shall be equal to the
appraisal made by the Selected Appraiser. All
appraisals delivered pursuant to this subsection
(i) shall be in writing and signed by the
appraiser. The fees, costs and expenses of the
Selected Appraiser will be borne equally by the
Corporation and the holders of Conversion Shares
to be redeemed.
(c) Redemption Prohibited. If, at a Redemption Date, the
Corporation is prohibited under the
Business Corporation Law of the State of New York from
redeeming, or otherwise fails to redeem, all shares of
Series C Preferred Stock for which redemption is required
hereunder, then it shall redeem such shares on a pro-rata
basis among the holders of Series C Preferred Stock in
proportion to the full respective redemption amounts to
which they are entitled hereunder to the extent possible and
shall redeem the remaining shares to be redeemed as soon as
the Corporation is not prohibited from redeeming some or all
of such shares under the Business Corporation Law of the
State of New York. Any shares of Series C Preferred Stock
not redeemed shall remain outstanding and entitled to all of
the rights and preferences provided herein. The Corporation
shall take such action as shall be necessary and appropriate
under the circumstances to review and promptly remove any
impediment to its ability to redeem Series C Preferred Stock
under the circumstances contemplated by this Section 6(c).
In the event that the Corporation fails for any reason to
redeem shares for which redemption is required pursuant to
this Section 6(c), including without limitation due to a
prohibition of such redemption under the Business
Corporation Law of the State of New York, then during the
period from the applicable Redemption Date through the date
on which such shares are redeemed, the applicable redemption
price of such shares that the Corporation has failed to
redeem shall bear interest, with such interest to accrue
daily in arrears and to be compounded quarterly at the rate
per annum of fifteen percent (15%) until the applicable
redemption price (as so increased) is paid in full;
provided, however, that in no event shall such interest
exceed the maximum permitted rate of interest under
applicable law (the "Maximum Permitted Rate"). In the
event that fulfillment of any provision hereof results in
such rate of interest being in excess of the Maximum
Permitted Rate, the obligation to be fulfilled shall
automatically be reduced to eliminate such excess; provided,
however, that any subsequent increase in the Maximum
Permitted Rate shall be retroactively effective to the
applicable redemption date.
(d) Dividend After Redemption Date. From and after a
Redemption Date, no shares of Series C
Preferred Stock subject to redemption shall be entitled to
dividends, if any, as contemplated by Section 2; provided,
however, that in the event that shares of Series C Preferred
Stock are unable to be redeemed and continue to be
outstanding in accordance with Section 6(c), such shares
shall continue to be entitled to dividends and interest
thereon as provided in Sections 2 and 6(c) until the date on
which such shares are actually redeemed by the Corporation.
(e) Surrender of Certificates. Upon receipt of the
applicable redemption price by certified check
or wire transfer, each holder of shares of Series C
Preferred Stock to be redeemed shall surrender the
certificate or certificates representing such shares to the
Corporation, duly assigned or endorsed for transfer (or
accompanied by duly executed stock powers relating thereto),
or, in the event the certificate or certificates are lost,
stolen or missing, shall deliver an affidavit or agreement
satisfactory to the Corporation to indemnify the Corporation
from any loss incurred by it in connection therewith (an
"Affidavit of Loss") with respect to such certificates at
the principal executive office of the Corporation or the
office of the transfer agent for the Series C Preferred
Stock or such office or offices in the continental United
States of an agent for redemption as may from time to time
be designated by notice to the holders of Series C Preferred
Stock, and each surrendered certificate shall be canceled
and retired; provided, however, that if the Corporation is
prohibited from redeeming all shares of Series C Preferred
Stock as provided in Section 6(c) or, pursuant to Section
6(a)(i), is redeeming less than all of the shares of Series
C Preferred Stock held by a particular holder, the holder
shall not be required to surrender said certificate(s) to
the Corporation until said holder has received a new stock
certificate for those shares of Series C Preferred Stock not
so redeemed.
7. Restrictions and Limitations.
(a) So long as at least fifteen percent (15%) of the
shares of the Series C Preferred Stock issued
on the date hereof remain issued and outstanding, the
Corporation shall not without the affirmative vote or
written consent of the holders of a majority in interest of
the then outstanding shares of the Series C Preferred Stock
(adjusted appropriately for stock splits, stock dividends
and the like):
i. Redeem, purchase or otherwise acquire for value
(or pay into or set aside
for a sinking fund for such purpose) any of the
Common Stock of any class or any
other capital stock of the Corporation (other than the
Series A Preferred Stock, the Series B Preferred Stock
and the Series C Preferred Stock);
ii. Declare any dividends on the Common Stock or any
other equity security other
than the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock;
iii. Authorize or issue, or obligate itself to issue,
any other equity security senior to
or on a parity with the Series C Preferred Stock as to
liquidation preferences, redemptions, or dividend
rights or with any special voting rights;
iv. Increase or decrease (other than by conversion
as permitted hereby) the total
number of authorized shares of Preferred Stock as
Series C Preferred Stock; or
v. Amend the Certificate of Incorporation or
By-Laws of the Corporation in a
manner that adversely affects the rights of the
holders of the Series C Preferred Stock.
(b) So long as at least fifteen percent (15%) of the
shares of the Series C Preferred Stock issued
on the date hereof remain issued and outstanding, the
Corporation shall not without giving at least 15 days prior
written notice, by registered mail, postage prepaid to the
holders of the Series C Preferred Stock at their then
current addresses, authorize any merger or consolidation of
the Corporation or any subsidiary with or into any other
corporation or entity (except into or with a wholly-owned
subsidiary of the Corporation), authorize the liquidation,
dissolution or winding up of the Corporation or any
subsidiary, or authorize the sale of all or substantially
all of the assets of the Corporation or any subsidiary.
Notice of such event shall be mailed at least 15 days prior
to the date on which any such merger, consolidation,
liquidation, dissolution, winding up or sale is expected to
be effective.
8. No Reissuance of Series C Preferred Stock. No share or
shares of the Series C Preferred Stock acquired by the
Corporation by reason of redemption, purchase, conversion or
otherwise shall be reissued, and all such shares shall be
canceled, retired, and eliminated from the shares which the
Corporation shall be authorized to issue. The Corporation may
from time to time take such appropriate corporate action as may be
necessary to reduce the authorized number of shares of the Series
C Preferred Stock accordingly.
9. Notices of Record Date. In the event (i) the Corporation
establishes a record date to determine the holders of
any class of securities who are entitled to receive any dividend
or other distribution, or (ii) there occurs any capital
reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any
merger or consolidation of the Corporation, and any transfer of
all or substantially all of the assets of the Corporation to any
other corporation, or any other entity or person, or any voluntary
or involuntary dissolution, liquidation or winding up of the
Corporation, the Corporation shall mail to each holder of Series C
Preferred Stock at least twenty (20) days prior to the record date
specified therein, a notice specifying (a) the date of such record
date for the purpose of such dividend or distribution and a
description of such dividend or distribution, (b) the date on
which any such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding up is
expected to become effective, and (c) the time, if any, that is to
be fixed, as to when the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other
property deliverable upon such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or
winding up.
10. Other Rights. Except as otherwise provided in this
Certificate of Incorporation, each share of Series C
Preferred Stock and each share of Common Stock shall be identical
in all respects, shall have the same powers, preferences and
rights, without preference of any such class or share over any
other such class or share, and shall be treated as a single class
of stock for all purposes.
D. Undesignated Preferred Stock. Six Hundred Twenty-Four Thousand
Eight Hundred (624,800) shares of preferred stock having a par
value of $.05 per share and
having such preferences, limitations and relative rights as determined
from time to time by the Board of Directors. The Board of Directors is
hereby expressly granted authority to divide these shares of preferred
stock into series and to fix and determine before the issuance thereof
the number of shares and the relative rights and preferences of any
series so established.
4. The amendment related to the authorization of the Series C Convertible
Redeemable Preferred Stock was authorized by the Corporation's Board of
Directors at a duly called meeting of the Board held on October 29,
1998, pursuant to Section 502 of the Business Corporation Law.
5. The restatement of the Certificate of Incorporation was authorized by
the Corporation's Board of Directors at a duly called meeting held on
October 29, 1998, pursuant to Section 807 of the Business Corporation
Law.
6. The text of the Certificate of Incorporation and all prior amendments
thereto are hereby restated as further amended above to read herein set
forth in full:
ARTICLE I
NAME
The name of the corporation is The Vermont Teddy Bear Co., Inc.
ARTICLE II
PURPOSES
The purpose or purposes for which this corporation is formed are as
follows, to wit: to engage in any lawful act or activity for which
corporations may be organized under the Business Corporation Law, provided
that it is not formed to engage in any act or activity requiring the consent
or approval of any state official, department, board, agency or other body,
without first obtaining such consent or approval.
ARTICLE III
OFFICE
The office of the corporation is to be located in the City of Albany,
County of Albany, State of New York.
ARTICLE IV
CAPITAL STOCK
The aggregate number of shares which the corporation shall have
authority to issue is twenty one million (21,000,000) shares, divided as
follows:
A. Series A Preferred Stock. Ninety (90) shares of preferred stock
having a par value of $.05 per share, designated Series A Preferred
Stock and having the following preferences and limitations:
1. Dividends. Holders of Series A Preferred Stock shall be
entitled to receive out of the surplus or net profits of the
Corporation dividends at the rate of eight percent (8%) per annum
payable quarterly on the first days of January, April, July and
October. Dividends on the Series A Preferred Stock shall be
payable before any dividends shall be paid upon, or set apart for,
the common stock. Further, dividends on Series A Preferred Stock
shall be cumulative, so that if in any quarterly dividend period
the dividends shall not have been paid or set apart, the
deficiency shall be fully paid, or set apart for payment, before
any dividends shall be set apart for or paid upon the common
stock. Accumulations of dividends on Series A Preferred Stock
shall not bear interest.
2. Voting Rights. Except as required by law, Holders of Series
A Preferred Stock shall have no voting power whatsoever and shall
not be entitled to notice of any meeting of the stockholders of
the Corporation.
3. Liquidation. In the event of any liquidation, voluntary or
involuntary, the holders of Series A Preferred Stock shall be
entitled to be paid the consideration they paid for their shares
and the unpaid cumulative dividends accrued thereon on a pari
passu basis with the Series B Convertible Preferred Stock before
any amount shall be paid to the holders of the common stock.
4. Redemption. The Corporation may, at the option of its Board
of Directors, redeem all or any part of Series A Preferred Stock
outstanding on any dividend payment date after the issuance
thereof, by paying the holders thereof the consideration they paid
for their shares, together with all unpaid cumulative dividends
accrued thereon (the "Redemption Price"). Notice of the
Corporation's intention to redeem shares of the outstanding
preferred, and the date and place thereof, shall be sent by first
class mail at least thirty (30) days prior to the proposed
redemption date to the holders of the shares to be redeemed. From
and after the date fixed in any such notice as the date of
redemption, all dividends upon Series A Preferred Stock so called
for redemption shall cease to accrue, and all rights of the
holders of Series A Preferred Stock, except the right to receive
the Redemption Price upon surrender of the certificate
representing Series A Preferred Stock called for redemption, shall
cease and determine.
5. Conversion Rights. The holders of Series A Preferred Stock
shall not have any right to convert their shares into, or exchange
them for, common stock.
B. Series B Convertible Preferred Stock. Three Hundred Seventy-Five
Thousand (375,000) shares of preferred stock having a par value of $.05
per share, designated Series B Convertible Preferred Stock and having
the following preferences and limitations:
1. Dividends. Holders of Series B Convertible Preferred Stock
shall not be entitled to any dividends.
2. Voting Rights. Except as required by law, Holders of Series
B Convertible Preferred Stock shall have no voting power
whatsoever and shall not be entitled to notice of any meeting of
the stockholders of the Corporation.
3. Liquidation. In the event of any liquidation, voluntary or
involuntary, the holders of Series B Convertible Preferred Stock
shall be entitled to be paid the consideration they paid for their
shares on a pari passu basis with the Series A Preferred Stock
before any amount shall be paid to the holders of the common
stock.
4. Conversion Rights. The holders of Series B Convertible
Preferred Stock shall have the right to convert their shares into
shares of the Corporation's Common Stock, par value $0.05, as
follows:
(a) Right to Convert. Each share of the Series B
Convertible Preferred Stock shall be convertible, at the
option of the holder thereof, at any time after the date
that is one (1) year from the date of the issuance of the
Series B Convertible Preferred Stock (the "Purchase Date"),
at the office of the Company or the Company's transfer
agent, into such number of fully paid and non-assessable
shares of Common Stock as is determined by dividing the
original Series B Convertible Preferred Stock issue price by
the Conversion Price applicable to such share, determined as
provided below, in effect on the date the certificate of the
Series B Convertible Preferred Stock is surrendered for
conversion. The initial Conversion Price for the Series B
Convertible Preferred Stock shall be as set forth in
subsection 4(c), below.
(b) Mechanics of Conversion. Before any holder of shares
of Series B Convertible Preferred Stock shall be entitled to
convert the same into shares of Common Stock, he shall
surrender the certificate or certificates representing the
Series B Convertible Preferred Stock, duly endorsed, by
delivering the certificate or certificates to the Company's
principal office or the Company's transfer agent for the
Series B Convertible Preferred Stock, and shall give written
notice to the Company's Investor Relations Department at its
principal office, of the election to convert the Series B
Convertible Preferred Stock and shall state therein the name
or names in which the certificate or certificates for shares
of Common Stock are to be issued. The Company shall, as
soon as practicable thereafter, issue and deliver to such
holder, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of
Common Stock to which such holder shall be entitled as
described above. Such conversion shall be deemed to have
been made immediately prior to the close of business on the
date of such surrender of the shares of Series B Convertible
Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock as of such
date. If the conversion is in connection with an
underwritten offering of securities registered pursuant to
the Securities Act of 1933, as amended (the "1933 Act"), the
conversion may, at the option of any holder surrendering
shares of Series B Convertible Preferred Stock for
conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such
offering, in which event the person or persons entitled to
receive the Common Stock upon conversion of the Series B
Convertible Preferred Stock shall not be deemed to have
converted such Series B Convertible Preferred Stock until
immediately prior to the closing of such sale of securities.
(c) Conversion Price Adjustments of Series B Convertible
Preferred Stock for Certain Dilutive Issuances Splits and
Combinations. The Conversion Price of the Series B
Convertible Preferred Stock shall initially equal the
issuance price per share of the Series B Convertible
Preferred Stock, and shall be subject to adjustment from
time to time as follows:
(i) (A) If the Company shall issue, after the
Purchase Date, any Additional Stock (as defined
below) without consideration or for a
consideration per share less than the Conversion
Price in effect immediately prior to the
issuance of such Additional Stock, the
Conversion Price shall be adjusted to a price
equal to the price paid per share for such
Additional Stock.
(B) In the case of the issuance of Common Stock
for cash, the consideration shall be deemed to
be the amount of cash paid therefor before
deducting any reasonable discounts, commissions
or other expenses allowed, paid or incurred by
the Company for any underwriting or otherwise in
connection with the issuance and sale thereof.
(C) In the case of the issuance of the Common
Stock for a consideration in whole or in part
other than cash, the consideration other than
cash shall be deemed to be the fair value
thereof as determined by the Board of Directors
of the Company irrespective of any accounting
treatment.
(D) In the case of the issuance (whether
before, on or after the applicable Purchase
Date) of options to purchase or rights to
subscribe for Common Stock, securities by their
terms convertible into or exchangeable for
Common Stock or options to purchase or rights to
subscribe for such convertible or exchangeable
securities, the following provisions shall apply
for all purposes of this subsection 4(c)(i) and
subsection 4(c)(ii):
(1) The aggregate maximum number of
shares of Common Stock deliverable upon
exercise (assuming the satisfaction of any
conditions to exercisability, including
without limitation, the passage of time,
but without taking into account potential
antidilution adjustments) of such options
to purchase or rights to subscribe for
Common Stock shall be deemed to have been
issued at the time such Options or rights
were issued and for a consideration equal
to the consideration (determined in the
manner provided in subsections 4(c)(i)(B)
and (c)(i)(C)), if any, received by the
corporation upon the issuance of such
options or rights plus the minimum
exercise price provided in such options or
rights (without taking into account
potential antidilution adjustments) for
the Common Stock covered thereby.
(2) The aggregate maximum number of shares
of Common Stock deliverable upon
conversion of or in exchange (assuming the
satisfaction of any conditions to
convertibility or exchangeability,
including, without limitation, the passage
of time, but without taking into account
potential antidilution adjustments) for
any such convertible or exchangeable
securities or upon the exercise of options
to purchase or rights to subscribe for
such convertible or exchangeable
securities and subsequent conversion or
exchange thereof shall be deemed to have
been issued at the time such securities
were issued or such options or rights were
issued and for a consideration equal to
the consideration, if any, received by the
corporation for any such securities and
related options or rights (excluding any
cash received on account of accrued
interest or accrued dividends), plus the
minimum additional consideration, if any,
to be received by the corporation (without
taking into account potential antidilution
adjustments) upon the conversion or
exchange of such securities or the
exercise of any related options or rights
(the consideration in each case to be
determined in the manner provided in
subsections 4(c)(i)(B) and (c)(i)(C))
(3) In the event of any change in the
number of shares of Common Stock
deliverable or in the consideration
payable to this corporation upon exercise
of such options or rights or upon
conversion of or in exchange for such
convertible or exchangeable securities,
including, but not limited to, a change
resulting from the antidilution provisions
thereof, the Conversion Price of the
Series B Convertible Preferred Stock, to
the extent in any way affected by or
computed using such options, rights or
securities, shall be recomputed to reflect
such change, but no further adjustment
shall be made for the actual issuance of
Common Stock or any payment of such
consideration upon the exercise of any
such options or rights or the conversion
or exchange of such securities.
(4) Upon the expiration of any such
options or rights, the termination of any
such rights to convert or exchange or the
expiration of any options or rights
related to such convertible or
exchangeable securities, the Conversion
Price of the Series B Convertible
Preferred Stock, to the extent in any way
affected by or computed using such
options, rights or securities or options
or rights related to such securities,
shall be recomputed to reflect the
issuance of only the number of shares of
Common Stock (and convertible or
exchangeable securities which remain in
effect) actually issued upon the exercise
of such options or rights, upon the
conversion or exchange of such securities
or upon the exercise of the options or
rights related to such securities.
(5) The number of shares of Common Stock
deemed issued and the consideration deemed
paid therefor pursuant to subsections
4(c)(i)(D)(1) and (2) shall be
appropriately adjusted to reflect any
change, termination or expiration of the
type described in either subsection
4(c)(i)(D)(3) or (4).
(ii) "Additional Stock" shall mean any shares of
Common Stock issued (or deemed to have been issued
pursuant to subsection 4(c)(i)(D)) by this corporation
after the Purchase Date other than
(A) Common Stock issued pursuant to a
transaction described in subsection 4(c)(iii)
hereof,
(B) shares of Common Stock issuable or issued
to employees, officers, consultants, directors
or vendors (if in transactions with primarily
nonfinancing purposes) of this corporation
directly or pursuant to a stock option plan or
restricted stock plan approved by the
shareholders and Board of Directors of this
corporation
(iii) In the event the corporation should at any time
or from time to time after the Purchase Date fix a
record date for the effectuation of a split or
subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock
entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling
the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without
payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common
Stock issuable upon conversion or exercise thereof),
then, as of such record date (or the date of such
dividend distribution, split or subdivision if no
record date is fixed), the Conversion Price of the
Series B Convertible Preferred Stock shall be
appropriately decreased so that the number of shares
of Common Stock issuable on conversion of each share
of such series shall be increased in proportion to
such increase of the aggregate of shares of Common
Stock outstanding and those issuable with respect to
such Common Stock Equivalents with the number of
shares issuable with respect to Common Stock
Equivalents determined from time to time in the manner
provided for deemed issuances in subsection
4(c)(i)(D).
(iv) If the number of shares of Common Stock
outstanding at any time after the Purchase Date is
decreased by a combination of the outstanding shares
of Common Stock, then, following the record date of
such combination, the Conversion Price for the Series
B Convertible Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock
issuable on conversion of each share of such series
shall be decreased in proportion to such decrease in
outstanding shares.
(d) Notice. In case at any time the Company shall
propose:
(i) to pay any dividend or make any distribution on
shares of Common Stock in shares of Common Stock or
make any other distribution (other than regularly
scheduled cash dividends which are not in a greater
amount per share than the most recent such cash
dividend) to all holders of Common Stock; or
(ii) to issue any rights, warrants, or other
securities to all holders of Common Stock entitling
them to purchase any additional shares of Common Stock
or any other rights, warrants, or other securities; or
(iii) to effect any reclassification or change of
outstanding shares of Common Stock, or any
consolidation, merger, sale, lease, or conveyance of
property; or
(iv) to effect any liquidation, dissolution, or
winding-up of the Company; or
(v) to take any other action which would cause an
adjustment to the Conversion Price; then, and in any
one or more of such cases, the Company shall give
written notice thereof, by registered mail, postage
prepaid, to the Holder at his then-current address,
mailed at least 15 days prior to (i) the date as of
which the holders of record of shares of Common Stock
to be entitled to receive any such dividend,
distribution, rights, warrants, or other securities
are to be determined, (ii) the date on which any such
reclassification, change of outstanding shares of
Common Stock, consolidation, merger, sale, lease,
conveyance of property, liquidation, dissolution, or
winding-up is expected to become effective, and the
date as of which it is expected that holders of record
of shares of Common Stock shall be entitled to
exchange their shares for securities or other
property, if any, deliverable upon such
reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of
property, liquidation, dissolution, or winding-up, or
(iii) the date of such action which would require an
adjustment to the Conversion Price.
C. Series C Convertible Redeemable Preferred Stock. The designations
and the powers, preferences and rights of the Series C
Convertible Redeemable Preferred Stock are as follows:
1. Designation and Amount. The shares of this series of
Preferred Stock of the Corporation shall be designated as
"Series C Convertible Redeemable Preferred Stock" (the
"Series C Preferred Stock") and the number of shares
constituting such series shall be 110, with a par value per
share of $.05.
2. Accumulation and Payment of Dividends. The holders of the
Series C Preferred Stock shall be entitled to
receive, out of funds legally available therefor, cumulative
dividends at an annual rate of six percent (6%) compounded
on a quarterly basis (the "Series C Preferred Dividends")
on the sum of (i) each outstanding share of the Series C
Preferred Stock multiplied by (ii) $10,000. Series C
Preferred Dividends shall accrue on outstanding shares of
the Series C Preferred Stock from the date of issuance of
such shares on a daily basis whether or not the Corporation
shall have earnings or surplus at any time. The
accumulation of Series C Preferred Dividends shall not bear
interest or accrue additional Series C Preferred Dividends.
In addition to Series C Preferred Dividends, the holders of
the Series C Preferred Stock shall be entitled to receive
dividends at the same rate as dividends (other than
dividends paid in additional shares of Common Stock) are
paid with respect to the Common Stock (treating each share
of Series C Preferred Stock as being equal to the number of
shares of Common Stock into which each such share of Series
C Preferred Stock could be converted (regardless of whether
such shares of Series C Preferred Stock are then presently
convertible) pursuant to the provisions of Section 5 hereof
with such number determined as of the record date for the
determination of holders of Common Stock entitled to receive
such dividend) (the "Participating Dividends")). So long
as any shares of the Series C Preferred Stock shall be
outstanding, the Corporation shall not declare or pay or set
apart for payment any dividends or make any other
distributions on, or make any payment on account of the
purchase, redemption, exchange or other retirement of any
other class of stock or series thereof of the Corporation
ranking junior to the Series C Preferred Stock as to the
payment of dividends unless each of the holders of the
Series C Preferred Stock shall have been paid all accrued
Series C Preferred Dividends in full with respect to each
share of Series C Preferred Stock. For the period
commencing on November 3, 1998 and ending on the date that
is the second (2nd) anniversary thereof, annually on each
such anniversary, the Series C Preferred Dividends shall be
paid to the holders of the Series C Preferred Stock in
additional shares of Series C Preferred Stock in a number
equal to the quotient of (A) the amount equal to accrued and
unpaid Series C Preferred Dividends through the relevant
anniversary divided by (B) $10,000. Commencing on the
third (3rd) anniversary of the date hereof, the Series C
Preferred Dividends shall be paid to the holders of the
Series C Preferred Stock in additional shares of Series C
Preferred Stock for the first six months of the third year
and thereafter in the discretion of the Corporation, the
Series C Preferred Dividends shall be paid to the holders of
the Series C Preferred Stock in (i) additional shares of
Series C Preferred Stock in a number of shares calculated as
provided in the immediately preceding sentence or (ii) cash.
3. Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding
up of the Corporation or any subsidiary,
whether voluntary or involuntary, each holder of outstanding
shares of Series C Preferred Stock shall be entitled to be
paid out of the assets of the Corporation available for
distribution to stockholders, whether such assets are
capital, surplus, or earnings as follows, and before any
amount shall be paid or distributed to the holders of any
class of Common Stock or of any other stock ranking on
liquidation junior to the Series C Preferred Stock, the
greater of: (i) an amount in cash equal to $10,000 per
share (adjusted appropriately for stock splits, stock
dividends and the like) together with accrued but unpaid
dividends (including all Series C Preferred Dividends and
Participating Dividends) to which the holders of outstanding
shares of Series C Preferred Stock are entitled pursuant to
Section 2 hereof (the "Minimum Liquidation Amount");
provided, however, that if, upon any liquidation,
dissolution or winding up of the Corporation, the amounts
payable with respect to the Series C Preferred Stock and any
other stock ranking as to any such distribution on a parity
with the Series C Preferred Stock are not paid in full, the
holders of the Series C Preferred Stock and such other stock
shall share ratably in any distribution of assets in
proportion to the full respective preferential amounts to
which they are entitled; or (ii) cash in an amount equal to
the portion of the assets of the Corporation remaining for
distribution to stockholders which such holder would have
received if each share of Series C Preferred Stock had been
converted into the number of shares of Common Stock issuable
upon the conversion of a share of Series C Preferred Stock
immediately prior to any such liquidation, dissolution or
winding up of the Corporation after taking into account the
rights of holders of any other class or series of capital
stock of the Corporation (including the Common Stock)
entitled to share in such distribution in either case, plus
any declared but unpaid dividends (including Series C
Preferred Dividends and Participating Dividends) to which
the holders of outstanding shares of Series C Preferred
Stock are entitled pursuant to Section 2 hereof (the
"Aggregate Liquidation Amount").
(b) A consolidation, merger or capital reorganization of
the Corporation (except (i) into or with a
wholly-owned subsidiary of the Corporation with requisite
shareholder approval or (ii) a merger in which the
beneficial owners of the Corporation's outstanding capital
stock immediately prior to such transaction hold no less
than fifty-one percent (51%) of the voting power in the
resulting entity) or a sale of all or substantially all of
the assets of the Corporation or any subsidiary thereof
shall be regarded as a liquidation, dissolution or winding
up of the affairs of the Corporation within the meaning of
this Section 3; provided, however, that each holder of the
Series C Preferred Stock shall have the right to elect the
benefits of the provisions of Section 5(i) hereof in lieu of
receiving payment in liquidation, dissolution or winding up
of the Corporation pursuant to this Section 3.
For purposes of this Section 3 "capital reorganization"
shall mean any reorganization of the capital
stock of the Company such that the powers, preferences and
rights of the Series C Preferred Stock are materially
altered, changed or impaired so as to adversely affect the
holders thereof.
4. Voting Power.
(a) Election of Directors. The Board of Directors of the
Corporation shall consist of not greater
than nine (9) members as long as any shares of Series C
Preferred Stock are outstanding. For so long as at least
fifteen percent (15%) of the shares of Series C Preferred
Stock issued on the date hereof remain issued and
outstanding, the holders of outstanding shares of Series C
Preferred Stock shall, voting as a separate class, be
entitled to elect two (2) of the nine (9) (or such lesser
number) Directors of the Corporation. Such Directors shall
be the candidates receiving the highest number of
affirmative votes (with each holder of Series C Preferred
Stock entitled to cast one vote for or against each
candidate with respect to each share of Series C Preferred
Stock) of the outstanding shares of Series C Preferred Stock
(the "Series C Preferred Stock Director Designees"), with
votes cast against such candidates and votes withheld having
no legal effect. The election of the Series C Preferred
Stock Director Designees by the holders of the Series C
Preferred Stock shall occur (i) at the annual meeting of
holders of capital stock, (ii) at any special meeting of
holders of capital stock, (iii) at any special meeting of
holders of Series C Preferred Stock called by holders of a
majority of the outstanding shares of Series C Preferred
Stock or (iv) by the written consent of the holders of
two-thirds of the outstanding shares of Series C Preferred
Stock. If at any time when any share of Series C Preferred
Stock is outstanding any Series C Preferred Stock Director
Designee should cease to be a Director for any reason, the
vacancy shall only be filled by the vote or written consent
of the holders of the outstanding shares of Series C
Preferred Stock, voting as a separate class, in the manner
and on the basis specified above. The holders of
outstanding shares of Series C Preferred Stock may, in their
sole discretion, determine to elect fewer than two (2)
Series C Preferred Stock Director Designees from time to
time, and during any such period the Board of Directors
nonetheless shall be deemed duly constituted.
(b) Other Voting. Except as otherwise expressly provided
herein or as required by law, the holder of
each share of Series C Preferred Stock shall
be entitled to vote on all matters on which any holder of
Common Stock is entitled to vote. Each share of Series C
Preferred Stock shall entitle the holder thereof to such
number of votes per share as shall equal the number of
shares of Common Stock into which each share of Series C
Preferred Stock would be converted if it were converted
pursuant to the provisions of Section 5 hereof, regardless
of whether such shares of Series C Preferred Stock are then
presently convertible. Except as otherwise expressly
provided herein (including without limitation the provisions
of Section 7 hereof) or as required by law, the holders of
shares of the Series C Preferred Stock and the Common Stock
shall vote together as a single class on all matters.
5. Conversion. The holders of the Series C Preferred Stock
shall have the following conversion rights:
(a) Optional Conversion. Each holder of shares of Series
C Preferred Stock may elect to convert
each share of Series C Preferred Stock then held by such
holder into a number of shares of Common Stock computed by
multiplying the number of shares of Series C Preferred Stock
to be converted by $10,000 and dividing the result by the
applicable Conversion Price then in effect. The"Conversion
Price" shall be $1.05. The Conversion Price shall be
subject to adjustment from time to time pursuant to this
Section 5. If a holder of Series C Preferred Stock elects
to convert Series C Preferred Stock at a time when there are
any accrued and unpaid dividends or other amounts due on
such shares (including Series C Preferred Dividends and
Participating Dividends), such dividends and other amounts
shall be paid in full by the Corporation in connection with
such conversion.
(b) Conversion Procedures. The holders of Series C
Preferred Stock shall surrender the
certificate or certificates representing the Series C
Preferred Stock being converted, duly assigned or endorsed
for transfer to the Corporation (or accompanied by duly
executed stock powers relating thereto), at the principal
executive office of the Corporation or the offices of the
transfer agent for the Series C Preferred Stock or such
office or offices in the continental United States of an
agent for conversion as may from time to time be designated
by notice to the holders of the Series C Preferred Stock by
the Corporation, accompanied by written notice of conversion
and the payment to the Corporation of a sum sufficient to
cover any tax or governmental charge imposed with respect to
the issuance of Common Stock in a name other than that of
the holder of the Series C Preferred Stock being converted.
Such notice of conversion shall specify (i) the number of
shares of Series C Preferred Stock to be converted, (ii) the
name or names in which such holder wishes the certificate or
certificates for Common Stock and for any shares of Series C
Preferred Stock not to be so converted to be issued and
(iii) the address to which such holder wishes delivery to be
made of such new certificates to be issued upon such
conversion. Upon surrender of a certificate representing
Series C Preferred Stock for conversion, the Corporation
shall issue and send by hand delivery, by courier or by
first class mail (postage prepaid) to the holder thereof or
to such holder's designee, at the address designated by such
holder in the notice, a certificate or certificates for the
number of shares of Common Stock to which such holder shall
be entitled upon conversion. In the event that there shall
have been surrendered a certificate or certificates
representing Series C Preferred Stock, only part of which
are to be converted, the Corporation shall issue and send to
such holder or such holder's designee, in the manner set
forth in the preceding sentence, a new certificate or
certificates representing the number of shares of Series C
Preferred Stock which shall not have been converted.
(c) Effective Date of Conversion. The issuance by the
Corporation of shares of Common Stock upon
a conversion of Series C Preferred Stock into
shares of Common Stock pursuant to Section 5(a) hereof shall
be effective as of the date of the surrender of the
certificate or certificates representing the Series C
Preferred Stock to be converted, duly assigned or endorsed
for transfer to the Corporation (or accompanied by duly
executed stock powers relating thereto). On and after the
effective date of conversion, the person or persons entitled
to receive the Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or
holders of such shares of Common Stock.
(d) Fractional Shares. The Corporation shall not be
obligated to deliver to holders of Series C
Preferred Stock any fractional share of Common
Stock issuable upon any conversion of such Series C
Preferred Stock, but in lieu thereof may make a cash payment
in respect thereof in any manner permitted by law.
(e) Reservation of Common Stock. The Corporation shall at
all times reserve and keep available out of
its authorized and unissued Common Stock,
solely for issuance upon the conversion of Series C
Preferred Stock as herein provided, free from any preemptive
rights or other obligations, such number of shares of Common
Stock as shall from time to time be issuable upon the
conversion of all the Series C Preferred Stock then
outstanding. The Corporation shall prepare and shall use
its best efforts to obtain and keep in force such
governmental or regulatory permits or other authorizations
as may be required by law, and shall comply with all
requirements as to registration, qualification or listing of
the Common Stock, in order to enable the Corporation
lawfully to issue and deliver to each holder of record of
Series C Preferred Stock such number of shares of its Common
Stock as shall from time to time be sufficient to effect the
conversion of all Series C Preferred Stock then outstanding
and convertible into shares of Common Stock.
(f) Adjustments to Conversion Price. The Conversion Price
in effect from time to time shall be subject
to adjustment as follows:
i. Stock Dividends, Subdivisions and Combinations.
Upon the issuance of additional
shares of Common Stock as a dividend
or other distribution on outstanding Common
Stock, the subdivision of outstanding shares of Common
Stock into a greater number of shares of Common Stock,
or the combination of outstanding shares of Common
Stock into a smaller number of shares of the Common
Stock, the Conversion Price shall, simultaneously with
the happening of such dividend, subdivision or split
be adjusted by multiplying the then effective
Conversion Price by a fraction, the numerator of which
shall be the number of shares of Common Stock
outstanding immediately prior to such event and the
denominator of which shall be the number of shares of
Common Stock outstanding immediately after such event.
An adjustment made pursuant to this Section 5(f)(i)
shall be given effect, upon payment of such a dividend
or distribution, as of the record date for the
determination of stockholders entitled to receive such
dividend or distribution (on a retroactive basis) and
in the case of a subdivision or combination shall
become effective immediately as of the effective date
thereof.
ii. Sale of Common Stock. In the event the
Corporation shall at any time
or from time to time, issue, sell or exchange any
shares of Common Stock (including
shares held in the Corporation's treasury but
excluding (i) any Common Stock which may be issued
upon conversion of the Series B Preferred Stock or the
Series C Preferred Stock (including shares of Common
Stock issuable upon exercise of warrants associated
therewith); (ii) up to 2,400,000 shares of Common
Stock to be issued upon exercise of options to be
issued to officers, directors, employees, consultants
or agents of the Company pursuant to the terms of the
Company's Employee Stock Option Plan or Non-Employee
Directors' Stock Option Plan; (iii) up to 100,000
shares of Common Stock to be issued to Green Mountain
Capital, L.P. upon exercise of warrants; (iv) up to
30,000 shares of Common Stock to be issued to David
Garret upon exercise of warrants; (v) up to 124,431
shares of Common Stock to be issued to Barington
Capital Group, L.P. upon exercise of warrants; (vi) up
to 223,971 shares of Common Stock to be issued to URSA
(VT) QRS 12-30, Inc. upon exercise of warrants; and
(vii) up to 54,822 shares of Common Stock to be issued
to Joan H. Martin upon exercise of warrants (subject
in each case to appropriate adjustments for stock
splits, stock dividends, anti-dilution rights and the
like) (collectively, the "Excluded Shares"), for a
consideration per share less than the Conversion Price
then in effect immediately prior to the issuance, sale
or exchange of such shares, then, and thereafter
successively upon each such issuance, sale or
exchange, the Conversion Price in effect immediately
prior to the issuance, sale or exchange of such shares
shall forthwith be decreased to an amount determined
by multiplying the Conversion Price by a fraction:
(1) the numerator of which shall be (i) the
number of shares of
Common Stock of all classes outstanding
immediately prior to the
issuance of such additional shares of Common
Stock (excluding treasury shares, but including
all shares of Common Stock issuable upon
conversion or exercise of any outstanding
Preferred Stock (regardless of whether such
shares of Preferred Stock are then presently
convertible), options, warrants, rights or
convertible securities), plus (ii) the number of
shares of Common Stock which the net aggregate
consideration received by the Corporation for
the total number of such additional shares of
Common Stock so issued would purchase at the
then effective Conversion Price (prior to
adjustment) per share; and
(2) the denominator of which shall be (i) the
number of shares of
Common Stock of all classes outstanding
immediately prior to the
issuance of such additional shares of Common
Stock (excluding treasury shares, but including
all shares of Common Stock issuable upon
conversion or exercise of any outstanding
Preferred Stock (regardless of whether such
shares of Preferred Stock are then presently
convertible), options, warrants, rights or
convertible securities), plus (ii) the number of
such additional shares of Common Stock so
issued.
iii. Sale of Options, Rights or Convertible Securities. In
the event the Corporation shall at any time or
from time to time, issue options, warrants or rights to
subscribe for shares of Common Stock (other than any options
or warrants for Excluded Shares), or issue any securities
convertible into or exchangeable for shares of Common Stock,
for a consideration per share (determined by dividing the
Net Aggregate Consideration (as determined below) by the
aggregate number of shares of Common Stock that would be
issued if all such options, warrants, rights or convertible
securities were exercised or converted to the fullest extent
permitted by their terms) less than the Conversion Price per
share in effect immediately prior to the issuance of such
options, warrants or rights or securities, then the
Conversion Price in effect immediately prior to such
issuance shall be decreased to an amount determined by
multiplying the Conversion Price by a fraction:
(1) the numerator of which shall be (i) the number
of shares of Common Stock of all
classes outstanding immediately prior to the issuance
of such options, rights or convertible securities
(excluding treasury shares, but including all shares
of Common Stock issuable upon conversion or exercise
of any outstanding Preferred Stock (regardless of
whether such shares of Preferred Stock are then
presently convertible), options, warrants, rights or
convertible securities), plus (ii) the number of
shares of Common Stock which the total amount of
consideration received by the Corporation for the
issuance of such options, warrants, rights or
convertible securities, plus the minimum amount set
forth in the terms of such security as payable to the
Corporation upon the exercise or conversion thereof
(the "Net Aggregate Consideration"), would purchase
at the Conversion Price prior to adjustment; and
(2) the denominator of which shall be (i) the number
of shares of Common Stock of all
classes outstanding immediately prior to the issuance
of such options, warrants, rights or convertible
securities (excluding treasury shares, but including
all shares of Common Stock issuable upon conversion or
exercise of any outstanding Preferred Stock
(regardless of whether such shares of Preferred Stock
are then presently convertible), options, warrants,
rights or convertible securities), plus (ii) the
aggregate number of shares of Common Stock that would
be issued if all such options, warrants, rights or
convertible securities were exercised or converted.
iv. Expiration or Change in Price. If the consideration
per share provided for in any options or
rights to subscribe for shares of Common Stock or any
securities exchangeable for or convertible into shares of
Common Stock, changes at any time, the Conversion Price in
effect at the time of such change shall be readjusted to the
Conversion Price which would have been in effect at such
time had such options or convertible securities provided for
such changed consideration per share (determined as provided
in Section 5(f)(iii) hereof), at the time initially granted,
issued or sold; provided, that such adjustment of the
Conversion Price will be made only as and to the extent that
the Conversion Price effective upon such adjustment remains
greater than or equal to the Conversion Price that would be
in effect if such options, rights or securities had not been
issued. No adjustment of the Conversion Price shall be made
under this Section 5 upon the issuance of any additional
shares of Common Stock which are issued pursuant to the
exercise of any warrants, options or other subscription or
purchase rights or pursuant to the exercise of any
conversion or exchange rights in any convertible securities
if an adjustment shall previously have been made upon the
issuance of such warrants, options or other rights. Any
adjustment of the Conversion Price shall be disregarded if,
as, and when the rights to acquire shares of Common Stock
upon exercise or conversion of the warrants, options, rights
or convertible securities which gave rise to such adjustment
expire or are canceled without having been exercised, so
that the Conversion Price effective immediately upon such
cancellation or expiration shall be equal to the Conversion
Price in effect at the time of the issuance of the expired
or canceled warrants, options, rights or convertible
securities, with such additional adjustments as would have
been made to that Conversion Price had the expired or
canceled warrants, options, rights or convertible securities
not been issued.
(g) Other Adjustments. If the Common Stock issuable upon
the conversion of the Series C Preferred Stock
shall be changed into the same or different number of shares
of any class or classes of stock, whether by
reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend provided for above,
or a reorganization, merger, consolidation or sale of assets
provided for elsewhere in Section 3(b) or in this Section
5), then and in each such event the holder of each share of
Series C Preferred Stock shall have the right thereafter to
convert such share into (i) the right to receive the Minimum
Liquidation Amount, or (ii) the kind and amount of shares of
stock and other securities and property receivable upon such
reorganization, reclassification or other change, by holders
of the number of shares of Common Stock into which such
shares of Series C Preferred Stock might have been converted
immediately prior to such reorganization, reclassification
or change (regardless of whether such shares of Series C
Preferred Stock are then presently convertible), all subject
to further adjustment as provided herein.
(h) Mergers and Other Reorganizations. If at any time or
from time to time there shall be a capital
reorganization of the Common Stock (other than
a subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section 5) or a merger
or consolidation of the Corporation or any subsidiary with
or into another corporation or the sale of all or
substantially all of the assets of the Corporation or any
subsidiary thereof to any other person, then, as a part of
and as a condition to the effectiveness of such
reorganization, merger, consolidation or sale, lawful and
adequate provision shall be made so that the holders of the
Series C Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series C Preferred Stock (1)
the Minimum Liquidation Amount or (2) the number of shares
of stock or other securities or property of the Corporation
or of the successor corporation resulting from such merger
or consolidation or sale, to which a holder of Common Stock
deliverable upon such conversion would have been entitled on
such capital reorganization, merger, consolidation, or sale.
In any such case, appropriate provisions shall be made with
respect to the rights of the holders of the Series C
Preferred Stock after the reorganization, merger,
consolidation or sale to the end that the provisions of this
Section 5 (including without limitation provisions for
adjustment of the Conversion Price and the number of shares
purchasable upon conversion of the Series C Preferred Stock)
shall thereafter be applicable, as nearly as may be, with
respect to any shares of stock, securities or assets to be
deliverable thereafter upon the conversion of the Series C
Preferred Stock.
Each holder of Series C Preferred Stock upon the occurrence
of a capital reorganization, merger or consolidation of the
Corporation or any subsidiary thereof or the sale of all or
substantially all of the assets of the Corporation or any
subsidiary thereof as such events are more fully set forth
in the first paragraph of this Section 5(h), shall have the
option of electing treatment of his, her or its shares of
Series C Preferred Stock under either this Section 5(h) or
Section 3 hereof, notice of which election shall be
submitted in writing to the Corporation at its principal
offices no later than ten (10) days before the effective
date of such event, provided that any such notice shall be
effective if given not later than fifteen (15) days after
the date of the Corporation's notice pursuant to Section 9
hereof, with respect to such event.
(i) Certificate as to Adjustments. In each case of an
adjustment or readjustment of the Conversion
Price, the Corporation at its expense will furnish each
holder of Series C Preferred Stock with a certificate,
prepared by the chief financial officer of the Corporation,
showing such adjustment or readjustment in accordance with
the terms hereof, and stating in detail the facts upon which
such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of
Series C Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price at
the time in effect, and (iii) the number of shares of Common
Stock, the Minimum Liquidation Amount and the amount, if
any, of other property which at the time would be received
upon the conversion of Series C Preferred Stock.
6. Redemption.
(a) Redemption Events.
i. On or After November 3, 2003 Upon Election of
Holders. Upon the election of any
holder of shares of Series C Preferred Stock at any
time following November 3, 2003, the Corporation
shall redeem some or all, as specified by such holder,
of such holder's outstanding shares of Series C
Preferred Stock at the Redemption Price specified in
Section 6(b) below; provided, however, the Corporation
shall not be required to redeem in the aggregate
shares of Series C Preferred Stock with an aggregate
Redemption Price in excess of the greater of
(I) twenty-five percent (25%) of the Net Earnings (as
defined below) of the Corporation for the twelve (12)
consecutive calendar month period ended immediately
prior to such redemption or (II) (25%) of the
Corporation's Net Worth (as defined below) determined
as of the end of the twelve (12) month period referred
to in clause (I). The foregoing election shall be
made by such holder giving the Corporation not less
than thirty (30) days prior written notice, which
notice shall set forth the date for such redemption
and the number of shares to be redeemed. "Net
Earnings" shall mean with respect to the period in
question, the after tax net income of the Corporation
as determined in accordance with generally accepted
accounting principles consistently applied. "Net
Worth" shall mean for the period in question, the
stockholders' equity in the Corporation as of the end
of such period, as determined in accordance with
generally accepted accounting principles consistently
applied.
ii. On or After November 3, 2003 Upon Election of
Corporation. At any time
following November 3, 2003 upon the
election of the Corporation, the Corporation may
redeem all (and not less than all) of the outstanding
shares of Series C Preferred Stock at the Traded FMV
Redemption Price, specified in Section 6(b) below. The
foregoing election shall be made by the Corporation
giving each of the holders of Series C Preferred Stock
not less than thirty (30) days prior written notice,
which notice shall set forth the date for such
redemption.
iii. On November 3, 2008. On November 3, 2008 the
Corporation shall,
without any further action by the holders of
the outstanding shares of Series C Preferred
Stock, redeem all (and not less than all) of the
outstanding shares of Series C Preferred Stock
at the Traded Redemption Price or the Non-Traded
FMV Redemption Price, as applicable, specified
in Section 6(b) below.
(b) Redemption Date; Redemption Price. Any date upon
which a redemption shall actually occur in
accordance with this Section 6 shall be referred to as a
"Redemption Date." The redemption price for each share of
Series C Preferred Stock redeemed pursuant to Section
6(a)(i) shall be the per share Minimum Liquidation Amount
(the "Redemption Price").
The redemption price for each share of Series C Preferred
Stock redeemed pursuant to Section 6(a)(ii) hereof shall be
the greater of (i) the per share Minimum Liquidation Amount
or (ii) the product of the number of shares of Common Stock
into which a share of Series C Preferred Stock is then
convertible pursuant to Section 5 hereof on the Redemption
Date (the "Conversion Shares") and the average of the
closing price of the Common Stock on the sixty (60) days
preceding the Redemption Date in which an actual trade was
executed (the greater of (i) or (ii) the "Traded FMV
Redemption Price"); provided, however, that in the event
the Common Stock of the Corporation is not listed on The
Nasdaq Stock Market, Inc.'s SmallCap Market ("Nasdaq") or
its successor, if any, or on any over-the-counter market, on
the Redemption Date for the redemption of Series C Preferred
Stock pursuant to Section 6(a)(ii) hereof, then the
redemption price for each share of Series C Preferred Stock
redeemed pursuant to Section 6(a)(ii) hereof shall be the
greater of (i) the per share Minimum Liquidation Amount or
(ii) the Fair Market Value of the Conversion Shares, as
determined pursuant to Section 6(b)(i) below (the greater of
(i) or (ii) the "Non-Traded FMV Redemption Price").
The redemption price for each share of Series C
Preferred Stock redeemed pursuant to Section 6(a)(iii)
hereof shall be the per share Minimum Liquidation Amount
(the "Traded Redemption Price"); provided, however, that
in the event the Common Stock of the Corporation is not
listed on Nasdaq or its successor, if any, or on any
over-the-counter market, on the Redemption Date for the
redemption of Series C Preferred Stock pursuant to Section
6(a)(iii), then the redemption price for each share of
Series C Preferred Stock redeemed pursuant to Section
6(a)(iii) hereof shall be equal to the Non-Traded FMV
Redemption Price.
If at a Redemption Date shares of Series C Preferred Stock
are unable to be redeemed (as contemplated by Section 6(c)
below), then holders of Series C Preferred Stock shall also
be entitled to dividends and interest pursuant to Sections
6(c) and (d). The aggregate applicable redemption price
shall be payable in cash in immediately available funds to
the respective holders of the Series C Preferred Stock on
the applicable Redemption Date (subject to Section 6(c)).
Upon any redemption of the Series C Preferred Stock as
provided herein, holders of fractional shares shall receive
proportionate amounts in respect thereof. Until the
aggregate applicable redemption price has been paid for all
shares of Series C Preferred Stock being redeemed pursuant
to this Section 6: (A) no dividend whatsoever shall be paid
or declared, and no distribution shall be made, on any
capital stock of the Corporation ranking on liquidation
junior to the Series C Preferred Stock; and (B) no shares of
capital stock of the Corporation (other than the Series C
Preferred Stock in accordance with this Section 6) shall be
purchased, redeemed or acquired by the Corporation and no
monies shall be paid into or set aside or made available for
a sinking fund for the purchase, redemption or acquisition
thereof.
i. Fair Market Value. The Fair Market Value of the
Conversion Shares shall be
determined according to the following procedure:
(1) The Board of Directors of the Corporation
and the holders of a
majority in interest of the then outstanding
shares of Series C Convertible Preferred Stock
shall negotiate in good faith in an effort to
reach an agreement upon the Fair Market Value of
the Conversion Shares for a period of ten (10)
days beginning at any time or times following
written notice of the holders of a majority in
interest of the then outstanding shares of
Series C Convertible Preferred Stock to the
Corporation, or vice versa, of its desire to
determine the Fair Market Value at that time.
(2) If the Board of Directors and such holders
of Series C
Convertible Preferred Stock are unable to reach
agreement under
the foregoing subsection (A), the Fair Market
Value of the Conversion Shares shall be
determined by appraisal. Within fifteen (15)
days after the expiration of the ten-day period
in subsection (A) above, the Board of Directors
and holders of the Conversion Shares to be
redeemed shall elect as an appraiser (the
"Selected Appraiser") a third party who is a
nationally recognized investment banking firm
and that is experienced in the appraisal of
companies. The Selected Appraiser shall
establish the Fair Market Value of the
Conversion Shares. Such Fair Market Value of
the Conversion Shares shall be calculated with
no discount for minority interests or lack of
marketability thereof. The Selected Appraiser
shall render his, her or its appraisal within
twenty (20) days of his, her or its appointment
hereunder. The Fair Market Value of the
Conversion Shares shall be equal to the
appraisal made by the Selected Appraiser. All
appraisals delivered pursuant to this subsection
(i) shall be in writing and signed by the
appraiser. The fees, costs and expenses of the
Selected Appraiser will be borne equally by the
Corporation and the holders of Conversion Shares
to be redeemed.
(c) Redemption Prohibited. If, at a Redemption Date, the
Corporation is prohibited under the
Business Corporation Law of the State of New York from
redeeming, or otherwise fails to redeem, all shares of
Series C Preferred Stock for which redemption is required
hereunder, then it shall redeem such shares on a pro-rata
basis among the holders of Series C Preferred Stock in
proportion to the full respective redemption amounts to
which they are entitled hereunder to the extent possible and
shall redeem the remaining shares to be redeemed as soon as
the Corporation is not prohibited from redeeming some or all
of such shares under the Business Corporation Law of the
State of New York. Any shares of Series C Preferred Stock
not redeemed shall remain outstanding and entitled to all of
the rights and preferences provided herein. The Corporation
shall take such action as shall be necessary and appropriate
under the circumstances to review and promptly remove any
impediment to its ability to redeem Series C Preferred Stock
under the circumstances contemplated by this Section 6(c).
In the event that the Corporation fails for any reason to
redeem shares for which redemption is required pursuant to
this Section 6(c), including without limitation due to a
prohibition of such redemption under the Business
Corporation Law of the State of New York, then during the
period from the applicable Redemption Date through the date
on which such shares are redeemed, the applicable redemption
price of such shares that the Corporation has failed to
redeem shall bear interest, with such interest to accrue
daily in arrears and to be compounded quarterly at the rate
per annum of fifteen percent (15%) until the applicable
redemption price (as so increased) is paid in full;
provided, however, that in no event shall such interest
exceed the maximum permitted rate of interest under
applicable law (the "Maximum Permitted Rate"). In the
event that fulfillment of any provision hereof results in
such rate of interest being in excess of the Maximum
Permitted Rate, the obligation to be fulfilled shall
automatically be reduced to eliminate such excess; provided,
however, that any subsequent increase in the Maximum
Permitted Rate shall be retroactively effective to the
applicable redemption date.
(d) Dividend After Redemption Date. From and after a
Redemption Date, no shares of Series C
Preferred Stock subject to redemption shall be entitled to
dividends, if any, as contemplated by Section 2; provided,
however, that in the event that shares of Series C Preferred
Stock are unable to be redeemed and continue to be
outstanding in accordance with Section 6(c), such shares
shall continue to be entitled to dividends and interest
thereon as provided in Sections 2 and 6(c) until the date on
which such shares are actually redeemed by the Corporation.
(e) Surrender of Certificates. Upon receipt of the
applicable redemption price by certified
check or wire transfer, each holder of shares of Series C
Preferred Stock to be redeemed shall surrender the
certificate or certificates representing such shares to the
Corporation, duly assigned or endorsed for transfer (or
accompanied by duly executed stock powers relating thereto),
or, in the event the certificate or certificates are lost,
stolen or missing, shall deliver an affidavit or agreement
satisfactory to the Corporation to indemnify the Corporation
from any loss incurred by it in connection therewith (an
"Affidavit of Loss") with respect to such certificates at
the principal executive office of the Corporation or the
office of the transfer agent for the Series C Preferred
Stock or such office or offices in the continental United
States of an agent for redemption as may from time to time
be designated by notice to the holders of Series C Preferred
Stock, and each surrendered certificate shall be canceled
and retired; provided, however, that if the Corporation is
prohibited from redeeming all shares of Series C Preferred
Stock as provided in Section 6(c) or, pursuant to Section
6(a)(i), is redeeming less than all of the shares of Series
C Preferred Stock held by a particular holder, the holder
shall not be required to surrender said certificate(s) to
the Corporation until said holder has received a new stock
certificate for those shares of Series C Preferred Stock not
so redeemed.
7. Restrictions and Limitations.
(a) So long as at least fifteen percent (15%) of the
shares of the Series C Preferred Stock
issued on the date hereof remain issued and
outstanding, the Corporation shall not without the
affirmative vote or written consent of the holders of a
majority in interest of the then outstanding shares of the
Series C Preferred Stock (adjusted appropriately for stock
splits, stock dividends and the like):
i. Redeem, purchase or otherwise acquire for value
(or pay into or set aside for a
sinking fund for such purpose) any of the
Common Stock of any class or any other
capital stock of the Corporation (other than the
Series A Preferred Stock, the Series B Preferred Stock
and the Series C Preferred Stock);
ii. Declare any dividends on the Common Stock or any
other equity security other
than the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock;
iii. Authorize or issue, or obligate itself to issue,
any other equity security senior to or on a parity with
the Series C preferred Stock as to liquidation
preferences, redemptions, or dividend rights or with any
special voting rights;
iv. Increase or decrease (other than by conversion
as permitted hereby) the
total number of authorized shares of Preferred Stock
as Series C Preferred Stock; or
v. Amend the Certificate of Incorporation or
By-Laws of the Corporation in a
manner that adversely affects the rights of the
holders of the Series C Preferred Stock.
(b) So long as at least fifteen percent (15%) of the
shares of the Series C Preferred Stock
issued on the date hereof remain issued and
outstanding, the Corporation shall not without giving
at least 15 days prior written notice, by registered mail,
postage prepaid to the holders of the Series C Preferred
Stock at their then current addresses, authorize any merger
or consolidation of the Corporation or any subsidiary with
or into any other corporation or entity (except into or with
a wholly-owned subsidiary of the Corporation), authorize the
liquidation, dissolution or winding up of the Corporation or
any subsidiary, or authorize the sale of all or
substantially all of the assets of the Corporation or any
subsidiary. Notice of such event shall be mailed at least
15 days prior to the date on which any such merger,
consolidation, liquidation, dissolution, winding up or sale
is expected to be effective.
8. No Reissuance of Series C Preferred Stock. No share or
shares of the Series C Preferred Stock acquired by the
Corporation by reason of redemption, purchase, conversion or
otherwise shall be reissued, and all such shares shall be
canceled, retired, and eliminated from the shares which the
Corporation shall be authorized to issue. The Corporation may
from time to time take such appropriate corporate action as may be
necessary to reduce the authorized number of shares of the Series
C Preferred Stock accordingly.
9. Notices of Record Date. In the event (i) the Corporation
establishes a record date to determine the
holders of any class of securities who are entitled to receive any
dividend or other distribution, or (ii) there occurs any capital
reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any
merger or consolidation of the Corporation, and any transfer of
all or substantially all of the assets of the Corporation to any
other corporation, or any other entity or person, or any voluntary
or involuntary dissolution, liquidation or winding up of the
Corporation, the Corporation shall mail to each holder of Series C
Preferred Stock at least twenty (20) days prior to the record date
specified therein, a notice specifying (a) the date of such record
date for the purpose of such dividend or distribution and a
description of such dividend or distribution, (b) the date on
which any such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding up is
expected to become effective, and (c) the time, if any, that is to
be fixed, as to when the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other
property deliverable upon such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or
winding up.
10. Other Rights. Except as otherwise provided in this
Certificate of Incorporation, each share of Series C
Preferred Stock and each share of Common Stock shall be identical
in all respects, shall have the same powers, preferences and
rights, without preference of any such class or share over any
other such class or share, and shall be treated as a single class
of stock for all purposes.
D. Undesignated Preferred Stock. Six Hundred Twenty-Four Thousand
Eight Hundred (624,800) shares of preferred stock having a par value of
$.05 per share and having such preferences, limitations and relative
rights as determined from time to time by the Board of Directors. The
Board of Directors is hereby expressly granted authority to divide these
shares of preferred stock into series and to fix and determine before
the issuance thereof the number of shares and the relative rights and
preferences of any series so established.
E. Common Stock. Twenty million (20,000,000) shares of common stock
having a par value of $.05 per share. No holder of shares of common
stock shall have, as such holder, any preemptive right to purchase any
shares or other securities of the corporation.
ARTICLE V
PROCESS AGENT
The Secretary of State is designated as agent of the corporation upon
whom process against it may be served. The post office address to which the
Secretary of State shall mail a copy of any process against the corporation
served upon him is 6655 Shelburne Road, P.O. Box 965, Shelburne, Vermont
05482.
ARTICLE VI
DIRECTOR LIABILITY AND INDEMNIFICATION
No director of the corporation shall be personally liable to the
corporation or its shareholders for damages for any breach of duty in such
capacity; provided, however, that this provision shall not eliminate or limit
the liability of any director:
(a) For acts or omissions in bad faith or which involved intentional
misconduct or a knowing violation of law, as established by a judgment
or other final adjudication;
(b) For any transaction from which the director derived in fact a
financial profit or other advantage to which he or she was not legally
entitled, as established by a judgment or other final adjudication;
(c) For any violation of Section 719 of the Business Corporation Law,
as established by a judgment or other final adjudication; or
(d) For any act or omission occurring prior to the corporation's
adoption of this provision.
IN WITNESS WHEREOF the undersigned, being the President and Chief
Executive Officer of the Corporation, affirms that the statements made herein
are true under the penalties of perjury.
/s/ Elisabeth B. Robert
Elisabeth Robert, President and Chief Executive Officer
EXHIBIT 4.10
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FIRST AMENDMENT TO
SECURITIES PURCHASE AGREEMENT
FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENT (this "Agreement")
made as of this 3rd day of November, 1998, by and among The Vermont Teddy Bear
Co., Inc., a New York corporation (the "Company"), and the Investors
identified in the Original Agreement (as defined below).
WHEREAS, the Company and the Investors entered into a Securities
Purchase Agreement on September 25, 1998 (the "Original Agreement"); and
WHEREAS, the parties hereto desire to amend the Original Agreement as
provided herein.
NOW THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements hereinafter set forth and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. Section 2 of Exhibit B to the Original Agreement is hereby amended
by deleting the words "Commencing with the sixth (6th) anniversary of the
date hereof, the Series C Preferred dividends" and replacing them with "On
the third (3rd) anniversary of the date hereof, the Series C Preferred
Dividends shall be paid to the holders of the Series C Preferred Stock in
additional shares of Series C Preferred Stock for the first sixth months of
the third year and thereafter,".
2. Section 5(a) of Exhibit B to the Original Agreement is hereby
amended by deleting the reference to "$1.21" and replacing it with "1.05".
3. The first sentence of Section 4 of Exhibit C to the Original
Agreement is hereby amended by deleting the reference to "$1.21" and
replacing it with "1.05".
4. The parties hereby ratify and confirm that they continue to be
bound by the terms and provisions of the Original Agreement which, except as
expressly modified hereby, shall continue in full force and effect.
5. This Agreement may be executed simultaneously in any number of
counterparts, each of which when so executed and delivered shall be taken to
be an original; but such counterparts shall together constitute but one and
the same document.
[END OF TEXT]
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
COMPANY:
THE VERMONT TEDDY BEAR CO.,
INC.
By:/s/ Elisabeth B. Robert
Name: Elisabeth B. Robert
Title: President
INVESTORS:
THE SHEPHERD GROUP LLC
By: /s/ T. Nathanael
Shepherd
Name: T. Nathanael
Shepherd
Title: President
SHEPHERD VENTURE FUND I,
L.P.
By: The Shepherd Group LLC,
its general partner
By: /s/ T. Nathanael
Shepherd
Name: T. Nathanael
Shepherd
Title: President
/s/ Thomas R. Shepherd
Thomas R. Shepherd
/s/ T. Nathanael Shepherd
T. Nathanael Shepherd
EXHIBIT 4.11
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WARRANT
WARRANT NO. WARRANTS
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS
AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR
OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT
WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR
(2) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE
ACT RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES AND BLUE SKY LAWS.
VERMONT TEDDY BEAR CO., INC.
This warrant certificate (the "Warrant Certificate")
certifies that, for value received, _____________ or registered
assigns under Section 8 hereof (the "Holders") is the owner of ____
warrants specified above (the "Warrants") each of which entitles
the Holder thereof to purchase 8,264.47 fully paid and
nonassessable shares of Common Stock, par value $.05 per share, of
The Vermont Teddy Bear Co., Inc., a corporation organized under the
laws of the State of New York (the "Company"), or such other number
of shares as may be determined pursuant to an adjustment in
accordance with Section 4 hereof, at the price per share set forth
in Section 4 hereof, subject to adjustment from time to time
pursuant to Section 4 hereof (the "Warrant Price") and subject to
the provisions and upon the terms and conditions set forth herein.
1. Term of Warrant.
Each Warrant is exercisable, in whole or in part, at any time
between the date hereof and November 3, 2005 by the Holder hereof.
2. Method of Exercise and Payment; Issuance of New Warrant
Certificate; Contingent Exercise; Fractional Shares.
(a) In connection with any exercise pursuant to
Section 1 hereof, this Warrant Certificate shall be surrendered
(with the notice of exercise form attached hereto as Exhibit 1 duly
executed) at the principal office of the Company together with
payment in full, as set forth below, to the Company of the then
applicable Warrant Price for each Warrant in respect of which such
Warrants are being exercised. Such Warrant Price shall be paid in
full by (i) cash or a certified check or a wire transfer in same
day funds in an amount equal to the then applicable Warrant Price
multiplied by the number of shares of Common Stock then being
purchased or (ii) delivery to the Company of that number of shares
of Common Stock having a Fair Market Value (as hereinafter defined)
equal to the Warrant Price multiplied by the number of shares of
Common Stock then being purchased. In the alternative, the Holder
hereof may exercise his, her or its right to purchase some or all
of the Warrants subject to this Warrant Certificate, on a net
basis, such that, without the exchange of any funds, such Holder
receives that number of shares of Common Stock subscribed to
pursuant to this Warrant Certificate less that number of shares of
Common Stock having an aggregate Fair Market Value at the time of
exercise equal to the aggregate Warrant Price that would otherwise
have been paid by such Holder for the number of shares of Common
Stock subscribed to pursuant to such Warrant Certificate
(hereinafter, a "Net Cashless Exercise").
As used herein: (a) the term "Fair Market Value," on a per
share basis, means the Closing Price (as hereinafter defined) of
the Common Stock on the Date of Exercise (as hereinafter defined);
provided that if no actual trade is executed on the Date of
Exercise, then "Fair Market Value," on a per share basis, shall
mean the Closing Price of the Common Stock on the Trading Day (as
hereinafter defined) immediately preceding the Date of Exercise;
(b) the term "Date of Exercise" with respect to any Warrant means
the date on which such Warrant is exercised as provided herein; (c)
the term "Closing Price" for any date shall mean the last sale
price reported on The Nasdaq Stock Market, Inc.'s National Market
("Nasdaq") or its successor, if any, or if the Common Stock is
not so reported, the average of the reported bid and asked prices
in the over-the-counter market, as furnished by the National
Quotation Bureau, Inc., or if such firm is not then engaged in the
business of reporting such prices, as furnished by any similar firm
then engaged in such business and selected by the Company or, if
there is no such firm, as furnished by any member of the National
Association of Securities Dealers, Inc. ("NASD") selected by the
Company or, if the Common Stock is not quoted in the
over-the-counter market, the fair value, thereof determined in good
faith by the Company's Board of Directors and the Investors
Representative (as defined in the Securities Purchase Agreement (as
defined in Section 6 hereof)) as of a date which is within 15 days
of the date as of which the determination is to be made; and (d)
the term "Trading Day" with respect to the Common Stock means (i)
if the Common Stock is quoted on Nasdaq or any similar system of
automated dissemination of quotations of securities prices, days on
which trades may be made on such system and on which a trade occurs
or (ii) if the Common Stock is listed or admitted for trading on
any national securities exchange, days on which such national
securities exchange is open for business and on which a trade
occurs.
(b) The Company agrees that the shares of Common
Stock so purchased shall be deemed to be issued to the Holder
hereof as the record owner of such shares as of the close of
business on the date on which this Warrant Certificate shall have
been surrendered and payment made for such shares as aforesaid. In
the event of any exercise of the rights represented by this Warrant
Certificate, certificates for the shares of Common Stock so
purchased shall be delivered to the Holder hereof within 10 days
thereafter and, unless all of the Warrants represented by this
Warrant Certificate have been fully exercised or have expired
pursuant to Section 1 hereof, a new Warrant Certificate
representing the shares of Common Stock, if any, with respect to
which the Warrants represented by this Warrant Certificate shall
not then have been exercised, shall also be issued to the Holder
hereof within such 10 day period.
(c) The Company shall not be obligated to deliver to
the Holder any fractional share of Common Stock issuable upon the
exercise of this Warrant, but in lieu thereof may make a cash
payment in respect thereof in any manner permitted by law.
3. Common Stock Fully Paid; Reservation of Shares.
The Company covenants and warrants that all Common Stock
which may be issued upon the exercise of the Warrants will, upon
issuance, be fully paid and nonassessable, and free from all taxes,
liens and charges with respect to the issue thereof. During the
period within which the rights represented by this Warrant
Certificate may be exercised, the Company further covenants and
warrants that it will at all times have authorized, and reserved
for the purpose of the issuance upon exercise of the purchase
rights evidenced by this Warrant Certificate, a sufficient number
of shares of its Common Stock to provide for the exercise of the
Warrants.
4. Warrant Price; Adjustment of Warrant Price and Number
of Shares.
The Warrant Price shall be $1.05 per share of Common Stock.
The Warrant Price and the number of shares of Common Stock
purchasable upon exercise of the Warrants shall be subject to
adjustment from time to time, as follows:
(a) Reclassification, Consolidation or Merger. In
case of any reclassification or change of outstanding securities of
the class issuable upon exercise of the Warrants, or in case of any
consolidation or merger of the Company with or into another
corporation or entity, other than a consolidation or merger with
another corporation or entity in which the Company is the
continuing corporation and which does not result in any
reclassification, conversion or change of outstanding securities
issuable upon exercise of the Warrants, the Company, or such
successor corporation, as the case may be, shall execute a new
warrant certificate (the "New Warrant Certificate"), providing that
the Holder of this Warrant Certificate shall have the right to
exercise such new warrants and procure upon such exercise, in lieu
of each share of Common Stock theretofore issuable upon exercise of
the Warrants, the kind and amount of shares of stock, other
securities, money and property receivable upon such
reclassification, conversion, change, consolidation, or merger by a
holder of one share of Common Stock. Such New Warrant Certificate
shall provide for adjustments which shall be as nearly equivalent
as may be practicable to the adjustments provided for in this
Section 4. The provisions of this Section 4(a) shall similarly
apply to successive reclassifications, changes, consolidations,
mergers and transfers.
(b) Subdivisions, Combinations and Stock Dividends.
If the Company shall subdivide or combine its Common Stock, or
shall pay a dividend with respect to Common Stock payable in, or
make any other distribution with respect to its Common Stock
consisting of, shares of Common Stock, then the Warrant Price shall
be adjusted, from and after the date of determination of
shareholders entitled to receive such dividend or distribution, to
that price determined by multiplying the Warrant Price in effect
immediately prior to such date of determination by a fraction
(i) the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such dividend or
distribution and (ii) the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such
dividend or distribution. Such adjustment shall be made
successively whenever such a dividend or distribution occurs.
Upon each adjustment in the Warrant Price pursuant to this
Section 4(b) hereof, the number of shares of Common Stock
purchasable hereunder shall be adjusted to the product obtained by
multiplying the number of shares purchasable immediately prior to
such adjustment in the Warrant Price by a fraction (i) the
numerator of which shall be the Warrant Price immediately prior to
such adjustment and (ii) the denominator of which shall be the
Warrant Price immediately thereafter.
(c) Sale of Securities. Except with respect to the
Excluded Shares, in the event the Company shall at any time or from
time to time issue, sell or exchange (i) any shares of Common Stock
at a price per share, or (ii) any rights, options, warrants or
convertible or exchangeable securities entitling the holders
thereof to purchase shares of Common Stock at an exercise price per
share, less than the Warrant Price, the Warrant Price shall be
adjusted immediately thereafter so that it shall equal the price
determined by multiplying the Warrant Price in effect immediately
prior thereto by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding immediately prior to
such issuance, sale or exchange plus the number of shares of Common
Stock which the aggregate offering price of the total number of
shares of Common Stock so issued or issuable would purchase at the
Warrant Price per share (prior to adjustment), and of which the
denominator shall be the number of shares of Common Stock
outstanding immediately prior to such issuance, sale or exchange
plus the number of additional shares of Common Stock so issued or
issuable. Such adjustment shall be made successively whenever such
an issuance, sale or exchange is made. To the extent that any such
rights, options, warrants or convertible or exchangeable securities
are not so issued or expire unexercised, the Warrant Price then in
effect shall be readjusted to the Warrant Price which would then be
in effect if such unissued or unexercised rights, options, warrants
or convertible or exchangeable securities had not been issuable.
5. Notice of Adjustments.
Whenever any adjustment shall be made pursuant to Section 4
hereof, the Company shall prepare a certificate signed by its chief
financial officer setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method
by which such adjustment was calculated, the Warrant Price after
giving effect to such adjustment and the number of shares of Common
Stock then purchasable upon exercise of the Warrants, and shall
cause copies of such certificate to be mailed to the Holder hereof
at the address specified in Section 9(d) hereof, or at such other
address as may be provided to the Company in writing by the Holder
hereof.
6. Other Agreements; Definitions.
For purposes of this Warrant Certificate, all capitalized
terms that are used herein without definition shall have the
respective meanings ascribed thereto in the Securities Purchase
Agreement, dated as of September 25, 1998, by and among the Holder,
the Company and certain other parties named therein (the
"Securities Purchase Agreement"). The Holder of this Warrant
Certificate shall be entitled to the rights and subject to the
terms and conditions of the Securities Purchase Agreement and in
the event of any inconsistency between the terms hereof and the
terms of the Securities Purchase Agreement, the terms of the
Securities Purchase Agreement shall control.
7. Compliance with Securities Act.
The Holder of this Warrant Certificate, by acceptance hereof,
agrees that the Warrants and the shares of Common Stock to be
issued upon exercise thereof are being acquired for investment and
that it will not offer, sell or otherwise dispose of the Warrants
or any shares of Common Stock to be issued upon exercise thereof
except under circumstances which will not result in a violation of
the Act. Upon exercise of the Warrants, the Holder hereof shall,
if requested by the Company, confirm in writing that the shares of
Common Stock so purchased are being acquired for investment and not
with a view toward distribution or resale. This Warrant
Certificate and all shares of Common Stock issued upon exercise of
the Warrants (unless registered under the Act) shall be stamped or
imprinted with a legend substantially in the following form:
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS
AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR
OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT
WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR
(2) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE
ACT RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES AND BLUE SKY LAWS.
8. Transfer.
Subject to compliance with the terms of Section 7 above, the
Warrants and all rights under this Warrant Certificate are
transferable, in whole or in part, at the principal office of the
Company by the Holder hereof, in person or by its duly authorized
attorney, upon surrender of this Warrant Certificate properly
endorsed (with the instrument of transfer form attached hereto as
Exhibit 2 duly executed). Each Holder of this Warrant Certificate,
by taking or holding the same, consents and agrees that this
Warrant Certificate, when endorsed in blank, shall be deemed
negotiable; provided, however, that the last Holder of this Warrant
Certificate as registered on the books of the Company may be
treated by the Company and all other persons dealing with this
Warrant Certificate as the absolute owner of the Warrants for any
purposes and as the person entitled to exercise the rights
represented by this Warrant Certificate or to transfer the Warrants
on the books of the Company, any notice to the contrary
notwithstanding, unless and until such Holder seeks to transfer
registered ownership of the Warrants on the books of the Company
and such transfer is effected.
9. Miscellaneous.
(a) Replacement. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant Certificate and, in the case of loss,
theft or destruction, on delivery of an indemnity agreement or bond
reasonably satisfactory in form and amount to the Company or, in
the case of mutilation, on surrender and cancellation of this
Warrant Certificate, the Company, at its expense, will execute and
deliver, in lieu of this Warrant Certificate, a new warrant
certificate of like tenor.
(b) Notice of Capital Changes. In case:
(i) the Company shall declare any dividend or
distribution payable to the holders of shares of Common
Stock;
(ii) there shall be any capital reorganization
or reclassification of the capital of the Company, or
consolidation or merger of the Company with, or sale of all
or substantially all of its assets to, another corporation or
business organization;
(iii) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company; or
(iv) the Company shall propose to commence a
public offering;
then, in any one or more of said cases, the Company shall give the
Holder hereof prior written notice of such event, in the manner set
forth in Section 9(d) below, at least 30 days prior to the date on
which a record shall be taken for such dividend or distribution or
for determining shareholders entitled to vote upon such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, winding up or the date when any such
transaction shall take place, as the case may be.
(d) Notice. Any notice to be given to either party
under this Warrant Certificate shall be in writing and shall be
deemed to have been given to the Company or the Holder hereof, as
the case may be, when delivered in hand or when sent by first class
mail, postage prepaid, addressed, if to the Company, at its
principal office and, if to the Holder hereof, at its address as
set forth in the Company's books and records or at such other
address as the Holder hereof may have provided to the Company in
writing.
(e) No Impairment. The Company will not, by
amendment of its Articles of Incorporation, Bylaws or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Company,
but will at all times in good faith assist in the carrying out of
all the provisions of this Warrant Certificate.
(f) Governing Law; Jurisdiction; Venue. This
Agreement shall be deemed to be a contract made under, and shall be
construed in accordance with, the laws of The Commonwealth of
Massachusetts without giving effect to conflict of laws principles
thereof. The Company hereby agrees that the state and federal
court of The Commonwealth of Massachusetts or, at the option of the
Holder, any other court in which the Holder shall initiate legal or
equitable proceedings, to the extent such court otherwise has
jurisdiction, shall have jurisdiction to hear and determine any
claims or disputes between the Holder and the Company pertaining
directly or indirectly to this Agreement and all documents,
instruments and agreements executed pursuant hereto, or to any
matter arising therefrom (unless otherwise expressly provided for
therein). To the extent permitted by law, the Company hereby
expressly submits and consents in advance to such jurisdiction in
any action or proceeding commenced by the Holders in any of such
courts, and agrees that service of such summons and complaint or
other process or papers may be made by registered or certified mail
addressed to the Company at the address to which notices are to be
sent pursuant to this Agreement. The Company waives any claim that
Boston, Massachusetts is an inconvenient forum or an improper forum
based on lack of venue. To the extent permitted by law, should the
Company, after being so served, fail to appear or answer to any
summons, complaint, or process or papers so served within 30 days
after the mailing thereof, the Company shall be deemed in default
and an order and/or judgment may be entered by the Investors
against the Company as demanded or prayed for in such summons,
complaint, process or papers. The exclusive choice of forum set
forth in this Section 9(f) shall not be deemed to preclude the
enforcement of any judgment obtained in such forum or the taking of
any action to enforce the same in any other appropriate
jurisdiction.
This Warrant Certificate has been executed as of November __,
1998.
THE VERMONT TEDDY BEAR CO., INC.
By:
Name:
Title:
EXHIBIT 1
NOTICE OF EXERCISE
TO: The Vermont Teddy Bear Co., Inc.
1. The undersigned hereby [Circle One] partially/fully
exercises the attached Warrant by including herein payment in the
amount of $_______ representing the exercise price for [Fill in
number of shares] __________ shares of Common Stock, par value $.05
per share, of The Vermont Teddy Bear Co., Inc. The undersigned has
chosen the following form(s) of payment:
[ ] 1. Cash
[ ] 2. Certified or Bank Check payable to The Vermont Teddy Bear
Co., Inc.
[ ] 3. Wire Transfer
[ ] 4. Net Cashless Exercise (as defined in the Warrant)
2. Please issue a certificate or certificates representing
said shares of Common Stock in the name of the undersigned or in
such other name as is specified below:
(Name)
(Address)
3. The undersigned represents that the aforesaid shares of
Common Stock are being acquired for the account of the undersigned
for investment and not with a view to, or for resale in connection
with, the distribution thereof and that the undersigned has no
present intention of distributing or reselling such shares.
Dated: Signature
EXHIBIT 2
FORM OF ASSIGNMENT
For value received, the undersigned hereby sells, assigns and
transfers unto the rights represented by the within
Warrant Certificate to purchase [___________] shares of Common
Stock, par value $.05 per share, of The Vermont Teddy Bear Co.,
Inc. to which the within Warrant Certificate relates and appoints
_______________________ to transfer such rights on the books of The
Vermont Teddy Bear Co., Inc. with full power of substitution in the
premises.
Dated:
Signature
EXHIBIT 10.48
- -------------
The Vermont Teddy Bear Co., Inc.
Shelburne, Vermont 05482
November 9, 1998
Ms. Elisabeth B. Robert
Shelburne, VT 05482
Dear Liz:
This letter is to follow up on recent discussions by the
Board and confirm our agreement concerning the terms of your
continued employment by The Vermont Teddy Bear Co., Inc. (the
"Company"). Except as specifically set forth in this letter, this
agreement is intended to supersede all of your prior or existing
Employment Agreements. Our agreement is as follows:
1. Position. You shall continue to be employed as
President and Chief Executive Officer of the Company and you shall
continue to devote all of your business time, attention, skill and
efforts to the business and affairs of the Company, with such
duties as shall be assigned to you by the Board of Directors. You
shall be based at the Company's Shelburne, Vermont offices.
2. Term. Your employment shall continue for a term ending
October 22, 2001, unless earlier terminated in accordance with this
agreement.
3. Base Salary. Commencing October 23, 1998, your base
salary shall be $120,000, increasing to $135,000 on October 23,
1999, and to $150,000 on October 23, 2000. If the Company's annual
gross revenues exceed $25 million, then your base salary shall be
subject to renegotiation.
4. Annual Bonus. In addition to your base salary, you
will be entitled to a bonus for each fiscal year during the term,
equal to three percent (3%) of the Company's Pre-Tax Profit, so
long as the Company's Pre-Tax Profit is at least $100,000.
The cash bonus shall be paid in cash and within sixty (60)
days following the end of the fiscal year to which the bonus
relates.
5. Stock Options. In addition to the stock options you
are entitled to receive under your previous employment agreements,
you shall be granted additional options to purchase a total of
225,000 shares of the Company's Common Stock at an exercise price
of $1.00 per share, vesting as follows:
Seventy-Five Thousand (75,000) shares when the Company's closing
stock price has averaged Two Dollars ($2.00) for a three (3) month
period;
Seventy-Five Thousand (75,000) shares when the Company's closing
stock price has averaged Three Dollars ($3.00) for a three (3)
month period; and
Seventy-Five Thousand (75,000) shares when the Company's closing
stock price has averaged Four Dollars ($4.00) for a three (3)
month period.
So long as you are employed by the Company on October 23, 2005, any of
these 225,000 options not vested shall vest regardless of the market
price of the Company's common stock. All prior options granted to you
which vest based on the market price of the Company's common stock,
shall vest regardless of the market price of the Company's common stock
seven years from the date of the original grant.
6. Benefits. You shall receive the following Company benefits:
(a) a Thirty Thousand Dollar ($30,000) life insurance policy, (b) a
company car of your choice, subject to the Company's approval, which
shall not be unreasonably withheld, and (c) participation in all other
benefit plans available to senior executive employees of the Company in
accordance with the policies and procedures currently or then in effect,
as the case may be.
7. Indemnification. The Company shall indemnify you (and your
estate) in accordance with the Company's by-laws as in effect from time
to time. This indemnification by the Company shall survive termination
or expiration of this Agreement.
8. Termination. This Agreement may be terminated by either you
or by the Company at any time. If your employment is terminated by (a)
you for "Good Reason" or (b) the Company, for any reason other than for
"Cause" at any time, (i) you shall receive, in lieu of any other payment
or benefit except as set forth in this paragraph, and in a lump sum, an
amount equal to eighteen (18) months base salary, plus bonus for the
year in which your employment was terminated pro rated for the period
you were employed, and (ii) all your outstanding stock options which
were subject to vesting on or prior to the end of the fiscal year in
which your employment was terminated shall immediately vest and all your
outstanding stock options which were subject to vesting on the basis of
the price of the Company's Common Stock shall vest if the stock price
meets the applicable benchmark at or prior to the end of the fiscal year
in which your employment was terminated, and all such vested stock
options shall continue to be exercisable for a period of ten years after
the date of their grant. Upon termination of your employment by the
Company at any time (other than for "Cause") the Company shall provide
you with reasonable outplacement services. Upon a termination by the
Company for "Cause" or by you without "Good Reason", you shall not be
entitled to receive any further payments or benefits following the date
of your termination.
If your employment is terminated on account of your death or your
disability which lasts (or is likely, based on reasonable medical
evidence, to last) for more than six consecutive months and renders you
unable to perform your duties under this Agreement, all outstanding
stock options which were subject to vesting on or prior to the end of
the fiscal year in which your employment was terminated shall
immediately vest and all your stock options shall continue to be
exercisable for a period of ten years after the date of their grant.
Upon such termination for your death or disability, neither you nor your
estate shall be entitled to receive the salary continuation referred to
in clause (i) with respect to a termination by the Company for any
reason other than "Cause".
In the event that your employment is terminated within ninety days
prior to, or six months after, a "Change in Control", in addition to the
other benefits to which you would be entitled in the event of a
termination by the Company for any reason other than "Cause", all your
stock options shall vest and continue to be exercisable for a period of
ten years after the date of their grant.
For purposes of this Agreement the terms "Good Reason", "Cause"
and "Change in Control" shall be defined as follows:
"Good Reason" means (a) the breach or
contravention by the Company of any provision of
this agreement, (b) the assignment to you of any
duties inconsistent with your status as a senior
officer of the Company or a substantial adverse
alteration in the nature or status of your
responsibilities from those in effect on the
Commencement Date, (c) a reduction in your
annual base salary as set forth herein or as the
same may be increased from time to time and (d)
the failure of the company to provide you with
the benefits contemplated herein. Your
continued employment shall not constitute
consent to, or a waiver of rights with respect
to, any act or failure to act constituting Good
Reason hereunder.
"Cause" means (a) your conviction for, or guilty
plea to, any felony, (b) your commission of an
act of personal dishonesty or breach of
fiduciary duty which involves personal profit in
connection with employment by the Company or (c)
your material breach or contravention of any
material provision of this agreement or your
commission of an act of gross negligence or
willful misconduct in the conduct of your duties
to the Company; provided, however, that in the
cases of clauses (b) and (c), the Company shall
have given you ten business days' notice
thereof, a reasonable opportunity to be heard by
the Board of Directors and, during such ten
business day period, an opportunity to cure.
"Change of Control" means (a) the Company is
merged or consolidated with another corporation
or entity, (b) one person (together with its
affiliates) becomes the beneficial owner of 50%
or more of the issued and outstanding equity
securities of the Company or (c) all or
substantially all of the assets of the Company
are acquired by another corporation or entity.
9. Covenant Not To Compete. During the term and for a period
of eighteen (18) months following termination of your
employment with the Company, you shall not, directly or
indirectly, whether as stockholder, officer, director,
employee, consultant or otherwise (except as a beneficial
owner of less than 5% of the number of shares of any
publicly traded securities) engage in any business that,
with respect to 5% or more of its sales, competes with the
Company in the business of marketing and selling stuffed
teddy bears.
If the foregoing correctly sets forth your understanding of our
Agreement, please sign and return the enclosed copy of this letter to me.
Sincerely,
THE VERMONT TEDDY BEAR CO., INC.
By: /s/ Fred Marks
- ---------------------------------
Fred Marks, Chairman of the Board
ACKNOWLEDGED AND AGREED TO:
/s/ Elisabeth B. Robert
- ---------------------------
Elisabeth B. Robert
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE SEPTEMBER 30, 1998 BALANCE SHEET
AND THE THREE MONTH STATEMENT OF OPERATIONS ENDED
SEPTEMBER 30, 1998 FOR THE VERMONT TEDDY BEAR CO., INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 787,540
<SECURITIES> 0
<RECEIVABLES> 86,368
<ALLOWANCES> 0
<INVENTORY> 2,380,167
<CURRENT-ASSETS> 4,082,338
<PP&E> 12,192,708
<DEPRECIATION> 3,539,857
<TOTAL-ASSETS> 13,734,541
<CURRENT-LIABILITIES> 2,725,623
<BONDS> 6,441,340
0
1,072,245
<COMMON> 259,787
<OTHER-SE> 3,459,995
<TOTAL-LIABILITY-AND-EQUITY> 13,734,541
<SALES> 3,046,720
<TOTAL-REVENUES> 3,046,720
<CGS> 1,259,474
<TOTAL-COSTS> 1,259,474
<OTHER-EXPENSES> 1,750,833
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147,328
<INCOME-PRETAX> (110,915)
<INCOME-TAX> 0
<INCOME-CONTINUING> (128,915)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (128,915)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
