As filed with the Securities and Exchange Commission on February 24, 2000
Registration No. 333-30130
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM S-3/A
ON
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ACCENT COLOR SCIENCES, INC.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
(State or other Jurisdiction of (Address, including Zip Code, and Telephone (I.R.S. Employer
Incorporation or Organization) Number, including Area Code, of Registrant's Identification Number)
Principal Executive Offices)
CONNECTICUT 800 Connecticut Boulevard 06-1380314
East Hartford, Connecticut, 06108
(860) 610-4000
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(Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service)
</TABLE>
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Charles E. Buchheit Copy to:
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President and Chief Executive Officer Willard F. Pinney, Jr.
Accent Color Sciences, Inc. Murtha, Cullina, Richter and Pinney, LLP
800 Connecticut Boulevard CityPlace I185 Asylum Street, 29th Floor
East Hartford, Connecticut 06108 Hartford, Connecticut 06103-3469
(860) 610-4000 (860) 240-6000
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Approximate date of the start of proposed sale to the public: From time
to time after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box.[X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. [X]
<PAGE>
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registrations statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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- ----------------------- ----------------------- ------------------ --------------------- --------------------
Title of each class Amount to be Proposed maximum Proposed maximum Amount of
of securities to be registered offering price aggregate offering registration fee
registered per unit(1) price
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common stock,
no par value per 12,418,750 $.8925 $11,083,734 $2,926.10(2)
share shares
- ----------------------- ----------------------- ------------------ --------------------- --------------------
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(1) Estimated in accordance with Rule 457(c) under the Securities Act of 1933,
solely for the purpose of calculating the registration fee based upon the
average of the high and low sale prices reported on the Over-the-Counter
Bulletin Board system on February 7, 2000.
(2) Fee paid previously in connection with the registration statement on Form
S-3 filed on February 11, 2000 (file no. 333-30130).
The registrant amends this registration statement on such date or dates as may
be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on the date as the Commission, acting pursuant to said Section 8(a),
may determine.
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The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell nor does it seek an offer to buy these securities in any jurisdiction
where the offer or sale is not permitted.
PROSPECTUS
12,418,750 SHARES OF COMMON STOCK
ACCENT COLOR SCIENCES, INC.
---------------------------
This prospectus relates to the registration for resale of up to
12,418,750 shares of common stock of Accent Color Sciences, Inc. that are
offered by certain of our shareholders named in this prospectus. The shares
offered for sale are issuable upon conversion of some or all of the outstanding
shares of our Series C Convertible Preferred Stock or have been issued in
connection with a private placement of our common stock or are issuable upon the
exercise of certain warrants that we have granted. Please see "Selling
Stockholders."
We will not receive any of the proceeds from sales of the shares of
common stock by the selling stockholders, all of which will go to the selling
stockholders.
Our common stock is traded on the Over-the-Counter Bulletin Board of
the National Association of Securities Dealers, Inc. under the symbol "ACLR".
The selling stockholders may sell their shares of common stock in transactions
reported on the OTC Bulletin Board or may offer their shares for sale through
other public or private transactions. Please see "Plan of Distribution."
On February 22, 2000, the last reported sale price of our common stock
as reported on the OTC Bulletin Board was $.94 per share.
---------------------------
The shares of common stock offered hereby involve a high degree of
risk. You should purchase shares only if you can afford a complete loss. See
"Risk Factors" beginning on page 2 for a discussion of certain factors that you
should consider before you purchase any shares of our common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is __________________, 2000.
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TABLE OF CONTENTS
PAGE
About Accent Color Sciences, Inc..............................................2
Risk Factors..................................................................2
Forward Looking Statements...................................................12
Recent Developments..........................................................12
Where You Can Find More Information..........................................14
Documents We Incorporate By Reference .......................................14
Selling Stockholders ........................................................15
Use of Proceeds..............................................................19
Plan of Distribution ........................................................20
Description of Our Securities................................................22
Legal Matters ...............................................................25
Experts .....................................................................25
Index to Exhibits............................................................27
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ABOUT ACCENT COLOR SCIENCES, INC.
We design, manufacture and sell innovative, high-speed, highlight color
printing systems ("Truecolor Systems") for integration with digital, high-speed,
monochrome printers and also sell related consumables. Highlight color printing
involves the use of color to enhance traditional monochrome documents by
accenting critical information, such as a balance due on a billing statement, or
by printing graphics, like a company logo. Truecolor Systems are designed to
print highlight color in high-speed, high-volume applications at a low
incremental cost per page without diminishing the speed or performance of the
high-speed, monochrome host printer or affecting the end user's existing
operational methods. They are capable of printing up to 501 pages per minute,
simultaneously utilizing up to eight different colors, including custom colors,
to print or highlight fixed or variable data.
Truecolor Systems combine our proprietary paper handling technology
with patented ink jet technology from Spectra, Inc. We currently sell Truecolor
Systems under agreements with two original equipment manufacturers,
International Business Machines Corporation and Xerox Corporation, for resale by
them as IBM or Xerox products. We also sell consumables including standard and
custom color wax-based inks, as well as spare parts used with Truecolor Systems.
We expect that consumables will generate recurring revenue that we believe will
increase as the installed base and usage of Truecolor Systems increase.
Accent Color was incorporated under the laws of Connecticut in May
1993. Our principal executive offices are located at 800 Connecticut Boulevard,
East Hartford, Connecticut, 06108. Our telephone number at that address is (860)
610-4000.
RISK FACTORS
An investment in Accent Color common stock involves a high degree of
risk. You should carefully consider the following risk factors and other
information in this prospectus and the documents we incorporate by reference in
evaluating our company before you purchase any shares of our common stock. The
risks we describe below are not the only ones we face. Additional risks and
uncertainties, including those we do not know about now or that we currently
deem immaterial, may also adversely affect our business. If any of the following
risks actually occur, our business, financial condition or results of operations
could be materially adversely affected. In this case, the trading price of the
common stock could decline and you may lose all or part of your investment.
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RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY AND HAVE INCURRED LOSSES SINCE OUR
INCEPTION. IF WE CONTINUE TO LOSE MONEY, OUR OPERATIONS MAY NOT BE
FINANCIALLY VIABLE.
Accent Color was formed in May 1993 and has a limited operating
history. We have incurred losses in each year since our founding and incurred a
net loss of $9,769,853 (before imputed dividend on preferred stock) for the year
ended December 31, 1998 and a net loss of $3,973,854 (before imputed dividend on
preferred stock) for the first nine months of 1999. As a result of these losses,
as of September 30, 1999, we had an accumulated deficit of $51,588,818. Before
any imputed dividends or charges related to potentially beneficial conversion
features associated with the series C preferred stock, we expect to incur
quarterly net losses through at least the second quarter of 2000 and a net loss
for fiscal year 2000. We cannot assure you that thereafter we will be able to
achieve or sustain revenue growth, profitability or positive cash flow on either
a quarterly or annual basis or that profitability, if achieved, will be
sustained.
The anticipated increase in our operating expenses caused by any
expansion of our manufacturing and marketing operations could have a material
adverse effect on our operating results if revenue does not increase at an equal
or greater rate. Also, our expenses for these and other activities are based in
significant part on our expectations regarding future revenue and are fixed to a
large extent in the short term. We may not be able to adjust our spending in a
timely manner to compensate for any unexpected revenue shortfalls.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE TO FUND OUR
OPERATING AND CAPITAL REQUIREMENTS.
Since our inception, we have raised additional funding from time to
time as we have increased our marketing, sales and service efforts, continued
our research and development activities for the enhancement of Truecolor Systems
and increased production of our Truecolor Systems. To date, we have financed our
operations through customer payments, borrowings and the sale of debt and equity
securities.
Although we experienced a slowdown in shipments of our products during
the latter half of 1999, which we believe to be due to year 2000 concerns, we
have received contractual orders and commitments for Truecolor Systems from our
original equipment manufacturer ("OEM") customers of approximately $10 million,
which are deliverable in the year 2000. These currently anticipated levels of
revenue and cash flow are subject to many uncertainties and cannot be assured.
Further, we may change our business plans, or unforeseen events may occur which
might require us to raise additional funds. The need for, and the amount of,
additional funds we may require will depend on many factors, including
o the extent and timing of sales of our Truecolor Systems,
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o the cost associated with sales, marketing and customer
technical support efforts, and
o our operating results.
We cannot assure you that, if needed, additional financing will be
available, or available on acceptable terms. If we are unable to obtain needed
additional financing or generate sufficient cash from our operations, we may
have to reduce or eliminate expenditures for research and development,
production or marketing of our products, or otherwise curtail or discontinue our
operations. Any of these developments could have a material adverse effect on
our business, financial condition and results of operations.
WE ARE DEPENDENT ON A SINGLE PRODUCT LINE.
We do not have a variety of product lines. We anticipate that we will
derive substantially all of our revenue in the foreseeable future from sales of
Truecolor Systems, related consumables and spare parts to our principal OEM
customers. If we are unable to generate enough sales of Truecolor Systems,
wax-based ink and/or spare parts due to market conditions, manufacturing
difficulties or other reasons, we may be unable to continue our business. Since
we only have a single product line, we are particularly vulnerable to the
successful introduction of competitive products by existing or potential
competitors, including our OEM customers.
WE HAVE A LIMITED HISTORY OF PRODUCT MANUFACTURING.
We have a limited manufacturing history and cannot assure that we can
make a successful transition to high-volume production. So far, we have
manufactured only limited quantities of Truecolor Systems and manufacturing
costs have approximated the average selling price of a unit. To make a profit we
must manufacture our products in enough quantities and at acceptable costs.
Future production in enough quantities may pose technical and financial
challenges for us. Our failure to successfully transition and manufacture our
products at a cost adequately below their selling price could have a material
adverse effect on our business, financial condition and results of operations.
WE MAY NOT BE ABLE TO SUCCESSFULLY MARKET OUR PRODUCTS.
Our products are designed for the digital, high-speed production
printing and production publishing market segments that have traditionally
relied on monochrome print. We cannot assure that we will successfully develop
or market our existing or future products or, if any of these products achieve
market acceptance, that we can grow or even sustain market acceptance. Any
actual or perceived problems with our products, whether or not they are
significant, could have a material adverse effect on market acceptance of these
products. Our existing and potential customers may conclude that our products
suffer from real or perceived problems. Even in the absence of any real or
perceived problems, our products may fail to achieve market acceptance.
A failure of our products to achieve market acceptance for any reason
could have a material adverse effect on our business, financial condition and
results of operations. In addition, the announcement by us or our OEM customers
or competitors of new products
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and technologies could cause customers to defer purchases of our existing
products, which could have a material adverse effect on our business, financial
condition and results of operations.
WE HAVE A CONCENTRATED CUSTOMER BASE, THEREFORE THE LOSS OF A SINGLE
CUSTOMER COULD NEGATIVELY AFFECT OUR REVENUES AND OPERATING RESULTS.
We anticipate that sales of our Truecolor Systems and consumables to a
limited number of customers will account for substantially all of our revenue.
We have existing contracts with two customers IBM and Xerox (as the successor to
Groupe SET). Generally, our customers provide estimates, but not guarantees, of
their future orders. We cannot assure you that these customers will purchase a
significant volume of our products. A substantial difference between estimated
orders and actual orders by any one of our customers, or the failure of our
customers to purchase a significant number of our products, could have a
material adverse effect on our business, financial condition and results of
operations. We cannot assure you that our OEM customers, including IBM and
Xerox, or other companies will not compete with us in the future.
WE RELY ON THIRD PARTY MARKETING, DISTRIBUTION AND SUPPORT.
A significant element of our marketing strategy is to form alliances
with third parties for the marketing and distribution of our products. We cannot
assure you that
o we can maintain our existing alliances or form and maintain
alliances with other parties;
o we can satisfy our contractual obligations with our OEM
customers; or
o our OEM customers will devote adequate resources to market and
distribute our products successfully.
Since our products are marketed and distributed via third parties we
have:
o a limited ability to interact with the users of our products and
to observe their experience with our products;
o a lack of control of the marketing, distribution and support
efforts of our OEM customers that may make us less responsive in
recognizing and correcting any problems experienced by the OEM
customers or the end users;
o a lack of control as to the timing of the introduction of our
products; and
o less information regarding the amount of inventory currently
available and this may reduce our ability to predict fluctuations
in revenue due to a surplus or a shortage of inventory.
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The foregoing results of our reliance on third parties to market and
distribute our products could have a significant adverse effect on our business,
financial condition and results of operations. In addition, any disruption in
our relationships with IBM or Xerox, or any future customer, may have a material
adverse effect on our ability to successfully market our Truecolor Systems to
customers.
WE ARE DEPENDENT ON A SOLE SOURCE SUPPLIER FOR A KEY COMPONENT OF OUR
PRODUCTS.
We are dependent on Spectra, a wholly owned subsidiary of Markem, Inc.,
as our sole source supplier of ink jet printheads and the hot melt, wax-based
inks used by Truecolor Systems. Spectra has agreed to supply us with ink jet
printheads and wax-based inks under a supply agreement, subject to a number of
conditions. We have an exclusive right, under an agreement with Spectra, to
supply products including Spectra's ink jet printheads in the worldwide market
for printing color on the output from specified high-speed, monochrome printers
marketed by Xerox, IBM and certain other parties through December 31, 2002,
however, we are currently not in compliance with certain volume purchase
requirements necessary to maintain such exclusivity. Therefore, Spectra could
terminate our right of exclusivity, if it chose to do so, but not our right to
purchase products from Spectra. We also have an option to renew this agreement
for an additional seven year term. Our reliance on Spectra involves the risks
that we may
o be unable to obtain an adequate supply of required printheads
or inks from another supplier in the event that Spectra is
unable or unwilling to do so; and
o have a reduced level of control over the quality, pricing and
timing of delivery of these items.
As we increase the production of Truecolor Systems, we will become more
reliant upon Spectra's ability to manufacture and deliver ink jet printheads
under the supply agreement. Any interruption in our ability to obtain Spectra
printheads of an acceptable quality within the time frame required by us at an
affordable cost could result in delays and increased costs which would have a
material adverse effect on our business, financial condition and results of
operations.
WE DEPEND ON MAJOR SUBCONTRACTORS AND SUPPLIERS.
We rely on subcontractors and other parties to manufacture, subassemble
and perform certain testing of some modules and parts of Truecolor Systems.
Currently, our ink jet printheads are manufactured solely by Spectra. We
currently perform the final assembly and testing of various Truecolor System
components and of each complete Truecolor System. We plan to hire other parties
to manufacture major components and complete final assembly and testing of
Truecolor Systems in-house. If we do not develop relationships with, or lose,
these subcontractors or suppliers, or if the subcontractors or suppliers fail to
meet our price, quality, quantity and delivery requirements, then we may suffer
a material adverse effect on our business, financial condition and results of
operations.
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WE ARE RESPONSIBLE FOR PRODUCT WARRANTIES AND HAVE AGREED TO REPAIR OR
REPLACE OUR PRODUCTS IF DEFECT RATES ARE EXCESSIVE.
We warrant that our Truecolor Systems are free of defects in
workmanship and materials. We have also agreed to repair or replace defective
products without charge when defect rates are excessive. We cannot assure that
we will not experience more warranty claims or product failure rates than we
expected when we originally priced our products and spare parts. Any excess
warranty claims or product failure rates could have a material adverse effect on
our business, financial condition and results of operations.
WE DEPEND ON KEY MANAGEMENT PERSONNEL FOR OUR SUCCESS.
We are substantially dependent on the capabilities and services of our
key technical and management personnel, some of whom have been instrumental in
developing our products and establishing and maintaining strategic relationships
with our key suppliers and major OEM customers. These personnel include Richard
J. Coburn, our co-founder and chairman of the board of directors, and Charles E.
Buchheit, our president and chief executive officer. Mr. Buchheit has an
employment agreement with us that expires on April 14, 2001. Mr. Buchheit may
terminate his employment relationships with us at any time with no penalty other
than the loss of future compensation.
The loss or interruption of the continued service of, and the failure
to promptly replace, either of these key personnel could significantly delay and
may prevent the achievement of our business objectives.
In addition, our future success also depends on our continuing ability
to identify, hire, train and retain other highly qualified technical and
managerial personnel. Competition for these employees is intense and increasing.
We may not be able to attract, assimilate or retain qualified technical and
managerial personnel in the future, and the failure of us to do so would have a
material adverse effect on our business, financial condition and results of
operations.
RISKS RELATED TO OUR INDUSTRY
OUR SUCCESS DEPENDS ON THE ABILITY TO KEEP PACE WITH RAPID
TECHNOLOGICAL ADVANCES IN THE HIGH-SPEED PRINTER INDUSTRY.
The high-speed printer industry is characterized by evolving technology
and changing market requirements. Our future success depends our ability to
continue to develop and manufacture new products and to enhance existing
products. Consequently, the enhancement of our products is a development
priority. However, in a new and evolving market, customer preferences can change
rapidly and new technology could render existing technology and product
inventory obsolete. Our failure in responding adequately to changes in our
target market, in developing or acquiring new technology or successfully
conforming to market preferences could depress sales of our existing products
and technologies. This may result in declining prices and inventory
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obsolescence which would have a material adverse effect on our business,
financial condition and results of operations.
OUR FAILURE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS
COULD HARM OUR BUSINESS.
Because our business depends on technology, we believe the maintenance
of our patents, trademarks, service marks and other proprietary rights in our
unpatented know-how and common law trademarks and service marks are important
for our success and competitive position. We have secured three patents from the
U.S. Patent and Trademark office relative to the mechanical design of our paper
handling and color printing system, which form the core of the Truecolor
Systems. In addition, we have applied for additional U.S. and foreign patent
protection relative to our products.
Our efforts to detect misappropriation of these rights may be
inadequate to prevent others, including our OEM customers, from imitating our
products and infringing on our intellectual property rights. It is possible
that, if challenged, our intellectual property rights may be narrowed or held
invalid by a court of competent jurisdiction. The sale of our copied products by
others could depress sales of our products which could materially adversely
impact our business, financial condition and results of operations.
WE RELY ON THE EFFORTS OF A MAJOR SUPPLIER TO PROTECT ITS INTELLECTUAL
PROPERTY RIGHTS.
We have an exclusive right, under an agreement with Spectra, to supply
products including Spectra's ink jet printheads to our customers. To the extent
that wax-based inks and ink jet printheads purchased from Spectra are covered
under patents or licenses, we rely on Spectra's rights under its patents and
licenses and Spectra's willingness and ability to enforce them. We cannot assure
that Spectra will be willing or able to enforce its patents and maintain its
licenses against third parties. Any unwillingness or inability to do so by
Spectra could have a material adverse effect on our business, financial
condition and results of operations.
CLAIMS MADE BY THIRD PARTIES THAT WE INFRINGE THEIR PROPRIETARY RIGHTS
COULD RESULT IN INCREASED COSTS.
We believe that our products and technology do not infringe any
existing proprietary rights of others. Third parties may, however, assert
infringement claims against us in the future. We may be unable to successfully
defend against these claims. For example, third party competitors, including our
OEM customers, could assert rights in our intellectual property rights or claim
that the products we offer have violated their proprietary rights. In addition,
our competitors may have filed for patent protection that is not as yet a matter
of public knowledge. Moreover, a court could interpret a third-party's patents
broadly so as to cover some of our products.
We could incur substantial costs and diversion of management resources
with respect to the defense of any claims relating to proprietary rights,
whether or not the assertion of the claim is valid, which could have a material
adverse effect on our business, financial condition and results of operations.
Furthermore, parties making these
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claims could secure a judgment awarding substantial damages, as well as
injunctive or other equitable relief, which could effectively block our ability
to make, use, sell, distribute or market its products and services in the U.S.
or abroad. Any unfavorable judgment could have a material adverse effect on our
business, financial condition and results of operations.
In the event a claim relating to proprietary technology or information
is asserted against us, we may seek licenses of that intellectual property in
order to use technology we need to conduct our business. We cannot assure you
that we could obtain a license on commercially reasonable terms, if at all, or
that the terms of any offered licenses will be acceptable. The failure to obtain
the necessary licenses or other rights could preclude the sale, manufacture or
distribution of our products and, therefore, could have a material adverse
effect on our business, financial condition and results of operations.
We are required to indemnify any of our OEM customers against third
party infringement claims. As a result, our business, financial condition and
results of operations could be materially adversely affected if any such
infringement claims are asserted against our OEM customers.
COMPETITION COULD PREVENT OUR EFFORTS TO ESTABLISH MARKET ACCEPTANCE
FOR OUR PRODUCTS AND HARM OUR BUSINESS.
Our competitors may be able to develop products that are more
attractive to customers than our products. We compete, in significant part, on
the basis of advanced proprietary technology in the areas of paper handling, ink
jet color printing and interface software which allows our products to print
variable data, in multiple standard and custom colors at high speeds.
Competition to supply high-speed color printing is fragmented. Many of
our competitors and potential competitors have substantially greater financial
and technical resources, longer operating histories, greater name recognition
and more extensive customer bases that could be used to gain market share or
product acceptance. In addition to direct competition from other firms utilizing
high-speed color technologies, we face potential direct competition from firms
improving technologies used in low-speed to medium-speed color printers and
indirect competition from firms producing pre-printed forms.
Other companies may introduce products or product improvements based on
new technologies with little or no advance notice. Manufacturers of high-speed,
monochrome printers may also, in time, develop comparable or more effective
color capability within their own products which may render our products
obsolete. There can be no assurance that we will be able to compete against
future competitors successfully or that competitive pressures we face will not
have a material adverse effect upon the success of our business and financial
condition.
OUR OEM CUSTOMERS MARKET AND SELL OUR PRODUCTS INTERNATIONALLY.
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As part of our business strategy, our OEM customers market and sell our
products to end users outside the United States. International sales are subject
to certain inherent risks, including:
o unexpected changes in regulatory requirements;
o export and import restrictions, tariffs and other trade barriers;
o government controls and potential political instability; and
o potentially adverse tax consequences.
Any of the above factors could have a material adverse effect on our
business, financial condition and results of operations.
RISKS RELATED TO THE OFFERING
WE HAVE A LIMITED MARKET FOR OUR COMMON STOCK AND OUR STOCK PRICE IS
VOLATILE.
Our common stock is currently quoted and traded in the over-the-counter
market on the "Electronic Bulletin Board" of the National Association of
Securities Dealers, Inc under the symbol "ACLR." Trading on the NASD OTC
Bulletin Board is sporadic and can be highly volatile. The market price of our
common stock has fluctuated in the past and may continue to be volatile in the
future. As a result of these factors, an investor will likely find it more
difficult to sell our stock or to obtain accurate quotations as to the price of
our stock than if the stock were traded on a national securities exchange or on
the Nasdaq national market.
OUR QUARTERLY OPERATING RESULTS MAY NOT BE A GOOD INDICATOR OF FUTURE
RESULTS AND MAY FLUCTUATE SIGNIFICANTLY, WHICH COULD RESULT IN LOWER
PRICES FOR OUR STOCK.
We expect our quarterly operating results to fluctuate significantly in
the future based upon a number of factors, some of which are outside our
control. As a result, it is possible that our operating results may be below the
expectations of investors in some future period. If this were to occur, the
trading price of our common stock would likely decline, perhaps significantly.
The factors which affect whether our operating results fluctuate
include:
o the volume, timing, delivery and acceptance of customer orders;
o the rate of customer and end-user acceptance of our products and
the volume or nature of warranty claims;
o the market acceptance of host printing systems offered by our OEM
customers;
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o changes in our pricing policies or those of our OEM customers or
competitors;
o the relative proportion of printer and consumables sales;
o the timely availability of sufficient volume of sole source
components;
o fluctuations in our research and development expenditures;
o the availability of financing arrangements for certain of our
customers; and
o economic conditions specific to the high-speed printer industry
and general economic conditions.
Additionally, because the purchase of a printing system and peripherals
is expensive, it may take a significant amount of time from the first sales
negotiations for a customer to complete and pay for its purchase. Historically,
certain periods of the year are more profitable than others for the sale of
major equipment such as our Truecolor Systems. We expect fluctuations in our
revenue from quarter to quarter to apply to the purchase of our systems. Since
we sell few units at high average prices, a delay in either the sale or the
receipt of the purchase price for only a few units could have a considerable
adverse effect on the results of operations for a fiscal quarter.
A significant portion of our operating expenses is relatively fixed in
the short term, and planned expenditures are based on sales forecasts. Sales
forecasts by our customers are generally not binding. Revenue levels may fall
below expectations and disproportionately affect operating results since only a
small portion of our expenses vary with revenue in the short term, which could
have a material adverse effect on our business, financial condition and results
of operations.
OUR DIVIDEND POLICY COULD DEPRESS OUR STOCK PRICE.
We have never declared or paid dividends on our common stock and do not
anticipate declaring or paying any dividends in the foreseeable future. We plan
to retain any future earnings to reduce our accumulated deficit and finance
growth. As a result, our dividend policy could depress the market price for our
common stock.
WE HAVE ANTI-TAKEOVER PROVISIONS IN PLACE THAT COULD DELAY OR PREVENT A
CHANGE IN CONTROL AND THEREFORE HURT OUR SHAREHOLDERS.
Our Restated Certificate of Incorporation contains provisions that
could discourage a proxy contest or make more difficult the acquisition of a
substantial block of our common stock. Our directors are elected on a rotating
basis each year. This makes a change in the composition of the board of
directors more difficult and could make it more difficult for a third party to
acquire control of the company, even if such change of control might benefit the
shareholders. In addition, the board of directors may issue shares of common
stock and preferred stock which, if issued, could dilute and adversely affect
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various rights of the holders of shares of common stock. If the board of
directors decides to issue this stock it could discourage an unsolicited attempt
to acquire us.
We are subject to the Connecticut Business Corporation Act, some
provisions of which might prevent a change of control, even a change of control
that might benefit the company and its shareholders.
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY
AFFECT OUR STOCK PRICE.
Future sales in the public market of substantial amounts of common
stock or the perception that such sales may occur could cause the market price
of our stock to drop significantly, even if our business is doing well. A
decline in our stock price could also impair our ability to raise capital
through the offering of additional debt or equity securities. Such future sales
of common stock includes shares:
o issuable upon the conversion of shares of our series B and C
preferred stock;
o issuable upon the exercise of the warrants we have granted;
o registered and sold because of the exercise of outstanding
registration rights; and/or
o issuable upon the exercise of other outstanding options or
warrants.
As of February 8, 2000, we had 21,973,321 shares of common stock issued
and outstanding. If all the outstanding shares of series C and series B
preferred stock are converted into shares of common stock and if all of our
outstanding warrants and options are exercised, we will have approximately
41,512,567 shares of common stock issued and outstanding.
FORWARD-LOOKING STATEMENTS
In this prospectus and the documents that we incorporate by reference,
we make statements that relate to our future plans, objectives, expectations and
intentions that involve risks and uncertainties. We have based these statements
on our current expectations and projections about future events. These
statements may be identified by the use of words such as "expect," "anticipate,"
"intend," "plan," "believe" and "estimate" and similar expressions. Any
statements that refer to expectations, projections or other characterizations of
future events or circumstances are forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, and are subject to the
safe harbor created by that Act.
Forward-looking statements necessarily involve risks and uncertainties.
Our actual results could differ materially from those discussed in, or implied
by, these forward-looking statements. Factors that could contribute to such
differences include, but are not limited to, those discussed in the "Risk
Factors" section at page 2 and elsewhere in this prospectus. The factors set
forth in the Risk Factors section and other cautionary
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statements made in this prospectus should be read and understood as being
applicable to all related forward-looking statements wherever they appear in
this prospectus.
All subsequent written and oral forward-looking statements attributable
to us are expressly qualified in their entirety by the cautionary statements.
You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates. We undertake no obligations to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
RECENT DEVELOPMENTS
Closing of private placement financing; agreement with series B
preferred stockholders
On December 7, 1999, we concluded a private equity financing of a newly
issued series of our preferred stock. In the financing, we issued 33,589 shares
of Series C Convertible Preferred Stock, receiving gross proceeds of $100 per
share or a total of $3,358,900. Each share of series C preferred stock is
convertible at a fixed conversion rate of $0.40 divided into the $100 purchase
price. See "Selling Stockholders."
In connection with the closing of our series C financing, holders of
our series B preferred stock agreed to accept terms similar to those of the
series C preferred holders. As part of the agreement, the series B preferred
holders agreed to accept the same fixed conversion rate as the series C holders.
In addition, the series B preferred holders no longer receive a 6% annual
premium or have redemption rights.
Increase in the number of shares of our authorized common stock
At our annual meeting of stockholders held on Nov. 29, 1999, the
stockholders approved an amendment to the restated certificate of incorporation
increasing the authorized number of shares of our common stock from 35,000,000
to 50,000,000 shares.
Increase in the number of shares issuable under our 1995 Stock
Incentive Plan
At our annual meeting of stockholders held on Nov. 29, 1999, the
stockholders approved an amendment to our 1995 Stock Incentive Plan (the "Plan")
increasing the number of shares of common stock issuable under the Plan from
2,000,000 to 4,000,000 shares.
Addition of Richard A. Hansen to our board of directors
Richard A. Hansen was elected by our board of directors as an
additional member of the board of directors on January 31, 2000. Mr. Hansen
founded the investment banking firm Pennsylvania Merchant Group ("PMG") in 1986
and has served as its Chairman and Chief Executive Officer for the past thirteen
years. Mr. Hansen also founded Radnor Venture Partners, a venture capital fund,
which was co-managed by PMG and Safeguard Scientifics, Inc. Prior to forming
PMG, Mr. Hansen served as a Vice President with Kidder Peabody & Co., Inc. and
as Senior Vice President with Blyth
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Eastman Dillon which was acquired by Paine Webber Group Inc. Prior to his
investment banking career, he worked for Air Products & Chemicals specializing
in merger and acquisition activity.
Mr. Hansen serves on the Board of Directors of several private and
public technology-based companies including Ultralife Batteries and Computone
Corporation. He received a B.S. in Mechanical Engineering from the Rochester
Institute of Technology and an M.S. in Industrial Administration from the
Krannert Graduate School of Business of Purdue University.
WHERE YOU CAN FIND MORE INFORMATION
We are a public company and file annual, quarterly and special reports
and other information with the SEC. You may read and copy and documents we file
at the SEC's Public Reference Room, 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain further information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. You can obtain copies of
this material from the Public Reference Section of the SEC, Washington, D.C.
20549, at prescribed rates. Our reports, proxy and information statements and
other information are also available to the public at the SEC's web site. The
Internet address of that site is http://www.sec.gov.
This prospectus is only part of a registration statement filed as Form
S-3/A on Form S 2 with the SEC under the Securities Act and therefore omits
certain information contained in the registration statement. We have also filed
exhibits and schedules with the registration statement that are excluded from
this prospectus, and you should refer to the applicable exhibit or schedule for
a complete description of any statement referring to any contract or other
document. You may inspect a copy of the registration statement, including the
exhibits and schedules, without charge at the SEC's public reference room or
through its web site.
DOCUMENTS WE INCORPORATE BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to other documents that contain the information. The information
we incorporate by reference is considered to be a part of this prospectus and
automatically updates and supersedes previously filed information. We
incorporate by reference the documents listed below and all of our filings made
pursuant to the Exchange Act prior to the effectiveness of the registration
statement:
o our annual report on Form 10-K for the year ended December 31,
1998;
o our annual report on Form 10-K/A for the year ended December 31,
1998;
o our quarterly report on Form 10-Q for the quarter ended March 31,
1999;
o our quarterly report on Form 10-Q/A for the quarter ended March
31, 1999;
o our quarterly report on Form 10-Q for the quarter ended June 30,
1999;
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<PAGE>
o our quarterly report on Form 10-Q/A for the quarter ended June
30, 1999;
o our quarterly report on Form 10-Q for the quarter ended September
30, 1999; and
o our current reports on Form 8-K filed with the SEC on July 15,
July 26 and December 17, 1999.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus shall be deemed to be modified or
superseded for purposes of this prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this prospectus.
Our latest annual report to shareholders (which includes copies of our
Form 10-K and Form 10-K/A for the year ended December 31, 1998) and our latest
quarterly report on Form 10-Q for the period ended September 30, 1999 will be
delivered together with this prospectus.
You may request additional copies of any of the filings listed above
(including any exhibits thereto), at no cost, by writing or telephoning us at
the following address:
Accent Color Sciences, Inc.,
800 Connecticut Boulevard
East Hartford, Connecticut, 06108
Attention: Chief Financial Officer
Telephone: (860) 610-4000
Our internet web address is http://www.accentcolor.com. Information
contained on our web site or in our promotional literature is not incorporated
into this prospectus.
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone (including any
broker or salesman) to provide you with information different from that
contained in this prospectus. If anyone provides you with different or
inconsistent information, you should not rely on it. The selling stockholders
are offering to sell and seeking offers to buy shares of our common stock only
in jurisdictions where offers and sales are permitted. You should assume that
the information contained in this prospectus is accurate only as of the date
hereof. You should not assume that this prospectus is accurate as of any other
date.
SELLING STOCKHOLDERS
This prospectus covers primarily shares of our common stock issuable
upon conversion of shares of our Series C preferred stock. Most of the persons
listed below were purchasers of series C preferred stock and the shares of
common stock included in this prospectus on their behalf are those shares which
they may acquire at any time by converting some or all of their shares of series
C preferred stock into common stock. There are 33,589 shares of series C
preferred stock outstanding. All of these shares were
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<PAGE>
sold in a private equity financing which concluded on December 7, 1999. We
received gross proceeds of $100 per share or a total of $3,358,900. Each share
of series C preferred stock is convertible at a fixed conversion rate of $0.40
divided into the $100 purchase price. Therefore, each share of series C
preferred stock is convertible at any time into 250 shares of common stock and
all outstanding shares of series C preferred stock are convertible into
8,397,250 shares of common stock. All of these shares are included in the
following table.
The following table also includes shares being registered pursuant to
the exercise of "piggy-back" registration rights which we have agreed to in the
past in connection with previous private placement financings. These include
shares previously issued and shares issuable under outstanding warrants to
purchase our common stock. Most of these shares are held by or issuable on the
exercise of warrants held by two institutional purchasers, the PMG Eagle Fund
and Orbis Pension Trustees Limited, that participated in an interim or "bridge"
financing which concluded on September 8, 1999.
The following table sets forth the name of each selling stockholder,
the number of shares of common stock beneficially owned by the selling
stockholder as of February 11, 2000, the number of shares being offered by each
selling stockholder and the number and (where appropriate, the percentage) of
shares held by the beneficial owner after completion of the offering assuming
that all shares offered by the selling stockholders are sold. Except as set
forth in the footnotes to the table, none of the selling stockholders has held
any position or office with, or otherwise had a material relationship with, us
in the past three years. All information is taken from or based on ownership
filings made by such persons with the Securities and Exchange Commission or upon
information provided to us by such person or their agents. Unless otherwise
indicated, the persons named in the table below have sole voting and investment
power with respect to all shares of common stock shown as beneficially owned by
them.
The selling stockholders are acting individually, not as a group. The
shares which may be offered are being registered to permit public secondary
trading, and the selling stockholders may offer all or part of the shares for
resale from time to time. However, the selling stockholders are under no
obligation to sell all or any portion of the shares nor are the selling
stockholders obligated to sell any shares immediately under this prospectus.
Because the selling stockholders may sell all or part of their shares, we cannot
estimate the number of shares a selling stockholder will hold upon termination
of any offering made pursuant to this registration statement.
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<TABLE>
<CAPTION>
Number of Shares Shares Beneficially Owned
Beneficially Owned Shares to be After the Offering (1)(2)
Prior to the Included
Name of Selling Stockholder Offering (1) in the Offering Number Percent
--------------------------- ------------ --------------- ------ -------
<S> <C> <C> <C> <C>
Accrued Investments, Inc. 100,000 62,000 38,000 *
Donald R. Allred(3) 161,750 43,750 118,000 *
James S. Allsopp 435,928 250,000 185,928 *
Banque Jenni & Cie, S.A. 100,000 70,000 30,000 *
Robert A. Bedingfield 62,500 62,500 0 0
Bexley Enterprises Limited 636,986 500,000 136,986 *
Joseph T. Brophy(4) 330,649 250,000 80,649 *
William P. Brown 50,000 45,000 5,000 *
Charles Buchheit(5) 308,334 100,000 208,334 *
Frank J. Campbell III 172,000 140,000 32,000 *
Deed of Trust of F. J. Campbell 70,526 60,000 10,526 *
Settlor Dtd 12/30/96, C. Crochiere,
K. Lynam & J. Meyers Co-TTEES(6)
Frank J. Campbell III and Richard A. 75,000 75,000 0 0
Hansen TTEES Trust U/W Jane D.
Campbell
Richard J. Coburn(7) 504,303 25,000 479,303 1.3
Thomas D. Cunningham 250,000 250,000 0 0
Robert G. Donovan 75,698 62,500 13,698 *
Samuel Garre III 70,000 40,000 30,000 *
Richard C. Goodwin 150,000 150,000 0 0
E. Balkeley and Lila K. Griswold 77,619 62,500 15,119 *
PMG Eagle Fund 3,097,500 2,687,500 410,000 1.2
Richard Hodgson(8)(9) 198,750 100,000 98,750 *
James J. Kim 120,000 120,000 0 0
Richard G. Larsen 125,000 125,000 0 0
Brian Leung Hung Tak 636,986 500,000 136,986 *
Robert A. Leverone 73,349 62,500 10,849 *
Luzon Investments Ltd. 1,687,972 1,000,000 687,972 2.0
Irving L. Mazer(10) 65,215 50,000 15,215 *
Anthony T.S. Montagu 100,000 76,000 24,000 *
Albert G. Nickel 138,698 125,000 13,698 *
Pacific Alliance Limited, LLC 70,000 70,000 0 0
David Parke 20,000 20,000 0 0
</TABLE>
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<TABLE>
<CAPTION>
Number of Shares Shares Beneficially Owned
Beneficially Owned Shares to be After the Offering (1)(2)
Prior to the Included
Name of Selling Stockholder Offering (1) in the Offering Number Percent
--------------------------- ------------ --------------- ------ -------
<S> <C> <C> <C> <C>
Orbis Pension Trustees Limited 2,687,500 2,437,500 250,000 *
David B. Payne 25,000 25,000 0 0
George L. Perry 250,000 250,000 0 0
Robert J. Petras and Christine M. 25,000 25,000 0 0
Petras
Willard F. Pinney Jr.(8)(11) 144,799 25,000 119,799 *
Leonide C. Prince 100,000 100,000 0 0
FH Reichel Jr. TTEE FBO Marion R. 255,000 100,000 155,000 *
Reichel U/A 2/25/66
Carol A. Sharp 250,000 250,000 0 0
SS Family Partnership 15,000 15,000 0 0
Elizabeth Steele(12) 219,118 1,500 217,618 *
Robert H. Steele(8)(13) 219,118 112,500 106,618 *
Dr. Gershon Stern 38,000 38,000 0 0
Sunapee Ltd. Partnership 100,000 100,000 0 0
Kristine Szabo 277,396 250,000 27,396 *
Frederick C. Tecce 30,000 30,000 0 0
Upgrade Inc. 100,000 100,000 0 0
Waterhouse Nominees LTD 115,000 100,000 15,000 0
Deed of Trust of Holly E. Zug Settlor 25,000 25,000 0 0
DTD 8/5/97 Thomas V. Zug Trustee
Connecticut Innovations, Inc. 1,250,000 1,250,000 0 0
TOTAL: 12,418,750
</TABLE>
* Represents beneficial ownership of less than 1% of the outstanding shares of
common stock.
(1) Beneficial ownership is determined in accordance with Rule 13d-3 of the
Securities Exchange Act of 1934, as amended. Shares of common stock
subject to options, warrants, rights or conversion privileges currently
exercisable or exercisable within 60 days of February 11, 2000 are
deemed outstanding for computing the percentage of the person holding
such options, warrants, rights or conversion privileges but are not
deemed outstanding for computing the percentage ownership of any other
person.
(2) Assumes all shares offered are sold in the offering. The selling
stockholders may or may not sell all or any portion of the shares
included in this registration statement in their individual discretion.
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(3) Mr. Allred serves as the director of R&D and new business development
of Accent Color. Includes 180,000 shares of common stock subject to
currently exercisable options granted pursuant to the 1995 Stock
Incentive Plan.
(4) Mr. Brophy serves as a director of Accent Color. Includes 40,000 shares
of common stock subject to currently exercisable options granted
pursuant to the 1995 Stock Incentive Plan.
(5) Mr. Buchheit serves as the President, CEO, CFO and as a director of
Accent Color. Includes 88,334 shares of common stock subject to options
currently exercisable or exercisable within 60 days granted pursuant to
the 1995 Stock Incentive Plan and 100,000 shares of common stock
subject to currently exercisable warrants.
(6) Includes 10,526 shares of common stock subject to currently exercisable
warrants.
(7) Mr. Coburn serves as the Chairman of the Board of Directors of Accent
Color. Includes 43,334 shares of common stock subject to options
currently exercisable or exercisable within 60 days granted pursuant to
the 1995 Stock Incentive Plan.
(8) Includes 70,000 shares of common stock subject to currently exercisable
options granted pursuant to the 1995 Stock Incentive Plan.
(9) Mr. Hodgson serves as a director of Accent Color. Includes 3,750 shares
of common stock subject to currently exercisable warrants.
(10) Includes 10,215 shares of common stock subject to currently exercisable
warrants.
(11) Mr. Pinney serves as the Secretary and as a director of Accent Color.
Includes 30,000 shares of common stock subject to currently exercisable
warrants granted to Murtha, Cullina, Richter & Pinney LLP, counsel to
the company, of which Mr. Pinney is a partner.
(12) Includes 1,500 shares of common stock subject to currently exercisable
warrants and 200,500 shares beneficially owned by Richard Steele, Mrs.
Steele's spouse, as to all of which Mrs. Steele disclaims beneficial
ownership.
(13) Mr. Steele serves as a director of Accent Color. Includes 17,118 shares
of common stock owned by Mr. Steele's spouse, Elizabeth Steele and
1,500 shares of common stock subject to currently exercisable warrants
issued to Elizabeth Steele, as to all of which Mr. Steele disclaims
beneficial ownership.
USE OF PROCEEDS
All the shares offered by this prospectus are being offered for the
account of the selling stockholders. Accordingly, all net proceeds from any
sales of common stock made hereunder will go to the selling stockholders. The
selling stockholders will pay any underwriting discounts and commissions and
expenses incurred by the selling stockholders for brokerage, accounting, tax or
legal services or any other expenses incurred by the selling stockholders in
disposing of the shares. We have agreed to pay the
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expenses of registering the shares under the Securities Act, including
registration and filing fees, blue sky expenses, printing expenses, accounting
fees, administrative expenses and our own counsel fees.
We will receive the exercise price of any warrants exercised by the
selling stockholders. We will use any proceeds received from the exercise of
warrants for working capital and general corporate purposes.
PLAN OF DISTRIBUTION
We are registering the shares of common stock offered in this
prospectus on behalf of the selling stockholders. This offering is
self-underwritten; neither the selling stockholders nor we have employed an
underwriter for the sale of common stock by the selling stockholders. As used in
this prospectus, the term "selling stockholders" includes donees, pledgees,
transferees or other successors-in-interest selling shares received after the
date of this prospectus from a selling stockholder as a gift, pledge,
partnership distribution or other non-sale related transfer.
The selling stockholders will act independently of us in making
decisions with respect to the timing, manner and size of each sale. As a result,
there can be no assurance that the selling stockholders will sell any or all of
the shares of common stock offered by this prospectus. The sale of any the
shares may be made at market prices prevailing at the time of the sale, at
prices related to the prevailing market prices, at negotiated prices, or at
fixed prices. The selling stockholders may offer the shares for sale by one or
more of, or a combination of, the following methods:
o purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account pursuant to this prospectus;
o ordinary brokerage transactions in the OTC marketplace and
transactions in which the broker solicits purchasers;
o block trades in which the broker-dealer so engaged will attempt
to sell the shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction;
o on one or more exchanges on which the shares are then listed (if
any);
o in privately negotiated transactions;
o in an underwritten offering; or
o by any other legally available means.
In addition, any securities covered by this prospectus that qualify for
sale pursuant to Rule 144 under the Securities Act may be sold under that rule
rather than pursuant to this prospectus.
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<PAGE>
The selling stockholders may enter into hedging transactions with
broker-dealers who may engage in short sales of shares of common stock in the
course of hedging the positions they assume with the selling stockholders. The
selling stockholders may also enter into option or other transactions with
broker-dealers that require that delivery by the broker-dealers of the shares,
which shares may be resold thereafter pursuant to this prospectus.
To the extent required, this prospectus may be amended or supplemented
from time to time to describe a specific plan of distribution. We have not been
advised, as of the date of this prospectus, of any existing arrangements between
any selling stockholder and any other stockholder, broker, dealer, underwriter
or agent relating to the sale or distribution of the shares.
The selling shareholders may sell their shares directly to purchasers
or to or through broker-dealers, acting as agents or principals. You should be
aware that these broker-dealers may receive compensation for their services and
it is possible that a particular broker-dealer's compensation may exceed
customary commissions. The selling stockholders and/or any broker-dealers acting
in connection with the sale of the shares may be deemed to be underwriters under
Section 2(11) of the Securities Act. Therefore, any commissions or other
compensation received by them and any profits realized by them on the resale of
the shares as principals may be deemed underwriting compensation under the
securities laws. Neither we nor any selling stockholder can presently estimate
the amount of the compensation.
In order to comply with the securities laws of certain states, if
applicable, the shares must be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Each selling stockholder and any other persons participating in a
distribution of securities will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including Regulation M,
which may restrict certain activities of selling stockholders and other persons
participating in a distribution of securities and limit the timing of their
purchases and sales of securities. Furthermore, under Regulation M, persons
engaged in a distribution of securities are prohibited from simultaneously
engaging in market making and certain other activities with respect to the
securities for a specified period of time before the beginning of the
distributions subject to specified exceptions or exemptions. All of the
foregoing may affect the marketability of the securities offered pursuant to
this registration statement.
We have agreed to indemnify the selling stockholders and each of their
officers, directors, members, employees, partners, agents and each person who
controls any of the selling stockholders against certain expenses, claims,
losses, damages and liabilities (or action, proceeding or inquiry by any
regulatory or self-regulatory organization in respect thereof). We have also
agreed with the selling stockholders to keep the registration statement of which
this prospectus constitutes a part effective until the earlier of (1) such time
as all of the shares covered by this prospectus have been disposed of pursuant
to and in accordance with the registration statement or (2) the selling
stockholders become
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<PAGE>
eligible to resell the shares covered by this prospectus pursuant to Rule 144(k)
under the Securities Act.
DESCRIPTION OF OUR SECURITIES
We are authorized to issue 50,000,000 shares of common stock, no par
value, and 500,000 shares of preferred stock, no par value. Set forth below is a
brief description of our capital stock, including summaries of certain
provisions in the Company's restated certificate of incorporation, its Bylaws
and the Connecticut Business Corporations Act (the "Act") and other laws of the
State of Connecticut and are qualified in their entirety by reference to such
documents, copies of which have been filed as exhibits to the registration
statement.
Common Stock
Our common stock is traded on the OTC Bulletin Board of the National
Association of Securities Dealers, Inc. under the symbol "ACLR." The transfer
agent and registrar of our common stock is American Stock Transfer & Trust
Company.
As of February 8, 2000, there were 21,973,321 shares of common stock
issued and outstanding. In addition, there were
o 8,397,250 shares of common stock reserved for issuance on
conversion of shares of series C preferred stock;
o 3,640,899 shares reserved for issuance on conversion of shares of
series B preferred stock;
o 4,268,347 shares reserved for issuance upon exercise of certain
outstanding warrants; and
o 3,232,750 shares reserved for issuance upon exercise of stock
options granted under our 1995 Stock Incentive Plan.
Common stockholders are entitled to receive ratably such dividends as
may be declared on the common stock by our board of directors out of funds
legally available therefor, subject to the prior rights of holders of preferred
stock. Holders of common stock are entitled to one vote for each share held of
record with respect to the election of directors and other matters submitted for
a vote of shareholders and are not entitled to cumulative voting. Holders of
common stock vote together with holders of preferred stock as a single class
with respect to the election of directors and other matters.
Upon the liquidation, dissolution or winding up of the company, the
holders of common stock are entitled to receive ratably the Company's net assets
available after the payment of all debts and other liabilities and subject to
the prior rights of the outstanding shares of our series B and series C
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights.
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Preferred Stock
The rights, preferences and privileges of shareholders of common stock
are subject to the prior rights of the outstanding shares of our series B and
series C preferred stock.
Series A preferred stock
Pursuant to article fourth of our restated certificate of
incorporation, our board or directors has designated a series of preferred stock
entitled series A convertible preferred stock. All previously issued shares of
series A preferred stock have been converted into common stock and there are no
shares of such series outstanding.
Series B preferred stock
In 1997, our board of directors designated a series of 4,500 shares of
our previously authorized preferred stock to be designated as the Series B
Convertible Preferred Stock. On January 13, 1998, we issued 4,500 shares of the
series B stock at a price of $1,000 per share. The series B preferred stock is
convertible into such number of shares of common stock as is determined by
dividing $1,113.43 (being the face value of $1,000 of each share of series B
stock plus a 6% premium from the date of issuance to Nov. 30, 1999 when such
premiums ceased to accrue) by a fixed conversion rate of $0.40. Therefore, each
share of series B stock is convertible into approximately 2,784 shares of common
stock.
The holders of the series B preferred stock carry voting rights as
provided in the our restated certificate of incorporation and as otherwise
provided by the Act. Holders of series B preferred stock vote together with
holders of common stock and holders of series C preferred stock as a single
class with respect to the election of directors and other matters. Each holder
of series B preferred stock is entitled to as many votes with respect to each
share of series B preferred stock held on the record date for such vote as the
number of shares of common stock into which a share of series B preferred stock
is then convertible.
The series B preferred stock does not bear dividends. The series B
preferred stock ranks senior to our common stock and equal to our series C
preferred stock with respect to liquidation. Each share of series B preferred
stock is entitled to receive $ 1,113.43 upon liquidation. As of February 8,
2000, there were 1,308 shares of series B preferred stock outstanding all held
by one institutional investor.
Series C preferred stock
On November 29, 1999, the board of directors designated a series of
50,000 shares of our previously authorized preferred stock, no par value per
share, to be designated as the Series C Convertible Preferred Stock. On December
7, 1999, we concluded the issuance of 33,589 shares of series C preferred stock
at a purchase price of $100 per share. The series C preferred stock is
convertible at any time into shares of our common stock at a fixed conversion
price of $0.40 per share.
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The holders of the series C preferred stock carry voting rights as
provided in the our restated certificate of incorporation and as otherwise
provided by the Act. Holders of series C preferred stock vote together with
holders of common stock and holders of series B preferred stock as a single
class with respect to the election of directors and other matters. Each holder
of series C preferred stock is entitled to as many votes with respect to each
share of series C preferred stock held on the record date for such vote as the
number of shares of common stock into which a share of series C preferred stock
is then convertible.
Series C holders are entitled to receive noncumulative cash dividends
as declared by the board of directors, except that no such dividend can be
declared unless an equivalent, ratable dividend is also declared on the
outstanding shares of series B preferred stock. In addition, series C holders
are entitled to receive cumulative dividends at a rate of 8% per year of the
initial purchase price of $100 per share but only upon the occurrence of a
Liquidation Event, provided that any such dividend is coupled with an equivalent
ratable dividend to the holders of the series B stock. A "Liquidation Event" is
defined to include a merger (except a merger in which Accent Color is the
surviving entity), consolidation, dissolution, winding up or sale of
substantially all of the assets of the company, unless the holders of at least
75% of the series B and series C stock determine that any such event is not a
Liquidation Event.
In the event of any voluntary or involuntary liquidation of the
company, the series C holders rank equal to the series B holders in right of
payment and senior to the common stock. As of February 8, 2000, there were
33,589 shares of series C preferred stock outstanding.
Certain provisions of Connecticut law and our restated certificate of
incorporation
Our restated certificate of incorporation contains provisions that
could discourage a proxy contest or make more difficult the acquisition of a
substantial block of our common stock. The restated certificate of incorporation
provides for a classified board of directors, and members of the board of
directors may be removed only upon the affirmative vote of holders of at least
two-thirds of the shares of our capital stock issued and outstanding and
entitled to vote. In addition, since the board of directors is authorized to
issue shares of common stock and preferred stock any such issuance could dilute
and adversely affect various rights of the holders of shares of common stock
and, in addition, could be used to discourage an unsolicited attempt to acquire
control of the company.
As a Connecticut corporation, we are subject to the Act, some
provisions of which prohibit a publicly-held Connecticut corporation from
engaging in a "business combination" (including the issuance of equity
securities which have an aggregate market value of 5% or more of the total
market value of our outstanding shares) with an "interested shareholder" (as
defined in the Act) for a period of five years from the date of the
shareholder's purchase of stock unless approved in a prescribed manner. The
application of this section could prevent a change of control. Generally,
approval is required by the board of directors and by a majority of our
non-employee directors and by 80% of our outstanding shares and two-thirds of
the voting power of shares other than
24
<PAGE>
shares held by the interested shareholder. There can be no assurance that these
provisions will not prevent us from entering into a business combination that
otherwise would be beneficial to us.
LEGAL MATTERS
Counsel for Accent Color, Murtha, Cullina, Richter and Pinney, LLP,
CityPlace I, 185 Asylum Street, Hartford, Connecticut 06103-3469, has rendered
an opinion to the effect that the common stock offered for resale pursuant to
this registration statement is duly and validly issued, fully paid and
non-assessable. Murtha, Cullina, Richter and Pinney LLP owns a warrant to
acquire up to 30,000 shares of our common stock at an exercise price of $1.19
per share.
Willard F. Pinney, Jr., a partner in Murtha, Cullina, Richter and
Pinney LLP, is a stockholder of Accent Color. Mr. Pinney has served as our
Corporate Secretary since 1993 and has served as a director since 1996.
EXPERTS
The financial statements incorporated in this prospectus by reference
to Accent Color's Annual Report on Form 10-K/A for the year ended December 31,
1998 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
PricewaterhouseCoopers LLP as experts in auditing and accounting.
25
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth our estimates of the expenses incurred
in connection with the sale of common stock being registered, all of which will
be paid by us.
SEC registration fee $2,926
Legal fees and expenses $15,000
Accounting fees and expenses $7,500
Miscellaneous fees and expenses $2,500
TOTAL: $27,926
The selling stockholders will pay any underwriting discounts and
commissions and expenses incurred by the selling stockholders for brokerage,
accounting, tax or legal services or any other expenses incurred by the selling
stockholders in disposing of the shares of common stock covered by this
prospectus.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
We are a Connecticut corporation. Sections 33-770 through 33-778 of the
Connecticut Business Corporations Act ("Act") provide that, unless limited by
its certificate of incorporation, a corporation shall indemnify any director or
officer of the corporation against reasonable expenses incurred by him in
connection with any action, suit or proceeding in which he is made or is
threatened to be made a party by reason of having been a director or officer of
the corporation if he was wholly successful in the action, on the merits or
otherwise.
In addition, these sections of the Act permit a corporation by action
of its board of directors to indemnify an individual made a party to a
proceeding because he was a director or officer of the corporation if:
o he or she conducted himself in good faith, and
o he or she reasonably believed (1) in the case of conduct in his
official capacity with the corporation, his conduct was in the
best interests of the corporation and (2) in all other cases,
that his conduct was at least not opposed to the best interests
of the corporation and
o in the case of any criminal proceeding, he or she had no
reasonable cause to believe his or her conduct was unlawful.
Section 33-771 also provides that a corporation may not indemnify a
director or officer (1) in connection with a proceeding by or in the right of
the corporation in which
26
<PAGE>
the director or officer was held liable to the corporation or (2) in connection
with any other proceeding charging improper personal benefit to the director or
officer in which he was adjudged liable on the basis that personal benefit was
improperly received by him, whether or not the action involved was taken in his
official capacity.
Our restated certificate of incorporation limits the personal liability
of a director to the company or its shareholders for monetary damages for breach
of duty as a director, to an amount equal to the amount of compensation received
by the director for serving during the calendar year in which the violation
occurred. This limit on liability is subject to a number of exceptions,
including violations involving a knowing and culpable violation of law, a breach
of duty which enables a director or an associate to receive an improper personal
gain, conduct showing a lack of good faith and conscious disregard of duty to
the company, a sustained and unexcused pattern of inattention, or the approval
of an illegal distribution of assets of the company to its shareholders.
For purposes of determining the receipt improper personal gains, an
"associate" is defined as (1) any corporation or organization of which an Accent
Color director is an officer or partner or is, directly or indirectly, the
beneficial owner of ten percent or more of any class of voting stock, (2) any
trust or other estate in which a director has at least ten percent beneficial
interest or as to which a director serves as trustee or in a similar fiduciary
capacity and (3) any relative or spouse of a director, or any relative of the
spouse who has the same name as the Accent Color director.
In addition, we also maintain a directors' and officers' insurance and
reimbursement policy.
Item 16. EXHIBITS
(a) Exhibits:
Exhibit No. Exhibit
--------- -------
3.1 Restated Certificate of Incorporation of the Company, as
amended (filed herewith).
3.2 Certificate of Amendment to Restated Certificate of
Incorporation, dated Nov. 29, 1999 (filed herewith).
3.3 Certificate of Designations, Preferences and Rights of Series
B Convertible Preferred Stock (filed herewith as part of
Exhibit 3.1).
3.4 Certificate of Designations, Preferences and Rights of Series
C Convertible Preferred Stock, dated Nov. 29, 1999 (filed
herewith).
3.5 Bylaws of the Company, as amended December 29, 1996(1)
4.1 Letter agreement with holders of Series B Convertible
Preferred Stock modifying rights to conform with Series C
Convertible Preferred Stock
27
<PAGE>
(filed herewith).
5 Opinion of Murtha, Cullina, Richter and Pinney, LLP (filed
herewith)
10.1 Product Development and Distribution Agreement dated February
16, 1996 between the Company and Xerox Corporation (2).
10.2 Letter of Understanding dated July 2, 1996 between the Company
and Xerox Corporation supplementing the Product Development
and Distribution Agreement (2).
10.3 Amendment to Product Development and Distribution Agreement
between the Company and Xerox Corporation dated February 29,
1996 (2).
10.4 Loan Agreement Promissory Note dated February 29, 1996 between
the Company and Xerox Corporation (2).
10.5 Product Purchase Agreement dated April 16, 1996 between the
Company and International Business Machines Corporation (2).
10.6 Letter Agreement supplementing Product Purchase Agreement
between the Company and International Business Machines
Corporation dated February 23, 1996 (2).
10.7 OEM Supply Agreement dated January 8, 1996 between the Company
and Spectra, Inc. (2).
10.8 Amendment No. 1 to the OEM Supply Agreement dated July 12,
1996 between the Company and Spectra, Inc. (2).
10.9 Lease Agreement dated February 16, 1996 between the Company
and John Hancock Mutual Life Insurance company (2).
10.10 Memorandum of Understanding dated October 10, 1996 between the
Company and Oce van der Grinten, N.V. (2).
10.11 Accent Color Sciences, Inc. 1995 Stock Incentive Plan., as
amended through Nov. 29, 1999 (filed herewith).
10.12 Employment Agreement dated December 14, 1993 between the
Company and Norman L. Milliard (2).
10.13 Amendment No. 1 to Employment Agreement between the Company
and Norman L. Milliard dated as of January 1, 1995 (2).
10.14 Employment Agreement dated December 14, 1993 between the
Company and Richard J. Coburn (2).
28
<PAGE>
10.15 Consulting Agreement dated August 2, 1994 between the Company
and Peter Teufel (2).
10.16 Consulting Agreement dated May 3, 1996 between the Company and
Raymond N. Smith. (2).
10.17 Consulting Agreement Dated August 2, 1994 between the Company
and Klaus Werding (2).
10.18 Letter Agreement dated February 28, 1996 between the Company
and Pennsylvania Merchant Group Ltd. (2).
10.19 Letter Agreement dated May 6, 1996 between the Company and
Pennsylvania Merchant Group Ltd. (2).
10.20 Termination Agreement dated August 20, 1996 between the
Company and Pennsylvania Merchant Group Ltd. (2).
10.21 Termination Agreement dated March 29, 1996 between the Company
and Knickerbocker Securities, Inc. (2).
10.22 Form of nondisclosure agreement between the Company and its
employees (2).
10.23 Form of Registration Rights Agreement Relating to sale of
Preferred Stock of the Company (2).
10.24 Form of Registration Rights Agreement Relating to sale of
Series III Debentures of the Company (2).
10.25 Form of Registration Rights Agreement Relating to warrants
issued in connection with Series III Debentures of the Company
(2).
10.26 Form of Registration Rights Agreement Relating to Warrants
issued in connection with Series IV Debentures of the Company
(2).
10.27 Form of Registration Rights Agreement Relating to sale of
Common Stock of the Company (2).
10.28 Registration Rights Agreement Relating to Warrants issued by
the Company to Xerox Corporation (2).
10.29 Form of Registration Rights Agreement Relating to Warrants
issued pursuant to sale of Interim Notes (2).
10.30 Form of Securities Purchase Agreement dated as of Jan. 9, 1998
(3).
10.31 Form of Warrant issued in connection with the 1998 Private
Placement (3).
29
<PAGE>
10.32 Form of Registration Rights Agreement dated as of Jan. 9, 1998
(3).
10.33 Employment Agreement dated April 15, 1998 between Charles E.
Buchheit and the Company (4).
10.34 Loan Agreement between the Company and International Business
Machines Corporation (5).
10.35 Promissory Note between the Company and International Business
Machines Corporation (5).
10.36 Security Agreement between the Company and International
Business Machines Corporation (5).
10.37 Form of Securities Purchase Agreement dated as of November 30,
1999 (6).
10.38 Form of Warrant Agreement dated as of November 30, 1999 (6).
10.39 Form of Registration Rights Agreement dated as of November 30,
1999 (6).
23.1 Consent of Murtha, Cullina, Richter and Pinney, LLP (filed
herewith in the opinion set forth as Exhibit 5).
23.2 Consent of PricewaterhouseCoopers LLP (filed herewith).
24 Power of attorney pursuant to which this registration
statement is signed by certain directors (6).
(1) incorporated by reference from Accent Color's registration statement on Form
S-3 (file no. 333-43467) filed December 30, 1997, as amended.
(2) incorporated by reference from Accent Color's registration statement (file
no. 333-14043) on Form S-1 filed on Oct. 15, 1996, as amended.
(3) incorporated by reference from Accent Color's registration statement (file
no. 333-45321) on Form S-3 filed on Jan. 30, 1998, as amended.
(4) incorporated by reference from Accent Color's quarterly report on Form 10-Q
for the quarter ended June 30, 1998.
(5) incorporated by reference from Accent Color's quarterly report on Form 10-Q
for the quarter ended Sep. 30, 1998.
(6) incorporated by reference from Accent Color's registration statement (file
no. 333-30130) on Form S-3 filed on Feb. 11, 2000.
30
<PAGE>
Item 17. UNDERTAKINGS
(a) The undersigned registrant undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, as amended (the
"Securities Act");
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if
the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
Registration Statement; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in this Registration Statement or any material change to such
information in this Registration Statement;
(2) That, for the purposes of determining any liability under
the Securities Act, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at the time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission the indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. If a claim for indemnification
against these liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by a
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether indemnification by it is
31
<PAGE>
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of the issue.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3/A on Form S-2 and has duly caused
this registration statement to be signed on its behalf by the undersigned, who
is duly authorized, in the City of East Hartford, State of Connecticut on this
24th day of February 2000.
ACCENT COLOR SCIENCES, INC.
/s/
----------------------------------
By: Charles E. Buchheit
Title: President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, the
following persons have signed this registration statement in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C> <C>
By: /s/ President, Chief Executive February 24, 2000
------------------------ Officer and Chief Financial
Name: Charles E. Buchheit Officer
By: /s/ Vice Chairman and Chief February 24, 2000
------------------------ Technology Officer
Name: Norman L. Milliard
By: /s/ Chairman of the Board of February 24, 2000
------------------------ Directors
Name: Richard J. Coburn
By: /s/ * Director February 24, 2000
------------------------
Name: Joseph T. Brophy
By: /s/ * Director February 24, 2000
------------------------
Name: Richard Hodgson
33
<PAGE>
By: /s/ * Secretary and Director February 24, 2000
------------------------
Name: Willard F. Pinney, Jr.
By: /s/ * Director February 24, 2000
------------------------
Name: Robert H. Steele
</TABLE>
* Signature by Charles E. Buchheit, attorney-in-fact
34
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
--------- -------
3.1 Restated Certificate of Incorporation of the Company, as
amended (filed herewith).
3.2 Certificate of Amendment to Restated Certificate of
Incorporation, dated Nov. 29, 1999 (filed herewith).
3.3 Certificate of Designations, Preferences and Rights of Series
B Convertible Preferred Stock (filed herewith as part of
Exhibit 3.1).
3.4 Certificate of Designations, Preferences and Rights of Series
C Convertible Preferred Stock, dated Nov. 29, 1999 (filed
herewith).
3.5 Bylaws of the Company, as amended December 29, 1996(1)
4.1 Letter agreement with holders of Series B Convertible
Preferred Stock modifying rights to conform with Series C
Convertible Preferred Stock (filed herewith).
5 Opinion of Murtha, Cullina, Richter and Pinney, LLP (filed
herewith)
10.1 Product Development and Distribution Agreement dated February
16, 1996 between the Company and Xerox Corporation (2).
10.2 Letter of Understanding dated July 2, 1996 between the Company
and Xerox Corporation supplementing the Product Development
and Distribution Agreement (2).
10.3 Amendment to Product Development and Distribution Agreement
between the Company and Xerox Corporation dated February 29,
1996 (2).
10.4 Loan Agreement Promissory Note dated February 29, 1996 between
the Company and Xerox Corporation (2).
10.5 Product Purchase Agreement dated April 16, 1996 between the
Company and International Business Machines Corporation (2).
10.6 Letter Agreement supplementing Product Purchase Agreement
between the Company and International Business Machines
Corporation dated February 23, 1996 (2).
10.7 OEM Supply Agreement dated January 8, 1996 between the Company
and Spectra, Inc. (2).
35
<PAGE>
10.8 Amendment No. 1 to the OEM Supply Agreement dated July 12,
1996 between the Company and Spectra, Inc. (2).
10.9 Lease Agreement dated February 16, 1996 between the Company
and John Hancock Mutual Life Insurance company (2).
10.10 Memorandum of Understanding dated October 10, 1996 between the
Company and Oce van der Grinten, N.V. (2).
10.11 Accent Color Sciences, Inc. 1995 Stock Incentive Plan., as
amended through Nov. 29, 1999 (filed herewith).
10.12 Employment Agreement dated December 14, 1993 between the
Company and Norman L. Milliard (2).
10.13 Amendment No. 1 to Employment Agreement between the Company
and Norman L. Milliard dated as of January 1, 1995 (2).
10.14 Employment Agreement dated December 14, 1993 between the
Company and Richard J. Coburn (2).
10.15 Consulting Agreement dated August 2, 1994 between the Company
and Peter Teufel (2).
10.16 Consulting Agreement dated May 3, 1996 between the Company and
Raymond N. Smith. (2).
10.17 Consulting Agreement Dated August 2, 1994 between the Company
and Klaus Werding (2).
10.18 Letter Agreement dated February 28, 1996 between the Company
and Pennsylvania Merchant Group Ltd. (2).
10.19 Letter Agreement dated May 6, 1996 between the Company and
Pennsylvania Merchant Group Ltd. (2).
10.20 Termination Agreement dated August 20, 1996 between the
Company and Pennsylvania Merchant Group Ltd. (2).
10.21 Termination Agreement dated March 29, 1996 between the Company
and Knickerbocker Securities, Inc. (2).
10.22 Form of nondisclosure agreement between the Company and its
employees (2).
10.23 Form of Registration Rights Agreement Relating to sale of
Preferred Stock of the Company (2).
10.24 Form of Registration Rights Agreement Relating to sale of
Series III
36
<PAGE>
Debentures of the Company (2).
10.25 Form of Registration Rights Agreement Relating to warrants
issued in connection with Series III Debentures of the Company
(2).
10.26 Form of Registration Rights Agreement Relating to Warrants
issued in connection with Series IV Debentures of the Company
(2).
10.27 Form of Registration Rights Agreement Relating to sale of
Common Stock of the Company (2).
10.28 Registration Rights Agreement Relating to Warrants issued by
the Company to Xerox Corporation (2).
10.29 Form of Registration Rights Agreement Relating to Warrants
issued pursuant to sale of Interim Notes (2).
10.30 Form of Securities Purchase Agreement dated as of Jan. 9, 1998
(3).
10.31 Form of Warrant issued in connection with the 1998 Private
Placement (3).
10.32 Form of Registration Rights Agreement dated as of Jan. 9, 1998
(3).
10.33 Employment Agreement dated April 15, 1998 between Charles E.
Buchheit and the Company (4).
10.34 Loan Agreement between the Company and International Business
Machines Corporation (5).
10.35 Promissory Note between the Company and International Business
Machines Corporation (5).
10.36 Security Agreement between the Company and International
Business Machines Corporation (5).
10.37 Form of Securities Purchase Agreement dated as of November 30,
1999 (6).
10.38 Form of Warrant Agreement dated as of November 30, 1999 (6).
10.39 Form of Registration Rights Agreement dated as of November 30,
1999 (6).
23.1 Consent of Murtha, Cullina, Richter and Pinney, LLP (filed
herewith in the opinion set forth as Exhibit 5).
23.2 Consent of PricewaterhouseCoopers LLP (filed herewith).
37
<PAGE>
24 Power of attorney pursuant to which this registration
statement is signed by certain directors (6).
(1) incorporated by reference from Accent Color's registration statement on Form
S-3 (file no. 333-43467) filed December 30, 1997, as amended.
(2) incorporated by reference from Accent Color's registration statement (file
no. 333-14043) on Form S-1 filed on Oct. 15, 1996, as amended.
(3) incorporated by reference from Accent Color's registration statement (file
no. 333-45321) on Form S-3 filed on Jan. 30, 1998, as amended.
(4) incorporated by reference from Accent Color's quarterly report on Form 10-Q
for the quarter ended June 30, 1998.
(5) incorporated by reference from Accent Color's quarterly report on Form 10-Q
for the quarter ended Sep. 30, 1998.
(6) incorporated by reference from Accent Color's registration statement (file
no. 333-30130) on Form S-3 filed on Feb. 11, 2000.
38
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
ACCENT COLOR SCIENCES, INC.
FIRST. The name of the corporation is Accent Color Sciences, Inc.
SECOND. The nature of the business to be transacted, or the purposes to be
promoted or carried out by the corporation, are as follows:
To have and exercise all of the powers now or hereafter conferred by
the laws of the State of Connecticut upon a corporation organized
pursuant to the Connecticut Stock Corporation Act, and any and all acts
amending said Act, in substitution therefor or supplementing such Act.
THIRD. The designation of each class of shares, the authorized number of shares
of each such class, and the par value of each share thereof, are as follows:
The corporation shall have one (1) class of stock designated as Common
Stock and consisting of Twenty Five Million (25,000,000) authorized
shares. Each share of Common Stock shall be without par value.
The corporation shall have one (1) class of stock designated as
Preferred Stock and consisting of Five Hundred Thousand (500,000)
authorized shares. Each share of Preferred Stock shall be without par
value.
FOURTH. The terms, limitations and relative rights and preferences of each class
of shares and series thereof, or an express grant of authority to the Board of
Directors pursuant to Section 33-341(b) of the Connecticut Stock Corporation Act
are as follows:
A. AUTHORITY OF THE BOARD OF DIRECTORS
The Board of Directors may, before their issuance, fix and determine
the terms, limitations or relative rights or preferences of Preferred Stock, or
establish series of such shares and fix and determine the variations as among
such series, to the extent the certificate of incorporation has not or does not
in the future do so.
B. COMMON STOCK
1. Dividends. Subject to the prior right of the Preferred Stock, the
holders of outstanding shares of Common Stock ("Common Stock Holders") shall be
entitled to receive dividends as, when and in the amount declared by the Board
of Directors, out of any funds legally available therefor.
2. Liquidation, Dissolution and Winding Up. Subject to the prior and
superior right of the Preferred Stock, in the event of any liquidation,
dissolution or winding up of the affairs of the corporation, whether voluntary
or involuntary, the Common Stock Holders shall be entitled to receive, out of
the net assets of the corporation, after payment or provision for payment of the
debts and other liabilities of
<PAGE>
the corporation, that portion of the remaining funds to be distributed. Such
funds shall be paid to the Common Stock Holders on the basis of the number of
shares of Common Stock held by each of them. Neither the consolidation nor
merger of the corporation into or with any other corporation nor the sale or
transfer by the corporation of all or any part of its assets shall be deemed a
liquidation, dissolution or winding up of the affairs of the corporation within
the meaning of the provisions of this subparagraph 2.
3. Voting. Each share of Common Stock shall entitle the holder thereof
to one vote, in person or by proxy, on any matter on which action of the
shareholders is sought.
C. PREFERRED STOCK
1. Series. The shares of Preferred Stock may be divided into and issued
in one or more series, and each series shall be so designated so as to
distinguish the shares thereof from the shares of all other series. All shares
of Preferred Stock shall be identical except in respect of particulars which may
be fixed by the Board of Directors as hereinafter provided pursuant to authority
which is hereby expressly vested in the Board of Directors. Each share of a
series shall be identical in all respects with all other shares of such series,
except as to the date from which dividends thereon shall be cumulative on any
series as to which dividends are cumulative. Shares of Preferred Stock of any
series which have been retired in any manner, including shares redeemed or
reacquired by the corporation and shares which have been converted into or
exchanged for shares of any other class, or any series of the same or any other
class shall have the status of authorized but unissued shares of Preferred Stock
and may be reissued as shares of the series of which they were originally a part
or may be issued as shares of a new series or any other series of the same
class.
2. Voting Rights. Shares of Preferred Stock shall not entitle the
holder thereof to any voting rights except that with respect to all shares of
Preferred Stock which may be convertible into shares of Common Stock, the holder
thereof shall be entitled to as many votes with respect to all matters brought
before the shareholders of the corporation as such Preferred Stockholder would
have been entitled had such holder converted his or her shares of Preferred
Stock into Common Stock immediately prior to the record date for determining
shareholders entitled to vote on any such matter. All such voting rights of any
Preferred Stock shall be exercised together with the voting rights of all
holders of Common Stock as a single class and no holders of Preferred Stock
shall have any separate voting rights with respect to the class of Preferred
Stock or any series thereof, except as otherwise provided by law.
3. Provisions. Before any shares of Preferred Stock of any series shall
be issued, the Board of Directors, pursuant to authority hereby expressly vested
in it, shall fix by resolution or resolutions the following provisions in
respect of the shares of each such series so far as the same are not
inconsistent with the provisions of this Article Fourth applicable to all series
of Preferred Stock:
(a) the distinctive designations of such series and the number of
shares which shall constitute such series, which number may be increased (except
where otherwise provided by the Board of Directors in creating such series) or
decreased (but
<PAGE>
not below the number of shares thereof then outstanding) from time to time by
like action of the Board of Directors;
(b) the annual rate or amount of dividends, if any, payable on
shares of such series (which dividends would be payable in preference to any
dividends on Common Stock), whether such dividends shall be cumulative or
non-cumulative and the conditions upon which and/or the dates when such
dividends shall be payable;
(c) whether the shares of such series shall be redeemable and, if
so, the terms and conditions of such redemption, including the time or times
when and the price or prices at which shares of such series may be redeemed;
(d) the amount, if any, payable on shares of such series in the
event of liquidation of the corporation;
(e) whether the shares of such series shall be convertible into or
exchangeable for shares of any other class, or any series of the same or any
other class, and, if so, the terms and conditions thereof, including the date or
dates when such shares shall be convertible into or exchangeable for shares of
any other class, or any series of the same or any other class, the price or
prices or the rate or rates at which shares of such series shall be so
convertible or exchangeable, and the adjustments which shall be made, and the
circumstances in which such adjustments shall be made, in such conversion or
exchange prices or rates; and
(f) any other preferences and relative, participating, optional or
other special rights, and any qualifications, limitations and restrictions
thereof.
D. SERIES A PREFERRED STOCK
1. Designation. There is hereby created a series of the Preferred Stock
consisting of 350,000 shares having the designation, voting powers, preferences,
relative, participating, optional and other special rights and the
qualifications, limitations and restrictions thereof as are set forth in this
Paragraph D. This series is designated "Series A Convertible Voting Preferred
Stock" (hereinafter called "Series A Stock");
2. Cash Dividend.
(a) The record holders of the outstanding shares of Series A Stock
("Series A Holders") shall be entitled to receive noncumulative cash dividends
when and as declared by the Board of Directors.
(b) Upon the payment or setting apart for payment of any dividends
upon the outstanding shares of Series A Stock, the Board of Directors may
declare and pay dividends upon the Common Stock up to an amount with respect to
each share of Common Stock equal to the amount paid or set aside for payment
with respect to each share of Series A Stock divided by the number of shares of
Common Stock into which each such share of Preferred Stock shall then be
convertible.
3. Redemption. The Series A Stock may not be redeemed, in whole or in
part.
<PAGE>
4. Liquidation.
(a) In the event of any voluntary or involuntary liquidation of
the corporation, the Series A Holders shall be entitled to be paid an amount
equal to all dividends thereon remaining unpaid up to the date of such
liquidation whether or not at such times the corporation shall have surplus
available for the payment of dividends.
(b) After payment to the Series A Holders of the amounts payable
under subpart (a) above, the Series A Holders shall be entitled to be paid as a
liquidating distribution Five Dollars ($5.00) per share (the "Liquidation
Preference") prior to any liquidating distribution to the Common Stock Holders
but shall not participate further in any liquidating distributions to such
Common Stock Holders.
5. Conversion.
(a) Conversion Option. At the option of the Series A Holders,
their holdings of such Series A Stock shall be convertible into shares of Common
Stock and cash in lieu of fractional shares upon the terms and conditions of
subparagraph (c) below.
(b) Mandatory Conversion. The holdings of the Series A Holders
shall automatically convert into shares of Common Stock and cash in lieu of
fractional shares upon the terms and conditions of subparagraph (c) below (1)
upon the affirmative vote of 70% or more of the Series A Holders or (2) upon the
effectiveness of a registration statement registering the sale by the Company of
shares of Common Stock to the public pursuant to which (A) Common Stock is
offered to the public at a price of at least 1.4 times the conversion price
(which may be adjusted downward at the discretion of the Board of Directors) and
(B) the gross proceeds to the Company and/or the selling stockholders are at
least $5,000,000.
(c) Conversion Rate.
(i) The shares shall be convertible from and after the date
of their issuance under the terms and conditions outlined in subparagraphs (a)
and (b) above at the office of any Transfer Agent for the Series A Stock (or
such other place as may be designated by the corporation) into fully paid and
nonassessable shares of Common Stock (as such Common Stock shall then be
constituted) at the rate of 1.4 shares of Common Stock for each one (1) share of
Series A Stock but such rate shall be adjusted to the extent provided in subpart
(b) of this subparagraph 5.
(ii) In order to convert shares of Series A Stock into Common
Stock, the holder thereof shall surrender the certificate or certificates for
Series A Stock, duly endorsed to the corporation or in blank, at the office of
any Transfer Agent for the Series A Stock (or such other place as may be
designated by the corporation), and shall give written notice to the corporation
at said office that he elects to convert the same and shall state in writing
therein the name or names in which he wishes the certificate or certificates for
Common Stock to be issued. The corporation will, as soon as practicable
thereafter, deliver at said office to such holder of shares of the Series A
Stock or to his nominee or nominees, a certificate or certificates for the
number of full shares of Common Stock to which he shall be entitled as
aforesaid. Shares of the Series A Stock
<PAGE>
shall be deemed to have been converted as of the date of the surrender of such
certificate or certificates for conversion as provided above, and 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 Common Stock
on such date.
(d) Conversion Adjustment Provisions. The conversion rate provided
in subpart (a)(i) above shall be subject to adjustment to the extent provided
below:
(i) Stock Dividends, Subdivisions and Combinations. In the
event the corporation shall (a) pay a dividend of Common Stock, or of any
capital stock convertible into Common Stock, on its outstanding Common Stock;
(b) subdivide its outstanding Common Stock into a larger number of shares of
Common Stock by reclassification or otherwise; or (c) combine its outstanding
Common Stock into a smaller number of shares of Common Stock by reclassification
or otherwise; the conversion rate in effect immediately prior thereto shall be
proportionately adjusted so that the holder of any Series A Stock thereafter
surrendered for conversion shall be entitled to receive the number of shares of
Common Stock (and, in the case of a dividend payable in capital stock
convertible into Common Stock, the number of shares of such capital stock) which
he would have owned or have been entitled to receive after the happening of any
of the events described above had such Series A Stock been converted immediately
prior to the happening of such event. Such adjustment shall be made whenever any
of the events described above shall occur. In the case of a dividend, any such
adjustment shall be made as of the record date thereof and in the case of a
subdivision or combination, any such adjustment shall be made as of the
effective date thereof.
(ii) Issuance of Additional Securities. In the event that the
corporation shall issue shares of Common Stock (other than Excluded Securities)
or other securities convertible into or exchangeable for shares of Common Stock
(other than Excluded Securities) at a price per share in the case of issuances
of Common Stock less than the conversion rate then in effect or at a price per
share in the case of securities other than Common Stock which, when divided by
the number of shares of Common Stock into which each such share of such other
securities is convertible or exchangeable, is less than the conversion rate then
in effect, the conversion rate shall be reduced to the result obtained by
multiplying the conversion rate in effect immediately prior to such issuance by
a fraction, the numerator of which is equal to the number of outstanding shares
of Common Stock and shares of Common Stock issuable pursuant to then existing
conversion or exchange rights multiplied by the conversion rate then in effect
plus the total consideration received for the Common Stock or other securities
issued and the denominator of which is the total number of shares of Common
Stock and shares of Common Stock issuable pursuant to all rights of conversion
or exchange immediately following such issuance. For purposes of the preceding
sentence, the term "Excluded Securities" means Common Stock or other securities
issued to employees, consultants, directors and officers of the corporation,
securities issued as a dividend or distribution on the Preferred Stock and
securities issued in the event of a stock split, reverse stock split, Common
Stock dividend on Common Stock or other subdivision or consolidation or
reclassification of the Common Stock.
(iii) Minimum Adjustment. Notwithstanding the provisions of
(i) or (ii) of this subpart (b), no adjustment in the conversion rate shall be
required unless
<PAGE>
such adjustment would require an increase or decrease of at
least 2% of such rate; provided, however, that any such adjustments which are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations required by any provision of this
subpart (b) shall be made to the nearest cent or to the nearest one-hundredth of
a share, as the case may be.
(e) Fractional Shares. No fraction of a share of Common Stock
shall be issued upon any conversion of Series A Stock but, in lieu thereof,
there shall be paid an amount in cash equal to the same fraction of the market
value of a full share of Common Stock. For such purpose, the market value of a
share of Common Stock shall be the prevailing market value or other as
determined by the Board in the open market, as conclusively determined by the
corporation.
(f) Reservation of Common Stock. The corporation shall at all
times reserve and keep available out of its authorized but unissued Common Stock
solely for the purposes of effecting the conversion of the shares of the Series
A Stock, the full number of shares of Common Stock then deliverable upon the
conversion of all shares of Series A Stock at the time outstanding.
E. SERIES B CONVERTIBLE PREFERRED STOCK
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 4,500 shares of
Preferred Stock, is the Series B Convertible Preferred Stock (the "Series B
Preferred Stock") and the face amount shall be One Thousand U.S. Dollars
($1000.00) per share (the "Face Amount").
II. DIVIDENDS
The Series B Preferred Stock shall bear no dividends, and the holders
of the Series B Preferred Stock shall not be entitled to receive dividends on
the Series B Preferred Stock.
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms
shall have the following meanings:
A. "Average Price" means, as of any date, the average of the Closing
Prices for the Common Stock during the five (5) consecutive trading days ending
on the trading day immediately preceding such date of determination (subject to
equitable adjustment for any stock splits, stock dividends, reclassifications or
similar events during such five (5) trading day period).
B. "Closing Price" means, for any security as of any date, the last
sale price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Corporation and reasonably acceptable to holders of a majority
of the then outstanding shares of Series B Preferred Stock if Bloomberg
Financial Markets is not then reporting closing bid prices of such security
<PAGE>
(collectively, "Bloomberg"), or if the foregoing does not apply, the last
reported sale price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Price cannot be calculated
for such security on such date on any of the foregoing bases, the Closing Price
of such security on such date shall be the fair market value as reasonably
determined by an investment banking firm selected by the Corporation and
reasonably acceptable to holders of a majority of the then outstanding shares of
Series B Preferred Stock, with the costs of such appraisal to be borne by the
Corporation.
C. "Conversion Date" means, for any Conversion, the date specified in
the notice of conversion in the form attached hereto (the "Notice of
Conversion"), so long as the copy of the Notice of Conversion is faxed (or
delivered by other means resulting in notice) to the Corporation before 11:59
p.m., New York City time, on the Conversion Date indicated in the Notice of
Conversion. If the Notice of Conversion is not so faxed or otherwise delivered
before such time, then the Conversion Date shall be the date the holder faxes or
otherwise delivers the Notice of Conversion to the Corporation.
D. "Conversion Percentage" shall initially mean eighty- five percent
(85%). In the event the Corporation's Common Stock is no longer designated for
quotation on the Nasdaq National Market ("NNM") and is designated for quotation
on the Nasdaq SmallCap Market ("SmallCap"), the Conversion Percentage shall be
permanently reduced by two percent (2%) to 83%. In addition, in the event that
the Corporation fails to obtain the Shareholder Approval contemplated by Section
4(m) of the Securities Purchase Agreement (as defined herein) on or before May
31, 1998, the Conversion Percentage shall be permanently reduced by ten percent
(10%) to 75%. The Conversion Percentage also shall be subject to adjustment as
provided herein and as provided in Section 2(c) of the Registration Rights
Agreement entered into in connection with and pursuant to the Securities
Purchase Agreement (the "Registration Rights Agreement").
E. "Conversion Price" means, with respect to any Conversion Date, the
lower of (i) the Variable Conversion Price in effect as of such date and (ii) in
the event that the Average Price as of such date is greater than the Fixed
Conversion Price in effect as of such date, the arithmetic average between the
Fixed Conversion Price in effect as of such date and the Average Price (but in
no event greater than $5.00).
F. "Fixed Conversion Price" means $2.75, and shall be subject to
adjustment as provided herein.
G. "Floor Price" means $2.50, and shall be subject to adjustment as
provided herein.
H. "Issuance Date" means the date of the closing under that certain
Securities Purchase Agreement by and among the Corporation and the purchasers
named therein with respect to the issuance of the Series B Preferred Stock (the
"Securities Purchase Agreement").
I. "N" means the number of days from, but excluding, the Issuance Date.
<PAGE>
J. "Premium" means an amount equal to(.06)x(N/365)x(1,000).
K. "Variable Conversion Price" means, as of any date of determination,
the amount obtained by multiplying the Conversion Percentage then in effect by
the Average Price as of such date, and shall be subject to adjustment as
provided herein.
IV. CONVERSION
A. Conversion at the Option of the Holder. (i) Subject to the
limitations on conversions contained in Paragraph C of this Article IV, each
holder of shares of Series B Preferred Stock may, at any time and from time to
time after the Issuance Date, convert (a "Conversion") each of its shares of
Series B Preferred Stock into a number of fully paid and nonassessable shares of
Common Stock determined in accordance with the following formula if the
Corporation timely redeems the Premium thereon in cash in accordance with
subparagraph (ii) below:
1,000
-------------------
Conversion Price
or in accordance with the following formula if the Corporation does not timely
redeem the Premium thereon in accordance with subparagraph (ii) below:
1,000 + the Premium
----------------------
Conversion Price
(ii) (a) The Corporation shall have the right, in its sole discretion,
upon receipt of a Notice of Conversion, to redeem the Premium subject to such
conversion for a sum of cash equal to the amount of the Premium being so
redeemed. All cash redemption payments hereunder shall be paid in lawful money
of the United States of America at such address for the holder as appears on the
record books of the Corporation (or at such other address as such holder shall
hereafter give to the Corporation by written notice). In the event the
Corporation so elects to redeem the Premium in cash and fails to pay such holder
the applicable redemption amount to which such holder is entitled by depositing
a check in the U.S. Mail to such holder within three (3) business days of
receipt by the Corporation of a Notice of Conversion, the Corporation shall
thereafter forfeit its right to redeem such Premium in cash and such Premium
shall thereafter be converted into shares of Common Stock in accordance with
Article IV.A(i).
(b) Each holder of Series B Preferred Stock shall have the right to
require the Corporation to provide advance notice to such holder stating whether
the Corporation will elect to redeem the Premium in cash pursuant to the
Corporation's redemption rights discussed in subparagraph (a) of this Article
IV.A(ii). A holder may exercise such right from time to time by sending notice
(an "Election Notice") to the Corporation, by facsimile, requesting that the
Corporation disclose to such holder whether the Corporation would elect to
redeem the Premium for cash in lieu of issuing shares of Common Stock therefor
if such holder were to exercise its right of conversion pursuant to this Article
IV.A. The Corporation shall, no later than the close of business on the second
business day following receipt of an Election Notice, disclose to such holder
whether the Corporation would elect to redeem the Premium in connection with a
conversion
<PAGE>
pursuant to a Notice of Conversion delivered over the subsequent five
(5) business day period. If the Corporation does not respond to such holder
within such two (2) business day period via facsimile, the Corporation shall,
with respect to any conversion pursuant to a Conversion Notice delivered within
the subsequent five (5) business day period, forfeit its right to redeem such
Premium in accordance with subparagraph (a) of this d Article IV.A(ii) and shall
be required to convert such Premium into shares of Common Stock.
B. Mechanics of Conversion. In order to effect a Conversion, a holder
shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice of
Conversion to the Corporation or the transfer agent for the Common Stock and (y)
surrender or cause to be surrendered the original certificates representing the
Series B Preferred Stock being converted (the "Preferred Stock Certificates"),
duly endorsed, along with a copy of the Notice of Conversion as soon as
practicable thereafter to the Corporation or the transfer agent. Upon receipt by
the Corporation of a facsimile copy of a Notice of Conversion from a holder, the
Corporation shall immediately send, via facsimile, a confirmation to such holder
stating that the Notice of Conversion has been received, the date upon which the
Corporation expects to deliver the Common Stock issuable upon such conversion
and the name and telephone number of a contact person at the Corporation
regarding the conversion. The Corporation shall not be obligated to issue shares
of Common Stock upon a conversion unless either the Preferred Stock Certificates
are delivered to the Corporation or the transfer agent as provided above, or the
holder notifies the Corporation or the transfer agent that such certificates
have been lost, stolen or destroyed and delivers the documentation to the
Company required by Article XIV.B hereof.
(i) Delivery of Common Stock Upon Conversion. Upon the
surrender of Preferred Stock Certificates from a holder of Series B Preferred
Stock accompanied by a Notice of Conversion, the Corporation shall, no later
than the later of (a) the second business day following the Conversion Date and
(b) the business day following the date of such surrender (or, in the case of
lost, stolen or destroyed certificates, after provision of indemnity pursuant to
Article XIV.B) (the "Delivery Period"), issue and deliver to the holder or its
nominee (x) that number of shares of Common Stock issuable upon conversion of
such shares of Series B Preferred Stock being converted and (y) a certificate
representing the number of shares of Series B Preferred Stock not being
converted, if any. If the Corporation's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program, and
so long as the certificates therefor do not bear a legend and the holder thereof
is not obligated to return such certificate for the placement of a legend
thereon, the Corporation shall cause its transfer agent to electronically
transmit the Common Stock issuable upon conversion to the holder by crediting
the account of the holder or its nominee with DTC through its Deposit Withdrawal
Agent Commission system ("DTC Transfer"). If the aforementioned conditions to a
DTC Transfer are not satisfied, the Corporation shall deliver to the holder
physical certificates representing the Common Stock issuable upon conversion.
Further, a holder may instruct the Corporation to deliver to the holder physical
certificates representing the Common Stock issuable upon conversion in lieu of
delivering such shares by way of DTC Transfer.
(ii) Taxes. The Corporation shall pay any and all taxes which
may be imposed upon it with respect to the issuance and delivery of the shares
of Common Stock upon the conversion of the Series B Preferred Stock.
<PAGE>
(iii) No Fractional Shares. If any conversion of Series B
Preferred Stock would result in the issuance of a fractional share of Common
Stock, such fractional share shall be disregarded and the number of shares of
Common Stock issuable upon conversion of the Series B Preferred Stock shall be
the next higher whole number of shares.
(iv) Conversion Disputes. In the case of any dispute with
respect to a conversion, the Corporation shall promptly issue such number of
shares of Common Stock as are not disputed in accordance with subparagraph (i)
above. If such dispute involves the calculation of the Conversion Price, the
Corporation shall submit the disputed calculations to an independent outside
accountant via facsimile within two (2) business days of receipt of the Notice
of Conversion. The accountant, at the Corporation's sole expense, shall audit
the calculations and notify the Corporation and the holder of the results no
later than two (2) business days from the date it receives the disputed
calculations. The accountant's calculation shall be deemed conclusive, absent
manifest error. The Corporation shall then issue the appropriate number of
shares of Common Stock in accordance with subparagraph (i) above.
C. Limitations on Conversions. The conversion of shares of Series B
Preferred Stock shall be subject to the following limitations (each of which
limitations shall be applied independently):
(i) Cap Amount. Unless permitted by the applicable rules and
regulations of the principal securities market on which the Common Stock is
listed or traded, in no event shall the total number of shares of Common Stock
issued upon conversion of the Series B Preferred Stock exceed the maximum number
of shares of Common Stock that the Corporation can so issue pursuant to Rule
4460(i) of the National Association of Securities Dealers ("NASD") (or any
successor rule) (the "Cap Amount") which, as of the date of issuance of the
Series B Preferred Stock, shall be 2,397,000 shares. The Cap Amount shall be
allocated pro-rata to the holders of Series B Preferred Stock as provided in
Article XIV.C. In the event the Corporation is prohibited from issuing shares of
Common Stock as a result of the operation of this subparagraph (i), the
Corporation shall comply with Article VII.
(ii) No Five Percent Holders. Unless a holder of shares of Series
B Preferred Stock delivers a waiver in accordance with the last sentence of this
subparagraph (ii), in no event shall a holder of shares of Series B Preferred
Stock be entitled to receive shares of Common Stock upon a conversion to the
extent that the sum of (x) the number of shares of Common Stock beneficially
owned by the holder and its affiliates (exclusive of shares issuable upon
conversion of the unconverted portion of the shares of Series B Preferred Stock
or the unexercised or unconverted portion of any other securities of the
Corporation (including, without limitation, the warrants (the "Warrants") issued
by the Corporation pursuant to the Securities Purchase Agreement) subject to a
limitation on conversion or exercise analogous to the limitations contained
herein) and (y) the number of shares of Common Stock issuable upon the
conversion of the shares of Series B Preferred Stock with respect to which the
determination of this subparagraph is being made, would result in beneficial
ownership by the holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock. For purposes of this subparagraph, beneficial ownership
shall be determined in accordance with Section 13(d)
<PAGE>
of the Securities Exchange Act of 1934, as amended, and Regulation 13 D-G
thereunder, except as otherwise provided in clause (x) above. Except as provided
in the immediately succeeding sentence, the restriction contained in this
subparagraph (ii) shall not be altered, amended, deleted or changed in any
manner whatsoever unless the holders of a majority of the outstanding shares of
Common Stock and each holder of outstanding shares of Series B Preferred Stock
shall approve such alteration, amendment, deletion or change. Notwithstanding
the foregoing, a holder of shares of Series B Preferred Stock may waive the
restriction set forth in this subparagraph (ii) by written notice to the
Corporation upon not less than sixty-one (61) days prior notice (with such
waiver taking effect only upon the expiration of such sixty-one (61) day
period).
(iii) Conversions Below Floor Price.
(a) For purposes hereof, "Below Floor Conversion" means any
Conversion occurring on a Conversion Date on which the Average Price in effect
as of such date is less than the Floor Price in effect as of such date.
(b) So long as no Conversion Default (as defined in Article
VI hereof) or Mandatory Redemption Event (as defined in Article VIII.A hereof)
has occurred and is then continuing, holders of shares of Series B Preferred
Stock shall not be entitled to effect a Below Floor Conversion on or before
March 31, 1998 (the "Lockup Expiration Date"). Following the Lockup Expiration
Date, there shall be no restrictions pursuant to this Article IV.C.(iii) on the
ability of holders of shares of Series B Preferred Stock to effect Below Floor
Conversions.
(c) Notwithstanding the foregoing, the restrictions on
conversion set forth in subparagraph (b) of this Article IV.C.(iii) shall not
apply to conversions taking place on any Conversion Date (I) on or after the
date the Corporation makes a public announcement that it intends to merge or
consolidate with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged) or to
sell or transfer all or substantially all of the assets of the Corporation or
(II) on or after the date any person, group or entity (including the
Corporation) publicly announces a tender offer, exchange offer or another
transaction to purchase 50% or more of the Corporation's Common Stock or
otherwise publicly announces an intention to replace a majority of the
Corporation's Board of Directors by waging a proxy battle or otherwise.
V. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. Upon the initial issuance of the shares of Series B
Preferred Stock, the Corporation shall reserve 4,800,000 shares of the
authorized but unissued shares of Common Stock for issuance upon conversion of
the Series B Preferred Stock and thereafter the number of authorized but
unissued shares of Common Stock so reserved (the "Reserved Amount") shall not be
decreased and shall at all times be sufficient to provide for the conversion of
the Series B Preferred Stock outstanding at the then current Conversion Price
thereof. The Reserved Amount shall be allocated to the holders of Series B
Preferred Stock as provided in Article XIV.C.
B. Increases to Reserved Amount. If the Reserved Amount for any three
(3) consecutive trading days (the last of such three (3) trading days being the
"Authorization
<PAGE>
Trigger Date") shall be less than 135% of the number of shares of Common Stock
issuable upon conversion of the then outstanding shares of Series B Preferred
Stock, the Corporation shall immediately notify the holders of Series B
Preferred Stock of such occurrence and shall take immediate action (including,
if necessary, seeking shareholder approval to authorize the issuance of
additional shares of Common Stock) to increase the Reserved Amount to 200% of
the number of shares of Common Stock then issuable upon conversion of the
outstanding Series B Preferred Stock. In the event the Corporation fails to so
increase the Reserved Amount within ninety (90) days after an Authorization
Trigger Date, each holder of Series B Preferred Stock shall thereafter have the
option, exercisable in whole or in part at any time and from time to time by
delivery of a Mandatory Redemption Notice (as defined in Article VIII.C) to the
Corporation, to require the Corporation to purchase for cash, at an amount per
share equal to the Mandatory Redemption Amount (as defined in Article VIII.B), a
portion of the holder's Series B Preferred Stock such that, after giving effect
to such purchase, the holder's allocated portion of the Reserved Amount exceeds
135% of the total number of shares of Common Stock issuable to such holder upon
conversion of its Series B Preferred Stock. If the Corporation fails to redeem
any of such shares within five (5) business days after its receipt of such
Mandatory Redemption Notice, then such holder shall be entitled to the remedies
provided in Article VIII.C.
C. Limitations on Redemption Right. Notwithstanding the provisions of
Paragraph B of this Article V, the holders of Series B Preferred Stock shall
have no right to require the Corporation to effect a redemption of their
outstanding shares of Series B Preferred Stock as provided in Paragraph B of
this Article V so long as (i) the Corporation has not, at any time, decreased
the Reserved Amount below 4,800,000 shares of Common Stock; (ii) the Corporation
shall have taken immediate action following the applicable Authorization Trigger
Date (including, if necessary, seeking shareholder approval to authorize the
issuance of additional shares of Common Stock) to increase the Reserved Amount
to 200% of the number of shares of Common Stock then issuable upon conversion of
the outstanding Series B Preferred Stock; and (iii) the Corporation continues to
use its good faith best efforts (including the resolicitation of shareholder
approval to authorize the issuance of additional shares of Common Stock) to
increase the Reserved Amount to 200% of the number of shares of Common Stock
then issuable upon conversion of the outstanding Series B Preferred Stock. The
Corporation will be deemed to be using "its good faith best efforts" to increase
the Reserved Amount so long as it solicits shareholder approval to authorize the
issuance of additional shares of Common Stock not less than three (3) times
during each twelve month period following the applicable Authorization Trigger
Date during which any shares of Series B Preferred Stock remain outstanding.
VI. FAILURE TO SATISFY CONVERSIONS
A. Conversion Default Payments. If, at any time, (x) a holder of shares
of Series B Preferred Stock submits a Notice of Conversion and the Corporation
fails for any reason (other than because such issuance would exceed such
holder's allocated portion of the Reserved Amount or Cap Amount, for which
failures the holders shall have the remedies set forth in Articles V and VII,
respectively) to deliver, on or prior to the fourth (4th) business day following
the expiration of the Delivery Period for such conversion, such number of freely
tradeable shares of Common Stock to which such holder is entitled upon such
conversion, or (y) the Corporation provides notice to any
<PAGE>
holder of Series B Preferred Stock at any time of its intention not to issue
freely tradeable shares of Common Stock upon exercise by any holder of its
conversion rights in accordance with the terms of this Certificate of
Designation (other than because such issuance would exceed such holder's
allocated portion of the Reserved Amount or Cap Amount) (each of (x) and (y)
being a "Conversion Default"), then the Corporation shall pay to the affected
holder, in the case of a Conversion Default described in clause (x) above, and
to all holders, in the case of a Conversion Default described in clause (y)
above, an amount equal to:
(.24) x (D/365) x (the Default Amount)
where:
"D" means the number of days after the expiration of the Delivery
Period through and including the Default Cure Date;
"Default Amount" means (i) the total Face Amount of all shares of
Series B Preferred Stock held by such holder, plus (ii) the total accrued
Premium as of the first day of the Conversion Default on all shares of Series B
Preferred Stock included in clause (i) of this definition; and
"Default Cure Date" means (i) with respect to a Conversion Default
described in clause (x) of its definition, the date the Corporation effects the
conversion of the full number of shares of Series B Preferred Stock and (ii)
with respect to a Conversion Default described in clause (y) of its definition,
the date the Corporation begins to issue freely tradeable shares of Common Stock
in satisfaction of all conversions of Series B Preferred Stock in accordance
with Article IV.A, and (iii) with respect to either type of a Conversion
Default, the date on which the Corporation redeems shares of Series B Preferred
Stock held by such holder pursuant to Paragraph D of this Article VI.
The payments to which a holder shall be entitled pursuant to this
Paragraph A are referred to herein as "Conversion Default Payments." A holder
may elect to receive accrued Conversion Default Payments in cash or to convert
all or any portion of such accrued Conversion Default Payments, at any time,
into Common Stock at the lowest Conversion Price in effect during the period
beginning on the date of the Conversion Default through the Conversion Date with
respect to such Conversion Default Payments. In the event a holder elects to
receive any Conversion Default Payments in cash, it shall so notify the
Corporation in writing. Such payment shall be made in accordance with and be
subject to the provisions of Article XIV.E. In the event a holder elects to
convert all or any portion of the Conversion Default Payments into Common Stock,
the holder shall indicate on a Notice of Conversion such portion of the
Conversion Default Payments which such holder elects to so convert and such
conversion shall otherwise be effected in accordance with the provisions of
Article IV.
B. Adjustment to Conversion Price. If a holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Delivery Period with respect to a conversion of
Series B Preferred Stock for any reason (other than because such issuance would
exceed such holder's allocated portion of the Reserved Amount or Cap Amount, for
which failures the holders shall have the remedies set forth in Articles V and
VII), then the Fixed Conversion Price in respect of
<PAGE>
any shares of Series B Preferred Stock held by such holder (including shares of
Series B Preferred Stock submitted to the Corporation for conversion, but for
which shares of Common Stock have not been issued to such holder) shall
thereafter be the lesser of (i) the Fixed Conversion Price on the Conversion
Date specified in the Notice of Conversion which resulted in the Conversion
Default and (ii) the lowest Conversion Price in effect during the period
beginning on, and including, such Conversion Date through and including the
earlier of (x) the day such shares of Common Stock are delivered to the holder
and (y) the day on which the holder regains its rights as a holder of Series B
Preferred Stock with respect to such unconverted shares of Series B Preferred
Stock pursuant to the provisions of Article XIV.F hereof. If there shall occur a
Conversion Default of the type described in clause (y) of Article VI.A, then the
Fixed Conversion Price with respect to any conversion thereafter shall be the
lowest Conversion Price in effect at any time during the period beginning on,
and including, the date of the occurrence of such Conversion Default through and
including the Default Cure Date. The Fixed Conversion Price shall thereafter be
subject to further adjustment for any events described in Article XI.
C. Buy-In Cure. Unless the Corporation has notified the applicable
holder in writing prior to the delivery by such holder of a Notice of Conversion
that the Corporation is unable to honor conversions, if (i) (a) the Corporation
fails for any reason to deliver during the Delivery Period shares of Common
Stock to a holder upon a conversion of shares of Series B Preferred Stock or (b)
there shall occur a Legend Removal Failure (as defined in Article VIII.A(iii)
below) and (ii) thereafter, such holder purchases (in an open market transaction
or otherwise) shares of Common Stock to make delivery in satisfaction of a sale
by such holder of the unlegended shares of Common Stock (the "Sold Shares")
which such holder anticipated receiving upon such conversion (a "Buy-In"), the
Corporation shall pay such holder (in addition to any other remedies available
to the holder) the amount by which (x) such holder's total purchase price
(including brokerage commissions, if any) for the unlegended shares of Common
Stock so purchased exceeds (y) the net proceeds received by such holder from the
sale of the Sold Shares. For example, if a holder purchases unlegended shares of
Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to shares of Common Stock it sold for $10,000, the Corporation will be
required to pay the holder $1,000. A holder shall provide the Corporation
written notification and supporting documentation indicating any amounts payable
to such holder pursuant to this Paragraph C. The Corporation shall make any
payments required pursuant to this Paragraph C in accordance with and subject to
the provisions of Article XIV.E.
D. Redemption Right. If the Corporation fails, and such failure
continues uncured for five (5) business days after the Corporation has been
notified thereof in writing by the holder, for any reason (other than because
such issuance would exceed such holder's allocated portion of the Reserved
Amount or Cap Amount, for which failures the holders shall have the remedies set
forth in Articles V and VII) to issue shares of Common Stock within ten (10)
business days after the expiration of the Delivery Period with respect to any
conversion of Series B Preferred Stock, then the holder may elect at any time
and from time to time prior to the Default Cure Date for such Conversion
Default, by delivery of a Mandatory Redemption Notice to the Corporation, to
have all or any portion of such holder's outstanding shares of Series B
Preferred Stock purchased by the Corporation for cash, at an amount per share
equal to the Mandatory Redemption Amount (as defined in Article VIII.B). If the
Corporation fails to redeem
<PAGE>
any of such shares within five (5) business days after its receipt of such
Mandatory Redemption Notice, then such holder shall be entitled to the remedies
provided in Article VIII.C.
VII. INABILITY TO CONVERT DUE TO CAP AMOUNT
A. Obligation to Cure. If at any time after March 2, 1998 the then
unissued portion of any holder's Cap Amount is less than 135% of the number of
shares of Common Stock then issuable upon conversion of such holder's shares of
Series B Preferred Stock (a "Trading Market Trigger Event"), the Corporation
shall immediately notify the holders of Series B Preferred Stock of such
occurrence and shall take immediate action (including, if necessary, seeking the
approval of its shareholders to authorize the issuance of the full number of
shares of Common Stock which would be issuable upon the conversion of the then
outstanding shares of Series B Preferred Stock but for the Cap Amount) to
eliminate any prohibitions under applicable law or the rules or regulations of
any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Corporation or any of its securities on
the Corporation's ability to issue shares of Common Stock in excess of the Cap
Amount.
B. Remedies. In the event the Corporation fails to eliminate all
prohibitions on its ability to issue shares of Common Stock in excess of the Cap
Amount within ninety (90) days after the Trading Market Trigger Event and
thereafter the Corporation is prohibited, at any time, from issuing shares of
Common Stock upon conversion of Series B Preferred Stock to any holder because
such issuance would exceed the then unissued portion of such holder's Cap Amount
because of applicable law or the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Corporation or its securities, any holder who is so
prohibited from converting its Series B Preferred Stock may elect either or both
of the following remedies:
(i) to require, with the consent of holders of at least fifty
percent (50%) of the outstanding shares of Series B Preferred Stock (including
any shares of Series B Preferred Stock held by the requesting holder), the
Corporation to terminate the listing of its Common Stock on the NNM (or any
other stock exchange, interdealer quotation system or trading market) and to
cause its Common Stock to be eligible for trading on the Nasdaq SmallCap Market
or on the over-the-counter electronic bulletin board, at the option of the
requesting holder; or
(ii) to require the Corporation to issue shares of Common
Stock in accordance with such holder's Notice of Conversion at a conversion
price equal to the greater of (x) the Average Price and (y) the book value per
share of Common Stock, each in effect as of the date of the holder's written
notice to the Corporation of its election to receive shares of Common Stock
pursuant to this subparagraph (ii);
provided, however, that the Corporation may, at its option, by delivery of an
Optional Redemption Notice within five (5) business days after the Corporation's
receipt of any notice of election delivered by a holder pursuant to this Article
VII.B, elect to purchase for cash, at an amount per share equal to the Optional
Redemption Amount, a number of the holder's shares of Series B Preferred Stock
such that, after giving effect to such redemption, the then unissued portion of
such holder's Cap Amount exceeds 135% of the
<PAGE>
total number of shares of Common Stock issuable upon conversion of such holder's
shares of Series B Preferred Stock.
VIII. REDEMPTION DUE TO CERTAIN EVENTS
A. Redemption by Holder. In the event (each of the events described in
clauses (i)-(v) below after expiration of the applicable cure period (if any)
being a "Mandatory Redemption Event"):
(i) the Common Stock (including any of the shares of Common Stock
issuable upon conversion of the Series B Preferred Stock) is suspended from
trading on any of, or is not listed (and authorized) for trading on at least one
of, the New York Stock Exchange, the American Stock Exchange, the NNM or the
SmallCap for an aggregate of ten (10) trading days in any nine (9) month period;
(ii) the Corporation fails to remove any restrictive legend on any
certificate or any shares of Common Stock issued to the holders of Series B
Preferred Stock upon conversion of the Series B Preferred Stock as and when
required by this Certificate of Designation, the Securities Purchase Agreement
or the Registration Rights Agreement (a "Legend Removal Failure"), and any such
failure continues uncured for five (5) business days after the Corporation has
been notified thereof in writing by the holder;
(iii) the Corporation provides notice to any holder of Series B
Preferred Stock, including by way of public announcement, at any time, of its
intention not to issue shares of Common Stock to any holder of Series B
Preferred Stock upon conversion in accordance with the terms of this Certificate
of Designation (other than due to the circumstances contemplated by Articles V
or VII for which the holders shall have the remedies set forth in such
Articles);
(iv) the Corporation shall:
(a) sell, convey or dispose of all or substantially all of
its assets;
(b) merge, consolidate or engage in any other business
combination with any other entity (other than pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Corporation); or
(c) have approved, recommended or otherwise consented to any
transaction or series of related transactions which result in fifty percent
(50%) or more of the voting power of the Corporation's capital stock being owned
beneficially by one person, entity or "group" (as such term is used under
Section 13(d) of the Securities Exchange Act of 1934, as amended);
(v) the Corporation otherwise shall breach any other material term
hereunder or under the Securities Purchase Agreement or the Registration Rights
Agreement and such breach continues uncured for ten (10) business days after the
Corporation has been notified thereof in writing by the holder; then, upon the
occurrence of any such Mandatory Redemption Event, each holder of shares of
Series B Preferred Stock shall thereafter have the option, exercisable in whole
or in part at any time and
<PAGE>
from time to time by delivery of a Mandatory Redemption Notice (as defined in
Paragraph C below) to the Corporation while such Mandatory Redemption Event
continues, to require the Corporation to purchase for cash any or all of the
then outstanding shares of Series B Preferred Stock held by such holder for an
amount per share equal to the Mandatory Redemption Amount (as defined in
Paragraph B below) in effect at the time of the redemption hereunder. For the
avoidance of doubt, the occurrence of any event described in clauses (i), (iii)
or (iv) above shall immediately constitute a Mandatory Redemption Event and
there shall be no cure period; provided, however, that the holders of Series B
Preferred Stock shall have no right to deliver a Mandatory Redemption Notice
following the occurrence of a Mandatory Redemption Event specified in clause (i)
above if the Corporation pays to each holder within five (5) business days after
the occurrence of such Mandatory Redemption Event, as liquidated damages for the
decrease in the value of the Series B Preferred Stock (and the shares of the
Corporation's Common Stock issuable upon conversion thereof) which will result
from the occurrence of such Mandatory Redemption Event, an amount (the "Damages
Amount") equal to twenty-five percent (25%) of the aggregate Face Amount of the
shares of Series B Preferred Stock then held by each such holder. The Damages
Amount shall be payable, at the Corporation's option, in cash or shares of
Common Stock (based upon a price per share of Common Stock equal to fifty
percent (50%) of the Average Price as of the date of such Mandatory Redemption
Event). Upon the initial issuance of shares of Series B Preferred Stock, the
Corporation shall reserve 1,500,000 shares of Common Stock to satisfy its
obligation with respect to the Damages Amount and thereafter the number of
authorized but unissued shares of Common Stock so reserved shall not be
decreased. In the event that the number of shares required to be issued by the
Corporation with respect to the Damages Amount exceeds 1,500,000 shares of
Common Stock and the Corporation does not have a sufficient number of shares of
Common Stock authorized and available for issuance to satisfy its obligation
with respect to the Damages Amount, the Corporation shall issue and deliver to
the holders, on a pro-rata basis based on the number of shares of Series B
Preferred Stock then held by each such holder, a number of shares of Common
Stock equal to the greater of (i) the number of shares authorized and available
for issuance by the Corporation to satisfy such obligation and (ii) all
1,500,000 shares of Common Stock so reserved for such purpose and, upon such
issuance, the holders shall have no right of redemption with respect to such
Mandatory Redemption Event, but shall retain all other remedies to which they
may be entitled at law or in equity (which remedies shall not include the right
of redemption).
Upon the Corporation's receipt of any Mandatory Redemption Notice
hereunder (other than during the three (3) trading day period following the
Corporation's delivery of a Mandatory Redemption Announcement (as defined below)
to all of the holders in response to the Corporation's initial receipt of a
Mandatory Redemption Notice from a holder of Series B Preferred Stock), the
Corporation shall immediately (and in any event within one (1) business day
following such receipt) deliver a written notice (a "Mandatory Redemption
Announcement") to all holders of Series B Preferred Stock stating the date upon
which the Corporation received such Mandatory Redemption Notice and the amount
of Series B Preferred Stock covered thereby. The Corporation shall not redeem
any shares of Series B Preferred Stock during the three (3) trading day period
following the delivery of a required Mandatory Redemption Announcement
hereunder. At any time and from time to time during such three (3) trading day
period, each holder of Series B Preferred Stock may request (either orally or in
writing) information from the Corporation with respect to the instant redemption
(including, but not limited to, the aggregate number
<PAGE>
of shares of Series B Preferred Stock covered by Mandatory Redemption Notices
received by the Corporation) and the Corporation shall furnish (either orally or
in writing) as soon as practicable such requested information to such requesting
holder.
B. Definition of Mandatory Redemption Amount. The "Mandatory Redemption
Amount" with respect to a share of Series B Preferred Stock means an amount
equal to the greater of:
(i) V x M
-----------------
C P
and
(ii) The sum of (x) the product of (I) one hundred percent
(100%) divided by the Conversion Percentage in effect on the date on which the
Corporation receives the Mandatory Redemption Notice, times (II) the Face Amount
thereof, plus (y) the accrued Premium thereon and all unpaid Conversion Default
Payments owing (if any) with respect thereto through the date of payment of the
Mandatory Redemption Amount.
where:
"V" means the Face Amount thereof plus the accrued Premium thereon and
all unpaid Conversion Default Payments owing (if any) with respect thereto
through the date of payment of the Mandatory Redemption Amount;
"CP" means the Conversion Price in effect on the date on which the
Corporation receives the Mandatory Redemption Notice; and
"M" means (i) with respect to all redemptions other than redemptions
pursuant to Article VIII.A(iv) hereof, the highest Closing Price of the
Corporation's Common Stock during the period beginning on the date on which the
Corporation receives the Mandatory Redemption Notice and ending on the date
immediately preceding the date of payment of the Mandatory Redemption Amount and
(ii) with respect to redemptions pursuant to Article VIII.A(iv) hereof, the
greater of (a) the amount determined pursuant to clause (i) of this definition
or (b) the fair market value, as of the date on which the Corporation receives
the Mandatory Redemption Notice, of the consideration payable to the holder of a
share of Common Stock pursuant to the transaction which triggers the redemption.
For purposes of this definition, "fair market value" shall be determined by the
mutual agreement of the Company and holders of a majority-in-interest of the
shares of Series B Preferred Stock then outstanding, or if such agreement cannot
be reached within five (5) business days prior to the date of redemption, by an
investment banking firm selected by the Corporation and reasonably acceptable to
holders of a majority-in-interest of the then outstanding shares of Series B
Preferred Stock, with the costs of such appraisal to be borne by the
Corporation.
C. Redemption Defaults. If the Corporation fails to pay any holder the
Mandatory Redemption Amount with respect to any share of Series B Preferred
Stock within five (5) business days after its receipt of a notice requiring such
redemption (a "Mandatory Redemption Notice"), then the holder of Series B
Preferred Stock delivering such Mandatory Redemption Notice (i) shall be
entitled to interest on the Mandatory
<PAGE>
Redemption Amount at a per annum rate equal to the lower of twenty-four percent
(24%) and the highest interest rate permitted by applicable law from the date on
which the Corporation receives the Mandatory Redemption Notice until the date of
payment of the Mandatory Redemption Amount hereunder, and (ii) shall have the
right, at any time and from time to time prior to payment thereof in cash, to
require the Corporation, upon written notice, to immediately convert (in
accordance with the terms of Paragraph A of Article IV) all or any portion of
the Mandatory Redemption Amount, plus interest as aforesaid, into shares of
Common Stock at the lowest Conversion Price in effect during the period
beginning on the date on which the Corporation receives the Mandatory Redemption
Notice and ending on the Conversion Date with respect to the conversion of such
Mandatory Redemption Amount. In the event the Corporation is not able to redeem
all of the shares of Series B Preferred Stock subject to Mandatory Redemption
Notices delivered prior to the date upon which such redemption is to be
effected, the Corporation shall redeem shares of Series B Preferred Stock from
each holder pro rata, based on the total number of shares of Series B Preferred
Stock outstanding at the time of redemption included by such holder in all
Mandatory Redemption Notices delivered prior to the date upon which such
redemption is to be effected relative to the total number of shares of Series B
Preferred Stock outstanding at the time of redemption included in all of the
Mandatory Redemption Notices delivered prior to the date upon which such
redemption is to be effected.
D. Redemption at the Corporation's Option.
(i) The Corporation shall have the right, at any time, so long as
no Conversion Default or Mandatory Redemption Event shall have occurred and be
continuing, to redeem (an "Optional Redemption") all, but not less than all, of
the then outstanding shares of Series B Preferred Stock (excluding shares of
Series B Preferred Stock subject to a Notice of Conversion delivered to the
Corporation prior to the date of the Optional Redemption Notice (as defined in
subparagraph (iii) below)) for cash, at an amount per share equal to the
Optional Redemption Amount (as defined below), by delivering an Optional
Redemption Notice to the holders of Series B Preferred Stock. Subject to the
provisions of Article IV.C hereof, holders of Series B Preferred Stock may
convert all or any part of their shares of Series B Preferred Stock selected for
redemption hereunder into Common Stock by delivering a Notice of Conversion to
the Corporation at any time prior to the Effective Date of Redemption. For
purposes hereof, the "Optional Redemption Amount" with respect to a share of
Series B Preferred Stock means an amount equal to the greater of:
(a) V x M
--------------------------
C P
and
(b) The sum of (x) the product of (I) one hundred percent
(100%) divided by the Conversion Percentage in effect on the date of the
Optional Redemption Notice, times (II) the Face Amount thereof, plus (y) the
accrued Premium thereon and all unpaid Conversion Default Payments owing (if
any) with respect thereto through the Effective Date of Redemption (as defined
in subparagraph (iii) below).
where:
<PAGE>
"V" means the Face Amount thereof plus the accrued Premium thereon and
all unpaid Conversion Default Payments owing (if any) with respect thereto
through the Effective Date of Redemption;
"CP" means the Conversion Price in effect on the date of the Optional
Redemption Notice; and
"M" means the Closing Price of the Corporation's Common Stock on the
date of the Optional Redemption Notice.
(ii) The Corporation may not deliver an Optional Redemption
Notice to the holders of Series B Preferred Stock unless on or prior to the date
of delivery of such Optional Redemption Notice, the Corporation shall have
deposited with an escrow agent reasonably acceptable to holders of a majority of
the outstanding shares of Series B Preferred Stock, as a trust fund, cash
sufficient in amount to pay all amounts to which the holders of Series B
Preferred Stock are entitled upon such redemption pursuant to subparagraph (i)
of this Paragraph D, with irrevocable instructions and authority to such escrow
agent to complete the redemption thereof in accordance with this Paragraph D.
Any Optional Redemption Notice delivered in accordance with the immediately
preceding sentence shall be accompanied by a statement executed by a duly
authorized officer of its escrow agent, certifying the amount of funds which
have been deposited with such escrow agent and that the escrow agent has been
instructed and agrees to act as redemption agent hereunder.
(iii) The Corporation shall effect an Optional Redemption
under this Section VIII.D by giving at least thirty (30) business days prior
written notice (the "Optional Redemption Notice") of the date on which such
redemption is to become effective (the "Effective Date of Redemption") and the
Optional Redemption Amount to (i) the holders of Series B Preferred Stock at the
address and facsimile number of each holder appearing in the Corporation's
register for the Series B Preferred Stock and (ii) the transfer agent for the
Common Stock, which Optional Redemption Notice shall be deemed to have been
delivered on the business day after the Corporation's fax (with a copy sent by
overnight courier to the holders of Series B Preferred Stock) of such notice to
the holders of Series B Preferred Stock.
(iv) The Optional Redemption Amount shall be paid to the
holder of the Series B Preferred Stock being redeemed within three (3) business
days of the Effective Date of Redemption; provided, however, that the
Corporation shall not be obligated to deliver any portion of the Optional
Redemption Amount until either the certificates evidencing the Series B
Preferred Stock being redeemed are delivered to the office of the Corporation or
the escrow agent or the holder notifies the Corporation or the escrow agent that
such certificates have been lost, stolen or destroyed and delivers the
documentation in accordance with Article XIV.B hereof. Notwithstanding anything
herein to the contrary, in the event that the certificates evidencing the Series
B Preferred Stock being redeemed are not delivered to the Corporation or the
escrow agent prior to the third business day following the Effective Date of
Redemption, the redemption of the Series B Preferred Stock pursuant to this
Article VIII.D shall still be deemed effective as of the Effective Date of
Redemption and the Optional Redemption Amount shall be paid to the holder of
Series B Preferred Stock being redeemed within five (5) business days of
<PAGE>
the date the certificates evidencing the Series B Preferred Stock being redeemed
are actually delivered to the Corporation or the escrow agent.
E. Redemptions Below Floor Price. In the event that any holder of
Series B Preferred Stock attempts to effect a Below Floor Conversion, the
Corporation shall have the option, in lieu of issuing shares of Common Stock to
the converting holder, to redeem all or any portion of the shares of Series B
Preferred Stock submitted for conversion for an amount per share in cash equal
to the Optional Redemption Amount (treating, for purposes of this Article
VIII.E, the Conversion Date applicable to such Below Floor Conversion as the
"date of the Optional Redemption Notice" and the date on which the Corporation
delivers the Optional Redemption Amount to the holder as the "Effective Date of
Redemption"). From time to time, the holders may request advance notice as to
whether the Corporation will issue shares of Common Stock, deliver cash in
redemption or any combination thereof in respect of the shares of Series B
Preferred Stock submitted for conversion. Such request shall be made in writing
and the Corporation shall respond in writing as promptly as practicable but in
any event within three (3) business days of receipt of the request. The
Corporation will be bound by such response for a period of thirty (30) trading
days from the date of its response. A failure to respond within three (3)
business days shall be deemed to be an election to issue Common Stock on
conversion. Any amounts payable hereunder shall be paid to the converting holder
within five (5) business days of the applicable Conversion Date. If the
Corporation fails to pay any holder the Optional Redemption Amount with respect
to any share of Series B Preferred Stock within such five (5) business day
period, then the Corporation shall thereafter be deemed to have forfeited all of
its rights to effect redemptions under this Article VIII.E and under Article
VIII.D above and the holder (i) shall be entitled to interest on the Optional
Redemption Amount at a per annum rate equal to the lower of twenty-four percent
(24%) and the highest interest rate permitted by applicable law, and (ii) shall
have the right, at any time and from time to time, to require the Corporation,
upon written notice, to immediately convert (in accordance with the terms of
Paragraph A of Article IV) all or any portion of such Optional Redemption
Amount, plus interest as aforesaid, into shares of Common Stock at the lowest
Conversion Price in effect during the period beginning on and including the
Conversion Date with respect to such attempted Below Floor Conversion and ending
on the Conversion Date with respect to the conversion of such Optional
Redemption Amount.
IX. RANK
All shares of the Series B Preferred Stock shall rank (i) prior to the
Corporation's Common Stock and Series A Convertible Preferred Stock; (ii) prior
to any class or series of capital stock of the Corporation hereafter created
(unless, with the consent of the holders of Series B Preferred Stock obtained in
accordance with Article XIII hereof, such class or series of capital stock
specifically, by its terms, ranks senior to or pari passu with the Series B
Preferred Stock) (collectively with the Common Stock and Series A Convertible
Preferred Stock, "Junior Securities"); (iii) pari passu with any class or series
of capital stock of the Corporation hereafter created (with the consent of the
holders of Series B Preferred Stock obtained in accordance with Article XIII
hereof) specifically ranking, by its terms, on parity with the Series
<PAGE>
B Preferred Stock (the "Pari Passu Securities"); and (iv) junior to any class or
series of capital stock of the Corporation hereafter created (with the consent
of the holders of Series B Preferred Stock obtained in accordance with Article
XIII hereof) specifically ranking, by its terms, senior to the Series B
Preferred Stock (the "Senior Securities"), in each case as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
X. LIQUIDATION PREFERENCE
A. If the Corporation shall commence a voluntary case under the U.S.
Federal bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the U.S. Federal bankruptcy laws or any other
applicable bankruptcy, insolvency or similar law resulting in the appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of sixty (60) consecutive
days and, on account of any such event, the Corporation shall liquidate,
dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve
or wind up, including, but not limited to, the sale or transfer of all or
substantially all of the Corporation's assets in one transaction or in a series
of related transactions (a "Liquidation Event"), no distribution shall be made
to the holders of any shares of capital stock of the Corporation (other than
Senior Securities) upon liquidation, dissolution or winding up unless prior
thereto the holders of shares of Series B Preferred Stock shall have received
the Liquidation Preference with respect to each share. If, upon the occurrence
of a Liquidation Event, the assets and funds available for distribution among
the holders of the Series B Preferred Stock and holders of Pari Passu Securities
shall be insufficient to permit the payment to such holders of the preferential
amounts payable thereon, then the entire assets and funds of the Corporation
legally available for distribution to the Series B Preferred Stock and the Pari
Passu Securities shall be distributed ratably among such shares in proportion to
the ratio that the Liquidation Preference payable on each such share bears to
the aggregate Liquidation Preference payable on all such shares.
B. The purchase or redemption by the Corporation of stock of any class,
in any manner permitted by law, shall not, for the purposes hereof, be regarded
as a liquidation, dissolution or winding up of the Corporation. Neither the
consolidation or merger of the Corporation with or into any other entity nor the
sale or transfer by the Corporation of less than substantially all of its assets
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Corporation.
C. The "Liquidation Preference" with respect to a share of Series B
Preferred Stock means an amount equal to the Face Amount thereof plus the
accrued Premium thereon through the date of final distribution. The Liquidation
Preference with respect to any Pari Passu Securities shall be as set forth in
the Certificate of Designation filed in respect thereof.
XI. ADJUSTMENTS TO THE CONVERSION PRICE
<PAGE>
The Conversion Price and the Floor Price shall be subject to adjustment
from time to time as follows:
A. Stock Splits, Stock Dividends, Etc. If at any time on or after the
Issuance Date, the number of outstanding shares of Common Stock is increased by
a stock split, stock dividend, combination, reclassification or other similar
event, the Fixed Conversion Price and the Floor Price shall be proportionately
reduced, or if the number of outstanding shares of Common Stock is decreased by
a reverse stock split, combination or reclassification of shares, or other
similar event, the Fixed Conversion Price and the Floor Price shall be
proportionately increased. In such event, the Corporation shall notify the
Corporation's transfer agent of such change on or before the effective date
thereof.
B. Adjustment Due to Merger, Consolidation, Etc. If, at any time after
the Issuance Date, there shall be (i) any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged), (iii)
any sale or transfer of all or substantially all of the assets of the
Corporation or (iv) any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property (each of
(i) - (iv) above being a "Corporate Change"), then the holders of Series B
Preferred Stock shall thereafter have the right to receive upon conversion, in
lieu of the shares of Common Stock otherwise issuable, such shares of stock,
securities and/or other property as would have been issued or payable in such
Corporate Change with respect to or in exchange for the number of shares of
Common Stock which would have been issuable upon conversion (without giving
effect to the limitations contained in Article IV.C) had such Corporate Change
not taken place, and in any such case, appropriate provisions shall be made with
respect to the rights and interests of the holders of the Series B Preferred
Stock to the end that the provisions hereof (including, without limitation,
provisions for adjustment of the Conversion Price and the Floor Price and of the
number of shares of Common Stock issuable upon conversion of the Series B
Preferred Stock) shall thereafter be applicable, as nearly as may be practicable
in relation to any shares of stock or securities thereafter deliverable upon the
conversion thereof.
The Corporation shall not effect any Corporate Change unless (i) each holder of
Series B Preferred Stock has received written notice of such transaction at
least seventy-five (75) days prior thereto, but in no event later than twenty
(20) days prior to the record date for the determination of shareholders
entitled to vote with respect thereto, and (ii) the resulting successor or
acquiring entity (if not the Corporation) assumes by written instrument the
obligations of this Certificate of Designation. The above provisions shall apply
regardless of whether or not there would have been a sufficient number of shares
of Common Stock authorized and available for issuance upon conversion of the
shares of Series B Preferred Stock outstanding as of the date of such
transaction, and shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges.
C. Adjustment Due to Major Announcement. In the event the Corporation
at any time after the Issuance Date (i) makes a public announcement that it
intends to
<PAGE>
consolidate or merge with any other entity (other than a merger in which the
Corporation is the surviving or continuing entity and its capital stock is
unchanged) or to sell or transfer all or substantially all of the assets of the
Corporation or (ii) any person, group or entity (including the Corporation)
publicly announces a tender offer, exchange offer or another transaction to
purchase 50% or more of the Corporation's Common Stock or otherwise publicly
announces an intention to replace a majority of the Corporation's Board of
Directors by waging a proxy battle or otherwise (the date of the announcement
referred to in clause (i) or (ii) of this Paragraph C is hereinafter referred to
as the "Announcement Date"), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the sixth (6th) trading day following
the earlier of the consummation of the proposed transaction or tender offer,
exchange offer or another transaction or the Abandonment Date (as defined
below), be equal to the lower of (x) the Conversion Price which would have been
applicable for a Conversion occurring on the Announcement Date and (y) the
Conversion Price determined in accordance with Article III.E on the Conversion
Date set forth in the Notice of Conversion for the Conversion. From and after
the sixth (6th) trading day following the Abandonment Date, the Conversion Price
shall be determined as set forth in Article III.E. "Abandonment Date" means with
respect to any proposed transaction or tender offer, exchange offer or another
transaction for which a public announcement as contemplated by this Paragraph C
has been made, the date upon which the Corporation (in the case of clause (i)
above) or the person, group or entity (in the case of clause (ii) above)
publicly announces the termination or abandonment of the proposed transaction or
tender offer, exchange offer or another transaction which caused this Paragraph
C to become operative.
D. Adjustment Due to Distribution. If at any time after the Issuance
Date the Corporation shall declare or make any distribution of its assets (or
rights to acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's shareholders in cash or shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e. a spin-off)) (a
"Distribution"), then the holders of Series B Preferred Stock shall be entitled,
upon any conversion of shares of Series B Preferred Stock after the date of
record for determining shareholders entitled to such Distribution, to receive
the amount of such assets which would have been payable to the holder with
respect to the shares of Common Stock issuable upon such conversion (without
giving effect to the limitations contained in Article IV.C) had such holder been
the holder of such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.
E. Issuance of Other Securities With Variable Conversion Price. If the
Corporation shall issue any securities which are convertible into or
exchangeable for Common Stock ("Convertible Securities") at a conversion or
exchange rate based on a discount to the market price of the Common Stock at the
time of conversion or exercise, then the Conversion Percentage in respect of any
conversion of Series B Preferred Stock after such issuance shall be calculated
utilizing the higher of the greatest discount applicable to any such Convertible
Securities and the difference between one hundred percent (100%) and the
Conversion Percentage then in effect hereunder.
F. Purchase Rights. If at any time after the Issuance Date, the
Corporation issues any Convertible Securities or rights to purchase stock,
warrants, securities or other property (the "Purchase Rights") pro rata to the
record holders of any class of Common
<PAGE>
Stock, then the holders of Series B Preferred Stock will be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which such holder could have acquired if such holder had held the number of
shares of Common Stock acquirable upon complete conversion of the Series B
Preferred Stock (without giving effect to the limitations contained in Article
IV.C) immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
G. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price and/or Floor Price pursuant to this Article
XI, the Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to each holder of Series B Preferred Stock
a certificate setting forth such adjustment or readjustment and showing 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
B Preferred Stock, furnish to such holder a like certificate setting forth (i)
such adjustment or readjustment, (ii) the Conversion Price and/or Floor Price at
the time in effect and (iii) the number of shares of Common Stock and the
amount, if any, of other securities or property which at the time would be
received upon conversion of a share of Series B Preferred Stock.
XII. VOTING RIGHTS
Except as otherwise provided herein, the holders of the Series B
Preferred Stock shall have such voting rights as are provided in the
Corporation's Certificate of Incorporation as in effect on the date hereof and
as the same may be amended or restated hereafter (the "Certificate of
Incorporation") and as otherwise provided by the Connecticut Business
Corporation Act (the "Business Corporation Act") and in Article XIII below.
The Corporation shall provide each holder of Series B Preferred Stock
with prior notification of any meeting of the shareholders (and copies of proxy
materials and other information sent to shareholders). If the Corporation takes
a record of its shareholders for the purpose of determining shareholders
entitled to (a) receive payment of any dividend or other distribution, any right
to subscribe for, purchase or otherwise acquire (including by way of merger,
consolidation or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or (b) to vote in
connection with any proposed sale, lease or conveyance of all or substantially
all of the assets of the Corporation, or any proposed merger, consolidation,
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder, at least twenty (20) days prior to the record date
specified therein (or seventy- five (75) days prior to the consummation of the
transaction or event, whichever is earlier, but in no event earlier than public
announcement of such proposed transaction), of the date on which any such record
is to be taken for the purpose of such vote, dividend, distribution, right or
other event, and a brief statement regarding the amount and character of such
vote, dividend, distribution, right or other event to the extent known at such
time.
To the extent that under the Business Corporation Act or the
Certificate of Incorporation the vote of the holders of the Series B Preferred
Stock, voting separately as a class or series, as applicable, is required to
authorize a given action of the Corporation,
<PAGE>
the affirmative vote or consent of the holders of at least a majority of the
then outstanding shares of the Series B Preferred Stock represented at a duly
held meeting at which a quorum is present or by written consent of the holders
of at least a majority of the then outstanding shares of Series B Preferred
Stock (except as otherwise may be required hereunder or under the Business
Corporation Act or the Certificate of Incorporation) shall constitute the
approval of such action by the class. To the extent that under the Business
Corporation Act or the Certificate of Incorporation holders of the Series B
Preferred Stock are entitled to vote on a matter with holders of Common Stock,
voting together as one class, each share of Series B Preferred Stock shall be
entitled to a number of votes equal to the number of shares of Common Stock into
which it is then convertible (subject to the limitations contained in Article
IV.C(ii)) using the record date for the taking of such vote of shareholders as
the date as of which the Conversion Price is calculated.
XIII. PROTECTION PROVISIONS
So long as any shares of Series B Preferred Stock are outstanding, the
Corporation shall not without first obtaining the approval (by vote or written
consent, as provided by the Business Corporation Act) of the holders of (i) all
of the then outstanding shares of Series B Preferred Stock with respect to
subsection (a) below or (ii) at least 67% of the then outstanding shares of
Series B Preferred Stock with respect to subsections (b) through (h) below:
(a) alter or change the rights, preferences or privileges of the
Series B Preferred Stock;
(b) alter or change the rights, preferences or privileges of any
capital stock of the Corporation so as to affect adversely the Series B
Preferred Stock;
(c) create any new class or series of capital stock having a
preference over the Series B Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Article IX hereof, "Senior Securities");
(d) create any new class or series of capital stock ranking pari
passu with the Series B Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Article IX hereof, "Pari Passu Securities");
(e) increase the authorized number of shares of Series B Preferred
Stock;
(f) issue any shares of Senior Securities or Pari Passu
Securities;
(g) issue any shares of Series B Preferred Stock other than
pursuant to the Securities Purchase Agreement; or
(h) redeem, or declare or pay any cash dividend or distribution
on, any Junior Securities.
<PAGE>
Notwithstanding the foregoing, no change pursuant to this Article XIII shall be
effective to the extent that, by its terms, it applies to less than all of the
holders of shares of Series B Preferred Stock then outstanding.
XIV. MISCELLANEOUS
A. Cancellation of Series B Preferred Stock. If any shares of Series B
Preferred Stock are converted pursuant to Article IV, the shares so converted
shall be cancelled, shall return to the status of authorized, but unissued
preferred stock of no designated series, and shall not be issuable by the
Corporation as Series B Preferred Stock.
B. Lost or Stolen Certificates. Upon receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to the Corporation, or (z) in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Corporation shall execute and deliver new Preferred Stock
Certificate(s) of like tenor and date. However, the Corporation shall not be
obligated to reissue such lost or stolen Preferred Stock Certificate(s) if the
holder contemporaneously requests the Corporation to convert such Series B
Preferred Stock.
C. Allocation of Cap Amount and Reserved Amount. The initial Cap Amount
and Reserved Amount shall be allocated pro rata among the holders of Series B
Preferred Stock based on the number of shares of Series B Preferred Stock issued
to each holder. Each increase to the Cap Amount and Reserved Amount shall be
allocated pro rata among the holders of Series B Preferred Stock based on the
number of shares of Series B Preferred Stock held by each holder at the time of
the increase in the Cap Amount or Reserved Amount. In the event a holder shall
sell or otherwise transfer any of such holder's shares of Series B Preferred
Stock, each transferee shall be allocated a pro rata portion of such
transferor's Cap Amount and Reserved Amount. Any portion of the Cap Amount or
Reserved Amount which remains allocated to any person or entity which does not
hold any Series B Preferred Stock shall be allocated to the remaining holders of
shares of Series B Preferred Stock, pro rata based on the number of shares of
Series B Preferred Stock then held by such holders.
D. Quarterly Statements of Available Shares. For each calendar quarter
beginning in the quarter in which the registration statement required to be
filed pursuant to Section 2(a) of the Registration Rights Agreement is declared
effective and thereafter so long as any shares of Series B Preferred Stock are
outstanding, the Corporation shall deliver (or cause its transfer agent to
deliver) to each holder a written report notifying the holders of any occurrence
which prohibits the Corporation from issuing Common Stock upon any such
conversion. The report shall also specify (i) the total number of shares of
Series B Preferred Stock outstanding as of the end of such quarter, (ii) the
total number of shares of Common Stock issued upon all conversions of Series B
Preferred Stock prior to the end of such quarter, (iii) the total number of
shares of Common Stock which are reserved for issuance upon conversion of the
Series B Preferred Stock as of the end of such quarter and (iv) the total number
of shares of Common Stock which may thereafter be issued by the Corporation upon
conversion of the Series B Preferred Stock before the Corporation would exceed
the Cap Amount and the Reserved Amount. The Corporation (or its transfer agent)
shall deliver the report for each quarter to each holder prior to the
<PAGE>
tenth (10th) day of the calendar month following the quarter to which such
report relates. In addition, the Corporation (or its transfer agent) shall
provide, within fifteen (15) days after delivery to the Corporation of a written
request by any holder, any of the information enumerated in clauses (i) - (iv)
of this Paragraph D as of the date of such request.
E. Payment of Cash; Defaults. Whenever the Corporation is required to
make any cash payment to a holder under this Certificate of Designation (as a
Conversion Default Payment, upon redemption or otherwise), such cash payment
shall be made to the holder within five (5) business days after delivery by such
holder of a notice specifying that the holder elects to receive such payment in
cash and the method (e.g., by check, wire transfer) in which such payment should
be made. If such payment is not delivered within such five (5) business day
period, such holder shall thereafter be entitled to interest on the unpaid
amount at a per annum rate equal to the lower of twenty-four percent (24%) and
the highest interest rate permitted by applicable law until such amount is paid
in full to the holder.
F. Status as Stockholder. Upon submission of a Notice of Conversion by
a holder of Series B Preferred Stock, (i) the shares covered thereby (other than
the shares, if any, which cannot be issued because their issuance would exceed
such holder's allocated portion of the Reserved Amount or Cap Amount) shall be
deemed converted into shares of Common Stock and (ii) the holder's rights as a
holder of such converted shares of Series B Preferred Stock shall cease and
terminate, excepting only the right to receive certificates for such shares of
Common Stock and to any remedies provided herein or otherwise available at law
or in equity to such holder because of a failure by the Corporation to comply
with the terms of this Certificate of Designation. In situations where Article
VI.B is applicable, the number of shares of Common Stock referred to in clauses
(i) and (ii) of the immediately preceding sentence shall be determined on the
date on which such shares of Common Stock are delivered to the holder.
Notwithstanding the foregoing, if a holder has not received certificates for all
shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Delivery Period with respect to a conversion of Series B
Preferred Stock for any reason, then (unless the holder otherwise elects to
retain its status as a holder of Common Stock by so notifying the Corporation
within five (5) business days after the expiration of such ten (10) business day
period after expiration of the Delivery Period) the holder shall regain the
rights of a holder of Series B Preferred Stock with respect to such unconverted
shares of Series B Preferred Stock and the Corporation shall, as soon as
practicable, return such unconverted shares to the holder. In all cases, the
holder shall retain all of its rights and remedies (including, without
limitation, (i) the right to receive Conversion Default Payments pursuant to
Article VI.A to the extent required thereby for such Conversion Default and any
subsequent Conversion Default and (ii) the right to have the Conversion Price
with respect to subsequent conversions determined in accordance with Article
VI.B) for the Corporation's failure to convert Series B Preferred Stock.
G. Remedies Cumulative. The remedies provided in this Certificate of
Designation shall be cumulative and in addition to all other remedies available
under this Certificate of Designation, at law or in equity (including a decree
of specific performance and/or other injunctive relief), and nothing herein
shall limit a holder's right to pursue actual damages for any failure by the
Corporation to comply with the terms of this Certificate of Designation. The
Corporation acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the holders of Series B Preferred
<PAGE>
Stock and that the remedy at law for any such breach may be inadequate. The
Corporation therefore agrees, in the event of any such breach or threatened
breach, that the holders of Series B Preferred Stock shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
FIFTH. The minimum amount of stated capital with which the corporation shall
commence business is One Thousand Dollars.
SIXTH.
A. The personal liability of a director to the corporation or its
shareholders for monetary damages for breach of duty as a director shall be
limited to an amount that is equal to the compensation received by the director
for serving the corporation during the year of the violation if such breach did
not (A) involve a knowing and culpable violation of law by the director, (B)
enable the director, or an associated, as defined in subdivision (3) of section
33-374d of the Connecticut General Statutes, to receive an improper personal
economic gain, (C) show a lack of good faith and conscious disregard for the
duty of the director to the corporation under the circumstances in which the
director was aware that his conduct or omission created an unjustifiable risk of
serious injury to the corporation, (D) constitute a sustained or unexcused
pattern of inattention that amounted to an abdication of the director's duty to
the corporation, or (E) create liability under section 33-321 of the Connecticut
General Statutes. Nothing herein shall limit or preclude the liability of a
director for any act or omission occurring prior to the effective date of this
provision.
B. As permitted by Section 33-343(f) of the Connecticut Stock
Corporation Act, all preemptive rights of shareholders are hereby denied, and no
holder of any shares of stock of the corporation shall be entitled as a matter
of right to subscribe for, purchase or receive any shares of stock of the
corporation (or any obligation convertible into, or warrant or other instrument
entitling the holder to purchase, any stock of the (corporation) which the
corporation may issue or sell, whether out of the number of shares of stock now
authorized, or whenever authorized, or out of shares of stock of the corporation
acquired by it after issuance.
C. The terms of the directors shall be staggered by dividing the total
number of directors into three classes, with each class comprising as nearly as
possible the same percentage of the total as each other class. The classes shall
be formally referenced as Class 1, Class 2 and Class 3. The terms of the
directors in Class 1 expire at the first annual shareholders' meeting after
their election, the terms of the directors in Class 2 expire at the second
annual shareholders' meeting after their election, and the terms of the
directors of Class 3 expire at the third annual shareholders' meeting after
their election. At each annual shareholders' meeting following the annual
meeting at which directors are first elected to such three classes, directors
shall be elected for terms of three years to succeed those whose terms expire at
such annual meeting. If the number of directorships is changed, any increase or
decrease in directors shall be apportioned among the classes so that each class
comprises as nearly as possible the same percentage of the total as each other
class. Upon a change in the number of directorships, the term of any newly
elected director or any director reallocated to a different class shall be for
the period until such class stands for election. Notwithstanding the preceding
sentence, no decrease in the
<PAGE>
number of directorships shall shorten the term of any director. Any director
elected to fill a vacancy not resulting from an increase in the number of
directorships shall have the same remaining term as that of his or her
predecessor. No director shall be removed except by the affirmative vote of
two-thirds (2/3) or more of the issued and outstanding shares of capital stock
of the corporation entitled to vote for the election of directors generally.
Exhibit 3.2
RESOLVED: That Article Third of the Restated Certificate of
Incorporation of the corporation, as amended, be, and it hereby is,
amended in its entirety to read as follows:
THIRD. The designation of each class of shares, the authorized number
of shares of each such class, and the par value of each share thereof, are as
follows:
The corporation shall have one (1) class of stock designated as Common
Stock and consisting of Fifty Million (50,000,000) authorized shares. Each share
of Common Stock shall be without par value.
The corporation shall have one (1) class of stock designated as
Preferred Stock and consisting of Five Hundred Thousand (500,000) authorized
shares. Each share of Preferred Stock shall be without par value.
The amendment was adopted and approved by the shareholders of the
corporation at a meeting held on November 29, 1999.
Exhibit 3.4
The amendment was adopted and approved by the Board of Directors of the
Corporation at a meeting duly called and held on November 29, 1999.
RESOLVED: That Article Fourth of the Restated Certificate of
Incorporation of the corporation, as amended, be amended to include the
rights and designation of the Series C Convertible Preferred Stock by
adding to Article Fourth thereof a new subsection F as follows:
F. SERIES C PREFERRED STOCK
1. Designation. There is hereby created a series of the Preferred Stock
consisting of 50,000 shares having the designation, voting powers, preferences,
relative, participating, optional and other special rights and the
qualifications, limitations and restrictions thereof as are set forth in this
Paragraph F. This series is designated "Series C Convertible Preferred Stock"
(hereinafter called "Series C Stock").
2. Cash Dividend.
(a) The record holders of the outstanding shares of Series C Stock
("Series C Holders") shall be entitled to receive noncumulative cash dividends
when and as declared by the Board of Directors, provided that no such dividend
shall be declared unless an equivalent, ratable dividend is also declared with
respect to the outstanding shares of Series B Stock.
(b) In addition to any dividends declared in accordance with the
preceding subparagraph (a), the holders of Series C Stock shall be entitled to
receive dividends at the rate of 8% per annum of the initial purchase price of
$100 per share, cumulative from the issuance date, but not to exceed 47% in the
aggregate, provided that such dividends shall be payable only upon a Liquidation
Event (as defined herein), and provided further that any such dividend payment
shall be coupled with an equivalent, ratable dividend to the holders of Series B
Stock calculated upon the initial purchase price of the Series B Stock of $1,000
per share. Payment of dividends pursuant to this subparagraph (b) shall be made
in full prior to the payment of dividends on Common Stock.
(c) Upon the payment or setting apart for payment of any dividends
upon the outstanding shares of Series C Stock and Series B Stock, the Board of
Directors may declare and pay dividends upon the Common Stock up to an amount
with respect to each share of Common Stock equal to the amount paid or set aside
for payment with respect to each share of Series C Stock and Series B Stock
divided, in each case, by the number of shares of Common Stock into which each
such share of Series C Stock or Series B Stock shall then be convertible.
3. Redemption. The Series C Stock may not be redeemed, in whole or in
part.
4. Liquidation.
<PAGE>
(a) In the event of a Liquidation Event, any amount paid or
payable to the Series C Holders shall rank, in right of payment, pari passu with
any and all amounts then payable by reason of such Liquidation Event to the
holders of Series B Stock and any declared but unpaid dividends on the Series B
Stock and senior to all other classes of stock.
(b) Subject to the preceding subparagraph (a), in the event of any
Liquidation Event, the Series C Holders shall be entitled to be paid an amount
equal to One Hundred Dollars ($100.00) per share plus all dividends thereon
accrued and remaining unpaid up to the date of such Liquidation Event whether or
not at such times the corporation shall have surplus available for the payment
of dividends.
(c) In the event of any Liquidation Event, the Series C Holders
shall not participate further in any liquidating distributions to holders of
Common Stock, but shall be given not less than 20 business days' prior written
notice of any Liquidation Event in order to decide whether to convert their
shares prior to the Liquidation Event.
(d) A merger, consolidation, dissolution, winding up or sale of
all or substantially all of the assets of the corporation, whether voluntary or
involuntary, shall be deemed to be a liquidation event ("Liquidation Event")
unless (a) in the case of a merger, the corporation is the surviving entity or
(b) the holders of at least 75% of the combined Series C Stock and Series B
Stock determine that such action should not be deemed a Liquidation Event.
5. Conversion.
(a) Right to Convert and Conversion Rate. At the option of each
holder of Series C Stock, such holder's holdings of Series C Stock shall be
convertible into shares of Common Stock at any time and from time to time and
cash in lieu of fractional shares upon the following terms and conditions:
(i) Each share of Series C Stock shall be convertible from
and after the date of its issuance at the office of any Transfer Agent for the
Series C Stock (or such other place as may be designated by the corporation)
into fully paid and non-assessable shares of Common Stock (as such Common Stock
shall then be constituted) into such whole number of fully paid and
nonassessable shares of Common Stock as equals $100 divided by the Conversion
Price (as last adjusted and then in effect). The "Conversion Price" shall
initially be equal to forty cents ($.40); provided however, that such Conversion
Price shall be subject to adjustment to the extent provided in subpart (b) of
this subparagraph 5.
(ii) In order to convert shares of Series C Stock into Common
Stock, the holder thereof shall surrender the certificate or certificates for
Series C Stock, duly endorsed to the corporation or in blank, at the office of
any Transfer Agent for the Series C Stock (or such other place as may be
designated by the corporation), and shall give written notice to the corporation
at said office that he elects to convert the same and shall state in writing
therein the name or names in which he wishes the certificate or certificates for
Common Stock to be issued. The corporation will, as soon as practicable
thereafter, deliver at said office to such holder of shares of the Series C
Stock such holder's nominee or nominees, a certificate or certificates for the
number of full shares of
<PAGE>
Common Stock to which such holder shall be entitled as aforesaid. Shares of the
Series C Stock shall be deemed to have been converted as of the date of the
surrender of such certificate or certificates for conversion as provided above,
and 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 Common Stock on such date.
(b) Conversion Adjustment Provisions. The conversion rate provided
in subpart (a) (i) above shall be subject to adjustment to the extent provided
below:
(i) Stock Dividends, Subdivisions and Combinations. In the
event the corporation shall
(x) pay a dividend of Common Stock, or of any capital
stock convertible into Common Stock, on its outstanding Common Stock;
(y) subdivide its outstanding Common Stock into a larger
number of shares of Common Stock by reclassification or otherwise; or
(z) combine its outstanding Common Stock into a smaller
number of shares of Common Stock by reclassification or otherwise.
the conversion rate in effect immediately prior thereto shall be proportionately
adjusted so that the holder of any Series C Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares of Common Stock
(and, in the case of a dividend payable in capital stock convertible into Common
Stock, the number of shares of such capital stock) which such holder would have
owned or have been entitled to receive after the happening of any of the events
described above had such Series C Stock been converted immediately prior to the
happening of such event. Such adjustment shall be made whenever any of the
events described above shall occur. In the case of a dividend, any such
adjustment shall be made as of the record date thereof and in the case of a
subdivision or combination, any such adjustment shall be made as of the
effective date thereof.
(ii) Minimum Adjustment. Notwithstanding the provisions of
(i) of this subpart (b), no adjustment in the conversion rate shall be required
unless such adjustment would require an increase or decrease of at least 2% of
such rate; provided, however, that any such adjustments which are not required
to be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations required by any provision of this subpart (b) shall
be made to the nearest cent or to the nearest one-hundredth of a share, as the
case may be.
(iii) Notice of Adjustment of Conversion Price. Whenever the
Conversion Price shall be adjusted as provided in this subsection (b), the
corporation shall forthwith file, at the office of the transfer agent for the
Series C Stock or at such other place as may be designated by the corporation, a
statement, signed by its independent certified public accountants or its Chief
Financial Officer, showing in detail the facts requiring such adjustment and the
Conversion Price that shall be in effect after such adjustment. The corporation
shall also cause a copy of such statement to be sent by first class, certified
mail, return receipt requested, postage prepaid, to each holder of shares of
Preferred Stock at such holder's address appearing on the corporation's records.
<PAGE>
(c) Fractional Shares. No fraction of a share of Common Stock
shall be issued upon any conversion of Series C Stock but, in lieu thereof,
there shall be paid an amount in cash equal to the same fraction of the market
value of a full share of Common Stock. For such purpose, the market value of a
share of Common Stock shall be the market value at the close of the most recent
trading day prior to the date as of which the determination is made; provided,
however, that if the Common Stock is not traded in such manner that such
valuation referred to herein is available, market value shall be determined in
good faith by the Board of Directors of the corporation.
(d) Reservation of Common Stock. The corporation shall at all
times reserve and keep available out of its authorized but unissued Common Stock
solely for the purposes of effecting the conversion of the shares of the Series
C Stock, the full number of shares of Common Stock then deliverable upon the
conversion of all shares of Series C Stock at the time outstanding.
6. Voting on Amendments to the Certificate of Incorporation as a Class.
(a) The Series C Holders shall be entitled to vote as a
separate voting group on any proposed amendments to the corporation's
Certificate of Incorporation (including any applicable Certificates of
Designation, whether or not such voting rights are granted by Section 33-798 of
the Connecticut Business Corporation Act or a successor thereto, if the
amendment would:
(i) Increase or decrease the aggregate number of authorized
shares of the Series C Stock;
(ii) Effect an exchange or reclassification of all or part of
the shares of the Series C Stock into shares of another class;
(iii) Effect an exchange or reclassification, or create the
right of exchange, of all or part of the shares of another class
into shares of the Series C Stock;
(iv) Change the designation, rights, preferences or
limitations of all or part of the shares of the Series C Stock;
(v) Change the shares of all or part of the Series C Stock
into a different number of shares of the same class;
(vi) Create a new class of shares having rights or
preferences with respect to distributions or to dissolution that
are prior, superior or substantially equal to the shares of the
Series C Stock;
(vii) Increase the rights, preferences or number of
authorized shares of any class that, after giving effect to the
amendment, have rights or preferences with respect to
distributions or to dissolution that are prior, superior or
substantially equal to the shares of the Series C Stock; or
<PAGE>
(viii) Cancel or otherwise affect rights to distributions or
dividends that have accumulated but not yet been declared on all
or part of the shares of the Series C Stock.
(b) If a proposed amendment that entitles the Series C Stock and
one or more other series of shares to vote as separate voting groups under this
section would affect the Series C Stock and such one or more series in the same
or a substantially similar way, the shares of all the series so affected must
vote together as a single voting group on the proposed amendment.
Exhibit 4.1
ACCENT COLOR SCIENCES, INC.
800 Connecticut Boulevard
East Hartford, Connecticut 06108
October 28, 1999
Zanett Lombardier, Ltd.
c/o Olympia Capital (Cayman) Limited
Williams House
20 Reid Street
Hamilton HM 11
Bermuda
RGC International Investors
Rose Glen Capital Management, L.P.
c/o Rose Glen Capital Group
3 Bala Plaza - East Suite 200
Bala Cynwyd, PA
Dear Ladies and Gentlemen:
This letter is intended to modify the letter of agreement between each
of you and Accent Color Sciences, Inc. (the "Company"), dated September 3, 1999
concerning your shares of Series B Convertible Preferred Stock of the Company in
connection with our current financing effort (the "September 3 Letter"). Each of
you has previously executed a term sheet containing an agreement in principal
under which the Company may either redeem your shares of Series B Preferred
Stock (the "Series B Stock") for their face amount plus accrued premium or
convert your shares of Series B Stock into common stock at the prevailing price
in a previously proposed common stock placement, as described in the September 3
Letter. In response to the interest of potential investors, the Company has
accepted the recommendation of its investment banker, Pennsylvania Merchant
Group, to offer investors shares of a new series of preferred stock designated
the Series C Convertible Preferred Stock (the "Series C Stock"). The Series C
Stock would have a liquidation preference of $100.00 per share, no preferred
dividend (however no dividends may be paid on the common stock without at least
an equivalent dividend paid on the Series C Stock ), no redemption rights (with
respect to either the holders of Series C Stock or the Company) and would be
convertible initially at the rate of 250 shares of Common stock for each share
of Series C Stock (a conversion rate of $.40 per share), subject to such change
in the initial conversion rate as may be necessitated to reflect market
conditions and to ongoing anti-dilution rights in the event of stock splits,
recapitializations and the like. The holders of Series C Stock would have
identical voting rights to the voting rights which you have as holders of the
Company's Series B Stock. The rights and preferences of the Series C Stock will
be substantially as set forth in the draft designation of the Series C Stock
attached to this letter agreement as Exhibit A.
<PAGE>
For reasons substantially similar to those set out in the September 3
Letter, we continue to need your cooperation in order to pursue the current
financing which will require the same number of authorized shares of common
stock to support the conversion rights of holders of Series C Stock as would
have been required for the common stock private placement. However, we can no
longer expect you to convert your shares of Series B Stock into common stock,
assuming the conditions referred to in the September 3 Letter are met. Instead,
we have discussed with you and understand that you will agree to modify, in
accordance with the provisions of this letter agreement, your rights as holders
of all outstanding shares of the Series B Stock so as to be similar to the
rights of the holders of Series C Stock, subject however to the prior conditions
recited below.
The agreements set forth below are subject to the prior satisfaction or
fulfillment of each of the following conditions:
(a) The Company shall raise gross proceeds of at least $4 million
including both the proceeds of the bridge financing referred to in the September
3 Letter and the proposed sale of shares of Series C Stock;
(b) The Company will call and hold on or before December 2, 1999 a
shareholders' meeting and obtain the approval of an increase in authorized
shares of the Company's common stock such that the authorized shares of the
Company's common stock shall be fully sufficient to support your conversion
rights as holders of Series B Stock; and
(c) In the event that Company shall fail to obtain such shareholder
approval in accordance with the preceding subparagraph (b), (or otherwise fully
restore your conversion rights such as through a reverse stock split), the
Company will be required to redeem the Series B Stock for cash in accordance
with the provisions of the bridge financing term sheet.
Assuming fulfillment of each of the preceding conditions, each of you
agrees with us as follows:
1. We will hold a meeting of shareholders to authorize additional
shares of common stock as soon as possible and no later than December 2, 1999
(it being the Company's current intention to hold the meeting on November 29,
1999);
2. That in the interim prior to such meeting, you will retain your
rights as holders of Series B Stock, subject to the provisions of this letter
and the bridge financing term sheet;
3. Your annual premium on your shares of Series B Stock will continue
to accrue until your shares of Series B Stock are actually redeemed, converted
or modified as provided in subparagraph 4 below;
<PAGE>
4. That upon receipt of such shareholder approval and the closing of
the private placement of Series C Stock, and assuming the Company has not
elected to redeem your shares of Series B Stock for cash as specified above, the
terms, rights and preferences of your shares of Series B Stock shall be modified
as follows:
(i) The annual premium on the Series B Stock shall cease to
accrue;
(ii) The liquidation preference amount of the Series B Stock
shall immediately become and thereafter remain an amount per share equal to the
face amount thereof ($1,000) plus the then accrued annual premium (6% per year
from date of issuance);
(iii) The conversion price shall, for all purposes, be the
conversion price applicable to the Series C Stock, from time to time, determined
by dividing the number of shares of common stock into which one share of Series
C stock is then convertible into $100;
(iv) The Company shall continue and maintain an effective
registration statement with the Securities and Exchange Commission with respect
to the common shares issuable on conversion of the Series B stock in accordance
with the Registration Rights Agreement among us dated January 9, 1998;
(v) All rights and obligations of either the Company or the
holders of Series B Stock regarding voluntary or involuntary redemption by the
Company of shares of Series B Stock shall be terminated, except that the holders
of Series B Stock shall be entitled to any such redemption rights as may apply
with respect to the Series C Stock;
(vi) All limitations on conduct and approval rights of the
Company set forth in Article XIII of the designation of the Series B Stock shall
no longer apply except to the extent that any such limitations or approval
rights are applicable with respect to the Series C Stock;
(vii) All remedies set forth in the designation of the Series
B Stock shall no longer apply except to the extent that such remedies are
similar to remedies available to holders of Series C Stock;
(viii) The limitation on the amount of Series B Stock which
may be converted into common stock at any one time set forth in subparagraph
(ii) of Paragraph C of Article IV of the designation of the Series B Stock shall
continue to apply;
(ix) The Company shall at all times reserve a sufficient
number of shares of its common stock as may be issuable upon the conversion of
all then outstanding shares of Series B Stock;
<PAGE>
(x) The holders of Series B Stock shall rank, in right of
payment, pari passu with the holders of Series C Stock with respect to both
dividends and payments upon liquidation; and
(xi) No transfer of shares of Series B Stock by either of you
shall be permitted unless, in addition to complying with any other statutory or
contractual restrictions upon such transfer, the transferee shall agree to the
provisions of this letter agreement.
We again express our appreciation for your cooperation in facilitating
our financing effort. Please indicate your consent and agreement with the
foregoing provisions by dating, signing and returning to me the enclosed copy of
this letter.
Sincerely,
---------------------------------
Charles E. Buchheit
President and Chief Executive Officer
Consented and Agreed to:
ZANETT LOMBARDIER, LTD.
By:______________________________________ Date: _________________________
RGC INTERNATIONAL INVESTORS, LDC
BY: ROSE GLEN CAPITAL MANAGEMENT, L.P.
BY: RGC GENERAL PARTNER CORP.
By:______________________________________ Date: _________________________
Exhibit No. 5 - Opinion of Murtha, Cullina,
Richter & Pinney LLP
February __, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: Accent Color Sciences, Inc.
Ladies and Gentlemen:
We have acted as counsel for Accent Color Sciences, Inc., a Connecticut
corporation ("the Company"), in connection with the registration by the Company
of up to an aggregate of 12,418,750 shares of the Company's common stock,
without par value (the "Common Stock"), for the account of certain security
holders of the Company (the "Registration") as described in the Company's
Registration Statement being filed as Form S-3/A on Form S-2 (the "Registration
Statement") this date under the Securities Act of 1933, as amended.
In connection with the following opinion, we have reviewed the
Registration Statement and are familiar with the action taken by the Company to
date with respect to the approval and authorization of the Registration. We have
examined originals, or copies, certified or otherwise authenticated to our
satisfaction, of such corporate records of the Company, agreements and other
instruments, certificates of public officials, officers and representatives of
the Company and such other documents as we have deemed necessary as a basis for
the opinion hereinafter expressed. We are furnishing this opinion in connection
with the filing of the Registration Statement.
Based upon the foregoing, we are of the opinion that, upon the
effectiveness of the Registration Statement, the shares of Common Stock proposed
to be registered by the Company under the Registration Statement will be, when
sold, validly issued, fully paid and non-assessable.
<PAGE>
We hereby consent to the inclusion of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the prospectus constituting a part of the Registration Statement.
Very truly yours,
MURTHA, CULLINA, RICHTER AND PINNEY, LLP
By:______________________________________
Willard F. Pinney, Jr.
A Partner
Exhibit 10.11
As amended through Nov. 29, 1999
ACCENT COLOR SCIENCES, INC.
1995 STOCK INCENTIVE PLAN
---------------------------
1. Purpose. This Plan is designed to give directors, officers and key
employees of the Corporation and other persons an expanded opportunity to
acquire stock in the Corporation or receive other long-term incentive
remuneration in order that they may better participate in the Corporation's
growth and be motivated to remain with the Corporation and promote its further
development and success.
2. Definitions. The following terms shall have the meanings given below
unless the context otherwise requires:
(a) "Award" or "Awards" except where referring to a particular
category of grant under the Plan shall include Incentive Stock Options,
Non-Statutory Stock Options, Stock Appreciation Rights and Restricted Stock
Awards.
(b) "Board" means the Board of Directors of the Corporation.
(c) "Code" means the Internal Revenue Code of 1986, as amended,
and any successor Code, and related rules, regulations and interpretations.
(d) "Committee" means the committee of the Board established under
Section 9 hereof.
(e) "Corporation" means Accent Color Sciences, Inc.
(f) "Disability" or "disabled" means disability or disabled as
defined by the Code.
(g) "Eligible Person" means any person, including a person who is
not an employee of the Corporation or a Subsidiary, or entity who satisfies all
the eligibility requirements set forth in either Section 3(a) or 3(b) hereof.
(h) "Fair Market Value" of the Stock on any given date shall be
the average of the high and low prices of the Stock on the NASDAQ National
Market on the date of determination, or if there shall be no such reported
prices on the date of determination, the most recent date for which such prices
are reported; provided that in the event there shall be no public market for the
Stock, "Fair Market Value" shall be as determined from time to time by the
Board.
(i) "Incentive Stock Option" means a stock option qualifying under
the provisions of Section 422 of the Code.
<PAGE>
(j) "Non-Employee Director Participant" means an Eligible Person,
who at the time of grant of an Award is a director of the Corporation but not an
employee of the Corporation or a Subsidiary.
(k) "Non-Statutory Option" means a stock option not qualifying for
incentive stock option treatment under the provisions of Section 422 of the
Code.
(l) "Optionee" means the holder of any option granted under the
Plan.
(m) "Participant" means the holder of any Award granted under the
Plan.
(n) "Plan" means the Accent Color Sciences, Inc. 1995 Stock
Incentive Plan.
(o) "Principal Shareholder" means any individual owning stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of capital stock of the Corporation.
(p) "Restricted Stock" means Stock received pursuant to a
Restricted Stock Award.
(q) "Restricted Stock Award" is defined in Section 8(a).
(r) "Stock" or "shares" means shares of Class A Common Stock of
the Corporation.
(s) "Stock Appreciation Right" or "Right" means a right described
in Section 7.
(t) "Subsidiary" means any corporation in which the Corporation
owns, directly or indirectly, a majority of the outstanding voting stock.
3. Eligibility.
(a) Incentive Stock Options. Incentive Stock Options may be
granted to any Eligible Persons who are employees of the Corporation or a
Subsidiary and who in the sole opinion of the Committee are, from time to time,
responsible for the management and/or growth of all or part of the business of
the Corporation.
(b) Awards Other than Incentive Stock Options. Awards, other than
Incentive Stock Options, may be granted to any Eligible Persons who in the sole
opinion of the Committee are, from time to time, responsible for the growth
and/or the management of all or a part of the business of the Corporation.
(c) Substitute Awards. The Committee, in its discretion, may also
grant Awards in substitution for any stock incentive awards previously granted
by companies acquired by the Corporation or one of its Subsidiaries. Such
substitute awards may be granted on such terms and conditions as the Committee
deems appropriate in the
<PAGE>
circumstances, provided, however, that substitute Incentive Stock Options shall
be granted only in accordance with the Code.
4. Term of Plan. The Plan shall take effect on January 19, 1995 and
shall remain effective for ten (10) years thereafter, expiring on January 18,
2005.
5. Stock Subject to the Plan. The aggregate number of shares of Stock
which may be issued pursuant to all Awards granted under the Plan shall not
exceed 4,000,000 shares of Stock, subject to adjustment as hereinafter provided
in Section 10, and which may be treasury shares or authorized but unissued
shares. In the event that any Award under the Plan for any reason expires, is
terminated, forfeited, reacquired by the Corporation, or satisfied without the
issuance of Stock (except in the cases of a Stock Appreciation Right to the
extent settled in cash) the shares allocable to the unexercised portion of such
Award may again be made subject to an Award under the Plan.
6. Stock Options. The following terms and conditions shall apply to
each option granted under the Plan and shall be set forth in a stock option
agreement between the Corporation and the Optionee together with such other
terms and conditions not inconsistent herewith as the Committee may deem
appropriate in the case of each Optionee:
(a) Option Price. The purchase price under each Incentive Stock
Option shall be as determined by the Committee but not less than 100% of the
Fair Market Value of the shares subject to such option on the date of grant,
provided that such option price shall not be less than 110% of such Fair Market
Value in the case of any Incentive Stock Option granted to a Principal
Shareholder. The purchase price per share of Stock deliverable upon the exercise
of a Non-Statutory Option shall be determined by the Committee, but shall not be
less than 85% of the Fair Market Value of such Stock on the date of grant.
(b) Type of Option. All options granted under the Plan shall be
either Incentive Stock Options or Non-Statutory Options. All provisions of the
Plan applicable to Incentive Stock Options shall be interpreted in a manner
consistent with the provisions of, and regulations under, Section 422 of the
Internal Revenue Code.
(c) Period of Incentive Stock Option. Each Incentive Stock Option
shall have a term not in excess of ten (10) years from the date on which it is
granted, except in the case of any Incentive Stock Option granted to a Principal
Shareholder which shall have a term not in excess of five (5) years from the
date on which it is granted; provided that any Incentive Stock Option granted or
the unexercised portion thereof, to the extent exercisable at the time of
termination of employment, shall terminate at the close of business on the day
three (3) months following the date on which the Optionee ceases to be employed
by the Corporation or a Subsidiary unless sooner expired or unless a longer
period is provided under Subsection (g) of this Section in the event of the
death or disability of such an Optionee.
(d) Period of Non-Statutory Option. Each Non-Statutory Option
granted under the Plan shall have a term not in excess of ten (10) years and one
(1) day from the date on which it is granted; provided that any Non-Statutory
Option granted to an employee of the Corporation or a Subsidiary or to a
Non-Employee Director
<PAGE>
Participant, or the unexercised portion thereof shall terminate not later than
the close of business on the day three (3) months following the date on which
such employee ceases to be employed by the Corporation or a Subsidiary or the
date on which such Non-Employee Director ceases to be a director of the
Corporation, as the case may be, unless a longer period is provided under
Subsection (g) of this Section in the event of the death or disability of such
an Optionee. Such an Optionee's Non-Statutory Option shall be exercisable, if at
all, during such three (3) month period only to the extent exercisable on the
date such Optionee's employment terminates or the date on which such Optionee
ceases to be a director, as the case may be.
(e) Exercise of Option.
(i) Each option granted under the Plan shall become
exercisable on such date or dates and in such amount or amounts as the
Committee shall determine. In the absence of any other provision by the
Committee, each option granted under the Plan shall be exercisable with
respect to not more than one-third (1/3) of such shares subject thereto
after the expiration of one (1) year following the date of its grant,
and shall be exercisable as to an additional one-third (1/3) of such
shares after the expiration of each of the succeeding two (2) years, on
a cumulative basis, so that such option, or any unexercised portion
thereof, shall be fully exercisable after a period of three (3) years
following the date of its grant.
(ii) The Committee, in its sole discretion, may, from
time to time and at any time, accelerate the vesting provisions of any
outstanding option, subject, in the case of Incentive Stock Options, to
the provisions of Subsection (6)(i) relating to "Limit on Incentive
Options".
(iii) Notwithstanding anything herein to the
contrary, except as provided in subsection (g) of this Section, no
Optionee who was, at the time of the grant of an option, an employee of
the Corporation or a Subsidiary, may exercise such option or any part
thereof unless at the time of such exercise he shall be employed by the
Corporation or a Subsidiary and shall have been so employed
continuously since the date of grant of such option, excepting leaves
of absence approved by the Committee; provided that the option
agreement may provide that such an Optionee may exercise his option, to
the extent exercisable on the date of termination of such continuous
employment, during the three (3) month period, ending at the close of
business on the day three (3) months following the termination of such
continuous employment unless such option shall have already expired by
its term.
(iv) An option shall be exercised in accordance with
the related stock option agreement by serving written notice of
exercise on the Corporation accompanied by full payment of the purchase
price in cash. As determined by the Committee, in its discretion, at
(or, in the case of Non-Statutory Options, at or after) the time of
grant, payment in full or in part may also be made by delivery of (i)
irrevocable instructions to a broker to deliver promptly to the
Corporation the amount of sale or loan proceeds to pay the exercise
price, or (ii) previously owned shares of Stock not then subject to
restrictions under any Corporation plan (but which may include shares
the disposition of which constitutes a disqualifying disposition for
purposes of obtaining incentive stock option treatment for federal
<PAGE>
tax purposes). For purposes of subsection (ii) above, such surrendered
shares shall be valued at Fair Market Value on the date of exercise.
(f) Nontransferability. No option granted under the Plan shall be
transferable by the Optionee otherwise than by will or by the laws of descent
and distribution, and such option shall be exercisable, during his lifetime,
only by him.
(g) Death or Disability of Optionee. In the event of the death or
disability of an Optionee while in the employ of the Corporation or a Subsidiary
or while serving as a director of the Corporation, his stock option or the
unexercised portion thereof may be exercised within the period of one (1) year
succeeding his death or disability, but in no event later than (i) ten (10)
years (five (5) years in the case of a Principal Shareholder) from the date the
option was granted in the case of an Incentive Stock Option, and (ii) ten (10)
years and one (1) day in the case of a Non-Statutory Option, by the person or
persons designated in the Optionee's will for that purpose or in the absence of
any such designation, by the legal representative of his estate, or by the legal
representative of the Optionee, as the case may be. Notwithstanding anything
herein to the contrary and in the absence of any contrary provision by the
Committee, during the one-year period following termination of employment or
cessation as a director by reason of death or disability, an Optionee's stock
option shall continue to vest in accordance with its terms and be and become
exercisable as if employment or service as a director had not ceased.
(h) Shareholder Rights. No Optionee shall be entitled to any
rights as a shareholder with respect to any shares subject to his option prior
to the date of issuance to him of a stock certificate representing such shares.
(i) Limit on Incentive Stock Options. The aggregate Fair Market
Value (determined at the time an option is granted) of shares with respect to
which Incentive Stock Options granted to an employee are exercisable for the
first time by such employee during any calendar year (under all incentive stock
option plans of the Corporation and its Subsidiaries to the extent required
under the Code) shall not exceed $100,000.
(j) Notification of Disqualifying Disposition. Participants
granted Incentive Stock Options shall undertake, in the Incentive Stock Option
agreements, as a precondition to the granting of such option by the Corporation,
to promptly notify the Corporation in the event of a disqualifying disposition
(within the meaning of the Code) of any shares acquired pursuant to such
Incentive Stock Option agreement and provide the Corporation with all relevant
information related thereto.
7. Stock Appreciation Rights; Discretionary Payments.
(a) Nature of Stock Appreciation Right. A Stock Appreciation Right
is an Award entitling the Participant to receive an amount in cash or shares of
Stock (or forms of payment permitted under Section 7(d) hereof) or a combination
thereof, as determined by the Committee at the time of grant, having a value
equal to (or if the Committee shall so determine at time of grant, less than)
the excess of the Fair Market Value of a share of Stock on the date of exercise
over the Fair Market Value of a share of Stock on the date of grant (or over the
option exercise price, if the Stock Appreciation
<PAGE>
Right was granted in tandem with a stock option) multiplied by the number of
shares with respect to which the Stock Appreciation Right shall have been
exercised.
<PAGE>
(b) Grant and Exercise of Stock Appreciation Rights.
(i) Stock Appreciation Rights may be granted in
tandem with, or independently of, any stock option granted under the
Plan. In the case of a Stock Appreciation Right granted in tandem with
a Non-Statutory Option, such Right may be granted either at or after
the time of grant of such option. In the case of a Stock Appreciation
Right granted in tandem with an Incentive Stock Option such Right may
be granted only at the time of the grant of such option. A Stock
Appreciation Right or applicable portion thereof granted in tandem with
a given stock option shall terminate and no longer be exercisable upon
the termination or exercise of the related stock option, except that a
Stock Appreciation Right granted with respect to less than the full
number of shares covered by a related stock option shall not be reduced
until the exercise or termination of the related stock option exceeds
the number of shares not covered by the Stock Appreciation Right.
(ii) Each Stock Appreciation Right granted under the
Plan shall become exercisable on such date or dates and in such amount
or amounts as the Committee shall determine; provided, however, that
any Stock Appreciation Right granted in tandem with a stock option
shall be exercisable in relative proportion to and to the extent that
such related stock option is exercisable; provided further, however,
that, notwithstanding anything herein to the contrary, any Stock
Appreciation Right granted in tandem with a Non-Statutory Option which
has a purchase price at the date of grant of less than Fair Market
Value shall not be exercisable at all until at least one (1) year after
the date of grant of such option. Except as provided in the immediately
preceding sentence, in the absence of any other provision by the
Committee, each Stock Appreciation Right granted under the Plan shall
be exercisable with respect to not more than twenty percent (20%) of
such shares subject thereto after the expiration of one (1) year
following the date of its grant, and shall be exercisable as to an
additional twenty percent (20%) of such shares after the expiration of
each of the succeeding four (4) years, on a cumulative basis, so that
such Right, or any unexercised portion thereof, shall be fully
exercisable after a period of five (5) years following the date of its
grant. The Committee, in its sole discretion, may, from time to time
and at any time, accelerate the vesting provisions of any outstanding
Stock Appreciation Right.
(iii) Notwithstanding anything herein to the
contrary, except as provided in subsections (c)(v) and (c)(vi) of this
Section, no Participant who was, at the time of the grant of a Stock
Appreciation Right, an employee of the Corporation or a Subsidiary, may
exercise such Right or any part thereof unless at the time of such
exercise, he shall be employed by the Corporation or a Subsidiary and
shall have been so employed continuously since the date of grant of
such Right, excepting leaves of absence approved by the Committee;
provided that the Stock Appreciation Right agreement may provide that
such a Participant may exercise his Stock Appreciation Right, to the
extent exercisable on the date of termination of such continuous
employment, during the three (3) month period ending at the close of
business on the day three (3) months following the cessation of such
continuous employment, unless such Right shall have already expired by
its terms.
<PAGE>
(iv) Notwithstanding anything herein to the contrary,
except as provided in subsections (c)(v) and (c)(vi) of this Section,
no Non-Employee Director Participant may exercise a Stock Appreciation
Right or part thereof unless at the time of such exercise he shall be a
director of the Corporation and shall have been a director of the
Corporation continuously since the date of grant of such Right
excepting leaves of absence approved by the Committee; provided that
the Stock Appreciation Right agreement may provide that such
Participant may exercise his Stock Appreciation Right, to the extent
exercisable on the date he ceased to be a director of the Corporation,
during the three (3) month period ending at the close of business on
the day three (3) months following the cessation of such continuous
service as a director unless such Right shall already have expired by
its terms.
(v) A Stock Appreciation Right shall be exercised in
accordance with the related Stock Appreciation Right Agreement by
serving written notice of exercise on the Corporation.
(c) Terms and Conditions of Stock Appreciation Rights. Stock
Appreciation Rights shall be subject to such terms and conditions as shall be
determined from time to time by the Committee, subject to the following:
(i) Stock Appreciation Rights granted in tandem with
stock options shall be exercisable only at such time or times and to
the extent that the related stock options shall be exercisable;
(ii) Upon the exercise of a Stock Appreciation Right,
the applicable portion of any related stock option shall be
surrendered.
(iii) Stock Appreciation Rights granted in tandem
with a stock option shall be transferable only with such option. Stock
Appreciation Rights shall not be transferable otherwise than by will or
the laws of descent and distribution. All Stock Appreciation Rights
shall be exercisable during the Participant's lifetime only by the
Participant or the Participant's legal representative.
(iv) A Stock Appreciation Right granted in tandem
with a stock option may be exercised only when the then Fair Market
Value of the Stock subject to the stock option exceeds the exercise
price of such option. A Stock Appreciation Right not granted in tandem
with a stock option may be exercised only when the then Fair Market
Value of the Stock exceeds the Fair Market Value of the Stock on the
date of grant of such Right.
(v) Each Stock Appreciation Right shall have a term
not in excess of ten (10) years from the date on which it is granted
(ten (10) years and one (1) day in the case of a Stock Appreciation
Right granted in tandem with a Non-Statutory Option); provided that any
Stock Appreciation Right granted to (aa) an employee of the Corporation
or a Subsidiary shall terminate not later than the close of business on
the day three (3) months following the date such Participant ceases to
be employed by the Corporation or a Subsidiary, excepting leaves of
absences approved by the Committee, and (bb) a Non-Employee Director
Participant shall terminate not later than the close of business on the
day
<PAGE>
three (3) months following the date such Participant ceases to be a
director of the Corporation, unless a longer period is provided under
subsection (c)(vi) below in the event of death or disability of a
Participant. Such a Participant's Stock Appreciation Right shall be
exercisable, if at all, during such three (3) month period only to the
extent exercisable on the date his employment terminates or the date he
ceases to be a director, as the case may be.
(vi) In the event of the death or disability of a
Participant while in the employ of the Corporation or a Subsidiary or
while serving as a director of the Corporation, his Stock Appreciation
Right or the unexercised portion thereof may be exercised within the
period of one (1) year succeeding his death or disability, but in no
event later than (i) ten (10) years from the date on which it was
granted (ten (10) years and one (1) day in the case of a Non-Statutory
Option), by the person or persons designated in the Participant's will
for that purpose or in the absence of any such designation, by the
legal representative of his estate, or by the legal representative of
the Participant, as the case may be. Notwithstanding anything herein to
the contrary and in the absence of any contrary provision by the
Committee, during the one-year period following termination of
employment or cessation as a director by reason of death or disability,
a Participant's Stock Appreciation Right shall continue to vest in
accordance with its terms and be and become exercisable as if
employment or service as a director had not ceased.
(d) Discretionary Payments. Upon the written request of an
Optionee whose stock option is not accompanied by a Stock Appreciation Right,
the Committee may, in its discretion, cancel such option if the Fair Market
Value of the shares subject to the option at the exercise date exceeds the
exercise price thereof; in that event, the Corporation shall pay to the Optionee
an amount equal to the difference between the Fair Market Value of the shares
subject to the cancelled option (determined as of the date the option is
cancelled) and the exercise price. Such payment shall be by check or in Stock
having a Fair Market Value (determined on the date the payment is to be made)
equal to the amount of such payments or any combination thereof, as determined
by the Committee.
8. Restricted Stock.
(a) Nature of Restricted Stock Award. A Restricted Stock Award is
an Award entitling the Participant to receive shares of Stock, subject to such
conditions, including a Corporation right during a specified period or periods
to require forfeiture of such shares upon the Participant's termination of
employment with the Corporation or a Subsidiary or cessation as a director of
the Corporation, as the case may be, as the Committee may determine at the time
of grant. The Committee, in its sole discretion, may, from time to time and at
any time, waive any or all restrictions and/or conditions contained in the
Restricted Stock Award agreement. Notwithstanding anything herein to the
contrary, the Committee, in its discretion, may grant Restricted Stock without
any restrictions or conditions whatsoever. Restricted Stock shall be granted in
respect of past services or other valid consideration.
(b) Award Agreement. A Participant who is granted a Restricted
Stock Award shall have no rights with respect to such Award unless the
Participant shall
<PAGE>
have accepted the Award within 60 days (or such shorter date as the Committee
may specify) following the Award date by executing and delivering to the
Corporation a Restricted Stock Award Agreement in such form as the Committee
shall determine.
(c) Rights as a Shareholder. Upon complying with paragraph (b)
above, a Participant shall have all the rights of a shareholder with respect to
the Restricted Stock including voting and dividend rights, subject to
nontransferability and Corporation forfeiture rights described in this Section 8
and subject to any other conditions contained in the Award agreement. Unless the
Committee shall otherwise determine, certificates evidencing shares of
Restricted Stock shall remain in the possession of the Corporation until such
shares are free of any restrictions under the Plan. The Committee in its
discretion may, as a precondition of the Corporation's obligation to issue a
Restricted Stock Award, require the Participant to execute a stock power or
powers or other agreement or instruments necessary or advisable in connection
with the Corporation's forfeiture rights with respect to such shares.
(d) Restrictions. Shares of Restricted Stock may not be sold,
assigned, transferred or otherwise disposed of or pledged or otherwise
encumbered. In the event of termination of employment of the Participant with
the Corporation or a Subsidiary for any reason, or cessation as a director of
the Corporation in the case of a Non-Employee Director Participant, such shares
shall be forfeited to the Corporation, except as set forth below:
(i) The Committee at the time of grant shall specify
the date or dates (which may depend upon or be related to the
attainment of performance goals and other conditions) on which the
nontransferability of the Restricted Stock and the Corporation's
forfeiture rights with respect thereto shall lapse. The Committee at
any time may accelerate such date or dates and otherwise waive or,
subject to Section 12(b), amend any conditions of the Award.
(ii) Except as may otherwise be provided in the Award
agreement, in the event of termination of a Participant with the
Corporation or a Subsidiary for any reason or cessation as a director
of the Corporation for any reason, all of the Participant's Restricted
Stock shall be forfeited to the Corporation without the necessity of
any further act by the Corporation, the Participant or the
Participant's legal representative; provided, however, that in the
event of termination of employment or cessation of service as a
director of the Corporation by reason of death or disability, all
conditions and restrictions relating to a Restricted Stock Award held
by such a Participant shall thereupon be waived and shall lapse.
(iii) In the absence of any other provision by the
Committee, each Restricted Stock Award granted to (A) an employee of
the Corporation or a Subsidiary shall be subject to forfeiture to the
Corporation conditioned on the Participant's continued employment and
(B) Non-Employee Director Participants shall be subject to forfeiture
to the Corporation conditioned on the Participant's continued service
as a director of the Corporation, and in the case of clause (A) or (B),
such forfeiture rights shall lapse as follows: with respect to twenty
percent (20%) of the shares subject to the Restricted Stock Award on
the date one year following the date of grant, and with respect to an
additional twenty percent (20%)
<PAGE>
of such shares after the expiration of each of the succeeding four (4)
years thereafter, on a cumulative basis, so that such Restricted Stock
shall be free of such risk of forfeiture on the date five (5) years
following the date of its grant.
(e) Waiver, Deferral, and Investment of Dividends. The Restricted
Stock Award agreement may require or permit the immediate payment, waiver,
deferral or investment of dividends paid with respect to the Restricted Stock.
9. The Committee.
(a) Administration. The Committee shall be a committee of not less
than three (3) members of the Board. Vacancies occurring in membership of the
Committee shall be filled by the Board. The Committee shall keep minutes of its
meetings. One or more members of the Committee may participate in a meeting of
the Committee by means of conference telephone or similar communications
equipment provided all persons participating in the meeting can hear one
another. Two members of the Committee shall constitute a quorum, and the acts of
two or more members present at or so participating in any meeting at which a
quorum is constituted shall be the acts of the Committee. The Committee may act
without meeting by unanimous written consent. At any time when the Board shall
not have designated a committee to administer the Plan, the full Board shall
constitute the Committee.
(b) Authority of Committee. Subject to the provisions of the Plan,
the Committee shall have full and final authority to determine the persons to
whom Awards shall be granted, the number of shares to be subject to each Award,
the term of the Award, the vesting provisions of the Award, if any, restrictions
on the Award, if any, and the price at which the shares subject thereto may be
purchased. The Committee is empowered, in its discretion, to modify, extend or
renew any Award theretofore granted and adopt such rules and regulations and
take such other action as it shall deem necessary or proper for the
administration of the Plan. The Committee shall have full power and authority to
construe, interpret and administer the Plan, and the decisions of the Committee
shall be final and binding upon all interested parties.
10. Adjustments. Any limitations, restrictions or other provisions of
this Plan to the contrary notwithstanding, each Award agreement shall make such
provision, if any, as the Committee may deem appropriate for the adjustment of
the terms and provisions thereof (including, without limitation, terms and
provisions relating to the exercise price and the number and class of shares
subject to the Award) in the event of any merger, consolidation, reorganization,
recapitalization, stock dividend, divisive reorganization, issuance of rights,
combination or split-up or exchange of shares, or the like. In the event of any
merger consolidation, reorganization, recapitalization, stock dividend, divisive
reorganization, issuance of rights, combination or split-up or exchange of
shares, or the like, the Committee shall make an appropriate adjustment in the
number of shares authorized to be issued pursuant to the Plan.
11. Amendment to and Termination of the Plan. The Board may from time
to time amend the Plan in such way as it shall deem advisable provided the Board
may not extend the expiration date of the Plan, change the class of Eligible
Persons, increase the maximum Award term, decrease the minimum exercise price or
increase the total number of authorized shares (except in accordance with
Section 10 hereof) for which Awards
<PAGE>
may be granted. The Board, in its discretion, may at any time terminate the Plan
prior to its expiration in accordance with Section 4 hereof. No amendment to or
termination of the Plan shall in any way adversely affect Awards then
outstanding hereunder.
12. General Provisions.
(a) Other Compensation Arrangements; No Right to Receive Awards;
No Employment or Other Rights. Nothing contained in this Plan shall prevent the
Board from adopting other or additional capital stock based compensation
arrangements, subject to stockholder approval if such approval is required, and
such arrangements may be either generally applicable or applicable only in
specific cases. No Eligible Person shall have any right to receive Awards except
as the Committee may determine. The Plan does not confer upon any employee any
right to continued employment with the Corporation or a Subsidiary or upon any
director or officer of the Corporation any right to continued service as a
director or officer of the Corporation, nor does it interfere in any way with
the right of the Corporation or a Subsidiary to terminate the employment of any
of its employees or for the Corporation to remove a director or officer with or
without cause at any time.
(b) Status of Plan. Until shares pursuant to an Award or exercise
thereof are actually delivered to a Participant, a Participant shall have no
rights to or with respect to such shares greater than those of a general
creditor of the Corporation unless the Committee shall otherwise expressly
determine in connection with any Award or Awards.
(c) Tax Withholding, Etc. Any obligation of the Corporation to
issue shares pursuant to the grant or exercise of any Award shall be conditioned
on the Participant having paid or made provision for payment of all applicable
tax withholding obligations, if any, satisfactory to the Committee. The
Corporation and its Subsidiaries shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
Participant.
(d) Restrictions on Transfers of Shares. The Corporation is not
required to cause all shares acquired or received by Participants to be
registered under the Securities Act of 1933 or the Securities Act of 1934 or the
securities laws of any State. Accordingly, the shares acquired or received may
be "restricted securities" as defined in Rule 144 under said Securities Act of
1933 or other rule or regulation of the Securities and Exchange Commission. Any
certificate evidencing any such shares may bear a legend restricting the
transfer of such shares, and the recipient may be required to assert that the
shares are being acquired for his own account and not with a view to the
distribution thereof as a condition to the granting or exercise of an Award.
(e) Issuance of Shares. Any obligation of the Corporation to issue
shares pursuant to the grant or exercise of any Award shall be conditioned on
the Corporation's ability at nominal expense to issue such shares in compliance
with all applicable statutes, rules or regulations of any governmental
authority. The Participant shall provide the Corporation with any assurances or
agreements which the Committee, in its sole discretion, shall deem necessary or
advisable in order that the issuance of such shares shall comply with any such
statutes, rules or regulations.
<PAGE>
(f) Date of Grant. The date on which each Award under the Plan
shall be considered as having been granted shall be the date on which the award
is authorized by the Committee, unless a later date is specified by the
Committee; provided, however, in the case of options intended to qualify as
Incentive Stock Options, the date of grant shall be determined in accordance
with the Code.
Exhibit 23.2
CONSENT OF PRICEWATERHOUSECOOPERS LLP
We hereby consent to the incorporation by reference in this
Registration Statement filed as Form S-3/A on Form S-2 (Registration No.
333-30130) of our report dated March 9, 1999, except as to Note 7, which is as
of September 14, 1999, relating to the financial statements, which appears in
Accent Color Sciences, Inc.'s Annual Report on Form 10-K/A for the year ended
December 31, 1998.
We also consent to the reference to us under the heading "Experts" in
such Registration Statement.
/s/
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PricewaterhouseCoopers LLP
Hartford, CT
February 24, 2000
