Certificate of Designation of Rights and Preferences
for Series 2000-B Convertible Preferred Stock
of
First Scientific, Inc.
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware, First Scientific, Inc., a Delaware corporation (the "Company"), does
hereby certify:
FIRST: That pursuant to authority expressly vested in it by the
Certificate of Incorporation, as amended, of the Company, the Board of Directors
of the Company has adopted the following resolution establishing a new series of
Preferred Stock of the Company, consisting of four thousand (4,000) shares
designated "Series 2000-B 8% Convertible Preferred Stock," with such powers,
designations, preferences, and relative participating, optional, or other
rights, if any, and the qualifications, limitations, or restrictions thereof, as
are set forth in the resolutions:
RESOLVED, that the Company's Board of Directors hereby
approves the designation and issuance of the Series 2000-B 8%
Convertible Preferred Stock according to the terms and
conditions as set forth in the Agreement and in the attached
Exhibit A (Designation of Rights and Preferences) and
authorizes and instructs the Company's Executive Officers,
Randall L. Hales and Jack Theler to proceed in filing the
Certificate of Designation with the State of Delaware and to
take such other action as shall be appropriate in connection
with the issuance of the Series 2000-B 8% Convertible
Preferred Stock
SECOND: That said resolutions of the directors of the Company were duly
adopted in accordance with the provisions of Section 151(g) of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned hereby affirms, under penalties of
perjury, that the foregoing instrument is the act and deed of the Company and
that the facts stated therein are true. Dated this 11th day of January, 2001.
First Scientific, Inc.
By: /s/ John L. Theler
-------------------------------------
Name: John L. Theler
Title: Chief Financial Officer
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FIRST SCIENTIFIC, INC.
Certificate of Designation
Series 2000-B Convertible Preferred Stock
First Scientific, Inc. (the "Corporation"), a Delaware corporation,
hereby certifies that pursuant to authority conferred upon the Board of
Directors of the Corporation by its Certificate of Incorporation, as amended,
and in accordance with the provisions of Section 151 of the General Corporation
Law of Delaware ("DGCL"), the Board of Directors of the Corporation, at a
meeting duly called and held pursuant to Section 141 of the DGCL, duly adopted
the following resolution providing for the designation and the powers,
preferences, and the qualifications, limitations or restrictions thereof, of the
Series 2000-B Convertible Preferred Stock (the "Series 2000-B Preferred Stock"),
which resolution is as follows:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its
Certificate of Incorporation, as amended, and pursuant to the General
Corporation Law of Delaware, a series of Preferred Stock of the Corporation is
hereby created, such series of Preferred Stock to be designated the Series
2000-B Preferred Stock, to consist of 4,000 shares, $0.001 par value per share,
with a stated value of $1,000 per share (the "Stated Value"). The Series 2000-B
Preferred Stock is being issued pursuant to the terms and conditions of that
certain Securities Purchase Agreement dated as of May 16, 2000, as amended from
time to time, and that certain Agreement dated as of December 29, 2000 by the
Corporation, which are incorporated herein by this reference (collectively, the
"Purchase Agreement"). Capitalized terms used herein and not otherwise defined
shall have the meanings given to them in the Purchase Agreement. The powers,
preferences and rights, and the qualifications, limitations or restrictions of
the Series 2000-B Preferred Stock shall be as follows:
1. Voting Rights. Except as otherwise required by applicable law, each
share of Series 2000- B Preferred Stock issued and outstanding shall have the
number of votes equal to the whole number of shares of common stock, $.001 par
value, of the Corporation (the "Common Stock") into which the share of Series
2000-B Preferred Stock is convertible (with any fractional share determined on
an aggregate conversion basis being rounded to the nearest whole share) as
though such share were immediately convertible.
2. Dividends. The holder of Series 2000-B Preferred Stock (hereinafter
the "Holder") shall be entitled to receive (out of legally available funds)
cumulative dividends equal to 8% per annum and payable quarterly within 5
business days after the last business day of each calendar quarter (the
"Dividend Payment Date"). From and after the occurrence of an Event of
Noncompliance, the Holder of Series 2000-B Preferred Stock shall be entitled to
receive (out of legally available funds) cumulative dividends equal to 21% per
annum (the "Default Rate") and payable on each Dividend Payment Date. Dividends
shall be paid in cash unless the Holder shall give written notice to the
Corporation at least five (5) business days before a Dividend Payment Date for
which such election is made of Holder's election to receive payment of dividends
in Common Stock at the Conversion Price, as defined below. Dividends on the
Series 2000-B Preferred Stock shall rank senior to dividends payable on all
other series or classes of stock of the Corporation. Unless all accrued
dividends and interest thereon, if any, have been paid in full, no dividend on
any other stock shall
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be declared or paid or made, as the case may be, or any moneys paid to any
sinking or purchase fund on any other stock for the redemption or repurchase
thereof. Dividends for less than a full calendar quarter shall be prorated and
based on the actual number of days elapsed divided by 360 days.
3. Redemption.
A. Optional Redemption. The Corporation shall have the right, but not
the obligation, exercisable at any time or from time to time, until close of
business on April 2, 2001, to redeem all, but not less than all, of the
outstanding shares of Series 2000-B Preferred Stock by paying a sum equal to
$6,500,000.00 (the "Optional Redemption Price"). The Corporation may not redeem
any Series 2000-B Preferred Stock pursuant to this Paragraph A, unless all
dividends accrued on all of the outstanding Series 2000-B Preferred Stock
through December 31, 2000 have been paid in full. Dividends for the period
January 1, 2001 through the date of redemption under this Paragraph A will be
deemed included in the Optional Redemption Price stated above. The Corporation
may not redeem any share of Series 2000-B Preferred Stock which has been
converted or for which a Notice of Conversion has been delivered to the
Corporation prior to the date notice of redemption is given to the holder under
this Paragraph A.
B. Mandatory Redemption. The Corporation shall have the obligation, at
the option of the Holder of Series 2000-B Preferred Stock, to redeem all of the
outstanding shares of Series 2000-B Preferred Stock by paying a sum per share
equal to 125% of the Stated Value per share, plus accrued and unpaid dividends
and penalties thereon through the date of redemption (collectively the
"Mandatory Redemption Price") if an Event of Noncompliance (as defined herein)
occurs, provided that such obligation shall not arise prior to April 3, 2001
unless either Randall L. Hales has ceased to be employed full-time by the
Corporation or Pharmulations, L.C. has ceased to provide services as a
consultant to the Corporation.
C. Notice of Redemption. The Corporation shall deliver written notice
of each redemption, pursuant to Paragraph A above, of a share of Series 2000-B
Preferred Stock to the Holder thereof not less than 48 hours prior to the date
specified in the notice on which such redemption is to be made (the "Optional
Redemption Date"). A Holder of a share of Series 2000-B Preferred Stock may
submit written notice of a redemption, pursuant to Paragraph B above, to the
Corporation not less than ten (10) calendar days prior to the date specified in
the notice on which such redemption is to be made (the "Mandatory Redemption
Date"). Any notice required or permitted to be given under any provision of this
Designation shall be given in writing and delivered personally, by facsimile, or
by mail, postage prepaid, addressed to the Corporation at its principal
executive offices and to the Holder at the address or facsimile number on the
records of the Corporation. The Holder will have the responsibility to notify
the Corporation of its current address and facsimile number at all times.
D. Redemption Payments. For each share of Series 2000-B Preferred Stock
which is to be redeemed hereunder, the Corporation shall be obligated on the
applicable Optional or Mandatory Redemption Date to pay to the Holder thereof
(upon surrender by such Holder at the Corporation's principal office of the
share certificate) the applicable Optional or Mandatory Redemption Price in cash
or in immediately available funds. If the Corporation does not make the payment
when due, dividends will accrue on all outstanding Series 2000-B Preferred Stock
from and after the applicable
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Optional or Mandatory Redemption Date at the Default Rate and the Conversion
Price calculated pursuant to Section 4 in connection with any subsequent
conversion of a share of Series 2000-B Preferred Stock will be reduced by $.50
per share. If the Corporation does not pay the Optional Redemption Price when
due, the Corporation's right and obligation to make an Optional Redemption shall
cease and the Holder's right to a cash payment pursuant to the Optional
Redemption shall cease, but the Holder shall have a continuing right of
conversion as provided herein. If the Corporation does not pay the Mandatory
Redemption Price when due, the Corporation's right and obligation to make an
Mandatory Redemption shall cease and the Holder's right to a cash payment
pursuant to the Mandatory Redemption shall cease, but the Holder shall have a
continuing right of conversion as provided herein.
E. Dividends After Optional or Mandatory Redemption Date. If the
applicable Optional or Mandatory Redemption Price to be paid hereunder is paid
in full to the Holder of Series 2000-B Preferred Stock on the applicable
Optional or Mandatory Redemption Date, the redeemed shares of Series 2000-B
Preferred Stock shall not be entitled to any dividends accruing after such date
and on such date, all rights of the Holder of such shares shall cease, and such
shares shall no longer be deemed to be issued and outstanding.
4. Conversion.
Holders of Series 2000-B Preferred Stock shall have the right, but not
the obligation, to convert the Stated Value and any accrued and unpaid dividends
into fully paid and nonassessable shares (calculated as to each conversion to
the nearest number of whole shares) of the Common Stock of the Corporation at
the Conversion Price, as defined herein, subject to adjustment as provided
herein. Subject to the limitation for conversion of the Series 2000-B Preferred
Stock on or after April 3, 2001 through December 31, 2001, "Conversion Price"
means 80% of the average of the three lowest closing bid prices for the Common
Stock quoted on the Nasdaq Stock Market system or reported on the NASD's OTC
Bulletin Board during the 15 trading days preceding the conversion date, subject
to a maximum Conversion Price of $1.20 per share. Upon the occurrence of an
Event of Noncompliance, all of the Series 2000-B Preferred Stock shall be
immediately convertible notwithstanding any timing or other restrictions imposed
herein and the Conversion Price shall not be subject to any limitations on the
minimum imposed herein. For purposes of this Section 4, the term "fully diluted
capital stock of the Corporation, after adjustment" shall be calculated on the
applicable conversion date as the sum of (x) all issued and outstanding shares
of Common Stock, (y) those shares of Common Stock to be issued upon conversion
of the Series 2000-B Preferred Stock on the applicable conversion date, and (z)
all shares of Common Stock issuable upon the conversion of convertible
securities, excluding the Series 2000-B Preferred Stock, and the exercise of
Common Stock purchase options and warrants having a conversion price or an
exercise price less than $.75 per share, as the case may be. The calculation
shall exclude shares issuable upon conversion of convertible securities or the
exercise of outstanding stock options and purchase warrants with a conversion
price or an exercise price of $.75 or greater, as the case may be.
Holders of Series 2000-B Preferred Stock shall have the right,
exercisable one time only, but not the obligation, to convert the Stated Value
of all of the issued and outstanding shares of the Series 2000-B Preferred Stock
on the date of such exercise and all accrued and unpaid dividends
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thereon together with cash in an amount which when added to the aforementioned
Stated Value and dividends shall equal $3,652,000.00 into the number of fully
paid and nonassessable shares of the Common Stock which equals 42% of the "fully
diluted capital stock of the Corporation, after adjustment, as defined above.
The aggregate number of shares of Common Stock issued upon conversion of the
Stated Value of the Series 2000-B Preferred Stock under this paragraph shall not
exceed 42% of the "fully diluted capital stock of the Corporation, after
adjustment," as defined above. Conversion under this paragraph may be exercised
on or after April 3, 2001 but not after December 31, 2001.
In the case of any Series 2000-B Preferred Stock which is surrendered
for conversion, accrued and unpaid dividends will be payable on such Series
2000-B Preferred Stock with respect to the period ending on the conversion date.
The Holder at its option may elect to receive payment of those dividends in cash
or in Common Stock at the applicable Conversion Price, as provided herein.
A. Exercise of Conversion Privilege. To exercise the conversion
privilege, the Holder of the Series 2000-B Preferred Stock shall surrender to
the Corporation such Series 2000-B Preferred Stock, duly endorsed or assigned to
the Corporation or in blank, accompanied by written Notice of Conversion to the
Corporation in the form provided in the Series 2000-B Preferred Stock that the
Holder elects to convert such Series 2000-B Preferred Stock or, if less than the
entire principal amount thereof is to be converted, the specified portion.
Series 2000-B Preferred Stock shall be deemed to have been converted
immediately prior to the close of business on the day of surrender of such
Series 2000-B Preferred Stock for conversion in accordance with the foregoing
provisions, and at such time the rights of the Holders of such Series 2000-B
Preferred Stock as Holders shall cease, and the person or persons entitled to
receive the Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such Common Stock as and after such
time.
Within two (2) business days after the conversion date, the
Corporation, without cost to the Holder, shall issue and shall deliver to the
Holder of the converted Series 2000-B Preferred Stock or the person specified by
such Holder a certificate or certificates for the number of full shares of
Common Stock issuable upon conversion registered in the name of such Holder or
such other person as shall have been specified by such Holder and all accrued
and unpaid dividends on the converted Series 2000-B Preferred Stock or portion
thereof upon which the Holder does not elect to receive payment in the form of
Common Stock.
Upon conversion of Series 2000-B Preferred Stock, the Corporation shall
take all such actions as are necessary in order to insure that the Common Stock
issuable with respect to such conversion shall be validly issued, fully paid and
nonassessable.
The Corporation shall not close its books against the transfer of
Common Stock issued or issuable upon conversion of Series 2000-B Preferred Stock
in any manner which interferes with the timely conversion of Series 2000-B
Preferred Stock. The Corporation shall assist and cooperate with any Holder of
Series 2000-B Preferred Stock required to make any governmental filings or
obtain
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any governmental approval prior to or in connection with the conversion of
Series 2000-B Preferred Stock (including, without limitation, making any filings
required to be made by the Corporation).
The Corporation shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
issuance upon the conversion of Series 2000-B Preferred Stock, such number of
shares of Common Stock issuable upon the conversion of all outstanding Series
2000-B Preferred Stock. All shares of Common Stock which are so issuable shall,
when issued, be duly and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges. The Corporation shall take all such actions
as may be necessary to assure that all such shares of Common Stock may be so
issued without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which shall be
immediately delivered by the Corporation upon each such issuance).
The conversion rights of any Series 2000-B Preferred Stock subject to
redemption hereunder shall terminate on the Redemption Date for such Series
2000-B Preferred Stock unless the Corporation has failed to pay to the Holder
thereof the Redemption Price of such Series 2000-B Preferred Stock or portion
thereof (plus all accrued and unpaid dividends and penalties thereon and any
premium payable with respect thereto).
B. Adjustment of Conversion Price and Number of Shares upon Issuance of
Common Stock. If and whenever, on or after April 3, 2001, the Corporation issues
or sells (or in accordance with Section 4.C is deemed to have issued or sold)
(specifically excluding those shares of Common Stock issued and sold upon the
exercise of options and warrants granted prior to the date of the Purchase
Agreement), other than (i) as described in Section 4.D or (ii) pursuant to the
Purchase Rights covered by Section 4.I, any shares of Common Stock for a
consideration per share less than the Fair Market Value (as defined below) per
share of the Common Stock determined as of the earlier of (x) the announcement
of such issuance or sale, or (y) the date of such issuance or sale, then
immediately upon such issuance or sale the Conversion Price shall be reduced to
equal the amount determined by multiplying the Conversion Price in effect
immediately prior to such issuance or sale by a fraction, the numerator of which
will be the sum of (1) the number of shares of Common Stock deemed outstanding
(including Shares deemed outstanding pursuant to Section 4.C.(i)) immediately
prior to such issuance or sale multiplied by the Fair Market Value per share of
the Common Stock determined as of the date of such issuance or sale, plus (2)
the consideration, if any, received by the Corporation upon such issuance or
sale, and the denominator of which will be the product derived by multiplying
such Fair Market Value per share of the Common Stock by the number of shares of
Common Stock deemed outstanding (including Shares deemed outstanding pursuant to
Section 4.C.(i)) immediately after such issuance or sale. Upon each such
adjustment of the Conversion Price hereunder, the number of Conversion Shares
issuable upon exercise of Series 2000-B Preferred Stock shall be adjusted to
equal the number of shares determined by multiplying the Conversion Price in
effect immediately prior to such adjustment by the number of Conversion Shares
issuable upon exercise of Series 2000-B Preferred Stock immediately prior to
such adjustment and dividing the product thereof by the Conversion Price
resulting from such adjustment. For the purposes of this Section 4, the
calculation of the number of shares of Common Stock deemed outstanding shall
exclude the Conversion Shares. "Fair Market Value" means the closing bid price
of a share of
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Common Stock quoted on the NASDAQ Stock Market System or reported on the NASD's
OTC Bulletin Board on the measurement date.
C. Effect on Conversion Price of Certain Events. For purposes of
determining the adjusted Conversion Price under Section 4.B, the following shall
be applicable:
(i) Issuance of Rights or Options or Convertible Securities.
If the Corporation in any manner grants any rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or any
stock or other securities convertible into or exchangeable for Common Stock
(including without limitation convertible Common Stock) (such rights or options
being herein called "Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities") or if the Corporation
in any manner issues or sells any Convertible Securities, whether or not
immediately convertible or exchangeable, and the Fair Market Value per share for
which Common Stock issuable upon the exercise of such Options or upon conversion
or exchange of such Convertible Securities is less than the Fair Market Value
per share of the Common Stock in effect on the earlier of (x) the announcement
of such grant or issuance or sale and (y) the date of such grant or issuance or
sale, then the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the exercise of such Options
of upon conversion or exchange of such Convertible Securities shall be deemed to
be outstanding and to have been issued and sold by the Corporation for such Fair
Market Value per share. For purposes of this paragraph, the Fair Market Value
per share for which Common Stock is issuable upon exercise of such Options or
upon conversion or exchange of such Convertible Securities" is determined by
dividing (A) the total amount, if any, received or receivable by the Corporation
as consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Corporation upon the exercise
of all such Options, plus in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the issuance or sale of
such Convertible Securities and the conversion or exchange thereof, by (B) the
total maximum number of shares of Common Stock issuable upon exercise of such
Options or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options. No further adjustment of the
Conversion Price shall be made upon the actual issuance of such Common Stock or
of such Convertible Securities upon the exercise of such Options or upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities.
(ii) Change in Option Price or Conversion Rate. If either the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock shall change at any time to an amount which is
less than the Fair Market Value, then the Conversion Price in effect at the time
of such change shall be adjusted to the Conversion Price which would have been
in effect at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold and the number of Conversion Shares shall be correspondingly
readjusted.
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D. Subdivision or Combination of Shares. If the Corporation at any time
subdivides (by any stock split, stock dividend, recapitalization, or otherwise)
the outstanding shares of Common Stock into a greater number of shares of Common
Stock, or pays a dividend or makes a distribution to holders of outstanding
shares of Common Stock in the form of shares of Common Stock, or combines (by
reverse stock split or otherwise) the outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price of the Series 2000-B Preferred
Stock in effect immediately prior to such event and the number of shares of
Common Stock issuable upon conversion of the Series 2000-B Preferred Stock shall
be proportionately adjusted so that the Holder of the Series 2000-B Preferred
Stock thereafter surrendered for conversion shall be entitled to receive after
the occurrence of any of the events described the proportionate number of shares
of Common Stock to which the Holder would have been entitled had such Series
2000-B Preferred Stock been exercised immediately prior to the occurrence of
such event, such adjustment to become effective immediately after the opening of
business on the day following the date upon which such subdivision or
combination or reclassification, as the case may be, becomes effective.
E. Liquidation of the Corporation. In the event of the liquidation,
dissolution, or winding up of the Corporation, a notice thereof shall be sent to
the Holder at least 15 days before the record date specified for determining
holders of the shares of Common Stock entitled to receive any distribution upon
such liquidation, dissolution, or winding up.
F. Consolidation of Corporation. In the case of any consolidation or
merger of the Corporation with or into another corporation (other than a
consolidation or merger in which the Corporation is the surviving corporation
and which does not result in any reclassification or change of outstanding
shares of the class issuable upon conversion of the Series 2000-B Preferred
Stock), or in case of any sale or transfer to another corporation of the
property of the Corporation as an entirety or substantially as an entirety, the
Holder of each Series 2000-B Preferred Stock then outstanding shall have the
right to exercise such Series 2000-B Preferred Stock for the purchase of the
kind and amount of shares of Common Stock and other securities and property
receivable upon such consolidation, merger, sale, or transfer by a holder of the
number of shares of Common Stock which would have been issuable if the
conversion of the Series 2000-B Preferred Stock had occurred immediately prior
to such consolidation, merger, sale, or transfer.
G. Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 4 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the
Corporation's Board of Directors shall exercise their reasonable judgment
consistent with the fundamental intent of such provisions in making an
appropriate adjustment in the Conversion Price and the number of shares of
Common Stock issuable upon conversion of the Series 2000-B Preferred Stock so as
to protect the rights of the Holder of the Series 2000-B Preferred Stock.
H. Notices.
(i) Immediately upon any adjustment of the Conversion Price,
the Corporation shall give written notice thereof to the Holder, setting forth
in reasonable detail and certifying the calculation of such adjustment.
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(ii) The Corporation shall give written notice to the Holder
at least 30 days prior to the date on which the Corporation closes its books or
takes a record (A) with respect to any dividend or distribution upon the Common
Stock, (B) with respect to any pro rata subscription offer to holders of Common
Stock, or (C) for determining rights to vote with respect to any
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Corporation's assets, dissolution or
liquidation.
(iii) The Corporation shall also give written notice to the
Holder at least 30 days prior to the date on which any recapitalization,
reorganization, reclassification, consolidation, merger, sale of all or
substantially all of the Corporation's assets, dissolution or liquidation shall
take place.
I. Purchase Rights. If at any time the Corporation grants, issues or
sells any options, convertible securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of the Common Stock
(the "Purchase Rights"), then the Corporation shall grant, issue or sell (as the
case may be) to the Holder the aggregate Purchase Rights which such Holder would
have acquired if such Holder had held the maximum number of shares of Common
Stock issuable upon conversion of all the Series 2000-B Preferred Stock
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.
5. Events of Noncompliance.
A. Definition. An Event of Noncompliance shall have occurred if:
(i) the Corporation fails to pay on any Dividend Payment Date
the full amount of dividends then accrued on the Preferred Stock, whether or not
such payments are legally permissible or are prohibited by any agreement to
which the Corporation is subject;
(ii) the Corporation fails to make any redemption payment
(whether following the giving of notice pursuant to paragraph 3C or otherwise)
with respect to the Preferred Stock which it is required to make hereunder,
whether or not such payment is legally permissible or is prohibited by any
agreement to which the Corporation is subject;
(iii) the Corporation breaches or otherwise fails to perform
or observe any material provision contained herein, in the Purchase Agreement or
in the Related Documents (as defined in the Purchase Agreement) and (other than
with respect to Section 8.1 or 8.2 of the Purchase Agreement, the breach of or
failure to perform which shall result in an immediate Event of Noncompliance)
such failure is not cured within fifteen (15) days after the occurrence thereof;
(iv) any representation or warranty contained in the Purchase
Agreement or required to be furnished to any Holder of Preferred Stock pursuant
to the Purchase Agreement, or any information contained in writing required to
be furnished by the Corporation or any Subsidiary to any Holder of Preferred
Stock, is false or misleading in any material respect on the date made or
furnished;
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(v) the Corporation or any Subsidiary makes an assignment for
the benefit of creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or decree is entered
adjudicating the Corporation or any Subsidiary bankrupt or insolvent; or any
order for relief with respect to the Corporation or any Subsidiary is entered
under the Federal Bankruptcy Code; or the Corporation or any Subsidiary
petitions or applies to any tribunal for the appointment of a custodian,
trustee, receiver or liquidator of the Corporation or any Subsidiary or of any
substantial part of the assets of the Corporation or any Subsidiary, or
commences any proceeding (other than a proceeding for the voluntary liquidation
and dissolution of any Subsidiary) relating to the Corporation or any Subsidiary
under any bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction; or the Corporation or
any Subsidiary takes any action to authorize any of the foregoing; or any such
petition or application is filed, or any such proceeding is commenced, against
the Corporation or any Subsidiary and either (a) the Corporation or any such
Subsidiary by any act indicates its approval thereof, consent thereto or
acquiescence therein or (b) such petition, application or proceeding is not
dismissed within 60 days;
(vi) any material provision of the Purchase Agreement or any
Related Document shall at any time for any reason be declared to be null and
void, or the validity or enforceability thereof shall be contested by any party
thereto, or a proceeding shall be commenced by the Corporation or any
Governmental Authority or other regulatory body having jurisdiction over the
Corporation, seeking to establish the invalidity or enforceability thereof, or
the Corporation shall deny in writing that it has any liability or obligation
purported to be created under the Purchase Agreement or any Related Document;
(vii) (A) any registration statement required to be filed and
declared effective by the Corporation pursuant to the Purchase Agreement shall
not become effective as provided in the Purchase Agreement or shall cease to be
effective prior to the sale of all shares registered thereunder, (B) the
Securities and Exchange Commission shall issue any stop order suspending the
effectiveness under the Securities Act of any registration statement required to
be filed and declared effective by the Corporation pursuant to the Purchase
Agreement or any state securities commission suspends the qualification of the
Registrable Securities covered thereby for offering or sale in any jurisdiction,
(C) any proceeding for purposes of either (A) or (B) above is initiated, or (D)
the Common Stock is suspended from trading on or the price for the Common Stock
is not quoted or reported on the Nasdaq Stock Market System or the NASD's OTC
Bulletin Board;
(viii) the Corporation at any time shall not have reserved and
available authorized but unissued shares of Common Stock, solely for the purpose
of issuance upon conversion of the Preferred Stock, in the number which would be
issuable upon the conversion of all of the issued and outstanding Preferred
Stock; or
(ix) the occurrence of a Material Adverse Change (as defined
in the Purchase Agreement).
B. Right to Cure. Any breach, default in performance of any provision
or Event of Noncompliance of the Purchase Agreement or any of the Related
Documents which directly affects
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the Holder's ability to acquire the Preferred Shares and Warrants, convert the
Preferred Shares, Exercise the Warrants or sell pursuant to a valid registration
shall be interpreted in accordance with the terms of the Purchase Agreement or
any Related Document. Any breach, default in performance of any provision of the
Purchase Agreement or any of the Related Documents or Event of Noncompliance
which does not directly affect the Holder's ability to acquire the Preferred
Shares and Warrants, convert the Preferred Shares, Exercise the Warrants or sell
pursuant to a valid registration shall be subject to written notice delivered to
the Corporation and may be cured by the Corporation during the five (5) business
days after receipt of written notice of such breach, default or Event of
Noncompliance.
6. Liquidation and Sale Preferences. In the event of liquidation,
dissolution or winding up, whether voluntary or involuntary, (an "Event of
Liquidation") of the Corporation, the Holders of Series 2000-B Preferred Stock,
prior and in preference to the holders of the Common Stock, shall be entitled to
receive (i) the Stated Value per share of Series 2000-B Preferred (adjusted to
reflect stock dividends, stock splits or recapitalizations, if any), plus (ii)
accrued but unpaid dividends (the "Liquidation Preference"). The Liquidation
Preference shall rank senior to all other series or classes of stock of the
Corporation. After payment of the Liquidation Preference and any other
preferential payments on other series or classes of stock except the Common
Stock, the Holders of Series 2000-B Preferred Stock shall have no other rights
to the remaining assets of the Corporation. If upon the occurrence of such
event, the assets and funds thus distributed among the Holders of the Series
2000- B Preferred Stock shall be insufficient to permit the payment to such
Holders of the full aforesaid preferential amounts, then the entire assets and
funds of the Corporation legally available for distribution shall be distributed
ratably among the Holders of the Series 2000-B Preferred Stock in proportion to
the amount of such stock owned by each such Holder. The Corporation shall mail
to each Holder of Series 2000-B Preferred Stock, at least twenty (20) days prior
to an Event of Liquidation, a notice setting forth the date on which such Event
of Liquidation is expected to become effective and the type and amount of
anticipated proceeds per share of Common Stock to be distributed with respect
thereto and shall afford each such Holder the opportunity to convert such shares
of Series 2000-B Preferred Stock pursuant to Section (iii) (conditional upon the
consummation of such Event of Liquidation) prior to the consummation thereof.
A consolidation or merger of the Corporation with or into any other
corporation or corporations, or a sale, conveyance, or disposition of all or
substantially all of the assets of the Corporation, or the effectuation of any
acquisition of the Corporation by any other entity by means of a transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of the Corporation is disposed of (the "Sale"), shall be deemed to
be an Event of Liquidation; provided, however, that if Holders of Series 2000-B
Preferred Stock are to receive more than the preferential amounts due them under
the immediately preceding paragraph in the Sale, the Sale shall not be an Event
of Liquidation and all Holders of Series 2000-B Preferred Stock shall
participate ratably with the holders of Common Stock and the holders of any
other series of preferred stock with similar rights in proportion to the amount
of shares of Common Stock owned by each such holder on an as-converted basis and
shall not be entitled to receive any preferential amounts.
7. Protective Provisions. So long as shares of Series 2000-B Preferred
Stock are outstanding, the Corporation shall not without first obtaining the
approval (by vote or written consent), as
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<PAGE>
provided by law, of the Holders of two-thirds of the outstanding shares of
Series 2000-B Preferred Stock: (a) to alter or change the rights, preferences or
privileges of the shares of Series 2000-B Preferred Stock so as to affect
adversely the shares of such stock; (b) to increase the authorized number of
shares of Series 2000-B Preferred Stock; (c) to create any new class or series
of shares of capital stock with rights or preferences prior to or on a parity
with, or increase the number of shares of, Series 2000-B Preferred Stock; or (d)
to sell or convey or otherwise dispose of all or substantially all of the
property or business of the Corporation. No repurchases or redemptions of any
other series or class of stock of the Corporation while in default of any
provision of the Series 2000-B Preferred Stock.
8. Amendments and Waivers. Series 2000-B Preferred Stock may be amended
only with the written consent of the Holder, and any existing Event of
Noncompliance may be waived only with the written consent of the Holder.
RESOLVED, that the Board of Directors has determined that the rights
and preferences of the Series 2000-B Preferred Stock are under the circumstances
presently prevailing, fair and equitable to all the existing stockholders.
[The remainder of this page intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused its duly authorized
officers to execute this certificate this 11 day of January, 2001.
FIRST SCIENTIFIC, INC.
By: /S/ Randall L. Hales
Randall L. Hales, President and Chief
Executive Officer
By: /s/ John L. Theler
John L. Theler, Vice President, Chief
Financial Officer, Corporate Secretary
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
On January __, 2001, personally appeared before me Randall L. Hales,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument.
WITNESS my hand and official seal.
-----------------------------------
NOTARY PUBLIC
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
On January __, 2001, personally appeared before me John L. Theler,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument.
WITNESS my hand and official seal.
------------------------------------
NOTARY PUBLIC
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<PAGE>
NOTICE OF CONVERSION
To: First Scientific, Inc.
The undersigned registered owner of this share of Series 2000-B
Preferred Stock hereby exercises the option to convert this share of Series
2000-B Preferred Stock, or the portion hereof designated below, and the accrued
dividends thereon designated below into shares of Common Stock in accordance
with the terms of the Series 2000-B Preferred Stock, and directs that the shares
issuable and deliverable upon this conversion be issued and delivered to the
registered owner hereof, unless a different name has been provided below.
Dated:
------------------- ----------------------------------------
------------------------------------
Signature(s)
Complete the following for registration of shares of Common Stock if they are to
be delivered other than to and in the name of the registered owner:
------------------------------------
Name
====================================
Address
------------------------------------
Soc. Sec. or Tax I.D. No.
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