<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No. 1)
ORPHAN MEDICAL, INC.
(Name of Issuer)
COMMON STOCK
(Title of Class of Securities)
687303 10 7 (FOR COMMON STOCK ISSUED UPON CONVERSION)
(CUSIP Number)
MICHAEL GREENE
PARTNER
UBS CAPITAL II LLC
299 PARK AVENUE
NEW YORK, NEW YORK 10171
(212) 821-6380
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
COPIES TO:
NANCY E. FUCHS, ESQ.
KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, LLP
425 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 836-8000
AUGUST 2, 1999
(Date of Event which Requires
Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of Sections 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g),
check the following box [ ].
Note: Schedules filed in paper format shall include a signed original and five
copies of this schedule, including all exhibits. See Section 13d-7(b) for other
parties to whom copies are to be sent.
Page 1 of 14 pages.
<PAGE> 2
SCHEDULE 13D
CUSIP NO. 687303 10 7 (FOR COMMON PAGE 2 OF 14 PAGES
STOCK ISSUED UPON CONVERSION)
1 NAMES OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE
PERSONS
UBS Capital II LLC 13-3699851
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS)
(a) / /
(b) / /
3 SEC USE ONLY
4 SOURCE OF FUNDS (SEE INSTRUCTIONS)
AF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER OF SOLE VOTING POWER
SHARES
BENEFICIALLY 7 UBS Capital II LLC owns 8,088 shares of Senior
OWNED BY Convertible Preferred Stock (convertible into
EACH approximately 993,612* shares of Common Stock) and
REPORTING 2,950 shares of Series B Convertible Preferred Stock
PERSON (convertible into approximately 453,846** shares of
WITH Common Stock).
SHARED VOTING POWER
8
-0-
SOLE DISPOSITIVE POWER
9 UBS Capital II LLC owns 8,088 shares of Senior
Convertible Preferred Stock (convertible into
approximately 993,612* shares of Common Stock) and
2,950 shares of Series B Convertible Preferred Stock
(convertible into approximately 453,846** shares of
Common Stock).
SHARED DISPOSITIVE POWER
10
-0-
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11 UBS Capital II LLC owns 8,088 shares of Senior Convertible Preferred
Stock (convertible into approximately 993,612* shares of Common Stock)
and 2,950 shares of Series B Convertible Preferred Stock (convertible
into approximately 453,846** shares of Common Stock).
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
(SEE INSTRUCTIONS) / /
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13 UBS Capital II LLC owns 100% of issued and outstanding Senior
Convertible Preferred Stock and Series B Convertible Preferred Stock
(convertible into an aggregate of 18.0% of Common Stock of Issuer as of
August 2, 1999).
14 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
OO
* Assuming conversion price of $8.14 per share, the adjusted conversion
price.
** Assuming conversion price of $6.50 per share, the initial conversion
price.
Page 2 of 14 pages.
<PAGE> 3
SCHEDULE 13D
CUSIP NO. 687303 10 7 (FOR COMMON PAGE 3 OF 14 PAGES
STOCK ISSUED UPON CONVERSION)
1 NAMES OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE
PERSONS
2 UBS Capital Holdings LLC 13-3952898
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / /
(SEE INSTRUCTIONS) (b) / /
3 SEC USE ONLY
4 SOURCE OF FUNDS (SEE INSTRUCTIONS)
AF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER OF SOLE VOTING POWER
SHARES 7
BENEFICIALLY -0-
OWNED BY
EACH SHARED VOTING POWER
REPORTING 8
PERSON -0-
WITH
SOLE DISPOSITIVE POWER
9
-0-
SHARED DISPOSITIVE POWER
10
-0-
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11 UBS Capital II LLC owns 8,088 shares of Senior Convertible Preferred
Stock (convertible into approximately 993,612* shares of Common Stock )
and 2,950 shares of Series B Convertible Preferred Stock (convertible
into approximately 453,846** shares of Common Stock); UBS Capital
Holding LLC, by virtue of the fact that it owns 100% of UBS Capital II
LLC, beneficially owns all such shares.
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
(SEE INSTRUCTIONS) / /
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13 UBS Capital II LLC owns 100% of issued and outstanding Senior
Convertible Preferred Stock and Series B Convertible Preferred Stock
(convertible into an aggregate of 18.0% of Common Stock of Issuer as of
August 2, 1999). UBS Capital Holdings LLC beneficially owns all such
stock owned by UBS Capital II LLC.
14 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
OO
* Assuming conversion price of $8.14 per share, the adjusted conversion
price.
** Assuming conversion price of $6.50 per share, the initial conversion
price
Page 3 of 14 pages.
<PAGE> 4
SCHEDULE 13D
CUSIP NO. 687303 10 7 (FOR COMMON PAGE 4 OF 14 PAGES
STOCK ISSUED UPON CONVERSION)
1 NAMES OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE
PERSONS UBS AG
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS)
(a) / /
(b) / /
3 SEC USE ONLY
4 SOURCE OF FUNDS (SEE INSTRUCTIONS)
AF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
SWITZERLAND
NUMBER OF SOLE VOTING POWER
SHARES 7 UBS AG holds 950 shares of Common Stock for its
BENEFICIALLY customers of which it has voting power.
OWNED BY
EACH SHARED VOTING POWER
REPORTING 8 -0-
PERSON
WITH SOLE DISPOSITIVE POWER
9 UBS AG holds 950 shares of Common Stock for its
customers of which it does not have dispositive
power.
10 SHARED DISPOSITIVE POWER
-0-
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11 UBS Capital II LLC owns 8,088 shares of Senior Convertible Preferred
Stock (convertible into approximately 993,612* shares of Common Stock)
and 2,950 shares of Series B Convertible Preferred Stock (convertible
into approximately 453,846** shares of Common Stock); UBS Capital
Holding LLC, by virtue of the fact that it owns 100% of UBS Capital II
LLC, beneficially owns all such shares. UBS AG, by virtue of the fact
that it owns 100% of UBS Capital Holding LLC, beneficially owns all
such shares, and in addition UBS AG holds 950 shares of Common Stock
for its customers, of which it has voting power but not dispositive
power.
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
(SEE INSTRUCTIONS) / /
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13 UBS Capital II LLC owns 100% of issued and outstanding Senior
Convertible Preferred Stock and Series B Convertible Preferred Stock
(convertible into an aggregate of 18.0% of Common Stock of Issuer as of
August 2, 1999. UBS Capital Holdings LLC beneficially owns all such
stock owned by UBS Capital II LLC; UBS AG owns all such stock owned by
UBS Capital Holdings LLC plus beneficially owns an additional 950
shares of Common Stock of the Issuer, representing an aggregate 18.0%
of the Common Stock of the issuer as of August 2, 1999.
14 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
CO
- --------
* Assuming conversion price of $8.14 per share, the adjusted conversion
price.
** Assuming conversion price of $6.50 per share, the initial conversion
price.
Page 4 of 14 pages.
<PAGE> 5
The statement on Schedule 13D relating to Orphan Medical,
Inc., a Minnesota Corporation (the "Company") is hereby amended in its entirety
to read as follows:
ITEM 1. SECURITY AND ISSUER
This Statement relates to shares of Common Stock ("Common
Stock") of the Company. UBS Capital II LLC, a Delaware limited liability company
("UBS") is the beneficial owner of (a) shares of Senior Convertible Preferred
Stock, par value $.01 per share (the "Preferred Stock") which are convertible
into shares of Common Stock of the Company, and (b) shares of Series B
Convertible Preferred Stock, par value $.01 per share (the "Series B Preferred
Stock").
The address of the Company's principal executive office is:
13911 Ridgedale Drive, Suite 475, Minnetonka, Minnesota 55305.
ITEM 2. IDENTITY AND BACKGROUND
(a) This Statement constitutes the filing on Schedule 13D by
UBS, with respect to the (i) Stock Purchase Agreement (the "Purchase Agreement,"
a copy of which is attached hereto as Exhibit 1), dated as of July 23, 1998
between the Company and UBS, pursuant to which, subject to certain terms and
conditions, the Company agreed to issue and sell to UBS, and UBS agreed to
purchase, 7,500 shares of Preferred Stock and (ii) Stock Purchase Agreement (the
"B Purchase Agreement", a copy of which is attached hereto as Exhibit 2) dated
as of August 2, 1999 between the Company and UBS, pursuant to which, among other
things and subject to certain terms and conditions, the Company agreed to issue
and sell to UBS, and UBS agreed to purchase, 2,950 shares of Series B Preferred
Stock.
A list of the members, directors and executive officers of UBS
appears on Exhibit 3 hereto.
UBS is a wholly-owned subsidiary of UBS Capital Holdings LLC,
a Delaware limited liability company ("Holdings"). Holdings is a wholly-owned
subsidiary of UBS AG, a Swiss banking corporation ("UBS AG"). UBS AG is
principally engaged in the general banking business and Holdings is a holding
company. A list of the members, directors and executive officers of Holdings and
UBS AG appears on Exhibit 1 attached hereto.
(b) The address of the principal business office of UBS,
Holdings and UBS AG are as follows:
Reporting Person Address
UBS Capital II LLC 299 Park Avenue
New York, New York 10171
Page 5 of 14 pages.
<PAGE> 6
UBS Capital Holdings LLC 299 Park Avenue
New York, New York 10171
UBS AG Bahnhofstrasse 45
8021 Zurich
The address of each of the directors and executive officers of
each of UBS, Holdings and UBS AG are set forth on Exhibit 1 attached hereto.
(c) The present principal occupation or employment of each of
the members, directors and executive officers of each of UBS, Holdings and UBS
AG are set forth on Exhibit 1 attached hereto.
(d) During the past five years, neither UBS, Holdings nor UBS
AG nor, to the knowledge of UBS, Holdings or UBS AG, any of the members,
executive officers or directors of UBS, Holdings or UBS AG, has been convicted
in a criminal proceeding (excluding traffic violations and similar
misdemeanors).
(e) During the past five years, neither UBS, Holdings nor UBS
AG nor, to the knowledge of UBS, Holdings or UBS AG, any of the members,
executive officers or directors of UBS, Holdings or UBS AG, has been a party to
a civil proceeding of a judicial or administrative body of competent
jurisdiction as a result of which such person was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal and state securities laws or finding
any violation with respect to such laws.
(f) Each of UBS and Holdings is a Delaware limited liability
company. To the knowledge of UBS, Holdings and UBS AG, each member, executive
officer and director of UBS and Holdings is a citizen of the United States. UBS
AG is a corporation formed under the laws of Switzerland. To the knowledge of
UBS, Holdings and UBS AG, none of the executive officers and directors of UBS
AG, except Gary Brinson, a member of the group executive board of UBS AG, are
citizens of the United States.
ITEM 3. SOURCE AND AMOUNT OF FUNDS
Pursuant to the Purchase Agreement, on July 23, 1998 UBS paid
to the Company $7,500,000 as sole consideration for the purchase of the 7,500
shares of Preferred Stock. Pursuant to the B Purchase Agreement, on August 2,
1999 UBS paid to the Company $2,950,000 as sole consideration for the purchase
of the 2,950 shares of Series B Preferred Stock. UBS obtained funds for each
such purpose from UBS AG-Stamford Branch.
Page 6 of 14 pages.
<PAGE> 7
ITEM 4. PURPOSE OF TRANSACTION
UBS purchased 7,500 shares of Preferred Stock and 2,950 shares
of Series B Preferred Stock for investment purposes.
(a) UBS possesses a right of first refusal to acquire
additional securities, as well as registration rights. Furthermore, the Company
may, at its election, pay dividends on the shares of Preferred Stock in cash,
additional shares of Preferred Stock or shares of Common Stock. As of August 2,
1999, the Company had paid dividends on the shares of Preferred Stock in
additional shares of Preferred Stock totaling 588 shares of Preferred Stock. In
addition, the Company may, at its election, pay dividends on the shares of
Series B Preferred Stock in cash or additional shares of Series B Preferred
Stock. In connection with the purchase of the Series B Preferred Stock, the
Company issued to UBS a warrant (the "Warrant" a copy of which is attached
hereto as Exhibit 4) to purchase either (i) 2,050 shares of Series C Convertible
Preferred Stock, par value $.01 per share (the "Series C Preferred Stock"),
which are convertible into shares of Series D Non-Voting Preferred Stock, par
value $.01 per share (the "Series D Preferred Stock") or (ii) 315,385 shares of
Series D Preferred Stock. The purchase of the shares of Series B Preferred Stock
was conditioned on a loan (the "Loan") from UBS to the Company in the amount of
$2,050,000. In connection with the Loan, the Company issued to UBS a warrant
(the "Financing Warrant", a copy of which is attached hereto as Exhibit 5) to
purchase 282,353 shares of the Series D Preferred Stock. In general, neither the
Warrant nor the Financing Warrant are exercisable before July 23, 2002.
(b) Not applicable.
(c) Not applicable.
(d) In connection with the Purchase Agreement, in July 1998
the Board of Directors increased the number of directors by one director, which
director shall be elected by the holders of the Preferred Stock.
(e) Pursuant to the Company's Charter, so long as greater than
20% of the initially issued shares of Preferred Stock are outstanding, the
Company may not pay dividends (other than dividends in Common Stock or any other
class of stock junior to the Preferred Stock) on the Common Stock or any other
class of stock junior to the Preferred Stock. Pursuant to the Company's Charter,
so long as greater than 20% of the initially issued shares of Series B Preferred
Stock are outstanding, the Company may not pay dividends (other than dividends
in Common Stock or any other class of stock junior to the Series B Preferred
Stock) on the Common Stock or any other class of stock junior to the Series B
Preferred Stock. Pursuant to the Company's Charter, so long as greater than 20%
of the initially issued shares of Series C Preferred Stock are outstanding, the
Company may not pay dividends (other than dividends in Common Stock or any other
class of stock junior to the Series C Preferred Stock) on the Common Stock or
any other class of stock junior to the Series C Preferred Stock.
Page 7 of 14 pages.
<PAGE> 8
(f) Not applicable.
(g) Pursuant to the terms of the Company's Charter, without
the consent of the holders of the Preferred Stock, the Company may not issue
equity securities or accord voting rights with respect to shares acquired in a
"control share acquisition" (as defined in the Minnesota Business Corporation
Act). Pursuant to the terms of the Purchase Agreement, UBS has a right of first
refusal with respect to equity issuances by the Company.
(h) Not applicable.
(i) Not applicable.
(j) Not applicable.
ITEM 5. INTEREST IN SECURITIES OF ISSUER
(a) UBS is the beneficial owner of 8,088 shares of Preferred
Stock, which is convertible into an aggregate of approximately 993,612* shares
of the Company's Common Stock, and 2,950 shares of Series B Preferred Stock,
which is convertible into an aggregate of approximately 453,846** shares of the
Company's Common Stock or on an aggregate basis approximately 18% of the issued
and outstanding shares of Common Stock as of August 2, 1999. Pursuant to the
terms of the Charter, the conversion price of the Preferred Stock had initially
been equal to the lesser of (i) 10% above the 20-day average bid price
immediately prior to July 23, 1998 and (ii) 10% above the 20-day average bid
price immediately prior to October 21, 1998, but in no event was the initial
conversion price to be less than $8.50 per share. In accordance with the initial
terms of the Preferred Stock in connection with the sale of the Series B
Preferred Stock, the conversion price on the Preferred Stock was reduced from
its initial conversion price of $8.50 per share to $8.14 per share. Pursuant to
the terms of the Charter, the conversion price of the Series B Preferred Stock
shall initially be $6.50 per share. By virtue of the fact that Holdings owns
100% of UBS, Holdings is the beneficial owner of all such stock. By virtue of
the fact that UBS AG owns 100% of Holdings, UBS AG is the beneficial owner of
all such stock. In addition, UBS AG holds 950 shares of Common Stock of the
Company of which it is the beneficial owner by virtue of the fact that UBS AG
has voting power over such Common Stock.
Holdings disclaims beneficial ownership of any equity
securities of the Company. UBS AG disclaims beneficial ownership of any equity
securities of the Company other than
* Assuming conversion price of $8.14 per share, the adjusted conversion
price.
** Assuming conversion price of $6.50 per shares, the initial conversion
price.
Page 8 of 14 pages.
<PAGE> 9
indirect beneficial ownership of 950 shares of Common Stock held on behalf of
its customers of which UBS AG has voting power.
(b) UBS has the sole power to vote the 8,088 shares of
Preferred Stock and 2,950 sharers of Series B Preferred Stock under the
circumstances described in the Certificates of Designation (attached hereto as
Exhibits 6 and 7 hereof).
(c) None.
(d) Not Applicable.
(e) Not Applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER
To the knowledge of UBS, Holdings and UBS AG, on the date
hereof, except as set forth herein or in the Exhibits filed herewith or
incorporated by reference, neither UBS, Holdings nor UBS AG nor any of the
members, directors or executive officers of UBS, Holdings nor UBS AG has any
contracts, arrangements, understandings or relationships (legal or otherwise)
with any person with respect to any securities of the Company, including, but
not limited to, transfer or voting of any securities of the Company, finder's
fee, joint ventures, loan or option arrangements, puts or calls, guarantees or
profits, division of profits or loss or the giving or withholding of proxies.
ITEM 7. MATERIALS TO BE FILED AS EXHIBITS
Exhibit 1 Stock Purchase Agreement dated as of July 23, 1998
between Orphan Medical, Inc. and UBS Capital II LLC
(incorporated by reference to Exhibit 10.48 filed
with Form 10-Q of Orphan Medical, Inc. filed on July
31, 1998).
Exhibit 2 Stock Purchase Agreement dated as of August 2, 1999
between Orphan Medical, Inc. and UBS Capital II LLC.
Exhibit 3 Information relating to the members of the Board of
Managers, Directors, and Executive Officers of UBS
Capital II LLC, UBS Capital Holdings LLC and UBS AG.
Page 9 of 14 pages.
<PAGE> 10
Exhibit 4 Warrant to Purchase Shares of Series C Convertible
Preferred Stock or Series D Non-Voting Preferred
Stock dated August 2, 1999.
Exhibit 5 Warrant to Purchase Shares of Series D Non-Voting
Preferred Stock dated August 2, 1999.
Exhibit 6 Certificate of Designation of Orphan Medical, Inc.
(incorporated by reference to Exhibit 3.11 filed with
Form 10-Q of Orphan Medical, Inc. filed on July 30,
1998).
Exhibit 7 Certificate of Designation of Orphan Medical, Inc.
Exhibit 8 Joint Filing Agreement dated July 31, 1998, by and
among UBS Capital II LLC, UBS Capital Holdings LLC
and UBS AG (incorporated by reference to Exhibit 3
filed with Schedule 13D relating to Orphan Medical,
Inc., on August 3, 1998).
Exhibit 9 Power of Attorney by UBS AG dated May 26, 1998,
authorizing Robert C. Dinerstein, Louis Eber, Janet
Zimmer, Robert Mills, Stephen Anikewich, Joan
Hoffman, Thomas R. Toothaker and Stuart Sindell
(incorporated by reference to Exhibit 13 filed with
Schedule 13D relating to Common Stock of Peoples
Telephone Company, Inc. filed by UBS Capital II LLC ,
UBS Capital Holdings LLC and UBS AG on July 17,
1998).
Page 10 of 14 pages.
<PAGE> 11
Signature
After reasonable inquiry and to the best of our knowledge and
belief, we certify that the information set forth in this Statement is true,
complete and correct.
UBS CAPITAL II LLC
By:/s/ Michael Greene
Michael Greene
Partner
By:/s/ Marc Unger
Marc Unger
Chief Financial Officer
Page 11 of 14 pages.
<PAGE> 12
Signature
After reasonable inquiry and to the best of our knowledge and
belief, we certify that the information set forth in this Statement is true,
complete and correct.
UBS CAPITAL HOLDINGS LLC
By:/s/ Michael Greene
Michael Greene
President
By:/s/ Marc Unger
Marc Unger
Chief Financial Officer
Page 12 of 14 pages.
<PAGE> 13
Signature
After reasonable inquiry and to the best of our knowledge and
belief, we certify that the information set forth in this Statement is true,
complete and correct.
UBS AG
Dated: August 20, 1999 By:/s/ Sandra Ward Costin
Sandra Ward Costin
Authorized Signatory
Dated: August 20, 1999 By:/s/ Louis Eber
Louis R. Eber
Authorized Signatory
Page 13 of 14 pages.
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
Exhibit 2 Stock Purchase Agreement dated as of August 2, 1999
between Orphan Medical, Inc. and UBS Capital II LLC.
Exhibit 3 Information relating to the members of the Board of
Managers, Directors, and Executive Officers of UBS Capital
II LLC, UBS Capital Holdings LLC and UBS AG.
Exhibit 4 Warrant to Purchase Shares of Series C Convertible Preferred
Stock or Series D Non-Voting Preferred Stock dated August
2, 1999.
Exhibit 5 Warrant to Purchase Shares of Series D Non-Voting Preferred
Stock dated August 2, 1999.
Exhibit 7 Certificate of Designation of Orphan Medical, Inc.
</TABLE>
Page 14 of 14 pages.
<PAGE> 1
ORPHAN MEDICAL, INC.
STOCK PURCHASE AGREEMENT
Agreement, made and entered into as of the 2nd day of August, 1999,
between Orphan Medical, Inc., a Minnesota corporation (the "Company"), and each
of the persons listed on Schedule 1 to this agreement (the "Investors").
For good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the Company and the Investors agree as follows:
1. Authorization of Securities. The Company proposes to authorize,
issue and sell an aggregate of 2,950 shares of Series B Convertible Preferred
Stock, par value $0.01 per share (the "Series B Preferred Stock"), which shall
be issued pursuant to and shall be entitled to such preferences, rights and
benefits as are set forth in the capital stock provisions of the Company's
Certificate of Designation, which shall be in the form of the attached Exhibit
A. On or before the Closing Date (as that term is defined in Section 3 hereof),
the Company shall cause its Articles of Incorporation to be amended so that they
will contain provisions identical to Exhibit A. As used in this agreement, the
term "Preferred Shares" shall mean the shares of Series B Convertible Preferred
Stock to be sold pursuant to this agreement and all shares of Series B
Convertible Preferred Stock issued in exchange or substitution therefor.
2. Sale and Purchase of Preferred Shares.
(a) Subject to the terms and conditions hereof, the Company agrees
to sell to each Investor, and each Investor severally agrees to purchase
from the Company on the Closing Date (as that term is defined in Section 3
hereof), the number of Preferred Shares set forth opposite its name on
Schedule 1. Preferred Shares acquired by the Investors on the Closing Date
shall be accompanied by stock purchase warrants (the "Warrants") which
will give Investors the right to purchase that number of shares of either
Series C Convertible Preferred Stock, $0.01 par value (the "Series C
Preferred Stock") or Series D Non-Voting Preferred Stock, par value $0.01
per share (the "Series D Preferred Stock") as is designated on Schedule 1
after each Investor's name. The purchase price of Preferred Shares
acquired by the Investors on the Closing Date shall be $1,000 per share,
and there shall be no additional payment for the Warrants.
(b) The Warrants shall be evidenced by an instrument in the
identical form of the attached Exhibit B. Upon exercise of the Warrants,
the Series C Preferred Stock or Series D Preferred Stock, as the case may
be, shall be issued pursuant to, and shall be entitled to, such rights and
benefits as are set forth in Exhibit A.
<PAGE> 2
3. Closing. The closing of the transactions contemplated by Section
2 of this agreement shall take place at the offices of Dorsey & Whitney LLP, 220
South Sixth Street, Minneapolis, Minnesota 55402, at 10:00 A.M., Minneapolis
time, on August 2, 1999 (the "Closing Date") or at such other place or different
time or day as may be mutually acceptable to the Investors and the Company.
At the closing, the Company will deliver to each Investor a
certificate or other instrument, dated such Closing Date, representing the
Preferred Shares purchased by such Investor on such Closing Date and will also
deliver an instrument in the form attached hereto as Exhibit B evidencing the
Warrants to which each such Investor is entitled, registered in its name as
stated on Schedule 1 (or in the name of its nominee if it so specifies to the
Company at least 48 hours prior to such Closing Date) against payment to the
Company of the purchase price of Preferred Shares and Warrants being purchased
by such Investor.
4. Representations and Warranties by the Company. In order to induce
each Investor to enter into this agreement and to purchase the number of
Preferred Shares and Warrants set forth after its name on Schedule 1, the
Company hereby represents and warrants to each Investor that, except as
disclosed in the attached Exhibit C:
4.1 Organization, Standing, etc. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Minnesota, and has the requisite corporate power and authority to own
its properties and to carry on its business as it is now being conducted. The
Company has the requisite corporate power and authority to issue (i) the
Preferred Shares, (ii) the shares of its common stock into which the Preferred
Shares are convertible (the "Conversion Shares"), (iii) the Warrants, (iv) the
shares of Series C Preferred Stock issuable upon exercise of the Warrants, (v)
the shares of Series D Preferred Stock issuable upon exercise of the Warrants,
(vi) the shares of Series D Stock issuable upon conversion of the Series C
Preferred Stock (the "Series D Conversion Shares"), (vii) the common stock
issuable upon conversion of the Series D Preferred Stock issuable upon exercise
of the Warrants in the event of a Transfer Conversion (as that term is defined
in Section 7 of Exhibit B)(the "Transfer Conversion Shares") and to otherwise
perform its obligations under this agreement.
4.2 Governing Instruments. The copies of the Articles of
Incorporation and bylaws of the Company which have been delivered to legal
counsel for the Investors prior to the execution of this agreement are true and
complete copies of the duly and legally adopted Articles of Incorporation and
bylaws of the Company in effect as of the date of this agreement.
4.3 Subsidiaries, Etc. The Company does not have any direct or
indirect ownership interest in any corporation, partnership, joint venture,
association or other business enterprise. If any entity is listed on Exhibit C
and the Company owns a controlling interest in such entity, each of the
representations and warranties set forth in this Article 4 are
-2-
<PAGE> 3
being hereby restated with respect to such entity (modified as appropriate to
the nature of such entity).
4.4 Qualification. The Company is duly qualified, licensed or
domesticated as a foreign corporation in good standing in each jurisdiction
wherein the nature of its activities or the properties owned or leased by it
makes such qualification, licensing or domestication necessary and in which
failure to so qualify or be licensed or domesticated would have a material
adverse impact upon its business.
4.5 Financial Statements. Attached to this agreement as
Exhibit D are (a) a balance sheet, as at December 31, 1998 for the Company,
together with the related statements of income and retained earnings and changes
in financial position for the fiscal year then ended which balance sheet and
related statements have been audited by Ernst & Young LLP and (b) a balance
sheet, as at June 30, 1999 for the Company, together with the related statements
of operations and cash flows for the six (6)-month period then ended. Such
financial statements (i) are in accordance with the books and records of the
Company, (ii) present fairly the financial condition of the Company at the
balance sheets dates and the results of its operations for the periods therein
specified, and (iii) have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with prior accounting
periods other than as set forth in the footnotes thereto and, with respect to
the interim financial statements, normal year end adjustments which are
immaterial in the aggregate. Without limiting the generality of the foregoing,
the balance sheets or notes thereto disclose all of the debts, liabilities and
obligations of any nature (whether absolute, accrued or contingent and whether
due or to become due) of the Company at December 31, 1998 and June 30, 1999
which, individually or in the aggregate, are material and which in accordance
with generally accepted accounting principles would be required to be disclosed
in such balance sheets, and include appropriate reserves for all taxes and other
liabilities accrued as of such dates but not yet payable.
4.6 Tax Returns and Audits. All required federal, state and
local tax returns or appropriate extension requests of the Company have been
filed, and all federal, state and local taxes required to be paid with respect
to such returns have been paid or provision for the payment thereof has been
made. The Company is not delinquent in the payment of any such tax or in the
payment of any assessment or governmental charge. The Company has not received
notice of any tax deficiency proposed or assessed against it, and it has not
executed any waiver of any statute of limitations on the assessment or
collection of any tax. The Company has not received notice that any of the
Company's tax returns has been audited by governmental authorities. The Company
does not have any tax liabilities except those reflected on Exhibit D or those
incurred in the ordinary course of business since December 31, 1998.
4.7 Changes, Dividends, etc. Except for the transactions
contemplated by this agreement, since December 31, 1998, the Company has not:
(i) incurred any debts, obligations or liabilities, absolute, accrued or
contingent and whether due or to become due,
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except current liabilities incurred in the ordinary course of business which
(individually or in the aggregate) will not materially and adversely affect the
business, properties or prospects of the Company; (ii) paid any obligation or
liability other than, or discharged or satisfied any liens or encumbrances other
than those securing, current liabilities, in each case in the ordinary course of
business; (iii) except for distributions made with respect to the Senior
Convertible Preferred Stock (as that term is defined in Section 4.15(a) hereof),
declared or made any payment to or distribution to its shareholders as such, or
purchased or redeemed any of its shares of capital stock, or obligated itself to
do so; (iv) mortgaged, pledged or subjected to lien, charge, security interest
or other encumbrance any of its assets, tangible or intangible, except in the
ordinary course of business; (v) sold, transferred or leased any of its assets
except in the ordinary course of business; (vi) suffered any physical damage,
destruction or loss (whether or not covered by insurance) materially and
adversely affecting the properties, business or prospects of the Company; (vii)
entered into any transaction other than in the ordinary course of business;
(viii) encountered any labor difficulties or labor union organizing activities;
(ix) issued or sold any shares of capital stock or other securities (other than
shares issued upon exercise of warrants or options that were outstanding as of
December 31, 1998) or granted any options, warrants, or other purchase rights
with respect thereto other than pursuant to this agreement; (x) made any
acquisition or disposition of any material assets or became involved in any
other material transaction, other than for fair value in the ordinary course of
business; (xi) increased the compensation payable, or to become payable, to any
of its directors or employees, or made any bonus payment or similar arrangement
with any of its directors or employees or increased the scope or nature of any
fringe benefits provided for its employees or directors, other than normal
compensation adjustments and bonuses and adjustments and bonuses made in the
ordinary course of business consistent with industry custom and practices; or
(xii) agreed to do any of the foregoing other than pursuant hereto. There has
been no material adverse change in the financial condition, operations,
prospects, results of operations or business of the Company since December 31,
1998.
4.8 SEC Reports and Financial Statements. The Company has
filed with the Securities and Exchange Commission (the "SEC") all forms,
reports, schedules, statements and other documents required to be filed by it
with the SEC, including, without limitation, the Company's Registration
Statement filed on Form S-1 on March 3, 1995, Registration Statement filed on
Form S-1 on March 11, 1996, Annual Reports on Form 10-K and Quarterly Reports on
Form 10-Q (as such documents have been amended since the time of their filing,
collectively, the "SEC Documents"), and have filed all exhibits required to be
filed with the SEC Documents. As of their respective dates or, if amended, as of
the date of the last such amendment, the SEC Documents, including, without
limitation, any financial statements or schedules included therein, complied in
all material respects with the applicable requirements of the Securities Act and
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and did
not contain any untrue statement of a material fact or omit to state a material
fact
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<PAGE> 5
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4.9 Title to Properties and Encumbrances. Except as otherwise
set forth in Exhibit D and the SEC Documents, and except for properties and
assets disposed of in the ordinary course of business since December 31, 1998,
the Company has good and marketable title to all of its properties and assets,
including without limitation the properties and assets included in the balance
sheet at December 31, 1998 and the properties and assets used in the conduct of
its business, which properties and assets are not subject to any mortgage,
pledge, lease, lien, charge, security interest, encumbrance or restriction,
except (a) those which are shown and described in Exhibit D, (b) liens for taxes
and assessments or governmental charges or levies not at the time due or in
respect of which the validity thereof shall currently be contested in good faith
by appropriate proceedings, or (c) those which do not materially affect the
value of or interfere with the use made of such properties and assets.
4.10 Conditions of Properties. The plant, offices and
equipment of the Company have been kept in good condition and repair, subject to
normal wear and tear.
4.11 Compliance With Applicable Laws and Other Instruments.
The business and operations of the Company have been and are being conducted in
all material respects in accordance with all applicable laws, rules and
regulations of all governmental authorities. Neither the execution nor delivery
of, nor the performance of or compliance with, this agreement nor the
consummation of the transactions contemplated hereby will, with or without the
giving of notice or passage of time, result in any breach of, or constitute a
default under, or result in the imposition of any lien or encumbrance upon any
asset or property of the Company pursuant to, any agreement or other instrument
to which the Company is a party or by which it or any of its properties, assets
or rights is bound or affected, and will not violate the Articles of
Incorporation or bylaws of the Company. The Company is not in violation of its
Articles of Incorporation or bylaws nor in violation of, or in default under,
any lien, indenture, mortgage, lease, agreement, instrument, commitment or
arrangement. The Company is not subject to any restriction which would prohibit
it from entering into or performing its obligations under this agreement.
4.12 Preferred Shares, Warrants, Conversion Shares, Series C
Preferred Stock, Series D Preferred Stock, Series D Conversion Shares and
Transfer Conversion Shares. The Preferred Shares, when issued and paid for
pursuant to the terms of this agreement, will be duly authorized, validly issued
and outstanding, fully paid, nonassessable shares and shall have all rights,
privileges and preferences specified in the Certificate of Designation and shall
be free and clear of all pledges, liens, encumbrances and restrictions. The
Warrants, when issued pursuant to the terms of this agreement, will be binding
obligations of the Company in accordance with their terms. The Conversion Shares
have been reserved for issuance and when issued upon conversion of the Preferred
Shares will be duly authorized, validly issued and outstanding, fully paid,
nonassessable and free and clear of all pledges, liens, encumbrances and
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restrictions. The shares of Series C Preferred Stock issuable upon exercise of
the Warrants, the shares of Series D Preferred Stock issuable upon exercise of
the Warrants, the Series D Conversion Shares and the Transfer Conversion Shares
have been reserved for issuance and when issued upon exercise of the Warrants or
any conversion rights thereunder will be duly authorized, validly issued and
outstanding, fully paid, nonassessable and free and clear of all pledges, liens,
encumbrances and restrictions.
4.13 Securities Laws. Based in part upon the representations
of the Investors in article 5, no consent, authorization, approval, permit or
order of or filing with any governmental or regulatory authority is required
under current laws and regulations in connection with the execution and delivery
of this agreement or the offer, issuance, sale or delivery of the Preferred
Shares, the Warrants, the Conversion Shares, the Series C Preferred Stock, the
Series D Preferred Stock, the Series D Conversion Shares or the Transfer
Conversion Shares, other than the qualification thereof, if required, under
applicable state securities laws, which qualification has been or will be
effected as a condition of these sales. The Company has not, directly or through
an agent, offered the Preferred Shares, the Warrants or any similar securities
for sale to, or solicited any offers to acquire such securities from, persons
other than the Investors and other accredited investors. Under the circumstances
contemplated by this agreement and assuming the accuracy of the representations
of the Investors in article 5, the offer, issuance, sale and delivery of the
Preferred Shares, the Warrants, the Conversion Shares, the Series C Preferred
Stock, the Series D Preferred Stock, the Series D Conversion Shares and the
Transfer Conversion Shares will not, under current laws and regulations, require
compliance with the prospectus delivery or registration requirements of the
federal Securities Act of 1933, as amended (the "Securities Act").
4.14 Intellectual Property.
(a) Intellectual Property Assets--The term "Intellectual Property
Assets" includes:
(1) the name "Orphan Medical," all fictional business names,
trading names, registered and unregistered trademarks, service
marks, and applications (collectively, "Marks");
(2) all patents, patent applications, and inventions and
discoveries that may be patentable (collectively, "Patents");
(3) all copyrights in both published works and unpublished
works (collectively, "Copyrights");
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(4) all know-how, trade secrets, confidential information,
customer lists, software, technical information, data, process
technology, plans, drawings, and blue prints (collectively, "Trade
Secrets"),
in each case owned, used, or licensed by the Company as licensee or licensor.
(b) Agreements--The SEC Documents contain a complete and accurate
list and summary description, including any royalties paid or received by the
Company, of all material contracts and agreements relating to the Intellectual
Property Assets to which the Company is a party or by which the Company is
bound, except for any license implied by the sale of a product and perpetual,
paid-up licenses for commonly available software programs with a value of less
than $50,000 under which the Company is the licensee. There is no outstanding
and, to the Company's knowledge, no threatened dispute or disagreement with
respect to any such agreement.
(c) Know-How Necessary to Conduct the Company's Business
(1) To the Company's knowledge, the Intellectual Property
Assets are all those necessary for the operation of the Company's
business as it is currently conducted. The Company either owns or
has licensed sufficient rights to each of the Intellectual Property
Assets, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims, and has the right
to use without payment to a third party, except for royalties
described in the SEC Documents, all of the Intellectual Property
Assets.
(2) The Company has a policy that requires all current
employees of the Company to execute written contracts with the
Company that assign to the Company all rights to any inventions,
improvements, discoveries, or information relating to the business
of the Company, and all of the Company's former and current
employees have executed such a contract. No employee of the Company
has entered into any contract or agreement that restricts or limits
in any way the scope or type of work in which the employee may be
engaged or requires the employee to transfer, assign, or disclose
information concerning his work to anyone other than the Company.
(d) Patents
(1) The SEC Documents contain a complete and accurate list and
summary description of all Patents. Except as set forth on Exhibit
C, the Company owns no Patents. The Company has exclusive rights to
use the Patents that it uses or licenses, in each case free and
clear of all liens, security interests, charges, encumbrances,
entities, and other adverse claims except for any royalties
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<PAGE> 8
described in the SEC Documents and for security interests in favor
of Riverside Bank.
(2) To the Company's knowledge, all of the Patents licensed to
or used by the Company, are currently in compliance with formal
legal requirements (including payment of filing, examination, and
maintenance fees and proofs of working or use), and, to the
Company's knowledge, are valid and enforceable.
(3) No Patent has been or is now involved in any interference,
reissue, reexamination, or opposition proceeding or has had an
unfavorable final ruling against its interests in any such
proceeding. To the Company's knowledge, there is no potentially
interfering patent or patent application of any third party.
(4) To the Company's knowledge, no Patent is infringed or has
been challenged or threatened in any way. To the Company's
knowledge, none of the products manufactured and sold, nor any
process or know-how used, by the Company infringes or is alleged to
infringe any patent or other proprietary right of any other person.
(5) All products made, used, or sold under the Patents have
been marked in compliance with 35 United States Code ss. 287 and the
comparable requirements of any jurisdiction in which the products
are made, used or sold.
(e) Trademarks
(1) The Company is the owner of all right, title, and interest
in and to each of its Marks, free and clear of all liens, security
interests, charges, encumbrances, equities, and other adverse
claims.
(2) All Marks that have been registered with the United States
Patent and Trademark Office are currently in compliance with all
formal legal requirements (including the timely post-registration
filing of affidavits of use and incontestability and renewal
applications), and, to the Company's knowledge, are valid and
enforceable.
(3) No Mark has been or is now involved in any opposition,
invalidation, or cancellation and, to the Company's knowledge, no
such action is threatened with the respect to any of the Marks.
(4) To the Company's knowledge, there is no potentially
interfering trademark or trademark application of any third party.
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(5) To the Company's knowledge, no Mark is infringed or has
been challenged or threatened in any way. To the Company's
knowledge, none of the Marks used by the Company infringes or is
alleged to infringe any trade name, trademark, or service mark of
any third party.
(6) All products and materials containing a Mark marking in
compliance with 15 United States Code ss. 1111 or the comparable
requirements of any jurisdiction in which such products and
materials are sold.
(f) Copyrights
(1) The Company is the owner of all right, title, and interest
in and to each of its copyrights, free and clear of all liens,
security interests, charges, encumbrances, equities, and other
adverse claims.
(2) All the Copyrights are currently in compliance with legal
requirements and are, to the Company's knowledge, valid and
enforceable.
(3) No Copyright is infringed or, to the Company's knowledge,
has been challenged or threatened in any way. To the Company's
knowledge, none of the subject matter of any of the Copyrights
infringes or is alleged to infringe any copyright of any third party
or is a derivative work based on the work of a third party.
(g) Trade Secrets
(1) The Company has taken reasonable precautions to protect
the confidentiality and value of the Trade Secrets.
(2) The Company either owns or has licensed the rights to use
the Trade Secrets that are necessary and sufficient for the
operation of the Company's business as it is currently conducted. To
the Company's knowledge, those Trade Secrets that are not part of
the public knowledge or literature have not been used, divulged, or
appropriated either for the benefit of any person or to the
detriment of the Company.
(3) The Company has not been charged with misappropriation of
know-how or trade secrets. To the Company's knowledge, no third
party has misappropriated or attempted to misappropriate the Trade
Secrets.
4.15 Capital Stock
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(a) At the date hereof, the authorized capital stock of the Company
consists of 25,000,000 shares, of which 14,000 shares are designated as
Senior Convertible Preferred Stock, $0.01 par value (the "Senior
Convertible Preferred Stock"). As of the date hereof, 6,588,707 shares of
undesignated capital stock, $.01 par value (the "Common Stock") are issued
and outstanding and 8,088 shares of Senior Convertible Preferred Stock are
issued and outstanding. All of the outstanding shares of the Company were
duly authorized, validly issued and are fully paid and nonassessable.
Except as set forth on Exhibit C, the SEC Documents (as that term is
defined in paragraph 4.8 hereof) contain an accurate and complete
description of all outstanding subscriptions, options, warrants, calls,
contracts, demands, commitments, convertible securities or other
agreements or arrangements of any character or nature whatever, other than
this agreement, under which the Company is obligated to issue any
securities of any kind representing an ownership interest in the Company.
Neither the offer nor the issuance or sale of the Preferred Shares or the
Warrants constitutes an event, under any anti-dilution provisions of any
securities issued or issuable by the Company or any agreements with
respect to the issuance of securities by the Company, which will either
increase the number of shares issuable pursuant to such provisions or
decrease the consideration per share to be received by the Company
pursuant to such provisions, except that such issuance and sale does
constitute such an event under the anti-dilution provisions of the
Company's Senior Convertible Preferred Stock. Except for the Senior
Convertible Preferred Stock and the warrants that, as of June 30, 1999,
entitled holders to purchase an aggregate of 206,725 shares of Common
Stock (which warrants were originally issued on May 19, 1995 to R.J.
Steichen & Company and a portion of which were subsequently assigned to
employees and affiliates of R.J. Steichen & Company) (the "Steichen
Warrants"), the Company is not a party to any agreement or understanding
pursuant to which it is obligated to register any shares of its capital
stock or other securities under the Securities Act or any other state
securities laws. No holder of any security of the Company is entitled to
any preemptive or similar rights to purchase any securities of the Company
from the Company; provided, however, that nothing in this section 4.15
shall affect, alter or diminish any right granted to the Investors in this
agreement. All outstanding securities of the Company have been registered
in accordance with the Securities Act or issued in full compliance with an
exemption or exemptions from the registration and prospectus delivery
requirements of the Securities Act and from the registration and
qualification requirements of all applicable state securities laws.
(b) Upon consummation of the transactions contemplated herein, the
authorized capital stock of the Company shall consist of 25,000,000
shares, of which 14,000 shares are designated as Senior Convertible
Preferred Stock, 5,000 shares are designated as Series B Convertible
Preferred Stock, 4,000 shares are designated as Series C Convertible
Preferred Stock, 1,500,000 shares are designated as Series D Non-Voting
Preferred Stock and 6,588,707 shares are Common Stock.
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(c) Upon consummation of the transactions contemplated herein, the
Company shall have reserved a sufficient number of its shares of
undesignated capital stock for issuance as Conversion Shares and Transfer
Conversion Shares.
4.16 Outstanding Debt. The Company does not have any material
indebtedness incurred as the result of a direct borrowing of money, including,
but not limited to, indebtedness with respect to trade accounts, except as set
forth in Exhibit D or the notes thereto. The Company is not in default in the
payment of the principal of or interest or premium on any such indebtedness, and
no event has occurred or is continuing under the provisions of any instrument,
document or agreement evidencing or relating to any such indebtedness which with
the lapse of time or the giving of notice, or both, would constitute an event of
default thereunder.
4.17 Corporate Acts and Proceedings. This agreement and the
Warrants have been duly authorized by all necessary corporate action on behalf
of the Company, has been duly executed and delivered by authorized officers of
the Company, and is a valid and binding agreement on the part of the Company
that is enforceable against the Company in accordance with its terms, except as
the enforceability thereof may be limited by bankruptcy, insolvency, moratorium,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and to judicial limitations on the enforcement of the remedy of
specific performance and other equitable remedies. All corporate and shareholder
action necessary to the authorization, creation, issuance and delivery of the
Preferred Shares, the Warrants, the Conversion Shares, the Series C Preferred
Stock, the Series D Preferred Stock, the Series D Conversion Shares and the
Transfer Conversion Shares has been taken by the Company, or will be taken by
the Company on or prior to the Closing Date.
4.18 Brokers or Finders. No person, firm or corporation has or
will have, as a result of any act or omission of the Company, any right,
interest or valid claim against the Company or any Investor for any commission,
fee or other compensation as a finder or broker in connection with the
transactions contemplated by this agreement. The Company will indemnify and hold
each of the Investors harmless against any and all liability with respect to any
such commission, fee or other compensation which may be payable or determined to
be payable in connection with the transactions contemplated by this agreement.
4.19 Litigation; Governmental Proceedings. There are no legal
actions, suits, arbitrations or other legal, administrative or governmental
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the Company, or its properties or business, and the Company
is not aware of any facts which are likely to result in or form the basis for
any such action, suit or other proceeding. The Company is not in default with
respect to any judgment, order or decree of any court or any governmental agency
or instrumentality. The Company has not been threatened with any action or
proceeding under any business or zoning ordinance, law or regulation.
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4.20 No Undisclosed Liabilities. Except for liabilities not in
excess of $50,000 individually or $100,000 in the aggregate, each incurred in
the ordinary course of business and consistent with past practice, and
liabilities incurred in connection with the consummation of the transactions
contemplated hereby (none of which, individually or in the aggregate, could
reasonably have a material adverse effect on the business, operations, financial
condition, prospects or results of operation of the Company) since December 31,
1998, the Company has not incurred any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) which would be required by
GAAP to be reflected on a consolidated balance sheet of the Company (including
the notes thereto), or which individually or in the aggregate, could reasonably
be expected to have a material adverse effect on the business, operations,
financial condition, prospects or results of operations of the Company.
4.21 Insurance. There is in full force and effect one or more
policies of insurance issued by insurers of recognized responsibility, insuring
the Company and its properties and business against such losses and risks, and
in such amounts, as are customary in the case of corporations of established
reputation engaged in the same or similar businesses and similarly situated. The
Company has not been refused any insurance coverage sought or applied for, and
the Company has no reason to believe that it will be unable to renew its
existing insurance coverage as and when the same shall expire upon the terms
similar to those presently in effect, other than possible increases in premiums
that do not result from any act or omission of the Company.
4.22 Material Contracts.
(a) The SEC Documents contain a description, as of the date of
this agreement, of all material agreements or instruments to which
the Company is a party or by which the Company is bound
(collectively, the "Material Contracts").
(b) Each of the Material Contracts is in full force and effect
and constitutes a valid and binding obligation of the Company and,
to the Company's knowledge, the other party thereto.
4.23 Transactions with Affiliates. Except as set forth in the
SEC Documents, none of the officers, employees, directors or other affiliates of
the Company are a party to any transactions with the Company. There have been no
assumptions or guarantees by the Company of any obligations of such persons.
4.24 Completeness and Accuracy of Information. No
representation or warranty of the Company contained in this agreement contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein not misleading in
light of the circumstances in which the same were made.
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4.25 Products: Regulatory Matters.
(a) There are no regulatory actions by the United States Food
and Drug Administration ("FDA") or other such similar regulatory
body pending or, to the Company's knowledge, threatened against the
Company with respect to any pharmaceutical products that could
reasonably be expected to have a material adverse effect on the
business, operations, financial condition, prospects or results of
operation of the Company.
(b) All pharmaceutical products of the Company (i) have been
produced in accordance with good manufacturing practices, (ii)
comply with all applicable requirements of the FDA and applicable
state regulations and (iii) to the Company's knowledge, do not
violate or conflict with the rights of any third party.
(c) To the Company's knowledge, (i) there is no basis for a
recall, withdrawal or seizure by any governmental entity of any
pharmaceutical product of the Company and (ii) there are no facts
which would cause the Company to withdraw, recall or seize any
pharmaceutical product of the Company from the market or terminate
any applications for new drugs which have been submitted by the
Company to the FDA.
(d) (i) No pharmaceutical product of the Company has been
recalled by the Company (whether voluntary or otherwise) at any time
during the past two (2) years and (ii) there are no pending
proceedings, nor have there been any proceedings within the last two
(2) years, before any governmental entity seeking the recall,
withdrawal or seizure of any pharmaceutical product of the Company
from the market.
(e) All statements of the Company set forth in the SEC
Documents regarding the Company's orphan drug designations and the
status of its pharmaceutical products are true and correct in all
material respects.
4.26 Employee Benefits. The SEC Documents and Exhibit C hereto
contain all information regarding employee benefit plans that is material to the
business, operations and financial condition of the Company. To the Company's
knowledge, the execution and delivery of this agreement and the sale of the
Preferred Shares thereunder will not involve any prohibited transaction within
the meaning of the Employee Retirement Income Security Act of 1974, as amended
or Section 4975 of the Internal Revenue Code of 1986, as amended.
4.27. Issuance of Additional Equity Securities. The issuance
of the Preferred Shares, the Conversion Shares, the Series C Preferred Stock,
the Series D Preferred
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Stock, the Series D Conversion Shares and the Transfer Conversion Shares as
contemplated by this agreement, does not require the approval of the any of the
Company's shareholders under state or federal law or regulations, or Nasdaq
Marketplace Rules.
5. Representations of the Investors. Each Investor represents for
itself that:
5.1 Investment Intent. The Preferred Shares and Warrants being
acquired by such Investor are being purchased for investment for such Investor's
own account and not with the view to, or for resale in connection with, any
distribution or public offering thereof. Such Investor understands that the
Preferred Shares and Warrants have not been registered under the Securities Act
or any state securities laws by reason of their contemplated issuance in
transactions exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof and applicable state securities laws, and that
the reliance of the Company and others upon these exemptions is predicated in
part upon this representation by each Investor. Such Investor further
understands that the Preferred Shares and Warrants may not be transferred or
resold without (i) registration under the Securities Act and any applicable
state securities laws, or (ii) an exemption from the requirements of the
Securities Act and applicable state securities laws.
5.2 Location of Principal Office, Qualification as an
Accredited Investor, Etc. The state in which such Investor's principal office
(or domicile, if such Investor is an individual) is located is the state set
forth in such Investor's address on Schedule 1. Such Investor acknowledges that
the Company has made available to such Investor at a reasonable time prior to
the execution of this agreement the opportunity to ask questions and receive
answers concerning the terms and conditions of the sale of securities
contemplated by this agreement and to obtain any additional information (which
the Company possesses or can acquire without unreasonable effort or expense) as
may be necessary to verify the accuracy of information furnished to such
Investor. Such Investor (a) is able to bear the loss of its entire investment in
the Preferred Shares without any material adverse effect on its business,
operations or prospects, and (b) has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
the investment to be made by it pursuant to this agreement.
5.3 Acts and Proceedings. This agreement has been duly
authorized by all necessary action on the part of such Investor, has been duly
executed and delivered by such Investor, and is a valid and binding agreement of
such Investor.
5.4 No Brokers or Finders. No person, firm or corporation has
or will have, as a result of any act or omission by such Investor, any right,
interest or valid claim against the Company for any commission, fee or other
compensation as a finder or broker, or in any similar capacity, in connection
with the transactions contemplated by this agreement. Such Investor will
indemnify and hold the Company harmless against any and all liability with
respect
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to any such commission, fee or other compensation which may be payable or
determined to be payable as a result of the actions of such Investor in
connection with the transactions contemplated by this agreement.
5.5 Exculpation Among Investors. Such Investor acknowledges
that in making its decision to invest in the Company, it is not relying on any
other Investor or upon any person, firm or company, other than the Company and
its officers, employees and/or directors. Such Investor agrees that no other
Investor, nor the partners, employees, officers or controlling persons of any
other Investor shall be liable for any actions taken by such Investor, or
omitted to be taken by such Investor, in connection with such investment.
5.6 Accredited Investor. Such Investor is an "Accredited
Investor" within the meaning of Rule 501 promulgated under the Securities Act.
6. Conditions of Each Investor's Obligation. The obligation to
purchase and pay for the Preferred Shares and Warrants which each Investor has
agreed to purchase is subject to the fulfillment prior to or on the Closing Date
of the conditions set forth in this article 6.
6.1 No Errors, etc. The representations and warranties of the
Company under this agreement shall be true and correct in all material respects
as of the closing date with the same effect as though made on and as of the
Closing Date.
6.2 Compliance with Agreement. The Company shall have
performed and complied with all agreements or covenants required by this
agreement to be performed and complied with by it prior to or as of the Closing
Date.
6.3 Certificate of Officer.
(a) The Company shall have delivered to the Investors a
certificate, dated the Closing Date, executed by the Chief
Executive Officer of the Company and certifying to the
satisfaction of the conditions specified in sections 6.1 and
6.2.
(b) The Company shall have delivered to the Investors a
certificate, dated the Closing Date, executed by the Chief
Executive Officer of the Company and certifying as to the
adjusted conversion price for the Senior Convertible Preferred
Stock calculated in accordance with Section 8 of the Company's
Certificate of Designation of Senior Convertible Preferred
Stock.
6.4 Opinion of Intellectual Property. The Company shall have
delivered to each Investor an opinion, satisfactory to each of the Investors, of
Schwegman,
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<PAGE> 16
Lundberg, Woessmer & Kluth, P.A., intellectual property counsel for the Company,
dated the closing date substantially in the form attached hereto as Exhibit E
hereto.
6.5 Issuance of the Warrants. The Company shall have issued
the Warrants to the Investors.
6.6 Execution of the Promissory Note. The Company shall have
executed and delivered to Investors that certain Promissory Note of even date
herewith in the face amount of $2,050,000 along with stock purchase warrants
which will give Investors the right to purchase 282,353 shares of Series D
Preferred Stock.
6.7 Legal Opinion. The Investors shall have received an
originally executed opinion of Dorsey & Whitney LLP, counsel for the Company,
dated as of the Closing Date, in the form attached as Exhibit F.
6.8 Necessary Consents. On or before the Closing Date, the
Company shall have obtained any consents of any person or governmental authority
necessary for the consummation of the transactions contemplated under this
agreement and the Investors shall have received satisfactory evidence of such
consents.
6.9 No Material Adverse Effect. Since December 31, 1998 no
event, change or effect shall have occurred that is materially adverse to the
consolidated financial condition, business, results of operations, cash flows or
prospects of the Company or that materially impairs the ability of the Company
to perform or the Investor to enforce the obligations of the Company under this
agreement.
6.10 Certificate of Designation. On or prior to the Closing
Date, the Company shall have filed with the Secretary of State of the State of
Minnesota, the Certificate of Designation attached at Exhibit A and the
Certificate of Designation shall have become effective.
6.11 Payment of Fees and Expenses. The Company shall have paid
on or before the Closing Date, or on the date of receipt of invoices (if later),
the reasonable fees, charges and disbursements of the Investors, including the
fees and expenses of Kaye, Scholer, Fierman, Hays & Handler, LLP, which shall
not exceed $35,000.
6.12 Injunctions, Restraining Order or Adverse Litigation. No
order, judgment or decree of any court, arbitral tribunal, administrative agency
or other governmental or regulatory authority or agency shall purport to enjoin
or restrain the Investors from acquiring the Preferred Shares or the Warrants on
the Closing Date .
6.13 Proceedings and Documents. All corporate and other
proceedings and actions taken in connection with the transactions contemplated
hereby and all certificates,
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<PAGE> 17
opinions, agreements, instruments and documents mentioned herein or incident to
any such transaction shall be satisfactory in form and substance to legal
counsel for the Investors.
7. Conditions of Company's Obligations. The Company's obligation to
issue the Preferred Shares and the Warrants is subject to fulfillment prior to
or on the Closing Date of the following condition:
7.1 Execution of Waiver. Investors shall have executed and
delivered to the Company a Waiver in the form attached hereto as Exhibit G
waiving the Company's compliance with Section 7.1 of that certain Stock Purchase
Agreement dated as of July 23, 1998 by and between the Company and the investors
whose names are set forth on schedule 1 attached thereto.
8. Affirmative Covenants of the Company. The Company covenants and
agrees as follows:
8.1. Financial and Business Information. The Company will
maintain, and cause each of its Subsidiaries to maintain, a system of accounting
established in accordance with sound business practices to permit preparation of
financial statements in conformity with GAAP. The Company during the term of
this agreement will, and will cause its Subsidiaries to, deliver to the
Investors:
(a) As soon as practicable and in any event within 120 days
after the close of each fiscal year of the Company, a consolidated
and consolidating balance sheet of the Company and its Subsidiaries
as of the close of such fiscal year and consolidated statements of
operations, shareholders' equity and cash flows for the Company and
its Subsidiaries for the fiscal year then ended, together with the
report thereon of Ernst & Young LLP, the Company's independent
certified public accountants (it being understood by the parties
hereto that the delivery to the Investors of the Company's annual
report on Form 10-K will satisfy the requirements of this Section
8.1(a));
(b) As soon as practicable and in any event within 45 days
after the end of the first three fiscal quarters of each fiscal
year, the consolidated and consolidating balance sheet of the
Company and its Subsidiaries as at the end of such fiscal quarter
and the related consolidated and consolidating statements of
operations, shareholders' equity and cash flows of the Company and
its Subsidiaries for such fiscal quarter and for the period from the
beginning of the current fiscal year to the end of such fiscal
quarter, all in reasonable detail and certified by the chief
financial officer of the Company that they fairly present the
financial condition of Company and its Subsidiaries as the dates
indicated and the results of its operations and its cash flows for
the periods indicated, subject to
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<PAGE> 18
changes resulting from audit and normal year-end adjustments (it
being understood by the parties hereto that the delivery to the
Investor of the Company's quarterly report on Form 10-Q will satisfy
the requirements of this Section 8.1(b));
(c) As soon as practicable and in any event within 30 days
after the end of each month, the internal financial statements of
the Company and its Subsidiaries for such month (other than the
months referred to in Section 8.1(a) and Section 8.1(b) above) and
certified by the chief executive officer or the chief financial
officer of the Company that such statements were prepared in
accordance with the Company's accounting policies, consistently
applied for the period indicated;
(d) Prompt notice of any event having a material adverse
effect on the business, operations, financial condition, prospects
or results of operation of the Company;
(e) Promptly upon their becoming available, copies of (a) all
financial statements, reports, notices and proxy statements sent or
made available generally by the Company to its security holders, (b)
all regular and periodic reports filed by the Company or any of its
Subsidiaries with any securities exchange or with the SEC or any
governmental or private regulatory authority, (c) all press releases
and other statements made available generally by the Company or any
of its Subsidiaries to the public concerning material developments
in the business of the Company or any of its Subsidiaries;
(f) Promptly upon any officer of Company or any of its
Subsidiaries obtaining knowledge of any condition or event that
constitutes a violation or default or potential event of default
under any indebtedness of the Company or any of its Subsidiaries, or
becoming aware that any person has given any notice or taken any
other action with respect to a claimed event of default or potential
event of default, notice of any such event; and
(e) Within a reasonable time, such other information about the
property, financial condition and operations of the Company and its
Subsidiaries as the Investors may from time to time reasonably
request.
8.2 Notice of Certain Events. The Company will, and will cause
its Subsidiaries to, promptly give notice in writing to each Investor of any
litigation or proceeding before any court or administrative body involving the
Company or any Subsidiary which, if determined adversely to the Company or such
subsidiary, would be reasonably likely to have a
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<PAGE> 19
material adverse effect on the business, operations, financial condition,
prospects or results of operation of the Company.
9. Negative Covenants of the Company.
9.1 Sale of Preferred Stock. Without the prior written consent
of the Investors identified on Schedule 1 attached hereto, the Company shall not
(i) issue, grant or sell any shares of Series B Preferred Stock or Series C
Preferred Stock or warrants, options or other rights to purchase shares of
Series B Convertible Preferred Stock or Series C Preferred Stock, at a price per
share less than $1,000; or (ii) issue any shares of the Company's preferred
stock having rights and preferences equal to or senior in rank to the rights and
preferences of the Preferred Shares, the Series C Preferred Stock or the Series
D Preferred Stock.
10. Conversion of Preferred Shares.
10.1 Conversion of Preferred Shares.
(a) Any holder of any Preferred Shares may, at its option,
from and after the occurrence of such events as are set forth in the
relevant provisions of the Company's Articles of Incorporation,
convert such Preferred Shares, or any thereof, into Conversion
Shares at the Conversion Price and upon the terms and conditions and
subject to the adjustments set forth in the Company's Articles of
Incorporation.
(b) Each Preferred Share shall be automatically converted into
Conversion Shares on the terms and conditions set forth in the
Company's Articles of Incorporation.
10.2 Stock Fully Paid; Reservation of Shares. The Company
covenants and agrees that all Conversion Shares that may be issued upon the
exercise of the conversion privilege referred to in section 10.1 will, upon
issuance in accordance with the terms of the Company's Articles of
Incorporation, be fully paid and nonassessable and free from all taxes, liens
and charges (except for taxes, if any, upon the income of the holder and
applicable transfer taxes) with respect to the issue thereof, and that the
issuance thereof shall not give rise to any preemptive rights on the part of any
person. The Company further covenants and agrees that the Company will at all
times have authorized and
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<PAGE> 20
reserved a sufficient number of shares of its capital stock for the purpose of
issuance upon the exercise of such conversion privilege.
10.3 Adjustment of Number of Shares and Conversion Price. The
number of common shares issuable upon conversion of Preferred Shares and the
Conversion Price with respect thereto shall be subject to adjustment from time
to time as set forth in the Company's Articles of Incorporation.
11. Redemption of Preferred Shares. The Company may redeem and
repurchase Preferred Shares from the holders thereof, and will redeem and
repurchase the Preferred Shares from the holders thereof, at the times and upon
the terms and conditions set forth in the Company's Articles of Incorporation.
12. Registration Rights. The Company acknowledges and agrees that
the Investors shall have the registration rights set forth on Exhibit H.
13. Restriction on Transfer of Shares.
13.1 Restrictions. The Preferred Shares, the Warrants, the
Conversion Shares, Series C Preferred Stock, Series D Preferred Stock, Series D
Conversion Shares and the Transfer Conversion Shares are only transferable
pursuant to (a) a public offering registered under the Securities Act, or (b)
pursuant to an exemption from the registration requirements of the Securities
Act and applicable state securities or blue sky laws.
13.2 Legend. Each certificate representing Preferred Shares
shall be endorsed with the following legend:
"The shares represented by this certificate may not be transferred
without (i) an exemption from the registration requirements under
the Federal Securities Act of 1933 and all applicable state
securities laws or (ii) such registration."
Upon the conversion of any Preferred Shares, or upon exercise of any Warrant,
unless the Company receives an opinion of counsel satisfactory to the Company to
the effect that a transfer of the Conversion Shares, Series C Preferred Stock,
Series D Preferred Stock, Series D Conversion Shares or the Transfer Conversion
Shares, as the case may be, may be made without registration or further
restriction on transfer, or unless such Conversion Shares, Series C Preferred
Stock, Series D Preferred Stock,
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<PAGE> 21
Series D Conversion Shares or Transfer Conversion Shares are being disposed of
pursuant to a registration under the Securities Act, the same legend shall be
endorsed on the certificate evidencing such Conversion Shares.
13.3 Removal of Legend. Any legend endorsed on a certificate
evidencing a security pursuant to section 13.2 hereof shall be removed, and the
Company shall issue a certificate without such legend to the holder of such
security, if such security is being disposed of pursuant to a registration under
the Securities Act or pursuant to Rule 144 or any similar rule then in effect or
if such holder provides the Company with an opinion of counsel satisfactory to
the Company to the effect that a transfer of such security may be made without
registration. In addition, if the holder of such security delivers to the
Company an opinion of such counsel to the effect that no subsequent transfer of
such security will require registration under the Securities Act, the Company
will promptly upon such contemplated transfer deliver new certificates
evidencing such security that do not bear the legend set forth in section 13.2.
14. Miscellaneous.
14.1 No Waivers; Cumulative Remedies. No failure or delay on
the part of the Investors, or any other holder of any Preferred Shares in
exercising any right, power or remedy hereunder or thereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy hereunder or thereunder. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
14.2 Amendments; Waiver and Consents. This agreement may be
amended or modified, and the obligations of the Company and the rights of the
holders of Preferred Shares purchased under this agreement may be waived only by
the written consent of holders of a majority of the Conversion Shares issuable
upon conversion and the Conversion Shares that have been issued as a result of
conversion and that have not been resold in a public offering or transferred
pursuant to Rule 144 promulgated under the Securities Act. Any waiver or consent
may be given subject to satisfaction of conditions stated therein and any waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
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<PAGE> 22
14.3 Changes, Waivers, Etc. Neither this agreement nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only by a statement in writing signed by the party against which enforcement of
the change, waiver, discharge or termination is sought, except to the extent
provided in Section 14.2.
14.4 Expenses. Whether or not the transactions contemplated
hereby shall be consummated, the Company agrees to pay promptly (a) the fees,
expenses and disbursements of counsel to the Investors in connection with the
negotiation, preparation, execution, delivery and administration of this
agreement, the Certificate of Designation and the transactions contemplated
hereby and thereby, not to exceed $35,000, and any consents, amendments, waivers
or other modifications hereto or thereto and any other documents or matters
requested by the Company; and (b) all costs and expenses, including reasonable
attorneys' fees and costs of settlement, incurred by the Investors in enforcing
any obligations of or in collecting any payments due from the Company hereunder
or as a holder of Preferred Shares or Conversion Shares by reason of any breach
or default by the Company or in connection with any refinancing or restructuring
of the arrangements provided hereunder in the nature of a "work-out" or pursuant
to any insolvency or bankruptcy proceedings.
14.5 Notices. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing and shall be
delivered, or mailed first-class postage prepaid, registered or certified mail,
(a) if to any holder of any Preferred Shares addressed to such
holder at its address as shown on the books of the Company, or at
such other address as such holder may specify by written notice to
the Company, with a copy to:
Nancy Fuchs, Esq.
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, NY 10022
Facsimile: (212) 836-8689
(b) if to the Company at 13911 Ridgedale Drive, Minnetonka,
Minnesota 55305. Attention: Chief Executive Officer; or at such
other address as the Company may specify by written notice to the
Investors.
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<PAGE> 23
14.6 Assignment.
(a) This agreement and all of the provisions hereof will be
binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
(b) The Investors may freely assign their rights, interests
and obligations attached to the Preferred Shares, the Warrants, the
Conversion Shares, Series C Preferred Stock, Series D Preferred
Stock, Series D Conversion Shares and Transfer Conversion Shares, as
applicable, upon transfer of such shares in accordance with Section
5.1 and Section 13 hereof.
(c) Neither this agreement nor any of the rights, interests or
obligations hereunder may be assigned by the Company without the
prior written consent of the Investors hereto.
14.7 Severability. Whenever possible, each provision of this
agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this agreement.
14.8 Complete Agreement. This agreement and other exhibits and
schedules hereto contain the complete agreement between the parties and
supersede any prior understandings, agreements or representations by or between
the parties, written or oral, which may have related to the subject matter
hereof in any way.
14.9 Governing Law. The internal law, without regard to
conflicts of laws principles, of the State of New York will govern all questions
concerning the construction, validity and interpretation of this agreement and
the performance of the obligations imposed by this agreement.
14.10 Counterparts. This agreement may be executed
concurrently in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
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<PAGE> 24
[REMAINING PORTION OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 25
IN WITNESS WHEREOF, the Company has caused this agreement to be executed
by its duly authorized representative and each of the Investors has caused this
agreement to be executed by signing in counterpart the acceptance form attached
to this agreement.
ORPHAN MEDICAL, INC.
By: /s/ John Howell Bullion
-------------------------
John Howell Bullion
Chief Executive Officer
UBS CAPITAL II LLC
By: /s/ Michael Greene
-------------------------
Michael Greene
By: /s/ Charlie Santos-Buch
-------------------------
Charlie Santos-Buch
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<PAGE> 26
Schedule 1
<TABLE>
<CAPTION>
Shares of Series C
Convertible Preferred
Stock and Series D Preferred
Preferred Shares Stock Subject to
Investor to be Purchased Warrants
- -------- --------------- --------
<S> <C> <C>
UBS Capital II LLC 2,950 2,050 (Series C)
OR
315,385 (Series D)
</TABLE>
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<PAGE> 27
EXHIBIT H
REGISTRATION RIGHTS
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<PAGE> 28
EXHIBIT H
REGISTRATION RIGHTS PROVISIONS
Capitalized terms used herein have the meanings set forth in Section 8 hereof.
1. Demand Registration.
(a) At any time and from time to time, a Majority-in-Interest of the
Holders shall have the right, by written notice (the "Demand Notice") given to
the Company, to request the Company to file with the SEC a Registration
Statement with respect to all or any portion of the Registrable Shares held by
such Holders and/or the Registrable Shares issuable upon conversion of Shares
held by such Holders, as designated by such Holders. Upon receipt of any such
Demand Notice, the Company shall promptly, but in no event more than five days
after receipt thereof, notify all other Holders of the receipt of such Demand
Notice and, subject to the limitations set forth below, shall include in the
proposed registration all Registrable Shares with respect to which the Company
has received written requests for inclusion therein within 20 days after
delivery of the Company's notice. In connection with any Demand Registration in
which more than one holder of securities participates, in the event that such
Demand Registration involves an underwritten offering and the managing
underwriter or underwriters participating in such offering advise in writing the
Holders of Registrable Shares and the holders of other securities to be included
in such offering that the total number of Registrable Shares and other
securities to be included in such offering exceeds the amount that can be sold
in (or during the time of) such offering without delaying or jeopardizing the
success of such offering (including the price per share of the Registrable
Shares and other securities to be sold), then the amount of Registrable Shares
and other securities to be offered for the account of such Holders shall be
reduced as follows: first, pro rata on the basis of the number of securities
other than (i) Registrable Shares and (ii) shares of stock being registered at
the request of holders of the Company's Senior Convertible Preferred Stock,
requested to be registered by the holders of such securities; and second, pro
rata on the basis of the number of Registrable Shares and shares of Senior
Convertible Preferred Stock requested to be registered by the holders of such
securities. The Holders as a group shall be entitled to two Demand Registrations
pursuant to this Section 1; provided, that any Demand Registration that does not
become effective or is not maintained for the time period required in accordance
with Section 1(c) shall not count as one of such Demand Registrations, except as
set forth in Section 1(f); provided, further, that if the Demanding Holders have
requested inclusion in such Demand Registration and 75% or less of the
securities so requested to be included have been included, the Holders as a
group shall be entitled to an additional Demand Registration hereunder on the
same terms and conditions as would have applied to the Holders had such earlier
Demand Registration not been made. Anything herein to the contrary
notwithstanding, the Company shall not be required to effect a Demand
Registration
<PAGE> 29
pursuant to this Section 1 within a period of six (6) months after the effective
date of any other Demand Registration.
(b) The Company, within 45 days of the date on which the Company
receives a Demand Notice given by Holders in accordance with Section 1(a)
hereof, shall file with the SEC, and the Company shall thereafter use its best
efforts to cause to be declared effective within 90 days following the date the
Company receives such Demand Notice, a Registration Statement on the appropriate
form for the registration and sale, in accordance with the intended method or
methods of distribution requested by the Holders, of the total number of
Registrable Shares specified by the Holders in such Demand Notice (a "Demand
Registration").
(c) The Company shall use commercially reasonable efforts to keep
each Registration Statement filed pursuant to this Section 1 continuously
effective and usable for the resale of the Registrable Shares covered thereby
for a period of 270 days from the date on which the SEC declares such
Registration Statement effective, as such period may be extended pursuant to
this Section 1, or in the case of a Shelf Registration, for a period of two
years from the date that the SEC declares such "shelf" Registration Statement
effective, or if shorter, until all the Registrable Shares covered by such
Registration Statement have been sold pursuant to such Registration Statement.
(d) The Company shall be entitled to postpone the filing of any
Registration Statement otherwise required to be prepared and filed by the
Company pursuant to this Section 1, or suspend the use of any effective
Registration Statement under this Section 1, for a reasonable period of time
which shall be as short as practicable, but in any event not in excess of 60
days (a "Delay Period"), if the Company determines in good faith that the
registration and distribution of the Registrable Shares covered or to be covered
by such Registration Statement would materially interfere with any pending
material financing, acquisition or corporate reorganization or other material
corporate development involving the Company or any of its Subsidiaries or would
require premature disclosure thereof and promptly gives the Holders written
notice of such determination, containing a statement of the reasons for such
postponement and an approximation of the period of the anticipated delay;
provided, however, that (i) the aggregate number of days included in all Delay
Periods during any consecutive 12 months shall not exceed the aggregate of (x)
180 days minus (y) the number of days occurring during all Interruption Periods
during such consecutive 12 months and (ii) a period of at least 60 days shall
elapse between the termination of any Delay Period or Interruption Period and
the commencement of the immediately succeeding Delay Period. If the Company
shall so postpone the filing of a Registration Statement, the Holders of
Registrable Shares to be registered shall have the right to withdraw the request
for registration by giving written notice to the Company from the Holders of a
majority of the Registrable Shares that were to be registered within 45 days
after receipt of the notice of postponement or, if earlier, the termination of
such Delay Period. The time period for which the Company is required to maintain
the effectiveness of any Registration Statement shall be extended by the
aggregate number of days of all Delay Periods and all Interruption Periods
occurring during such Registration and any extension thereof is hereinafter
referred to as the "Effectiveness Period". The Company shall not be entitled to
initiate a Delay Period unless it
<PAGE> 30
shall (A) to the extent permitted by agreements with other security holders of
the Company, concurrently prohibit sales by such other security holders under
registration statements covering securities held by such other security holders
and (B) in accordance with the Company's policies from time to time in effect,
forbid purchases and sales in the open market by senior executives of the
Company.
(e) The Demanding Holders may, at any time prior to the effective
date of the Registration Statement relating to a Demand Registration, revoke
such request by providing a written notice to the Company revoking such request.
In the event of such revocation, the Demanding Holders shall reimburse the
Company for all of its out-of-pocket expenses incurred in connection with the
preparation, filing and processing of the Registration Statement, unless (i)
there has been a material adverse change in the business, assets, properties,
condition (financial or other), results of operations or prospects of the
Company and its Subsidiaries, since the time of the Demand Notice, (ii) such
revocation was based on the Company's failure to comply in any material respect
with its obligations hereunder or (iii) the Demanding Holders choose to count
the Demand Registration as one of the Demand Registrations to which the
Demanding Holders are entitled pursuant to the penultimate sentence of Section
1(a).
2. Piggyback Registration.
(a) Right to Piggyback. If at any time the Company proposes to file
a registration statement under the Securities Act with respect to a public
offering of securities of the same type as the Registrable Shares for its own
account (other than a registration statement (i) on Form S-8 or any successor
form thereto, (ii) filed solely in connection with a dividend reinvestment plan
or employee benefit plan covering officers or directors of the Company or its
Affiliates or (iii) on Form S-4 or any successor form thereto, in connection
with a merger, acquisition or similar corporate transaction) or for the account
of any holder of securities of the same type as the Registrable Shares, then the
Company shall give written notice of such proposed filing to the Holders at
least 30 days before the anticipated filing date. Such notice shall offer the
Holders the opportunity to register such number of Registrable Shares as they
may request (a "Piggyback Registration"). Subject to Section 2(b) hereof, the
Company shall include in each such Piggyback Registration all Registrable Shares
with respect to which the Company has received written requests for inclusion
therein within 20 days after notice has been given to the Holders. Each Holder
shall be permitted to withdraw all or any portion of the Registrable Shares of
such Holder from a Piggyback Registration at any time prior to the effective
date of such Piggyback Registration.
(b) Priority on Piggyback Registrations. The Company shall permit
the Holders to include all such Registrable Shares on the same terms and
conditions as any similar securities, if any, of the Company included therein.
Notwithstanding the foregoing, if the Company or the managing underwriter or
underwriters participating in such offering advise the Holders in writing that
the total number of securities requested to be included in such Piggyback
Registration exceeds the number which can be sold in (or during the time of)
such offering
<PAGE> 31
without delaying or jeopardizing the success of the offering (including the
price per share of the securities to be sold), then the number of securities to
be offered for the account of the Holders and other holders of securities who
requested to have securities included in such Piggyback Registration shall be
reduced (to zero if necessary) pro rata on the basis of the number or amount of
Common Stock (or the equivalent) requested to be registered by each such Holder
or holder participating in such offering.
(c) Right To Abandon. Nothing in this Section 2 shall create any
liability on the part of the Company to the Holders if the Company in its sole
discretion should decide not to file a registration statement proposed to be
filed pursuant to Section 2(a) hereof or to withdraw such registration statement
subsequent to its filing, regardless of any action whatsoever that a Holder may
have taken, whether as a result of the issuance by the Company of any notice
hereunder or otherwise.
3. Registration Procedures. In connection with the registration
obligations of the Company pursuant to and in accordance with Sections 1 and 2
hereof (and subject to Sections 1 and 2 hereof), the Company shall use
commercially reasonable efforts to effect such registration to permit the sale
of such Registrable Shares in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company shall as expeditiously as
possible (but subject to Sections 1 and 2 hereof):
(a) prepare and file with the SEC a Registration Statement for the
sale of the Registrable Shares on any form for which the Company then qualifies
or which counsel for the Company shall deem appropriate in accordance with such
Holders' intended method or methods of distribution thereof, subject to Section
1(b) hereof, and use commercially reasonable efforts to cause such Registration
Statement to become effective and remain effective as provided herein;
(b) prepare and file with the SEC such amendments (including
post-effective amendments) to such Registration Statement, and such supplements
to the related Prospectus, as may be required by the applicable rules,
regulations or instructions under the Securities Act during the applicable
period in accordance with the intended methods of disposition specified by the
Holders of the Registrable Shares covered by such Registration Statement, make
generally available earnings statements satisfying the provisions of Section
11(a) of the Securities Act (provided that the Company shall be deemed to have
complied with this clause if it has complied with Rule 158 under the Securities
Act), and cause the related Prospectus as so supplemented to be filed pursuant
to Rule 424 under the Securities Act; provided, however, that before filing a
Registration Statement or Prospectus, or any amendments or supplements thereto
(other than reports required to be filed by it under the Exchange Act), the
Company shall furnish to the Holders of Registrable Shares covered by such
Registration Statement and their counsel for review and comment, copies of all
documents proposed to be filed;
(c) notify the Holders of any Registrable Shares covered by such
Registration Statement promptly and (if requested) confirm such notice in
writing, (i) when a Prospectus or
<PAGE> 32
any Prospectus supplement or post-effective amendment has been filed, and, with
respect to such Registration Statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the SEC for amendments or
supplements to such Registration Statement or the related Prospectus or for
additional information regarding such Holders, (iii) of the issuance by the SEC
of any stop order suspending the effectiveness of such Registration Statement or
the initiation of any proceedings for that purpose, (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, and (v) of the happening of any event that requires the making of any
changes in such Registration Statement, Prospectus or documents incorporated or
deemed to be incorporated therein by reference so that they will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading;
(d) use commercially reasonable efforts to obtain the withdrawal of
any order suspending the effectiveness of such Registration Statement, or the
lifting of any suspension of the qualification or exemption from qualification
of any Registrable Shares for sale in any jurisdiction in the United States;
(e) furnish to the Holder of any Registrable Shares covered by such
Registration Statement, each counsel for such Holders and each managing
underwriter, if any, without charge, one conformed copy of such Registration
Statement, as declared effective by the SEC, and of each post-effective
amendment thereto, in each case including financial statements and schedules and
all reports incorporated or deemed to be incorporated therein by reference; and
deliver, without charge, such number of copies of the preliminary prospectus,
any amended preliminary prospectus, each final Prospectus and any post-effective
amendment or supplement thereto, as such Holder may reasonably request in order
to facilitate the disposition of the Registrable Shares of such Holder covered
by such Registration Statement in conformity with the requirements of the
Securities Act;
(f) prior to any public offering of Registrable Shares covered by
such Registration Statement, use commercially reasonable efforts to register or
qualify such Registrable Shares for offer and sale under the securities or Blue
Sky laws of such jurisdictions as the Holders of such Registrable Shares shall
reasonably request in writing; provided, however, that the Company shall in no
event be required to qualify generally to do business as a foreign corporation
or as a dealer in any jurisdiction where it is not at the time so qualified or
to execute or file a general consent to service of process in any such
jurisdiction where it has not theretofore done so or to take any action that
would subject it to general service of process or taxation in any such
jurisdiction where it is not then subject;
(g) upon the occurrence of any event contemplated by paragraph
3(c)(v) above, prepare a supplement or post-effective amendment to such
Registration Statement or the related Prospectus or any document incorporated or
deemed to be incorporated therein by
<PAGE> 33
reference and file any other required document so that, as thereafter delivered
to the purchaser of the Registrable Shares being sold thereunder (including upon
the termination of any Delay Period), such Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(h) use its best efforts to cause all Registrable Shares covered by
such Registration Statement to be listed on each securities exchange, if any, on
which similar securities issued by the Company are then listed or quoted and, if
no such securities are so listed, to be listed on the Nasdaq Stock Market and,
if listed on the Nasdaq Stock Market, use its best efforts to secure designation
of all such Registrable Shares covered by such registration statement as "NASDAQ
Securities" within the meaning of Rule 11Aa2-1 promulgated under the Exchange
Act or, failing that, to secure Nasdaq Stock Market authorization for such
Registrable Shares;
(i) on or before the effective date of such Registration Statement,
provide the transfer agent of the Company for the Registrable Shares with
printed certificates for the Registrable Shares covered by such Registration
Statement, which are in a form eligible for deposit with The Depository Trust
Company;
(j) make available for inspection by any Holder of Registrable
Shares included in such Registration Statement, any underwriter participating in
any offering pursuant to such Registration Statement, and any attorney,
accountant or other agent retained by any such Holder or underwriter
(collectively, the "Inspectors"), all financial and other records and other
information, pertinent corporate documents and properties of any of the Company
and its Subsidiaries and affiliates (collectively, the "Records"), as shall be
reasonably necessary to enable them to exercise their due diligence
responsibilities; provided, however, that the Records that the Company
determines, in good faith, to be confidential and which it notifies the
Inspectors in writing are confidential shall not be disclosed to any Inspector
unless such Inspector signs a confidentiality agreement reasonably satisfactory
to the Company (which shall permit the disclosure of such Records in such
Registration Statement or the related Prospectus if necessary to avoid or
correct a material misstatement in or material omission from such Registration
Statement or Prospectus) or either (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in such Registration
Statement or (ii) the release of such Records is ordered pursuant to a subpoena
or other order from a court of competent jurisdiction; provided, further, that
(A) any decision regarding the disclosure of information pursuant to subclause
(i) shall be made only after consultation with counsel for the applicable
Inspectors and the Company and (B) with respect to any release of Records
pursuant to subclause (ii), each Holder of Registrable Shares agrees that it
shall, promptly after learning that disclosure of such Records is sought in a
court having jurisdiction, give notice to the Company so that the Company, at
the Company's expense, may undertake appropriate action to prevent disclosure of
such Records; and
<PAGE> 34
(k) if such offering is an underwritten offering, enter into such
agreements (including an underwriting agreement in form, scope and substance as
is customary in underwritten offerings) and take all such other appropriate and
reasonable actions requested by the Holders of a majority of the Registrable
Shares being sold in connection therewith (including those reasonably requested
by the managing underwriters) in order to expedite or facilitate the disposition
of such Registrable Shares, and in such connection, (i) use commercially
reasonable efforts to obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters and counsel to the Holders
of the Registrable Shares being sold), addressed to each selling Holder of
Registrable Shares covered by such Registration Statement and each of the
underwriters as to the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably requested by
such counsel and underwriters, (ii) use commercially reasonable efforts to
obtain "cold comfort" letters and updates thereof from the independent certified
public accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of any business
acquired by the Company for which financial statements and financial data are,
or are required to be, included in the Registration Statement), addressed to
each selling holder of Registrable Shares covered by the Registration Statement
(unless such accountants shall be prohibited from so addressing such letters by
applicable standards of the accounting profession) and each of the underwriters,
such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with underwritten
offerings, (iii) if requested and if an underwriting agreement is entered into,
provide indemnification provisions and procedures reasonably requested by such
underwriters. The above shall be done at each closing under such underwriting or
similar agreement, or as and to the extent required thereunder. The Company may
require each Holder of Registrable Shares covered by a Registration Statement to
furnish, within a period not less than 20 days from the date of receipt of such
request, such information regarding such Holder and such Holder's intended
method of disposition of such Registrable Shares as it may from time to time
reasonably request in writing. If any such information is not furnished within
such period, the Company may exclude such Holder's Registrable Shares from such
Registration Statement. Each Holder of Registrable Shares covered by a
Registration Statement agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(c)(ii),
3(c)(iii), 3(c)(iv) or 3(c)(v) hereof, that such Holder shall forthwith
discontinue disposition of any Registrable Shares covered by such Registration
Statement or the related Prospectus until receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(g) hereof, or until
such Holder is advised in writing by the Company that the use of the applicable
Prospectus may be resumed, and has received copies of any amended or
supplemented Prospectus or any additional or supplemental filings which are
incorporated, or deemed to be incorporated, by reference in such Prospectus
(such period during which disposition is discontinued being an "Interruption
Period") and, if requested by the Company, the Holder shall deliver to the
Company (at the expense of the Company) all copies then in its possession, other
than permanent file copies then in such holder's possession, of the Prospectus
covering such Registrable Shares at the time of receipt of such request. Each
Holder of Registrable Shares
<PAGE> 35
covered by a Registration Statement further agrees not to utilize any material
other than the applicable current preliminary prospectus or Prospectus in
connection with the offering of such Registrable Shares.
4. Registration Expenses. Whether or not any Registration Statement
is filed or becomes effective but subject to Section 1(e), the Company shall pay
all costs, fees and expenses incident to the Company's performance of or
compliance with this Agreement, including (i) all registration and filing fees,
including National Association of Securities Dealers filing fees, (ii) all fees
and expenses of compliance with securities or Blue Sky laws, including
reasonable fees and disbursements of counsel in connection therewith, (iii)
printing expenses (including expenses of printing certificates for Registrable
Shares and of printing prospectuses if the printing of prospectuses is requested
by the Holders or the managing underwriter, if any), (iv) messenger, telephone
and delivery expenses, (v) fees and disbursements of counsel for the Company,
(vi) fees and disbursements of all independent certified public accountants of
the Company (including expenses of any "cold comfort" letters required in
connection with this Agreement) and all other persons retained by the Company in
connection with such Registration Statement, (vii) fees and disbursements of one
counsel, other than the Company's counsel, representing all of the Holders of
Registrable Shares being registered, selected by a Majority-in-Interest of
Holders of the Registrable Shares being registered, or in the event of a Demand
Registration, selected by the Demanding Holders and reasonably satisfactory to a
Majority-in-Interest of Holders of the Registrable Shares being registered other
than the Demanding Holders, (viii) fees and disbursements of underwriters
customarily paid by the issuers or sellers of securities and (ix) all other
costs, fees and expenses incident to the Company's performance or compliance
with this Agreement. Notwithstanding the foregoing, any discounts, commissions
or brokers' fees or fees of similar securities industry professionals and any
transfer taxes relating to the disposition of the Registrable Shares by a
Holder, will be payable by such Holder and the Company will have no obligation
to pay any such amounts.
5. Underwriting Requirements.
(a) Subject to Section 5(b) hereof, the Demanding Holders shall have
the right, by written notice, to require that any Demand Registration provide
for an underwritten offering.
(b) In the case of any underwritten offering pursuant to a Demand
Registration, the Demanding Holders shall select the institution or institutions
that shall manage or lead such offering, which institution or institutions shall
be reasonably satisfactory to the Company. In the case of any underwritten
offering pursuant to a Piggyback Registration, the Company shall select the
institution or institutions that shall manage or lead such offering. No Holder
shall be entitled to participate in an underwritten offering unless and until
such Holder has entered into an underwriting or other agreement with such
institution or institutions for such offering in such form as the Company and
such institution or institutions shall determine and such form is on terms
customary for such an offering.
<PAGE> 36
(c) Each Holder participating in a Registration shall promptly
supply in writing such information as the Demanding Holders, the Company or the
underwriters reasonably request.
6. Indemnification.
(a) Indemnification by the Company. The Company shall indemnify and
hold harmless, to the full extent permitted by law, each Holder of Registrable
Shares whose Registrable Shares are covered by a Registration Statement or
Prospectus, the officers, directors and agents and employees of each of them,
each Person who controls each such Holder (within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent lawful, from and against any and all losses, claims, damages,
liabilities, judgment, costs (including, without limitation, costs of
investigation, preparation and reasonable attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or based upon any untrue
or alleged untrue statement of a material fact contained in such Registration
Statement or Prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as the same are based upon
information furnished in writing to the Company by or on behalf of such Holder
expressly for use therein.
(b) Indemnification by Holder of Registrable Shares. In connection
with any Registration Statement in which a Holder is participating, such Holder
shall indemnify and hold harmless, to the full extent permitted by law, the
Company, its directors, officers, agents or employees, each Person who controls
the Company (within the meaning of Section 15 of the Securities Act and Section
20 of the Exchange Act) and the directors, officers, agents or employees of such
controlling Persons, from and against all Losses arising out of or based upon
any untrue or alleged untrue statement of a material fact contained in such
Registration Statement or the related Prospectus or any amendment or supplement
thereto, or any preliminary prospectus, or arising out of or based upon any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, to the extent, but only
to the extent, that such untrue or alleged untrue statement or omission or
alleged omission is based upon any information furnished in writing by or on
behalf of such Holder to the Company expressly for use in such Registration
Statement or Prospectus. Each Holder's indemnity obligations under this Section
6 shall be limited to the total sales proceeds (net of all underwriting
discounts and commissions) actually received by such Holder in connection with
the applicable offering.
(c) Conduct of Indemnification Proceedings. If any Person shall be
entitled to indemnity hereunder (an "indemnified party"), such indemnified party
shall give prompt notice to the party from which such indemnity is sought (the
"indemnifying party") of any claim or of the commencement of any proceeding with
respect to which such indemnified party seeks
<PAGE> 37
indemnification or contribution pursuant hereto; provided, however, that the
delay or failure to so notify the indemnifying party shall not relieve the
indemnifying party from any obligation or liability except to the extent that
the indemnifying party has been prejudiced by such delay or failure. The
indemnifying party shall have the right, exercisable by giving written notice to
an indemnified party promptly after the receipt of written notice from such
indemnified party of such claim or proceeding, to assume, at the indemnifying
party's expense, the defense of any such claim or proceeding, with counsel
reasonably satisfactory to such indemnified party; provided, however, that (i)
an indemnified party shall have the right to employ separate counsel in any such
claim or proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless: (1) the indemnifying party agrees to pay such fees and expenses; (2) the
indemnifying party fails promptly to assume the defense of such claim or
proceeding or fails to employ counsel reasonably satisfactory to such
indemnified party; or (3) the named parties to any proceeding (including
impleaded parties) include both such indemnified party and the indemnifying
party, and such indemnified party shall have been advised by counsel that there
may be one or more legal defenses available to it that are inconsistent with
those available to the indemnifying party or that a conflict of interest is
likely to exist among such indemnified party and any other indemnified parties
(in which case the indemnifying party shall not have the right to assume the
defense of such action on behalf of such indemnified party); and (ii) subject to
clause (3) above, the indemnifying party shall not, in connection with any one
such claim or proceeding or separate but substantially similar or related claims
or proceedings in the same jurisdiction, arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one firm of attorneys (together with appropriate local counsel) at any time for
all of the indemnified parties, or for fees and expenses that are not
reasonable. Whether or not such defense is assumed by the indemnifying party,
such indemnified party shall not be subject to any liability for any settlement
made without its consent. The indemnifying party shall not consent to entry of
any judgment or enter into any settlement unless (i) there is no finding or
admission of any violation of any rights of any person and no effect on any
other claims that may be made against the indemnified party, (ii) the sole
relief provided is monetary damages that are paid in full by the indemnifying
party and (iii) such judgment or settlement includes as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release, in form and substance reasonably satisfactory to the indemnified party,
from all liability in respect of such claim or litigation for which such
indemnified party would be entitled to indemnification hereunder.
(d) Contribution. If the indemnification provided for in this
Section 6 is unavailable to an indemnified party in respect of any Losses (other
than in accordance with its terms), then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party, on the one hand, and such indemnified party, on the other hand, in
connection with the actions, statements or omissions that resulted in such
Losses as well as any other relevant equitable considerations. The relative
fault of such indemnifying party, on the one hand, and indemnified
<PAGE> 38
party, on the other hand, shall be determined by reference to, among other
things, whether any action in question, including any untrue statement of a
material fact or omission or alleged omission to state a material fact, has been
taken by, or relates to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent any such action, statement or
omission. The amount paid or payable by a party as a result of any Losses shall
be deemed to include any legal or other fees or expenses incurred by such party
in connection with any investigation or proceeding. The parties hereto agree
that it would not be just and equitable if contribution pursuant to this Section
6(d) were determined by pro rata allocation or by any other method of allocation
that does not take account of the equitable considerations referred to in the
two immediately preceding sentences. Notwithstanding the provisions of this
Section 6(d), an indemnifying party that is a Holder shall not be required to
contribute any amount which is in excess of the amount by which the total
proceeds (net of all underwriting discounts and commissions) received by such
Holder from the sale of the Registrable Shares sold by such Holder in the
applicable offering exceed the amount of any damages that such indemnifying
party has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
7. Granting of Registration Rights. The Company shall not grant any
registration rights inconsistent with those granted hereunder or that give any
security holder a position with respect to cut-backs that are superior to the
Holders' position as granted herein, without the consent of a
Majority-in-Interest of the Holders of the Registrable Shares (voting together
as a single class).
8. Definitions. As used in this Exhibit G, the following terms shall
have the following meanings:
"Business Day" means any day that is not a Saturday, a Sunday or a
legal holiday on which banking institutions in the State of New York are not
required to be open.
"Common Stock" means the Company's Common Stock, $.01 par value and
any other securities into which such Common Stock may hereafter be changed.
"Delay Period" shall have the meaning set forth in Section 1(d)
hereof.
"Demand Notice" shall have the meaning set forth in Section 1(a)
hereof.
"Demand Registration" shall have the meaning set forth in Section
1(b) hereof.
"Demanding Holders" means the Holders delivering the Demand Notice
pursuant to Section 1(a) hereof.
<PAGE> 39
"Effectiveness Period" shall have the meaning set forth in Section
1(d) hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder.
"Holders" means UBS Capital II LLC and any other holder of
Registrable Shares or securities exercisable for Registrable Shares.
"Interruption Period" shall have the meaning set forth in Section
3(k) hereof.
"Majority-in-Interest" of any group of Holders means holders of more
than 50% of the Registrable Shares held by such Holders or issuable to such
Holders upon conversion of Shares.
"person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Piggyback Registration" shall have the meaning set forth in Section
2 hereof.
"Promissory Note" means that Promissory Note dated as of August 2,
1999 in the face amount of $2,050,000 in favor of UBS Capital II LLC.
"Prospectus" means the prospectus included in any Registration
Statement (including a prospectus that discloses information previously omitted
from a prospectus filed as part of an effective registration statement in
reliance upon Rule 430A), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of the
Registrable Shares covered by such Registration Statement and all other
amendments and supplements to such prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such prospectus.
"Registrable Shares" means (i) shares of Common Stock directly or
indirectly issued or issuable upon conversion of the Shares or issued as
dividends on the Shares; (ii) shares of Common Stock issued as payment of
interest on the Promissory Note and (iii) any shares of Common Stock issued or
issuable with respect to the shares of Common Stock referred to in clauses (i)
and (ii) above upon any stock split, recapitalization or similar event;
provided, however, that shares of Common Stock shall only be registrable
pursuant to this Agreement if and so long as they have not been (i) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (ii) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) thereof so that all transfer restrictions and restrictive legends
with respect to such shares of Common Stock are removed upon the consummation of
such sale and the Company and the seller and
<PAGE> 40
purchaser of such shares of Common Stock shall have received an opinion of
counsel for the seller, which shall be in form and content reasonably
satisfactory to the Company and the seller and purchaser and their respective
counsel, to the effect that such shares of Common Stock in the hands of the
purchaser are freely transferable without restriction or registration under the
Securities Act in any public or private transaction.
"Registration" means registration under the Securities Act of an
offering of Registrable Shares pursuant to a Demand Registration or a Piggyback
Registration.
"Registration Statement" means any registration statement under the
Securities Act of the Company that covers any of the Registrable Shares pursuant
to the provisions of this Agreement, including the related Prospectus, all
amendments and supplements to such registration statement, including pre- and
post-effective amendments, all exhibits thereto and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Senior Convertible Preferred Stock" means share of the Company's
Senior Convertible Preferred Stock, par value $0.01 per share.
"Shares" means the shares of the Company's Series B Convertible
Preferred Stock, par value $.01 per share, Series C Convertible Preferred Stock,
par value $.01 per share, Series D Non-Voting Preferred Stock, par value $.01
per share, and any securities (other than Common Stock) into which such shares
may hereafter be changed, issued or issuable pursuant to the Stock Purchase
Agreement or upon the exercise of any warrant, option or other conversion right
entitling the holder thereof to receive shares of stock.
"Shelf Registration" means an offering on a delayed or continuous
basis pursuant to Rule 415 (or any similar rule that may be adopted by the SEC)
promulgated under the Securities Act.
"Stock Purchase Agreement" means the Stock Purchase Agreement, dated
as of August 2, 1999, between the Company and the investors signatory thereto.
"underwritten registration or underwritten offering" means a
registration under the Securities Act in which securities of the Company are
sold to an underwriter for reoffering to the public.
<PAGE> 41
Unless otherwise stated other capitalized terms contained herein
have the meanings set forth in the Stock Purchase Agreement.
9. Miscellaneous.
(a) Rules 144 and 144A. The Company covenants that it will file any
reports required to be filed by it under the Securities Act and the Exchange Act
so as to enable Holders holding Registrable Shares to sell such Registrable
Shares without registration under the Securities Act within the limitation of
the exemptions provided by (a) Rules 144 and 144A under the Securities Act, as
each such Rule may be amended from time to time, or (b) any similar rule or
rules hereafter adopted by the SEC. Upon the request of any such Holder, the
Company will forthwith deliver to such Holder a written statement as to whether
it has complied with such requirements.
(b) Termination. This Agreement and the obligations of the Company
and the Holders hereunder (other than Section 6 hereof) shall terminate on the
first date on which no Registrable Shares remain outstanding.
(c) Notices. All notices, demands, requests, or other communications
which may be or are required to be given, served, or sent by any party to any
other party pursuant to the Registration Rights set forth in this Exhibit G
shall be given in accordance with Section 15.5 of the Stock Purchase Agreement.
(d) Stock Purchase Agreement. This Exhibit G is deemed a part of the
Stock Purchase Agreement.
<PAGE> 1
EXHIBIT 3
UBS CAPITAL II LLC
The names and titles of the members of the board of managers
and executive officers of UBS Capital II LLC and their business addresses and
principal occupations are set forth below. The business addresses of the each of
the following are at UBS Capital II LLC, 299 Park Avenue, New York, New York
10171.
<TABLE>
<S> <C>
Justin S. Maccarone President
George Duarte Partner
Michael Greene Partner and Member of Board of Managers
Charles Delaney Partner
Robert C. Dinerstein VP, Secretary and Member of Board of
Managers
James Breckenridge Principal
Marc Unger Principal, Chief Financial Officer and
Member of Board of Managers
Hyunja Laskin Principal
Charles W. Moore Principal
Sandra Costin Assistant Secretary
</TABLE>
<PAGE> 2
UBS CAPITAL HOLDINGS, LLC
The names and titles of the members of the board of managers
and executive officers of UBS Capital II LLC and their business addresses and
principal occupations are set forth below. The business addresses of the each of
the following are at UBS Capital Holdings LLC, 299 Park Avenue, New York, New
York 10171.
Michael Greene President and Member of Board of Managers
Robert C. Dinerstein Managing Director, Secretary and Member of
Board of Managers
Marc Unger Chief Financial Officer, Treasurer and
Member of Board of Managers
Sandra Costin Assistant Secretary
<PAGE> 3
UBS AG
The names and titles of the members of the Group Executive
Board, directors and executive officers of UBS AG and their business addresses
and principal occupations are set forth below.
DIRECTORS
Name of Director Nationality Address
- ---------------- ----------- -------
Alberto Togni Swiss UBS AG
Aeschenplatz 6
4002 Basle
Alex Krauer Swiss Novaris AG
Schwarzwaldallee 215
P.O. Box
4002 Basle
Markus Kundig Swiss P.O. Box 4463
6304 Zug
Peter Bockli Swiss Bockli Thomann & Parmer
St. Jakobs-Strasse 41
P.O. Box 2342
4002 Basle
Rolf Arthur Meyer Swiss Ciba Spezialitatenchemise AG
P.O. Box
4002 Basle
Hans Peter Ming Swiss Sika Finanz AG
Zugerstrasse 50
6341 Baar
Andreas Peter Reinhart Swiss Gebruder Volkart Holding AG
P.O. Box 343
8401 Winterthur
Eric Honegger Swiss SAir Group
8058 Zurich-Airport
<PAGE> 4
That the names, nationalities and addresses of other responsible
persons of the Company are as follows:
Position in the Company/Name Nationality Address
- ---------------------------- ----------- -------
Chairman of the Board:
Alex Krauer Swiss Novartis AG
Schwarzwaldallee 215
P.O. Box 4002 Basle
Vice Chairman:
Alberto Togni Swiss UBS AG
Aeschenplatz 6
4002 Basle
Chief Executive Officer:
Marcel Ospel Swiss UBS AG
Aeschenplatz 6
4002 Basle
Members of the Group
Executive Board:
Stephan Haeringer Swiss UBS AG
Bahnhofstrasse 45
8021 Zurich
Gary Brinson American Brinson
209 South La Salle Street
Chicago, IL 60604-1295
Rodolfo Bogni Italian UBS AG
Aeschenplatz 6
4002 Basle
Markus Granziol Swiss UBS AG
Bahnhofstrasse 45
8021 Zurich
<PAGE> 5
Position in the Company/Name Nationality Address
Peter De Weck Swiss UBS AG
Bahnhofstrasse 45
8021 Zurich
Luqman Arnold Swiss UBS AG
Aeschenplatz 6
4002 Basle
Corporate Secretary:
Gertrud Erismann Swiss UBS AG
Bahnhofstrasse 45
8021 Zurich
Treasurer:
Luqman Arnold Swiss UBS AG
Aeschenplatz 6
4002 Basle
<PAGE> 1
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
EXEMPTION FROM REGISTRATION UNDER THE FOREGOING LAWS. ACCORDINGLY, THIS WARRANT
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT (i) AN OPINION OF
COUNSEL SATISFACTORY TO ISSUER THAT SUCH SALE, TRANSFER OR OTHER DISPOSITION MAY
LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND
APPLICABLE STATE SECURITIES LAWS OR (ii) SUCH REGISTRATION.
ORPHAN MEDICAL, INC.
WARRANT
TO PURCHASE
SHARES OF
SERIES C CONVERTIBLE PREFERRED STOCK
OR
SERIES D NON-VOTING PREFERRED STOCK
For value received, UBS Capital II LLC, its successors or assigns
("Holder"), is entitled to purchase from Orphan Medical, Inc., a Minnesota
corporation (the "Company"), up to (i) 2,050 fully paid and nonassessable shares
of the Company's Series C Convertible Preferred Stock, par value $0.01 per share
(the "Series C Preferred Stock"), or such greater or lesser number of shares of
Series C Preferred Stock as may be determined by application of the
anti-dilution provisions of this warrant (the "Warrant"); (ii) up to 315,385
fully paid and nonassessable shares of the Company's Series D Non-Voting
Preferred Stock, $0.01 par value per share (the "Series D Preferred Stock"), or
such greater or lesser number of Series D Preferred Stock as may be determined
by application of the anti-dilution provisions of this Warrant, at the warrant
exercise price set forth in Section 2 hereof; or (iii) any combination of Series
C Preferred Stock and Series D Preferred Stock, provided that the combined
purchase price for the shares does not exceed $2,050,000.
<PAGE> 2
This Warrant is subject to the following terms and conditions:
1. Exercise. The rights represented by this Warrant may be exercised by
the Holder, in whole or in part, by written election, in the form set forth
below, by the surrender of this Warrant (properly endorsed if required) at the
principal office of the Company, by payment to it by cash, certified check or
bank draft of the applicable warrant exercise price for the shares of Series C
Preferred Stock or Series D Preferred Stock to be purchased and by delivery of
the applicable Warrant Exercise form attached hereto or similar documents
acceptable to the Company demonstrating that the sale of the shares to be
purchased is exempt from registration under the Securities Act of 1933, as
amended, and any state securities law.
The Series C Preferred Stock or Series D Preferred Stock purchased
hereunder shall be deemed to be issued as of the close of business on the date
on which this Warrant has been exercised by payment to the Company of the
applicable warrant exercise price. Certificates for the shares of stock so
purchased, bearing an appropriate restrictive legend, shall be delivered to the
Holder within 15 days after the rights represented by this Warrant shall have
been so exercised, and, unless this Warrant has expired, a new warrant
representing the number of shares, if any, with respect to which this Warrant
has not been exercised shall also be delivered to the Holder hereof within such
time. No fractional shares shall be issued upon the exercise of this Warrant.
This Warrant shall be exercised in accordance with the provisions of Sections
9(b) and 9(c) hereof.
2. Warrant Exercise Price. The per share exercise price for the shares
represented by this Warrant shall be $1,000 for the Series C Preferred Stock
(the "Series C Warrant Exercise Price") and $6.50 for the Series D Preferred
Stock, as adjusted pursuant to Section 5 hereof (the "Series D Warrant Exercise
Price").
3. Expiration Date. The rights represented by this Warrant may be
exercised by holder at any time or from time to time after July 23, 2002 or upon
the liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, whichever is earlier, and prior to August 2, 2006. The Company has
the right to require the Holder to exercise this Warrant, in whole or in part,
any time after July 23, 2002 in the event the last sale price of Company's
common stock is equal to or greater than $13 per share for the ten (10)
consecutive trading days immediately preceding the date the Company gives the
Holder notice of the Company's election to require the exercise of all or a part
of this Warrant (the "Notice Date"). The portion of this Warrant required by the
Company to be exercised will expire on the 30th day following the Notice Date
unless exercised by the Holder on or before such 30th day.
4. Shares. All shares that may be issued upon the exercise of the rights
represented by this Warrant shall, upon issuance, be duly authorized and issued,
fully paid and nonassessable shares. During the period within which the rights
represented by this Warrant may be exercised, the Company shall at all times
have authorized and reserved for the purpose of issue or transfer upon exercise
of the subscription rights evidenced by this Warrant a sufficient number of
shares of its
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<PAGE> 3
Series C Preferred Stock, Series D Preferred Stock, shares of common stock in
the case of a Transfer Conversion (as that term is defined in Section 7(b)
hereof), to provide for the exercise of the rights represented by this Warrant.
5. Adjustment. The Series D Warrant Exercise Price for the Series D
Preferred Stock issuable upon exercise of this Warrant or issuable upon a
Transfer Conversion, shall be subject to adjustment from time to time as
hereinafter provided in this Section 5:
(a) If the Company at any time divides the outstanding shares of its
common stock into a greater number of shares (whether pursuant to a stock
split, stock dividend or otherwise), and conversely, if the outstanding
shares of its common stock are combined into a smaller number of shares,
the Series D Warrant Exercise Price in effect immediately prior to such
division or combination of the Company's common stock shall be
proportionately adjusted to reflect the reduction or increase in the value
of each such common share.
(b) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with
another corporation, the sale of all or substantially all of its assets to
another corporation or a Change of Control shall be effected in such a way
that holders of the Company's common stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for such common
stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, the Holder shall have the right, at its
option, to (i) purchase and receive upon the basis and upon the terms and
conditions specified in this Warrant and in lieu of the shares of the
Series D Preferred Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented
hereby, such shares of Series D Preferred Stock or other securities as
would have been issued or delivered to the Holder if Holder had exercised
this Warrant and had received such shares of Series D Preferred Stock
immediately prior to such reorganization, reclassification, consolidation,
merger or sale; or (ii) purchase and receive upon the basis and upon the
terms and conditions specified in this Warrant and in lieu of the shares
of the Series D Preferred Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented
hereby, such assets as would have been issued or delivered to the Holder
if Holder had exercised this Warrant and had received such shares of
Series D Preferred Stock immediately prior to such reorganization,
reclassification, consolidation, merger or sale; or (iii) purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant, a warrant to purchase shares of stock or other securities as
would have been issued or delivered to the Holder if Holder had exercised
this Warrant and had received shares of Series D Preferred Stock
immediately prior to such reorganization, reclassification, consolidation,
merger or sale. With respect to (i), (ii) and (iii) above, in the case of
a Change of Control (as defined herein), the Holder shall receive, at its
option, the securities, assets or warrants described above as if it had
not only exercised this Warrant, but had also participated in the
transaction that resulted in the Change
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<PAGE> 4
of Control. In the event such a Change of Control resulted from a tender
offer or the issuance of additional securities by the Company, the Holder
shall receive from the Company, at its option, an amount equal to the
excess of the aggregate offer price over the aggregate Series D Warrant
Exercise Price, as the case may be. For purposes of the preceding
sentence, the term "aggregate offer price" means the amount that would be
paid to the Holder in connection with the Change of Control if the Holder
had exercised this Warrant for shares of Series D Preferred Stock. For
purposes of this Warrant, the term "Change of Control" means any sale or
issuance or series of related sales or issuances of the Company's voting
securities (or securities convertible into or exchangeable for voting
securities) which results in any person or group of affiliated persons (i)
owning more than 50% of the Company's voting securities outstanding at the
time of such sale or issuances, or (ii) having the ability to elect a
majority of the Company's Board of Directors.
The Company shall not effect any such consolidation, merger or
sale unless prior to the consummation thereof the successor corporation
(if other than the Company) resulting from such consolidation or merger or
the corporation purchasing such assets shall assume by written instrument
executed and mailed to the Holder at the last address of the Holder
appearing on the books of the Company the obligation to deliver to the
Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, the Holder may be entitled to purchase. Further
adjustment to the Series D Warrant Exercise Price shall be made for
successive recapitalizations, reclassifications, consolidations, mergers,
sale of assets or Changes of Control as shall be appropriate under the
circumstances.
(c) If and whenever the Company shall (1) issue or sell any shares
of its common stock for a consideration per share less than the Series D
Warrant Exercise Price in effect immediately prior to the time of such
issuance or sale, (2) issue or sell any warrants, options or other rights
to acquire shares of its common stock at a purchase price less than the
Series D Warrant Purchase Price in effect immediately prior to the time of
such issuance or sale, (3) amend the terms of any existing warrants,
options or other rights to acquire shares of common stock, or otherwise
adjust the purchase price for shares of common stock issuable upon the
exercise of such warrants, options or other rights to acquire shares of
common stock, such that the purchase price for such shares of common stock
is less than the Series D Warrant Exercise Price in effect immediately
prior to the time of such amendment or adjustment, or (4) issue or sell
any other securities that are convertible into shares of its common stock
for a purchase or exchange price less than the Series D Warrant Exercise
Price in effect immediately prior to the time of such issuance or sale
(except for Permitted Issuances (as that term is defined in Article I
Section 8 of the Company's Certificate of Designation for Series B
Convertible Preferred Stock)), then, upon such issuance or sale, the
Series D Warrant Exercise Price shall be reduced to the price at which
such shares of common stock are being issued or sold by the Company or the
price at which such other securities are exercisable or convertible into
shares of the Company's common stock. For
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<PAGE> 5
purposes of this Warrant, the term "consideration per share" for which
common stock is issued or issuable shall mean (1) with respect to the
issuance, grant or sale of options or warrants to purchase shares of
common stock, an amount determined by dividing (i) the total amount, if
any, received or receivable by the Corporation as consideration for the
granting or sale of such options or warrants, plus the minimum aggregate
amount of additional consideration payable to the Corporation upon
exercise of all such options and warrants, 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 (ii) the total maximum number of shares
of common stock issuable upon the exercise of such options and warrants or
upon the conversion or exchange of all such convertible securities
issuable upon the exercise of such options, and (2) with respect to the
issuance, grant or sale of common stock of the Company or securities
directly or indirectly exercisable or convertible into shares of common
stock, an amount determined by dividing (i) the total amount received or
receivable by the Corporation as consideration for the issue or sale of
such convertible securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (ii) the total maximum number of shares
of common stock issuable upon the conversion or exchange of all such
convertible securities.
(d) If the Company takes any other action, or if any other event
occurs, which does not come within the scope of the provisions of Section
5(a), 5(b) or 5(c), but which should result in an adjustment in the Series
D Warrant Exercise Price and/or the number of shares subject to this
Warrant in order to fairly protect the purchase rights of the Holder, an
appropriate adjustment in such purchase rights shall be made by the
Company.
(e) Upon each adjustment of the Series D Warrant Exercise Price, the
Holder shall thereafter be entitled to purchase, at the Series D Warrant
Exercise Price resulting from such adjustment, the number of shares of
Series D Preferred Stock obtained by multiplying the Series D Warrant
Exercise Price in effect immediately prior to such adjustment by the
number of shares of Series D Preferred Stock purchasable pursuant hereto
immediately prior to such adjustment and dividing the product thereof by
the Series D Warrant Exercise Price resulting from such adjustment.
(f) Upon any adjustment of the Series D Warrant Exercise Price, the
Company shall give written notice thereof to the Holder stating the Series
D Warrant Exercise Price resulting from such adjustment and the increase
or decrease, if any, in the number of shares of Series D Preferred Stock
purchasable at such price upon the exercise of this Warrant, setting forth
in reasonable detail the method of calculation and the facts upon which
such calculation is based.
5
<PAGE> 6
6. Rights as Shareholder. This Warrant shall not entitle the Holder to any
voting rights or other rights except as provided in the Stock Purchase Agreement
dated as of August 2, 1999, by and between the Company and UBS Capital II LLC
(the "Stock Purchase Agreement").
7. Transfer.
(a) This Warrant and all rights hereunder are transferable, in whole
or in part, at the principal office of the Company by the holder hereof in
person or by duly authorized attorney, upon surrender of this Warrant
properly endorsed. The bearer of this Warrant, when endorsed, may be
treated by the Company and all other persons dealing with this Warrant as
the absolute owner hereof for any purpose and as the person entitled to
exercise the rights represented by this Warrant, or to the transfer hereof
on the books of the Company, any notice to the contrary notwithstanding;
but until such transfer on such books, the Company may treat the
registered owner hereof as the owner for all purposes.
(b) In the event this Warrant and all rights hereunder are
transferred, in whole or in part, to a Permitted Investor, any rights to
purchase shares of Series D Preferred Stock pursuant to the exercise of
this Warrant, or any transferred portion thereof will automatically be
converted into a right to purchase shares of the Company's common stock (a
"Transfer Conversion"). The conversion rate applicable to a Transfer
Conversion shall be one share of common stock for each share of Series D
Preferred Stock.
(c) For purposes of Section 7(b), the following definitions apply:
(i) "Permitted Investor" means a Person that is not (a) the
Beneficial Owner, directly or indirectly, of ten percent (10%) or
more of the Company's outstanding stock or other securities entitled
to vote, or has or shares the power to dispose of, or direct the
disposition of, such stock or securities, (b) a Person that directly
or indirectly controls, is controlled by, or is under common control
with, the Company (an "Affiliate"), or (c) any corporation or
organization of which the Company is an officer or partner, is the
Beneficial Owner, directly or indirectly, of ten percent (10%) or
more of the Company's outstanding stock or other securities entitled
to vote (an "Associate").
(A) A Person shall not be considered a Beneficial Owner
for purposes of Section 7(c)(i) if such Person was not a
Beneficial Owner of ten percent (10%) or more of the Company's
outstanding stock or other securities entitled to vote, or has
or shares the power to dispose of, or direct the disposition
of, such stock or securities immediately prior to a repurchase
of shares, recapitalization of the Company or similar action
and became a Beneficial Owner as defined in Section 7(c)(ii)
solely as a result of such share repurchase, recapitalization
or similar action unless, (i) the repurchase,
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<PAGE> 7
recapitalization, conversion, or similar action was proposed
by or on behalf of, or pursuant to, any agreement,
arrangement, relationship, understanding, or otherwise
(whether or not in writing) with, the Person or is an
Affiliate or Associate of the Person, or (ii) the Person
thereafter acquires a beneficial ownership, directly or
indirectly, of the Company's outstanding shares entitled to
vote and, immediately after such acquisition, is the
Beneficial Owner, directly or indirectly, of ten percent (10%)
or more of the Company's outstanding stock or other shares
entitled to vote.
(ii) "Beneficial Owner" means a Person who, directly or
indirectly through any written or oral agreement, arrangement,
relationship, understanding, or otherwise, has or shares the power
to vote, or direct the voting of, shares or securities of the
Company entitled to vote, or has or shares the power to dispose of,
or direct the disposition of, such shares of securities; provided,
that a Person shall not be deemed the beneficial owner of shares or
securities of the Company (a) tendered pursuant to a tender offer or
exchange offer made by the Person or any of such Person's Affiliates
or Associates until the tendered shares or securities are accepted
for purchase or exchange, (b) if such beneficial ownership arises
solely from a revocable proxy given in response to a proxy
solicitation required to be made and made in accordance with the
applicable rules and regulations under the Securities Exchange Act
of 1934, as amended (the "Securities Exchange Act"), and is not then
reportable under the Securities Exchange Act, or, if the Company is
not subject to the Securities Exchange Act, would have been required
to be made and would not have been reportable even if the Company
had been subject to the Securities and Exchange Act.
(iii) "Affiliate" shall have the meaning assigned to that term
in Section 7(c)(i) hereof.
(iv) "Associate" shall have the meaning assigned to that term
in Section 7(c)(i) hereof.
(v) "Person" means any individual, partnership, limited
liability company, association, corporation, estate, trust or other
entity.
(d) In the event this Warrant and all rights hereunder, are
re-acquired, in whole or in part, by Investor (as defined in the Stock
Purchase Agreement") prior to July 23, 2002, the shares of common stock
into which the shares of Series D Preferred Stock were converted upon a
Transfer Conversion shall automatically be converted into shares of Series
D Preferred Stock at a conversion rate of one share of Series D Preferred
Stock for each share of common stock.
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<PAGE> 8
8. Notices. All demands and notices to be given hereunder shall be
delivered or sent by first class mail, postage prepaid; in the case of the
Company, addressed to its corporate headquarters, 13911 Ridgedale Drive,
Minnetonka, Minnesota, 55305, until a new address shall have been substituted by
like notice; and in the case of Holder, addressed to Holder at the address
written below, until a new address shall have been substituted by like notice,
with a copy to:
Nancy Fuchs, Esq.
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, NY 10022
Facsimile: (212) 836-8689
9. Additional Right to Convert Warrant.
(a) The holder of this Warrant shall have the right to require the
Company to convert this Warrant (the "Conversion Right") at any time after
it is exercisable, but prior to its expiration, into shares of Series D
Preferred Stock as provided for in this Section 9. Upon exercise of the
Conversion Right, the Company shall deliver to the Holder (without payment
by the Holder of any Series D Warrant Exercise Price) that number of
shares of Company's Series D Preferred Stock, as the case may be, equal to
the result obtained by multiplying (i) the number of shares with respect
to which the Warrant is being exercised by (ii) the quotient obtained by
dividing (x) the value of the Warrant at the time the Conversion Right is
exercised (determined by subtracting the aggregate Series D Warrant
Exercise Price for the warrant shares in effect immediately prior to the
exercise of the Conversion Right from the aggregate fair market value for
the warrant shares immediately prior to the exercise of the Conversion
Right) by (y) the aggregate fair market value for the warrant shares
immediately prior to the exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the Holder, at any time
or from time to time, prior to its expiration, on any business day by
delivering written notice to the Company (the "Conversion Notice") at the
offices of the Company exercising the Conversion Right and specifying (i)
the total number of shares with respect to which the Warrant is being
exercised and (ii) a place and date not less than one or more than 20
business days from the date of the Conversion Notice for the closing of
such purchase.
(c) At any closing under Section 9(b) hereof, (i) Holder will
surrender the Warrant and (ii) the Company will deliver to Holder a
certificate or certificates for the number of shares of the Company's
Series D Preferred Stock (or common stock, as the case may be under
Section 7(b) hereof) issuable upon such conversion, together with cash, in
lieu of any fraction of a share, and (iii) the Company will deliver to
Holder a new warrant
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<PAGE> 9
representing the number of shares, if any, with respect to which the
Warrant shall not have been exercised.
(d) Fair market value for a warrant share as of a particular date
(the "Determination Date") shall mean:
(i) The average of the closing bid or last sale prices of the
Company's common stock, respectively, reported for the ten (10)
business days immediately preceding the Determination Date if the
Company's common stock is reported on the New York Stock Exchange
Composite Tape, or, if the Company's common stock is not listed or
admitted to trading on such exchange, on the principal national
securities exchange on which the Company's common stock is listed or
admitted to trading, or if the common stock is not listed or
admitted to trading on any national securities exchange, on the
NASDAQ National Market System.
(ii) If the Company's common stock is not admitted for
quotation on the NASDAQ National Market System, then the average of
the high bid and low asked prices reported for the ten (10) business
days immediately preceding the Determination Date as recorded by the
National Association of Securities Dealers, Inc. through NASDAQ, or
if the National Association of Securities Dealers, Inc. through
NASDAQ shall not have reported any bid and asked prices for the
Company's common stock for the ten (10) day period immediately
preceding the Determination Date, the average of the bid and asked
prices for such ten (10) day period as furnished by any New York
Stock Exchange member firm selected from time to time by the Company
for such purpose.
(iii) If no bid and asked prices can be obtained from any firm
identified in Section 9(d)(ii), then the value of one share of the
Company's common stock on such date as determined by the mutual
agreement of the Company and the holders of the right to purchase a
majority of the shares issuable under this Warrant, or, if no such
agreement can be reached within 30 days from such date, then as
determined by an independent appraiser mutually acceptable to the
parties.
(e) Holder of this Warrant shall have the right to pay for all or
any portion of the Series C Warrant Exercise Price or Series D Warrant
Exercise Price for shares of Series C Preferred Stock or Series D
Preferred Stock purchased hereunder by cancellation of all or any part of
the Company's obligation to Holder under the terms of that certain
Promissory Note dated as of August 2, 1999, in the face amount of
$2,050,000.
(f) Holder of this Warrant shall have the right, at any time on or
after the date of this Warrant, to receive securities, assets or cash in
the event of a liquidation, dissolution or winding up of the Company (each
such event a "Liquidity Event"). The amount of such
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<PAGE> 10
securities, assets or cash Holder shall be entitled to receive under this
Section 9(f) shall be an amount equal to the difference between the Series
D Warrant Exercise Price and the amount of consideration Holder would have
received if Holder had exercised this Warrant for shares of Series D
Preferred Stock.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed and
delivered by a duly authorized officer.
Dated: August 2, 1999
ORPHAN MEDICAL, INC.
By: /s/ John Howell Bullion
-----------------------
John Howell Bullion
Chief Executive Officer
[Name and Address of Holder]
10
<PAGE> 11
WARRANT EXERCISE
(To be signed only upon exercise of this warrant)
The undersigned, the Holder of the foregoing Warrant, hereby irrevocably
elects to exercise the purchase right represented by such warrant for, and to
purchase thereunder, __________ shares of Series C Preferred Stock, or
__________ shares of Series D Preferred Stock of Orphan Medical, Inc., to which
such warrant relates and herewith makes payment of $__________ therefor in cash,
certified check or bank draft and requests that the certificates for such shares
be issued in the name of, and be delivered to ____________________, whose
address is set forth below the signature of the undersigned.
Dated:_____________________
Signature
If shares are to be issued other than to Holder:
Social Security or other Tax Identification No.
Please print present name and address
11
<PAGE> 12
WARRANT ASSIGNMENT
(To be signed only upon transfer of this warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _______________ the right represented by the foregoing Warrant to purchase
the shares of Series C Preferred Stock or Series D Preferred Stock of Orphan
Medical, Inc. and appoints ____________________ attorney to transfer such right
on the books of Orphan Medical, Inc. with full power of substitution in the
premises.
Dated:______________________
Signature
Social Security or other Tax Identification No.
_______________________________________________
Please print present name and complete address
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<PAGE> 1
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
EXEMPTION FROM REGISTRATION UNDER THE FOREGOING LAWS. ACCORDINGLY, THIS WARRANT
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT (i) AN OPINION OF
COUNSEL SATISFACTORY TO ISSUER THAT SUCH SALE, TRANSFER OR OTHER DISPOSITION MAY
LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND
APPLICABLE STATE SECURITIES LAWS OR (ii) SUCH REGISTRATION.
ORPHAN MEDICAL, INC.
WARRANT
TO PURCHASE
SHARES OF
SERIES D NON-VOTING PREFERRED STOCK
For value received, UBS Capital II LLC, its successors or assigns
("Holder"), is entitled to purchase from Orphan Medical, Inc., a Minnesota
corporation (the "Company"), up to 282,353 fully paid and nonassessable shares
of the Company's Series D Non-Voting Preferred Stock, $0.01 par value per share
(the "Series D Preferred Stock"), or such greater or lesser number of Series D
Preferred Stock as may be determined by application of the anti-dilution
provisions of this Warrant, at the warrant exercise price set forth in Section 2
hereof.
This Warrant is subject to the following terms and conditions:
1. Exercise. The rights represented by this Warrant may be exercised by
the Holder, in whole or in part, by written election, in the form set forth
below, by the surrender of this Warrant (properly endorsed if required) at the
principal office of the Company, by payment to it by cash, certified check or
bank draft of the Warrant Exercise Price (as defined in Section 2 hereof) for
the shares of Series D Preferred Stock to be purchased and by delivery of the
Warrant Exercise form attached hereto or similar documents acceptable to the
Company demonstrating that the sale of the shares to be purchased is exempt from
registration under the Securities Act of 1933, as amended, and any state
securities law.
<PAGE> 2
The Series D Preferred Stock purchased hereunder shall be deemed to
be issued as of the close of business on the date on which this Warrant has been
exercised by payment to the Company of the Warrant Exercise Price. Certificates
for the shares of stock so purchased, bearing an appropriate restrictive legend,
shall be delivered to the Holder within 15 days after the rights represented by
this Warrant shall have been so exercised, and, unless this Warrant has expired,
a new warrant representing the number of shares, if any, with respect to which
this Warrant has not been exercised shall also be delivered to the Holder hereof
within such time. No fractional shares shall be issued upon the exercise of this
Warrant. This Warrant shall be exercised in accordance with the provisions of
Sections 9(b) and 9(c) hereof.
2. Warrant Exercise Price. The per share exercise price for the shares
represented by this Warrant (the Warrant Exercise Price") shall be $4.25, as
adjusted pursuant to Section 5 hereof.
3. Expiration Date. The rights represented by this Warrant may be
exercised by holder at any time or from time to time after July 23, 2002 or upon
the liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, whichever is earlier, and prior to August 2, 2006. The Company has
the right to require the Holder to exercise this Warrant, in whole or in part,
any time after July 23, 2002 in the event the last sale price of Company's
common stock is equal to or greater than $13 per share for the ten (10)
consecutive trading days immediately preceding the date the Company gives the
Holder notice of the Company's election to require the exercise of all or a part
of this Warrant (the "Notice Date"). The portion of this Warrant required by the
Company to be exercised will expire on the 30th day following the Notice Date
unless exercised by the Holder on or before such 30th day.
4. Shares. All shares that may be issued upon the exercise of the rights
represented by this Warrant shall, upon issuance, be duly authorized and issued,
fully paid and nonassessable shares. During the period within which the rights
represented by this Warrant may be exercised, the Company shall at all times
have authorized and reserved for the purpose of issue or transfer upon exercise
of the subscription rights evidenced by this Warrant a sufficient number of
shares of its Series D Preferred Stock and shares of common stock in the case of
a Transfer Conversion (as that term is defined in Section 7(b) hereof), to
provide for the exercise of the rights represented by this Warrant.
5. Adjustment. The Warrant Exercise Price for the Series D Preferred Stock
issuable upon exercise of this Warrant or issuable upon a Transfer Conversion,
shall be subject to adjustment from time to time as hereinafter provided in this
Section 5:
(a) If the Company at any time divides the outstanding shares of its
common stock into a greater number of shares (whether pursuant to a stock
split, stock dividend or otherwise), and conversely, if the outstanding
shares of its common stock are combined into a smaller number of shares,
the Warrant Exercise Price for the Series D Preferred Stock in
2
<PAGE> 3
effect immediately prior to such division or combination of the Company's
common stock shall be proportionately adjusted to reflect the reduction or
increase in the value of each such common share.
(b) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with
another corporation, the sale of all or substantially all of its assets to
another corporation or a Change of Control shall be effected in such a way
that holders of the Company's common stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for such common
stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, the Holder shall have the right, at its
option, to (i) purchase and receive upon the basis and upon the terms and
conditions specified in this Warrant and in lieu of the shares of the
Series D Preferred Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented
hereby, such shares of Series D Preferred Stock or other securities as
would have been issued or delivered to the Holder if Holder had exercised
this Warrant and had received such shares of Series D Preferred Stock
immediately prior to such reorganization, reclassification, consolidation,
merger or sale; or (ii) purchase and receive upon the basis and upon the
terms and conditions specified in this Warrant and in lieu of the shares
of the Series D Preferred Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented
hereby, such assets as would have been issued or delivered to the Holder
if Holder had exercised this Warrant and had received such shares of
Series D Preferred Stock immediately prior to such reorganization,
reclassification, consolidation, merger or sale; or (iii) purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant, a warrant to purchase shares of stock or other securities as
would have been issued or delivered to the Holder if Holder had exercised
this Warrant and had received shares of Series D Preferred Stock
immediately prior to such reorganization, reclassification, consolidation,
merger or sale. With respect to (i), (ii) and (iii) above, in the case of
a Change of Control (as defined herein), the Holder shall receive, at its
option, the securities, assets or warrants described above as if it had
not only exercised this Warrant, but had also participated in the
transaction that resulted in the Change of Control. In the event such a
Change of Control resulted from a tender offer or the issuance of
additional securities by the Company, the Holder shall receive from the
Company, at its option, an amount equal to the excess of the aggregate
offer price over the aggregate Warrant Exercise Price, as the case may be.
For purposes of the preceding sentence, the term "aggregate offer price"
means the amount that would be paid to the Holder in connection with the
Change of Control if the Holder had exercised this Warrant for shares of
Series D Preferred Stock. For purposes of this Warrant, the term "Change
of Control" means any sale or issuance or series of related sales or
issuances of the Company's voting securities (or securities convertible
into or exchangeable for voting securities) which results in any person or
group of affiliated persons (i) owning more than 50% of the Company's
voting securities
3
<PAGE> 4
outstanding at the time of such sale or issuances, or (ii) having the
ability to elect a majority of the Company's Board of Directors.
The Company shall not effect any such consolidation, merger or
sale unless prior to the consummation thereof the successor corporation
(if other than the Company) resulting from such consolidation or merger or
the corporation purchasing such assets shall assume by written instrument
executed and mailed to the Holder at the last address of the Holder
appearing on the books of the Company the obligation to deliver to the
Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, the Holder may be entitled to purchase. Further
adjustment to the Warrant Exercise Price shall be made for successive
recapitalizations, reclassifications, consolidations, mergers, sale of
assets or Changes of Control as shall be appropriate under the
circumstances.
(c) If and whenever the Company shall (1) issue or sell any shares
of its common stock for a consideration per share less than the Warrant
Exercise Price in effect immediately prior to the time of such issuance or
sale, (2) issue or sell any warrants, options or other rights to acquire
shares of its common stock at a purchase price less than the Warrant
Purchase Price in effect immediately prior to the time of such issuance or
sale, (3) amend the terms of any existing warrants, options or other
rights to acquire shares of common stock, or otherwise adjust the purchase
price for shares of common stock issuable upon the exercise of such
warrants, options or other rights to acquire shares of common stock, such
that the purchase price for such shares of common stock is less than the
Warrant Exercise Price in effect immediately prior to the time of such
amendment or adjustment, or (4) issue or sell any other securities that
are convertible into shares of its common stock for a purchase or exchange
price less than the Warrant Exercise Price in effect immediately prior to
the time of such issuance or sale (except for Permitted Issuances (as that
term is defined in Article I Section 8 of the Company's Certificate of
Designation for Series B Convertible Preferred Stock)), then, upon such
issuance or sale, the Warrant Exercise Price shall be reduced to the price
at which such shares of common stock are being issued or sold by the
Company or the price at which such other securities are exercisable or
convertible into shares of the Company's common stock. For purposes of
this Warrant, the term "consideration per share" for which common stock is
issued or issuable shall mean (1) with respect to the issuance, grant or
sale of options or warrants to purchase shares of common stock, an amount
determined by dividing (i) the total amount, if any, received or
receivable by the Corporation as consideration for the granting or sale of
such options or warrants, plus the minimum aggregate amount of additional
consideration payable to the Corporation upon exercise of all such options
and warrants, 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 (ii) the
total maximum number of shares of common stock issuable upon the exercise
of such options and warrants or upon the conversion or exchange of all
4
<PAGE> 5
such convertible securities issuable upon the exercise of such options,
and (2) with respect to the issuance, grant or sale of common stock of the
Company or securities directly or indirectly exercisable or convertible
into shares of common stock, an amount determined by dividing (i) the
total amount received or receivable by the Corporation as consideration
for the issue or sale of such convertible securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of common stock issuable upon the conversion or
exchange of all such convertible securities.
(d) If the Company takes any other action, or if any other event
occurs, which does not come within the scope of the provisions of Section
5(a), 5(b) or 5(c), but which should result in an adjustment in the
Warrant Exercise Price and/or the number of shares subject to this Warrant
in order to fairly protect the purchase rights of the Holder, an
appropriate adjustment in such purchase rights shall be made by the
Company.
(e) Upon each adjustment of the Warrant Exercise Price, the Holder
shall thereafter be entitled to purchase, at the Warrant Exercise Price
resulting from such adjustment, the number of shares of Series D Preferred
Stock obtained by multiplying the Warrant Exercise Price in effect
immediately prior to such adjustment by the number of shares of Series D
Preferred Stock purchasable pursuant hereto immediately prior to such
adjustment and dividing the product thereof by the Warrant Exercise Price
resulting from such adjustment.
(f) Upon any adjustment of the Warrant Exercise Price, the Company
shall give written notice thereof to the Holder stating the Warrant
Exercise Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares of Series D Preferred Stock
purchasable at such price upon the exercise of this Warrant, setting forth
in reasonable detail the method of calculation and the facts upon which
such calculation is based.
6. Rights as Shareholder. This Warrant shall not entitle the Holder to any
voting rights or other rights except as provided in the Stock Purchase Agreement
dated as of August 2, 1999, by and between the Company and UBS Capital II LLC
(the "Stock Purchase Agreement").
7. Transfer.
(a) This Warrant and all rights hereunder are transferable, in whole
or in part, at the principal office of the Company by the holder hereof in
person or by duly authorized attorney, upon surrender of this Warrant
properly endorsed. The bearer of this Warrant, when endorsed, may be
treated by the Company and all other persons dealing with this Warrant as
the absolute owner hereof for any purpose and as the person entitled to
exercise the rights represented by this Warrant, or to the transfer hereof
on the books of the Company,
5
<PAGE> 6
any notice to the contrary notwithstanding; but until such transfer on
such books, the Company may treat the registered owner hereof as the owner
for all purposes.
(b) In the event this Warrant and all rights hereunder are
transferred, in whole or in part, to a Permitted Investor, any rights to
purchase shares of Series D Preferred Stock pursuant to the exercise of
this Warrant, or any transferred portion thereof will automatically be
converted into a right to purchase shares of the Company's common stock (a
"Transfer Conversion"). The conversion rate applicable to a Transfer
Conversion shall be one share of common stock for each share of Series D
Preferred Stock.
(c) For purposes of Section 7(b), the following definitions apply:
(i) "Permitted Investor" means a Person that is not (a) the
Beneficial Owner, directly or indirectly, of ten percent (10%) or
more of the Company's outstanding stock or other securities entitled
to vote, or has or shares the power to dispose of, or direct the
disposition of, such stock or securities, (b) a Person that directly
or indirectly controls, is controlled by, or is under common control
with, the Company (an "Affiliate"), or (c) any corporation or
organization of which the Company is an officer or partner, is the
Beneficial Owner, directly or indirectly, of ten percent (10%) or
more of the Company's outstanding stock or other securities entitled
to vote (an "Associate").
(A) A Person shall not be considered a Beneficial Owner
for purposes of Section 7(c)(i) if such Person was not a
Beneficial Owner of ten percent (10%) or more of the Company's
outstanding stock or other securities entitled to vote, or has
or shares the power to dispose of, or direct the disposition
of, such stock or securities immediately prior to a repurchase
of shares, recapitalization of the Company or similar action
and became a Beneficial Owner as defined in Section 7(c)(ii)
solely as a result of such share repurchase, recapitalization
or similar action unless, (i) the repurchase,
recapitalization, conversion, or similar action was proposed
by or on behalf of, or pursuant to, any agreement,
arrangement, relationship, understanding, or otherwise
(whether or not in writing) with, the Person or is an
Affiliate or Associate of the Person, or (ii) the Person
thereafter acquires a beneficial ownership, directly or
indirectly, of the Company's outstanding shares entitled to
vote and, immediately after such acquisition, is the
Beneficial Owner, directly or indirectly, of ten percent (10%)
or more of the Company's outstanding stock or other shares
entitled to vote.
(ii) "Beneficial Owner" means a Person who, directly or
indirectly through any written or oral agreement, arrangement,
relationship, understanding, or
6
<PAGE> 7
otherwise, has or shares the power to vote, or direct the voting of,
shares or securities of the Company entitled to vote, or has or
shares the power to dispose of, or direct the disposition of, such
shares of securities; provided, that a Person shall not be deemed
the beneficial owner of shares or securities of the Company (a)
tendered pursuant to a tender offer or exchange offer made by the
Person or any of such Person's Affiliates or Associates until the
tendered shares or securities are accepted for purchase or exchange,
(b) if such beneficial ownership arises solely from a revocable
proxy given in response to a proxy solicitation required to be made
and made in accordance with the applicable rules and regulations
under the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act"), and is not then reportable under the
Securities Exchange Act, or, if the Company is not subject to the
Securities Exchange Act, would have been required to be made and
would not have been reportable even if the Company had been subject
to the Securities and Exchange Act.
(iii) "Affiliate" shall have the meaning assigned to that term
in Section 7(c)(i) hereof.
(iv) "Associate" shall have the meaning assigned to that term
in Section 7(c)(i) hereof.
(v) "Person" means any individual, partnership, limited
liability company, association, corporation, estate, trust or other
entity.
(d) In the event this Warrant and all rights hereunder, are
re-acquired, in whole or in part, by Investor (as defined in the Stock
Purchase Agreement") prior to July 23, 2002, the shares of common stock
into which the shares of Series D Preferred Stock were converted upon a
Transfer Conversion shall automatically be converted into shares of Series
D Preferred Stock at a conversion rate of one share of Series D Preferred
Stock for each share of common stock.
8. Notices. All demands and notices to be given hereunder shall be
delivered or sent by first class mail, postage prepaid; in the case of the
Company, addressed to its corporate headquarters, 13911 Ridgedale Drive,
Minnetonka, Minnesota, 55305, until a new address shall have been substituted by
like notice; and in the case of Holder, addressed to Holder at the address
written below, until a new address shall have been substituted by like notice,
with a copy to:
Nancy Fuchs, Esq.
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, NY 10022
7
<PAGE> 8
Facsimile: (212) 836-8689
9. Additional Right to Convert Warrant.
(a) The holder of this Warrant shall have the right to require the
Company to convert this Warrant (the "Conversion Right") at any time after
it is exercisable, but prior to its expiration, into shares of Series D
Preferred Stock as provided for in this Section 9. Upon
exercise of the Conversion Right, the Company shall deliver to the Holder
(without payment by the Holder of any Warrant Exercise Price) that number
of shares of Company's Series D Preferred Stock, as the case may be, equal
to the result obtained by multiplying (i) the number of shares with
respect to which the Warrant is being exercised by (ii) the quotient
obtained by dividing (x) the value of the Warrant at the time the
Conversion Right is exercised (determined by subtracting the aggregate
Warrant Exercise Price for the warrant shares in effect immediately prior
to the exercise of the Conversion Right from the aggregate fair market
value for the warrant shares immediately prior to the exercise of the
Conversion Right) by (y) the aggregate fair market value for the warrant
shares immediately prior to the exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the Holder, at any time
or from time to time, prior to its expiration, on any business day by
delivering written notice to the Company (the "Conversion Notice") at the
offices of the Company exercising the Conversion Right and specifying (i)
the total number of shares with respect to which the Warrant is being
exercised and (ii) a place and date not less than one or more than 20
business days from the date of the Conversion Notice for the closing of
such purchase.
(c) At any closing under Section 9(b) hereof, (i) Holder will
surrender the Warrant and (ii) the Company will deliver to Holder a
certificate or certificates for the number of shares of the Company's
Series D Preferred Stock (or common stock, as the case may be under
Section 7(b) hereof) issuable upon such conversion, together with cash, in
lieu of any fraction of a share, and (iii) the Company will deliver to
Holder a new warrant representing the number of shares, if any, with
respect to which the Warrant shall not have been exercised.
(d) Fair market value for a warrant share as of a particular date
(the "Determination Date") shall mean:
(i) The average of the closing bid or last sale prices of the
Company's common stock, respectively, reported for the ten (10)
business days immediately preceding the Determination Date if the
Company's common stock is reported on the New York Stock Exchange
Composite Tape, or, if the Company's common stock is not listed or
admitted to trading on such exchange, on the principal national
securities
8
<PAGE> 9
exchange on which the Company's common stock is listed or admitted
to trading, or if the common stock is not listed or admitted to
trading on any national securities exchange, on the NASDAQ National
Market System.
(ii) If the Company's common stock is not admitted for
quotation on the NASDAQ National Market System, then the average of
the high bid and low asked prices reported for the ten (10) business
days immediately preceding the Determination Date as recorded by the
National Association of Securities Dealers, Inc. through NASDAQ, or
if the National Association of Securities Dealers, Inc. through
NASDAQ shall not have reported any bid and asked prices for the
Company's common stock for the ten (10) day period immediately
preceding the Determination Date, the average of the bid and asked
prices for such ten (10) day period as furnished by any New York
Stock Exchange member firm selected from time to time by the Company
for such purpose.
(iii) If no bid and asked prices can be obtained from any firm
identified in Section 9(d)(ii), then the value of one share of the
Company's common stock on such date as determined by the mutual
agreement of the Company and the holders of the right to purchase a
majority of the shares issuable under this Warrant, or, if no such
agreement can be reached within 30 days from such date, then as
determined by an independent appraiser mutually acceptable to the
parties.
(e) Holder of this Warrant shall have the right to pay for all or
any portion of the Series C Warrant Exercise Price or Series D Warrant
Exercise Price for shares of Series C Preferred Stock or Series D
Preferred Stock purchased hereunder by cancellation of all or any part of
the Company's obligation to Holder under the terms of that certain
Promissory Note dated as of August 2, 1999, in the face amount of
$2,050,000.
(f) Holder of this Warrant shall have the right, at any time on or
after the date of this Warrant, to receive securities, assets or cash in
the event of a liquidation, dissolution or winding up of the Company (each
such event a "Liquidity Event"). The amount of such securities, assets or
cash Holder shall be entitled to receive under this Section 9(f) shall be
an amount equal to the difference between the Series D Warrant Exercise
Price and the amount of consideration Holder would have received if Holder
had exercised this Warrant for shares of Series D Preferred Stock.
[REMAINING PORTION OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 10
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed and
delivered by a duly authorized officer.
Dated: August 2, 1999
ORPHAN MEDICAL, INC.
By: /s/ John Howell Bullion
-----------------------
John Howell Bullion
Chief Executive Officer
[Name and Address of Holder]
10
<PAGE> 11
WARRANT EXERCISE
(To be signed only upon exercise of this warrant)
The undersigned, the Holder of the foregoing Warrant, hereby irrevocably
elects to exercise the purchase right represented by such warrant for, and to
purchase thereunder, __________ shares of Series D Preferred Stock of Orphan
Medical, Inc., to which such warrant relates and herewith makes payment of
$__________ therefor in cash, certified check or bank draft and requests that
the certificates for such shares be issued in the name of, and be delivered to
____________________, whose address is set forth below the signature of the
undersigned.
Dated:_____________________
Signature
If shares are to be issued other than to Holder:
Social Security or other Tax Identification No.
Please print present name and address
11
<PAGE> 12
WARRANT ASSIGNMENT
(To be signed only upon transfer of this warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _______________ the right represented by the foregoing Warrant to purchase
the shares of Series D Preferred Stock of Orphan Medical, Inc. and appoints
____________________ attorney to transfer such right on the books of Orphan
Medical, Inc. with full power of substitution in the premises.
Dated:_____________________
Signature
Social Security or other Tax Identification No.
_______________________________________________
Please print present name and complete address
12
<PAGE> 1
FORM OF CERTIFICATE OF DESIGNATION
ORPHAN MEDICAL, INC.
--------------
CERTIFICATE OF DESIGNATION
FOR
SERIES B CONVERTIBLE PREFERRED STOCK
AND
SERIES C CONVERTIBLE PREFERRED STOCK
AND
SERIES D NON-VOTING PREFERRED STOCK
(Pursuant to Minnesota Statutes, Section 302A.401, Subd. 3(b))
---------------
The undersigned, being the Chief Executive Officer of Orphan Medical, Inc.
(the "Corporation"), a corporation organized and existing under the Minnesota
Business Corporation Act, in accordance with the provisions of Minnesota
Statutes, Section 302A.401, Subd. 3(b), does hereby certify that:
Pursuant to the authority vested in the Board of Directors of the
Corporation by the Articles of Incorporation of the Corporation, the Board of
Directors on July 22, 1999, in accordance with Minnesota Statutes, Section
302A.401, Subd. 3, duly adopted the following resolution establishing a series
of 5,000 shares of the Corporation's capital stock to be designated as its
Series B Convertible Preferred Stock, a series of 4,000 shares of the
Corporation's capital stock to be designated as its Series C Convertible
Preferred Stock and a series of 1,500,000 shares of the Corporation's capital
stock to be designated as its Series D Non-Voting Preferred Stock.
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation (the "Board of Directors") by the Articles of Incorporation
of the Corporation, the Board of Directors hereby establishes a series of Series
B Convertible Preferred Stock of the Corporation, a series of Series C
Convertible Preferred Stock of the Corporation and a series of Series D
Non-Voting Preferred Stock of the Corporation and hereby states the designation
and number of shares, and fixes the relative rights and preferences, of each
such series of shares as follows:
ARTICLE I
SERIES B CONVERTIBLE PREFERRED STOCK
Section 1. Designation; Number of Shares. The shares of such series shall
be designated as "Series B Convertible Preferred Stock" (the "Series B Preferred
Stock"), and the number of authorized shares constituting the Series B Preferred
Stock shall be 5,000.
Section 2. Par Value; No Preemptive Rights. The Series B Preferred Stock
shall have a par value of $0.01 per share. As provided in Article V of the
Corporation's Articles of Incorporation, holders of Series B Preferred Stock
shall not be entitled to any preemptive rights to acquire shares of any class or
series of capital stock of the Corporation.
Section 3. Rank. The Series B Preferred Stock shall rank prior to all of
the Corporation's common stock, par value $0.01 per share (the "Common Stock"),
the Corporation's Series D Convertible Preferred Stock, par value $0.01 per
share (the "Series D Preferred Stock") and all other classes of preferred stock,
except that the Series B Preferred Stock shall rank pari passu to the
Corporation's Series C Convertible Preferred Stock, par value $0.01 per share
(the
<PAGE> 2
"Series C Preferred Stock") and is subordinated to the Corporation's Senior
Convertible Preferred Stock, par value $0.01 per share (the "Senior Convertible
Preferred Stock") now outstanding or hereafter issued, both as to payment of
dividends and as to distributions of assets upon the liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, unless
otherwise agreed upon in writing by the holders of a majority of the outstanding
shares of Series B Preferred Stock.
Section 4. Dividends and Distributions.
(a) Holders of the Series B Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors, cumulative dividends at
the rate, in the form, at the times and in the manner set forth in this Section
4. Such dividends shall accrue on any given share from the day of issuance of
such share and shall accrue from day to day whether or not earned or declared.
(b) The dividend rate on the Series B Preferred Stock shall be
$75.00 per annum per share; provided that (i) in the event that at any time
during any 730-day period individuals who constituted the Board of Directors at
the beginning of such period, or the first date on which shares of Series B
Preferred Stock are issued (the "Issuance Date")(whichever is later), cease for
any reason to constitute a majority of the Board of Directors then in office or
(ii) the Board of Directors fails to declare and pay in full, on any Dividend
Payment Date (as defined in Section 4(c)), all dividends accrued since the last
Dividend Payment Date (or with respect to the first Dividend Payment Date, since
the date of issuance), the dividend rate on the Series B Preferred Stock shall
be increased to $200 per annum per share unless holders of a majority of the
then outstanding shares of Series B Preferred Stock agree to waive such
increase. Any change of the dividend rate in accordance with this Section 4(b)
shall be deemed to occur on the date upon which the event in question occurs. In
the event the dividend rate is adjusted in accordance with this Section 4(b),
the Corporation shall pay such dividends in cash.
(c) Dividends shall be payable in arrears, when and as declared by
the Board of Directors on August 1 and February 1 of each year, commencing
February 1, 2000 (each such semiannual payment date, a "Dividend Payment Date"),
except that if any such date is a Saturday, Sunday or legal holiday then such
dividend shall be payable on the first immediately succeeding calendar day which
is not a Saturday, Sunday or legal holiday. Dividends shall accrue on each share
of Series B Preferred Stock from the date of issuance of such shares and, after
payment of a dividend as required hereunder, from and after each Dividend
Payment Date based on the number of days elapsed and a 365-day year; provided
that to the extent that a dividend is not paid in cash or stock on any Dividend
Payment Date as provided in paragraph (d) below such unpaid amount shall in turn
accrue dividends at the rate specified herein until paid as provided herein. The
dividend payable on the first Dividend Payment Date with respect to any shares
of Series B Preferred Stock shall be the pro rata portion of the dividend rate
based upon the number of days from and including the date of issuance, up to and
including such first Dividend Payment Date and a 365-day year. Each dividend
shall be paid to the holders of record of shares of Series B Preferred Stock as
they appear on the books of the Corporation on such record date, not more than
sixty (60) days nor fewer than ten (10) days preceding the respective Dividend
Payment Date, as shall be fixed by the Board of Directors.
(d) Any dividend payment made with respect to the Series B
Preferred Stock, may be made, at the sole discretion of the Board of Directors,
in cash out of funds legally available for such purpose or by issuing the number
of shares of Series B Preferred Stock equal to the amount of the dividend
divided by $1,000 (the "Dividend Conversion Price"); provided, that no
fractional shares shall be issued. Any such dividend payment may be made, in the
sole discretion of the Board of Directors, partially in cash and partially in
shares of Series B Preferred Stock determined in accordance with the preceding
formula; provided, that in the event that any such dividend payment is made
partially in cash and partially in shares of Series B Preferred Stock, each
holder of Series B Preferred Stock shall receive a ratable amount of cash and
Series B Preferred Stock that is proportionate to the amount of Series B
Preferred Stock held by such holder on which such dividend is paid. If any
fractional interest in a share of Series B Preferred Stock would be delivered
upon any payment of dividends pursuant to this Section 4, the Corporation, in
lieu of
2
<PAGE> 3
delivering the fractional share of Series B Preferred Stock shall pay an amount
to the holder thereof equal to such fraction multiplied by the Dividend
Conversion Price. All shares of Series B Preferred Stock issued as a dividend
shall be fully paid and nonassessable.
(e) No dividends or other distributions (other than dividends
payable in Junior Dividend Stock (as defined below)) shall be paid or set apart
for payment on, and no purchase, redemption or other acquisition shall be made
by the Corporation, or any of its subsidiaries, of, any shares of Common Stock
or other capital stock of the Corporation ranking junior as to payment of
dividends on the Series B Preferred Stock (such Common Stock and other capital
stock being referred to herein collectively as "Junior Dividend Stock");
provided that dividends or other distributions may be paid or set apart for
payment on any shares of Junior Dividend Stock at such time as less than 20% of
the Initial Shares (as defined in Section 7(b)) remain outstanding.
Any reference to "distribution" contained in this Section 4 shall
not be deemed to include any distribution made in connection with a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
Section 5. Liquidation Preference. In the event of a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of Series B Preferred Stock shall be entitled to receive out of the
assets of the Corporation, after distributions required to be made to the
holders of any shares of any the Corporation's preferred stock ranking senior to
the Series B Preferred Stock, an amount equal to the dividends accumulated and
unpaid thereon to the date of final distribution to such holders, whether or not
declared, without interest, plus a sum equal to $1,000 per share, and no more,
before any payment shall be made or any assets distributed to the holders of
Common Stock or any other capital stock of the Corporation ranking junior as to
liquidation rights to the Series B Preferred Stock (such Common Stock and other
capital stock being referred to herein collectively as "Junior Liquidation
Stock"). The assets of the Corporation available for distribution to the holders
of the Series B Preferred Stock and any other shares of the Corporation's
preferred stock ranking pari passu to the Series B Preferred Stock shall be
distributed ratably among the holders of the Series B Preferred Stock and the
holders of any such other shares of the Corporation's preferred stock ranking
pari passu to the Series B Preferred Stock. After payment in full of the
liquidation preference of the shares of the Series B Preferred Stock, the
holders of such shares shall not be entitled to any further participation in any
distribution of assets by the Corporation. Neither a consolidation or merger of
the Corporation with another corporation nor a sale or transfer of all or part
of the Corporation's assets for cash, securities or other property will be
deemed a liquidation, dissolution or winding up of the Corporation for purposes
of this Section 5.
Section 6. Ten Year Conversion or Redemption.
(a) On the tenth anniversary (the "Anniversary Date") of the
Issuance Date (as defined in Section 4(b)), the Corporation, at its election,
shall either require the conversion of all then issued and outstanding shares of
Series B Preferred Stock into fully paid and nonassessable shares of Common
Stock at the Conversion Price (as that term is defined in Section 7(a))(the
"Anniversary Conversion") or redeem the then issued and outstanding shares of
Series B Preferred Stock (the "Redemption") as provided below.
(b) If the Corporation elects the Anniversary Conversion, the
Corporation shall pay a conversion fee equal to $1,180,000 (the "Conversion
Fee"), subject to adjustment, on a pro rata basis to the holders of the then
issued and outstanding shares of Series B Preferred Stock. The Corporation shall
pay the Conversion Fee, at the election of the Board of Directors, in (i) cash
or (ii) a number of shares of Common Stock equal to the Conversion Fee divided
by the average last sale price of the Common Stock for the five (5) trading days
immediately preceding the Anniversary Date; provided, however, that the
Corporation shall pay the Conversion Fee in cash to the extent that the issuance
of stock would require shareholder approval pursuant to Section 4460(i) of the
Rules of the NASDAQ Stock Market or any successor rule thereto and such approval
has not been obtained. In the event that the number of shares of Series B
Preferred Stock issued and outstanding as of the Anniversary Date is less than
the number of Initial Shares (as defined
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in Section 7(b) below), then the Conversion Fee will be adjusted downward to
equal the product of (a) $1,180,000 and (b) the quotient of the number of shares
of Series B Preferred Stock issued and outstanding as of the Anniversary Date
divided by the Initial Shares (as adjusted for any stock split, stock dividend,
recapitalization or otherwise). On or after the Anniversary Date, each holder of
Series B Preferred Stock shall surrender the certificate or certificates
evidencing such shares to the Corporation and the Corporation shall deliver to
such holder (i) a certificate or certificates representing the number of shares
of Common Stock equal to the number of shares of Series B Preferred Stock to be
converted multiplied by $1,000 divided by the Conversion Price set forth in the
notice to the holder, (ii) the holder's pro rata portion of the Conversion Fee
and (iii) accrued and unpaid dividends in cash or a number of shares of Common
Stock equal to the dividend amount divided by the Conversion Price. In addition,
the following provisions of Section 7 shall be applicable to the Anniversary
Conversion: the second sentence of the second paragraph of Section 7(a), third
paragraph of Section 7(b), Section 7(d) and Section 7(e).
(c) In the event the Corporation elects a Redemption, the
Corporation shall redeem for cash on the Anniversary Date all issued and
outstanding shares of Series B Preferred Stock at a price per share equal to
$1,000 plus all accrued and unpaid dividends on such share to the Anniversary
Date (such sum being hereinafter referred to as the "Redemption Price"). On or
after the Anniversary Date, each holder of Series B Preferred Stock shall
surrender the certificate or certificates evidencing such shares to the
Corporation at the place designated in the notice to the holder and shall
thereupon be entitled to receive payment of the Redemption Price. If, on the
Anniversary Date, funds necessary for the Redemption shall be available therefor
and shall have been irrevocably deposited or set aside, then, notwithstanding
that the certificates evidencing any shares so called for redemption shall not
have been surrendered, on the Anniversary Date, the dividends with respect to
the shares so called shall cease to accrue, such shares shall no longer be
deemed outstanding, the holders thereof shall cease to be shareholders and all
rights whatsoever with respect to such shares (except the right of the holders
thereof to receive the Redemption Price upon surrender of their certificates)
shall terminate.
(d) No more than sixty (60) nor less than twenty (20) days prior to
the Anniversary Date, the Corporation shall deliver notice, by first class mail,
postage prepaid, to each holder of record of the Series B Preferred Stock,
addressed to such shareholder at its last address as shown on the stock books of
the Corporation. Such notice shall state whether the Corporation has elected to
effect the Anniversary Conversion or the Redemption. If the Corporation fails to
give notice as provided above, the Corporation shall be deemed to have elected
the Redemption. In the event of the Anniversary Conversion, the notice shall
also state that the Anniversary Date is the date fixed for conversion, the
then-effective Conversion Price (as defined in Section 7), whether the
Conversion Fee will be paid in cash or shares of Common Stock and the holder's
pro rata portion of such, whether the accumulated and unpaid dividends to the
Anniversary Date will be paid in cash or shares of Common Stock and that on and
after the Anniversary Date, dividends will cease to accumulate on such shares of
Series B Preferred Stock; provided that there is no default in the payment of
the Conversion Fee. In the event of the Redemption, the notice shall also state
that the Anniversary Date is the date fixed for redemption, the Redemption
Price, the place or places of payment, that the right of holders of Series B
Preferred Stock to exercise their conversion rights in accordance with Section 7
shall expire at the close of business on the Anniversary Date (provided that
there is no default in payment of the Redemption Price) and that payment of the
Redemption Price will be made upon presentation and surrender of certificates
representing the Series B Preferred Stock to the Corporation or its agent as
provided in the notice
Section 7. Conversion.
(a) Holders of Series B Preferred Stock may, at their option upon
surrender of the certificates therefor, convert any or all of their shares of
Series B Preferred Stock into fully paid and nonassessable shares of Common
Stock (and such other securities and property as they may be entitled to, as
hereinafter provided) at any time after issuance thereof; provided, that such
conversion right shall expire at the close of business on the date, if any,
fixed for the redemption of Series B Preferred Stock in any notice of redemption
given pursuant to Section 6 hereof if there is no default in payment of the
Redemption Price. Each share of Series B Preferred Stock shall be convertible at
the
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office of any transfer agent for the Series B Preferred Stock, and at such other
office or offices, if any, as the Board of Directors may designate, into that
number of fully paid and nonassessable shares of Common Stock (calculated as to
each conversion to the nearest whole share) as shall be equal to $1,000 divided
by the Conversion Price (as defined below) in effect at the time of conversion.
The initial conversion price will be $6.50, subject to adjustment from time to
time as provided in Section 8 (such conversion rate, as so adjusted from time to
time, being referred to herein as the "Conversion Price").
The right of holders of Series B Preferred Stock to convert their
shares shall be exercised by surrendering for such purpose to the Corporation or
its agent, as provided above, certificates representing shares to be converted,
duly endorsed in blank or accompanied by proper instruments of transfer. The
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of Common Stock or other
securities or property upon conversion of Series B Preferred Stock in a name
other than that of the holder of the shares of Series B Preferred Stock being
converted, nor shall the Corporation be required to issue or deliver any such
shares or other securities or property unless and until the person or persons
requesting the issuance thereof shall have paid to the Corporation the amount of
any such tax or shall have established to the satisfaction of the Corporation
that such tax has been paid.
(b) In the event the Common Stock trades above $40 per share for
ninety (90) consecutive trading days and the average daily reported volume in
trading for the Common Stock on all national securities exchanges and/or
reported through the automated quotation system of a registered securities
association for any twenty (20) consecutive trading days during such 90-day
period exceeds 10% of the number of shares of Common Stock into which the shares
of Series B Preferred Stock could be converted (the "Initial Shares"), adjusted
to eliminate the effect of any reporting of both the buy and sell side of any
trade, the Corporation may, by notice to the holders thereof, within thirty (30)
days after such 90-day period, elect to require the conversion of all the shares
of Series B Preferred Stock then outstanding into fully paid and nonassessable
shares of Common Stock at the applicable Conversion Price.
Such notice shall be delivered by first class mail, postage
prepaid, shall be given to the holders of record of the Series B Preferred Stock
to be converted, addressed to such shareholders at their last addresses as shown
on the stock books of the Corporation. Each such notice of conversion shall
specify the date fixed for conversion; the then-effective Conversion Price; that
accumulated but unpaid dividends to the date fixed for conversion will be paid,
at the election of the Board of Directors, in cash or in a number of shares of
Series B Preferred Stock equal to the dividend amount divided by the Conversion
Price on the date fixed for conversion (which shall be within thirty (30) days
of the notice; and that on and after the conversion date, dividends will cease
to accumulate on such shares.
Any notice which is mailed as herein provided shall be conclusively
presumed to have been duly given, whether or not a holder of the Series B
Preferred Stock receives such notice; and failure so to give such notice, or any
defect in such notice, to the holders of any shares designated for conversion
shall not affect the validity of the proceedings for the conversion of any other
shares of Series B Preferred Stock.
(c) A number of shares of the authorized but unissued Common Stock
sufficient to provide for the conversion of the Series B Preferred Stock
outstanding upon the basis hereinbefore provided shall at all times be reserved
by the Corporation, free from preemptive rights, for such conversion, subject to
the provisions of the next paragraph. If the Corporation shall issue any
securities or make any change in its capital structure which would change the
number of shares of Common Stock into which each share of the Series B Preferred
Stock shall be convertible as herein provided, the Corporation shall at the same
time also make proper provision so that thereafter there shall be a sufficient
number of shares of Common Stock authorized and reserved, free from preemptive
rights, for conversion of the outstanding Series B Preferred Stock on the new
basis. The Corporation shall comply with all securities laws regulating the
offer and delivery of shares of Common Stock upon conversion of the Series B
Preferred Stock and shall use its best efforts to list such shares on each
national securities exchange on which the Common Stock is listed or to
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have such shares admitted for quotation on the NASDAQ National Market System if
the Common Stock is admitted for quotation thereon.
(d) Upon the surrender of certificates representing shares of
Series B Preferred Stock to be converted, duly endorsed or accompanied by proper
instruments of transfer as provided above, the person converting such shares
shall be deemed to be the holder of record of the Common Stock issuable upon
such conversion, and all rights with respect to the shares surrendered shall
forthwith terminate except the right to receive the Common Stock or other
securities, cash or other assets as herein provided.
(e) No fractional shares of Common Stock shall be issued upon
conversion of Series B Preferred Stock but, in lieu of any fraction of a share
of Common Stock which would otherwise be issuable in respect of the aggregate
number of such shares surrendered for conversion at one time by the same holder,
the Corporation shall pay in cash an amount equal to the product of (a) the
Closing Price of a share of Common Stock (as defined in the next sentence) on
the last trading day before the conversion date and (b) such fraction of a
share. The "Closing Price" for each day shall be the last reported sale price
or, in case no sale takes place on such day, the average of the closing bid and
asked price on such day, in either case as reported on the New York Stock
Exchange Composite Tape, or, if the Common Stock is not listed or admitted to
trading on such Exchange, on the principal national securities exchange on which
the Common Stock is listed or admitted to trading, or, if the Common Stock is
not listed or admitted to trading on any national securities exchange, on the
NASDAQ National Market System, or, if the Common Stock is not admitted for
quotation on the NASDAQ National Market System, the average of the high bid and
low asked prices on such day as recorded by the National Association of
Securities Dealers, Inc. through NASDAQ, or, if the National Association of
Securities Dealers, Inc. through NASDAQ shall not have reported any bid and
asked prices for the Common Stock on such day, the average of the bid and asked
prices for such day as furnished by any New York Stock Exchange member firm
selected from time to time by the Corporation for such purpose, or, if no such
bid and asked prices can be obtained from any such firm, the fair market value
of one share of the Common Stock on such day as determined in good faith by the
Board of Directors of the Corporation.
Section 8. Adjustments to Conversion Price. Notwithstanding anything in
this Section 8 to the contrary, no change in the Conversion Price shall be made
until the cumulative effect of the adjustments called for by this Section 8
since the date of the last change in the Conversion Price would change the
Conversion Price by more than 1%. However, once the cumulative effect would
result in such a change, then the Conversion Price shall be changed to reflect
all adjustments called for by this Section 8 and not previously made.
Additionally, there shall be no adjustment in the Conversion Price as a result
of any issue or sale (or deemed issue or sale) of (i)(A) shares of Common Stock
that may be issued upon exercise of stock options that are outstanding on the
Issuance Date (as such number of shares is proportionately adjusted for
subsequent stock splits, combinations of shares and stock dividends affecting
the Common Stock), in each case pursuant to the terms thereof as in effect on
the Issuance Date, and (B) stock options and shares of Common Stock issuable
upon exercise of such options granted to employees and directors of the
Corporation and its Subsidiaries pursuant to the terms of stock option plans
approved by the Corporation's Board of Directors if such options are exercisable
at the market price on the date of grant; provided that the aggregate number of
shares of Common Stock issued, or issuable, pursuant to this clause (i) shall
not exceed two million shares, or such other amount as the holders of a majority
of the outstanding shares of Series B Preferred Stock shall agree to in writing;
(ii) Common Stock upon the exercise of warrants that, as of June 30, 1999,
entitled holders to purchase an aggregate of 206,725 shares of Common Stock
(which warrants were originally issued on May 19, 1995 to R.J. Steichen &
Company and a portion of which were subsequently assigned to employees and
affiliates of R.J. Steichen & Company); (iii) Common Stock issued upon the
conversion or exchange of the Series B Preferred Stock or the Senior Convertible
Preferred Stock; (iv) shares of Series D Preferred Stock or Series C Preferred
Stock issuable upon the exercise of warrants granted to UBS Capital II LLC or
its assignees (the "Warrants") or upon conversion of the Series C Preferred
Stock under the terms of the Warrants; (v) Common Stock issuable upon conversion
of shares of Series D Preferred Stock upon a Transfer Conversion (as defined in
Article III Section 5 hereof) or upon exercise of the Warrants; (vi) Common
Stock issuable as payment of interest on that certain Promissory Note dated
August 2, 1999 in the face amount of $2,050,000; (vii)
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securities pursuant to any public offering of the Company's securities
registered under the Securities Act or (viii) the issuance and sale of the
Company's Common Stock pursuant to the terms of any employee stock purchase plan
approved by the Company's Board of Directors, up to a maximum of 100,000 shares
(collectively referred to as "Permitted Issuances"). Subject to the foregoing,
the Conversion Price shall be adjusted from time to pursuant to Section 8(a).
(a) If and whenever, on or after the Issuance Date, the Corporation
issues or sells, or in accordance with this Section 8(a) is deemed to have
issued or sold, any shares of its Common Stock for consideration per share less
than the Conversion Price in effect immediately prior to the time of such issue
or sale, then, unless such issuance or sale was a Permitted Issuance,
immediately upon such issue or sale or deemed issue or sale the Conversion Price
shall be reduced to an amount equal to the price per share at which such Common
Stock was sold or at which such shares of Common Stock are issuable upon the
exercise of such rights or warrants.
(i) For purposes of this Section 8(a), the following
definitions apply:
(A) "deemed to have issued or sold" shall mean the
issuance, grant or sale of Common Stock of the Company or
securities which are directly or indirectly exercisable or
convertible into shares of Common Stock, or warrants or
options for the purchase, directly or indirectly, thereof,
other than Permitted Issuances.
(B) "consideration per share" for which Common Stock is
issued or issuable shall mean (1) with respect to the
issuance, grant or sale of options or warrants to purchase
shares of Common Stock, an amount determined by dividing (i)
the total amount, if any, received or receivable by the
Corporation as consideration for the granting or sale of such
options or warrants, plus the minimum aggregate amount of
additional consideration payable to the Corporation upon
exercise of all such options and warrants, 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 (ii) the total maximum number of shares of Common
Stock issuable upon the exercise of such options and warrants
or upon the conversion or exchange of all such convertible
securities issuable upon the exercise of such options, and
(2) with respect to the issuance, grant or sale of Common
Stock of the Company or securities directly or indirectly
exercisable or convertible into shares of Common Stock, an
amount determined by dividing (i) the total amount received
or receivable by the Corporation as consideration for the
issue or sale of such convertible securities, plus the
minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of all such
convertible securities.
(ii) Change in Option Price or Conversion Rate. If the
purchase price provided for in any options, the additional
consideration, if any, payable upon the conversion or exchange of
any convertible securities or the rate at which any convertible
securities are convertible into or exchangeable for Common Stock
changes at any time, the Conversion Price in effect at the time of
such change shall be immediately 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 conversion rate, as the
case may be, at the time initially granted, issued or sold;
provided that in no event shall the Conversion Price be adjusted to
a price higher than the Conversion Price in effect prior to any
actions described in this Section 8(a)(ii). For purposes of this
Section 8(a)(ii) if the terms of any option or convertible security
which was
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outstanding as of the Issuance Date are changed in the manner
described in the immediately preceding sentence, then such option or
convertible security and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such change and no such change shall
cause the Conversion Price hereunder to be increased.
(iii) Calculation of Consideration Received. If any Common
Stock, option or convertible security is issued or sold or deemed
to have been issued or sold for cash, the consideration received
therefor shall be deemed to be the amount received by the
Corporation therefor (net of discounts, commissions and related
expenses). If any Common Stock, option or convertible security is
issued or sold for a consideration other than cash, the amount of
the consideration other than cash received by the Corporation shall
be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of
consideration received by the Corporation shall be the fair market
price (calculated to be the average Closing Price for the twenty
(20) trading days immediately prior to the date of sale of the
securities described in the first sentence of this Section
8(a)(iii)) thereof as of the date of receipt. If any Common Stock,
option or convertible security is issued to the owners of the
non-surviving entity in connection with any merger in which the
Corporation is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity
as is attributable to such Common Stock, option or convertible
security, as the case may be. The fair value of any consideration
other than cash and securities shall be determined jointly by the
Corporation and the holders of a majority of the outstanding Series
B Preferred Stock. If such parties are unable to reach agreement
within a reasonable period of time, the fair value of such
consideration shall be determined by an independent appraiser
experienced in valuing such type of consideration jointly selected
by the Corporation and the holders of a majority of the outstanding
Series B Preferred Stock. The determination of such appraiser shall
be final and binding upon the parties, and the fees and expenses of
such appraiser shall be borne by the Corporation.
(b) Subdivision or Combination of Common Stock. If the Corporation
at any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately prior to
such subdivision, or any applicable record date shall be proportionally reduced,
and if the Corporation at any time combines (by reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price in effect immediately prior to
such combination or any applicable record date shall be proportionately
increased.
(c) Reorganization, Reclassification, Consolidation, Merger or
Sale. Any recapitalization, reclassification, consolidation, merger, sale of all
or substantially all of the Corporation's assets or other transaction, in each
case which is effected in such a manner that the holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock, is
referred to herein as an "Organic Change." Prior to the consummation of any
Organic Change, the Corporation shall make appropriate provisions (in form and
substance satisfactory to the holders of a majority of the Series B Preferred
Stock then outstanding) to insure that each of the holders of Series B Preferred
Stock shall thereafter have the right to acquire and receive, in lieu of or in
addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
Series B Preferred Stock, such shares of stock, securities or assets as such
holder would have received in connection with such Organic Change if such holder
had converted its Series B Preferred Stock immediately prior to such Organic
Change, or any applicable record date thereon. In each such case, the
Corporation shall also make appropriate provisions (in form and substance
satisfactory to the holders of a majority of the Series B Preferred Stock then
outstanding) to insure that the provisions of this Section 8 shall thereafter be
applicable to the Series B Preferred Stock (including, in the case of any such
consolidation, merger or sale in which the successor entity or purchasing entity
is other than the Corporation an immediate adjustment of the Conversion Price
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to the value for the Common Stock reflected by the terms of such consolidation,
merger or sale, and a corresponding immediate adjustment in the number of shares
of Common Stock acquirable and receivable upon conversion of Series B Preferred
Stock, if the value so reflected is less than the Conversion Price in effect
immediately prior to such consolidation, merger or sale). The Corporation shall
not effect any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor entity (if other than the Corporation)
resulting from consolidation or merger or the entity purchasing such assets
assumes by written instrument (in form and substance reasonably satisfactory to
the holders of a majority of the Series B Preferred Stock then outstanding), the
obligation to deliver to each such holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to acquire.
(d) Certain Events. If any event occurs of the type contemplated by
the provisions of this Section 8 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 make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of Series B
Preferred Stock; provided that no such adjustment shall increase the Conversion
Price as otherwise determined pursuant to this Section 8 or decrease the number
of shares of Common Stock issuable upon conversion of each share of Series B
Preferred Stock.
(e) Notices.
(i) Promptly after any adjustment of the Conversion
Price, the Corporation shall give written notice thereof to
all holders of Series B Preferred Stock, setting forth in
reasonable detail and certifying the calculation of such
adjustment.
(ii) The Corporation shall give written notice to all
holders of Series B Preferred Stock at least twenty (20) 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 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 Organic Change,
dissolution or liquidation.
(iii) The Corporation shall also give written notice to
the holders of Series B Preferred Stock at least twenty (20)
days prior to the date on which any Organic Change shall take
place.
Section 9. Series B Preferred Stock Not Redeemable at Option of
Holders or Exchangeable; No Sinking Fund. The Series B Preferred Stock shall not
be redeemable upon the request of holders thereof or exchangeable for other
capital stock (except for Common Stock upon conversion as provided herein) or
indebtedness of the Corporation or other property. The Series B Preferred Stock
shall not be subject to the operation of a purchase, retirement or sinking fund.
Section 10. No Voting Rights. The holders of Series B Preferred
Stock shall not have voting rights except as specifically provided in this
Certificate of Designation or as otherwise required by law.
Section 11. Outstanding Shares. For purposes of this Certificate of
Designation, all shares of Series B Preferred Stock shall be deemed outstanding
except for (a) shares of Series B Preferred Stock held of record or beneficially
by the Corporation or any subsidiary of the Corporation; (b) from the date of
surrender of certificates representing Series B Preferred Stock for conversion
pursuant to Section 7, all shares of Series B Preferred Stock which have been
converted into Common Stock or other securities or property pursuant to Section
7; and (c) from the date fixed for redemption pursuant to Section 6, all shares
of Series B Preferred Stock which have been called for
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redemption, provided that funds necessary for such redemption are available
therefor and have been irrevocably deposited or set aside for such purpose.
Section 12. Status of Series B Preferred Stock Upon Retirement.
Shares of Series B Preferred Stock which are acquired or redeemed by the
Corporation or converted pursuant to Section 7 shall return to the status of
authorized and unissued shares of Preferred Stock of the Corporation without
designation as to series. Upon the acquisition or redemption by the Corporation
or conversion pursuant to Section 7 of all outstanding shares of Series B
Preferred stock, all provisions of this Certificate of Designation shall cease
to be of further effect. Upon the occurrence of such event, the Board of
Directors of the Corporation shall have the power, pursuant to Minnesota
Statutes, Section 302A.135, Subd. 5 or any successor provision and without
shareholder action, to cause restated articles of incorporation of the
Corporation or other appropriate documents to be prepared and filed with the
Secretary of State of the State of Minnesota which reflect such removal of all
provisions relating to the Series B Preferred Stock and/or the cancellation of
this Certificate of Designations.
ARTICLE II
SERIES C CONVERTIBLE PREFERRED STOCK
Unless otherwise indicated, all capitalized terms used in this Article II
shall have the meanings assigned to such terms in Article I of this Certificate
of Designation.
Section 1. Designation; Number of Shares. The shares of such series shall
be designated as "Series C Convertible Preferred Stock" (the "Series C Preferred
Stock"), and the number of authorized shares constituting the Series C Preferred
Stock shall be 4,000.
Section 2. Par Value; No Preemptive Rights. The Series C Preferred Stock
shall have a par value of $0.01 per share. As provided in Article V of the
Corporation's Articles of Incorporation, holders of Series C Preferred Stock
shall not be entitled to any preemptive rights to acquire shares of any class or
series of capital stock of the Corporation.
Section 3. Rank. The Series C Preferred Stock shall rank prior to all of
the Corporation's Common Stock, the Series D Preferred Stock and all other
classes of preferred stock, except that the Series C Preferred Stock shall rank
pari passu with the Corporation's Series B Preferred Stock and is subordinated
to the Corporation's Senior Convertible Preferred Stock, now outstanding or
hereafter issued, both as to payment of dividends and as to distributions of
assets upon the liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, unless otherwise agreed upon in writing by the
holders of a majority of the outstanding shares of Series C Preferred Stock.
Section 4. Dividends and Distributions.
(a) Holders of the Series C Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors, cumulative dividends at
the rate, in the form, at the times and in the manner set forth in this Section
4. Such dividends shall accrue on any given share from the day of issuance of
such share and shall accrue from day to day whether or not earned or declared.
(b) The dividend rate on the Series C Preferred Stock shall be
$75.00 per annum per share; provided that (i) in the event that at any time
during any 730-day period individuals who constituted the Board of Directors at
the beginning of such period, or the first date on which shares of Series C
Preferred Stock are issued (the "Series C Issuance Date")(whichever is later),
cease for any reason to constitute a majority of the Board of Directors then in
office or (ii) the Board of Directors fails to declare and pay in full, on any
Dividend Payment Date, all dividends accrued since the last Dividend Payment
Date (or with respect to the first Dividend Payment Date, since the date of
issuance), the dividend rate on the Series C Preferred Stock shall be increased
to $200 per annum per share unless
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holders of a majority of the then outstanding shares of Series C Preferred Stock
agree to waive such increase. Any change of the dividend rate in accordance with
this Section 4(b) shall be deemed to occur on the date upon which the event in
question occurs. In the event the dividend rate is adjusted in accordance with
this Section 4(b), the Corporation shall pay such dividends in cash.
(c) Dividends shall be payable in arrears, on each Dividend Payment
Date, except that if any such date is a Saturday, Sunday or legal holiday then
such dividend shall be payable on the first immediately succeeding calendar day
which is not a Saturday, Sunday or legal holiday. Dividends shall accrue on each
share of Series C Preferred Stock from the date of issuance of such shares and,
after payment of a dividend as required hereunder, from and after each Dividend
Payment Date based on the number of days elapsed and a 365-day year; provided
that to the extent that a dividend is not paid in cash or stock on any Dividend
Payment Date as provided in paragraph (d) below such unpaid amount shall in turn
accrue dividends at the rate specified herein until paid as provided herein. The
dividend payable on the first Dividend Payment Date with respect to any shares
of Series C Preferred Stock shall be the pro rata portion of the dividend rate
based upon the number of days from and including the date of issuance, up to and
including such first Dividend Payment Date and a 365-day year. Each dividend
shall be paid to the holders of record of shares of Series C Preferred Stock as
they appear on the books of the Corporation on such record date, not more than
sixty (60) days nor fewer than ten (10) days preceding the respective Dividend
Payment Date, as shall be fixed by the Board of Directors.
(d) Any dividend payment made with respect to the Series C Preferred
Stock, may be made, at the sole discretion of the Board of Directors, in cash
out of funds legally available for such purpose or by issuing the number of
shares of Series C Preferred Stock equal to the amount of the dividend divided
by $1,000 (the "Series C Dividend Conversion Price"); provided, that no
fractional shares shall be issued. Any such dividend payment may be made, in the
sole discretion of the Board of Directors, partially in cash and partially in
shares of Series C Preferred Stock determined in accordance with the preceding
formula; provided, that in the event that any such dividend payment is made
partially in cash and partially in shares of Series C Preferred Stock, each
holder of Series C Preferred Stock shall receive a ratable amount of cash and
Series C Preferred Stock that is proportionate to the amount of Series C
Preferred Stock held by such holder on which such dividend is paid. If any
fractional interest in a share of Series C Preferred Stock would be delivered
upon any payment of dividends pursuant to this Section 4, the Corporation, in
lieu of delivering the fractional share of Series C Preferred Stock shall pay an
amount to the holder thereof equal to such fraction multiplied by the Series C
Dividend Conversion Price. All shares of Series C Preferred Stock issued as a
dividend shall be fully paid and nonassessable.
(e) No dividends or other distributions (other than dividends
payable in Junior Dividend Stock) shall be paid or set apart for payment on, and
no purchase, redemption or other acquisition shall be made by the Corporation,
or any of its subsidiaries, of, any shares of Junior Dividend Stock; provided
that dividends or other distributions may be paid or set apart for payment on
any shares of Junior Dividend Stock at such time as less than 20% of the Initial
Series C Shares (as defined in Section 7(b)) remain outstanding.
Any reference to "distribution" contained in this Section 4 shall
not be deemed to include any distribution made in connection with a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
Section 5. Liquidation Preference. In the event of a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of Series C Preferred Stock shall be entitled to receive out of the
assets of the Corporation an amount equal to the dividends accumulated and
unpaid thereon to the date of final distribution to such holders, whether or not
declared, without interest, plus a sum equal to $1,000 per share, and no more,
before any payment shall be made or any assets distributed to the holders of any
Junior Liquidation Stock. The assets of the Corporation available for
distribution to the holders of the Series C Preferred Stock shall be distributed
ratably among the holders of the Series C Preferred Stock. After payment in full
of the liquidation preference of the
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shares of the Series C Preferred Stock, the holders of such shares shall not be
entitled to any further participation in any distribution of assets by the
Corporation. Neither a consolidation or merger of the Corporation with another
corporation nor a sale or transfer of all or part of the Corporation's assets
for cash, securities or other property will be deemed a liquidation, dissolution
or winding up of the Corporation for purposes of this Section 5.
Section 6. Ten Year Conversion or Redemption.
(a) On the Anniversary Date of the Series C Issuance Date(as defined
in Section 4(b)), the Corporation, at its election, shall either require the
conversion of all then issued and outstanding shares of Series C Preferred Stock
into fully paid and nonassessable shares of Series D Preferred Stock at the
Series C Conversion Price(defined in Section 7(a)) (the "Series C Anniversary
Conversion") or redeem the then issued and outstanding shares of Series C
Preferred Stock (the "Series C Redemption") as provided below.
(b) If the Corporation elects the Series C Anniversary Conversion,
the Corporation shall pay a conversion fee equal to $820,000 (the "Series C
Conversion Fee"), subject to adjustment, on a pro rata basis to the holders of
the then issued and outstanding shares of Series C Preferred Stock. The
Corporation shall pay the Series C Conversion Fee, at the election of the Board
of Directors, in (i) cash or (ii) a number of shares of Common Stock equal to
the Series C Conversion Fee divided by the average last sale price of the Common
Stock for the five (5) trading days immediately preceding the Anniversary Date;
provided, however, that the Corporation shall pay the Series C Conversion Fee in
cash to the extent that the issuance of stock would require shareholder approval
pursuant to Section 4460(i) of the Rules of the NASDAQ Stock Market or any
successor rule thereto and such approval has not been obtained. In the event
that the number of shares of Series C Preferred Stock issued and outstanding as
of the Anniversary Date is less than the number of Initial Series C Shares (as
defined in Section 7(b) below), then the Series C Conversion Fee will be
adjusted downward to equal the product of (a) $820,000 and (b) the quotient of
the number of shares of Series C Preferred Stock issued and outstanding as of
the Anniversary Date divided by the Initial Series C Shares (as adjusted for any
stock split, stock dividend, recapitalization or otherwise). On or after the
Anniversary Date, each holder of Series C Preferred Stock shall surrender the
certificate or certificates evidencing such shares to the Corporation and the
Corporation shall deliver to such holder (i) a certificate or certificates
representing the number of shares of Series D Preferred Stock equal to the
number of shares of Series C Preferred Stock to be converted multiplied by
$1,000 divided by the Series C Conversion Price set forth in the notice to the
holder, (ii) the holder's pro rata portion of the Series C Conversion Fee and
(iii) accrued and unpaid dividends in cash or a number of shares of Series D
Preferred Stock equal to the dividend amount divided by the Series C Conversion
Price. In addition, the following provisions of Section 7 shall be applicable to
the Series C Anniversary Conversion: the second sentence of the second paragraph
of Section 7(a), third paragraph of Section 7(b), Section 7(d) and Section 7(e).
(c) In the event the Corporation elects a Series C Redemption, the
Corporation shall redeem for cash on the Anniversary Date all issued and
outstanding shares of Series C Preferred Stock at a price per share equal to
$1,000 plus all accrued and unpaid dividends on such share to the Anniversary
Date (such sum being hereinafter referred to as the "Series C Redemption
Price"). On or after the Anniversary Date, each holder of Series C Preferred
Stock shall surrender the certificate or certificates evidencing such shares to
the Corporation at the place designated in the notice to the holder and shall
thereupon be entitled to receive payment of the Series C Redemption Price. If,
on the Anniversary Date, funds necessary for the Series C Redemption shall be
available therefor and shall have been irrevocably deposited or set aside, then,
notwithstanding that the certificates evidencing any shares so called for
redemption shall not have been surrendered, on the Anniversary Date, the
dividends with respect to the shares so called shall cease to accrue, such
shares shall no longer be deemed outstanding, the holders thereof shall cease to
be shareholders and all rights whatsoever with respect to such shares (except
the right of the holders thereof to receive the Series C Redemption Price upon
surrender of their certificates) shall terminate.
(d) No more than sixty (60) nor less than twenty (20) days prior to
the Anniversary Date, the Corporation shall deliver notice, by first class mail,
postage prepaid, to each holder of record of the Series C Preferred
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Stock, addressed to such shareholder at its last address as shown on the stock
books of the Corporation. Such notice shall state whether the Corporation has
elected to effect the Series C Anniversary Conversion or the Series C
Redemption. If the Corporation fails to give notice as provided above, the
Corporation shall be deemed to have elected the Series C Redemption. In the
event of the Series C Anniversary Conversion, the notice shall also state that
the Anniversary Date is the date fixed for conversion, the then-effective Series
C Conversion Price, whether the Series C Conversion Fee will be paid in cash or
shares of Series D Preferred Stock and the holder's pro rata portion of such,
whether the accumulated and unpaid dividends to the Anniversary Date will be
paid in cash or shares of Series D Preferred Stock and that on and after the
Anniversary Date, dividends will cease to accumulate on such shares of Series C
Preferred Stock; provided that there is no default in the payment of the Series
C Conversion Fee. In the event of the Series C Redemption, the notice shall also
state that the Anniversary Date is the date fixed for redemption, the Series C
Redemption Price, the place or places of payment, that the right of holders of
Series C Preferred Stock to exercise their conversion rights in accordance with
Section 7 shall expire at the close of business on the Anniversary Date
(provided that there is no default in payment of the Series C Redemption Price)
and that payment of the Series C Redemption Price will be made upon presentation
and surrender of certificates representing the Series C Preferred Stock to the
Corporation or its agent as provided in the notice
Section 7. Conversion.
(a) Holders of Series C Preferred Stock may, at their option upon
surrender of the certificates therefor, convert any or all of their shares of
Series C Preferred Stock into fully paid and nonassessable shares of Series D
Preferred Stock (and such other securities and property as they may be entitled
to, as hereinafter provided) at any time after issuance thereof; provided, that
such conversion right shall expire at the close of business on the date, if any,
fixed for the redemption of Series C Preferred Stock in any notice of redemption
given pursuant to Section 6 hereof if there is no default in payment of the
Redemption Price. Each share of Series C Preferred Stock shall be convertible at
the office of any transfer agent for the Series C Preferred Stock, and at such
other office or offices, if any, as the Board of Directors may designate, into
that number of fully paid and nonassessable shares of Series D Preferred Stock
(calculated as to each conversion to the nearest whole share) as shall be equal
to $1,000 divided by the Series C Conversion Price (as defined below) in effect
at the time of conversion. The initial conversion price will be $6.50, subject
to adjustment from time to time as provided in Section 8 (such conversion rate,
as so adjusted from time to time, being referred to herein as the "Series C
Conversion Price").
The right of holders of Series C Preferred Stock to convert their
shares shall be exercised by surrendering for such purpose to the Corporation or
its agent, as provided above, certificates representing shares to be converted,
duly endorsed in blank or accompanied by proper instruments of transfer. The
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of Series D Preferred Stock
or other securities or property upon conversion of Series C Preferred Stock in a
name other than that of the holder of the shares of Series C Preferred Stock
being converted, nor shall the Corporation be required to issue or deliver any
such shares or other securities or property unless and until the person or
persons requesting the issuance thereof shall have paid to the Corporation the
amount of any such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid.
(b) In the event the Corporation's Common Stock trades above $40 per
share for ninety (90) consecutive trading days and the average daily reported
volume in trading for the Common Stock on all national securities exchanges
and/or reported through the automated quotation system of a registered
securities association for any twenty (20) consecutive trading days during such
90-day period exceeds 10% of the number of shares of Series D Preferred Stock
into which the shares of Series C Preferred Stock could be converted (the
"Initial Series C Shares"), adjusted to eliminate the effect of any reporting of
both the buy and sell side of any trade, the Corporation may, by notice to the
holders thereof, within thirty (30) days after such 90-day period, elect to
require the conversion of all the shares of Series C Preferred Stock then
outstanding into fully paid and nonassessable shares of Series D Preferred Stock
at the applicable Series C Conversion Price.
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Such notice shall be delivered by first class mail, postage prepaid,
shall be given to the holders of record of the Series C Preferred Stock to be
converted, addressed to such shareholders at their last addresses as shown on
the stock books of the Corporation. Each such notice of conversion shall specify
the date fixed for conversion; the then-effective Series C Conversion Price;
that accumulated but unpaid dividends to the date fixed for conversion will be
paid, at the election of the Board of Directors, in cash or in a number of
shares of Series C Preferred Stock equal to the dividend amount divided by
$1,000; and that on and after the conversion date, dividends will cease to
accumulate on such shares.
Any notice which is mailed as herein provided shall be conclusively
presumed to have been duly given, whether or not a holder of the Series C
Preferred Stock receives such notice; and failure so to give such notice, or any
defect in such notice, to the holders of any shares designated for conversion
shall not affect the validity of the proceedings for the conversion of any other
shares of Series C Preferred Stock.
(c) A number of shares of the authorized but unissued Series D
Preferred Stock sufficient to provide for the conversion of the Series C
Preferred Stock outstanding upon the basis hereinbefore provided shall at all
times be reserved by the Corporation, free from preemptive rights, for such
conversion, subject to the provisions of the next paragraph. If the Corporation
shall issue any securities or make any change in its capital structure which
would change the number of shares of Series D Preferred Stock into which each
share of the Series C Preferred Stock shall be convertible as herein provided,
the Corporation shall at the same time also make proper provision so that
thereafter there shall be a sufficient number of shares of Series D Preferred
Stock authorized and reserved, free from preemptive rights, for conversion of
the outstanding Series C Preferred Stock on the new basis. The Corporation shall
comply with all securities laws regulating the offer and delivery of shares of
Series D Preferred Stock upon conversion of the Series C Preferred Stock and
shall use its best efforts to list such shares on each national securities
exchange on which the Series D Preferred Stock may be listed or to have such
shares admitted for quotation on the NASDAQ National Market System if the Series
D Preferred Stock is admitted for quotation thereon.
(d) Upon the surrender of certificates representing shares of Series
C Preferred Stock to be converted, duly endorsed or accompanied by proper
instruments of transfer as provided above, the person converting such shares
shall be deemed to be the holder of record of the Series D Preferred Stock
issuable upon such conversion, and all rights with respect to the shares
surrendered shall forthwith terminate except the right to receive the Series D
Preferred Stock or other securities, cash or other assets as herein provided.
(e) No fractional shares of Series D Preferred Stock shall be issued
upon conversion of Series C Preferred Stock but, in lieu of any fraction of a
share of Series D Preferred Stock which would otherwise be issuable in respect
of the aggregate number of such shares surrendered for conversion at one time by
the same holder, the Corporation shall pay in cash an amount equal to the
product of (a) the Closing Price of a share of Common Stock (as defined in the
next sentence) on the last trading day before the conversion date and (b) such
fraction of a share. The "Closing Price" for each day shall be the last reported
sale price or, in case no sale takes place on such day, the average of the
closing bid and asked price on such day, in either case as reported on the New
York Stock Exchange Composite Tape, or, if the Common Stock is not listed or
admitted to trading on such Exchange, on the principal national securities
exchange on which the Common Stock is listed or admitted to trading, or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange, on the NASDAQ National Market System, or, if the Common Stock is not
admitted for quotation on the NASDAQ National Market System, the average of the
high bid and low asked prices on such day as recorded by the National
Association of Securities Dealers, Inc. through NASDAQ, or, if the National
Association of Securities Dealers, Inc. through NASDAQ shall not have reported
any bid and asked prices for the Common Stock on such day, the average of the
bid and asked prices for such day as furnished by any New York Stock Exchange
member firm selected from time to time by the Corporation for such purpose, or,
if no such bid and asked prices can be obtained from any such firm, the fair
market value of one share of the Common Stock on such day as determined in good
faith by the Board of Directors of the Corporation.
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Section 8. Adjustments to Series C Conversion Price. Notwithstanding
anything in this Section 8 to the contrary, no change in the Series C Conversion
Price shall be made until the cumulative effect of the adjustments called for by
this Section 8 since the date of the last change in the Series C Conversion
Price would change the Series C Conversion Price by more than 1%. However, once
the cumulative effect would result in such a change, then the Series C
Conversion Price shall be changed to reflect all adjustments called for by this
Section 8 and not previously made. Additionally, there shall be no adjustment in
the Series C Conversion Price as a result of any Permitted Issuance. Subject to
the foregoing, the Series C Conversion Price shall be adjusted from time to
pursuant to Section 8(a).
(a) If and whenever, on or after the Series C Issuance Date, the
Corporation issues or sells, or in accordance with this Section 8(a) is deemed
to have issued or sold, any shares of its Common Stock for consideration per
share less than the Series C Conversion Price in effect immediately prior to the
time of such issue or sale, then, unless such issuance or sale was a Permitted
Issuance, immediately upon such issue or sale or deemed issue or sale the Series
C Conversion Price shall be reduced to an amount equal to the price per share at
which such Common Stock was sold or at which such shares of Common Stock are
issuable upon the exercise of such rights or warrants.
(i) For purposes of this Section 8(a), the following
definitions apply:
(A) "deemed to have issued or sold" shall mean the
issuance, grant or sale of Common Stock of the Company or
securities which are directly or indirectly exercisable or
convertible into shares of Common Stock, or warrants or
options for the purchase, directly or indirectly, thereof,
other than Permitted Issuances.
(B) "consideration per share" for which Common Stock is
issued or issuable shall mean (1) with respect to the
issuance, grant or sale of options or warrants to purchase
shares of Common Stock, an amount determined by dividing (i)
the total amount, if any, received or receivable by the
Corporation as consideration for the granting or sale of such
options or warrants, plus the minimum aggregate amount of
additional consideration payable to the Corporation upon
exercise of all such options and warrants, 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 (ii) the total maximum number of shares of Common Stock
issuable upon the exercise of such options and warrants or
upon the conversion or exchange of all such convertible
securities issuable upon the exercise of such options, and (2)
with respect to the issuance, grant or sale of Common Stock of
the Company or securities directly or indirectly exercisable
or convertible into shares of Common Stock, an amount
determined by dividing (i) the total amount received or
receivable by the Corporation as consideration for the issue
or sale of such convertible securities, plus the minimum
aggregate amount of additional consideration, if any, payable
to the Corporation upon the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such
convertible securities.
(ii) Change in Option Price or Conversion Rate. If the
purchase price provided for in any options, the additional
consideration, if any, payable upon the conversion or exchange of
any convertible securities or the rate at which any convertible
securities are convertible into or exchangeable for Common Stock
changes at any time, the Series C Conversion Price in effect at the
time of such change shall be immediately adjusted to the Series C
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
conversion rate, as the case may be, at the time initially granted,
issued or sold; provided that in no event shall the Series C
Conversion Price
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be adjusted to a price higher than the Series C Conversion Price in
effect prior to any actions described in this Section 8(a)(ii). For
purposes of this Section 8(a)(ii) if the terms of any option or
convertible security which was outstanding as of the Series C
Issuance Date are changed in the manner described in the immediately
preceding sentence, then such option or convertible security and the
Common Stock deemed issuable upon exercise, conversion or exchange
thereof shall be deemed to have been issued as of the date of such
change and no such change shall cause the Series C Conversion Price
hereunder to be increased.
(iii) Calculation of Consideration Received. If any Common
Stock, option or convertible security is issued or sold or deemed to
have been issued or sold for cash, the consideration received
therefor shall be deemed to be the amount received by the
Corporation therefor (net of discounts, commissions and related
expenses). If any Common Stock, option or convertible security is
issued or sold for a consideration other than cash, the amount of
the consideration other than cash received by the Corporation shall
be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of
consideration received by the Corporation shall be the fair market
price (calculated to be the average Closing Price for the twenty
(20) trading days immediately prior to the date of sale of the
securities described in the first sentence of this Section
8(a)(iii)) thereof as of the date of receipt. If any Common Stock,
option or convertible security is issued to the owners of the
non-surviving entity in connection with any merger in which the
Corporation is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity
as is attributable to such Common Stock, option or convertible
security, as the case may be. The fair value of any consideration
other than cash and securities shall be determined jointly by the
Corporation and the holders of a majority of the outstanding Series
C Preferred Stock. If such parties are unable to reach agreement
within a reasonable period of time, the fair value of such
consideration shall be determined by an independent appraiser
experienced in valuing such type of consideration jointly selected
by the Corporation and the holders of a majority of the outstanding
Series C Preferred Stock. The determination of such appraiser shall
be final and binding upon the parties, and the fees and expenses of
such appraiser shall be borne by the Corporation.
(b) Subdivision or Combination of Common Stock. If the Corporation
at any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of outstanding shares of Series D Preferred Stock
into a greater number of shares, the Series C Conversion Price in effect
immediately prior to such subdivision, or any applicable record date shall be
proportionally reduced, and if the Corporation at any time combines (by reverse
stock split or otherwise) one or more classes of its outstanding shares of
Series D Preferred Stock into a smaller number of shares, the Series C
Conversion Price in effect immediately prior to such combination or any
applicable record date shall be proportionately increased.
(c) Reorganization, Reclassification, Consolidation, Merger or Sale.
Any recapitalization, reclassification, consolidation, merger, sale of all or
substantially all of the Corporation's assets or other transaction, in each case
which is effected in such a manner that the holders of Series D Preferred Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Series D Preferred
Stock, is referred to herein as an "Organic Change." Prior to the consummation
of any Organic Change, the Corporation shall make appropriate provisions (in
form and substance satisfactory to the holders of a majority of the Series C
Preferred Stock then outstanding) to insure that each of the holders of Series C
Preferred Stock shall thereafter have the right to acquire and receive, in lieu
of or in addition to (as the case may be) the shares of Series D Preferred Stock
immediately theretofore acquirable and receivable upon the conversion of such
holder's Series C Preferred Stock, such shares of stock, securities or assets as
such holder would have received in connection with such Organic Change if such
holder had converted its Series C Preferred Stock immediately prior to such
Organic Change, or any applicable record date thereon. In each such case, the
Corporation shall also make appropriate provisions (in form and substance
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satisfactory to the holders of a majority of the Series C Preferred Stock then
outstanding) to insure that the provisions of this Section 8 shall thereafter be
applicable to the Series C Preferred Stock (including, in the case of any such
consolidation, merger or sale in which the successor entity or purchasing entity
is other than the Corporation an immediate adjustment of the Series C Conversion
Price to the value for the Series D Preferred Stock reflected by the terms of
such consolidation, merger or sale, and a corresponding immediate adjustment in
the number of shares of Series D Preferred Stock acquirable and receivable upon
conversion of Series C Preferred Stock, if the value so reflected is less than
the Series C Conversion Price in effect immediately prior to such consolidation,
merger or sale). The Corporation shall not effect any such consolidation, merger
or sale, unless prior to the consummation thereof, the successor entity (if
other than the Corporation) resulting from consolidation or merger or the entity
purchasing such assets assumes by written instrument (in form and substance
reasonably satisfactory to the holders of a majority of the Series C Preferred
Stock then outstanding), the obligation to deliver to each such holder such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
(d) Certain Events. If any event occurs of the type contemplated by
the provisions of this Section 8 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 make an appropriate adjustment in the
Series C Conversion Price so as to protect the rights of the holders of Series C
Preferred Stock; provided that no such adjustment shall increase the Series C
Conversion Price as otherwise determined pursuant to this Section 8 or decrease
the number of shares of Series D Preferred Stock issuable upon conversion of
each share of Series C Preferred Stock.
(e) Notices.
(i) Promptly after any adjustment of the Series C
Conversion Price, the Corporation shall give written notice
thereof to all holders of Series C Preferred Stock, setting
forth in reasonable detail and certifying the calculation of
such adjustment.
(ii) The Corporation shall give written notice to all
holders of Series C Preferred Stock at least twenty (20) 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 Series D Preferred Stock, (b) with respect
to any pro rata subscription offer to holders of Series D
Preferred Stock or (c) for determining rights to vote with
respect to any Organic Change, dissolution or liquidation.
(iii) The Corporation shall also give written notice to
the holders of Series C Preferred Stock at least twenty (20)
days prior to the date on which any Organic Change shall take
place.
Section 9. Series C Preferred Stock Not Redeemable at Option of
Holders or Exchangeable; No Sinking Fund. The Series C Preferred Stock shall not
be redeemable upon the request of holders thereof or exchangeable for other
capital stock (except for Series D Preferred Stock upon conversion as provided
herein) or indebtedness of the Corporation or other property. The Series C
Preferred Stock shall not be subject to the operation of a purchase, retirement
or sinking fund.
Section 10. No Voting Rights. The holders of Series C Preferred
Stock shall not have voting rights except as specifically provided in this
Certificate of Designation or as otherwise required by law.
Section 11. Outstanding Shares. For purposes of this Certificate of
Designation, all shares of Series C Preferred Stock shall be deemed outstanding
except for (a) shares of Series C Preferred Stock held of record or beneficially
by the Corporation or any subsidiary of the Corporation; (b) from the date of
surrender of certificates
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representing Series C Preferred Stock for conversion pursuant to Section 7, all
shares of Series C Preferred Stock which have been converted into Series D
Preferred Stock or other securities or property pursuant to Section 7; and (c)
from the date fixed for redemption pursuant to Section 6, all shares of Series C
Preferred Stock which have been called for redemption, provided that funds
necessary for such redemption are available therefor and have been irrevocably
deposited or set aside for such purpose.
Section 12. Status of Series C Preferred Stock Upon Retirement.
Shares of Series C Preferred Stock which are acquired or redeemed by the
Corporation or converted pursuant to Section 7 shall return to the status of
authorized and unissued shares of Preferred Stock of the Corporation without
designation as to series. Upon the acquisition or redemption by the Corporation
or conversion pursuant to Section 7 of all outstanding shares of Series C
Preferred stock, all provisions of this Certificate of Designation shall cease
to be of further effect. Upon the occurrence of such event, the Board of
Directors of the Corporation shall have the power, pursuant to Minnesota
Statutes, Section 302A.135, Subd. 5 or any successor provision and without
shareholder action, to cause restated articles of incorporation of the
Corporation or other appropriate documents to be prepared and filed with the
Secretary of State of the State of Minnesota which reflect such removal of all
provisions relating to the Series C Preferred Stock and/or the cancellation of
this Certificate of Designations.
ARTICLE III
SERIES D NON-VOTING PREFERRED STOCK
Unless otherwise indicated, all capitalized terms used in this Article III
shall have the meanings assigned to such terms in Article I of this Certificate
of Designation.
Section 1. Designation; Number of Shares. The shares of such series shall
be designated as "Series D Non-Voting Preferred Stock" (the "Series D Preferred
Stock"), and the number of authorized shares constituting the Series D Preferred
Stock shall be 1,500,000.
Section 2. Par Value; No Preemptive Rights. The Series D Preferred Stock
shall have a par value of $0.01 per share. As provided in Article V of the
Corporation's Articles of Incorporation, holders of Series D Preferred Stock
shall not be entitled to any preemptive rights to acquire shares of any class or
series of capital stock of the Corporation.
Section 3. Rank. The Series D Preferred Stock shall rank on an equal basis
with all of the Corporation's Common Stock, and shall be fully subordinated to
all other classes of the Corporation's preferred stock, both as to payment of
dividends and as to distributions of assets upon the liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary.
Section 4. No Voting Rights; Other Rights, Preferences and Privileges. The
Series D Preferred Stock shall not have voting rights. Except as provided in the
preceding sentence, each share of Series D Preferred Stock shall have all of the
same rights, preferences and privileges as each share of the Corporation's
Common Stock as set forth in the Corporation's Articles of Incorporation. If the
Corporation at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) or combines (by reverse stock split or otherwise)
one or more classes of outstanding shares of the Corporation's Common Stock into
a greater or lesser number of shares, the Corporation shall also subdivide or
combine, as applicable, the outstanding shares of the Series D Preferred Stock.
Any recapitalization, reclassification, consolidation, merger, sale of all or
substantially all of the Corporation's assets or other transaction, in each case
which is effected in such a manner that the holders of the Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock, is
referred to as an "Common Organic Change". Prior to the consummation of any
Common Organic Change, the Corporation shall make appropriate provisions (in
form and substance satisfactory to the holders of a majority of the Series D
Preferred Stock then outstanding) to insure that each of the holders of the
Series D Preferred Stock shall thereafter have the right
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to acquire and receive, in lieu of or in addition to (as the case may be) the
shares of Common Stock immediately theretofore acquirable or receivable by a
Permitted Investor (as defined in Section 5 hereof) upon the conversion of such
holder's Series D Preferred Stock, such shares of stock, securities or assets as
such holder would have received in connection with such Common Organic Change if
such holder had converted its Series D Preferred Stock immediately prior to such
Common Organic Change, or applicable record date thereon. The Corporation shall
not effect any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor entity (if other than the Corporation)
resulting from the consolidation or merger or the entity purchasing such assets
assumes by written instrument (in form and substance satisfactory to the holders
of a majority of the Series D Preferred Stock then outstanding), the obligation
to deliver to each such holder such shares of stock, securities or assets, in
accordance with the foregoing provisions, such holder may be entitled to
acquire.
Section 5. Conversion and Reconversion.
(a) Upon the transfer of any shares of Series D Preferred Stock to a
Permitted Investor (as defined below), the shares of Series D Preferred Stock so
transferred shall automatically be converted into shares of the Corporation's
Common Stock, and any warrant or option to purchase shares of Series D Preferred
Stock so transferred shall automatically be converted into a warrant or option
to purchase shares of the Corporation's Common Stock (each a "Transfer
Conversion") without any action on the part of the transferor or Permitted
Investor. The conversion rate applicable to a Transfer Conversion shall be one
share of Common Stock for each share of Series D Preferred Stock so transferred.
(i) For purposes of this Section 5, the term "Permitted
Investor" means a Person that is not (a) the Beneficial Owner,
directly or indirectly, of ten percent (10%) or more of the
Corporation's outstanding capital stock or other securities entitled
to vote, or has or shares the power to dispose of, or direct the
disposition of, such capital stock or securities, (b) a Person that
directly or indirectly controls, is controlled by, or is under
common control with, the Corporation (an "Affiliate"), or (c) any
corporation or organization of which the Corporation is an officer
or partner, is the Beneficial Owner, directly or indirectly, of ten
percent (10%) or more of the Corporation's outstanding capital stock
or other securities entitled to vote (an "Associate").
(ii) A Person shall not be considered a Beneficial Owner for
purposes of this Section 5 if such Person was not a Beneficial Owner
of ten percent (10%) or more of the Corporation's outstanding
capital stock or other securities entitled to vote, or has or shares
the power to dispose of, or direct the disposition of, such capital
stock or securities immediately prior to a repurchase of shares,
recapitalization of the Corporation or similar action and became a
Beneficial Owner as defined in Section 5(a)(iii) solely as a result
of such share repurchase, recapitalization or similar action unless,
(i) the repurchase, recapitalization, conversion, or similar action
was proposed by or on behalf of, or pursuant to, any agreement,
arrangement, relationship, understanding, or otherwise (whether or
not in writing) with, the Person or is an Affiliate or Associate of
the Person, or (ii) the Person thereafter acquires a beneficial
ownership, directly or indirectly, of the Corporation's outstanding
shares entitled to vote and, immediately after such acquisition, is
the Beneficial Owner, directly or indirectly, of ten percent (10%)
or more of the Corporation's outstanding capital stock or other
shares entitled to vote.
(iii) "Beneficial Owner"for purposes of this Section 5 means a
Person who, directly or indirectly through any written or oral
agreement, arrangement, relationship, understanding, or otherwise,
has or shares the power to vote, or direct the voting of, shares or
securities of the Corporation entitled to vote, or has or shares the
power to dispose of, or direct the disposition of, such shares of
securities; provided, that a Person shall not be deemed the
beneficial owner of shares or securities of the Corporation (a)
tendered pursuant to a tender offer or exchange offer made by the
Person or any of such Person's Affiliates or Associates until the
tendered shares or securities are
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accepted for purchase or exchange, (b) if such beneficial ownership
arises solely from a revocable proxy given in response to a proxy
solicitation required to be made and made in accordance with the
applicable rules and regulations under the Securities Exchange Act
of 1934, as amended (the "Securities Exchange Act"), and is not then
reportable under the Securities Exchange Act, or, if the Company is
not subject to the Securities Exchange Act, would have been required
to be made and would not have been reportable even if the Company
had been subject to the Securities and Exchange Act.
(iv) "Affiliate" shall have the meaning assigned to that term
in Section 5(a)(i) hereof.
(v) "Associate" shall have the meaning assigned to that term
in Section 5(a)(i) hereof.
(vi) "Person" means any individual, partnership, limited
liability company, association, corporation, estate,
trust or other entity.
(b) In the event shares of Series D Preferred Stock transferred to a
Permitted Investor and converted into shares of Common Stock in a Transfer
Conversion are re-acquired, in whole or in part prior to July 23, 2002, by a
person who is not a Permitted Investor, the shares of Common Stock into which
the shares of Series D Preferred Stock were converted upon a Transfer Conversion
shall automatically be converted into shares of Series D Preferred Stock at a
conversion rate of one share of Series D Preferred Stock for each share of
Common Stock.
6. Series D Preferred Stock is Convertible Security. Shares of Series D
Preferred Stock constitute "convertible securities" under Section 8 of the
Certificate of Designation relating to the Senior Convertible Preferred Stock.
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IN WITNESS WHEREOF, Orphan Medical, Inc. has caused this certificate to be
signed by John Howell Bullion, its Chief Executive Officer, this 2nd day of
August, 1999.
ORPHAN MEDICAL, INC.
By: /s/ John Howell Bullion
-----------------------
John Howell Bullion
Chief Executive Officer
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