U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended September 30, 1997
-------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________ to ________________
Commission file number 0-26534
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VION PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-3671221
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4 Science Park, New Haven, CT 06511
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(Address of Principal Executive Offices)
(203) 498-4210
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(Issuer's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--------- ---------
The number of shares outstanding of the issuer's sole class of common
equity, as of October 31, 1997 is: 9,302,374 shares of common stock, $.01 par
value.
Transitional Small Business Disclosure Format (check one):
Yes No X
--------- ---------
Part 1 - Financial Information
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
<TABLE>
<CAPTION>
---------------- --------------
September 30,
1997 December 31,
(Unaudited) 1996
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,409,081 $ 3,788,369
Short-term investments 1,065,234 4,628,446
Other current assets 67,718 106,635
---------------- --------------
---------------- --------------
Total current assets 5,542,033 8,523,450
Property and equipment, net 1,323,683 712,806
Security deposits 34,894 41,301
Research contract prepayment 312,710 603,208
---------------- --------------
Total assets $ 7,213,320 $ 9,880,765
---------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Obligation under capital leases - current 164,417 91,476
Accounts payable and accrued expenses 453,022 494,127
---------------- --------------
Total current liabilities 617,439 585,603
Obligation under capital leases - long term 264,320 223,190
---------------- --------------
Total liabilities 881,759 808,793
---------------- --------------
Shareholders' equity
Preferred stock, $0.01 par value - 5,000,000 shares authorized consisting
of: Class A convertible preferred stock, $0.01 par value, authorized:
3,500,000 shares; issued and outstanding: 946,389 shares 9,463 11,070
Class B convertible preferred stock, $0.01 par value, authorized:
100,000 shares; issued and outstanding: 4,850 shares 49 -
Class C convertible preferred stock, $0.01 par value, authorized:
25,000 shares; issued and outstanding: 0 shares - -
Common stock, $0.01 par value, authorized: 35,000,000 shares;
issued and outstanding: 1997- 8,730,853 shares 1996 - 8,017,961shares 87,308 80,178
Additional paid-in-capital 31,861,232 26,721,888
Deferred compensation (80,786) (106,760)
Accumulated deficit (25,545,705) (17,634,404)
---------------- --------------
6,331,561 9,071,972
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================ ==============
Total liabilities and shareholders' equity $ 7,213,320 $ 9,880,765
================ ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 2
CONSOLIDATED STATEMENT OF OPERATIONS
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
<TABLE>
<CAPTION>
For The Period
From May 1, 1994
Three Months Ended Nine Months Ended (Inception) through
September 30, September 30, September 30,
--------------------------------------------------------------------------------
1997 1996 1997 1996 1997
(Unaudited) (Unaudited) (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C> <C> <C>
Contract research grants $ - $ - $ 48,221 $ - $ 100,000
--------------------------------------------------------------------------------
Operating expenses:
Research and development 1,591,310 974,569 5,985,947 4,020,516 15,094,236
General and administrative 553,844 441,834 1,536,436 1,327,973 5,734,832
Nonrecurring collaboration restructuring fee 600,000 - 600,000 - 600,000
Purchased research and development - - - - 4,481,405
Amortization of finance charges - - - - 345,439
Interest Income (60,153) (165,272) (238,182) (307,467) (760,219)
Interest Expense 9,696 2,538 31,498 7,423 86,945
--------------------------------------------------------------------------------
Net Loss $ (2,694,697) $ (1,253,669) $ (7,867,478) $(5,048,445) $ (25,482,638)
--------------------------------------------------------------------------------
Net loss per share $ (0.30) $ (0.16) $ (0.90) $ (0.64)
--------------------------------------------------------------------------------
Weighted average common stock and
common stock equivalents outstanding 8,905,594 7,857,354 8,721,398 7,841,460
--------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Vion Pharmaceuticals, Inc.
( A Development Stage Company)
<TABLE>
<CAPTION>
Class A Class B
Convertible Convertible
Preferred Stock Preferred Stock Common Stock
-------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common stock issued for cash - July 1994 0 $0 0 $0 2,693,244 $26,932
Common stock issued for services -
August 1994 159,304 1,593
Net loss
-------------------------------------------------------------------
Balance - December 31, 1994 0 0 0 0 2,852,548 28,525
Stock options issued for compensation -
February 1995
Reverse acquisition of MelaRx
Pharmaceuticals, Inc. - April 1995 2,000,000 20,000
Shares repurchased pursuant to
employment agreements - April 1995 (274,859) (2,749)
Private placement of common stock -
April 1995 76,349 763
Warrants issued with bridge notes -
April 1995
Initial public offering of units of one common share,
one Class A warrant and one Class B warrant at
$4.00 per unit - August 1995 and September 1995 2,875,000 28,750
Issuance of common stock 1,250 13
Receipts from sale of unit purchase option
Net loss
-------------------------------------------------------------------
Balance at December 31, 1995 0 0 0 0 7,530,288 75,302
Issuance of Class A convertible preferred stock 1,250,000 12,500
Conversion of Class A convertible preferred stock (164,970) (1,650) 458,255 4,582
Issuance of common stock 29,418 294
Class A convertible preferred stock dividend 21,998 220
Compensation associated with stock option grants
Amortization of deferred compensation
Net loss
-------------------------------------------------------------------
Balance at December 31, 1996 1,107,028 $11,070 0 $0 8,017,961 $80,178
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Conversion of Class A convertible preferred stock (184,552) (1,846) 512,654 5,127
Compensation associated with stock options grants
Exercise of warrants 238 3
Issuance of common stock 150,000 1,500
Exercise of stock options 50,000 500
Class A convertible preferred stock dividend 23,913 239
Issuance of Class B convertible preferred stock 0 0 4,850 49
Accretion of dividend payable on Class B convertible
preferred stock
Amortization of deferred compensation
Net loss
-------------------------------------------------------------------
Balance at September 30, 1997 (Unaudited) 946,389 $9,463 4,850 $49 8,730,853 $87,308
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Additional Total
Paid-in Deferred Accumulated Stockholders'
Capital Compensation Deficit Equity
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock issued for cash - July 1994 $0 $0 ($19,877) $7,055
Common stock issued for services -
August 1994 (1,176) 417
Net loss (475,946) (475,946)
----------------------------------------------------------------
Balance - December 31, 1994 0 0 (496,999) (468,474)
Stock options issued for compensation -
February 1995 540,000 540,000
Reverse acquisition of MelaRx
Pharmaceuticals, Inc. - April 1995 4,300,000 4,320,000
Shares repurchased pursuant to
employment agreements - April 1995 2,029 (720)
Private placement of common stock -
April 1995 205,237 206,000
Warrants issued with bridge notes -
April 1995 200,000 200,000
Initial public offering of units of one common share,
one Class A warrant and one Class B warrant at
$4.00 per unit - August 1995 and September 1995 9,667,460 9,696,210
Issuance of common stock 488 501
Receipts from sale of unit purchase option 250 250
Net loss (9,530,535) (9,530,535)
----------------------------------------------------------------
Balance at December 31, 1995 14,913,435 0 (10,025,505) 4,963,232
Issuance of Class A convertible preferred stock 11,518,552 11,531,052
Conversion of Class A convertible preferred stock (2,932) 0
Issuance of common stock 102,426 102,720
Class A convertible preferred stock dividend (220) 0
Compensation associated with stock option grants 190,407 (190,407) 0
Amortization of deferred compensation 83,647 83,647
Net loss (7,608,679) (7,608,679)
----------------------------------------------------------------
Balance at December 31, 1996 $26,721,888 ($106,760) ($17,634,404) $9,071,972
----------------------------------------------------------------
Conversion of Class A convertible preferred stock (3,281) 0
Compensation associated with stock options grants 42,830 42,830
Exercise of warrants (6) (3)
Issuance of common stock 598,500 600,000
Exercise of stock options 19,500 20,000
Class A convertible preferred stock dividend (239) 0
Issuance of Class B convertible preferred stock 4,481,801 4,481,850
Accretion of dividend payable on Class B convertible
preferred stock (43,584) (43,584)
Amortization of deferred compensation 25,974 25,974
Net loss (7,867,478) (7,867,478)
----------------------------------------------------------------
Balance at September 30, 1997 (Unaudited) $31,861,232 ($80,786) ($25,545,705) $6,331,561
----------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4
CONSOLIDATED STATEMENT OF CASH FLOWS
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
<TABLE>
<CAPTION>
For the period
from May 1, 1994
For the Nine Months (inception) through
Ended September 30, September 30,
----------------------------------------------------------
1997 1996 1997
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (7,867,478) $ (5,048,445) $ (25,482,638)
Adjustments to reconcile net loss to
cash flows used in operating activities
Purchased research and development - - 4,481,405
Amortization of financing costs - - 345,439
Depreciation and amortization 223,149 75,758 374,609
(Increase) in other current assets 38,917 (65,602) (66,732)
(Increase) in other assets 296,905 (167,456) (345,889)
Increase in accounts payable and
accrued expenses (41,105) 133,165 418,490
Accretion on Class B preferred stock (43,584) - (43,584)
Stock issued for services 600,000 - 600,417
Stock options issued for compensation 68,804 - 692,451
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Net cash used in operating activities (6,724,392) (5,072,580) (19,026,032)
----------------------------------------------------------
Cash flows used for investing activities:
Purchase of marketable securities (2,194,725) (6,070,445) (16,282,171)
Maturities of marketable securities 5,757,937 - 15,216,937
Cash portion of MelaRx acquisition - - 4,061
Acquisition of fixed assets (600,821) (349,729) (1,114,143)
----------------------------------------------------------
Net cash provided by (used in) investing activities 2,962,391 (6,420,174) (2,175,316)
----------------------------------------------------------
Cash flows provided by financing activities:
Initial public offering - - 9,696,210
Net proceeds from issuance of common stock 20,000 2,721 336,276
Net proceeds from issuance of preferred stock 4,481,850 11,556,285 16,012,902
Repurchase of common stock - - (720)
Net proceeds from bridge financing - - 1,704,269
Repayments of bridge financing - - (2,000,000)
Advances from stockholders - - 250,000
Repayments to stockholders - - (250,000)
Exercise of warrants (3) - (3)
Receipts from sale of unit purchase option - - 250
Repayment of equipment capital leases (119,134) (11,297) (138,755)
----------------------------------------------------------
Net cash provided by financing activities 4,382,713 11,547,709 25,610,429
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Net increase in cash 620,712 54,955 4,409,081
Cash and cash equivalents at beginning of period 3,788,369 2,350,933 -
----------------------------------------------------------
Cash and cash equivalents at end of period $ 4,409,081 $ 2,405,888 $ 4,409,081
==========================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 5
VION PHARMACEUTICALS, INC
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Note A) - The Company:
Vion Pharmaceuticals, Inc., formerly OncoRx, Inc., (the "Company") was
incorporated in May 1993 and began operations on May 1, 1994. The Company is in
the development stage and is principally devoted to the research and development
of therapeutic products for the treatment of cancer and cancer related
disorders.
On April 20, 1995, the Company merged into OncoRx Research Corp., a
wholly-owned subsidiary of MelaRx Pharmaceuticals Inc. (MelaRx), which was
renamed OncoRx, Inc. after the merger (the "Merger"). The stockholders of the
Company were issued 2,654,038 common and 23,859 preferred shares of MelaRx in
exchange for 2,000,000 shares of common stock of the Company valued at $2.16 per
share (fair value). In August 1995, the Company completed an initial public
offering ("IPO") resulting in net proceeds to the Company of approximately
$9,696,000. In April 1996 the Company changed its name to Vion Pharmaceuticals,
Inc.
As the shareholders of the Company obtained a majority interest in the
merged company, for accounting purposes, the Company is treated as the acquirer.
Therefore, the Merger is recorded as a purchase in the Company's financial
statements which include the results of operations of the Company from inception
and MelaRx from the date of acquisition. The excess of cost over the fair value
of MelaRx's net tangible assets, $4,481,405, was treated as purchased research
and development and expensed immediately.
(Note B) - Basis of Presentation:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three month and nine month periods ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997. For further information, refer to the financial statements and footnotes
thereto included in the Company's Annual Report for the fiscal year ended
December 31, 1996 on Form 10-KSB (File No. 0-26534).
Page 6
(Note C) - Stock Option Plan:
Through December 31, 1996, options to purchase an aggregate of
896,750 shares had been granted under the Company's Amended and Restated 1993
Stock Option Plan (the "Plan"). On January 29, 1997, the Board of Directors
adopted, subject to stockholder approval, an amendment to the Plan increasing
the number of shares which may be issued under the Plan from 1,000,000 to
1,500,000. The amendment to the Plan was approved by the stockholders at the
Company's annual meeting on April 16, 1997.
(Note D) - Private Placement of Class A Convertible Preferred Stock:
On May 22, 1996, the Company completed a private placement of 1,250,000
shares of Class A convertible preferred stock, at $10.00 per share, resulting in
net proceeds to the Company of $11,531,052. Each share of Class A preferred
stock is initially convertible into 2.777777 shares of the Company's common
stock. The shares of Class A preferred stock pay semi-annual dividends of 5% per
annum, payable in additional shares of Class A preferred stock, and a 15% one
time dividend if the Company redeems the issue within 3 years. The issue also
contains a provision for a special dividend after 2 years under certain
circumstances if the Company's common stock price falls below the conversion
price of the Class A preferred stock. The issuance of the Class A preferred
stock at closing also triggered certain adjustment provisions of the Company's
outstanding warrants, resulting in the issuance of additional warrants.
(Note E) - Antidilution Adjustment:
As a result of the sale on May 22, 1996 of 1,250,000 shares of Class A
convertible preferred stock, and pursuant the Warrant Agreement governing the
rights of the Company's Class A Warrants and the Class B Warrants, an adjustment
was made to the exercise price of the Class A Warrants and the Class B Warrants
and there was a corresponding distribution of additional Class A Warrants and
Class B Warrants. Specifically, on July 12, 1996 (the "Payment Date") each
holder of a Class A Warrant at the close of business on July 3, 1996 (the
"Record Date") was issued an additional 0.1 Class A Warrants and the exercise
price of the Class A Warrants was reduced from $5.20 to $4.73. In addition, on
the Payment Date each holder of a Class B Warrant on the close of business on
the Record Date was issued an additional 0.1 Class B Warrants and the exercise
price of the Class B Warrants was reduced from $7.00 to $6.37.
(Note F) - Private Placement of Class B Convertible Preferred Stock:
On August 20, 1997, the Company completed a private placement of 4,850
shares of Class B convertible preferred stock, at $1,000 per share, resulting in
net proceeds to the Company of $4,481,450. Shares of Class B preferred stock are
convertible into shares of common stock including an accretion of 8% per annum.
Shares of the Class B preferred stock may also be eligible, under certain
circumstances, to receive dividends paid in Class C preferred stock. The Class C
preferred stock is convertible into shares of common stock at the average
closing bid price of the Company's common stock for thirty consecutive business
days ending on the closing date and is not entitled to dividends.
Page 7
(Note G) - Issuance of Common Stock to Yale University:
Effective July 24,1997, the Company and Yale University (Yale) amended two
license agreements between the parties pursuant to which, Yale agreed to reduce
certain amounts payable by the Company under such agreements. As a result, the
Company issued 150,000 shares of common stock to Yale valued at $600,000 which
was charged to expense in the quarter.
(Note H) - Termination of Research Agreement:
In October 1997, the Company terminated a research agreement with The Regents of
the University of California on behalf of the Berkeley Campus ("Berkeley") with
regard to certain microfiltration technology and decided not to pursue
negotiations to obtain licenses or options to obtain licenses for certain
inventions resulting from this research. There are no continuing liabilities to
the Company stemming from prior funding of this research.
(Note I) - Covance Agreement:
During the quarter ended June 30, 1997, the Company entered into a Clinical
Development Agreement (the "Agreement") with Covance Clinical Research Unit Ltd.
and Covance Inc. ("Covance"). Pursuant to the Agreement the Company is
contracting to Covance the selection and management of clinical sites and the
preparation of clinical trial reports arising from clinical trials performed by
Covance regarding the Company's product candidate Promycin(R) (porfiromycin) for
the inclusion in a regulatory submission. During the twelve months ending
December 31, 1997, the Company estimates it will make payments of $2,800,000 to
Covance under the Agreement. Through September 30, 1997, the Company has
incurred $1,523,000 under this agreement which has been expensed as incurred.
Page 8
ITEM 2. PLAN OF OPERATION.
General
The Company is a development stage biopharmaceutical company. Its
activities to date have consisted primarily of research and development
sponsored by it pursuant to two separate license agreements with Yale
University, negotiating and obtaining other collaborative agreements, recruiting
management and other personnel, securing its facilities and raising equity and
debt financing. The Company has not generated any material revenues and has
incurred substantial operating losses from its activities.
The Company intends to use a substantial portion of the net proceeds of
its August, 1997 private financing to fund its plan of operations, which
includes the following elements for the next 12 months:
o Continue to develop internal research and development
capabilities and conduct research and development with respect to
the Company's core technologies and other product candidates
which may be identified by the Company. The Company expects to
incur substantial expenditures for research and development
expenses. In addition, the Company expects to purchase or lease
laboratory and office equipment worth approximately $100,000 and
enter into a sale and leaseback of approximately $241,000 of
laboratory equipment. During the next twelve months, the Company
does not plan to hire any additional employees.
o Conduct Phase III clinical studies in the U.S. and Europe of
Promycin for treatment of cancer of the head and neck.
o Continue to support research and development being performed at
Yale University and by other collaborators and seek additional
collaborative agreements.
o Seek to acquire, generally through in-licensing, oncology-related
products that can be marketed without significant additional
development activities.
The Company currently estimates that the remaining net proceeds of its
private placement in August, 1997 and its existing cash and equivalents will be
sufficient to fund its planned operations for approximately the next 5 months.
In the event of delays or unexpected problems in product development, cost
overruns, or other unanticipated expenses commonly associated with a company in
an early stage of development, the Company will require additional funds. In
addition, the Company will need substantial additional financing, beyond this
period to fund further research and development and the Company's working
capital requirements. As of September 30, 1997 the amount required to fund
operations for the next twelve months is estimated at approximately $13,500,000.
However, the Company's cash requirements may vary materially from those now
planned because of results of research and development, results of product
testing, relationships with strategic partners, changes in focus
Page 9
and direction of the Company's research and development programs, competitive
and technological advances, the regulatory process in the United States and
abroad and other factors.
The Company received an opinion from its auditors for the fiscal year
ended December 31, 1996, expressing substantial doubt as to its ability to
continue as a going concern. The Company intends to address the immediate need
for additional capital by raising funds through a private placement of its
securities and/or sale of stock to and upfront payments from a strategic
partner, although the Company expects to require additional financing to fund
its longer-term activities and may require additional capital to fund its
operations, acquisitions and new development projects.
Liquidity and Capital Resources
At September 30, 1997, the Company had working capital of $4,924,594.
The Company's principal sources of funds through September 30, 1997 have been
$4,481,850 net proceeds from private financing through issuance of 4,850 shares
of Class B convertible preferred stock, $11,531,052 net proceeds from private
financing through issuance of 1,250,000 shares of Class A convertible preferred
stock; $9,696,210 from its initial public offering, and $5,478,280 in net
proceeds from private placements of common stock in 1992 and 1993 by its
predecessor, MelaRx Pharmaceuticals Inc.
The Company used the proceeds of its initial public offering to repay a
previous bridge financing and used the remaining funds and the proceeds of its
sales of convertible preferred stock to implement its business plan, which
included hiring of additional personnel; capital expenditures for the purchase
of equipment, principally for laboratory facilities; costs of research and
development; payment of license fees due under sponsored research agreements;
and grants to Yale University to fund certain research, including research in
Dr. Yung-Chi Cheng's laboratory. During the twelve months ending December 31,
1997, the Company will be required to make payments of an aggregate of
$1,205,000 to Yale University and the University of California, Berkeley, under
sponsored research and license agreements.
The Company requires substantial new revenues and other sources of
capital in order to meet such budgeted expenditures and to continue its
operations throughout the year. The Company is seeking to enter into one or more
significant strategic partnerships with pharmaceutical companies for the
development of its core technologies, through which it would anticipate
receiving some of the substantial revenues and financing. The Company has
entered into discussions with several major pharmaceutical companies concerning
such a strategic alliance, but there can be no assurance that the Company will
be successful in achieving such an alliance, nor can the Company predict what
funds might be available to it if it can achieve such an alliance. The Company
is also seeking to raise funds through additional means, including (1) private
placements and recapitalization of its securities; (2) spin-off, refinancing, or
partial sale or disposition of its rights to certain of its non-core
technologies; and (3) equipment lease financing. No assurance can be given that
the Company will be successful in arranging financing through any of these
alternatives.
Page 10
Failure to obtain such financing will require the Company to delay,
renegotiate, or omit payment on its outside research funding commitments causing
it to substantially curtail its operations, resulting in a material adverse
effect on the Company.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of Statement
128 on the calculation of basic and dilutive earnings per share for the quarter
and nine month periods ended September 30, 1997 and September 30, 1996 is not
expected to be material.
Forward-Looking Statements - Cautionary Factors
Statements included in this Form 10-QSB which are not historical in
nature are forward-looking statements made pursuant to the safe-harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements regarding the Company's future business prospects,
plans, objectives, expectations and intentions are subject to certain risks,
uncertainties and other factors that could cause actual results to differ
materially from those projected or suggested in the forward-looking statements,
including, but not limited to: the inability to raise additional capital, the
possibility that any or all of the Company's products or procedures are found to
be ineffective or unsafe, the possibility that third parties hold proprietary
rights that preclude the Company from marketing its products, and the
possibility that third parties will market a product equivalent or superior to
the Company's product candidates.
Page 11
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) Exhibits.
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of Vion
Pharmaceuticals, Inc.
10.01 Amendment No.1 to License Agreement between Yale University
and Vion Pharmaceuticals, Inc. (f/k/a OncoRx, Inc.) dated as of June
12, 1997
10.02 Amendment No.2 to License Agreement between Yale University
and Vion Pharmaceuticals, Inc. (f/k/a OncoRx, Inc.) dated as of June
12, 1997
27. Article 5 Financial Data Schedule for third quarter 1997.
(b) Reports on Form 8-K.
None
</TABLE>
Page 12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VION PHARMACEUTICALS, INC.
(Registrant)
By: /s/ Thomas E. Klein
-------------------------------
Thomas E. Klein
Vice President - Finance
(Duly authorized signatory and
Chief Financial Officer)
Date: November 13, 1997
Page 13
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
VION PHARMACEUTICALS, INC.
FIRST: The name of the Corporation is VION PHARMACEUTICALS,
INC.
SECOND: The address, including street, number, city, and
country, of the registered office of the Corporation in the State of Delaware is
32 Loockerman Square, Suite L-100, City of Dover, County of Kent; and the name
of the registered agent of the Corporation in the State of Delaware is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which Corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: Authorization, Designation and Amount. The total
number of shares of all classes of stock which the Corporation shall have
authority to issue is 40,000,000 shares, consisting of (a) 35,000,000 shares of
Common Stock, par value $.01 per share (the "Common Stock"), of which 2,307,550
shares are designated as Series A Common Stock (the "Series A Common Stock") and
(b) 5,000,000 shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock"). The powers, terms, conditions, designations, preferences and
privileges, relative, participating, optional and other special rights, and
qualifications, limitations and restrictions, of the Series A Common Stock and
the Preferred Stock shall be set forth in this Article FOURTH.
PART A. PREFERRED STOCK
(a) Designation of Preferred Stock. The Board of Directors of
the Corporation (the "Board of Directors") is hereby expressly authorized to
provide for, designate and issue, out of the authorized but unissued shares of
Preferred Stock, one or more series of Preferred Stock subject to the terms and
conditions set forth herein. Before any shares of any such series are issued,
the Board of Directors shall fix, and hereby is expressly empowered to fix, by
resolution or resolutions, the following provisions of the shares of any such
series:
(1) the designation of such series, the number of
shares to constitute such series and the stated value thereof, if different from
the par value thereof;
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(2) whether the shares of such series shall have
voting rights or powers in addition to any voting rights required by law and, if
so, the terms of such voting rights or powers, which may be full or limited;
(3) the dividends, if any, payable on such series,
whether any such dividends shall be cumulative, and, if so, from what dates, the
conditions and dates upon which such dividends shall be payable, the preference
or relation which such dividends shall bear to the dividends payable on any
shares of stock of any other class or series;
(4) whether the shares of such class or series shall
be subject to redemption by the Corporation, and, if so, the times, prices and
other conditions of such redemption;
(5) the amount or amounts payable with respect to
shares of such class or series upon, and the rights of the holders of such class
or series in, the voluntary or involuntary liquidation, dissolution or winding
up, or upon any distribution of the assets, of the Corporation;
(6) whether the shares of such class or series shall
be subject to the operation of a retirement or sinking fund and, if so, the
extent to and manner in which any such retirement or sinking fund shall be
applied to the purchase or redemption of the shares of such class or series for
retirement or other corporate purposes and the terms and provisions relative to
the operation thereof;
(7) whether the shares or series shall be convertible
into, or exchangeable for, shares of stock of any other class or series of any
other securities and, if so, the price or prices or the rate or rates of
conversion or exchange and the method, if any, of adjusting the same, and any
other terms and conditions of exchange;
(8) the limitations and restrictions, if any, to be
effective while any shares of such class or series are outstanding upon the
payment of dividends or the making of other distributions on, and upon the
purchase, redemption or other acquisition by the Corporation of the Common Stock
or shares of stock of any other class or series;
(9) the conditions or restrictions, if any, to be
effective while any shares of such class or series are outstanding upon the
creation of indebtedness of the Corporation or upon the issue of any additional
stock, including additional shares of such class or series or of any other class
or series; and
(10) any other powers, designations, preferences and
relative, participating, optional or other special rights, and any
qualifications, limitations or restrictions thereof.
The powers, designations, preferences and relative,
participating, optional or other special rights of each series of Preferred
Stock, and the qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time outstanding. The Board
of Directors is hereby expressly authorized from time to time to increase
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(but not above the total number of authorized shares of Preferred Stock) or
decrease (but not below the number of shares thereof then outstanding) the
number of shares of stock of any series of Preferred Stock so designated
pursuant to this Part A.
PART B. COMMON STOCK AND SERIES A COMMON STOCK
1. Common Stock.
(a) Voting. Each holder of Common Stock shall be
entitled to one vote for each share of Common Stock held of record on all
matters as to which holders of Common Stock shall be entitled to vote, which
voting rights shall not be cumulative. In any election of directors, no holder
of Common Stock shall be entitled to more than one vote per share.
(b) Other Rights. Except as described in paragraph 2
below with respect to Series A Common Stock, each share of Common Stock issued
and outstanding shall be identical in all respects with each other such share
and each share of Common Stock shall be entitled to all of the rights and
privileges, and subject to the limitations and qualifications, of shares of
Common Stock provided by the Delaware General Corporation Law.
2. Series A Common Stock.
(a) Same Rights as Common Stock. Except as set forth
in subparagraph (b) below, each share of Series A Common Stock issued and
outstanding shall have all of the powers and privileges, and shall be subject to
all of the qualifications and limitations of Common Stock, and shall be
identical in all respects to each share of Common Stock.
(b) Conversion.
(i) Each share of issued and outstanding Series A
Common Stock shall be automatically converted, without notice and without any
action on the part of the holder thereof, into:
(A) 1.55158 shares of
Common Stock upon the closing of an "Initial Public Offering" (as defined below)
if such Initial Public Offering closes prior to the "Deadline" (as defined
below), after giving effect to the cancellation of shares of Series A Common
Stock pursuant to the Agreement dated as of February 17, 1995 among the holders
thereof and the Corporation, a copy of which may be obtained from the Secretary
of the Corporation; or
(B) one share of Common
Stock if there is no closing of an Initial Public Offering prior to the Deadline
and the cancellation of the shares of Series A Common Stock required to be
deposited in escrow pursuant to the Agreement dated as of February 17, 1995 is
not effective at such time;
(ii) Upon and after the conversion provided for in
subparagraph (b)(i), all rights of holders of shares of Series A Common
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Stock with respect to Series A Common Stock, except the right to receive shares
of Common Stock in accordance with this Section, shall cease and the
certificates representing the Series A Common Stock will be deemed for all
corporate purposes to evidence the shares of Common Stock into which such Series
A Common Stock is converted, whether or not the Corporation has received the
certificates representing such shares. The authorized shares of Series A Common
Stock shall thereafter resume the status of authorized but unissued shares of
Common Stock and may be reissued as shares of Common Stock (but not as Series A
Common Stock).
(iii) Upon such conversion the Corporation shall
issue to each holder of record of Series A Common Stock the number of shares of
Common Stock issuable on conversion of the shares of Series A Common Stock held
by such holder. However, such conversion shall be effective whether or not
certificates representing the Common Stock have been issued to any such holder.
(c) Definitions.
(i) An "Initial Public Offering" shall mean an
underwritten public offering of the Corporation's Common Stock pursuant to a
Registration Statement declared effective under the Securities Act of 1933, as
amended (the "Securities Act").
(ii) The "Deadline" shall mean September 1, 1995,
provided that if the Corporation has filed a Registration Statement under the
Securities Act with respect to a public offering under the Securities Act prior
to September 1, 1995, but such Registration Statement has not yet been declared
effective on September 1, 1995, the Corporation may extend the Deadline for a
period of up to 60 days. The Corporation shall give prompt notice of such
extension by certified mail, return receipt requested to each holder of Series A
Common Stock.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them and/or between
this Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this corporation or of any creditor or stockholder thereof or on
the application of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions of
section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on
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this Corporation.
SEVENTH: The Board of Directors is expressly authorized to
adopt, amend or repeal by-laws of the Corporation.
EIGHTH: Elections of the directors need not be by written
ballot except and to the extent provided by the by-laws of the Corporation.
NINTH: The personal liability of the directors of the
Corporation is hereby eliminated to the fullest extent permitted by the
provisions of paragraph (7) of subsection (b) of Section 102 of the General
Corporation Law of the State of Delaware, as the same may be amended and
supplemented.
TENTH: The Corporation shall, to the fullest extent permitted
by the provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
directors and officers of the Corporation from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-Law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director or officer and shall insure to the benefit of
the heirs, executors and administrators of such a person.
ELEVENTH: From time to time any of the provisions of this
certificate of incorporation may be amended, altered or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said laws,
and all rights at any time conferred upon the stockholders of the Corporation by
this certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
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VION PHARMACEUTICALS, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
CLASS A CONVERTIBLE PREFERRED STOCK
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
VION PHARMACEUTICALS, INC., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), does
hereby certify that, pursuant to the authority conferred on the Board of
Directors of the Corporation by the Certificate of Incorporation of the
Corporation and in accordance with Section 151 of the General Corporation Law of
the State of Delaware, the Board of Directors of the Corporation adopted the
following resolution establishing a series of 3,500,000 shares of Preferred
Stock of the Corporation designated as "Class A Convertible Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the
Board of Directors of this Corporation by the Certificate of
Incorporation, as amended, a series of Preferred Stock, par value $.01
per share, of the Corporation is hereby established and created, and
that the designation and number of shares thereof and the voting and
other powers, preferences and relative, participating, optional or
other rights of the shares of such series and the qualifications,
limitations and restrictions thereof are as follows:
Class A Convertible Preferred Stock
1. Designation and Amount. The shares of such series shall be
designated as "Class A Convertible Preferred Stock" and the number of shares
constituting such series shall be 3,500,000.
2. Issuance of Additional Shares. The number of authorized
shares of the Class A Preferred Stock may be reduced or eliminated by the Board
of Directors of the Corporation or a duly-authorized committee thereof in
compliance with the General Corporation Law of the State of Delaware stating
that such reduction has been authorized, but the number of authorized shares of
Class A Preferred Stock shall not, except as contemplated in Section 10(c) be
increased nor shall it be decreased to be less than the then outstanding shares
of Class A Preferred Stock.
3. Certain Definitions. For purposes hereof the following
definitions shall apply:
"Board" shall mean the Board of Directors of the Corporation.
"Business Day" shall mean any day excluding Saturday, Sunday
and any day which shall be in the State of New York a legal holiday or a day on
which banking institutions in
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the State of New York are authorized by law to close.
"Common Stock" shall mean the Common Stock, par value $.01 per
share, of the Corporation.
"Corporation" shall mean Vion Pharmaceuticals, Inc., a
Delaware corporation.
"Dividend Payment Date" shall have the meaning assigned to
such term in Section 4(a)(i) hereof.
"Fair Value" shall have the meaning assigned to such term in
Section 9(j) hereof.
"Issuance Date" shall mean the date of original issuance of
the Class A Preferred Stock.
"Junior Stock" shall mean the Common Stock and any shares of
Preferred Stock of any series or class of the Corporation, whether presently
outstanding or hereafter issued, which are by their terms expressly made junior
to the shares of Class A Preferred Stock at the time outstanding as to the
distribution of assets on any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation and are not subject to mandatory redemption or
repurchase prior to the date on which no shares of Class A Preferred Stock are
outstanding.
"Majority of the Class A Preferred Stock" shall mean more than
50% of the outstanding shares of Class A Preferred Stock.
"Preferred Stock" shall mean the unclassified Preferred Stock,
par value $.01 per share, of the Corporation.
"Record Date" shall have the meaning assigned to such term in
Section (4)(a)(i) hereof.
"Redemption Date" shall have the meaning assigned to such term
in Section 7(b) hereof.
"Redemption Price" shall have the meaning assigned to such
term in Section 7(c) hereof.
"Redemption Notice" shall have the meaning assigned to such
term in Section 7(d) hereof.
"Class A Conversion Ratio" shall have the meaning assigned to
such term in Section 9(b) hereof.
"Class A Preferred Stock" shall mean the Class A Preferred
Stock, par value $.01 per share, of the Corporation.
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"Special Dividend Date" shall have the meaning assigned to
such term in Section 4(a)(ii) hereof.
"Subsidiary" shall mean any corporation, limited liability
company or other entity, a majority of the voting stock or interest of which is,
at the time as of which any determination is being made, owned by the
Corporation either directly or through one or more Subsidiaries.
"Voting Stock" shall mean any shares having general voting
power in electing the Board (irrespective of whether or not at the time stock of
any other class or classes has or might have voting power by reason of the
occurrence of any contingency). The Common Stock and the Class A Preferred Stock
are Voting Stock.
4. Dividends.
(a) Dividends and Distributions. (i) The holders of the
outstanding Class A Preferred Stock shall be entitled to receive semi-annual
dividends, on a cumulative basis, equal to five percent (5%) (on a per annum
basis) of the Class A Preferred Stock held by such holder, payable, in arrears,
in additional shares of Class A Preferred Stock. Upon the Dividend Payment Date,
to the extent permitted by applicable law, the holder shall be deemed to be the
holder of record of the shares of Class A Preferred Stock issuable upon each
such semi-annual dividend, notwithstanding that the transfer books of the
Company shall then be closed or certificates representing such Class A Preferred
Stock shall not then have been actually delivered to the holder. Each such
dividend described above shall be payable on or about the first day of April and
October in each year as fixed by the Board, or such other dates as are fixed by
the Board (each a "Dividend Payment Date"), to the holders of record of Class A
Preferred Stock at the close of business on or about the 15th day of the month
next preceding such first day of April or October, as the case may be, as fixed
by the Board (each a "Record Date"). Such dividends shall become payable
beginning on the first Dividend Payment Date for which the Record Date is
subsequent to the Issuance Date. Dividends payable for any partial dividend
period shall be computed on the basis of the actual days elapsed in such period.
(ii) In the event that on the date that is twenty-four (24)
months after the Issuance Date (the "Special Dividend Date"), the average
closing bid price of the Common Stock for the thirty (30) consecutive trading
days immediately preceding the Special Dividend Date (the "Subsequent Trading
Price") is less than 100% of the then applicable Conversion Price, then the
Company shall pay a one time dividend of Class A Preferred Stock for each share
of Class A Preferred Stock outstanding equal to the lesser of (a) one share of
Class A Preferred Stock or (b)(x) one share of Class A Preferred Stock
multiplied by (y) the then applicable Conversion Price divided by the Subsequent
Trading Price, minus one; provided, however, that the Company shall have the
option of delaying the Special Dividend Date for up to 60 days at its sole
discretion and the dividend calculation shall be made as if such date were the
Special Dividend Date.
(iii) If the Corporation calls the Class A Preferred Stock for
redemption at any time prior to three (3) years from the Issuance Date, the
Corporation will pay a one time dividend payable in shares of Class A Preferred
Stock equal to fifteen percent (15%) of the Class
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A Preferred Stock held by such holder which shall be in addition to any
cumulative dividends described in subparagraph (i) hereof and any Special
Dividend described in subparagraph (ii) hereof. Prior to the Redemption Date,
the holder will be entitled to convert such shares of Class A Preferred Stock
issuable pursuant to this Section 4(a)(iii).
(b) To the extent the amount of any dividend payable to any
holder of Class A Preferred Stock does not equal an integral multiple of one
share of Class A Preferred Stock, such fractional share shall be rounded up to
the next whole integral number of shares.
(c) Subject to the prior and superior rights of the holders of
any shares of any series or class of capital stock ranking prior and superior to
the shares of Class A Preferred Stock with respect to dividends, the holders of
shares of Class A Preferred Stock shall be entitled to receive, as, when and if
declared by the Board of the Corporation, out of assets legally available for
that purpose, dividends or distributions in cash, stock or otherwise.
(d) If and when the Corporation shall declare any dividend or
distribution on the Common Stock (other than a stock dividend), the Corporation
shall, concurrently with the declaration of such dividend or distribution on the
Common Stock, declare a like dividend or distribution, as the case may be, on
the Class A Preferred Stock in an amount per share equal to (x) the amount of
the dividend or distribution per share of Common Stock multiplied by (y) the
number of shares of Common Stock into which one share of Class A Preferred Stock
is then convertible.
(e) Any dividend or distribution payable to the holders of the
Class A Preferred Stock pursuant to this Section 4(d) shall be paid to such
holders at the same time as the dividend or distribution on the Common Stock by
which it is measured is paid.
(f) All dividends or distributions declared upon the Class A
Preferred Stock shall be declared pro rata per share.
5. Liquidation Rights of Class A Preferred Stock. In the event
of a liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary (a "Liquidation Event"), after payment or provision for
payment of debts and other liabilities of the Corporation, the holders of the
Class A Preferred Stock then outstanding shall first be entitled to be paid out
of the assets of the Corporation available for distribution to its shareholders,
whether such assets are capital, surplus, or earnings, before any payment or
declaration and setting apart for payment of any amount shall be made in respect
of Junior Stock, an amount equal to $10.00 per share of Class A Preferred Stock
plus an amount equal to all declared and unpaid dividends thereon (subject to
appropriate adjustment to reflect any stock split, combination, reclassification
or reorganization of the Class A Preferred Stock). Following payment in full of
the full preferential amounts set forth in the immediately preceding sentence,
the holders of the Class A Preferred Stock shall not be entitled to any further
distribution in the event of a Liquidation Event. If upon any Liquidation Event,
whether voluntary or involuntary, the assets to be distributed to the holders of
the Class A Preferred Stock shall be insufficient to permit the payment to such
shareholders of the full preferential amounts aforesaid, then all of the assets
of the Corporation to be distributed shall be so distributed ratably to the
holders of the Class A Preferred Stock on the
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basis of the number of shares of Class A Preferred Stock held. All shares of
Class A Preferred Stock shall rank as to payment upon the occurrence of any
Liquidation Event above senior to the Common Stock as provided herein and,
unless the terms of such series shall provide otherwise, senior to all other
series of the Corporation's preferred stock.
6. Merger, Consolidation.
(a) At any time, in the event of:
(1) any consolidation or merger of the Corporation with or
into any other corporation or other entity, or any other corporate
reorganization or transaction or series of related transactions by the
Corporation in which in excess of 50% of the Corporation's voting power is
transferred, or
(2) a sale or other disposition of all or substantially
all of the assets of the Corporation (any such event in (1) or (2) a "Merger
Event"), then:
in the case of a Merger Event, the holders of the Class A
Preferred Stock shall receive for each share of Class A Preferred Stock in cash
or in securities (including, without limitation, debt securities) received from
the acquiring corporation or other entity or person, or a combination thereof,
at the closing of any such transaction, an amount equal to $10.00 (subject to
appropriate adjustment to reflect any stock split, combination, reclassification
or reorganization of Class A Preferred Stock) plus an amount equal to all
declared and unpaid dividends on such shares; and
Such payments shall be made with respect to the Class A
Preferred Stock by (i) redemption or purchase of such shares by the Corporation
or (ii) purchase or acquisition of such shares by the surviving or acquiring
corporation, entity or person immediately upon consummation of the Merger Event.
Before any payment or distribution is made to the holders of the Junior Stock,
the full preferential amounts stated in this subsection 6(a)(2) shall first be
paid to the holders of the Class A Preferred Stock. In the event the full amount
of such payment is not paid to the holders of the Class A Preferred Stock upon
or immediately prior to such transaction in accordance herewith, then all cash
and securities (including, without limitation, debt securities) to be
distributed in respect of the proposed transaction shall be distributed ratably
among the holders of the Class A Preferred Stock.
(b) Any securities or other property to be delivered to the
holders of the Class A Preferred Stock or Common Stock pursuant to Section 6(a)
hereof above shall be valued as follows:
(1) (A) If traded on a securities exchange or quoted
on the Nasdaq National Market System, the value shall be deemed to be the
average of the closing prices of the securities on such exchange or market over
the 30-day period ending three (3) days prior to the closing;
(A) If actively traded over-the-counter, the
value shall be deemed
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to be the average of the closing bid prices over the 30-day period ending three
(3) days prior to the closing; and
(B) If there is no active public market, the
value shall be the fair market value thereof, as determined in good faith by the
Corporation's Board.
(2) All other securities or other property shall be
valued at the fair market value thereof, as determined in good faith by the
Corporation's Board.
(c) In the event the requirements of Section 6(a) hereof are
not complied with, the Corporation shall forthwith either:
(1) Cause such Merger Event to be postponed until
such time as the requirements of this Section 6 have been complied with; or
(2) Cancel such Merger Event, in which event the
rights, preferences and privileges of the holders of the Class A Preferred Stock
shall revert to and be the same as such rights, preferences and privileges
existing immediately prior to the date of the first notice referred to in
Section 6(d) hereof.
(d) The Corporation shall give each holder of record of Class
A Preferred Stock written notice of such impending transaction not later than
thirty (30) days prior to the shareholders' meeting called to approve such
transaction, or thirty (30) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 6, and the Corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than thirty (30) days after the Corporation has given the first notice
provided for herein or sooner than ten (10) days after the Corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of a Majority
of the Class A Preferred Stock.
(e) The provisions of this Section 6 are in addition to the
protective provisions of Section 10 hereof.
(f) A consolidation or merger of the Corporation with or into
another corporation, other than in a transaction described in this Section 6,
shall not be considered a Merger Event and accordingly the Corporation shall
make appropriate provision to ensure that the terms of this Certificate of
Designations survive such transaction.
7. Redemption.
(a) Restriction on Redemption and Purchase. Except as
expressly provided in this Section 7, the Corporation shall not have the right
to purchase, call, redeem or otherwise acquire for value any or all of the Class
A Preferred Stock.
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(b) Optional Redemption. At any time, beginning six (6) months
after the Issuance Date, the Corporation may, at its option, redeem for cash the
Class A Preferred Stock in whole, but not in part, at the Redemption Price
hereinafter specified, in the event that the closing bid price of the
Corporation's Common Stock for twenty (20) trading days in any thirty trading
(30) day period, exceeds [insert price which is 150% of the closing bid price on
the Issuance Date]. The Corporation shall not redeem Class A Preferred Stock or
give notice of any redemption unless the Corporation has sufficient and lawful
funds to redeem all of the then outstanding Class A Preferred Stock. The date on
which the Class A Preferred Stock is to be redeemed pursuant to this Section
7(b) is herein called the "Redemption Date." If the Corporation redeems the
Class A Preferred Stock at any time prior to three (3) years from the Issuance
Date, the Corporation will pay an additional dividend pursuant to Section
4(a)(iii).
The "closing bid price" for each trading day shall be the
reported closing bid price on the NASDAQ Small-Cap Market or the NASDAQ National
Market System (collectively referred to as, "NASDAQ") or, if the Common Stock is
not quoted on NASDAQ, on the principal national securities exchange on which the
Common Stock is listed or admitted to trading (based on the aggregate dollar
value of all securities listed or admitted to trading) or, if not listed or
admitted to trading on any national securities exchange or quoted on NASDAQ, the
closing bid price in the over-the-counter market as furnished by any NASD member
firm selected from time to time by the Corporation for that purpose, or, if such
prices are not available, the fair market value set by, or in a manner
established by, the Board of the Corporation in good faith. "Trading day" shall
mean a day on which the national securities exchange or NASDAQ used to determine
the closing bid price is open for the transaction of business or the reporting
of trades or, if the closing bid price is not so determined, a day on which
NASDAQ is open for the transaction of business.
(c) Redemption Price. The Redemption Price of the Class A
Preferred Stock (the "Redemption Price") shall be an amount per share equal to
$10.00 (subject to appropriate adjustment to reflect any stock split,
combination, reclassification or reorganization of the Class A Preferred Stock)
plus all declared and unpaid dividends thereon, to and including the Redemption
Date.
(d) Redemption Notice. The Corporation shall, not less than
thirty (30) days nor more than sixty (60) days prior to the Redemption Date,
give written notice ("Redemption Notice") to each holder of record of Class A
Preferred Stock to be redeemed. The Redemption Notice shall state:
(1) that all of the outstanding shares of Class A
Preferred Stock are to be redeemed and the total number of
shares being redeemed;
(2) the number of shares of Class A Preferred Stock
held by the holder which the Corporation intends to redeem;
(3) the Redemption Date and Redemption Price;
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(4) that the holder's right to convert the Class A
Preferred Stock into shares of the Common Stock as provided in
Section 9 hereof will terminate on the Redemption Date; and
(5) the time, place and manner in which the holder is
to surrender to the Corporation the certificate or
certificates representing the shares of Class A Preferred
Stock to be redeemed.
(e) Payment of Redemption Price and Surrender of Stock. On the
Redemption Date, the Redemption Price of the Class A Preferred Stock scheduled
to be redeemed or called for redemption shall be payable to the holders of the
Class A Preferred Stock. On or before 5:00 p.m. New York City time on the
Redemption Date, each holder of Class A Preferred Stock to be redeemed, unless
the holder has exercised his right to convert the shares as provided in Section
9 hereof, shall surrender the certificate or certificates representing such
shares to the Corporation, in the manner and at the place designated in the
Redemption Notice, and thereupon the Redemption Price for such shares shall be
payable to the order of the person or entity whose name appears on such
certificate or certificates as the owner thereof, and each surrendered
certificate shall be cancelled and retired.
(f) Termination of Rights. If the Redemption Notice is duly
given, and, if at least ten (10) days prior to the Redemption Date, the
Redemption Price is either paid or made available for payment through the
arrangement specified in subsection (g) below, then notwithstanding that the
certificates evidencing any of the shares of Class A Preferred Stock so called
or scheduled for redemption have not been surrendered, all rights with respect
to such shares shall forthwith after the Redemption Date cease and terminate,
except only (i) the right of the holders to receive the Redemption Price without
interest upon surrender of their certificates therefor or (ii) the right to
receive shares of Common Stock upon exercise of the conversion rights provided
in Section 9 hereof on or before the Redemption Date.
(g) Deposit of Funds. At least ten (10) days prior to the
Redemption Date, the Corporation shall deposit with any bank or trust company in
New York, New York, a sum equal to the aggregate Redemption Price of all shares
of the Class A Preferred Stock scheduled to be redeemed or called for redemption
and not yet redeemed, with irrevocable instructions and authority to the bank or
trust company to pay, on or after the Redemption Date, the Redemption Price to
the respective holders upon the surrender of their share certificates. The
deposit shall constitute full payment for the shares of Class A Preferred Stock
to the holders thereof, and from and after the date of such deposit (even if
prior to the Redemption Date), the shares of Class A Preferred Stock shall be
deemed to be redeemed and no longer outstanding, and the holders thereof shall
cease to be shareholders with respect to such shares of Class A Preferred Stock
and shall have no rights with respect thereto, except the right to receive from
the bank or trust company payment of the Redemption Price of the shares of Class
A Preferred Stock, without interest, upon surrender of their certificates
therefor or the right to convert such shares of Class A Preferred Stock into
shares of Common Stock as provided in Section 9 hereof. Any monies so deposited
and unclaimed at the end of one year from the Redemption Date shall be released
or repaid to the Corporation, after which time the holders of shares of Class A
Preferred Stock called for redemption shall be entitled to receive payment of
the Redemption Price only from the
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Corporation.
8. Voting Rights.
(a) Class A Preferred Stock. Each holder of shares of Class A
Preferred Stock shall be entitled to vote on all matters and, except as
otherwise expressly provided herein, shall be entitled to the number of votes
equal to the largest number of full shares of Common Stock into which the shares
of Class A Preferred Stock of such holder could be converted, pursuant to the
provisions of Section 9 hereof, at the record date for the determination of the
shareholders entitled to vote on such matters.
(b) Voting Together. Except as otherwise expressly provided
herein or as required by law, the holders of Class A Preferred Stock and Common
Stock shall vote together and not as separate classes.
(c) Amendment of Conversion Terms of Class A Preferred Stock.
Without the approval by the holders of a Majority of the Class A Preferred
Stock, the Corporation will not (i) change by amendment the Restated Certificate
of Incorporation of the Corporation or the terms and provisions of the Class A
Preferred Stock which adversely affects the rights and preferences of the
holders of the Class A Preferred Stock nor (ii) authorize the issuance of
capital stock ranking senior to the Class A Preferred Stock.
9. Conversion. The holders of Class A Preferred Stock shall
have the following conversion rights:
(a) Right to Convert. The shares of Class A Convertible
Preferred Stock shall be convertible, in whole or in part, at the option of the
holder thereof and upon notice to the Corporation at any time prior to the
Redemption Date, into fully paid and nonassessable shares of Common Stock and
such other securities and property as hereinafter provided.
(b) Class A Conversion Price. The shares of Class A
Convertible Preferred Stock shall be convertible initially at the ratio of
2.777777 shares of Common Stock for each full share of Class A Convertible
Preferred Stock and shall be subject to adjustment as provided herein (the
"Class A Conversion Ratio"). The initial conversion price per share of Common
Stock is $3.60 and shall be subject to adjustment as provided herein (the
"Conversion Price"). For purposes of this resolution, the "Class A Conversion
Ratio" applicable to a share of Class A Convertible Preferred Stock shall be the
number of shares of Common Stock and number or amount of any other securities
and property as hereinafter provided into which a share of Class A Preferred
Stock is then convertible and shall be determined by dividing the then existing
Conversion Price into $10.00.
(c) Mechanics of Conversion. Each holder of Class A Preferred
Stock that desires to convert its shares of Class A Preferred Stock into shares
of Common Stock shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for the
Class A Preferred Stock or Common Stock, and shall give written notice to the
Corporation at such office that such holder elects to convert the same and shall
state
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therein the number of shares of Class A Preferred Stock being converted.
Thereupon the Corporation shall promptly issue and deliver to such holder a
certificate or certificates for the number of shares of Common Stock to which
such holder is entitled. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
certificate or certificates representing the shares of Class A Preferred Stock
to be converted, and the person or entity entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such shares of Common Stock on such date. In the event that
a notice to convert is given following a notice of a Merger Transaction,
Liquidation Event or a Redemption but prior to the consummation of one of the
foregoing events and such event is not consummated, the conversion shall, at the
option of the holder of the Class A Preferred Stock who tendered for conversion,
be voidable and such holder shall have the right to maintain ownership of the
shares of Class A Preferred Stock tendered for conversion, provided that the
holder shall have notified the Corporation accordingly within sixty (60) days
after such failure to consummate the event.
(d) Adjustment for Stock Splits and Combinations. If the
Corporation at any time or from time to time after the Issuance Date effects a
subdivision of the outstanding Common Stock, the Class A Conversion Ratio then
in effect immediately before that subdivision shall be proportionately
increased, and conversely, if the Corporation at any time or from time to time
after the Issuance Date combines the outstanding shares of Common Stock into a
smaller number of shares, the Class A Conversion Ratio then in effect
immediately before the combination shall be proportionately decreased. Any
adjustment under this subsection (d) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(e) Adjustment for Certain Dividends and Distributions. If the
Corporation at any time or from time to time after the Issuance Date makes, or
fixes a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Class A Conversion Ratio then in effect
shall be increased as of the time of such issuance or, in the event such record
date is fixed, as of the close of business on such record date, by multiplying
the Class A Conversion Ratio then in effect by a fraction (1) the numerator of
which shall be the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date plus the number of shares of Common Stock issuable in payment of
such dividend or distribution, and (2) the denominator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date;
provided, however, that, if such record date is fixed and such dividend is not
fully paid or if such distribution is not fully made on the date fixed therefor,
the Class A Conversion Ratio shall be recomputed accordingly as of the close of
business on such record date and thereafter the Class A Conversion Ratio shall
be adjusted pursuant to this subsection (e) as of the time of actual payment of
such dividends or distributions.
(f) Adjustments for Other Dividends and Distributions. In the
event the Corporation at any time or from time to time after the Issuance Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other
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distribution payable in securities of the Corporation other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of Class A Preferred Stock shall receive upon conversion thereof, in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation which they would have received had their
shares of Class A Preferred Stock been converted into Common Stock on the date
of such event and had they thereafter, during the period from the date of such
event to and including the conversion date, retained such securities receivable
by them as aforesaid during such period subject to all other adjustments called
for during such period under this Section 9.
(g) Adjustment for Reclassification, Exchange and
Substitution. In the event that at any time or from time to time after the
Issuance Date, the Common Stock issuable upon the conversion of the Class A
Preferred Stock is changed into the same or a different number of shares of any
class or classes of stock, whether by recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
or a reorganization, merger, consolidation or sale of assets, provided for
elsewhere in this Section 9), then and in any such event each holder of Class A
Preferred Stock shall have the right thereafter to convert such Class A
Preferred Stock into the kind and amount of stock and other securities and
property receivable upon such recapitalization, reclassification or other
change, by holders of the maximum number of shares of Common Stock into which
such shares of Class A Preferred Stock could have been converted immediately
prior to such recapitalization, reclassification or change, all subject to
further adjustment as provided herein.
(h) Reorganizations, Mergers, Consolidations or Sales of
Assets. If at any time or from time to time after the Issuance Date there is a
capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Section 9) or a merger or consolidation of the Corporation
with or into another corporation, or the sale of all or substantially all of the
Corporation's properties and assets to any other person (other than as provided
for in Section 6), then, as part of such reorganization, merger, consolidation
or sale, provision shall be made so that the holders of the Class A Preferred
Stock shall thereafter be entitled to receive upon conversion of the Class A
Preferred Stock the number of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock deliverable upon
conversion would have been entitled on such capital reorganization, merger,
consolidation or sale. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section 9 with respect to the rights
of the holders of the Class A Preferred Stock after the reorganization, merger,
consolidation or sale to the end that the provisions of this Section 9
(including adjustment of the Class A Conversion Ratio then in effect and the
number of shares purchasable upon conversion of the Class A Preferred Stock)
shall be applicable after that event and be as nearly equivalent as may be
practicable.
(i) Adjustment for Issuances. If at any time or from time to
time after the Issuance Date, the Corporation shall issue or sell Common Stock
or rights, options, warrants or other securities convertible into Common Stock,
excluding those rights, options, warrants or other securities convertible into
Common Stock outstanding as of the Issuance Date, at a price per share which is
lower than both (A) the then effective Conversion Price and (B) the average
closing bid price (as defined in Section 7(b)) for the thirty (30) consecutive
trading days immedi-
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ately prior to such issuance, then the conversion ratio shall be increased by
multiplying the conversion ratio theretofore in effect by a fraction, of which
the numerator shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such shares, rights, options, warrants or
convertible securities plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the denominator shall be the
number of shares of Common Stock outstanding immediately prior to the issuance
of such rights, options, warrants or convertible securities plus the number of
shares which the aggregate offering price of the total number of shares offered
would purchase at the then effective Conversion Price, provided, however, that
no such adjustment shall be made which results in a decrease in the conversion
ratio. Such adjustment shall be made whenever such rights, options, warrants or
convertible securities are issued, and shall become effective immediately and
retroactive to the record date for the determination of stockholders entitled to
receive such rights, options, warrants or convertible securities.
Notwithstanding the foregoing, no adjustment will be required on account of (i)
the exercise of any of the options presently outstanding under the Company's
Amended and Restated 1993 Stock Option Plan (the "Plan") for officers, directors
and certain other key personnel of the Company or (ii) the issuance or exercise
of any other securities which may hereafter be granted or exercised under the
Plan or under any other employee benefit plan of the Company.
(j) Adjustment for Distributions. If at any time or from time
to time after the Issuance Date, the Corporation shall distribute to all or
substantially all holders of its Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions out of earnings) or rights,
options, warrants or convertible securities containing the right to subscribe
for or purchase Common Stock (excluding those referred to in subparagraphs (f)
and (i) above), then in each case the conversion ratio shall be increased by
multiplying the conversion ratio theretofore in effect by a fraction, of which
the numerator shall be the then Fair Value on the date of such distribution, and
of which the denominator shall be such Fair Value on such date minus the then
Fair Value (as so determined) of the portion of the assets or evidences of
indebtedness so distributed or of such subscription rights, options, warrants or
convertible securities applicable to one share, provided, however, that no such
adjustment shall be made which results in a decrease in the conversion ratio.
Such adjustment shall be made whenever any such distribution is made and shall
become effective on the date of distribution retroactive to the record date for
the determination of stockholders entitled to receive such distribution. "Fair
Value" shall equal the average closing bid price for the thirty (30) consecutive
trading days immediately prior to the date of distribution multiplied by the
then current conversion ratio.
(k) Adjustment for Expirations. Upon the expiration of any
rights, options, warrants or conversion privileges, the issuance of which
necessitated an adjustment to the conversion ratio as set forth herein, if such
shall not have been exercised, then the conversion ratio shall, upon such
expiration, be readjusted and shall thereafter be such as it would have been had
it been originally adjusted (or had the original adjustment not been required,
as the case may be) on the basis of (A) the fact that Common Stock, if any,
actually issued or sold upon the exercise of such rights, options, warrants or
conversion privileges, and (B) the fact that such shares of Common Stock, if
any, were issued or sold for the consideration actually received by the
Corporation upon such exercise plus the consideration, if any, actually received
by the Corporation for the issuance, sale or grant of all such rights, options,
warrants or conversion
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privileges whether or not exercised.
(l) Certificate of Adjustment. In each case of an adjustment
or readjustment of the Class A Conversion Ratio, the Corporation, at its
expense, shall cause its Chief Financial Officer or Chief Accounting Officer to
compute such adjustment or readjustment in accordance with the provisions hereof
and prepare a certificate showing such adjustment or readjustment, and shall
mail such certificate, by certified mail, return receipt requested, postage
prepaid, to each registered holder of the Class A Preferred Stock at the
holder's address as shown in the Corporation's books. The certificate shall set
forth such adjustment or readjustment, showing in detail the facts upon which
such adjustment or readjustment is based, including a statement of (1) the Class
A Conversion Ratio at the time in effect and (2) the type and amount, if any, of
other property which at the time would be received upon conversion of the Class
A Preferred Stock.
(m) Notices of Record Date. In the event (i) that the
Corporation fixes a date for determination of stockholders of record of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or (ii) of any capital
reorganization of the Corporation, any reclassification or recapitalization of
the capital stock of the Corporation, any merger or consolidation of the
Corporation with or into any other corporation or other entity, or any transfer
of all or substantially all of the assets of the Corporation to any other person
or entity or any voluntary or involuntary dissolution, liquidation or winding up
of the Corporation, the Corporation shall mail to each holder of Class A
Preferred Stock at least thirty (30) days prior to the record date specified
therein, or, if applicable, the effective date of such transaction or event
specified therein, a notice specifying (1) the record date for the purpose of
determining the stockholders who are entitled to receive such dividend or
distribution and a description of such dividend or distribution, (2) the date on
which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective,
or (3) the date, if any, that is to be fixed, as to when the holders of record
of Common Stock (or other securities) shall be entitled to exchange their shares
of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up.
(n) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the Class A Preferred Stock. To the extent
the amount of any share of Common Stock payable to any holder of Class A
Preferred Stock does not equal an integral multiple of one share of Common
Stock, such fractional share shall be rounded up to the next whole integral
number of shares.
(o) Reservation of Common Stock Issuable Upon Conversion. The
Corporation shall at all times following the date which is ninety (90) days
after the Issuance Date, reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Class A Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Class A Preferred Stock.
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(p) Notices. Any notice required or permitted by this Section
9 or any other provision hereof to be given shall be in writing and be deemed
given upon the earlier of actual receipt or three (3) days after the same has
been deposited in the United States mail, by certified or registered mail,
return receipt requested, postage prepaid, and addressed (i) to each holder of
record of Class A Preferred Stock at the address of such holder appearing on the
books of the Corporation, or (ii) to the Corporation at 4 Science Park, New
Haven, CT, 06511 or (iii) to the Corporation or any such holder, at any other
address for the giving of notice specified in a written notice given to the
other.
(q) Payment of Taxes. The Corporation will pay all taxes
(other than taxes based upon income) and other governmental charges that may be
imposed with respect to the issue or delivery of shares of Common Stock upon
conversion of shares of Class A Preferred Stock, including, without limitation,
any tax or other charge imposed in connection with any transfer involved in the
issue and delivery of shares of Common Stock in a name other than that in which
the shares of Class A Preferred Stock so converted were registered.
(r) No Amendment or Impairment. The Corporation shall not
amend its Restated Certificate of Incorporation or participate in any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, for the purpose of avoiding or
seeking to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all times in
good faith assist in carrying out all such action as may be reasonably necessary
or appropriate in order to protect the conversion rights of the holders of the
Class A Preferred Stock against impairment.
10. Restrictions and Limitations. So long as any shares of
Class A Preferred Stock remain outstanding, the Corporation shall not, and shall
not permit any Subsidiary to, without the vote or written consent by the holders
of a Majority of the Class A Preferred Stock:
(a) Redeem, purchase or otherwise acquire for value, any share
or shares of Class A Preferred Stock, otherwise than by redemption in accordance
with Section 7 hereof, or any warrant, option or right to purchase any Class A
Preferred Stock;
(b) Declare or pay any dividends on or declare or make any
other distribution, direct or indirect (other than a dividend payable solely in
shares of Common Stock), on account of the Junior Stock or set apart any sum for
any such purpose;
(c) Increase (other than by redemption or conversion) the
total number of authorized shares of Class A Preferred Stock; or
(d) Take any action which would result in taxation of the
holders of Class A Preferred Stock under Section 305 of the Internal Revenue
Code of 1986 (or any comparable provision of the Internal Revenue Code of 1986
as hereafter from time to time amended).
11. No Reissuance of Class A Preferred Stock. No share or
shares of Class A Preferred Stock acquired by the Corporation by reason of
redemption, purchase, conversion or otherwise shall be reissued.
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Section 12. Outstanding Shares. For purposes of this
Certificate of Designations, all shares of Class A Preferred Stock shall be
deemed outstanding except (i) from the date, or the deemed date, of surrender of
certificates evidencing shares of Class A Preferred Stock, all shares of Class A
Preferred Stock converted into Common Stock, (ii) from the date of registration
of transfer, all shares of Class A Preferred Stock held of record by the
Corporation or any subsidiary of the Corporation and (iii) any and all shares of
Class A Preferred Stock held in escrow prior to delivery of such stock by the
Corporation to the initial beneficial owners thereof.
Section 13. Status of Acquired Shares. Shares of Class A
Preferred Stock received upon conversion pursuant to Section 9 or otherwise
acquired by the Corporation will be restored to the status of authorized but
unissued shares of Preferred Stock, without designation as to class, and may
thereafter be issued, but not as shares of Class A Preferred Stock.
Section 14. Preemptive Rights. The Class A Preferred Stock is
not entitled to any preemptive or subscription rights in respect of any
securities of the Corporation.
Section 15. Severability of Provisions. Whenever possible,
each provision hereof shall be interpreted in a manner as to be effective and
valid under applicable law, but if any provision hereof is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid under
applicable law.
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CERTIFICATE OF DESIGNATION OF
CLASS B CONVERTIBLE PREFERRED STOCK
OF
VION PHARMACEUTICALS, INC.
It is hereby certified that:
1. The name of the Company (hereinafter called the "Company") is Vion
Pharmaceuticals, Inc., a Delaware corporation.
2. The certificate of incorporation of the Company authorizes the
issuance of Five million (5,000,000) shares of preferred stock, $.01 par value
per share, and expressly vests in the Board of Directors of the Company the
authority provided therein to issue any or all of said shares in one (1) or more
series and by resolution or resolutions to establish the designation and number
and to fix the relative rights and preferences of each series to be issued.
3. The Board of Directors of the Company, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a Class B issue of Preferred Stock:
RESOLVED, that five thousand (5,000) of the five million (5,000,000)
authorized shares of Preferred Stock of the Company shall be designated Class B
Convertible Preferred Stock, $.01 par value per share, and shall possess the
rights and preferences set forth below:
Section 1. Designation and Amount. The shares of such series shall have
a par value of $.01 per share and shall be designated as Class B Convertible
Preferred Stock (the "Class B Preferred Stock") and the number of shares
constituting the Class B Preferred Stock shall be five thousand (5,000). The
Class B Preferred Stock shall be offered at a purchase price of One Thousand
Dollars ($1,000) per share (the "Original Class B Issue Price"), with an eight
percent (8%) per annum accretion rate as set forth herein.
Section 2. Rank. The Class B Preferred Stock shall rank: (i) junior to
any other class or series of capital stock of the Company hereafter created
specifically ranking by its terms senior to the Class B Preferred Stock
(collectively, the "Senior Securities"); (ii) prior to all of the Company's
Common Stock, $.01 par value per share ("Common Stock"); (iii) prior to any
class or series of capital stock of the Company hereafter created not
specifically ranking by its terms senior to or on parity with any Class B
Preferred Stock of whatever subdivision (collectively, with the Common Stock,
"Junior Securities"); and (iv) on parity with the Company's Class A Preferred
Stock and any class or series of capital stock of the Company hereafter created
specifically ranking by its terms on parity with the Class B Preferred Stock
("Parity Securities") in each case as to distributions of assets upon
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary (all such distributions being referred to collectively as
"Distributions").
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Section 3. Dividends. The Class B Preferred Stock will bear no cash
dividends, and the holders of the Class B Preferred Stock ("Holders") shall not
be entitled to receive cash dividends on the Class B Preferred Stock. The Class
B Preferred Stock shall bear Special Dividends, if applicable, upon conversion
in accordance with the terms of Section 5 herein below.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of the Company ("Liquidation Event"), either voluntary or involuntary, the then
Holders of shares of Class B Preferred Stock shall be entitled to receive,
immediately after any distributions to Senior Securities required by the
Company's Certificate of Incorporation or any certificate of designation, and
prior in preference to any distribution to Junior Securities but in parity with
any distribution to Parity Securities, an amount per share equal to the sum of
(i) the Original Class B Issue Price for each outstanding share of Class B
Preferred Stock and (ii) an amount equal to eight percent (8%) of the Original
Class B Issue Price, per annum, accruing daily, for the period that has passed
since the date of the Closing (as defined in the Regulation D Subscription
Agreement by and between the Holders and the Company dated on or about August
20, 1997) (the "Closing") of the purchase of such Holder's shares of Class B
Preferred Stock from the Company (such amount being referred to herein as the
"Premium"). If upon the occurrence of such event, and after payment in full of
the preferential amounts with respect to the Senior Securities, the assets and
funds available to be distributed among the Holders of the Class B Preferred
Stock and Parity Securities shall be insufficient to permit the payment to such
Holders of the full preferential amounts due to the Holders of the Class B
Preferred Stock and the Parity Securities, respectively, then the entire assets
and funds of the Company legally available for distribution shall be distributed
among the Holders of the Class B Preferred Stock and the Parity Securities, pro
rata, based on the respective liquidation amounts to which each such series of
stock is entitled by the Company's Certificate of Incorporation and any
certificate(s) of designation relating thereto.
(b) Upon the completion of the distribution required by
subsection 4(a), if assets remain in the Company, they shall be distributed to
holders of Junior Securities in accordance with the Company's Certificate of
Incorporation including any duly adopted certificate(s) of designation.
(c) At each Holder's option, a sale, conveyance or disposition
of all or substantially all of the assets of the Company or the effectuation by
the Company of a transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Company is disposed of shall
be deemed to be a Liquidation Event as defined in Section 4(a); provided further
that (i) a consolidation, merger, acquisition, or other business combination of
the Company with or into any other publicly traded company or companies (or in
which the Company is the surviving entity and remains a publicly traded Company)
shall not be treated as a Liquidation Event as defined in Section 4(a) but
instead shall be treated pursuant to Section 5(d) hereof, and (ii) a
consolidation, merger, acquisition, or other business combination of the Company
with or into any other non-publicly traded company or companies shall be treated
as a
Liquidation Event as defined in Section 4(a). The Company shall not effect any
transaction described in this subsection 4(c) unless it first gives thirty (30)
days prior notice of such transaction (during which time the Holder shall be
entitled to immediately convert any or all of its shares of Class B Preferred
Stock into Common Stock ("Conversion Shares") and Special Dividend Stock (as
defined below), notwithstanding the Special Dividend Quota (as defined below);
provided however, that, for purposes of calculating the Conversion Trading Price
(as defined in Section 5(a)) with respect to conversions occurring after the
Company gives such notice, "X" shall equal eighty percent (80%)).
(d) In the event that, immediately prior to the closing of a
transaction described in Section 4(c) which would constitute a Liquidation
Event, the cash distributions required by Section 4(a) or Section 6 have not
been made, the Company shall either: (i) cause such closing to be postponed
until such cash distributions have been made, or (ii) cancel such transaction,
in which event the rights of the Holders of Class B Preferred Stock shall be the
same as existing immediately prior to such proposed transaction.
Section 5. Conversion. The record Holder(s) of this Class B Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. The record Holder(s) of the Class B
Preferred Stock shall be entitled to convert, subject to the Company's right of
Redemption Upon Receipt of Notice of Conversion set forth in Section 6(a) herein
below, any or all the shares of the Class B Preferred Stock on or after the Last
Closing Date at any time and from time to time, as defined below, at the office
of the Company into that number of fully-paid and non-assessable shares of
Common Stock calculated in accordance with the following formula (the
"Conversion Rate"):
Number of shares of Common Stock issued upon conversion of one (1)
share of Class B Preferred Stock =
[(.08)(N/365)(1,000)]+1,000
---------------------------
Fixed Conversion Price
where,
o N= the number of days between (i) the date of the Closing of the sale
of the shares of Class B Preferred Stock for which conversion is being
elected, and (ii) the applicable Date of Conversion (as defined in
Section 5(b)(iv) below) for the shares of Class B Preferred Stock for
which conversion is being elected,
o Fixed Conversion Price = 100% of the average Closing Bid Price, as
defined below, for the thirty (30) trading days ending on the Last
Closing Date, which is $4.065,
o"Last Closing Date" shall mean the date of the last Closing of a
purchase and sale of the Class B Preferred Stock that occurs pursuant
to the offering of the Class B Preferred
Stock by the Company,
and
o "Closing Bid Price" shall mean the closing bid price of the Company's
Common Stock on the Nasdaq Small Cap Market, or if no longer traded on
the Nasdaq Small Cap Market, the closing bid price on the principal
national securities exchange or the over-the-counter market on which
the Common Stock is so traded and if not available, the mean of the
high and low prices on the principal national securities exchange or
the National Market System on which the Common Stock is so traded.
In the event that on any Date of Conversion (as defined in Section
5(b)(iv) below), the Conversion Trading Price (as defined below) is less than
the Fixed Conversion Price (each a "Special Dividend Date"), then the Company
shall pay to the Holder consummating a conversion of Class B Convertible Stock a
special dividend ("Special Dividend") of a number of shares of Class C Preferred
Stock ("Special Dividend Stock") equal to (the "Special Dividend Rate"):
[A/B - 1] x C;
where,
A = the Fixed Conversion Price
B = the Conversion Trading Price,
C = the number of shares of Class B Preferred Stock converted, and
"Conversion Trading Price" shall mean X% multiplied by the average
Closing Bid Price, as that term is defined above, of the Company's
Common Stock for the ten (10) trading days immediately preceding the
Date of Conversion, as defined below, where X is determined as follows:
No. Months Between Last
Closing Date and Date of Conversion "X"
----------------------------------- ---
4 months - 6 months 90%
6 months and 1 day - 9 months 85%
more than 9 months 80%
The Class C Preferred Stock shall be convertible at the Fixed Conversion Price
(either simultaneously with the shares of Class B Convertible Stock, the
conversion of which caused the issuance of such Class C Preferred Stock, or
thereafter) and shall not be entitled to Special Dividends.
Notwithstanding the above, unless otherwise indicated herein, the Holder shall
not receive a Special Dividend with respect to shares of Class B Preferred Stock
to the extent that an amount of Class B Preferred Stock in excess of the Special
Dividend Quota (as defined below) has been previously converted in conversions
resulting in the issuance of Special Dividends. For purposes hereof, the
"Special Dividend Quota" is the maximum aggregate amount of Class B Preferred
Stock which will receive Special Dividends upon conversion through a given date,
stated as a percentage of the aggregate principal amount of the Class B
Preferred Stock issued to such Holder, as follows:
No. Months Between Last Aggregate "Special
Closing Date and Date of Conversion Dividend Quota"
----------------------------------- ---------------
Last Closing Date - 4 months 0%
4 months and 1 day - 5 months 15%
5 months and 1 day - 6 months 30%
6 months and 1 day - 7 months 45%
7 months and 1 day - 8 months 60%
8 months and 1 day - 9 months 75%
9 months and 1 day - 10 months 90%
10 months and 1 day + 100%
Conversions that do not result in the issuance of Special Dividends are not
counted toward the Special Dividend Quota. Notwithstanding the Special Dividend
Quota, a Holder is entitled to convert up to one hundred percent (100%) of the
Class B Preferred Stock, or any portion thereof, into Common Stock any time (i)
on or after the Last Closing Date, although the amount converted (to the extent
that such aggregate amounts converted receive Special Dividends) in excess of
the Special Dividend Quota shall not be entitled to Special Dividends, or (ii)
after any voluntary or involuntary bankruptcy or similar filing is commenced
with respect to the Company, or any appointment of a receiver or custodian with
respect to the Company or (iii) any merger or consolidation of the Company or
any sale of all or substantially all of the Company's assets or any change of
majority voting control of the Company in one or any series of transactions.
For purposes hereof, any Holder which acquires shares of Class B
Preferred Stock from another Holder (the "Transferor") and not upon original
issuance from the Company shall be entitled to exercise its conversion right as
to the percentages of such shares specified under Section 5(a) in such amounts
and at such times such that the number of shares eligible for Special Dividends
upon conversion by such Holder at any time shall be in the same proportion to
the Special Dividend Quota that the number of shares of Class B Preferred Stock
acquired by such Holder from its Transferor bears to the total number of shares
of Class B Preferred Stock originally issued by the Company to such Transferor
(or its predecessor Transferor).
(b) Mechanics of Conversion. In order to convert Class B
Preferred Stock into full shares of Common Stock, the Holder shall (i) send via
facsimile, on or prior to 11:59 p.m., New York City time (the "Conversion Notice
Deadline") on the Date of Conversion, a copy of the fully executed notice of
conversion ("Notice of Conversion") to the Company at the office of the Company
stating that the Holder elects to convert, which notice shall specify the Date
of Conversion, the number of shares of Class B Preferred Stock and Special
Dividend Stock (if any) to be converted, the applicable Conversion Trading Price
and a calculation of the number of shares of Common Stock and Special Dividend
Stock (if any) issuable upon
such conversions (together with a copy of the front page of each certificate to
be converted) and (ii) surrender to a common courier for delivery to the office
of the Company, the original certificates representing the Class B Preferred
Stock being converted (the "Preferred Stock Certificates"), duly endorsed for
transfer; provided, however, that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock and Special Dividend Stock
(if applicable) issuable upon such conversion unless either the Preferred Stock
Certificates are delivered to the Company as provided above, or the Holder
notifies the Company that such certificates have been lost, stolen or destroyed
(subject to the requirements of subparagraph (i) below). Unless otherwise noted
in writing by the Holder, any Notice of Conversion tendered to the Company for
conversion of Class B Preferred Stock shall be deemed to be a validly tendered
Notice of Conversion for conversion of the Class C Preferred Stock issued or
issuable upon conversion of such Class B Preferred Stock. Upon receipt by the
Company of a facsimile copy of a Notice of Conversion, the Company shall
immediately send, via facsimile, a confirmation of receipt of the Notice of
Conversion to Holder which shall specify that the Notice of Conversion has been
received and the name and telephone number of a contact person at the Company
whom the Holder should contact regarding information related to the Conversion.
In the case of a dispute as to the calculation of the Conversion Rate or the
Special Dividend Rate (if applicable), the Company shall, within the time period
required under Section 5(b)(ii) below, issue to the Holder the number of Shares
that are not disputed and shall submit the disputed calculations to its outside
accountant via facsimile within three (3) days of receipt of Holder's Notice of
Conversion. The Company shall cause the accountant to perform the calculations
and notify the Company and Holder of the results no later than two business days
from the time it receives the disputed calculations. Accountant's calculation
shall be deemed conclusive absent manifest error.
(i) Lost or Stolen Certificates. Upon receipt by the
Company of evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing shares of Class B Preferred Stock, and
(in the case of loss, theft or destruction) of indemnity or security reasonably
satisfactory to the Company, and upon surrender and cancellation of the
Preferred Stock Certificate(s), if mutilated, the Company shall execute and
deliver new Preferred Stock Certificate(s) of like tenor and date. However, the
Company shall not be obligated to re-issue such lost or stolen Preferred Stock
Certificates if Holder contemporaneously requests the Company to convert such
Class B Preferred Stock into Common Stock.
(ii) Delivery of Common Stock Upon Conversion. The
Company shall, no later than the close of business on the second (2nd) business
day (the "Deadline") after receipt by the Company of a facsimile copy of a
Notice of Conversion and receipt by Company of all necessary documentation duly
executed and in proper form required for conversion, including the original
Preferred Stock Certificates to be converted (or after provision for security or
indemnification in the case of lost or destroyed certificates, if required),
and/or shall cause the transfer agent for its Common Stock (the "Transfer
Agent") to issue and surrender to a common courier for either overnight or (if
delivery is outside the United States) two (2) day delivery to the Holder at the
address of the Holder as shown on the stock records of the Company a certificate
for the number of shares of Common Stock and the Company shall issue Special
Dividend Stock (if any) to which the Holder shall be entitled as aforesaid.
(iii) No Fractional Shares. If any conversion of the
Class B Preferred Stock would create a fractional share of Common Stock or a
right to acquire a fractional share of Common Stock, such fractional share shall
be disregarded and the number of shares of Common Stock issuable upon
conversion, in the aggregate, shall be the next higher number of shares.
(iv) Date of Conversion. The date on which conversion
occurs (the "Date of Conversion") shall be deemed to be the date set forth in
such Notice of Conversion, provided (i) that the advance copy of the Notice of
Conversion is sent via facsimile to the Company before 11:59 p.m., New York City
time, on the Date of Conversion, and (ii) that the original Preferred Stock
Certificates representing the shares of Class B Preferred Stock to be converted
are surrendered by depositing such certificates with a common courier, for
delivery to the Company as provided above, as soon as practicable after the Date
of Conversion. The person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record Holder or Holders of such shares of Common Stock on the Date of
Conversion.
(c) Automatic Conversion or Redemption. Each share of Class B
Preferred Stock outstanding on the date which is two (2) years after the Last
Closing Date or, if not a business day, the first business day thereafter
("Termination Date") automatically shall, at the option of the Company, either
(i) provided that there has been no uncured Event of Default, be converted
("Automatic Conversion") into Common Stock on such date at the Conversion Rate
then in effect (calculated in accordance with the formula in Section 5(a)
above), and shall receive a Special Dividend (if any) based upon the Special
Dividend Rate then in effect, which Special Dividend Stock shall also be
simultaneously converted into Common Stock, where the Termination Date shall be
deemed the Date of Conversion with respect to such conversion for purposes of
this Certificate of Designation; or (ii) be redeemed ("Automatic Redemption") by
the Company for cash in an amount equal to the 125% times the Total Value (as
defined in Section 6(a)(i) below) of the shares of Class B Preferred Stock being
redeemed. If the Company elects to redeem, on the Termination Date under this
subsection, the Company shall send to the Holders of outstanding Class B
Preferred Stock notice (the "Automatic Redemption Notice"), via facsimile, no
later than the business day preceding the Termination Date, of its intent to
effect an Automatic Redemption of the outstanding Class B Preferred Stock on the
Termination Date. If the Company does not send such notice to Holder by such
date, an Automatic Conversion shall be deemed to have occurred. If an Automatic
Conversion occurs, the Company and the Holders shall follow the applicable
conversion procedures set forth in this Certificate of Designation; provided,
however, that the Holders are not required to send the Notice of Conversion
contemplated by Section 5(b). If the Company elects to redeem under this
subsection, each Holder of Class B Preferred Stock which has not been converted
and remains outstanding as of the Termination Date shall send their certificates
representing the Class B Preferred Stock to the Company within five (5) business
days of the Termination Date, and the Company shall pay the applicable
redemption price to each respective Holder within five (5) days of the receipt
of such certificates. The Company shall not be obligated to deliver the
redemption price unless the certificates representing the Class B Preferred
Stock are delivered to the Company, or, in the event one or more certificates
have been lost, stolen, mutilated or destroyed, unless the Holder has complied
with Section 5(b)(i). If the Company elects to redeem under this Section 5(c)
and
the Company fails to pay the Holders the redemption price within five (5)
business days of its receipt of the certificates representing the shares of
Class B Preferred Stock to be redeemed as required by this Section 5(c), then an
Automatic Conversion shall be deemed to have occurred and, upon receipt of the
Preferred Stock certificates, the Company shall immediately deliver to the
Holders the certificates representing the number of shares of Common Stock and
Special Dividend Stock (if any) to which the Holders would have been entitled
upon Automatic Conversion of the Class B Preferred Stock, where the number of
shares of Special Dividend Stock issuable is calculated using the lowest
Conversion Trading Price (as defined in Section 5 hereof) in effect during the
period beginning on the Termination Date and ending on the date the Company or
its Transfer Agent issues Common Stock and Special Dividend Stock (if any)
pursuant to this Section 5(c). Nothing in this Section 5(c) shall be construed
to limit Holder's ability to pursue Holder's rights under Section 13 hereof. At
each Holder's option, upon written notice from the investor no later than five
(5) business days prior to the original Termination Date, the Termination Date
shall be delayed for the aggregate number of days during which there is
continuing one or more Events of Default or a Conversion Failure anytime during
the term of the Class B Preferred Stock.
(d) Adjustment to Conversion Rate.
(i) Adjustment to Fixed Conversion Price Due to Stock
Split, Stock Dividend, Etc. If, prior to the conversion of all of the Class B
Preferred Stock, the number of outstanding shares of Common Stock is increased
by a stock split, stock dividend, or other similar event, the Fixed Conversion
Price shall be proportionately reduced, or if the number of outstanding shares
of Common Stock is decreased by a combination or reclassification of shares, or
other similar event, the Fixed Conversion Price shall be proportionately
increased.
(ii) Adjustment to Conversion Trading Price. If, at
any time when any shares of the Class B Preferred Stock are issued and
outstanding, the number of outstanding shares of Common Stock is increased or
decreased by a stock split, stock dividend, or other similar event, which event
shall have taken place during the reference period for determination of the
Conversion Trading Price for any conversion of the Class B Preferred Stock, then
the Conversion Trading Price shall be calculated giving appropriate effect to
the stock split, stock dividend, combination, reclassification or other similar
event for all ten (10) trading days immediately preceding the Date of
Conversion.
(iii) Adjustments.
(A) Adjustment Due to Merger, Consolidation,
Etc. If, prior to the conversion of all Class B Preferred Stock, there shall be
any merger, consolidation, exchange of shares, recapitalization, reorganization,
or other similar event, as a result of which shares of Common Stock of the
Company shall be changed into (or the shares of Common Stock become entitled to
receive) the same or a different number of shares of the same or another class
or classes of stock or securities of the Company or another entity or there is a
sale of all or substantially all the Company's assets or there is a change of
control transaction not deemed to be a liquidation pursuant to Section 4(c),
then the Holders of Class B Preferred Stock shall thereafter have the right to
receive upon conversion of Class B Preferred Stock, upon the basis
and upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore issuable upon conversion, such stock,
securities and/or other assets which the Holder would have been entitled to
receive in such transaction had the Class B Preferred Stock been converted
immediately prior to such transaction, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the Holders
of the Class B Preferred Stock to the end that the provisions hereof (including,
without limitation, provisions for the adjustment of the Conversion Trading
Price and of the number of shares issuable upon conversion of the Class B
Preferred Stock) shall thereafter be applicable, as nearly as may be practicable
in relation to any securities thereafter deliverable upon the exercise hereof.
The Company shall not effect any transaction described in this subsection
5(d)(iii) unless (a) it first gives at least thirty (30) days prior notice of
such merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event (during which time the Holder shall be
entitled to convert its shares of Class B Preferred Stock into Common Stock and
Special Dividend Stock (notwithstanding the Special Dividend Quota), and (b) the
resulting successor or acquiring entity (if not the Company) assumes by written
instrument the obligations of the Company under this Certificate of Designation
including this subsection 5(d)(iii).
(B) Adjustment Due to Distribution. If at
any time after the Last Closing Date, the Company shall declare or make any
distribution of its assets (or rights to acquire its assets) to Holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
otherwise (including any dividend or distribution to the Company's shareholders
in cash or shares (or rights to acquire shares) of capital stock of any other
public or private company, including but not limited to a subsidiary or spin-off
of the Company (a "Distribution"), then the Holders of Class B Preferred Stock
shall be entitled, upon any conversion of shares of Class B Preferred Stock or
conversion of Special Dividend Stock (if any) issuable upon a subsequent
conversion of Class B Preferred Stock, in each case after the date of record for
determining shareholders entitled to such Distribution, to receive the amount of
such assets which would have been payable to the Holder with respect to the
shares of Common Stock issuable upon such conversion of Class B Preferred Stock
and upon conversion of Special Dividend Stock (if any), issuable upon such
conversion of Class B Preferred Stock, had such Holder been the holder of such
shares of Common Stock on the record date for determination of shareholders
entitled to such Distribution.
(iv) (A) Adjustment Due to Issuances of Other
Securities. If at any time or from time to time after the Last Closing Date, the
Company shall issue or sell Common Stock or rights, options, warrants or other
securities convertible into Common Stock (excluding those rights, options,
warrants or other securities convertible into no more than 18,000,000 shares of
Common Stock outstanding as of the Last Closing Date or underlying such
securities and future ordinary 5% annual dividends on its Class A Convertible
Preferred Stock), at a price per share which is lower than the then effective
Fixed Conversion Price, then the Conversion Rate and the Special Dividend Rate
shall each be increased by multiplying the Conversion Rate and Special Dividend
Rate theretofore in effect by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding immediately prior to the issuance
of such shares, rights, options, warrants or convertible securities plus the
number of additional shares of Common Stock offered for subscription or
purchase, and of which the denominator shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such rights,
options, warrants or convertible securities plus the number of shares which the
aggregate offering price of the total number of shares offered would purchase at
the then effective Fixed Conversion Price, provided, however, that no such
adjustment shall be made which results in a decrease in the Conversion Rate or
Special Dividend Rate. Such adjustment shall be made whenever such rights,
options, warrants or convertible securities are issued, and shall become
effective immediately and retroactive to the record date for the determination
of stockholders entitled to receive such rights, options, warrants or
convertible securities. Notwithstanding the foregoing, no adjustment will be
required on account of (i) the exercise of any of the options presently
outstanding under the Company's Amended and Restated 1993 Stock Option Plan (the
"Plan") for officers, directors and certain other key personnel of the Company,
or (ii) the issuance or exercise of any other securities which may hereafter be
granted or exercised under the Plan or under any other employee benefit plan of
the Company, but only to the extent that all shares of Common Stock issued or
issuable pursuant to such plan or plans do not exceed 4,000,000 shares, as such
number may be appropriately adjusted for dilutive events; or (iii) shares issued
in an underwritten public offering.
(B) Adjustment Due to Expired and
Unexercised Convertible Securities. If, in any case, the total number of shares
of Common Stock issuable upon exercise, conversion or exchange of any rights,
options, warrants or convertible securities (collectively, "Convertible
Securities") is not, in fact, issued and the rights to exercise, convert or
exchange such Convertible Securities shall have expired or terminated, the
Conversion Rate and Special Dividend Rate then in effect will be readjusted to
the Conversion Rate and Special Dividend Rate which would have been in effect at
the time of such expiration or termination had such Convertible Securities, to
the extent outstanding immediately prior to such expiration or termination
(other than in respect of the actual number of shares of Common Stock issued
upon exercise or conversion thereof), never been issued.
(v) No Fractional Shares. If any adjustment under
this Section 5(d) would create a fractional share of Common Stock or a right to
acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon conversion
shall be the next higher number of shares.
(e) No Five Percent Holders. Notwithstanding anything to the
contrary contained herein, the Class B Preferred Stock shall not be convertible
by a Holder or at the Termination Date to the extent (but only to the extent)
that, if converted by such Holder or at the Termination Date, the Holder would
beneficially own in excess of 4.9% of the then outstanding shares of Common
Stock of the Company (the "4.9% Limitation"), provided, however, that such
limitation shall not apply to conversions tendered in anticipation of or
following a merger, acquisition, or other business combination involving the
Company or pursuant to bankruptcy or insolvency proceedings. To the extent this
limitation applies, the determination of whether Class B Preferred Stock shall
be convertible (vis-a vis other securities owned by such Holder) and of which
Class B Preferred Stock shall be converted shall be in the sole discretion of
the Holder and submission of the Class B Preferred Stock for conversion shall be
deemed to be the Holder's determination of whether such Class B Preferred Stock
is convertible, subject to such aggregate percentage limitations. For the
purposes of this subparagraph, beneficial ownership and all calculations,
including without limitation, with respect to calculations of percentage
ownership
shall be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and the Regulations thereunder. Notwithstanding the
foregoing, each Holder shall have the right to waive such restriction or
increase such percentage upon sixty one (61) days' prior notice to the Company
and to decrease any such percentage immediately upon written notice to the
Company. No transferee of Class B Preferred Stock shall be bound by such
restriction unless the transferee expressly so agrees.
Section 6. Redemption by Company.
(a) Company's Right to Redeem Upon Receipt of Notice of
Conversion. If the Conversion Trading Price of the Company's Common Stock is
less than the Fixed Conversion Price (as defined in Section 5(a)), at the time
of receipt of a Notice of Conversion pursuant to Section 5(b), the Company shall
have the right, in its sole discretion, to redeem in whole or in part any Class
B Preferred Stock submitted for conversion at the Redemption Rate (as defined
below), immediately prior to and in lieu of conversion ("Redemption Upon Receipt
of Notice of Conversion"). If the Company elects to redeem some, but not all, of
the Class B Preferred Stock submitted for conversion, the Company shall redeem
from among the Class B Preferred Stock submitted by the various shareholders for
conversion on the applicable date, a pro-rata amount from each such Holder so
submitting Class B Preferred Stock for conversion.
(i) Redemption Price Upon Receipt of a Notice of
Conversion. The redemption rate of Class B Preferred Stock under this Section
6(a) shall be calculated as follows ("Redemption Rate"):
No. Months Between Last
Closing and Date of Conversion Redemption Rate
------------------------------ ---------------
4 months - 6 months Total Value x 1.110
6 months and 1 day - 9 months Total Value x 1.176
more than 9 months Total Value x 1.250
where,
"Total Value" shall mean the Stated Value of the Class B Preferred
Stock being redeemed, plus liquidated damages, Conversion Failure Payments, Late
Registration Payments and any other cash payments then due from the Company and
then unpaid, where "Stated Value" shall mean the Original Class B Issue Price
(as defined in Section 1) of each share of Class B Preferred Stock, together
with the accreted but unpaid Premium (as defined in Section 4(a)).
(ii) Mechanics of Redemption Upon Receipt of Notice
of Conversion. The Company shall effect each such redemption by giving notice of
its election to redeem, by facsimile, by 5:00 p.m. New York City time the next
business day following receipt of a Notice of Conversion from a Holder, and the
Company shall provide a copy of such redemption notice by overnight or two (2)
day courier, to the Holder of the Class B Preferred Stock submitted for
conversion at the address and facsimile number of such Holder appearing in the
Company's
register for the Class B Preferred Stock. Such redemption notice shall indicate
whether the Company will redeem all or part of the Class B Preferred Stock
submitted for conversion and the applicable redemption price.
(iii) Redemption Buy-In. If (i) on the same date as
or subsequent to the tender of a Notice of Conversion, but prior to its receipt
of a Notice of Redemption Upon Notice of Conversion, the Holder sells shares of
Common Stock which such Holder anticipated receiving upon such conversion and
upon conversion of the Special Dividend Stock which Holder expected to receive
upon such conversion (collectively, the "Redemption Sold Shares"), (ii) the
Company effects a Redemption Upon Receipt of Notice of Conversion with respect
to such conversion, and (iii) the Holder purchases (in an open market
transaction), no later than the close of trading on the trading day following
its receipt of the Notice of Redemption Upon Notice of Conversion (or as soon as
trading volume of the Common Stock reasonably permits), shares of Common Stock
to make delivery upon the sale of the Redemption Sold Shares (a "Redemption
Buy-In"), the Company shall pay such Holder (in addition to the applicable
Redemption Rate) (within two (2) business days following receipt of written
notice of a claim pursuant to this Section 6(a)(iii)) the amount by which (x)
such Holder's total purchase price (including brokerage commission, if any) for
the shares of Common Stock purchased in the Redemption Buy-In exceeds (y) the
net proceeds received by such Holder from the sale of the Redemption Sold
Shares. For example, if a Holder purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Redemption Buy-In with respect to shares of
Common Stock sold for $10,000, the Company will be required to pay (within two
(2) business days following receipt of written notice of a claim pursuant to
this Section 6(a)(iii)) such Holder $1,000. A Holder shall provide the Company
written notification (and trading records, if reasonably requested by the
Company) indicating any amounts payable to Holder pursuant to this Section.
(b) Company's Right to Redeem at its Election. At any time,
commencing twelve (12) months and one (1) day after the Last Closing Date
provided that such date shall be extended for each day during which there is
continuing an Event of Default, the Company shall have the right, in its sole
discretion, to redeem ("Redemption at Company's Election"), from time to time,
any or all of the Class B Preferred Stock; provided that (i) the Company shall
first provide thirty (30) days advance written notice as provided in
subparagraph 6(b)(ii) below (which can be given beginning thirty (30) days prior
to the date which is twelve (12) months and one (1) day after the Last Closing
Date), and (ii) that the Company shall only be entitled to redeem Class B
Preferred Stock having an aggregate Total Value of at least Two Hundred Fifty
Thousand Dollars ($250,000). If the Company elects to redeem some, but not all,
of the Class B Preferred Stock, the Company shall redeem a pro-rata amount from
each Holder of the Class B Preferred Stock and a proportionate amount of any
Class C Preferred Stock held by each such Holder.
(i) Redemption Price At Company's Election. The
"Redemption Price At Company's Election" shall be calculated as a percentage of
Total Value, as that term is defined below, of the Class B Preferred Stock
redeemed pursuant to this Section 6(b), which percentage shall vary depending on
the date of Redemption at Company's Election (as defined below), and shall be
determined as follows:
Date of Notice of Redemption at Company's Election % of Total Value
-------------------------------------------------- ----------------
12 months and 1 day to 18 months following Last Closing Date 130%
18 months and 1 day to 24 months following Last Closing Date 125%
(ii) Mechanics of Redemption at Company's Election.
The Company shall effect each such redemption by giving at least thirty (30)
days prior written notice ("Notice of Redemption At Company's Election") to the
Holders of the Class B Preferred Stock selected for redemption, at the address
and facsimile number of such Holder appearing in the Company's Class B Preferred
Stock register, which Notice of Redemption At Company's Election shall be deemed
to have been delivered two (2) business days after the Company's mailing (by
overnight or two (2) day courier, with a copy by facsimile) of such Notice of
Redemption At Company's Election. Such Notice of Redemption At Company's
Election shall indicate (i) the number of shares of Class B Preferred Stock that
have been selected for redemption, (ii) the date which such redemption is to
become effective (the "Date of Redemption At Company's Election") and (iii) the
applicable Redemption Price At Company's Election, as defined in subsection
(b)(i) above. Notwithstanding the above, Holder may convert into Common Stock
and Special Dividend Stock (notwithstanding the Special Dividend Quota) pursuant
to Section 5, prior to the close of business on the Date of Redemption at
Company's Election, any or all Class B Preferred Stock which it is otherwise
entitled to convert, including Class B Preferred Stock that has been selected
for redemption at the Company's election pursuant to this subsection 6(b);
provided, however, that the Company shall still be entitled to exercise its
right, if applicable, to redeem upon receipt of a Notice of Conversion pursuant
to Section 6(a).
(c) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to send any Redemption Notice and
begin the redemption procedure under Sections 6(a) and 6(b) unless it has:
(i) the full amount of the redemption price in cash,
available in a demand or other immediately available account in a bank or
similar financial institution; or
(ii) immediately available credit facilities, in the
full amount of the redemption price with a bank or similar financial
institution; or
(iii) an agreement with a standby underwriter willing
to purchase from the Company a sufficient number of shares of stock to provide
proceeds necessary to redeem any stock that is not converted prior to
redemption; or
(iv) a combination of the items set forth in (i),
(ii) and (iii) above, aggregating the full amount of the redemption price.
If the foregoing conditions of this Section 6(c) are satisfied and the
Company complies with Section 6(d) hereof, then any shares of Class B Preferred
Stock called for by a Redemption at Company's Election shall cease to be
outstanding for all purposes hereunder (including the
right to convert or to accrete additional Premium or to exercise any other right
or privilege hereunder) on the Date of Redemption at Company's Election and
shall instead represent the right to receive the Redemption Price at Company's
Election without interest from and after the Date of Redemption at Company's
Election.
(d) Payment of Redemption Price.
(i) Each Holder submitting Preferred Stock being
redeemed under this Section 6 shall send their Class B Preferred Stock
Certificates so redeemed to the Company, and the Company shall pay the
applicable redemption price to that Holder within five (5) business days of the
Date of Redemption at Company's Election. The Company shall not be obligated to
deliver the redemption price unless the Preferred Stock Certificates so redeemed
are delivered to the Company, or, in the event one (1) or more certificates have
been lost, stolen, mutilated or destroyed, unless the Holder has complied with
Section 5(b)(i).
(ii) If the Company elects to redeem pursuant to
Section 6(a) hereof, and the Company fails to pay Holder the redemption price
within the time frame as required by this Section 6(d), then the Company shall
issue shares of Common Stock and Special Dividend Stock to any such Holder who
has submitted a Notice of Conversion in compliance with Section 5(b) hereof. The
number of shares of Special Dividend Stock to be issued to Holder pursuant to
this provision shall be determined using the lowest Conversion Trading Price (as
defined in Section 5 hereof) in effect during the period beginning on the date
Holder sends its Notice of Conversion to Company via facsimile and ending on the
date the Company or the Transfer Agent issues Common Stock pursuant to this
Section 6(d)(ii). Nothing in this Section 6(d) shall be construed to limit
Holder's ability to pursue Holder's rights under Section 13 hereof.
(e) Blackout Period. Notwithstanding the foregoing, the
Company may not either send out a redemption notice or effect a redemption
pursuant to Section 6(b) above during a Blackout Period (defined as a period
during which the Company's officers or directors would be prohibited from buying
or selling stock pursuant to the Securities Exchange Act of 1934, as amended,
because of their holding of material non-public information), unless the Company
shall first publicly disclose the non-public information that resulted in the
Blackout Period; provided, however, that no redemption shall be effected until
at least ten (10) days after the Company shall have given the Holder written
notice that the Blackout Period has been lifted.
Section 7. Voting Rights. The Holders of the Class B Preferred Stock
shall have no voting power whatsoever, except as otherwise provided by the
General Corporation Law of the State of Delaware ("Delaware Law"), and no Holder
of Class B Preferred Stock shall vote or otherwise participate in any proceeding
in which actions shall be taken by the Company or the shareholders thereof or be
entitled to notification as to any meeting of the shareholders.
Notwithstanding the above, the Company shall provide Holder with
notification of any meeting of the shareholders regarding any major corporate
events affecting the Company. In the event of any taking by the Company of a
record of its shareholders for the purpose of determining shareholders who are
entitled to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire any share of any class or
any other securities or property (including by way of merger, consolidation or
reorganization), or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Company, or any proposed liquidation, dissolution or winding up of the
Company, the Company shall send (by certified mail or overnight courier) a
notice to Holder, in such form as given to the other shareholders, at least ten
(10) days prior to the record date specified therein, of the date on which any
such record is to be taken for the purpose of such dividend, distribution, right
or other event, and a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
To the extent that under Delaware Law the vote of the Holders of the
Class B Preferred Stock, voting separately as a class, is required to authorize
a given action of the Company, the affirmative vote or consent of the Holders of
at least two thirds (2/3) of the shares of the Class B Preferred Stock
represented at a duly held meeting at which a quorum is present or by written
consent of a majority of the shares of Class B Preferred Stock (except as
otherwise may be required under Delaware Law) shall constitute the approval of
such action by the class, subject to Section 8 below. To the extent that under
Delaware Law the Holders of the Class B Preferred Stock are entitled to vote on
a matter with holders of Common Stock, voting together as one (1) class, each
share of Class B Preferred Stock shall be entitled to a number of votes equal to
the number of shares of Common Stock into which it is then convertible using the
record date for the taking of such vote of stockholders as the date as of which
the Conversion Trading Price is calculated. Holders of the Class B Preferred
Stock also shall be entitled to notice of all shareholder meetings or written
consents with respect to which they would be entitled to vote, which notice
would be provided pursuant to the Company's by-laws and applicable statutes.
Section 8. Protective Provision. So long as shares of Class B Preferred
Stock are outstanding, the Company shall not without first obtaining the
approval (by vote or written consent, as provided by Delaware Law) of the
Holders of at least seventy-five percent (75%) of the then outstanding shares of
Class B Preferred Stock, and at least seventy-five percent (75%) of the then
outstanding Holders:
(a) alter or change the rights, preferences or privileges of
the Class B Preferred Stock or any securities so as to affect adversely the
Class B Preferred Stock;
(b) create any new class or series of stock having a
preference over or on parity with the Class B Preferred Stock with respect to
Distributions (as defined in Section 2 above) or increase the size of the
authorized number of Class B Preferred; or
(c) do any act or thing not authorized or contemplated by this
Designation which would result in taxation of the Holders of shares of the Class
B Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as
amended (or any comparable provision of the Internal Revenue Code as hereafter
from time to time amended).
In the event Holders of at least seventy-five percent (75%) of the then
outstanding shares of Class B Preferred Stock and at least seventy-five percent
(75%) of the then outstanding Holders agree to allow the Company to alter or
change the rights, preferences or privileges of
the shares of Class B Preferred Stock, pursuant to subsection (a) above, so as
to affect the Class B Preferred Stock, then the Company will deliver notice of
such approved change to the Holders of the Class B Preferred Stock that did not
agree to such alteration or change (the "Dissenting Holders") and Dissenting
Holders shall have the right for a period of thirty (30) days to convert
pursuant to the terms of this Certificate of Designation as they exist prior to
such alteration or change (provided that, for purposes of calculating the
Conversion Trading Price, as defined in Section 5(a), "X" shall equal eighty
percent (80%), and provided further that the Special Dividend Quota set forth in
Section 5(a) hereof shall not apply), or continue to hold their shares of Class
B Preferred Stock, as amended.
Section 9. Status of Converted or Redeemed Stock. In the event any
shares of Class B Preferred Stock shall be converted or redeemed pursuant to
Section 5 or Section 6 hereof, the shares so converted or redeemed shall be
canceled, shall return to the status of authorized but unissued Preferred Stock
of no designated series, and shall not be issuable by the Company as Class B
Preferred Stock.
Section 10. Preference Rights. Nothing contained herein shall be
construed to prevent the Board of Directors of the Company from issuing one (1)
or more series of Preferred Stock with dividend and/or liquidation preferences
junior to the dividend and liquidation preferences of the Class B Preferred
Stock.
Section 11. Authorization and Reservation of Shares of Common Stock.
(a) Authorized and Reserved Amount. The Company shall have
authorized and reserved and keep available for issuance three million five
hundred thousand (3,500,000) shares of Common Stock (the "Authorized and
Reserved Amount") solely for the purpose of effecting the conversion of the
Class B Preferred Stock and conversion of any Special Dividend Stock issuable
upon conversion of the Class B Preferred Stock, which number shall not be
reduced. The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock a sufficient number of shares of
Common Stock to provide for (i) the full conversion of all outstanding Class B
Preferred Stock and (ii) the full conversion of all Special Dividend Stock to
which Holders would be entitled upon the full conversion of all outstanding
Class B Preferred Stock, and, in each case, the issuance of the shares of Common
Stock in connection therewith (collectively, the "Required Number of Shares").
(b) Increases to Authorized and Reserved Amount. Without
limiting any other provision of this Section 11, if the Authorized and Reserved
Amount for any ten (10) consecutive trading days (the last of such ten (10)
trading days being the "Authorization and Reservation Trigger Date") shall be
less than one hundred twenty percent (120%) of the Required Number of Shares on
such trading days (a "Share Authorization and Reservation Failure"), the Company
shall immediately notify all Holders of such occurrence and shall take action as
soon as practicable, (including, if necessary, commencing action to seek
shareholder approval to authorize the issuance of additional shares of Common
Stock) to increase the Authorized and Reserved Amount to one hundred fifty
percent (150%) of the Required Number of Shares.
(c) Reduction of Authorized and Reserved Amount Under Certain
Circumstances. Prior to complete conversion of all Class B Preferred Stock and
all Special Dividend Stock, the Company shall not reduce the number of shares
required to be reserved for issuance under this Section 11 without the written
consent of all Holders except for a reduction proportionate to a reverse stock
split effected for a business purpose other than affecting the obligations of
Company under this Section 11, which reverse stock split affects all shares of
Common Stock equally.
(d) [Intentionally Left Blank].
(e) Cap Amount. If prohibited by applicable Nasdaq rules, in
no event shall the total number of shares of Common Stock issued upon conversion
of the Class B Preferred Stock and the Special Dividend Stock (if any) issuable
upon conversion of the Class B Preferred Stock exceed the maximum number of
shares of Common Stock (the "Cap Amount") that the Company can, without
shareholder approval, so issue pursuant to Nasdaq Rule 4460(i)(1)(d)(ii) (or any
other applicable Nasdaq Rules or any successor rule) (the "Nasdaq 20% Rule").
The Cap Amount shall be allocated pro-rata to the Holders of Class B Preferred
Stock as provided in subsection (f) below. In the event the Company is
prohibited from issuing shares of Common Stock as a result of the operation of
this subsection (e), the Company shall comply with subsection (g) below.
(f) Allocations of Cap Amount and Authorized and Reserved
Amount. The initial Cap Amount and Authorized and Reserved Amount shall be
allocated pro rata (the "Pro Rata Amount" among the Holders of Class B Preferred
Stock based on the number of the shares of Class B Preferred Stock initially
issued to each Holder. Each increase to the Cap Amount and Authorized and
Reserved Amount shall be allocated pro rata among the Holders of Class B
Preferred Stock based on the number of the shares of Class B Preferred Stock
held by each Holder at the time of the increase in the Cap Amount or Authorized
and Reserved Amount, as the case may be. In the event a Holder shall sell or
otherwise transfer any of such Holder's shares of Class B Preferred Stock, each
transferee shall be allocated a pro rata portion of such transferor's Cap Amount
and Authorized and Reserved Amount. Any portion of the Cap Amount or Authorized
and Reserved Amount which remains allocated to any person or entity which does
not hold any Class B Preferred Stock shall be allocated to the remaining Holders
of shares of Class B Preferred Stock, pro rata based on the number of shares of
Class B Preferred Stock then held by such Holders. Each Holder's Pro Rata Amount
remains allocated to such Holder until issuance upon conversion of Class B
Preferred Stock or Class C Preferred Stock. The Company shall not issue shares
of Common Stock to one Holder upon a conversion which are part of another
Holder's Pro Rata Amount, except to the extent that such other Holder's Pro Rata
Amount exceeds two (2) times such other Holder's Required Number of Shares (as
defined in Section 11(a)).
(g) Adjustments to Cap Amount and Remedies Upon Failure to
Convert due to Cap Amount.
(i) Obligation to Cure. If at any time for a period
of five (5) consecutive trading days the then unissued portion of any Holder's
Cap Amount is less than 120% of the number of shares of Common Stock then
issuable upon conversion of such Holder's shares of
Class B Preferred Stock and upon conversion of all Special Dividend Stock (if
any) issuable upon conversion of the Class B Preferred Stock (a "Trading Market
Trigger Event"), the Company shall immediately notify the Holders of Class B
Preferred Stock of such occurrence and shall immediately take all necessary
action (including, if necessary, approval of its shareholders to authorize the
issuance of the full number of shares of Common Stock which would be issuable
upon the conversion of Class B Preferred Stock and upon conversion of all
Special Dividend Stock (if any) issuable upon conversion of the Class B
Preferred Stock, but for the Cap Amount) to eliminate any prohibitions under
applicable law or the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Company or any of its securities on the Company's ability to issue shares of
Common Stock in excess of the Cap Amount. In the event the Company fails to
eliminate all such prohibitions within ninety (90) days after the Trading Market
Trigger Event (provided, however, that the Company must file preliminary proxy
materials with the SEC within thirty (30) days of the Trading Market Trigger
Event), each Holder of Class B Preferred Stock shall thereafter have the option,
exercisable in whole or in part at any time and from time to time by delivery of
written notice ("Cap Redemption Notice") to the Company, to require the Company,
to purchase for cash, at an amount per share equal to 130% of the Total Value, a
portion of the Holder's Class B Preferred Stock such that, after giving effect
to such purchase, the Holder's allocated portion of the Cap Amount exceeds 120%
of the total number of shares of Common Stock issuable to such Holder upon
conversion of its Class B Preferred Stock and its Special Dividend Stock to be
received upon conversion of the Class B Preferred Stock on the date of such Cap
Redemption Notice. If the Company fails to redeem any of such shares within five
(5) business days after its receipt of a Cap Redemption Notice, then such Holder
shall be entitled to the remedies provided in Section 11(g)(ii) below.
(ii) Remedies. If the Company fails to eliminate the
applicable prohibitions within the ninety (90) day cure period referred to in
Section 11(g)(i) above and thereafter the Company is prohibited, at any time,
from issuing shares of Common Stock upon conversion of Class B Preferred Stock
or Special Dividend Stock (if any) to any Holder because such issuance would
exceed such Holder's allocated portion of the Cap Amount because of applicable
law or the rules or regulations of any stock exchange, interdealer quotation
system or other self-regulatory organization with jurisdiction over the Company
or its securities, any Holder who is prohibited from converting its Class B
Preferred Stock or Special Dividend Stock (if any) may:
(A) require, with the consent of Holders of
at least fifty percent (50%) of the outstanding shares of Class B Preferred
Stock (including any shares of Class B Preferred Stock held by the requesting
Holder), the Company to terminate the listing of its Common Stock and to cause
its Common Stock to be eligible for trading on the American Stock Exchange, the
Nasdaq National Market System, the Nasdaq Small Cap Market or on the over-the
counter electronic bulletin board, at the option of the requesting Holder; and
as a result thereof
(B) require the Company to issue shares of
Common Stock, resaleable on such other exchange, in accordance with such
Holder's Notice of Conversion and issue Special Dividend Stock (if any) at the
Conversion Trading Price (without regard to the Special Dividend Quota) in
effect on the date of the Holder's written notice to the Company of
its election to receive shares of Common Stock pursuant to this subparagraph
(B).
Section 12. Failure to Satisfy Conversions.
(a) Conversion Failure Payments. If, at any time, (x) a Holder
submits a Notice of Conversion (or is deemed to submit such notice pursuant to
Section 5(c) hereof), and the Company fails for any reason to surrender to a
Common Courier for overnight (or 2 day, if overseas) delivery to the Holder, on
or prior to the date that is one (1) trading day after the Deadline ("Delivery
Period") for such conversion, such number of shares of Common Stock to which
such Converting Holder is entitled upon such conversion (which shares shall be
listed, authorized, reserved, registered, and freely tradable, each to the
extent required in this Class B Certificate of Designation, the Registration
Rights Agreement between the Company and the Holder(s) and the Subscription
Agreement between the Company and the Holder(s), collectively referred to as the
"Governing Agreements"), or (y) the Company provides notice to Holder at any
time of its intention not to issue shares of Common Stock upon exercise by
Holder of its conversion rights in accordance with the terms of this Certificate
of Designation (each of (x) and (y) being a "Conversion Failure"), then the
Company shall pay to such Holder cash damages in an amount equal to the lower
of:
(i) "Damages Amount" X "D" X .010, and
(ii) the highest interest rate permitted by
applicable law, where:
"D" means the number of days beginning the date of the Conversion
Failure through and including the Cure Date with respect to such Conversion
Failure;
"Damages Amount" means the Original Class B Issue Price for each share
of Class B Preferred Stock subject to Conversion Failure plus all accrued and
unpaid Premium thereon as of the first day of the Conversion Failure, plus all
damage payments previously owed and unpaid.
"Cure Date" means (i) with respect to a Conversion Failure described in
clause (x) of its definition, the date the Company effects the conversion of the
shares of Class B Preferred Stock submitted for conversion and (ii) with respect
to a Conversion Failure described in clause (y) of its definition, the date the
Company undertakes in writing to timely issue Common Stock in satisfaction of
all conversions of Class B Preferred Stock in accordance with the terms of this
Certificate of Designation.
The payments to which a Holder shall be entitled pursuant to this
Section are referred to herein as "Conversion Failure Payments." The parties
agree that the damages caused by a breach hereof would be difficult or
impossible to estimate accurately. Any accrued Conversion Failure Payments shall
be payable in cash by a cashiers check, no later than ten (10) days after the
end of any month(s) for which such amounts accrue. In the event that the Company
has failed to pay any Conversion Failure Payment within five (5) days of the
date it is required to be paid, the Holder, at its option, may elect to convert
all or any portion of such accrued Conversion Failure Payments, at any time
prior to receipt of cash payment of such Conversion Failure Payment, into Common
Stock at a conversion price equal to the lesser of (i) the Fixed Conversion
Price or (ii) the lowest Conversion Trading Price in effect during the period
beginning on the date of the
Conversion Failure through the Cure Date for such Conversion Failure. In the
event a Holder elects to convert all or any portion of the Conversion Failure
Payments, such Holder shall indicate on a Notice of Conversion such portion of
the Conversion Failure Payments which such Holder elects to so convert and such
conversion shall otherwise be effected in accordance with provisions of Section
5.
(b) Buy-In Cure. Unless a Conversion Failure described in
clause (y) of Section 12(a) hereof has occurred with respect to such a Holder,
if (i) the Company fails for any reason to deliver during the Delivery Period
shares of Common Stock to a Holder upon a conversion of the Class B Preferred
Stock and (ii) on the same date or subsequent to the end of the applicable
Delivery Period with respect to such conversion, a Holder purchases (in an open
market transaction or otherwise) shares of Common Stock to make delivery upon a
sale by a Holder of the shares of Common Stock (the "Sold Shares") which such
Holder anticipated receiving upon such conversion (a "Buy-In"), the Company
shall pay such Holder within two (2) business days following receipt of written
notice of a claim pursuant to this Section 12(b) (in addition to any other
remedies available to Holder) the amount by which (x) such Holder's total
purchase price (including brokerage commission, if any) for the shares of Common
Stock so purchased exceeds (y) the net proceeds received by such Holder from the
sale of the Sold Shares. For example, if a Holder purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
shares of Common Stock sold for $10,000, the Company will be required to pay
such Holder $1,000. A Holder shall provide the Company written notification (and
trading records, if reasonably requested by the Company), indicating any amounts
payable to Holder pursuant to this Section 12.
(c) Adjustment to Conversion Price. If a Holder has not
received certificates for all shares of Common Stock and Special Dividend Stock
(if any) within two (2) business days or (if overseas delivery) three (3)
business days following the expiration of the Delivery Period with respect to a
conversion of any portion of any of such Holder's Class B Preferred Stock for
any reason, then (upon Holder's written request) (I) the Fixed Conversion Price
applicable for calculating the number of Common Shares to which Holder is
entitled upon conversion of such portion of the Class B Preferred Stock shall be
reduced by the amount by which the Conversion Trading Price in effect on the
Conversion Date exceeds the lowest Conversion Trading Price in effect during the
period beginning on, and including, such Conversion Date through and including
the Cure Date, and (II) the Conversion Trading Price applicable for calculating
the number of shares of Special Dividend Stock to which Holder is entitled (if
any) upon conversion of such portion of the Class B Preferred Stock shall
thereafter be the lowest Conversion Trading Price in effect during the period
beginning on, and including, such Conversion Date through and including the Cure
Date. In addition, if there shall occur a Conversion Failure of the type
described in clause (y) of Section 12(a), then the Fixed Conversion Price with
respect to any conversion of Class B Preferred Stock thereafter shall be the
lowest Conversion Trading Price in effect at any time during the period
beginning on, and including, the date of the occurrence of such Conversion
Failure through and including the Cure Date. The Conversion Trading Price and
the Fixed Conversion Price shall thereafter be subject to further adjustment for
any events described in Section 5(d).
Section 13. Events of Default.
(a) Holder's Option to Demand Prepayment. Upon the occurrence
of an Event of Default (as herein defined), the Company shall, unless a specific
cash payment is already specified in the Governing Agreements with respect to
such default, pay the Holders (beginning after the specified cure period) an
amount equal to three percent (3%) per month of the aggregate amount of
outstanding Class B Preferred Stock held by Holder, accruing daily until the
Event of Default is cured or until the Class B Preferred Stock is prepaid under
this Section, payable in cash by a cashiers check, no later than five (5) days
after the end of any month(s) for which such amounts accrue ("Default
Payments"). In addition, each Holder shall have the right to elect at any time
and from time to time prior to the cure by the Company of such Event of Default
to have all or any portion of such Holder's then outstanding Class B Preferred
Stock prepaid by the Company for an amount equal to the Holder Demand Prepayment
Amount (as herein defined):
(i) The right of a Holder to elect prepayment shall
be exercisable upon the occurrence of an Event of Default by such Holder in its
sole discretion by delivery of a Demand Prepayment Notice (as herein defined) in
accordance with the procedures set forth in this Section 13. Notwithstanding the
exercise of such right, the Holder shall be entitled to exercise all other
rights and remedies available under the provisions of this Certificate of
Designation and at law or in equity.
(ii) A Holder shall effect each demand for prepayment
under this Section 13 by giving at least five (5) business days prior written
notice (the "Demand Prepayment Notice") of the date which the Holder shall
specify and upon which such prepayment is to become effective (the "Effective
Date of Demand of Prepayment"), the Class B Preferred Stock selected for
prepayment and the Holder Demand Prepayment Amount to the Company at the address
and facsimile number provided in the stock records of the Company, which Demand
Prepayment Notice shall be deemed to have been delivered on the business day
after the date of transmission of Holder's facsimile (with a copy sent by
overnight courier to the Company) of such notice.
(iii) The Holder Demand Prepayment Amount shall be
paid to a Holder whose Class B Preferred Stock is being prepaid within three (3)
business days following the Effective Date of Demand of Prepayment; provided,
however, that the Company shall not be obligated to deliver any portion of the
Holder Demand Prepayment Amount until one (1) business day following either the
date on which the Class B Preferred Stock being prepaid are delivered to the
office of the Company, or the date on which the Holder notifies the Company that
such Class B Preferred Stock have been lost, stolen or destroyed and delivers
the documentation required in accordance with Section 5(b)(i) hereof.
(b) Holder Demand Prepayment Amount. The "Holder Demand
Prepayment Amount" means the greater of: (a) 1.3 times the Total Value of the
Class B Preferred Stock for which demand is being made, through the date of
prepayment or (b) the product of (1) the highest price at which the Common Stock
is traded on the date of the Event of Default (or on the most recent trading
date for the Common Stock if the Common Stock is not traded on such date)
divided by the Fixed Conversion Price (or the Conversion Trading Price in effect
as of the date
of the Event of Default, whichever is less), and (2) the Total Value through the
date of prepayment.
(c) Events of Default. An "Event of Default" means any one of
the following:
(i) a material failure by the Company to comply with
the Conversion Failure remedies described in Section 12 hereof;
(ii) a Share Authorization and Reservation Failure
described in Section 11(b) hereof, if such Share Authorization and Reservation
Failure continues uncured for ninety (90) days after the Authorization and
Reservation Trigger Date (for purposes of this subsection (ii), a prepayment
demand may be made by a Holder only to the extent that there is an insufficient
number of shares of Common Stock authorized and reserved to effect conversion of
(a) all of such Holder's outstanding Class B Preferred Stock, and (b) all
Special Dividend Stock issuable upon conversion of such shares of Class B
Preferred Stock, provided, however, that Holder need not actually convert any
shares of Class B Preferred Stock and use up its available authorized and
reserved shares of Common Stock in order to demand such prepayment);
(iii) (a) the Company has less than the Required
Number of Shares reserved for issuance to any Holder or Holders upon
conversions, (b) the Company has shares of Common Stock authorized for issuance
upon conversion of the Preferred Stock which have not yet been reserved for such
issuance ("Authorized But Not Yet Reserved Shares"), and (c) the Company fails
to reserve for issuance to the Holders the Authorized But Not Yet Reserved
Shares within five (5) business days of the date they are authorized;
(iv) the Company fails to pay any cash payments due
to Holder under the terms of this Class B Certificate of Designation within five
(5) days after Holder has notified the Company, in writing, that such payment is
past due and that the Holder intends to declare an "Event of Default" under this
Section 13 if such payment is not made;
(v) the Company fails to maintain an effective
registration statement as required by the Registration Rights Agreement between
the Company and the Holder(s) (the "Registration Rights Agreement") except where
(A) such failure lasts no longer than seven (7) consecutive trading days or
twenty one (21) days in any twelve (12) month period, or (B) the Conversion
Shares may be sold immediately, without volume limitation, without registration
under the Act, by virtue of Rule 144 or similar provisions.;
(vi) for three (3) consecutive trading days or for an
aggregate of ten (10) trading days in any nine (9) month period, the Common
Stock (including any of the shares of Common Stock issuable upon conversion of
the Class B Preferred Stock or Class C Preferred Stock) is (i) suspended from
trading on any of Nasdaq Small-Cap, NMS, NYSE, AMEX or the OTC Bulletin Board,
or (ii) is not listed and qualified for trading on at least one of Nasdaq
Small-Cap, NMS, NYSE, AMEX or the OTC Bulletin Board;
(vii) the Company fails, and such failure continues
uncured for three (3) business days after the Company has been notified thereof
in writing by a Holder, to remove any
restrictive legend on any certificate for any shares of Common Stock issued to a
Holder upon conversion of any Class B Preferred Stock, as and when required by
this Certificate of Designation, the Subscription Agreement, between the Company
and the Holder(s) (the "Subscription Agreement") or the Registration Rights
Agreement, unless such legend removal is prohibited by applicable law;
(viii) the Company breaches, and such breach
continues uncured for three (3) business days (after any cure period
specifically set forth in the Governing Agreements, if applicable) after the
Company has been notified thereof in writing by a Holder, any significant
covenant in or other material term or condition of any of the Governing
Agreements (including, without limitation, the failure to make any required
liquidated damage or other cash payment hereunder or under the Registration
Rights Agreement), provided that if any such breach expressly provides a cure
period, then such cure period shall apply and if such breach provides for money
damages in the applicable Governing Agreement, and such money damages are being
timely paid, then such breach shall not constitute a default under this
subsection unless such breach continues for sixty (60) days;
(ix) any representation or warranty of the Company
made herein or in any agreement, statement or certificate given in writing
pursuant hereto or in connection herewith (including, without limitation, the
Subscription Agreement and Registration Rights Agreement), shall be knowingly
false or intentionally misleading in any material respect when made;
(x) the Company or any subsidiary of the Company
shall make an assignment for the benefit of its creditors, or apply for or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business, or such receiver or trustee shall otherwise be
appointed; or
(xi) bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Company or any subsidiary of the Company (and such proceedings shall continue
unstayed for thirty (30) days).
(d) Failure to Pay Damages Amount. If the Company fails to pay
the Holder Demand Prepayment Amount within five (5) business days of its receipt
of a Demand Prepayment Notice, then such Holder shall have the right, at any
time and from time to time prior to the payment of the Holder Demand Prepayment
Amount, to require the Company, upon written notice, to immediately convert (in
accordance with the terms of Section 5) all or any portion of the Holder Demand
Prepayment Amount, into shares of Common Stock at the lower of (i) the Fixed
Conversion Price or (ii) the then current Conversion Trading Price, provided
that if the Company has not delivered the full number of shares of Common Stock
issuable upon such conversion, which shares shall be listed, registered, and
freely tradable, each to the extent required by the Governing Agreements, within
three (3) business days after the Company receives written notice of such
conversion, the Conversion Trading Price with respect to such Holder Demand
Prepayment Amount shall thereafter be deemed to be the lowest Conversion Trading
Price in effect during the period beginning on the date of the Event of Default
through
the date on which the Company delivers to the Holder the full number of shares
of Common Stock issuable upon such conversion, which shares shall be listed,
registered, and freely tradable, each to the extent required by the Governing
Agreements. In the event the Company is not able to pay all amounts due and
payable with respect to all Class B Preferred Stock subject to Holder Demand
Prepayment Notices, the Company shall pay the Holders such amounts pro rata,
based on the total amounts payable to such Holder relative to the total amounts
payable to all Holders.
Section 14. Remedies, Other Obligations, Breaches and Injunctive
Relief. The remedies provided in this Certificate of Designation shall be
cumulative and in addition to all other remedies available under the Certificate
of Designation at law or in equity (including a decree of specific performance
and/or other injunctive relief), no remedy contained herein shall be deemed a
waiver of compliance with the provision giving rise to such remedy and nothing
herein shall limit a Holder's right to pursue actual damages for any failure by
the Company to comply with the terms of this Certificate of Designation. Amounts
set forth or provided for herein with respect to payments, conversion and the
like (and the computation thereof) shall be the amounts to be received by the
holder hereof and shall not, except as expressly provided herein, be subject to
any other obligation of the Company (or the performance thereof). The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holders of Class B Preferred Stock and that the remedy
at law for any such breach may be inadequate. The Company therefore agrees, in
the event of any such breach or threatened breach, the Holders of Class B
Preferred Stock shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach, without the necessity of showing
economic loss and without any bond or other security being required.
Section 15. Assignability. The Class B Preferred Stock shall be freely
assignable by a Holder subject to applicable securities laws and any agreement
to the contrary signed by such Holder.
CERTIFICATE OF DESIGNATION OF
CLASS C CONVERTIBLE PREFERRED STOCK
OF
VION PHARMACEUTICALS, INC.
It is hereby certified that:
1. The name of the Company (hereinafter called the "Company") is Vion
Pharmaceuticals, Inc., a Delaware corporation.
2. The certificate of incorporation of the Company authorizes the
issuance of Five million (5,000,000) shares of preferred stock, $.01 par value
per share, and expressly vests in the Board of Directors of the Company the
authority provided therein to issue any or all of said shares in one (1) or more
series and by resolution or resolutions to establish the designation and number
and to fix the relative rights and preferences of each series to be issued.
3. The Board of Directors of the Company, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a Class C issue of Preferred Stock:
RESOLVED, that twenty-five thousand (25,000) of the five million
(5,000,000) authorized shares of Preferred Stock of the Company shall be
designated Class C Convertible Preferred Stock, $.01 par value per share, and
shall possess the rights and preferences set forth below:
Section 1. Designation and Amount. The shares of such series shall have
a par value of $.01 per share and shall be designated as Class C Convertible
Preferred Stock (the "Class C Preferred Stock") and the number of shares
constituting the Class C Preferred Stock shall be twenty-five thousand (25,000).
The Class C Preferred Stock shall have a stated value per share (the "Original
Class C Issue Price"), calculated as follows:
Original Class C Issue Price= Conversion Rate X Market Price,
where,
o "Conversion Rate" shall have the meaning ascribed to it in Section
5(a) below, and
o "Market Price" shall equal the average Closing Bid Price (as defined
in Section 5 below), of the Company's Common Stock for the ten (10) trading days
immediately preceding the Date of Conversion, as defined below.
Section 2. Rank. The Class C Preferred Stock shall rank: (i) junior to
any other class or series of capital stock of the Company hereafter created
specifically ranking by its terms senior to the Class C Preferred Stock
(collectively, the "Senior Securities"); (ii) prior to all of the
Company's Common Stock, $.01 par value per share ("Common Stock"); (iii) prior
to any class or series of capital stock of the Company hereafter created not
specifically ranking by its terms senior to or on parity with any Class C
Preferred Stock of whatever subdivision (collectively, with the Common Stock,
"Junior Securities"); and (iv) on parity with the Company's Class A Preferred
Stock, the Company's Class B Preferred Stock, and any class or series of capital
stock of the Company hereafter created specifically ranking by its terms on
parity with the Class C Preferred Stock ("Parity Securities") in each case as to
distributions of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (all such distributions being referred
to collectively as "Distributions").
Section 3. Dividends. The Class C Preferred Stock will bear no
dividends, and the holders of the Class C Preferred Stock ("Holders") shall not
be entitled to receive dividends on the Class C Preferred Stock.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of the Company ("Liquidation Event"), either voluntary or involuntary, the then
Holders of shares of Class C Preferred Stock shall be entitled to receive,
immediately after any distributions to Senior Securities required by the
Company's Certificate of Incorporation or any certificate of designation, and
prior in preference to any distribution to Junior Securities but in parity with
any distribution to Parity Securities, an amount per share equal to the Original
Class C Issue Price for each outstanding share of Class C Preferred Stock. If
upon the occurrence of such event, and after payment in full of the preferential
amounts with respect to the Senior Securities, the assets and funds available to
be distributed among the Holders of the Class C Preferred Stock and Parity
Securities shall be insufficient to permit the payment to such Holders of the
full preferential amounts due to the Holders of the Class C Preferred Stock and
the Parity Securities, respectively, then the entire assets and funds of the
Company legally available for distribution shall be distributed among the
Holders of the Class C Preferred Stock and the Parity Securities, pro rata,
based on the respective liquidation amounts to which each such series of stock
is entitled by the Company's Certificate of Incorporation and any certificate(s)
of designation relating thereto.
(b) Upon the completion of the distribution required by
subsection 4(a), if assets remain in this Company, they shall be distributed to
holders of Junior Securities in accordance with the Company's Certificate of
Incorporation including any duly adopted certificate(s) of designation.
(c) At each Holder's option, a sale, conveyance or disposition
of all or substantially all of the assets of the Company or the effectuation by
the Company of a transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Company is disposed of shall
be deemed to be a Liquidation Event as defined in Section 4(a); provided further
that (i) a consolidation, merger, acquisition, or other business combination of
the Company with or into any other publicly traded company or companies (or in
which the Company is the surviving entity and remains a publicly traded Company)
shall not be treated as a Liquidation Event as defined in Section 4(a) but
instead shall be treated pursuant to Section 5(d)
hereof, and (ii) a consolidation, merger, acquisition, or other business
combination of the Company with or into any other non-publicly traded company or
companies shall be treated as a Liquidation Event as defined in Section 4(a).
The Company shall not effect any transaction described in this subsection 4(c)
unless it first gives thirty (30) days prior notice of such transaction (during
which time the Holder shall be entitled to immediately convert any or all of its
shares of Class C Preferred Stock into Common Stock ("Conversion Shares")).
(d) In the event that, immediately prior to the closing of a
transaction described in Section 4(c) which would constitute a Liquidation
Event, the cash distributions required by Section 4(a) or Section 6 have not
been made, the Company shall either: (i) cause such closing to be postponed
until such cash distributions have been made, or (ii) cancel such transaction,
in which event the rights of the Holders of Class C Preferred Stock shall be the
same as existing immediately prior to such proposed transaction.
Section 5. Conversion. The record Holder(s) of this Class C Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. The record Holder(s) of the Class C
Preferred Stock shall be entitled to convert, any or all the shares of the Class
C Preferred Stock anytime on or after the date upon which Holder acquires the
right to have such shares issued (which right is acquired upon conversion of the
applicable Class B Preferred Stock) (the "Issue Date"), as defined below, at the
office of the Company into that number of fully-paid and non-assessable shares
of Common Stock calculated in accordance with the following formula (the
"Conversion Rate"):
Number of shares of Common Stock issued upon conversion of one (1) share of
Class C Preferred Stock =
1,000
-----
Fixed Conversion Price
where,
o Fixed Conversion Price = 100% of the average Closing Bid Price, as defined
below, for the thirty (30) trading days ending on the Last Closing Date (as
defined in the Certificate of Designation for the Class B Preferred Stock),
which is $4.065,
and
o "Closing Bid Price" shall mean the closing bid price of the Company's Common
Stock on the Nasdaq Small Cap Market, or if no longer traded on the Nasdaq Small
Cap Market, the closing bid price on the principal national securities exchange
or the over-the-counter market on which the Common Stock is so traded and if not
available, the mean of the high and low prices on the principal national
securities exchange or the National Market System on which the Common
Stock is so traded.
(b) Mechanics of Conversion. In order to convert Class C
Preferred Stock into full shares of Common Stock, the Holder shall (i) send via
facsimile, on or prior to 11:59 p.m., New York City time (the "Conversion Notice
Deadline") on the Date of Conversion, a copy of the fully executed notice of
conversion ("Notice of Conversion") to the Company at the office of the Company
stating that the Holder elects to convert, which notice shall specify the Date
of Conversion, the number of shares of Class C Preferred Stock to be converted,
and a calculation of the number of shares of Common Stock issuable upon such
conversion (together with a copy of the front page of each certificate to be
converted if issued prior thereto) and (ii) surrender to a common courier for
delivery to the office of the Company, the original certificates representing
the Class C Preferred Stock being converted if issued prior thereto (the
"Preferred Stock Certificates"), duly endorsed for transfer; provided, however,
that the Company shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless either the Preferred
Stock Certificates are delivered to the Company as provided above, or the Holder
notifies the Company that such certificates have been lost, stolen, destroyed,
or not yet issued (subject to the requirements of subparagraph (i) below).
Unless otherwise noted in writing by the Holder, any Notice of Conversion
tendered to the Company for conversion of Class B Preferred Stock in accordance
with the Class B Certificate of Designation shall be deemed to be a validly
tendered Notice of Conversion for conversion of the Class C Preferred Stock
issued or issuable upon conversion of such Class B Preferred Stock. Upon receipt
by the Company of a facsimile copy of a Notice of Conversion, the Company shall
immediately send, via facsimile, a confirmation of receipt of the Notice of
Conversion to Holder which shall specify that the Notice of Conversion has been
received and the name and telephone number of a contact person at the Company
whom the Holder should contact regarding information related to the Conversion.
In the case of a dispute as to the calculation of the Conversion Rate, the
Company shall, within the time period required under Section 5(b)(ii) below,
issue to the Holder the number of Shares that are not disputed and shall submit
the disputed calculations to its outside accountant via facsimile within three
(3) days of receipt of Holder's Notice of Conversion. The Company shall cause
the accountant to perform the calculations and notify the Company and Holder of
the results no later than two business days from the time it receives the
disputed calculations.Accountant's calculation shall be deemed conclusive absent
manifest error.
(i) Lost or Stolen Certificates. Upon receipt by the
Company of evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing shares of Class C Preferred Stock, and
(in the case of loss, theft or destruction) of indemnity or security reasonably
satisfactory to the Company, and upon surrender and cancellation of the
Preferred Stock Certificate(s), if mutilated, the Company shall execute and
deliver new Preferred Stock Certificate(s) of like tenor and date. However, the
Company shall not be obligated to re-issue such lost or stolen Preferred Stock
Certificates if Holder contemporaneously requests the Company to convert such
Class C Preferred Stock into Common Stock.
(ii) Delivery of Common Stock Upon Conversion. The
Company shall, no later than the close of business on the third (3rd) business
day (the "Deadline") after
receipt by the Company of a facsimile copy of a Notice of Conversion and receipt
by Company of all necessary documentation duly executed and in proper form
required for conversion, including the original Preferred Stock Certificates to
be converted, if issued (or after provision for security or indemnification in
the case of lost or destroyed certificates, if required), and/or shall cause the
transfer agent for its Common Stock (the "Transfer Agent") to issue and
surrender to a common courier for either overnight or (if delivery is outside
the United States) two (2) day delivery to the Holder at the address of the
Holder as shown on the stock records of the Company a certificate for the number
of shares of Common Stock to which the Holder shall be entitled as aforesaid. If
the Holder converts Class B Preferred Stock and in the Notice of Conversion, the
Holder elects to convert the shares of Class C Preferred Stock to be issued as a
Special Dividend upon the conversion of the Class B Preferred Stock, the Class C
Preferred Stock certificates shall be deemed delivered to the Company on the
date of such Notice of Conversion. Notwithstanding the foregoing, if the Holder
converts Class B Preferred Stock and in the Notice of Conversion, the Holder
elects to convert the shares of Class C Preferred Stock to be issued as a
Special Dividend upon conversion of the Class B Preferred Stock, the Company
shall not be obligated to deliver certificates representing Common Stock
underlying such Class C Preferred Stock prior to the date on which it is
obligated to deliver Common Stock underlying such Class B Preferred Stock, and
provided further that damages or penalties shall not accrue with regard to such
conversion of Class C Preferred Stock prior to the time at which such damages or
penalties would accrue with regard to the conversion of such Class B Preferred
Stock.
(iii) No Fractional Shares. If any conversion of the
Class C Preferred Stock would create a fractional share of Common Stock or a
right to acquire a fractional share of Common Stock, such fractional share shall
be disregarded and the number of shares of Common Stock issuable upon
conversion, in the aggregate, shall be the next higher number of shares.
(iv) Date of Conversion. The date on which conversion
occurs (the "Date of Conversion") shall be deemed to be the date set forth in
such Notice of Conversion, provided (i) that the advance copy of the Notice of
Conversion is sent via facsimile to the Company before 11:59 p.m., New York City
time, on the Date of Conversion, and (ii) that the original Preferred Stock
Certificates representing the shares of Class C Preferred Stock to be converted,
if issued, are surrendered by depositing such certificates with a common
courier, for delivery to the Company as provided above, as soon as practicable
after the Date of Conversion. The person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record Holder or Holders of such shares of Common Stock on the
Date of Conversion.
(c) Automatic Conversion or Redemption. Each share of Class C
Preferred Stock outstanding on the date which is two (2) years after the Last
Closing Date (as defined in the Certificate of Designation of the Class B
Preferred Stock) or, if not a business day, the first business day thereafter
("Termination Date") automatically shall, provided that there has been no
uncured Event of Default, be converted ("Automatic Conversion") into Common
Stock on such date at the Conversion Rate then in effect (calculated in
accordance with the formula in Section 5(a) above), where the Termination Date
shall be deemed the Date of Conversion with respect to such conversion for
purposes of this Certificate of Designation. In the case of an Automatic
Conversion, the Company and the Holders shall follow the applicable conversion
procedures set forth in this Certificate of Designation; provided, however, that
the Holders are not required to send the Notice of Conversion contemplated by
Section 5(b). Nothing in this Section 5(c) shall be construed to limit Holder's
ability to pursue Holder's rights under Sections 12 and 13 hereof. At each
Holder's option, upon written notice from the investor no later than five (5)
business days prior to the original Termination Date, the Termination Date shall
be delayed for the aggregate number of days during which there is continuing one
or more Events of Default or a Conversion Failure anytime during the term of the
Class C Preferred Stock.
(d) Adjustment to Conversion Rate.
(i) Adjustment to Fixed Conversion Price Due to Stock
Split, Stock Dividend, Etc. If, prior to the conversion of all of the Class C
Preferred Stock, the number of outstanding shares of Common Stock is increased
by a stock split, stock dividend, or other similar event, the Fixed Conversion
Price shall be proportionately reduced, or if the number of outstanding shares
of Common Stock is decreased by a combination or reclassification of shares, or
other similar event, the Fixed Conversion Price shall be proportionately
increased.
(ii) No Fractional Shares. If any adjustment under
this Section 5(d) would create a fractional share of Common Stock or a right to
acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon conversion
shall be the next higher number of shares.
(iii) Adjustments.
(A) Adjustment Due to Merger, Consolidation,
Etc. If, prior to the conversion of all Class C Preferred Stock, there shall be
any merger, consolidation, exchange of shares, recapitalization, reorganization,
or other similar event, as a result of which shares of Common Stock of the
Company shall be changed into (or the shares of Common Stock become entitled to
receive) the same or a different number of shares of the same or another class
or classes of stock or securities of the Company or another entity or there is a
sale of all or substantially all the Company's assets or there is a change of
control transaction not deemed to be a liquidation pursuant to Section 4(c),
then the Holders of Class C Preferred Stock shall thereafter have the right to
receive upon conversion of Class C Preferred Stock, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such stock, securities and/or
other assets which the Holder would have been entitled to receive in such
transaction had the Class C Preferred Stock been converted immediately prior to
such transaction, and in any such case appropriate provisions shall be made with
respect to the rights and interests of the Holders of the Class C Preferred
Stock to the end that the provisions hereof (including, without limitation,
provisions for the adjustment of the number of shares issuable upon conversion
of the Class C Preferred Stock) shall thereafter be applicable, as nearly as may
be practicable in relation to any securities thereafter deliverable upon the
exercise hereof. The Company shall not effect any transaction described in this
subsection 5(d)(iii) unless (a) it first gives at least thirty (30) days prior
notice of such merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event (during which time the Holder shall be
entitled to convert its shares of
Class C Preferred Stock into Common Stock and (b) the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligations of the Company under this Certificate of Designation including this
subsection 5(d)(iii).
(B) Adjustment Due to Distribution. If at
any time after the Issue Date of any Class C Preferred Stock, the Company shall
declare or make any distribution of its assets (or rights to acquire its assets)
to Holders of Common Stock as a partial liquidating dividend, by way of return
of capital or otherwise (including any dividend or distribution to the Company's
shareholders in cash or shares (or rights to acquire shares) of capital stock of
any other public or private company, including but not limited to a subsidiary
or spin-off of the Company (a "Distribution"), then the Holders of Class C
Preferred Stock shall be entitled, upon any conversion of shares of Class C
Preferred Stock or conversion of Special Dividend Stock (if any) issuable upon a
subsequent conversion of Class B Preferred Stock, in each case after the date of
record for determining shareholders entitled to such Distribution, to receive
the amount of such assets which would have been payable to the Holder with
respect to the shares of Common Stock issuable upon such conversion of Class C
Preferred Stock, had such Holder been the holder of such shares of Common Stock
on the record date for determination of shareholders entitled to such
Distribution.
(iv) (A) Adjustment Due to Issuances of Other
Securities. If at any time or from time to time after the Issue Date of any
Class C Preferred Stock, the Company shall issue or sell Common Stock or rights,
options, warrants or other securities convertible into Common Stock, (excluding
those rights, options, warrants or other securities convertible into no more
than 18,000,000 shares of Common Stock outstanding as of the Last Closing Date
or underlying such securities and future ordinary 5% annual dividends on its
Class A Convertible Preferred Stock), at a price per share which is lower than
the then effective Fixed Conversion Price, then the Conversion Rate shall be
increased by multiplying the Conversion Rate theretofore in effect by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such shares, rights, options,
warrants or convertible securities plus the number of additional shares of
Common Stock offered for subscription or purchase, and of which the denominator
shall be the number of shares of Common Stock outstanding immediately prior to
the issuance of such rights, options, warrants or convertible securities plus
the number of shares which the aggregate offering price of the total number of
shares offered would purchase at the then effective Fixed Conversion Price,
provided, however, that no such adjustment shall be made which results in a
decrease in the Conversion Rate. Such adjustment shall be made whenever such
rights, options, warrants or convertible securities are issued, and shall become
effective immediately and retroactive to the record date for the determination
of stockholders entitled to receive such rights, options, warrants or
convertible securities. Notwithstanding the foregoing, no adjustment will be
required on account of (i) the exercise of any of the options presently
outstanding under the Company's Amended and Restated 1993 Stock Option Plan (the
"Plan") for officers, directors and certain other key personnel of the Company,
or (ii) the issuance or exercise of any other securities which may hereafter be
granted or exercised under the Plan or under any other employee benefit plan of
the Company, but only to the extent that all shares of Common Stock issued or
issuable pursuant to such plan or plans do not exceed 4,000,000 shares, as such
number may be appropriately adjusted for dilutive events, or (iii) shares issued
in an underwritten public offering.
(B) Adjustment Due to Expired and
Unexercised Convertible Securities. If, in any case, the total number of shares
of Common Stock issuable upon exercise, conversion or exchange of any rights,
options, warrants or convertible securities (collectively, "Convertible
Securities") is not, in fact, issued and the rights to exercise, convert or
exchange such Convertible Securities shall have expired or terminated, the
Conversion Rate then in effect will be readjusted to the Conversion Rate which
would have been in effect at the time of such expiration or termination had such
Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination (other than in respect of the actual number of shares
of Common Stock issued upon exercise or conversion thereof), never been issued.
(e) No Five Percent Holders. Notwithstanding anything to the
contrary contained herein, the Class C Preferred Stock shall not be convertible
by a Holder or at the Termination Date to the extent (but only to the extent)
that, if converted by such Holder or at the Termination Date, the Holder would
beneficially own in excess of 4.9% of the then outstanding shares of Common
Stock of the Company (the "4.9% Limitation"), provided, however, that such
limitation shall not apply to conversions tendered in anticipation of or
following a merger, acquisition, or other business combination involving the
Company or pursuant to bankruptcy or insolvency proceedings. To the extent this
limitation applies, the determination of whether Class C Preferred Stock shall
be convertible (vis-a vis other securities owned by such Holder) and of which
Class C Preferred Stock shall be converted shall be in the sole discretion of
the Holder and submission of the Class C Preferred Stock for conversion shall be
deemed to be the Holder's determination of whether such Class C Preferred Stock
is convertible, subject to such aggregate percentage limitations. For the
purposes of this subparagraph, beneficial ownership and all calculations,
including without limitation, with respect to calculations of percentage
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and the Regulations thereunder.
Notwithstanding the foregoing, each Holder shall have the right to waive such
restriction or increase such percentage upon sixty one (61) days' prior notice
to the Company and to decrease any such percentage immediately upon written
notice to the Company. No transferee of Class C Preferred Stock shall be bound
by such restriction unless the transferee expressly so agrees.
Section 6. [Intentionally Left Blank]
Section 7. Voting Rights. The Holders of the Class C Preferred Stock
shall have no voting power whatsoever, except as otherwise provided by the
General Corporation Law of the State of Delaware ("Delaware Law"), and no Holder
of Class C Preferred Stock shall vote or otherwise participate in any proceeding
in which actions shall be taken by the Company or the shareholders thereof or be
entitled to notification as to any meeting of the shareholders.
Notwithstanding the above, the Company shall provide Holder with
notification of any meeting of the shareholders regarding any major corporate
events affecting the Company. In the event of any taking by the Company of a
record of its shareholders for the purpose of determining shareholders who are
entitled to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire any share of any class or any other
securities or property (including by way of merger, consolidation or
reorganization), or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Company, or any proposed
liquidation, dissolution or winding up of the Company, the Company shall send
(by certified mail or overnight courier) a notice to Holder, in such form as
given to the other shareholders, at least ten (10) days prior to the record date
specified therein, of the date on which any such record is to be taken for the
purpose of such dividend, distribution, right or other event, and a brief
statement regarding the amount and character of such dividend, distribution,
right or other event to the extent known at such time.
To the extent that under Delaware Law the vote of the Holders of the
Class C Preferred Stock, voting separately as a class, is required to authorize
a given action of the Company, the affirmative vote or consent of the Holders of
at least two thirds (2/3) of the shares of the Class C Preferred Stock
represented at a duly held meeting at which a quorum is present or by written
consent of a majority of the shares of Class C Preferred Stock (except as
otherwise may be required under Delaware Law) shall constitute the approval of
such action by the class, subject to Section 8 below. To the extent that under
Delaware Law the Holders of the Class C Preferred Stock are entitled to vote on
a matter with holders of Common Stock, voting together as one (1) class, each
share of Class C Preferred Stock shall be entitled to a number of votes equal to
the number of shares of Common Stock into which it is then convertible on the
record date for the taking of such vote of stockholders. Holders of the Class C
Preferred Stock also shall be entitled to notice of all shareholder meetings or
written consents with respect to which they would be entitled to vote, which
notice would be provided pursuant to the Company's by-laws and applicable
statutes.
Section 8. Protective Provision. So long as shares of Class C Preferred
Stock are outstanding, the Company shall not without first obtaining the
approval (by vote or written consent, as provided by Delaware Law) of the
Holders of at least seventy-five percent (75%) of the then outstanding shares of
Class C Preferred Stock, and at least seventy-five percent (75%) of the then
outstanding Holders:
(a) alter or change the rights, preferences or privileges of
the Class C Preferred Stock or any securities so as to affect adversely the
Class C Preferred Stock;
(b) create any new class or series of stock having a
preference over or on parity with the Class C Preferred Stock with respect to
Distributions (as defined in Section 2 above) or increase the size of the
authorized number of Class C Preferred; or
(c) do any act or thing not authorized or contemplated by this
Designation which would result in taxation of the holders of shares of the Class
C Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as
amended (or any comparable provision of the Internal Revenue Code as hereafter
from time to time amended).
In the event Holders of at least seventy-five percent (75%) of the then
outstanding shares of Class C Preferred Stock and at least seventy-five percent
(75%) of the then outstanding Holders agree to allow the Company to alter or
change the rights, preferences or privileges of the shares of Class C Preferred
Stock, pursuant to subsection (a) above, so as to affect the Class C
Preferred Stock, then the Company will deliver notice of such approved change to
the Holders of the Class C Preferred Stock that did not agree to such alteration
or change (the "Dissenting Holders") and Dissenting Holders shall have the right
for a period of thirty (30) days to convert pursuant to the terms of this
Certificate of Designation as they exist prior to such alteration or change, or
continue to hold their shares of Class C Preferred Stock, as amended.
Section 9. Status of Converted Stock. In the event any shares of Class
C Preferred Stock shall be converted pursuant to Section 5 hereof, the shares so
converted shall be canceled, shall return to the status of authorized but
unissued Preferred Stock of no designated series, and shall not be issuable by
the Company as Class C Preferred Stock.
Section 10. Preference Rights. Nothing contained herein shall be
construed to prevent the Board of Directors of the Company from issuing one (1)
or more series of Preferred Stock with dividend and/or liquidation preferences
junior to the dividend and liquidation preferences of the Class C Preferred
Stock.
Section 11. [Intentionally Left Blank]
Section 12. Failure to Satisfy Conversions.
(a) Conversion Failure Payments. If, at any time, (x) a Holder
submits a Notice of Conversion (or is deemed to submit such notice pursuant to
Section 5(c) hereof), and the Company fails for any reason to surrender to a
Common Courier for overnight (or 2 day, if overseas) delivery to the Holder, on
or prior to the date that is one (1) trading day after the Deadline ("Delivery
Period") for such conversion, such number of shares of Common Stock to which
such Converting Holder is entitled upon such conversion (which shares shall be
listed, authorized, reserved, registered, and freely tradeable, each to the
extent required in this Class C Certificate of Designation, the Certificate of
Designation of the Class B Preferred Stock, the Registration Rights Agreement
between the Company and the Holder(s) and the Subscription Agreement between the
Company and the Holder(s), collectively referred to as the "Governing
Agreements"), or (y) the Company provides notice to Holder at any time of its
intention not to issue shares of Common Stock upon exercise by Holder of its
conversion rights in accordance with the terms of this Certificate of
Designation (each of (x) and (y) being a "Conversion Failure"), then the Company
shall pay to such Holder cash damages in an amount equal to the lower of:
(i) "Damages Amount" X "D" X .010, and
(ii) the highest interest rate permitted by
applicable law, where:
"D" means the number of days beginning the date of the Conversion
Failure through and including the Cure Date with respect to such Conversion
Failure;
"Damages Amount" means the Original Class C Issue Price for each share
of Class C Preferred Stock subject to Conversion Failure plus all accrued and
unpaid Premium thereon as of the first day of the Conversion Failure, plus all
damage payments previously owed and unpaid.
"Cure Date" means (i) with respect to a Conversion Failure described in
clause (x) of its definition, the date the Company effects the conversion of the
shares of Class C Preferred Stock submitted for conversion and (ii) with respect
to a Conversion Failure described in clause (y) of its definition, the date the
Company undertakes in writing to timely issue Common Stock in satisfaction of
all conversions of Class C Preferred Stock in accordance with the terms of this
Certificate of Designation.
The payments to which a Holder shall be entitled pursuant to this
Section are referred to herein as "Conversion Failure Payments." The parties
agree that the damages caused by a breach hereof would be difficult or
impossible to estimate accurately. Any accrued Conversion Failure Payments shall
be payable in cash by a cashiers check, no later than ten (10) days after the
end of any month(s) for which such amounts accrue. In the event that the Company
has failed to pay any Conversion Failure Payment within five (5) days of the
date it is required to be paid, the Holder, at its option, may elect to convert
all or any portion of such accrued Conversion Failure Payments, at any time
prior to receipt of cash payment of such Conversion Failure Payment, into Common
Stock at a conversion price equal to the lesser of (i) the Fixed Conversion
Price or (ii) the lowest Conversion Trading Price (as defined in the Company's
Class B Preferred Stock Certificate of Designation) in effect during the period
beginning on the date of the Conversion Failure through the Cure Date for such
Conversion Failure. In the event a Holder elects to convert all or any portion
of the Conversion Failure Payments, such Holder shall indicate on a Notice of
Conversion such portion of the Conversion Failure Payments which such Holder
elects to so convert and such conversion shall otherwise be effected in
accordance with provisions of Section 5.
(b) Buy-In Cure. Unless a Conversion Failure described in
clause (y) of Section 12(a) hereof has occurred with respect to such a Holder,
if (i) the Company fails for any reason to deliver during the Delivery Period
shares of Common Stock to a Holder upon a conversion of the Class C Preferred
Stock and (ii) on the same date or subsequent to the end of the applicable
Delivery Period with respect to such conversion, a Holder purchases (in an open
market transaction or otherwise) shares of Common Stock to make delivery upon a
sale by a Holder of the shares of Common Stock (the "Sold Shares") which such
Holder anticipated receiving upon such conversion (a "Buy-In"), the Company
shall pay such Holder within two (2) business days following receipt of written
notice of a claim pursuant to this Section 12(b) (in addition to any other
remedies available to Holder) the amount by which (x) such Holder's total
purchase price (including brokerage commission, if any) for the shares of Common
Stock so purchased exceeds (y) the net proceeds received by such Holder from the
sale of the Sold Shares. For example, if a Holder purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
shares of Common Stock sold for $10,000, the Company will be required to pay
such Holder $1,000. A Holder shall provide the Company written notification (and
trading records, if reasonably requested by the Company), indicating any amounts
payable to Holder pursuant to this Section 12.
(c) Adjustment to Conversion Price. If a Holder has not
received certificates for all shares of Common Stock within three (3) business
days following the expiration of the Delivery Period with respect to a
conversion of any portion of any of such Holder's Class C Preferred Stock for
any reason, then the Fixed Conversion Price applicable for calculating the
number of Common Shares to which Holder is entitled upon conversion of such
portion of the Class C Preferred Stock shall be reduced by the amount by which
the Conversion Trading Price in effect on the Conversion Date exceeds the lowest
Conversion Trading Price in effect during the period beginning on, and
including, such Conversion Date through and including the Cure Date. In
addition, if there shall occur a Conversion Failure of the type described in
clause (y) of Section 12(a), then the Fixed Conversion Price with respect to any
conversion of Class C Preferred Stock thereafter shall be the lowest Conversion
Trading Price in effect at any time during the period beginning on, and
including, the date of the occurrence of such Conversion Failure through and
including the Cure Date. The Conversion Trading Price and the Fixed Conversion
Price shall thereafter be subject to further adjustment for any events described
in Section 5(d).
Section 13. Events of Default.
(a) Holder's Option to Demand Prepayment. Upon the occurrence
of an Event of Default (as herein defined), the Company shall, unless a specific
cash payment is already specified in the Governing Agreements with respect to
such default, pay the Holders (beginning after the specified cure period) an
amount equal to three percent (3%) per month of the aggregate amount of
outstanding Class C Preferred Stock held by the Holder, accruing daily until the
Event of Default is cured or until the Class C Preferred Stock is prepaid under
this Section, payable in cash by a cashiers check, no later than five (5) days
after the end of any month(s) for which such amounts accrue ("Default
Payments"). In addition, each Holder shall have the right to elect at any time
and from time to time prior to the cure by the Company of such Event of Default
to have all or any portion of such Holder's then outstanding Class C Preferred
Stock prepaid by the Company for an amount equal to the Holder Demand Prepayment
Amount (as herein defined):
(i) The right of a Holder to elect prepayment shall
be exercisable upon the occurrence of an Event of Default by such Holder in its
sole discretion by delivery of a Demand Prepayment Notice (as herein defined) in
accordance with the procedures set forth in this Section 13. Notwithstanding the
exercise of such right, the Holder shall be entitled to exercise all other
rights and remedies available under the provisions of this Certificate of
Designation and at law or in equity.
(ii) A Holder shall effect each demand for prepayment
under this Section 13 by giving at least five (5) business days prior written
notice (the "Demand Prepayment Notice") of the date which the Holder shall
specify and upon which such prepayment is to become effective (the "Effective
Date of Demand of Prepayment"), the Class C Preferred Stock selected for
prepayment and the Holder Demand Prepayment Amount to the Company at the address
and facsimile number provided in the stock records of the Company, which Demand
Prepayment Notice shall be deemed to have been delivered on the business day
after the date of transmission of Holder's facsimile (with a copy sent by
overnight courier to the Company) of such notice.
(iii) The Holder Demand Prepayment Amount shall be
paid to a Holder whose Class C Preferred Stock is being prepaid within three (3)
business days following the
Effective Date of Demand of Prepayment; provided, however, that the Company
shall not be obligated to deliver any portion of the Holder Demand Prepayment
Amount until one (1) business day following either the date on which the Class C
Preferred Stock being prepaid are delivered to the office of the Company, or the
date on which the Holder notifies the Company that such Class C Preferred Stock
have been lost, stolen or destroyed and delivers the documentation required in
accordance with Section 5(b)(i) hereof.
(b) Holder Demand Prepayment Amount. The "Holder Demand
Prepayment Amount" means the greater of: (a) 1.3 times the Total Value of the
Class C Preferred Stock for which demand is being made, through the date of
prepayment or (b) the product of (1) the highest price at which the Common Stock
is traded on the date of the Event of Default (or on the most recent trading
date for the Common Stock if the Common Stock is not traded on such date)
divided by the Fixed Conversion Price (or the Conversion Trading Price) in
effect as of the date of the Event of Default, whichever is less), and (2) the
Total Value through the date of prepayment, where, "Total Value" shall mean the
Stated Value of the Class C Preferred Stock being redeemed, plus liquidated
damages, Conversion Failure Payments, Late Registration Payments and any other
cash payments then due from the Company and then unpaid, where "Stated Value"
shall mean the Original Class C Issue Price (as defined in Section 1) of each
share of Class C Preferred Stock.
(c) Events of Default. An "Event of Default" means any one of
the following:
(i) a material failure by the Company to comply with
the Conversion Failure remedies described in Section 12 hereof;
(ii) a Share Authorization and Reservation Failure
described in Section 11(b) of the Class B Certificate of Designation, if such
Share Authorization and Reservation Failure continues uncured for ninety (90)
days after the Authorization and Reservation Trigger Date (for purposes of this
subsection (ii), a prepayment demand may be made by a Holder only to the extent
that there is an insufficient number of shares of Common Stock authorized and
reserved to effect conversion of (a) all of such Holder's outstanding Class B
Preferred Stock, and (b) all Class C Preferred Stock issuable upon conversion of
such shares of Class B Preferred Stock, provided, however, that Holder need not
actually convert any shares of Class C Preferred Stock and use up its available
authorized and reserved shares of Common Stock in order to demand such
prepayment);
(iii) (a) the Company has less than the required
number of shares reserved for issuance to any Holder or Holders upon
conversions, (b) the Company has shares of Common Stock authorized for issuance
upon conversion of the Preferred Stock which have not yet been reserved for such
issuance ("Authorized But Not Yet Reserved Shares"), and (c) the Company fails
to reserve for issuance to the Holders the Authorized But Not Yet Reserved
Shares within five (5) business days of the date they are authorized;
(iv) the Company fails to pay any cash payments due
to Holder under the terms of this Class C Certificate of Designation within five
(5) days after Holder has notified the Company, in writing, that such payment is
past due and that the Holder intends to declare an
"Event of Default" under this Section 13 if such payment is not made;
(v) the Company fails to maintain an effective
registration statement as required by the Registration Rights Agreement between
the Company and the Holder(s) (the "Registration Rights Agreement") except where
(A) such failure lasts no longer than seven (7) consecutive trading days or
twenty one (21) days in any twelve (12) month period, or (B) the Conversion
Shares may be sold immediately, without volume limitation, without registration
under the Act, by virtue of Rule 144 or similar provisions;
(vi) for three (3) consecutive trading days or for an
aggregate of ten (10) trading days in any nine (9) month period, the Common
Stock (including any of the shares of Common Stock issuable upon conversion of
the Class C Preferred Stock) is (i) suspended from trading on any of Nasdaq
SmallCap, NMS, NYSE, AMEX or the OTC Bulletin Board, or (ii) is not listed and
qualified for trading on at least one of Nasdaq SmallCap, NMS, NYSE, AMEX or the
OTC Bulletin Board;
(vii) the Company fails, and such failure continues
uncured for three (3) business days after the Company has been notified thereof
in writing by a Holder, to remove any restrictive legend on any certificate for
any shares of Common Stock issued to a Holder upon conversion of any Class C
Preferred Stock, as and when required by this Certificate of Designation, the
Subscription Agreement, between the Company and the Holder(s) (the "Subscription
Agreement") or the Registration Rights Agreement, unless such legend removal is
prohibited by applicable law;
(viii) the Company breaches, and such breach
continues uncured for three (3) business days (after any cure period
specifically set forth in the Governing Agreements, if applicable) after the
Company has been notified thereof in writing by a Holder, any significant
covenant in or other material term or condition of any of the Governing
Agreements (including, without limitation, the failure to make any required
liquidated damage or other cash payment hereunder or under the Registration
Rights Agreement), provided that if any such breach expressly provides a cure
period, then such cure period shall apply and if such breach provides for money
damages in the applicable Governing Agreement, and such money damages are being
timely paid, then such breach shall not constitute a default under this
subsection unless such breach continues for sixty (60) days;
(ix) any representation or warranty of the Company
made herein or in any agreement, statement or certificate given in writing
pursuant hereto or in connection herewith (including, without limitation, the
Subscription Agreement and Registration Rights Agreement), shall be knowingly
false or intentionally misleading in any material respect when made;
(x) the Company or any subsidiary of the Company
shall make an assignment for the benefit of its creditors, or apply for or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business, or such receiver or trustee shall otherwise be
appointed; or
(xi) bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Company or any subsidiary of the Company (and such proceedings shall continue
unstayed for thirty (30) days).
(d) Failure to Pay Damages Amount. If the Company fails to pay the
Holder Demand Prepayment Amount within five (5) business days of its receipt of
a Demand Prepayment Notice, then such Holder shall have the right, at any time
and from time to time prior to the payment of the Holder Demand Prepayment
Amount, to require the Company, upon written notice, to immediately convert (in
accordance with the terms of Section 5) all or any portion of the Holder Demand
Prepayment Amount, into shares of Common Stock at the lower of (i) the Fixed
Conversion Price or (ii) the then current Conversion Trading Price, provided
that if the Company has not delivered the full number of shares of Common Stock
issuable upon such conversion which shares shall be listed, registered, and
freely tradeable, each to the extent required by the Governing Agreements,
within three (3) business days after the Company receives written notice of such
conversion, the Conversion Trading Price with respect to such Holder Demand
Prepayment Amount shall thereafter be deemed to be the lowest Conversion Trading
Price in effect during the period beginning on the date of the Event of Default
through the date on which the Company delivers to the Holder the full number of
shares of Common Stock issuable upon such conversion, which shares shall be
listed, registered, and freely tradeable, each to the extent required by the
Governing Agreements. In the event the Company is not able to pay all amounts
due and payable with respect to all Class C Preferred Stock subject to Holder
Demand Prepayment Notices, the Company shall pay the Holders such amounts pro
rata, based on the total amounts payable to such Holder relative to the total
amounts payable to all Holders.
Section 14. Remedies, Other Obligations, Breaches and Injunctive
Relief. The remedies provided in this Certificate of Designation shall be
cumulative and in addition to all other remedies available under the Certificate
of Designation at law or in equity (including a decree of specific performance
and/or other injunctive relief), no remedy contained herein shall be deemed a
waiver of compliance with the provision giving rise to such remedy and nothing
herein shall limit a Holder's right to pursue actual damages for any failure by
the Company to comply with the terms of this Certificate of Designation. Amounts
set forth or provided for herein with respect to payments, conversion and the
like (and the computation thereof) shall be the amounts to be received by the
holder hereof and shall not, except as expressly provided herein, be subject to
any other obligation of the Company (or the performance thereof). The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holders of Class C Preferred Stock and that the remedy
at law for any such breach may be inadequate. The Company therefore agrees, in
the event of any such breach or threatened breach, the Holders of Class C
Preferred Stock shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach, without the necessity of showing
economic loss and without any bond or other security being required.
Section 15. Assignability. The Class C Preferred Stock shall be freely
assignable by a Holder subject to applicable securities laws and any agreement
to the contrary signed by such Holder.
EXHIBIT 10.1
AMENDMENT NO. 1
TO
LICENSE AGREEMENT
-----------------
AMENDMENT NO. 1 TO LICENSE AGREEMENT made as of this 12th day of June, 1997
by and between YALE UNIVERSITY, a corporation organized and existing under and
by virtue of a charter granted by the general assembly of the Colony and State
of Connecticut and located in New Haven, Connecticut ("YALE"), and VION
PHARMACEUTICALS, INC. (f/k/a OncoRx, Inc.), a corporation organized and existing
under the laws of the State of Delaware and with principal offices located in
New Haven, Connecticut ("LICENSEE").
W I T N E S S E T H:
WHEREAS, YALE and LICENSEE are parties to a License Agreement dated
December 15, 1995, under which YALE exclusively licensed to LICENSEE a series of
YALE owned inventions relating to potential gene therapy vectors; and
WHEREAS, YALE and LICENSEE wish to amend the License Agreement, as
amended, to reduce the earned royalties payable on SUBLICENSE INCOME, and to
make certain other changes to the License Agreement;
WHEREAS, LICENSEE will issue to YALE certain shares of its Common Stock
in consideration therefor;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and for other good and valuable consideration,
receipt of which is hereby acknowledged, YALE and LICENSEE hereby agree as
follows:
1. LICENSEE shall issue to YALE on the date hereof 50,000 shares of
Common Stock, $.01 par value of LICENSEE. LICENSEE agrees to include such shares
in the next registration statement filed (other than a registration statement on
Form S-8 or any similar form) by LICENSEE with the Securities and Exchange
Commission.
2. Section 1.5 of the License Agreement shall be deleted in its
entirety and shall now read as follows:
-1-
"1.5 "SUBLICENSE INCOME" shall mean the gross amount received by
LICENSEE, directly or indirectly, for or on account of sublicenses of any of the
rights granted hereunder, without deduction of any kind, except deductions for
taxes in the nature of sales, use, ad valorem and similar taxes; provided,
however, SUBLICENSE INCOME shall not in any case include any amounts received by
LICENSEE, directly or indirectly, as payments for work which has been performed
or which is to be performed by LICENSEE at the specific direction of a
SUBLICENSEE, such payments not being creditable against future royalty payments
and provided, further, that research or clinical milestone payments, which are
made pursuant to collaboration or similar arrangements with other companies
shall not constitute SUBLICENSE INCOME for purposes hereof."
3. Section 1.6 of the License Agreement shall be deleted in its
entirety and shall now read as follows:
"1.6 "EARNED ROYALTIES" shall mean royalties paid or payable by
LICENSEE to YALE determined with respect to NET SALES, SUBLICENSE INCOME and
MILESTONE INCOME."
4. A new Section 1.10 shall be added to the License Agreement and shall
read as follows:
"1.10 "MILESTONE INCOME" shall mean the gross amount received by
LICENSEE, directly or indirectly, for or on account of research or clinical
milestones, which are made pursuant to collaboration or similar arrangements
with other companies."
5. Section 4.2 of the License Agreement shall be deleted in its
entirety and shall now read as follows:
"4.2 In addition, LICENSEE shall pay to YALE EARNED ROYALTIES of NET
SALES of LICENSED PRODUCTS, the selling of which would, in the absence of this
Agreement, infringe a valid claim in the LICENSED PATENTS, of Seven percent (7%)
of NET SALES, Twenty percent (20%) of SUBLICENSE INCOME and Twenty percent (20%)
of MILESTONE INCOME."
6. Article XIV of the License Agreement shall be deleted in its
entirety and shall now read as follows:
"ARTICLE XIV NOTICES
Any notice required by this Agreement shall be sent by Registered or
Certified U.S. Mail, or by a nationally recognized
-2-
overnight delivery service or by facsimile with a copy sent by Registered or
Certified U.S. Mail, and shall be deemed delivered if sent to the following
addresses of the respective parties or such other address as is furnished by
proper notice to the other party:
TO YALE: TO VION PHARMACEUTICALS, INC.:
Director Vion Pharmaceuticals, Inc.
Office of Cooperative Research 4 Science Park
Yale University New Haven, CT 06511
Suite 401 Attn: President and CEO
246 Church St.
New Haven, CT 06510
7. Except as expressly amended hereby, the License Agreement, as
amended to date, remains unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate originals by their duly authorized representatives.
YALE UNIVERSITY VION PHARMACEUTICALS, INC.
By:/s/ By:/s/
Name: Gregory E. Gardiner Name: Thomas Mizelle
Title: Director, OCR Title: Vice President Operations
-3-
EXHIBIT 10.2
AMENDMENT NO. 2
TO
LICENSE AGREEMENT
AMENDMENT NO. 2 TO LICENSE AGREEMENT made as of this 12th day of June, 1997
by and between YALE UNIVERSITY, a corporation organized and existing under and
by virtue of a charter granted by the general assembly of the Colony and State
of Connecticut and located in New Haven, Connecticut ("YALE"), and VION
PHARMACEUTICALS, INC. (f/k/a OncoRx Inc.), a corporation organized and existing
under the laws of the State of Delaware and with principal offices located in
New Haven, Connecticut ("LICENSEE").
W I T N E S S E T H:
WHEREAS, YALE and LICENSEE are parties to a License Agreement dated
August 31, 1994, under which YALE exclusively licensed to LICENSEE a series of
YALE owned inventions relating to potential anti-tumor and anti-viral compounds;
and
WHEREAS, YALE and LICENSEE amended the License Agreement pursuant to an
Agreement dated November 15, 1995 to make an additional patent subject to the
License Agreement and provide the terms of compensation to YALE therefor; and
WHEREAS, YALE and LICENSEE wish to amend the License Agreement, as
amended, to reduce the earned royalties payable on Sublicense Income, and to
make certain other changes to the License Agreement;
WHEREAS, LICENSEE will issue to YALE certain shares of its Common Stock
in consideration therefor;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and for other good and valuable consideration,
receipt of which is hereby acknowledged, YALE and LICENSEE hereby agree as
follows:
1. LICENSEE shall issue to YALE on the date hereof 100,000 shares of
Common Stock, $.01 par value of LICENSEE. LICENSEE agrees to include such shares
in the next registration statement filed (other than a registration statement on
Form S-8 or any similar form) by LICENSEE with the Securities and Exchange
Commission.
-1-
2. Section 1.6 of the License Agreement shall be deleted in its
entirety and shall now read as follows:
"1.6 "SUBLICENSE INCOME" shall mean the gross amount received by
LICENSEE, directly or indirectly, for or on account of sublicenses of any of the
rights granted hereunder, without deduction of any kind except taxes in the
nature of sales, use, ad valorem and similar taxes; provided, however,
SUBLICENSE INCOME shall not in any case include any amounts received by
LICENSEE, directly or indirectly, as payments for work which has been performed
or which is to be performed by LICENSEE at the specific direction of a
SUBLICENSEE, such payments not being creditable against future royalty payments
and provided, further, that research or clinical milestone payments, which are
made pursuant to collaboration or similar arrangements with other companies
shall not constitute SUBLICENSE INCOME for purposes hereof."
3. A new Section 1.11 shall be added to the License Agreement and shall
read as follows:
"1.11 "MILESTONE INCOME" shall mean the gross amount received by
LICENSEE, directly or indirectly, for or on account of research or clinical
milestones, which are made pursuant to collaboration or similar arrangements
with other companies."
4. Section 4.3 of the License Agreement shall be deleted in its
entirety and shall now read as follows:
"4.3 In addition, LICENSEE shall pay to YALE EARNED ROYALTIES as
follows:
A. For Licensed Products Shown in Exhibit B:
Four percent (4%) of NET SALES of One Hundred Million per year or less and Five
Percent (5%) of NET SALES greater than One Hundred Million per year and Twenty
per cent (20%) of SUBLICENSE INCOME;
B. For Licensed Products Shown in Exhibit C:
Five percent (5%) of NET SALES of One Hundred Million per year or less and Six
percent (6%) of NET SALES greater than One Hundred Million per year and Twenty
percent (20%) of SUBLICENSE INCOME; and/or
C. For Licensed Products shown on either Exhibit B or Exhibit C: Twenty
percent (20%) of MILESTONE INCOME."
-2-
5. Article XIV of the License Agreement shall be deleted in its
entirety and shall now read as follows:
"ARTICLE XIV NOTICES
Any notice required by this Agreement shall be sent by Registered or
Certified U.S. Mail, or by a nationally recognized overnight delivery service or
by facsimile with a copy sent by Registered or Certified U.S. Mail, and shall be
deemed delivered if sent to the following addresses of the respective parties or
such other address as is furnished by proper notice to the other party:
TO YALE: TO VION PHARMACEUTICALS, INC.:
Director Vion Pharmaceuticals, Inc.
Office of Cooperative Research 4 Science Park
Yale University New Haven, CT 06511
Suite 401 Attn: President and CEO
246 Church St.
New Haven, Ct 06510
6. Except as expressly amended hereby, the License Agreement, as
amended to date, remains unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate originals by their duly authorized representatives.
YALE UNIVERSITY VION PHARMACEUTICALS, INC.
By:/s/ By:/s/
Name: Gregory E. Gardiner Name: Thomas Mizelle
Title: Director, OCR Title: Vice President Operations
-3-
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 4,409,081
<SECURITIES> 1,065,234
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,542,033
<PP&E> 1,323,683
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,213,320
<CURRENT-LIABILITIES> 617,439
<BONDS> 0
0
9,512
<COMMON> 87,308
<OTHER-SE> 6,234,741
<TOTAL-LIABILITY-AND-EQUITY> 7,213,320
<SALES> 0
<TOTAL-REVENUES> 48,221
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,122,383
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<INTEREST-EXPENSE> 31,498
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