Exhibit 3(b)
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
PRO TECH COMMUNICATIONS, INC.
A. The name of the corporation is Pro Tech Communications, Inc., a Florida
corporation (the "Corporation").
B. The Amended and Restated Articles of Incorporation ("Articles of
Incorporation") of the Corporation authorize the issuance of One Million
(1,000,000) shares of preferred stock, par value $0.01 per share ("Preferred
Stock"), and authorizes the board of directors ("Board of Directors") of the
Corporation to designate any such series of Preferred Stock, to fix the number
of shares of any such series of Preferred Stock, and to determine or alter the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock.
C. The Board of Directors of the Corporation, pursuant to the authority
expressly vested in it as aforesaid and pursuant to Section 607.0602 of the
Florida Business Corporation Act, has duly adopted and approved these Articles
of Amendment to Articles of Incorporation ("Articles of Amendment") creating a
Series A Convertible Preferred Stock issue of Preferred Stock before the
issuance of any shares of that series.
D. The text of the amendment determining the terms of the Series A Convertible
Preferred Stock of the Preferred Stock is set forth below:
Section 1. Designation and Amount. There is hereby established a series of
Preferred Stock designated as Series A Convertible Preferred Stock (the "Series
A Preferred Shares") and the number of shares constituting the Series A
Preferred Shares shall be One Thousand Five Hundred (1,500).
Section 2. Par Value, Stated Value and Accretion Rate. Each share of the
Series A Preferred Shares shall have a par value of $0.01, and a stated value
(face amount) of One Thousand Dollars ($1,000.00) (the "Stated Value"), with an
accretion rate of four percent (4%) per annum on the Stated Value ("4%
Accretion") for the purposes and on the terms set forth herein.
Section 3. Dividends. Except as otherwise provided in Section 14 hereof,
the Series A Preferred Shares shall not bear any dividends.
<PAGE>
Section 4. Preemptive Rights.
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(a) The Corporation hereby grants to each holder of the Series A
Preferred Shares, so long as such holder shall own, of record or
beneficially, at least Two Hundred Fifty (250) shares of the Series A
Preferred Shares, the right to purchase all or part of its pro rata
share of New Securities (as defined below) which the Corporation, from
time to time, proposes to issue and sell. Such holder's pro rata
share, for purposes of this preemptive right (the "Preemptive Right"),
is the ratio of (x) the number of shares of Common Stock (as defined
below) which such holder of Series A Preferred Shares owns and has the
right to acquire from the Corporation upon exercise of options or
warrants then exercisable or upon conversion of convertible securities
then outstanding to (y) the sum of the number shares of Common Stock
then issued and outstanding and the number of shares of Common Stock
issuable upon exercise of options or warrants then exercisable or upon
conversion of any other convertible securities then issued and
outstanding. The holders of Series A Preferred Shares who are entitled
to a preemptive right hereunder shall have a right of over-allotment
pursuant to this Section 4 such that, to the extent any such holder
does not exercise its or his Preemptive Right in full hereunder, such
additional shares of New Securities which such holder did not purchase
may be purchased by the other holders who have a Preemptive Right in
proportion to the total number of shares of Common Stock which each
such other holder owns or has the right to acquire from the
Corporation compared to the total number of shares of Common Stock
which all such other holders exercising their right of over-allotment
own or have the right to acquire from the Corporation.
(b) "New Securities" shall mean any capital stock of the
Corporation whether now authorized or not, and rights, options or
warrants to purchase capital stock, and securities of any type
whatsoever that are, or may become convertible into or exchangeable
for capital stock, issued on or after September 29, 2000; provided,
that the term "New Securities" does not include (a) securities
purchased or issued pursuant to the terms of the Securities Purchase
and Supplemental Exchange Rights Agreement, dated as of September 29,
2000, by and among the Corporation, NCT Group, Inc., a Delaware
corporation, and the initial holders of the Series A Preferred Shares
(the "Securities Purchase Agreement"), including, but not limited to,
the Series A Preferred Shares issued pursuant the Securities Purchase
Agreement, the Warrants (as defined below), the Conversion Shares (as
defined below), and the Warrant Shares (as defined below), (b) shares
of Common Stock issuable upon exercise of stock awards granted
pursuant to the Corporation's 1996 Stock Option Plan and 1998 Stock
Option Plan, (c) shares of Common Stock issued pursuant to registered
public offerings and (d) debt securities that are not, and will not
become, directly or indirectly convertible into or exchangeable for
capital stock.
(c) In the event the Corporation proposes to undertake an
issuance of New Securities, it shall give each holder of Series A
Preferred Stock written notice of its intention, describing the type
of New Securities and the price and the terms upon which the
Corporation proposes to issue the same. Each such holder shall have
ten (10) trading days from the date of receipt of any such notice to
agree to purchase up to such holder's pro-rata share of such New
Securities for the price and upon the terms specified in the notice by
giving written notice to the Corporation and stating therein the
quantity of New Securities to be purchased.
(d) In the event any holder of Series A Preferred Shares entitled
to a Preemptive Right hereunder fails to exercise in full its
Preemptive Right (after giving effect to the over-allotment provision
of Section 4(a) hereof), the Corporation shall have ninety (90) days
thereafter to sell the New Securities with respect to which such
holder's option was not exercised, so long as such New Securities are
first offered to any other holders with a Preemptive Right, at a price
and upon terms no more favorable to the purchasers thereof than
specified in the Corporation's notice to the holders pursuant to
Section 4(c) hereof. To the extent the Corporation shall not issue or
sell such New Securities in such 90-day period, the Corporation shall
not thereafter issue or sell such New Securities without first again
offering such securities in the manner provided above.
Section 5. Holder's Conversion of Series A Preferred Shares. A holder of
Series A Preferred Shares shall have the right, at such holder's option, to
convert the Series A Preferred Shares into shares of the Corporation's common
stock, par value $0.001 per share ("Common Stock"), on the following terms and
conditions:
(a) Conversion Right. Subject to the provisions of Sections 5(f)
and 6(a) below, at any time or times, any holder of Series A Preferred
Shares shall be entitled to convert any Series A Preferred Shares into
fully paid and nonassessable shares (rounded to the nearest whole
share in accordance with Section 5(g) below) of Common Stock, at the
Conversion Rate (as defined below);
provided, however, that in no event other than upon a Mandatory
Conversion pursuant to Section 5(f) hereof, or upon a Triggering Event
pursuant to Section 7(c) hereof, shall any holder be entitled to
convert Series A Preferred Shares in excess of that number of Series A
Preferred Shares which, upon giving effect to such conversion, would
cause the aggregate number of shares of Common Stock beneficially
owned by the holder and its affiliates to exceed 4.9% of the
outstanding shares of the Common Stock following such conversion,
provided that any holder can waive this provision as to himself with
sixty-five (65) days prior written notice to the Corporation. For
purposes of the foregoing proviso, the aggregate number of shares of
Common Stock beneficially owned by the holder and its affiliates shall
include the number of shares of Common Stock issuable upon conversion
of the Series A Preferred Shares with respect to which the
determination of such proviso is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon
conversion of the remaining, nonconverted Series A Preferred Shares
beneficially owned by the holder and its affiliates. Except as set
forth in the preceding sentence, for purposes of this Section 5(a),
beneficial ownership shall be calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended.
(b) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of each of the Series A Preferred Shares
pursuant to Section 5(a) hereof shall be determined according to the
following formula (the "Conversion Rate"):
Face Value Number of Shares of
----------------- = -------------------
Conversion Price Common Stock
provided that the Corporation shall have the option to pay the 4%
Accretion accrued on each Series A Preferred Share in either cash or
cash equivalents. If the Corporation elects to pay the 4% Accretion
accrued in cash or cash equivalents, the Conversion Rate shall be:
Stated Value Number of Shares of
---------------- = -------------------
Conversion Price Common Stock
For purposes of these Articles of Amendment, the following terms
shall have the following meanings:
(i) "Face Value" equals the Stated Value plus the 4% Accretion
accrued on each share of Series A Preferred Stock;
(ii) "Conversion Price" means, as of any date of determination, the
lower of the Fixed Conversion Price (as defined below) and the
Variable Conversion Price (as defined below);
(iii)"Fixed Conversion Price" means $0.50, subject to any adjustments
that may be required pursuant to Section 5(d) hereof;
(iv) "Variable Conversion Price" means the amount obtained by
multiplying 0.8 by the lowest average of the average Closing Bid
Price (as defined below) for the Common Stock for any consecutive
five (5) day trading period out of the fifteen (15) trading days
preceding such relevant date, subject to any adjustments that may
be required pursuant to Section 5(d) hereof and, thereafter,
subject to any adjustment that may be required pursuant to
Section 5(c) hereof;
(v) "Closing Bid Price" means, for any security as of any date, the
last closing bid price on the Nasdaq National Market System (the
"Nasdaq-NM") as reported by Bloomberg Financial Markets
("Bloomberg"), or, if the Nasdaq-NM is not the principal trading
market for such security, the last closing bid price of such
security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the last closing bid price of
such security in the over-the-counter market on the pink sheets
or bulletin board for such security as reported by Bloomberg, or,
if no closing bid price is reported for such security by
Bloomberg, the last closing trade price of such security as
reported by Bloomberg. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing
bases, the Closing Bid Price of such security on such date shall
be the fair market value as reasonably determined in good faith
by the Board of Directors of the Corporation (all as
appropriately adjusted for any stock dividend, stock split or
other similar transaction during such period); and
(vi) "Issuance Date" means the date of issuance of Series A Preferred
Shares by the Corporation to the holders.
(c) Adjustment of Variable Conversion Price. If the Corporation,
at any time while any Series A Preferred Shares are outstanding, shall
issue any Common Stock Equivalent (as defined below) at an exercise
price per share (the "Discount Price") for which shares of Common
Stock may be issuable pursuant to such Common Stock Equivalent (the
"Discounted Conversion Price") less than the Closing Bid Price then in
effect, or if, after any such issuance of Common Stock Equivalents,
the Discounted Conversion Price is amended or adjusted, and such price
as so amended shall be less than the Closing Bid Price in effect at
the time of such amendment, then such issuance shall be deemed to be
at a Discount Price and the Variable Conversion Price for any
conversion subsequent to such issuance shall be the lesser of (A) the
Variable Conversion Price as determined in accordance with Section
5(b)(iv) or (B) the product of (x) the Discount Price and (y) 0.80;
provided, however, that if the application of this subsection results
in an Variable Conversion Price of less than $0.01 per share, the
Variable Conversion Price shall be $0.01 per share. If more than one
issuance of Common Stock Equivalents occurs at a Discount Price, the
lowest of such Discount Prices shall apply to any adjustment to the
Variable Conversion Price provided for in this Section 5.
For purposes of these Articles of Amendment, the following terms
shall have the following meanings:
(i) "Additional Shares" means all shares of Common Stock issued by
the Corporation after the date of issuance by the Corporation of
any shares of Series A Preferred Stock to a holder.
(ii) "Common Stock Equivalents" means any Convertible Security or
warrant, option or other right to subscribe for or purchase any
Additional Shares of the Corporation, or any Convertible
Security.
(iii)"Convertible Security" mean evidences of indebtedness, shares of
capital stock or other securities which are or may be at any time
convertible into or exchangeable for Additional Shares.
(iv) "Conversion Shares" mean the shares of Common Stock into which
the Series A Preferred Shares are convertible.
(v) "Required Effective Date" means that date which is one hundred
twenty (120) days after the SB-1 Filing Deadline.
(vi) "Registrable Securities" mean (i) the Conversion Shares and (ii)
the Warrant Shares and any shares of capital stock issued or
issuable with respect to the Warrant Shares as a result of a
stock split, stock dividend, recapitalization, exchange or
similar event, which are registrable pursuant to the Registration
Rights Agreement.
(vii)"Registration Rights Agreement" means that Registration Rights
Agreement, dated as of September 29, 2000, by and between the
Corporation and the initial holders of the Series A Preferred
Shares.
(viii)"SB-1 Filing Deadline" means that date which is ninety (90)
days after September 29, 2000.
(ix) "Warrant Shares" mean the shares of Common Stock which are
purchasable upon the exercise of those certain warrants
("Warrants") issued by the Corporation to the initial holders of
the Series A Preferred Shares pursuant to the Securities Purchase
Agreement.
(d) Adjustments of Conversion Price.
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(i) If the Registration Statement (as defined in Section
8(a) below) covering the Registrable Securities is not effective
by the Required Effective Date, then the Conversion Price of the
Series A Preferred Shares will be reduced by the Periodic Amount
Percentage (as defined below) pursuant to this Section 5(d).
(ii) The percentage (the "Periodic Amount Percentage") by
which the Conversion Price applicable to the Series A Preferred
Shares shall be reduced shall be determined as of each
Computation Date (as defined below) for the period from the date
following the Required Effective Date to the first relevant
Computation Date, and thereafter to each subsequent Computation
Date. The "Periodic Amount Percentage" means (A) one percent (1%;
except that such amount shall be prorated on a daily basis if
such Computation Date is less than thirty (30) days after the
Required Effective Date) to the first Computation Date after the
Required Effective Date and (B) two percent (2%) to each
Computation Date thereafter. By way of illustration and not in
limitation of the foregoing, if the Registration Statement is not
declared effective until one hundred eighty-five (185) days after
the SB-1 Filing Deadline, the aggregate Periodic Amount
Percentage will aggregate five percent (5%) (1% for days 121-150,
plus 2% for days 151-180, plus 2% for days 181-185).
(iii) Each Periodic Amount Percentage will be applied to
reduce the applicable percentage on the relevant formula for
determining the Conversion Price on the Series A Preferred
Shares. By way of example, and not in limitation of the
foregoing, if the aggregate Periodic Amount Percentage is five
percent (5%), assuming no prior Periodic Amount Percentages had
been applied to the Conversion Price, (x) the Variable Conversion
Price shall be reduced by an amount equal to 5% multiplied by the
Variable Conversion Price, and (y) the Fixed Conversion Price
shall be reduced by an amount equal to 5% multiplied by the Fixed
Conversion Price. The Periodic Amount Percentage shall be applied
as of each Computation Date, provided however, if there is more
than one Computation Date, the Periodic Percentage Amount shall
be applied on a cumulative basis.
(iv) Notwithstanding the foregoing, the Periodic Amount
Percentages pursuant to this provision shall not be applied in
the event all of the Registrable Securities may be sold pursuant
to Rule 144 or another available exemption under the Securities
Act of 1933, as amended, without volume or other restrictions or
limits.
(v) "Computation Date" means (A) the date which is the
earlier of (1) thirty (30) days after the Required Effective
Date, or (2) the date after the Required Effective Date on which
the Registration Statement is declared effective, and (B) each
date which is the earlier of (1) thirty (30) days after the
previous Computation Date, or (2) the date after the previous
Computation Date on which the Registration Statement is declared
effective.
(e) Mechanics of Conversion. Subject to the Corporation's
inability to fully satisfy its obligations under a Conversion Notice
(as defined below) as provided for in Section 8 below:
(i) Holder's Delivery Requirements. To convert Series A
Preferred Shares into full shares of Common Stock on any date
(the "Conversion Date") in accordance with and subject to the
terms and conditions set forth in this Section 5, the holder
thereof shall (A) deliver or transmit by facsimile, for receipt
on or prior to 11:59 p.m., Eastern Time, on such date, a copy of
a fully executed notice of conversion in the form attached hereto
as Exhibit I (the "Conversion Notice") to the Corporation at 3311
Industrial 25th Street, Fort Pierce, Florida 34946, facsimile
number (561) 464-6644, and the Corporation's designated transfer
agent (the "Transfer Agent"), if any, or other such address as
the Corporation may designate in writing, and (B) surrender to a
common carrier for delivery to the Corporation or the Transfer
Agent as soon as practicable following such notice, the original
certificates representing the Series A Preferred Shares, duly
endorsed or accompanied by a duly executed assignment for
cancellation, being converted (or an indemnification undertaking
with respect to such certificates in the case of their loss,
theft or destruction) (the "Preferred Stock Certificates") and
the originally executed Conversion Notice.
(ii) Corporation's Response. Upon receipt by the Corporation
of a facsimile copy of a Conversion Notice, the Corporation shall
immediately send, via facsimile, a confirmation of receipt of
such Conversion Notice to such holder. Upon receipt by the
Corporation or the Transfer Agent of the Preferred Stock
Certificates to be converted pursuant to a Conversion Notice,
together with the originally executed Conversion Notice (such
date, the "Corporation's Receipt"), the Corporation or the
Transfer Agent (as applicable) shall, within five (5) business
days following the Corporation's Receipt, issue and surrender to
a common carrier for overnight delivery to the address as
specified in the Conversion Notice, a certificate, executed on
behalf of the Corporation and registered in the name of the
holder or its designee, for the number of shares of Common Stock
to which the holder shall be entitled.
(iii) Dispute Resolution. In the case of a dispute as to the
determination of the Closing Bid Price or the arithmetic
calculation of the Conversion Rate, the Corporation shall
promptly issue to the holder the number of shares of Common Stock
that is not disputed and shall submit the disputed determinations
or arithmetic calculations to the holder via facsimile within
three (3) business days of receipt of such holder's Conversion
Notice. If such holder and the Corporation are unable to agree
upon the determination of the Closing Bid Price or arithmetic
calculation of the Conversion Rate within two (2) business days
of such disputed determination or arithmetic calculation being
submitted to the holder, then the Corporation shall within one
(1) business day submit via facsimile (A) the disputed
determination of the Closing Bid Price to an independent,
reputable investment bank or (B) the disputed arithmetic
calculation of the Conversion Rate to an independent, outside
accountant. The Corporation shall cause the investment bank or
the accountant, as the case may be, to perform the determinations
or calculations and notify the Corporation and the holder of the
results no later than forty-eight (48) hours from the time it
receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation,
as the case may be, shall be binding upon all parties absent
manifest error.
(iv) Record Holder. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of
Series A Preferred Shares shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on
the Conversion Date.
(v) Corporation's Failure to Timely Convert. If the
Corporation shall fail to issue to a holder within seven (7)
business days following the Corporation's Receipt, a certificate
for the number of shares of Common Stock to which such holder is
entitled upon such holder's conversion of Series A Preferred
Shares, in addition to all other available remedies which such
holder may pursue hereunder and under the Securities Purchase
Agreement (including indemnification pursuant to Section 12(a)
thereof), the Corporation shall pay additional damages to such
holder on each day after the seventh (7th) business day following
the Corporation's Receipt until the day delivery is effected, an
amount equal to 1.0% of the product of (A) the number of shares
of Common Stock not issued to the holder and to which such holder
is entitled and (B) the Closing Bid Price of the Common Stock on
the business day following the Corporation's Receipt.
(f) Mandatory Conversion. If any Series A Preferred Shares remain
outstanding on March 31, 2005, then all such Series A Preferred Shares
shall be converted as of such date in accordance with this Section 5
as if the holders of such Series A Preferred Shares had given the
Conversion Notice on March 31, 2005, and the Conversion Date had been
fixed as of March 31, 2005, for all purposes of this Section 5, and
all holders of Series A Preferred Shares shall thereupon and within
two (2) business days thereafter surrender all Preferred Stock
Certificates, duly endorsed or accompanied by a duly executed
assignment for cancellation, to the Corporation or the Transfer Agent.
No person shall thereafter have any rights in respect of Series A
Preferred Shares, except the right to receive shares of Common Stock
on conversion thereof as provided in this Section 5.
(g) Fractional Shares. The Corporation shall not issue any
fraction of a share of Common Stock upon any conversion. All shares of
Common Stock (including fractions thereof) issuable upon conversion of
more than one share of the Series A Preferred Shares by a holder
thereof shall be aggregated for purposes of determining whether the
conversion would result in the issuance of a fraction of a share of
Common Stock. If, after the aforementioned aggregation, the issuance
would result in the issuance of a fraction of a share of Common Stock,
the Corporation shall round such fraction of a share of Common Stock
up or down to the nearest whole share.
(h) Taxes. The Corporation shall pay any and all taxes which may
be imposed upon it with respect to the issuance and delivery of Common
Stock upon the conversion of the Series A Preferred Shares.
Section 6. Corporation's Right to Redeem at its Election.
(a) At any time the Closing Bid Price of the Corporation's Common
Stock is less than $0.50 per share, as long as the Corporation has not
received a Conversion Notice from the holder and has not breached any
of the representations, warranties, and covenants contained herein or
in any related agreements, the Corporation shall have the right,
subject to the legal availability of funds to the Corporation for such
redemption, in its sole discretion, to redeem ("Redemption at
Corporation's Election"), from time to time, any or all of the Series
A Preferred Shares; provided (i) the Corporation shall first provide
five (5) days advance written notice as provided in subsection
6(a)(ii) below (which can be given any time on or after 80 days after
the Issuance Date), and (ii) that the Corporation shall only be
entitled to redeem Series A Preferred Shares having an aggregate
Stated Value (as defined above) of at least Five Hundred Thousand
Dollars ($500,000). If the Corporation elects to redeem some, but not
all, of the Series A Preferred Shares, the Corporation shall redeem a
pro rata amount from each holder of the Series A Preferred Shares. If
the Corporation fails to complete a Redemption at Corporation's
Election, the Corporation's right to this and any other such further
redemption is forfeited.
(i) Redemption Price At Corporation's Election. The
"Redemption Price at Corporation's Election" shall be calculated
as 125% of Stated Value of, and 100% of the unpaid 4% Accretion
accrued on, the Series A Preferred Shares being redeemed pursuant
to this Section 6(a).
(ii) Mechanics of Redemption at Corporation's Election. The
Corporation shall effect each such redemption by giving five (5)
days prior written notice ("Notice of Redemption at Corporation's
Election"), to (A) the holders of the Series A Preferred Shares
selected for redemption at the address and facsimile number of
such holder appearing in the Corporation's Series A Preferred
Stock register and (B) the Transfer Agent, which Notice of
Redemption at Corporation's Election shall be deemed to have been
delivered three (3) business days after the Corporation's mailing
(by overnight or two (2) day courier, with a copy by facsimile)
of such Notice of Redemption at Corporation's Election. Such
Notice of Redemption at Corporation's Election shall indicate (i)
the number of shares of Series A Preferred Stock that have been
selected for redemption, (ii) the date which such redemption is
to become effective (the "Date of Redemption At Corporation's
Election"), and (iii) the applicable Redemption Price At
Corporation's Election. Notwithstanding the above, a holder may
convert into Common Stock, prior to the close of business on the
Date of Redemption at Corporation's Election, any Series A
Preferred Shares which it is otherwise entitled to convert,
including Series A Preferred Shares that have been selected for
Redemption at Corporation's Election pursuant to this Section
6(a).
(b) Corporation Must Have Immediately Available Funds or Credit
Facilities. The Corporation shall not be entitled to send any Notice
of Redemption at Corporation's Election and begin the redemption
procedure under Section 6(a) hereof unless it has, subject to the
legal availability of funds to the Corporation for such redemption:
(i) the full amount of the redemption price in cash or cash
equivalents, 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 Corporation a sufficient number of shares of
stock to provide proceeds necessary to redeem any stock that is
not converted prior to redemptions; or
(iv) a combination of the items set forth in (i), (ii), and
(iii) above, aggregating the full amount of the redemption price.
(c) Payment of Redemption Price. Each holder submitting Series A
Preferred Shares being redeemed under this Section 6 shall send his
Series A Preferred Share certificates to be redeemed to the
Corporation or its Transfer Agent, and the Corporation shall pay the
applicable redemption price, subject to the legal availability of
funds to the Corporation for such redemption, to that holder within
five (5) business days of the Date of Redemption at Corporation's
Election.
Section 7. Redemption at Option of Holders.
(a) Redemption Option Upon Triggering Event. In addition to all
other rights of the holders of Series A Preferred Shares contained
herein, after a Triggering Event (as defined below), the holders of
Series A Preferred Shares shall have the right in accordance with
Section 7(d) hereof, subject to Section 7(e) hereof, at the option of
the holders of at least two-thirds (2/3) of the Series A Preferred
Shares then outstanding, to require the Corporation to redeem all of
the Series A Preferred Shares then outstanding at a price per Series A
Preferred Share equal to the greater of (i) 125% of the Liquidation
Value of such share, and (ii) the price calculated in accordance with
the Redemption Rate as of the date immediately preceding such
Triggering Event on which the exchange or market on which the Common
Stock is traded is open.
(b) "Redemption Rate." The "Redemption Rate" shall, as of any
date of determination, be equal to (i) the number of shares of Common
Stock determined according to the Conversion Rate in effect as of such
date as calculated pursuant to Section 5(b) hereof multiplied by (ii)
the Closing Bid Price of the Common Stock on such date.
(c) "Triggering Event." A "Triggering Event" shall be deemed to
have occurred at such time as any of the following events:
(i) the Corporation's notice to any holder of Series A
Preferred Shares, including by way of public announcement, at any
time, of its intention for any reason not to comply with requests
for conversion of any Series A Preferred Shares to shares of
Common Stock;
(ii) the Corporation's failure to issue to a holder of
Series A Preferred Shares, within seven (7) business days
following the Corporation's Receipt, a certificate for the number
of shares of Common Stock to which such holder is entitled upon
such holder's conversion of Series A Preferred Shares; and
(iii) if for any reason the Corporation breaches any
material representation or fails to perform or observe any
covenant, agreement, or other provision contained herein or in
the Securities Purchase Agreement or the Registration Rights
Agreement between the Corporation and the holders of the Series A
Preferred Shares (the "Registration Rights Agreement"), and such
failure is not cured within sixty (60) days after the Corporation
receives notice thereof from holders of at least fifty percent
(50%) of the Series A Preferred Shares then outstanding ("Notice
of Triggering Event"), of the occurrence thereof, and such
failure has had a material adverse effect on (A) the financial
condition, operating results, business, properties, or operations
of the Corporation and its subsidiaries taken as a whole, taking
into account any proceeds reasonably expected to be received by
the Corporation or its subsidiaries in the foreseeable future
from insurance policies or rights of indemnification or (B) the
Series A Preferred Shares.
(d) Mechanics of Redemption at Option of Holder Upon Triggering
Event. Within one (1) day after receipt of a Notice of Triggering
Event, the Corporation shall deliver written notice thereof via
facsimile and overnight courier to each holder of Series A Preferred
Shares. At any time after receipt of a Notice of Triggering Event, the
holders of at least two-thirds (2/3) of the Series A Preferred Shares
then outstanding may require the Corporation to redeem all of the
Series A Preferred Shares then outstanding in accordance with Section
7(a) above by delivering written notice thereof via facsimile and
overnight courier ("Notice of Redemption at Option of Buyer Upon
Triggering Event") to the Corporation, which Notice of Redemption at
Option of Buyer Upon Triggering Event shall indicate (i) the number of
Series A Preferred Shares that such holders are voting in favor of
redemption, and (ii) the applicable redemption price, as calculated
pursuant to Section 7(a) above.
(e) Payment of Redemption Price. Upon the Corporation's receipt
of such Notice(s) of Redemption at Option of Holder Upon Triggering
Event from the holders of at least two-thirds (2/3) of the Series A
Preferred Shares then outstanding, the Corporation shall immediately
notify each holder by facsimile of the Corporation's receipt of such
requisite notices necessary to affect a redemption. Each holder of
Series A Preferred Shares shall thereafter promptly send such holder's
Series A Preferred Share certificates, duly endorsed or accompanied by
a duly executed assignment, to be redeemed to the Corporation or its
Transfer Agent. The Corporation shall pay the applicable redemption
price, as calculated pursuant to Section 7(a) above, in cash or cash
equivalents to such holder within thirty (30) days after the
Corporation's receipt of the requisite notices required to affect a
redemption; provided that a holder's Series A Preferred Shares
certificates shall have been so delivered to the Corporation or its
Transfer Agent; provided further, that if the funds of the Corporation
legally available for redemption of all of the Series A Preferred
Shares are insufficient to redeem all of the Series A Preferred
Shares, the Corporation shall use such funds which are legally
available, if any, to redeem an amount from each holder of Series A
Preferred Shares equal to such holder's pro rata amount (based on the
number of Series A Preferred Shares held by such holder relative to
the number of Series A Preferred Shares outstanding) of all Series A
Preferred Shares being redeemed. If the Corporation shall fail to
redeem all of the Series A Preferred Shares submitted for redemption,
the applicable redemption price payable in respect of such unredeemed
Series A Preferred Shares shall bear simple interest at the rate of 1%
for the first month and a rate of 1.5% per month thereafter (prorated
for partial months) until paid in full. Until the Corporation pays
such unpaid applicable redemption price in full to each holder,
holders of at least two-thirds (2/3) of the Series A Preferred Shares
then outstanding, including shares of Series A Preferred Shares
submitted for redemption pursuant to this Section 7 and for which the
applicable redemption price has not been paid, shall have the option
(the "Void Optional Redemption Option") to, in lieu of redemption,
require the Corporation to promptly return to each holder all of the
Series A Preferred Shares that were submitted for redemption by such
holder under this Section 7 and for which the applicable redemption
price has not been paid, by sending written notice thereof to the
Corporation via facsimile (the "Void Optional Redemption Notice").
Upon the Corporation's receipt of such Void Optional Redemption
Notice(s) and prior to payment of the full applicable redemption price
to each holder, (i) the Notice(s) of Redemption at Option of Holder
Upon Triggering Event shall be null and void with respect to those
Series A Preferred Shares submitted for redemption and for which the
applicable redemption price has not been paid, (ii) the Corporation
shall immediately return any Series A Preferred Share certificates
submitted to the Corporation by each holder for redemption under this
Section 7(e) and for which the applicable redemption price had not
been paid, and (iii) the Conversion Rate in effect at such time and
thereafter shall be reduced by a number equal to the product of (A)
two and one-half percent (2.5%) and (B) the number of months (prorated
on a daily basis for partial months) in the period beginning on the
date on which the Notice(s) of Redemption at Option of Buyer Upon
Triggering Event is delivered to the Corporation and ending on the
date on which the Void Optional Redemption Notice(s) is delivered to
the Corporation. Notwithstanding the foregoing, in the event of a
dispute as to the determination of the Closing Bid Price or the
arithmetic calculation of the Redemption Rate, such dispute shall be
resolved pursuant to Section 5(e)(iii) above with the term "Notice of
Redemption at Option of Buyer upon Triggering Event" being substituted
for the term "Conversion Notice" and the term "Redemption Rate" being
substituted for the term "Conversion Rate." If any holder cancels its
request for redemption, the holder retains its right to future
requests for redemptions at option of Buyer and retains its right to
interest accrued on the cancelled redemption.
Section 8. Inability to Fully Convert.
(a) Holder's Option if Corporation Cannot Fully Convert. If at
any time after (A) the earlier of (i) the date which is one year after
the date a holder initially acquires Series A Preferred Shares, or
(ii) the date that a registration statement (the "Registration
Statement") covering the resale of the Common Stock issued upon
conversion of the Series A Preferred Shares is declared effective by
the U.S. Securities and Exchange Commission (the "SEC") (such date the
"Registration Statement Effective Date"), and (B) the Corporation's
receipt of a Conversion Notice with respect to such Series A Preferred
Shares, the Corporation does not issue shares of Common Stock within
five (5) business days of the time required in accordance with Section
5(e) hereof, for any reason or for no reason, including, without
limitation, because the Corporation (x) does not have a sufficient
number of shares of Common Stock authorized and available, (y) is
otherwise prohibited by applicable law or by the rules or regulations
of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Corporation or
its Securities, including without limitation The Nasdaq Stock Market,
Inc. from issuing all of the Common Stock which is to be issued to a
holder of Series A Preferred Shares pursuant to a Conversion Notice,
or (z) fails to have a sufficient number of shares of Common Stock
registered and eligible for resale under the Registration Statement,
then the Corporation shall issue as many shares of Common Stock as it
is able to issue in accordance with such holder's Conversion Notice
and pursuant to Section 5(e) above and, with respect to the
unconverted Series A Preferred Shares, the holder, solely at such
holder's option, can, in addition to any other remedies such holder
may have hereunder, under the Securities Purchase Agreement (including
indemnification under Section 12 thereof), under the Registration
Rights Agreement, at law or in equity, elect to:
(i) require the Corporation to redeem, subject to the legal
availability of funds to the Corporation for such redemption,
from such holder those Series A Preferred Shares for which the
Corporation is unable to issue Common Stock in accordance with
such holder's Conversion Notice ("Mandatory Redemption") at a
price per Series A Preferred Share (the "Mandatory Redemption
Price") equal to the greater of (x) 125% of the Liquidation Value
(as defined in Section 12 below) of such share and (y) the
Redemption Rate as of such Conversion Date;
(ii) if the Corporation's inability to fully convert Series
A Preferred Shares is pursuant to Section 8(a)(z) above, require
the Corporation to issue restricted shares of Common Stock in
accordance with such holder's Conversion Notice and pursuant to
Section 5(e) above; or
(iii) void its Conversion Notice and retain or have
returned, as the case may be, the nonconverted Series A Preferred
Shares that were to be converted pursuant to such holder's
Conversion Notice.
(b) Mechanics of Fulfilling Holder's Election. The Corporation
shall immediately send via facsimile to a holder of Series A Preferred
Shares, upon receipt of a facsimile copy of a Conversion Notice from
such holder which cannot be fully satisfied as described in Section
8(a) above, a notice of the Corporation's inability to fully satisfy
such holder's Conversion Notice (the "Inability to Fully Convert
Notice"). Such Inability to Fully Convert Notice shall indicate (i)
the reason why the Corporation is unable to fully satisfy such
holder's Conversion Notice, (ii) the number of Series A Preferred
Shares which cannot be converted, (iii) the applicable Mandatory
Redemption Price, if any, and (iv) any limitation or prohibition on a
redemption by the Corporation due to a lack of funds of the
Corporation legally available for redemption. Such holder must within
five (5) business days of receipt of such Inability to Fully Convert
Notice, deliver written notice via facsimile to the Corporation
("Notice in Response to Inability to Convert") of its election
pursuant to Section 8(a) above.
(c) Payment of Redemption Price. If such holder shall elect to
have its shares redeemed pursuant to Section 8(a) above, the
Corporation shall pay the Mandatory Redemption Price, subject to the
legal availability of funds to the Corporation for such redemption, in
cash to such holder within fifteen (15) business days of the
Corporation's receipt of the holder's Notice in Response to Inability
to Convert. If the Corporation shall fail to pay the applicable
Mandatory Redemption Price to such holder on a timely basis as
described in this Section 8(c), such unpaid amount shall bear simple
interest at the rate of 1% for the first month and a rate of 1.5% per
month thereafter (prorated for partial months) until paid in full.
Until the full Mandatory Redemption Price is paid in full to such
holder, such holder may void the Mandatory Redemption with respect to
those Series A Preferred Shares for which the full Mandatory
Redemption Price has not been paid and receive back such Series A
Preferred Shares. Notwithstanding the foregoing, if the Corporation
fails to pay the applicable Mandatory Redemption Price within such
thirty business (30) days time period due to a dispute as to the
determination of the Closing Bid Price or the arithmetic calculation
of the Redemption Rate, such dispute shall be resolved pursuant to
Section 5(e)(iii) above with the term "Notice in Response to Inability
to Convert" being substituted for the term "Conversion Notice" and the
term, "Redemption Rate" being substituted for the term "Conversion
Rate."
(d) Pro-rata Conversion and Redemption. In the event the
Corporation receives a Conversion Notice from more than one holder of
Series A Preferred Shares on the same day and the Corporation can
convert and redeem some, but not all, of the Series A Preferred Shares
pursuant to this Section 8, the Corporation shall convert and redeem
from each holder of Series A Preferred Shares electing to have Series
A Preferred Shares converted and redeemed at such time an amount equal
to such holder's pro-rata amount (based on the number of Series A
Preferred Shares held by such holder relative to the number of Series
A Preferred Shares outstanding) of all Series A Preferred Shares being
converted and redeemed at such time.
Section 9. Reissuance of Certificates. In the event of a conversion or
redemption pursuant to these Articles of Amendment of less than all of the
Series A Preferred Shares represented by a particular Series A Preferred Share
certificate, the Corporation shall promptly cause to be issued and delivered to
the holder of such Series A Preferred Shares a Series A Preferred Share
certificate representing the remaining Series A Preferred Shares which have not
been so converted or redeemed.
Section 10. Reservation of Shares. The Corporation shall, so long as any of
the Series A Preferred Shares are outstanding, reserve and keep available out of
its authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Series A Preferred Shares, 115% of such number of shares
of Common Stock as shall from time to time be sufficient to affect the
conversion of the Series A Preferred Shares then issued and outstanding. Any
Series A Preferred Shares returned to the Corporation by any holder pursuant to
a conversion or redemption of such Series A Preferred Shares (the "Returned
Series A Shares"), shall be cancelled by the Corporation, and such Returned
Series A Shares may not be authorized for reissuance.
Section 11. Voting Rights. Holders of Series A Preferred Shares shall have
no voting rights, except as required by law, including but not limited to the
Florida Business Corporation Act, and as expressly provided in these Articles of
Amendment.
Section 12. Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution, or winding up of the
Corporation, the holders of the Series A Preferred Shares shall be entitled to
receive in cash out of the assets of the Corporation, whether from capital or
from earnings available for distribution to its shareholders (the "Preferred
Funds"), before any amount shall be paid to the holders of any of the capital
stock of the Corporation of any class junior in rank to the Series A Preferred
Shares in respect of the preferences as to the distributions and payments on the
liquidation, dissolution and winding up of the Corporation, an amount per Series
A Preferred Share equal to the sum of (i) $1,000 and (ii) an amount equal to the
product of (.04) (N/365) ($1,000) ("N" shall mean, for purposes of the foregoing
equation, the number of calendar days which such Series A Preferred Share has
been issued and outstanding since the date of issuance of such Series A
Preferred Share by the Corporation) (such sum being referred to as the
"Liquidation Value"); provided that, if the Preferred Funds are insufficient to
pay the full amount due to the holders of Series A Preferred Shares and holders
of shares of other classes or series of preferred stock of the Corporation that
are of equal rank with the Series A Preferred Shares as to payments of Preferred
Funds (the "Pari Passu Shares"), then each holder of Series A Preferred Shares
and Pari Passu Shares shall receive a percentage of the Preferred Funds equal to
the full amount of Preferred Funds payable to such holder as a liquidation
preference, in accordance with their respective Articles of Amendment as a
percentage or the full amount of Preferred Funds payable to all holders of
Series A Preferred Shares and Pari Passu Shares. The purchase or redemption by
the Corporation of stock of any class in any manner permitted by law, shall not
for the purposes hereof, be regarded as a liquidation, dissolution, or winding
up of the Corporation. Neither the consolidation, statutory share exchange or
merger of the Corporation with or into any other Person, nor the sale or
transfer by the Corporation of all or substantially all of its assets, shall,
for the purposes hereof, be deemed to be a liquidation, dissolution, or winding
up of the Corporation. No holder of Series A Preferred Shares shall be entitled
to receive any amounts with respect thereto upon any liquidation, dissolution or
winding up of the Corporation other than the amounts provided for herein. For
purposes of these Articles of Amendment, "Person" shall mean an individual, a
limited liability company, a limited liability partnership, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
Section 13. Preferred Rank. All shares of Series A Preferred Shares shall
be of senior rank and all shares of Common Stock shall be of junior rank to all
Series A Preferred Shares in respect to the preferences as to distributions and
payments upon the liquidation, dissolution, and winding up of the Corporation.
The rights of the shares of Common Stock shall be subject to the preferences and
relative rights of the Series A Preferred Shares. The Series A Preferred Shares
shall be of greater rank than any series of Common or Preferred Stock
hereinafter issued by the Corporation, except as otherwise provided herein.
Without the prior express written consent of the holders of not less than
two-thirds (2/3) of the then outstanding Series A Preferred Shares, the
Corporation shall not hereafter authorize or issue additional or other capital
stock that is of senior or equal rank to the Series A Preferred Shares in
respect of the preferences as to distributions and payments upon the
liquidation, dissolution and winding up of the Corporation. Except as provided
in the preceding sentence, without the prior express written consent of the
holders of not less than fifty percent (50%) of the then outstanding Series A
Preferred Shares, the Corporation shall not hereafter authorize or make any
amendment to the Corporation's Articles of Incorporation or Bylaws, or file any
articles of amendment adopted by the board of directors with the Department of
State of the State of Florida containing any provisions that would adversely
affect or otherwise impair the rights or relative priority of the holders of the
Series A Preferred Shares relative to the holders of the Common Stock or the
holders of any other class of capital stock in respect of the preferences as to
distributions and payments upon the liquidation, dissolution and winding up of
the Corporation. In the event of the merger, consolidation or statutory share
exchange of the Corporation with or into another corporation, the Series A
Preferred Shares shall maintain their relative powers, designations, and
preferences provided for herein.
Section 14. Restriction on Dividends. If any Series A Preferred Shares are
outstanding, without the prior express written consent of the holders of not
less than fifty percent (50%) of the then outstanding Series A Preferred Shares,
the Corporation shall not directly or indirectly declare, pay or make any
dividends or other distributions upon any of the Common Stock unless written
notice thereof has been given to holders of the Series A Preferred Shares at
least thirty (30) days prior to the earlier of (a) the record date taken for, or
(b) the payment of any such dividend or other distribution. Notwithstanding the
foregoing, this Section 14 shall not prohibit the Corporation from declaring and
paying a dividend in cash or cash equivalents with respect to the Common Stock
so long as the Corporation: (i) pays simultaneously to each holder of Series A
Preferred Shares an amount in cash or cash equivalents equal to the amount such
holder would have received had all of such holder's Series A Preferred Shares
been converted to Common Stock pursuant to Section 5 hereof one (1) business day
prior to the record date for any such dividend, and (ii) after giving effect to
the payment of any dividend and any other payments required in connection
therewith including to the holders of the Series A Preferred Shares under
Section 14(a)(i) hereof, the Corporation has in cash or cash equivalents an
amount equal to the aggregate of: (A) all of its liabilities reflected on its
most recently available balance sheet, (B) the amount of any indebtedness
incurred by the Corporation or any of its subsidiaries since its most recent
balance sheet, and (C) 125% of the amount payable to all holders of any shares
of any class of preferred stock of the Corporation assuming a liquidation of the
Corporation as of the date of its most recently available balance sheet.
Section 15. Vote to Change the Terms of Series A Preferred Shares. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than ninety percent (90%)
of the then outstanding Series A Preferred Shares, shall be required for any
change to these Articles of Amendment or the Corporation's Articles of
Incorporation which would amend, alter, change or repeal any of the powers,
designations, preferences and rights of the Series A Preferred Shares.
Section 16. Lost or Stolen Certificates. Upon receipt by the Corporation of
evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of any certificates representing the Series A Preferred Shares, and,
in the case of loss, theft or destruction, of any indemnification undertaking by
the holder to the Corporation and, in the case of mutilation, upon surrender and
cancellation of the Series A Preferred Share certificate(s), the Corporation
shall execute and deliver new Series A Preferred Share certificate(s) of like
tenor and date; provided, however, the Corporation shall not be obligated to
reissue Series A Preferred Share certificates if the holder contemporaneously
requests the Corporation to convert such Series A Preferred Shares into Common
Stock.
Section 17. Withholding Tax Obligations. The Corporation may withhold from
any distribution (as such term is defined under applicable federal, state, local
or foreign tax laws and regulations, "Distribution") in respect of any Series A
Preferred Shares and pay over to any federal, state, local or foreign government
any amounts required to be so withheld pursuant to federal, state, local or
foreign laws and regulations to enable the Corporation to satisfy its
withholding tax obligations (the "Withholding Tax"). The Corporation may
reasonably condition the making of any non-cash Distribution in respect of any
Series A Preferred Shares on the holder of such Series A Preferred Shares
depositing with the Corporation an amount of cash sufficient to enable the
Corporation to pay any Withholding Tax. Notwithstanding the foregoing or
anything to the contrary, if any holder of Series A Preferred Shares so effected
receives advice in writing from its counsel that there is a reasonable basis to
believe that the Corporation is not required by applicable federal, state, local
or foreign laws and regulations to pay any Withholding Tax with respect to a
Distribution to that holder and delivers a copy of such written advice to the
Corporation, the Corporation shall not be permitted to condition the making of
any such non-cash Distribution in respect of any Series A Preferred Shares on
the holder of such Series A Preferred Shares depositing with the Corporation any
Withholding Tax with respect to such Distribution; provided, however, the
Corporation may reasonably condition the making of any such Distribution in
respect of any Series A Preferred Shares on the holder of such Series A
Preferred Shares executing and delivering to the Corporation, at the election of
the holder, either (i) if applicable, a properly completed Internal Revenue
Service ("IRS") Form W-8 or other IRS form that is reasonably satisfactory to
the Corporation, or (ii) an indemnification agreement in reasonably acceptable
form, with respect to any federal, state, local or foreign tax liability,
penalties and interest that may be imposed upon the Corporation by any foreign,
state, local or foreign government as a result of the Corporation's failure to
withhold in connection with such Distribution to such holder. The Corporation
shall not be required to pay any additional damages set forth in Section 5(e)(v)
of these Articles of Amendment if its failure to timely deliver any Conversion
Shares results from the holder's failure to deposit any Withholding Tax
hereunder or provide to the Corporation an executed indemnification agreement in
the form reasonably satisfactory to the Corporation.
E. These Articles of Amendment were duly adopted pursuant to Section 607.1002 of
the Florida Business Corporation Act by unanimous written consent of the Board
of Directors of the Corporation on September 29, 2000. Shareholder approval of
these Articles of Amendment was not required.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
to Articles of Incorporation to be signed by Rich Hennessey, its President, as
of the 29th day of September, 2000.
PRO TECH COMMUNICATIONS, INC.
By: /s/ RICHARD HENNESSEY
------------------------
Rich Hennessey, President
<PAGE>
EXHIBIT I
PRO TECH COMMUNICATIONS, INC.
CONVERSION NOTICE
Reference is made to the Articles of Amendment to Articles of Incorporation
of Pro Tech Communications, Inc. dated as of September 29, 2000 ("Articles of
Amendment"). In accordance with and pursuant to the Articles of Amendment, the
undersigned hereby elects to convert the number of shares of Series A
Convertible Preferred Stock, $.01 par value per share (the "Series A Preferred
Shares"), of Pro Tech Communications, Inc., a Florida corporation (the
"Corporation"), indicated below into shares of Common Stock, $0.001 par value
per share (the "Common Stock"), of the Corporation, by tendering the stock
certificate(s) representing the share(s) of Series A Preferred Shares specified
below as of the date specified below, based on the Conversion Rate as set forth
in the Articles of Amendment.
The undersigned acknowledges that any sales by the undersigned of the
securities issuable to the undersigned upon conversion of the Series A Preferred
Shares shall be made only pursuant to (i) a registration statement effective
under the Securities Act of 1933, as amended (the "Act"), or (ii) an opinion of
counsel in form and content reasonably satisfactory to the Corporation that such
sale is exempt from registration required by Section 5 of the Act.
Date of Conversion:
-----------------------------------------
Number of Series A Preferred Shares to
be converted:
-----------------------------------------
Stock certificate no(s). of Series A
Preferred Shares to be converted:
-----------------------------------------
Please confirm the following information:
Conversion Price:
-----------------------------------------
Number of shares of Common Stock to
be issued:
-----------------------------------------
<PAGE>
Please issue the Common Stock into which the Series A Preferred Shares are being
converted in the following name and to the following address:
Issue to:1
=========================================
Facsimile Number:
-----------------------------------------
Authorization:
-----------------------------------------
By:______________________________________
Title:___________________________________
Dated:
-----------------------------------------
ACKNOWLEDGED AND AGREED:
PRO TECH COMMUNICATIONS, INC.
By: _____________________________
Name:___________________________
Title:____________________________
Date:____________________________
