1
EXHIBIT 10.15
PREFERRED STOCK PURCHASE AGREEMENT
eMERGE VISION SYSTEMS, INC.
00000 000XX Xxxxxxx
Xxxxxxxxx, XX 00000
As of April 1, 1999
To the Persons listed on Exhibit 1.01 hereto
Re: Series C Preferred Stock
Gentlemen:
eMerge Vision Systems, Inc. (the "Company"), a Delaware corporation,
agrees with each of you as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES AND STOCK OPTION
1.01 Purchase and Sale of Shares. At the Closing, the Company will
sell, and you will buy, the number of shares of Series C Preferred Stock (the
"Preferred Stock") set forth in Exhibit 1 attached hereto, at a purchase price
of $5.00 per share (the "Purchased Shares"). The designation, rights,
preferences and other terms and provisions of the Preferred Stock are set forth
in Exhibit 2 attached hereto.
1.02 The Conversion Shares . The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of shareholders, a sufficient number of its
shares of Common Stock to satisfy the rights of conversion of the holders of the
Purchased Shares. Any shares of Common Stock issuable upon conversion of the
Purchased Shares (and such shares when issued) are herein referred to as the
"Conversion Shares." The Purchased Shares and Conversion Shares are sometimes
collectively referred to as the "Shares."
1.03. Purchase Price and Closing. The closing shall take place at the
offices of Safeguard Scientifics, Inc., 800 The Safeguard Building, 000 Xxxxx
Xxxx Xxxxx, Xxxxx, Xxxxxxxxxxxx 00000, at 10:00 a.m. on April 28, 1999, or at
such time and date thereafter as the Purchaser and the Company may agree (the
"Closing"). At the Closing, the Company will deliver to the nominee of the
Purchaser a certificate for the Purchased Shares, and the Purchaser or its
nominee will deliver the purchase price to the Company.
1.04. Use of Proceeds. The Company shall use the cash proceeds from the
sale of the Purchased Shares for working capital and general corporate purposes.
2
1.05. Representations by the Purchasers.
(a) Investment Representations. Each Purchaser represents
that it is its present intention to acquire the Shares for its own account (and
it will be the sole beneficial owner thereof) and that the Shares are being and
will be acquired by it for the purpose of investment and not with a view to
distribution or resale thereof except pursuant to registration under the
Securities Act or exemption therefrom. The acquisition by the Purchaser of the
Purchased Shares shall constitute a confirmation of this representation by the
Purchaser. the Purchaser further represents that it understands and agrees that,
until registered under the Securities Act or transferred pursuant to the
provisions of Rule 144 or Rule 144A as promulgated by the Commission, all
certificates evidencing any of the Shares, whether upon initial issuance or upon
any transfer thereof, shall bear a legend, prominently stamped or printed
thereon, reading substantially as follows:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 or applicable state
securities laws. These securities have been acquired for investment and
not with a view to distribution or resale. These securities may not be
offered for sale, sold, delivered after sale, transferred, pledged or
hypothecated in the absence of an effective registration statement
covering such shares under the Act and any applicable state securities
laws, or the availability of an exemption from registration
thereunder."
(b) Access to Information. Purchaser or its representative
during the course of this transaction, and prior to the purchase of any
Purchased Shares, has had the opportunity to ask questions of and receive
answers from management of the Company concerning the terms and conditions of
the offering of the Purchased Shares and the additional information, documents,
records and books relative to its business, assets, financial condition, results
of operations and liabilities (contingent or otherwise) of the Company.
(c) General Access. Purchaser or its representative has
received and read or reviewed, and is familiar with, this Agreement and the
other agreements executed or delivered herewith, including the terms of the
Preferred Stock, and confirms that all documents, records and books pertaining
to the Purchaser's investment in the Company and requested by the Purchaser or
his representative have been made available or delivered to him.
(d) Sophistication and Knowledge. Purchaser or its
representative has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the purchase of
the Purchased Shares. Purchaser can bear the economic risks of this investment
and can afford a complete loss of his investment.
(e) Transfer Restrictions Imposed by Securities Laws.
Purchaser understands that: the Shares have not been registered under the
Securities Act and applicable state securities laws, and, therefore, cannot be
resold unless they are subsequently registered under the Securities Act and
applicable state securities laws or unless an exemption from such registration
is
2
3
available; Purchaser is and must be purchasing the Purchased Shares for
investment for the account of Purchaser and not for the account or benefit of
others, and not with any present view toward resale or other distribution
thereof. Purchaser agrees not to resell or otherwise dispose of all or any part
of the Shares purchased by him, except as permitted by law, including, without
limitation, any regulations under the Securities Act and applicable state
securities laws; the Company does not have any present intention and is under no
obligation to register the Shares under the Securities Act and applicable state
securities laws, except as provided in any separate registration rights
agreement, if any, between Purchaser and the Company; and Rule 144 or Rule 144A
under the Securities Act may not be available as a basis for exemption from
registration of the Shares thereunder.
(f) Lack of Liquidity. Purchaser has no present need for
liquidity in connection with his purchase of the Purchased Shares.
(g) Suitability and Investment Objectives. The purchase of
the Purchased Shares by the Purchaser is consistent with the general investment
objectives of the Purchaser. The Purchaser understands that the purchase of the
Purchased Shares involves a high degree of risk in view of the fact that, among
other things, the Company is a start-up enterprise, and there may be no
established market for the Company's capital stock.
(h) Accredited Investor Status. Purchaser is an "Accredited
Investor" as that term is defined in Rule 501 of Regulation D promulgated under
the Securities Act.
1.06. Brokers or Finders. Purchaser represents that no Person has or
will have, as a result of the transactions contemplated by this Agreement, any
right, interest or valid claim against or upon the Company for any commission,
fee or other compensation as a finder or broker because of any act or omission
by Purchaser or his agents.
ARTICLE II
CONDITIONS TO PURCHASERS' OBLIGATIONS
The obligation of the Purchasers to close is subject to the following
conditions:
2.01. Representations and Warranties. Each of the representations and
warranties of the Company set forth in Article III hereof shall be true,
accurate and correct on the date of the Closing.
2.02. Documentation at Closing. The Purchasers shall have received
prior to or at the Closing all of the following materials, each in form and
substance satisfactory to each Purchaser and its counsel, and each of the
following events shall have occurred, or each of the following documents shall
have been delivered, prior to or simultaneous with the Closing:
(a) A copy of the Certificate of Incorporation of the
Company, as amended or restated to date, together with such evidence as may be
available of the filing thereof; a copy of the resolutions of the Board of
Directors providing for the approval of the Amended and Restated
3
4
Certificate of Incorporation of the Company in the form attached as Exhibit 2,
the approval of the issuance of the Purchased Shares; a copy of a consent of
shareholders of the Company approving the Amended and Restated Articles of
Incorporation of the Company; and a copy of the Bylaws of the Company, all of
which have been certified by the Secretary of the Company to be true, complete
and correct in every particular; and certified copies of all documents
evidencing other necessary corporate or other action and governmental approvals,
if any, required to be obtained at or prior to the Closing with respect to this
Agreement and the issuance of the Purchased Shares.
(b) The Company shall have obtained any consents or waivers
necessary to be obtained at or prior to the Closing to execute and deliver this
Agreement, the Purchased Shares and the other agreements and instruments
executed and delivered by the Company in connection herewith and to carry out
the transactions contemplated hereby and thereby, and such consents and waivers
shall be in full force and effect at the Closing. All corporate and other action
and governmental filings necessary to effectuate the terms of this Agreement,
the Purchased Shares and the other agreements and instruments executed and
delivered by the Company in connection herewith shall have been made or taken.
(c) The Certificate of Incorporation of the Company shall have
been amended and restated in the form set forth in Exhibit 2 attached hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants as of the Closing as follows:
3.01. Organization and Standing of the Company. The Company is a duly
organized and validly existing corporation in good standing under the laws of
the State of Delaware and has all requisite corporate power and authority for
the ownership and operation of its properties and for the carrying on of its
business as now conducted and as now proposed to be conducted and to execute and
deliver this Agreement, to issue, sell and deliver the Purchased Shares and to
issue and deliver the Conversion Shares and to perform its other obligations
pursuant hereto and thereto. The Company is duly licensed or qualified and in
good standing as a foreign corporation authorized to do business in all
jurisdictions wherein the character of the property owned or leased or the
nature of the activities conducted by it makes such licensing or qualification
necessary, except where the failure to be so licensed or qualified would not
have a material adverse effect on the business, operations or financial
condition of the Company.
3.02. Corporate Action. This Agreement and the other agreements
executed in connection herewith have been duly authorized, executed and
delivered by the Company and constitute the legal, valid and binding obligations
of the Company, enforceable against the Company in accordance with their
respective terms. The Purchased Shares have been duly authorized. The issuance,
sale and delivery of the Purchased Shares and the issuance and delivery of the
Conversion Shares upon conversion of the Purchased Shares have been duly
authorized by all required corporation action; the Purchased Shares have been
validly issued, are
4
5
fully paid and nonassessable with no personal liability attaching to the
ownership thereof and are free and clear of all liens, charges, restrictions,
claims and encumbrances imposed by or through the Company except as set forth in
this Agreement; and the Conversion Shares have, as of the Closing, been duly
reserved for issuance upon conversion of the Purchased Shares and, when so
issued, will be duly authorized, validly issued, fully paid and nonassessable
with no personal liability attaching to the ownership thereof and will be free
and clear of all liens, charges, restrictions, claims and encumbrances imposed
by or through the Company except as set forth in this Agreement.
3.03. Brokers or Finders. No Person has or will have, as a result of
the transactions contemplated by this Agreement, any right, interest or valid
claim against or upon the Company for any commission, fee or other compensation
as a finder or broker because of any act or omission by the Company or its
respective agents.
3.04. Capitalization; Status of Capital Stock. As of the Closing, the
Company will have a total authorized capitalization consisting of (i)
100,000,000 shares of Common Stock, $.01 par value, and (ii) 15,000,000 shares
of Preferred Stock, $.01 par value. The capitalization table attached as Exhibit
3 to this Agreement sets forth all of the issued and outstanding shares of
capital stock of the Company and all issued and outstanding options, warrants,
convertible securities, and rights which are exercisable for or convertible into
shares of capital stock of the Company as of the Closing, and there are no
shares reserved for issuance or commitments of the Company to issue any
additional equity securities except as disclosed in Exhibit 3. All the
outstanding shares of capital stock of the Company have been duly authorized,
and are validly issued, fully paid and non-assessable. The Purchased Shares when
issued and delivered in accordance with the terms hereof, and the Conversion
Shares, when issued and delivered upon conversion of the Purchased Shares, will
be duly authorized, validly issued, fully-paid and non-assessable.
3.05. Registration Rights. The Purchasers are parties to the
Registration Rights Agreement dated July 17, 1997 among the Company and the
purchasers of its Series A Preferred Stock. As a result, the Shares will be
included in the definition of Registrable Securities under that agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
4.01. Reporting Requirements. Until the consummation of the Company's
Initial Public Offering, the Company will furnish the following to each person
who holds at least 100,000 shares issued pursuant to this Agreement:
(a) Monthly Reports. As soon as available and in any event
within 30 days after the end of each calendar month, consolidated and
consolidating balance sheets of the Company as of the end of such month and
consolidated and consolidating statements of income and retained earnings and a
summary statement of monthly cash flow of the Company for such month and for the
period commencing at the end of the previous fiscal year and ending with the
5
6
end of such month, setting forth in each case in comparative form the
corresponding figures for the corresponding period of the preceding fiscal year,
and including comparisons to the monthly budget or business plan and an analysis
of the variances from the budget or plan, prepared in accordance with generally
accepted accounting principles consistently applied; and, as soon as available
and in any event within 30 days after the end of each fiscal quarter, a
consolidated and consolidating statement of changes in financial position of the
Company for such quarter and for the corresponding period of the prior fiscal
year, prepared in accordance with generally accepted accounting principles
consistently applied;
(b) Annual Reports. As soon as available and in any event
within 90 days after the end of each fiscal year of the Company, a copy of the
annual audit report for such year for the Company, including therein
consolidated and consolidating balance sheets of the Company as of the end of
such fiscal year and consolidated and consolidating statements of income and
retained earnings and of changes in financial position of the Company for such
fiscal year, setting forth in each case in comparative form the corresponding
figures for the preceding fiscal year, all such consolidated statements to be
duly certified by the chief financial officer of the Company and an independent
public accountant of recognized national standing approved by a majority of the
Board of Directors;
(c) Budgets and Operating Plan. As soon as available and in
any event at least 30 days before the beginning of each fiscal year of the
Company, a business plan and monthly and quarterly operating budgets for the
forthcoming fiscal year, and as soon as available and in any event within 30
days after the end of each calendar month, monthly comparisons against the
business plan and monthly operating budgets;
ARTICLE V
MISCELLANEOUS
5.01. Amendments, Waivers and Consents. Any provision in the Agreement
to the contrary notwithstanding, and except as hereinafter provided, changes in,
termination or amendments of or additions to this Agreement may be made, and
compliance with any covenant or provision set forth herein may be omitted or
waived, if the Company (i) shall obtain consent thereto in writing from the
holder or holders of at least a majority in interest of the Shares and (ii)
shall deliver copies of such consent in writing to any holders who did not
execute such consent; provided that no consents shall be effective to reduce the
percentage in interest of the Shares the consent of the holders of which is
required under this Section 5.02. Any waiver or consent may be given subject to
satisfaction of conditions stated therein and any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
5.02. Addresses for Notices. All notices, requests, demands and other
communications provided for hereunder shall be in writing and mailed, faxed, or
delivered by hand or guaranteed courier service to each applicable party:
If to any other holder of the Shares: at such holder's address for
notice as set forth in
6
7
Exhibit 1 hereto or at such other address as shall be designated by such Person
in a written notice to the other parties complying as to delivery with the terms
of this Section.
If to the Company: eMerge Vision Systems, Inc.
00000 000XX Xxxxxxx
Xxxxxxxxx, XX 00000
Fax: 000-000-0000
Attn: Xxxx Xxxxxx, CFO
or at such other address as shall be designated by the Company in a written
notice to the other parties complying as to delivery with the terms of this
Section.
5.03. Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the Company and the Purchaser and their respective
heirs, successors and assigns, except that the Company shall not have the right
to delegate its obligations hereunder or to assign its rights hereunder or any
interest herein without the prior written consent of the holders of at least a
majority in interest of the Shares.
5.04. Survival of Representations and Warranties. All representations
and warranties made in this Agreement, the Shares, or any other instrument or
document delivered in connection herewith or therewith, shall survive the
execution and delivery hereof or thereof.
5.05. Severability. The provisions of this Agreement and the terms of
the Preferred Stock are severable and, in the event that any court of competent
jurisdiction shall determine that any one or more of the provisions or part of a
provision contained in this Agreement or the terms of the Preferred Stock shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision or part of a provision of this Agreement or the terms of the Preferred
Stock; but this Agreement and the terms of the Preferred Stock shall be reformed
and construed as if such invalid or illegal or unenforceable provision, or part
of a provision, had never been contained herein, and such provisions or part
reformed so that it would be valid, legal and enforceable to the maximum extent
possible.
5.06. Confidentiality. Purchaser agrees that it will keep confidential
and will not disclose or divulge any confidential, proprietary or secret
information which the Purchaser may obtain from the Company pursuant to
financial statements, reports and other materials submitted by the Company to
the Purchaser pursuant to this Agreement, or pursuant to visitation or
inspection rights granted hereunder, unless such information is known, or until
such information becomes known, to the public; provided, however, that the
Purchaser may disclose such information (i) on a confidential basis to his
attorneys, accountants, consultants and other professionals to the extent
necessary to obtain their services in connection with its investment in the
Company, (ii) to any prospective purchaser of any Shares from the Purchaser as
long as such prospective purchaser agrees in writing to be bound by the
provisions of this Section 5.06, (iii) to any affiliate or partner of the
Purchaser and (iv) as required by applicable law.
7
8
5.07. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the Commonwealth of Pennsylvania, and
without giving effect to choice of laws provisions.
5.08. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
5.09. Further Assurances. From and after the date of this Agreement,
upon the request of the Purchaser or the Company, the Company and the Purchaser
shall execute and deliver such instruments, documents and other writings as may
be reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement and the Purchased Shares.
IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
Agreement to be executed as of the date first above written.
eMERGE VISION SYSTEMS, inc.
By:___________________________
Title:
PURCHASERS:
SAFEGUARD 99 CAPITAL L.P. ______________________________
By: Safeguard Delaware, Inc., Name:
its general partner
By:___________________________________ ______________________________
Name:
______________________________________ ______________________________
Name: Name:
8
9
EXHIBIT 1
Schedule of Purchasers
Name and Address of Purchaser Number of Shares Purchase Price
Safeguard 99 Capital L.P. 1,000,000 $ 5,000,000
c/o Safeguard Scientifics, Inc.
000 Xxxxx Xxxx Xxxxx
Xxxxx, XX 00000
Attn: Xxxxxxx Xxxxx, CFO
Fax: 000-000-0000
9
10
EXHIBIT 2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
eMERGE VISION SYSTEMS, INC.
eMerge Vision Systems, Inc., a Delaware corporation, hereby certifies
as follows:
FIRST. The name of the corporation under which its Certificate of
Incorporation was filed is Enhanced Vision Systems, Inc. The date of filing of
its original Certificate of Incorporation with the Secretary of State was
September 12, 1994.
SECOND. This Restated Certificate of Incorporation amends, restates and
integrates the provisions of the Certificate of Incorporation of said
corporation and has been duly adopted Delaware by majority vote of the holders
of all of the outstanding stock entitled to vote thereon in accordance with the
provisions of Sections 242 and 245 and all other applicable provisions of the
General Corporation Law of the State of Delaware.
THIRD. The text of the Certificate of Incorporation is hereby amended
and restated to read herein as set forth in full:
1. The name of the corporation is eMerge Vision Systems, Inc.
2. The address of the corporation's registered office is 1013 Centre
Road in the City of Wilmington, County of Xxx Xxxxxx, Xxxxxxxx 00000. The name
of its registered agent at such address is Corporation Service Company.
3. 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 Delaware.
4. The aggregate number of shares of all classes of stock which the
Corporation shall have authority to issue 115,000,000 shares, of which
100,000,000 million shares shall be designated Common Stock, par value $0.01 per
share (herein called the "Common Stock") and 15,000,000 shares shall be
designated Preferred Stock consisting of 6,500,000 shares of Series A Preferred
Stock, par value $0.01 per share (herein called the "Series A Preferred Stock"),
2,400,000 shares of Series B Junior Preferred Stock, par value $0.01 per share
(herein called the "Series B Junior Preferred Stock") and 1,300,000 shares of
Series C Preferred Stock, par value $0.01 per share (herein called the "Series C
Preferred Stock"). The Board of Directors shall have the full authority
permitted by law to divide the authorized and unissued shares into classes or
series, or both, and to determine for any such class or series its designation
and the number of shares of the class or series and the voting rights,
preferences, limitations and special rights if any, of the shares of the class
or series.
***************
10
11
DESCRIPTION AND DESIGNATION OF SERIES A PREFERRED STOCK
A1. DESIGNATION. A total of 6,500,000 shares of the Company's Preferred
Stock shall be designated the "Series A Preferred Stock". As used herein, the
term "Preferred Stock" used without reference to the Series A Preferred Stock
means the shares of Preferred Stock, without distinction as to series, except as
otherwise expressly provided for herein, or as the context otherwise requires.
A2. RESTRICTIONS ON DISTRIBUTIONS. Except to the extent in any instance
approval is provided in writing by the holders of two-thirds of the outstanding
shares of Series A Preferred Stock (voting as a separate class), the Corporation
shall not declare or pay any dividends, or purchase, redeem, retire, or
otherwise acquire for value any shares of its capital stock junior to the Series
A Preferred Stock (or rights, options or warrants to purchase such shares) now
or hereafter outstanding, return any capital to its stockholders as such, or
make any distribution of assets to its stockholders as such, or permit any
Subsidiary to do any of the foregoing. "Subsidiary" or "Subsidiaries" means any
corporation, partnership or joint venture of which the Company and/or any of its
other Subsidiaries (as herein defined) directly or indirectly owns at the time
at least fifty percent (50%) of the outstanding voting shares or similar
interests other than directors' qualifying shares.
Notwithstanding the foregoing, Subsidiaries may declare and
make payment of cash and stock dividends, return capital and make distributions
of assets to the Corporation, and nothing contained in the foregoing shall
prevent the Corporation from: (i) effecting a stock split or declaring or paying
any dividend consisting of shares of any class of capital stock paid to the
holders of shares of such class of capital stock; (ii) complying with any
specific provision of the terms of any subsequently designated series of
Preferred Stock in accordance with its terms; (iii) redeeming or repurchasing
any stock of a deceased stockholder out of proceeds of insurance held by the
Corporation on that stockholder's life; or (iv) redeeming or repurchasing any
stock of any director, officer, employee, advisor, consultant or other person or
entity, pursuant to a stock repurchase agreement or stock restriction agreement
under which the Corporation has the right or obligation to repurchase such
shares in the event of death, termination of employment or of the consulting
arrangement, or other similar discontinuation of a business relationship.
A3. LIQUIDATION, DISSOLUTION OR WINDING UP.
A3.1 TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP.
A3.1.1 In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, or in the event
of its insolvency, before any distribution or payment is made to any holders of
Common Stock or any other class or series of capital stock of the Corporation
designated to be junior to the Series A Preferred Stock in liquidation
preference, and subject to the liquidation rights and preferences of any class
or series of Preferred Stock designated in the future to be senior to, or on a
parity with, the Series A Preferred Stock with respect to liquidation
preference, the holders of each share of Series A Preferred Stock shall be
11
12
entitled to be paid first out of the assets of the Corporation available for
distribution to holders of the Corporation's capital stock of all classes,
whether such assets are capital, surplus or earnings ("Available Assets"), the
greater of (i) an amount per share of Series A Preferred Stock equal to $1.00,
plus $.10 for each year (pro rated for partial years) from July 16, 1997 until
the date of distribution of Available Assets, (subject to equitable adjustment
for any stock dividend, stock split, combination, reorganization,
recapitalization, reclassification or other similar event involving a change in
the capital structure of the Preferred Stock), or (ii) such amount per share of
Series A Preferred Stock as would have been payable had each share of Preferred
Stock which is convertible into Common Stock been so converted immediately prior
to such liquidation, dissolution or winding up.
If, upon liquidation, dissolution or winding up of the
Corporation, the Available Assets shall be insufficient to pay the holders of
Series A Preferred Stock and of any other series of Preferred Stock on parity
with the Series A Preferred Stock with respect to liquidation preference the
full amounts to which they otherwise would be entitled, the holders of Series A
Preferred Stock and such other series of Preferred Stock shall share ratably in
any distribution of Available Assets pro rata in proportion to the respective
liquidation preference amounts which would otherwise be payable upon liquidation
with respect to the outstanding shares of the Series A Preferred Stock and such
other series of Preferred Stock if all liquidation preference dollar amounts
with respect to such shares were paid in full.
A3.2 TREATMENT OF REORGANIZATION, CONSOLIDATION, MERGER, OR
SALE OF ASSETS. Any merger, consolidation or other corporate reorganization or
combination to which the Corporation is a non-surviving party, and any sale of
all or substantially all of the assets of the Corporation, shall be regarded as
a liquidation, dissolution or winding up of the affairs of the Corporation for
purposes of this Section A3; provided, however that, in the case of any such
transaction to which the provisions of Section A5.6 also apply, the holders of a
majority of the outstanding shares of Series A Preferred Stock (voting together
as a single class) shall have the right to elect the benefits of the provisions
of Section A5.6 hereof for all of the Series A Preferred Stock in lieu of
receiving payment in liquidation, dissolution or winding up of the Corporation
pursuant to this Section A3.
The provisions of this Section A3.2 shall not apply to (i) any
reorganization, merger or consolidation involving only a change in the state of
incorporation of the Corporation, (ii) a merger of the Corporation with or into
a wholly-owned Subsidiary of the Corporation that is incorporated in the United
States of America, or (iii) a merger, reorganization, consolidation or other
combination, of which the Corporation is substantively the surviving corporation
and operates as a going concern, with another corporation incorporated in the
United States of America and which does not involve a recapitalization,
reorganization, reclassification or other similar change in the capital
structure of the Corporation.
A3.3 DISTRIBUTIONS OTHER THAN CASH. Whenever the distribution
provided for in this Section A3 shall be payable in whole or in part in property
other than cash, the value of any
12
13
property distributed shall be the fair market value of such property as
reasonably determined in good faith by the Board of Directors of the
Corporation. All distributions of property other than cash made hereunder shall
be made, to the maximum extent possible, pro rata with respect to each series
and class of Preferred Stock and Common Stock in accordance with the liquidation
amounts payable with respect to each such series and class.
A4. VOTING POWER.
A4.1 GENERAL. Except as otherwise required by applicable law
or as otherwise provided herein, (i) each holder of Series A Preferred Stock
shall be entitled to vote on all matters submitted to a vote of the stockholders
of the Corporation (including election of directors other than the Series A
Directors, as hereinafter defined) and shall be entitled to that number of votes
equal to the largest number of whole shares of Common Stock into which such
holder's shares of Series A Preferred Stock could be converted, and (ii) the
holders of shares of Series A Preferred Stock and Common Stock shall vote
together (or render written consents in lieu of a vote) as a single class on all
matters submitted to the stockholders of the Corporation (including election of
directors to the extent not otherwise expressly provided for). Each holder of
Series A Preferred Stock shall be entitled to notice of any stockholders'
meeting in accordance with the by-laws of this Corporation at the same time and
in the same manner as notice is given to all other stockholders entitled to vote
at such meetings.
A4.2 LIMITATIONS DURING FIRST THREE YEARS. Notwithstanding
paragraph A4.1, for a period of three years from the date of the initial filing
of this Certificate of Designation, the holders of Series A Preferred Stock
shall not have any voting rights, other than as required by law and as provided
in paragraph A4.3 and Section A6 below.
A4.3 DIRECTOR ELECTION RIGHTS. So long as any shares of Series
A Preferred Stock remain outstanding, the holders of the Series A Preferred
Stock, voting as a separate class, shall have the right to elect two directors
of the Corporation (the "Series A Directors"). At any annual or special meeting
of the Corporation held for the purpose of electing directors, the presence in
person or by proxy (or by written consent) of the holders of a majority of the
outstanding shares of Series A Preferred Stock shall constitute a quorum for the
election of the Series A Directors.
A5. CONVERSION RIGHTS. The holders of the Series A Preferred Stock
shall have the following rights and be subject to the following obligations with
respect to the conversion of such shares into shares of Common Stock:
A5.1 VOLUNTARY CONVERSION. Subject to and in compliance with
the provisions of this Section 5, any shares of the Series A Preferred Stock
may, at the option of the holder thereof, be converted at any time and from time
to time into fully-paid and non-assessable shares of Common Stock. The number of
shares of Common Stock which a holder of Series A Preferred Stock shall be
entitled to receive upon conversion shall be the product obtained by multiplying
(i) the number of shares of Series A Preferred Stock being converted at any
time, by (ii)
13
14
the rate (the "Series A Conversion Rate") equal to the quotient obtained by
dividing $1.00 by the "Series A Conversion Value." The Series A Conversion Value
in effect from time to time, except as adjusted in accordance with this Section
A5, shall be $1.00.
A5.2 AUTOMATIC CONVERSION.
A5.2.1 EVENTS CAUSING CONVERSION. Immediately (A) prior
to the effectiveness of a registration statement filed by the Company pursuant
to the Securities Act of 1933, as amended, (other than on Form S-4 or S-8 on any
successor forms thereto) covering the offer and sale of Common Stock in an
underwritten public offering on a firm commitment basis in which the gross
proceeds of the offering will equal or exceed $10,000,000 (calculated before
deducting underwriters' discounts and commissions and other offering expenses),
and in which the public offering price per share of Common Stock (calculated
before deducting underwriters' discounts and commissions) results in a valuation
of the total number of outstanding shares of capital stock of the Company
immediately prior to the closing of the public offering of at least $30,000,000,
but subject to the closing of such public offering, (B) prior to the
effectiveness of a registration statement filed by the Company pursuant to the
Securities Act of 1933 covering the offer and sale of Common Stock in a rights
offering to shareholders of Safeguard Scientifics, Inc., but subject to the
closing of such rights offering, or (C) upon the election, set forth in a
written notice to the Corporation, of holders of Series A Preferred Stock to
convert at least two-thirds of the outstanding shares of Series A Preferred
Stock to Common Stock; all outstanding shares of Series A Preferred Stock shall
be converted automatically into the number of fully paid, non-assessable shares
of Common Stock into which such shares of Series A Preferred Stock are
convertible pursuant to this Section A5 as of the closing and consummation of
such underwritten public offering or the date of such approval, without any
further action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its transfer
agent.
A5.2.2 SURRENDER OF CERTIFICATES UPON MANDATORY
CONVERSION. Upon the occurrence of the conversion event specified in paragraph
A5.2.1, the holders of the Series A Preferred Stock shall, upon notice from the
Corporation, surrender the certificates representing such shares at the office
of the Corporation or its transfer agent for the Common Stock. Thereupon, there
shall be issued and delivered to such holder a certificate or certificates for
the number of shares of Common Stock into which the shares of Series A Preferred
Stock so surrendered were convertible on the date on which the conversion
occurred. The Corporation shall not be obligated to issue such certificates
unless certificates evidencing such shares of Series A Preferred Stock being
converted are either delivered to the Corporation or any such transfer agent, or
the holder notifies the Corporation that such certificates have been lost,
stolen or destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection therewith.
A5.3 ANTI-DILUTION ADJUSTMENTS.
14
15
A5.3.1 UPON DILUTIVE ISSUANCES. If the Corporation shall,
while there are any shares of Series A Preferred Stock outstanding, issue or
sell shares of its Common Stock or "Common Stock Equivalents" (as defined in
Section A5.3.2.1 below) without consideration or at a price per share or "Net
Consideration Per Share" (as defined in Section A5.3.3 below) less than the
Series A Conversion Value in effect immediately prior to such issuance or sale,
then in each such case the Series A Conversion Value, except as hereinafter
provided, shall be lowered so as to be equal to an amount determined by
multiplying such Series A Conversion Value by the following fraction:
N(0) + N(1)
-------------------
N(0) + N(2)
Where:
N(0) = the number of shares of Common Stock
outstanding immediately prior to the issuance of such additional shares
of Common Stock or Common Stock Equivalents (calculated on a
fully-diluted basis assuming the exercise or conversion of all then
exercisable or convertible options, warrants, purchase rights and
convertible securities).
N(1) = the number of shares of Common Stock which the
aggregate consideration, if any, (including the Net Consideration Per
Share with respect to the issuance of Common Stock Equivalents)
received or receivable by the Corporation for the total number of such
additional shares of Common Stock so issued or deemed to be issued
would purchase at the Series A Conversion Value in effect immediately
prior to such issuance.
N(2) = the number of such additional shares of Common
Stock so issued or deemed to be issued.
Example:
initial capital 1,000,000
initial conversion price $ 1.00
new shares issued 1,000,000 total new consideration $ 500,000
new issue price $ 0.50 new shares which would be
issued at initial conversion price 500,000
new conversion price $ 0.75
15
16
The provisions of this Section A5.3.1 may be waived as to all
shares of Series A Preferred Stock in any instance (without the necessity of
convening any meeting of stockholders of the Corporation) upon the written
agreement of the holders of two-thirds of the outstanding shares of Series A
Preferred Stock.
A5.3.2 COMMON STOCK EQUIVALENTS.
A5.3.2.1 GENERAL. For the purposes of this Section
A5.3, the issuance of any warrants, options, subscription or purchase rights
with respect to shares of Common Stock and the issuance of any securities
convertible into or exchangeable for shares of Common Stock and the issuance of
any warrants, options, subscription or purchase rights with respect to such
convertible or exchangeable securities (collectively, "Common Stock
Equivalents"), shall be deemed an issuance of Common Stock. Any obligation,
agreement or undertaking to issue Common Stock Equivalents at any time in the
future shall be deemed to be an issuance at the time such obligation, agreement
or undertaking is made or arises. No adjustment of the Series A Conversion Value
shall be made under this Section A5.3 upon the issuance of any shares of Common
Stock which are issued pursuant to the exercise, conversion or exchange of any
Common Stock Equivalents.
A5.3.2.2 ADJUSTMENTS FOR ADJUSTMENT, CANCELLATION
OR EXPIRATION OF COMMON STOCK EQUIVALENTS. Should the Net Consideration Per
Share of any such Common Stock Equivalents be decreased from time to time other
than as a result of the application of anti-dilution provisions substantially
similar to the provisions of this Section A5.3, then, upon the effectiveness of
each such change, the Series A Conversion Value will be that which would have
been obtained (1) had the adjustments made pursuant to Section A5.3.2.1 upon the
issuance of such Common Stock Equivalents been made upon the basis of the new
Net Consideration Per Share of such securities, and (2) had the adjustments made
to the Series A Conversion Value since the date of issuance of such Common Stock
Equivalents been made to such Series A Conversion Value as adjusted pursuant to
clause (1) above. Any adjustment of the Series A Conversion Value which relates
to any Common Stock Equivalent shall be disregarded if, as, and when such Common
Stock Equivalent expires or is canceled without being exercised, or is
repurchased by the Company at a price per share at or less than the original
purchase price, so that the Series A Conversion Value effective immediately upon
such cancellation or expiration shall be equal to the Series A Conversion Value
that would have been in effect (1) had the expired or canceled Common Stock
Equivalent not been issued, and (2) had the adjustments made to the Series A
Conversion Value since the date of issuance of such Common Stock Equivalents
been made to the Series A Conversion Value which would have been in effect had
the expired or canceled Common Stock Equivalent not been issued.
A5.3.3 NET CONSIDERATION PER SHARE. For purposes of this
Section A5.3 the "Net Consideration Per Share" which shall be receivable by the
Corporation for any Common Stock issued upon the exercise or conversion of any
Common Stock Equivalents shall be determined as follows:
16
17
A5.3.3.1 The "Net Consideration Per Share" shall
mean the amount equal to the total amount of consideration, if any, received by
the Corporation for the issuance of such Common Stock Equivalents, plus the
minimum amount of consideration, if any, payable to the Corporation upon
exercise, or conversion or exchange thereof, divided by the aggregate number of
shares of Common Stock that would be issued if all such Common Stock Equivalents
were exercised, exchanged or converted.
A5.3.3.2 The "Net Consideration Per Share" which
shall be receivable by the Corporation shall be determined in each instance as
of the date of issuance of Common Stock Equivalents without giving effect to any
possible future upward price adjustments or rate adjustments which may be
applicable with respect to such Common Stock Equivalents.
A5.3.4 STOCK DIVIDENDS FOR HOLDERS OF CAPITAL STOCK OTHER
THAN COMMON STOCK. In the event that the Corporation shall make or issue
(otherwise than to holders of Common Stock), or shall fix a record date for the
determination of holders of any capital stock of the Corporation other than
holders of Common Stock entitled to receive, a dividend or other distribution
payable in Common Stock or securities of the Corporation convertible into or
otherwise exchangeable for shares of Common Stock of the Corporation, then such
Common Stock or other securities issued in payment of such dividend shall be
deemed to have been issued for a consideration of $.01, except for dividends
payable to the holders of Series A Preferred Stock.
A5.3.5 CONSIDERATION OTHER THAN CASH. For purposes of
this Section A5.3, if a part or all of the consideration received by the
Corporation in connection with the issuance of shares of the Common Stock or the
issuance of any of the securities described in this Section A5.3 consists of
property other than cash, such consideration shall be deemed to have a fair
market value as is reasonably determined in good faith by the Board of Directors
of the Corporation.
A5.3.6 EXCEPTIONS TO ANTI-DILUTION ADJUSTMENTS; BASKET
FOR RESERVED EMPLOYEE SHARES. This Section A5.3 shall not apply (A) under any of
the circumstances which would constitute an Extraordinary Common Stock Event (as
described below), or (B) to any issuance or sale of shares of Common Stock
and/or Common Stock Equivalents in an underwritten public offering not requiring
conversion of the Series A Preferred Stock. Further, this Section A5.3 shall not
apply with respect to the issuance or sale of shares of Common Stock, or the
grant or options exercisable therefor, to directors, officers, employees and
consultants of the Corporation or any subsidiary pursuant to any qualified or
non-qualified stock option plan or agreement, stock purchase plan or agreement,
stock restriction agreement, employee stock ownership plan (ESOP), consulting
agreement, or such other options, issuances, arrangements, agreements or plans
intended principally as a means of providing compensation for employment or
services or of providing additional compensation to a financial institution in
connection with the Corporation obtaining equipment lease/financing, provided
that in each such case such plan, agreement, or other arrangement or issuance is
approved by the vote or consent of two-thirds of the Board of Directors or by
the written consent of the holders of two-thirds of the outstanding shares of
Series A Preferred Stock.
17
18
A5.4 ADJUSTMENT UPON EXTRAORDINARY COMMON STOCK EVENT Upon the
happening of an Extraordinary Common Stock Event (as hereinafter defined), the
Series A Conversion Value shall, simultaneously with the happening of such
Extraordinary Common Stock Event, be adjusted by multiplying the Series A
Conversion Value by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such Extraordinary
Common Stock Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained shall thereafter be the Series A Conversion
Value, which, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive Extraordinary Common Stock Event or Events.
An "Extraordinary Common Stock Event" shall mean (i) the issue
of additional shares of Common Stock as a dividend or other distribution on
outstanding shares of Common Stock, (ii) a subdivision of outstanding shares of
Common Stock into a greater number of shares of Common Stock, or (iii) a
combination or reverse stock split of outstanding shares of Common Stock into a
smaller number of shares of the Common Stock.
A5.5 ADJUSTMENT UPON CERTAIN DIVIDENDS. In the event the
Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution (other than a distribution in liquidation or other
distribution otherwise provided for herein) with respect to the Common Stock
payable in (i) securities of the Corporation other than shares of Common Stock,
or (ii) other assets (excluding cash dividends or distributions), then and in
each such event provision shall be made so that the holders of the Series A
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the number of securities or such
other assets of the Corporation which they would have received had their Series
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 or such other assets
receivable by them, giving application to all other adjustments called for
during such period under this Section A5.
A5.6 ADJUSTMENT UPON CAPITAL REORGANIZATION OR
RECLASSIFICATION. If the Common Stock shall be changed into the same or
different number of shares of any other class or classes of capital stock,
whether by capital reorganization, recapitalization, reclassification or
otherwise (other than an Extraordinary Common Stock Event), then and in each
such event the holder of each share of Series A Preferred Stock shall have the
right thereafter to convert such share into, in lieu of the number of shares of
Common Stock which the holder would otherwise have been entitled to receive, the
kind and amount of shares of capital stock and other securities and property
receivable upon such reorganization, recapitalization, reclassification or other
change by the holders of the number of shares of Common Stock into which such
shares of Series A Preferred Stock could have been converted immediately prior
to such reorganization, recapitalization, reclassification or change, all
subject to further adjustment as provided herein. The provision for such
conversion right
18
19
shall be a condition precedent to the consummation by the Corporation of any
such transaction unless the election described below is made.
In the case of a transaction to which both this Section A5.6
and Section A3.2 apply, the holders of a majority of the outstanding shares of
Series A Preferred Stock (voting together as a single class) shall have the
option of electing treatment for the Series A Preferred Stock under this Section
A5.6, notice of which election shall be submitted in writing to the Corporation
at its principal office no later than five (5) business days before the
effective date of such event. If no such election shall be made, the provisions
of Section A3.2, and not this Section A5.6, shall apply.
A5.7 CERTIFICATE AS TO ADJUSTMENTS; NOTICE BY CORPORATION. In
each case of an adjustment or readjustment of the Series A Applicable Conversion
Rate, the Corporation at its expense will furnish each holder of Series A
Preferred Stock so affected with a certificate prepared by the Treasurer or
Chief Financial Officer of the Corporation, showing such adjustment or
readjustment, and stating in detail the facts upon which such adjustment or
readjustment is based.
A5.8 EXERCISE OF CONVERSION PRIVILEGE. To exercise its
conversion privilege, a holder of Series A Preferred Stock shall surrender the
certificate or certificates representing the shares being converted to the
Corporation at its principal office, and shall give written notice to the
Corporation at that office that such holder elects to convert such shares. Such
notice shall also state the name or names (with address or addresses) in which
the certificate or certificates for shares of Common Stock issuable upon such
conversion shall be issued. The certificate or certificates for shares of Series
A Preferred Stock surrendered for conversion shall be accompanied by proper
assignment thereof to the Corporation or in blank. The date when such written
notice is received by the Corporation, together with the certificate or
certificates representing the shares of Series A Preferred Stock being
converted, shall be the "Conversion Date". As promptly as practicable after the
Conversion Date, the Corporation shall issue and deliver to the holder of the
shares of Series A Preferred Stock being converted, or on its written order,
such certificate or certificates as it may request for the number of whole
shares of Common Stock issuable upon the conversion of such shares of Series A
Preferred Stock in accordance with the provisions of this Section A5, and cash,
as provided in Section A5.9, in respect of any fraction of a share of Common
Stock issuable upon such conversion. Such conversion shall be deemed to have
been effected immediately prior to the close of business on the Conversion Date,
and at such time the rights of the holder as holder of the converted shares of
Series A Preferred Stock shall cease and the person(s) in whose name(s) any
certificate(s) for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares of
Common Stock represented thereby.
A5.9 CASH IN LIEU OF FRACTIONAL SHARES. No fractional shares
of Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series A Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Series A Preferred Stock, the Corporation shall pay to the holder of the shares
of Series A Preferred Stock which were converted a cash adjustment in respect of
such fractional shares in an amount equal to the same fraction of the market
price per share of the
19
20
Common Stock (as determined in a reasonable manner prescribed by the Board of
Directors) at the close of business on the Conversion Date. The determination as
to whether or not any fractional shares are issuable shall be based upon the
aggregate number of shares of Series A Preferred Stock being converted at any
one time by any holder thereof, not upon each share of Series A Preferred Stock
being converted.
A5.10 PARTIAL CONVERSION. In the event some but not all of the
shares of Series A Preferred Stock represented by a certificate(s) surrendered
by a holder are converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series A Preferred Stock which were not
converted.
A5.11 RESERVATION OF COMMON STOCK. The Corporation shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
shares of the Series 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 Series A Preferred Stock (including any shares of
Series A Preferred Stock represented by any warrants, options, subscription or
purchase rights for Series A Preferred Stock), and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series A Preferred Stock
(including any shares of Series A Preferred Stock represented by any warrants,
options, subscriptions or purchase rights for such Series A Preferred Stock),
the Corporation shall take such action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
A6. RESTRICTIONS AND LIMITATIONS ON CORPORATE ACTION.
The Corporation shall not take any corporate action or amend
its Certificate of Incorporation or this Certificate of Designation (except to
reduce the number of shares designated as Series A Preferred Stock to the number
of such shares which are then issued and outstanding) without the approval by
vote or written consent of the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock, voting as a single class, each
share of Series A Preferred Stock to be entitled to one vote in each instance,
if such corporate action or amendment would change any of the rights,
preferences, privileges of or limitations provided for herein for the benefit of
any shares of Series A Preferred Stock. Without limiting the generality of the
preceding sentence, the Corporation will not amend its Certificate of
Incorporation or this Certificate of Designation or take any other corporate
action without the approval by the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock, voting as a single class, if
such amendment or corporate action would:
(a) cause or authorize the Corporation to redeem,
purchase or otherwise acquire for value (or pay into or set aside for a
sinking fund for such purpose), any share or
20
21
shares of equity securities of the Corporation other than as provided
for in Section 2 hereof; or
(b) authorize, create or issue, or obligate the
Corporation to authorize, create or issue, additional shares of Series
A Preferred Stock or of any class of stock ranking senior to the Series
A Preferred Stock with respect to liquidation preferences, dividend
rights or containing redemption rights; or
(c) reduce the amount payable to the holders of
Series A Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
(d) adversely affect the liquidation preferences,
dividend rights or voting rights of the holders of Series A Preferred
Stock; or
(e) cancel or modify the conversion rights of the
holders of Series A Preferred Stock provided for in Section A5 herein;
or
(f) provide for the voluntary liquidation,
dissolution, recapitalization, reorganization or winding up of the
Corporation; or
(g) authorize, approve or cause any merger,
consolidation, sale of all or substantially all of the assets of the
Corporation, corporate reorganization, recapitalization or other
business combinations which could be deemed to be a liquidation,
dissolution or winding up of the Corporation pursuant to Section A3.2
hereof.
A7. NO DILUTION OR IMPAIRMENT. The Corporation will not, by amendment
of its Certificate of Incorporation or through any reorganization, transfer of
capital stock or assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Preferred Stock set forth herein, but
will at all times in good faith assist in the carrying out of all such terms.
Without limiting the generality of the foregoing, the Corporation (a) will not
increase the par value of any shares of stock receivable on the conversion of
the Preferred Stock above the amount payable therefor on such conversion, and
(b) will take such action as may be necessary or appropriate in order that the
Corporation may validly and legally issue fully paid and nonassessable shares of
stock on the conversion of all Preferred Stock from time to time outstanding.
A8. NOTICES OF RECORD DATE. In the event of
(a) any taking by the Corporation of a record of the holders
of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividends or
other distribution, or any right to subscribe for, purchase or
21
22
otherwise acquire any shares of capital stock of any class or
any other securities or property, or to receive any other
right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of
the Corporation, any merger or consolidation of the
Corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other corporation, or any
other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Preferred Stock a notice specifying (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right and a description of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, and (iii) the time, 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,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be mailed by first class mail, postage prepaid, at
least 15 days prior to the date specified in such notice on which action is
being taken.
A9. STATUS OF CONVERTED OR REPURCHASED SERIES A PREFERRED STOCK. Any
share or shares of Series A Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be returned to the
status of authorized but unissued shares of undesignated Preferred Stock. Upon
the cancellation of all outstanding shares of Series A Preferred Stock, the
provisions of this Certificate of Designation of Series A Preferred Stock shall
terminate and have no further force and effect.
DESCRIPTION AND DESIGNATION OF SERIES B JUNIOR PREFERRED STOCK
B1. DESIGNATION 1. A total of 2,400,000 shares of the Company's
Preferred Stock shall be designated the "Series B Junior Preferred Stock". As
used herein, the term "Preferred Stock" used without reference to the Series B
Junior Preferred Stock means the shares of Preferred Stock, without distinction
as to series, except as otherwise expressly provided for herein, or as the
context otherwise requires.
B2. RESTRICTIONS ON DISTRIBUTIONS. Except to the extent in any instance
approval is provided in writing by the holders of two-thirds of the outstanding
shares of Series B Junior Preferred Stock, Series A Preferred Stock and any
other series of Preferred Stock senior to or on parity with the Series B Junior
Preferred Stock with respect to liquidation preference (all voting together as a
single class), the Corporation shall not declare or pay any dividends, or
purchase,
22
23
redeem, retire, or otherwise acquire for value any shares of its capital stock
junior to the Series B Junior Preferred Stock (or rights, options or warrants to
purchase such shares) now or hereafter outstanding, return any capital to its
stockholders as such, or make any distribution of assets to its stockholders as
such, or permit any Subsidiary to do any of the foregoing. "Subsidiary" or
"Subsidiaries" means any corporation, partnership or joint venture of which the
Company and/or any of its other Subsidiaries (as herein defined) directly or
indirectly owns at the time at least fifty percent (50%) of the outstanding
voting shares or similar interests other than directors' qualifying shares.
Notwithstanding the foregoing, Subsidiaries may declare and
make payment of cash and stock dividends, return capital and make distributions
of assets to the Corporation, and nothing contained in the foregoing shall
prevent the Corporation from: (i) effecting a stock split or declaring or paying
any dividend consisting of shares of any class of capital stock paid to the
holders of shares of such class of capital stock; (ii) complying with any
specific provision of the terms of any subsequently designated series of
Preferred Stock in accordance with its terms; (iii) redeeming or repurchasing
any stock of a deceased stockholder out of proceeds of insurance held by the
Corporation on that stockholder's life; or (iv) redeeming or repurchasing any
stock of any director, officer, employee, advisor, consultant or other person or
entity, pursuant to a stock repurchase agreement or stock restriction agreement
under which the Corporation has the right or obligation to repurchase such
shares in the event of death, termination of employment or of the consulting
arrangement, or other similar discontinuation of a business relationship.
B3. LIQUIDATION, DISSOLUTION OR WINDING UP.
B3.1 TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. The
Series B Junior Preferred Stock shall be junior to the Series A Preferred Stock
with respect to liquidation preference. any class or series of Preferred Stock
designated in the future to be on a parity with the Series B Junior Preferred
Stock with respect to liquidation preference are collectively referred to herein
as "Parity Stock". In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of Common
Stock or any other class or series of capital stock of the Corporation
designated to be junior to the Series B Junior Preferred Stock in liquidation
preference (collectively, "Junior Stock"), and subject to the liquidation rights
and preferences of the Series A Preferred Stock and any class or series of
Preferred Stock designated in the future to be senior to the Series B Junior
Preferred Stock with respect to liquidation preference ("Senior Stock"), the
holders of each share of Series B Junior Preferred Stock shall be entitled to be
paid first out of the assets of the Corporation available for distribution to
holders of the Corporation's capital stock of all classes, whether such assets
are capital, surplus or earnings ("Available Assets"), the greater of (i) an
amount per share of Series B Junior Preferred Stock equal to $2.00, plus $.20
for each year (pro rated for partial years) from December 31, 1998 until the
date of distribution of Available Assets, (subject to equitable adjustment for
any stock dividend, stock split, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the capital
structure of the Preferred Stock), or (ii) such amount per share of Series B
Junior Preferred
23
24
Stock as would have been payable had each share of Preferred Stock which is
convertible into Common Stock been so converted immediately prior to such
liquidation, dissolution or winding up.
If, upon liquidation, dissolution or winding up of the
Corporation, the Available Assets shall be insufficient to pay the holders of
Series B Junior Preferred Stock and of any Parity Stock the full amounts to
which they otherwise would be entitled, the holders of Series B Junior Preferred
Stock and Parity Stock shall share ratably in any distribution of Available
Assets pro rata in proportion to the respective liquidation preference amounts
which would otherwise be payable upon liquidation with respect to the
outstanding shares of the Series B Junior Preferred Stock and Parity Stock if
all liquidation preference dollar amounts with respect to such shares were paid
in full.
B3.2 TREATMENT OF REORGANIZATION, CONSOLIDATION, MERGER, OR
SALE OF ASSETS. Any merger, consolidation or other corporate reorganization or
combination to which the Corporation is a non-surviving party, and any sale of
all or substantially all of the assets of the Corporation, shall be regarded as
a liquidation, dissolution or winding up of the affairs of the Corporation for
purposes of this Section B3; provided, however that, in the case of any such
transaction to which the provisions of Section B5.6 also apply, the holders of
the outstanding shares of Series B Junior Preferred Stock and Parity Stock
(voting together as a single class) shall have the right by majority vote to
elect the benefits of the provisions of Section B5.6 hereof for all of the
Series B Junior Preferred Stock and Parity Stock in lieu of receiving payment in
liquidation, dissolution or winding up of the Corporation pursuant to this
Section B3.
The provisions of this Section B3.2 shall not apply to (i) any
reorganization, merger or consolidation involving only a change in the state of
incorporation of the Corporation, (ii) a merger of the Corporation with or into
a wholly-owned Subsidiary of the Corporation that is incorporated in the United
States of America, or (iii) a merger, reorganization, consolidation or other
combination, of which the Corporation is substantively the surviving corporation
and operates as a going concern, with another corporation incorporated in the
United States of America and which does not involve a recapitalization,
reorganization, reclassification or other similar change in the capital
structure of the Corporation.
B3.3 DISTRIBUTIONS OTHER THAN CASH. Whenever the distribution
provided for in this Section B3 shall be payable in whole or in part in property
other than cash, the value of any property distributed shall be the fair market
value of such property as reasonably determined in good faith by the Board of
Directors of the Corporation. All distributions of property other than cash made
hereunder shall be made, to the maximum extent possible, pro rata with respect
to each Series and class of Preferred Stock and Common Stock in accordance with
the liquidation amounts payable with respect to each such Series and class.
B4. VOTING POWER.
B4.1 GENERAL. For each vote in which holders of Series B
Junior Preferred Stock are entitled to participate, each share of Series B
Junior Preferred Stock shall be entitled to that
24
25
number of votes equal to the largest number of whole shares of Common Stock into
which such holder's shares of Series B Junior Preferred Stock could be
converted. Except as otherwise required by applicable law or as otherwise
provided herein, each holder of Series B Junior Preferred Stock shall be
entitled to vote together with the Common Stock and all other series and classes
of stock permitted to vote with the Common Stock on all matters submitted to a
vote of the stockholders of the Corporation (including election of directors
generally, but excluding election of the "Series A Directors", as defined in the
Certificate of Designation of the Series A Preferred Stock of the Company). Each
holder of Series B Junior Preferred Stock shall be entitled to notice of any
stockholders' meeting in accordance with the by-laws of this Corporation at the
same time and in the same manner as notice is given to all other stockholders
entitled to vote at such meetings.
B4.2 LIMITATIONS DURING FIRST THREE YEARS. Notwithstanding
paragraph B4.1, for a period of three years from the date of the initial filing
of this Certificate of Designation, the holders of Series B Junior Preferred
Stock shall not have any voting rights, other than as required by law and as
provided in Section B6 below.
B5. CONVERSION RIGHTS. The holders of the Series B Junior Preferred
Stock shall have the following rights and be subject to the following
obligations with respect to the conversion of such shares into shares of Common
Stock:
B5.1 VOLUNTARY CONVERSION. Subject to and in compliance with
the provisions of this Section B5, any shares of the Series B Junior Preferred
Stock may, at the option of the holder thereof, be converted at any time and
from time to time into fully-paid and non-assessable shares of Common Stock. The
number of shares of Common Stock which a holder of Series B Junior Preferred
Stock shall be entitled to receive upon conversion shall be the product obtained
by multiplying (i) the number of shares of Series B Junior Preferred Stock being
converted at any time, by (ii) the rate (the "Series B Conversion Rate") equal
to the quotient obtained by dividing $2.00 by the "Series B Conversion Value."
The Series B Conversion Value in effect from time to time, except as adjusted in
accordance with this Section B5, shall be $2.00.
B5.2 AUTOMATIC CONVERSION.
B5.2.1 EVENTS CAUSING CONVERSION. Immediately (A) prior
to the effectiveness of a registration statement filed by the Company pursuant
to the Securities Act of 1933, as amended, (other than on Form S-4 or S-8 on any
successor forms thereto) covering the offer and sale of Common Stock in an
underwritten public offering on a firm commitment basis in which the gross
proceeds of the offering will equal or exceed $10,000,000 (calculated before
deducting underwriters' discounts and commissions and other offering expenses),
and in which the public offering price per share of Common Stock (calculated
before deducting underwriters' discounts and commissions) results in a valuation
of the total number of outstanding shares of capital stock of the Company
immediately prior to the closing of the public offering of at least $35,000,000,
but subject to the closing of such public offering, (B) prior to the
effectiveness of a registration statement filed by the Company pursuant to the
Securities Act of 1933 covering the offer and sale of Common Stock
25
26
in a rights offering to shareholders of Safeguard Scientifics, Inc., but subject
to the closing of such rights offering, or (C) upon the election, set forth in a
written notice to the Corporation, of holders of at least two-thirds of the
outstanding shares of Series B Junior Preferred Stock and Parity Stock (counted
as a single class) to convert their Series B Junior Preferred Stock and Parity
Stock to Common Stock; all outstanding shares of Series B Junior Preferred Stock
and Parity Stock shall be converted automatically into the number of fully paid,
non-assessable shares of Common Stock into which such shares of Series B Junior
Preferred Stock and Parity Stock are convertible pursuant to this Section B5 or
the designation of such Parity Stock as of the closing and consummation of such
underwritten public offering or the date of such approval, without any further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its transfer
agent.
B5.2.2 SURRENDER OF CERTIFICATES UPON MANDATORY
CONVERSION. Upon the occurrence of the conversion event specified in paragraph
B5.2.1, the holders of the Series B Junior Preferred Stock shall, upon notice
from the Corporation, surrender the certificates representing such shares at the
office of the Corporation or its transfer agent for the Common Stock. Thereupon,
there shall be issued and delivered to such holder a certificate or certificates
for the number of shares of Common Stock into which the shares of Series B
Junior Preferred Stock so surrendered were convertible on the date on which the
conversion occurred. The Corporation shall not be obligated to issue such
certificates unless certificates evidencing such shares of Series B Junior
Preferred Stock being converted are either delivered to the Corporation or any
such transfer agent, or the holder notifies the Corporation that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection therewith.
B5.3 ANTI-DILUTION ADJUSTMENTS.
B5.3.1 UPON DILUTIVE ISSUANCES. If the Corporation shall,
while there are any shares of Series B Junior Preferred Stock outstanding, issue
or sell shares of its Common Stock or "Common Stock Equivalents" (as defined in
Section B5.3.2.1 below) without consideration or at a price per share or "Net
Consideration Per Share" (as defined in Section B5.3.3 below) less than the
Series B Conversion Value in effect immediately prior to such issuance or sale,
then in each such case the Series B Conversion Value, except as hereinafter
provided, shall be lowered so as to be equal to an amount determined by
multiplying such Series B Conversion Value by the following fraction:
N(0) + N(1)
-------------------
N(0) + N(2)
Where:
26
27
N(0) = the number of shares of Common Stock
outstanding immediately prior to the issuance of such additional shares
of Common Stock or Common Stock Equivalents (calculated on a
fully-diluted basis assuming the exercise or conversion of all then
exercisable or convertible options, warrants, purchase rights and
convertible securities).
N(1) = the number of shares of Common Stock which the
aggregate consideration, if any, (including the Net Consideration Per
Share with respect to the issuance of Common Stock Equivalents)
received or receivable by the Corporation for the total number of such
additional shares of Common Stock so issued or deemed to be issued
would purchase at the Series B Conversion Value in effect immediately
prior to such issuance.
N(2) = the number of such additional shares of Common
Stock so issued or deemed to be issued.
Example:
initial capital 1,000,000
initial conversion price $ 1.00
new shares issued 1,000,000 total new consideration $ 500,000
new issue price $ 0.50 new shares which would be
issued at initial conversion price 500,000
New conversion price $ 0.75
The provisions of this Section B5.3.1 may be waived as to all
shares of Series B Junior Preferred Stock in any instance (without the necessity
of convening any meeting of stockholders of the Corporation) upon the written
agreement of the holders of two-thirds of the outstanding shares of Series B
Junior Preferred Stock.
B5.3.2 COMMON STOCK EQUIVALENTS.
B5.3.2.1 GENERAL. For the purposes of this Section
B5.3, the issuance of any warrants, options, subscription or purchase rights
with respect to shares of Common Stock and the issuance of any securities
convertible into or exchangeable for shares of Common Stock and the issuance of
any warrants, options, subscription or purchase rights with respect to such
convertible or exchangeable securities (collectively, "Common Stock
Equivalents"), shall be deemed an issuance of Common Stock. Any obligation,
agreement or undertaking to issue Common Stock Equivalents at any time in the
future shall be deemed to be an issuance at the time such obligation, agreement
or undertaking is made or arises. No adjustment of the Series B Conversion Value
shall
27
28
be made under this Section B5.3 upon the issuance of any shares of Common Stock
which are issued pursuant to the exercise, conversion or exchange of any Common
Stock Equivalents.
B5.3.2.2 ADJUSTMENTS FOR ADJUSTMENT, CANCELLATION
OR EXPIRATION OF COMMON STOCK EQUIVALENTS. Should the Net Consideration Per
Share of any such Common Stock Equivalents be decreased from time to time other
than as a result of the application of anti-dilution provisions substantially
similar to the provisions of this Section B5.3, then, upon the effectiveness of
each such change, the Series B Conversion Value will be that which would have
been obtained (1) had the adjustments made pursuant to Section B5.3.2.1 upon the
issuance of such Common Stock Equivalents been made upon the basis of the new
Net Consideration Per Share of such securities, and (2) had the adjustments made
to the Series B Conversion Value since the date of issuance of such Common Stock
Equivalents been made to such Series B Conversion Value as adjusted pursuant to
clause (1) above. Any adjustment of the Series B Conversion Value which relates
to any Common Stock Equivalent shall be disregarded if, as, and when such Common
Stock Equivalent expires or is canceled without being exercised, or is
repurchased by the Company at a price per share at or less than the original
purchase price, so that the Series B Conversion Value effective immediately upon
such cancellation or expiration shall be equal to the Series B Conversion Value
that would have been in effect (1) had the expired or canceled Common Stock
Equivalent not been issued, and (2) had the adjustments made to the Series B
Conversion Value since the date of issuance of such Common Stock Equivalents
been made to the Series B Conversion Value which would have been in effect had
the expired or canceled Common Stock Equivalent not been issued.
B5.3.3 NET CONSIDERATION PER SHARE. For purposes of this
Section B5.3, the "Net Consideration Per Share" which shall be receivable by the
Corporation for any Common Stock issued upon the exercise or conversion of any
Common Stock Equivalents shall be determined as follows:
B5.3.3.1 The "Net Consideration Per Share" shall
mean the amount equal to the total amount of consideration, if any, received by
the Corporation for the issuance of such Common Stock Equivalents, plus the
minimum amount of consideration, if any, payable to the Corporation upon
exercise, or conversion or exchange thereof, divided by the aggregate number of
shares of Common Stock that would be issued if all such Common Stock Equivalents
were exercised, exchanged or converted.
B5.3.3.2 The "Net Consideration Per Share" which
shall be receivable by the Corporation shall be determined in each instance as
of the date of issuance of Common Stock Equivalents without giving effect to any
possible future upward price adjustments or rate adjustments which may be
applicable with respect to such Common Stock Equivalents.
B5.3.4 STOCK DIVIDENDS FOR HOLDERS OF CAPITAL STOCK OTHER
THAN COMMON STOCK. In the event that the Corporation shall make or issue
(otherwise than to holders of Common Stock), or shall fix a record date for the
determination of holders of any capital stock of the Corporation other than
holders of Common Stock entitled to receive, a dividend or other distribution
28
29
payable in Common Stock or securities of the Corporation convertible into or
otherwise exchangeable for shares of Common Stock of the Corporation, then such
Common Stock or other securities issued in payment of such dividend shall be
deemed to have been issued for a consideration of $.01, except for dividends
payable to the holders of Series B Junior Preferred Stock.
B5.3.5 CONSIDERATION OTHER THAN CASH. For purposes of
this Section B5.3, if a part or all of the consideration received by the
Corporation in connection with the issuance of shares of the Common Stock or the
issuance of any of the securities described in this Section B5.3 consists of
property other than cash, such consideration shall be deemed to have a fair
market value as is reasonably determined in good faith by the Board of Directors
of the Corporation.
B5.3.6 EXCEPTIONS TO ANTI-DILUTION ADJUSTMENTS. This
Section B5.3 shall not apply (A) under any of the circumstances which would
constitute an Extraordinary Common Stock Event (as described below), (B) to any
additional shares of Common Stock which become issuable upon conversion of any
other series or class of preferred stock or convertible security of the Company
as a result of any anti-dilution adjustment to the conversion ratio of such
series or class, or (C) to any issuance or sale of shares of Common Stock and/or
Common Stock Equivalents in an underwritten public offering not requiring
conversion of the Series B Junior Preferred Stock. Further, this Section B5.3
shall not apply with respect to the issuance or sale of shares of Common Stock,
or the grant or options exercisable therefor, to directors, officers, employees
and consultants of the Corporation or any subsidiary pursuant to any qualified
or non-qualified stock option plan or agreement, stock purchase plan or
agreement, stock restriction agreement, employee stock ownership plan (ESOP),
consulting agreement, or such other options, issuances, arrangements, agreements
or plans intended principally as a means of providing compensation for
employment or services or of providing additional compensation to a financial
institution in connection with the Corporation obtaining equipment
lease/financing, provided that in each such case such plan, agreement, or other
arrangement or issuance is approved by the vote or consent of two-thirds of the
Board of Directors or by the written consent of the holders of two-thirds of the
outstanding shares of Series B Preferred Stock.
B5.4 ADJUSTMENT UPON EXTRAORDINARY COMMON STOCK EVENT. Upon
the happening of an Extraordinary Common Stock Event (as hereinafter defined),
the Series B Conversion Value shall, simultaneously with the happening of such
Extraordinary Common Stock Event, be adjusted by multiplying the Series B
Conversion Value by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such Extraordinary
Common Stock Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained shall thereafter be the Series B Conversion
Value, which, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive Extraordinary Common Stock Event or Events.
An "Extraordinary Common Stock Event" shall mean (i) the issue of
additional shares of Common Stock as a dividend or other distribution on
outstanding shares of Common
29
30
Stock, (ii) a subdivision of outstanding shares of Common Stock into a greater
number of shares of Common Stock, or (iii) a combination or reverse stock split
of outstanding shares of Common Stock into a smaller number of shares of the
Common Stock.
B5.5 ADJUSTMENT UPON CERTAIN DIVIDENDS. In the event the
Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution (other than a distribution in liquidation or other
distribution otherwise provided for herein) with respect to the Common Stock
payable in (i) securities of the Corporation other than shares of Common Stock,
or (ii) other assets (excluding cash dividends or distributions), then and in
each such event provision shall be made so that the holders of the Series B
Junior Preferred Stock shall receive upon conversion thereof in addition to the
number of shares of Common Stock receivable thereupon, the number of securities
or such other assets of the Corporation which they would have received had their
Series B Junior 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 or such
other assets receivable by them, giving application to all other adjustments
called for during such period under this Section B5.
B5.6 ADJUSTMENT UPON CAPITAL REORGANIZATION OR
RECLASSIFICATION. If the Common Stock shall be changed into the same or
different number of shares of any other class or classes of capital stock,
whether by capital reorganization, recapitalization, reclassification or
otherwise (other than an Extraordinary Common Stock Event), then and in each
such event the holder of each share of Series B Junior Preferred Stock shall
have the right thereafter to convert such share into, in lieu of the number of
shares of Common Stock which the holder would otherwise have been entitled to
receive, the kind and amount of shares of capital stock and other securities and
property receivable upon such reorganization, recapitalization, reclassification
or other change by the holders of the number of shares of Common Stock into
which such shares of Series B Junior Preferred Stock could have been converted
immediately prior to such reorganization, recapitalization, reclassification or
change, all subject to further adjustment as provided herein. The provision for
such conversion right shall be a condition precedent to the consummation by the
Corporation of any such transaction unless the election described below is made.
In the case of a transaction to which both this Section B5.6
and Section B3.2 apply, the holders of the outstanding shares of Series B Junior
Preferred Stock and Parity Stock (voting together as a single class) shall have
the option by majority vote to elect treatment for the Series B Junior Preferred
Stock and Parity Stock under this Section B5.6, notice of which election shall
be submitted in writing to the Corporation at its principal office no later than
five (5) business days before the effective date of such event. If no such
election shall be made, the provisions of Section B3.2, and not this Section
B5.6, shall apply.
B5.7 CERTIFICATE AS TO ADJUSTMENTS; NOTICE BY. In each case of
an adjustment or readjustment of the Series B Applicable Conversion Rate, the
Corporation at its expense will furnish each holder of Series B Junior Preferred
Stock so affected with a certificate prepared by the
30
31
Treasurer or Chief Financial Officer of the Corporation, showing such adjustment
or readjustment, and stating in detail the facts upon which such adjustment or
readjustment is based.
B5.8 EXERCISE OF CONVERSION PRIVILEGE. To exercise its
conversion privilege, a holder of Series B Junior Preferred Stock shall
surrender the certificate or certificates representing the shares being
converted to the Corporation at its principal office, and shall give written
notice to the Corporation at that office that such holder elects to convert such
shares. Such notice shall also state the name or names (with address or
addresses) in which the certificate or certificates for shares of Common Stock
issuable upon such conversion shall be issued. The certificate or certificates
for shares of Series B Junior Preferred Stock surrendered for conversion shall
be accompanied by proper assignment thereof to the Corporation or in blank. The
date when such written notice is received by the Corporation, together with the
certificate or certificates representing the shares of Series B Junior Preferred
Stock being converted, shall be the "Conversion Date". As promptly as
practicable after the Conversion Date, the Corporation shall issue and deliver
to the holder of the shares of Series B Junior Preferred Stock being converted,
or on its written order, such certificate or certificates as it may request for
the number of whole shares of Common Stock issuable upon the conversion of such
shares of Series B Junior Preferred Stock in accordance with the provisions of
this Section B5, and cash, as provided in Section B5.9, in respect of any
fraction of a share of Common Stock issuable upon such conversion. Such
conversion shall be deemed to have been effected immediately prior to the close
of business on the Conversion Date, and at such time the rights of the holder as
holder of the converted shares of Series B Junior Preferred Stock shall cease
and the person(s) in whose name(s) any certificate(s) for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become the holder
or holders of record of the shares of Common Stock represented thereby.
B5.9 CASH IN LIEU OF FRACTIONAL SHARES. No fractional shares
of Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series B Junior Preferred Stock. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of Series B Junior Preferred Stock, the Corporation shall pay to the
holder of the shares of Series B Junior Preferred Stock which were converted a
cash adjustment in respect of such fractional shares in an amount equal to the
same fraction of the market price per share of the Common Stock (as determined
in a reasonable manner prescribed by the Board of Directors) at the close of
business on the Conversion Date. The determination as to whether or not any
fractional shares are issuable shall be based upon the aggregate number of
shares of Series B Junior Preferred Stock being converted at any one time by any
holder thereof, not upon each share of Series B Junior Preferred Stock being
converted.
B5.10 PARTIAL CONVERSION. In the event some but not all of the
shares of Series B Junior Preferred Stock represented by a certificate(s)
surrendered by a holder are converted, the Corporation shall execute and deliver
to or on the order of the holder, at the expense of the Corporation, a new
certificate representing the number of shares of Series B Junior Preferred Stock
which were not converted.
31
32
B5.11 RESERVATION OF COMMON STOCK. The Corporation shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
shares of the Series B Junior 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 Series B Junior Preferred Stock (including any
shares of Series B Junior Preferred Stock represented by any warrants, options,
subscription or purchase rights for Series B Junior Preferred Stock), and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series B Junior Preferred Stock (including any shares of Series B Junior
Preferred Stock represented by any warrants, options, subscriptions or purchase
rights for such Series B Junior Preferred Stock), the Corporation shall take
such action as may be necessary to increase its authorized but unissued shares
of Common Stock to such number of shares as shall be sufficient for such
purpose.
B6. RESTRICTIONS AND LIMITATIONS ON CORPORATE ACTION.
B6.1 The Corporation shall not take any corporate action or
amend this Certificate of Designation (except to reduce the number of shares
designated as Series B Junior Preferred Stock to the number of such shares which
are then issued and outstanding) without the approval by majority vote or
written consent of the holders of outstanding shares of Series B Junior
Preferred Stock, voting as a single class, if such corporate action or amendment
would change any of the rights, preferences, privileges of or limitations
provided for herein for the benefit of any shares of Series B Junior Preferred
Stock without similarly changing the rights, preferences, privileges of or
limitations on all other classes or series of Parity Stock. Without limiting the
generality of the preceding sentence, the Corporation will not amend this
Certificate of Designation or take any other corporate action without the
approval of the holders of outstanding shares of Series B Junior Preferred Stock
if such amendment or corporate action would:
(a) authorize, create or issue, or obligate the
Corporation to authorize, create or issue, additional shares of Series
B Junior Preferred Stock; or
(b) reduce the amount payable to the holders of
Series B Junior Preferred Stock upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; or
(c) adversely affect the liquidation preferences,
dividend rights or voting rights of the holders of Series B Junior
Preferred Stock; or
(d) cancel or modify the conversion rights of the
holders of Series B Junior Preferred Stock provided for in Section B5
herein.
B6.2 The Corporation shall not take any corporate action or
amend its Certificate of Incorporation without the approval by majority vote or
written consent of the holders of
32
33
outstanding shares of Series B Junior Preferred Stock and Parity Stock, voting
together as a single class, if such corporate action or amendment would
similarly change the rights, preferences, privileges of or limitations on the
Series B Junior Preferred Stock and all classes or series of Parity Stock.
Without limiting the generality of the preceding sentence, the Corporation will
not amend its Certificate of Incorporation or take any other corporate action
without the approval of the holders of the outstanding shares of Series B Junior
Preferred Stock and Parity Stock, voting together as a single class, if such
amendment or corporate action would:
(a) cause or authorize the Corporation to redeem,
purchase or otherwise acquire for value (or pay into or set aside for a
sinking fund for such purpose), any share or shares of equity
securities of the Corporation other than as provided for in Section 2
hereof; or
(b) [intentionally omitted]
(c) similarly reduce the amount payable to the
holders of Series B Junior Preferred Stock and Parity Stock upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; or
(d) similarly adversely affect the liquidation
preferences, dividend rights or voting rights of the holders of Series
B Junior Preferred Stock and Parity Stock; or
(e) similarly cancel or modify the conversion rights
of the holders of Series B Junior Preferred Stock and Parity Stock; or
(f) provide for the voluntary liquidation,
dissolution, recapitalization, reorganization or winding up of the
Corporation; or
(g) authorize, approve or cause any merger,
consolidation, sale of all or substantially all of the assets of the
Corporation, corporate reorganization, recapitalization or other
business combinations which could be deemed to be a liquidation,
dissolution or winding up of the Corporation pursuant to Section B3.2
hereof.
B7. NO DILUTION OR IMPAIRMENT. The Corporation will not, by amendment
of its Certificate of Incorporation or through any reorganization, transfer of
capital stock or assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Series B Junior Preferred Stock set
forth herein, but will at all times in good faith assist in the carrying out of
all such terms. Without limiting the generality of the foregoing, the
Corporation (a) will not increase the par value of any shares of stock
receivable on the conversion of the Series B Junior Preferred Stock above the
amount payable therefor on such conversion, and (b) will take such action as may
be necessary or appropriate in order that the Corporation may validly and
legally issue fully paid and nonassessable
33
34
shares of stock on the conversion of all Series B Junior Preferred Stock from
time to time outstanding.
B8. NOTICES OF RECORD DATE. In the event of
(a) any taking by the Corporation of a record of the holders
of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividends or
other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of capital stock of any class or
any other securities or property, or to receive any other
right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of
the Corporation, any merger or consolidation of the
Corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other corporation, or any
other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Series B Junior Preferred Stock a notice specifying (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (iii) the time, 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, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up. Such notice shall be mailed by
first class mail, postage prepaid, at least 15 days prior to the date specified
in such notice on which action is being taken.
B9. STATUS OF CONVERTED OR REPURCHASED SERIES B JUNIOR PREFERRED STOCK.
Any share or shares of Series B Junior Preferred Stock acquired by the
Corporation by reason of redemption, purchase, conversion or otherwise shall be
returned to the status of authorized but unissued shares of undesignated
Preferred Stock. Upon the cancellation of all outstanding shares of Series B
Junior Preferred Stock, the provisions of this Certificate of Designation of
Series B Junior Preferred Stock shall terminate and have no further force and
effect.
DESCRIPTION AND DESIGNATION OF SERIES C PREFERRED STOCK
C1. DESIGNATION. A total of 1,300,000 shares of the Company's Preferred
Stock shall be designated the "Series C Preferred Stock." As used herein, the
term "Preferred Stock" used without
34
35
reference to the Series C Preferred Stock means the shares of Preferred Stock,
without distinction as to series, except as otherwise expressly provided for
herein, or as the context otherwise requires.
C2. RESTRICTIONS ON DISTRIBUTIONS. Except to the extent in any instance
approval is provided in writing by the holders of two-thirds of the outstanding
shares of Series A Preferred Stock, Series C Preferred Stock and any other
series of Preferred Stock senior to or on parity with the Series C Preferred
Stock with respect to liquidation preference (all voting together as a single
class), the Corporation shall not declare or pay any dividends, or purchase,
redeem, retire, or otherwise acquire for value any shares of its capital stock
junior to the Series C Preferred Stock (or rights, options or warrants to
purchase such shares) now or hereafter outstanding, return any capital to its
stockholders as such, or make any distribution of assets to its stockholders as
such, or permit any Subsidiary to do any of the foregoing. "Subsidiary" or
"Subsidiaries" means any corporation, partnership or joint venture of which the
Company and/or any of its other Subsidiaries (as herein defined) directly or
indirectly owns at the time at least fifty percent (50%) of the outstanding
voting shares or similar interests other than directors' qualifying shares.
Notwithstanding the foregoing, Subsidiaries may declare and
make payment of cash and stock dividends, return capital and make distributions
of assets to the Corporation, and nothing contained in the foregoing shall
prevent the Corporation from: (i) effecting a stock split or declaring or paying
any dividend consisting of shares of any class of capital stock paid to the
holders of shares of such class of capital stock; (ii) complying with any
specific provision of the terms of any subsequently designated series of
Preferred Stock in accordance with its terms; (iii) redeeming or repurchasing
any stock of a deceased stockholder out of proceeds of insurance held by the
Corporation on that stockholder's life; or (iv) redeeming or repurchasing any
stock of any director, officer, employee, advisor, consultant or other person or
entity, pursuant to a stock repurchase agreement or stock restriction agreement
under which the Corporation has the right or obligation to repurchase such
shares in the event of death, termination of employment or of the consulting
arrangement, or other similar discontinuation of a business relationship.
C3. LIQUIDATION, DISSOLUTION OR WINDING UP.
C3.1 TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. The
Series C Preferred Stock shall be on a parity with the Series A Preferred Stock
with respect to liquidation preference. The Series A Preferred Stock, and any
class or series of Preferred Stock designated in the future to be on a parity
with the Series C Preferred Stock with respect to liquidation preference are
collectively referred to herein as "Parity Stock". In the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, or in the event of its insolvency, before any distribution or
payment is made to any holders of Common Stock, the Series B Junior Preferred
Stock or any other class or series of capital stock of the Corporation
designated to be junior to the Series C Preferred Stock in liquidation
preference (collectively, "Junior Stock"), and subject to the liquidation rights
and preferences of any class or series of Preferred Stock designated in the
future to be senior to the Series C Preferred Stock with respect to liquidation
preference ("Senior Stock"), the holders of each share of Series C Preferred
Stock shall be entitled to be paid first out of
35
36
the assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes, whether such assets are capital,
surplus or earnings ("Available Assets"), the greater of (i) an amount per share
of Series C Preferred Stock equal to $5.00, plus $.50 for each year (pro rated
for partial years) from April 15, 1999 until the date of distribution of
Available Assets, (subject to equitable adjustment for any stock dividend, stock
split, combination, reorganization, recapitalization, reclassification or other
similar event involving a change in the capital structure of the Preferred
Stock), or (ii) such amount per share of Series C Preferred Stock as would have
been payable had each share of Preferred Stock which is convertible into Common
Stock been so converted immediately prior to such liquidation, dissolution or
winding up.
If, upon liquidation, dissolution or winding up of the
Corporation, the Available Assets shall be insufficient to pay the holders of
Series C Preferred Stock and of any Parity Stock the full amounts to which they
otherwise would be entitled, the holders of Series C Preferred Stock and Parity
Stock shall share ratably in any distribution of Available Assets pro rata in
proportion to the respective liquidation preference amounts which would
otherwise be payable upon liquidation with respect to the outstanding shares of
the Series C Preferred Stock and Parity Stock if all liquidation preference
dollar amounts with respect to such shares were paid in full.
C3.2 TREATMENT OF REORGANIZATION, CONSOLIDATION, MERGER, OR
SALE OF ASSETS. Any merger, consolidation or other corporate reorganization or
combination to which the Corporation is a non-surviving party, and any sale of
all or substantially all of the assets of the Corporation, shall be regarded as
a liquidation, dissolution or winding up of the affairs of the Corporation for
purposes of this Section C3; provided, however that, in the case of any such
transaction to which the provisions of Section C5.6 also apply, the holders of
the outstanding shares of Series C Preferred Stock and Parity Stock (voting
together as a single class) shall have the right by majority vote to elect the
benefits of the provisions of Section C5.6 hereof for all of the Series C
Preferred Stock and Parity Stock in lieu of receiving payment in liquidation,
dissolution or winding up of the Corporation pursuant to this Section C3.
The provisions of this Section C3.2 shall not apply to (i) any
reorganization, merger or consolidation involving only a change in the state of
incorporation of the Corporation, (ii) a merger of the Corporation with or into
a wholly-owned Subsidiary of the Corporation that is incorporated in the United
States of America, or (iii) a merger, reorganization, consolidation or other
combination, of which the Corporation is substantively the surviving corporation
and operates as a going concern, with another corporation incorporated in the
United States of America and which does not involve a recapitalization,
reorganization, reclassification or other similar change in the capital
structure of the Corporation.
C3.3 DISTRIBUTIONS OTHER THAN CASH. Whenever the distribution
provided for in this Section C3 shall be payable in whole or in part in property
other than cash, the value of any property distributed shall be the fair market
value of such property as reasonably determined in good faith by the Board of
Directors of the Corporation. All distributions of property other than cash made
hereunder shall be made, to the maximum extent possible, pro rata with respect
to each Series
36
37
and class of Preferred Stock and Common Stock in accordance with the liquidation
amounts payable with respect to each such Series and class.
C4. VOTING POWER.
C4.1 GENERAL. For each vote in which holders of Series C
Preferred Stock are entitled to participate, each share of Series C Preferred
Stock shall be entitled to that number of votes equal to the largest number of
whole shares of Common Stock into which such holder's shares of Series C
Preferred Stock could be converted. Except as otherwise required by applicable
law or as otherwise provided herein, each holder of Series C Preferred Stock
shall be entitled to vote together with the Common Stock and all other series
and classes of stock permitted to vote with the Common Stock on all matters
submitted to a vote of the stockholders of the Corporation (including election
of directors generally, but excluding election of the "Series A Directors", as
defined in the Certificate of Designation of the Series A Preferred Stock of the
Company). Each holder of Series C Preferred Stock shall be entitled to notice of
any stockholders' meeting in accordance with the by-laws of this Corporation at
the same time and in the same manner as notice is given to all other
stockholders entitled to vote at such meetings.
C4.2 LIMITATIONS DURING FIRST THREE YEARS. Notwithstanding
paragraph C4.1, for a period of three years from the date of the initial filing
of this Certificate of Designation, the holders of Series C Preferred Stock
shall not have any voting rights, other than as required by law and as provided
in Section C6 below.
C5. CONVERSION RIGHTS. The holders of the Series C Preferred Stock
shall have the following rights and be subject to the following obligations with
respect to the conversion of such shares into shares of Common Stock:
C5.1 VOLUNTARY CONVERSION. Subject to and in compliance with
the provisions of this Section C5, any shares of the Series C Preferred Stock
may, at the option of the holder thereof, be converted at any time and from time
to time into fully-paid and non-assessable shares of Common Stock. The number of
shares of Common Stock which a holder of Series C Preferred Stock shall be
entitled to receive upon conversion shall be the product obtained by multiplying
(i) the number of shares of Series C Preferred Stock being converted at any
time, by (ii) the rate (the "Series C Conversion Rate") equal to the quotient
obtained by dividing $5.00 by the "Series C Conversion Value." The Series C
Conversion Value in effect from time to time, except as adjusted in accordance
with this Section C5, shall be $5.00.
C5.2 AUTOMATIC CONVERSION.
C5.2.1 EVENTS CAUSING CONVERSION. Immediately (A) prior
to the effectiveness of a registration statement filed by the Company pursuant
to the Securities Act of 1933, as amended, (other than on Form S-4 or S-8 on any
successor forms thereto) covering the offer and sale of Common Stock in an
underwritten public offering on a firm commitment basis in which the
37
38
gross proceeds of the offering will equal or exceed $10,000,000 (calculated
before deducting underwriters' discounts and commissions and other offering
expenses), and in which the public offering price per share of Common Stock
(calculated before deducting underwriters' discounts and commissions) results in
a valuation of the total number of outstanding shares of capital stock of the
Company immediately prior to the closing of the public offering of at least
$35,000,000, but subject to the closing of such public offering, (B) prior to
the effectiveness of a registration statement filed by the Company pursuant to
the Securities Act of 1933 covering the offer and sale of Common Stock in a
rights offering to shareholders of Safeguard Scientifics, Inc., in which the
gross proceeds of the offering will equal or exceed $10,000,000 (calculated
before deducting underwriters' discounts and commissions and other offering
expenses), and in which the public offering price per share of Common Stock
(calculated before deducting underwriters' discounts and commissions) results in
a valuation of the total number of outstanding shares of capital stock of the
Company immediately prior to the closing of the public offering of at least
$35,000,000, but subject to the closing of such rights offering, or (C) upon the
election, set forth in a written notice to the Corporation, of holders of at
least two-thirds of the outstanding shares of Series C Preferred Stock and
Parity Stock (counted as a single class) to convert their Series C Preferred
Stock and Parity Stock to Common Stock; all outstanding shares of Series C
Preferred Stock and Parity Stock shall be converted automatically into the
number of fully paid, non-assessable shares of Common Stock into which such
shares of Series C Preferred Stock and Parity Stock are convertible pursuant to
this Section C5 or the designation of such Parity Stock as of the closing and
consummation of such underwritten public offering or the date of such approval,
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent.
C5.2.2 SURRENDER OF CERTIFICATES UPON MANDATORY
CONVERSION. Upon the occurrence of the conversion event specified in paragraph
C5.2.1, the holders of the Series C Preferred Stock shall, upon notice from the
Corporation, surrender the certificates representing such shares at the office
of the Corporation or its transfer agent for the Common Stock. Thereupon, there
shall be issued and delivered to such holder a certificate or certificates for
the number of shares of Common Stock into which the shares of Series C Preferred
Stock so surrendered were convertible on the date on which the conversion
occurred. The Corporation shall not be obligated to issue such certificates
unless certificates evidencing such shares of Series C Preferred Stock being
converted are either delivered to the Corporation or any such transfer agent, or
the holder notifies the Corporation that such certificates have been lost,
stolen or destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection therewith.
C5.3 ANTI-DILUTION ADJUSTMENTS.
C5.3.1 UPON DILUTIVE ISSUANCES. If the Corporation shall,
while there are any shares of Series C Preferred Stock outstanding, issue or
sell shares of its Common Stock or "Common Stock Equivalents" (as defined in
Section C5.3.2.1 below) without consideration or at a price per share or "Net
Consideration Per Share" (as defined in Section C5.3.3 below) less than the
Series C Conversion Value in effect immediately prior to such issuance or sale,
then in each such
38
39
case the Series C Conversion Value, except as hereinafter provided, shall be
lowered so as to be equal to an amount determined by multiplying such Series C
Conversion Value by the following fraction:
N(0) + N(1)
-------------------
N(0) + N(2)
Where:
N(0) = the number of shares of Common Stock
outstanding immediately prior to the issuance of such additional shares
of Common Stock or Common Stock Equivalents (calculated on a
fully-diluted basis assuming the exercise or conversion of all then
exercisable or convertible options, warrants, purchase rights and
convertible securities).
N(1) = the number of shares of Common Stock which the
aggregate consideration, if any, (including the Net Consideration Per
Share with respect to the issuance of Common Stock Equivalents)
received or receivable by the Corporation for the total number of such
additional shares of Common Stock so issued or deemed to be issued
would purchase at the Series C Conversion Value in effect immediately
prior to such issuance.
N(2) = the number of such additional shares of Common
Stock so issued or deemed to be issued.
Example:
initial capital 1,000,000
initial conversion price $ 1.00
new shares issued 1,000,000 total new consideration $ 500,000
new issue price $ 0.50 new shares which would be
issued at initial conversion price 500,000
new conversion price $ 0.75
The provisions of this Section C5.3.1 may be waived as to all
shares of Series C Preferred Stock in any instance (without the necessity of
convening any meeting of stockholders of the Corporation) upon the written
agreement of the holders of two-thirds of the outstanding shares of Series C
Preferred Stock.
C5.3.2 COMMON STOCK EQUIVALENTS.
39
40
C5.3.2.1 GENERAL. For the purposes of this Section
C5.3, the issuance of any warrants, options, subscription or purchase rights
with respect to shares of Common Stock and the issuance of any securities
convertible into or exchangeable for shares of Common Stock and the issuance of
any warrants, options, subscription or purchase rights with respect to such
convertible or exchangeable securities (collectively, "Common Stock
Equivalents"), shall be deemed an issuance of Common Stock. Any obligation,
agreement or undertaking to issue Common Stock Equivalents at any time in the
future shall be deemed to be an issuance at the time such obligation, agreement
or undertaking is made or arises. No adjustment of the Series C Conversion Value
shall be made under this Section C5.3 upon the issuance of any shares of Common
Stock which are issued pursuant to the exercise, conversion or exchange of any
Common Stock Equivalents.
C5.3.2.2 ADJUSTMENTS FOR ADJUSTMENT, CANCELLATION
OR EXPIRATION OF COMMON STOCK EQUIVALENTS. Should the Net Consideration Per
Share of any such Common Stock Equivalents be decreased from time to time other
than as a result of the application of anti-dilution provisions substantially
similar to the provisions of this Section C5.3, then, upon the effectiveness of
each such change, the Series C Conversion Value will be that which would have
been obtained (1) had the adjustments made pursuant to Section C5.3.2.1 upon the
issuance of such Common Stock Equivalents been made upon the basis of the new
Net Consideration Per Share of such securities, and (2) had the adjustments made
to the Series C Conversion Value since the date of issuance of such Common Stock
Equivalents been made to such Series C Conversion Value as adjusted pursuant to
clause (1) above. Any adjustment of the Series C Conversion Value which relates
to any Common Stock Equivalent shall be disregarded if, as, and when such Common
Stock Equivalent expires or is canceled without being exercised, or is
repurchased by the Company at a price per share at or less than the original
purchase price, so that the Series C Conversion Value effective immediately upon
such cancellation or expiration shall be equal to the Series C Conversion Value
that would have been in effect (1) had the expired or canceled Common Stock
Equivalent not been issued, and (2) had the adjustments made to the Series C
Conversion Value since the date of issuance of such Common Stock Equivalents
been made to the Series C Conversion Value which would have been in effect had
the expired or canceled Common Stock Equivalent not been issued.
C5.3.3 NET CONSIDERATION PER SHARE. For purposes of this
Section C5.3, the "Net Consideration Per Share" which shall be receivable by the
Corporation for any Common Stock issued upon the exercise or conversion of any
Common Stock Equivalents shall be determined as follows:
C5.3.3.1 The "Net Consideration Per Share" shall
mean the amount equal to the total amount of consideration, if any, received by
the Corporation for the issuance of such Common Stock Equivalents, plus the
minimum amount of consideration, if any, payable to the Corporation upon
exercise, or conversion or exchange thereof, divided by the aggregate number of
shares of Common Stock that would be issued if all such Common Stock Equivalents
were exercised, exchanged or converted.
40
41
C5.3.3.2 The "Net Consideration Per Share" which
shall be receivable by the Corporation shall be determined in each instance as
of the date of issuance of Common Stock Equivalents without giving effect to any
possible future upward price adjustments or rate adjustments which may be
applicable with respect to such Common Stock Equivalents.
C5.3.4 STOCK DIVIDENDS FOR HOLDERS OF CAPITAL STOCK OTHER
THAN COMMON STOCK. In the event that the Corporation shall make or issue
(otherwise than to holders of Common Stock), or shall fix a record date for the
determination of holders of any capital stock of the Corporation other than
holders of Common Stock entitled to receive, a dividend or other distribution
payable in Common Stock or securities of the Corporation convertible into or
otherwise exchangeable for shares of Common Stock of the Corporation, then such
Common Stock or other securities issued in payment of such dividend shall be
deemed to have been issued for a consideration of $.01, except for dividends
payable to the holders of Series C Preferred Stock.
C5.3.5 CONSIDERATION OTHER THAN CASH. For purposes of
this Section C5.3, if a part or all of the consideration received by the
Corporation in connection with the issuance of shares of the Common Stock or the
issuance of any of the securities described in this Section C5.3 consists of
property other than cash, such consideration shall be deemed to have a fair
market value as is reasonably determined in good faith by the Board of Directors
of the Corporation.
C5.3.6 EXCEPTIONS TO ANTI-DILUTION ADJUSTMENTS. This
Section C5.3 shall not apply (A) under any of the circumstances which would
constitute an Extraordinary Common Stock Event (as described below), (B) to any
additional shares of Common Stock which become issuable upon conversion of any
other series or class of preferred stock or convertible security of the Company
as a result of any anti-dilution adjustment to the conversion ratio of such
series or class, or (C) to any issuance or sale of shares of Common Stock and/or
Common Stock Equivalents in an underwritten public offering not requiring
conversion of the Series C Preferred Stock. Further, this Section C5.3 shall not
apply with respect to the issuance or sale of shares of Common Stock, or the
grant or options exercisable therefor, to directors, officers, employees and
consultants of the Corporation or any subsidiary pursuant to any qualified or
non-qualified stock option plan or agreement, stock purchase plan or agreement,
stock restriction agreement, employee stock ownership plan (ESOP), consulting
agreement, or such other options, issuances, arrangements, agreements or plans
intended principally as a means of providing compensation for employment or
services or of providing additional compensation to a financial institution in
connection with the Corporation obtaining equipment lease/financing, provided
that in each such case such plan, agreement, or other arrangement or issuance is
approved by the vote or consent of two-thirds of the Board of Directors or by
the written consent of the holders of two-thirds of the outstanding shares of
Series C Preferred Stock.
C5.4 ADJUSTMENT UPON EXTRAORDINARY COMMON STOCK EVENT. Upon the
happening of an Extraordinary Common Stock Event (as hereinafter defined), the
Series C Conversion Value shall, simultaneously with the happening of such
Extraordinary Common Stock Event, be adjusted by multiplying the Series C
Conversion Value by a fraction, the numerator of
41
42
which shall be the number of shares of Common Stock outstanding immediately
prior to such Extraordinary Common Stock Event and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after such
Extraordinary Common Stock Event, and the product so obtained shall thereafter
be the Series C Conversion Value, which, as so adjusted, shall be readjusted in
the same manner upon the happening of any successive Extraordinary Common Stock
Event or Events.
An "Extraordinary Common Stock Event" shall mean (i) the issue
of additional shares of Common Stock as a dividend or other distribution on
outstanding shares of Common Stock, (ii) a subdivision of outstanding shares of
Common Stock into a greater number of shares of Common Stock, or (iii) a
combination or reverse stock split of outstanding shares of Common Stock into a
smaller number of shares of the Common Stock.
C5.5 ADJUSTMENT UPON CERTAIN DIVIDENDS. In the event the
Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution (other than a distribution in liquidation or other
distribution otherwise provided for herein) with respect to the Common Stock
payable in (i) securities of the Corporation other than shares of Common Stock,
or (ii) other assets (excluding cash dividends or distributions), then and in
each such event provision shall be made so that the holders of the Series C
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the number of securities or such
other assets of the Corporation which they would have received had their Series
C 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 or such other assets
receivable by them, giving application to all other adjustments called for
during such period under this Section C5.
C5.6 ADJUSTMENT UPON CAPITAL REORGANIZATION OR
RECLASSIFICATION. If the Common Stock shall be changed into the same or
different number of shares of any other class or classes of capital stock,
whether by capital reorganization, recapitalization, reclassification or
otherwise (other than an Extraordinary Common Stock Event), then and in each
such event the holder of each share of Series C Preferred Stock shall have the
right thereafter to convert such share into, in lieu of the number of shares of
Common Stock which the holder would otherwise have been entitled to receive, the
kind and amount of shares of capital stock and other securities and property
receivable upon such reorganization, recapitalization, reclassification or other
change by the holders of the number of shares of Common Stock into which such
shares of Series C Preferred Stock could have been converted immediately prior
to such reorganization, recapitalization, reclassification or change, all
subject to further adjustment as provided herein. The provision for such
conversion right shall be a condition precedent to the consummation by the
Corporation of any such transaction unless the election described below is made.
In the case of a transaction to which both this Section C5.6
and Section C3.2 apply, the holders of the outstanding shares of Series C
Preferred Stock and Parity Stock (voting together as
42
43
a single class) shall have the option by majority vote to elect treatment for
the Series C Preferred Stock and Parity Stock under this Section C5.6, notice of
which election shall be submitted in writing to the Corporation at its principal
office no later than five (5) business days before the effective date of such
event. If no such election shall be made, the provisions of Section C3.2, and
not this Section C5.6, shall apply.
C5.7 CERTIFICATE AS TO ADJUSTMENTS; NOTICE BY CORPORATION. In
each case of an adjustment or readjustment of the Series C Applicable Conversion
Rate, the Corporation at its expense will furnish each holder of Series C
Preferred Stock so affected with a certificate prepared by the Treasurer or
Chief Financial Officer of the Corporation, showing such adjustment or
readjustment, and stating in detail the facts upon which such adjustment or
readjustment is based.
C5.8 EXERCISE OF CONVERSION PRIVILEGE. To exercise its
conversion privilege, a holder of Series C Preferred Stock shall surrender the
certificate or certificates representing the shares being converted to the
Corporation at its principal office, and shall give written notice to the
Corporation at that office that such holder elects to convert such shares. Such
notice shall also state the name or names (with address or addresses) in which
the certificate or certificates for shares of Common Stock issuable upon such
conversion shall be issued. The certificate or certificates for shares of Series
C Preferred Stock surrendered for conversion shall be accompanied by proper
assignment thereof to the Corporation or in blank. The date when such written
notice is received by the Corporation, together with the certificate or
certificates representing the shares of Series C Preferred Stock being
converted, shall be the "Conversion Date". As promptly as practicable after the
Conversion Date, the Corporation shall issue and deliver to the holder of the
shares of Series C Preferred Stock being converted, or on its written order,
such certificate or certificates as it may request for the number of whole
shares of Common Stock issuable upon the conversion of such shares of Series C
Preferred Stock in accordance with the provisions of this Section C5, and cash,
as provided in Section C5.9, in respect of any fraction of a share of Common
Stock issuable upon such conversion. Such conversion shall be deemed to have
been effected immediately prior to the close of business on the Conversion Date,
and at such time the rights of the holder as holder of the converted shares of
Series C Preferred Stock shall cease and the person(s) in whose name(s) any
certificate(s) for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares of
Common Stock represented thereby.
C5.9 CASH IN LIEU OF FRACTIONAL SHARES. No fractional shares
of Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series C Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Series C Preferred Stock, the Corporation shall pay to the holder of the shares
of Series C Preferred Stock which were converted a cash adjustment in respect of
such fractional shares in an amount equal to the same fraction of the market
price per share of the Common Stock (as determined in a reasonable manner
prescribed by the Board of Directors) at the close of business on the Conversion
Date. The determination as to whether or not any fractional shares are issuable
shall be based upon the aggregate number of shares of Series C Preferred Stock
43
44
being converted at any one time by any holder thereof, not upon each share of
Series C Preferred Stock being converted.
C5.10 PARTIAL CONVERSION. In the event some but not all of the
shares of Series C Preferred Stock represented by a certificate(s) surrendered
by a holder are converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series C Preferred Stock which were not
converted.
C5.11 RESERVATION OF COMMON STOCK. The Corporation shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
shares of the Series C 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 Series C Preferred Stock (including any shares of
Series C Preferred Stock represented by any warrants, options, subscription or
purchase rights for Series C Preferred Stock), and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series C Preferred Stock
(including any shares of Series C Preferred Stock represented by any warrants,
options, subscriptions or purchase rights for such Series C Preferred Stock),
the Corporation shall take such action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
C6. RESTRICTIONS AND LIMITATIONS ON CORPORATE ACTION.
C6.1 The Corporation shall not take any corporate action or
amend this Certificate of Designation (except to reduce the number of shares
designated as Series C Preferred Stock to the number of such shares which are
then issued and outstanding) without the approval by majority vote or written
consent of the holders of outstanding shares of Series C Preferred Stock, voting
as a single class, if such corporate action or amendment would change any of the
rights, preferences, privileges of or limitations provided for herein for the
benefit of any shares of Series C Preferred Stock without similarly changing the
rights, preferences, privileges of or limitations on all other classes or series
of Parity Stock. Without limiting the generality of the preceding sentence, the
Corporation will not amend this Certificate of Designation or take any other
corporate action without the approval of the holders of outstanding shares of
Series C Preferred Stock if such amendment or corporate action would:
(a) authorize, create or issue, or obligate the
Corporation to authorize, create or issue, additional shares of Series
C Preferred Stock; or
(b) reduce the amount payable to the holders of
Series C Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
44
45
(c) adversely affect the liquidation preferences,
dividend rights or voting rights of the holders of Series C Preferred
Stock; or
(d) cancel or modify the conversion rights of the
holders of Series C Preferred Stock provided for in Section C5 herein.
C6.2 The Corporation shall not take any corporate action or
amend its Certificate of Incorporation without the approval by majority vote or
written consent of the holders of outstanding shares of Series C Preferred Stock
and Parity Stock, voting together as a single class, if such corporate action or
amendment would similarly change the rights, preferences, privileges of or
limitations on the Series C Preferred Stock and all classes or series of Parity
Stock. Without limiting the generality of the preceding sentence, the
Corporation will not amend its Certificate of Incorporation or take any other
corporate action without the approval of the holders of the outstanding shares
of Series C Preferred Stock and Parity Stock, voting together as a single class,
if such amendment or corporate action would:
(a) cause or authorize the Corporation to redeem,
purchase or otherwise acquire for value (or pay into or set aside for a
sinking fund for such purpose), any share or shares of equity
securities of the Corporation other than as provided for in Section C2
hereof; or
(b) authorize, create or issue, or obligate the
Corporation to authorize, create or issue, shares of any class of stock
ranking senior to the Series C Preferred Stock and Parity Stock with
respect to liquidation preferences or dividend rights, or containing
redemption rights; or
(c) similarly reduce the amount payable to the
holders of Series C Preferred Stock and Parity Stock upon the voluntary
or involuntary liquidation, dissolution or winding up of the
Corporation; or
(d) similarly adversely affect the liquidation
preferences, dividend rights or voting rights of the holders of Series
C Preferred Stock and Parity Stock; or
(e) similarly cancel or modify the conversion rights
of the holders of Series C Preferred Stock and Parity Stock; or
(f) provide for the voluntary liquidation,
dissolution, recapitalization, reorganization or winding up of the
Corporation; or
(g) authorize, approve or cause any merger,
consolidation, sale of all or substantially all of the assets of the
Corporation, corporate reorganization, recapitalization or other
business combinations which could be deemed to be a liquidation,
dissolution or winding up of the Corporation pursuant to Section C3.2
hereof.
45
46
C7. NO DILUTION OR IMPAIRMENT. The Corporation will not, by amendment
of its Certificate of Incorporation or through any reorganization, transfer of
capital stock or assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Series C Preferred Stock set forth
herein, but will at all times in good faith assist in the carrying out of all
such terms. Without limiting the generality of the foregoing, the Corporation
(a) will not increase the par value of any shares of stock receivable on the
conversion of the Series C Preferred Stock above the amount payable therefor on
such conversion, and (b) will take such action as may be necessary or
appropriate in order that the Corporation may validly and legally issue fully
paid and nonassessable shares of stock on the conversion of all Series C
Preferred Stock from time to time outstanding.
C8. NOTICES OF RECORD DATE. In the event of
(a) any taking by the Corporation of a record of the holders
of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividends or
other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of capital stock of any class or
any other securities or property, or to receive any other
right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of
the Corporation, any merger or consolidation of the
Corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other corporation, or any
other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Series C Preferred Stock a notice specifying (i) the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (iii) the time, 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, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up. Such notice shall be mailed by
first class mail, postage prepaid, at least 15 days prior to the date specified
in such notice on which action is being taken.
C9. STATUS OF CONVERTED OR REPURCHASED SERIES C PREFERRED STOCK. Any
share or shares of Series C Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be returned to the
status of authorized but unissued shares of
46
47
undesignated Preferred Stock. Upon the cancellation of all outstanding shares of
Series C Preferred Stock, the provisions of this Certificate of Designation of
Series C Preferred Stock shall terminate and have no further force and effect.
************************
5. The corporation is to have perpetual existence.
6. In furtherance of and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, alter or repeal
the bylaws of the corporation.
7. The directors of the corporation shall be entitled to the benefits
of all limitations on the liability of directors generally that are now or
hereafter become available under the General Corporation Law of Delaware.
Without limiting the generality of the foregoing, no director of the corporation
shall be personally liable to the corporation or to any stockholder of the
corporation for monetary damages for breach of fiduciary duty as a director,
provided that this provision shall not limit the liability of a director (i) for
any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts of omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit.
8. Elections of directors need not be by written ballot except and to
the extent provided in the bylaws of the Corporation.
9. Meetings of stockholders may be held within or without the State of
Delaware, as the bylaws may provide.
10. The books of the corporation may be kept (subject to any provision
contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the board of directors or in the
bylaws of the corporation.
11. The Corporation shall, to the maximum extent permitted from time to
time under the laws of the State of Delaware, indemnify and upon request shall
advance expenses to any person who is or was a party or is threatened to be made
a party to any threatened, pending or completed action, suit, proceeding or
claim, whether civil, criminal, administrative or investigative, by reason of
the fact that he is or was or has agreed to be a director or officer of the
Corporation or while a director or officer is or was serving at the request of
the Corporation as a director, officer, employer or agent of any corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, against any and all expenses (including
attorney's fees and expenses), judgments, fines, penalties and amounts paid in
settlement or incurred in connection with the investigation, preparation to
defend or defense of such action, suit, proceeding or claim; provided, however,
that the foregoing shall not require the Corporation to indemnify or advance
expenses to any person in connection with any action, suit, proceeding, claim or
counterclaim initiated by or on behalf of such person. Such rights arising under
any bylaw, agreement, vote of directors or stockholders or otherwise and shall
inure to the benefit of the heirs and legal
47
48
representatives of such person. Any repeal or modification of the foregoing
provisions of this Article 10 shall not adversely affect any right or protection
of a director or officer of this Corporation existing at the time of such repeal
or modification.
12. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, eMerge Vision Systems, Inc. has caused this
certificate to be signed by Xxxxxxx Xxxxxxx, its Chief Executive Officer on the
____ day of April, 1999.
eMerge Vision Systems, Inc.
By: /S/ XXXXXXX XXXXXXX
------------------------------------
Xxxxxxx Xxxxxxx, Chief Executive Officer
48
49
EXHIBIT 3
Capitalization Table
HOLDER SHARES OPTIONS
------ ------ ---------
Safeguard Capital LP 4,181,315
Technology Leaders I 803,250
Technology Leaders II 856,000
Applewood 339,919
XL Vision and employees 4,979,000
Company employees 8,750 2,726,250
Others 3,173,122
Total 14,341,356 2,726,250
49
