CBHI » Topics » Preferred Stock Terms and Provisions

This excerpt taken from the CBHI DEF 14A filed Jun 1, 2009.

Preferred Stock Terms and Provisions

        The following is a summary of the material terms and provisions of the preferences, limitations, voting powers and relative rights of the Preferred Stock as contained in the form of Certificate of Designations for the Preferred Stock, which is included as Exhibit A to the attached Appendix A to this Proxy Statement and is incorporated by reference herein. Stockholders are urged to carefully read the Certificate of Designations in its entirety. Although we believe this summary covers the material terms and provisions of the Preferred Stock as contained in the Certificate of Designations, it may not contain all of the information that is important to you.

        Authorized Shares, Stated Value and Liquidation Preference.    Up to approximately 73,278 shares will be designated as Preferred Stock (i.e., the Series A Convertible Non-Cumulative Preferred Stock), which will have a par value of $0.001 per share and a stated value and liquidation preference of $1,000 per share.

        Ranking.    The Preferred Stock will rank on a parity with each other class or series of preferred stock established after the issue date of the Preferred Stock, the terms of which expressly provide that such class or series will rank on a parity with the Preferred Stock as to dividend rights and rights on

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liquidation, winding-up and dissolution of the Company. The Preferred Stock will rank senior to our common stock and any other class or series of our stock now existing or hereafter established, the terms of which do not expressly provide that it ranks on a parity with or senior to the Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Company.

        Dividends.    Holders of Preferred Stock will be entitled to receive, when, as and if declared by our Board of Directors, non-cumulative dividends at an annual rate of 9.0% of the $1,000 per share liquidation preference, payable quarterly in arrears. From the date of issuance of the Preferred Stock until the first dividend payment date following the second anniversary of the closing of the private placement issuance, the dividends are payable in cash or additional shares of Preferred Stock, at the election of the Company. Thereafter, dividends are payable solely in cash.

        Dividends on the Preferred Stock will be non-cumulative. If our Board of Directors does not declare a dividend on the Preferred Stock in respect of any dividend period, the holders of the Preferred Stock will have no right to receive any dividend for that dividend period, and we will have no obligation to pay a dividend for that dividend period.

        Subject to limited exceptions, if full quarterly dividends payable on all outstanding shares of the Preferred Stock for any dividend period have not been declared and paid or declared and a sum sufficient for the payment of those dividends has not been set aside for such dividend period, we will not be permitted to declare or pay dividends with respect to, or redeem, purchase, acquire or make a liquidation payment or distributions relating to, any other preferred stock ranking on a parity with the Preferred Stock or any of our common stock or other junior securities during the next succeeding dividend period.

        Voting Rights.    The holders of the Preferred Stock will vote together with the holders of common stock as a single class on all matters upon which the holders of common stock are entitled to vote. Each share of Preferred Stock will be entitled to such number of votes as the number of shares of common stock into which such share of Preferred Stock is convertible; however, solely for the purpose of determining such number of votes, the conversion price per share will be deemed to be $2.00. Accordingly, each share of Preferred Stock will be entitled to 500 votes, subject to adjustment. In addition, the holders of the Preferred Stock will vote as a separate class with respect to certain matters, including amendments to the Company's certificate of incorporation that alter the voting powers, preferences and special rights of the Preferred Stock or create senior convertible securities, or mergers or consolidations upon the consummation of which comparable preferential rights would not be available to holders of the Preferred Stock.

        Liquidation.    In the event we voluntarily or involuntarily liquidate, dissolve or wind up, the holders of the Preferred Stock will be entitled, before any distribution or payment out of our assets may be made to or set aside for the holders of any of our junior capital stock and subject to the rights of our creditors, to receive a liquidation distribution in an amount equal to $1,000 per share, plus any accrued but unpaid dividends. A merger, consolidation or sale of all or substantially all of our property or business is not deemed to be a liquidation for purposes of the preceding sentence.

        Redemption.    The Preferred Stock is not redeemable either at our option or the option of the holders of the Preferred Stock at any time.

        Preemptive Rights.    Holders of the Preferred Stock have no preemptive rights.

        Mandatory Conversion.    Each share of Preferred Stock remaining outstanding will automatically be converted into shares of our common stock on the fifth anniversary of the date the Preferred Stock is issued, subject to certain limitations described below.

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        Optional Conversion.    Each holder of Preferred Stock will have the right, at such holder's option, to convert all or any portion of such holder's Preferred Stock into shares of our common stock prior to the mandatory conversion of the Preferred Stock following the earlier to occur of the second anniversary of the date the Preferred Stock is issued or the occurrence of certain events resulting in the conversion, exchange or reclassification of our common stock.

        Conversion Price.    Each share of Preferred Stock will be convertible into shares of common stock at a conversion price of $1.80 per share, adjustable to $1.50 per share if the Company fails to declare and pay a quarterly dividend (whether in-kind or in cash) on the Preferred Stock for any reason and the Company does not pay such dividend within twelve months after the relevant dividend payment date. In such situation, the amount of shares of common stock that would be issued upon the conversion of 60,000 shares of the Preferred Stock would increase to approximately 40,000,000 shares and the additional shares issued as a result of the conversion of the Preferred Dividend Shares would increase to approximately 8,310,000 shares. The conversion price of the Preferred Stock is also subject to customary anti-dilution adjustments, including in connection with stock dividends and distributions, stock splits, subdivisions and combinations, distributions of cash, debt or assets and tender offers and exchange offer.

        Ownership Limitations; Non-Voting Common Stock.    The Investors' ownership of our common stock (giving effect to the conversion of the Preferred Stock into shares of common stock) is limited to, with respect to Relational, 14.9% of the outstanding shares of our common stock, and with respect to each of Patriot and Castle Creek Fund III, 19.9% of the outstanding shares of our common stock. If the payment of dividends in additional shares of Preferred Stock or the downward adjustment of the conversion price would cause these Investors to exceed these thresholds, any shares in excess of such thresholds would be convertible into shares of Non-Voting Common Stock, or, if Proposal 2 is not approved by our stockholders at the Meeting and the Non-Voting Common Stock is not then authorized, into a new class of preferred stock to have economic terms substantially consistent with the common stock but without voting rights. For additional information with respect to the terms of the Non-Voting Common Stock and this new class of preferred stock, please see the section of this Proxy Statement captioned "Proposal 2—Second Amended and Restated Certification of Incorporation".

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