-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EWvWGgCKeql7hlP1+h+8r6Nb/cFNycyxxOU/TgPE1gMG2sNFLIEoplqjqiGDs1d3 SXucc7Wgjfc7SWqk7w4faw== 0000950123-07-007079.txt : 20070509 0000950123-07-007079.hdr.sgml : 20070509 20070509121754 ACCESSION NUMBER: 0000950123-07-007079 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20070331 FILED AS OF DATE: 20070509 DATE AS OF CHANGE: 20070509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMBREX CORP CENTRAL INDEX KEY: 0000820081 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 222476135 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10638 FILM NUMBER: 07831231 BUSINESS ADDRESS: STREET 1: ONE MEADOWLANDS PLZ CITY: E RUTHERFORD STATE: NJ ZIP: 07073 BUSINESS PHONE: 2018043000 MAIL ADDRESS: STREET 1: ONE MEADOWLANDS PLAZA CITY: E. RUTHERFORD STATE: NJ ZIP: 07073 10-Q 1 y34569e10vq.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended March 31, 2007 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from __________ to __________ Commission file number 1-10638 CAMBREX CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 22-2476135 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
ONE MEADOWLANDS PLAZA, EAST RUTHERFORD, NEW JERSEY 07073 (Address of principal executive offices) (201) 804-3000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]. No [ ]. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer"in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ] Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ]. No [X]. As of April 30, 2007, there were 28,669,061 shares outstanding of the registrant's Common Stock, $.10 par value. CAMBREX CORPORATION AND SUBSIDIARIES FORM 10-Q For The Quarter Ended March 31, 2007 Table of Contents
Page No. -------- Part I Financial Information Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006 2 Consolidated Statements of Operations for the three months ended March 31, 2007 and 2006 3 Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006 4 Notes to Unaudited Consolidated Financial Statements 5-21 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 22-25 Item 3. Quantitative and Qualitative Disclosures about Market Risk 26 Item 4. Controls and Procedures 26 Part II Other Information Item 1. Legal Proceedings 27 Item 1A. Risk Factors 27 Item 4. Submission of Matters to a Vote of Security Holders 27 Item 6. Exhibits 28 Signatures 29
Part I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) CAMBREX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands, except share data)
MARCH 31, DECEMBER 31, 2007 2006 --------- ------------ ASSETS Current assets: Cash and cash equivalents $344,915 $ 33,746 Trade receivables, net 35,311 38,552 Inventories, net 56,193 53,893 Assets of discontinued operations -- 79,383 Prepaid expenses and other current assets 20,289 19,176 -------- -------- Total current assets 456,708 224,750 Property, plant and equipment, net 141,933 141,863 Goodwill 32,860 32,573 Assets of discontinued operations -- 202,292 Other assets 3,132 4,898 -------- -------- Total assets $634,633 $606,376 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 24,722 $ 28,592 Accrued expense and other current liabilities 63,329 45,141 Liabilities of discontinued operations -- 33,401 -------- -------- Total current liabilities 88,051 107,134 Long-term debt -- 158,600 Deferred income tax 22,037 14,268 Liabilities of discontinued operations -- 24,208 Accrued pension and postretirement benefits 39,255 39,911 Other non-current liabilities 16,113 15,609 -------- -------- Total liabilities 165,456 359,730 Stockholders' equity: Common stock, $.10 par value; authorized 100,000,000, issued 30,913,540 and 30,145,319 shares at respective dates 3,091 3,015 Additional paid-in capital 259,064 241,360 Retained earnings 233,243 28,860 Treasury stock, at cost, 2,445,334 and 2,446,097 shares at respective dates (20,825) (20,832) Accumulated other comprehensive loss (5,396) (5,757) -------- -------- Total stockholders' equity 469,177 246,646 -------- -------- Total liabilities and stockholders' equity $634,633 $606,376 ======== ========
See accompanying notes to unaudited consolidated financial statements. 2 CAMBREX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per-share data)
THREE MONTHS ENDED MARCH 31, ------------------ 2007 2006 -------- ------- Gross sales $ 64,997 $54,120 Allowances and rebates 590 386 -------- ------- Net sales 64,407 53,734 Other revenues 807 (647) -------- ------- Net revenues 65,214 53,087 Cost of goods sold 40,819 34,002 -------- ------- Gross profit 24,395 19,085 Operating expenses: Selling, general and administrative expenses 15,347 12,490 Research and development expenses 2,600 2,362 Restructuring expenses 1,682 -- Strategic alternative costs 23,130 988 -------- ------- Total operating expenses 42,759 15,840 Operating (loss)/profit (18,364) 3,245 Other (income)/expenses: Interest (income)/expense, net (1,539) 5,444 Other (income)/expenses, net (19) 5 -------- ------- Loss before income taxes (16,806) (2,204) (Benefit)/provision for income taxes (2,363) 2,500 -------- ------- Loss from continuing operations $(14,443) $(4,704) Income from discontinued operations, net of tax 219,659 3,527 -------- ------- Income/(loss) before cumulative effect of a change in accounting principle 205,216 (1,177) Cumulative effect of a change in accounting principle -- (228) -------- ------- Net income/(loss) $205,216 $(1,405) ======== ======= Basic earnings per share: Loss from continuing operations $ (0.51) $ (0.18) Income from discontinued operations, net of tax 7.82 0.14 Cumulative effect of a change in accounting principle -- (0.01) -------- ------- Net income/(loss) $ 7.31 $ (0.05) Diluted earnings per share: Loss from continuing operations $ (0.51) $ (0.18) Income from discontinued operations, net of tax 7.82 0.14 Cumulative effect of a change in accounting principle -- (0.01) -------- ------- Net income/(loss) $ 7.31 $ (0.05) Weighted average shares outstanding: Basic 28,071 26,661 Effect of dilutive stock based compensation -- -- -------- ------- Diluted 28,071 26,661 Cash dividends paid per share $ 0.03 $ 0.03 ======== =======
See accompanying notes to unaudited consolidated financial statements. 3 CAMBREX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
THREE MONTHS ENDED MARCH 31, --------------------- 2007 2006 --------- --------- Cash flows from operating activities: Net income/(loss) $ 205,216 $ (1,405) Adjustments to reconcile net income/(loss) to cash flows: Cumulative effect of a change in accounting principle -- 228 Depreciation and amortization 4,894 4,757 Write-off of debt origination fees 841 463 Strategic alternative and restructuring charges 18,797 -- Stock based compensation included in net income/(loss) 1,819 377 Deferred income tax provision 8,116 -- Allowance for doubtful accounts 53 10 Inventory reserve 1,625 (36) Loss on sale of assets 175 140 Changes in assets and liabilities: Receivables 3,095 4,899 Inventories (4,017) (6,340) Prepaid expenses and other current assets (960) 3,173 Accounts payable and other current liabilities (4,174) 2,609 Other non-current assets and liabilities 1,176 1,055 Discontinued operations: Gain on sale of businesses (232,116) -- Changes in operating assets and liabilities (4,886) (9,808) Other non-cash charges 1,359 5,811 --------- --------- Net cash provided by operating activities 1,013 5,933 --------- --------- Cash flows from investing activities: Capital expenditures (5,478) (4,290) Other investing activities (15) -- Discontinued operations: Capital expenditures (530) (4,209) Proceeds from sale of business 460,000 -- Acquired in-process research and development -- (1,338) Other investing activities 11 (41) --------- --------- Net cash provided by/(used) in investing activities 453,988 (9,878) --------- --------- Cash flows from financing activities: Dividends (833) (801) Net (decrease)/increase in short-term debt (140) 457 Long-term debt activity (including current portion): Borrowings 24,279 127,200 Repayments (182,725) (146,619) Proceeds from stock options exercised 15,962 1,003 Other financing activities (59) (1) Discontinued operations: Debt repayments (254) (366) --------- --------- Net cash used in financing activities (143,770) (19,127) --------- --------- Effect of exchange rate changes on cash and cash equivalents (62) 806 --------- --------- Net increase/(decrease) in cash and cash equivalents 311,169 (22,266) Cash and cash equivalents at beginning of period 33,746 45,342 --------- --------- Cash and cash equivalents at end of period $ 344,915 $ 23,076 ========= =========
See accompanying notes to unaudited consolidated financial statements. 4 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except share data) (1) BASIS OF PRESENTATION Unless otherwise indicated by the context, "Cambrex" or the "Company" means Cambrex Corporation and subsidiaries. The accompanying unaudited consolidated financial statements have been prepared from the records of the Company. In the opinion of management, the financial statements include all adjustments, which are of a normal and recurring nature, except as otherwise described herein, and is necessary for a fair statement of financial position and results of operations in conformity with generally accepted accounting principles ("GAAP"). These interim financial statements should be read in conjunction with the financial statements for the year ended December 31, 2006. The results of operations for the three months ended March 31, 2007 are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. In October, 2006, the Company sold two businesses within the Human Health segment for nominal consideration. As a result of this transaction, the Company reported a non-cash charge of $23,244 in the fourth quarter of 2006, and all periods presented reflect the results of these businesses as discontinued operations. In February 2007, the Company completed the sale of the businesses that comprise the Bioproducts and Biopharma segments (excluding certain liabilities) to Lonza Group AG for total cash consideration of $460,000. As a result of this transaction, the Company reported a gain of $232,116, subject to working capital and other adjustments, and all periods presented reflect the results of these businesses as discontinued operations. Refer to Note 13 for a complete discussion on discontinued operations. (2) IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Accounting for Uncertainty in Income Taxes The Company adopted Financial Accounting Standards Board ("FASB") Interpretation No. 48, Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement No. 109 ("FIN 48") effective January 1, 2007. This interpretation clarified the accounting for uncertainty in income tax positions and required the Company to recognize in the consolidated financial statements the impact of a tax position that is more likely than not to be sustained upon examination based on the technical merits of the position. The effect of adopting this interpretation was not material. Refer to Note 5 for further discussion. Accounting for Planned Major Maintenance Activities The Company adopted FASB Staff Position ("FSP") No. AUG AIR-1 "Accounting for Planned Major Maintenance Activities" effective January 1, 2007. This FSP amended certain provisions of APB Opinion No. 28 "Interim Financial Reporting". This FSP prohibited the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim reporting periods. The adoption of this FSP had an immaterial impact on the Company's financial position and results of operations. 5 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (3) STOCK-BASED COMPENSATION The Company adopted FAS 123(R) "Share-Based Payment," effective January 1, 2006 using the modified prospective transition method. Prior to January 1, 2006, the company accounted for those plans under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees. The first quarter of 2006 does not include compensation cost for options granted prior to January 1, 2006 as all options outstanding prior to January 1, 2006 were fully vested as of December 31, 2005. On March 31, 2007, the Company had seven active stock-based employee compensation plans in effect. All stock options granted during 2006 vest 25% per year over four years and have a term of seven years except for those options effected by the restructuring and strategic alternative activity as described in Note 8. The Company also had outstanding at March 31, 2007 restricted stock as described below. Beginning January 1, 2006, the Company began recognizing compensation costs for stock option awards to employees based on their grant-date fair value. The value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model. There were no stock options granted to employees during the quarter ended March 31, 2007. The weighted-average fair value per share for the stock options granted to employees during the quarter ended March 31, 2006 was $8.15. Stock option values were estimated using a 0.55% to 0.56% dividend yield, expected volatility of 36.49% to 38.28% and a risk-free interest rate of 4.42% to 4.96%. The Company's stock options are not publicly traded; therefore, expected volatilities are based on historical volatility of the Company's stock. The risk-free interest rate is based on the yield of a zero-coupon U.S. Treasury bond whose maturity period approximates the option's expected term. The expected term of 4.75 years was utilized based on the "simplified" method for determining the expected term of stock options in Staff Accounting Bulletin No. 107, "Share-Based Payment." Assumptions used in estimating the fair value of stock options granted in the first quarter of 2006 are consistent with the assumptions used prior to the adoption of FAS 123(R) with the exception of the expected life. As a result of using the "simplified" method, the expected life was shortened by 1.25 years. FAS 123(R) requires companies to estimate the expected forfeitures for all unvested awards and record compensation costs only for those awards that are expected to vest. As of March 31, 2007, the total compensation cost related to unvested stock option awards granted to employees but not yet recognized was $689. The cost will be amortized on a straight-line basis over the remaining weighted-average vesting period of 2.5 years. For the quarters ended March 31, 2007 and 2006, the Company recorded $73 and $0 respectively in selling, general and administrative expenses for stock options. In addition, the Company recorded $185 and $17 in strategic alternative costs and restructuring expenses, respectively, in the first of quarter 2007. Cambrex senior executives participate in a long-term incentive plan which rewards achievement of long-term strategic goals with restricted stock units. Awards are made annually to key executives and vest in one-third increments on the first, second and third anniversaries of the grant. On the third anniversary of the grant, restrictions on sale or transfer are removed and shares are issued to executives. In the event of termination of employment or retirement, the participant is entitled to the vested portion of the restricted stock units and forfeits the remaining amount; the three-year sale and transfer restriction remains in place. For certain employees with employment contracts, all shares vest upon certain events, including a change in control as defined in those contracts. In the event of death or permanent disability, all shares vest and the deferred sales restriction lapses. These awards are classified as equity awards as defined in FAS 123(R). Historically, only senior executives participated in this plan. As of January 1, 2006, certain other employees are eligible to 6 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (3) STOCK-BASED COMPENSATION (CONTINUED) receive restricted stock as part of a redesigned stock-based compensation plan. These awards cliff vest on the third anniversary of the grant date. For the quarters ended March 31, 2007 and 2006, the Company recorded $171 and $159, respectively, in selling, general and administrative expenses for restricted stock. In addition, the Company recorded $1,303 and $70 in strategic alternative costs and restructuring expenses, respectively, in the first quarter of 2007, primarily for the acceleration of vesting related to restricted stock per the terms of the executive change in control agreements. As of March 31, 2007 the total compensation cost related to unvested restricted stock granted but not yet recognized was $1,475. The cost will be amortized on a straight-line basis over the remaining weighted-average vesting period of 1.8 years. At March 31, 2006, the Company had outstanding 150,000 fully-vested cash-settled incentive SARs at a price of $19.30. These SARs were classified as liability awards and, as such, were recorded at fair value until the rights were exercised during the fourth quarter of 2006. As of March 31, 2007 the Company did not have any SARs outstanding. For the quarter ended March 31, 2006 the Company recorded $218 in compensation expense. Under FAS 123(R), the Company is required to measure the SARs at fair market value. Prior to adopting FAS 123(R), the SARs were measured at the intrinsic value. In addition, during the first quarter of 2006, the Company recorded $228 in compensation expense as a cumulative effect of a change in accounting principle in accordance with FAS 123(R). The following table is a summary of the Company's stock option activity issued to employees and related information:
WEIGHTED AVERAGE NUMBER OF EXERCISE OPTIONS SHARES PRICE ------- --------- -------- Outstanding at January 1, 2007 2,754,893 $28.48 Granted -- -- Exercised (792,221) $21.34 Forfeited or expired (182,085) $23.55 --------- Outstanding at March 31, 2007 1,780,587 $32.16 ========= Exercisable at March 31, 2007 1,666,595 $32.90
The aggregate intrinsic value for all stock options exercised for the first quarters of 2007 and 2006 were $1,596 and $435, respectively. The aggregate intrinsic value for all stock options outstanding as of March 31, 2007 was $1,496. The aggregate intrinsic value for all stock options exercisable as of March 31, 2007 was $1,131. 7 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (3) STOCK-BASED COMPENSATION (CONTINUED) A summary of the Company's nonvested stock options as of March 31, 2007 and changes during the three months ended March 31, 2007, are presented below:
WEIGHTED- NUMBER OF AVERAGE GRANT- NONVESTED STOCK OPTIONS SHARES DATE FAIR VALUE ----------------------- --------- --------------- Nonvested at January 1, 2007 236,952 $21.39 Granted -- -- Vested during period (59,463) $21.39 Forfeited (63,497) $21.39 ------- Nonvested at March 31, 2007 113,992 $21.39 =======
A summary of the Company's nonvested restricted stock as of March 31, 2007 and changes during the three months ended March 31, 2007 is presented below:
WEIGHTED- NUMBER OF AVERAGE GRANT- Nonvested Restricted Stock SHARES DATE FAIR VALUE -------------------------- --------- --------------- Nonvested at January 1, 2007 165,868 $22.02 Granted 53,129 $21.69 Vested during period (51,002) $22.74 Forfeited (28,922) $21.43 ------- Nonvested at March 31, 2007 139,073 $21.75 =======
(4) GOODWILL The change in the carrying amount of goodwill for the three months ended March 31, 2007, is as follows:
Human Health Segment ------------ Balance as of January 1, 2007 $32,573 Translation effect 287 ------- Balance as of March 31, 2007 $32,860 =======
(5) INCOME TAXES The Company recorded a tax benefit of $2,363 in the first quarter of 2007 compared to tax expense of $2,500 in the first quarter of 2006. This change is due to the geographic mix of pre-tax earnings, as well as the recognition of a tax benefit in continuing operations as a result of the sale of the Bioproducts and Biopharma segments in the first quarter of 2007. 8 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (5) INCOME TAXES (CONTINUED) The Company maintains a full valuation allowance against its domestic, and certain foreign, net deferred tax assets and will continue to do so until an appropriate level of profitability is sustained or tax strategies can be developed that would enable the Company to conclude that it is more likely than not that a portion of these net deferred assets would be realized. As such, improvements in domestic, and certain foreign, pre-tax income in the future may result in these tax benefits ultimately being realized. However, there is no assurance that such improvements will be achieved. The Company has adopted the provisions of FIN 48 effective January 1, 2007. As of January 1, 2007 the Company had reserves of approximately $2,024 for uncertain tax positions. These were accounted for in the Company's non-current liabilities and includes estimated cumulative interest and penalties of $414. The Company also had unrecognized tax benefits of $2,000 for certain tax attributes which had full valuation allowances. The net effect of this is a decrease to the gross deferred tax assets and a corresponding decrease to the related valuation allowance with no effect to beginning retained earnings. There was no interest component related to these items. Consistent with prior periods, the company will recognize interest and penalties within its income tax provision. The total unrecognized tax benefit of $4,024, if recognized, would impact the effective tax rate. The Company has recently closed the IRS examination for the periods 2001- 2003. Although not currently under examination by the IRS, the Company is subject to examination for the years 2004 through 2006. It is also subject to exams in foreign jurisdictions for 2002 forward, 2004 forward and 2006 forward in its significant non-U.S. jurisdictions. The Company is also subject to audit in various states (for various years) in which it files income tax returns. Past audits have not resulted in material adjustments. Audits for New Jersey and Maine have recently been concluded with no material changes. Open years for these states are 2004 and 2005 forward, respectively. An audit for the state of Maryland for 2001-2004 is in process and for which the Company anticipates no material additional liability. The Company anticipates a net decrease of approximately $200 to $300 for unrecognized tax benefits, which would positively impact the provision for income taxes, in the next 12 months mainly due to the expiration of a statute of limitation period. (6) NET INVENTORIES Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or market. Net inventories at March 31, 2007 and December 31, 2006 consist of the following:
MARCH 31, DECEMBER 31, 2007 2006 --------- ------------ Finished goods $23,844 $23,792 Work in process 19,671 15,540 Raw materials 9,722 11,696 Supplies 2,956 2,865 ------- ------- Total $56,193 $53,893 ======= =======
9 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (7) LONG-TERM DEBT Long-term debt at March 31, 2007 and December 31, 2006 consists of the following:
MARCH 31, DECEMBER 31, 2007 2006 --------- ------------ Bank credit facilities $-- $158,600 --- -------- Total $-- $158,600 === ========
Proceeds from the sale of the Bioproducts and Biopharma segments, as discussed in Note 13, were used to repay all outstanding debt on the credit facility. Due to this repayment, $821 was recorded in interest expense, in continuing operations, in the first quarter of 2007 related to the acceleration of unamortized origination fees. (8) RESTRUCTURING CHARGES The Company announced plans to eliminate certain employee positions at the corporate office upon completion of the sale of the Bioproducts and Biopharma segments. This plan will include certain one-time benefits for employees terminated and is expected to be completed before the end of 2007. The Company recognized expense of $1,682 during the first quarter of 2007, and expects the total charge for the program to be approximately $4,000, substantially all of which will be paid in cash. The Company anticipates annual cost savings related to the elimination of all these positions to be approximately $5,200. (9) COMPREHENSIVE INCOME The following table reflects the components of comprehensive income for the three months ended March 31, 2007 and 2006:
THREE MONTHS ENDED MARCH 31, ------------------ 2007 2006 -------- ------- Net income/(loss) $205,216 $(1,405) Foreign currency translation (254) 3,740 Unrealized gain on hedging contracts, net of tax 77 124 Unrealized gain on available-for-sale securities, net of tax 17 244 Reclassification adjustment for net realized gains on available-for- sale securities included in net income, net of tax (1,198) -- Pension, net of tax 1,719 -- -------- ------- Total $205,577 $ 2,703 ======== =======
10 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (9) COMPREHENSIVE INCOME (CONTINUED) During the first quarter of 2007 the Company sold an available-for-sale security. For purposes of computing gains or losses, cost is identified on a specific identification basis. As of December 31, 2006 the amount recorded in accumulated other comprehensive income ("AOCI') was a gain of $1,198, which was reclassed out of AOCI upon the sale of the security and the Company recorded a gain of $734 to other income at the actual sale date. (10) RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS Domestic Pension Plans The Company maintains two U.S. defined-benefit pension plans which cover all eligible employees: the Nepera Hourly Pension Plan which covers the union employees at the previously-owned Harriman, New York plant, and the Cambrex Pension Plan which covers all other eligible employees. The components of net periodic pension cost for the Company's domestic plans for the three months ended March 31, 2007 and 2006 are as follows:
March 31, March 31, 2007 2006 --------- --------- COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 335 $ 729 Interest cost 898 858 Expected return on plan assets (921) (746) Amortization of prior service costs 5 11 Recognized actuarial loss 52 180 Curtailments 337 -- ----- ------ Net periodic benefit cost $ 706 $1,032 ===== ======
The sale of the Bioproducts and Biopharma segments in February, 2007 required the Company to recognize a curtailment charge of $337, which is recorded in discontinued operations. The Company has a Supplemental Executive Retirement Plan ("SERP") for key executives. This plan is non-qualified and unfunded. 11 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) The components of net periodic benefit cost for the Company's SERP Plan for the three months ended March 31, 2007 and 2006 is as follows: (10) RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
March 31, March 31, 2007 2006 --------- --------- COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 38 $ 55 Interest cost 74 63 Amortization of prior service cost -- 1 Recognized actuarial loss 4 6 Curtailments 11 -- ---- ---- Net periodic benefit cost $127 $125 ==== ====
International Pension Plans A foreign subsidiary of the Company maintains a pension plan for their employees that conforms to the common practice in their respective country. Based on local laws and customs, this plan is not funded. The components of net periodic pension cost for the Company's international plan for the three months ended March 31, 2007 and 2006 are as follows:
March 31, March 31, 2007 2006 --------- --------- COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $111 $128 Interest cost 160 128 Amortization of unrecognized net obligation -- (8) Recognized actuarial (gain)/loss (17) 17 Amortization of prior service cost (2) (1) ---- ---- Net periodic benefit cost $252 $264 ==== ====
The Company does not expect to contribute cash to its international pension plan in 2007. Other Postretirement Benefits Cambrex provides postretirement health and life insurance benefits ("postretirement benefits") to all eligible retired employees. Employees who retire at or after age 55 with fifteen years of service are eligible to participate in the postretirement benefit plans. Certain subsidiaries and all employees hired after December 31, 2002 (excluding those covered by collective bargaining) are not eligible for these benefits. The Company's responsibility for such premiums for each plan participant is based upon years of service. Such plans are self-insured and are not funded. Effective January 1, 2006, the Cambrex Retiree Medical Plan no longer provides prescription coverage to retirees or dependents age 65 or older. 12 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (10) RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED) The components of net periodic postretirement benefit cost for the three months ended March 31, 2007 and 2006 are as follows:
March 31, March 31, 2007 2006 --------- --------- COMPONENTS OF NET PERIODIC BENEFIT COST Service cost of benefits earned $ 5 $ 16 Interest cost 27 34 Actuarial loss recognized 17 33 Amortization of unrecognized prior (39) (45) ---- ---- Net periodic benefit cost $ 10 $ 38 ==== ====
(11) SEGMENT INFORMATION The Company classifies its non-corporate business activities into one reportable segment: Human Health, consisting of active pharmaceutical ingredients and pharmaceutical intermediates produced under Food and Drug Administration cGMP for use in the production of prescription and over-the-counter drug products and other fine custom chemicals derived from organic chemistry. Information as to the operations of the Company is set forth below. Cambrex evaluates performance based on gross profit and operating profit. The Company allocates certain corporate expenses to the Human Health segment. Two customers each account for 10% of consolidated gross sales in the three months ended March 31, 2007 and 2006. One customer is a pharmaceutical company with which a long-term sales contract is in effect that is scheduled to expire at the end of 2008. The Company has agreed in principle to extend the contract which will result in lower profitability for sales under this arrangement in 2007 and 2008. Formal negotiations are nearly complete. The second customer is a distributor representing multiple customers. 13 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (11) SEGMENT INFORMATION (CONTINUED) The following is a summary of business segment information:
Three months ended March 31, ------------------ 2007 2006 -------- ------- Gross Sales: Human Health $ 64,997 $54,120 -------- ------- $ 64,997 $54,120 ======== ======= Gross Profit: Human Health $ 24,395 $19,085 -------- ------- $ 24,395 $19,085 ======== ======= Operating Profit: Human Health $ 14,756 $11,060 Corporate (33,120) (7,815) -------- ------- $(18,364) $ 3,245 ======== ======= Capital Expenditures: Human Health $ 5,425 $ 4,275 Corporate 53 15 -------- ------- $ 5,478 $ 4,290 ======== ======= Depreciation: Human Health $ 4,732 $ 4,497 Corporate 101 250 -------- ------- $ 4,833 $ 4,747 ======== ======= Amortization: Human Health $ 61 $ 10 -------- ------- $ 61 $ 10 ======== =======
March 31, December 31, 2007 2006 --------- ------------ Total Assets: Human Health $285,062 $286,437 Corporate 349,571 38,264 Assets of discontinued operations -- 281,675 -------- -------- $634,633 $606,376 ======== ========
14 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (12) CONTINGENCIES The Company is subject to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. The Company continually assesses all known facts and circumstances as they pertain to all legal and environmental matters and evaluates the need for reserves and disclosures as deemed necessary based on these facts and circumstances and as such facts and circumstances develop. These matters, either individually or in the aggregate, could have a material adverse effect on the Company's financial condition, operating results and cash flows in a future reporting period. Environmental In connection with laws and regulations pertaining to the protection of the environment, the Company and/or its subsidiaries is a party to several environmental proceedings and remediation investigations and cleanups and, along with other companies, has been named a potentially responsible party ("PRP") for certain waste disposal sites ("Superfund sites"). Additionally, as discussed in the "Sale of Rutherford Chemicals" section of this Note, the Company has retained the liability for certain environmental proceedings, associated with the Rutherford Chemicals business. Each of these matters is subject to various uncertainties, and it is possible that some of these matters will be decided unfavorably against the Company. The resolution of such matters often spans several years and frequently involves regulatory oversight or adjudication. Additionally, many remediation requirements are not fixed and are likely to be affected by future technological, site, and regulatory developments. Consequently, the ultimate extent of liabilities with respect to such matters, as well as the timing of cash disbursements cannot be determined with certainty. In matters where the Company has been able to reasonably estimate its liability, the Company has accrued for the estimated costs associated with the study and remediation of Superfund sites not owned by the Company and the Company's current and former operating sites. These accruals were $5,028 and $4,862 at March 31, 2007 and December 31, 2006, respectively. The increase in the accrual is primarily due to an increase in the reserve for one of the Company's former operating sites of $240 partially offset by payments of $47 and currency fluctuation of $30. Based upon currently available information and analysis, the Company's current accrual represents management's best estimate of the probable and estimable costs associated with environmental proceedings including amounts for legal and investigation fees where remediation costs may not be estimable at the reporting date. As a result of the sale of the Bayonne, New Jersey facility (see "Sale of Rutherford Chemicals" section of this Note), The Company became obligated to investigate site conditions and conduct required remediation under the New Jersey Industrial Site Recovery Act. The Company completed a preliminary assessment of the site and submitted the preliminary assessment to the New Jersey Department of Environmental Protection ("NJDEP"). The preliminary assessment identified potential areas of concern based on historical operations and sampling of such areas commenced. The Company has completed a second phase of sampling and determined that a third phase of sampling is necessary to determine the extent of contamination and any necessary remediation. The results of the completed and proposed sampling, and any additional sampling deemed necessary, will be used to develop an estimate of the Company's future liability for remediation costs, if any. The Company submitted its plan for the third phase of sampling to the NJDEP during the fourth quarter of 2005. The sampling will commence upon approval of the sampling plan. 15 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (12) CONTINGENCIES (CONTINUED) The Company's Cosan subsidiary conducted manufacturing operations in Clifton, New Jersey from 1968 until 1979. Prior to the acquisition of Cosan by the Company, the operations were moved to another location and thereafter Cambrex purchased the business. In 1997, Cosan entered into an Administrative Consent Order with the NJDEP. Under the Administrative Consent Order, Cosan was required to complete an investigation of the extent of the contamination related to the Clifton site and conduct remediation as may be necessary. During the third quarter of 2005, the Company completed the investigation related to the Clifton site, which extends to adjacent properties. The results of the investigation caused the Company to increase its related reserves by $1,300 in 2005 based on the proposed remedial action plan. The Company submitted the results of the investigation and proposed remedial action plan to the NJDEP. In late 2006, the NJDEP requested that an additional investigation be conducted at the site. The Company submitted its plan for additional work to the NJDEP in April 2007 and will commence such additional work upon approval of the plan. In March 2006, the Company received notice from the USEPA that two former operating subsidiaries are considered PRPs at the Berry's Creek Superfund Site, Bergen County, New Jersey. The operating companies are among many other PRPs that were listed in the notice. Pursuant to the notice, the PRPs have been asked to perform a remedial investigation and feasibility study of the Berry's Creek Site. The Company has met with the other PRPs. Both operating companies joined the groups of PRPs and filed a joint response to the USEPA agreeing to jointly negotiate to conduct or fund (along with other PRPs) an appropriate remedial investigation and feasibility study of the Berry's Creek Site. At this time it is too early to predict the extent of any liabilities. However, reserves have been established to cover anticipated initial costs related to the site. The Company is involved in other matters where the range of liability is not reasonably estimable at this time and it is not determinable when information will become available to provide a basis for recording an accrual, should an accrual ultimately be required. Litigation and Other Matters Mylan Laboratories In 1998 the Company and its subsidiary Profarmaco S.r.l. (currently known as Cambrex Profarmaco Milano S.r.l.") ("Profarmaco") were named as defendants (along with Mylan Laboratories, Inc. ("Mylan") and Gyma Laboratories of America, Inc., Profarmaco's distributor in the United States) in a proceeding instituted by the Federal Trade Commission ("FTC") in the United States District Court for the District of Columbia (the "District Court"). Suits were also commenced by several State Attorneys' General. The suits alleged violations of the Federal Trade Commission Act arising from exclusive license agreements between Profarmaco and Mylan covering two APIs. The FTC and Attorneys' General suits were settled in February 2001, with Mylan (on its own behalf and on behalf of Profarmaco and Cambrex) agreeing to pay over $140,000 and with Mylan, Profarmaco and Cambrex agreeing to monitor certain future conduct. The same parties including the Company and Profarmaco have also been named in purported class action complaints brought by private plaintiffs in various state courts on behalf of purchasers of the APIs in generic form, making allegations similar to those raised in the FTC's complaint and seeking various forms of relief including treble damages. In April 2003, Cambrex reached an agreement with Mylan under which Cambrex would contribute $12,415 to the settlement of litigation brought by a class of direct purchasers. In exchange, Cambrex and 16 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (12) CONTINGENCIES (CONTINUED) Profarmaco received from Mylan a release and full indemnity against future costs or liabilities in related litigation brought by purchasers, as well as potential future claims related to this matter. Cambrex recorded an $11,342 charge (discounted to the present value due to the five year pay-out) in the first quarter of 2003 as a result of this settlement. In accordance with the agreement $9,215 has been paid through March 31, 2007, with the remaining $3,200 to be paid over the next two years. Vitamin B-3 In May 1998, the Company's subsidiary, Nepera, which formerly operated the Harriman facility and manufactured and sold niacinamide ("Vitamin B-3"), received a Federal Grand Jury subpoena for the production of documents relating to the pricing and possible customer allocation with regard to that product. In 2000, Nepera reached agreement with the Government as to its alleged role in Vitamin B-3 violations from 1992 to 1995. The Canadian government claimed similar violations. All government suits in the U.S. and Canada have been concluded. Nepera has been named as a defendant, along with several other companies, in a number of private civil actions brought on behalf of alleged purchasers of Vitamin B-3. The actions seek injunctive relief and unspecified but substantial damages. All cases have been settled within established reserve amounts. Settlement documents are expected to be finalized and payments are expected to be made during the next several months. The balance of the reserves recorded within accrued liabilities related to this matter was $1,580 as of March 31, 2007. Sale of Rutherford Chemicals The Company completed the sale of its Rutherford Chemicals business in November 2003. Under the agreement for the sale ("Purchase Agreement"), the Company provided standard representations and warranties and included various covenants concerning the business, operations, liabilities and financial condition of the Rutherford Chemicals business ("Rutherford Business"). Most of such representations and warranties survived for a period of thirty days after the preparation of the audited financial statements for year-end 2004 by the purchasers of the Rutherford Business ("Buyers"). Therefore, claims for breaches of such representations had to be brought during such time frame. Certain specified representations, warranties and covenants, such as those relating to employee benefit matters and certain environmental matters, survive for longer periods and claims under such representations, warranties and covenants could be brought during such longer periods. Under the Purchase Agreement, the Company has indemnified the Buyer for breaches of representations, warranties and covenants. Indemnifications for certain but not all representations and warranties are subject to a deductible of $750 and a cap at 25 percent of the purchase price. Further, to the extent any claimed damages arise from breaches of representations and warranties, such damages would be subject to a cap of between approximately $14,000 and $16,250, depending on whether certain contingent payments are made, and is subject to the deductible of $750 which is the responsibility of the Buyers. Under the Purchase Agreement, the Company has retained the liabilities associated with existing general litigation matters related to Rutherford Chemicals. With respect to certain pre-closing environmental matters, the Company retains the responsibility for: (i) certain existing matters including violations and off-site liabilities; and (ii) completing the on-going remediation at the New York facility. Further, as a result of the sale of the Bayonne, New Jersey facility, a part of Rutherford Chemicals, and as discussed in the Environmental Section above, the obligation to investigate site conditions and conduct required remediation under the provisions of the New Jersey Industrial Site Recovery Act was triggered; the Company has 17 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (12) CONTINGENCIES (CONTINUED) retained the responsibility for completion of any such investigation and remediation. With respect to all other pre-closing environmental liabilities, whether known or unknown, the Buyer is responsible for the management of potential future matters; however, the Buyer and the Company may share the costs of associated remediation with respect to such potential future matters, subject to certain limitations defined in the agreement for sale. The Company has accrued for exposures which are deemed probable and estimable. In March 2005, the Company received a claim from the Buyers claiming breach of certain representations, warranties and covenants contained in the Purchase Agreement which the Company rejected in its entirety. Thereafter, the Buyers submitted an amended claim claiming alleged breaches of representations, warranties and covenants covering each of the five operating sites sold pursuant to the Purchase Agreement and are related primarily to facility structures, utilities and equipment and alleges damages of $26,407 which the Company rejected in its entirety. In September 2005, the Company received a request for indemnity ("September Notice") from the Buyers related to an arbitration claim filed by a Rutherford Business customer ("Customer"). The arbitration claim arises from a claimed breach of a supply agreement that was assigned to and assumed by the Buyers pursuant to the Purchase Agreement. Thereafter, the Company was also served with an arbitration claim by the Customer related to the same matter. In the arbitration claim, the Customer claims $30,000 in damages arising from Buyers' breach of the supply agreement. The Buyers have now settled the Customer arbitration claim for $3,600. The Buyers claim that the September Notice amends the earlier claims that they filed in early 2005, as discussed above, and that the Customer's claimed breach of the supply agreement should be treated as part of a breach of a representation, warranty or covenant set forth in the earlier notices. The supply agreement was assigned to and assumed by the Buyers, and the Company has now been dismissed from the Customer's arbitration claim. In October 2005, the Company rejected the Buyers' claim for indemnity under the September Notice in its entirety. In October 2005, the Company received a notice from the Buyers ("October Notice") that summarized the claims previously received in early 2005. The October Notice also set forth additional claims for environmental matters related to the Rutherford Business that relate to environmental matters at each of the five operating sites sold pursuant to the Purchase Agreement. In December 2005, the Buyers added two additional environmental claims related to the former operating sites ("December Notices"). The Company responded to the October and December Notices disputing the environmental claims on various grounds, including that the Company believes most claims relate to Buyers' obligations under the Purchase Agreement. The Company also requested additional information because some environmental claims may be covered by sections of the Purchase Agreement where the parties share liability concerning such matters. In April 2006, the Company received a summons and complaint (the "Complaint") from the Buyers, which was filed in the Supreme Court of the State of New York, County of New York. The Complaint seeks indemnification, declaratory and injunctive relief for alleged (i) breaches of representations, warranties and covenants covering each of the former operating sites related to facility structures, utilities and equipment included in the 2005 notices mentioned above and the allegedly related breach of the Customer Supply Agreement arising from a breach of warranty at the Harriman facility included in the September Notice mentioned above (collectively "Equipment Matters"); and (ii) claims related to environmental matters at each of the five operating locations, most of which related to the former Harriman location included in the October Notice and December Notices mentioned above (collectively "Environmental Matters"). 18 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (12) CONTINGENCIES (CONTINUED) The Company continues its evaluation of Buyers' allegations and intends to defend itself against these claims vigorously. The Company continues to believe that the Equipment Matters are without merit. In April 2007, the Buyers stipulated to the withdrawal of 23 of the 39 of its equipment claims, approximately $12,000 of claimed equipment damages. Further, the Company continues to believe that based on current information the majority of the Environmental Matters are either the Buyers' responsibility or without merit and the remaining are otherwise not reasonably estimable at this time. As such, the Company has recorded no reserves for this matter. Class Action Matter In October 2003, the Company was notified of a securities class action lawsuit filed against Cambrex and five former and current Company officers. Five class action suits were filed with the New Jersey Federal District Court (the "Court"). Discovery in this matter is proceeding. In January 2004, the Court consolidated the cases, designated the lead plaintiff and selected counsel to represent the class. An amended complaint was filed in March 2004. The lawsuit has been brought as a class action in the names of purchasers of the Company's common stock from October 21, 1998 through July 25, 2003. The complaint alleges that the Company failed to disclose in a timely fashion the January 2003 accounting restatement and subsequent SEC investigation, as well as the loss of a significant contract at the Baltimore facility. The Company filed a Motion to Dismiss in May 2004. Thereafter, the plaintiff filed a reply brief and in October 2005, the Court denied the Company's Motion to Dismiss. The Company continues to believe that the complaints are without merit and will vigorously defend against them. As such, the Company has recorded no reserves related to this matter. The Company has reached its deductible under its insurance policy and further costs, expenses and any settlement is expected to be paid by the Company's insurers. Securities and Exchange Commission The SEC is currently conducting an investigation into the Company's inter-company accounting procedures from the period 1997 through 2001. The investigation began in the first half of 2003 after the Company voluntarily disclosed certain matters related to inter-company accounts for the five-year period ending December 31, 2001 that resulted in the restatement of the Company's financial statements for those years. To the Company's knowledge, the investigation is limited to this inter-company accounting matter, and the Company does not expect further revisions to its historical financial statements relating to these issues. The Company is fully cooperating with the SEC. Baltimore Litigation In 2001, the Company acquired the biopharmaceutical manufacturing business in Baltimore (the "Baltimore Business"). The sellers of the Baltimore Business filed suit against the Company alleging that the Company made false representations during the negotiations on which the sellers relied in deciding to sell the business and that the Company breached its obligation to pay additional consideration as provided in the purchase agreement which was contingent on the performance of the Baltimore Business. Management believes the matter to be without merit and continues its defense of this matter. A decision on the Motion for Summary Judgment filed in 2006 is pending. 19 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (12) CONTINGENCIES (CONTINUED) Other The Company has commitments incident to the ordinary course of business including corporate guarantees of certain subsidiary obligations to the Company's lenders related to financial assurance obligations under certain environmental laws for remediation, closure and/or third party liability requirements of certain of its subsidiaries and a former operating location; contract provisions for indemnification protecting its customers and suppliers against third party liability for manufacture and sale of Company products that fail to meet product warranties and contract provisions for indemnification protecting licensees against intellectual property infringement related to licensed Company technology or processes. Additionally, as permitted under Delaware law, the Company has agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The term of the indemnification period is for the officer's or director's lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have a Director and Officer insurance policy that covers a portion of any potential exposure. The Company currently believes the estimated fair value of its indemnification agreements is not significant based on currently available information, and as such, the Company has no liabilities recorded for these agreements as of March 31, 2007. In addition to the matters identified above, Cambrex's subsidiaries are party to a number of other proceedings. (13) DISCONTINUED OPERATIONS On October 27, 2006, the Company sold two businesses within the Human Health segment for nominal consideration. As a result of the transaction, the Company reported a non-cash charge of $23,244 in the fourth quarter of 2006 and the Cork and Landen businesses are being reported as a discontinued operation in all periods presented. On February 6, 2007, the Company completed the sale of the businesses that comprise the Bioproducts and Biopharma segments (excluding certain liabilities) to Lonza Group AG for cash consideration of $460,000. As a result of the transaction, the Company recorded a $232,116 gain in the first quarter of 2007, subject to working capital and other adjustments. The Company is currently in discussions with the buyer regarding the final calculation of the working capital adjustment which is expected to be completed in the second quarter of 2007. Any changes to the closing balance sheets of the divested companies will be reflected in discontinued operations in future periods. As a result of the completion of the transaction on February 6, 2007, the Bioproducts and Biopharma segments are being reported as discontinued operations in all periods presented. 20 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (13) DISCONTINUED OPERATIONS (CONTINUED) The following table reflects revenues and income from the discontinued operations:
Three months ended March 31, ------------------ 2007 2006 -------- ------- Revenues $ 20,335 $65,487 ======== ======= Pre-tax income from operations of discontinued operations $ 545 $ 5,568 Gain on sale of Bioproducts and Biopharma segments 232,116 -- -------- ------- Income from discontinued operations before income taxes $232,661 $ 5,568 ======== =======
The following table reflects the carrying amount of the assets and liabilities as of December 31, 2006 for the businesses that were sold on February 6, 2007:
December 31, 2006 ------------ Assets: Cash $ -- Accounts receivable, net 35,460 Inventories, net 40,708 Other current assets 3,215 Property, plant and equipment, net 85,162 Intangibles, net 115,562 Other assets 1,568 -------- Total assets held for sale 281,675 Liabilities: Accounts payable and accrued liabilities 31,965 Other current liabilities 1,436 Long-term debt 3,627 Other liabilities 20,581 -------- Total liabilities held for sale $ 57,609 -------- Net assets held for sale $224,066 ========
(14) SUBSEQUENT EVENTS In April 2007, the Company entered into a $200,000 five-year Syndicated Senior Revolving Credit Facility ("5-Year Agreement"), which expires in April 2012. The Company used the remaining proceeds of approximately $307,000 from the sale of the Bioproducts and Biopharma segments and $94,000 of borrowings under the 5-Year Agreement to pay a special dividend of $14.00 per share on May 3, 2007, totaling approximately $401,000. The Company also discontinued its quarterly dividend payment and will instead allocate these cash outlays to support its growth initiatives. 21 CAMBREX CORPORATION AND SUBSIDIARIES (dollars in thousands, except share data) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EXECUTIVE OVERVIEW The Company's business consists of one segment - Human Health. The Human Health segment is primarily comprised of active pharmaceutical ingredients derived from organic chemistry and pharmaceutical intermediates. The following significant events occurred during the first quarter 2007 which affected reported operating profit: - A charge of $23,130 recorded within operating expenses for strategic alternative costs. - A charge of $1,682 recorded within operating expenses for restructuring costs. - A charge of $821 recorded within interest expense for the write-off of unamortized debt costs. During to the first quarter of 2007 the Company completed the sale of the businesses that comprise the Bioproducts and Biopharma segments (excluding certain liabilities) to Lonza Group AG for total cash consideration of $460,000. As a result of this transaction, the Company recorded a gain of $232,116 in discontinued operations, subject to working capital and other adjustments. RESULTS OF OPERATIONS COMPARISON OF FIRST QUARTER 2007 VERSUS FIRST QUARTER 2006 Gross sales in the first quarter 2007 of $64,997 were $10,877 or 20.1% above the first quarter 2006. Gross sales were favorably impacted 5.5% due to exchange rates reflecting a weaker U.S. dollar. Within the Human Health segment, sales of active pharmaceutical ingredients ("APIs") of $48,342 were $7,945 or 19.7% above the first quarter 2006 primarily due to higher sales volume of generic APIs partially offset by lower pricing. Sales of pharmaceutical intermediates of $8,058 were $1,547 or 23.8% above the first quarter 2006 primarily due to stronger demand for custom development products. Sales of other Human Health products of $8,597 were $1,385 or 19.2% above the first quarter 2006 primarily due to stronger demand of crop protection products partially offset by lower sales of x-ray media. Human Health gross margins increased to 37.5% in the first quarter 2007 from 35.3% in the first quarter 2006. This increase is primarily due to higher sales volume and favorable foreign currency exchange partially offset by lower pricing. The following table reflects sales by geographic area for the three months ended March 31, 2007 and 2006:
2007 2006 ------- ------- North America $22,473 $17,121 Europe 38,567 33,838 Asia 2,007 1,342 Other 1,950 1,819 ------- ------- Total Gross Sales $64,997 $54,120 ======= =======
22 RESULTS OF OPERATIONS (CONTINUED) COMPARISON OF FIRST QUARTER 2007 VERSUS FIRST QUARTER 2006 (CONTINUED) Selling, general and administrative expenses of $15,347 or 23.6% of gross sales in the first quarter 2007 increased from $12,490, or 23.1% in the first quarter 2006. The increase in expense is due mainly to higher administration expenses, primarily legal fees. The impact of foreign currency exchange was negligible. The Company announced plans to eliminate certain employee positions at the corporate office upon completion of the sale of the Bioproducts and Biopharma segments. This plan will include certain one-time benefits for employees terminated and is expected to be completed before the end of 2007. Costs related to these plans are recorded on the restructuring expenses line on the income statement. The Company recognized expense of $1,682 during the first quarter of 2007, and expects the total charge for the program to be approximately $4,000, substantially all of which will be in cash. The Company anticipates annual cost savings related to the elimination of all these positions to be approximately $5,200. Strategic alternative costs include costs that the Company has incurred related to the decision to sell the Bioproducts and Biopharma segments in February 2007. These costs are not considered part of the restructuring program or a part of discontinued operations under current accounting guidance. The first quarter of 2007 includes charges of $18,188 related to certain benefits which became payable under change of control agreements between the Company and four of its current or former executives due to the sale of the Bioproducts and Biopharma segments. The Company will recognize additional expense in future quarters for the recognition of interest and discounting as well as the potential for changes in estimates. Substantially all of this charge will be paid in cash. The exact timing of the payment is uncertain at this time but is expected to be in 2008. Also included in strategic alternative costs in the current quarter is $4,489 of retention bonuses. This includes amounts that were payable upon completion of the Bioproducts and Biopharma segments sales transaction on February 6, 2007 as well as bonuses payable to certain current employees for continued employment, generally through September 30, 2007. The Company is recognizing this cost ratably over the applicable service period and anticipates a total charge of approximately $3,200. Additional costs including those associated with the payment of the special dividend in connection with the divestiture amounted to approximately $453 during the quarter. Research and development expenses of $2,600 were 4.0% of gross sales in the first quarter 2007, compared to $2,362 or 4.4% of gross sales in the first quarter 2006. The increase in expense primarily reflects higher personnel costs. The impact of foreign currency exchange was negligible. Operating loss in the first quarter of 2007 was $18,364 compared to profit of $3,245 in the first quarter of 2006. The results reflect higher operating expenses due to strategic alternative and restructuring costs partially offset by higher gross margins as discussed above. Net interest income was $1,539 in the first quarter of 2007 compared to net interest expense of $5,444 in the first quarter of 2006. These results primarily reflect lower average debt due to paying off the credit facility in February 2007 using the proceeds from the sale of the Bioproducts and Biopharma segments, partially offset by higher interest rates. Interest income was also considerably higher in the first quarter of 2007 compared to 2006 due to interest earned on the proceeds from the sale of the Bioproducts and Biopharma segments. Also included in first quarter 2007 was the acceleration of unamortized origination fees related to the repayment of the credit facility of $821. Included in first quarter 2006 is approximately $5,272 related to the make whole payment of $4,809 and the related acceleration of $463 of unamortized origination fees. The average interest rate on debt was 6.1% in the first quarter of 2007 versus 5.2% in the first quarter of 2006. The effective tax rate for the first quarter 2007 was 14.1% compared to - -113.4% in the first quarter 2006. The tax provision in the first quarter 2007 changed to a benefit of $2,363 compared to expense of $2,500 in 23 RESULTS OF OPERATIONS (CONTINUED) COMPARISON OF FIRST QUARTER 2007 VERSUS FIRST QUARTER 2006 (CONTINUED) the first quarter of 2006. This change is due to the geographic mix of pre-tax earnings, as well as the recognition of a tax benefit in continuing operations as a result of the sale of the Bioproducts and Biopharma segments in the first quarter of 2007. The Company maintains a full valuation allowance against its domestic, and certain foreign, net deferred tax assets and will continue to do so until an appropriate level of profitability is sustained or tax strategies can be developed that would enable the Company to conclude that it is more likely than not that a portion of these net deferred assets would be realized. As such, improvements in domestic, and certain foreign, pre-tax income in the future may result in these tax benefits ultimately being realized. However, there is no assurance that such improvements will be achieved. Loss from continuing operations in the first quarter of 2007 was $14,443, or $0.51, per diluted share versus $4,704, or $0.18 per diluted share in the same period a year ago. The Company adopted Financial Accounting Standards Board ("FASB") Interpretation No. 48, Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement No. 109 ("FIN 48") effective January 1, 2007. This interpretation clarified the accounting for uncertainty in income tax positions and required the Company to recognize in the consolidated financial statements the impact of a tax position that is more likely than not to be sustained upon examination based on the technical merits of the position. The effect of adopting the interpretation was not material. Refer to Note 5 for further discussion. The Company adopted FASB Staff Position ("FSP") No. AUG AIR-1 "Accounting for Planned Major Maintenance Activities" effective January 1, 2007. This FSP amended certain provisions of APB Opinion No. 28 "Interim Financial Reporting". This FSP prohibited the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim reporting periods. The adoption of this FSP had an immaterial impact on the Company's financial position and results of operations. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents increased $311,169 in the first three months of 2007. During the three months ended March 31, 2007, the Company generated cash from operations of $1,013, a decrease of $4,920 versus the same period a year ago. The decrease in cash flows from operations in the first three months of 2007 versus the first three months of 2006 is due primarily to the pay down of accounts payable. Cash flows provided by financing activities in the first three months of 2007 of $453,988 primarily reflect proceeds from the sale of the Bioproducts and Biopharma segments. Capital expenditures from continuing operations were $5,478 in the first three months of 2007 as compared to $4,290 in 2006. Part of the funds in 2007 were used for a new API purification facility in Milan, Italy and capital improvements to existing facilities. Cash flows used in financing activities in the first three months of 2007 of $143,770 include net pay down of debt of $158,586 and dividends paid of $833 partially offset by proceeds from stock options exercised of $15,962. In the first three months of 2006 financing activities include a net pay down of debt of $18,962, dividends paid of $801 partially offset by proceeds from stock options exercised of $1,003. During the first three months of 2007 and 2006, the Company paid cash dividends of $0.03 per share. On October 24, 2006, the Company entered into a definitive stock purchase agreement with Lonza Group AG for the sale of the businesses that comprise the Bioproducts and Biopharma segments (excluding certain liabilities) for total cash consideration of $460,000. The sale of these businesses closed during the first quarter of 2007. The Company used the proceeds from the sale to repay outstanding debt and on May 3, 2007, paid a special dividend of $14.00 per share, totaling approximately $401,000. Approximately $94,000 was borrowed from the Company's new five-year, $200,000 credit facility to pay the dividend. The Company also discontinued its quarterly dividend payment and will instead allocate these cash outlays to support its growth initiatives. 24 RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) In April 2007, the Board of Directors of the Company approved the suspension of the domestic pension plans and SERP plan effective August 31, 2007. FORWARD-LOOKING STATEMENTS This document may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and Rule 3b-6 under The Securities Exchange Act of 1934, as amended, including, without limitation, statements regarding expected performance, especially expectations with respect to sales, research and development expenditures, earnings per share, capital expenditures, acquisitions, divestitures, collaborations, or other expansion opportunities. These statements may be identified by the fact that they use words such as "expects," "anticipates," "intends," "estimates," "believes" or similar expressions are used in connection with any discussion of future financial and/or operating performance. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this Form 10-Q. Any forward-looking statements contained herein are based on current plans and expectations and involve risks and uncertainties that could cause actual outcomes and results to differ materially from current expectations including, but not limited to, global economic trends, pharmaceutical outsourcing trends, competitive pricing or product developments, government legislation and/or regulations (particularly environmental issues), tax rate, interest rate, technology, manufacturing and legal issues, including the outcome of outstanding litigation disclosed in the Company's public filings, changes in foreign exchange rates, performance of minority investments, uncollectible receivables, loss on disposition of assets, cancellation or delays in renewal of contracts, lack of suitable raw materials or packaging materials, the Company's ability to receive regulatory approvals for its products, the outcome of the evaluation of strategic alternatives and whether the Company's estimates with respect to its earnings and profits for tax purposes in 2007 will be correct. Any forward-looking statement speaks only as of the date on which it is made, and the Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. New factors emerge from time to time and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. For further details and a discussion of these and other risks and uncertainties, investors are cautioned to review the Cambrex 2006 Annual Report on Form 10-K, including the Forward-Looking Statement section therein, and other filings with the U.S. Securities and Exchange Commission. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. 25 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There has been no significant change in our exposure to market risk during the first quarter of 2007. For a discussion of the Company's exposure to market risk, refer to Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," contained in the Company's Annual Report on Form 10-K for the period ended December 31, 2006. ITEM 4. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES The Company maintains a system of disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls are also designed to reasonably assure that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Disclosure controls include components of internal control over financial reporting, which consists of control processes designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the United States. We have carried out an evaluation under the supervision of, and with the participation of, our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2007. The Company's management has concluded that the financial statements included in this Form 10-Q are a fair presentation in all material respects the Company's financial position, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. There were no significant changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the quarter ended March 31, 2007. 26 PART II - OTHER INFORMATION CAMBREX CORPORATION AND SUBSIDIARIES ITEM 1 LEGAL PROCEEDINGS See the discussion under Part I, Item 1, Note 12 to the Consolidated Financial Statements. ITEM 1A RISK FACTORS There have been no material changes to our risk factors and uncertainties during the first three months of 2007. For a discussion of the Risk Factors, refer to Part I, Item 1A, "Risk Factors," contained in the Company's Annual Report on Form 10-K for the period ended December 31, 2006. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 1. At a Special Meeting of Shareholders held on February 5, 2007 the Stockholders voted for the approval of the sale of the Bioproducts and Biopharma segments.
Votes For Votes Against Votes Abstained - ---------- ------------- --------------- 21,064,114 55,789 26,804
2. At the Annual Meeting of Stockholders held on April 26, 2007, four Directors in Class II were elected to hold office as Directors of the Company until the 2010 Annual Meeting of Stockholders
Nominees Votes For Votes Withheld - -------- ---------- -------------- Rosina B Dixon 22,436,620 961,953 Roy W Haley 22,949,190 449,383 Leon J Hendrix, Jr 22,435,670 962,903 Ilan Kaufthal 22,347,160 1,051,413
3. Also, to amend the Restated Certificate of Incorporation in order to declassify the Board of Directors and authorizing: (i) the annual election of all members of the Board of Directors;
Votes For Votes Against Votes Abstained - ---------- ------------- --------------- 23,302,177 55,680 40,717
(ii) stockholders to remove a director with or without cause by a majority vote of the then outstanding shares of common stock entitled to vote generally in the election of directors; and
Votes For Votes Against Votes Abstained - ---------- ------------- --------------- 23,261,427 95,968 41,177
(iii) the removal of provisions requiring a supermajority vote of our common stock to effect certain amendments to our Restated Certificate of Incorporation and By-Laws; and
Votes For Votes Against Votes Abstained - ---------- ------------- --------------- 23,258,121 98,021 42,432
4. Also, the Stockholders voted for the appointment of BDO Seidman, LLP as the Company's Registered Independent Public Accounting Firm for 2007.
Votes For Votes Against Votes Abstained - ---------- ------------- --------------- 23,371,956 17,013 9,593
27 ITEM 6 EXHIBITS 1. Exhibit 3.1 - Restated Certificate of Incorporation of registrant, as amended. 2. Exhibit 3.2 - By Laws of registrant, as amended. 3. Exhibit 31.1 - CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 4. Exhibit 31.2 - CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 5. Exhibit 32.1 - CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 6. Exhibit 32.2 - CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CAMBREX CORPORATION By /s/ Gregory P. Sargen ------------------------------------- Gregory P. Sargen Vice President and Chief Financial Officer (On behalf of the Registrant and as the Registrant's Principal Financial Officer) Dated: May 9, 2007 29 EX-3.1 2 y34569exv3w1.txt EX-3.1: RESTATED CERTIFICATE OF INCORPORATION Exhibit 3.1 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS DELIVERED 02:49 PM 05/01/2007 FIXED 02:39 PM 05/01/2007 SRV 070501450 - 2018808 FILE CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION Cambrex Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (this "Corporation"), DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of the Corporation resolutions were duly adopted approving a proposed amendment of the Restated Certificate of Incorporation of the Corporation (the "Amendment") and the Board of Directors declared the Amendment to be advisable and in the best interests of the Company and its stockholders and directed that such Amendment be submitted for consideration and approval by the stockholders of the Corporation at the annual meeting of the Corporation held on April 26,2007 (the "Annual Meeting"). SECOND: That the Certificate of Incorporation of the Corporation is hereby amended by striking out Article SIXTH thereof in its entirety and by substituting the following new Article SIXTH: "SIXTH: (a) Except as otherwise fixed by or pursuant to the provisions of Article FOURTH hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, the number of the directors of the Corporation shall be fixed from time to time by or pursuant to the By-Laws of the Corporation. Subject to the provisions of this Article SIXTH below, until the 2010 annual meeting of stockholders when the following classification shall cease, the directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, as shall be provided in the manner specified in the By-Laws of the Corporation, one class to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1988, another class to hold office initially for a term expiring at the annual meeting of stockholders in 1989, and another class to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1990, with the members of each class to hold office until the successors are elected and qualified. At each annual meeting of the stockholders of the Corporation until the 2008 annual meeting of stockholders, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. Directors elected at and after the 2008 annual meeting of stockholders shall hold office until the first annual meeting of stockholders following their election and until a successor shall have been elected and qualified or until the director's prior death, resignation or removal. (b) Advance notice of stockholder nominations for the election of directors shall be given in the manner provided in the By-Laws of the Corporation. (c) Except as otherwise provided for or fixed by or pursuant to the provisions of Article FOURTH hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled solely by the affirmative vote of a majority of the directors or the sole director then remaining in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office until the next succeeding annual meeting of stockholders following such director's election and until such director's successor shall have been elected and qualified, including in circumstances where such director's predecessor was elected to a longer term. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. (d) Subject to the rights of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, any director may be removed from office, with or without cause, by the affirmative vote of the holders of a majority of the combined voting power of the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class. (e) Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. Except as otherwise required by law and subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, special meetings of stockholders of the Corporation may be called only by the Chairman of the Board or President or the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors or as otherwise provided in the By-Laws of the Corporation. (f) In furtherance and not in the limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the By-Laws of the Corporation, but the stockholders may adopt additional By-Laws and may amend or repeal By-Laws whether or not adopted by them provided that the affirmative vote of the holders of a majority of the combined voting power of the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class, is required for any such adoption of additional By-Laws, amendment or repeal. (g) Notwithstanding any other provision of this Certificate of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a lesser percentage may be specified by law, the Certificate of Incorporation or the By-Laws of the Corporation), the affirmative vote of the holders of a majority of the voting power of all the shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend or repeal this Article SIXTH or to adopt any provision inconsistent herewith." THIRD: That at the Annual Meeting, the necessary number of shares as required by statute were voted in favor of the Amendment. FOURTH: That the Amendment was duly adopted in accordance with the provisions of Sections 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, this Corporation has caused this certificate to be executed by its authorized officer on this __ day of April, 2007. CAMBREX CORPORATION By: /s/ Peter E. Thauer ------------------------------------ Name: Peter E. Thauer Title: Senior Vice President STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 03:30 PM 06/07/2001 010275168 - 2018808 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF CAMBREX CORPORATION PURSUANT TO SECTION 242 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE CAMBREX CORPORATION (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware (the "General Corporation Law"), hereby certifies as follows: FIRST: That the Board of Directors of the Corporation, at a meeting of its members, duly adopted a resolution setting forth the following proposed amendment to the Certificate of Incorporation of the Corporation and declaring such amendment to be advisable: 1. The Certificate of Incorporation of the Corporation is hereby amended by the amendment of the first paragraph of ARTICLE FOURTH thereof to read in its entirety as follows: FOURTH: The total number of shares or all classes of stock which the Corporation shall have the authority to issue is 106,263,835 shares, consisting of 400,000 shares of Class A 8.25% Cumulative Preferred Stock, par value $.10 per share (the "Class A Preferred"), 40,597 shares of Class B 8.25% Cumulative Convertible Preferred Stock, par value $.10 per share (the "Class B Preferred), 19,403 shares of Class C Convertible Preferred Stock, par value $.10 per share (the "Class C Preferred"), 73,089 shares of Class D 8% Convertible Preferred Stock, par value $.10 per share (the "Class D Preferred"), 5,000,000 shares of Series Preferred Stock, par value $.10 per share (the "Series Preferred Stock"), 730,746 shares of Nonvoting Common Stock, par value $.10 per share (the "Nonvoting Common"), and 100,000,000 shares of Common Stock, par value $.10 per share (the "Voting Common"). The Class B Preferred and the Class C Preferred are referred to herein collectively as the "1981 Convertible Preferred Stock"; the 1981 Convertible Preferred Stock and the Class A Preferred are referred to herein collectively as the "1981 Preferred Stock"); the 1981 Preferred Stock and the Class D Preferred are referred to herein collectively as the "Preferred Stock"; and the Voting Common and the Nonvoting Common are referred to herein collectively as the "Common Stock". A share of Preferred Stock will be referred to herein as a "Share". The Voting Common is also referred to herein as the "Class A Common" and the Non-voting Common is also referred to herein as the "Class B Common". Unless otherwise provided, other capitalized terms used in Section A of this Article FOURTH are defined in subdivision VI thereof, other capitalized terms used in Section C of this Article FOURTH are defined in subdivision VIII thereof and definitions set forth in any Section of this Article FOURTH apply only to capitalized terms used in such Section. All cross-references in each Section of this Article FOURTH refer to other parts, paragraphs and subdivisions in such Section unless otherwise indicated; and further SECOND: That at a special meeting and vote of the stockholders of the Corporation called and held in accordance with Section 222 of the General Corporation Law on April 26, 2001, a majority of the outstanding stock entitled to vote thereon has voted in favor of the foregoing amendment. THIRD: The Amendment to the Certificate of Incorporation of the Corporation set forth in paragraph FIRST above was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law. IN WITNESS WHEREOF, I, the undersigned Steven M. Klosk, being the Executive Vice President-Administration, for the purpose of amending the Certificate of Incorporation of the Corporation pursuant to Section 242 of the General Corporation Law of the State of Delaware, do make and file this Certification, hereby declaring and certifying that the facts herein stated are true, and accordingly have hereunto set my hand, this 7th day of June, 2001. [Corporate Seal] -s- Steven M. Klosk ---------------------------------------- Steven M. Klosk Executive Vice President-Administration ATTEST: - -s- Peter E. Thauer - ------------------------- Peter E. Thauer Secretary 877273090 3686C FILED SEP 30 1987 1PM [ILLEGIBLE] [ILLEGIBLE] Restated Certificate of Incorporation of Cambrex Corporation Cambrex Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: 1. The name of the Corporation is Cambrex Corporation. The Corporation was originally incorporated under the name "CasChem Group, Inc.". The date of filing its original Certificate of Incorporation with the Secretary of State is October 11, 1983. 2. This Restated Certificate of Incorporation restates and integrates and further amends the Certificate of Incorporation of the Corporation by amending ARTICLES SIXTH and EIGHTH thereof. 3. The text of the Certificate of Incorporation of the Corporation, as amended, or supplemented heretofore is further amended hereby to read as herein set forth in full: FIRST: The name of the Corporation is: Cambrex Corporation SECOND: The address of its registered office in the State of Delaware is No. 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations 3686C may be organized under the General Corporation Law of Delaware. FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is 26,263,835 shares, consisting of 400,000 shares of Class A 8.25% Cumulative Preferred StocK, par value $.10 per share (the "Class A Preferred"), 40,597 shares of Class B 8.25% Cumulative Convertible Preferred Stock, par value $.10 per share (the "Class B Preferred"), 19,403 shares of Class C Convertible Preferred Stock, par value $.10 per share (the "Class C Preferred"), 73,089 shares of Class D 8% Convertible Preferred Stock, par value $.10 per share (the "Class D Preferred"), 5,000,000 shares of Series Preferred Stock, par value $.10 per share (the "Series Preferred Stock"), 730,746 shares of Nonvoting Common Stock, par value $.10 per share (the "Nonvoting Common"), and 20,000,000 shares of Common Stock, par value $.10 per share (the "Voting Common"). The Class B Preferred and the Class C Preferred are referred to herein collectively as the "1981 Convertible Preferred Stock"; the 1981 Convertible Preferred Stock and the Class A Preferred are referred to herein collectively as the "1981 Preferred Stock"; the 1981 Preferred Stock and the Class D Preferred are referred to herein collectively as the "Preferred Stock"; and the Voting Common and the Nonvoting Common are referred to herein collectively as the "Common Stock". A share of Preferred Stock will be referred to herein as a "share". The Voting Common is also referred to herein as the "Class A Common" and the Non-voting Common is also referred to herein as the "Class B Common". Unless otherwise provided, other capitalized terms used in Section A of this Article FOURTH are defined in subdivision VI thereof, other capitalized terms used in Section C of this Article FOURTH are defined in subdivision VIII thereof and definitions set forth in any Section of this Article FOURTH apply only to capitalized terms used in such Section. All cross-references in each Section of this Article FOURTH refer to other parts, paragraphs and subdivisions in such Section unless otherwise indicated. The following is a statement of the designations, and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof, in respect of each class of stock of the Corporation: -2- SECTION A. 1981 PREFERRED STOCK I. Terms Applicable Only to Class A Preferred and Class B Preferred. 1. Dividends. 1A. General Obligation. When and as declared by the board of directors of the Corporation and to the extent permitted under applicable law, the Corporation will pay preferential dividends to the holders of the Class A Preferred and the Class B Preferred as provided in this part 1. Except as otherwise provided herein, dividends on each Share of Class A Preferred will accrue cumulatively on a daily basis at the rate of 8.25% per annum of the Liquidation Value thereof from and including the first day after the end of the calendar quarter next preceding the date of issuance of such Share to and including the date on which the Redemption Price of such Share is paid. Dividends on each Share of Class B Preferred will accrue cumulatively on a daily basis at the rate of 8.25% per annum of the Purchase Price thereof from and including the first day after the end of the calendar quarter next preceding the date of issuance of such Share to and including the date on which the Redemption Price of such Share is paid or the date on which such Share is converted. Dividends on the Class A Preferred and the Class B Preferred will accrue whether or not they have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payments of dividends. The date on which the Corporation initially issues any Share will be deemed to be its "date of issuance" regardless of the number of times transfer of such Share is made on the stock records maintained by or for the Corporation and regardless of the number of certificates which may be issued to evidence such Share. Notwithstanding the foregoing, the payment of any dividend accrued on the Class A Preferred or the Class B Preferred shall be subject to the provisions of Section C, subdivision VII. 2C. hereof. 1B. Dividend Reference Dates. To the extent not paid on each March 31, June 30, September 30 and December 31, beginning December 31, 1983 (the "Dividend Reference Dates"), all dividends which have accrued on each Share of Class A Preferred outstanding during the three-month period (or other period in the case of the initial Dividend Reference Date) ending upon any such Dividend Reference Date will be added to the Liquidation Value of such Share and will remain a part thereof until such dividends are paid. All dividends which have accrued on each Share of Class B Preferred outstanding during the three-month period (or other period in the case of -3- the initial Dividend Reference Date) ending upon any Dividend Reference Date will become payable on such Dividend Reference Date to the extent declared by the Corporation's board of directors. 1C. Distribution of Partial Dividend Payments. If at any time the Corporation pays less than the total amount of dividends then accrued with respect to the Class A Preferred or the Class B Preferred, such payment will be distributed among the holders of such class so that an equal amount will be paid with respect to each outstanding Share. 2. Redemptions. 2A. Class A Scheduled Redemptions. The Corporation will redeem 200,000 Shares of Class A Preferred (or such lesser number then outstanding) on December 31 of each year, commencing in 1989 and ending in 1990 (the "Class A Scheduled Redemption Dates"), at a price per Share equal to the Redemption Price thereof. 2B. Class A Optional Redemptions. The Corporation may at any time redeem all or any portion of the Class A Preferred then outstanding at a price per Share equal to the Redemption Price. No redemption of Class A Preferred pursuant to this subdivision may be made for less than 50,000 Shares (or such lesser number of Shares then outstanding), and redemptions made pursuant to this subdivision will not relieve the Corporation of its obligation to redeem Shares on the Class A Scheduled Redemption Dates. 2C. Class B Scheduled Redemptions. The Corporation will redeem 20,299 Shares of Class B Preferred (or such lesser number then outstanding) on December 31 of each year, commencing in 1991 and ending in 1992 (the "Class B Scheduled Redemption Dates"), at a price per Share equal to the Redemption Price thereof; provided that the Shares of Class B Preferred to be redeemed pursuant to this subdivision will be subject to the right of offset set forth in subdivision 1B of subdivision IV and, to the extent the right of offset is exercised, the Corporation's redemption obligation will be reduced. 2D. No Redemption During Certain Class D Preferred Events of Noncompliance. Anything herein contained to the contrary notwithstanding, the making by the Corporation of any payment in respect of redemption of any Shares of 1981 Preferred Stock shall be subject to the provisions of Section C, subdivision VII. 2C. hereof. -4- 3. Voting Rights. Except as provided herein or as otherwise provided by law, the Class A Preferred and the Class B Preferred will have no voting rights. II. Terms Applicable to All Classes of 1981 Preferred Stock. 1. Liquidation. Upon any liquidation, dissolution or winding up of the Corporation, each holder of 1981 Preferred Stock will be entitled to be paid, before any distribution or payment is made upon any Junior Securities of the Corporation, an amount in cash equal to the aggregate Liquidation Value of all Shares held by such holder, and the holders of 1981 Preferred Stock will not be entitled to any further payment; provided, however, except at provided in Section C, subdivision V.2., no payment upon any liquidation, dissolution or winding up of the Corporation may be made with respect to any 1981 Preferred Stock unless each holder of Class D Preferred shall have received payment in cash of an amount equal to the aggregate Liquidation Value of the shares of Class D Preferred held by such holder. The Corporation will mail written notice of such liquidation, dissolution or winding up, not less than 60 days prior to the payment date stated therein, to each record holder of 1981 Preferred Stock. Neither the consolidation or merger of the Corporation into or with any other corporation or corporations, nor the sale or transfer by the Corporation of all or any part of its assets, nor the reduction of the capital stock of the Corporation, will be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this part 1. 2. General Terms of Redemptions. 2A. Redemption Price. For each Share of 1981 Preferred Stock which is to be redeemed, the Corporation will be obligated on the Redemption Date to pay to the holder thereof (upon surrender by such holder at the Corporation's principal office of the certificate representing such Share) an amount in cash equal to the respective Liquidation Value of such Share (the "Redemption Price"). If the funds of the Corporation legally available for redemption of Shares of any class of 1981 Preferred Stock on any Redemption Date are insufficient to redeem the total number of Shares of such class to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of Shares pro rata among the holders of the Shares to be redeemed based upon the aggregate Liquidation Value of the Shares to be redeemed. At any time thereafter when additional funds of the Corporation are legally available for the redemption of Shares of such class, such funds will -5- immediately be used to redeem the balance of the Shares which the Corporation has become obligated to redeem on any Redemption Date but which it has not redeemed. 2B. Notice of Redemption. The Corporation will mail written notice of each redemption of any class or classes of 1981 Preferred Stock to each record holder of such class or classes, not more than 60 nor less than 30 days prior to the date on which such redemption is to be made. Upon mailing any notice of redemption which relates to a redemption at the Corporation's option, the Corporation will become obligated to redeem the total number of Shares specified in such notice at the time of redemption specified therein. In case fewer than the total number of Shares represented by any certificate are redeemed, a new certificate representing the number of unredeemed Shares will be issued to the holder thereof without cost to such holder promptly upon surrender of the certificate representing the redeemed Shares. 2C. Determination of the Number of Each Holder's Shares to be Redeemed. Except as otherwise provided in subdivision IV, the number of Shares of a particular class of 1981 Preferred Stock to be redeemed from each holder thereof in redemptions hereunder will be the number of whole Shares determined, as nearly as practicable to the nearest Share, by multiplying the total number of Shares of such class to be redeemed times a fraction, the numerator of which will be the total number of Shares of such class then held by such holder and the denominator of which will be the total number of Shares of such class then outstanding. 2D. Dividends After Redemption Date. No Share of 1981 Preferred Stock is entitled to any dividends accruing after its Redemption Date. On such Redemption Date all rights of the holder of such Share will cease, and such Share will not be deemed to be outstanding. 2E. Redeemed or Otherwise Acquired Shares. Any Shares of 1981 Preferred Stock which are redeemed or otherwise acquired by the Corporation will be cancelled and will not be reissued, sold or transferred. 2F. Other Redemptions or Acquisitions. Neither the Corporation nor any Subsidiary will redeem or otherwise acquire any 1981 Preferred Stock, except as expressly authorized herein or pursuant to a purchase offer made to all holders of the Class A Preferred or the 1981 Convertible Preferred Stock, as the case may be, pro rata based upon the -6- aggregate Liquidation Value of the Shares of such class or classes of 1981 Preferred Stock held by each such holder. 2G. Accrued Dividends Must be Paid Prior to Any Redemption. The Corporation may not redeem any Shares of a particular class of 1981 Preferred Stock, unless all dividends accrued on the outstanding Shares of such class of 1981 Preferred Stock through the immediately preceding Dividend Reference Date have been paid in full. 3. Events of Noncompliance. 3A. Definition. An Event of Noncompliance will be deemed to have occurred if: (i) the Corporation fails to pay on any Dividend Reference Date the full amount of dividends then accrued on the Class A Preferred or the Class B Preferred, whether or not such payment is legally permissible; (ii) the Corporation fails to make any redemption payment with respect to the 1981 Preferred Stock which it is obligated to make, whether or not such payment is legally permissible; (iii) the Corporation breaches or otherwise fails to perform or observe any other covenant or agreement with respect to the 1981 Preferred Stock set forth in this Article FOURTH or in the Exchange Agreement; (iv) any material representation or warranty contained in the Exchange Agreement or required to be furnished to any transferor of 1981 Preferred Stock pursuant to the Exchange Agreement on or before the date of issuance of the 1981 Preferred Stock is false or misleading in any material respect on the date made or furnished; (v) any written information furnished by the Corporation or any Subsidiary to any holder of 1981 Preferred Stock pursuant to the Exchange Agreement after the date of issuance of the 1981 Preferred Stock is, to the Corporation's or such Subsidiary's knowledge after due inquiry, false or misleading in any material respect on the date made or furnished; (vi) the Corporation or any Material Subsidiary makes an assignment for the benefit of credi- -7- tors or admits in writing its inability to pay its debts generally as they become due; or an order, judgment or decree is entered adjudicating the Corporation or any Material Subsidiary bankrupt or insolvent under the Bankruptcy Code or the Corporation or any Material Subsidiary is a debtor-in-possession under the Bankruptcy Code; or any order for relief with respect to the Corporation or any Material Subsidiary is entered under the Bankruptcy Code; or the Corporation or any Material Subsidiary petitions or applies to any tribunal for the appointment of a custodian, trustee, receiver or liquidator of the Corporation or any Material Subsidiary or of any substantial part of the assets of the Corporation or any Material Subsidiary, or commences any proceeding (other than a proceeding for the voluntary liquidation and dissolution of a Material Subsidiary) relating to the Corporation or any Material Subsidiary under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction; or any such petition or application is filed, or any such proceeding is commenced, against the Corporation or any Material Subsidiary and either (a) the Corporation or any such Material Subsidiary by any act indicates its approval thereof, consent thereto or acquiesence therein or (b) such petition, application or proceeding is not dismissed within 60 days; (vii) a judgment in excess of $500,000 is rendered against the Corporation or any Material Subsidiary and, within 60 days after entry thereof, such judgment is not discharged or execution thereof stayed pending appeal, or within 60 days after the expiration of any such stay, such judgment is not discharged; or (viii) the Corporation or any Material Subsidiary defaults in the performance of any obligation, if the effect of such default is to cause an amount exceeding $500,000 to become due prior to its stated maturity, or to permit the holder or holders of such obligation to cause an amount exceeding $500,000 to become due prior to its stated maturity. An Event of Noncompliance will not be deemed to have occurred with respect to the matters described in subparagraph 3A(iii) or 3A(iv) if the Corporation establishes that (a) in the case -8- of subparagraph 3A(iii), the particular Event of Noncompliance has not been caused by knowing or purposeful conduct by the Corporation or any Subsidiary and the Corporation has exercised, and continues to exercise, best efforts expeditiously to cure the Event of Noncompliance (if cure is possible), (b) in the case of subparagraph 3A(iv), the particular Event of Noncompliance has not been caused by a knowing or willful misstatement or misrepresentation on the part of the Corporation, (c) in the case of both such subparagraphs, the Event of Noncompliance is not material to the Corporation's financial condition, operations, assets or business prospects, and (d) in the case of both such subparagraphs, the Event of Noncompliance is not material to any holder's investment in the 1981 Preferred Stock. 3B. Consequences of Certain Events of Noncompliance. (i) If an Event of Noncompliance of the type described in subparagraph 3A(iii) has occurred and continued for a period of 30 days or any other Event of Noncompliance has occurred, the dividend rate on the Class A Preferred will increase immediately by an increment of 1/2 percentage point. Thereafter, until such time as no Event of Noncompliance exists, the dividend rate on the Class A Preferred will increase automatically at the end of each succeeding 90-day period by an additional increment of 1/2 percentage point (but in no event will the dividend rate exceed 10.25%). Any increase of the dividend rate resulting from the operation of this subdivision will terminate as of the close of business on the date on which no Event of Noncompliance exists, subject to subsequent increases pursuant to this subdivision. (ii) If Events of Noncompliance exist for an aggregate of 365 days (whether or not such days are successive), the Conversion Price of the 1981 Convertible Preferred Stock will be reduced immediately by 10% of the Conversion Price in effect immediately prior to such adjustment. Notwithstanding the foregoing, if no Events of Noncompliance exist for a period of 365 successive days, previous days in which Events of Noncompliance existed will not be counted in determining such adjustment. In no event will the Conversion Price adjustment be rescinded, and in no event will there be more than one Conversion Price adjustment pursuant to this subdivision. -9- (iii) If an Event of Noncompliance exists, each holder of 1981 Preferred Stock will also have any other rights which such holder may have been afforded under any contract or agreement at any time and any other rights which such holder may have pursuant to applicable law. III. Priority of 1981 Preferred Stock. 1. Class A Preferred Priority in Liquidation. Upon any liquidation, dissolution or winding up of the Corporation, if the assets of the Corporation to be distributed among the holders of 1981 Preferred Stock are insufficient to permit payment to such holders of the aggregate amount which they are entitled to be paid, then the assets of the Corporation to be distributed to such holders will be distributed (i) first to the holders of Class D Preferred pursuant to Section C, subdivision V.1., (ii) second, to the holders of Class A Preferred, until such holders are paid the aggregate amount which they are entitled to be paid, or, if the assets to be distributed are insufficient for such purpose, the entire assets to be distributed will be distributed ratably among such holders based upon the aggregate Liquidation Value of Class A Preferred held by each such holder, and (iii) third, the balance (if any) will be distributed ratably among the holders of 1981 Convertible Preferred Stock based upon the aggregate Liquidation Value of the 1981 Convertible Preferred Stock held by each such holder; provided, however, the priority established by clauses (i) and (ii) shall be subject to Section C, subdivision V.2. 2. Class A Preferred Priority on Dividends, Redemptions, etc. So long as any Class A Preferred remains outstanding, neither the Corporation nor any Subsidiary will redeem, purchase or otherwise acquire any 1981 Convertible Preferred Stock or any Junior Securities (except in connection with conversions thereof), nor will the Corporation declare or pay any dividend or make any distribution upon any 1981 Convertible Preferred Stock or any Junior Securities of the Corporation, if immediately after such redemption, purchase, acquisition, dividend or distribution any Event of Noncompliance of the type described in subdivision 3A(i) or 3A(ii) of subdivision II would exist with respect to the Class A Preferred. 3. Class B Preferred Priority on Dividends, Redemptions, etc. So long as any Class B Preferred remains outstanding, neither the Corporation nor any Subsidiary will redeem, purchase or otherwise acquire any Class C Preferred or any Junior Securities (except in connection with conver- -10- sions thereof), nor will the Corporation declare or pay any dividend or make any other distribution upon any Class C Preferred or any Junior Securities of the Corporation, if immediately after such redemption, purchase, acquisition, dividend or distribution any Event of Noncompliance of the type described in subdivision 3A(i) or 3A(ii) of subdivision II would exist with respect to the Class B Preferred. IV. Terms Applicable Only to 1981 Convertible Preferred Stock. 1A. Optional Redemptions. The Corporation may redeem all or any portion of the 1981 Convertible Preferred Stock after the earlier of (i) the date of closing with the underwriters of the first firm commitment underwriting of Common Stock, whether for the account of the Corporation or for others, having a gross price per share equal to at least 150% of the Conversion Price in effect on such date and an aggregate price to the public for the Common Stock which, when added to the aggregate price to the public of any similar prior registered offerings with gross purchase prices per share of Common Stock equal to at least 150% of the respective Conversion Prices in effect on the respective dates of such sales, shall equal at least $5,000,000, or (ii) the date on which the Corporation shall have received gross proceeds from the sale of Common Stock for its account for a gross purchase price per share equal to at least 200% of the Conversion Price in effect on the date of such sale, which proceeds, when added to the proceeds of any other such sale or sales of Common Stock for gross purchase prices per share equal to at least 200% of the respective Conversion Prices at the respective dates of sale, shall equal at least $5,000,000; provided that no more than one redemption pursuant to clause (i) or (ii) may be made in any twelve-month period and no 1981 Convertible Preferred Stock may be redeemed pursuant to clause (ii) prior to December 31, 1986. All redemptions of 1981 Convertible Preferred Stock pursuant to this subdivision will be made pro rata among the Class B Preferred and the Class C Preferred based upon the the aggregate Liquidation Value of the Shares then outstanding. For the purposes of the foregoing clause (ii), the sale by the Corporation of any stock or securities convertible into or exchangeable for Common Stock (such convertible or exchangeable stock or securities being called "Convertible Securities" in this subdivision) shall be deemed to be the sale of Common Stock on the date upon which such Convertible Securities are converted into or exchanged for Common Stock, and the gross proceeds received by the Corporation upon the sale of such Convertible Securities plus the amount of any additional consideration paid to the Corporation upon the -11- conversion or exchange thereof shall be deemed to be gross proceeds received from such sale of Common Stock. No redemptions of 1981 Convertible Preferred Stock pursuant to this subdivision may be made for less than 5,000 Shares (or such lesser number of Shares then outstanding), and redemptions made pursuant to this subdivision will not relieve the Corporation of its obligation to redeem Shares on the Class B Scheduled Redemption Dates pursuant to subdivision 2C of subdivision I. 1B. Right of Offset. Upon the receipt of any notice of redemption under this part 1 or under subdivision 2C of subdivision I, any holder of 1981 Convertible Preferred Stock or Class B Preferred, as the case may be, will have the right (exercisable by notifying the Corporation at least two days prior to the date specified for redemption in the redemption notice) to reduce the number of Shares of the particular class to be redeemed from such holder at such time by a number of Shares not exceeding the sum of the number of Offset Shares of such class of 1981 Convertible Preferred Stock held by such holder at the time of such redemption; provided that in the case of the final Class B Scheduled Redemption or a redemption at the Corporation's option in which all outstanding 1981 Convertible Preferred Stock will be redeemed, a holder of 1981 Convertible Preferred Stock or Class B Preferred, as the case may be, may apply Offset Shares to reduce the number of Shares to be redeemed from such holder in such redemption only to the extent such holder converts or has converted the Shares which are to be redeemed at such time. Each holder of 1981 Convertible Preferred Stock or Class B Preferred, as the case may be, will be deemed to so apply a number of Offset Shares equal to the excess (if any) of the number of Shares of the particular class of 1981 Convertible Preferred Stock to be redeemed from such holder in any redemption over the number of Shares of such class held by such holder as of the time of such redemption. 1C. Determination of the Number of Each Holder's Shares to be Redeemed. The number of Shares of a particular class of 1981 Convertible Preferred Stock to be redeemed from each holder thereof in redemptions by the Corporation under this part 1 and subdivision 2C of subdivision I will be the number of whole Shares, as nearly as practicable to the nearest Share, determined by multiplying the total number of Shares of the particular class of 1981 Convertible Preferred Stock to be redeemed times a fraction, the numerator of which will be the total number of Shares and Offset Shares of such class then held by such holder and the denominator of which will be the total number of Shares and Offset Shares of such -12- class then outstanding; provided that the number of Shares so determined to be redeemed from any holder will be reduced by the number of Offset Shares such holder applies to such redemption. 2. Conversions. 2A. Conversion Procedure. (i) At any time up to two days prior to the Redemption Date of any Share, any holder of 1981 Convertible Preferred Stock may convert all or any portion of such holder's Shares of 1981 Convertible Preferred Stock into a number of shares of the Conversion Stock computed by multiplying the number of Shares to be converted by $83.75 and dividing the result by the Conversion Price then in effect. For purposes of this subdivision, "Conversion Stock" means the Non-Voting Common in the case of Class B Preferred and the Voting Common in the case of Class C Preferred. (ii) Each conversion of 1981 Convertible Preferred Stock will be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing the 1981 Convertible Preferred Stock to be converted have been surrendered at the principal office of the Corporation. At such time as such conversion has been effected, the rights of the holder of such 1981 Convertible Preferred Stock as such holder will cease and the Person or Persons in whose name or names any certificate or certificates for shares of Conversion Stock are to be issued upon such conversion will be deemed to have become the holder or holders of record of the shares of Conversion Stock represented thereby. (iii) As soon as possible after the conversion has been effected, the Corporation will deliver to the converting holder: (a) a certificate or certificates representing the number of shares of Conversion Stock issuable by reason of such conversion in such name or names and such denomination or denominations as the converting holder has specified; (b) payment in an amount equal to all accrued dividends with respect to each Share of Class B Preferred converted, which have not been paid prior thereto, plus the amount payable under -13- subparagraph (v) below with respect to such conversion; and (c) a certificate representing any Shares of 1981 Convertible Preferred Stock which were represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which were not converted. (iv) If for any reason the Corporation is unable to pay any accrued dividends on the Class B Preferred being converted, the Corporation will pay such dividends to the converting holder as soon thereafter as funds of the Corporation are legally available for such payment. At the request of any such converting holder, the Corporation will provide such holder with written evidence of its obligation to such holder. (v) If any fractional interest in a share of Conversion Stock would, except for the provisions of this subparagraph (v), be deliverable upon any conversion, the Corporation, in lieu of delivering the fractional share therefor, will pay an amount equal to the Market Price of such fractional interest as of the date of conversion; provided that if for any reason the Corporation is unable to pay the Market Price of any such fractional interest, the Corporation will issue such fractional share upon the conversion. (vi) The issuance of certificates for shares of Conversion Stock upon conversion of 1981 Convertible Preferred Stock will be made without charge to the holders of such 1981 Convertible Preferred Stock for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of shares of Conversion Stock. (vii) The Corporation will not close its books against the transfer of 1981 Convertible Preferred Stock or of Conversion Stock issued or issuable upon conversion of 1981 Convertible Preferred Stock in any manner which interferes with the timely conversion of 1981 Convertible Preferred Stock. (viii) If the shares of Non-Voting Common issuable by reason of such conversion of Class B Preferred are convertible into or exchangeable for any other stock or securities of the Corporation (including, without limitation, Class A Common), the Corporation will, at the converting holder's option, upon surrender of the -14- shares to be converted by such holder as provided above together with any notice or payment required to effect such conversion or exchange of Non-Voting Common, deliver to such holder, or as otherwise specified by such holder, a certificate or certificates representing the stock or securities into which the shares of Non-Voting Common issuable by reason of such conversion are so convertible or exchangeable, registered in such name or names and in such denomination or denominations as such holder has specified. 2B. Conversion Price. (i) The initial Conversion Price for the 1981 Convertible Preferred Stock will be $83.75. In order to prevent dilution of the conversion rights granted under this subdivision, the Conversion Price will be subject to adjustment from time to time pursuant to this part 2. (ii) If and whenever the Corporation issues or sells, or in accordance with subdivision 2C is deemed to have issued or sold, any shares of its Common Stock for a consideration per share less than the Conversion Price in effect immediately prior to the time of such issue or sale, then forthwith upon such issue or sale, the Conversion Price will be reduced to the Conversion Price determined by dividing (A) an amount equal to the sum of (x) the product derived by multiplying the Conversion Price immediately prior to such issue or sale times the number of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale, plus (y) the consideration, if any, received by the Corporation upon such issue or sale, by (B) the number of shares of Common Stock Deemed Outstanding immediately after such issue or sale; provided that no such adjustment in the Conversion Price will be made in connection with the issuance of (including the issuance of rights and options to purchase) up to an aggregate of 8,000 shares of Class A Common to key employees of the Corporation and its Subsidiaries. 2C. Effect on Conversion Price of Certain Events. For purposes of determining the adjusted Conversion Price under subdivision 2B, the following will be applicable: (i) Issuance of Rights or Options. If the Corporation in any manner grants any rights or options to subscribe for or to purchase Common Stock or any stock or other securities convertible into or exchangeable for Common Stock (such rights or -15- options being herein called "Options" and such convertible or exchangeable stock or securities being herein called "Convertible Securities") and the price per share for which Common Stock is issuable upon exercise of such Options or upon conversion or exchange of such Convertible Securities is less than the Conversion Price in effect immediately prior to the time of the granting of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options will be deemed to be outstanding and to have been issued and sold by the Corporation for such price per share. For purposes of this subdivision, the "price per share for which Common Stock is issuable" will be determined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon the exercise of all such Options, plus in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options. Except as otherwise provided in subdivision 2C(iii), no adjustment of the Conversion Price will be made when Convertible Securities are actually issued upon the exercise of such Options or when Common Stock is actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (ii) Issuance of Convertible Securities. If the Corporation in any manner issues or sells any Convertible Securities and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price in effect immediately prior to the time of such issue or sale, then the maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities will be deemed -16- to be outstanding and to have been, issued and sold by the Corporation for such price per share. For the purposes of this subdivision, the "price per share for which Common Stock is issuable" will be determined by dividing (A) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. Except as otherwise provided in subdivision 2C(iii), no further adjustment of the Conversion Price will be made when Common Stock is actually issued upon the conversion or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustments of the Conversion Price had been or are to be made pursuant to other provisions of this part 2, no further adjustment of the Conversion Price will be made by reason of such issue or sale. (iii) Change in Option Price or Conversion Rate. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock change at any time (other than under or by reason of provisions designed to protect against dilution of the type set forth in this part 2 and which have no more favorable effect on the holders of such Options or Convertible Securities than this part 2 would have if this part 2 were included in such Options or Convertible Securities), the Conversion Price in effect at the time of such change will be readjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities, or the rate at which any -17- Convertible Securities are convertible into or exchangeable for Common Stock, is reduced at any time under or by reason of provisions with respect thereto designed to protect against dilution of the type set forth herein and which have no more favorable effect on the holders of such Options or Convertible Securities than the provisions hereof would have if the provisions hereof were included in such Options or Convertible Securities, then in the case of the delivery of Common Stock upon the exercise of any such Options or other conversion or exchange of any such Convertible Securities, the Conversion Price then in effect hereunder will forthwith be adjusted to such respective amount as would have been obtained had such Option or Convertible Security never been issued as to such Common Stock and had adjustments been made upon the issuance of the shares of Common Stock delivered, but only if as a result of such adjustment the Conversion Price then in effect hereunder would be reduced. (iv) Treatment of Expired Options and Unexercised Convertible Securities. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Securities without the exercise of such Option or right, the Conversion Price then in effect hereunder will be adjusted to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued. (v) Calculation of Consideration Received. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Corporation therefor. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Corporation will be the Market Price thereof as of the date of receipt. In case any Common Stock, -18- Options or Convertible Securities are issued in connection with any merger in which the Corporation is the surviving corporation, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving corporation as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash and securities will be determined jointly by the Corporation and the holders of a majority of the outstanding 1981 Convertible Preferred Stock (based upon the aggregate Liquidation Value thereof). If such parties are unable to reach agreement, the fair value of such consideration will be determined by appraisers jointly selected by the Corporation and the holders of a majority of the outstanding 1981 Convertible Preferred Stock (based upon the aggregate Liquidation Value thereof). (vi) Integrated Transactions. In case any Option is issued in connection with the issue or sale of other securities of the Corporation, together comprising one integrated transaction in which no specific consideration is allocated to such Option by the parties thereto, the Option will be deemed to have been issued without consideration. (vii) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Corporation or any Subsidiary, and the disposition of any shares so owned or held will be considered an issue or sale of Common Stock. (viii) Record Date. If the Corporation takes a record of the holders of Common Stock for the purpose of entitling them (a) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (b) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or upon the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. -19- 2D. Subdivision or Combination of Common Stock. If the Corporation at any time subdivides (by any stock split, stock dividend or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced, and if the Corporation at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. 2E. Reorganization, Reclassification, Consolidation, Merger or Sale. If any capital reorganization, reclassification, consolidation, merger or any sale of all or substantially all of the Corporation's assets to another Person (collectively any "Organic Change") is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition to such Organic Change, lawful and adequate provision (in form and substance satisfactory to the holders of a majority of the 1981 Convertible Preferred Stock then outstanding, based upon the aggregate Liquidation Value thereof) will be made whereby each of the holders of 1981 Convertible Preferred Stock will thereafter have the right to acquire and receive in lieu of shares of Conversion Stock immediately theretofore acquirable and receivable upon the conversion of such holder's 1981 Convertible Preferred Stock, such shares of stock, securities or assets as may be issuable or payable with respect to or in exchange for the number of shares of Conversion Stock immediately theretofore acquirable and receivable upon conversion of the 1981 Convertible Preferred Stock had such Organic Change not taken place. In any such case, appropriate provision will be made with respect to such holder's rights and interests to the end that the provisions of this part 2 and parts 3 and 4 will thereafter be applicable in relation to any shares of stock, securities or assets thereafter deliverable upon the conversion of 1981 Convertible Preferred Stock (including, in the case of any such consolidation, merger or sale in which the successor corporation or purchasing corporation is other than the Corporation, an immediate adjustment of the Conversion Price to the value for the Common Stock reflected by the terms of such consolidation, merger or sale if the value so reflected is less than the Conversion Price in effect immediately prior to such consolidation, merger or sale). The Corporation will not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor corporation (if other -20- than the Corporation) resulting from consolidation or merger or the corporation purchasing such assets assumes by written instrument (in form reasonably satisfactory to the holders of a majority of the 1981 Convertible Preferred Stock then outstanding, based upon the aggregate Liquidation Value thereof), the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. 2F. Certain Events. If any event occurs of the type contemplated by the provisions of this part 2 but not expressly provided for by such provisions, then the board of directors of the Corporation will make an appropriate adjustment in the Conversion Price so as to protect the rights of the holders of 1981 Convertible Preferred Stock; provided that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this part 2 or decrease the number of shares of Conversion Stock issuable upon conversion of each share of 1981 Convertible Preferred Stock. 2G. Notices. (i) Immediately upon any adjustment of the Conversion Price, the Corporation will send written notice thereof to all holders of 1981 Convertible Preferred Stock. (ii) The Corporation will send written notice to all holders of 1981 Convertible Preferred Stock at least 20 days prior to the date on which the Corporation closes its books or takes a record (a) with respect to any dividend or distribution upon Common Stock, (b) with respect to any pro rata subscription offer to holders of Common Stock or (c) for determining rights to vote with respect to any Organic Change, dissolution or liquidation. (iii) The Corporation will also give to the holders of 1981 Convertible Preferred Stock at least 20 days prior written notice of the date on which any Organic Change, dissolution or liquidation will take place. 2H. Mandatory Conversions of Class C Preferred. Notwithstanding anything to the contrary contained in this Article FOURTH, at such time as there is no longer any Class B Preferred outstanding, or at such time as the outstanding Class D Preferred shall be converted pursuant to subdivision VIII.13 of Section C hereof, all outstanding Shares of Class C Preferred (if any) will, without any action on the part of -21- the Corporation or the holders thereof, be immediately converted into shares of Voting Common in accordance with the terms of this part 2, and thereafter no Shares of Class C Preferred will be deemed outstanding and any holder of a certificate of Shares of Class C Preferred will be deemed to be the holder of the number of shares of Voting Common into which the Shares of Class C Preferred represented by such certificate were converted pursuant to this subdivision 2H. 2I. Mandatory Conversions of Class B Preferred. Notwithstanding anything to the contrary contained in this Article FOURTH, at such time as the outstanding Class D Preferred shall be converted pursuant to subdivision VIII.13 of Section C hereof, all outstanding Shares of Class B Preferred (if any) will, without any action on the part of the Corporation or the holders thereof, be immediately converted into shares of Non-Voting Common in accordance with the terms of this part 2, and thereafter no Shares of Class B Preferred will be deemed outstanding and any holder of a certificate of Shares of Class B Preferred will be deemed to be the holder of the number of shares of Non-Voting Common into which the Shares of Class B Preferred represented by such certificate were converted pursuant to this subdivision 2I. 3. Liquidating Dividends. If the Corporation declares a dividend upon the Common Stock payable other than in shares of Common Stock or other than out of earnings or earned surplus (determined in accordance with generally accepted accounting principles, consistently applied) (a "Liquidating Dividend"), then the Corporation will pay to the holders of 1981 Convertible Preferred Stock at the time of payment of a Liquidating Dividend an amount equal to the aggregate value of all Liquidating Dividends which would have been paid on the Conversion Stock had such 1981 Convertible Preferred Stock been converted immediately prior to the date on which a record is taken for such Liquidating Dividend, or, if no record is taken, the date as of which the record holders of Common Stock entitled to such dividends are to be determined. For purposes of this part 3, a dividend other than in cash will not be considered payable out of earnings or earned surplus regardless of whether or not earnings or earned surplus are charged an amount equal to the fair value of such dividend. 4. Purchase Rights. If at any time the Corporation grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "Purchase Rights"), then each holder of -22- 1981 Convertible Preferred Stock will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Conversion Stock acquirable upon conversion of such holder's 1981 Convertible Preferred Stock immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights; provided that if the Purchase Rights involve voting securities, the Corporation will make available to each holder of Class B Preferred, at such holder's request, Purchase Rights involving non-voting securities which are otherwise identical to the Purchase Rights involving voting securities and which non-voting securities are convertible into such voting securities on the same terms as Class B Common is convertible into Class A Common. V. Terms Applicable Only to Class C Preferred. 1. Dividends. When and as any dividend or distribution is declared or paid by the Corporation on Cammon Stock, whether payable in cash, property, securities or rights to acquire securities (except for dividends payable in shares of Common Stock or securities convertible into, or rights to acquire, shares of Common Stock and except for Purchase Rights which the holders of Class C Preferred are entitled to acquire pursuant to part 4 of subdivision IV), the holders of Class C Preferred will be entitled to participate with the holders of Common Stock in such dividend or distribution as set forth in this part 1; provided, however, that the Corporation may pay no dividend and make no distribution on the Class C Preferred (except for the Purchase Rights which the holders of Class C Preferred are entitled to acquire pursuant to part 4, subdivision IV) unless it first shall have paid all dividends and made all distributions then due on the Class D Preferred; provided further, that the payment of any dividend on the Class C Preferred shall be subject to Section C, subdivision VII.2C. hereof. At the time such dividend or distribution is payable to the holders of Common Stock, the Corporation will pay to each holder of Class C Preferred such holder's share of such dividend or distribution equal to the amount of the dividend or distribution per share of Common Stock payable at such time multiplied by the number of shares of Voting Common obtainable upon conversion of such holder's Class C Preferred. -23- 2. Voting Rights. Except as otherwise provided by law, the Class C Preferred will be entitled to vote with the Class A Common and Class D Preferred, voting together as a single class, on all matters to be voted on by the Corporation's stockholders, with each Share of Class C Preferred entitled to the number of votes equal to the number of shares of Voting Common obtainable upon conversion of such Share of Class C Preferred. Under no circumstances, however, shall holders of the Class C Preferred, in their capacity as such, have the right to participate in the class vote of any other class of securities, including but not limited to the vote of the holders of Class D Preferred to elect directors pursuant to Section C, subdivision IV. VI. Miscellaneous. 1. Registration of Transfer. The Corporation will keep at its principal office a register for the registration of 1981 Preferred Stock. Upon the surrender of any certificate representing 1981 Preferred Stock at such place, the Corporation will, at the request of the record holder of such certificate, execute and deliver (at the Corporation's expense) a new certificate or certificates in exchange therefor, representing in the aggregate the number of shares represented by the surrendered certificate. Each such new certificate will be registered in such name and will represent such number of shares as is requested by the holder of the surrendered certificate and will be substantially identical in form to the surrendered certificate, and (if applicable) dividends will accrue on the 1981 Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such 1981 Preferred Stock represented by the surrendered certificate. 2. Replacement. Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder will be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing one or more Shares of 1981 Preferred Stock, and in the case of any such loss, theft or destruction, upon receipt of loss bond or other indemnity reasonably satisfactory to the Corporation (provided that if the holder is an institution its own agreement will be satisfactory), the Corporation will (at its expense) execute and deliver in lieu of such certificate a new certificate representing the number of shares represented by such lost, stolen, destroyed or mutilated certificate, and (if applicable) dividends will accrue on the 1981 Preferred Stock represented by such new certificate from the date to which dividends have been fully -24- paid on such 1981 Preferred Stock represented by the lost, stolen, destroyed or mutilated certificate. 3. Definitions. "Bankruptcy Code" means the federal bankruptcy code, as amended, or any similar federal law then in force. "Common Stock" means, for purposes of subdivision IV, collectively, the Class A Common, the Class B Common and any capital stock of any class of the Corporation hereafter authorized which is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Corporation. "Common Stock Deemed Outstanding" means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to part 2 of subdivision IV, plus the shares of Common Stock obtainable upon con version of the Class B Preferred and the Class C Preferred outstanding at such time. "Junior Securities" means any equity securities of any kind (but not including any debt securities convertible into equity securities) which the Corporation or any Subsidiary at any time issues or is authorized to issue other than the Preferred Stock. "Liquidation Value" of any Share of Class A Preferred as of any particular date will be equal to the sum of $10 plus any unpaid dividends on such Share added to the Liquidation Value of such Share on any Dividend Reference Date and not thereafter paid; and, in the event of any liquidation, dissolution or winding up of the Corporation or the redemption of such Share, unpaid dividends on such Share will be added to the Liquidation Value of such Share on the payment date in any liquidation, dissolution or winding up or on the Redemption Date, as the case may be, accrued to the close of business on such payment date or Redemption Date. "Liquidation Value" of any Share of Class B Preferred as of any particular date will be equal to the sum of $83.75; provided that in the event of any liquidation, dissolution or winding up of the Corporation or the redemption of any such Share, unpaid dividends on such Share will be added to the Liquidation Value of such Share on the payment date in any liquidation, dissolution or winding up or on the -25- Redemption Date, as the case may be, accrued to the close of business on such payment date or Redemption Date. "Liquidation Value" of any Share of Class C Preferred as of any particular date will be $83.75. "Market Price" of any security means the average of the closing prices of such security's sales on all securities exchanges on which such security may at the time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security is not quoted in the NASDAQ System, the average of the high and low bid and asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of 21 days consisting of the day as of which "Market Price" is being determined and the 20 consecutive business days prior to such day. If at any time such security is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the "Market Price" will be the fair value thereof determined jointly by the Corporation and the holders of a majority of the 1981 Convertible Preferred Stock (based upon the aggregate Liquidation Value thereof). If such parties are unable to reach agreement, such fair value will be determined by appraisers jointly selected by the Corporation and the holders of a majority of the 1981 Convertible Preferred Stock (based upon the aggregate Liquidation Value thereof). "Material Subsidiary" means any Subsidiary with respect to which the Corporation has directly or indirectly invested, loaned, advanced or guaranteed the obligations of, an aggregate amount exceeding $500,000. "Non-Voting Common" means shares of the Corporation's authorized but unissued Class B Common; provided that if there is a change such that the securities issuable upon conversion of the Class B Preferred are issued by an entity other than the Corporation or there is a change in the class of securities so issuable then the term "Non-Voting Common" will mean one share of the security issuable upon conversion of the Class B Preferred if such security is issuable in shares, or will mean the smallest unit in which such security is issuable if such security is not issuable in shares. -26- "Offset Share": a holder of 1981 Convertible Preferred Stock will be deemed to hold one Offset Share for each Share converted by such holder pursuant to this Article FOURTH at any time prior to such Share's Redemption Date and for each Share otherwise acquired by the Corporation from such holder other than in a redemption, and an Offset Share will cease to be an Offset Share when it is applied to reduce the number of Shares to be redeemed in any Redemption. When any holder transfers any portion of such holder's outstanding Shares to any other Person, the transferor will be deemed to have transferred to the transferee an equal portion of the transferor's Offset Shares, unless the parties to such transaction otherwise agree in a writing deposited with the secretary of the Corporation at the time of such transfer. "Person" means an individual, a partnership, a corporation, a trust, a joint venture, an unincorporated organization and a government or any department or agency thereof. "Exchange Agreement" means the Exchange Agreement by and among the Corporation and certain persons, pursuant to which such persons acquired the Class A Preferred, the Class B Preferred and the Class C Preferred, as such agreement may from time to time be amended in accordance with its terms. "Purchase Price" of the Class B Preferred equals $83.75 per Share. "Redemption Date" as to any Share means the date specified in the notice of any redemption at the Corporation's option or the applicable date specified herein in the case of any other redemption; provided that no such date will be a Redemption Date unless the applicable Redemption Price is actually paid in full on such date, and if not so paid in full, the Redemption Date will be the date on which such Redemption Price is fully paid. If the notice of redemption has been duly given and if on or before the date specified in such notice the funds necessary for such redemption have been reserved and set aside by the Corporation so as to be and continue to be available therefor, then, notwithstanding that any certificate for Shares so called for redemption has not been surrendered for cancellation, after the close of business on such date of redemption, the Shares so called for redemption will no longer be deemed outstanding, the dividends thereon shall cease to accrue, and all rights with respect to Shares so called for redemption, including the rights, if any, to receive notice and to vote, will forthwith after the close of business on such redemption date cease, -27- except only the right of the holders thereof to receive the amount payable upon redemption thereof, without interest. "Subsidiary" means any corporation of which the shares of stock having a majority of the general voting power in electing the board of directors are, at the time as of which any determination is being made, owned by the Corporation either directly or indirectly through Subsidiaries. "Voting Common" means shares of the Corporation's authorized but unissued Class A Common; provided that if there is a change such that the securities issuable upon conversion of the Class C Preferred are issued by an entity other than the Corporation or there is a change in the class of securities so issuable then the term "Voting Common" will mean one share of the security issuable upon conversion of the Class C Preferred if such security is issuable in shares, or will mean the smallest unit in which such security is issuable if such security is not issuable in shares. 4. Amendment and Waiver. No amendment, modification or waiver will be binding or effective with respect to any provision of (i) subdivision I without the prior written consent of the holders of a majority of the Class A Preferred and Class B Preferred outstanding at the time such action is taken, (ii) parts 1 or 2 of subdivision III without the prior written consent of the holders of a majority of the Class A Preferred outstanding at the time such action is taken, (iii) part 3 of subdivision III without the prior written consent of the holders of a majority of the Class B Preferred outstanding at the time such action is taken, (iv) subdivision IV without the prior written consent of the holders of a majority of the 1981 Convertible Preferred Stock outstanding at the time such action is taken, (v) subdivision V without the prior written consent of the holders of a majority of the Class C Preferred outstanding at the time such action is taken, or (vi) subdivision II or VI without the prior written consent of the holders of a majority of the 1981 Preferred Stock outstanding at the time such action is taken; provided that no such action will change (a) the rate at which or the manner in which dividends on the Class A Preferred or the Class B Preferred accrue or the times at which such dividends become payable without the prior written consent of the holders of at least 90% of the Class A Preferred and the Class B Preferred then outstanding, (b) the amount payable on redemption of the 1981 Preferred Stock or the times at which redemption of 1981 Preferred Stock is to take place without the prior written consent of the holders of at least 90% of the 1981 Preferred Stock then outstanding, (c) the Conversion Price of the 1981 Convertible Preferred Stock or the number -28- of shares or the class of stock into which the 1981 Convertible Preferred Stock is convertible without the prior written consent of the holders of at least 90% of the 1981 Convertible Preferred Stock then outstanding, or (d) the percentage required to approve any change described in clauses (a), (b) and (c) above without the prior written consent of the holders of at least 90% of the Class '. Preferred and the Class B Preferred (in the case of (a)), the 1981 Preferred Stock (in the case of (b)) or the 1981 Convertible Preferred Stock (in the case of (c)) then outstanding. For purposes of this part 4, the consent of the holders of the requisite percentage of 1981 Preferred Stock or any class or classes thereof will be determined upon the basis of the aggregate Liquidation Value of the class or classes of 1981 Preferred Stock in question. 5. Generally Accepted Accounting Principles. When any accounting determination or calculation is required to be made hereunder, such determination or calculation (unless otherwise provided) will be made in accordance with generally accepted accounting principles, consistently applied, except that if because of a change in generally accepted accounting principles the Corporation would have to alter a previously utilized accounting method or policy in order to remain in compliance with generally accepted accounting principles, such determination or calculation will continue to be made in accordance with the Corporation's previous accounting methods and policies unless the Corporation has obtained the prior written consent of the holders of a majority of the 1981 Preferred Stock then outstanding (based upon the aggregate Liquidation Value thereof). 6. Notices. All notices referred to herein, except as otherwise expressly provided, will be made by registered or certified mail, return receipt requested, postage prepaid, and will be deemed to have been given when so mailed. SECTION B. COMMON STOCK Except as otherwise provided herein, all shares of Class A Common and Class B Common will be identical and will entitle the holders thereof to the same rights and privileges. 1. Voting Rights. Except as otherwise required by law, the Class A Common will be entitled to one vote per share on all matters to be voted on by the Corporation's stockholders and will vote as a single class on all such matters together with the Class C Preferred and Class D -29- Preferred as provided herein and the holders of Class B Common will have no right to vote on any matters to be voted on by the Corporation's stockholders. Under no circumstances, however, shall holders of the Class A Common, in their capacity as such, have the right to participate in the class vote of any other class of securities, including but not limited to the vote of the holders of Class D Preferred to elect, as a class, directors, as provided in Section C, subdivision IV. Subject to any required consent of the holders of any class or classes of the Preferred Stock then outstanding, the authorized amount of shares of Class A Common may, without a separate class or series vote, be increased or decreased from time to time by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote thereon. 2. Dividends. When and as dividends are declared thereon, whether payable in cash, property or securities of the Corporation, the holders of Class A Common and the holders of Class B Common will be entitled to share equally, share for share, in such dividends; provided that if dividends are declared which are payable in shares of Class A Common or Class B Common, dividends will be declared which are payable at the same rate on both classes of stock, and the dividends payable in shares of Class A Common will be payable to holders of Class A Common and the dividends payable in shares of Class B Common will be payable to holders of Class B Common. No dividend on any share of Common Stock may be declared or paid, however, unless all dividends due on the 1981 Preferred Stock shall have been paid and unless all dividends due on the Class D Preferred shall have been provided for as set forth in Section C, subdivision II.1; provided, however, dividends payable in shares of Common Stock or securities convertible into or rights to acquire Common Stock may be paid. 3. Conversion. 3A. Conversion of Class B Common. Each record holder of Class B Common is entitled at any time to convert any or all of the shares of such holder's Class B Common into the same number of shares of Class A Common; provided that no holder of Class B Common is entitled to convert any share or shares of Class B Common to the extent that, as a result of such conversion, such holder or its affiliates would directly or indirectly own, control or have power to vote a greater quantity of securities of any kind issued by the Corporation than such holder and its affiliates are permitted to own, control or have power to vote under any law or under any regulation, rule or other requirement of any governmental -30- authority at any time applicable to such holder and its affiliates. 3B. Conversion Procedure. (i) Each conversion of shares of Class B Common into shares of Class A Common will be effected by the surrender of the certificate or certificates representing the shares to be converted at the principal office of the Corporation at any time during normal business hours, together with a written notice by the holder of such Class B Common stating that such holder desires to convert the shares, or a stated number of the shares, of Class B Common represented by such certificate or certificates into Class A Common and that upon such conversion such holder and its affiliates will not directly or indirectly own, control or have the power to vote a greater quantity of securities of any kind issued by the Corporation than such holder and its affiliates are permitted to own, control or have the power to vote under any applicable law, regulation, rule or other governmental requirement (and such statement will obligate the Corporation to issue such Class A Common). Such conversion will be deemed to have been effected as of the close of business on the date on which such certificate or certificates have been surrendered and such notice has been received, and at such time the rights of the holder of the converted Class B Common as such holder will cease and the person or persons in whose name or names the certificate or certificates for shares of Class A Common are to be issued upon such conversion will be deemed to have become the holder or holders of record of the shares of Class A Common represented thereby. (ii) Promptly after such surrender and the receipt of such written notice, the Corporation will issue and deliver in accordance with the surrendering holder's instructions (a) the certificate or certificates for the Class A Common issuable upon such conversion and (b) a certificate representing any Class B Common which was represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which was not converted. (iii) If the Corporation in any manner subdivides or combines the outstanding shares of one class of Common Stock, the outstanding shares of the other class of Common Stock will be proportionately subdivided or combined. -31- (iv) The issuance of certificates for Class A Common upon conversion of Class B Common will be made without charge to the holders of such shares for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of Class A Common. (v) The Corporation will not close its books against the transfer of Class B Common or of Class A Common issued or issuable upon conversion of Class B Common in any manner which would interfere with the timely conversion of Class B Common. 4. Registration of Transfer. The Corporation will keep at its principal office (or such other place as the Corporation reasonably designates) a register for the registration of shares of Common Stock. Upon the surrender of any certificate representing shares of any class of Common Stock at such place, the Corporation will, at the request of the registered holder of such certificate, execute and deliver a new certificate or certificates in exchange therefor representing in the aggregate the number of shares of such class represented by the surrendered certificate, and the Corporation forthwith will cancel such surrendered certificate. Each such new certificate will be registered in such name and will represent such number of shares of such class as is requested by the holder of the surrendered certificate and will be substantially identical in form to the surrendered certificate. The issuance of new certificates will be made without charge to the holders of the surrendered certificates for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such issuance. 5. Replacement. Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder will be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing one or more shares of any class of Common Stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (provided that if the holder is a financial institution its own agreement will be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Corporation will (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate. -32- SECTION C. CLASS D PREFERRED STOCK I. Issuance in Series and Limitations as to Variations Between Series: 1. Designation and Number of Shares. The Class D Preferred shall be issuable in two series, designated and comprising the numbers of Shares, as follows: (i) Class D 8% Convertible Preferred Stock-Series 1, par value $.10 per share (the "Class D-1 Preferred") comprised of 45,681 Shares and no more; and (ii) Class D 8% Convertible Preferred Stock-Series 2, par value $.10 per share (the "Class D-2 Preferred") comprised of 27,408 Shares and no more; 2. Issuance of Class D-2 Preferred. Shares of Class D-2 Preferred shall be deemed to be and shall be automatically issued upon the occurrence of the Second Closing under the Note and Stock Purchase Agreements in discharge of the obligations under the Short-Term Promissory Notes-Series 1 at the rate of one share of Class D-2 Preferred for each $210 principal amount of such Notes, as provided in each such Short-Term Promissory Note-Series 1 and in the Note and stock Purchase Agreements. 3. Limitations as to Variations. The Class D-l Preferred and the Class D-2 Preferred (collectively referred to as the "Class D Preferred") shall rank equally with each other and shall be identical in all respects, except as provided in subdivision VIII.1A. below with respect to initial Conversion Price and except with respect to date of issue. II. Dividends. 1. General Obligation. When and as the first cash dividend, if any, is declared or paid by the board of directors of the Corporation on Common Stock in each calendar year, the board of directors shall declare and the Corporation shall pay a dividend at the rate of 8% per annum of the Liquidation Value of the Class D Preferred to the holders thereof as provided in this part II; provided, however, if dividends as declared on the Common Stock and on the Class D Preferred are not permitted under applicable law, dividends declared on the Common Stock shall be reduced so that dividends on the Class D Preferred may be paid. Each such dividend on the Class D Preferred shall be due and payable no later than the date on which the dividend on the -33- Common Stock giving rise to such dividend on the Class D Preferred is payable (whether or not the board of directors of the Corporation have declared a dividend on the Class D Preferred); provided, however, that no more than one such 8% dividend shall be paid in any calendar year irrespective of the number of cash dividends which may be declared in such year. 2. Distribution of Partial Dividend Payments. If at any time the Corporation pays less than the total amount of dividends then due and payable with respect to the Class D Preferred, such payment will be distributed among the holders of such class so that an equal amount will be paid with respect to each outstanding Share. No dividend due on the Class C Preferred may be paid until all amounts then due on the Class D Preferred shall have been paid (except for the Purchase Rights which the holders of Class C Preferred are entitled to acquire pursuant to part 4 of subdivision IV of Section A). No dividend due on the Common Stock may be paid until all amounts then due on the Class D Preferred, as well as any amounts that initially would become due on the Class D Preferred upon the payment to holders of Common Stock, shall have been paid, provided, however, dividends payable in shares of Common Stock or securities convertible into or rights to acquire Common Stock may be paid. III. Voting Rights. Except as otherwise provided by law, the Class D Preferred will be entitled to vote with the Class A Common and Class C Preferred, voting together as a single class, on all matters to be voted on by the Corporation's stockholders, with each Share of Class D Preferred entitled to the number of votes equal to the number of shares of Voting Common obtainable upon conversion of such Share of Class D Preferred, calculated as of the date of the record date,for each vote. In addition, the Class D Preferred shall be entitled to vote as a class on matters as to which they are entitled to a class vote under applicable law; provided further that the rights of the Class D Preferred as a class may not be diminished in any way without the approval of 51% of the shares of Class D Preferred. IV. Class D Directors. In addition to such voting rights as are described in subdivision III, so long as (i) the Corporation shall not have any class of Common Stock registered under Section 12 of the Securities Exchange Act of 1934 and (ii) the total number of votes to which the holders of the Class D Preferred then -34- outstanding shall be entitled exceeds 17% of the total number of votes which may be cast generally for the election of Directors, then the holders of the Class D Preferred outstanding shall have the right, as a class, to nominate, elect and maintain in office two Directors to the board of directors of the Corporation; provided, however, that if at any time the board of directors shall be or shall be authorized to be composed of more than 10 directors the holders of the Class D Preferred outstanding shall have the right, as a class, to nominate and elect a number of additional Directors no greater than necessary to bring the percentage of authorized Directors chosen by the holders of the Class D Preferred pursuant to this subdivision IV to at least 20%. The term of office of any Director elected pursuant to the preceding sentence shall not extend beyond the first to occur of the events specified in clauses (i) and (ii) of such preceding sentence. In any election of directors pursuant to this subdivision IV (and not in an election of directors generally), each holder of Class D Preferred shall be entitled to as many votes as shall equal (x) the number of votes which (except for the provision as to voting set forth in this sentence) such holder would be entitled to cast for the election of directors generally With respect to the shares of Class D Preferred held by such holder multiplied by (y) the number of directors to be elected pursuant to this subdivision IV, and such holder may cast the resulting number of votes for a single director or distribute them among the number of directors to be voted for, or for any two or more of such directors as the holder may see fit. V. Liquidation. 1. Upon any liquidation, dissolution or winding up of the Corporation, each holder of Class D Preferred will be entitled to be paid, before any distribution or payment is made upon the 1981 Preferred Stock or any Junior Securities, an amount in cash equal to the aggregate Liquidation Value of all Shares held by such holder, and the holders of Class D Preferred will not be entitled to any further payment. If the net assets of the Corporation shall be insufficient to permit the payment to holders of all outstanding shares of all classes of Preferred Stock of the full amounts to which they are entitled, then the assets of the Corporation shall be distributed (i) first to the holders of the Class D Preferred, until such holders are paid the aggregate amount which they are entitled to be paid, or, if the assets to be distributed are insufficient for such purpose, the entire assets to be distributed will be distributed ratably among such holders based upon the aggregate Liquidation Value of -35- the Class D Preferred held by each such holder, and (ii) second, the balance (if any) will be distributed among the holders of all outstanding shares of Preferred Stock other than the Class D Preferred in accordance with the provisions of Section A hereof. The Corporation will mail written notice of such liquidation, dissolution or winding up, not less than 60 days prior to the payment date stated therein, to each record holder of Class D Preferred. Neither the consolidation or merger of the Corporation into or with any other corporation or corporations, nor the sale or transfer by the Corporation of all or any part of its assets, nor the reduction of the capital stock of the Corporation, will be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this subdivision V. 2. Notwithstanding the foregoing, if at any time any Class D Preferred shall have been outstanding for at least three years, is registered under Section 12 of the Securities Exchange Act of 1934, and the Class A Common or other security into which the Class D Preferred shall be convertible has traded on a national securities exchange or NASDAQ on each of 20 consecutive days at a price per share of at least 170% of the then-applicable Conversion Price, then the Class D Preferred shall from such time be pari passu with the Class A Preferred with respect to liquidation preferences, and the rights of holders of shares of Class D Preferred with respect to liquidation shall be the same as if such shares were shares of Class A Preferred. VI. Redemptions 1. Scheduled Redemptions. 1A. The Corporation will redeem 25% of the original total number of Shares of Class D Preferred issued on the First Closing Date, each of the Delayed First Closing Dates, if any, and the Second Closing Date, if any, or such lesser number then outstanding on June 30 of each year, commencing in 1995 and ending in 1998 (the "Class D Scheduled Redemption Dates") at a price per share equal to the Redemption Price as defined in subdivision VI.3A. 1B. If any Shares of Class D Preferred are converted pursuant to subdivision VIII other than in a situation described in the immediately following sentence, the number of Shares of Class D Preferred thereafter to be redeemed pursuant to subdivision VI.1A. on each subsequent Class D Scheduled Redemption Date shall be reduced in the same proportion as the number of Shares of Class D Preferred outstanding immediately prior to such conversion is reduced -36- by the conversion pursuant to subdivision VIII. If a notice of redemption pursuant to subdivision VI.3B. has been given and thereafter any Share or Shares of Class D Preferred to which such notice relates shall have been converted into Common Stock pursuant to Section VIII prior to the Redemption Date to which such notice relates, such Share or Shares shall, for the purposes of subdivision VI.1A. hereof, be deemed to have been redeemed to the extent so converted. 2. Optional Redemptions. The Corporation may not redeem at its option any Shares of Class D Preferred prior to June 30, 1990. The Corporation may, at any time on or after June 30, 1990, at its option, upon notice as provided in subdivision VI.3B., on the date specified in such notice, redeem as a whole, but not in part, all of the shares of Class D Preferred then outstanding at the following prices per Share (expressed as a percentage of the Redemption Price, as defined in subdivision VI.3A.), together with due and payable but unpaid dividends, if any, to the Redemption Date (as defined in subdivision VI.B.):
Redemption to be made during the 12-month period beginning June 30 Percentage - ------------------------ ---------- 1990 140% 1991 130 1992 120 1993 110 1994 105 1995 105 1996 105 thereafter 100
3. General Terms of Scheduled and Optional Redemptions. 3A. Redemption Price. For each Share of Class D Preferred which is to be redeemed, the Corporation will be obligated on the Redemption Date to pay to the holder thereof an amount in cash equal to the respective Liquidation Value of such Share (the "Redemption Price"). If the funds of the Corporation legally available for redemption of Shares of the Class D Preferred on any Redemption Date are insufficient to redeem the total number of Shares to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of Shares pro rata among the holders of the Shares to be redeemed and the amount equal to the Redemption Price of the Shares that have not been redeemed because of such insufficiency of funds shall remain -37- due and payable and shall be deemed to increase at a rate of 15% per annum until such Shares have been redeemed. At any time thereafter when additional funds of the Corporation are legally available for the redemption of Shares of Class D Preferred, such funds will immediately be used to redeem the balance of the Shares which the Corporation has become obligated to redeem on any Redemption Date but which it has not redeemed including the deemed increase in Redemption Price set forth in the last preceding sentence. No dividends may be paid on the Common Stock so long as there remains due and payable any amount with respect to the Class D Preferred, provided, however, dividends payable in shares of Common Stock or securities convertible into or rights to acquire Common Stock may be paid. 3B. Notice of Redemption. The Corporation will mail written notice of each redemption of Class D Preferred to each record holder of Class D Preferred not more than 60 days nor less than 30 days prior to the date on which such redemption is to be made (the "Redemption Date"), in each case specifying such date, the aggregate number of Shares to be redeemed on such date, the number of Shares held by such holder to be redeemed on such date, the Redemption Price and the dividend due and payable, if any, applicable to such redemption. Each such notice shall be accompanied by an Officers' Certificate certifying that the conditions of subdivision VI.1 or VI.2 have been fulfilled in connection with such redemption and specifying the particulars of such fulfillment. Upon mailing any notice of redemption which relates to a redemption at the Corporation's option, the Corporation will become obligated to redeem all of the Shares of Class D Preferred then outstanding. In the event of a scheduled redemption, if fewer than the total number of Shares represented by any certificate are redeemed, a new certificate representing the number of unredeemed Shares will be issued to the holder thereof without cost to such holder promptly upon the surrender of the certificate representing the redeemed Shares. 3C. Determination of the Number of Each Holder's Shares to be Redeemed Pursuant to Scheduled Redemptions. The number of Shares of Class D Preferred to be redeemed from each holder thereof in scheduled redemptions hereunder will be the number of whole Shares, as nearly as practicable to the nearest Share, determined by multiplying the total number of Shares of Class D Preferred to be redeemed times a fraction, the numerator of which will be the total number of Shares of Class D Preferred then held by such holder and the denominator of which will be the total number of Shares of Class D Preferred then outstanding, provided, however on the -38- last Class D Scheduled Redemption Date, all shares of Class D Preferred shall be redeemed. 3D. Certain Consequences of Redemption. If the notice of redemption has been duly given and if and only if on or before the date specified in such notice the funds necessary for such redemption have been reserved and set aside by the Corporation so as to be and continue to be available therefor, then, notwithstanding that any certificate for Shares so called for redemption has not been surrendered for cancellation, after the close of business on such date of redemption, the Shares so called for redemption will no longer be deemed outstanding, and all rights with respect to Shares so called for redemption, including the rights, if any, to receive notice and to vote, will forthwith after the close of business on such redemption date cease, except only the right of the holders thereof to receive the amount payable upon redemption thereof, without interest. 3E. Redeemed or Otherwise Acquired Shares. Any Shares of Class D Preferred which are redeemed or otherwise acquired by the Corporation will be cancelled and will not be reissued, sold or transferred. 3F. Other Redemptions or Acquisitions. Neither the Corporation nor any Subsidiary will redeem or otherwise acquire any Class D Preferred, except as expressly authorized herein or pursuant to a purchase offer made to all holders of Class D Preferred, pro rata, based upon the number of Shares held by each holder, but no such purchase shall modify the mandatory redemption obligations under subdivision VI.1A. VII. Events of Noncompliance. 1. Definition. 1A. An Event of Noncompliance will be deemed to have occurred if: (i) the Corporation fails to pay on any date the full amount of dividends then due and payable on the Class D Preferred, whether or not such payment is legally permissible or the Corporation fails to make any redemption payment with respect to the Class D Preferred which it is obligated to make, whether or not such payment is legally permissible; (ii) the Corporation breaches or otherwise fails to perform or otherwise observe any covenant or agreement set forth in Section 12.12 of the Note and Stock Purchase Agreements or the Corporation fails to make any prepayment which -39- it is obligated to make as set forth in Section 10 of the Note and Stock Purchase Agreements; (iii) the Corporation breaches or otherwise fails to perform or otherwise observe any covenant or agreement set forth in Sections 12.1, 12.2, 12.4, 12.7(a) and (b) insofar as subsections 12.7(a) and (b) relate to the Corporation or CasChem, of the Note and Stock Purchase Agreements or the Corporation or CasChem fails to preserve and keep in full force and effect its corporate existence; (iv) the Corporation breaches or otherwise fails to perform or observe any other covenant or agreement set forth in this Section C of this Restated Certificate of Incorporation, in the Note and Stock Purchase Agreements, in the Notes or in the Registration Rights Agreement; (v) any material representation or warranty contained in the Note and Stock Purchase Agreements or required to be furnished to any Purchaser of Class 0 Preferred pursuant to the Note and Stock Purchase Agreements on or before the date of issuance of the Class D Preferred is false or misleading in any material respect on the date made or furnished; (vi) any written information furnished by the Corporation or any Subsidiary to any holder of Class D Preferred pursuant to the Note and Stock Purchase Agreements after the date of issuance of the Class D Preferred is, to the Corporation's or such Subsidiary's knowledge after due inquiry, false or misleading in any material respect on the date made or furnished; (vii) the Corporation or any Subsidiary makes an assignment for the benefit of creditors or admits in writing its inability to pay its debts generally as they become due; or an order, judgment or decree is entered adjudicating the Corporation or any Subsidiary bankrupt or insolvent under the Bankruptcy Code or the Corporation or any Subsidiary is a debtor-in-possession under the Bankruptcy Code; or any order for relief with respect to the Corporation or any Subsidiary is entered under the Bankruptcy Code; or the Corporation or any Subsidiary petitions or applies to any tribunal for the appointment of a custodian, trustee, receiver or liquidator of the Corporation or any Subsidiary or of any substantial part of the assets of the Corporation or any Subsidiary, or commences any proceeding (other than a proceeding for the voluntary liquidation and dissolution of a Subsidiary) relating to the Corporation or any Subsidiary under any bankruptcy, reorganization, arrangement, insolvency, -40- readjustment of debt, dissolution or liquidation law of any jurisdiction; or any such petition or application is filed, or any such proceeding is commenced, against the Corporation or any Subsidiary and either (a) the Corporation or any such Subsidiary by any act indicates its approval thereof, consent thereto or acquiescence therein or (b) such petition, application or proceeding is not dismissed within 60 days; (viii) a judgment in excess of $500,000 is rendered against the Corporation or any Subsidiary and, within 60 days after entry thereof, such judgment is not discharged or execution thereof stayed pending appeal, or within 60 days after the expiration of any such stay, such judgment is not discharged; or (ix) the Corporation or any Subsidiary defaults in the performance of any obligation, if the effect of such default is to cause an amount exceeding $500,000 to become due prior to its stated maturity, or to permit the holder or holders of such obligation to cause an amount exceeding $500,000 to become due prior to its stated maturity. 1B. An Event of Noncompliance will not be deemed to have occurred with respect to the matters described in subdivision VII.1A.(iv) or VII.1A.(v) if the Corporation establishes that (a) in the case of subdivision VII.1A.(iv), the particular Event of Noncompliance has not been caused by knowing or purposeful conduct by the Corporation or any Subsidiary and the Corporation has exercised, and continues to exercise, best efforts expeditiously to cure the Event of Noncompliance (if cure is possible), (b) in the case of subdivision VII.1A.(v), the particular Event of Noncompliance has not been caused by a knowing or willful misstatement or misrepresentation on the part of the Corporation, (c) in the case of both such subdivisions, the Event of Noncmpliance is not material to the Corporation's financial condition, opera- tions, assets, or business prospects, and (d) in the case of both such subdivisions, the Event of Noncompliance is not material to any holder's investment in the Class D Preferred. 2. Consequence of Certain Events of Noncompliance. 2A. If an Event of Noncompliance of the type described in subdivision VII. 1A.(ii), (iii) or (iv) has occurred and continued for a period of 30 days or any other Event of Noncompliance has occurred, the dividend rate on the Class D Preferred will increase immediately by an increment of 0.5X per annum and dividends shall automatically accrue and shall cumulatively accrue. Thereafter, until such time -41- as no Event of Noncompliance exists, the dividend rate on the Class D Preferred will increase automatically at the end of each succeeding 90-day period by an additional increment of 0.5% per annum (but in no event will the dividend rate exceed lO% per annum). Any increase of the dividend rate resulting from the operation of this subdivision will terminate as of the close of business on the date on which no Event of Noncompliance exists, subject to subsequent increases pursuant to this subdivision provided, however, dividends shall continue to accrue automatically (at 8% per annum) and shall cumulatively accrue until 12 months after such Event of Noncompliance shall have been removed and all unpaid dividends due and payable shall have been paid. 2B. If Events of Noncompliance exist for an aggregate of 365 days (whether or not such days are successive), the Conversion Price of the Class D Preferred will be reduced immediately by 10% of the Conversion Price in effect immediately prior to such adjustment. Notwithstanding the foregoing, if no Events of Noncompliance exist for a period of 365 successive days, previous days in which Events of Noncompliance existed will not be counted in determining such adjustment. In no event will the Conversion Price adjustment be rescinded, and in no event will there be more than one Conversion Price adjustment pursuant to this subdivision. 2C. So long as an Event of Noncompliance of the type described in subdivision VII.A1,(i), (ii) or (iii) has occurred and is continuing, no dividends on the 1981 Preferred Stock shall be declared (except for dividends payable in shares of Common Stock or securities convertible into or rights to acquire Common Stock) and the Corporation shall not redeem any shares of 1981 Preferred stock. So long as an Event of Noncompliance of the type described in subdivision VII.1A.(i) or (ii) has occurred and is continuing, no dividends on the 1981 Preferred Stock shall be paid (except for dividends payable in shares of Common Stock or securities convertible into rights to acquire Common Stock). If, prior to the payment of a dividend on the 1981 Preferred Stock, an Event of Noncompliance of the type described in subdivision VII.lA.(iii) has occurred, and if such dividend, on the 1981 Preferred Stock had been declared pursuant to the terms and conditions of the 1981 Preferred Stock and such dividend is payable within 30 days of such declaration, such dividend may be paid provided that such payment is made within 30 days of such declaration. In addition, so long as the Corporation breaches or otherwise fails to perform or observe those provisions of Section 3.1 or 3.2 of the Registration Rights Agreement requiring the Corporation to file registration statements, governing the number of registration rights -42- granted, or otherwise requiring the Corporation to include in a registration statement the Common Stock issuable on conversion of Class D Preferred, the Corporation shall not redeem any shares of 1981 Preferred Stock. 2D. If an Event of Noncompliance exists, each holder of Class D Preferred will also have any other rights which such holder may have been afforded under any contract or agreement at any time and any other rights which such holder may have pursuant to applicable law. VIII. Conversions. 1. Conversion Procedure. 1A. At any time up to two days prior to the Redemption Date of any Share of Class D Preferred, the holder thereof may convert all or any portion of such holder's Shares of Class D Preferred into a number of shares of the Class A Common computed by multiplying the number of Shares to be converted by $165 if no Class D-2 Preferred have been issued, or by $210 if the Class D-2 Preferred have been issued pursuant to the terms of the Note and Stock Purchase Agreements, and dividing the result by the Conversion Price then in effect; provided, however, that no Class D-1 Preferred may be converted until the earlier of the date of issuance of the Class D-2 Preferred and the Cosan Termination Date. 1B. Each conversion of Class D Preferred will be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing the Class D Preferred to be converted have been surrendered at the principal office of the Corporation. At such time as such conversion has been effected, the rights of such holder of such Class D Preferred as such holder will cease and the Person or Persons in whose name or names any certificate or certificates for shares of Class A Common are to be issued upon such conversion will be deemed to have become the holder or holders of record of the shares of Class A Common represented thereby; provided, however, a conversion of Class D Preferred within 10 days after the receipt by a holder of notice of a declaration by the board of directors of the Corporation of a cash dividend on Common Stock will be deemed to have been effected one day prior to the record date for such cash dividend on Common Stock, provided, further that the Class D Preferred so deemed to have been converted shall not be entitled to any dividend on such Class D Preferred resulting from the declaration or payment of such cash dividend on the Common Stock. -43- 1C. As soon as possible after a conversion has been effected, the Corporation will deliver to the converting holder: (a) a certificate or certificates representing the number of shares of Class A Common issuable by reason of such conversion in such name or names and such denomination or denominations as the converting holder has specified; (b) payment in an amount equal to all due and payable dividends with respect to each Share of Class D Preferred converted, which have not been paid prior thereto, plus the amount payable under subdivision VIII.1E. below with respect to such conversion; and (c) a certificate representing any Shares of Class D Preferred which were represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which were not converted. 1D. If for any reason the Corporation is unable to pay any due and payable dividends on the Class D Preferred being converted, the Corporation will pay such dividends plus an amount equal to 15% per annum of such unpaid dividends, calculated from the date on which payment was due and payable to the date of payment, to the converting holder as soon thereafter as funds of the Corporation are legally available for such payment. At the request of any such converting holder, the Corporation will provide such holder with written evidence of its obligation to such holder. No dividends may be paid on the Common Stock so long as there remain due and payable any dividends or interest with respect to the Class D Preferred, provided, however, dividends payable in shares of Common Stock or securities convertible into or rights to acquire Common Stock may be paid. 1E. If any fractional interest in a share of Common Stock would, except for the provisions of this subdivision VIII.1E., be deliverable upon any conversion, the Corporation, in lieu of delivering the fractional share therefor, will pay an amount equal to the Conversion Price of such fractional interest as of the date of conversion; provided that if for any reason the Corporation is unable to pay the Conversion Price of any such fractional interest, the Corporation will issue such fractional share upon the conversion. -44- 1F. The issuance of certificates for shares of Common Stock upon conversion of Class D Preferred will be made without charge to the holders of such Class D Preferred for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of shares of Common Stock. 1G. The Corporation will not close its books against the transfer of Class D Preferred or of Common Stock issued or issuable upon conversion of Class D Preferred in any manner which interferes with the timely conversion of Class D Preferred. 2. Conversion Price. The Conversion Price for the Class D-1 Preferred shall initially be $165, and shall be adjusted at the date the Class D-2 Preferred shall have been issued by the Corporation, at which time the Conversion Price for the Class D-1 Preferred shall become $210; if no Class D-2 Preferred shall have been issued by the Corporation on or before December 31, 1985 (or such later date as indicated in writing by the holders of at least 50% in principal amount of the Short-Term Promissory Notes, as defined below), such adjustment to the Class D-1 Preferred shall no longer be applicable. The Conversion Price for the Class D-2 Preferred shall initially be $210. In order to prevent dilution of the conversion rights granted under this subdivision, the Conversion Price of Class D Preferred will be subject to adjustment from time to time pursuant to this subdivision VIII. 3. Adjustment of Conversion Price for Diluting Issues, etc. 3A. Formula Adjustments. (i) Issuance of Additional Shares of Common Stock. In case the Corporation shall at any time or from time to time after the date of the issuance of the Class D-1 Preferred issue or sell, or be deemed under any provision of this subdivision VIII to have issued or sold, any additional shares of Common Stock (except for issuances excluded pursuant to subdivision VIII.3H.) whether or not subsequently reacquired or retired by the Corporation, without consideration or for a consideration per share which shall be less than the Conversion Price in effect immediately prior to such issue or sale, then and in each such case, the Conversion Price in effect immediately prior to such issue or sale shall be reduced, effective concurrently with such issue or sale, -45- to a price (calculated to the nearest cent) determined by dividing, (a) an amount equal to the sum of (1) the aggregate number of shares of Common Stock outstanding immediately prior to such issue and sale, including, without duplication, those deemed to have been issued under any provision of subdivision VIII, and including, without duplication, the shares of Common Stock into which the Class B Preferred and Class C Preferred may be converted, multiplied by the then existing Conversion Price, and (2) the consideration, if any, received by the Corporation upon such issue or sale, by (b) the aggregate number of shares of Common Stock of all classes outstanding immediately after such issue or sale, including, without duplication, those deemed to have been issued under any provision of subdivision VIII and including, without duplication, the shares of Common Stock into which the Class B Preferred and Class C Preferred may be converted. For all purposes of this clause VIII.3A.(i), the provisions of the following subdivisions VIII.3B. through VIII.3G. shall be applicable. (ii) Liquidating Dividends. If Group declares a dividend upon the Common Stock payable other than in shares of Common stock or other than out of earnings or earned surplus (determined in accordance with GAAP, consistently applied) (a "Liquidating Dividend"), then Group will pay to the holders of Class D Preferred at the time of payment of a Liquidating Dividend an amount equal to the aggregate value of all Liquidating Dividends which would have been paid. On the Common Stock issuable on conversion of Class D Preferred had such Class D Preferred been converted immediately prior to the date on which a record is taken for such Liquidating Dividend, or, if no record is taken, the date as of which the record holders of Common Stock entitled to such dividends are to be determined. For purposes of this subsection (ii), a dividend other than in cash will not be considered payable out of earnings or earned surplus regardless of whether or not earnings or earned surplus are charged an amount equal to the fair value of such dividend. 3B. Options. In case at any time or from time to time the Corporation shall (whether directly or by assumption in a merger or otherwise) grant, issue or sell any Options, -46- whether or not such Options are immediately exercisable, then the maximum number of shares of Common Stock issuable upon the exercise of such Options (or issuable upon the conversion of any Convertible Securities issuable pursuant to such Options), without regard to any provision for subsequent adjustment of such number, shall be deemed to be outstanding and to have been issued immediately after the opening of business on the date of the grant of such Options. 3C. Convertible Securities. In case at any time or from time to time the Corporation shall (whether directly or by assumption in a merger or otherwise) issue or sell any Convertible Securities (other than any Convertible Security issued pursuant to an Option and the shares of Common Stock issuable upon the conversion of which have been or are to be deemed issued pursuant to subdivision VIII.3B.), whether or not such Convertible Securities are immediately convertible or exchangeable into Common Stock, then the maximum number of shares of Common Stock issuable upon the conversion or exchange of such Convertible Securities without regard to any provision for subsequent adjustment of such number shall be deemed to be outstanding and to have been issued immediately after the opening of business on the date of the issuance or sale of such Convertible Securities. 3D. Treatment of Expired Options and Unexercised Convertible Securities. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Securities without the exercise of such Option or right, the Conversion Price then in effect hereunder will be adjusted to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Covertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued. 3E. Stock Dividends, Subdivisions, etc. In case at any time or from time to time after the date of the issuance of the Class D Preferred the Corporation shall (i) declare or pay any dividend or make any other distribution upon any capital stock of the Corporation which is payable in Common Stock or Convertible Securities, or (ii) effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then, in any such event, the total number of additional shares of Common Stock, or (in the case of any such dividend or distribution payable in Convertible Securities) Convertible Securities issuable in payment of such dividend or distribution or to give effect to such sub- -47- division shall be deemed to have been issued immediately after the close of business on the record date (or other date) for the determination of holders of any class of securities in connection with such dividend, distribution, or subdivision. 3F. Determination of Consideration. (i) Cash Consideration. In case of the issuance of shares of Common Stock for a consideration part or all of which shall be cash, the amount of the cash consideration therefor shall be deemed to be the amount of cash received by the Corporation for such shares (or, if such shares of Common Stock are offered by the Corporation for subscription, the subscription price, or, if such shares of Common Stock are sold to underwriters or dealers for public offering without a subscription offering, the initial public offering price); after deducting therefrom (in cases other than issuances involving an underwritten public offering or a shelf registration on customary terms) any expenses incurred in connection therewith other than any compensation or discount in the sale, underwriting or purchase thereof by underwriters or dealers or others performing similar services. The consideration for shares of Common Stock deemed to have been issued under subdivision (ii) or (iii) of this subdivision shall be deemed to have been received by the Corporation at the time such shares of Common Stock are deemed to have been issued. (ii) Consideration other than Cash. In case of the issuance (otherwise than as a dividend or other distribution on any class of capital stock of the Corporation or upon conversion or exchange of any Convertible Securities or upon any exercise of any Options) of shares of Common Stock for a consideration part or all of which shall be other than cash, the amount of the consideration therefor other than cash shall be the fair value thereof as determined by the board of directors of the Corporation, irrespective of the accounting treatment thereof. The reclassification of securities other than Common Stock into securities including Common Stock shall be deemed to involve the issuance for a consideration other than cash of such Common Stock on the date fixed for the determination of security holders entitled to receive such Common Stock. (iii) Options and Convertible Securities. In case of the issuance of shares of Common Stock deemed to occur under subdivisions (38) or (3C) with respect to the conversion or exchange of any Convertible Securities (other than Notes or Class D Preferred) or the exercise of any Options of the Corporation, the amount of the consideration received by -48- the Corporation for such shares of Common Stock shall be deemed to be the total of (a) the amount of the consideration, if any, received by the Corporation upon the issuance of such Convertible Securities or the grant of such Options, as the case may be, plus (b) the minimum amount of the consideration, if any, other than the consideration received for such Convertible Securities or Options, received or deemed to be received by the Corporation (except on adjustment of interest or dividends) upon such conversion, exchange or exercise without regard to any provision for adjustment of such consideration. In determining the amount of the consideration received by the Corporation upon the issuance of such Convertible Securities or the grant of such Options, as the case may be, (x) except as otherwise provided in the following clauses (y) and (z), the amount of the consideration in cash and other than cash shall be determined pursuant to subdivisions VIII.3F(i), and VIII.3F(ii). (in each case as if all references therein to "shares of Common Stock", "shares" or "Common Stock" were references to such Convertible Securities or Options), (y) any such Convertible Securities or Options issued by way of dividend or other distribution on any class of capital stock of the Corporation shall be deemed to have been issued without consideration, and (z) if securities of the same class or series of a class as such Convertible Securities or Options were issued or granted for different amounts of consideration, or if some were issued for no consideration, then the amount of the consideration received by the Corporation upon the issuance or grant of each of the securities of such class or series, as the case may be, shall be deemed to be the mean average amount of the consideration received by the Corporation upon the issuance of all the securities of such class or series, as the case may be. Any Convertible Securities issued or any Option granted as a dividend or other distribution on any class of capital stock of the Corporation shall be deemed to have been issued or granted immediately after the opening of business on the date fixed for the determination of stockholders entitled to receive such dividend or other distribution and without consideration. (iv) Stock Dividends, etc. In case shares of Common Stock are deemed to have been issued pursuant to subdivision VIII.3E., relating to stock dividends and subdivisions, such shares shall be deemed to have been issued without consideration. 3G. Treasury Shares The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the disposition of any such shares shall be consid- -49- ered an issue or sale of Common Stock for the purposes of this subdivision VIII.3. 3H. Certain Issues Excepted. Anything in this subdivision VIII to the contrary notwithstanding, the Corporation shall not be required to make any adjustment of the Conversion Price in respect of any of the following (without duplication): (i) the issuance, exchange or transfer of the Notes or the issuance of Common Stock upon conversion of the Notes; (ii) the issuance, exchange or transfer of the Class D Preferred or the issuance of Common Stock upon conversion of the Class D Preferred; (iii) shares of Common Stock previously deemed to have been issued pursuant to subdivision VIII.3B. or VIII.3C.; (iv) the issuance of up to 8,000 shares of Common Stock in connection, with the employment of any Person by the Corporation or any Subsidiary including the issuance of options or rights with respect thereto; and (v) the issuance of shares of Common Stock and other securities upon the conversion of the Corporation's Class B Common, Class B Preferred and Class C Preferred in accordance with the terms in existence and applicable to such conversion on the date hereof. 3I. Determination of Consideration Under Certain Circumstances. Anything herein to the contrary notwithstanding, in case at any time after the date hereof the Corporation shall issue any shares of Common Stock or Convertible Securities, or any rights or options to purchase any such Common Stock or Convertible Securities, in connection with the acquisition by the Corporation or a Subsidiary of the stock or assets of any other corporation or the merger of any other corporation into the Corporation or a Subsidiary (or the merger of a Subsidiary into another corporation which thereby becomes a Subsidiary) under circumstances where on the date of the issuance of such shares of Common Stock or Convertible Securities or such rights or options the consideration per share received for such Common Stock or deemed to have been received for the Common Stock into which such Convertible Securities or such rights or options are -50- convertible is less than an amount equal to the then Conversion Price, but on the date the number of shares of Common Stock or Convertible Securities (or in the case of Convertible Securities other than stock, the aggregate principal amount of Convertible Securities) or the number of such rights or options (or the terms by which such number shall be determined) was approved by the Board of the Corporation (as evidenced by a resolution thereof) the consideration received per share for such Common Stock or deemed to have been received for the Common Stock into which such Convertible Securities or such rights or options are convertible or for which they are exercisable would not have been less than an amount equal to the Conversion Price thereof, such shares of Common Stock shall not be deemed to have been issued for less than an amount equal to the Conversion Price. 4. Other Securities. In case any Other Securities shall be issued or shall become subject to issue upon the conversion or exchange of any stock (or Other Securities) of the Corporation (or any issuer of Other Securities or any other Person referred to in subdivision VIII.5.) or to subscription, purchase or other acquisition pursuant to any Convertible Securities or Options issued by the Corporation (or any other issuer or Person) for a consideration such as to dilute the conversion rights of the holders of the Class D Preferred, the computations, adjustments and readjustments provided for in this subdivision VIII with respect to the Conversion Price shall be made as nearly as possible in the manner so provided and applied to determine the amount of Other Securities from time to time receivable upon the conversion of the Class D Preferred, so as to protect the holders of the Class D Preferred against the effects of such dilution. 5. Adjustments for Consolidation, Merger, Sale of Assets, Reorganization, etc. 5A. General Provisions. In case at any time the Corporation shall be a party to any transaction (including, without limitation, a merger, consolidation, sale of all or substantially all of the Corporation's assets or recapitalization of the Common Stock) in which the previously outstanding Common Stock shall be changed into or exchanged for different securities of the Corporation, common stock or other securities of another corporation or interests in a noncorporate entity or other property (including cash) or any combination of any of the foregoing (each such transaction being hereinafter referred to as a "Transaction", the date of -51- the consummation of the Transaction being hereinafter referred to as the "Consummation Date"), the Corporation (in the case of a recapitalization of the Common Stock) or such other corporation or entity (in each other case) being hereinafter referred to as the "Acquiring Company", and the common stock (or equivalent equity interests) of the Acquiring Company being hereinafter referred to as the "Acquirer's Common Stock"), then, as a condition to the consummation of the Transaction, lawful and adequate provisions shall be made so that, upon the basis and the terms and in the manner provided in subdivision VIII, each holder of Shares of Class D Preferred, upon the conversion thereof at any time after the consummation of the Transaction, shall be entitled to receive, in lieu of the Stock or Other Securities issuable upon such conversion prior to such consummation, the stock and other securities, cash and property to which such holder would have been entitled upon the consummation of the Transaction if such holder had converted such Shares of Class D Preferred immediately prior thereto (subject to adjustments from and after the Consummation Date as nearly equivalent as possible to the adjustments provided for in this subdivision VIII). 5B. Marketable Stock. The Corporation will not enter into or be a party to any Transaction following the consummation of which any holder of Shares of Class D Preferred would be entitled in accordance with the foregoing provisions of this subdivision VIII.5. to receive Acquirer's Common Stock or other securities of the Acquiring Company upon conversion of such Shares of Class D Preferred unless, immediately following the consummation thereof on the Consummation Date, all of the following requirements are fulfilled as to the Acquiring Company: (i) its common stock is listed on the New York Stock Exchange or the American Stock Exchange and such common stock continues to meet the requirements for listing thereon, and (ii) it is required to file, and in each of its three fiscal years immediately preceding the Consummation Date has filed, reports with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. 5C. Assumption of Obligations. Notwithstanding anything contained in this Certificate of Incorporation to the contrary, the Corporation will not effect any transaction unless, prior to the consummation thereof, each corporation or entity (other than the Corporation) which may be required to deliver any stock, securities, cash or property upon the -52- conversion of any Shares of Class D Preferred as provided herein shall assume, by written instrument delivered to the holder of such Shares of Class D Preferred, the obligation to deliver to such holder such shares of stock, securities, cash or property as, an accordance with the foregoing provisions, such holder may be entitled to receive, and such corporation or entity shall have similarly delivered to such holder an opinion of counsel for such corporation or entity, which counsel shall be reasonably satisfactory to such holder, stating that such Shares of Class D Preferred shall thereafter continue in full force and effect and the terms hereof (including, without limitation, all of the provisions of subdivision VIII shall be applicable to the stock, securities, cash or property which such corporation or entity may be required to deliver upon the exercise hereof. 6. Adjustments for Combinations, etc. In case the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. 7. Notice of Adjustments of Conversion Price. Whenever the Conversion Price is adjusted as provided in subdivision VIII, the Corporation shall promptly (and, in any event, not later than the thirtieth day following the occurrence of the event requiring such adjustment) compute the adjusted Conversion Price in accordance with subdivision VIII and shall prepare a report setting forth such adjustment and showing in detail the method of calculation and the facts upon which such adjustment is based, including a statement of (i) the consideration received or to be received by the Corporation for any additional shares of Common Stock issued or sold or deemed to have been issued, (ii) the number of shares of Common Stock outstanding or deemed to be outstanding, and (iii) the Conversion Price in effect immediately prior to such issue or sale and as adjusted on account therefor and, upon the request of any holder of the Shares of Class D Preferred, shall cause certified public accountants of recognized national standing (which may be the regular auditors of the Corporation) selected by the Corporation to verify such computation and report, if not previously verified at the request of any holder. The Corporation will promptly (and, in any event, not later than such thirtieth day) furnish a -53- copy of each such report and such verification to the holder of any Shares of Class D Preferred, and will, upon the written request at any reasonable time of the holder of any Shares of Class D Preferred, furnish to such holder a like report setting forth the Conversion Price at the time in effect and showing how it was calculated. The Corporation will also keep copies of all such reports and such verifications at its principal office, and will cause the same to be available for inspection at such office during normal business hours by the holder of any Shares of Class D Preferred or any prospective purchaser of any Note designated by the holder of such Shares of Class D Preferred. 8. Notice of Certain Corporate Action. In case: (i) the Corporation shall declare a dividend (or any other distribution) on its Common Stock payable otherwise than in cash out of its earned surplus or at an annualized rate in excess of 120% of the annualized rate of the last cash dividend theretofore paid; or (ii) the Corporation shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights; or (iii) of any reclassification of the Common Stock of the Corporation (other than a subdivision or combination of its outstanding shares of Common Stock), any capital reorganization of the Corporation or of any consolidation or merger to which the Corporation is a party, or of the sale or transfer, of all or substantially all of the assets of the Corporation; or (iv) of the voluntary or involuntary dissolution, liquidation or winding up of the Corporation; the Corporation shall at least 10 business days prior to the applicable record date hereinafter specified give to each holder of any Shares of Class D Preferred an Officers' Certificate stating (a) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be -54- determined, or (b) the date on which such reclassification, reorganization, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, recapitalization, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. 9. Other Dilutive Events. In case any event shall occur as to which the other provisions of subdivision VIII are not strictly applicable but in respect of which the failure to make any adjustment would not in the opinion of any holders of at least 20% in the aggregate of the number of shares of Class D Preferred at the time outstanding or in the opinion of the Corporation fairly protect the conversion rights granted by subdivision VIII in accordance with the essential intent and principles hereof, then, in each such case, upon the written request of such holder or holders or on its own motion, the Corporation shall appoint a firm of independent certified public accountants of recognized national standing (which may be the regular auditors of the Corporation), which shall give their opinion as to the adjustment, if any, on a basis consistent with the essential intent and principles established in subdivision VIII, necessary to preserve, without dilution, such conversion rights. Upon receipt of such opinion, the Corporation will promptly mail a copy thereof to the holder of any Shares of Class D Preferred and shall make the adjustments or increases described therein. 10. No Dilution or Impairment. The Corporation will not, by amendment of this Certificate of Incorporation or through any consolidation, merger, reorganization, transfer of assets, 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 to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights granted by subdivision VIII against dilution or other impairment. Without limiting the generality of the foregoing, the Corporation (i) will not permit the par value of any shares of stock at the time re- ceivable upon the conversion of any Shares of Class D Preferred to exceed the Conversion Price then in effect, -55- (ii) will take all 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 upon any conversion of the Class D Preferred, (iii) will not take any action which results in any adjustment of the Conversion Price if the total number of shares of Common Stock (or Other Securities) issuable after the action upon the conversion of all of the Shares of Class D Preferred would exceed the total number of shares of Common Stock (or Other Securities) then authorized by the Corporation's certificate of incorporation and available for the purpose of issue upon such exercise, and (iv) except as provided herein will not issue any capital stock of any class which is preferred or pari passu as to dividends or as to the distribution of assets upon voluntary or involuntary dissolution, liquidation or winding up. 11. De Minimis Adjustments of Conversion Price; Optional Reductions. Notwithstanding any other provision of subdivision VIII to the contrary, no single adjustment in the Conversion Price otherwise required hereunder shall be required unless such adjustment would require an increase or decrease of at least 1/2 of 1% in such price; provided, however, that any adjustments which by reason of this subdivision VIII.11 are not required to be made shall be carried forward and shall be taken into account in any subsequent adjustment and shall be taken into account upon the conversion of any Shares of Class D Preferred; and provided, further, that adjustments shall be required and made in accordance with the provisions of subdivision VIII (other than this subdivision 11) not later than such time as may be required in order to preserve the tax-free nature of a distribution to the holders of Common Stock. Anything in subdivision VIII to the contrary notwithstanding, the Corporation shall be entitled to make such reductions in the Conversion Price, in addition to those otherwise required by subdivision VIII, as it in its sole discretion shall determine to be advisable in order that any stock dividend, subdivision of shares, distribution of rights to purchase stock or securities, or distribution of securities convertible into or exchangeable for stock hereafter made by the Corporation to its stockholders shall not be taxable. 12. Continuing Obligation of the Corporation. The Corporation will, at the time of conversion of any Shares of Class D Preferred in full or in part, upon the request of any holder thereof, acknowledge in writing its continuing obligation to afford such holder any rights (in- -56- cluding, without limitation, any right of registration of the shares of Stock or Other Securities issued upon such conversion) to which such holder shall continue to be entitled after such conversion in accordance with the provisions of this Certificate of Incorporation; provided, however, that if any such holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Corporation to afford to such holder all such rights. 13. Mandatory Conversions of Class D Preferred. Notwithstanding anything to the contrary contained in this Section C, at such time as (i) the Corporation shall have participated in a public offering or offerings of the Common Stock, in which the aggregate price to the public of the securities sold shall have been at least $10,000,000, (ii) the Common Stock was sold to the public at the most recent such offering at a price exceeding the Conversion Price then in effect by not less than 50%, and (iii) the outstanding shares of Class B Preferred and Class C Preferred, if any, are subject to mandatory conversion upon conversion of the Class D Preferred pursuant to this subdivision VIII.13, then all outstanding Shares of Class D Preferred, if any, will, without any action on the part of the Corporation or the holders thereof, be immediately converted into shares of Class A Common in accordance with the terms of this Section C, and thereafter no Shares of Class D Preferred will be outstanding and any holder of a certificate of Shares of Class D Preferred will be deemed to be the holder of the number of Shares of Class A Common into which the Shares of Class D Preferred represented by such certificate were converted pursuant to this subdivision VIII.13. IX. Transfer, Exchange and Replacement of Certificates for Class D Preferred. 1. The Corporation will keep at its principal office a register for the registration of Class D Preferred. Upon surrender at such office of any certificate representing Shares of Class D Preferred for conversion or for registration of exchange or (subject to compliance with the applicable provisions of the Registration Rights Agreement) transfer, the Corporation will issue, at its expense, one or more new certificates, in such denomination or denominations as may be requested, for the same aggregate number of Shares represented by the certificate so surrendered and registered as such holder may request; provided, however, that no such transfer shall be in violation of the Securities Act of 1933, as amended. Any certificate representing any Shares of Class -57- D Preferred surrendered for registration or transfer shall be duly endorsed, or accompanied by a written instrument of transfer duly executed by the holder of such certificate or his attorney duly authorized in writing. 2. The Corporation will pay all costs of all deliveries of certificates representing any Shares of Class D Preferred from the office of the holder thereof to the office of the Corporation to be surrendered pursuant to this subdivision IX.2. (including the cost of insurance against loss or theft in an amount satisfactory to such holder) upon any exchange provided for herein. Upon receipt of evidence reasonably satisfactory to the Corporation of the ownership of and the loss, theft, destruction or mutilation of any certificate representing any shares of Class D Preferred and, in the case of such loss, theft, destruction or mutilation of any certificate representing any Shares of Class D Preferred, upon delivery of an indemnity bond in such reasonable amount as the Corporation may determine (or in the case of any Shares of Class D Preferred held by the original owner or its nominee, of an unsecured indemnity agreement from such owner or nominee holding such Shares), or in the case of any such mutilation, upon the surrender of such certificate for cancellation at the principal office of the Corporation, the Corporation, at its expense, will execute and deliver, in lieu thereof, a new certificate of like tenor and for an equal number of Shares of Class D Preferred. X. Definitions. "Class D Scheduled Redemption Dates" has the meaning assigned in subdivision VI.1A. "Convertible Securities" means any evidence of indebtedness, shares of capital stock (other than Class A Common) or other securities directly or indirectly convertible into or exchangeable for Class A Common or any stock into which such Class A Common shall have been changed or any stock resulting from any capital reorganization or reclassification of such Class A Common. "Conversion Price" of any Share of Class D Preferred means the sum of $210 (or $165 if no Class D-2 Preferred shall have been issued) as adjusted by the provisions of subdivision VIII of this Section C. "Cosan Purchase Certificate" means the Certificate substantially in the form of Exhibit H to the Note and Stock Purchase Agreements. -58- "Delayed First Closing Dates" means, collectively, each date upon which shares of Class D-1 Preferred shall have been issued pursuant to the Note and Stock Purchase Agreements subsequent to the First Closing Date. "Escrow Agreement" means the Escrow Agreement as defined in the Note and Stock Purchase Agreements. "Event of Noncompliance" has the meaning assigned in subdivision VII. "First Closing Date" means the initial date upon which shares of Class D-1 Preferred shall have been issued pursuant to the Note and Stock Purchase Agreements. "GAAP" means generally accepted accounting principles as set forth in the opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and in statements by the Financial Accounting Standards Board or in such opinions and statements of such other entities as shall be approved by a significant segment of the accounting profession. "Junior Securities" has the meaning assigned in subdivision VI.3. of Section A hereof. "Liquidating Dividend" has the meaning assigned in subdivision VIII,3A.(ii). "Liquidation Value" as to any Share of Class D Preferred as of any particular date will be equal to the sum of $210 plus any due and payable but unpaid dividends on such Share. "NASDAQ" means the NASDAQ interdealer quotation system maintained by the National Association of Securities Dealers, Inc., or any successor composite reporting service. "Note and Stock Purchase Agreements" means the Note and Stock Purchase Agreements between the Corporation, and each of a group of investors and in connection with which the Corporation adopted this Restated Certificate of Incorporation and agreed to issue the Class D Preferred. "Notes" means the 9% Convertible Subordinated Notes due June 30, 1997, issued by the Corporation pursuant to the Note and Stock Purchase Agreements. "Officers' Certificate" means a certificate executed on behalf of the Corporation by the Chairman of the -59- Board of Directors (if an officer) or its President or one of its Vice Presidents and its Vice President-Finance or Treasurer or one of its Assistant Treasurers. "Options" means rights, options or warrants to subscribe for, purchase or otherwise acquire either Class A Common or Convertible Securities. "Other Securities" means any stock (other than Common Stock) and other securities of the Corporation or any other person (corporate or otherwise) which the holders of the Class D Preferred at any time shall be entitled to receive, or shall have received, upon the conversion of the Class D Preferred, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or such other securities pursuant to the Note and Stock Purchase Agreements. "Redemption Date" has the meaning assigned in subdivision VI.3B. "Redemption Price" has the meaning assigned in subdivision VI.3A. "Registration Rights Agreement" means the Registration Rights Agreement contemplated by the Note and Stock Purchase Agreements between the Corporation and the initial purchasers of Class D Preferred or securities convertible into Class D Preferred. "Second Closing" has the meaning assigned in the Note and Stock Purchase Agreements. "Short-Term Promissory Notes" and "Short-Term Promissory Notes-Series 1" have the meanings assigned in the Note and Stock Purchase Agreements. "Subsidiary" has the meaning assigned in the Note and Stock Purchase Agreements. XI. Notices. All notices referred to herein, except as otherwise provided, will be made by registered or certified mail, return receipt requested, postage prepaid, and will be deemed to have been given when so mailed. -60- SECTION D. SERIES PREFERRED STOCK The Series Preferred Stock may be issued from time to time by the Board of Directors as snares of one or more series. Subject to the provisions hereof and the limitations prescribed by law, the Board of Directors is expressly authorized, prior to issuance, by adopting resolutions providing for the issuance of, or providing for a change in the number of, shares of any particular series and, if and to the extent from time to time required by law, by filing a certificate pursuant to the General Corporation Law (or other law hereafter in effect relating to the same or substantially similar subject matter), to establish or change the number of shares to be included in each such series and to fix the designation and relative powers, preferences and rights and the qualifications and limitations or restrictions thereof relating to the shares of each such series. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following: (a) the distinctive serial designation of such series and the number of shares constituting such series (provided that the aggregate number of shares constituting all series of Series Preferred Stock shall not exceed Five Million (5,000,000)); (b) the annual dividend rate on shares of such series, whether dividends shall be cumulative and, if so, from which date or dates; (c) whether the shares of such series shall be redeemable and, if so, the terms and conditions of such redemption, including the date or dates upon and after which such shares shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (d) the obligation, if any, of the Corporation to retire shares of such series pursuant to a sinking fund; (e) whether shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or classes and, if so, the terms and conditions of such conversion or exchange, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; -61- (f) whether the shares of such series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (g) the rights of the shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation; and (h) any other relative rights, powers, preferences, qualifications, limitations or restrictions thereof relating to such series. The shares of Series Preferred Stock of any one series shall be identical with each other in all respects except as to the dates from and after which dividends thereon shall cumulate, if cumulative. The number of authorized shares of Series Preferred Stock may be increased or decreased by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote without the separate vote of holders of Series Preferred Stock as a class. FIFTH: The Corporation is to have perpetual existence. SIXTH: (a) Except as otherwise fixed by or pursuant to the provisions of Article FOURTH hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, the number of the directors of the Corporation shall be fixed from time to time by or pursuant to the By-Laws of the Corporation. The directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, as shall be provided in the manner specified in the By-Laws of the Corporation, one class to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1988, another class to hold office initially for a term expiring at the annual meeting of stockholders in 1989, and another class to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1990, with the members of each class to hold office until their successors are elected and qualified. At each annual meeting of the stockholders of the Corporation, the -62- successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. (b) Advance notice of stockholder nominations for the election of directors shall be given in the manner provided in the By-Laws of the Corporation. (c) Except as otherwise provided for or fixed by or pursuant to the provisions of Article FOURTH hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled solely by the affirmative vote of a majority of the directors or the sole director then remaining in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. If the number of directors is changed, any increase or decrease shall be apportioned among the classes by the Board of Directors so as to maintain the number of directors in each class as nearly equal as possible. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. (d) Subject to the rights of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, any director may be removed from office, but only for cause and only by the affirmative vote of the holders of at least two-thirds of the combined voting power of the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class. (e) Any action required or permitted to be taken by the stockholders of the Corporation must be -63- 3686C effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. Except as otherwise required by law and subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, special meetings of stockholders of the Corporation may be called only by the Chairman of the Board or President or the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors or as otherwise provided in the By-Laws of the Corporation. (f) In furtherance and not in the limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the By-Laws of the Corporation, but the stockholders may adopt additional By-Laws and may amend or repeal By-Laws whether or not adopted by them provided that the affirmative vote of the holders of at least two-thirds of the combined voting power of the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class, is required for any such adoption of additional By-Laws, amendment or repeal. (g) Notwithstanding any other provision of this Certificate of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a lesser percentage may be specified by law, the Certificate of Incorporation or the By-Laws of the Corporation), the affirmative vote of the holders of at least two-thirds of the voting power of all the shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend or repeal this Article SIXTH or to adopt any provision inconsistent herewith. SEVENTH: Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws may provide. The books of the Corporation may be kept (subject to any provisions 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 in the By-Laws of the Corporation. Elections of directors need not be by written ballot unless the By-Laws of the Corporation so provide. EIGHTH; The Corporation shall, to the fullest extent authorized shall by Section 145 of the General Corporation Law of the -64- 3686C State of Delaware, as the same exists or may hereafter be amended (but in the case of any such amendment, other than one mandating lesser indemnification, only to the extent that such amendment permits the Corporation to provide broader indemnification than said law permitted the Corporation to provide prior to such amendment) indemnify all persons whom it may indemnify pursuant thereto. NINTH: The Corporation reserves the right to amend, alter change or repeal any provisions 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. TENTH: No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of such director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or 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 such director derived any improper personal benefit. Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. 4. This Restated Certificate of Incorporation was duly adopted at a special meeting of the stockholders by the stockholders entitled to vote thereon, in accordance with the applicable provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said Combrex Corporation has caused its corporate seal to be hereunto affixed and this Certificate to be signed by Cyril C. Baldwin, Jr., its President, and attested by Irving Needleman, its Secretary, this 16th day of September, 1987. Cambrex Corporation By /s/ John P. Lynch --------------------------- VICE PRESIDENT ATTEST: By /s/ Irving Needleman ------------------------- Secretary -65- 8703070030 [ILLEGIBLE] FILED 10 AM NOV 3 1987 [ILLEGIBLE] CERTIFICATE OF RETIREMENT OF STOCK CAMBREX CORPORATION, a corporation organized and existing under The General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of Cambrex Corporation, a resolution was duly adopted retiring shares of the capital stock of said corporation, which were issued but not outstanding, to the extent hereinafter set forth, and which retired shares had capital applied in connection with their acquisition. SECOND: The shares of capital stock of the corporation, which are retired, are identified as being Four Hundred Thousand (400,000) shares of the Class A 8.25% Cumulative Preferred Stock with a par value of ten cents ($0.10) per share. THIRD: That the Restated Certificate of Incorporation of the corporation prohibits the reissue of the shares of Class A 8.25% Cumulative Preferred Stock when so retired and that the shares so retired constitute all the authorized shares of Class A 8.25% Cumulative Preferred Stock and pursuant to the provisions of section 243 of the General Corporation Law of the State of Delaware, upon the effective date of the filing of this certificate as therein provided, the Restated Certificate of Incorporation of said corporation shall be amended so as to effect a reduction in the authorized number of shares of the corporation by the elimination therefrom of all reference to said Class A 8.25% Cumulative Preferred Stock, comprising Four Hundred Thousand (400,000) shares of the par value of ten cents ($0.10) each. IN WITNESS WHEREOF, said Cambrex Corporation has caused this certificate to be signed by John P. Lynch, its Vice President, and attested by Irving Needleman, its secretary, this 27th day of October, 1987. CAMBREX CORPORATION By /s/ John P. Lynch --------------------------- Vice President ATTEST: By /s/ Irving Needleman ------------------------- Secretary 2 8703070031 2812K FILED [ILLEGIBLE] Nov 3 1987 [ILLEGIBLE] SECRETARY OF STATE CERTIFICATE OF RETIREMENT OF STOCK CAMBREX CORPORATION, a corporation organized and existing under The General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of Cambrex Corporation, a resolution was duly adopted retiring shares of the capital stock of said corporation, which were issued but not outstanding, to the extent hereinafter set forth, and which retired shares had no capital applied to their acquisition. SECOND: The shares of capital stock of the corporation, which are retired, are identified as being Forty Thousand Five Hundred Ninety-Seven (40,597) shares of the Class B 8.25% Cumulative Convertible Preferred Stock with a par value of ten cents ($0.10) per share. THIRD: That the Restated Certificate of Incorporation of the corporation prohibits the reissue of the shares of Class B 8.25% Cumulative Convertible Preferred Stock when so retired and that the shares so retired constitute all the authorized shares of Class B 8.25% Cumulative Convertible Preferred Stock; and pursuant to the provisions of section 243 of the General Corporation Law of the State of Delaware, upon 2812K the effective date of the filing of this certificate as therein provided, the Restated Certificate of Incorporation of said corporation shall be amended so as to effect a reduction in the authorized number of shares of the corporation by the elimination therefrom of all reference to said Class B 8.25% Cumulative Convertible Preferred Stock, comprising Forty Thousand Five Hundred Ninety-Seven (40,597) shares of the par value of ten cents ($0.10) each. IN WITNESS WHEREOF, said Cambrex Corporation has caused this certificate to be signed by John P. Lynch, its Vice President, and attested by Irving Needleman, its secretary, this 27th day of October, 1987. CAMBREX CORPORATION By /s/ John P. Lynch --------------------- Vice President ATTEST: By /s/ Irving Needleman ------------------------- Secretary -2- 2812K 8703070032 FILED [ILLEGIBLE] Nov 3 1987 [ILLEGIBLE] SECRETARY OF STATE CERTIFICATE OF RETIREMENT OF STOCK CAMBREX CORPORATION, a corporation organized and existing under The General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of Cambrex Corporation, a resolution was duly adopted retiring shares of the capital stock of said corporation, which were issued but not outstanding, to the extent hereinafter set forth, and which retired shares had no capital applied to their acquisition. SECOND: The shares of capital stock of the corporation, which are retired, are identified as being nineteen Thousand Four Hundred Three (19,403) shares of the Class C Convertible Preferred Stock with a par value of ten cents ($0.10) per share. THIRD: That the Restated Certificate of Incorporation of the corporation prohibits the reissue of the shares of Class C Convertible Preferred Stock when so retired and that the shares so retired constitute all the authorized shares of Class C Convertible Preferred Stock; and pursuant to the provisions of section 243 of the General Corporation Law of the 2812K State of Delaware, upon the effective date of the filing of this certificate as therein provided, the Restated Certificate of Incorporation of said corporation shall be amended so as to effect a reduction in the authorized number of shares of the corporation by the elimination therefrom of all reference to said Class C Convertible Preferred Stock, comprising Nineteen Thousand four Hundred Three (19,403) shares of the par value of ten cents ($0.10) each. IN WITNESS WHEREOF, said Canbrex Corporation has caused this certificate to be signed by John P. Lynch its Vice President and attested by Irving Needleman, its secretary, this 27th day of October, 1987. CAMBREX CORPORATION By /s/ John P. Lynch --------------------------- Vice President ATTEST: By /s/ Irving Needleman ------------------------- Secretary -2- 8703070033 [ILLEGIBLE] SECRETARY OF STATE 2812K CERTIFICATE OF RETIREMENT OF STOCK CANBREX CORPORATION,a corporation organiged and existing under The General Corporation Law of the State of Delaware; DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of Caibrex Corporation, a resolution was duly adopted retiring shares of the capital stock of said corporation, which were issued but not outstanding, to the extent hereinafter set forth, and which retired shares had no capital applied to their acquisition* SECOND: The shares of capital stock of the corporation, which are retired, are identified as being Seventy-Three Thousand Eighty-Nine (73,089) shares of the Class D Convertible Preferred Stock with a par value of ten cents ($0.10) per share, THIRD: That the Restated Certificate of Incorporation of the corporation prohibits the reissue of the shares of Class D Convertible Preferred Stock when so retired and that the shares so retired constitute all the authorized shares of Class D Convertible Preferred Stock and pursuant to the provisions of section 243 of the General Corporation Law of the State of Delaware, upon the effective date of the filing of 2812K this certificate as therein provided, the Restated Certificate of Incorporation of said corporation shall be amended so as to effect a reduction in the authorized number of shares of the corporation by the elimination therefrom of all reference to said Class D Convertible Preferred Stock, comprising Seventy-Three Thousand Eighty-Nine (73,089) shares of the par value of ten cents ($0.10) each. IN WITNESS WHEREOF, said Cambrex Corporation has caused this certificate to be signed by John P. Lynch, its Vice President, and attested by Irving Needleman, its secretary, this 27th day of October, 1987. CAMBREX CORPORATION By /s/ John P. Lynch --------------------------- Vice President ATTEST: By /s/ Irving Needleman ------------------------- Secretary -2- STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 12:00 PM06/12/1996 960171193 - 2018808 CERTIFICATE OF DESIGNATION OF SERIES E JUNIOR PARTICIPATING CUMULATIVE PREFERRED STOCK Par Value $1.00 Per Share of CAMBREX CORPORATION Pursuant to Section 151 of the General Corporation Law of the State of Delaware We, Steven M. Klosk, Vice President - Administration, and Peter E. Thauer, Esq., Vice President - Law and Environment, General counsel and Secretary, of Cambrex Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Restated Certificate of Incorporation of the Corporation, as amended, the said Board of Directors on May 23, 1996, by the affirmative vote of at least a majority of the members of the Board of Directors, adopted the following resolution creating a series of one hundred thousand (100,000) shares of Series E Junior Participating Cumulative Preferred Stock, par value $1.00 per share: RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of its Restated Certificate of Incorporation (the "Restated Certificate"), a series of Series Preferred Stock of the Corporation be, and it hereby is, created, and that the designation and amount thereof and the voting powers, preferences and relative participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows: Section 1. Designation and Amount. The shares of such series shall be designated as Series E Junior Participating Cumulative Preferred Stock, par value $1.00 per share (the "Junior Preferred Stock") and the number of shares constituting such series shall be one hundred thousand (100,000). Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Junior Preferred Stock to a number less than the number of shares reserved for issuance upon the exercise of : outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Junior Preferred Stock. Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of preferred stock (or any similar stock) ranking prior and superior to the Junior Preferred Stock with respect to dividends, the holders of shares of Junior Preferred Stock, in preference to the holders of Common Stock, and of any other junior stock which may be outstanding, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of January, April, July and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Junior Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $2.50 per share ($10.00 per annum), or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend 2 Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Junior Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Junior Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Junior Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $2,50 per share ($10.00 per annum) on the Junior Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Junior Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Junior Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends or such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Junior Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly 3 Dividend Payment Date. Accrued but unpaid dividends shall accumulate but shall not bear interest. Dividends paid on the shares of Junior Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rate on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination holders of holders shares of Junior Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Junior Preferred Stock shall have the following voting rights. (A) Subject to the provisions for adjustment as hereinafter set forth, each share of Junior Preferred Stock shall entitle the holder thereof to 100 votes and each one one-hundredth of a share of Junior Preferred Stock shall entitle the holder thereof to one vote) on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by classification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Junior Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in the Restated Certificate, in any other certificate of designation creating a series of preferred stock or any similar stock, or by law, the holders of shares of Junior Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote to- 4 gether as one class on all matters submitted to a vote of stockholders of the Corporation. (C) If at any time the Corporation shall not have declared and paid all accrued and unpaid dividends on the Junior Preferred Stock as provided in Section 2 hereof for four consecutive Quarterly Dividend Payment Dates, then, in addition to any voting rights provided for in paragraphs (A) and (B), the holders of the Junior Preferred Stock shall have the exclusive right, voting separately as class, to elect two directors on the Board of Directors of the Corporation (such directors, the "Preferred Directors"). The right of the holders of the Junior Preferred Stock to elect the Preferred Directors shall continue until all such accrued and unpaid dividends shall have been paid. At such time, the terms of any of the Preferred Directors shall terminate. At any time when the holders of the Junior Preferred Stock shall have thus become entitled to elect Preferred Directors, a special meeting of shareholders shall be called for the purpose of electing such Preferred Directors, to be held within 30 days after the right of the holders of the Junior Preferred Stock to elect such Preferred Directors shall arise, upon notice given in the manner provided by law or the by-laws of the Corporation for giving notice of a special meeting of shareholders (provided, however, that such a special meeting shall not be called if the annual meeting of shareholders is to convene within said 30 days). At any such special meeting or at any annual meeting at which the holders of the Junior Preferred Stock shall be entitled to elect Preferred Directors, the holders of a majority of the then outstanding Junior Preferred Stock present in person or by proxy shall be sufficient to constitute a quorum for the election of such directors. The persons elected by the holders of the Junior Preferred Stock at any meeting in accordance with the terms of the preceding sentence shall become directors on the date of such election. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Junior Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Junior Preferred Stock outstanding shall have been paid in full, the Corporation shall not: 5 (i) declare or pay dividends or, make any other distributions on any shares or stock ranking junior (either as to dividends or upon liquidation, dissolution or winding-up) to the Junior Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding-up) with the Junior Preferred Stock except dividends paid ratably on the Junior Preferred Stock, and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding-up) with the Junior Preferred Stock, provided that the corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding-up) to the Junior Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Junior Preferred Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding-up) with the Junior Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A)of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. 6 Section 5. Reacquired Shares. Any shares of Junior Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever, shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Series Preferred Stock, without designation as to series, and may be reissued as part of a new series of Series Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein, in the Restated Certificate, in any other certificate of designation creating a series of preferred stock or any similar stock or as otherwise, required by law. Section 6. Liquidation, Dissolution or winding-Up. Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, no distribution shall be made (A) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding-up) to the Junior Preferred Stock unless prior thereto, the holders of shares of Junior Preferred Stock shall have received the higher of (i) $10.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (ii) an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of Common Stock; nor shall any distribution be made (B) to the holders of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding-up) with the Junior Preferred Stock, except distributions made ratably on the Junior Preferred Stock and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding-up. In the event the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Junior Preferred Stock are entitled immediately prior to such event under the provision in clause (A) of the preceding sentence shall be 7 adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, or otherwise changed, then in any such case each share of Junior Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Junior Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Junior Preferred Stock shall not be redeemable. Section 9. Rank. Unless otherwise provided in the Restated Certificate or a certificate of designation relating to a subsequent series of preferred stock of the Corporation, the Junior Preferred Stock shall rank junior to all other series of the Corporation's preferred stock as to the payment of dividends and the distribution of assets on liquidation, 8 dissolution or winding-up, and senior to the Common Stock of the Corporation. Section 10. Amendment. The Restated Certificate, as amended and restated, shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Junior Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Junior Preferred Stock, voting together as a single series. Section 11. Fractional Shares. Junior Preferred Stock may be issued in fractions of a share (in one one-hundredths (1/100) of a share and integral multiples thereof) which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Junior Preferred Stock. 9 IN WITNESS WHEREOF, this certificate of Designation is executed on behalf of the Corporation by its Vice President and attested by its Secretary this fifth day of June, 1996. /s/ Steven M. Klosk ------------------------------- Vice President - Administration ATTEST: /s/ Peter E. Thauer - ------------------------ Vice President - Law and Environment, General Counsel and Secretary 10 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 02:00 PM 11/01/1999 991462983 - 2018808 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF CAMBREX CORPORATION Pursuant to Section 242 of the General Corporation Law of the State of Delaware CAMBREX CORPORATION (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware (the "General Corporation Law"), hereby certifies as follows: FIRST: That the Board of Directors of the Corporation, at a meeting of its members, duly adopted a resolution setting forth the following proposed amendment to the Certificate of Incorporation of the Corporation and declaring such amendment to be advisable: 1. The Certificate of Incorporation of the Corporation is hereby amended by the amendment of the first paragraph of ARTICLE FOURTH thereof to read in its entirety as follows: FOURTH: The total number of shares of all classes of stock which the Corporation shall have the authority to issue is 66,263,835 shares, consisting of 400,000 shares of Class A 8.25% Cumulative Preferred Stock, par value $.10 per share (the "Class A Preferred"), 40,597 shares of Class B8.25% Cumulative Convertible Preferred Stock, par value $.10 per share (the "Class B Preferred"), 19,403 shares of Class C Convertible Preferred Stock, par value $.10 per share (the "Class C Preferred"), 73,089 shares of Class D 8% Convertible Preferred Stock, par value $.10 per share (the "Class D Preferred"), 5,000,000 shares of Series Preferred Stock, par value $.10 per share (the "Series Preferred Stock"), 730,746 shares of Nonvoting Common Stock, par value $.10 per share (the "Nonvoting Common"), and 60,000,000 shares of Common Stock, par value $.10 per share (the "Voting Common"). The Class B Preferred and the Class C Preferred are referred to herein collectively as the "1981 Convertible Preferred Stock"; the 1981 Convertible Preferred Stock and the Class A Preferred are referred to herein collectively as the "1981 Preferred Stock"; the 1981 Preferred Stock and the Class D Preferred are referred to herein collectively as the "Preferred Stock"; and the Voting Common and the Nonvoting Common are referred to herein collectively as the "Common Stock". A share of Preferred Stock will be referred to herein as a "Share". The Voting Common is also referred to herein as the "Class A Common" and the Non-voting Common is also referred to herein as the "Class B Common". Unless otherwise provided, other capitalized terms used in Section A of this Article FOURTH are defined in subdivision VI thereof, other capitalized terms used in Section C of this Article FOURTH are defined in subdivision VIII thereof and definitions set forth in any Section of this Article FOURTH apply only to capitalized terms used in such Section. All cross-references in each Section of this Article FOURTH refer to other parts, paragraphs and subdivisions in such Section unless otherwise indicated. SECOND: That at a special meeting and vote of the stockholders of the Corporation called and held in accordance with Section 222 of the General Corporation Law on April 28,1998, a majority of the outstanding stock entitled to vote thereon has voted in favor of the foregoing amendment. THIRD: The Amendment to the Certificate of Incorporation of the Corporation set forth in paragraph FIRST above was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law. 2 IN WITNESS WHEREOF, I, the undersigned Steven M. Klosk, being the Executive Vice President - Administration, for the purpose of amending the Certificate of Incorporation of the Corporation pursuant to Section 242 of the General Corporation Law of the State of Delaware, do make and file this Certificate, hereby declaring and certifying that the facts herein stated are true, and accordingly have hereunto set my hand, this 30th day of October, 1999. [Corporate Seal] /s/ Steven M. Klosk -------------------------- Executive Vice President - Administration ATTEST: /s/ Peter E. Thauer - ----------------------------- Senior Vice President- General Counsel and Secretary 3 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 02:01 PM 11/01/1999 991462987 - 2018808 CERTIFICATE OF CORRECTION OF CERTIFICATE OF DESIGNATION OF CAMBREX CORPORATION Pursuant to Section 103(f) of the General Corporation Law of the State of Delaware We, Steven M. Klosk, Executive Vice President - Administration, and Peter E. Thauer, Esq. Vice President Law and Environment, General Counsel and Secretary, of Cambrex Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY: 1 That the heading of the Certificate of Designation of Series E Junior Participating Cumulative Preferred Stock of the Corporation, filed June 12,1996 (the "Certificate of Designation), is hereby corrected by changing the par value of such series of Preferred Stock designated therein to ten cents ($.10) per share and shall read in its entirety as follows: "CERTIFICATE OF DESIGNATION OF SERIES E JUNIOR PARTICIPATING CUMULATIVE PREFERRED STOCK Par Value $.10 Per Share". 2. That the first paragraph of the Certificate of Designation is hereby corrected to conform with the correction described in paragraph 1 above and shall read in its entirety as follows: "That pursuant to the authority conferred upon the Board of Directors by the Restated Certificate of Incorporation of the Corporation, as amended, the said Board of Directors on May 23, 1996, by the affirmative vote of at least a majority of the members of the Board of Directors, adopted the following resolution creating a series of one hundred thousand (100,000) shares of Series E Junior Participating Cumulative Preferred Stock, par value $.10 per share:". 3. That Section 1 of the Certificate of Designation is hereby corrected to conform with the correction described in paragraph 1 above to read in its entirety as follows: "Section 1. Designation and Amount. The shares of such series shall be designated as Series E Junior Participating Cumulative Preferred Stock, par value $.10 per share (the "Junior Preferred Stock") and the number of shares constituting such series shall be one hundred thousand (100,000). Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Junior Preferred Stock to a number less than the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Junior Preferred Stock." 2 IN WITNESS WHEREOF, this Certificate of Correction is executed on behalf of the Corporation by its Executive Vice President and attested by its Secretary this 30th day of October, 1999. /s/ Steven M. Klosk ----------------------------------------- Executive Vice President - Administration ATTEST: /s/ Peter E. Thauer - ---------------------- Vice President-Law and Environment, General Counsel and Secretary 3 STATE OF DELAWARE SECRETARY OF STATE [ILLEGIBLE] DIVISION OF CORPORATIONS FILED 02:02 PM 11/01/1999 991462994 - 2018808 CERTIFICATE OF DESIGNATION OF SERIES E JUNIOR PARTICIPATING CUMULATIVE PREFERRED STOCK Par Value $.10 Per Share of CAMBREX CORPORATION Pursuant to Section 151 of the General Corporation Law of the State of Delaware We, Steven M. Klosk, Executive Vice President - Administration, and Peter E. Thauer, Esq., Vice President - Law and Environment, General Counsel and Secretary, of Cambrex Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Restated Certificate of Incorporation of the Corporation, as amended, the said Board of Directors, by the affirmative vote of at least a majority of the members of the Board of Directors, increased the number of designated shares of Series E Junior Participating Cumulative Preferred Stock, par value $.10 per share, to three hundred thousand (300,000) IN WITNESS WHEREOF, this Certificate of [ILLEGIBLE] is executed on behalf of the Corporation by its Vice President and attested by its Secretary this 30th day of October, 1999. /s/ Steven M. Klosk ----------------------- Executive Vice President- Administration ATTEST: /s/ Peter E. Thauer - ------------------------ Vice President - Law and Environment, General Counsel and Secretary 2 EX-3.2 3 y34569exv3w2.txt EX-3.2: BY LAWS Exhibit 3.2 CAMBREX CORPORATION By - Laws Article I OFFICES Section 1. The registered office of the Corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle, State of Delaware. The Corporation shall have offices at such other places as the Board of Directors may from time to time determine. Article II STOCKHOLDERS Section 1. ANNUAL MEETING. The annual meeting of the stockholders for the election of Directors and for the transaction of such other business as may properly come before the meeting shall be held on such date as the Board of Directors shall each year fix. Each such annual meeting shall be held at such place, within or without the State of Delaware, and hour as shall be determined by the Board of Directors. The day, place and hour of each annual meeting shall be specified in the notice of annual meeting. The meeting may be adjourned from time to time and place to place until its business is completed. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than sixty days nor more than ninety days prior to the meeting; provided, however, that in the event that less than seventy days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the date on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 1. The presiding officer of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 1, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section 2. SPECIAL MEETINGS. Except as otherwise required by law and subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or on liquidation, special meetings of the stockholders may be called only by the Chairman of the Board, the President, or the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors. Section 3. STOCKHOLDER ACTION; HOW TAKEN. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. Section 4. NOTICE OF MEETING. Notice of every meeting of the stockholders shall be given in the manner prescribed by law. Section 5. QUORUM. Except as otherwise required by law, the Certificate of Incorporation or these By-Laws, the holders of a majority of the shares entitled to vote at any meeting of the stockholders, present in person or by proxy, shall constitute a quorum and the act of the majority of such quorum shall be deemed the act of the stockholders. If a quorum shall fail to attend any meeting, the chairman of the meeting may adjourn the meeting to another place, date or time. If a notice of any adjourned special meeting of stockholders is sent to all stockholders entitled to vote thereat, stating that it will be held with those present constituting a quorum, then, except as otherwise required by law, those present at such adjourned meeting shall constitute a quorum and all matters shall be determined by a majority of votes cast at such meeting. Section 6. QUALIFICATION OF VOTERS. The Board of Directors (hereinafter sometimes referred to as the "Board") may fix a day and hour not more than sixty nor less than ten days prior to the day of holding any meeting of the stockholders as the time as of which the stockholders entitled to notice of and to vote at such meeting shall be determined. Only those persons who were holders of record of voting stock at such time shall be entitled to notice of and to vote at such meeting. Section 7. PROCEDURE. The order of business and all other matters of procedure at every meeting of the stockholders may be determined by the presiding officer. The Board shall appoint one or more inspectors of election to serve at every meeting of the stockholders at which Directors are to be elected. ARTICLE III DIRECTORS Section 1. NUMBER, ELECTION AND TERMS. Except as otherwise fixed pursuant to the provisions of Article Fourth of the Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, the number of Directors shall be fixed from time to time by the Board of Directors but shall not be less than three nor more than eleven. Subject to the provisions of this Section 1 below, until the 2010 annual meeting of stockholders when the following classification shall cease, the Directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, as determined by the Board of Directors, one class to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1988, another class to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1989, and another class to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1990, with the members of each class to hold office until their successors are elected and qualified. At each annual meeting of stockholders until the 2008 annual meeting of stockholders, the successors of the class of Directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. Directors elected at or after the 2008 annual meeting of stockholders shall hold office until the first annual meeting of stockholders following their election and until a successor shall have been elected and qualified or until the Director's prior death, resignation or removal. The term "entire Board" as used in these By-Laws means the total number of Directors which the Corporation would have if there were no vacancies. Subject to the rights of holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, nominations for the election of Directors may be made by the Board of Directors or a committee appointed by the Board of Directors or by any stockholder entitled to vote in the election of Directors generally. However, any stockholder entitled to vote in the election of Directors generally may nominate one or more persons for election as Directors at a meeting only if written notice of such stockholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than (i) with respect to an election to be held at an annual meeting of stockholders, ninety days prior to the anniversary date of the immediately preceding annual meeting, and (ii) with respect to an election to be held at a special meeting of stockholders for the election of Directors, the close of business on the tenth day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission; and (e) the consent of each nominee to serve as a Director of the Corporation if so elected. The presiding officer of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. Except as provided in Section 2 of this Article III, at and after the 2008 annual meeting of stockholders, each Director shall be elected by the vote of the majority of the votes cast with respect to the Director at any meeting for the election of Directors at which a quorum is present; provided that if as of a date that is fourteen (14) days in advance of the date the Corporation files its definitive proxy statement (regardless of whether or not thereafter revised or supplemented) with the Securities and Exchange Commission, the number of nominees exceeds the number of Directors to be elected, the Directors shall be elected by the vote of a plurality of the shares represented in person or by proxy at any such meeting and entitled to vote on the election of Directors. For purposes of this Section, a majority of the votes cast means that the number of votes cast "for" a Director exceeds the number of votes cast against that Director. The Governance Committee has established procedures under which any Director who is not elected (because the number of votes cast against such Director's candidacy exceed the number of votes cast in favor of that candidacy) shall offer to tender his or her resignation to the Board of Directors. The Governance Committee will make a recommendation to the Board of Directors on whether to accept or reject the resignation, or whether other action should be taken. The Board of Directors will act on the Governance Committee's recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date of the certification of the election results. Section 2. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as otherwise fixed pursuant to the provisions of Article Fourth of the Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect Directors under specified circumstances, newly created directorships resulting from any increase in the number of Directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled solely by the affirmative vote of a majority of the Directors or the sole Director then remaining in office, even though less than a quorum of the Board of Directors. Any Directors elected in accordance with the preceding sentence shall hold office until the next succeeding annual meeting of stockholders following such Director's election and until such Director's successor shall have been elected and qualified, including in circumstances where such Director's predecessor was elected to a longer term. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director. Section 3. REMOVAL. Subject to the rights of the class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect Directors under specified circumstances, any Director may be removed from office, with or without cause, by the affirmative vote of the holders of a majority of the combined voting power of the then outstanding shares of stock entitled to vote generally in the election of Directors, voting together as a single class. Section 4. REGULAR MEETINGS. Regular meetings of the Board shall be held at such times and places as the Board may from time to time determine. Section 5. SPECIAL MEETINGS. Special meetings of the Board may be called at any time, at any place and for any purpose by the Chairman of the Board or the President, or by any officer of the Corporation upon the request of a majority of the entire Board. Section 6. NOTICE OF MEETING. Notice of regular meetings of the Board need not be given. Notice of every special meeting of the Board shall be given to each Director at his usual place of business, or at such other address as shall have been furnished by him for the purpose. Such notice shall be given at least five business days before the meeting by being mailed or at least twenty-four hours before the meeting by telephone or by being personally delivered or telegraphed or telexed or telecopied or electronically transmitted by similar means to a receiver located at the place for such notices to be delivered. Such notice need not include a statement of the business to be transacted at, or the purpose of, any such meeting. Section 7. QUORUM. Except as may be otherwise provided by law or in these By-Laws, the presence of a majority of the entire Board shall be necessary and sufficient to constitute a quorum for the transaction of business at any meeting of the Board, and the act of a majority of such quorum shall be deemed the act of the Board. Less than a quorum may adjourn any meeting of the Board from time to time without notice. Section 8. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of the Board, or of any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting. Section 9. POWERS. The business, property and affairs of the Corporation shall be managed by or under the direction of its Board of Directors, which shall have and may exercise all the powers of the Corporation to do all such lawful acts and things as are not by law, or by the Certificate of Incorporation, or by these By-Laws, directed or required to be exercised or done by the stockholders. Section 10. COMPENSATION OF DIRECTORS. Directors shall receive such compensation for their services as shall be determined by a majority of the entire Board provided that Directors who are serving the Corporation as officers or employees and who receive compensation for their services as such officers or employees shall not receive any salary or other compensation for their services as Directors. ARTICLE IV OFFICERS Section 1. NUMBER. The officers of the Corporation shall be appointed or elected by the Board of Directors. The officers shall be a Chairman of the Board, a Chief Executive Officer, a President, such number of vice presidents as the Board may from time to time determine, a Secretary and a Treasurer. The Chairman of the Board or, in his absence or if such office be vacant, the Chief Executive Officer, shall preside at all meetings of the stockholders and of the Board. Any person may hold two or more offices, other than the offices of Chairman of the Board and Chief Executive Officer at the same time. The Chairman of the Board and the Chief Executive Officer shall be chosen from among the Board of Directors, but the other officers need not be members of the Board. Section 2. ADDITIONAL OFFICERS. The Board may appoint such other officers, agents and employees as it shall deem appropriate. Section 3. TERMS OF OFFICE. All officers, agents and employees of the Corporation shall hold their respective offices or positions at the pleasure of the Board of Directors and may be removed at any time by the Board of Directors with or without cause. Section 4. DUTIES. The officers, agents and employees shall perform the duties and exercise the powers usually incident to the offices or positions held by them respectively, and/or such other duties and powers as may be assigned to them from time to time by the Board of Directors or the Chief Executive Officer. ARTICLE V COMMITTEES Section 1. EXECUTIVE COMMITTEE. (a) At any meeting of the Board, an Executive Committee, composed of the Chief Executive Officer and not less than two other members of the Board, may be designated by a majority vote of the entire Board to serve until the Board shall otherwise determine. (b) The Executive Committee shall have and may exercise all of the powers of the Board of Directors when the Board is not in session, except that it shall have no power to (a) elect directors; (b) alter, amend or repeal these By-Laws or any resolution or resolutions of the Board of Directors relating to the Executive Committee; (c) appoint any member of the Executive Committee; or (d) take any other action which legally may be taken only by the Board. (c) The Executive Committee shall adopt such rules as it may see fit with respect to the calling of its meetings, the procedure to be followed thereat, and its functioning generally. (d) Vacancies in the Executive Committee may be filled at any time by a majority vote of the entire Board. Section 2. OTHER COMMITTEES. The Board of Directors may designate by a majority vote of the entire Board, one or more other committees, each such committee to consist of two or more Directors of the Corporation, which to the extent provided in said designation Directors in the management of the business and affairs of the Corporation, such committee to have such name as may be determined by the Board of Directors. The members of any such committee shall adopt such rules as they may see fit with respect to the calling of its meetings, the procedure to be followed thereat, and its functioning generally. The Board of Directors, by a majority vote of the entire Board, shall have power to change the members of any such committee at any time, to fill vacancies, and to discharge any such committee, either with or without cause, at any time. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES Section 1. NATURE OF INDEMNITY. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was or has agreed to become a director or officer of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, and may indemnify any person who was or is a party or is threatened to be made a party to such an action, suit or proceeding by reason of the fact that he is or was or has agreed to become an employee or agent of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding had no reasonable cause to believe his conduct was unlawful; except that in the case of an action or suit by or in the right of the Corporation to procure a judgment in its favor (1) such indemnification shall be limited to expenses (including attorneys' fees) actually and reasonably incurred by such person in the defense or settlement of such action or suit, and (2) no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 2. SUCCESSFUL DEFENSE. To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1 hereof or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 3. DETERMINATION THAT INDEMNIFICATION IS PROPER. Any indemnification of a director or officer of the Corporation under Section 1 hereof (unless ordered by a court) shall be made by the Corporation unless a determination is made that indemnification of the director or officer is not proper in the circumstances because he has not met the applicable standard of conduct set forth in Section 1 hereof. Any indemnification of an employee or agent of the Corporation under Section 1 hereof (unless ordered by a court) may be made by the Corporation upon a determination that indemnification of the employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 hereof. Any such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. Section 4. ADVANCE PAYMENT OF EXPENSES. Expenses incurred by a director or officer in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VI. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. The Board of Directors may authorize the Corporation's counsel to represent such director, officer, employee or agent in any action, suit or proceeding, whether or not the Corporation is a party to such action, suit or proceeding. Section 5. PROCEDURE FOR INDEMNIFICATION OF DIRECTORS AND OFFICERS. Any indemnification of a director or officer of the Corporation under Sections 1 and 2, or advance of costs, charges and expenses to a director or officer under Section 4 of this Article VI, shall be made promptly, and in any event within 30 days, upon the written request of the director or officer. If a determination by the Corporation that the director or officer is entitled to indemnification pursuant to this Article VI is required, and the Corporation fails to respond within sixty days to a written request for indemnity, the Corporation shall be deemed to have approved such request. If the Corporation denies a written request for indemnity or advancement of expenses, in whole or in part, or if payment in full pursuant to such request is not made within 30 days, the right to indemnification or advances as granted by this Article VI shall be enforceable by the director or officer in any court of competent jurisdiction. Such person's costs and expenses incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such action shall also be indemnified by the Corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of costs, charges and expenses under Section 4 of this Article VI where the required undertaking, if any, has been received by the Corporation) that the claimant has not met the standard of conduct set forth in Section 1, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel and its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1, nor the fact that there has been an actual determination by the Corporation (including its Board of Directors, its independent legal counsel and its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. Section 6. SURVIVAL; PRESERVATION OF OTHER RIGHTS. The foregoing indemnification provisions shall be deemed to be a contract between the Corporation and each director, officer, employee and agent who serves in any such capacity at any time while these provisions as well as the relevant provisions of the Delaware General Corporation Law are in effect and any repeal or modification thereof shall not affect any right or obligation then existing with respect to any state of facts then or previously existing or any action, suit or proceeding previously or thereafter brought or threatened based in whole or in part upon any such state of facts. Such a "contract right" may not be modified retroactively without the consent of such director, officer, employee or agent. The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 7. INSURANCE. The Corporation shall purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him on his behalf in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article VI, provided that such insurance is available on acceptable terms, which determination shall be made by a vote of a majority of the entire Board of Directors. Section 8. SEVERABILITY. If this Article VI or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director or officer and may indemnify each employee or agent of the Corporation as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article VI that shall not have been invalidated and to the fullest extent permitted by applicable law. ARTICLE VII SEAL Section 1. The corporate seal shall bear the name of the Corporation, the date 1983 and the words "Corporate Seal, Delaware". ARTICLE VIII AMENDMENTS Section 1. AMENDMENT OF BY LAWS Subject to the provisions of the Certificate of Incorporation, these By-Laws may be altered, amended or repealed at any regular meeting of the stockholders (or at any special meeting thereof duly called for that purpose) by the affirmative vote of the holders of a majority of the voting power of the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class; provided that in the notice of such special meeting notice of such purpose shall be given. Subject to the laws of the State of Delaware, the Certificate of Incorporation and these By-Laws, the Board of Directors may by a majority vote of the entire Board amend these By-Laws, or enact such other By-Laws as in their judgment may be advisable for the regulation of the conduct of the affairs of the Corporation. EX-31.1 4 y34569exv31w1.txt EX-31.1: CERTIFICATION EXHIBIT 31.1 CAMBREX CORPORATION CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) I, James A. Mack, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Cambrex Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15 (f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; and b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ James A. Mack ---------------------------------------- James A. Mack Chairman of the Board of Directors, President and Chief Executive Officer Dated: May 9, 2007 30 EX-31.2 5 y34569exv31w2.txt EX-31.2: CERTIFICATION EXHIBIT 31.2 CAMBREX CORPORATION CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) I, Gregory P. Sargen, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Cambrex Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15 (f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; and b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Gregory P. Sargen ---------------------------------------- Gregory P. Sargen Vice President and Chief Financial Officer Dated: May 9, 2007 31 EX-32.1 6 y34569exv32w1.txt EX-32.1: CERTIFICATION EXHIBIT 32.1 CAMBREX CORPORATION CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) In connection with the Quarterly Report of Cambrex Corporation (the "Company") on form 10-Q for the period ending March 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James A. Mack, Chairman of the Board of Directors, President and Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that: 1. The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 9, 2007 /s/ James A. Mack ---------------------------------------- James A. Mack Chairman of the Board of Directors, President and Chief Executive Officer 32 EX-32.2 7 y34569exv32w2.txt EX-32.2: CERTIFICATION EXHIBIT 32.2 CAMBREX CORPORATION CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) In connection with the Quarterly Report of Cambrex Corporation (the "Company") on form 10-Q for the period ending March 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gregory P. Sargen, Vice President and Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that: 1. The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 9, 2007 /s/ Gregory P. Sargen ---------------------------------------- Gregory P. Sargen Vice President and Chief Financial Officer 33 -----END PRIVACY-ENHANCED MESSAGE-----