EXHIBIT 4.2
CERTIFICATE OF DESIGNATION OF
SERIES A SENIOR CONVERTIBLE PREFERRED STOCK OF
AMERICA'S SHOPPING MALL, INC.
Section 1. Designation, Amount and Par Value. The series of Preferred Stock
shall be designated as the Series A Senior Convertible Preferred Stock (the
"Preferred Stock"), and the number of shares so designated shall be 20,000. The
par value of each share of Preferred Stock shall be $.001. Each share of
Preferred Stock shall have a stated value of $420.00 per share (the "Stated
Value"). All terms defined in the Investment Agreement, dated May 21, 1999,
between the Company and the Purchaser therein (the "Investment Agreement") and
not otherwise defined herein shall have for purposes hereof the meanings
provided for therein.
Section 2. Dividends.
a. Holders of outstanding shares of Preferred Stock shall be entitled to
receive, out of funds legally available therefor, and the Company shall pay,
cumulative cash dividends at the rate per share (as a percentage of the Stated
Value per share) equal to 8% per annum (or 13% per annum in the case of
dividends paid in shares of Preferred Stock under Section 2(c) hereof) (subject
to reset as provided below in this Section 2(a) and to increase pursuant to
Section 2(e) hereof), in cash or (as provided for herein) shares of Preferred
Stock, payable quarterly in arrears on the last day of each March, June,
September and December during the term of the Preferred Stock (each such date, a
"Dividend Payment Date"). Any arrears in payment of dividends with respect to
any share of Preferred Stock shall be payable on the Conversion Date (as defined
in Section 5(b)) applicable to such share or earlier if so determined by the
Company at the default rates set forth in Section 2(e) hereof. Dividends on
shares of the Preferred Stock shall accrue daily commencing on the Issue Date of
such shares, shall be calculated based on the actual number of days in such
quarterly period in a 360-day year and shall be deemed to accrue on such date
whether or not earned or declared and whether or not there are profits, surplus
or other funds of the Company legally available for the payment of dividends.
The party that holds the Preferred Stock on an applicable record date for any
dividend payment will be entitled to receive such dividend payment and any other
accrued and unpaid dividends which accrued prior to such Dividend Payment Date,
without regard to any sale or disposition of such Preferred Stock subsequent to
the applicable record date but prior to the applicable Dividend Payment Date. A
transfer of the right to receive payments hereunder shall be transferable only
through an appropriate entry in the register (the "Register") to be maintained
by the Company through the Transfer Agent, in which shall be entered the names
and addresses of the registered holder of shares of Preferred Stock and all
transfers of such shares. References to the Holder or Holders shall mean the
Person listed in the Register as the registered holder of such shares. The
ownership of such shares shall be proved by the Register, absent manifest error.
Except as otherwise provided herein, if at any time the Company pays less than
the total amount of dividends then accrued on account of the Preferred Stock,
such payment shall be distributed ratably among the holders of Preferred Stock
based upon the number of shares held by each Holder. Dividends due hereunder on
a Dividend Payment Date may, if so determined by a majority of the Company's
entire Board of Directors, be paid in shares of Preferred Stock calculated based
upon the Stated Value per share. Other than payment of dividends in shares of
Preferred Stock all other amounts due hereunder
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at any time shall be paid in immediately available funds. The Conversion Price
shall be subject to reset as follows. In the event that the average closing bid
price per share of the Company's Common Stock on the NASD OTC Bulletin Board,
the Nasdaq SmallCap Market, the Nasdaq National Market or such other trading
market or exchange on which the Common Stock shall then be traded for the twenty
(20) trading days immediately preceding the ninetieth (90th) day following the
date that the Company's Common Stock is eligible for public trading is below
Three Dollars and Fifty Cents ($3.50) (the "Reset Average Price"), the
Conversion Price shall be reset to a price per share of Common Stock equal to
seventy-five percent (75%) of the Reset Average Price. Once reset in accordance
with the provisions of this Section 2(a), the Conversion Price shall remain at
the reset Conversion Price, subject to adjustment in accordance with Section
5(d) below.
b. Notwithstanding anything to the contrary contained herein, the Company
may not, without the prior written consent of each Holder, in each instance,
issue shares of Preferred Stock in payment of dividends (and must deliver
immediately available funds in respect thereof) on the Preferred Stock if:
(i) the number of shares of Preferred Stock at the time authorized,
unissued and unreserved for all purposes, or held as treasury
stock, is insufficient to issue such dividends to be paid in
shares of Preferred Stock; or
(ii) if ten Business Days shall have elapsed from the date an Event of
Default (as defined in Section 7) shall have been declared
hereunder as having occurred and the Company shall not have cured
such Event of Default.
c. If the Company elects to issue shares of Preferred Stock in satisfaction
of the Company's obligation to pay dividends on any previously outstanding
shares of Preferred Stock such dividends shall be paid at an annual rate of
thirteen percent (13%) per share (calculated as a percentage of the Stated Value
per share) and not the eight percent (8%) dividend rate applicable to cash
dividends.
d. So long as any shares of Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined in
Section 7), nor shall the Company directly or indirectly pay or declare any
dividend or make any distribution (other than a dividend or distribution
described in Section 5) upon, nor shall any distribution be made in respect of,
any Junior Securities, nor shall any monies be set aside for or applied to the
purchase or redemption (through a sinking fund or otherwise) of any Junior
Securities, unless in each case all dividends on the Preferred Stock for all
past dividend periods shall have been paid.
e. Notwithstanding anything to the contrary contained herein, upon the
occurrence of an Event of Default and for so long as such Event of Default is
continuing, the dividend rate otherwise applicable specified in Section 2(a)
shall be increased to 13% per annum, paid in cash (or, in the case of shares of
Preferred Stock issued in satisfaction of dividends, 18%) or, if less, the
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maximum rate permitted by applicable law until such time as the applicable Event
of Default is cured. The provisions of this Section are not exclusive and shall
in no way limit the Company's obligations under the Investment Agreement, or
limit the Company's liability for damages to any holder occasioned by such Event
of Default.
Section 3. Voting Rights. In addition to any voting rights provided by law,
the holders of the Preferred Stock shall have voting rights entitling them to
one vote for each share of Common Stock into which shares of Preferred Stock
held by them are then convertible. The holders of Preferred Stock shall vote
with the holders of Common Stock as one class on all matters submitted to the
holders of Common Stock for a vote. However, so long as any shares of Preferred
Stock are outstanding, the Company shall not, without the affirmative vote of
the holders of a majority in interest of the shares of the Preferred Stock then
outstanding, (i) amend, alter or repeal any provision of the Certificate of
Incorporation or the By-Laws of the Company so as to adversely affect the
relative rights, preferences, qualifications, limitations or restrictions of the
Preferred Stock, (ii) authorize or issue any additional equity securities of the
Company or of any subsidiaries other than those issuable (x) upon the
conversion, exchange or exercise of securities or rights outstanding on the
Closing Date and (y) pursuant to grants of options previously granted and
outstanding on the Closing Date under the Company's Stock Option plan; provided,
however, that such consent shall not be unreasonably withheld, (iii) approve any
merger, consolidation, compulsory share exchange or sale of assets to which the
Company is a party; provided, however that such consent shall not be
unreasonably withheld, (iv) repurchase or redeem any equity securities or pay
dividends or other distributions on any equity securities, except as provided
pursuant to the terms of the Preferred Stock, (v) liquidate, dissolve,
recapitalize or reorganize the Company, (vi) incur any indebtedness for borrowed
money, or guarantee indebtedness, of other persons, directly or indirectly
except with respect to any wholly owned subsidiaries, (vii) effect any
fundamental changes in the nature of the Company's business, including but not
limited to acquiring or investing in another business entity; provided, however
that such consent shall not be unreasonably withheld, or (viii) approve the sale
or transfer of any material intangible or intellectual property, other than the
issuance of licenses or sales of equipment in the ordinary course of business;
provided, however, that such approval shall not be unreasonably withheld.
Section 4. Liquidation. Upon any liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary (a "Liquidation"), the holders of
shares of Preferred Stock shall be entitled to receive out of the assets of the
Company, whether such assets are capital or surplus, for each share of Preferred
Stock an amount equal to One Thousand Dollars ($1,000) per share of Preferred
Stock, plus an amount equal to accrued but unpaid dividends per share, whether
declared or not, before any distribution or payment shall be made to the holders
of any Junior Securities, and if the assets of the Company shall be insufficient
to pay such amounts in full, then the entire assets of the Company to be
distributed shall be distributed among the holders of Preferred Stock ratably in
accordance with the respective amounts that would be payable on such shares if
all amounts payable thereon were paid in full. A sale, conveyance or disposition
of all or substantially all of the assets of the Company or the effectuation by
the Company of a transaction or series of related transactions in which more
than 33 1/3% of the voting power of the Company is disposed
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of, or a consolidation or merger of the Company with or into any other company
or companies or a reclassification of the Common Stock shall not be treated as a
Liquidation, but instead shall be subject to the provisions of Section 5. The
Company shall mail written notice of any such Liquidation, not less than 60 days
prior to the payment date stated therein, to each record holder of Preferred
Stock.
Section 5. Conversion.
a. Each share of Preferred Stock shall be convertible into shares of
Common Stock at the Conversion Price, at the option of the holder in
whole or in part at any time and from time to time after the Issue
Date of such share of Preferred Stock. The holder of the Preferred
Stock shall effect conversions by surrendering the certificate or
certificates representing the shares of Preferred Stock to be
converted to the Company, together with the form of conversion notice
attached hereto as Exhibit A (the "Holder Conversion Notice"). Each
Holder Conversion Notice shall specify the number of shares of
Preferred Stock to be converted and the date on which such conversion
is to be effected, which date may not be prior to the date the holder
of Preferred Stock delivers such Notice by facsimile (the "Holder
Conversion Date"). If no Holder Conversion Date is specified in a
Holder Conversion Notice, the Holder Conversion Date shall be the date
that the Holder Conversion Notice is deemed delivered pursuant to
Section 5(j). Each Holder Conversion Notice, once given, shall be
irrevocable. If a holder is converting less than all shares of
Preferred Stock represented by the certificate or certificates
tendered by such holder with the Holder Conversion Notice, or if a
conversion hereunder cannot be effected in full for any reason, the
Company shall promptly deliver to such holder (in the manner and
within the time set forth in Section 5(c)) a certificate for such
number of shares of Preferred Stock as have not been converted.
b. On the tenth anniversary of the Issue Date (the "Company Conversion
Date") for each share of Preferred Stock that has not previously been
converted, such share of Preferred Stock shall be automatically
convertible into shares of Common Stock at the then applicable
Conversion Price; provided, however, that no shares of Preferred Stock
shall be converted (i) unless the Company shall have duly reserved for
issuance to the holder a sufficient number of shares of Common Stock
to issue upon such conversion; or (ii) if an Event of Default shall
have occurred hereunder and is continuing. In connection with such
conversion, the Company shall deliver to the holders of such shares of
Preferred Stock a written notice in the form attached hereto as
Exhibit B (the "Company Conversion Notice"). The Company Conversion
Notice shall specify the number of shares of Preferred Stock that will
be subject to automatic conversion on the Company Conversion Date. The
Company shall deliver or cause to be delivered the Company Conversion
Notice at least five (5) Trading Days before the Company Conversion
Date. The holders of the Preferred Stock shall surrender the
certificates representing such shares at the office of the Company or
the Transfer
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Agent not later than five (5) Trading Days after the Company
Conversion Date. Each of a Holder Conversion Notice and a Company
Conversion Notice is sometimes referred to herein as a "Conversion
Notice," and each of a "Holder Conversion Date" and a "Company
Conversion Date" is sometimes referred to herein as a "Conversion
Date."
c. Not later than five (5) Trading Days after the Conversion Date, the
Company will, or will cause the Transfer Agent to deliver to the
holder of Preferred Stock (i) a certificate or certificates
representing the number of shares of Common Stock being acquired upon
the conversion of shares of Preferred Stock, including certificates
representing the number of shares of Common Stock as equals the
accrued but unpaid dividends thereon divided by the average Per Share
Market Value, and (ii) one or more certificates representing the
number of shares of Preferred Stock not converted. If, at the time of
any conversion of Preferred Stock, there shall be an effective
Registration Statement applicable to the shares of Common Stock
available for such conversion, any certificates representing shares of
Common Stock to be delivered upon such conversion hereunder shall be
free of restrictive legends and trading restrictions on the stock
transfer books of the Company. The Company shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon
conversion of any shares of Preferred Stock and the counting of
Trading Days for purposes of any consequences under this Section for a
failure to deliver such certificates under this Section shall not
begin until certificates representing the shares of Preferred Stock to
be converted are either delivered for conversion to the Transfer Agent
for the Common Stock, or until the holder notifies the Company that
such certificates representing the shares of Preferred Stock have been
lost, stolen or destroyed and (if requested by the Company or the
Transfer Agent) provides a bond and other supporting documentation
reasonably satisfactory to the Company and the Transfer Agent (or
other adequate security reasonably acceptable to the Company and the
Transfer Agent) to indemnify the Company from any loss incurred by it
in connection therewith, provided that, if the Company or the Transfer
Agent receives the original certificates representing the shares of
Preferred Stock being converted on or prior to the time specified for
the delivery of such shares of Common Stock or on or prior to the time
at which liquidated damages begin to accrue, the date of the Holder
Conversion Notice shall be deemed to be the date of delivery of such
original certificates representing the shares of Preferred Stock. The
Company shall, upon request of the holder, use its best efforts to
deliver any certificate or certificates required to be delivered by
the Company under this Section 5(c) electronically through the
Depository Trust Corporation or another established clearing
corporation performing similar functions. If such certificate or
certificates are not delivered by the date required under this Section
5(c), the holder shall be entitled by written notice to the Company
and the Transfer Agent at any time on or before its receipt of such
certificate or certificates, to rescind such conversion, in which
event the Company shall immediately instruct the Transfer Agent to
return the certificates representing
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the shares of Preferred Stock subject to such conversion that were
tendered for conversion.
d.
i. If the Company, at any time while any shares of Preferred Stock
are outstanding, (a) shall pay a stock dividend or otherwise make
any distributions on shares of its Junior Securities payable in
shares of its capital stock (whether payable in shares of its
Common Stock or of capital stock of any class), (b) subdivide
outstanding shares of Common Stock into a larger number of
shares, or (c) combine outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock of the Company outstanding
before such event and of which the denominator shall be the
number of shares of Common Stock outstanding after such event.
Any adjustment made pursuant to this Section 5(d)(i) shall become
effective immediately upon the record date for the determination
of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date
in the case of a subdivision or combination.
ii. If the Company, at any time while any shares of Preferred Stock
are outstanding, shall issue shares of Common Stock or securities
convertible into Common Stock at a conversion price, or rights or
warrants exercisable for shares of Common Stock at an exercise
price, per share less than the Conversion Price at the record
date mentioned below (the "Adjustment Issue Date"), the
Conversion Price shall be multiplied by a fraction, of which the
denominator shall be the number of shares of Common Stock
(excluding treasury shares, if any, but including warrants or
options that would be included for purposes of determining
earnings per share in accordance with generally accepted
accounting principles) outstanding on the date of issuance of
such rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and of which
the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any, but including warrants or
options that would be included for purposes of determining
earnings per share in accordance with generally accepted
accounting principles) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered
would purchase at such Conversion Price. Such adjustment shall be
made whenever such rights or warrants are issued, and shall
become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or
warrants. However, upon the expiration of any right or warrant to
purchase Common Stock the issuance of which resulted in an
adjustment in the Conversion Price
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designated pursuant to this Section (5)(d)(ii), if any such right
or warrant shall expire and shall not have been exercised, the
Conversion Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting
any other adjustments in the Conversion Price made pursuant to
the provisions of this Section 5 after the issuance of such
rights or warrants) had the adjustment of the Conversion Price
made upon the issuance of such rights or warrants been made on
the basis of offering for subscription or purchase only that
number of shares of Common Stock actually purchased upon the
exercise of such rights or warrants actually exercised.
Notwithstanding anything in this Section 5(d)(ii), there shall be
no adjustment pursuant to this Section 5(d)(ii) for issuances of
Common Stock or securities convertible into Common Stock (i) for
any of the transactions with respect to which an adjustment is
provided for pursuant to any other section of this Certificate of
Designation, (ii) upon exercise or conversion of any other
options, warrants or securities outstanding on the date hereof,
(iii) upon the conversion of Preferred Stock issued pursuant to
the Investment Agreement or (iv) for issuances under the
Company's stock option plan duly approved by the Compensation
Committee of the Board of Directors.
iii. If the Company, at any time while shares of Preferred Stock are
outstanding, shall distribute to all holders of Common Stock (and
not to holders of Preferred Stock) evidences of its indebtedness
or assets or rights or warrants to subscribe for or purchase any
security (excluding those referred to in Section 5(d)(ii) above),
then in each such case the Conversion Price at which each share
of Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect
immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction
of which the denominator shall be the Conversion Price, and of
which the numerator shall be such Conversion Price on such record
date less the then fair market value at such record date of the
portion of such assets or evidences of indebtedness so
distributed applicable to one outstanding share of Common Stock
as determined by the Board of Directors in good faith; provided,
however that in the event of a distribution exceeding ten percent
(10%) of the assets of the Company, such fair market value shall
be determined by a nationally recognized or major regional
investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority
in interest of the shares of Preferred Stock then outstanding;
and provided, further, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an
additional Appraiser, in which case the fair market value shall
be equal to the average
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of the determinations by each such Appraiser. In either case the
adjustments shall be described in a statement provided to the
holders of Preferred Stock of the portion of assets or evidences
of indebtedness so distributed or such subscription rights
applicable to one share of Common Stock. Such adjustment shall be
made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
iv. All calculations under this Section 5 shall be made to the
nearest one-cent ($.01) or the nearest 1/100th of a share, as the
case may be.
v. Whenever the Conversion Price is adjusted pursuant to Section
5(d)(i), (ii), (iii) or (iv), the Company shall, or shall
instruct the Transfer Agent to, promptly mail to the holders of
Preferred Stock a notice setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
vi. In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another
person pursuant to which the Company will not be the surviving
entity, the sale or transfer of all or substantially all of the
assets of the Company or any compulsory share exchange pursuant
to which the Common Stock is converted into other securities,
cash or property, the holders of the Preferred Stock then
outstanding shall have the right thereafter to convert such
shares into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation,
merger, sale, transfer or share exchange, and the holders of the
Preferred Stock shall be entitled upon such event to receive such
amount of securities, cash or property as would be payable to the
holders of the shares of the Common Stock of the Company into
which such shares of Preferred Stock could have been converted
immediately prior to such reclassification, consolidation,
merger, sale, transfer or share exchange. The terms of any such
consolidation, merger, sale, transfer or share exchange shall
include such terms so as to continue to give to the holder of
Preferred Stock the right to receive the securities, cash or
property set forth in this Section 5(d)(vi) upon any conversion
following such consolidation, merger, sale, transfer or share
exchange. This provision shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or
share exchanges.
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vii. If:
(1) the Company shall declare a dividend (or any other
distribution) on its Common Stock (other than a subdivision
of the outstanding shares of Common Stock) or shall
authorize a repurchase or redemption or otherwise enter into
any other transaction (including a stock split,
recapitalization or other transaction) which would cause a
decrease in the number of its shares of Common Stock issued
and outstanding (other than transactions that similarly
decrease the number of shares of Common Stock into which
shares of Preferred Stock are convertible); or
(2) the Company shall declare a special nonrecurring cash
dividend on its then outstanding Common Stock; or
(3) the Company shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any
rights; or
(4) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the
Common Stock of the Company (other than a subdivision or
combination of the outstanding shares of Common Stock), any
consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets
of the Company, or any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or
property; or
(5) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding-up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Preferred Stock, and shall cause to be mailed to
the holders of Preferred Stock at their last respective addresses as they shall
appear upon the Register, at least 30 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
repurchase, redemption, 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, repurchase, redemption, rights or warrants are to
be determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding-up
is expected to become effective, and the date
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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, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding-up; provided,
however, that the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action required
to be specified in such notice.
e. If at any time conditions shall arise by reason of action taken by the
Company which in the opinion of the Board of Directors are not
adequately covered by the other provisions hereof and which might
materially and adversely affect the rights of the holders of Preferred
Stock (different than or distinguished from the effect generally on
rights of holders of any class of the Company's capital stock) or if
at any time any such conditions are expected to arise by reason of any
action contemplated by the Company, the Company shall, at least 30
calendar days prior to the effective date of such action, mail a
written notice to each holder of Preferred Stock briefly describing
the action contemplated and the material adverse effects of such
action on the rights of such holders and an Appraiser selected by the
holders of majority in interest of the Preferred Stock shall give its
opinion as to the adjustment, if any (not inconsistent with the
standards established in this Section 5), of the Conversion Price
(including, if necessary, any adjustment as to the securities into
which shares of Preferred Stock may thereafter be convertible) and any
distribution which is or would be required to preserve without
diluting the rights of the holders of shares of Preferred Stock;
provided, however that the Company, after receipt of the determination
by such Appraiser, shall have the right to select an additional
Appraiser, in which case the adjustment shall be equal to the average
of the adjustments recommended by each such Appraiser. The Board of
Directors shall make the adjustment recommended forthwith upon the
receipt of such opinion or opinions or the taking of any such action
contemplated, as the case may be; provided, however, that no such
adjustment of the Conversion Price shall be made which in the opinion
of the Appraiser(s) giving the aforesaid opinion or opinions would
result in an increase of the Conversion Price to more than the
Conversion Price then in effect.
f. The Company (i) represents and warrants that as of the Issue Date (as
defined in Section 7), it has duly reserved solely for issuance upon
conversion of Preferred Stock, as herein provided, out of its
authorized and unissued Common Stock free from preemptive rights or
any other actual or contingent purchase rights of persons other than
the holders of Preferred Stock, the number of shares of Common Stock
as would be issuable upon conversion of all of the shares of the
Preferred Stock that are authorized for issuance hereunder as if all
such shares were issued on, and such conversion had occurred on, the
Issue Date and (ii) covenants that it will at all times reserve and
keep available out of its authorized and unissued Common Stock solely
for the purpose of issuance upon conversion of Preferred Stock as
herein provided, free from preemptive rights or any other actual or
contingent purchase rights of persons other than the holders of
Preferred Stock, the number of shares of Common
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Stock as shall be issuable (taking into account the reset provisions
of Section 2(a) and the adjustments and restrictions of Section 5(d)
hereof) upon the conversion of the aggregate of all outstanding shares
of Preferred Stock that are authorized for issuance hereunder. The
Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly and validly authorized, issued and
fully paid and nonassessable and free of all preemptive rights, liens
and encumbrances.
g. Upon a conversion hereunder the Company shall not be required to issue
stock certificates representing fractions of shares of Common Stock,
but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Conversion Price. If the
Company elects not to, or is unable to, make such a cash payment, the
holder of Preferred Stock shall be entitled to receive, in lieu of the
final fraction of a share, one whole share of Common Stock.
h. The issuance of certificates for (i) shares of Common Stock on
conversion of Preferred Stock or (ii) shares of Preferred Stock paid
as dividends, shall be made without charge to the holders thereof for
any documentary stamp or similar taxes that may be payable in respect
of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in
respect of any transfer involved in the issuance and delivery of any
such certificate upon conversion in a name other than that of the
holder of such shares of Preferred Stock so converted and the Company
shall not be required to issue or deliver such certificates unless or
until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid.
i. Shares of Preferred Stock converted into Common Stock shall be
canceled and shall have the status of authorized but unissued shares
of preferred stock.
j. Any and all notices or other communications or deliveries to be
provided by the holder hereunder, including, without limitation, any
Conversion Notice, shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service
or sent by certified or registered mail, postage prepaid, addressed to
the attention of the Chief Operating Officer of the Company at the
facsimile telephone number or address of the principal place of
business of the Company and if applicable to the Transfer Agent. Any
and all notices or other communications or deliveries to be provided
by the Company hereunder shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid,
addressed to the holder at the facsimile telephone number or address
of the holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place
of business of the holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on
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the earliest of (i) the date of transmission, if delivered via
facsimile at the facsimile telephone number specified in the
Investment Agreement prior to 4:30 p.m. (Eastern Time) on a Trading
Day, (ii) the Trading Day after the date of transmission, if delivered
via facsimile at the facsimile telephone number specified in the
Investment Agreement later than 4:30 p.m. (Eastern Time) on any date
and earlier than 11:59 p.m. (Eastern Time) on such date, (iii) the
Trading Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given.
Section 6. Redemption.
(a) The Company shall have the right, subject to each Holder's right to
convert all or any portion of its shares of Preferred Stock in accordance with
Section 5 hereof on or prior to the Redemption Date, to redeem any or all of the
shares of Preferred Stock on any Quarterly Dividend Payment Date (for purposes
of this Section 6 such date shall be the "Redemption Date"), provided written
demand as set forth below is given. The redemption price for each share of
Preferred Stock to be redeemed shall be paid by the Company in cash in an amount
equal to the stated value of such share, plus an amount sufficient such that the
holder thereof receives an annual rate of return equal to twenty-five percent
(25%), for the period from the original Issue Date of such share until the
Redemption Date, on a compounded basis (the "Redemption Price").
(b) Thirty (30) days prior to the Redemption Date, the Company shall
provide each holder of Preferred Stock with a written demand ("Redemption
Notice") (addressed to the holder at its address as it appears on the stock
transfer books of the Company) to redeem shares of Preferred Stock as provided
above, which notice shall specify the estimated Redemption Price and the number
of shares to be redeemed. All Redemption Notices hereunder shall be sent by
certified mail, returned receipt requested, and shall be deemed to have been
provided when received.
(c) On or prior to the Redemption Date, each holder of Preferred Stock
shall surrender his or its certificate or certificates representing the shares
of Preferred Stock to be redeemed, in the manner and at the place designated in
the Redemption Notice and if the Holder elects to convert any or all of the
shares of Preferred Stock, a Holder Conversion Notice in conformance with
Section 5 hereof. If less than all shares represented by such certificate or
certificates are redeemed, the Company shall issue a new certificate for the
unredeemed shares. From and after the Redemption Date, unless there shall be a
default in payment of the Redemption Price, all rights of each holder with
respect to shares of Preferred Stock redeemed on the Redemption Date shall cease
(except the right to receive the Redemption Price and interest at the rate of
13% in the event payment is not made within 20 days after the Redemption Date),
and such shares shall not be deemed to be outstanding for any purpose
whatsoever.
Section 7. Definitions. For the purposes hereof, the following terms shall
have the following meanings:
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"Business Day" means any day of the year on which commercial banks are not
required or authorized to be closed in New York City.
"Common Stock" means shares now or hereafter authorized of the class of
Common Stock, $.001 par value, of the Company, stock of any other class into
which such shares may hereafter have been reclassified or changed and any other
equity securities of the Company hereafter designated as Common Stock.
"Conversion Amount" means, with respect to any share of Preferred Stock
surrendered for conversion hereunder, the Stated Value of such share of
Preferred Stock plus accrued but unpaid dividends thereon through and including
the applicable Conversion Date.
"Conversion Price" means Three Dollars and Fifty Cents ($3.50) per share of
Common Stock, subject to reset or adjustment according to the provisions of the
Investment Agreement and this Certificate of Designation.
"Event of Default," wherever used herein, means any one of the following
events (whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):
a. any default by the Company to pay when due and payable dividends on any
shares of Preferred Stock, either on a Dividend Payment Date or Conversion Date,
or any other amounts hereunder, by acceleration or otherwise, or, within five
(5) Business Days following the delivery of notice to the Company, any fees or
any other amounts payable (and not otherwise referred to in this clause (a)) by
the Company under the Investment Agreement;
b. the Company shall fail to timely observe or perform any other covenant,
agreement or warranty contained in, or otherwise commit any breach of, this
Certificate of Designation or the Investment Agreement and such failure or
breach shall not have been remedied within five (5) Business Days after the date
on which such failure or breach shall have occurred or such other cure period as
may specifically be provided herein or in such other agreements with respect to
any particular covenant, agreement or warranty;
c. the Company or any of its subsidiaries shall commence a voluntary case
under the United States Bankruptcy Code as now or hereafter in effect or any
successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced
against the Company under the Bankruptcy Code and the petition is not
controverted within 30 days, or is not dismissed within 60 days, after
commencement of such involuntary case; or a "custodian" (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or any substantial
part of the property of the Company or the Company commences any other
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or there
is commenced
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against the Company any such proceeding which remains undismissed for a period
of 60 days; or the Company is adjudicated insolvent or bankrupt; or any other
order of relief or other order approving any such case or proceeding is entered;
or the Company suffers any appointment of any custodian or the like for it or
any substantial part of its property which continues undischarged or unstayed
for a period of 60 days; or the Company makes a general assignment for the
benefit of creditors; or the Company shall call a meeting of its creditors with
a view to arranging a composition or adjustment of its debts; or the Company
shall by any act or failure to act indicate its consent to, approval of or
acquiescence in any of the foregoing; or any corporate or other action is taken
by the Company for the purpose of effecting any of the foregoing;
d. the Company shall fail to pay any amount of principal or interest on any
mortgage, credit agreement or other facility, indenture or other instrument
under which there may be issued, or by which there may be secured or evidenced,
any indebtedness of the Company in an amount exceeding fifty thousand dollars
($50,000), or any amount owed to the Pioneer Partnership, its partners or
affiliates (collectively, "Indebtedness"), whether such Indebtedness now exists
or shall hereafter be created, when and as the same shall become due and
payable, or the Company shall fail to observe or perform any term, covenant or
agreement contained in any agreement or instrument evidencing or governing any
of such Indebtedness if the cure period for such term, covenant or agreement
contained in such agreement or instrument has run and the holder or holders of
such Indebtedness or a trustee on their behalf shall have the right to cause
such Indebtedness to become due prior to its stated maturity;
e. the Common Stock shall not be registered under Section 12, 13 or 15 of
the Securities Exchange Act of 1934, as amended, within one hundred and eighty
(180) days after the Closing Date (or if earlier, on the date on which the
registration statement relating to the shares of Common Stock into which shares
of Preferred Stock are convertible, as contemplated by the Investment Agreement,
is declared effective by the Commission);
f. the trading in the Common Stock shall have been suspended by the
Commission, the NASD OTC Bulletin Board or, once the Common Stock is listed on
the Nasdaq National Market or the Nasdaq SmallCap Market, by Nasdaq or any other
federal or state regulatory authority having jurisdiction over the Common Stock
(except for any suspension of trading of limited duration solely to permit
dissemination of material information regarding the Company and except, if, at
the time there is any suspension on the Nasdaq Market, the Common Stock is then
listed and approved for trading on either the New York Stock Exchange, the
American Stock Exchange, the Nasdaq SmallCap Market, or the Nasdaq National
Market within two (2) Trading Days thereof);
g. once listed on any Nasdaq market, the Company shall have its Common
Stock delisted from the Nasdaq Market for at least ten (10) consecutive Trading
Days and is unable to obtain a listing on either the New York Stock Exchange,
the American Stock Exchange, the Nasdaq SmallCap Market or the Nasdaq National
Market within such ten (10) Trading Days; or
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h. the entry of any judgments against the Company aggregating more than
$100,000, which unpaid or unsatisfied.
"Junior Securities" means the Common Stock and all other classes of equity
securities of the Company, other than the Series A Senior Convertible Preferred
Stock.
"Issue Date" shall mean, with respect to any share of Preferred Stock, the
date of the issuance of such share of Preferred Stock regardless of the number
of transfers of such share of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such share of Preferred Stock.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Trading Day" means (a) a day on which the Common Stock is traded on the
NASD OTC Bulletin Board, the Nasdaq National Market or Nasdaq SmallCap Stock
Market or principal national securities exchange or market on which the Common
Stock has been listed or quoted, or (b) if the Common Stock is not listed or
quoted on the Nasdaq National Market or Nasdaq SmallCap Market or any principal
national securities exchange or market, a day on which the Common Stock is
traded in the over-the-counter market, as reported by Bloomberg, L.P., the
National Quotation Bureau Incorporated or any similar organization or agency
succeeding its functions or reporting prices.
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