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EXHIBIT 3.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES F CONVERTIBLE PREFERRED STOCK
OF
GENERAL MAGIC, INC.
General Magic, Inc. (the "COMPANY"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred upon the Board of Directors of the
Company by the Certificate of Incorporation, as amended, of the Company, and
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
the Board of Directors of the Company at a meeting duly held adopted resolutions
(i) authorizing a series of the Company's previously authorized preferred stock,
par value $.001 per share, and (ii) providing for the designations, preferences
and relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, of One Thousand (1,000) shares of Series F
Convertible Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 1,000 shares
of Series F Convertible Preferred Stock (the "PREFERRED SHARES"), par
value $.001 per share, which shall have the following powers,
designations, preferences and other special rights:
(1) Dividends. The Preferred Shares shall bear dividends
("DIVIDENDS") at a rate of 5.0% of the Stated Value (as defined below) per
annum, which shall be cumulative and accrue daily from the Effective Date (as
defined below). Dividends shall be payable in cash on the last day of each
Calendar Quarter (as defined below) beginning on the last day of the Calender
Quarter on September 30, 1999 (each a "DIVIDEND DATE"), provided that the
Company provides written notice ("DIVIDEND ELECTION NOTICE") to each holder of
Preferred Shares at least 30 calendar days prior to the Dividend Date. If the
Company timely gives a Dividend Election Notice, then all accrued and unpaid
Dividends shall be payable on the applicable Dividend Date. If a Dividend Date
is not a Business Day (as defined below), then the Dividend shall be due and
payable on the Business Day immediately following the Dividend Date. Dividends
which are not paid on a Dividend Date shall be payable upon the earlier of
conversion or redemption by the inclusion thereof in the Additional Amount (as
defined below). Any accrued and unpaid dividends with respect to which a
Dividend Election Notice was given and which are not paid within five (5)
Business Days of such accrued and unpaid Dividends' Dividend Date shall bear
interest at the rate of 1.5% per month (pro rated for partial months) from such
Dividend Date until the same is paid (the "DEFAULT INTEREST").
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(2) Holder's Conversion of Preferred Shares. A holder of Preferred
Shares shall have the right, at such holder's option, to convert the Preferred
Shares into shares of the Company's common stock, par value $.001 per share,
including any related purchase rights (the "COMMON STOCK"), on the following
terms and conditions:
(a) Conversion Right. At any time or times on or after the
Issuance Date, any holder of Preferred Shares shall be entitled to
convert any whole number of Preferred Shares into fully paid and
nonassessable shares (rounded to the nearest number of whole shares
in accordance with Section 2(h)) of Common Stock, at the Conversion
Rate (as defined below); provided, however, that in no event shall
any holder be entitled to convert Preferred Shares in excess of that
number of Preferred Shares which, upon giving effect to such
conversion, would cause the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates to exceed
4.99% of the outstanding shares of Common Stock following such
conversion. For purposes of the foregoing proviso, the aggregate
number of shares of Common Stock beneficially owned by the holder
and its affiliates shall include the number of shares of Common
Stock issuable upon conversion of the Preferred Shares with respect
to which the determination of such proviso is being made, but shall
exclude the number of shares of Common Stock which would be issuable
upon (i) conversion of the remaining, nonconverted Preferred Shares
beneficially owned by the holder and its affiliates, and (ii)
exercise or conversion of the unexercised or unconverted portion of
any other securities of the Company (including, without limitation,
any warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by
the holder and its affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 2(a), beneficial ownership
shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended. For the purposes of
this Section 2(a), in determining the number of outstanding shares
of Common Stock a holder may rely on the number of outstanding
shares of Common Stock as reflected in (1) the Company's most recent
Form 10-Q or Form 10-K, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company
or its transfer agent setting forth the number of shares of Common
Stock outstanding. For any reason at any time, upon the written or
oral request of any holder, the Company shall within one (1)
Business Day confirm orally and in writing to any such holder the
number of shares of Common Stock outstanding as of the date of such
request. In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to conversions of
Preferred Shares by such holder since the date as of which such
number of outstanding shares of Common Stock was reported.
(b) Conversion Rate and Other Definitions. The number of
shares of Common Stock issuable upon conversion of each of the Preferred
Shares pursuant to Sections (2)(a) and 2(g) and Section 5 shall be
determined according to the following formula (the "CONVERSION RATE"):
Conversion Amount
-----------------
Conversion Price
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For purposes of this Certificate of Designations, the following terms
shall have the following meanings:
(i) "CALENDAR QUARTER" means each of the period
beginning on and including January 1 and ending on and including March 31, the
period beginning on and including April 1 and ending on and including June 30,
the period beginning on and including July 1 and ending on and including
September 30, and the period beginning on and including October 1 and ending on
and including December 31;
(ii) "CONVERSION PRICE" means, (A) as of any
Conversion Date (as defined below) or other date of determination (other than
the Maturity Date (as defined in Section 2(g)), the Fixed Conversion Price,
subject to adjustment as provided herein (including, without limitation,
pursuant to Section 2(c)), and (B) on the Maturity Date, the Closing Bid Price
as of such date;
(iii) "FIXED CONVERSION PRICE" means 90% of the
product of (A) the Conversion Percentage and (B) the lesser of (I) the average
of the Closing Bid Prices of the Common Stock for the five (5) consecutive
trading days ending on and including the Issuance Date (as defined below) and
(II) the average of the Closing Bid Prices of the Common Stock for the five (5)
consecutive trading days ending on and including September 2, 1999, subject to
adjustment as provided herein (including, without limitation, pursuant to
Section 2(c));
(iv) "CONVERSION PERCENTAGE" means 100%, subject to
adjustment as provided herein;
(v) "CONVERSION AMOUNT" means the sum of (A) the
Additional Amount and (B) $10,000;
(vi) "ADDITIONAL AMOUNT" means, on a per share basis,
the sum of (A) unpaid Default Interest through the date of determination plus
(B) the result of the following formula: (.050)(N/365)($10,000);
(vii) "CLOSING BID PRICE" means, for any security as
of any date, the last closing bid price for such security on The Nasdaq National
Market as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if The
Nasdaq National Market is not the principal trading market for such security,
the last closing bid price of such security on the principal securities exchange
or trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price is reported
for such security by Bloomberg, the last closing trade price of such security as
reported by Bloomberg, or, if no last closing trade price is reported for such
security by Bloomberg, the average of the bid prices of any market makers for
such security as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the Closing Bid Price cannot be calculated for such security on such
date on any of the foregoing bases, the Closing Bid Price of such security on
such date shall be the fair market value as mutually determined by the Company
and the holders of a majority of the outstanding Preferred Shares (including for
purposes of this determination any Preferred Shares with respect to which the
Closing Bid Price is being determined). If the Company
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and the holders of Preferred Shares are unable to agree upon the fair market
value of the Common Stock, then such dispute shall be resolved pursuant to
Section 2(f)(iii). All such determinations shall be appropriately adjusted for
any stock dividend, stock split or other similar transaction during any period
for which the Closing Bid Price is being determined.
(viii) "N" means the number of days from, but
excluding, the last Dividend Date with respect to which dividends, along with
any Default Interest, has been paid by the Company on the applicable Preferred
Share through and including the Conversion Date or the Maturity Date for the
Preferred Shares for which conversion and/or redemption is being elected, as the
case may be, or if the Company has not previously paid dividends, then the
number of days from, but excluding, the Effective Date through and including the
Conversion Date or the Maturity Date for the Preferred Shares for which
conversion and/or redemption is being elected, as the case may be;
(ix) "ISSUANCE DATE" means, with respect to each
Preferred Share, the date of issuance of the Preferred Shares;
(x) "BUSINESS DAY" means any day other than Saturday,
Sunday or other day on which commercial banks in the City of New York are
authorized or required by law to remain closed;
(xi) "EFFECTIVE DATE" means March 30, 1999;
(xi) "RESET DATE" means, during the period beginning
on the Issuance Date and ending on the Maturity Date, the last day of each
Calendar Quarter.
(xii) "EXCHANGE AGREEMENT" means that certain
exchange agreement between the Company and the initial holders of the Preferred
Shares;
(xiii) "STATED VALUE" means $10,000;
(xiv) "REGISTRATION RIGHTS AGREEMENT" means that
certain registration rights agreement between the Company and the initial
holders of the Preferred Shares;
(xv) "CONVERSION SHARES" means shares of Common Stock
issuable upon conversion of Preferred Shares and any shares of Common Stock
issuable as payment of Dividends or Registration Delay Payments (as defined in
the Registration Rights Agreement).
(c) Adjustment to Fixed Conversion Price -- Market Price
of Common Stock. In addition to any other adjustment to the Fixed Conversion
Price provided for in this Certificate of Designations, in the event that 90% of
the average of the Closing Bid Prices of the Common Stock on the ten (10)
consecutive trading days immediately following a Reset Date (a "PRICING PERIOD")
is less than the Fixed Conversion Price in effect immediately prior to such 10th
trading day following such Reset Date, then after such 10th trading day
following such Reset Date the Fixed Conversion Price shall be equal to the
product of (A) the Conversion Percentage and (B) 90% of the average of the
Closing Bid Prices of the Common Stock on each trading day during such
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Pricing Period; subject to further adjustment as provided in this Section 2(c)
and elsewhere in this Certificate of Designations.
(d) Adjustment to Conversion Price -- Dilution and Other Events.
In order to prevent dilution of the rights granted under this Certificate of
Designations, the Conversion Price will be subject to adjustment from time to
time as provided in this Section 2(d).
(i) Adjustment of Fixed Conversion Price upon Issuance of
Common Stock. If and whenever on or after the Effective Date, the Company issues
or sells, or is deemed to have issued or sold, any shares of Common Stock (other
than the Conversion Shares, the shares of Common Stock issuable upon conversion
or exercise, as the case may be, of the Series D Convertible Preferred Stock of
the Company or the related warrants, the Discretionary Shares (as defined below)
and shares of Common Stock deemed to have been issued by the Company in
connection with (1) an Approved Stock Plan (as defined below) or (2) options,
warrants or convertible securities outstanding as of the Effective Date), except
to the extent that the terms of such instruments are amended or changed on or
after the Effective Date, for a consideration per share less than a price (the
"APPLICABLE PRICE") equal to the Fixed Conversion Price in effect immediately
prior to such issuance or sale, then immediately after such issue or sale, the
Fixed Conversion Price, if any, then in effect shall be reduced to an amount (A)
in the event such issue or sale occurs on or prior to the date (the "RATCHET
DATE") which is the earlier of (I) the date on which an aggregate of at least
600 Preferred Shares have been converted pursuant to Section 2 and (II) the date
which is one year after the date the Registration Statement (as defined in the
Registration Rights Agreement) is declared effective by the SEC, then equal to
the consideration per share which the Company issued or sold, or was deemed to
have issued or sold, for one share of Common Stock pursuant to such issuance or
sale or (B) in the event such issue or sale occurs after the Ratchet Date, then
equal to the product of (x) the Fixed Conversion Price in effect immediately
prior to such issue or sale and (y) the quotient determined by dividing (1) the
sum of (I) the product of the Applicable Price and the number of shares of
Common Stock Deemed Outstanding (as defined below) immediately prior to such
issue or sale, and (II) the consideration, if any, received by the Company upon
such issue or sale, by (2) the product of (I) the Applicable Price and (II) the
number of shares of Common Stock Deemed Outstanding immediately after such issue
or sale. For purposes of determining the adjusted Fixed Conversion Price under
this Section 2(d)(i), the following shall be applicable:
(A) Issuance of Options. If on or after the Effective Date
the Company in any manner grants any rights or options to subscribe for
or to purchase Common Stock (other than pursuant to an Approved Stock
Plan or upon conversion of the Preferred Shares) or any stock or other
securities convertible into or exchangeable for Common Stock (such
rights or 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 the exercise of such Options or upon conversion or exchange of such
Convertible Securities is less than the Applicable Price, 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 shall be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For
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purposes of this Section 2(d)(i)(A), 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 determined by
dividing (I) the total amount, if any, received or receivable by the
Company as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the
Company 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 Company upon
the issuance or sale of such Convertible Securities and the conversion
or exchange thereof, by (II) the total maximum number of shares of
Common Stock issuable upon exercise of such Options or upon the
conversion or exchange of all such Convertible Securities issuable upon
the exercise of such Options. No further adjustment of the Fixed
Conversion Price shall be made upon the actual issuance of such Common
Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion
or exchange of such Convertible Securities. Upon the expiration of any
such Options which shall not have been exercised, the Fixed Conversion
Price computed upon the original issue thereof, and any subsequent
adjustments based thereon, shall, upon such expiration, be recomputed as
if: (i) in the case Options for Common Stock, the only shares of Common
Stock issued were shares of Common Stock, if any, actually issued upon
the exercise of such Options and the consideration received therefor was
the consideration actually received by the Company for the issue of all
such Options, whether or not exercised, plus the consideration actually
received by the Company upon such exercise, and (ii) in the case of
Options for Convertible Securities, only the Convertible Securities, if
any, actually issued upon the exercise thereof were issued at the time
of issue of such Options, and the consideration received by the Company
for the shares of Common Stock deemed to have been then issued was the
consideration actually received by the Company for the issue of all such
Options, whether or not exercised, plus the consideration deemed to have
been received by the Company upon the issue of the Convertible
Securities with respect to which such Options were actually exercised.
(B) Issuance of Convertible Securities. If on or after
the Effective Date the Company 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 of such Convertible Securities
is less than the Applicable Price, then the maximum number of shares of
Common Stock issuable upon conversion or exchange of such Convertible
Securities shall be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For the purposes of this
Section 2(d)(i)(B), the "price per share for which Common Stock is
issuable upon such conversion or exchange" is determined by dividing (I)
the total amount received or receivable by the Company as consideration
for the issue or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof, by (II) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. No further adjustment of
the Fixed Conversion Price shall be made upon the actual issuance of
such Common Stock upon conversion or exchange of such Convertible
Securities, and if any such issuance or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of
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the Fixed Conversion Price had been or are to be made pursuant to other
provisions of this Section 2(d)(i), no further adjustment of the
Conversion Price shall be made by reason of such issuance or sale. Upon
the expiration of any rights of conversion or exchange under such
Convertible Securities which shall not have been exercised, the Fixed
Conversion Price computed upon the original issue thereof, and any
subsequent adjustments based thereon, shall, upon such expiration, be
recomputed as if the only shares of Common Stock issued were shares of
Common Stock, if any, actually issued upon the conversion or exchange of
such Convertible Securities and the consideration received therefor was
the consideration actually received by the Company for the issue of all
such Convertible Securities which were actually converted or exchanged,
plus the additional consideration, if any, actually received by the
Company upon such conversion or exchange.
(C) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional
consideration, if any, payable upon the issuance, conversion or exchange
of any Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock changes
at any time, the Fixed Conversion Price in effect at the time of such
change shall be readjusted to the Fixed 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; provided that no
adjustment shall be made if such adjustment would result in an increase
of the Conversion Price then in effect.
(D) Certain Definitions. For purposes of determining the
adjusted Conversion Price under this Section 2(d)(i), the following
terms have the meanings set forth below:
(I) "APPROVED STOCK PLAN" shall mean any contract,
plan or agreement which has been approved by the Board of Directors of
the Company, pursuant to which (a) the Company's securities may be
issued to any employee, officer, director, consultant or other service
provider, or (b) Purchase Rights (as defined below) are or may be
issued.
(II) "DISCRETIONARY SHARES" means shares of Common
Stock (A) which have been issued or sold, or deemed to have been issued
or sold, by the Company (i) in connection with a merger or
consolidation, (ii) in connection with any strategic partnership or
joint venture (the primary purpose of which is not to raise equity
capital) or (iii) in connection with the acquisition of a business,
product, license or other assets by the Company, for a consideration per
share (based on the Closing Bid Price of such Common Stock on the date
of the issuance or sale, or deemed issuance or sale) less than the
Applicable Price (as defined above) ("ACQUISITION SHARES") and (B) the
issuance or sale, or deemed issuance or sale, of which was not in
violation of the applicable Discretionary Share Cap (as defined below).
For the purposes hereof, "DISCRETIONARY SHARE CAP" shall mean that
amount with respect to a Discretionary Share Measurement Period (as
defined below) as calculated from time to time as of the date
("MEASUREMENT DATE") of a given issuance or sale, or deemed issuance or
sale, of Acquisition Shares which is equal to (A) the product of
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(x) the number of shares of Common Stock actually outstanding on the
last day of the Discretionary Share Measurement Period, multiplied by
the Closing Bid Price of the Common Stock on the Measurement Date and
(y) .05, less (B) the number of Acquisition Shares issued or sold, or
deemed to have been issued or sold, by the Company during the
Discretionary Share Measurement Period, multiplied by the Closing Bid
Price of the Common Stock on each applicable Measurement Date with
respect to such Acquisition Shares. A given issuance or sale, or deemed
issuance or sale, of Acquisition Shares shall be deemed to violate the
Discretionary Share Cap if the product of (x) the number of such
Acquisition Shares, multiplied by (y) the Closing Bid Price of the
Common Stock on the Measurement Date exceeds the Discretionary Share
Cap. The "DISCRETIONARY SHARE MEASUREMENT PERIOD" shall mean with
respect to a given issuance or sale, or deemed issuance or sale, of
Acquisition Shares, that 364-day period ending on and including the date
immediately prior to the date of the issuance or sale, or deemed
issuance or sale, of such Acquisition Shares.
(III) "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 Sections 2(d)(i)(A) and 2(d)(i)(B)
hereof regardless of whether the Options or Convertible Securities are
actually exercisable at such time.
(E) Effect on Fixed Conversion Price of Certain Events.
For purposes of determining the adjusted Fixed Conversion Price under
this Section 2(d)(i), the following shall be applicable:
(I) 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 amount received by the Company
therefor, before deduction of commissions, underwriting discounts or
allowances or placement agent or finder fees (but only to the extent
that such commissions, discounts, allowances and fees do not exceed, in
the aggregate, 6% of the gross proceeds to the Company) and other
reasonable expenses paid or incurred by the Company in connection with
such issuance or sale, provided that any amounts paid to the purchasers
of such Common Stock, Options or Convertible Securities or to any
affiliates of such purchasers in connection with such issuance or sale
shall be deducted from the amount of consideration received by the
Company. 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 Company 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
Company will be the average of the Closing Bid Prices of such securities
for the five consecutive trading days immediately preceding the date of
receipt. The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the holders of
a majority of the Preferred Shares then outstanding. If such parties are
unable to reach agreement within ten (10) days after the occurrence of
an event requiring valuation (the "VALUATION EVENT"), the fair value of
such
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consideration will be determined within five (5) Business Days of the
tenth (10th) day following the Valuation Event by an independent,
reputable appraiser selected by the Company. The determination of such
appraiser shall be binding upon all parties absent manifest error.
(II) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties
thereto, the Options will be deemed to have been issued for a
consideration of $.01.
(III) 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 Company, and the disposition of any
shares so owned or held will be considered an issue or sale of Common
Stock.
(IV) Record Date. If the Company takes a record of
the holders of Common Stock for the purpose of entitling them (1) to
receive a dividend or other distribution payable in Common Stock,
Options or in Convertible Securities, or (2) 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 the making of such other distribution or
the date of the granting of such right of subscription or purchase, as
the case may be.
(ii) Adjustment of Fixed Conversion Price upon
Subdivision or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock
into a greater number of shares, the Fixed Conversion Price in effect
immediately prior to such subdivision will be proportionately reduced.
If the Company at any time combines (by combination, reverse stock split
or otherwise) one or more classes of its outstanding shares of Common
Stock into a smaller number of shares, the Fixed Conversion Price in
effect immediately prior to such combination will be proportionately
increased.
(iii) Holder's Right of Alternative Floating Conversion
Price Following Issuance of Convertible Securities. If on or after the
Effective Date the Company in any manner issues or sells Convertible
Securities (other than the Preferred Shares) that are convertible into
or exchangeable for Common Stock at a price which may vary (including by
way of periodic adjustments to a fixed conversion price) with the market
price of the Common Stock (the formulation for such variable price being
herein referred to as, the "VARIABLE PRICE") and such Variable Price is
not calculated using the same formula used to calculate any adjustment
to the Fixed Conversion Price in effect immediately prior to the time of
such issue or sale, the Company shall provide written notice thereof via
facsimile and overnight courier to each holder of the Preferred Shares
("VARIABLE NOTICE") on the date of
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issuance of such Convertible Securities. From and after the date the
Company issues any such Convertible Securities with a Variable Price, a
holder of Preferred Shares shall have the right, but not the obligation,
in its sole discretion to substitute the Variable Price for the
Conversion Price upon conversion of any Preferred Shares by designating
in the Conversion Notice delivered upon conversion of such Preferred
Shares that solely for purposes of such conversion the holder is relying
on the Variable Price rather than the Conversion Price then in effect. A
holder's election to rely on a Variable Price for a particular
conversion of Preferred Shares shall not obligate the holder to rely on
a Variable Price for any future conversions of Preferred Shares.
(iv) Reorganization, Reclassification,
Consolidation, Merger or Sale. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially
all of the Company's assets to another Person (as defined below) or
other transaction which 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 is referred to herein as "ORGANIC CHANGE." Prior to the
consummation of any Organic Change, the Company will make appropriate
provision (in form and substance satisfactory to the holders of a
majority of the Preferred Shares then outstanding) to insure that each
of the holders of the Preferred Shares will thereafter have the right to
acquire and receive in lieu of or in addition to (as the case may be)
the shares of Common Stock otherwise acquirable and receivable upon the
conversion of such holder's Preferred Shares, such shares of stock,
securities or assets that would have been issued or payable in such
Organic Change with respect to or in exchange for the number of shares
of Common Stock which would have been acquirable and receivable upon the
conversion of such holder's Preferred Shares had such Organic Change not
taken place (without taking into account any limitations or restrictions
on the timing or amount of conversions). In any such case, the Company
will make appropriate provision (in form and substance satisfactory to
the holders of a majority of the Preferred Shares then outstanding) with
respect to such holders' rights and interests to insure that all of the
provisions of this Certificate of Designations, including the provisions
of this Section 2(d) and Section 2(e), will thereafter be applicable to
the Preferred Shares. The Company will not effect any such
consolidation, merger or sale, unless prior to the consummation thereof,
the successor entity (if other than the Company) resulting from
consolidation or merger or the entity purchasing such assets and, if an
entity different from the successor entity, the entity whose capital
stock or assets the holders of the Common Stock are entitled to receive
as a result of such Organic Change, assumes, by written instrument (in
form and substance reasonably satisfactory to the holders of a majority
of the Preferred Shares then outstanding), all of the obligations of the
Company under this Certificate of Designations including the obligations
to deliver to each holder of Preferred Shares such shares of stock,
securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire. "PERSON" shall mean an
individual, a limited liability company, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization and a government
or any department or agency thereof.
(v) Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 2(d) but not expressly
provided for by such provisions
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(including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then
the Company's Board of Directors will make an appropriate adjustment in
the Conversion Price so as to protect the rights of the holders of the
Preferred Shares; provided, however, that no such adjustment will
increase the Conversion Price as otherwise determined pursuant to this
Section 2(d).
(vi) Notices.
(A) Immediately upon any adjustment of the
Conversion Price, the Company will give written notice thereof to each
holder of the Preferred Shares, setting forth in reasonable detail and
certifying the calculation of such adjustment.
(B) The Company will give written notice to each
holder of the Preferred Shares at least ten (10) days prior to the date
on which the Company closes its books or takes a record (I) with respect
to any dividend or distribution upon the Common Stock, (II) with respect
to any pro rata subscription offer to holders of Common Stock, or (III)
for determining rights to vote with respect to any Organic Change,
dissolution or liquidation and in no event shall such notice be provided
to such holder prior to such information being made known to the public.
(C) The Company will also give written notice to
each holder of the Preferred Shares at least ten (10) days prior to the
date on which any Organic Change, dissolution or liquidation will take
place and in no event shall such notice be provided to such holder prior
to such information being made known to the public.
(e) Purchase Rights. In addition to any adjustments of the
Conversion Price pursuant to Section 2(d), if at any time after the
Effective Date the Company 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 the holders of the Preferred Shares
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 Common Stock
acquirable upon complete conversion of the Preferred Shares (without
taking into account any limitations or restrictions on the timing or
amount of conversions) 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 the
Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
(f) Mechanics of Conversion. Subject to the Company's
inability to fully satisfy its obligations under a Conversion Notice (as
defined below) as provided for in Section 4:
(i) Holder's Delivery Requirements. To convert Preferred
Shares into full shares of Common Stock on any date (the "CONVERSION
DATE"), the holder thereof shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 11:59 p.m.
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Eastern Time, on such date, a copy of a fully executed notice of
conversion in the form attached hereto as Exhibit I (the "CONVERSION
NOTICE") to the Company and its designated transfer agent (the "TRANSFER
AGENT"), and (B) surrender to a common carrier, for delivery to the
Company or the Transfer Agent as soon as practicable following such
date, the original certificate(s) representing the Preferred Shares
being converted (or an indemnification undertaking with respect to such
shares in the case of their loss, theft or destruction) (the "PREFERRED
STOCK CERTIFICATE(S)") and the originally executed Conversion Notice.
(ii) Company's Response. Upon receipt by the Company
of a facsimile copy of a Conversion Notice, the Company shall as soon as
practicable, but in any event not later than the next Business Day,
send, via facsimile, a confirmation of receipt of such Conversion Notice
to such holder. Upon receipt by the Company or the Transfer Agent of the
Preferred Stock Certificate(s) to be converted pursuant to a Conversion
Notice, together with the originally executed Conversion Notice, the
Company or the Transfer Agent (as applicable) shall, subject to Section
2(f)(iii) below, on the next Business Day following the date of receipt
of such Preferred Stock Certificate(s), (I) issue and surrender to a
common carrier for overnight delivery to the address specified in the
Conversion Notice, a certificate, registered in the name of the holder
or its designee, for the number of shares of Common Stock to which the
holder shall be entitled, or (II) credit such aggregate number of shares
of Common Stock to which the holder shall be entitled to the holder's or
its designee's balance account with The Depository Trust Company. If the
number of Preferred Shares represented by the Preferred Stock
Certificate(s) submitted for conversion is greater than the number of
Preferred Shares being converted, then the Company or Transfer Agent, as
the case may be, shall, subject to Section 2(f)(iii) below, as soon as
practicable and in no event later than two (2) Business Days after
receipt of the Preferred Stock Certificate(s) and at its own expense,
issue and deliver to the holder a new Preferred Stock Certificate
representing the number of Preferred Shares not converted.
(iii) Dispute Resolution. In the case of a dispute
as to the determination of the fair market value of the Common Stock
(pursuant to Section 2(b)(vii)) or the arithmetic calculation of the
Conversion Rate, the Company shall promptly issue to the holder the
number of shares of Common Stock that is not disputed and shall submit
the disputed determinations or arithmetic calculations to the holder via
facsimile within one (1) Business Day of receipt of such holder's
Conversion Notice. If such holder and the Company are unable to agree
upon the determination of the fair market value of the Common Stock
(pursuant to Section 2(b)(vii)) or arithmetic calculation of the
Conversion Rate within one (1) Business Day of such disputed
determination or arithmetic calculation being submitted to the holder,
then the Company shall within one (1) Business Day submit via facsimile
(A) the disputed determination of the fair market value of the Common
Stock to an independent, reputable investment bank, or (B) the disputed
arithmetic calculation of the Conversion Rate to its independent,
outside accountant. The Company shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the holder of the results no
later than two (2) Business Days from the time it receives the disputed
determinations or calculations. Such investment bank's or accountant's
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determination or calculation, as the case may be, shall be binding upon
all parties absent manifest error.
(iv) Record Holder. The person or persons entitled
to receive the shares of Common Stock issuable upon a conversion of
Preferred Shares shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on the Conversion Date.
(v) Company's Failure to Timely Convert. If within
five (5) Business Days after the Company's or the Transfer Agent's
receipt of the Preferred Stock Certificate(s) to be converted and the
Conversion Notice the Company shall fail (I) to issue a certificate for
the number of shares of Common Stock to which a holder is entitled or to
credit the holder's balance account with The Depository Trust Company
for such number of shares of Common Stock to which the holder is
entitled upon such holder's conversion of the Preferred Shares, pursuant
to Section 2(f)(ii), or (II) to issue a new Preferred Stock Certificate
representing the number of Preferred Shares to which such holder is
entitled, pursuant to Section 2(f)(ii), in addition to all other
available remedies which such holder may pursue hereunder and under the
Exchange Agreement (including indemnification pursuant to Section 8
thereof), the Company shall pay additional damages to such holder on
each date after such fifth (5th) Business Day that such conversion or
delivery of such Preferred Stock Certificates, as the case may be, is
not timely effected in an amount equal to 0.5% of the product of (A) the
sum of the number of shares of Common Stock not issued to the holder on
a timely basis pursuant to Section 2(f)(ii) and to which such holder is
entitled and, in the event the Company has failed to deliver a Preferred
Stock Certificate to the holder on a timely basis pursuant to Section
2(f)(ii), the number of shares of Common Stock issuable upon conversion
of the Preferred Shares represented by such Preferred Stock Certificate
as of the last possible date which the Company could have issued such
Preferred Stock Certificate to such holder without violating Section
2(f)(ii); and (B) the average of the Closing Bid Prices of the Common
Stock for the three (3) consecutive trading days immediately preceding
the last possible date which the Company could have issued such Common
Stock and the Preferred Stock Certificate, as the case may be, to such
holder without violating Section 2(f)(ii).
(g) Mandatory Conversion or Redemption at Maturity.
If any Preferred Shares remain outstanding on the Maturity Date (as
defined below), then all such Preferred Shares, at the Company's option,
either (i) shall be converted as of such date in accordance with this
Section 2 as if the holders of such Preferred Shares had given the
Conversion Notice on the Maturity Date (a "MATURITY DATE MANDATORY
CONVERSION") or (ii) shall be redeemed as of such date for an amount in
cash per Preferred Share (the "MATURITY DATE REDEMPTION PRICE") equal to
the product of (A) the Conversion Rate on the Maturity Date and (B) the
Closing Bid Price of the Common Stock on the date immediately preceding
the Maturity Date (a "MATURITY DATE MANDATORY REDEMPTION"); provided,
however, that if the Company has elected a Maturity Date Mandatory
Conversion and a Triggering Event (other than a Triggering Event
resulting from Section 3(d)(vi) due to the Company' breach of a
representation) has occurred and is continuing on the Maturity Date,
then the Company
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shall, within five (5) Business Days following the Maturity Date (unless
otherwise notified in writing by the holder of its request to have the
Preferred Shares converted into Common Stock), pay to each holder of
Preferred Shares then outstanding, in immediately available funds, an
amount equal to the Maturity Date Redemption Price. The Company shall be
deemed to have elected a Maturity Date Mandatory Conversion unless it
delivers written notice to each holder of Preferred Shares at least
fifteen (15) Business Days prior to the Maturity Date of its election to
effect a Maturity Date Mandatory Redemption. If the Company elects a
Maturity Date Mandatory Redemption, then on the Maturity Date the
Company shall pay to each holder of Preferred Shares outstanding on the
Maturity Date, by wire transfer of immediately available funds, an
amount per Preferred Share equal to the Maturity Date Redemption Price.
All holders of Preferred Shares shall thereupon surrender all Preferred
Stock Certificates, duly endorsed for cancellation, to the Company or
the Transfer Agent, provided that the Company has complied with its
obligations under this Section 2(g). Notwithstanding the foregoing, if
on the Maturity Date the Common Stock is not designated for quotation on
The Nasdaq National Market or listed on The American Stock Exchange,
Inc. or The New York Stock Exchange, Inc., then the Company shall be
deemed to have elected a Maturity Date Mandatory Redemption. "MATURITY
DATE" means the date which is three (3) years after the Effective Date,
subject to extension pursuant to Section 3(f) of the Registration Rights
Agreement, which extension shall be equal to one and one-half (1 1/2)
days for each number of days in excess of the Allowable Grace Period (as
defined in Section 3(f) of the Registration Rights Agreement).
(h) Fractional Shares. The Company shall not issue any
fraction of a share of Common Stock upon any conversion. All shares of
Common Stock (including fractions thereof) issuable upon conversion of
more than one Preferred Share by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the
issuance of a fraction of a share of Common Stock. If, after the
aforementioned aggregation, the issuance would result in the issuance of
a fraction of a share of Common Stock, the Company shall round such
fraction of a share of Common Stock down to the nearest whole share.
(i) Taxes. The Company shall pay any and all taxes which
may be imposed upon it other than income and franchise taxes of the
holder of Preferred Shares, with respect to the issuance and delivery of
shares of Common Stock upon the conversion of the Preferred Shares.
(3) Redemption at Option of Holders.
(a) Redemption Option Upon Major Transaction. In
addition to all other rights of the holders of Preferred Shares
contained herein, simultaneous with or after the occurrence of a Major
Transaction (as defined below), each holder of Preferred Shares shall
have the right, at such holder's option, to require the Company to
redeem all or a portion of such holder's Preferred Shares at a price per
Preferred Share equal to the greater of (i) 125% of the Liquidation
Value (as defined in Section 11); and (ii) the product of (A) the
Conversion Rate at such time, and (B) the Closing Bid Price on the date
of the public
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announcement of such Major Transaction or the next date on which the
exchange or market on which the Common Stock is traded is open if such
public announcement is made (X) after 12:00 p.m. Eastern Time, on such
date or (Y) on a date on which the exchange or market on which the
Common Stock is traded is closed (the "MAJOR TRANSACTION REDEMPTION
PRICE"). Notwithstanding anything to the contrary contained herein, none
of the holders of Preferred Shares shall have the right to require the
Company to redeem any Preferred Shares with respect to any particular
Major Transaction if: (i) the Company shall have delivered a Notice of
Redemption at Company's Election (as defined below), with respect to
such Major Transaction; and (ii) the Company has satisfied the
Conditions to Redemption at the Company's Election, with respect to such
Major Transaction.
(b) Redemption Option Upon Triggering Event. In addition
to all other rights of the holders of Preferred Shares contained herein,
simultaneous with or after the occurrence of a Triggering Event (as
defined below), each holder of Preferred Shares shall have the right, at
such holder's option, to require the Company to redeem all or a portion
of such holder's Preferred Shares at a price per Preferred Share equal
to (I) in the case of a Triggering Event under subparagraphs (i), (ii),
(iii), (iv) or (v) of Section 3(d), the greater of (i) 130% of the
Liquidation Value; and (ii) the product of (A) the Conversion Rate on
the date of such holder's delivery of a Notice of Redemption at Option
of Holder Upon Triggering Event (as defined in Section 3(f)), and (B)
the greater of (x) the Closing Bid Price on the trading day immediately
preceding such Triggering Event or (y) the Closing Bid Price on the date
of the holder's delivery to the Company of a Notice of Redemption at
Option of Buyer Upon Triggering Event (as defined below) or, if such
date of delivery is not a trading day, the next date on which the
exchange or market on which the Common Stock is traded is open, or (II)
in the case of a Triggering Event under subparagraph (vi) of Section
3(d), 130% of the Liquidation Value (collectively, the "TRIGGERING EVENT
REDEMPTION PRICE" and, collectively with the Major Transaction
Redemption Price, the "REDEMPTION PRICE").
(c) "Major Transaction". Subject to the Excluded
Redemption Events (as defined below) pursuant to Section 3(h), a "MAJOR
TRANSACTION" shall be deemed to have occurred at such time as any of the
following events:
(i) the consolidation, merger or other business
combination of the Company with or into another Person (other than (A) a
consolidation, merger or other business combination in which holders of
the Company's voting power immediately prior to the transaction continue
after the transaction to hold, directly or indirectly, the voting power
of the surviving entity or entities necessary to elect a majority of the
members of the board of directors (or their equivalent if other than a
corporation) of such entity or entities, or (B) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company) (a "CHANGE OF CONTROL TRANSACTION");
(ii) the sale or transfer of all or substantially
all of the Company's assets; or
(iii) a purchase, tender or exchange offer made to
and accepted by the holders of more than 50% of the outstanding shares
of Common Stock.
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(d) "Triggering Event". Subject to the Excluded
Redemption Events (as defined below) pursuant to Section 3(h), a
"TRIGGERING EVENT" shall be deemed to have occurred at such time as any
of the following events:
(i) the failure of the Registration Statement to be
filed by the Company pursuant to the Registration Rights Agreement on or
before the date which is 60 days after the Issuance Date or the failure
of the Registration Statement to be declared effective by the SEC on or
prior to the date which is 60 days after the Scheduled Effective Date
(as defined in the Registration Rights Agreement) with respect to a
particular holder of Preferred Shares;
(ii) while the Registration Statement is required to
be maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the Registration Statement lapses for
any reason (including, without limitation, the issuance of a stop order)
or is unavailable (other than on days during an Allowable Grace Period
(as defined in Section 3(f) of the Registration Rights Agreement)) to
the holder of the Preferred Shares for sale of the Registrable
Securities (as defined in the Registration Rights Agreement) in
accordance with the terms of the Registration Rights Agreement, and such
lapse or unavailability continues for a period of at least five (5)
consecutive days (other than on any days during any Allowable Grace
Period) or for an aggregate of at least 10 days (other than on any days
during any Allowable Grace Period);
(iii) suspension from listing or delisting of the
Common Stock from The Nasdaq National Market, The American Stock
Exchange, Inc. or The New York Stock Exchange, Inc. for a period of 15
consecutive days or for an aggregate of at least 45 days in any 365-day
period;
(iv) the Company's notice to any holder of Preferred
Shares, including by way of public announcement, at any time, of its
intention not to comply with proper requests for conversion of any
Preferred Shares into shares of Common Stock, including due to any of
the reasons set forth in Section 4(a) below (other than clause (y) of
Section 4(a)), or, subject to Section 2(f)(iii), the Company's failure
to deliver Conversion Shares within five (5) days of the Conversion
Date;
(v) the Company shall have failed to make any
Excluded Redemption Event Daily Payment (as defined below) in a timely
manner in accordance with Section 3(i) or the Company shall have failed
to give an Excluded Redemption Option Election Notice (as defined below)
within one (1) day of receipt of the Holders' Excluded Redemption Event
Notice (as defined below); or
(vi) any representation or warranty by the Company
contained in the Exchange Agreement was not true and correct at the time
made (including the Issuance Date) or the Company breaches any covenant
or other term or condition of the Exchange Agreement, the Registration
Rights Agreement, this Certificate of Designations, the
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Irrevocable Transfer Agent Instructions (as defined in the Exchange
Agreement), or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated
thereby or hereby, except (i) to the extent that such breach would not
have a Material Adverse Effect (as defined in Section 3(a) of the
Exchange Agreement), (ii) in the case of a breach of a covenant which is
curable, such breach continues for a period of less than ten days, and
(iii) any breach regarding any action or inaction described in Section
3(d)(i)-(v) above.
(e) Mechanics of Redemption at Option of Buyer Upon
Major Transaction. No sooner than 15 days nor later than 10 days prior
to the consummation of a Major Transaction, but not prior to the public
announcement of such Major Transaction, the Company shall deliver
written notice thereof via facsimile and overnight courier (a "NOTICE OF
MAJOR TRANSACTION") to each holder of Preferred Shares. At any time
after receipt of a Notice of Major Transaction (or, in the event a
Notice of Major Transaction is not delivered at least 10 days prior to a
Major Transaction, at any time on or after the date which is 10 days
prior to a Major Transaction), any holder of the Preferred Shares then
outstanding may require the Company to redeem all or a portion of the
holder's Preferred Shares, which redemption shall be effective
concurrent with the consummation of the Major Transaction, then
outstanding by delivering written notice thereof via facsimile and
overnight courier (a "NOTICE OF REDEMPTION AT OPTION OF BUYER UPON MAJOR
TRANSACTION") to the Company, which Notice of Redemption at Option of
Buyer Upon Major Transaction shall indicate (i) the number of Preferred
Shares that such holder is submitting for redemption, and (ii) the
applicable Major Transaction Redemption Price, as calculated pursuant to
Section 3(a).
(f) Mechanics of Redemption at Option of Buyer Upon
Triggering Event. Within one (1) Business Day after the occurrence of a
Triggering Event, the Company shall deliver written notice thereof via
facsimile and overnight courier (a "NOTICE OF TRIGGERING EVENT") to each
holder of Preferred Shares. At any time after the earlier of a holder's
receipt of a Notice of Triggering Event and such holder becoming aware
of a Triggering Event, any holder of Preferred Shares then outstanding
may require the Company to redeem all or a portion of the holder's
Preferred Shares then outstanding by delivering written notice thereof
via facsimile and overnight courier (a "NOTICE OF REDEMPTION AT OPTION
OF HOLDER UPON TRIGGERING EVENT") to the Company, which Notice of
Redemption at Option of Holder Upon Triggering Event shall indicate (i)
the number of Preferred Shares that such holder is submitting for
redemption, and (ii) the applicable Triggering Event Redemption Price,
as calculated pursuant to Section 3(b).
(g) Payment of Redemption Price. Upon the Company's
receipt of a Notice(s) of Redemption at Option of Holder Upon Triggering
Event or a Notice(s) of Redemption at Option of Holder Upon Major
Transaction from any holder of Preferred Shares, the Company shall
immediately notify each holder of Preferred Shares by facsimile of the
Company's receipt of such Notice(s) of Redemption at Option of Holder
Upon Triggering Event or Notice(s) of Redemption at Option of Holder
Upon Major Transaction and each holder which has sent such a notice
shall promptly submit to the Company or its Transfer Agent such holder's
Preferred Stock Certificates which such holder has elected to have
redeemed. The Company shall deliver the applicable Triggering Event
Redemption
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Price, in the case of a redemption pursuant to Section 3(f), to such
holder within five (5) Business Days after the Company's receipt of a
Notice of Redemption at Option of Holder Upon Triggering Event and, in
the case of a redemption pursuant to Section 3(e), the Company shall
deliver the applicable Major Transaction Redemption Price concurrent
with the consummation of the Major Transaction; provided that a holder's
Preferred Stock Certificates shall have been so delivered to the
Company; and provided further that if the Company is unable to redeem
all of the Preferred Shares to be redeemed, the Company shall redeem an
amount from each holder of Preferred Shares being redeemed equal to such
holder's pro-rata amount (based on the number of Preferred Shares held
by such holder relative to the number of Preferred Shares outstanding)
of all Preferred Shares being redeemed. If the Company shall fail to
redeem all of the Preferred Shares submitted for redemption, in addition
to any remedy such holder of Preferred Shares may have under this
Certificate of Designations, the Exchange Agreement and the Registration
Rights Agreement, the applicable Redemption Price payable in respect of
such unredeemed Preferred Shares shall bear interest at the rate of 1.5%
per month (pro rated for partial months) until paid in full. Until the
Company pays such unpaid applicable Redemption Price in full to a holder
of Preferred Shares submitted for redemption, such holder shall have the
option (the "VOID OPTIONAL REDEMPTION OPTION") to, in lieu of
redemption, require the Company to promptly return to such holder(s) all
of the Preferred Shares that were submitted for redemption by such
holder(s) under this Section 3 and for which the applicable Redemption
Price has not been paid, by sending written notice thereof to the
Company via facsimile (the "VOID OPTIONAL REDEMPTION NOTICE"). Upon the
Company's receipt of such Void Optional Redemption Notice(s) and prior
to payment of the full applicable Redemption Price to such holder, (i)
the Notice(s) of Redemption at Option of Holder Upon Triggering Event or
the Notice(s) of Redemption at Option of Holder Upon Major Transaction,
as the case may be, shall be null and void with respect to those
Preferred Shares submitted for redemption and for which the applicable
Redemption Price has not been paid and (ii) the Company shall
immediately return any Preferred Shares submitted to the Company by each
holder for redemption under this Section 3(g) and for which the
applicable Redemption Price has not been paid. Notwithstanding the
foregoing, in the event of a dispute as to the determination of the
Closing Bid Price or the arithmetic calculation of the Redemption Price,
such dispute shall be resolved pursuant to Section 2(f)(iii) above with
the term "Closing Bid Price" being substituted for the term "fair market
value" and the term "Redemption Price" being substituted for the term
"Conversion Rate". A holder's delivery of a Void Optional Redemption
Notice and exercise of its rights following such notice shall not affect
the Company's obligations to make any payments (other than payments of
the Redemption Price with respect to such redemption) which have accrued
prior to the date of such notice. Payments provided for in this Section
3 shall have priority to payments to other stockholders in connection
with a Major Transaction.
(h) Events Excluded from Redemption Provisions.
Notwithstanding anything to the contrary set forth in Section 3 or
Section 4(a), the following events shall be excluded from the
definitions of Major Transaction and Triggering Event (individually, an
"EXCLUDED REDEMPTION EVENT" and, collectively, the "EXCLUDED REDEMPTION
EVENTS"):
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(i) the failure of the Registration Statement to be
declared effective by the SEC on or prior to the date which is 60 days
after the Scheduled Effective Date with respect to a particular holder
of Preferred Shares, provided that the Company has used its reasonable
best efforts to have such Registration Statement declared effective by
the SEC;
(ii) while the Registration Statement is required to
be maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the Registration Statement lapses for
any reason (including, without limitation, the issuance of a stop order)
or is unavailable (other than on days during an Allowable Grace Period)
to the holder of the Preferred Shares for sale of the Registrable
Securities in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of at
least five (5) consecutive days (other than on any days during any
Allowable Grace Period) or for an aggregate of at least 10 days (other
than on any days during any Allowable Grace Period), provided that the
Company has used its best efforts to maintain the effectiveness of such
Registration Statement and has not taken voluntary action or voluntarily
failed to take any action which has directly or indirectly caused the
Registration Statement to lapse or become unavailable for the sale of
all the Registrable Securities pursuant to the terms of the Registration
Rights Agreement;
(iii) suspension from listing or delisting of the
Common Stock from The Nasdaq National Market, The American Stock
Exchange, Inc., or The New York Stock Exchange, Inc. for a period of 15
consecutive days or for an aggregate of at least 45 days in any 365-day
period, provided that the Company has used its reasonable best efforts
to maintain the listing of the Common Stock on such exchange and has not
taken any voluntary action or has voluntarily failed to take any action
which the Company knew or should have known would result in the
delisting of the Common Stock or the suspension of the Common Stock from
trading; and
(iv) a purchase, tender or exchange offer made to
and accepted by the holders of more than 50% of the outstanding shares
of Common Stock which is not approved or recommended by the Company's
Board of Directors.
As soon as practicable but in no event later than one (1) day after the
occurrence of an Excluded Redemption Event, the Company shall deliver
written notice thereof via facsimile and overnight courier (a "COMPANY'S
EXCLUDED REDEMPTION EVENT NOTICE") to each holder of Preferred Shares.
At any time during the period beginning after the earlier of the
holders' receipt of a Company's Excluded Redemption Event Notice and
such holders becoming aware of an Excluded Redemption Event and ending
on the date which is thirty (30) days after the holders' receipt of a
Company's Excluded Redemption Event Notice, the holders of at least
two-thirds (2/3) of the Preferred Shares then outstanding may require
the Company to satisfy its obligations under Section 3(i) by delivering
written notice thereof via facsimile and overnight courier (a "HOLDERS'
EXCLUDED REDEMPTION EVENT NOTICE") to the Company, which notice shall
specify the option which such holders have elected pursuant to and in
accordance with Section 3(i), if applicable. The Company shall within
one (1) day of its receipt of the Holders' Excluded Redemption Event
Notice provide each holder with written notice via facsimile and
overnight courier (a "EXCLUDED REDEMPTION OPTION ELECTION NOTICE") which
notice shall specify the option which the Company has elected to
exercise pursuant to and in accordance with Section 3(i).
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(i) Rights of the Holders of the Preferred Shares upon the
Occurrence of an Excluded Redemption Event. In addition to any other
remedies the holders of the Preferred Shares may have at law or in
equity, if an Excluded Redemption Event occurs and the holders of the
Preferred Shares have provided the Company with a Holders' Excluded
Redemption Event Notice, then the Company, at its option, shall either
(A) pay to each holder of Preferred Shares the Redemption Price for each
outstanding share of Preferred Stock held by such holder pursuant to and
in accordance with Section 3(g) or (B) if:
(i) the Excluded Redemption Event is pursuant to
Section 3(h)(i), then immediately upon the occurrence of such an
Excluded Redemption Event (and from time to time as applicable), the
Fixed Conversion Price of the Preferred Shares shall be adjusted to
either, at the option of the holders' of at least two-thirds (2/3) of
the Preferred Shares then outstanding, as set forth in the Holders'
Excluded Redemption Event Notice, (I) 90% of the lowest Closing Bid
Price on any trading day during the period beginning on and including
the date which is ten (10) trading days prior to the Effective Date and
ending on and including the earlier of (a) the date the Registration
Statement is declared effective by the SEC and (b) the Conversion Date
with respect to the Preferred Share for which this determination is
being made, or (II) the Conversion Percentage in effect immediately
prior to such Excluded Redemption Event shall be reduced by 25
percentage points;
(ii) the Excluded Redemption Event is pursuant to
Section 3(h)(ii), then (A) beginning on and including the first day
following the receipt by the Company of a Holders' Excluded Redemption
Event Notice, the Company shall pay to each holder of Preferred Shares
an Excluded Redemption Event Daily Payment (as defined below) on each
day that such Excluded Redemption Event continues, provided, however,
that the Company shall not be obligated to make an Excluded Redemption
Event Daily Payment pursuant to this Section 3(i) for more than 20 days
in any 365 day period and (B) immediately upon the occurrence of such an
Excluded Redemption Event (and from time to time as applicable), the
Fixed Conversion Price of the Preferred Shares shall be adjusted to
either, at the option of the holders of at least two-thirds (2/3) of the
Preferred Shares as set forth in the Holders' Excluded Redemption Event
Notice, (I) 90% of the lowest Closing Bid Price on any trading day
following the occurrence of such Excluded Redemption Event (excluding
any days during an Allowable Grace Period) that the Registration
Statement lapses or is unavailable for sale of all Registrable
Securities, or (II) the Conversion Percentage in effect immediately
prior to such Excluded Redemption Event shall be reduced by 25
percentage points; or
(iii) the Excluded Redemption Event is other than
pursuant to Section 3(h)(i) or 3(h)(ii), then (A) beginning on and
including the first day following the receipt by the Company of a
Holders' Excluded Redemption Event Notice, the Company shall pay to each
holder of Preferred Shares an Excluded Redemption Event Daily Payment on
each day that such Excluded Redemption Event continues, provided,
however, that the Company shall not be obligated to make an Excluded
Redemption Event Daily Payment pursuant to this Section 3(i) for more
than 20 days in any 365 day period, and (B) immediately upon the
occurrence of such Excluded Redemption Event (and from time to time as
applicable) the Conversion Percentage in effect immediately prior to
such Excluded Redemption Event shall be reduced by 25 percentage points.
"EXCLUDED REDEMPTION EVENT DAILY PAYMENT" shall mean the payment to each
holder of Preferred
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Shares, by the Company, of an amount in cash per Preferred Share equal
to one percent (1%) of the Liquidation Value.
(4) Inability to Fully Convert.
(a) Holder's Option if Company Cannot Fully Convert. If,
upon the Company's receipt of a Conversion Notice or on the Maturity
Date, the Company can not issue shares of Common Stock registered for
resale under the Registration Statement (or which are exempt from the
registration requirements under the 1933 Act pursuant to Rule 144(k)
under the 1933 Act) for any reason, including, without limitation,
because the Company (x) does not have a sufficient number of shares of
Common Stock authorized and available, (y) is otherwise prohibited by
applicable law or by the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Company or its Securities from issuing all of the
Common Stock which is to be issued to a holder of Preferred Shares
pursuant to a Conversion Notice or (z) fails to have a sufficient number
of shares of Common Stock registered for resale under the Registration
Statement, then the Company shall issue as many shares of Common Stock
as it is able to issue in accordance with such holder's Conversion
Notice and pursuant to Section 2(f) and, with respect to the unconverted
Preferred Shares, the holder, solely at such holder's option, can elect
to:
(i) if the Company's inability to fully convert
Preferred Shares is pursuant to Section 4(a)(z), require the Company to
issue restricted shares of Common Stock in accordance with such holder's
Conversion Notice and pursuant to Section 2(f); or
(ii) void its Conversion Notice and retain or have
returned, as the case may be, the nonconverted Preferred Shares that
were to be converted pursuant to such holder's Conversion Notice
(provided that a holder's voiding its Conversion Notice shall not effect
the Company's obligations to make any payments which have accrued prior
to the date of such notice); or
(b) Mechanics of Fulfilling Holder's Election. The
Company shall immediately send via facsimile to a holder of Preferred
Shares, upon receipt of a facsimile copy of a Conversion Notice from
such holder which cannot be fully satisfied as described in Section
4(a), a notice of the Company's inability to fully satisfy such holder's
Conversion Notice (the "INABILITY TO FULLY CONVERT NOTICE"). Such
Inability to Fully Convert Notice shall indicate (i) the reason why the
Company is unable to fully satisfy such holder's Conversion Notice, and
(ii) the number of Preferred Shares which cannot be converted. Such
holder shall notify the Company of its election pursuant to Section 4(a)
above by delivering written notice via facsimile to the Company.
(c) Pro Rata Conversion and Redemption. In the event the
Company receives a Conversion Notice, Notice of Redemption at Option of
Buyer Upon Major Transaction or Notice of Redemption at Option of Buyer
Upon Triggering Event from more than one holder of Preferred Shares on
the same day and the Company can convert and/or
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redeem some, but not all, of the Preferred Shares pursuant to this
Section 4, the Company shall convert and/or redeem from each holder of
Preferred Shares electing to have Preferred Shares converted and/or
redeemed at such time an amount equal to such holder's pro-rata amount
(based on the number of Preferred Shares held by such holder relative to
the number of Preferred Shares outstanding) of all Preferred Shares
being converted and redeemed at such time.
(5) Conversion at the Company's Election. At any time or times during
the period beginning on the Issuance Date and ending on and including the date
which is two (2) years after the Effective Date, the Company shall have the
right, in its sole discretion, to require that any or all of such outstanding
Preferred Shares be converted ("CONVERSION AT COMPANY'S ELECTION") at the
Conversion Rate; provided that the Conditions to Conversion at the Company's
Election (as set forth below) are satisfied. The Company shall exercise its
right to Conversion at Company's Election by providing each holder of Preferred
Shares written notice (by facsimile and overnight courier) ("NOTICE OF
CONVERSION AT COMPANY'S ELECTION") at least ten trading days prior to the date
selected by the Company for conversion ("COMPANY'S ELECTION CONVERSION DATE").
If the Company elects to require conversion of some, but not all, of such
Preferred Shares, the Company shall convert an amount from each holder of
Preferred Shares equal to such holder's pro rata amount (based on the number of
such Preferred Shares held by such holder relative to the number of such
Preferred Shares outstanding on the date of the Company's delivery of the Notice
of Conversion at Company's Election) of all Preferred Shares the Company is
requiring to be converted. The Notice of Conversion at Company's Election shall
indicate (x) the number of Preferred Shares the Company has selected for
conversion, (y) the Company's Election Conversion Date, which date shall be not
less than ten or more than 30 trading days after each holder's receipt of such
notice, and (z) each holder's pro rata share of outstanding Preferred Shares
which the Company is requiring to be converted. All Preferred Shares selected
for conversion in accordance with the provision of this Section 5 shall be
converted as of the Company's Election Conversion Date in accordance with
Section 2 as if the holders of such Preferred Shares selected by the Company to
be converted had given the Conversion Notice on the Company's Election
Conversion Date. All holders of Preferred Shares shall thereupon and within two
(2) Business Days after the Company's Election Conversion Date surrender all
Preferred Stock Certificates selected for conversion, duly endorsed for
cancellation, to the Company. "CONDITIONS TO CONVERSION AT THE COMPANY'S
ELECTION" means the following conditions: (i) on each day during the period
beginning 60 trading days prior to the Company's Election Conversion Date and
ending on and including the Company's Election Conversion Date, no Grace Period
(as defined in Section 3(f) of the Registration Rights Agreement) shall be in
effect and the Registration Statement shall have been effective and available
for the sale of no less than 125% of the Registrable Securities; (ii) on each
day during the period beginning 60 trading days prior to the date of the
Company's Election Conversion Date and ending on and including the Company's
Election Conversion Date, the Common Stock is designated for quotation on The
Nasdaq National Market or listed on The New York Stock Exchange, Inc. or the
American Stock Exchange, Inc. and is not suspended from trading; (iii) on each
day during the 20 consecutive trading days immediately preceding the Company's
Election Conversion Date, the Closing Bid Price of the Common Stock is at least
$5.89875 (subject to adjustment for stock splits, stock dividends, stock
combinations and other similar transactions); (iv) during the period beginning
on the Issuance Date of any Preferred Shares and ending on and including the
Company's Election Conversion Date,
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the Company shall have delivered Conversion Shares upon conversion of the
Preferred Shares to the Buyers on a timely basis as set forth in Section
2(f)(ii) of this Certificate of Designations; and (v) the Company otherwise has
satisfied its obligations and is not in default under this Certificate of
Designations, the Exchange Agreement and the Registration Rights Agreement.
Notwithstanding the above, any holder of Preferred Shares may convert such
shares (including Preferred Shares selected for conversion) into Common Stock
pursuant to Section 2(a) on or prior to the date immediately preceding the
Company's Election Conversion Date.
(6) Redemption at the Company's Election Upon Change of Control. At any
time or times on or after the date the Company publicly discloses a Change of
Control Transaction, the Company shall have the right, in its sole discretion,
to require that all of the outstanding Preferred Shares be redeemed ("REDEMPTION
AT COMPANY'S ELECTION") at a price per Preferred Share equal to (1) 115% of the
Liquidation Value (as defined in Section 11), provided that the Registration
Statement shall have been effective and available for sale of all the
Registrable Securities at all times during the 60 consecutive trading days
immediately preceding the Company's Election Redemption Date (as defined below),
or (2) if the Registration Statement is not effective and available for sale of
all the Registrable Securities at all times during the 60 consecutive trading
days immediately preceding the Company's Election Redemption Date, then the
greater of (a) 115% of the Liquidation Value and (b) the product of (I) the
Conversion Rate at such time, and (II) the Closing Bid Price on the date of the
public announcement of such Change of Control Transaction or the next date on
which the exchange or market on which the Common Stock is traded is open if such
public announcement is made (x) after 12:00 p.m. Eastern Time, on such date or
(y) on a date on which the exchange or market on which the Common Stock is
traded is closed (the "CHANGE OF CONTROL REDEMPTION PRICE"); provided that the
Conditions to Redemption at the Company's Election (as set forth below) are
satisfied. The Company shall exercise its right to Redemption at Company's
Election by providing each holder of Preferred Shares written notice ("NOTICE OF
REDEMPTION AT COMPANY'S ELECTION") after the public disclosure of a Change of
Control Transaction and at least 10 trading days ("REDEMPTION AT COMPANY'S
ELECTION NOTICE PERIOD") prior to the date of consummation of the Change of
Control Transaction ("COMPANY'S ELECTION REDEMPTION DATE"). The Notice of
Redemption at Company's Election shall indicate the anticipated Company's
Election Redemption Date. If the Company has exercised its right of Redemption
at Company's Election and the conditions to such Redemption at Company's
Election have been satisfied, then all Preferred Shares outstanding at the time
of the consummation of the Change of Control Transaction shall be redeemed as of
the Company's Election Redemption Date by payment by the Company to each holder
of Preferred Shares of the Change of Control Redemption Price concurrent with
the closing of the Change of Control Transaction. All holders of Preferred
Shares shall thereupon and within two (2) Business Days after the Company's
Election Redemption Date, or such earlier date as the Company and each holder of
Preferred Shares mutually agree, surrender all outstanding Preferred Stock
Certificates, duly endorsed for cancellation, to the Company. If the Company
fails to pay the full Change of Control Redemption Price with respect to any
Preferred Shares concurrently with the closing of the Change of Control
Transaction, then the Redemption at Company's Election shall be null and void
with respect to such Preferred Shares and the holder of such Preferred Shares
shall be entitled to all the rights of a holder of outstanding Preferred Shares
set forth in this Certificate of Designations. "CONDITIONS TO REDEMPTION AT THE
COMPANY'S ELECTION" means the following conditions: (i) on each day during the
period beginning 60 trading days prior to the date of the
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Company's Election Redemption Date and ending on and including the Company's
Election Redemption Date, the Common Stock is designated for quotation on The
Nasdaq National Market or listed on The New York Stock Exchange, Inc. and is not
suspended from trading; (ii) during the period beginning on the Issuance Date
and ending on and including the Company's Election Redemption Date, the Company
shall have delivered Conversion Shares upon conversion of the Preferred Shares
to the Buyers on a timely basis as set forth in Section 2(f)(ii) of this
Certificate of Designations; and (iii) the Company otherwise has satisfied its
obligations and is not in default under this Certificate of Designations, the
Exchange Agreement and the Registration Rights Agreement. Notwithstanding the
above, any holder of Preferred Shares may convert such shares (including
Preferred Shares selected for redemption) into Common Stock pursuant to Section
2(a) on or prior to the date immediately preceding the Company's Election
Redemption Date.
(7) Redemption at the Company's Election Upon Decrease in Stock
Price. In the event that at any time the Fixed Conversion Price immediately
following a Pricing Period is less than $1.96625 (subject to adjustment for
stock splits, stock dividends, stock combinations and other similar
transactions) the Company shall have the right, in its sole discretion, to
require that all, but not less than all, of the outstanding Preferred Shares be
redeemed ("COMPANY'S RESET REDEMPTION ELECTION") at the Liquidation Value
("COMPANY'S RESET REDEMPTION PRICE"); provided that the Conditions to the
Company's Reset Redemption Election (as set forth below) are satisfied. The
Company shall exercise the Company's Reset Redemption Election by providing each
holder of Preferred Shares written notice ("NOTICE OF COMPANY'S RESET REDEMPTION
ELECTION") on any date during the period beginning on and including the last day
of a Pricing Period and ending on and including the date which is 20 days after
the last day of such Pricing Period. The Notice of Company's Reset Redemption
Election shall set forth the date on which the Company's Reset Redemption
Election shall be consummated, which date shall be not less than 20 trading days
and not more than 30 trading days after the date each holder of Preferred Shares
receives the Company's Notice of Company's Reset Redemption Election (the
"COMPANY'S RESET REDEMPTION DATE"). If the Company has exercised the Company's
Reset Redemption Election and the Conditions to Redemption at the Company's
Reset Redemption Election have been satisfied, then all Preferred Shares
outstanding at the time of the Company's Reset Redemption Election shall be
redeemed as of the Company's Reset Redemption Election Date by payment by the
Company to each holder of Preferred Shares of the Company's Reset Redemption
Price. All holders of Preferred Shares shall thereupon and within two (2)
Business Days after the Company's Reset Redemption Election Date, or such
earlier date as the Company and each holder of Preferred Shares mutually agree,
surrender all outstanding Preferred Stock Certificates, duly endorsed for
cancellation, to the Company. If the Company fails to pay the full Company's
Reset Redemption Price with respect to any Preferred Shares, then the Company's
Reset Redemption Election shall be null and void with respect to such Preferred
Shares and the holder of such Preferred Shares shall be entitled to all the
rights of a holder of outstanding Preferred Shares set forth in this Certificate
of Designations. "CONDITIONS TO REDEMPTION AT THE COMPANY'S RESET REDEMPTION
ELECTION" means the following conditions: (i) on each day during the period
beginning 20 trading days prior to the Company's Election Redemption Date and
ending on and including the Company's Election Redemption Date, no Grace Period
(as defined in Section 3(f) of the Registration Rights Agreement) shall be in
effect and the Registration Statement shall have been effective and available
for the sale of no less than 125% of the Registrable Securities; (ii) on each
day during the period beginning 20 trading days prior to the
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date of the Company's Election Redemption Date and ending on and including the
Company's Election Redemption Date, the Common Stock is designated for quotation
on The Nasdaq National Market or listed on The New York Stock Exchange, Inc. or
the American Stock Exchange, Inc. and is not suspended from trading; (iii)
during the period beginning on the first Issuance Date of any Preferred Shares
and ending on and including the Company's Election Redemption Date, the Company
shall have delivered Conversion Shares upon conversion of the Preferred Shares
to the Buyers on a timely basis as set forth in Section 2(f)(ii) of this
Certificate of Designations; (iv) the Company otherwise has satisfied its
obligations and is not in default under this Certificate of Designations, the
Exchange Agreement and the Registration Rights Agreement; and (vi) during the
period beginning on the Effective Date and ending on and including the Company
Election Redemption Date, there shall not have occurred a Major Transaction or
the announcement of a pending or proposed Major Transaction. Notwithstanding the
above, any holder of Preferred Shares may convert such shares (including
Preferred Shares selected for conversion) into Common Stock pursuant to Section
2(a) on or prior to the date immediately preceding the Company's Election
Redemption Date.
(8) Reissuance of Certificates. In the event of a conversion or
redemption pursuant to this Certificate of Designations of less than all of the
Preferred Shares represented by a particular Preferred Stock Certificate, the
Company shall promptly cause to be issued and delivered to the holder of such
Preferred Shares a preferred stock certificate representing the remaining
Preferred Shares which have not been so converted or redeemed.
(9) Reservation of Shares. The Company shall, so long as any of the
Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Preferred Shares, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all of the
Preferred Shares then outstanding (without regard to any limitations on
conversions); provided that the number of shares of Common Stock so reserved
shall at no time be less than 200% of the number of shares of Common Stock for
which the Preferred Shares are at any time convertible. The initial number of
shares of Common Stock reserved for conversion of the Preferred Shares and each
increase in the number of shares so reserved shall be allocated pro rata among
the holders of the Preferred Shares based on the number of Preferred Shares held
by each holder at the time of issuance of the Preferred Shares or increase in
the number of reserved shares, as the case may be. In the event a holder shall
sell or otherwise transfer any of such holder's Preferred Shares, each
transferee shall be allocated a pro rata portion of the number of reserved
shares of Common Stock reserved for such transferor. Any shares of Common Stock
reserved and which remain allocated to any person or entity which does not hold
any Preferred Shares shall be allocated to the remaining holders of Preferred
Shares, pro rata based on the number of Preferred Shares then held by such
holder.
(10) Voting Rights. Holders of Preferred Shares shall have no voting
rights, except as required by law, including but not limited to the General
Corporation Law of the State of Delaware, and as expressly provided in this
Certificate of Designations.
(11) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of the Preferred
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Shares shall be entitled to receive in cash out of the assets of the Company,
whether from capital or from earnings available for distribution to its
stockholders (the "PREFERRED FUNDS"), before any amount shall be paid to the
holders of any of the capital stock of the Company of any class junior in rank
to the Preferred Shares in respect of the preferences as to the distributions
and payments on the liquidation, dissolution and winding up of the Company, an
amount per Preferred Share equal to the sum of (i) $10,000 and (ii) the
Additional Amount (such sum being referred to as the "LIQUIDATION VALUE");
provided that, if the Preferred Funds are insufficient to pay the full amount
due to the holders of Preferred Shares and holders of shares of other classes or
series of preferred stock of the Company that are of equal rank with the
Preferred Shares as to payments of Preferred Funds (the "PARI PASSU SHARES"),
then each holder of Preferred Shares and Pari Passu Shares shall receive a
percentage of the Preferred Funds equal to the full amount of Preferred Funds
payable to such holder as a liquidation preference, in accordance with their
respective Certificate of Designations, Preferences and Rights, as a percentage
of the full amount of Preferred Funds payable to all holders of Preferred Shares
and Pari Passu Shares. The purchase or redemption by the Company of stock of any
class, in any manner permitted by law, shall not, for the purposes hereof, be
regarded as a liquidation, dissolution or winding up of the Company. Neither the
consolidation or merger of the Company with or into any other Person, nor the
sale or transfer by the Company of less than substantially all of its assets,
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Company. No holder of Preferred Shares shall be entitled to
receive any amounts with respect thereto upon any liquidation, dissolution or
winding up of the Company other than the amounts provided for herein; provided
that a holder of Preferred Shares shall be entitled to all amounts previously
accrued with respect to amounts owed hereunder.
(12 Preferred Rank; Participation.
(i) All shares of Common Stock shall be of junior rank to all
Preferred Shares in respect to the preferences as to distributions and
payments upon the liquidation, dissolution and winding up of the
Company. The rights of the shares of Common Stock shall be subject to
the preferences and relative rights of the Preferred Shares. The shares
of the Series A Convertible Preferred Stock, the Series D Convertible
Preferred Stock and the Series E Preferred Stock shall rank pari passu
with the Preferred Shares. Without the prior express written consent of
the holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares, the Company shall not hereafter authorize or issue
additional or other capital stock that is senior to the Preferred Shares
in respect of the preferences as to distributions and payments upon the
liquidation, dissolution and winding up of the Company. Without the
prior express written consent of the holders of not less than two-thirds
(2/3) of the then outstanding Preferred Shares, the Company shall not
hereafter authorize or make any amendment to the Company's Certificate
of Incorporation or bylaws, or file any resolution of the board of
directors of the Company with the Secretary of State of the State of
Delaware containing any provisions that would adversely affect or
otherwise impair the rights or relative priority of the holders of the
Preferred Shares relative to the holders of the Common Stock or the
holders of any other class of capital stock. In the event of the merger
or consolidation of the Company with or into another corporation, the
Preferred Shares shall maintain their relative powers, designations and
preferences provided for herein and no merger shall result inconsistent
therewith.
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(ii) Subject to the rights of the holders, if any, of the Pari Passu
Shares, the holders of the Preferred Shares shall, as holders of
Preferred Stock, be entitled to such dividends paid and distributions
made to the holders of Common Stock to the same extent as if such
holders of Preferred Shares had converted the Preferred Shares into
Common Stock (without regard to any limitations on conversion herein or
elsewhere) and had held such shares of Common Stock on the record date
for such dividends and distributions. Payments under the preceding
sentence shall be made concurrently with the dividend or distribution to
the holders of Common Stock.
(13 Restriction on Redemption and Cash Dividends with respect to
Other Capital Stock. Until all of the Preferred Shares have been converted or
redeemed as provided herein, the Company shall not, directly or indirectly,
redeem, or declare or pay any cash dividend or distribution on, its Common Stock
without the prior express written consent of the holders of not less than
two-thirds (2/3) of the then outstanding Preferred Shares.
(14 Vote to Change the Terms of or Issue Preferred Shares. The
affirmative vote at a meeting duly called for such purpose, or the written
consent without a meeting, of the holders of not less than two-thirds (2/3) of
the then outstanding Preferred Shares shall be required for (a) any change to
this Certificate of Designations or the Company's Certificate of Incorporation
that would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Preferred Shares, or (b) any issuance of Preferred
Shares other than pursuant to the Exchange Agreement.
(15 Lost or Stolen Certificates. Upon receipt by the Company of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Preferred
Shares, and, in the case of loss, theft or destruction, of an indemnification
undertaking by the holder to the Company and, in the case of mutilation, upon
surrender and cancellation of the Preferred Stock Certificate(s), the Company
shall execute and deliver new preferred stock certificate(s) of like tenor and
date; provided, however, the Company shall not be obligated to re-issue
preferred stock certificates if the holder contemporaneously requests the
Company to convert such Preferred Shares into Common Stock.
(16 Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designations. The Company covenants to each holder of Preferred Shares that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations
-27-
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hereunder will cause irreparable harm to the holders of the Preferred Shares and
that the remedy at law for any such breach may be inadequate. The Company
therefore agrees that, in the event of any such breach or threatened breach, the
holders of the Preferred Shares shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.
(17) Specific Shall Not Limit General; Construction. No specific
provision contained in this Certificate of Designations shall limit or modify
any more general provision contained herein. This Certificate of Designations
shall be deemed to be jointly drafted by the Company and the initial holders of
the Preferred Shares and shall not be construed against any person as the
drafter hereof.
(18) Failure or Indulgence Not Waiver. No failure or delay on the
part of a holder of Preferred Shares in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof (except to the extent that
such power, right or privilege must, in accordance with the terms of this
Certificate of Designations, be exercised within a specified period of time and
such period of time has lapsed without such power, right or privilege being
exercised), nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.
(19) Notices. Any notice required to be delivered pursuant to the
terms of this Certificate of Designations shall be delivered, unless otherwise
provided in this Certificate of Designations, in accordance with the terms, and
subject to the notice provisions of, the Exchange Agreement.
* * * * * *
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IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Steven Markman, its Chief Executive Officer and
President, as of September __, 1999.
GENERAL MAGIC, INC.
By:
--------------------------------
Name: Steven Markman
------------------------------
Its: Chief Executive Officer and
President
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EXHIBIT I
GENERAL MAGIC, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
Series D Convertible Preferred Stock (the "CERTIFICATE OF DESIGNATIONS"). In
accordance with and pursuant to the Certificate of Designations, the undersigned
hereby elects to convert the number of shares of Series D Convertible Preferred
Stock, par value $.001 per share (the "PREFERRED SHARES"), of General Magic,
Inc., a DELAWARE corporation (the "COMPANY"), indicated below into shares of
Common Stock, par value $.001 per share (the "COMMON STOCK"), of the Company, by
tendering the stock certificate(s) representing the Preferred Shares specified
below as of the date specified below.
Date of Conversion:
----------------------------------------------------
Number of Preferred Shares to be converted:
----------------------------
Stock certificate no(s). of Preferred Shares to be converted:
----------
Please confirm the following information:
Conversion Price:
------------------------------------------------------
Number of shares of Common Stock
to be issued:
------------------------------------------------------
Is the alternative Conversion Price being relied on pursuant to Section
2(d)(iii) of the Certificate of Designations? (check one) YES _____ NO
_____
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
Facsimile Number:
------------------------------------------------------
Authorization:
------------------
By:
--------------------------------
Title:
-----------------------------
Dated:
------------------
Account Number:
(if electronic book entry transfer):
---------------------------------
Transaction Code Number
(if electronic book entry transfer):
---------------------------------
THIS NOTICE MUST BE DELIVERED TO COMPANY AND TRANSFER AGENT.