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EXHIBIT 4.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED STOCK
AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
OF
SERIES B CUMULATIVE CONVERTIBLE
PREFERRED STOCK
OF
CANDLEWOOD HOTEL COMPANY, INC.
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PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
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Candlewood Hotel Company, Inc., a Delaware corporation (the
"Corporation"), certifies that pursuant to the authority contained in Article
Fourth of its Restated Certificate of Incorporation (the "Certificate of
Incorporation") and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, the Board of Directors of the
Corporation at a telephone meeting called and held on June 30, 1998 adopted the
following resolution, which resolution remains in full force and effect on the
date hereof;
RESOLVED, that there is hereby established a series of authorized
preferred stock having a par value of $.01 per share, which series shall
be designated as "Series B Cumulative Convertible Preferred Stock" (the
"Series B Preferred Stock"), shall consist of 42,000 shares and shall
have the following voting powers, preferences and relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions thereof as follows:
(i) Designation and Amount. The designation of the series of the
Preferred Stock shall be "Series B Cumulative Convertible Preferred Stock," par
value $.01 per share (the "Series B Preferred Stock"). The number of shares of
Series B Preferred Stock shall be 42,000. The Series B Preferred Stock shall be
assigned a stated value of $1,000 per share (the "Stated Value").
(ii) Dividends. (a) Rate, etc. The holders of shares of Series B
Preferred Stock as of the related Dividend Record Date (as defined below) shall
be entitled to receive, when and if declared by the Board of Directors out of
funds legally available therefor, dividends from the date of issue thereof, at
an annual rate on the Stated Value equal to 7.5% (the "Dividend
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Rate"), calculated on the basis of a 360-day year consisting of twelve 30-day
months, accruing and payable quarterly, in arrears, on the last day in August,
November, February and May of each year (each a "Dividend Payment Date"),
commencing on August 31, 1998 until such time as the Series B Preferred Stock is
redeemed or retired in full; provided, that, if pursuant to paragraph (vi)(a)
the Dividend Rate is increased to 12.0% per annum, from and after the date of
such increase the Dividend Rate shall be 12.0% per annum. Upon conversion of any
shares of Series B Preferred Stock, dividends shall be paid as provided in
clause (vi); provided, however, that with respect to such first Dividend Payment
Date, the holders of shares of Series B Preferred Stock shall be entitled to
receive, when and if declared by the Board of Directors out of funds legally
available therefor, a cumulative cash dividend in respect of each share of
Series B Preferred Stock in the amount of (i) $18.75 multiplied by (ii) a
fraction equal to (A) the number of days from (and including) the date of issue
thereof to (but excluding) such Dividend Payment Date divided by (B) 90. If any
Dividend Payment Date occurs on a day that is not a Business Day, any accrued
dividends otherwise payable on such Dividend Payment Date shall be paid on the
next succeeding Business Day with the same effect as though made on such
Dividend Payment Date. The term "Business Day" shall mean a day other than a
Saturday or Sunday, any federal holiday or any day on which banks in the City of
New York are closed. Such dividends shall be payable in cash. Such dividends
shall accrue and be cumulative with respect to each share from the date of
original issuance and shall compound on each Dividend Payment Date, beginning
August 31, 1998, with respect to any accrued dividends not paid on any such
Dividend Payment Date, whether or not earned or declared. Except as otherwise
required by law, the "Dividend Record Date" with respect to the next succeeding
Dividend Payment Date shall be the date 10 Business Days prior to such Dividend
Payment Date.
(b) Rank, etc. Unless full dividends, if applicable, on
all outstanding shares of Series B Preferred Stock which have previously become
due and payable, have been paid or are contemporaneously declared and paid (or
declared and a sum sufficient for the payment thereof is set apart for such
payment), the Corporation shall not (1) declare or pay any dividend on (A) the
Series B Preferred Stock, except if such dividend is allocated pro rata on a
share-by-share basis among all shares of Series B Preferred Stock at that time
outstanding, (B) the Series A Preferred Stock (as defined below) or any other
class of Parity Stock (as defined below), except if such dividend is allocated
pro rata on a share-by-share basis among all shares of Series B Preferred Stock,
Series A Preferred Stock and any other class of Parity Stock at that time
outstanding taken together as a class, (C) the common stock, $.01 par value per
share (the "Common Stock"), of the Corporation or (D) on any other class or
series of stock ranking junior to the Series B Preferred Stock as to dividends
or upon liquidation (the Common Stock and any such junior class or series being
the "Junior Stock") or make any payment on account of, or set apart money for, a
sinking or other analogous fund for the purchase, redemption or other retirement
of, any Junior Stock or make any distribution in respect thereof, either
directly or indirectly and whether in cash or property or in obligations or
shares of the Corporation (other than in shares of Junior Stock) or (2) purchase
any shares of Series B Preferred Stock (except for consideration payable in
Junior Stock) or redeem fewer than all of the shares of Series B Preferred Stock
then outstanding.
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(i) Liquidation. (a) Preference Upon Liquidation, Dissolution or
Winding Up. In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation (any or all of such events, a "liquidation"), whether
voluntary or involuntary, subject to the prior preferences and other rights of
any Senior Stock (as defined below), if any, as to liquidation preferences, the
holders of shares of Series B Preferred Stock then outstanding shall be entitled
pari passu as if members of a single class of securities with the holders of any
Parity Stock (as defined below), if any, to be paid out of the assets of the
Corporation before any payment shall be made to the holders of the Junior Stock,
an amount equal to the Stated Value plus any accrued but unpaid dividends (the
"Liquidation Amount"). Except as provided in this paragraph, holders of Series B
Preferred Stock shall not be entitled to any distribution in the event of
liquidation, dissolution or winding up of the affairs of the Corporation. The
term "Senior Stock" shall mean any class or series of stock of the Corporation
authorized after the date of issuance of the Series B Preferred Stock in
accordance with clause (v)(b) hereof ranking senior to the Series B Preferred
Stock in respect of the right to receive dividends or the right to participate
in any distribution upon liquidation and the term "Parity Stock" shall mean the
Series A Cumulative Convertible Preferred Stock, par value $.01 per share (the
"Series A Preferred Stock"), of the Corporation and any class or series of stock
of the Corporation authorized after the date of issuance of the Series B
Preferred Stock in accordance with clause (v)(b) hereof ranking on a parity with
the Series B Preferred Stock in respect of the right to receive dividends or the
right to participate in any distribution upon liquidation.
(b) Preference on Merger, Consolidation or Sale of Assets.
Alternatively, in the event of a liquidation pursuant to clause (iii)(e) of this
Certificate of Designation, a holder of shares of Series B Preferred Stock may
elect to convert any or all of such holder's shares of Series B Preferred Stock
into shares of Common Stock in accordance with clause (vi) of this Certificate
of Designation, in which event the holders electing to convert shall be entitled
to receive, together with the other holders of shares of Common Stock, pro rata
based on the number of shares of Common Stock then outstanding and the number of
shares of Common Stock into which the Series B Preferred Stock shall have been
converted pursuant to such election, the remaining cash and/or other property
distributable to holders of Common Stock if, as and when such remaining cash
and/or other properties is distributed by the Corporation.
(c) Insufficient Assets. If, upon any liquidation of the
Corporation, the assets of the Corporation are insufficient to pay the holders
of shares of the Series B Preferred Stock and any Parity Stock, if any, then
outstanding the full amount to which they shall be entitled, such assets shall
be distributed to each holder of the Series B Preferred Stock and Parity Stock,
if any, pro rata based on the number of shares of Series B Preferred Stock and
Parity Stock, if any, held by each.
(d) Rights of Other Holders. In the event of any
liquidation, after payment shall have been made to the holders of the Series B
Preferred Stock and Parity Stock, if any, of all preferential amounts to which
they shall be entitled, the holders of shares of Junior Stock and other capital
stock of the Corporation shall receive such amounts as to which they are
entitled by the terms thereof.
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(e) Consolidation, Merger or Sale of Assets. A
consolidation or merger of the Corporation with or into any other corporation
(excluding a merger in which the Corporation is the surviving entity or merger
into a wholly-owned subsidiary), or a sale or transfer of all or substantially
all of the Corporation's assets for cash or securities shall be considered a
liquidation within the meaning of this clause (iii). Nothing contained in this
paragraph (iii)(e) shall affect the rights of any holder of shares of Series B
Preferred Stock under paragraph (iv)(b) hereof.
(iv) Redemption. (a) (i) Optional Redemption. The Series B
Preferred Stock shall be subject to redemption, at the option of the
Corporation, in whole or from time to time in part, at any time subsequent to
September 30, 1999 at a per share redemption price equal to 200% of the Stated
Value plus accrued but unpaid dividends to the date of such redemption, payable
in cash or out of funds legally available therefor (an "Optional Redemption").
(i) Mandatory Redemption. All outstanding shares of
Series B Preferred Stock shall be redeemed by the Corporation on September 30,
2004 (the "Mandatory Redemption Date"), at a per share redemption price equal to
the Liquidation Amount, payable in cash out of funds legally available therefor
(the "Mandatory Redemption").
(b) Change of Control. Upon the occurrence of a Change of
Control Event (as hereafter defined), the Corporation shall offer to redeem all
outstanding shares of Series B Preferred Stock for a price per share equal to
the greater of (i) 175% of the Stated Value or (ii) the Liquidation Amount,
payable in cash. A "Change of Control Event" shall mean (x) the acquisition by
any Person or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) (other than a group comprised entirely of the Purchasers), of
beneficial ownership, direct or indirect, of securities of the Corporation
representing fifty percent (50%) or more of the combined voting power of the
Corporation's then outstanding equity securities or (y) the acquisition of the
Corporation, or all or substantially all of its assets, by, or the combination
of the Corporation or all or substantially all of its assets, with, another
Person, unless the acquiring or surviving Person shall be a corporation, limited
liability company, partnership or other entity more than 50% of the combined
voting power of which corporation's then outstanding equity securities, after
such acquisition or combination, are owned, immediately after such acquisition
or combination, by the owners of more than 50% of the voting securities of the
Corporation immediately prior to such acquisition or combination (the
"Significant Transaction"); provided, however, that the Corporation shall not be
required to redeem any shares of Series B Preferred Stock held by a member of a
group described in clause (x) above (but including a group comprised entirely of
the Purchasers) in connection with a Change in Control Event occurring prior to
August 27, 1999. When used herein the term "Person" shall mean and include an
individual, a corporation, a limited liability company, an association, a
partnership, a trust or estate, a government or any department or agency
thereof.
(c) Notice of Redemption. The Corporation shall give each
holder of Series B Preferred Stock written notice of any Optional Redemption not
less than thirty (30) days nor more than forty-five (45) days prior to the
proposed redemption date, specifying such redemption date (each, an "Optional
Redemption Date"), the per share redemption price and the
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number of such holder's shares to be redeemed on such date. The Corporation
shall give each holder of Series B Preferred Stock written notice (a "Notice of
Anticipated Change of Control Event") within twenty (20) days after the
Corporation or any of its executive officers or directors obtains knowledge that
a Change of Control Event is likely to occur and the material facts and
circumstances of such Change of Control Event; provided, that in the case of a
proposed Significant Transaction, the Corporation shall give each holder of
Series B Preferred Stock a Notice of Anticipated Change of Control not less than
forty-five (45) days prior to the date the Significant Transaction is scheduled
to occur. The Corporation shall give each holder of Series B Preferred Stock
written notice (a "Notice of Occurrence of Change of Control Event") within five
(5) days after the Corporation or any of its executive officers or directors
obtain knowledge of the occurrence of a Change of Control Event specifying that
a Change of Control Event has occurred, the material facts and circumstances of
such Change of Control Event, the redemption date, the per share redemption
price, and instructions that a holder of Series B Preferred Stock must follow in
order to have his shares redeemed. The redemption date for any Change of Control
Event (each a "Change of Control Redemption Date") shall be the twenty-fifth
date following such Change of Control Event; provided, that, if such redemption
date is not a Business Day, the redemption date shall be the first Business Day
thereafter. Upon receipt of a Notice of Change of Control Event, a holder of
shares of Series B Preferred Stock may, at his option, elect to have the
Corporation redeem all of such shares of Series B Preferred Stock by providing
written notice to the Corporation of such election not less than five (5) days
prior to the specified Change of Control Redemption Date. In the event some or
all of such shares of Preferred Stock are not tendered for redemption, the
holder of such shares not so tendered shall be deemed to have consented to the
redemption by the Corporation of any Junior Stock being prepaid, redeemed,
retired or exchanged pursuant to a Change of Control Event, notwithstanding any
approval rights of holders of Series B Preferred Stock pursuant to clause (v)
hereof. If the applicable redemption date is on or after a Dividend Record Date
and on or before the related Dividend Payment Date, the dividend payable shall
be paid to the holder in whose name the Series B Preferred Stock is registered
at the close of business on such record date. In the case of an Optional
Redemption of less than all shares of Series B Preferred Stock at the time
outstanding, the shares to be redeemed shall be selected pro rata, consistent
with Delaware law.
(d) Failure to Redeem. (A) If, upon the Mandatory
Redemption Date, the Corporation does not redeem all outstanding shares of
Series B Preferred Stock at the per share price specified in clause (iv)(a)(ii),
the Corporation shall issue to each holder of Series B Preferred Stock on such
Redemption Date and on each three month anniversary thereof (each a "Warrant
Payment Date"), warrants to purchase twenty-five percent (25%) of the number of
shares of Common Stock (rounded to the nearest whole share) into which such
holder's outstanding shares of Series B Preferred Stock would be convertible on
such Warrant Payment Date at the then current Conversion Price. Such warrants
shall be immediately exercisable with respect to each share of Common Stock for
$.01 and shall be in the form of the warrant attached as Exhibit E to the
Securities Purchase Agreement, dated as of June 30, 1998 (the "Securities
Purchase Agreement"), among the Corporation and the parties thereto. (B) If,
upon the Change of Control Redemption Date, the Corporation does not redeem all
shares of Series B Preferred Stock tendered for redemption pursuant to clause
(iv)(c) hereof, the Conversion Price (as defined below) shall be reduced to the
lower of (1) the then applicable Conversion Price or (2) the
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Market Price (as defined below) per share of Common Stock on the Redemption Date
divided by 1.75; provided, however, that under no circumstances shall the
Conversion Price be reduced to a level that is less than the par value of the
Common Stock.
(e) Effect of Redemption. On the date established for
redemption pursuant to clause (iv) hereof, all rights in respect of the shares
of Series B Preferred Stock to be redeemed, except the right to receive the
applicable redemption price, plus accrued dividends, if any, to the date of
redemption, shall cease and terminate (unless default shall be made by the
Corporation in the payment of the applicable redemption price, plus accrued
dividends, if any, in which event such rights shall be exercisable until such
default is cured), and such shares shall no longer be deemed to be outstanding,
notwithstanding that any certificates representing such shares shall not have
been surrendered to the Corporation. All shares of Series B Preferred Stock
redeemed pursuant to this clause (iv) shall be retired and shall be restored to
the status of authorized and unissued shares of preferred stock, without
designation as to series or class and may thereafter be reissued, subject to
compliance with the terms hereof, as shares of any series of preferred stock
other than shares of Series B Preferred Stock.
(f) Insolvency of Corporation. If, upon the Mandatory
Redemption Date or any Change of Control Redemption Date, the payment of the
full amount of redemption payments due on such date would render the Corporation
insolvent (as determined in accordance with either the then applicable
definition in the United States Bankruptcy Code or then applicable definition of
any state fraudulent conveyance or fraudulent transfer statute), any liquidation
of the Corporation in connection with such redemption shall require the consent
of the holders of 66-2/3% of the Series B Preferred Stock and no other consent
of any holder of any other equity securities of the Corporation, except as
otherwise required by Delaware law, and in the event of such consent the
Corporation shall be liquidated and the assets of the Corporation distributed in
accordance with the provisions of clause (iii) of this Certificate of
Designation.
(g) Conversion Prior to Redemption. Anything to the
contrary in this clause (iv) of this Certificate of Designation notwithstanding,
the holders of Series B Preferred Stock shall have the right, exercisable at any
time prior to the date set for redemption thereof, to convert all or any part of
such Series B Preferred Stock into shares of Common Stock pursuant to clause
(vi) hereof.
(h) Funds for Redemption. No share of Series B Preferred
Stock may be redeemed except with funds legally available therefor.
(v) Voting Rights. (a) Voting as a Class with the Common Stock.
The holders of the Series B Preferred Stock shall be entitled to vote together
with the holders of shares of Common Stock and any other class or series of
capital stock entitled to vote with the Common Stock as a single class on all
matters to be voted upon by the Common Stock, and shall not have any additional
voting rights other than the rights specified below in this clause (v) or
otherwise required by law. Each holder of Series B Preferred Stock shall be
entitled to such number (rounded to the nearest whole number) of votes as such
holder would be entitled if such
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holder had converted the shares of Series B Preferred Stock held by such holder
into shares of Common Stock pursuant to clause (vi) hereof immediately prior to
such vote.
(b) Additional Capital Stock, etc. The Corporation shall
not, without the affirmative consent or approval of the holders of shares
representing 66-2/3% of the shares of Series B Preferred Stock then outstanding,
voting as a single class (such consent or approval to be given by written
consent in lieu of a meeting if allowable under the Corporation's Certificate of
Incorporation or by vote at a meeting called for such purpose for which notice
shall have been given to the holders of the Series B Preferred Stock): (i)
authorize the issuance of or issue any new, or increase the authorized number of
shares of any existing, class or series of capital stock of the Corporation
which would be senior or superior as to dividends or upon liquidation to the
Series B Preferred Stock, (ii) issue any shares of preferred stock authorized in
the Certificate of Incorporation or create any other class or series of stock
ranking on a parity with the Series B Preferred Stock as to dividends or upon
liquidation, (iii) authorize or issue shares of stock of any class or series or
any bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having rights to purchase, any shares of stock of the
Corporation which would be senior or superior to, or rank on a parity with, the
Series B Preferred Stock as to dividends or upon liquidation, (iv) reissue any
shares of Series B Preferred Stock that have been redeemed or purchased by the
Corporation, (v) take any action, including, causing any amendment, alteration
or repeal of any of the provisions of the Corporation's Certificate of
Incorporation that may alter or change the powers, preferences or special rights
of (i) the shares of Series B Preferred Stock so as to affect the holders
thereof adversely, or (ii) shares of Parity Stock, (vi) effect any redemption or
repurchase of any Junior Stock other than in connection with the cashless
exercise of options, or upon the exercise by the Corporation of its repurchase
rights (up to a maximum of $250,000 in the aggregate) as to Common Stock issued
to employees of the Corporation upon a termination of such employment, (vii)
increase the number of members on the Board of Directors (except by one, in
connection with the election of the President of the Company to the Board of
Directors), (viii) file a voluntary petition seeking liquidation,
reorganization, arrangement or readjustment of its debts, make an assignment for
the benefit of creditors, permit an involuntary petition seeking liquidation,
reorganization, arrangement or readjustment of its debts or seeking appointment
of a receiver to remain unchallenged or otherwise seek or permit remedies for
insolvency or (ix) effect any redemption or repurchase of any Parity Stock other
than a redemption or repurchase which is pro rata among the Series B Preferred
Stock and all Parity Stock taken together as a class. Notwithstanding any other
provision in this Certificate of Designation, (1) upon the consent or approval
of holders of shares representing 66-2/3% of the shares of Series B Preferred
Stock then outstanding, voting as a single class and (2) with such other votes
or consents as may be required by Delaware law, the rules and regulations of the
Securities and Exchange Commission, the regulations of the NASDAQ or other
securities exchange applicable to the Corporation or pursuant to the Company's
Certificate of Incorporation, the Corporation may take any such action
referenced in the preceding clauses (i)-(ix).
(vi) Conversion Rights. (a) Optional Conversion of Series B
Preferred Stock. The holder of any shares of Series B Preferred Stock shall have
the right, at such holder's option, at any time or from time to time to convert
any or all of such holder's shares of Series B
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Preferred Stock into such number of fully paid and nonassessable shares of
Common Stock (the "Conversion Shares") as determined for each share of Series B
Preferred Stock by dividing the Stated Value by the "Conversion Price" in effect
at the time of such conversion. The "Conversion Price" shall be $9.50 per share
of Series B Preferred Stock, subject to the adjustments set forth herein;
provided, however, that if the Corporation fails to pay, in cash, any and all
dividends accrued, for any two Dividend Payment Dates, whether consecutive or
not (a "Dividend Default"), the Conversion Price shall be reduced by $.50 for
each such Dividend Default as of the date of the occurrence of each such
Dividend Default; and provided, further, that if the Corporation fails to pay
any and all accrued dividends on August 31, 1998, the Conversion Price shall be
reduced by $1.00; in each case subject to adjustment as otherwise provided
herein; provided, however, that a default in the payment of any dividends
accrued and unpaid as of August 31, 1998 shall not be combined with any other
default to constitute a Dividend Default; provided, that in no event shall the
Conversion Price be reduced pursuant to this paragraph (vi)(a) by an aggregate
amount in excess of $2.00 (the "Maximum Amount"). (A) If a Dividend Default
occurs at any time after the Conversion Price has been reduced pursuant to this
paragraph (vi)(a) by an aggregate amount equal to the Maximum Amount, then the
Dividend Rate shall be increased to 12.0% per annum, or, (B) if as a result of a
Dividend Default the Conversion Price would (were it not for the last proviso of
the immediately preceding sentence) be reduced pursuant to this paragraph
(vi)(a) by an aggregate amount in excess of the Maximum Amount, then the
Conversion Price shall be reduced by such additional amount so that the
aggregate amount by which the Conversion Price is reduced pursuant to this
paragraph (vi)(a) is equal to the Maximum Amount and the Dividend Rate shall be
increased to 12.0% per annum. The Conversion Shares and the Conversion Price are
subject to certain adjustments as set forth herein, and the terms Conversion
Shares and Conversion Price as used herein shall as of any time be deemed to
include all such adjustments to be given effect as of such time in accordance
with the terms hereof; provided, further, that under no circumstances shall the
Conversion Price be reduced to a level that is less than the par value of the
Common Stock.
Upon the exercise of the option of the holder of any shares of
Series B Preferred Stock to convert Series B Preferred Stock into Common Stock,
the holder of such shares of Series B Preferred Stock to be converted shall
surrender the certificates representing the shares of Series B Preferred Stock
so to be converted in the manner provided in clause (vi)(c) below. Immediately
following such conversion, the rights of the holders of converted Series B
Preferred Stock (other than the right to receive dividends accrued to the date
of such conversion) shall cease and the persons entitled to receive the Common
Stock upon the conversion of Series B Preferred Stock shall be treated for all
purposes (other than the right to receive dividends accrued to the date of such
conversion) as having become the owners of such Common Stock.
(b) Automatic Conversion. Subsequent to March 31, 2000,
each share of Series B Preferred Stock shall automatically be converted into
shares of Common Stock at the then applicable Conversion Price if (i) the Common
Stock has traded for a period of not less than twenty (20) consecutive days with
an average of not less than 300,000 shares per day and at a price per share of
not less than 200% of the then applicable Conversion Price and (ii) the
Corporation at its sole expense shall have caused to become effective within 90
days of such twenty (20) consecutive day period a registration statement under
the Securities Act with respect
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to at least the number of shares equal to a 50% of the shares of Common Stock
into which the Series B Preferred Stock then outstanding is convertible at the
then applicable Conversion Price (or such lesser number as shall have been
requested to be registered by the holders of the Series B Preferred Stock,
following notice from the Company) and shall have caused all such shares to be
sold (allocated pro rata among holders of such Series B Preferred Stock in
relation to the number of shares requested to be registered pursuant to an
underwritten public offering in accordance with the provisions of Section 5 of
the Amended and Restated Registration Rights Agreement (the "Registration Rights
Agreement") dated as of July 10, 1998 among the Corporation and the parties
thereto (or a registered but not underwritten sale to one or more nationally
recognized registered broker/dealers for resale through a public distribution)
at a per share price to each selling holder of not less than 200% of the
Conversion Price, less 1% of the then applicable Market Price.
(c) Delivery of Stock Certificates; No Fractional Shares.
The holder of any shares of Series B Preferred Stock may exercise the optional
conversion right pursuant to clause (vi)(a) above by delivering to the
Corporation or its duly authorized transfer agent during regular business hours
at the office of the Corporation the certificate or certificates for the shares
to be converted, duly endorsed or assigned either in blank or to the Corporation
(if required by it), accompanied by written notice stating that such holder
elects to convert such shares and shall provide a certificate to the Corporation
or its duly authorized transfer agent as to the date of such conversion. Upon
the occurrence of an automatic conversion pursuant to clause (vi)(b) above, the
Corporation shall deliver notice to each holder of Series B Preferred Stock and
the holder of any shares of Series B Preferred Stock shall deliver to the
Corporation at the office of the Corporation the certificate or certificates for
all shares of Series B Preferred Stock then held by such holder, duly endorsed
or assigned either in blank or to the Corporation (if requested by it).
Conversion shall be deemed to have been effected (1) in the case of an optional
conversion, on the date when the aforesaid delivery of stock certificates is
made if such day is a Business Day and otherwise on the Business Day following
the date of the aforesaid delivery, and (2) in the case of an automatic
conversion pursuant to clause (vi)(b), upon the effective date of the
registration statement (provided that if the shares registered thereunder are
not sold no Conversion Date shall be deemed to have occurred) and in each case
such date is referred to herein as the "Conversion Date." As promptly as
practicable thereafter, the Corporation, through its transfer agent, shall issue
and deliver to or upon the written order of such holder, to the place designated
by such holder, a certificate or certificates for the number of full shares of
Common Stock to which such holder is entitled and a check or cash in respect of
any fractional interest in a share of Common Stock, as provided below; provided,
however, that in the case of a conversion in connection with liquidation, no
such certificates need be issued. The person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have become
the stockholder of record in respect of such Common Stock on the applicable
Conversion Date unless the transfer books of the Corporation are closed on that
date, in which event such holder shall be deemed to have become the stockholder
of record in respect of such Common Stock on the next succeeding date on which
the transfer books are open, but the Conversion Price shall be that in effect on
the Conversion Date. Upon conversion of only a portion of the number of shares
covered by a stock certificate representing shares of Series B Preferred Stock
surrendered for conversion, the Corporation shall issue and deliver to or upon
the written order of the holder of
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the stock certificate so surrendered for conversion, at the expense of the
Corporation, a new stock certificate covering the number of shares of Series B
Preferred Stock representing the unconverted portion of the certificate so
surrendered. Any transfer taxes applicable to the above described transactions
shall be paid by such transferee. The Corporation shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of Common Stock or the reissuance of the Preferred Stock in a name
other than that in which the shares of Series B Preferred Stock so converted
were registered, and no such issuance or delivery shall be made unless and until
the person requesting such issuance has paid to the Corporation the amount of
any such tax or has established to the satisfaction of the Corporation that such
tax has been paid.
(d) No Fractional Shares of Common Stock. (1) No
fractional shares of Common Stock shall be issued upon conversion of shares of
Series B Preferred Stock and in lieu thereof, the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount equal to the then
current Market Price (as defined in clause (vi)(e)(8) below) of a share of
Common Stock multiplied by such fractional interest. The holders of fractional
interests shall not be entitled to any rights as stockholders of the Corporation
in respect of such fractional interests. In determining the number of shares of
Common Stock and the payment, if any, in lieu of fractional shares that a holder
of Series B Preferred Stock shall receive, the total number of shares of Series
B Preferred Stock surrendered for conversion by such holder shall be aggregated.
(2) On the first Dividend Payment Date on which
accrued dividends are paid in full to all holders of Series B Preferred Stock
following the optional conversion pursuant to clause (vi)(a) of all or any
portion of the Series B Preferred Stock, the Corporation shall pay (i) any
dividends accrued on such converted Series B Preferred Stock to the date of such
conversion plus (ii) any dividends accrued on any accrued and unpaid dividends
(on which dividends shall accrue at a rate of 7.50% per annum, compounded
quarterly) other than dividends accruing as of the last Dividend Payment Date.
Accrued dividends with respect to all shares converted pursuant to clause
(vi)(b) hereof shall be paid in full on the Conversion Date out of funds legally
available therefor.
(e) Adjustment of Conversion Price Upon Issuance of Common
Stock. If and whenever after the date hereof the Corporation shall issue or sell
any shares of its Common Stock (except upon conversion of the Series B Preferred
Stock) for a consideration per share less than, under certain circumstances
including those in paragraphs (1) through (9) below, the Conversion Price in
effect immediately prior to the time of such issue or sale, then, forthwith upon
such issue or sale, the Conversion Price shall be reduced (but not increased,
except as otherwise specifically provided in paragraph (3) below) to the price
(calculated to the nearest cent) determined by dividing (i) an amount equal to
the sum of (A) the aggregate number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the then existing
Conversion Price and (B) the consideration, if any, received by the Corporation
upon such issue or sale, by (ii) the aggregate number of shares of Common Stock
of all classes outstanding immediately after such issue or sale.
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No adjustment of the Conversion Price, however, shall be made in
an amount less than $.05 per share, but any such lesser adjustment shall be
carried forward and shall be made upon the time of and together with the next
subsequent adjustment, if any.
For the purposes of this clause (vi)(e), the following paragraphs
(1) through (9) shall also be applicable:
(1) Issuance of Rights or Options - In case at any
time after the date hereof the Corporation shall in any manner grant (whether
directly or by assumption in a merger or otherwise, except in the circumstances
described in clause (vi)(f) below) any rights to subscribe for or to purchase,
or any options or warrants for the purchase of, Common Stock or any stock, notes
or securities convertible into or exchangeable for Common Stock (such
convertible or exchangeable stock, notes or securities being herein called
"Convertible Securities"), whether or not such rights, options or warrants or
the right to convert or exchange any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is issuable upon the
exercise of such rights, options or warrants or upon conversion or exchange of
such Convertible Securities (determined by dividing (i) the total amount, if
any, received or receivable by the Corporation as consideration for the granting
of such rights, options or warrants, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the exercise
of such rights, options or warrants, plus, in the case of such rights, options
or warrants which relate to Convertible Securities, the minimum aggregate amount
of additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (ii) the
total maximum number of shares of Common Stock issuable upon the exercise of
such rights, options or warrants or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such rights, options or
warrants) shall be less than the Conversion Price in effect immediately prior to
the time of the granting of such rights, options or warrants, then the total
maximum number of shares of Common Stock issuable upon the exercise of such
rights, options or warrants or upon conversion or exchange of all such
Convertible Securities issuable upon the exercise of such rights, options or
warrants shall (as of the date of granting of such rights or options) be deemed
to be outstanding and to have been issued for such price per share. Except as
provided in paragraph (3), no further adjustment of the Conversion Price shall
be made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such rights, options or warrants or upon the actual
issue of such Common Stock upon conversion or exchange of such Convertible
Securities.
(2) Issuance of Convertible Securities - In case at
any time after the date hereof the Corporation shall in any manner issue
(whether directly or by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per share for which Common
Stock is issuable upon such conversion or exchange (determined by dividing (i)
the total amount received or receivable by the Corporation as consideration for
the issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (ii) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all
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such Convertible Securities) shall be less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then the total maximum
number of shares of Common Stock issuable upon conversion or exchange of all
such Convertible Securities shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and to have been issued for
such price per share; provided, however, that (a) except as otherwise provided
in paragraph (3), no further adjustment of the Conversion Price shall be made
upon the actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities, and (b) if any such issue or sale of such Convertible
Securities is made upon exercise of any rights to subscribe for or to purchase
or any option to purchase any such Convertible Securities for which adjustments
of the Conversion Price have been or are to be made pursuant to other provisions
of this clause (vi)(e), no further adjustment of the Conversion Price shall be
made by reason of such issue or sale.
(3) Change in Option Price or Conversion Rate - If
the purchase price provided for in any right or option referred to in paragraph
(1), the additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in paragraph (1) or (2), or
the rate at which any Convertible Securities referred to in paragraph (1) or (2)
are convertible into or exchangeable for Common Stock shall change (other than
under or by reason of provisions designed to protect against dilution), the
Conversion Price then in effect hereunder shall forthwith be readjusted
(increased or decreased, as the case may be) to the Conversion Price which would
have been in effect at such time had such rights, options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold. On the expiration of any such option or right
referred to in paragraph (1) or the termination of any such right to convert or
exchange any such Convertible Securities referred to in paragraph (1) or (2),
the Conversion Price then in effect hereunder shall forthwith be readjusted
(increased or decreased, as the case may be) to the Conversion Price which would
have been in effect at the time of such expiration or termination had such
right, option or Convertible Securities, to the extent outstanding immediately
prior to such expiration or termination, never been granted, issued or sold, and
the Common Stock issuable thereunder shall no longer be deemed to be
outstanding. If the purchase price provided for in any such right or option
referred to in paragraph (1) or the rate at which any Convertible Securities
referred to in paragraph (1) or (2) are convertible into or exchangeable for
Common Stock shall be reduced at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then in case of the
delivery of shares of Common Stock upon the exercise of any such right or option
or upon conversion or exchange of any such Convertible Securities, the
Conversion Price then in effect hereunder shall, if not already adjusted,
forthwith be adjusted to such amount as would have obtained had such right,
option or Convertible Securities never been issued as to such shares of Common
Stock and had adjustments been made upon the issuance of the shares of Common
Stock delivered as aforesaid, but only if as a result of such adjustment the
Conversion Price then in effect hereunder is thereby reduced.
(4) Stock Dividends - In case at any time (other
than with respect to the Series B Preferred Stock and, to the extent the holders
of shares of Series B Preferred Stock participate on an as-converted basis, the
Common Stock) the Corporation shall
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declare a dividend or make any other distribution upon any class or series of
stock of the Corporation payable in shares of Common Stock or Convertible
Securities, any shares of Common Stock or Convertible Securities, as the case
may be, issuable in payment of such dividend or distribution shall be deemed to
have been issued or sold without consideration.
(5) Consideration for Stock - Anything herein to
the contrary notwithstanding, in case at any time any shares of Common Stock or
Convertible Securities or any rights, options or warrants to purchase any such
Common Stock or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith.
In case at any time any shares of Common Stock or any class or
Convertible Securities or any rights or options to purchase any such shares of
Common Stock or Convertible Securities shall be issued or sold for a
consideration other than cash, in whole or in part, the amount of the
consideration other than cash received by the Corporation shall be deemed to be
the fair value of such consideration as determined reasonably and in good faith
by the Board of Directors of the Corporation, without deduction of any expenses
incurred or any underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. In case at any time any shares of Common
Stock or any class or Convertible Securities or any rights or options to
purchase such shares of Common Stock or Convertible Securities shall be issued
in connection with any merger or consolidation in which the Corporation is the
surviving corporation, the amount of consideration received therefor shall be
deemed to be the fair value as determined reasonably and in good faith by the
Board of Directors of the Corporation of such portion of the assets and business
of the nonsurviving corporation as such Board may determine to be attributable
to such shares of Common Stock, Convertible Securities, rights or options, as
the case may be. In case at any time any rights or options to purchase any
shares of Common Stock or Convertible Securities shall be issued in connection
with the issue and sale of other securities of the Corporation, together
comprising one integral transaction in which no consideration is allocated to
such rights or options by the parties thereto, such rights or options shall be
deemed to have been issued for an amount of consideration equal to the fair
value thereof as determined reasonably and in good faith by the Board of
Directors of the Corporation.
(6) Record Date - In case the Corporation shall
take a record of the holders of its Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in shares of Common
Stock or in Convertible Securities, or (B) to subscribe for or purchase shares
of Common Stock or Convertible Securities, then such record date shall be deemed
to be the date of the issue or sale of the shares of Common Stock deemed to have
been issued or sold as a result of the declaration of such dividend or the
making or such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(7) Treasury Shares - The number of shares of
Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the
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Corporation, and the disposition of any such shares shall be considered an issue
or sale of Common Stock for the purposes of this clause (vi)(e).
(8) Definition of Market Price - Unless otherwise
set forth in this Certificate of Designation, "Market Price" shall mean the last
reported sale price of the applicable security as reported by the National
Association of Securities Dealers, Inc. Automatic Quotations System, National
Market System, or, if the applicable security is listed or admitted for trading
on a securities exchange, the last reported sales price of the applicable
security on the principal exchange on which the applicable security is listed or
admitted for trading (which shall be for consolidated trading if applicable to
such exchange), or if neither so reported or listed or admitted for trading, the
last reported bid price of the applicable security in the over-the-counter
market. In the event that the Market Price cannot be determined as aforesaid,
the Board of Directors of the Corporation shall determine the Market Price on
the basis of such quotations as it in good faith considers appropriate, in
consultation with a nationally recognized investment bank. The Market Price
shall be such price averaged over a period of 20 consecutive business days
ending 2 days prior to the day as of which "Market Price" is being determined.
(9) Adjustment to Determination of Market Price -
When making the calculations and determinations described in clause (vi)(e)
hereof, there shall not be taken into account (i) the issuance of Common Stock
upon the exercise of options outstanding on the date this Certificate of
Designation was filed with the State of Delaware for the purchase of up to
554,350 shares of Common Stock, (ii) the issuance of any rights to subscribe for
or to purchase, or any options for the purchase of, up to 1.5% of the fully
diluted shares of Common Stock of the Corporation as of the date of issuance of
all shares of Series A Preferred Stock or any stock or securities convertible
into or exchangeable for Common Stock to officers or directors
("Officers/Directors Securities") and (iii) the issuance of any options for the
purchase of Common Stock to employees of the Corporation other than officers or
directors pursuant to the standard option awards program adopted by the Board of
Directors of the Corporation, but excluding any discretionary awards outside of
such program ("Employee Securities" and, together with the Officers/Directors
Securities, the "Company Securities"); provided, that all Common Stock issuable
with respect to any such Company Securities be issuable at or above the Market
Price as of the date of the grant.
(f) Liquidating Dividends; Purchase Rights. (1) In case at
any time after the date hereof the Corporation shall declare a dividend upon the
shares of Common Stock of any class payable otherwise than in shares of Common
Stock or Convertible Securities, otherwise than out of funds legally available
therefor (determined in accordance with generally accepted accounting
principles, including the making of appropriate deductions for minority
interests, if any, in subsidiaries), and otherwise than in the securities to
which the provisions of clause (2) below apply, the corporation shall pay over
to each holder of Series B Preferred Stock, upon conversion thereof on or after
the dividend payment date, the securities and other property (including cash)
which such holder would have received (together with all distributions thereon)
if such holder had converted the Series B Preferred Stock held by it on the
record date fixed on connection with such dividend, and the Corporation shall
take whatever steps are necessary or appropriate to keep in reserve at all times
such securities and other property as shall be required
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to fulfill its obligations hereunder in respect of the shares issuable upon the
exercise or conversion of all the Series B Preferred Stock. For the purposes of
the foregoing, a dividend other than in cash shall be considered payable out of
funds legally available therefor, only to the extent that such earnings or
retained earnings are charged an amount equal to the fair value of such dividend
as determined by the Board of Directors of the Corporation.
(2) If at any time or from time to time on or after
the date hereof, the Corporation shall grant, issue or sell any options or
rights (other than Convertible Securities) to purchase stock, warrants,
securities or other property pro rata to the holders of Common Stock of all
classes ("Purchase Rights"), and if the holder shall be entitled to an
adjustment pursuant to clause (vi)(e) above, then in lieu of such adjustment,
each holder of Series B Preferred Stock shall be entitled, at such holder's
option, to acquire (whether or not such holder's Series B Preferred Stock shall
have been converted), 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 issuable upon conversion of such
Series B Preferred Stock immediately prior to the time or times at which the
Corporation granted, issued or sold such Purchase Rights.
(g) Subdivision or Combination of Stock. In case the
Corporation shall at any time subdivide its outstanding shares of Common Stock
into a greater number of shares, the Conversion Price in effect immediately
prior to such subdivision shall be proportionately reduced and, conversely, in
case the outstanding shares of Common Stock of the Corporation shall be combined
into a smaller number of shares, the Conversion Price in effect immediately
prior to such combination shall be proportionately increased.
(h) Changes in Common Stock. If any capital reorganization
or reclassification of the capital stock of the Corporation, or consolidation or
merger of the Corporation with another corporation, or the sale, transfer or
other disposition of all or substantially all of its assets to another
corporation for cash or stock of such other corporation, shall be effected,
then, as a condition of such reorganization, reclassification, consolidation,
merger, sale transfer or other disposition, lawful and adequate provision shall
be made whereby each holder of Series B Preferred Stock shall thereafter have
the right to purchase and receive upon the basis and upon the terms and
conditions herein specified and in lieu of the shares of the Common Stock of the
Corporation immediately theretofore issuable upon conversion of the Series B
Preferred Stock, such shares of stock, securities or properties as may be
issuable or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such Common Stock
immediately theretofore issuable upon conversion of the Series B Preferred Stock
had such reorganization, reclassification, consolidation, merger, sale, transfer
or other disposition not taken place, and in any such case appropriate
provisions shall be made with respect to the rights and interests of each holder
of Series B Preferred Stock to the end that the provision hereto (including
without limitation provisions for adjustment of the Conversion Price) shall
thereafter be applicable, as nearly equivalent as may be practicable in relation
to any shares of stock, securities or properties thereafter deliverable upon the
exercise thereof. The Corporation shall not effect any such consolidation,
merger, sale, transfer or other disposition, unless prior to or simultaneously
with
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the consummation thereof the successor corporation (if other than the
Corporation) resulting from such consolidation or merger or the corporation
purchasing or otherwise acquiring such properties shall assume, by written
instrument executed and mailed or delivered to the holders of Series B Preferred
Stock at the last address of such holders appearing on the books of the
Corporation, the obligation to deliver to such holders such shares of stock,
securities or properties as, in accordance with the foregoing provisions, such
holders may be entitled to acquire. The above provisions of this subparagraph
shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales, transfers or other dispositions.
(i) Certain Events. If any event occurs as to which in the
opinion of the Board of Directors of the Corporation the other provisions of
this clause (vi) are not strictly applicable or if strictly applicable would not
fairly protect the conversion rights of the holders of the Series B Preferred
Stock in accordance with the essential intent and principles of such provisions,
then such Board of Directors, acting by a vote of at least 75% of the members
thereof, shall provide for the benefit of holders of shares of Series B
Preferred Stock an adjustment, if any, on a basis consistent with such essential
intent and principles, necessary to preserve, without dilution, the rights of
the holders of the Series B Preferred Stock. Upon such vote by the Board of
Directors, the Corporation shall forthwith make the adjustments described
therein; provided, however, that no such adjustments shall have the effect of
increasing the Conversion Price as otherwise determined pursuant to this clause
(vi) except in the event of a combination of shares of the type contemplated in
clause (vi)(g) and then in no event to an amount larger than the conversion
price as adjusted pursuant to clause (vi)(g).
(j) Prohibition of Certain Actions. The Corporation shall
not, without the affirmative consent or approval of the holders of shares
representing 66-2/3% of the shares of Series B Preferred Stock then outstanding,
voting as a single class (such consent or approval to be given by written
consent in lieu of a meeting (if allowable under the Corporation's Certificate
of Incorporation) or by vote at a meeting called for such purpose for which
notice shall have been given to the holders of the Series B Preferred Stock) (1)
authorize or issue, or agree to authorize or issue, any shares of its capital
stock of any class or series of preferred as to dividends or liquidation, unless
the rights of the holders thereof shall be limited to a fixed sum or percentage
of par value in respect of participation in dividends and in the distribution of
such assets or (2) authorize, issue or permit to remain outstanding any class or
series of its capital stock (including, without limitation, the Common Stock but
not including the Series A Preferred Stock and the Series B Preferred Stock)
having the right to vote for the election of directors or in respect of any
other matter, which class or series is entitled to more than one vote per share.
The Corporation will not take any action which would result in any adjustment of
the Conversion Price if the total number of shares of Common Stock issuable
after such action upon conversion of all the Series B Preferred Stock would
exceed the total number of shares of Common Stock then authorized by the
Corporation's Certificate of Incorporation.
(k) Stock to be Reserved. The Corporation will at all
times reserve and keep available out of its authorized Common Stock, solely for
the purpose of issue upon the conversion of Series B Preferred Stock as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding Series B Preferred Stock.
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The Corporation covenants that all shares of Common Stock which shall be so
issuable shall, upon issuance, be duly authorized, validly issued, fully paid
and nonassessable, free from preemptive or similarly rights on the part of the
holders of any shares of capital stock or securities of the Corporation, and
free from all liens and charges with respect to the issue thereof; and without
limiting the generality of the foregoing, the Corporation covenants that it will
from time to time take all such action as may be requisite to assure that the
par value, if any, per share of the Common Stock is at all times equal to or
less than the then effective Conversion Price. The Corporation will take all
such action as may be necessary to assure that such shares of Common Stock may
be so issued without violation by the Corporation of any applicable law or
regulation or agreement, or of any requirements of any domestic securities
exchange upon which the Common Stock may be listed. Without limiting the
foregoing, the Corporation will take all such action as may be necessary to
assure that, upon conversion of any of the Series B Preferred Stock, an amount
equal to the lesser of (1) the par value of each share of Common Stock
outstanding immediately prior to such conversion, or (2) the Conversion Price
shall be credited to the Corporation's stated capital account for each share of
Common Stock issued upon such conversion, and that, if clause (1) above is
applicable, the balance of the Conversion Price of Series B Preferred Stock
converted shall be credited to the Corporation's capital surplus account.
(l) Registration and Listing of Common Stock. If any
shares of Common Stock required to be reserved for purposes of conversion of
Series B Preferred Stock hereunder require registration with or approval of any
governmental authority under any Federal or state law (other than the Securities
Act) before such shares may be issued upon conversion, the Corporation will, at
its expense and as expeditiously as possible, use its best efforts to cause such
shares to be duly registered or approved, as the case may be. Shares of Common
Stock issuable upon conversion of the Series B Preferred Stock shall be
registered by the Corporation under the Securities Act or similar statute then
in force if required before such shares may be issued upon conversion. If and so
long as the Common Stock is listed on any national securities exchange, the
Corporation will, at its expense, obtain promptly and maintain the approval for
listing on each such exchange upon official notice of issuance, of shares of
Common Stock issuable upon conversion of the then outstanding Series B Preferred
Stock and maintain the listing of such shares after their issuance; and the
Corporation will also list on such national securities exchange, will register
under the Exchange Act and will maintain such listing of, any other securities
that at any time are issuable upon conversion of the Series B Preferred Stock,
if and at the time that any securities of the same class shall be listed on such
national securities exchange by the Corporation.
(m) Closing of Books. The Corporation will at no time
close its transfer books against the transfer of any Series B Preferred Stock or
of any shares of Common Stock issued or issuable upon the conversion of any
Series B Preferred Stock in any manner which interferes with the timely
conversion of such Series B Preferred Stock.
(n) Statement of Adjustment of Conversion Price. Whenever
the Conversion Price shall be adjusted as provided in clause (vi)(e) above, the
Corporation shall forthwith file at its office a statement, signed by its
independent certified public accounts, showing in detail the facts requiring
such adjustment and the Conversion Price that shall be in
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effect after such adjustment. The Corporation shall also cause a copy of such
statement to be sent by certified mail, return receipt requested, to each holder
of shares of Series B Preferred Stock to such holder's address appearing on the
Corporation's records. Where appropriate, such copy may be given in advance and
may be included as part of a notice required to be mailed under the provisions
of clause (vi)(o) below.
(o) Notice. In the event the Corporation shall propose to
take any action of the types described in clause (vi)(e) above, the Corporation
shall give notice to each holder of shares of Series B Preferred Stock which
notice shall specify the record date, if any, with respect to any such action
and the date on which such action is to take place. Such notice shall also set
forth such facts with respect thereto as shall be reasonable necessary to
indicate the effect of such action (to the extent such effect may be known at
the date of such notice) on the Conversion Price and the number, kind or class
of shares or other securities or property which shall be deliverable or
purchasable upon the occurrence of such action or deliverable upon conversion of
shares of Series B Preferred Stock. In the case of any action which would
require the fixing of a record date, such notice shall be given at least 20 days
prior to the date so fixed, and in case of all other action, such notice shall
be given at least 30 days prior to the taking of such proposed action.
(p) Taxes. The Corporation shall pay all documentary,
stamp or other transactional taxes attributable to the issuance or delivery of
shares of capital stock of the Corporation upon conversion of any shares of
Series B Preferred Stock. The Corporation shall not, however, be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of Common Stock or the reissuance of the Preferred Stock in a name
other than that in which the shares of Series B Preferred Stock so converted
were registered, and no such issuance or delivery shall be made unless and until
the person requesting such issuance has paid to the Corporation the amount of
any such tax or has established to the satisfaction of the Corporation that such
tax has been paid.
(q) Exclusion of Other Rights. Except as may otherwise be
required by law, the shares of Series B Preferred Stock shall not have any
voting powers, preferences and relative, participating, optional or other
special rights, other than those specifically set forth in this resolution and
in the Certificate of Incorporation. The shares of Series B Preferred Stock
shall have no preemptive or subscription rights.
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IN WITNESS WHEREOF, Candlewood Hotel Company, Inc. has caused
these presents to be signed in its name and on its behalf by its Chief Executive
Officer on July 13, 1998.
CANDLEWOOD HOTEL COMPANY, INC.
By: /S/ JACK P. DEBOER
-------------------------
Name: Jack P. DeBoer
Title: Chief Executive Officer
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