ANNEX I
TO
SECURITIES PURCHASE AGREEMENT
CERTIFICATE OF DETERMINATION
OF RIGHTS AND PREFERENCES OF THE
SERIES A-1 CONVERTIBLE PREFERRED STOCK AND
SERIES A-2 CONVERTIBLE PREFERRED STOCK
OF
ZAPWORLD.COM
The undersigned, GARY STARR and OONAGH DUGGAN, hereby certify that:
1. They are the duly elected and acting President and Secretary,
respectively of Zapworld.com, a California corporation (the "Company").
2. The Company is authorized to issue ten million (10,000,000) shares
of Preferred Stock.
3. Under authority given by the Company's Articles of Incorporation,
the Board of Directors has duly adopted the following recitals and resolutions.
4. The authorized number of shares of Series A-1 Convertible Preferred
Stock (the "Initial Preferred Stock") is 3,000, none of which is presently
outstanding, and the authorized number of shares of Series A-2 Convertible
Preferred Stock (the "Series A-2 Convertible Preferred Stock") is 2,000, none of
which is presently outstanding:
WHEREAS, the Articles of Incorporation of the Company, as amended,
authorized the Company to issue up to ten million (10,000,000) shares of
Preferred Stock in one or more series, and authorize the Board of Directors of
the Company to fix the number of shares constituting any such series, to
determine the designation thereof, and to determine the rights, preferences,
privileges and restrictions granted to or imposed on such series; and
WHEREAS, the Company has not issued any shares of Preferred Stock and
the Board of Directors desires to designate a series of Preferred Stock, to fix
the number of shares constituting the series, and to determine the rights,
preferences, privileges and restrictions relating to this series;
RESOLVED, that the Board of Directors hereby designates three thousand
(3,000) shares of Preferred Stock as Series A-1 Convertible Preferred Stock,
$1,000 Par Value and two thousand hundred (2,000) shares of Preferred Stock as
Series A-2 Convertible Preferred Stock, $1,000 Par Value (collectively the
"Preferred Stock"), with the rights, preferences, privileges and restrictions
set forth below.
I. CERTAIN DEFINITIONS
For purposes of this Certificate of Determination, the following terms
shall have the following meanings:
A. "Additional Closing Date" means the date of the closing of the purchase and
sale of the Additional Preferred Stock, as provided herein.
B. "Buy-In Adjustment Amount" means the amount equal to the excess, if any, of
(i) the Converting Holder's total purchase price (including brokerage
commissions, if any) for the Covering Shares (as defined in Article III
Paragraph B(7)) over (ii) the net proceeds (after brokerage commissions, if any)
received by the Converting Holder (as defined in Article III Paragraph B(7))
from the sale of the Sold Shares. By way of illustration and not in limitation
of the foregoing, if the Converting Holder purchases shares of Common Stock
having a total purchase price (including brokerage commissions) of $11,000 to
cover a Buy-In (as defined in Article III Paragraph B(7)) with respect to shares
of Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment
Amount which the Company will be required to pay to the Converting Holder will
be $1,000.
C. "Closing Bid Price" means the closing bid price of the Common Stock (in U.S.
Dollars) on the Principal Trading Market as reported by Bloomberg LP or if that
service is not then reporting the relevant information regarding the Common
Stock, a comparable reporting service of national reputation selected by the
Holders of the Preferred Stock and reasonably acceptable to the Company. If the
Closing Bid Price cannot be calculated for such security on the relevant date on
the foregoing basis, the Closing Bid Price of such security on such date shall
be the fair market value as reasonably determined by an investment banking firm
selected by Holders of a majority of the then outstanding shares of Preferred
Stock and reasonably acceptable to the Company, with the costs of such appraisal
to be borne by the Company. The manner of determining the Closing Bid Price of
the Common Stock set forth in the foregoing definition shall apply with respect
to any other security in respect of which a determination as to closing bid
price must be made hereunder.
D. "Closing Date" means the Initial Closing Date or the Additional Closing Date,
as the case may be.
E. "Common Stock" means the Company's common stock, no par value per share.
F. "Conversion Price" means, with respect to any relevant date, in the event the
Closing Date of the Initial Preferred Stock is on or before Friday, June 23,
2000, the Conversion Price for the Initial Preferred Stock shall be $4.50 per
share. The Conversion Price for (1) the Initial Preferred Stock, if the Closing
Date of the Initial Preferred Stock is after Wednesday, June 21, 2000, and (2)
the Series A-2 Preferred Stock, shall be the lesser of (i) the Fixed Conversion
Price or (ii) the Variable Conversion Price, which is in effect as of such date.
G. "Effective Date" shall mean the date the relevant Registration Statement for
the shares of Common Stock issuable on conversion of the Preferred Stock is
declared effective by the Securities and Exchange Commission.
H. "Fixed Conversion Price" means 110% of the Closing Bid Price of the Common
Stock on the trading day immediately preceding the Closing Date of the Initial
Preferred Stock, which amount shall be subject to the adjustment as provided
herein.
I. "Holder" means a person or entity holding shares of the Preferred Stock.
J. "Initial Closing Date" means the date of the closing of the purchase and sale
of the Initial Preferred Stock, as provided herein.
K. "Junior Securities" means (i) any class or series of capital stock of the
Company authorized prior to the filing of this Certificate of Determination
that, by its terms, ranks junior to the Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary and (ii) all classes or series of capital stock of the
Company authorized after the filing of this Certificate of Determination, unless
consented to as provided herein in each instance, each of which shall rank
junior to the Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary.
L. "Liquidation Preference" means, with respect to a share of Preferred Stock,
an amount equal to the Stated Value thereof, plus the accrued and unpaid
dividends thereon through the date of final distribution.
M. "Market Price," means, (i) as of any date between the day after the relevant
Closing Date and the second annual anniversary of such Closing Date, the average
of the Closing Bid Price (in U.S. Dollars) during the twenty-two (22)
consecutive trading days ending on the trading day immediately preceding the
relevant date (subject to equitable adjustment for any stock splits, stock
dividends, reclassifications or similar events during such 22 trading day
period), (ii) as of any date thereafter and through and including the day prior
to the Maturity Date, the average of the Closing Bid Price (in U.S. Dollars)
during the forty-five (45) consecutive trading days ending on the trading day
immediately preceding the relevant date (subject to equitable adjustment for any
stock splits, stock dividends, reclassifications or similar events during such
45 trading day period).
N. "Maturity Date" means the date which is thirty-six (36) months after the
Closing Date of the Initial Preferred Stock.
O. "Pari Passu Securities" means any class or series of capital stock of the
Company hereafter created specifically ranking, by its terms, on parity with the
Preferred Stock as to distribution of assets upon liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary.
P. "Principal Trading Market" means The Nasdaq/SmallCap Market, or if the Common
Stock is no longer listed on that market, the principal securities exchange or
trading market on which the Common Stock is listed or traded.
Q. "Securities" means the Preferred Stock, the Warrants and the Common Stcok
issuable upon conversion of the Preferred Stock or the exercise of the Warrants.
R. "Senior Securities" means each class or series of capital stock of the
Company authorized prior to the original filing of this Certificate of
Determination that, by its terms, is senior to the Preferred Stock as to
distribution of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary.
S. "Stated Value" for the Preferred Stock shall be $1,000.00 per share.
T. "Variable Conversion Price" means, with respect to a Conversion Date which
occurs (i) after the relevant Closing Date and on or before the first year
anniversary of such Closing Date, the amount equal to eighty-five percent (85%)
of the average of the three (3) lowest Closing Bid Prices over the twenty-two
(22) trading days prior to the Conversion Date, (ii) thereafter and on or before
the second year anniversary of the relevant Closing Date, the amount equal to
eighty percent (80%) of the average of the three (3) lowest Closing Bid Prices
over the twenty-two (22) trading days prior to the Conversion Date, and (iii)
thereafter and on or before the day prior to the Maturity Date, the amount equal
to seventy percent (70%) of the average of the lowest Closing Bid Prices over
the forty-five (45) days prior to the Conversion Date.
II. DIVIDENDS
A. Generally. The Holders of the Preferred Stock shall be entitled to receive a
dividend which shall accumulate at a rate of 6% per annum. Except as described
below, the dividend shall be payable upon June 30 of each year (the "Dividend
Payment Date"). The dividend shall accrue on a daily basis and shall be payable
in cash or in Common Stock at the Company's option. Such dividends shall be
payable in preference to dividends on any Common Stock or stock of any class
ranking, as to dividend rights, junior to the Preferred Stock, and shall be
junior as to payment of dividends to the Senior Securities. Dividends shall be
fully cumulative and shall accrue (whether or not declared and whether or not
there shall be funds legally available for the payment of dividends) daily
(based on a 365-day year), without interest, and shall be payable on the
Dividend Payment Date unless such payment would be in violation of the
California Corporations Code.
B. Dividend on Conversion Date. Upon conversion of shares of the Preferred
Stock, the Holder of those shares shall receive a payment equal to the prorated
amount of the unpaid dividend which accrued through the Conversion Date.
C. Dividends Paid In Common Stock. If paid in Common Stock, the number of shares
of Common Stock to be received shall be determined by dividing the dollar amount
of the dividend by the Conversion Price on the Dividend Payment Date. If the
dividend is to be paid in Common Stock, said Common Stock shall be delivered to
the Holder, or per Holder's instructions, (i) if being issued in connection with
a conversion, at the same time as the Conversion Certificates pursuant to
Paragraph B(1) of Article III of this Certificate of Determination, and (ii)
with respect to all other instances, within four (4) business days after the
Dividend Payment Date (such fourth business date, a "Delivery Date"). The
certificates representing the dividends so paid are referred to as "Conversion
Certificates."
D. Dividends Paid In Cash. If the dividend is to be paid in cash, the Company
shall make such payment on the Dividend Payment Date. If the dividend is not
paid on the Dividend Payment Date, the dividend must be paid in Common Stock in
accordance with the provisions of this Certificate of Determination, unless the
Holder consents otherwise in each specific instance.
III. CONVERSION
A. Conversion at the Option of the Holder. Subject to the limitations on
conversions contained in Paragraph C of this Article III, each Holder of shares
of Preferred Stock may, at any time and from time to time convert (an "Optional
Conversion") each of its shares of Preferred Stock into a number of fully paid
and non-assessable shares of Common Stock determined in accordance with the
following formula:
Stated Value of Shares to Be Converted
Conversion Price
B. Mechanics of Conversion. Conversion shall be effectuated by faxing a Notice
of Conversion in the form attached hereto as Exhibit A ("Notice of Conversion")
to the Company as provided in this Paragraph. The Notice of Conversion shall be
executed by the Holder of one or more shares of Preferred Stock and shall
evidence such Holder's intention to convert all or a portion of such shares. The
date of conversion (the "Conversion Date") shall be deemed to be the date on
which the Holder faxes or otherwise delivers a conversion notice to the Company
so that it is received by the Company on or before such specified date, provided
that, the Holder shall deliver to the Company the certificate or certificates
representing the shares being converted (the "Converted Shares") no later than
five (5) business days thereafter.
1. Delivery of Common Stock Upon Conversion. Certificates representing the
Common Stock issuable on conversion of the Preferred Stock (the "Conversion
Certificates") will be delivered to the Converting Holder at the address
specified in the Notice of Conversion (which may be the Converting Holder's
address for notices or a different address), via express courier, by electronic
transfer or otherwise, within three (3) business days (such third business day,
a "Delivery Date") after the later of (i) the date on which the Notice of
Conversion is delivered to the Company as contemplated in this Paragraph or the
Maturity Date, or (ii) the date on which the Converted Shares are delivered to
the Company.
2. Taxes. The Company shall pay any and all taxes which may be imposed upon the
Company with respect to the issuance and delivery of the shares of Common Stock
upon the conversion of the Preferred Stock other than transfer taxes due upon
conversion, if such Holder has transferred to another party the Preferred Stock
or the right to receive Common Stock upon the Holder's conversion thereof or any
or income taxes due on the part of the Holder. The Company shall have the right
to withhold any taxes as required by the United States federal or state tax
laws.
3. No Fractional Shares. If any conversion of Preferred Stock would result in
the issuance of a fractional share of Common Stock, such fractional share shall
be disregarded and the number of shares of Common Stock issuable upon conversion
of the Preferred Stock shall be rounded up or down to the nearest whole share,
it being understood that .5 of one share shall be rounded up to the next highest
share.
4. Conversion Disputes. In the case of any dispute with respect to a conversion,
the Company shall promptly issue such number of shares of Common Stock as are
not disputed in accordance with Paragraph A of Article III above. If such
dispute involves the calculation of the Conversion Price, the Company shall
first discuss such discrepancy with the Converting Holder. If the Company and
the Converting Holder are unable to agree upon the Conversion Price calculation,
the Company shall promptly submit the disputed calculations to independent
auditors, which shall be one of the major accounting firms or another firm
reasonably acceptable to Holders of a majority of the Preferred Stock. The
auditors, at the expense of the party in error, shall audit the calculations and
notify the Company and the Holder of the results as soon as practicable
following the date it receives the disputed calculations. The auditor's
calculation shall be deemed conclusive, absent manifest error. The Company shall
then issue the appropriate number of shares of Common Stock in accordance with
Paragraph A of Article III above.
5. Delay in Delivering Conversion Certificates. The Company understands that a
delay in the delivery of the Conversion Certificates beyond the Delivery Date
could result in economic loss to a Holder. As compensation to a Holder for such
loss, the Company agrees if there is a delay in the delivery of the Conversion
Certificates (as adjusted in accordance with this provision) so that such
Conversion Certificates are not received within five (5) business days after the
Delivery Date, to pay late payments to such Holder for late delivery of
Conversion Certificates in accordance with the following schedule (where "No.
Business Days Late" is defined as the number of business days beyond five (5)
business days after the Delivery Date):
No. Business Days Late Late Payment For Each $10,000 of
Liquidation Preference or Dividend Amount
Being Converted
---------------------- --------------------------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each Business Day Late
beyond 10 days
The Company shall pay any payments incurred under this Paragraph in
immediately available funds upon demand. For purposes of this Paragraph B(5) of
Article III, in connection with a Automatic Conversion (as those terms are
defined below), the term "Delivery Date" shall refer to the earlier of (i) the
Delivery Date determined in relation to a Notice of Conversion actually
submitted by the Holder to the Company or (ii) the four business date after
written notice from the Holder that the delivery of shares to the Holder in
connection with a Automatic Conversion has not been accomplished. Nothing herein
shall limit the Holder's right to pursue actual damages for the Company's
failure to issue and deliver the Conversion Certificates to the Holder within a
reasonable time. Furthermore, in addition to any other remedies which may be
available to a Holder, in the event that the Company fails for any reason to
effect delivery of such Conversion Certificates within four (4) business days
after the Delivery Date, the Converting Holder will be entitled to revoke the
relevant Notice of Conversion by delivering a notice to such effect to the
Company whereupon the Company and the Converting Holder shall each be restored
to their respective positions immediately prior to delivery of such Notice of
Conversion.
6. Buy-In. If, by the relevant Delivery Date, the Company fails for any reason
to deliver the Conversion Certificates and after such Delivery Date, the Holder
of the Preferred Stock being converted (a "Converting Holder") purchases, in an
arm's-length open market transaction or otherwise, shares of Common Stock (the
"Covering Shares") in order to make delivery in satisfaction of a sale of Common
Stock by the Converting Holder (the "Sold Shares"), which delivery such
Converting Holder anticipated to make using the shares to be issued upon such
conversion (a "Buy-In"), the Converting Holder shall have the right, to require
the Company to pay to the Converting Holder, in addition to and not in lieu of
the amounts due under Paragraph B(5) of Article III hereof, the Buy-In
Adjustment Amount. The Company shall pay the Buy-In Adjustment Amount to the
Converting Holder in immediately available funds immediately upon demand by the
Converting Holder.
7. DWAC Certificate Delivery. In lieu of delivering physical certificates
representing the Common Stock issuable upon conversion, provided the Company's
transfer agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program, upon request of a Converting Holder and
his/her compliance with the provisions contained in this paragraph, so long as
the certificates therefor do not bear a legend and the Converting Holder thereof
is not obligated to return such certificate for the placement of a legend
thereon, the Company shall use its best efforts to cause its transfer agent to
electronically transmit the Common Stock issuable upon conversion to the
Converting Holder by crediting the account of Converting Holder's prime broker
with DTC through its Deposit Withdrawal Agent Commission system.
8. Conversion Default. If, at any time:
a. the Company challenges, disputes or denies the right of a Holder of
Preferred Stock to effect a conversion of the Preferred Stock Preferred
Stock into Common Stock or otherwise dishonors or rejects any Notice of
Conversion delivered in accordance with the terms of this Certificate
of Determination, or
b. any third party who is not and has never been an affiliate of such
Holder commences any lawsuit or proceeding or otherwise asserts any
claim before any court or public or governmental authority, which
lawsuit, proceeding or claim seeks to challenge, deny, enjoin, limit,
modify, delay or dispute the right of such Holder to effect the
conversion of the Preferred Stock into Common Stock, and the Company
refuses to honor any such Notice of Conversion,
then such Holder shall have the right, by written notice to the Company, to
require the Company to redeem each share of Preferred Stock for cash at a
redemption price (the "Mandatory Purchase Amount") equal to the Cap Redemption
Amount (as defined in Article V Paragraph B) of the unconverted Preferred Stock
held by such Holder, provided, however, that the Company shall have a period of
sixty (60) days within which to (i) have the lawsuit or proceeding dismissed and
honor the Conversion Notice, or (ii) raise the capital required to redeem the
Mandatory Purchase Price, as the case may be. Under any of the circumstances set
forth above, the Company shall be responsible fore the payment of all costs and
expenses of such holder, including, but not necessarily limited to, reasonable
legal fees and expenses, as and when incurred in connection with such holder's
disputing any such action or pursuing such Holder's rights hereunder (in
addition to any other rights such Holder may have hereunder or otherwise). The
Mandatory Purchase Amount will be payable to such Holder in cash within five (5)
business days from the date such Holder give the Company written notice that it
is exercising its rights under this paragraph.
9. Conversion in Bankruptcy. The Holder of any Preferred Stock Preferred Stock
shall be entitled to exercise its conversion privilege with respect to the
Preferred Stock notwithstanding the commencement of any case under 11
U.S.C.ss.101 et seq. (the "Bankruptcy Code"). In the event the Company is a
debtor under the Bankruptcy Code, the Company hereby waives, to the fullest
extent permitted, any rights to relief it may have under 11 U.S.C.ss.362 in
respect of such Holder's conversion privilege. The Company hereby waives, to the
fullest extent permitted, any rights to relief it may have under 11 U.S.C.ss.362
in respect of the conversion of the Preferred Stock. The Company agrees, without
cost or expense to such Holder, to take or to consent to any and all action
necessary to effectuate relief under 11 U.S.C.ss.362.
C. Automatic Conversion Upon Maturity. Any shares of Preferred Stock not
previously converted or redeemed as of the Maturity Date, shall be automatically
converted (an "Automatic Conversion"), without further action of any kind
(including, but not necessarily limited to, the giving of a Notice of
Conversion) by the Holder, as of the Maturity Date at the Conversion Price
applicable on the Maturity Date.
D. Intentionally Omitted.
E. Limitations on Conversions. The conversion of shares of Preferred Stock shall
be subject to the following limitations (each of which limitations shall be
applied independently):
1. Cap Regulations. If the Company is limited in the number of shares of Common
Stock it may issue by virtue of (i) the number of authorized shares or (ii) the
applicable rules and regulations of its Principal Trading Market, including, but
not necessarily limited to, Nasdaq Rule 4310(c)(25)(H)(i) or Rule 4460(i)(1), as
may be applicable (collectively, the "Cap Regulations") the Company will take
all steps reasonably necessary to be in a position to issue shares of Common
Stock on conversion of the Preferred Stock without violating the Cap
Regulations. If at any time after the expiration of ??? days from the date a
Holder has exercised a right pursuant to which the last share of Common Stock
issuable under the Cap Regulations is to be issued, the then issuable number of
shares of Common Stock upon conversion of all of the then outstanding Preferred
Stock pursuant to the Cap Regulations (the "Cap Amount") is less than the number
of shares of Common Stock which would then be otherwise issuable upon conversion
of all of the then outstanding shares of Series A Preferred Stock without regard
to such Cap Regulations (a "Trading Market Trigger Event"), the Company shall
immediately notify the Holders of Preferred Stock of such occurrence and shall
take immediate action (including, if necessary, seeking the approval of its
shareholders to authorize the listing or issuance of the full number of shares
of Common Stock which would be issuable upon the conversion of the then
outstanding shares of Preferred Stock but for the Cap Amount) to eliminate any
prohibitions under applicable law or the rules or regulations of any stock
exchange, inter-dealer quotation system or other self-regulatory organization
with jurisdiction over the Company or any of its securities on the Company's
ability to list or issue shares of Common Stock in excess of the Cap Amount
("Trading Market Prohibitions"). In this event, the Holder of a share of
Preferred Stock which can not be converted as result of the Cap Regulations
after all such Preferred Stock which can be converted under the Cap Amount have
been converted (each such share, an "Unconverted Share") shall have the option,
exercisable in such Holder's sole and absolute discretion, to elect either of
the following remedies:
a. If permitted by the Cap Regulations, require the Company to issue
shares of Common Stock in accordance with such holder's Notice of
Conversion at a conversion purchase price equal to the average of the
closing price per share of Common Stock for the three (3) consecutive
trading days immediately preceding the date of Notice of Conversion; or
b. Require the Company to redeem each Unconverted Share for cash, at an
amount per share equal to the Redemption Amount (as defined in Article
V Paragraph B), pursuant to the provisions of Article V hereof, such
Redemption Amount shall be paid in cash by the Company to the Holder
within five (5) business days after the date the Holder notifies the
Company in writing of the Holder's election to pursue this remedy.
A Holder of more than one Unconverted Share may elect one of the above remedies
with respect to some of such Unconverted Shares and the other remedy with
respect to other Unconverted Shares. Anything herein to the contrary
notwithstanding, the remedy contained in clauses (a) and (b) of this Paragraph
E(1) of this Article III shall not be available to the Holder of such shares
until after the expiration of 60 days from the date a Holder has exercised a
right pursuant to which the last share of Common Stock issuable under the Cap
Regulations is to be issued. The Cap Limitation Redemption Amount payable under
the provisions of this Paragraph E(1) of this Article III shall be payable
within ten (10) days after the Redemption Date. If prior to such date, the Cap
Regulations no longer apply to limit the Company's issuance of shares of Common
Stock in connection with the Preferred Stock, the remedies contained clauses (a)
and (b) of this Paragraph E(1) of this Article III shall not be exercisable by a
Holder.
2. No Ten Percent Holders. Notwithstanding any other provision hereof, in no
event (except (i) with respect to an Automatic Conversion, if any, of the shares
of Preferred Stock as described in Article III Paragraph C hereof, (ii) as
specifically provided in this Certificate of Determination as an exception to
this provision, (iii) while there is outstanding a tender offer for any or all
of the shares of the Company's Common Stock, or (iv) on at least seventy-five
(75) days' advance written notice from the Holder to the Company of the Holder's
election to cancel this Section E(2) of Article III) shall the Holder be
entitled to convert any share of the Holder's Preferred Stock, or shall the
Company have the obligation to convert such share (and the Company shall not
have the right to pay dividends on shares of Preferred Stock in shares of Common
Stock), to the extent that, after such conversion or issuance of stock in
payment of dividends, the sum of (a) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates, and (b) the number of
shares of Common Stock issuable upon the conversion of the shares of Preferred
Stock with respect to which the determination of this proviso is being made,
would result in beneficial ownership by the Holder and its affiliates of more
than 9.99% of the outstanding shares of Common Stock (after taking into account
the shares to be issued to the Holder upon such conversion). For purposes of the
proviso to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act"). If the Holder transfers or assigns any shares
of the Preferred Stock to a party who or which would not be considered such an
affiliate, such assignment shall be made subject to the transferee's or
assignee's specific agreement to be bound by the provisions of this Paragraph
D(2) of Article III as if such transferee or assignee were the original Holder
hereof. Nothing herein shall preclude the Holder from disposing of a sufficient
number of other shares of Common Stock beneficially owned by the Holder so as to
thereafter permit the continued conversion of the shares of Preferred Stock.
IV. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. Upon the initial issuance of the shares of Preferred Stock,
the Company shall reserve out of the authorized but unissued shares of Common
Stock for issuance upon conversion of the Preferred Stock such number of shares
equal to 200% of the number of shares which would be issuable if all of the
authorized shares of Preferred Stock were converted in their entirety on the
Closing Date of the Initial Preferred Stock based on the Conversion Price in
effect on that date and thereafter the number of authorized but unissued shares
of Common Stock so reserved (the "Reserved Amount") shall not be decreased, but
may be increased pursuant to Paragraph B of this Article IV, and shall at all
times be sufficient to provide for the conversion of the Preferred Stock
outstanding at the then current Conversion Price thereof. The Reserved Amount
shall be allocated to the holders of Preferred Stock as provided in Article IX
Paragraph D.
B. Increases to Reserved Amount. If the Reserved Amount for any ten (10)
consecutive trading days (the last of such ten (10) trading days being the
"Authorization Trigger Date") shall be less than 150% of the number of shares of
Common Stock issuable upon conversion of the then outstanding shares of
Preferred Stock, the Company shall immediately notify the holders of Preferred
Stock of such occurrence and shall take immediate action (including, if
necessary, seeking shareholder approval to authorize the issuance of additional
shares of Common Stock) to increase the Reserved Amount to 200% of the number of
shares of Common Stock then issuable upon conversion of the outstanding
Preferred Stock. In the event the Company fails to so increase the Reserved
Amount within 90 days after an Authorization Trigger Date (such event being the
"Reserved Amount Trigger Event"), each Holder of Preferred Stock shall
thereafter have the option, exercisable in whole or in part at any time and from
time to time by delivery of a Redemption Notice (as defined in Article V
Paragraph C) to the Company, to require the Company to purchase for cash, at an
amount per share equal to the Redemption Amount (as defined in Article V
Paragraph B), a portion of the holder's Preferred Stock such that, after giving
effect to such purchase, the holder's allocated portion of the Reserved Amount
equals or exceeds 200% of the total number of shares of Common Stock issuable to
such Holder upon conversion of its Preferred Stock. If the Company fails to
redeem any of such shares within five (5) business days after its receipt of
such Redemption Notice, then such Holder shall be entitled to the remedies
provided in Article V Paragraph A(2).
C. Limitations on Redemption Right. Notwithstanding the provisions of Paragraph
B of this Article IV, the holders of Preferred Stock shall have no right to
require the Company to effect a redemption of their outstanding shares of
Preferred Stock as provided in Paragraph B of this Article IV so long as (i) the
Company has not, at any time, decreased the Reserved Amount below that number of
shares of Common Stock computed as set forth in Paragraphs A and B of this
Article IV; (ii) the Company shall have taken immediate action following the
applicable Authorization Trigger Date (including, if necessary, seeking
stockholder approval to authorize the issuance of additional shares of Common
Stock) to increase the Reserved Amount to 200% of the number of shares of Common
Stock then issuable upon conversion of the outstanding Preferred Stock; and
(iii) the Company continues to use its commercially reasonable good faith best
efforts (including the resolicitation of stockholder approval to authorize the
issuance of additional shares of Common Stock) to increase the Reserved Amount
to 200% of the number of shares of Common Stock then issuable upon conversion of
the outstanding Preferred Stock. The Company will be deemed to be using "its
commercially reasonable good faith best efforts" to increase the Reserved Amount
so long as it solicits stockholder approval to authorize the issuance of
additional shares of Common Stock not less than two (2) times during each twelve
month period following the applicable Authorization Trigger Date during which
any shares of Preferred Stock remain outstanding; provided that no such
limitation on the redemption rights set out in Paragraph B of this Article IV,
shall be effective if the Company fails to obtain stockholder approval after two
(2) attempts.
V. REDEMPTION
A. Redemption by Holder. In the event that any of the following occur
(individually, a "Redemption Event"):
1. Cap Regulations. The Company's inability to issue sufficient shares of Common
Stock upon conversion of Unconverted Shares in accordance with Paragraph E(1) of
Article III hereof.
2. Conversion Default. The Company's inability or refusal to delivery Conversion
Certificates under Paragraph B(1) of Article III hereof.
then, upon the occurrence of any such Redemption Event, each Holder of shares of
Preferred Stock shall thereafter have the option, exercisable in whole or in
part at any time and from time to time by delivery of a notice requesting the
redemption all or part of such holders shares of Preferred Stock (a "Redemption
Notice") to the Company while such Redemption Event continues, to require the
Company to purchase for cash any or all of the then outstanding shares of
Preferred Stock held by such Holder for an amount per share equal to the
Redemption Amount (as defined in Paragraph B below) in effect at the time of the
redemption hereunder. Upon the Company's receipt of any Redemption Notice
hereunder, the Company shall immediately (and in any event within five (5)
business days following such receipt) deliver a written notice (a "Redemption
Announcement") to all holders of Preferred Stock stating the date upon which the
Company received such Redemption Notice and the amount of Preferred Stock
covered thereby.
B. Definition of Redemption Amount. The "Redemption Amount" with respect to a
share of Preferred Stock being redeemed (a "Redeemed Share") means an amount
payable in cash, equal to:
V x M
-----------------
CP
where:
"V" means the outstanding stated value plus accrued dividends
through the date of payment of the Redemption Amount for the Redeemed
Share (the "Redemption Payment Date");
"CP" means the Conversion Price in effect on the Redemption
Date (as defined below)
"Redemption Date" means the date contemplated by a specific
provision of this Certificate of Determination or, if no such date is
specified, the date of redemption specified in the notice from the
Holder electing redemption of a Redeemed Share; and
"M" means the average of the Closing Bid Prices for the
twenty-two (22) consecutive trading days prior to the Redemption
Payment Date.
C. Redemption Defaults. If the Company fails to pay any Holder the Redemption
Amount with respect to any share of Preferred Stock within 60 days after the
latter of (i) its receipt of Redemption Notice, and (ii) the date of its
Redemption Announcement, then the Holder of Preferred Stock delivering such
Redemption Notice shall be entitled to interest on the Redemption Amount at a
per annum rate equal to the lower of 15% and the highest interest rate permitted
by applicable law from the date on which the Company receives the Redemption
Notice until the date of payment of the Redemption Amount hereunder. In the
event the Company is not able to redeem all of the shares of Preferred Stock
subject to Redemption Notices delivered prior to the date upon which such
redemption is to be effected, the Company shall redeem shares of Preferred Stock
from each Holder pro rata, based on the total number of shares of Preferred
Stock outstanding at the time of redemption included by such Holder in all
Redemption Notices delivered prior to the date upon which such redemption is to
be effected relative to the total number of shares of Preferred Stock
outstanding at the time of redemption included in all of the Redemption Notices
delivered prior to the date upon which such redemption is to be effected.
VI. LIQUIDATION PREFERENCE
A. Liquidation Event. If the Company shall commence a voluntary case under the
U.S. Federal bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Company or
of any substantial part of its property, or make an assignment for the benefit
of its creditors, or admit in writing its inability to pay its debts generally
as they become due, or if a decree or order for relief in respect of the Company
shall be entered by a court having jurisdiction in the premises in an
involuntary case under the U.S. Federal bankruptcy laws or any other applicable
bankruptcy, insolvency or similar law resulting in the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of 60 consecutive days and,
on account of any such event, the Company shall liquidate, dissolve or wind up,
or if the Company shall otherwise liquidate, dissolve or wind up, including, but
not limited to, the sale or transfer of all or substantially all of the
Company's assets in one transaction or in a series of related transactions (a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Company (other than Senior Securities and Pari Passu
Securities) upon liquidation, dissolution or winding up unless prior thereto the
holders of shares of Preferred Stock shall have received the Liquidation
Preference with respect to each share. If, upon the occurrence of a Liquidation
Event, the assets and funds available for distribution among the holders of the
Preferred Stock and holders of Pari Passu Securities shall be insufficient to
permit the payment to such holders of the preferential amounts payable thereon,
then the entire assets and funds of the Company legally available for
distribution to the Preferred Stock and the Pari Passu Securities shall be
distributed ratably among such shares in proportion to the ratio that the
Liquidation Preference payable on each such share bears to the aggregate
Liquidation Preference payable on all such shares.
B. Exclusions. 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 entity 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.
VII. ADJUSTMENTS TO THE CONVERSION PRICE
A. Sale. The Conversion Price shall be subject to adjustment from time to time
as follows: If, for as long as any shares of Preferred Stock remain outstanding,
the Company enters into a merger (other than where the Company is the surviving
entity) or consolidation with another corporation or other entity or a sale or
transfer of all or substantially all of the assets of the Company to another
person (collectively, a "Sale"), the Company will require, in the agreements
reflecting such transaction, that the surviving entity expressly assume the
obligations of the Company hereunder. Notwithstanding the foregoing, if the
Company enters into a Sale and the holders of the Common Stock are entitled to
receive stock, securities or property in respect of or in exchange for Common
Stock, then as a condition of such Sale, the Company and any such successor,
purchaser or transferee will agree that the Preferred Stock may thereafter be
converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a Holder of the number of shares of Common
Stock into which then outstanding shares of Preferred Stock might have been
converted immediately before such merger, consolidation, sale or transfer,
subject to adjustments which shall be as nearly equivalent as may be
practicable. In the event of any such proposed Sale, the Holder hereof shall
have the right to convert by delivering a Notice of Conversion to the Company
within 15 days of receipt of notice of such Sale from the Company.
B. Spin Off. The Company agrees that for as long as shares of Preferred Stock
remain outstanding, the Company will not, without the consent of the Holders of
a majority of the Designate Preferred Stock, spin off or otherwise divest itself
of a part of its business or operations or dispose all or of a part of its
assets in a transaction (the "Spin Off") in which the Company does not receive
just compensation for such business, operations or assets, but causes securities
of another entity (the "Spin Off Securities") to be issued to security holders
of the Company. If, for any reason, prior to the Conversion Date or the date of
payment of the Redemption Amount hereunder, the Company consummates a Spin Off,
then the Company shall cause (i) to be reserved Spin Off Securities equal to the
number thereof which would have been issued to the Holder had all of the
holder's shares of Preferred Stock outstanding on the record date (the "Record
Date") for determining the amount and number of Spin Off Securities to be issued
to security holders of the Company (the "Outstanding Preferred Stock") been
converted as of the close of business on the trading day immediately before the
Record Date (the "Reserved Spin Off Shares"), and (ii) to be issued to the
Holder on the conversion of all or any of the Outstanding Preferred Stock, such
amount of the Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares
multiplied by (y) a fraction, of which (a) the numerator is the principal amount
of the Outstanding Preferred Stock then being converted, and (b) the denominator
is the principal amount of the Outstanding Preferred Stock.
C. Stock Splits, etc. If, at any time while any shares of Preferred Stock remain
outstanding, the Company effectuates a stock split or reverse stock split of its
Common Stock or issues a dividend on its Common Stock consisting of shares of
Common Stock, the Conversion Price shall be equitably adjusted to reflect such
action. By way of illustration, and not in limitation, of the foregoing (i) if
the Company effectuates a 2:1 split of its Common Stock, thereafter, with
respect to any conversion for which the Company issues the shares after the
record date of such split, the Initial Conversion Price shall be deemed to be
one-half of what it had been calculated to be immediately prior to such split;
(ii) if the Company effectuates a 1:10 reverse split of its Common Stock,
thereafter, with respect to any conversion for which the Company issues the
shares after the record date of such reverse split, the Initial Conversion Price
shall be deemed to be ten times what it had been calculated to be immediately
prior to such split; and (iii) if the Company declares a stock dividend of one
share of Common Stock for every 10 shares outstanding, thereafter, with respect
to any conversion for which the Company issues the shares after the record date
of such dividend, the Initial Conversion Price shall be deemed to be the amount
of such Initial Conversion Price calculated immediately prior to such record
date multiplied by a fraction, of which the numerator is the number of shares
(10 in the example) for which a dividend share will be issued and the
denominator is such number of shares plus the dividend share(s) issuable or
issued thereon (11 in the example).
D. Notice of Adjustments. Upon the occurrence of each adjustment or readjustment
of the Initial Conversion Price pursuant to this Article VII, the Company, at
its expense, shall promptly compute such adjustment or readjustment and prepare
and furnish to each Holder of Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written request
at any time of any Holder of Preferred Stock, furnish to such Holder a like
certificate setting forth (i) such adjustment or readjustment, (ii) the Initial
Conversion Price at the time in effect and (iii) the number of shares of Common
Stock and the amount, if any, of other securities or property which at the time
would be received upon conversion of a share of Preferred Stock.
VIII. VOTING RIGHTS
A. Generally. The holders of the Preferred Stock have no right to vote in any
matter whatsoever except as otherwise required by the California Corporations
Code.
B. Class Voting. To the extent that under the California Corporations Code the
vote of the holders of the Preferred Stock, voting separately as a class or
series, as applicable, is required to authorize a given action of the Company,
the affirmative vote or consent of the holders of at least a majority of the
then outstanding shares of the Preferred Stock represented at a duly held
meeting at which a quorum is present or by written consent of the holders of at
least a majority of the then outstanding shares of Preferred Stock (except as
otherwise may be required under the California Corporations Code, a "Required
Interest") shall constitute the approval of such action by the class. To the
extent that under the California Corporations Code Holders of the Preferred
Stock are entitled to vote on a matter with holders of Common Stock, voting
together as one class, each share of Preferred Stock shall be entitled to a
number of votes equal to the number of shares of Common Stock into which it is
then convertible (subject to the limitations contained in Article III Paragraph
E) using the record date for the taking of such vote of shareholders as the date
as of which the Conversion Price is calculated.
IX. MISCELLANEOUS
A. Rank. The Preferred Stock shall rank (i) prior to the Company's Common Stock;
(ii) prior to any Junior Securities; (iii) junior to any Senior Securities; and
(iv) pari passu with any Pari Passu Securities; provided, however, that no
additional Senior or Pari Passu Securities shall be created without the written
consent of a Required Interest.
B. Cancellation or Redemption of Preferred Stock. If any shares of Preferred
Stock are converted pursuant to Article III, or redeemed pursuant to Article V.
the shares so converted or redeemed shall be canceled, shall return to the
status of authorized, but unissued preferred stock of no series, and shall not
be issuable by the Company as Preferred Stock.
C. Lost or Stolen Certificates. Upon receipt by the Company of (i) evidence of
the loss, theft, destruction or mutilation of any Preferred Stock certificate(s)
and (ii) (y) in the case of loss, theft or destruction, of indemnity (without
any bond or other security) reasonably satisfactory to the Company, or (z) 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. However, the Company shall not be
obligated to reissue such lost or stolen Preferred Stock certificate(s) if the
Holder contemporaneously requests the Company to convert such Preferred Stock.
D. Allocation of Cap Amount and Reserved Amount. The initial Cap Amount and
Reserved Amount shall be allocated pro rata among the holders of Preferred Stock
based on the number of shares of Preferred Stock issued to each Holder. Each
increase to the Cap Amount and the Reserved Amount shall be allocated pro rata
among the holders of Preferred Stock based on the number of shares of Preferred
Stock held by each Holder at the time of the increase in the Cap Amount or
Reserved Amount. In the event a Holder shall sell or otherwise transfer any of
such holder's shares of Preferred Stock, each transferee shall be allocated a
pro rata portion of such transferor's Cap Amount and Reserved Amount. Any
portion of the Cap Amount or Reserved Amount which remains allocated to any
person or entity which does not hold any Preferred Stock shall be allocated to
the remaining holders of shares of Preferred Stock, pro rata based on the number
of shares of Preferred Stock then held by such holders.
E. Payment of Cash; Defaults. Whenever the Company is required to make any cash
payment to a Holder under this Certificate of Determination (upon redemption or
otherwise), such cash payment shall be made to the Holder on the date specified
herein or, if not so specified, within 5 business days after delivery by such
Holder of a notice specifying that the Holder elects to receive such payment in
cash and the method (e.g., by check, wire transfer) in which such payment should
be made. If such payment is not delivered within the relevant time period, such
Holder shall thereafter be entitled to interest on the unpaid amount at a per
annum rate equal to the lower of 15% and the highest interest rate permitted by
applicable law until such amount is paid in full to the Holder.
F. Status as Stockholder. Upon submission of a Notice of Conversion by a Holder
of Preferred Stock, (i) the shares covered thereby (other than the shares, if
any, which cannot be issued because their listing or issuance would exceed such
holder's allocated portion of the Reserved Amount or Cap Amount) shall be deemed
converted into shares of Common Stock and (ii) the holder's rights as a Holder
of such converted shares of Preferred Stock shall cease and terminate, excepting
only the right to receive certificates for such shares of Common Stock and to
any remedies provided herein or otherwise available at law or in equity to such
Holder because of a failure by the Company to comply with the terms of this
Certificate of Determination.
The undersigned declare under penalty of perjury under the laws of the
State of California that the matters set out in the foregoing Certificate are
true of his or her knowledge.
Executed at San Francisco, California on June ____, 2000.
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Gary Starr Oonagh Duggan
President Secretary