CERTIFICATE OF DESIGNATION
OF PREFERENCES, RIGHTS AND LIMITATIONS
OF
SERIES A PREFERRED STOCK
OF
SYSCAN IMAGING, INC.,
A DELAWARE CORPORATION
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PURSUANT TO SECTION 151 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
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The undersigned, Darwin Hu, does hereby certify that:
1. He is the Chief Executive Officer, of SYSCAN IMAGING, INC., a
Delaware corporation (the "COMPANY").
2. The Company is authorized to issue two million (2,000,000) shares
of preferred stock.
3. The following resolutions were duly adopted by the Board of
Directors:
WHEREAS, the Certificate of Incorporation of the Company provides for a
class of its authorized stock known as preferred stock, comprised of two million
(2,000,000) shares, $.001 par value, issuable from time to time in one or more
series;
WHEREAS, the Board of Directors of the Company is authorized to fix the
dividend rights, dividend rate, voting rights, conversion rights, rights and
terms of redemption and liquidation preferences of any wholly unissued series of
preferred stock and the number of shares constituting any series and the
designation thereof, of any of them; and
WHEREAS, it is the desire of the Board of Directors of the Company,
pursuant to its authority as aforesaid, to established a series of authorized
preferred stock having a par value of $.001 per share, which series shall be
designated as "Series A Convertible Preferred Stock" and to fix the rights,
preferences, restrictions and other matters relating to the such series of
preferred stock as follows:
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby
established a series of authorized preferred stock having a par value of $.001
per share, which series shall consist of sixty thousand (60,000) shares and be
designated as "Series A Convertible Preferred Stock," and does hereby fix and
determine the rights, preferences, restrictions and other matters relating to
such series of preferred stock as follows:
Section 1. DESIGNATION, AMOUNT AND PAR VALUE. The series of
preferred stock shall be designated as its Series A Convertible Preferred Stock
(the "PREFERRED STOCK") and the number of shares so designated shall be 60,000
(which shall not be subject to increase without the consent of the holders of a
majority of the Preferred Stock (each, a "HOLDER" and collectively, the
"HOLDERS")). Each share of Preferred Stock shall have a par value of $.001 per
share and a stated value equal to the sum of $100 plus all accrued and unpaid
dividends to the date of determination to the extent not previously paid in cash
or common stock, par value $.001 per share ("COMMON STOCK") of the Company in
accordance with the terms hereof (the "STATED VALUE").
Section 2. DIVIDENDS.
(a) Holders shall be entitled to receive, out of funds legally
available therefor, and the Company shall pay, cumulative dividends at the rate
per share (as a percentage of the Stated Value per share) of 5% per annum,
payable semiannually on July 1 and January 1, beginning with the first such date
after the Original Issue Date (as defined in Section 7) and on any Conversion
Date (as defined herein) for such share ("DIVIDEND PAYMENT DATE"), in cash, by
accretion of the Stated Value or in shares of Common Stock. Subject to the terms
and conditions herein, the decision whether to accrete dividends hereunder to
the Stated Value, to pay for dividends in cash or in shares of Common Stock
shall be at the discretion of the Company. The Company shall provide the Holders
written notice of its intention to accrete dividends hereunder to the Stated
Value or pay dividends in cash or shares of Common Stock not less than ten days
prior to each Dividend Payment Date for so long as shares of Preferred Stock are
outstanding (the Company may indicate in such notice that the election contained
in such notice shall continue for later periods until revised). Failure to
timely provide such written notice shall be deemed (if permitted hereunder) an
election by the Company to accrete dividends hereunder to the Stated Value.
Dividends on the Preferred Stock shall be calculated on the basis of a 360-day
year, shall accrue daily commencing on the Original Issue Date, and shall be
deemed to accrue from such date whether or not earned or declared and whether or
not there are profits, surplus or other funds of the Company legally available
for the payment of dividends. Except as otherwise provided herein, if at any
time the Company pays less than the total amount of dividends then accrued on
account of the Preferred Stock, such payment shall be distributed ratably among
the Holders based upon the number of shares of Preferred Stock held by each
Holder. In the event the Company elects to pay all or some of the dividends in
shares of Common Stock, the shares of Common Stock to be delivered to the
Holders shall be valued at the lower of (i) the then-current Conversion Price
(as defined in Section 5(c)), and (ii) 85% of the Fifteen-Day VWAP on the
Dividend Payment Date.
(b) Notwithstanding anything to the contrary contained herein, the
Company must pay dividends in cash if:
(i) the number of shares of Common Stock (as defined in
Section 7) at the time authorized, unissued and unreserved for all purposes is
insufficient to accrete such dividends to the Stated Value and permit conversion
in full of all outstanding Stated Value;
(ii) after the Effective Date (as defined in Section 7),
Underlying Shares (as defined in Section 7) (x) are not registered for resale
pursuant to an effective Underlying Shares Registration Statement (as defined in
Section 7) and (y) may not be sold without volume restrictions pursuant to Rule
144 promulgated under the Securities Act (as defined in Section 7), as
determined by counsel to the Company pursuant to a written opinion letter,
addressed to the Company's transfer agent in the form and substance acceptable
to the applicable Holder and such transfer agent (if the Company is permitted
and elects to pay dividends in shares of Common Stock under this clause (ii)
prior to the Effective Date and thereafter an Underlying Shares Registration
Statement shall be declared effective by the Commission (as defined in Section
7), the Company shall, within three Trading Days after the date of such
declaration of effectiveness, exchange such Underlying Shares for shares of
Common Stock that are free of restrictive legends of any kind); or
(iii) the accretion of such dividends to the Stated Value and
subsequent conversions of all then outstanding Stated Value would result in a
violation of Section 5(a)(iv).
Section 3. VOTING RIGHTS. Except as otherwise provided herein and as
otherwise required by law, the Preferred Stock shall have no voting rights.
However, so long as any shares of Preferred Stock are outstanding, the Company
shall not, without the affirmative vote of the Holders of a majority of the
shares of the Preferred Stock then outstanding, (a) alter or change adversely
the powers, preferences or rights given to the Preferred Stock or alter or amend
this Certificate of Designation, (b) authorize or create any class of stock
ranking as to dividends or distribution of assets upon a Liquidation (as defined
in Section 4) senior to or otherwise PARI PASSU with the Preferred Stock, (c)
amend its certificate or articles of incorporation or other charter documents so
as to affect adversely any rights of the Holders, (d) increase the authorized
number of shares of Preferred Stock, or (e) enter into any agreement with
respect to the foregoing.
Section 4. LIQUIDATION. Upon any liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary (a "LIQUIDATION"), the
Holders shall be entitled to receive out of the assets of the Company, whether
such assets are capital or surplus, for each share of Preferred Stock an amount
equal to the Stated Value per share before any distribution or payment shall be
made to the holders of any Junior Securities, and if the assets of the Company
shall be insufficient to pay in full such amounts, then the entire assets to be
distributed to the Holders shall be distributed among the Holders ratably in
accordance with the respective amounts that would be payable on such shares if
all amounts payable thereon were paid in full. A Change of Control Transaction
shall be treated as a Liquidation within the meaning of this Section 4;
PROVIDED, HOWEVER, that each Holder shall have the right to elect the benefits
of the provisions of Section 5 hereof in lieu of receiving payment in
Liquidation pursuant to this Section 4. Each Holder shall notify the Company in
advance of its election to obtain the benefits of this Section 4 or of Section
5, which notification shall be given not later than a date specified in writing
to each Holder by the Company to be at least five (5) days prior to the payment
date. If a Holder fails to make any election, the Holder shall be deemed to have
elected the benefits of this Section 4. The Company shall mail written notice of
any such Liquidation, not less than 45 days prior to the payment date stated
therein, to each record Holder.
Section 5. CONVERSION.
(a) (i) CONVERSIONS AT OPTION OF HOLDER. Each share of Preferred
Stock shall be convertible into shares of Common Stock (subject to the
limitations set forth in Section 5(a)(iv)) at the Conversion Ratio (as defined
in Section 7), at the option of the Holder, at any time and from time to time
from and after the Original Issue Date. Holders shall effect conversions by
providing the Company with the form of conversion notice attached hereto as
EXHIBIT A (a "CONVERSION NOTICE"). Each Conversion Notice shall specify the
number of shares of Preferred Stock to be converted, the number of shares of
Preferred Stock owned prior to the conversion at issue, number of shares of
Preferred Stock owned subsequent to the conversion at issue and the date on
which such conversion is to be effected, which date may not be prior to the date
the Holder delivers such Conversion Notice by facsimile (the "CONVERSION DATE").
If no Conversion Date is specified in a Conversion Notice, the Conversion Date
shall be the date that such Conversion Notice is deemed delivered hereunder. To
effect conversions of shares of Preferred Stock, a Holder shall not be required
to surrender the certificate(s) representing such shares of Preferred Stock to
the Company unless all of the shares of Preferred Stock represented thereby are
so converted, in which case the Holder shall deliver the certificate
representing such share of Preferred Stock promptly following the Conversion
Date at issue. The calculations and entries set forth in the Conversion Notice
shall control in the absence of manifest or mathematical error.
(ii) CONVERSIONS AT OPTION OF COMPANY. If, on any date after the
one-year anniversary of the Original Issue Date, (A) the closing Market Price
(as defined in Section 7) for a share of Common Stock for ten (10) consecutive
trading days equals at least $4.00 (subject to adjustment for the events
described in Section 5(c)(ii)) and (B) the average reported daily trading volume
during such ten-day period equals or exceeds 100,000 shares, then the Company
shall have the right, at its option, to convert, subject to the terms and
provisions of this Section 5, all, but not less than all, of the outstanding
shares of Preferred Stock at the Conversion Ratio; provided that the Underlying
Shares Registration Statement shall be effective at all times during such 10-day
period and during the 30-day notice period described in the next sentence.
Thirty (30) days prior written notice by the Company that the Company elects to
convert such shares of Preferred Stock pursuant to this Section 5(a)(ii) shall
be given to the Holders, such notice to set forth the date of conversion
pursuant to this Section 5(a)(ii) and to be addressed to each such holder at its
address as shown in the records of the Company. Upon receipt of such notice from
the Company, each holder of shares of Preferred Stock shall promptly surrender
to the Company certificates representing the shares of Preferred Stock to be
converted at any time during usual business hours at its principal place of
business maintained by it (or such other office or agency of the Company as the
Company may designate by notice in writing to the holders of shares of Preferred
Stock), specifying the name or names (with address) in which a certificate or
certificates for shares of Common Stock are to be issued and (if so required by
the Company) accompanied by a written instrument or instruments of transfer in
form reasonably satisfactory to the Company duly executed by the holder or its
duly authorized legal representative.
(iii) [intentionally omitted]
(iv) CERTAIN CONVERSION RESTRICTIONS.
(A) A Holder may not convert shares of Preferred Stock
or receive shares of Common Stock as payment of dividends hereunder to the
extent such conversion or receipt of such dividend payment would result in the
Holder, together with any affiliate thereof, beneficially owning (as determined
in accordance with Section 13(d) of the Exchange Act (as defined in Section 7)
and the rules promulgated thereunder) in excess of 4.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon conversion
of, and payment of dividends on, the shares of Preferred Stock held by such
Holder after application of this Section. Since the Holder will not be obligated
to report to the Company the number of shares of Common Stock it may hold at the
time of a conversion hereunder, unless the conversion at issue would result in
the issuance of shares of Common Stock in excess of 4.999% of the then
outstanding shares of Common Stock without regard to any other shares which may
be beneficially owned by the Holder or an affiliate thereof, the Holder shall
have the authority and obligation to determine whether the restriction contained
in this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the shares of Preferred Stock are
convertible shall be the responsibility and obligation of the Holder. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 61 days prior notice to the Company.
Other Holders shall be unaffected by any such waiver.
(B) A Holder may not convert shares of Preferred Stock
or receive shares of Common Stock as payment of dividends hereunder to the
extent such conversion or receipt of such dividend payment would result in the
Holder, together with any affiliate thereof, beneficially owning (as determined
in accordance with Section 13(d) of the Exchange Act and the rules promulgated
thereunder) in excess of 9.999% of the then issued and outstanding shares of
Common Stock, including shares issuable upon conversion of, and payment of
dividends on, the shares of Preferred Stock held by such Holder after
application of this Section. Since the Holder will not be obligated to report to
the Company the number of shares of Common Stock it may hold at the time of a
conversion hereunder, unless the conversion at issue would result in the
issuance of shares of Common Stock in excess of 9.999% of the then outstanding
shares of Common Stock without regard to any other shares which may be
beneficially owned by the Holder or an affiliate thereof, the Holder shall have
the authority and obligation to determine whether the restriction contained in
this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the shares of Preferred Stock are
convertible shall be the responsibility and obligation of the Holder. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 61 days prior notice to the Company.
Other Holders shall be unaffected by any such waiver.
(b) (i) DELIVERY OF CERTIFICATE UPON CONVERSION. Not later than five
Trading Days after each Conversion Date (the "SHARE DELIVERY DATE"), the Company
will deliver to the Holder (A) a certificate or certificates which, after the
Effective Date shall be free of restrictive legends and trading restrictions
(other than those required by the Purchase Agreement) representing the number of
shares of Common Stock being acquired upon the conversion of shares of Preferred
Stock, and (B) a bank check in the amount of accrued and unpaid dividends (if
the Company has elected or is required to pay accrued dividends in cash). After
the Effective Date, the Company shall, upon the request of the Holder, cause any
certificate or certificates required to be delivered by the Company hereunder to
be transmitted by the transfer agent of the Company to the Holder's prime broker
with the Depository Trust Company through its Deposit Withdrawal Agent
Commission (DWAC) system, if the Company's transfer agent is a participant in
such system. The Company shall cause its transfer agent to be a participant in
such system (or engage a new transfer agent which is a participant in such
system) within 60 days after the Original Issue Date.
(ii) OBLIGATION ABSOLUTE; PARTIAL LIQUIDATED DAMAGES. The
Company's obligations to issue and deliver the certificates upon conversion of
shares of Preferred Stock in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation to
the Company or any violation or alleged violation of law by the Holder or any
other person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of such certificates. In the event a Holder shall elect to convert
shares of Preferred Stock, the Company may not refuse conversion based on any
claim that such Holder or any one associated or affiliated with the Holder of
has been engaged in any violation of law, agreement or for any other reason,
unless an injunction from a court, on notice, restraining and or enjoining
conversion of all or part of such Preferred Stock shall have been sought and
obtained and the Company posts a surety bond for the benefit of the Holder in
the amount of 150% of the Stated Value of the Preferred Stock subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Holder to the extent it obtains judgment. In the absence of an
injunction precluding the same, the Company shall issue the certificates or, if
applicable, cash, upon a properly noticed conversion. If the Company fails to
deliver to the Holder such certificate or certificates pursuant to Section
5(b)(i) by the Share Delivery Date applicable to such conversion, the Company
shall pay to such Holder, in cash, as liquidated damages and not as a penalty,
for each $5,000 of Stated Value of Preferred Stock being converted, $100 per
Trading Day (increasing to $200 per Trading Day six Trading Days after such
damages begin to accrue) for each Trading Day after the Share Delivery Date
until such certificates are delivered. Nothing herein shall limit a Holder's
right to pursue actual damages for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period specified
herein and such Holder shall have the right to pursue all remedies available to
it hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.
(iii) COMPENSATION FOR BUY-IN ON FAILURE TO TIMELY DELIVER
CERTIFICATES UPON CONVERSION. If the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 5(b)(i) by the applicable Share
Delivery Date, and if after such Share Delivery Date and prior to any subsequent
delivery of the certificates to Holders the Holder purchases (in an open market
transaction or otherwise) Common Stock to deliver in satisfaction of a sale by
such Holder of the shares of Common Stock which the Holder was entitled to
receive upon the conversion relating to such Share Delivery Date (a "BUY-IN"),
then the Company shall pay in cash to the Holder the amount by which (x) the
Holder's total purchase price (including brokerage commissions, if any) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that such Holder was entitled to receive from the
conversion at issue multiplied by (2) the price at which the sell order giving
rise to such purchase obligation was executed. For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of shares of Preferred Stock with
respect to which the aggregate sale price giving rise to such purchase
obligation is $10,000, under clause (A) of the immediately preceding sentence
the Company shall be required to pay the Holder $1,000. The Holder shall provide
the Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In, together with applicable confirmations and other evidence
reasonably requested by the Company. Nothing herein shall limit a Holder's right
to pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company's failure to timely deliver
certificates representing shares of Common Stock upon conversion of the shares
of Preferred Stock as required pursuant to the terms hereof.
(c) (i) The conversion price for each share of Preferred Stock (the
"CONVERSION PRICE") shall be $1.00, subject to adjustment as provided herein.
(ii) If the Company, at any time while any shares of Preferred
Stock are outstanding, shall (a) pay a stock dividend or otherwise make a
distribution or distributions on shares of its Junior Securities or PARI PASSU
securities payable in shares of Common Stock, (b) subdivide outstanding shares
of Common Stock into a larger number of shares, (c) combine (including by way of
reverse stock split) outstanding shares of Common Stock into a smaller number of
shares, or (d) issue by reclassification and exchange of the Common Stock any
shares of capital stock of the Company, then the Conversion Price shall be
adjusted by multiplying the Conversion Price by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator shall
be the number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this Section 5(c)(ii) shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(iii) If the Company, at any time prior to the Effective Date
while any shares of Preferred Stock are outstanding, shall issue rights,
warrants or options to all holders of Common Stock (and not to Holders)
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than the Per Share Market Value at the record date mentioned
below, then the Conversion Price shall be adjusted by multiplying the Conversion
Price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such rights,
warrants or options, plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares so offered would purchase
at such Per Share Market Value, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock offered for subscription or
purchase. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right, warrant or option to purchase shares
of Common Stock the issuance of which resulted in an adjustment in the
Conversion Price pursuant to this Section 5(c)(iii), if any such right, warrant
or option shall expire and shall not have been exercised, the Conversion Price
shall immediately upon such expiration shall be recomputed and effective
immediately upon such expiration shall be increased to the price which it would
have been (but reflecting any other adjustments in the Conversion Price made
pursuant to the provisions of this Section 5 upon the issuance of other rights
or warrants) had the adjustment of the Conversion Price made upon the issuance
of such rights, warrants, or options been made on the basis of offering for
subscription or purchase only that number of shares of Common Stock actually
purchased upon the exercise of such rights, warrants or options actually
exercised.
(iv) If, prior to the Effective Date, at any time while shares
of Preferred Stock are outstanding the Company or any Subsidiary (with respect
to Common Stock Equivalents) shall offer, sell, grant any option to purchase, or
otherwise dispose of (or announce any offer, sale, grant or any option to
purchase or other disposition) any shares of Common Stock or Common Stock
Equivalents at a price that is, at the issuance thereof, or at any later time
due to adjustment, reset, additional issuances or otherwise, less than the
Conversion Price, then the Conversion Price shall be adjusted with respect to
all unconverted shares of Preferred Stock to equal the conversion, exchange or
purchase price for such Common Stock or Common Stock Equivalents (including any
reset provisions thereof) at issue. Such adjustment shall be made whenever such
Common Stock or Common Stock Equivalents are issued. If the holder of the Common
Stock or Common Stock Equivalent so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options or rights
issued in connection with such issuance, be entitled to receive shares of Common
Stock at a price less than the Conversion Price, such issuance shall be deemed
to have occurred for less than the Conversion Price. However, upon the
expiration of any Common Stock Equivalent to purchase shares of Common Stock the
issuance of which resulted in an adjustment in the Conversion Price pursuant to
this Section 5(c)(iv), if any such Common Stock Equivalent shall expire and
shall not have been exercised, the Conversion Price shall immediately upon such
expiration be recomputed and effective immediately upon such expiration shall be
increased to the price which it would have been (but reflecting any other
adjustments in the Conversion Price made pursuant to the provisions of this
Section 5 upon the issuance of other rights or warrants) had the adjustment of
the Conversion Price made upon the issuance of Common Stock Equivalents been
made on the basis of offering for subscription or purchase only that number of
shares of Common Stock actually purchased upon the exercise or conversion of
such Common Stock Equivalents actually exercised or converted. A "COMMON STOCK
EQUIVALENT" means any equity or equity equivalent securities (including debt or
any other instrument that is at any time over the life thereof convertible into
or exchangeable for Common Stock) issued by the Company or a subsidiary thereof
that provide the holder thereof to receive shares of Common Stock. The Company
shall notify the Holder in writing, no later than the Trading Day following the
issuance of any Common Stock or Common Stock Equivalent subject to this section,
indicating therein the applicable issuance price, or of applicable reset price,
exchange price, conversion price and other pricing terms. Notwithstanding
anything in this Section to the contrary, the provisions of this Section shall
not apply as a result of any shares of Common Stock or Common Stock Equivalents
issued or to be issued pursuant to: (A) employees, consultants, officers or
directors of the Company pursuant to any stock option, stock purchase or stock
bonus plan, agreement or arrangement approved by the Board of Directors; (B) the
acquisition of another business entity or business segment of any such entity by
the Company by merger, purchase of substantially all of the assets or other
reorganization whereby the Company will own more than fifty (50%) of the voting
power of such business segment of any such entity; (C) vendors or customers or
to other persons in similar commercial situations with the Company if such
issuance is approved by the Board of Directors; (D) corporate partnering
transactions on terms approved by the Board of Directors; (E) the terms of any
of the Company's preferred stock, warrants or other convertible securities
outstanding on the date hereof; (F) borrowings, direct or indirect, from
financial institutions regularly engaged in the business of lending money,
whether or not presently authorized which include an equity component which is
not a major component of such borrowing; (G) a merger, consolidation,
reorganization, recapitalization, sale of assets, stock purchase, contribution
or other similar transaction that involves the Company, on the one hand, and any
corporation or other entity that controls, directly or indirectly, the Company,
on the other hand; or (H) other non-cash transactions.
(v) If the Company, at any time while shares of Preferred
Stock are outstanding, shall distribute to all holders of Common Stock (and not
to Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Sections
5(c)(ii)-(iv) above), then in each such case the Conversion Price at which each
share of Preferred Stock shall thereafter be convertible shall be determined by
multiplying the Conversion Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the Per Share Market Value
determined as of the record date mentioned above, and of which the numerator
shall be such Per Share Market Value on such record date less the then fair
market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of Common Stock
as determined by the Board of Directors in good faith. However, upon the
expiration of any right, warrant or option to purchase shares of Common Stock
the issuance of which resulted in an adjustment in the Conversion Price pursuant
to this Section 5(c)(v), if any such right, warrant or option shall expire and
shall not have been exercised, the Conversion Price shall immediately upon such
expiration be recomputed and effective immediately upon such expiration shall be
increased to the price which it would have been (but reflecting any other
adjustments in the Conversion Price made pursuant to the provisions of this
Section 5 upon the issuance of other rights or warrants) had the adjustment of
the Conversion Price made upon the issuance of such rights, warrants, or options
been made on the basis of offering for subscription or purchase only that number
of shares of Common Stock actually purchased upon the exercise of such rights,
warrants or options actually exercised. In either case the adjustments shall be
described in a statement provided to the Holders of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
(vi) All calculations under this Section 5 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be. 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 Company, and the disposition
of any such shares shall be considered an issue or sale of Common Stock.
(vii) Whenever the Conversion Price is adjusted pursuant to
Section 5(c)(ii),(iii), (iv) or (v) the Company shall promptly mail to each
Holder, a notice setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
(viii) In case of any reclassification of the Common Stock, or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property (other than compulsory share exchanges
which constitute Change of Control Transactions), the Holders of the Preferred
Stock then outstanding shall have the right thereafter to convert such shares
only into the shares of stock and other securities, cash and property receivable
upon or deemed to be held by holders of Common Stock following such
reclassification or share exchange, and the Holders of the Preferred Stock shall
be entitled upon such event to receive such amount of securities, cash or
property as a holder of the number of shares of Common Stock of the Company into
which such shares of Preferred Stock could have been converted immediately prior
to such reclassification or share exchange would have been entitled. This
provision shall similarly apply to successive reclassifications or share
exchanges.
(ix) In case of any merger or consolidation of the Company
with or into another Person, or sale by the Company of more than one-half of the
assets of the Company (on an as valued basis) in one or a series of related
transactions, a Holder shall have the right thereafter to (A) convert its shares
of Preferred Stock into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common Stock
following such merger, consolidation or sale, and such Holder shall be entitled
upon such event or series of related events to receive such amount of
securities, cash and property as the shares of Common Stock into which such
shares of Preferred Stock could have been converted immediately prior to such
merger, consolidation or sales would have been entitled or (B) in the case of a
merger or consolidation, (x) require the surviving entity to issue shares of
convertible preferred stock or convertible debentures with such aggregate stated
value or in such face amount, as the case may be, equal to the Stated Value of
the shares of Preferred Stock then held by such Holder, plus all accrued and
unpaid dividends and other amounts owing thereon, which newly issued shares of
preferred stock or debentures shall have terms identical (including with respect
to conversion) to the terms of the Preferred Stock (except, in the case of
debentures, as may be required to reflect the differences between debt and
equity) and shall be entitled to all of the rights and privileges of a Holder of
Preferred Stock set forth herein and the agreements pursuant to which the
Preferred Stock was issued (including, without limitation, as such rights relate
to the acquisition, transferability, registration and listing of such shares of
stock other securities issuable upon conversion thereof), and (y) simultaneously
with the issuance of such convertible preferred stock or convertible debentures,
shall have the right to convert such instrument only into shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger, consolidation or sale. In the
case of clause (B), the conversion price applicable for the newly issued shares
of convertible preferred stock or convertible debentures shall be based upon the
amount of securities, cash and property that each share of Common Stock would
receive in such transaction, the Conversion Ratio immediately prior to the
effectiveness or closing date for such transaction and the Conversion Price
stated herein. The terms of any such merger, sale or consolidation shall include
such terms so as continue to give the Holders the right to receive the
securities, cash and property set forth in this Section upon any conversion or
redemption following such event. This provision shall similarly apply to
successive such events. The rights set forth in this Section 5(c)(ix) shall not
alter the rights of a Holder set forth in Section 7, provided, that, a Holder
may only exercise the rights set forth in this Section 5(c)(ix) or the rights
set forth in Section 7 with respect to a single event giving rise to such
rights.
(x) If (a) the Company shall declare a dividend (or any other
distribution) on the Common Stock, (b) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock, (c) the
Company shall authorize the granting to all holders of Common Stock rights or
warrants to subscribe for or purchase any shares of capital stock of any class
or of any rights, (d) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale or transfer of
all or substantially all of the assets of the Company, or any compulsory share
of exchange whereby the Common Stock is converted into other securities, cash or
property, or (e) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company; then the
Company shall notify the Holders at their last addresses as they shall appear
upon the stock books of the Company, at least 20 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange. Holders are entitled to convert shares of
Preferred Stock during the 20-day period commencing the date of such notice to
the effective date of the event triggering such notice.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of Preferred Stock, each as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holders, not less than such number of shares of
Common Stock as shall be issuable (taking into account the provisions of Section
5(a) and Section 5(c)) upon the conversion of all outstanding shares of
Preferred Stock. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized, issued
and fully paid and nonassessable.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of Common Stock, but
may if otherwise permitted, make a cash payment in respect of any final fraction
of a share based on the Per Share Market Value at such time. If any fraction of
an Underlying Share would, except for the provisions of this Section, be
issuable upon a conversion hereunder, the Company shall pay an amount in cash
equal to the Conversion Ratio multiplied by such fraction.
(f) The issuance of certificates for Common Stock on conversion of
Preferred Stock shall be made without charge to the Holders thereof for any
documentary stamp or similar taxes that may be payable in respect of the issue
or delivery of such certificate, provided that the Company shall not be required
to pay any tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion in a name other
than that of the Holder of such shares of Preferred Stock so converted.
(g) Shares of Preferred Stock converted into Common Stock or
redeemed in accordance with the terms hereof shall be canceled and may not be
reissued.
(h) Any and all notices or other communications or deliveries to be
provided by the Holders of the Preferred Stock hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile or sent by a nationally recognized overnight courier service,
addressed to the attention of the Chief Executive Officer of the Company
addressed to 1772 Technology Drive, San Jose, California 95110, Facsimile No.:
(408) 436-6151, attention Chief Executive Officer, or to such other address or
facsimile number as shall be specified in writing by the Company for such
purpose. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally,
by facsimile or sent by a nationally recognized overnight courier service,
addressed to each Holder at the facsimile telephone number or address of such
Holder appearing on the books of the Company, or if no such facsimile telephone
number or address appears, at the principal place of business of the Holder. Any
notice or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section at or prior to 5:00 p.m. (Eastern Time) (with
confirmation of transmission) on a Trading Day, (ii) the Trading Day after the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile telephone number specified in this Section later than 5:00 p.m.
(Eastern Time) on any date and earlier than 11:59 p.m. (Eastern Time) on such
date (with confirmation of transmission), (iii) the next Trading Day, if sent by
a nationally recognized overnight courier service, or (iv) upon actual receipt
by the party to whom such notice is required to be given.
Section 6. REDEMPTION. On the date that is 36 months from the
Original Issue Date (the "REDEMPTION DATE"), all of the outstanding Preferred
Stock shall be redeemed for a per share redemption price equal to the Stated
Value on the Redemption Date (the "REDEMPTION PRICE"). The Redemption Price is
payable by the Company in cash or in shares of Common Stock at the Company's
discretion and shall be paid within five Trading Days after the Redemption Date.
In the event the Company elects to pay all or some of the Redemption Price in
shares of Common Stock, the shares of Common Stock to be delivered to the
Holders shall be valued at 85% of the Fifteen-Day VWAP on the Redemption Date.
For purposes of this Section, a share of Preferred Stock is outstanding until
such date as the Holder shall have received Underlying Shares upon a conversion
(or attempted conversion) thereof that meets the requirements hereof.
Section 7.
DEFINITIONS. For the purposes hereof, the following terms shall have
the following meanings:
"CHANGE OF CONTROL TRANSACTION" means the occurrence of any of (i)
an acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 40% of the
voting securities of the Company, (ii) a replacement at one time or over time of
more than one-half of the members of the Company's board of directors which is
not approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), (iii) the merger of the Company with or into
another entity that is not wholly owned by the Company, consolidation or sale of
all or substantially all of the assets of the Company in one or a series of
related transactions, or (iv) the execution by the Company of an agreement to
which the Company is a party or by which it is bound, providing for any of the
events set forth above in (i), (ii) or (iii) above.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's common stock, par value $.001 per
share, and stock of any other class into which such shares may hereafter have
been reclassified or changed.
"CONVERSION RATIO" means, at any time, a fraction, the numerator of
which is Stated Value and the denominator of which is the Conversion Price at
such time.
"EFFECTIVE DATE" means the date that the Underlying Shares
Registration Statement is declared effective by the Commission.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FIFTEEN-DAY VWAP" means, for any date, the average daily volume
weighted Market Price for the fifteen consecutive Trading Days ending on the
Trading Day immediately prior to the date for which such price is determined.
"JUNIOR SECURITIES" means the Common Stock and all other equity or
equity equivalent securities of the Company other than those securities that are
outstanding on the Original Issue Date and which are explicitly senior in rights
or liquidation preference to the Preferred Stock.
"MARKET PRICE" means, with respect to the Common Stock, as of the
date of determination, (a) the closing price of the Common Stock on a national
securities exchange or as quoted on the Nasdaq National Market or the Nasdaq
SmallCap Market on such day, as reported by the Wall Street Journal; or (b) if
the Common Stock is quoted on the Nasdaq National Market or the Nasdaq SmallCap
Market but no sale occurs on such day, the average of the closing bid and asked
prices of the Common Stock on the Nasdaq National Market or the Nasdaq SmallCap
Market on such day, as reported by the Wall Street Journal; or (c) if the Common
Stock is not so listed or quoted, the average of the closing bid and asked
prices of the Common Stock in the U.S. over-the-counter market; or (d) if none
of (a), (b) or (c) is applicable, a market price per share determined by the
Board of Directors (acting in good faith pursuant to the exercise of its
fiduciary duties).
"ORIGINAL ISSUE DATE" shall mean the date of the first issuance of
any shares of the Preferred Stock regardless of the number of transfers of any
particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock.
"PER SHARE MARKET VALUE" means on any particular date (a) the lowest
sale price for a share of the Common Stock (other than a sale by the Holder) on
such date on the Subsequent Market on which the Common Stock is then listed or
quoted, or if there is no such price on such date, then the lowest sale price of
the Common Stock (other than a sale by the Holder) on the Subsequent Market on
the date nearest preceding such date, or (b) if the Common Stock is not then
listed or quoted on a Subsequent Market, the lowest sale price of the Common
Stock (other than a sale by the Holder) in the OTC, as reported by the National
Quotation Bureau Incorporated or similar organization or agency succeeding to
its functions of reporting prices) at the close of business on such date, or (c)
if the Common Stock is not then reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices), then the lowest "Pink Sheet" quotes for the relevant
conversion period, as determined in good faith by the Holder, or (d) if the
Common Stock are not then publicly traded the fair market value of a share of
Common Stock as determined by an Appraiser selected in good faith by the Holders
of a majority of the shares of the Preferred Stock.
"PERSON" means a corporation, an association, a partnership, an
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"PURCHASE AGREEMENT" means the Convertible Preferred Stock and
Common Stock Warrant Purchase Agreement, dated as of the Original Issue Date, to
which the Company and the original Holders are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the Original Issue Date, to which the Company and the
original Holders are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SUBSEQUENT MARKET" shall have the meaning set forth in the Purchase
Agreement.
"TRADING DAY" means (a) a day on which the Common Stock is traded on
a Subsequent Market on which the Common Stock is then listed or quoted, as the
case may be, or (b) if the Common Stock is not listed on a Subsequent Market, a
day on which the Common Stock is traded in the over the counter market, as
reported by the OTC, or (c) if the Common Stock is not quoted on the OTC, a day
on which the Common Stock is quoted in the over the counter market as reported
by the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, however, that in
the event that the Common Stock is not listed or quoted as set forth in (a), (b)
and (c) hereof, then Trading Day shall mean any day except Saturday, Sunday and
any day which shall be a legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other government
action to close.
"TRANSACTION DOCUMENTS" shall have the meaning set forth in the
Purchase Agreement.
"UNDERLYING SHARES" means, collectively, the shares of Common Stock
into which the shares of Preferred Stock are convertible in accordance with the
terms hereof.
"UNDERLYING SHARES REGISTRATION STATEMENT" means a registration
statement that meets the requirements of the Registration Rights Agreement and
registers the resale of all Underlying Shares by the Holder, who shall be named
as a "selling stockholder" thereunder.
RESOLVED FURTHER, that the Chairman, the President or any Vice President,
and the Secretary or any Assistant Secretary, of the Company be and they hereby
are authorized and directed to prepare and file a Certificate of Designation of
Preferences, Rights and Limitations in accordance with the foregoing resolution
and the provisions of Delaware law.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
15th day of March, 2005.
/s/ Darwin Hu
-------------
Darwin Hu
Chief Executive Officer
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to convert shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of Series A
Convertible Preferred Stock indicated below, into shares of common stock, par
value $.001 per share (the "Common Stock"), of Syscan Imaging, Inc., a Delaware
corporation (the "Company"), according to the conditions hereof, as of the date
written below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
Holder for any conversion, except for such transfer taxes, if any. By tendering
this Notice of Conversion, the undersigned hereby covenants to comply with the
prospectus delivery requirements under the Securities Act of 1933, as amended,
applicable to it with respect to resales of the shares of Common Stock issuable
upon the conversion requested hereby pursuant to a registration statement and,
in connection therewith, covenants that, unless otherwise specified below, such
shares have been or are intended to be sold in ordinary brokerage transactions.
Conversion calculations:
-------------------------------------------------------------
Date to Effect Conversion
-------------------------------------------------------------
Number of shares of Preferred Stock owned prior to Conversion
-------------------------------------------------------------
Number of shares of Preferred Stock to be Converted
-------------------------------------------------------------
Stated Value of shares of Preferred Stock to be Converted
-------------------------------------------------------------
Number of shares of Common Stock to be Issued
-------------------------------------------------------------
Applicable Conversion Price
-------------------------------------------------------------
Number of shares of Preferred Stock subsequent to Conversion
-------------------------------------------------------------
Signature
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Name
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Address
Accepted and Agreed:
Syscan Imaging, Inc.
By:
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Name:
Title: