State of Delaware
Secretary of State
Division of Corporations
Delivered 09:03 AM 01/11/2008
FILED 08:45 AM 01/11/2008
SRV 080033855 - 3492006 FILE
RESTATED CERTIFICATE OF INCORPORATION
OF
DOCUMENT CAPTURE TECHNOLOGIES, INC.,
A DELAWARE CORPORATION
The undersigned hereby certifies that:
ONE: He is the duly elected and acting Chief Executive Officer of said
corporation.
TWO: The original Certificate of Incorporation of said corporation was filed
with the Secretary of State of the State of Delaware on February 15, 2002 under
its original name "BankEngine Technologies, Inc."
THREE: The Certificate of Incorporation of said corporation shall be restated to
read in full as follows:
"FIRST: The name of the corporation is Document Capture Technologies,
Inc. (the "Corporation").
SECOND: The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of its registered
agent at such address is The Corporation Trust Company.
THIRD: The purpose or purposes of the Corporation shall be to engage in
any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The aggregate number of shares which the Corporation is
authorized to issue is fifty-two million (52,000,000), divided
into classes as follows:
A. Fifty million (50,000,000) shares of common stock, $.001 par
value per share (hereinafter called the "Common Stock"),
divided into two classes as follows;
B. Two million (2,000,000) shares of preferred stock, $.001 par
value per share, to be issued in series (the "Preferred
Stock").
The following is a statement of the designations, powers,
preferences and rights, and the qualifications, limitations or
restrictions with respect to the Preferred Stock of the
Corporation: The shares of Preferred Stock may be issued in one
or more series, and each series shall be so designated as to
distinguish the shares thereof from the shares of all other
series. Authority is hereby expressly granted to the Board of
Directors of the Corporation to fix, subject to the provisions
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herein set forth, before the issuance of any shares of a
particular series, the number, designations and relative rights,
preferences, and limitations of the shares of such series
including (1) voting rights, if any, which may include the right
to vote together as a single class with the Common Stock and any
other series of the Preferred Stock with the number of votes per
share accorded to shares of such series being the same as or
different from that accorded to such other shares, (2) the
dividend rate per annum, if any, and the terms and conditions
pertaining to dividends and whether such dividends shall be
cumulative, (3) the amount or amounts payable upon such voluntary
or involuntary liquidation, (4) the redemption price or prices,
if any, and the terms and conditions of the redemption, (5)
sinking fund provisions, if any, for the redemption or purchase
of such shares, (6) the terms and conditions on which such shares
are convertible, in the event the shares are to have conversion
rights, and (7) any other rights, preferences and limitations
pertaining to such series which may be fixed by the Board of
Directors pursuant to the Delaware General Corporation Law.
Upon the effectiveness (the "Split Effective Date") of the
certificate of amendment to the certificate of incorporation
containing this sentence, each ten (10) shares of the Common
Stock issued and outstanding as of the date and time immediately
preceding April 2, 2004, the effective date of a reverse stock
split (the "Split Effective Date"), shall be automatically
changed and reclassified, as of the Split Effective Date and
without further action, into one (1) fully paid and nonassessable
share of Common Stock. There shall be no fractional shares
issued. A holder of record of Common Stock on the Split Effective
Date who would otherwise be entitled to a fraction of a share
shall have the number of new shares to which they are entitled
rounded to the nearest whole number of shares. The number of new
shares will be rounded up if the fractional share is equal to or
greater than 0.5 and rounded down if the fraction is less than
0.5. No shareholders will receive cash in lieu of fractional
shares.
FIFTH: 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
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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
Corporation 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 Corporation 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 Corporation. The
Corporation 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 Corporation 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 Corporation 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
Corporation legally available for the payment of dividends.
Except as otherwise provided herein, if at any time the
Corporation 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
Corporation 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 Corporation must pay dividends in cash if:
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(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 Corporation pursuant to a written
opinion letter, addressed to the Corporation's transfer agent in
the form and substance acceptable to the applicable Holder and
such transfer agent (if the Corporation 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 Corporation 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 Corporation 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 Corporation, whether voluntary or involuntary
(a "LIQUIDATION"), the Holders shall be entitled to receive out
of the assets of the Corporation, 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 Corporation shall be insufficient to pay in full
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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 Corporation 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 Corporation 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 Corporation 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 Corporation 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 Corporation
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.
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(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 Corporation 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 Corporation that the Corporation 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 Corporation. Upon receipt of such notice from the
Corporation, each holder of shares of Preferred Stock shall
promptly surrender to the Corporation 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
Corporation as the Corporation 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 Corporation) accompanied by a written instrument or
instruments of transfer in form reasonably satisfactory to the
Corporation 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 Corporation 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
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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 Corporation. 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
Corporation 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 Corporation. 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 Corporation 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 Corporation
has elected or is required to pay accrued dividends in cash).
After the Effective Date, the Corporation shall, upon the request
of the Holder, cause any certificate or certificates required to
be delivered by the Corporation hereunder to be transmitted by
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the transfer agent of the Corporation to the Holder's prime
broker with the Depository Trust Corporation through its Deposit
Withdrawal Agent Commission (DWAC) system, if the Corporation's
transfer agent is a participant in such system. The Corporation
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 Corporation'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
Corporation 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
Corporation 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 Corporation 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 Corporation 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 Corporation shall issue the
certificates or, if applicable, cash, upon a properly noticed
conversion. If the Corporation 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
Corporation 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 Corporation'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.
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(iii) COMPENSATION FOR BUY-IN ON FAILURE TO TIMELY
DELIVER CERTIFICATES UPON CONVERSION. If the Corporation 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 Corporation 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 Corporation shall be required to pay the
Holder $1,000. The Holder shall provide the Corporation 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 Corporation. 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 Corporation'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 Corporation, 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
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reclassification and exchange of the Common Stock any shares of
capital stock of the Corporation, 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 Corporation, 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 Corporation 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
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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 Corporation or a subsidiary thereof
that provide the holder thereof to receive shares of Common
Stock. The Corporation 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 Corporation 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 Corporation by merger, purchase of
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substantially all of the assets or other reorganization whereby
the Corporation 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 Corporation 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
Corporation'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 Corporation, on the
one hand, and any corporation or other entity that controls,
directly or indirectly, the Corporation, on the other hand; or
(H) other non-cash transactions.
(v) If the Corporation, 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.
-12-
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 Corporation, 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 Corporation
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
Corporation 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
Corporation with or into another Person, or sale by the
Corporation of more than one-half of the assets of the
Corporation (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
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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 Corporation shall declare a dividend (or
any other distribution) on the Common Stock, (b) the Corporation
shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock, (c) the Corporation 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 Corporation shall be required in connection
with any reclassification of the Common Stock, any consolidation
or merger to which the Corporation is a party, any sale or
transfer of all or substantially all of the assets of the
Corporation, or any compulsory share of exchange whereby the
Common Stock is converted into other securities, cash or
property, or (e) the Corporation shall authorize the voluntary or
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involuntary dissolution, liquidation or winding up of the affairs
of the Corporation; then the Corporation shall notify the Holders
at their last addresses as they shall appear upon the stock books
of the Corporation, 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 Corporation 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
Corporation 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 Corporation 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 Corporation 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 Corporation 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.
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(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
Corporation 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 Corporation for such
purpose. Any and all notices or other communications or
deliveries to be provided by the Corporation 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 Corporation, 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
Corporation in cash or in shares of Common Stock at the
Corporation's discretion and shall be paid within five Trading
Days after the Redemption Date. In the event the Corporation
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
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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 of this Article FIFTH, 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
Corporation, by contract or otherwise) of in excess of 40% of the
voting securities of the Corporation, (ii) a replacement at one
time or over time of more than one-half of the members of the
Corporation'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 Corporation with or into
another entity that is not wholly owned by the Corporation,
consolidation or sale of all or substantially all of the assets
of the Corporation in one or a series of related transactions, or
(iv) the execution by the Corporation of an agreement to which
the Corporation 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 Corporation'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.
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"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 Corporation 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.
-18-
"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 Corporation 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
Corporation 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.
-19-
"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.
SIXTH: The Board of Directors does hereby establish a series of
authorized preferred stock having a par value of $.001 per share,
which series shall consist of thirty thousand (30,000) shares and
be designated as "Series B 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 B Convertible
Preferred Stock (the "PREFERRED STOCK") and the number of shares
so designated shall be 30,000 (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 of
the Corporation in accordance with the terms hereof (the "STATED
VALUE").
Section 2. INTENTIONALLY LEFT BLANK.
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 Corporation 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 Corporation, whether voluntary or involuntary
(a "LIQUIDATION"), the Holders shall be entitled to receive out
of the assets of the Corporation, whether such assets are capital
or surplus, for each share of Preferred Stock an amount equal to
the Stated Value per share after distribution or payment to the
holders of the Corporation's then outstanding shares of Series A
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Preferred Stock, if any, but before any distribution or payment
shall be made to the holders of any Junior Securities, and if the
assets of the Corporation 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 Corporation 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 Corporation 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 Corporation 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 Corporation 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 Corporation
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.
-21-
(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 Corporation 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 Corporation that the Corporation 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 Corporation. Upon receipt of such notice from the
Corporation, each holder of shares of Preferred Stock shall
promptly surrender to the Corporation 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
Corporation as the Corporation 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 Corporation) accompanied by a written instrument or
instruments of transfer in form reasonably satisfactory to the
Corporation 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
hereunder to the extent such conversion 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 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 Corporation 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
-22-
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 Corporation. Other Holders shall be unaffected by any such
waiver.
(B) A Holder may not convert shares of Preferred Stock
hereunder to the extent such conversion 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 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 Corporation 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 Corporation. 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 Corporation will deliver to the Holder 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. After the Effective
Date, the Corporation shall, upon the request of the Holder,
cause any certificate or certificates required to be delivered by
the Corporation hereunder to be transmitted by the transfer agent
of the Corporation to the Holder's prime broker with the
Depository Trust Corporation through its Deposit Withdrawal Agent
Commission (DWAC) system, if the Corporation's transfer agent is
a participant in such system. The Corporation 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.
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(ii) OBLIGATION ABSOLUTE; PARTIAL LIQUIDATED DAMAGES.
The Corporation'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
Corporation 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
Corporation 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 Corporation 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 Corporation 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 Corporation shall issue the
certificates or, if applicable, cash, upon a properly noticed
conversion. If the Corporation 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
Corporation 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 Corporation'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.
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(iii) COMPENSATION FOR BUY-IN ON FAILURE TO TIMELY
DELIVER CERTIFICATES UPON CONVERSION. If the Corporation 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 Corporation 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 Corporation shall be required to pay the
Holder $1,000. The Holder shall provide the Corporation 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 Corporation. 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 Corporation'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 Corporation, 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 Corporation, 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
-25-
(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 Corporation, 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 at any time prior to the twelve (12) month
period after the Effective Date if any shares of Preferred Stock
are outstanding, the Corporation 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
-26-
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
Corporation or a subsidiary thereof that provide the holder
thereof to receive shares of Common Stock. The Corporation 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
Corporation 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 Corporation by merger,
purchase of substantially all of the assets or other
reorganization whereby the Corporation 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
-27-
commercial situations with the Corporation 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 Corporation'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 Corporation, on the one hand, and any corporation or
other entity that controls, directly or indirectly, the
Corporation, on the other hand; or (H) other non-cash
transactions.
(v) If the Corporation, 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.
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(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 Corporation, 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 Corporation
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
Corporation 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
Corporation with or into another Person, or sale by the
Corporation of more than one-half of the assets of the
Corporation (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
-29-
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, 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 Corporation shall declare a dividend (or
any other distribution) on the Common Stock, (b) the Corporation
shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock, (c) the Corporation 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 Corporation shall be required in connection
with any reclassification of the Common Stock, any consolidation
or merger to which the Corporation is a party, any sale or
transfer of all or substantially all of the assets of the
Corporation, or any compulsory share of exchange whereby the
Common Stock is converted into other securities, cash or
property, or (e) the Corporation shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs
of the Corporation; then the Corporation shall notify the Holders
at their last addresses as they shall appear upon the stock books
of the Corporation, at least 20 calendar days prior to the
-30-
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 Corporation 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
Corporation 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 Corporation 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 Corporation 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 Corporation 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.
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(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
Corporation 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 Corporation for such
purpose. Any and all notices or other communications or
deliveries to be provided by the Corporation 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 Corporation, 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
Corporation in cash or in shares of Common Stock at the
Corporation's discretion and shall be paid within five Trading
Days after the Redemption Date. In the event the Corporation
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.
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Section 7.
DEFINITIONS. For the purposes if this Article SIXTH, 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
Corporation, by contract or otherwise) of in excess of 40% of the
voting securities of the Corporation, (ii) a replacement at one
time or over time of more than one-half of the members of the
Corporation'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 Corporation with or into
another entity that is not wholly owned by the Corporation,
consolidation or sale of all or substantially all of the assets
of the Corporation in one or a series of related transactions, or
(iv) the execution by the Corporation of an agreement to which
the Corporation 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 Corporation'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.
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"JUNIOR SECURITIES" means the Common Stock and all other equity
or equity equivalent securities of the Corporation 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.
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"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 Corporation 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
Corporation 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.
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SEVENTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make,
alter or repeal the by-laws of the Corporation.
EIGHTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director except for liability (i)
for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware
General Corporation Law, or (iv) for any transaction from which
the director derived any improper personal benefit.
FOUR: The foregoing restatement has been approved by the Board of Directors of
said corporation and was duly adopted in accordance with Section 245 of the
Delaware General Corporation Law. The foregoing restatement only restates and
integrates and does not further amend the provisions of said corporation's
Certificate of Incorporation as theretofore amended or supplemented, and there
is no discrepancy between those provisions and the provisions of the foregoing
restatement.
The undersigned further declare under penalty of perjury under the laws of the
State of Delaware that the matters set forth in this restated Certificate of
Incorporation are true and correct of their own knowledge.
IN WITNESS WHEREOF, the undersigned has executed this restated
Certificate of Incorporation on January 8, 2008.
------------------------
Darwin Hu
Chief Executive Officer
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