Exhibit 4.1
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CERTIFICATE OF DESIGNATION
OF
XYBERNAUT CORPORATION
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
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SERIES C PREFERRED STOCK
Xybernaut Corporation, a Delaware corporation (the "Corporation"),
hereby certifies that the following resolution has been duly adopted by the
Board of Directors of the Corporation:
RESOLVED, that pursuant to the authority expressly granted to
and vested in the Board of Directors of the Corporation by the
provisions of the Certificate of Incorporation of the Corporation
(the "Certificate of Incorporation"), there hereby is created, out
of the 6,000,000 shares of Preferred Stock, par value $0.01 per
share, of the Corporation authorized in Article Fourth of the
Certificate of Incorporation (the "Preferred Stock"), a series of
the Preferred Stock of the Corporation consisting of 375 shares,
which series shall have the following powers, designations,
preferences and relative, participating, optional and other rights,
and the following qualifications, limitations and restrictions:
1. Designation and Amount. This series of Preferred Stock shall be
designated "Series C Preferred Stock" and the authorized number of
shares constituting such series shall be 375. The par value of the
Series C Preferred Stock shall be $0.01 per share. The Series C
Preferred Stock shall have a stated value of $1,000 per share.
2. Dividends.
(a) The holders of shares of Series C Preferred Stock shall be
entitled to receive, out of any assets at the time legally available
therefor and when and as declared by the Board of Directors,
dividends at the rate of five percent (5%) of the stated Liquidation
Preference (as defined below) per share per annum, and no more,
payable, in the discretion of the Board of Directors of the
Corporation in shares of the common stock of the Corporation, par
value $0.01 per share (the "Common Stock"), or in cash. Such
dividends on the Series C Preferred Stock shall be payable only at
conversion of the Series
C Preferred Stock into shares of Common Stock. Such dividends on the
Series C Preferred Stock are prior and in preference to any
declaration or payment of any distribution (as defined below) on any
outstanding shares of Common Stock or any other equity securities of
the Corporation ranking junior to the Preferred Stock as to the
payment of dividends. Such dividends shall accrue on each share of
Series C Preferred Stock from day to day from the date of initial
issuance thereof whether or not earned or declared so that if such
dividends with respect to any previous dividend period at the rate
provided for herein have not been paid on, or declared and set apart
for, all shares of Series C Preferred Stock at the time outstanding,
the deficiency shall be fully paid on, or declared and set apart
for, such shares on a pro rata basis with all other equity
securities of the Corporation ranking on a parity with the Preferred
Stock as to the payment of dividends before any distribution shall
be paid on, or declared and set apart for Common Stock or any other
equity securities of the Corporation ranking junior to the Preferred
Stock as to the payment of dividends.
(b) For purposes hereof, unless the context otherwise
requires, "distribution" shall mean the transfer of cash or property
without consideration, whether by way of dividend or otherwise,
payable other than in shares of Common Stock or other equity
securities of the Company, or the purchase or redemption of shares
of the Corporation (other than redemptions set forth in Paragraph 5
below or repurchases of Common Stock held by employees or
consultants of the Corporation upon termination of their employment
or services pursuant to agreements providing for such repurchase)
for cash or property.
3. Preferences on Liquidation.
(a) In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation, the holders of shares
of the Series C Preferred Stock then outstanding, shall be entitled
to be paid, out of the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus or
earnings, before any payment shall be made in respect of the
Corporation's Common Stock, an amount equal to the sum of one
thousand dollars ($1,000.00) per share of Series C Preferred Stock
(the "Liquidation Preference"), plus all accrued and unpaid
dividends thereon to the date of payment.
(b) If upon liquidation, dissolution, or winding up of the
Corporation, the assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the
holders of the Series C Preferred Stock the full Liquidation
Preference plus accrued and unpaid dividends to which they
respectively shall be entitled, the holders of the Series C
Preferred Stock together with the holders of any other series of
Preferred Stock ranking on a parity with the Series C Preferred
Stock as to the payments of amounts upon liquidation, dissolution or
winding up shall share ratably in any distribution of assets
according to the respective amounts which would be payable in
respect of all such shares held by the respective stockholders
thereof upon such distribution if all amounts payable on or with
respect to said shares were paid in full.
(c) For purposes of this Paragraph 2, the sale or other
disposition (for cash, shares of stock, securities or other
consideration), of all or substantially all of the assets of the
Corporation shall be deemed to be a liquidation, dissolution or
winding up of the Corporation but the merger or consolidation of the
Corporation into or with another corporation into or with the
Corporation, shall not be deemed to be a liquidation, winding up or
dissolution of the Corporation.
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(d) The holders of Series C Preferred Stock shall have no
priority or preference with respect to distributions made by the
Corporation in connection with the repurchase of shares of Common
Stock issued to or held by employees, directors or consultants upon
termination of their employment or services pursuant to agreements
providing for the right of said repurchase between the Corporation
and such persons.
4. Conversion Rights.
The holders of Series C Preferred Stock shall have conversion
rights as follows:
(a) No shares of Series C Preferred Stock may be converted
prior to August 15, 1998. At any time after August 15, 1998 through
November 14, 1998, up to twenty-five (25%) percent of the shares of
Series C Preferred Stock then outstanding may be converted, at the
option of the holders thereof, and thereafter on November 15, 1998,
February 15, 1999 and May 15, 1999, an additional twenty-five (25%)
percent of the shares of Series C Preferred Stock then outstanding
may be converted, on a cumulative and pro rata basis, at the option
of the holders thereof. The number of shares of fully paid and
nonassessable Common Stock into which each share of Series C
Preferred Stock may be converted shall be determined by dividing the
Liquidation Preference by the Conversion Price (as hereinafter
defined) in effect on the Conversion Date.
(b) For purposes of this Paragraph 4, (i) "Conversion Price"
means an amount equal to the lesser of (a) 100 percent (100%) of the
average closing bid price of the Common Stock as reported by Nasdaq
Small Cap Market or any successor exchange in which the Common Stock
is listed for the five (5) trading days preceding the Conversion
Date, or (b) Four ($4.00) Dollars; and (ii) "Conversion Date" means
the date on which the holder of the Series C Preferred Stock has
telecopied the Notice of Conversion (as hereinafter defined) to the
Corporation.
(c) A holder may convert in whole or in part, the Series C
Preferred Stock into Common Stock held by such holder by telecopying
an executed and completed Notice of Conversion in the form annexed
hereto as Exhibit A (a "Notice of Conversion") to the Corporation
and delivering the original Notice of Conversion and the certificate
representing the shares of Series C Preferred Stock to the
Corporation by express courier within five (5) business days after
the date of the Notice of Conversion. Each date on which a Notice of
Conversion is telecopied to and received by the Corporation in
accordance with the provisions hereof shall be deemed a Conversion
Date. The Corporation will transmit the certificates representing
the Common Stock issuable upon conversion of all or any part of the
shares of Series C Preferred Stock (together with the certificate
representing portions of the shares of Series C Preferred Stock not
so converted) to the holder via express courier within five (5)
business days after the Corporation has received the original Notice
of Conversion and shares certificate being so converted. The Notice
of Conversion and certificate representing the portion of the shares
of Series C Preferred Stock converted shall be delivered to the
Corporation at its principal executive offices or to such other
person at such other place as the Corporation designates to the
holder in writing. In the event the shares of Series C Preferred
Stock are not converted within ten (10) business days of receipt by
the Corporation of a valid Notice of Conversion and certificates
representing the shares of Series C Preferred Stock to be converted,
the Corporation shall pay to the holder, by wire transfer, as
liquidated damages for such failure and not as a penalty, an amount
in cash equal to one (1%) percent per day of the purchase price of
the shares of Series C Preferred Stock to be converted which shall
run from the initial Conversion Date and the holder has the option
to withdraw the Notice of Conversion previously sent;
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provided, that the Corporation shall not be responsible for or
required to pay such liquidated damages if such failure to convert
was not caused by any actions or omissions of the Corporation.
(d) No fractional shares of Common Stock shall be issued upon
conversion of the Series C Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled,
the Corporation shall pay cash equal to such fraction multiplied by
the fair market value of the Common Stock on the Conversion Date, as
determined by the Corporation's Board of Directors. The Corporation
shall not be obligated to issue certificates evidencing the shares
of Common Stock issuable upon conversion unless either the
certificates evidencing such shares of Series C Preferred Stock are
delivered to the Corporation or its transfer agent as provided
above, or the holder notifies the Corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to indemnify
the Corporation from any loss incurred by it in connection with such
certificates.
(e) Subject to subparagraph (b) above, the Corporation shall,
as soon as practicable after such delivery, or after such agreement
and indemnification, issue and deliver at such office to such holder
of Series C Preferred Stock, a certificate or certificates for the
number of shares of Common Stock to which the holder shall be
entitled as aforesaid and a check payable to the holder, or order,
in the amount of any cash amounts payable as the result of a
conversion into fractional shares of Common Stock, plus any accrued
and unpaid dividends on the converted Series C Preferred Stock, and
a certificate for any shares of Series C Preferred Stock not so
converted.
(f) Upon any conversion of Series C Preferred Stock pursuant
to this Paragraph 4 the shares of Series C Preferred Stock which are
converted shall not be reissued and shall not be considered
outstanding for any purposes. Upon conversion of all of the then
outstanding Series C Preferred Stock pursuant to this Paragraph 4
and upon the taking of any action required by law, all matters set
forth in this Certificate of Designation shall be eliminated from
the Certificate of Incorporation, shares of Series C Preferred Stock
shall not be deemed outstanding for any purpose whatsoever and all
such shares shall be retired and canceled and shall not be reissued.
(g) Any transmittal or other communications required by the
provisions of this Paragraph 4 to be given to the holders of shares
of Series C Preferred Stock shall be deemed given if deposited in
the United States mail, first class, postage prepaid and addressed
to each holder of record at its address appearing on the books of
the Corporation.
(h) On May 15, 2000, the holder shall be required to convert
all of its outstanding shares of Series C Preferred Stock into
shares of Common Stock. Until converted in accordance with the terms
of this Paragraph 4, the Company shall be entitled to redeem shares
of Series C Preferred Stock in accordance with Paragraph 5 hereof,
regardless of whether or not a Notice of Conversion has been
received by the Corporation with respect to such shares.
(i) The Corporation shall at all times when any shares of
Series C Preferred Stock shall be outstanding, reserve and keep
available out of its authorized but unissued stock, such number of
shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of Series C
Preferred Stock.
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5. Redemption.
(a) At any time after May 15, 1998, the Corporation may, at
the option of the Board of Directors, redeem up to 100% of the
outstanding shares of the Series C Preferred Stock at the redemption
price set forth in subparagraph (b) below, provided, that (x) the
Corporation shall have received a Notice of Conversion, and (y) the
Conversion Price is below $3.40. The Corporation shall give written
notice by telecopy, to the holder of Series C Preferred Stock to be
redeemed at least one (1) business day after receipt of the Notice
of Conversion prior to the date specified for redemption (the
"Redemption Date"). Such notice shall be addressed to each such
stockholder at the address of such holder appearing on the books of
the Corporation or given by such holder to the Corporation for the
purpose of notice, or if no such address appears or is so given, at
the place where the principal office of the Corporation is located.
Such notice shall state the Redemption Date, the Redemption Price
(as hereinafter defined), the number of shares of Series C Preferred
Stock of such holders to be redeemed and shall call upon such
holders to surrender to the Corporation on the Redemption Date at
the place designated in the notice such holders' redeemed stock. If
fewer than all the outstanding shares of Series C Preferred Stock
are to be redeemed, the redemption shall be pro rata among the
holders of Series C Preferred Stock and subject to such other
provisions as may be determined by the Board of Directors. The
Redemption Date shall be no more than ten (10) days after receipt of
written notice from the Corporation. If the Corporation fails to pay
the Redemption Price on the Redemption Date, the Corporation shall
pay to the holder a penalty in an amount in cash equal to two (2%)
percent of the Redemption Price to be paid on such Redemption Date.
If the Corporation fails to pay the Redemption Price on the
Redemption Date, the holder shall have the right to convert the
Series C Preferred Stock previously presented to the Corporation and
not redeemed. The Corporation shall have the right to redeem the
Series C Preferred Stock in accordance with the terms of this
subparagraph (a) in any subsequent redemption; provided, however,
that if the Corporation fails to pay the Redemption Price in a
subsequent redemption within ten (10) days, the Corporation shall
have the right to redeem the Series C Preferred Stock thereafter,
only upon wiring the Redemption Price to the holders simultaneously
with sending the notice of redemption. On or after the Redemption
Date, the holders of shares of Series C Preferred Stock called for
redemption shall surrender the certificates evidencing the shares
called for redemption to the Corporation at the place designated in
such notice and shall thereupon be entitled to receive payment of
the Redemption Price.
(b) Subject to the terms of Paragraph 5(a) above, the Company
shall have the option to redeem all or a portion of all the
outstanding shares of Series C Preferred Stock at a cash price equal
to $3.40 multiplied by the number of shares the Convertible
Preferred Stock would convert into on the date of redemption (the
"Redemption Price").
(c) From and after the Redemption Date (unless default shall
be made by the Corporation in duly paying the Redemption Price in
which case all the rights of the holders of such shares shall
continue), the holders of the shares of the Series C Preferred Stock
called for redemption shall cease to have any rights as stockholders
of the Corporation, except the right to receive, without interest,
the Redemption Price thereof upon surrender of certificates
representing the shares of Series C Preferred Stock, and such shares
shall not thereafter be transferred (except with the consent of the
Corporation) on the books of the Corporation and shall not be deemed
outstanding for any purpose whatsoever.
(d) There shall be no redemption of any shares of Series C
Preferred Stock of the Corporation where such action would be in
violation of applicable law.
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6. Voting Rights.
Except as otherwise required by law, the holders of the Series
C Preferred Stock shall not be entitled to vote upon any matter
relating to the business or affairs of the Corporation or for any
other purpose.
7. Status.
In case any outstanding shares of Series C Preferred Stock
shall be redeemed, the shares so redeemed shall be deemed to be
permanently canceled and shall not resume the status of authorized
but unissued shares of Series C Preferred Stock.
8. Ranking; Changes Affecting Series C.
(a) The Series C Preferred Stock shall, with respect to
dividend rights and rights on liquidation, winding up and
dissolution, (i) rank senior to any of the Corporation's Common
Stock and any other class or series of stock of the Company which by
its terms shall rank junior to the Series C Preferred Stock, and
(ii) rank junior to any other class or series of stock of the
Company which by its terms shall rank senior to the Series C
Preferred Stock and (iii) shall rank on a pari passu basis with any
other series of Preferred Stock of the Corporation..
(b) So long as any shares of Series C Preferred Stock are
outstanding, the Corporation shall not (i) alter or change any of
the powers preferences, privileges, or rights of the Series C
Preferred Stock; or (ii) amend the provisions of this Paragraph 9,
in each case, without first obtaining the approval by vote or
written consent, in the manner provided by law, of the holders of at
least a majority of the outstanding shares of Series C Preferred
Stock, as to changes affecting the Series C Preferred Stock.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its President this 15th day of May, 1998.
/s/ Edward G. Newman
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Edward G. Newman, President
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