EXHIBIT 3.3
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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 E 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 2,000 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 E Preferred Stock" and the authorized number of
shares constituting such series shall be 2,000. The par value of the
Series E Preferred Stock shall be $0.01 per share. The Series E
Preferred Stock shall have a stated value of $1,000 per share.
2. DIVIDENDS.
a. The holders of shares of Series E 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 E Preferred
Stock shall be payable only at conversion of the Series E Preferred
Stock into shares of Common Stock. Such dividends on the Series E
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 Series E Preferred Stock as to the
payment of dividends. Such dividends shall accrue on each share of
Series E 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 E Preferred Stock at the time outstanding,
the
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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 Series E 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 Series E 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
Corporation, 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 E 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 E 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 E Preferred Stock the full Liquidation Preference plus accrued
and unpaid dividends to which they respectively shall be entitled, the
holders of the Series E Preferred Stock together with the holders of
any other series of Preferred Stock ranking on a parity with the Series
E 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.
d. The holders of Series E 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.
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4. CONVERSION RIGHTS.
The holders of Series E Preferred Stock shall have conversion
rights as follows:
a. No shares of Series E Preferred Stock may be converted
prior to the earlier of (i) the effective date of the registration
statement covering the shares of Common Stock issuable upon conversion
of the Series E Preferred Stock, and (ii) on the one hundred
twenty-first (121st) day after the Closing Date (as hereinafter
defined) (the "First Conversion Date"). During the thirty-day period
following the First Conversion Date, up to twenty-five (25%) percent of
the shares of Series E Preferred Stock then outstanding may be
converted, at the option of the holders thereof, and during each
thirty-day period thereafter, an additional twenty-five (25%) percent
of the shares of Series E Preferred Stock issued on the Closing Date
may be converted, on a cumulative (by taking into account the number of
unconverted shares of Preferred Stock which were permitted to be
converted during the prior thirty-day periods) and pro rata basis, at
the option of the holders thereof. Notwithstanding the foregoing, if
the trading volume of the Common Stock for the two weeks prior to the
First Conversion Date equals or exceeds 150,000, during each thirty day
period following the First Conversion Date up to thirty-three percent
(33%) of the Series E Preferred Stock 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 E 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 (as hereinafter
defined).
b. For purposes of this Paragraph 4, (i) "Conversion Price"
means an amount equal to the lesser of (a) one hundred percent (100%)
of the closing bid price of the Common Stock as reported by Bloomberg
L.P. on the trading day immediately preceding the Closing Date (as such
term is defined in the Securities Purchase Agreement dated as of May
11, 1999 (the "Securities Purchase Agreement")), or (b) ninety-four
percent (94%) of the "Market Price," where "Market Price" is defined as
the average of the three (3) lowest closing bid prices, not necessarily
consecutive, of the Common Stock during the twenty (20) day trading
period immediately preceding the Conversion Date; and (ii) "Conversion
Date" means the date on which the holder of the Series E Preferred
Stock has telecopied the Notice of Conversion (as hereinafter defined)
to the Corporation, which date shall not be prior to the earlier of:
(a) the effective date of the registration statement or (b) on the one
hundred twenty-first (121st) day after the Closing Date.
c. A holder may convert in whole or in part, the Series E
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 (at Fax
Number 703-222-7660 Attention: Steven Newman and Jeffrey Pagano) to the
Corporation and delivering the original Notice of Conversion and the
certificate representing the shares of Series E 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 E Preferred Stock (together with the certificate representing
portions of the shares of Series E Preferred Stock not so converted) to
the holder via express courier within five (5) business days after the
Corporation has received the original Notice
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of Conversion and shares certificate being so converted. The Notice of
Conversion and certificate representing the portion of the shares of
Series E 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.
d. No fractional shares of Common Stock shall be issued upon
conversion of the Series E 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 E 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 (c) above, the Corporation shall
issue and deliver at such office to such holder of Series E 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 E
Preferred Stock, and a certificate for any shares of Series E Preferred
Stock not so converted.
f. Upon any conversion of Series E Preferred Stock pursuant to
this Paragraph 4 the shares of Series E 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
E 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 E 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 Paragraphs 4 and 5(a) to be given to the holders of
shares of Series E Preferred Stock shall be deemed effectively given
(i) on the date delivered, if transmitted by facsimile (with a machine
generated confirmation) or (ii) five business days after deposit in the
United States mail, first class, postage prepaid and addressed to each
holder of record at its address, on the next business day, if sent by a
recognized international courier (with all costs prepaid), in the
manner set forth in the Securities Purchase Agreement, with all
required copies set forth therein.
h. Subject to the Exchange Cap (as defined below), each share
of Series E Preferred Stock which remains outstanding on the second
anniversary of the Closing Date shall automatically be converted on
such date into shares of Common Stock.
i. The Corporation shall at all times when any shares of
Series E 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 E Preferred
Stock.
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j. The Corporation shall not be obligated to issue upon
conversion of the Series E Preferred Stock, in the aggregate, shares of
Common Stock equal to more than 19.99% of the Common Stock outstanding
on the date of issuance of the Series E Preferred Stock (such amount to
be proportionately and equitably adjusted from time to time in the
event of stock splits, stock dividends, combinations, reverse stock
splits, reclassification, capital reorganizations and similar events
relating to the Common Stock) (the "Exchange Cap") if issuance of a
larger number of shares of Common Stock would constitute a breach of
the Corporation's obligations under the rules or regulations of The
Nasdaq Stock Market, Inc. ("Nasdaq") or any other principal securities
exchange or market upon which the Common Stock is or becomes traded. If
the conversion of any shares of Series E Preferred Stock would result
in the issuance of shares of Common Stock which in the aggregate will
equal or exceed the Exchange Cap, the Corporation shall within sixty
(60) days from the Closing Date file a proxy statement in order to seek
approval of the stockholders of the Corporation as required by the
applicable rules or regulations of Nasdaq for issuances of Common Stock
in excess of the Exchange Cap. The Corporation shall comply with all
applicable rules and regulation of the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and Nasdaq, as applicable, at the expense
of the Corporation. If the Corporation obtains the approval of
stockholders as required under the rules or regulations of Nasdaq, the
Corporation shall be obligated to issue upon conversion of the Series E
Preferred Stock, in the aggregate, shares of Common Stock in excess of
the Exchange Cap. If the Corporation does not obtain the approval of
stockholders as required under the rules or regulations of Nasdaq or
fails to call the stockholders meeting within the time herein, each
holder of Series E Preferred Stock shall have the right, at such
holder's option, to require the Corporation to redeem, subject to the
terms of Paragraph 4(k) below, all or a portion of such holder's shares
of Series E Preferred Stock which the Corporation is unable to convert
(the "Mandatory Redemption"), at a price per share equal to 115% of the
Liquidation Preference, plus any accrued but unpaid dividends
("Mandatory Redemption Price").
k. Upon receipt of a Notice of Conversion from a holder of
Series E Preferred Stock which cannot be fully satisfied, the
Corporation shall immediately notify via facsimile to such holder of
Series E Preferred Stock of the Corporation's inability to fully
satisfy such holder's Notice of Conversion (the "Inability to Fully
Convert Notice"). The Inability to Fully Convert Notice shall indicate
the number of shares of Series E Preferred Stock which cannot be
converted and the Mandatory Redemption Price. Such holder shall notify
the Corporation within five (5) business days of receipt of the
Inability to Fully Convert Notice of its election to cause a Mandatory
Redemption by delivering written notice via facsimile to the
Corporation ("Notice in Response to Inability to Convert"). If such
holder shall elect to have its shares redeemed pursuant to Paragraph
4(j) above, the Corporation shall pay the Mandatory Redemption Price in
cash to such holder within five (5) business days after the
Corporation's receipt of the holders Notice in Response to Inability to
Convert, provided that prior to the Corporation's receipt of the
holder's Notice in Response to Inability to Convert, the Corporation
has not delivered a notice to such holder stating that the event or
condition triggering the Mandatory Redemption has been cured. From and
after the date of the Mandatory Redemption (unless the Corporation
shall default 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 E Preferred Stock so redeemed shall cease to
have any rights as stockholders of the Corporation, except the right to
receive, without interest, the Mandatory Redemption Price thereof upon
surrender of certificates representing the shares of Series E Preferred
Stock, and such shares shall not thereafter be transferred (except with
the consent of the
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Corporation) on the books of the Corporation and shall not be deemed
outstanding for any purpose whatsoever.
l. Notwithstanding the foregoing provisions, in no event
(except with respect to an automatic conversion of the Series E
Preferred Stock as provided in Paragraph 4(h) above) shall holders of
Series E Preferred Stock be entitled to convert any shares of Preferred
Stock to the extent after such conversion, the sum of (1) the number of
shares of Common Stock beneficially owned by the holders of Series E
Preferred Stock and their affiliates (other than shares of Common Stock
which may be deemed beneficially owned through the ownership of the
unconverted portion of the Series E Preferred Stock and the unexercised
portion of any Warrants), and (2) the number of shares of Common Stock
issuable upon the conversion of the Series E Preferred Stock and
exercise of the Warrants with respect to which the determination of
this proviso is being made, would result in beneficial ownership by the
holders and their affiliates of more than 4.99% of the outstanding
shares of Common Stock. For purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act, except as otherwise
provided in clause (1) of such proviso. The preceding shall not
interfere with any Series E Preferred Stock holder's right to convert
the Series E Preferred Stock or exercise the Warrants which in the
aggregate total more than 4.99% of the outstanding shares of Common
Stock, over time, as long as no single holder of Series E Preferred
Stock owns more than 4.99% of the outstanding Common Stock at any given
time.
5. REDEMPTION.
a. The Corporation may, at the option of the Board of
Directors, redeem all or a portion of the outstanding shares of the
Series E Preferred Stock upon five (5) business days prior written
notice to the holders of the Series E Preferred Stock (the "Redemption
Notice") at the redemption price set forth in subparagraph (b) below,
provided, that the closing bid price of the Common Stock is greater
than $5.00 per share. The Corporation may not serve a Redemption Notice
unless it has immediately available funds for a minimum of the amount
it intends to redeem in a bank account controlled by the Corporation.
The Redemption Notice shall be given in accordance with Paragraph 4(g)
above. Such notice shall state the date of redemption (the "Redemption
Date"), the Redemption Price (as hereinafter defined), the number of
shares of Series E Preferred Stock of such holders to be redeemed (the
"Redemption Amount") 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. The Redemption Date shall be no
more than five (5) business days after receipt of written notice from
the Corporation. If the Corporation fails to pay the Redemption Price
by the sixth trading day following the Redemption Date, the redemption
will be declared null and void and the Corporation shall lose its right
to serve a Redemption Notice in the future. On or after the Redemption
Date, the holders of shares of Series E 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. Subject to the notice requirement of the immediately
following sentence, the holder of Series E Preferred Stock shall be
allowed to convert up to a maximum of twenty percent (20%) of the
Redemption Amount. If the holder elects to convert the Series E
Preferred Stock after receipt of the Redemption Notice, the Corporation
must receive such conversion within twenty-four (24) hours from the
time the Redemption Notice is received by the holder.
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b. Subject to the terms of Paragraph 5(a) above, the
Corporation shall have the option to redeem all or a portion of all the
outstanding shares of Series E Preferred Stock at a cash price equal
to:
(i) if the redemption occurs within 60 days after the
date of issuance of the Series E Preferred Stock,
108% of the Liquidation Preference plus any accrued
but unpaid dividends;
(ii) if the redemption occurs between 61 and 120 days
after the date of issuance of the Series E Preferred
Stock, 112% of the Liquidation Preference plus any
accrued but unpaid dividends; or
(iii) if the redemption occurs 121 days or more
after the date of issuance of the Series E
Preferred Stock, 115% of the Liquidation
Preference plus any accrued but unpaid
dividends (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 E 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 E 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 E
Preferred Stock of the Corporation where such action would be in
violation of applicable law.
6. VOTING RIGHTS.
Except as otherwise required by law, the holders of the Series
E 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 E 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 E Preferred Stock.
8. RANKING; CHANGES AFFECTING SERIES E.
a. The Series E 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 Corporation which by its terms shall
rank junior to the Series E Preferred Stock, and (ii) rank junior to
any other class or series of stock of the Corporation
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which by its terms shall rank senior to the Series E 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 E Preferred Stock are
outstanding, the Corporation shall not (i) alter or change any of the
powers preferences, privileges, or rights of the Series E Preferred
Stock; or (ii) amend the provisions of this Paragraph 8, 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 E Preferred Stock, as to changes affecting
the Series E Preferred Stock.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its President this 11th day of May, 1999.
/s/ Edward G. Newman
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Edward G. Newman, President
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EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order
to Convert the Series E Preferred Stock)
The undersigned hereby irrevocably elects to convert ___ shares of
Series E Preferred Stock, Certificate No. ___ (the "Preferred Stock") into
shares of common stock of XYBERNAUT CORPORATION (the "Company") according to the
conditions hereof, as of the date written below.
The undersigned represents and warrants that
(i) All offers and sales by the undersigned of the shares of
Common Stock issuable to the undersigned upon conversion of
the Preferred Stock shall be made in compliance with
Regulation D, pursuant to an exemption from registration under
the Securities Act, or pursuant to registration of the Common
Stock under the Act, subject to any restrictions on sale or
transfer set forth in the Securities Purchase Agreement
between the Company and the original holder of the Certificate
submitted herewith for conversion.
(ii) Upon conversion pursuant to this Notice of Conversion, the
undersigned will not own or be deemed to beneficially own
4.99% or more of the then issued and outstanding shares of the
Company as provided in the Certificate for the Preferred
Stock.
_____________________________ _________________________________
Date of Conversion Applicable Conversion Price
_____________________________ _________________________________
Number of Common Shares upon $ Amount of Conversion
Conversion
_________________________________ _________________________________
Signature Name
Address: Delivery of Shares to:
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