EXHIBIT 3.1
STATE
OFFICE OF THE SECRETARY OF STATE OF DELAWARE
Office of the Secretary of State
-----------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF
THE CERTIFICATE OF DESIGNATION OF "LINEO, INC.", FILED IN THIS OFFICE
ON THE THIRD DAY OF MAY, A.D. 2000, AT 3 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS.
/s/ EDWARD J. FREEL, SECRETARY OF STATE
---------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 0417442
DATE: 05-03-00
CERTIFICATE OF DESIGNATION
OF THE
RELATIVE RIGHTS AND PREFERENCES
OF THE
SERIES D CONVERTIBLE PREFERRED STOCK
OF
LINEO, INC.
The undersigned, the Secretary of Lineo, Inc., a Delaware corporation
(the "Corporation"), does hereby certify that, pursuant to the authority
conferred upon the Board of Directors by the Certificate of Incorporation of the
Corporation, the following resolution creating a series of Series D Convertible
Preferred Stock was duly adopted by the Board of Directors of the Corporation as
of May 1, 2000:
RESOLVED, that pursuant to the authority expressly granted to and
vested in this Board of Directors by the provisions of the Certificate of
Incorporation of the Corporation, this Board of Directors hereby creates a
series of preferred stock (the "Preferred Stock"), $.001 par value per share, of
the Corporation to be designated as Series D Convertible Preferred Stock,
initially consisting of 2,000,000 shares. Except as provided herein or as
required by law, the relative rights and preferences of the Series D Convertible
Preferred Stock shall be as follows:
SERIES D CONVERTIBLE PREFERRED STOCK
The Corporation hereby designates 2,000,000 shares of the Preferred
Stock as Series D Convertible Preferred Stock (the "Series D Preferred Stock"),
which shall have the following rights, preferences and terms:
SECTION 1. DIVIDENDS. The holders of Series D Preferred Stock shall be
entitled to receive dividends, out of any assets legally available therefor, at
the same rate as dividends are paid (other than dividends paid in additional
shares of Common Stock) with respect to the Common Stock (treating each share of
Series D Preferred Stock as being equal to the number of shares of Common Stock
into which each such share of Series D Preferred Stock could be converted
pursuant to the provisions of Section 4 hereof with such number determined as of
the record date for the determination of holders of Common Stock entitled to
receive such dividend) (the "Participating Dividends"). Dividends shall be paid
by forwarding a check, postage prepaid, to the address of each holder (or, in
the case of joint holders, to the address of any such holder) of Series D
Preferred Stock and/or Common Stock, as applicable, as shown on the books of the
Corporation, or to such other address as such holder specifies for such purpose
by written notice to the Corporation.
SECTION 2. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, each holder of outstanding
shares of Series D Preferred Stock and any other stock ranking on liquidation
PARI PASSU therewith shall be entitled to be paid out of
the assets of the Corporation available for distribution to stockholders,
whether such assets are capital, surplus or earnings, after any amount shall be
paid or distributed to the holders of outstanding shares of Series A Class 1 and
Class 2 Convertible Preferred Stock (together, the "Series A Preferred Stock"),
Series B Convertible Preferred Stock (the "Series B Preferred Stock"), Series C
Convertible Preferred Stock (the "Series C Preferred Stock") and any other stock
ranking on liquidation senior to the Series D Preferred Stock, but before any
amount shall be paid or distributed to the holders of any class of Common Stock
or of any other stock ranking on liquidation junior to the Series D Preferred
Stock, an amount in cash equal to $6.00 per share (adjusted appropriately for
stock splits, stock dividends and the like) together with declared but unpaid
dividends to which the holders of outstanding shares of Series D Preferred Stock
are entitled pursuant to Section 1 hereof; provided, however, that if, upon any
liquidation, dissolution or winding up of the Corporation, the amounts payable
with respect to the Series D Preferred Stock and any other stock ranking on
liquidation PARI PASSU therewith are not paid in full, then each holder of
Series D Preferred Stock and any other stock ranking on liquidation PARI PASSU
therewith shall share ratably in any distribution of assets in proportion to the
full respective preferential amounts to which such holder is entitled.
(b) After payment of the full liquidation preferences of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock (collectively, the "Preferred Stock") as provided in
Section 2(a) and any other applicable liquidation preferences payable to holders
of outstanding Preferred Stock, any remaining assets of the Corporation then
available for distribution shall be distributed ratably among the holders of the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
(all on an as-if converted basis) and the Common Stock.
(c) A share exchange or merger of the Corporation into or with
another entity by means of any transaction or series of transactions (except (i)
a merger into or with a wholly owned subsidiary of the Corporation with
requisite stockholder approval or (ii) a merger in which the beneficial owners
of the Corporation's outstanding capital stock immediately prior to such
transaction hold no less than 51% of the voting power in the resulting entity),
the effectuation by the Corporation of a transaction or series of related
transactions in which 50% or more of the voting power of the Corporation is
disposed of, or a sale of all or substantially all of the assets of the
Corporation shall be regarded as a liquidation, dissolution or winding up of the
affairs of the Corporation within the meaning of this Section 2; provided,
however, that each holder of Series D Preferred Stock shall have the right to
convert his, her or its shares of Series D Preferred Stock to Common Stock
pursuant to Section 4(a) hereof in lieu of receiving payment in liquidation,
dissolution or winding up of the Corporation pursuant to this Section 2. Notice
of such conversion shall be submitted in accordance with the provisions of
Section 4(c) hereof no later than ten (10) days before the effective date of
such event, provided that any such notice shall be effective if given not later
than fifteen (15) days after the date of the Corporation's notice, pursuant to
Section 6, with respect to such event.
(d) If any of the assets of the Corporation are to be
distributed other than in cash under this Section 2 or for any purpose, then the
Board of Directors of the Corporation shall promptly engage independent
competent appraisers to determine the value of the assets to be distributed.
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(i) The Corporation shall, upon receipt of such
appraiser's valuation, give prompt written notice thereof to each holder of
shares of the Corporation's capital stock. Notwithstanding the above, any
securities to be distributed shall be valued as follows:
(A) if traded on a securities exchange or
through the Nasdaq National Market, the value shall be deemed to be the average
of the closing prices of the securities on such exchange over the 30-day period
ending three (3) business days prior to the distribution;
(B) if actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the 30-day period ending three (3) business days
prior to the distribution; and
(C) if there is no active public market, the
value shall be the fair market value thereof, as determined in good faith by the
Board of Directors and the holders of Preferred Stock.
(ii) The method of valuation of securities subject to
an investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (d)(i) to reflect the approximate fair market value
thereof, as mutually determined by the Corporation and the holders of at least a
majority of the voting power of all then outstanding shares of Preferred Stock.
(iii) In the event the requirements of this
subsection 2(d) are not complied with, the Corporation shall forthwith either:
(A) cause such closing to be postponed until
such time as the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event
the rights, preferences and privileges of the holders of the Preferred Stock
shall revert to and be the same as such rights, preferences and privileges
existing immediately prior to the date of the first notice referred to in
subsection 2(d)(iv) hereof.
(iv) The Corporation shall give each holder of record
of Preferred Stock written notice of such impending transaction not later than
20 days prior to the stockholders' meeting called to approve such transaction,
or 20 days prior to the closing of such transaction, whichever is earlier, and
shall notify such holders in writing of the final approval of such transaction.
The first of such notices shall describe the material terms and conditions of
the impending transaction and the provisions of this Section 2, and the
Corporation shall thereafter give such holders prompt notice of any material
changes. The transaction shall in no event take place sooner than 20 days after
this Corporation has given the first notice provided for herein or sooner than
10 days after this Corporation has given notice of any material changes provided
for herein; provided, however, that such periods may be shortened upon the
written consent of the holders of Preferred Stock that are entitled to such
notice rights or similar notice rights and that represent at least a majority of
the voting power of all then outstanding shares of Preferred Stock.
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(e) NOTICES. Any notice required by the provisions of this
Section 2 to be given to the holders of shares of Series D Preferred Stock shall
be in writing and shall be deemed given (i) five (5) days after having been sent
by registered or certified mail, return receipt requested, postage prepaid, or
(ii) one (1) day (or five (5) days in the case of international deliveries)
after the deposit with a nationally recognized overnight courier, having
specified next day delivery, with written verification of receipt. All notices
shall be addressed to each holder of record at the address of such holder
appearing on the books of the Corporation.
SECTION 3. VOTING POWER. Except as otherwise expressly provided herein
or as required by law, the holder of each share of Series D Preferred Stock
shall be entitled to vote on all matters submitted to a vote of the holders of
outstanding voting securities. Each share of Series D Preferred Stock shall
entitle the holder thereof to such number of votes per share as shall equal the
number of shares of Common Stock into which each share of Series D Preferred
Stock is convertible as of the record date for the determination of stockholders
entitled to vote on or consent to such matters or, if no such record date is
established, as of the date on which notice of such meeting is mailed or the
date any written consent of stockholders is solicited. Except as otherwise
expressly provided herein or as required by law, the holders of shares of the
Preferred Stock and the Common Stock shall vote together as a single class on
all matters. In all cases where class voting is required by law, Series D
Preferred Stock shall be considered a separate class.
SECTION 4. CONVERSION. The holders of Series D Preferred Stock shall
have the following conversion rights:
(a) VOLUNTARY CONVERSION. Holders of the outstanding shares of
Series D Preferred Stock shall be entitled, at any time and from time to time
after the date hereof, to cause any or all of such holder's shares to be
converted into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $6.00 by the Conversion Price (as defined
below) applicable to such shares, determined as hereafter provided, in effect on
the date the certificate is surrendered for conversion. Initially the conversion
price shall be $6.00 per share of Common Stock, which price shall be adjusted as
hereinafter provided (and, as so adjusted, is hereinafter referred to as the
"Conversion Price"). If a holder of Series D Preferred Stock elects to convert
his, her or its Series D Preferred Stock at a time when there are any accrued
and unpaid dividends or other amounts due on such shares (including any
Participating Dividends), such dividends and other amounts shall, to the extent
permitted by applicable law, be paid in full by the Corporation in connection
with such conversion.
(b) AUTOMATIC CONVERSION. Each share of Series D Preferred
Stock outstanding shall automatically, and without the requirement of any
consent of any holder, be converted into the number of shares of Common Stock
into which such shares are convertible at the then effective Conversion Price:
(i) upon the closing of a firm commitment underwritten public offering pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock of the Corporation to the
public at a minimum price of $7.50 per share (adjusted to reflect subsequent
stock dividends, stock splits, contributions or recapitalizations) and pursuant
to which the gross proceeds received by the Corporation equal or exceed
$7,500,000 (a "Qualified Public Offering"); (ii) upon a share exchange or merger
of the Corporation into or with another entity by means of any transaction or
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series of transactions (except (x) a merger into or with a wholly owned
subsidiary of the Corporation with requisite stockholder approval or (y) a
merger in which the beneficial owners of the Corporation's outstanding capital
stock immediately prior to such transaction hold no less than 51% of the voting
power in the resulting entity), the effectuation by the Corporation of a
transaction or series of related transactions in which 50% or more of the voting
power of the Corporation is disposed of, or a sale of all or substantially all
of the assets of the Corporation; or (iii) upon approval by the holders of at
least two-thirds (2/3) of the then outstanding shares of Preferred Stock (on an
as-if converted basis). In connection with any conversion under this Section
4(b), each holder of Series D Preferred Stock shall be entitled to receive, upon
consummation of a Qualified Public Offering or other event giving rise to such
conversion, payment in full of all accrued and unpaid dividends and other
amounts due on such shares (including any Participating Dividends).
(c) CONVERSION PROCEDURES. Any holder of Series D Preferred
Stock converting such shares into shares of Common Stock pursuant to Section
4(a), or whose shares are automatically converted pursuant to Section 4(b),
shall surrender the certificate or certificates representing Series D Preferred
Stock being converted, duly assigned or endorsed for transfer to the Corporation
(or accompanied by duly executed stock powers relating thereto), at the
principal executive office of the Corporation or the offices of the transfer
agent for Series D Preferred Stock or such office or offices in the continental
United States of an agent for conversion as may from time to time be designated
by notice to the holders of Series D Preferred Stock by the Corporation,
accompanied, in the case of conversion pursuant to Section 4(a), by written
notice of conversion. Such notice of conversion shall (i) specify the number of
shares of Series D Preferred Stock to be converted, (ii) specify the name or
names in which such holder wishes the certificate or certificates for Common
Stock and for any Series D Preferred Stock not to be so converted to be issued,
(iii) include payment of any applicable transfer tax and (iv) specify the
address to which such holder wishes delivery to be made of such new certificates
to be issued upon such conversion. Upon surrender of a certificate representing
Series D Preferred Stock for conversion, the Corporation shall issue and send by
hand delivery, by courier or by first class mail (postage prepaid) to the holder
thereof or to such holder's designee, at the address designated by such holder,
a certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled upon conversion. In the event that there shall
have been surrendered a certificate or certificates representing Series D
Preferred Stock, only part of which are to be converted, the Corporation shall
issue and send to such holder or such holder's designee, in the manner set forth
in the preceding sentence, a new certificate or certificates representing the
number of shares of Series D Preferred Stock which shall not have been
converted.
(d) EFFECTIVE DATE OF CONVERSION. The issuance by the
Corporation of shares of Common Stock upon a conversion of Series D Preferred
Stock into shares of Common Stock made at the option of the holder thereof
pursuant to Section 4(a) hereof shall be effective as of the surrender of the
certificate or certificates for Series D Preferred Stock to be converted, duly
assigned or endorsed for transfer to the Corporation (or accompanied by duly
executed stock powers relating thereto). The issuance by the Corporation of
shares of Common Stock upon a conversion of Series D Preferred Stock into Common
Stock pursuant to Section 4(b) hereof shall be deemed to be effective
immediately prior to the closing of the Qualified Public Offering or upon the
effective date of the event giving rise to such conversion. On and after the
effective
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date of conversion, the person or persons entitled to receive Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock.
(e) FRACTIONAL SHARES. The Corporation shall not be obligated
to deliver to holders of Series D Preferred Stock any fractional share of Common
Stock issuable upon any conversion of such Series D Preferred Stock, but in lieu
thereof may make a cash payment in respect thereof in any manner permitted by
law. Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Series D Preferred
Stock the holder is at the time converting into Common Stock and the number of
shares of Common Stock issuable upon such aggregate conversion.
(f) RESERVATION OF COMMON STOCK. The Corporation shall at all
times reserve and keep available out of its authorized and unissued Common
Stock, solely for issuance upon the conversion of Series D Preferred Stock as
herein provided, free from any preemptive rights or other obligations (except
such rights and obligations created in connection with the issuance of the
Series D Preferred Stock as are entered into by the holders thereof and the
Corporation), such number of shares of Common Stock as shall from time to time
be issuable upon the conversion of all the Series D Preferred Stock then
outstanding; provided, that the shares of Common Stock so reserved shall not be
reduced or affected in any manner whatsoever so long as any Series D Preferred
Stock is outstanding, except in the case of a reverse stock split or stock
combination. The Corporation shall prepare and shall use its reasonable business
efforts to obtain and keep in force such governmental or regulatory permits or
other authorizations as may be required by law, and shall comply with all
requirements as to registration, qualification or listing of Common Stock, in
order to enable the Corporation lawfully to issue and deliver to each holder of
record of Series D Preferred Stock such number of shares of its Common Stock as
shall from time to time be sufficient to effect the conversion of all shares of
Series D Preferred Stock then outstanding and convertible into shares of Common
Stock.
(g) ADJUSTMENTS TO CONVERSION PRICE. Upon the issuance of
additional shares of Common Stock as a dividend or other distribution on
outstanding Common Stock, the subdivision of outstanding shares of Common Stock
into a greater number of shares of Common Stock, or the combination of
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, the Conversion Price shall, simultaneously with the happening of such
dividend, subdivision or combination, be adjusted by multiplying the then
effective Conversion Price by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such event and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such event. An adjustment made pursuant to this
Section 4(g) shall be given effect, upon payment of such a dividend or
distribution, as of the record date for the determination of stockholders
entitled to receive such dividend or distribution (on a retroactive basis) and,
in the case of a subdivision or combination, immediately as of the effective
date thereof.
(h) OTHER ADJUSTMENTS. In the event the Corporation shall make
or issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, then and in each such event
lawful and adequate provision shall be made so that
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the holders of Series D Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
number of securities of the Corporation which they would have received had their
Series D Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the conversion date (calculated in accordance with Section 4(d)
hereof), retained such securities receivable by them as aforesaid during such
period, giving application to all adjustments called for during such period
under this Section 4 as applied to such distributed securities.
If the Common Stock issuable upon the conversion of the Series D
Preferred Stock shall be changed into the same or different number of shares of
any class or classes of stock, whether by reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
above), then and in each such event the holder of each share of Series D
Preferred Stock shall have the right thereafter to convert each such share into
the kind and amount of shares of stock and other securities and property
receivable upon such reclassification or other change, by holders of the number
of shares of Common Stock into which such shares of Series D Preferred Stock
might have been converted immediately prior to such reclassification or change,
all subject to further adjustment as provided herein.
(i) OTHER DISTRIBUTIONS. In the event this Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this Corporation or other persons, or assets (excluding
cash dividends), then, in each such case for the purpose of this Section 4(i),
the holders of the Preferred Stock shall be entitled to a proportionate share of
any such distribution as though they were the holders of the number of shares of
Common Stock of the Corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(j) NO IMPAIRMENT. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Preferred Stock against dilution or
other impairment.
(k) NOTICES OF ADJUSTMENT. In each case of an adjustment or
readjustment of the Conversion Price, the Corporation will furnish each holder
of Series D Preferred Stock with a certificate, prepared by the chief financial
officer of the Corporation, showing such adjustment or readjustment, and stating
in detail the facts upon which such adjustment or readjustment is based.
(l) NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Series D Preferred Stock shall
be in writing and shall be deemed given (i) five (5) days after having been sent
by registered or certified mail, return receipt requested, postage prepaid, or
(ii) one (1) day (or five (5) days in the case of international deliveries)
after the deposit with a nationally recognized overnight courier, having
specified next
8
day delivery, with written verification of receipt. All notices shall be
addressed to each holder of record at the address of such holder appearing on
the books of the Corporation.
SECTION 5. NO REISSUANCE OF SERIES D PREFERRED STOCK. No share or
shares of Series D Preferred Stock acquired by the Corporation by reason of
redemption, purchase, conversion or otherwise shall be reissued, and all such
shares shall be canceled, retired, and eliminated from the shares which the
Corporation shall be authorized to issue. The Corporation may from time to time
take such appropriate corporate action as may be necessary to reduce the
authorized number of shares of Series D Preferred Stock accordingly.
SECTION 6. NOTICES OF RECORD DATE. In the event (i) the Corporation
establishes a record date to determine the holders of any class of securities
who are entitled to receive any dividend or other distribution, or (ii) there
occurs any capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, and any transfer of all or substantially all
of the assets of the Corporation to any other corporation, or any other entity
or person, or any voluntary or involuntary dissolution, liquidation or winding
up of the Corporation, the Corporation shall mail to each holder of Series D
Preferred Stock at least 20 days prior to the record date or the expected
effective date, as the case may be, specified therein, a notice specifying (a)
the date of such record date for the purpose of such dividend or distribution
and a description of such dividend or distribution, (b) the date on which any
such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective and (c)
the time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up.
SECTION 7. OTHER RIGHTS. Except as otherwise provided in this
Certificate of Designation, each share of Series D Preferred Stock and each
share of Common Stock shall be identical in all respects, shall have the same
powers, preferences and rights, without preference of any such class or share
over any other such class or share.
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IN WITNESS WHEREOF, the undersigned has executed and subscribed this
Certificate and does affirm the foregoing as true as of the 2nd day of May,
2000.
Lineo, Inc.
a Delaware corporation
By /s/ Matthew R. Harris, Secretary
STATE OF DELAWARE
-----------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF
THE CERTIFICATE OF DESIGNATION OF "LINEO, INC.", FILED IN THIS OFFICE
ON THE TWENTY-FIFTH DAY OF APRIL, A.D. 2000, AT 4:30 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS.
/s/ EDWARD J. FREEL, SECRETARY OF STATE
---------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 0401770
DATE: 04-26-00
CERTIFICATE OF DESIGNATION
OF THE
RELATIVE RIGHTS AND PREFERENCES
OF THE
SERIES C CONVERTIBLE PREFERRED STOCK
OF
LINEO, INC.
The undersigned, the President and Chairman of Lineo, Inc., a Delaware
corporation (the "Corporation"), does hereby certify that, pursuant to the
authority conferred upon the Board of Directors by the Certificate of
Incorporation of the Corporation, the following resolution creating a series of
Series C Convertible Preferred Stock was duly adopted by the Board of Directors
of the Corporation as of April 25, 2000:
RESOLVED, that pursuant to the authority expressly granted to and
vested in this Board of Directors by the provisions of the Certificate of
Incorporation of the Corporation, this Board of Directors hereby creates a
series of preferred stock (the "Preferred Stock"), $.001 par value per share, of
the Corporation to be designated as Series C Convertible Preferred Stock,
initially consisting of 3,000,000 shares. Except as provided herein or as
required by law, the relative rights and preferences of the Series C Convertible
Preferred Stock shall be as follows:
SERIES C CONVERTIBLE PREFERRED STOCK
The Corporation hereby designates 3,000,000 shares of the Preferred
Stock as Series C Convertible Preferred Stock (the "Series C Preferred Stock"),
which shall have the following rights, preferences and terms:
SECTION 8. DIVIDENDS. The holders of Series C Preferred Stock shall be
entitled to receive dividends, out of any assets legally available therefor, at
the same rate as dividends are paid with respect to Series A Class 1 and Class 2
Convertible Preferred Stock (together, the "Series A Preferred Stock"), Series B
Convertible Preferred Stock (the "Series B Preferred Stock") and (other than
dividends paid in additional shares of Common Stock) with respect to the Common
Stock (treating each share of Series C Preferred Stock as being equal to the
number of shares of Common Stock into which each such share of Series C
Preferred Stock could be converted pursuant to the provisions of Section 4
hereof with such number determined as of the record date for the determination
of holders of Common Stock entitled to receive such dividend) (the
"Participating Dividends"). Dividends shall be paid by forwarding a check,
postage prepaid, to the address of each holder (or, in the case of joint
holders, to the address of any such holder) of Series C Preferred Stock and/or
Common Stock, as applicable, as shown on the books of the Corporation, or to
such other address as such holder specifies for such purpose by written notice
to the Corporation.
SECTION 9. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, each holder of outstanding
shares of Series C Preferred Stock shall be entitled to be paid out of the
assets of the Corporation available for distribution to stockholders, whether
such assets are capital, surplus or earnings, on a PARI PASSU basis with each
holder of outstanding shares of Series A Preferred Stock, Series B Preferred
Stock and any other stock ranking on liquidation PARI PASSU therewith, and
before any amount shall be paid or distributed to the holders of any class of
Common Stock or of any other stock ranking on liquidation junior to the Series C
Preferred Stock, an amount in cash equal to $6.00 per share (adjusted
appropriately for stock splits, stock dividends and the like) together with
declared but unpaid dividends to which the holders of outstanding shares of
Series C Preferred Stock are entitled pursuant to Section 1 hereof; provided,
however, that if, upon any liquidation, dissolution or winding up of the
Corporation, the amounts payable with respect to the Series C Preferred Stock,
the Series A Preferred Stock, the Series B Preferred Stock and any other stock
ranking on liquidation PARI PASSU therewith are not paid in full, then each
holder of Series C Preferred Stock, Series A Preferred Stock, Series B Preferred
Stock and any other stock ranking on liquidation PARI PASSU therewith shall
share ratably in any distribution of assets in proportion to the full respective
preferential amounts to which such holder is entitled.
(b) After payment of the full liquidation preference of the
Series C Preferred Stock, Series A Preferred Stock and Series B Preferred Stock
(collectively, the "Preferred Stock") as provided in Section 2(a) and any other
applicable liquidation preferences payable to holders of outstanding Preferred
Stock, any remaining assets of the Corporation then available for distribution
shall be distributed ratably among the holders of the Preferred Stock (on an
as-if converted basis) and the Common Stock.
(c) A share exchange or merger of the Corporation into or with
another entity by means of any transaction or series of transactions (except (i)
a merger into or with a wholly owned subsidiary of the Corporation with
requisite stockholder approval or (ii) a merger in which the beneficial owners
of the Corporation's outstanding capital stock immediately prior to such
transaction hold no less than 51% of the voting power in the resulting entity),
the effectuation by the Corporation of a transaction or series of related
transactions in which 50% or more of the voting power of the Corporation is
disposed of, or a sale of all or substantially all of the assets of the
Corporation shall be regarded as a liquidation, dissolution or winding up of the
affairs of the Corporation within the meaning of this Section 2; provided,
however, that each holder of Series C Preferred Stock shall have the right to
convert his, her or its shares of Series C Preferred Stock to Common Stock
pursuant to Section 4(a) hereof in lieu of receiving payment in liquidation,
dissolution or winding up of the Corporation pursuant to this Section 2. Notice
of such conversion shall be submitted in accordance with the provisions of
Section 4(c) hereof no later than ten (10) days before the effective date of
such event, provided that any such notice shall be effective if given not later
than fifteen (15) days after the date of the Corporation's notice, pursuant to
Section 6, with respect to such event.
(d) If any of the assets of the Corporation are to be
distributed other than in cash under this Section 2 or for any purpose, then the
Board of Directors of the Corporation shall
13
promptly engage independent competent appraisers to determine the value of the
assets to be distributed.
(i) The Corporation shall, upon receipt of such
appraiser's valuation, give prompt written notice thereof to each holder of
shares of the Corporation's capital stock. Notwithstanding the above, any
securities to be distributed shall be valued as follows:
(A) if traded on a securities exchange or
through the Nasdaq National Market, the value shall be deemed to be the average
of the closing prices of the securities on such exchange over the 30-day period
ending three (3) business days prior to the distribution;
(B) if actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the 30-day period ending three (3) business days
prior to the distribution; and
(C) if there is no active public market, the
value shall be the fair market value thereof, as determined in good faith by the
Board of Directors and the holders of Preferred Stock.
(ii) The method of valuation of securities subject to
an investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (d)(i) to reflect the approximate fair market value
thereof, as mutually determined by the Corporation and the holders of at least a
majority of the voting power of all then outstanding shares of Preferred Stock.
(iii) In the event the requirements of this
subsection 2(d) are not complied with, the Corporation shall forthwith either:
(A) cause such closing to be postponed until
such time as the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event
the rights, preferences and privileges of the holders of the Preferred Stock
shall revert to and be the same as such rights, preferences and privileges
existing immediately prior to the date of the first notice referred to in
subsection 2(d)(iv) hereof.
(iv) The Corporation shall give each holder of record
of Preferred Stock written notice of such impending transaction not later than
20 days prior to the stockholders' meeting called to approve such transaction,
or 20 days prior to the closing of such transaction, whichever is earlier, and
shall notify such holders in writing of the final approval of such transaction.
The first of such notices shall describe the material terms and conditions of
the impending transaction and the provisions of this Section 2, and the
Corporation shall thereafter give such holders prompt notice of any material
changes. The transaction shall in no event take place sooner than 20 days after
this Corporation has given the first notice provided for herein or sooner than
10 days after this Corporation has given notice of any material changes provided
for herein; provided, however, that such periods may be shortened upon the
written consent of the
14
holders of Preferred Stock that are entitled to such notice rights or similar
notice rights and that represent at least a majority of the voting power of all
then outstanding shares of Preferred Stock.
(e) Notices. Any notice required by the provisions of this
Section 2 to be given to the holders of shares of Series C Preferred Stock shall
be in writing and shall be deemed given (i) five (5) days after having been sent
by registered or certified mail, return receipt requested, postage prepaid, or
(ii) one (1) day (or five (5) days in the case of international deliveries)
after the deposit with a nationally recognized overnight courier, having
specified next day delivery, with written verification of receipt. All notices
shall be addressed to each holder of record at the address of such holder
appearing on the books of the Corporation.
SECTION 10. VOTING POWER. Except as otherwise expressly provided herein
or as required by law, the holder of each share of Series C Preferred Stock
shall be entitled to vote on all matters submitted to a vote of the holders of
outstanding voting securities. Each share of Series C Preferred Stock shall
entitle the holder thereof to such number of votes per share as shall equal the
number of shares of Common Stock into which each share of Series C Preferred
Stock is convertible as of the record date for the determination of stockholders
entitled to vote on or consent to such matters or, if no such record date is
established, as of the date on which notice of such meeting is mailed or the
date any written consent of stockholders is solicited. Except as otherwise
expressly provided herein or as required by law, the holders of shares of the
Preferred Stock and the Common Stock shall vote together as a single class on
all matters. In all cases where class voting is required herein or is required
by law, Series C Preferred Stock shall be considered a separate class.
SECTION 11. CONVERSION. The holders of Series C Preferred Stock shall
have the following conversion rights:
(a) VOLUNTARY CONVERSION. Holders of the outstanding shares of
Series C Preferred Stock shall be entitled, at any time and from time to time
after the date hereof, to cause any or all of such holder's shares to be
converted into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $6.00 by the Conversion Price (as defined
below) applicable to such shares, determined as hereafter provided, in effect on
the date the certificate is surrendered for conversion. Initially the conversion
price shall be $6.00 per share of Common Stock, which price shall be adjusted as
hereinafter provided (and, as so adjusted, is hereinafter referred to as the
"Conversion Price"). If a holder of Series C Preferred Stock elects to convert
his, her or its Series C Preferred Stock at a time when there are any accrued
and unpaid dividends or other amounts due on such shares (including any
Participating Dividends), such dividends and other amounts shall, to the extent
permitted by applicable law, be paid in full by the Corporation in connection
with such conversion.
(b) AUTOMATIC CONVERSION. Each share of Series C Preferred
Stock outstanding shall automatically, and without the requirement of any
consent of any holder, be converted into the number of shares of Common Stock
into which such shares are convertible at the then effective Conversion Price:
(i) upon the closing of a firm commitment underwritten public offering pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock of the Corporation to the
public at a minimum price of $10.00 per share (adjusted to reflect subsequent
stock dividends, stock splits,
15
contributions or recapitalizations) and pursuant to which the gross proceeds
received by the Corporation equal or exceed $15,000,000 (a "Qualified Public
Offering"); (ii) upon approval by the holders of at least two-thirds (2/3) of
the then outstanding shares of Series C Preferred Stock; or (iii) upon the
cumulative conversion of at least two-thirds (2/3) of the then outstanding
shares of Series C Preferred Stock pursuant to Section 2(a) hereof. In
connection with any conversion under this Section 4(b), each holder of Series C
Preferred Stock shall be entitled to receive, upon consummation of a Qualified
Public Offering or other event giving rise to such conversion, payment in full
of all accrued and unpaid dividends and other amounts due on such shares
(including any Participating Dividends).
(c) CONVERSION PROCEDURES. Any holder of Series C Preferred
Stock converting such shares into shares of Common Stock pursuant to Section
4(a), or whose shares are automatically converted pursuant to Section 4(b),
shall surrender the certificate or certificates representing Series C Preferred
Stock being converted, duly assigned or endorsed for transfer to the Corporation
(or accompanied by duly executed stock powers relating thereto), at the
principal executive office of the Corporation or the offices of the transfer
agent for Series C Preferred Stock or such office or offices in the continental
United States of an agent for conversion as may from time to time be designated
by notice to the holders of Series C Preferred Stock by the Corporation,
accompanied, in the case of conversion pursuant to Section 4(a), by written
notice of conversion. Such notice of conversion shall (i) specify the number of
shares of Series C Preferred Stock to be converted, (ii) specify the name or
names in which such holder wishes the certificate or certificates for Common
Stock and for any Series C Preferred Stock not to be so converted to be issued,
(iii) include payment of any applicable transfer tax and (iv) specify the
address to which such holder wishes delivery to be made of such new certificates
to be issued upon such conversion. Upon surrender of a certificate representing
Series C Preferred Stock for conversion, the Corporation shall issue and send by
hand delivery, by courier or by first class mail (postage prepaid) to the holder
thereof or to such holder's designee, at the address designated by such holder,
a certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled upon conversion. In the event that there shall
have been surrendered a certificate or certificates representing Series C
Preferred Stock, only part of which are to be converted, the Corporation shall
issue and send to such holder or such holder's designee, in the manner set forth
in the preceding sentence, a new certificate or certificates representing the
number of shares of Series C Preferred Stock which shall not have been
converted.
(d) EFFECTIVE DATE OF CONVERSION. The issuance by the
Corporation of shares of Common Stock upon a conversion of Series C Preferred
Stock into shares of Common Stock made at the option of the holder thereof
pursuant to Section 4(a) hereof shall be effective as of the surrender of the
certificate or certificates for Series C Preferred Stock to be converted, duly
assigned or endorsed for transfer to the Corporation (or accompanied by duly
executed stock powers relating thereto). The issuance by the Corporation of
shares of Common Stock upon a conversion of Series C Preferred Stock into Common
Stock pursuant to Section 4(b) hereof shall be deemed to be effective
immediately prior to the closing of the Qualified Public Offering or upon the
effective date of the event giving rise to such conversion. On and after the
effective date of conversion, the person or persons entitled to receive Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock.
16
(e) FRACTIONAL SHARES. The Corporation shall not be obligated
to deliver to holders of Series C Preferred Stock any fractional share of Common
Stock issuable upon any conversion of such Series C Preferred Stock, but in lieu
thereof may make a cash payment in respect thereof in any manner permitted by
law. Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Series C Preferred
Stock the holder is at the time converting into Common Stock and the number of
shares of Common Stock issuable upon such aggregate conversion.
(f) RESERVATION OF COMMON STOCK. The Corporation shall at all
times reserve and keep available out of its authorized and unissued Common
Stock, solely for issuance upon the conversion of Series C Preferred Stock as
herein provided, free from any preemptive rights or other obligations (except
such rights and obligations created in connection with the issuance of the
Series C Preferred Stock as are entered into by the holders thereof and the
Corporation), such number of shares of Common Stock as shall from time to time
be issuable upon the conversion of all the Series C Preferred Stock then
outstanding provided that the shares of Common Stock so reserved shall not be
reduced or affected in any manner whatsoever so long as any Series C Preferred
Stock is outstanding, except in the case of a reverse stock split or stock
combination. The Corporation shall prepare and shall use its reasonable business
efforts to obtain and keep in force such governmental or regulatory permits or
other authorizations as may be required by law, and shall comply with all
requirements as to registration, qualification or listing of Common Stock, in
order to enable the Corporation lawfully to issue and deliver to each holder of
record of Series C Preferred Stock such number of shares of its Common Stock as
shall from time to time be sufficient to effect the conversion of all shares of
Series C Preferred Stock then outstanding and convertible into shares of Common
Stock.
(g) ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price in
effect from time to time shall be subject to adjustment as follows:
(i) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS.
Upon the issuance of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, the subdivision of outstanding shares
of Common Stock into a greater number of shares of Common Stock, or the
combination of outstanding shares of Common Stock into a smaller number of
shares of Common Stock, the Conversion Price shall, simultaneously with the
happening of such dividend, subdivision or combination, be adjusted by
multiplying the then effective Conversion Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such event. An adjustment made
pursuant to this Section 4(g)(i) shall be given effect, upon payment of such a
dividend or distribution, as of the record date for the determination of
stockholders entitled to receive such dividend or distribution (on a retroactive
basis) and, in the case of a subdivision or combination, immediately as of the
effective date thereof.
(ii) SALE OF COMMON STOCK. In the event the
Corporation shall at any time or from time to time while Series C Preferred
Stock is outstanding, issue, sell or exchange any shares of Common Stock
(including shares held in the Corporation's treasury, but excluding: (i) any
Common Stock which may be issued upon conversion of the Preferred Stock, and
(ii) up to 5,000,000 shares of Common Stock issued to officers, directors,
employees, consultants or
17
agents of the Corporation pursuant to the Corporation's 1999 Stock Option Plan
(the "Plan") or upon the exercise of options issued pursuant to such Plan, or
such greater number of shares as may be issuable pursuant to the adjustment
provisions of such Plan as in effect on the date hereof (collectively, the
"Excluded Shares")), for a consideration per share less than the Conversion
Price in effect immediately prior to the issuance, sale or exchange of such
shares (any such issuance, sale or exchange hereinafter referred to as a
"Dilutive Transaction"), then, and thereafter successively upon the consummation
of any Dilutive Transaction, the Conversion Price in effect immediately prior to
the Dilutive Transaction shall forthwith be reduced to an amount (calculated to
the nearest cent) determined by multiplying such Conversion Price by a fraction:
(A) the numerator of which shall be (1) the number of shares
of Common Stock of all classes outstanding immediately prior to the
Dilutive Transaction (excluding treasury shares but including all
shares of Common Stock issuable upon conversion or exercise of any
outstanding Preferred Stock, options, warrants, rights or convertible
securities), plus (2) the number of shares of Common Stock which the
net aggregate consideration received by the Corporation for the total
number of such additional shares of Common Stock so issued in the
Dilutive Transaction would purchase at the Conversion Price (prior to
adjustment), and
(B) the denominator of which shall be (1) the number of shares
of Common Stock of all classes outstanding immediately prior to the
Dilutive Transaction (excluding treasury shares but including all
shares of Common Stock issuable upon conversion or exercise of any
outstanding Preferred Stock, options, warrants, rights or convertible
securities), plus (2) the number of such additional shares of Common
Stock so issued in the Dilutive Transaction.
(iii) SALE OF OPTIONS, RIGHTS OR CONVERTIBLE
SECURITIES. In the event the Corporation shall at any time or from time to time
while the Series C Preferred Stock is outstanding, issue options, warrants or
rights to subscribe for shares of Common Stock (other than any options for
Excluded Shares), or issue any securities convertible into or exercisable or
exchangeable for shares of Common Stock, for a consideration per share
(determined by dividing the Net Aggregate Consideration (as determined below) by
the aggregate number of shares of Common Stock that would be issued if all such
options, warrants, rights or convertible securities were exercised or converted
to the fullest extent permitted by their terms) less than the Conversion Price
in effect immediately prior to the issuance of such options or rights or
convertible or exchangeable securities, the Conversion Price in effect
immediately prior to the issuance of such options, warrants or rights or
securities shall be reduced to an amount determined by multiplying such
Conversion Price by a fraction:
(A) the numerator of which shall be (1) the number of shares
of Common Stock of all classes outstanding immediately prior to the
issuance of such options, rights or convertible securities (excluding
treasury shares but including all shares of Common Stock issuable upon
conversion or exercise of any outstanding Preferred Stock, options,
warrants, rights or convertible securities), plus (2) the number of
shares of Common Stock which the total amount of consideration received
by the Corporation for the issuance of such options, warrants, rights
or convertible securities PLUS the minimum
18
amount set forth in the terms of such security as payable to the
Corporation upon the exercise or conversion thereof (the "Net Aggregate
Consideration") would purchase at the Conversion Price prior to
adjustment, and
(B) the denominator of which shall be (1) the number of shares
of Common Stock of all classes outstanding immediately prior to the
issuance of such options, warrants, rights or convertible securities
(excluding treasury shares but including all shares of Common Stock
issuable upon conversion or exercise of any outstanding Preferred
Stock, options, warrants, rights or convertible securities), plus (2)
the aggregate number of shares of Common Stock that would be issued if
all such options, warrants, rights or convertible securities were
exercised or converted.
(iv) EXPIRATION OR CHANGE IN PRICE. If the
consideration per share provided for in any options or rights to subscribe for
shares of Common Stock or any securities exercisable or exchangeable for or
convertible into shares of Common Stock changes at any time, the Conversion
Price in effect at the time of such change shall be readjusted to the Conversion
Price which would have been in effect at such time had such options or
convertible securities provided for such changed consideration per share
(determined as provided in Section 4(g)(iii) hereof) at the time initially
granted, issued or sold; PROVIDED, that such adjustment of the Conversion Price
will be made only as and to the extent that the Conversion Price effective upon
such adjustment remains less than or equal to the Conversion Price that would be
in effect if such options, rights or securities had not been issued. No
adjustment of the Conversion Price shall be made under this Section 4 upon the
issuance of any additional shares of Common Stock which are issued pursuant to
the exercise of any warrants, options or other subscription or purchase rights
or pursuant to the exercise of any conversion or exchange rights in any
convertible securities if an adjustment shall previously have been made upon the
issuance of such warrants, options or other rights. Any adjustment of the
Conversion Price shall be disregarded if, as, and when the rights to acquire
shares of Common Stock upon exercise or conversion of the warrants, options,
rights or convertible securities which gave rise to such adjustment expire or
are canceled without having been exercised, so that the Conversion Price
effective immediately upon such cancellation or expiration shall be equal to the
Conversion Price in effect at the time of the issuance of the expired or
canceled warrants, options, rights or convertible securities, with such
additional adjustments as would have been made to that Conversion Price had the
expired or canceled warrants, options, rights or convertible securities not been
issued.
(h) OTHER ADJUSTMENTS. In the event the Corporation shall make
or issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, then and in each such event
lawful and adequate provision shall be made so that the holders of Series C
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the number of securities of the
Corporation which they would have received had their Series C Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
conversion date (calculated in accordance with Section 4(d) hereof), retained
such securities receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under this Section
4 as applied to such distributed securities.
19
If the Common Stock issuable upon the conversion of the Series C
Preferred Stock shall be changed into the same or different number of shares of
any class or classes of stock, whether by reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
above), then and in each such event the holder of each share of Series C
Preferred Stock shall have the right thereafter to convert each such share into
the kind and amount of shares of stock and other securities and property
receivable upon such reclassification or other change, by holders of the number
of shares of Common Stock into which such shares of Series C Preferred Stock
might have been converted immediately prior to such reclassification or change,
all subject to further adjustment as provided herein.
(i) OTHER DISTRIBUTIONS. In the event this Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in Section 4(g)(iii), then, in
each such case for the purpose of this Section 4(i), the holders of the
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(j) NO IMPAIRMENT. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Preferred Stock against dilution or
other impairment.
(k) NOTICES OF ADJUSTMENT. In each case of an adjustment or
readjustment of the Conversion Price, the Corporation will furnish each holder
of Series C Preferred Stock with a certificate, prepared by the chief financial
officer of the Corporation, showing such adjustment or readjustment, and stating
in detail the facts upon which such adjustment or readjustment is based.
(l) NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Series C Preferred Stock shall
be in writing and shall be deemed given (i) five (5) days after having been sent
by registered or certified mail, return receipt requested, postage prepaid, or
(ii) one (1) day (or five (5) days in the case of international deliveries)
after the deposit with a nationally recognized overnight courier, having
specified next day delivery, with written verification of receipt. All notices
shall be addressed to each holder of record at the address of such holder
appearing on the books of the Corporation.
SECTION 12. NO REISSUANCE OF SERIES C PREFERRED STOCK. No share or
shares of Series C Preferred Stock acquired by the Corporation by reason of
redemption, purchase, conversion or otherwise shall be reissued, and all such
shares shall be canceled, retired, and eliminated from the shares which the
Corporation shall be authorized to issue. The Corporation may from time to time
take such appropriate corporate action as may be necessary to reduce the
authorized number of shares of Series C Preferred Stock accordingly.
20
SECTION 13. NOTICES OF RECORD DATE. In the event (i) the Corporation
establishes a record date to determine the holders of any class of securities
who are entitled to receive any dividend or other distribution, or (ii) there
occurs any capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, and any transfer of all or substantially all
of the assets of the Corporation to any other corporation, or any other entity
or person, or any voluntary or involuntary dissolution, liquidation or winding
up of the Corporation, the Corporation shall mail to each holder of Series C
Preferred Stock at least 20 days prior to the record date or the expected
effective date, as the case may be, specified therein, a notice specifying (a)
the date of such record date for the purpose of such dividend or distribution
and a description of such dividend or distribution, (b) the date on which any
such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective and (c)
the time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up.
SECTION 14. PROTECTIVE PROVISION. So long as any shares of Series C
Preferred Stock remain outstanding, the Corporation shall not without the
affirmative vote or written consent of the holders of two-thirds in interest of
the Series C Preferred Stock voting as a class:
(a) sell, lease or otherwise dispose of (whether in one
transaction or a series of related transactions) more than 50% of its assets or
business,
(b) merge with or into or consolidate with another entity or
enter into or engage in any other transaction or series of related transactions,
in any such case in connection with or as a result of which the Corporation is
not the surviving entity or the owners of the Corporation's outstanding equity
securities immediately prior to the transaction or series of related
transactions do not own at least a majority of the outstanding equity securities
of the surviving, resulting or consolidated entity,
(c) dissolve, liquidate or wind up its operations,
(d) adopt any amendment to this Certificate of Designation, or
any amendment to its Certificate of Incorporation or Bylaws, that eliminates,
amends, restricts or otherwise adversely affects the rights and preferences of
the Series C Preferred Stock, or that increases the authorized shares of the
Series C Preferred Stock,
(e) declare or make dividend payments on any shares of its
Common Stock or any other class of its capital stock,
(f) create, or obligate itself to create, any class or series
of shares or any other security that has a preference over or is on parity with
the Series C Preferred Stock,
(g) increase the size of the Board of Directors of the
Corporation to more than five (5) members,
21
(h) redeem, purchase or otherwise acquire (or pay into or set
aside funds for a sinking fund for such purpose) any share or shares of
Preferred Stock or Common Stock; PROVIDED, HOWEVER, that this restriction shall
not apply to the repurchase of shares of Common Stock from employees, officers,
directors, consultants or other persons performing services for the Corporation
or any subsidiary pursuant to agreements under which the Corporation has the
right to repurchase such shares and such repurchase is approved by the
Corporation's Board of Directors,
(i) permit a subsidiary of the Corporation to sell or issue
securities to a third party, except in connection with joint ventures or other
strategic relationships approved by the Corporation's Board of Directors,
(j) increase (other than by conversion) the authorized number
of shares of Preferred Stock, or
(k) make a fundamental change in the principal business of the
Corporation as presently conducted or proposed to be conducted.
SECTION 15. OTHER RIGHTS. Except as otherwise provided in this
Certificate of Designation, each share of Series C Preferred Stock, each share
of Series A Preferred Stock, each share of Series B Preferred Stock and each
share of Common Stock shall be identical in all respects, shall have the same
powers, preferences and rights, without preference of any such class or share
over any other such class or share.
IN WITNESS WHEREOF, the undersigned has executed and subscribed this
Certificate and does affirm the foregoing as true as of the 25th day of April,
2000.
Lineo, Inc.
a Delaware corporation
By /s/ Bryan Sparks, President and Chairman
22
STATE OF DELAWARE
Office of the Secretary of State
-----------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF
THE CERTIFICATE OF DESIGNATION OF "LINEO, INC.", FILED IN THIS OFFICE
ON THE FOURTEENTH DAY OF MARCH, A.D. 2000, AT 2:30 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS.
/s/ EDWARD J. FREEL, SECRETARY OF STATE
---------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 0345590
DATE: 03-28-00
CERTIFICATE OF DESIGNATION
OF THE
RELATIVE RIGHTS AND PREFERENCES
OF THE
SERIES B CONVERTIBLE PREFERRED STOCK
OF
LINEO, INC.
The undersigned, the President and Chairman of Lineo, Inc., a Delaware
corporation (the "Corporation"), does hereby certify that, pursuant to the
authority conferred upon the Board of Directors by the Certificate of
Incorporation of the Corporation, the following resolution creating a series of
Series B Convertible Preferred Stock was duly adopted by the Board of Directors
of the Corporation as of February 29, 2000:
RESOLVED, that pursuant to the authority expressly granted to and
vested in this Board of Directors by the provisions of the Certificate of
Incorporation of the Corporation, this Board of Directors hereby creates a
series of preferred stock (the "Preferred Stock"), $.001 par value per share, of
the Corporation to be designated as Series B Convertible Preferred Stock,
initially consisting of 4,850,000 shares. Except as provided herein or as
required by law, the relative rights and preferences of the Series B Convertible
Preferred Stock shall be as follows:
SERIES B CONVERTIBLE PREFERRED STOCK
The Corporation hereby designates 4,850,000 shares of the Preferred
Stock as Series B Convertible Preferred Stock (the "Series B Preferred Stock"),
which shall have the following rights, preferences and terms:
SECTION 16. DIVIDENDS. The holders of Series B Preferred Stock shall be
entitled to receive dividends at the same rate as dividends are paid with
respect to Series A Class 1 and Class 2 Convertible Preferred Stock (together,
the "Series A Preferred Stock") and (other than dividends paid in additional
shares of Common Stock) with respect to the Common Stock (treating each share of
Series B Preferred Stock as being equal to the number of shares of Common Stock
into which each such share of Series B Preferred Stock could be converted
pursuant to the provisions of Section 4 hereof with such number determined as of
the record date for the determination of holders of Common Stock entitled to
receive such dividend) (the "Participating Dividends"). Dividends shall be paid
by forwarding a check, postage prepaid, to the address of each holder (or, in
the case of joint holders, to the address of any such holder) of Series B
Preferred Stock and/or Common Stock, as applicable, as shown on the books of the
Corporation, or to such other address as such holder specifies for such purpose
by written notice to the Corporation.
SECTION 17. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, each holder of outstanding
shares of Series B Preferred Stock
shall be entitled to be paid out of the assets of the Corporation available for
distribution to stockholders, whether such assets are capital, surplus or
earnings, on a PARI PASSU basis with each holder of outstanding shares of Series
A Preferred Stock and any other stock ranking on liquidation PARI PASSU
therewith, and before any amount shall be paid or distributed to the holders of
any class of Common Stock or of any other stock ranking on liquidation junior to
the Series B Preferred Stock, an amount in cash equal to $3.00 per share
(adjusted appropriately for stock splits, stock dividends and the like) together
with declared but unpaid dividends to which the holders of outstanding shares of
Series B Preferred Stock are entitled pursuant to Section 1 hereof; provided,
however, that if, upon any liquidation, dissolution or winding up of the
Corporation, the amounts payable with respect to the Series B Preferred Stock,
the Series A Preferred Stock and any other stock ranking on liquidation PARI
PASSU therewith are not paid in full, then each holder of Series B Preferred
Stock, Series A Preferred Stock and any other stock ranking on liquidation PARI
PASSU therewith shall share ratably in any distribution of assets in proportion
to the full respective preferential amounts to which such holder is entitled.
(b) After payment of the full liquidation preference of the
Series B Preferred Stock and Series A Preferred Stock as provided in Section
2(a) and any other applicable liquidation preferences payable to holders of
outstanding Preferred Stock, any remaining assets of the Corporation then
available for distribution shall be distributed ratably among the holders of the
Preferred Stock (on an as-if converted basis) and the Common Stock.
(c) A share exchange or merger of the Corporation (except (i)
a merger into or with a wholly owned subsidiary of the Corporation with
requisite stockholder approval or (ii) a merger in which the beneficial owners
of the Corporation's outstanding capital stock immediately prior to such
transaction hold no less than 51% of the voting power in the resulting entity)
or a sale of all or substantially all of the assets of the Corporation shall be
regarded as a liquidation, dissolution or winding up of the affairs of the
Corporation within the meaning of this Section 2; provided, however, that each
holder of Series B Preferred Stock shall have the right to convert his, her or
its shares of Series B Preferred Stock to Common Stock pursuant to Section 4(a)
hereof in lieu of receiving payment in liquidation, dissolution or winding up of
the Corporation pursuant to this Section 2. Notice of such conversion shall be
submitted in accordance with the provisions of Section 4(c) hereof no later than
ten (10) days before the effective date of such event, provided that any such
notice shall be effective if given not later than fifteen (15) days after the
date of the Corporation's notice, pursuant to Section 6, with respect to such
event.
(d) If any of the assets of the Corporation are to be
distributed other than in cash under this Section 2 or for any purpose, then the
Board of Directors of the Corporation shall promptly engage independent
competent appraisers to determine the value of the assets to be distributed. The
Corporation shall, upon receipt of such appraiser's valuation, give prompt
written notice thereof to each holder of shares of the Corporation's capital
stock. Notwithstanding the above, any securities to be distributed shall be
valued as follows:
(i) if traded on a securities exchange, the value
shall be deemed to be the average of the closing prices of the securities on
such exchange over the 30-day period ending three (3) business days prior to the
distribution;
25
(ii) if actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid prices over the 30-day
period ending three (3) business days prior to the distribution; and
(iii) if there is no active public market, the value
shall be the fair market value thereof, as determined in good faith by the Board
of Directors and the holders of Preferred Stock.
SECTION 18. VOTING POWER. Except as otherwise expressly provided herein
or as required by law, the holder of each share of Series B Preferred Stock
shall be entitled to vote on all matters submitted to a vote of the holders of
outstanding voting securities. Each share of Series B Preferred Stock shall
entitle the holder thereof to such number of votes per share as shall equal the
number of shares of Common Stock into which each share of Series B Preferred
Stock is convertible as of the record date for the determination of stockholders
entitled to vote on or consent to such matters or, if no such record date is
established, as of the date on which notice of such meeting is mailed or the
date any written consent of stockholders is solicited. Except as otherwise
expressly provided herein or as required by law, the holders of shares of the
Preferred Stock and the Common Stock shall vote together as a single class on
all matters. In all cases where class voting is required herein or is required
by law, Series B Preferred Stock shall be considered a separate class.
SECTION 19. CONVERSION. The holders of Series B Preferred Stock shall
have the following conversion rights:
(a) VOLUNTARY CONVERSION. Holders of the outstanding shares of
Series B Preferred Stock shall be entitled, at any time and from time to time
after the date hereof, to cause any or all of such holder's shares to be
converted into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $3.00 by the conversion price applicable to
such shares, determined as hereafter provided, in effect on the date the
certificate is surrendered for conversion. Initially the conversion price shall
be $3.00 per share of Common Stock, which price shall be adjusted as hereinafter
provided (and, as so adjusted, is hereinafter sometimes referred to as the
"Conversion Price"). If a holder of Series B Preferred Stock elects to convert
his, her or its Series B Preferred Stock at a time when there are any accrued
and unpaid dividends or other amounts due on such shares (including any
Participating Dividends), such dividends and other amounts shall, to the extent
permitted by applicable law, be paid in full by the Corporation in connection
with such conversion.
(b) AUTOMATIC CONVERSION. Each share of Series B Preferred
Stock outstanding shall automatically, and without the requirement of any
consent of any holder, be converted into the number of shares of Common Stock
into which such shares are convertible at the then effective Conversion Price:
(i) upon the closing of a firm commitment underwritten public offering pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock of the Corporation to the
public at a minimum price of $10.00 per share and pursuant to which the gross
proceeds received by the Corporation equal or exceed $15,000,000 (a "Qualified
Public Offering"); (ii) upon approval by the holders of at least two-thirds
(2/3) of the then outstanding shares of Series B Preferred Stock; or (iii) upon
the cumulative conversion of at least two-thirds (2/3) of the then outstanding
shares
26
of Series B Preferred Stock pursuant to Section 2(a) hereof. In connection with
any conversion under this Section 4(b), each holder of Series B Preferred Stock
shall be entitled to receive, upon consummation of a Qualified Public Offering
or other event giving rise to such conversion, payment in full of all accrued
and unpaid dividends and other amounts due on such shares (including any
Participating Dividends).
(c) CONVERSION PROCEDURES. Any holder of Series B Preferred
Stock converting such shares into shares of Common Stock pursuant to Section
4(a), or whose shares are automatically converted pursuant to Section 4(b),
shall surrender the certificate or certificates representing Series B Preferred
Stock being converted, duly assigned or endorsed for transfer to the Corporation
(or accompanied by duly executed stock powers relating thereto), at the
principal executive office of the Corporation or the offices of the transfer
agent for Series B Preferred Stock or such office or offices in the continental
United States of an agent for conversion as may from time to time be designated
by notice to the holders of Series B Preferred Stock by the Corporation,
accompanied, in the case of conversion pursuant to Section 4(a), by written
notice of conversion. Such notice of conversion shall (i) specify the number of
shares of Series B Preferred Stock to be converted, (ii) specify the name or
names in which such holder wishes the certificate or certificates for Common
Stock and for any Series B Preferred Stock not to be so converted to be issued,
(iii) include payment of any applicable transfer tax and (iv) specify the
address to which such holder wishes delivery to be made of such new certificates
to be issued upon such conversion. Upon surrender of a certificate representing
Series B Preferred Stock for conversion, the Corporation shall issue and send by
hand delivery, by courier or by first class mail (postage prepaid) to the holder
thereof or to such holder's designee, at the address designated by such holder,
a certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled upon conversion. In the event that there shall
have been surrendered a certificate or certificates representing Series B
Preferred Stock, only part of which are to be converted, the Corporation shall
issue and send to such holder or such holder's designee, in the manner set forth
in the preceding sentence, a new certificate or certificates representing the
number of shares of Series B Preferred Stock which shall not have been
converted.
(d) EFFECTIVE DATE OF CONVERSION. The issuance by the
Corporation of shares of Common Stock upon a conversion of Series B Preferred
Stock into shares of Common Stock made at the option of the holder thereof
pursuant to Section 4(a) hereof shall be effective as of the surrender of the
certificate or certificates for Series B Preferred Stock to be converted, duly
assigned or endorsed for transfer to the Corporation (or accompanied by duly
executed stock powers relating thereto). The issuance by the Corporation of
shares of Common Stock upon a conversion of Series B Preferred Stock into Common
Stock pursuant to Section 4(b) hereof shall be deemed to be effective
immediately prior to the closing of the Qualified Public Offering or upon the
effective date of the event giving rise to such conversion. On and after the
effective date of conversion, the person or persons entitled to receive Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock.
(e) FRACTIONAL SHARES. The Corporation shall not be obligated
to deliver to holders of Series B Preferred Stock any fractional share of Common
Stock issuable upon any conversion
27
of such Series B Preferred Stock, but in lieu thereof may make a cash payment in
respect thereof in any manner permitted by law.
(f) RESERVATION OF COMMON STOCK. The Corporation shall at all
times reserve and keep available out of its authorized and unissued Common
Stock, solely for issuance upon the conversion of Series B Preferred Stock as
herein provided, free from any preemptive rights or other obligations (except
such rights and obligations created in connection with the issuance of the
Series B Preferred Stock as are entered into by the holders thereof and the
Corporation), such number of shares of Common Stock as shall from time to time
be issuable upon the conversion of all the Series B Preferred Stock then
outstanding provided that the shares of Common Stock so reserved shall not be
reduced or affected in any manner whatsoever so long as any Series B Preferred
Stock is outstanding, except in the case of a reverse stock split or stock
combination. The Corporation shall prepare and shall use its reasonable business
efforts to obtain and keep in force such governmental or regulatory permits or
other authorizations as may be required by law, and shall comply with all
requirements as to registration, qualification or listing of Common Stock, in
order to enable the Corporation lawfully to issue and deliver to each holder of
record of Series B Preferred Stock such number of shares of its Common Stock as
shall from time to time be sufficient to effect the conversion of all shares of
Series B Preferred Stock then outstanding and convertible into shares of Common
Stock.
(g) ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price in
effect from time to time shall be subject to adjustment as follows:
(i) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS.
Upon the issuance of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, the subdivision of outstanding shares
of Common Stock into a greater number of shares of Common Stock, or the
combination of outstanding shares of Common Stock into a smaller number of
shares of Common Stock, the Conversion Price shall, simultaneously with the
happening of such dividend, subdivision or combination, be adjusted by
multiplying the then effective Conversion Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such event. An adjustment made
pursuant to this Section 4(g)(i) shall be given effect, upon payment of such a
dividend or distribution, as of the record date for the determination of
stockholders entitled to receive such dividend or distribution (on a retroactive
basis) and, in the case of a subdivision or combination, immediately as of the
effective date thereof.
(ii) SALE OF COMMON STOCK. In the event the
Corporation shall at any time or from time to time while Series B Preferred
Stock is outstanding, issue, sell or exchange any shares of Common Stock
(including shares held in the Corporation's treasury, but excluding: (i) any
Common Stock which may be issued upon conversion of the Preferred Stock, and
(ii) up to 2,000,000 shares of Common Stock issued to officers, directors,
employees, consultants or agents of the Corporation pursuant to the
Corporation's 1999 Stock Option Plan (the "Plan") or upon the exercise of
options issued pursuant to such Plan, or such greater number of shares as may be
issuable pursuant to the adjustment provisions of such Plan as in effect on the
date hereof (collectively, the "Excluded Shares")), for a consideration per
share less than the Conversion Price in effect immediately prior to the
issuance, sale or exchange of such shares (any such
28
issuance, sale or exchange hereinafter referred to as a "Dilutive Transaction"),
then, and thereafter successively upon the consummation of any Dilutive
Transaction, the Conversion Price in effect immediately prior to the Dilutive
Transaction shall forthwith be reduced to an amount (calculated to the nearest
cent) determined by multiplying such Conversion Price by a fraction:
(A) the numerator of which shall be (1) the number of shares
of Common Stock of all classes outstanding immediately prior to the
Dilutive Transaction (excluding treasury shares but including all
shares of Common Stock issuable upon conversion or exercise of any
outstanding Preferred Stock, options, warrants, rights or convertible
securities), plus (2) the number of shares of Common Stock which the
net aggregate consideration received by the Corporation for the total
number of such additional shares of Common Stock so issued in the
Dilutive Transaction would purchase at the Conversion Price (prior to
adjustment), and
(B) the denominator of which shall be (1) the number of shares
of Common Stock of all classes outstanding immediately prior to the
Dilutive Transaction (excluding treasury shares but including all
shares of Common Stock issuable upon conversion or exercise of any
outstanding Preferred Stock, options, warrants, rights or convertible
securities), plus (2) the number of such additional shares of Common
Stock so issued in the Dilutive Transaction.
(iii) SALE OF OPTIONS, RIGHTS OR CONVERTIBLE
SECURITIES. In the event the Corporation shall at any time or from time to time
while the Series B Preferred Stock is outstanding, issue options, warrants or
rights to subscribe for shares of Common Stock (other than any options for
Excluded Shares), or issue any securities convertible into or exercisable or
exchangeable for shares of Common Stock, for a consideration per share
(determined by dividing the Net Aggregate Consideration (as determined below) by
the aggregate number of shares of Common Stock that would be issued if all such
options, warrants, rights or convertible securities were exercised or converted
to the fullest extent permitted by their terms) less than the Conversion Price
in effect immediately prior to the issuance of such options or rights or
convertible or exchangeable securities, the Conversion Price in effect
immediately prior to the issuance of such options, warrants or rights or
securities shall be reduced to an amount determined by multiplying such
Conversion Price by a fraction:
(A) the numerator of which shall be (1) the number of shares
of Common Stock of all classes outstanding immediately prior to the
issuance of such options, rights or convertible securities (excluding
treasury shares but including all shares of Common Stock issuable upon
conversion or exercise of any outstanding Preferred Stock, options,
warrants, rights or convertible securities), plus (2) the number of
shares of Common Stock which the total amount of consideration received
by the Corporation for the issuance of such options, warrants, rights
or convertible securities PLUS the minimum amount set forth in the
terms of such security as payable to the Corporation upon the exercise
or conversion thereof (the "Net Aggregate Consideration") would
purchase at the Conversion Price prior to adjustment, and
29
(B) the denominator of which shall be (1) the number of shares
of Common Stock of all classes outstanding immediately prior to the
issuance of such options, warrants, rights or convertible securities
(excluding treasury shares but including all shares of Common Stock
issuable upon conversion or exercise of any outstanding Preferred
Stock, options, warrants, rights or convertible securities), plus (2)
the aggregate number of shares of Common Stock that would be issued if
all such options, warrants, rights or convertible securities were
exercised or converted.
(iv) EXPIRATION OR CHANGE IN PRICE. If the
consideration per share provided for in any options or rights to subscribe for
shares of Common Stock or any securities exercisable or exchangeable for or
convertible into shares of Common Stock changes at any time, the Conversion
Price in effect at the time of such change shall be readjusted to the Conversion
Price which would have been in effect at such time had such options or
convertible securities provided for such changed consideration per share
(determined as provided in Section 4(g)(iii) hereof) at the time initially
granted, issued or sold; PROVIDED, that such adjustment of the Conversion Price
will be made only as and to the extent that the Conversion Price effective upon
such adjustment remains less than or equal to the Conversion Price that would be
in effect if such options, rights or securities had not been issued. No
adjustment of the Conversion Price shall be made under this Section 4 upon the
issuance of any additional shares of Common Stock which are issued pursuant to
the exercise of any warrants, options or other subscription or purchase rights
or pursuant to the exercise of any conversion or exchange rights in any
convertible securities if an adjustment shall previously have been made upon the
issuance of such warrants, options or other rights. Any adjustment of the
Conversion Price shall be disregarded if, as, and when the rights to acquire
shares of Common Stock upon exercise or conversion of the warrants, options,
rights or convertible securities which gave rise to such adjustment expire or
are canceled without having been exercised, so that the Conversion Price
effective immediately upon such cancellation or expiration shall be equal to the
Conversion Price in effect at the time of the issuance of the expired or
canceled warrants, options, rights or convertible securities, with such
additional adjustments as would have been made to that Conversion Price had the
expired or canceled warrants, options, rights or convertible securities not been
issued.
(h) OTHER ADJUSTMENTS. In the event the Corporation shall make
or issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, then and in each such event
lawful and adequate provision shall be made so that the holders of Series B
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the number of securities of the
Corporation which they would have received had their Series B Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
conversion date (calculated in accordance with Section 4(d) hereof), retained
such securities receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under this Section
4 as applied to such distributed securities.
If the Common Stock issuable upon the conversion of the Series B
Preferred Stock shall be changed into the same or different number of shares of
any class or classes of stock, whether by reclassification or otherwise (other
than a subdivision or combination of shares or stock
30
dividend provided for above), then and in each such event the holder of each
share of Series B Preferred Stock shall have the right thereafter to convert
each such share into the kind and amount of shares of stock and other securities
and property receivable upon such reclassification or other change, by holders
of the number of shares of Common Stock into which such shares of Series B
Preferred Stock might have been converted immediately prior to such
reclassification or change, all subject to further adjustment as provided
herein.
(i) NOTICES. In each case of an adjustment or readjustment of
the Conversion Price, the Corporation will furnish each holder of Series B
Preferred Stock with a certificate, prepared by the chief financial officer of
the Corporation, showing such adjustment or readjustment, and stating in detail
the facts upon which such adjustment or readjustment is based.
SECTION 20. NO REISSUANCE OF SERIES B PREFERRED STOCK. No share or
shares of Series B Preferred Stock acquired by the Corporation by reason of
redemption, purchase, conversion or otherwise shall be reissued, and all such
shares shall be canceled, retired, and eliminated from the shares which the
Corporation shall be authorized to issue. The Corporation may from time to time
take such appropriate corporate action as may be necessary to reduce the
authorized number of shares of Series B Preferred Stock accordingly.
SECTION 21. NOTICES OF RECORD DATE. In the event (i) the Corporation
establishes a record date to determine the holders of any class of securities
who are entitled to receive any dividend or other distribution, or (ii) there
occurs any capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, and any transfer of all or substantially all
of the assets of the Corporation to any other corporation, or any other entity
or person, or any voluntary or involuntary dissolution, liquidation or winding
up of the Corporation, the Corporation shall mail to each holder of Series B
Preferred Stock at least 20 days prior to the record date or the expected
effective date, as the case may be, specified therein, a notice specifying (a)
the date of such record date for the purpose of such dividend or distribution
and a description of such dividend or distribution, (b) the date on which any
such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective and (c)
the time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up.
SECTION 22. PROTECTIVE PROVISION. So long as any shares of Series B
Preferred Stock remain outstanding, the Corporation shall not without the
affirmative vote or written consent of the holders of two-thirds in interest of
the Series B Preferred Stock voting as a class:
(a) sell, lease or otherwise dispose of (whether in one
transaction or a series of related transactions) more than 50% of its assets or
business,
(b) merge with or into or consolidate with another entity or
enter into or engage in any other transaction or series of related transactions,
in any such case in connection with or as a result of which the Corporation is
not the surviving entity or the owners of the Corporation's outstanding equity
securities immediately prior to the transaction or series of related
transactions
31
do not own at least a majority of the outstanding equity securities of the
surviving, resulting or consolidated entity,
(c) dissolve, liquidate or wind up its operations,
(d) directly or indirectly redeem, purchase, or otherwise
acquire for consideration any shares of its Common Stock or any other class of
its capital stock except in connection with contractual obligations with
employees or ex-employees,
(e) adopt any amendment to this Certificate of Designation, or
any amendment to its Certificate of Incorporation or Bylaws, that eliminates,
amends, restricts or otherwise adversely affects the rights and preferences of
the Series B Preferred Stock, or that increases the authorized shares of the
Series B Preferred Stock,
(f) declare or make dividend payments on any shares of its
Common Stock or any other class of its capital stock, or
(g) create, or obligate itself to create, any class or series
of shares or any other security that has a preference over the Series B
Preferred Stock.
(h) increase the size of the Board of Directors of the
Corporation to more than five (5) members.
SECTION 23. OTHER RIGHTS. Except as otherwise provided in this
Certificate of Designation, each share of Series B Preferred Stock, each share
of Series A Preferred Stock and each share of Common Stock shall be identical in
all respects, shall have the same powers, preferences and rights, without
preference of any such class or share over any other such class or share.
IN WITNESS WHEREOF, the undersigned has executed and subscribed this
Certificate and does affirm the foregoing as true as of the 14th day of March,
2000.
Lineo, Inc.
a Delaware corporation
By /s/ Sparks, President and Chairman
32
STATE OF DELAWARE
Office of the Secretary of State
-----------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF
THE CERTIFICATE OF DESIGNATION OF "LINEO, INC.", FILED IN THIS OFFICE
ON THE SIXTEENTH DAY OF FEBRUARY, A.D. 2000, AT 5 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS.
/s/ EDWARD J. FREEL, SECRETARY OF STATE
---------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 0262418
DATE: 02-16-00
CERTIFICATE OF DESIGNATION
OF THE
RELATIVE RIGHTS AND PREFERENCES
OF THE
SERIES A CONVERTIBLE PREFERRED STOCK
OF
LINEO, INC.
The undersigned, the President of Lineo, Inc., a Delaware corporation
(the "Corporation"), does hereby certify that, pursuant to the authority
conferred upon the Board of Directors by the Certificate of Incorporation of the
Corporation, the following resolution creating a series of Series A Convertible
Preferred Stock was duly adopted by the Board of Directors of the Corporation as
of February 14, 2000:
RESOLVED, that pursuant to the authority expressly granted to and
vested in this Board of Directors by the provisions of the Certificate of
Incorporation of the Corporation, this Board of Directors hereby creates a
series of the preferred stock (the "Preferred Stock"), $.001 par value per
share, of the Company, 5,000,000 of which shall be designated Series A Class 1
Convertible Preferred Stock, and 2,500,000 of which shall be designated Series A
Class 2 Convertible Preferred Stock. Except as provided herein or as required by
law, the relative rights and the preferences of the Series A Class 1 Convertible
Preferred Stock and the Series A Class 2 Convertible Preferred Stock shall be
identical, and shall be as follows:
SERIES A CONVERTIBLE PREFERRED STOCK
The Corporation hereby designates as Series A Convertible Preferred
Stock 5,000,000 shares of Series A Class 1 Convertible Preferred Stock (the
"Series A Class 1 Preferred Stock"), and 2,500,000 shares of Series A Class 2
Convertible Preferred Stock (the "Series A Class 2 Preferred Stock") (the Series
A Class 1 Preferred Stock and the Series A Class 2 Preferred Stock are
collectively referred to as the "Series A Preferred Stock"). The Series A
Preferred Stock shall have the following rights, preferences and terms:
SECTION 24. DIVIDENDS. The holders of the Series A Preferred Stock
shall be entitled to receive dividends at the same rate as dividends (other than
dividends paid in additional shares of Common Stock) are paid with respect to
the Common Stock (treating each share of Series A Preferred Stock as being equal
to the number of shares of Common Stock into which each such share of Series A
Preferred Stock could be converted pursuant to the provisions of Section 4
hereof with such number determined as of the record date for the determination
of holders of Common Stock entitled to receive such dividend) (the
"Participating Dividends"). Dividends shall be paid by forwarding a check,
postage prepaid, to the address of each holder (or, in the case of joint
holders, to the address of any such holder), of Series A Preferred Stock and/or
Common Stock, as applicable, as shown on the books of the Corporation, or to
such other address as such holder specifies for such purpose by written notice
to the Corporation.
SECTION 25. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, each holder of outstanding
shares of Series A Preferred Stock shall be entitled to be paid out of the
assets of the Corporation available for distribution to stockholders, whether
such assets are capital, surplus or earnings, on a PARI PASSU basis with any
other stock ranking on liquidation PARI PASSU therewith, and before any amount
shall be paid or distributed to the holders of any class of Common Stock or of
any other stock ranking on liquidation junior to the Series A Preferred Stock,
an amount in cash equal to $1.50 per share (adjusted appropriately for stock
splits, stock dividends and the like) together with declared but unpaid
dividends to which the holders of outstanding shares of Series A Preferred Stock
are entitled pursuant to Section 1 hereof; provided, however, that if, upon any
liquidation, dissolution or winding up of the Corporation, the amounts payable
with respect to the Series A Preferred Stock and any other stock ranking on
liquidation PARI PASSU therewith are not paid in full, the holders of the Series
A Preferred Stock and any other stock ranking on liquidation PARI PASSU
therewith shall share ratably in any distribution of assets in proportion to the
full respective preferential amounts to which they are entitled.
(b) After payment of the full liquidation preference of the
Series A Preferred Stock as provided in Section 2(a) and any other applicable
liquidation preferences payable to holders of outstanding Preferred Stock, any
remaining assets of the Corporation then available for distribution shall be
distributed ratably among the holders of the Preferred Stock (on an as-if
converted basis) and the Common Stock.
(c) A share exchange or merger of the Corporation (except (i)
a merger into or with a wholly owned subsidiary of the Corporation with
requisite stockholder approval or (ii) a merger in which the beneficial owners
of the Corporation's outstanding capital stock immediately prior to such
transaction hold no less than 51% of the voting power in the resulting entity)
or a sale of all or substantially all of the assets of the Corporation shall be
regarded as a liquidation, dissolution or winding up of the affairs of the
Corporation within the meaning of this Section 2; provided, however, that each
holder of the Series A Preferred Stock shall have the right to convert his, her
or its shares of Series A Preferred Stock to Common Stock pursuant to Section
4(a) hereof in lieu of receiving payment in liquidation, dissolution or winding
up of the Corporation pursuant to this Section 2. Notice of such conversion
shall be submitted in accordance with the provisions of Section 4(c) hereof no
later than ten (10) days before the effective date of such event, provided that
any such notice shall be effective if given not later than fifteen (15) days
after the date of the Corporation's notice, pursuant to Section 6, with respect
to such event.
(d) If any of the assets of the Corporation are to be
distributed other than in cash under this Section 2 or for any purpose, then the
Board of Directors of the Corporation shall promptly engage independent
competent appraisers to determine the value of the assets to be distributed. The
Corporation shall, upon receipt of such appraiser's valuation, give prompt
35
written notice thereof to each holder of shares of the Corporation's capital
stock. Notwithstanding the above, any securities to be distributed shall be
valued as follows:
(i) if traded on a securities exchange, the value
shall be deemed to be the average of the closing prices of the securities on
such exchange over the 30-day period ending three (3) business days prior to the
distribution;
(ii) if actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid prices over the 30-day
period ending three (3) business days prior to the distribution; and
(iii) if there is no active public market, the value
shall be the fair market value thereof, as determined in good faith by the Board
of Directors and the holders of Preferred Stock.
SECTION 26. VOTING POWER. Except as otherwise expressly provided herein
or as required by law, the holder of each share of Series A Preferred Stock
shall be entitled to vote on all matters submitted to a vote of the holders of
outstanding voting securities. Each share of Series A Preferred Stock shall
entitle the holder thereof to such number of votes per share as shall equal the
number of shares of Common Stock into which each share of Series A Preferred
Stock is convertible as of the record date for the determination of stockholders
entitled to vote on or consent to such matters or, if no such record date is
established, as of the date on which notice of such meeting is mailed or the
date any written consent of stockholders is solicited. Except as otherwise
expressly provided herein or as required by law, the holders of shares of the
Preferred Stock and the Common Stock shall vote together as a single class on
all matters. In all cases where class voting is required herein or is required
by law, the Series A Class 1 Preferred Stock and the Series A Class 2 Preferred
Stock shall each be considered a separate class.
SECTION 27. CONVERSION. The holders of the Series A Preferred Stock
shall have the following conversion rights:
(a) VOLUNTARY CONVERSION. Holders of the outstanding shares of
Series A Preferred Stock shall be entitled, at any time and from time to time
after the date hereof, to cause any or all of such holder's shares to be
converted into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $1.50 by the conversion price applicable to
such shares, determined as hereafter provided, in effect on the date the
certificate is surrendered for conversion. Initially the conversion price shall
be $1.50 per share of Common Stock, which price shall be adjusted as hereinafter
provided (and, as so adjusted, is hereinafter sometimes referred to as the
"Conversion Price"). If a holder of Series A Preferred Stock elects to convert
his, her or its Series A Preferred Stock at a time when there are any accrued
and unpaid dividends or other amounts due on such shares (including any
Participating Dividends), such dividends and other amounts shall, to the extent
permitted by applicable law, be paid in full by the Corporation in connection
with such conversion.
(b) AUTOMATIC CONVERSION. Each share of Series A Preferred
Stock outstanding shall automatically, and without the requirement of any
consent of any holder, be converted into the number of shares of Common Stock
into which such shares are convertible at the then
36
effective Conversion Price: (i) upon the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock of the Corporation to the public at a minimum price of $10.00 per
share and pursuant to which the gross proceeds received by the Corporation equal
or exceed $15,000,000 (a "Qualified Public Offering"); (ii) upon approval by the
holders of at least two-thirds (2/3) of the then outstanding shares of Series A
Preferred Stock; or (iii) upon the cumulative conversion of at least two-thirds
(2/3) of the then outstanding shares of Series A Preferred Stock pursuant to
Section 2(a) hereof. In connection with any conversion under this Section 4(b),
each holder of Series A Preferred Stock shall be entitled to receive, upon
consummation of a Qualified Public Offering or other event giving rise to such
conversion, payment in full of all accrued and unpaid dividends and other
amounts due on such shares (including any Participating Dividends).
(c) CONVERSION PROCEDURES. Any holder of Series A Preferred
Stock converting such shares into shares of Common Stock pursuant to Section
4(a), or whose shares are automatically converted pursuant to Section 4(b),
shall surrender the certificate or certificates representing the Series A
Preferred Stock being converted, duly assigned or endorsed for transfer to the
Corporation (or accompanied by duly executed stock powers relating thereto), at
the principal executive office of the Corporation or the offices of the transfer
agent for the Series A Preferred Stock or such office or offices in the
continental United States of an agent for conversion as may from time to time be
designated by notice to the holders of the Series A Preferred Stock by the
Corporation, accompanied, in the case of conversion pursuant to Section 4(a), by
written notice of conversion. Such notice of conversion shall (i) specify the
number of shares of Series A Preferred Stock to be converted, (ii) specify the
name or names in which such holder wishes the certificate or certificates for
Common Stock and for any Series A Preferred Stock not to be so converted to be
issued, (iii) include payment of any applicable transfer tax and (iv) specify
the address to which such holder wishes delivery to be made of such new
certificates to be issued upon such conversion. Upon surrender of a certificate
representing Series A Preferred Stock for conversion, the Corporation shall
issue and send by hand delivery, by courier or by first class mail (postage
prepaid) to the holder thereof or to such holder's designee, at the address
designated by such holder, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled upon conversion.
In the event that there shall have been surrendered a certificate or
certificates representing Series A Preferred Stock, only part of which are to be
converted, the Corporation shall issue and send to such holder or such holder's
designee, in the manner set forth in the preceding sentence, a new certificate
or certificates representing the number of shares of Series A Preferred Stock
which shall not have been converted.
(d) EFFECTIVE DATE OF CONVERSION. The issuance by the
Corporation of shares of Common Stock upon a conversion of Series A Preferred
Stock into shares of Common Stock made at the option of the holder thereof
pursuant to Section 4(a) hereof shall be effective as of the surrender of the
certificate or certificates for the Series A Preferred Stock to be converted,
duly assigned or endorsed for transfer to the Corporation (or accompanied by
duly executed stock powers relating thereto). The issuance by the Corporation of
shares of Common Stock upon a conversion of Series A Preferred Stock into Common
Stock pursuant to Section 4(b) hereof shall be deemed to be effective
immediately prior to the closing of the Qualified Public Offering or upon the
effective date of the event giving rise to such conversion. On and after the
37
effective date of conversion, the person or persons entitled to receive the
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock.
(e) FRACTIONAL SHARES. The Corporation shall not be obligated
to deliver to holders of Series A Preferred Stock any fractional share of Common
Stock issuable upon any conversion of such Series A Preferred Stock, but in lieu
thereof may make a cash payment in respect thereof in any manner permitted by
law.
(f) RESERVATION OF COMMON STOCK. The Corporation shall at all
times reserve and keep available out of its authorized and unissued Common
Stock, solely for issuance upon the conversion of Series A Preferred Stock as
herein provided, free from any preemptive rights or other obligations (except
such rights and obligations created in connection with the issuance of the
Series A Preferred Stock as are entered into by the holders thereof and the
Corporation), such number of shares of the Common Stock as shall from time to
time be issuable upon the conversion of all the Series A Preferred Stock then
outstanding provided that the shares of Common Stock so reserved shall not be
reduced or affected in any manner whatsoever so long as any Series A Preferred
Stock is outstanding, except in the case of a reverse stock split or stock
combination. The Corporation shall prepare and shall use its reasonable business
efforts to obtain and keep in force such governmental or regulatory permits or
other authorizations as may be required by law, and shall comply with all
requirements as to registration, qualification or listing of the Common Stock,
in order to enable the Corporation lawfully to issue and deliver to each holder
of record of Series A Preferred Stock such number of shares of its Common Stock
as shall from time to time be sufficient to effect the conversion of all shares
of Series A Preferred Stock then outstanding and convertible into shares of
Common Stock.
(g) ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price in
effect from time to time shall be subject to adjustment as follows:
(i) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS.
Upon the issuance of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, the subdivision of outstanding shares
of Common Stock into a greater number of shares of Common Stock, or the
combination of outstanding shares of Common Stock into a smaller number of
shares of Common Stock, the Conversion Price shall, simultaneously with the
happening of such dividend, subdivision or combination, be adjusted by
multiplying the then effective Conversion Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such event. An adjustment made
pursuant to this Section 4(g)(i) shall be given effect, upon payment of such a
dividend or distribution, as of the record date for the determination of
stockholders entitled to receive such dividend or distribution (on a retroactive
basis) and, in the case of a subdivision or combination, immediately as of the
effective date thereof.
(ii) SALE OF COMMON STOCK. In the event the
Corporation shall at any time or from time to time while the Series A Preferred
Stock is outstanding, issue, sell or exchange any shares of Common Stock
(including shares held in the Corporation's treasury, but excluding: (i) any
Common Stock which may be issued upon conversion of the Preferred Stock,
38
and (ii) up to 2,000,000 shares of Common Stock issued to officers, directors,
employees, consultants or agents of the Corporation pursuant to the
Corporation's 1999 Stock Option Plan (the "Plan") or upon the exercise of
options issued pursuant to such Plan, or such greater number of shares as may be
issuable pursuant to the adjustment provisions of such Plan as in effect on the
date hereof (collectively, the "Excluded Shares")), for a consideration per
share less than the Conversion Price in effect immediately prior to the
issuance, sale or exchange of such shares (any such issuance, sale or exchange
hereinafter referred to as a "Dilutive Transaction"), then, and thereafter
successively upon the consummation of any Dilutive Transaction, the Conversion
Price in effect immediately prior to the Dilutive Transaction shall forthwith be
reduced to an amount (calculated to the nearest cent) determined by multiplying
such Conversion Price by a fraction:
(A) the numerator of which shall be (1) the number of shares
of Common Stock of all classes outstanding immediately prior to the
Dilutive Transaction (excluding treasury shares but including all
shares of Common Stock issuable upon conversion or exercise of any
outstanding Preferred Stock, options, warrants, rights or convertible
securities), plus (2) the number of shares of Common Stock which the
net aggregate consideration received by the Corporation for the total
number of such additional shares of Common Stock so issued in the
Dilutive Transaction would purchase at the Conversion Price (prior to
adjustment), and
(B) the denominator of which shall be (1) the number of shares
of Common Stock of all classes outstanding immediately prior to the
Dilutive Transaction (excluding treasury shares but including all
shares of Common Stock issuable upon conversion or exercise of any
outstanding Preferred Stock, options, warrants, rights or convertible
securities), plus (2) the number of such additional shares of Common
Stock so issued in the Dilutive Transaction.
(iii) SALE OF OPTIONS, RIGHTS OR CONVERTIBLE
SECURITIES. In the event the Corporation shall at any time or from time to time
while the Series A Preferred Stock is outstanding, issue options, warrants or
rights to subscribe for shares of Common Stock (other than any options for
Excluded Shares), or issue any securities convertible into or exercisable or
exchangeable for shares of Common Stock, for a consideration per share
(determined by dividing the Net Aggregate Consideration (as determined below) by
the aggregate number of shares of Common Stock that would be issued if all such
options, warrants, rights or convertible securities were exercised or converted
to the fullest extent permitted by their terms) less than the Conversion Price
in effect immediately prior to the issuance of such options or rights or
convertible or exchangeable securities, the Conversion Price in effect
immediately prior to the issuance of such options, warrants or rights or
securities shall be reduced to an amount determined by multiplying such
Conversion Price by a fraction:
(A) the numerator of which shall be (1) the number of shares
of Common Stock of all classes outstanding immediately prior to the
issuance of such options, rights or convertible securities (excluding
treasury shares but including all shares of Common Stock issuable upon
conversion or exercise of any outstanding Preferred Stock, options,
warrants, rights or convertible securities), plus (2) the number of
shares of Common Stock which the total amount of consideration received
by the Corporation for the
39
issuance of such options, warrants, rights or convertible securities
PLUS the minimum amount set forth in the terms of such security as
payable to the Corporation upon the exercise or conversion thereof (the
"Net Aggregate Consideration") would purchase at the Conversion Price
prior to adjustment, and
(B) the denominator of which shall be (1) the number of shares
of Common Stock of all classes outstanding immediately prior to the
issuance of such options, warrants, rights or convertible securities
(excluding treasury shares but including all shares of Common Stock
issuable upon conversion or exercise of any outstanding Preferred
Stock, options, warrants, rights or convertible securities), plus (2)
the aggregate number of shares of Common Stock that would be issued if
all such options, warrants, rights or convertible securities were
exercised or converted.
(iv) EXPIRATION OR CHANGE IN PRICE. If the
consideration per share provided for in any options or rights to subscribe for
shares of Common Stock or any securities exercisable or exchangeable for or
convertible into shares of Common Stock changes at any time, the Conversion
Price in effect at the time of such change shall be readjusted to the Conversion
Price which would have been in effect at such time had such options or
convertible securities provided for such changed consideration per share
(determined as provided in Section 4(g)(iii) hereof) at the time initially
granted, issued or sold; PROVIDED, that such adjustment of the Conversion Price
will be made only as and to the extent that the Conversion Price effective upon
such adjustment remains less than or equal to the Conversion Price that would be
in effect if such options, rights or securities had not been issued. No
adjustment of the Conversion Price shall be made under this Section 4 upon the
issuance of any additional shares of Common Stock which are issued pursuant to
the exercise of any warrants, options or other subscription or purchase rights
or pursuant to the exercise of any conversion or exchange rights in any
convertible securities if an adjustment shall previously have been made upon the
issuance of such warrants, options or other rights. Any adjustment of the
Conversion Price shall be disregarded if, as, and when the rights to acquire
shares of Common Stock upon exercise or conversion of the warrants, options,
rights or convertible securities which gave rise to such adjustment expire or
are canceled without having been exercised, so that the Conversion Price
effective immediately upon such cancellation or expiration shall be equal to the
Conversion Price in effect at the time of the issuance of the expired or
canceled warrants, options, rights or convertible securities, with such
additional adjustments as would have been made to that Conversion Price had the
expired or canceled warrants, options, rights or convertible securities not been
issued.
(h) OTHER ADJUSTMENTS. In the event the Corporation shall make
or issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, then and in each such event
lawful and adequate provision shall be made so that the holders of Series A
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the number of securities of the
Corporation which they would have received had their Series A Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
conversion date (calculated in accordance with Section 4(d) hereof), retained
such securities receivable by them as aforesaid during such period, giving
application to
40
all adjustments called for during such period under this Section 4 as applied to
such distributed securities.
If the Common Stock issuable upon the conversion of the Series A
Preferred Stock shall be changed into the same or different number of shares of
any class or classes of stock, whether by reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
above), then and in each such event the holder of each share of Series A
Preferred Stock shall have the right thereafter to convert each such share into
the kind and amount of shares of stock and other securities and property
receivable upon such reclassification or other change, by holders of the number
of shares of Common Stock into which such shares of Series A Preferred Stock
might have been converted immediately prior to such reclassification or change,
all subject to further adjustment as provided herein.
(i) NOTICES. In each case of an adjustment or readjustment of
the Conversion Price, the Corporation will furnish each holder of Series A
Preferred Stock with a certificate, prepared by the chief financial officer of
the Corporation, showing such adjustment or readjustment, and stating in detail
the facts upon which such adjustment or readjustment is based.
SECTION 28. NO REISSUANCE OF SERIES A PREFERRED STOCK. No share or
shares of the Series A Preferred Stock acquired by the Corporation by reason of
redemption, purchase, conversion or otherwise shall be reissued, and all such
shares shall be canceled, retired, and eliminated from the shares which the
Corporation shall be authorized to issue. The Corporation may from time to time
take such appropriate corporate action as may be necessary to reduce the
authorized number of shares of the Series A Preferred Stock accordingly.
SECTION 29. NOTICES OF RECORD DATE. In the event (i) the Corporation
establishes a record date to determine the holders of any class of securities
who are entitled to receive any dividend or other distribution, or (ii) there
occurs any capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, and any transfer of all or substantially all
of the assets of the Corporation to any other corporation, or any other entity
or person, or any voluntary or involuntary dissolution, liquidation or winding
up of the Corporation, the Corporation shall mail to each holder of Series A
Preferred Stock at least 20 days prior to the record date or the expected
effective date, as the case may be, specified therein, a notice specifying (a)
the date of such record date for the purpose of such dividend or distribution
and a description of such dividend or distribution, (b) the date on which any
such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective and (c)
the time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up.
SECTION 30. PROTECTIVE PROVISION. So long as any shares of the Series A
Preferred Stock remain outstanding, the Corporation shall not without the
affirmative vote or written consent of the holders of two-thirds in interest of
each of the Series A Class 1 Preferred Stock, voting separately as a class, and
the Series A Class 2 Preferred Stock, voting separately as a class:
41
(a) sell, lease or otherwise dispose of (whether in one
transaction or a series of related transactions) more than 50% all of its assets
or business,
(b) merge with or into or consolidate with another entity or
enter into or engage in any other transaction or series of related transactions,
in any such case in connection with or as a result of which the Corporation is
not the surviving entity or the owners of the Corporation's outstanding equity
securities immediately prior to the transaction or series of related
transactions do not own at least a majority of the outstanding equity securities
of the surviving, resulting or consolidated entity,
(c) dissolve, liquidate or wind up its operations,
(d) directly or indirectly redeem, purchase, or otherwise
acquire for consideration any shares of its Common Stock or any other class of
its capital stock except in connection with contractual obligations with
employees or ex-employees,
(e) adopt any amendment to this Certificate of Designation, or
any amendment to its Certificate of Incorporation or Bylaws, that eliminates,
amends, restricts or otherwise adversely affects the rights and preferences of
the Series A Preferred Stock, or that increases the authorized shares of the
Series A Preferred Stock,
(f) declare or make dividend payments on any shares of its
Common Stock or any other class of its capital stock, or
(g) create, or obligate itself to create, any class or series
of shares, or any other security, that has a preference over the Series A
Preferred Stock.
(h) increase the size of the Board of Directors of the
Corporation to more than five (5) members.
SECTION 31. OTHER RIGHTS. Except as otherwise provided in this
Certificate of Designation, each share of Series A Preferred Stock and each
share of Common Stock shall be identical in all respects, shall have the same
powers, preferences and rights, without preference of any such class or share
over any other such class or share.
IN WITNESS WHEREOF, the undersigned has executed and subscribed this
Certificate and does affirm the foregoing as true as of the 14th day of
February, 2000.
Lineo, Inc.
a Delaware corporation
By /s/ Sparks, Chairman and President
STATE OF DELAWARE
Office of the Secretary of State
-----------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF
THE CERTIFICATE OF THE MERGER, WHICH MERGES:
"LINEO, INC.", A UTAH CORPORATION,
WITH AND INTO "LINEO MERGER CORPORATION" UNDER THE NAME OF
"LINEO, INC.", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF
THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE
TWENTY-FIRST DAY OF JANUARY, A.D. 2000, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS.
/s/ EDWARD J. FREEL, SECRETARY OF STATE
---------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 0210734
DATE: 01-21-00
CERTIFICATE OF MERGER
LINEO, INC.
A UTAH CORPORATION
WITH AND INTO
LINEO MERGER CORPORATION
A DELAWARE CORPORATION
In accordance with Section 252 of the General Corporation Law
of Delaware, the undersigned, Bryan Sparks, being the President of Lineo, Inc.,
a Utah corporation and the President of Lineo Merger Corporation, a Delaware
corporation, DOES HEREBY CERTIFY as follows:
(1) the constituent corporations in the merger (the "Merger")
are Lineo, Inc., a Utah corporation ("Lineo Utah"), and Lineo Merger
Corporation, a Delaware corporation ("Lineo Delaware");
(2) an Agreement and Plan of Merger dated as of January 5,
2000 (the "Merger Agreement") has been approved, adopted, certified, executed
and acknowledged by each of the constituent corporations in accordance with
Section 252 of the General Corporation Law of Delaware;
(3) the name of the surviving corporation shall be Lineo
Merger Corporation, a Delaware corporation, which shall hereinwith be changed to
Lineo, Inc., a Delaware corporation;
(4) the Certificate of Incorporation and Bylaws of Lineo
Delaware shall be the Certificate of Incorporation and Bylaws of the surviving
corporation without change or amendment until thereafter amended in accordance
with the provisions thereof and applicable law;
(5) the executed Merger Agreement is on file at the principal
place of business of the surviving corporation at 383 S. 520 W. Lindon, Utah
84042;
(6) a copy of the Merger Agreement will be furnished by the
surviving corporation, on request and without cost, to any stockholder of the
constituent corporations;
(7) the authorized capital of each foreign corporation which
is a party to the merger is as follows:
Corporation Class Number of Shares Par Value Per Share
---------------------------------------------------------------------------------
Lineo, Inc., a Utah Common 100,000,000 no par value
Coporation Preferred 30,000,000 no par value
(8) this certificate shall become effective upon filing and
acceptance by the Office of the Secretary of State of Delaware.
45
IN WITNESS WHEREOF, the undersigned have affirmed the
statements herein as true, under penalties of perjury, as of this 5th day of
January, 2000.
LINEO, INC.
a Utah corporation
By: /s/ Bryan Sparks, President
Attest:
/s/ Lisa Richards, Secretary
LINEO MERGER CORPORATION
a Delaware corporation
By: /s/ Bryan Sparks, President
Attest:
/s/ Lisa Richards, Secretary
46
STATE OF DELAWARE
Office of the Secretary of State
-----------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF
THE CERTIFICATE OF INCORPORATION OF "LINEO MERGER CORPORATION", FILED
IN THIS OFFICE ON THE FOURTEENTH DAY OF JANUARY, A.D. 2000, AT 1
O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS.
/s/ EDWARD J. FREEL, SECRETARY OF STATE
---------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 0200954
DATE: 01-14-00
CERTIFICATE OF INCORPORATION
OF
LINEO MERGER CORPORATION
ARTICLE I
The name of this corporation is Lineo Merger Corporation (the
"Corporation").
ARTICLE II
The address of the Corporation's registered office in the
State of Delaware is 1209 Orange Street, City of Wilmington, County of New
Castle, Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of Delaware.
ARTICLE IV
AUTHORIZED SHARES
4.1 AUTHORIZED CAPITAL. The total number of shares of all classes of
capital stock which the Corporation shall have authority to issue is 130,000,000
shares, consisting of 100,000,000 shares of Common Stock, $.001 par value (the
"Common Stock") and 30,000,000 shares of Preferred Stock, $.001 par value (the
"Preferred Stock").
4.2 ISSUANCE OF PREFERRED STOCK IN SERIES. The Preferred Stock may be
issued from time to time in one or more series in any manner permitted by law
and the provisions of these Articles of Incorporation, as determined from time
to time by the Board of Directors and stated in the resolution or resolutions
providing for the issuance thereof, prior to the issuance of any shares thereof.
The Board of Directors shall have the authority to fix and determine and to
amend, subject to the provisions hereof, the designations, powers, preferences
and relative, participating, optional or other rights, if any, and
qualifications, limitations or other restrictions of the shares of any series
that is wholly unissued or to be established and the number of shares
constituting any such series. Unless otherwise specifically provided in the
resolution establishing any series, the Board of Directors shall further have
the authority, after the issuance of shares of a series whose number it has
designated, to amend the resolution establishing such series to decrease the
number of shares of that series, but not below the number of shares of such
series then outstanding.
48
(a) DIVIDENDS. The holders of shares of the Preferred Stock
shall be entitled to receive dividends, out of the funds of the corporation
legally available therefor, at the rate and at the time or times as may be
provided by the Board of Directors in designating a particular series of
Preferred Stock. The holders of the Preferred Stock shall not be entitled to
receive any dividends thereon, unless otherwise provided by the Board of
Directors in designating a particular series of Preferred Stock.
(b) LIQUIDATION. In the event of any liquidation, dissolution
or winding up of the affairs of the corporation, whether voluntary or
involuntary, then, before any distribution shall be made to the holders of the
Common Stock, the holders of the Preferred Stock at the time outstanding shall
be entitled to be paid the preferential amount or amounts per share as may be
provided by the Board of Directors in designating a particular series of
Preferred Stock, plus dividends accrued thereon to the date of such payment. In
designating a particular series of Preferred Stock, the Board of Directors may
also provide that such series is senior, on a par with or subordinate in order
of priority to any other existing or later issued series of Preferred Stock in
respect of distribution of amounts upon the liquidation, dissolution or winding
up of the affairs of the corporation. The holders of the Preferred Stock shall
not be entitled to receive any distributive amounts upon the liquidation,
dissolution or winding up of the affairs of the corporation, unless otherwise
provided by the Board of Directors in designating a particular series of
Preferred Stock.
(c) CONVERSION. Shares of Preferred Stock may be convertible
to shares of Common Stock at such rate and subject to such adjustments as may be
provided by the Board of Directors in designating a particular series of
Preferred Stock.
(d) REDEMPTION. The Preferred Stock may be redeemable in such
amounts, and at such time or times as may be provided by the Board of Directors
in designating a particular series of Preferred Stock. In any event, such
Preferred Stock may be repurchased by the corporation only to the extent legally
permissible.
(e) VOTING RIGHTS. Holders of Preferred Stock shall have such
voting rights as may be provided by the Board of Directors in designating a
particular series of Preferred Stock.
ARTICLE V
The Corporation reserves the right to amend, alter, change, or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon the
stockholders herein are granted subject to this right.
ARTICLE VI
The Corporation is to have perpetual existence.
ARTICLE VII
49
1. LIMITATION OF LIABILITY. To the fullest extent permitted by the
Delaware General Corporation Law as it now exists or as it may hereafter be
amended, 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.
2. INDEMNIFICATION. To the full extent permitted by the Delaware
General Corporation Law as it now exists or as it may hereafter be amended, the
Corporation is authorized to provide indemnification of, and advancement of
expenses to, such directors, officers and agents (and any other person to which
Delaware law permits the Corporation to provide indemnification) through bylaw
provisions, agreements with such directors, officers, agents or other persons,
vote of stockholders or disinterested directors or otherwise, in excess of the
indemnification provisions and advancement of expenses permitted by Section 145
of the General Corporation Law of Delaware, subject only to limits created by
applicable Delaware law (statutory and non-statutory) with respect to actions
for breach of duty to a corporation, its stockholders and others.
3. AMENDMENTS. Neither any amendment nor repeal of this
Article VII, nor the adoption of any provision of the Corporation's Certificate
of Incorporation inconsistent with this Article VII, shall eliminate or reduce
the effect of this Article VII, in respect of any matter occurring, or any
action or proceeding accruing or arising or that, but for this Article VII,
would accrue or arise, prior to such amendment, repeal, or adoption of an
inconsistent provision.
ARTICLE VIII
The right to cumulate votes in the election of directors shall not
exist with respect to shares of stock of this Corporation.
1. NUMBER OF DIRECTORS. The number of directors which constitutes the
whole Board of Directors of the Corporation shall be designated in the Bylaws of
the Corporation. The names and addresses of the initial Board of Directors are:
Raymond J. Noorda 383 S. 520 W.
Lindon, Utah 84042
Ralph J. Yarro 383 S. 520 W.
Lindon, Utah 84042
Bryan W. Sparks 383 S. 520 W.
Lindon, Utah 84042
2. ELECTION OF DIRECTORS. Elections of directors need not be by written
ballot unless the Bylaws of the Corporation shall so provide.
ARTICLE IX
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In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, alter, amend
or repeal the Bylaws of the Corporation.
ARTICLE X
Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statutes) outside of the
State of Delaware at such place or places as may be designated from time to time
by the Board of Directors or in the Bylaws of the Corporation.
ARTICLE XI
The name and mailing address of the incorporator is:
Michael J. Erickson, Esq.
c/o Summit Law Group, PLLC
1505 Westlake Avenue North, Suite 300
Seattle, WA 98109
I, THE UNDERSIGNED, being the incorporator hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this certificate, hereby declaring and
certifying, under penalties of perjury, that this is my act and deed and the
facts herein stated are true, and accordingly have hereunto set my hand this
13th day of January, 2000.
/S/ Michael J. Erickson, Esq.
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