EXHIBIT 3.2
CERTIFICATE OF DESIGNATION OF
SERIES A PREFERRED STOCK
OF
BREAKAWAY SOLUTIONS, INC.
Breakaway Solutions, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "GCL"),
DOES HEREBY CERTIFY THAT:
Pursuant to authority conferred upon the Board of Directors by the
Certificate of Incorporation of said corporation, and pursuant to the provisions
of Section 151 of the GCL, said Board of Directors by the written consent taken
pursuant to Section 141 of the GCL, adopted a resolution creating Six Hundred
Thousand (600,000) shares of Series A Preferred Stock, which resolution is
attached hereto as Exhibit "A".
IN WITNESS WHEREOF, said Breakaway Solutions, Inc. has caused this
certificate to be signed by its Chief Executive Officer, this 6th day of April,
2001.
By: /S/ WILLIAM LOFTUS
--------------------------------
Name: William Loftus
Title: President and Chief Executive
Officer
EXHIBIT A
RESOLUTION OF THE BOARD OF DIRECTORS
APPROVING
THE DESIGNATION STATEMENT
RELATING TO SERIES A PREFERRED STOCK
WHEREAS, the Third Amended and Restated Certificate of Incorporation of
the Corporation authorizes the Corporation to issue a total of 5,000,000 shares
of Preferred Stock, par value $.0001 per share ("Preferred Stock"), which may be
divided into one or more series as the Board of Directors may determine;
WHEREAS, the Certificate of Incorporation of the Corporation expressly
vests in the Board of Directors the authority to fix and determine the
designations, powers, preferences, and rights, and the qualifications,
limitations and restrictions thereof, of the Preferred Stock; and
WHEREAS, the Board of Directors deems it advisable to designate a
series of the Preferred Stock consisting of Six Hundred Thousand (600,000)
shares designated as Series A Preferred Stock;
NOW, THEREFORE, IT IS HEREBY RESOLVED, that pursuant to Paragraph
FOURTH of the Certificate of Incorporation of the Corporation, there be and
hereby is authorized and created a series of Preferred Stock hereby designated
as Series A Preferred Stock, to consist of 600,000 shares, having a par value of
$0.0001 per share, which series shall have the voting rights, designations,
powers, preferences, relative and other special rights, and the qualifications,
limitations and restrictions set forth below:
SERIES A PREFERRED STOCK. Six Hundred Thousand (600,000) of the
authorized shares of Preferred Stock are hereby designated "Series A Preferred
Stock" (the "Series A Preferred Stock"). The rights, preferences, privileges,
restrictions and other matters relating to the Series A Preferred Stock are as
follows:
(a) DIVIDEND RIGHTS.
(i) Subject to the right of any other series of Preferred
Stock that may from time to time come into existence and which is
expressly senior to the rights of the Series A Preferred Stock, the
holders of Series A Preferred Stock, in preference to the holders of
Common Stock and any other stock of the Company hereafter created which
shall be junior to the Series A Preferred Stock (together, "Series A
Junior Stock"), shall be entitled to receive dividends, but only out of
funds that are legally available therefor, at the rate of 8% of the
Series A Original Issue Price (as defined below) per annum (the "Series
A Dividend Rate") on each outstanding share of Series A Preferred Stock
(as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares). Such
dividends shall accrue, whether or not declared by the Board of
Directors, but shall be payable only when, as and if declared by the
Board of Directors. Such dividends shall be payable, when and if
declared, at the option of the Company
either (A) in cash or (B) in additional shares of Series A Preferred
Stock (valued at the Series A Original Issue Price (as defined below),
as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares). Such
additional shares of Series A Preferred Stock issued in lieu of the
cash dividend are sometimes referred to as "PIK Shares." The original
issue price of the Series A Preferred Stock (the "Series A Original
Issue Price") shall be $70.00. Such dividends shall be cumulative and
shall accrue quarterly. Notwithstanding the foregoing, (A) in the event
of a Qualified Public Offering or a Qualified Sale on or before the
third anniversary of the Series A Original Issue Date, all issued and
outstanding PIK Shares shall be canceled, and (B) in the event that any
shares of Series A Preferred Stock shall be converted pursuant to
Section (d) of this Certificate of Designation on or prior to the
expiration of three years from the Series A Original Issue Date, any
accrued and unpaid dividends with respect to such shares shall be
cancelled.
(ii) So long as any shares of Series A Preferred Stock shall
be outstanding, without the prior written consent of the holders of a
majority of the then issued and outstanding shares of Series A
Preferred Stock, no dividend (other than a stock dividend paid pro rata
to the Company's stockholders), whether in cash or property, shall be
paid or declared, nor shall any other distribution (other than a stock
dividend paid pro rata to the Company's stockholders) be made, on any
Series A Junior Stock, nor shall any shares of any Series A Junior
Stock of the Company be purchased, redeemed, or otherwise acquired for
value by the Company (except for acquisitions of Common Stock by the
Company pursuant to agreements that permit the Company to repurchase
such shares upon termination of services to the Company or in exercise
of the Company's right of first refusal upon a proposed transfer) until
all dividends (set forth in Section (a)(i) above) on the Series A
Preferred Stock shall have been paid or declared and set apart. In the
event that the Company shall declare a dividend or distribution payable
in securities of other persons, evidences of indebtedness issued by the
Company or other persons, or options or rights to purchase any such
securities or evidences of indebtedness or other assets (including
cash) to the holders of the Common Stock, then the holders of the
Series A Preferred Stock shall be entitled to a proportionate share of
any such dividend or distribution as though the holders of the Series A
Preferred Stock were the holders of the number of shares of Common
Stock into which their respective shares of Series A Preferred Stock
are convertible as of the record date fixed for the determination of
the holders of the Common Stock entitled to receive such dividend or
distribution.
(b) VOTING RIGHTS.
(i) General Rights. Except as otherwise provided herein or as
required by law, the Series A Preferred Stock shall be voted equally
with the shares of the Common Stock of the Company and not as a
separate class, at any annual or special meeting of stockholders of the
Company, upon the following basis: each holder of shares of Series A
Preferred Stock shall be entitled to such number of votes as shall be
equal to the whole number of shares of Common Stock into which such
holder's aggregate number of shares of Series A Preferred Stock, are
convertible pursuant to Section (d) hereof
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immediately after the close of business on the record date fixed for
such meeting or the effective date of such written consent.
(ii) Separate Vote of Series A Preferred Stock. Subject to the
rights of any series of Preferred Stock which may hereafter from time
to time come into existence, for so long as at least 10% of the Series
A Preferred Stock theretofore issued remain outstanding (subject to
adjustment for any stock split, reverse stock split or other similar
event affecting the Series A Preferred Stock), in addition to any other
vote or consent required herein or by law, the vote of the holders of
at least a majority of the outstanding Series A Preferred Stock shall
be necessary for effecting or validating the following actions:
(A) any amendment, alteration, or repeal of any
provision of the Certificate of Incorporation (including this
Certificate of Designation) or the Bylaws of the Company
(including any filing of a Certificate of Designation), that
alters or changes or adversely affects the voting or other
powers, preferences, or other special rights or privileges, or
restrictions of the Series A Preferred Stock;
(B) reclassification or recapitalization of any
outstanding shares of securities of the Company into shares
having rights, preferences or privileges senior to or on a
parity with the Series A Preferred Stock;
(C) authorization or issuance of any other stock
having rights, preferences or privileges senior to or on a
parity with the Series A Preferred Stock;
(D) reorganization, merger or consolidation with or
into any corporation if such reorganization, merger or
consolidation would result in the stockholders of the Company
immediately prior to such reorganization, merger or
consolidation holding less than a majority of the voting power
of the stock of the surviving corporation immediately after
such reorganization, merger or consolidation;
(E) sale, lease, conveyance or other disposition of,
or encumbrance of, all or substantially all the Company's
assets in a single transaction or series of related
transactions;
(F) liquidation, dissolution or winding-up of the
Company;
(G) amendment of the Certificate of Incorporation, as
amended, to increase the number of shares of authorized Common
Stock or Preferred Stock;
(H) redemption, purchase or other acquisition by the
Company, either direct or indirect, of any of the Company's
capital stock or other equity securities (including any
securities directly or indirectly convertible into or
exchangeable or exercisable for such securities) excluding
redemptions, repurchases or other reacquisitions at cost with
respect to shares issued in accordance with plans
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or agreements approved by the Board of Directors from current
or former employees, consultants, advisors or directors upon
or in connection with their death, disability or termination
of employment with the Company and excluding the Series A
Preferred Stock pursuant to Section (e) below;
(I) authorization, declaration or payment of any
dividend (other than a stock dividend paid pro rata to the
Company's stockholders) on any shares of Common Stock or
Preferred Stock, other than the Series A Preferred Stock; or
(J) increase or decrease the number of authorized
shares of Series A Preferred Stock; or
(K) issuance, reservation or authorization of shares
of Common Stock or any right or option to purchase Common
Stock or other security convertible into Common Stock to
employees, consultants or directors in an amount which would
result in total options outstanding at any time exceeding 15%
of the total number of shares, warrants and options issued and
outstanding immediately after the Series A Original Issue Date
(as adjusted for any stock dividends, combinations or splits
with respect to such shares).
(c) LIQUIDATION RIGHTS.
(i) Upon any liquidation, dissolution, or winding up of the
Company, whether voluntary or involuntary, before any distribution or
payment shall be made to the holders of any Series A Junior Stock,
subject to the rights of any series of Preferred Stock that may from
time to time come into existence and which is expressly senior to the
rights of the Series A Preferred Stock, the holders of Series A
Preferred Stock shall be entitled to be paid out of the assets of the
Company an amount per share of Series A Preferred Stock equal to 100%
of the Series A Original Issue Price (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with
respect to such shares) for each share of Series A Preferred Stock held
by each such holder. If, upon any such liquidation, dissolution, or
winding up, the assets of the Company shall be insufficient to make
payment in full to all holders of Series A Preferred Stock, then such
assets shall be distributed among the holders of Series A Preferred
Stock at the time outstanding, ratably in proportion to the full
amounts to which they would otherwise be respectively entitled. After
the payment of the foregoing full liquidation preference of the Series
A Preferred Stock and any other distribution that may be required with
respect to any series of Preferred Stock that may from time to time
come into existence and which is expressly senior to the rights of the
Series A Preferred Stock, the assets of the Company legally available
for distribution, if any, shall be distributed ratably to the holders
of Series A Preferred Stock, on an as converted basis, and the holders
of Series A Junior Stock.
(ii) The following events shall be considered a liquidation
under this Section, unless by vote or written consent of the holders of
at least a majority of the Series A Preferred Stock then outstanding,
such holders waive the right to treat any of the following events as a
deemed liquidation:
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(A) any consolidation or merger of the Company with
or into any other corporation or other entity or person, or
any other corporate reorganization, in which the stockholders
of the Company immediately prior to such consolidation, merger
or reorganization, own less than 50% of the Company's voting
power immediately after such consolidation, merger or
reorganization, or any transaction or series of related
transactions to which the Company is a party in which in
excess of 50% of the Company's voting power is transferred,
excluding any consolidation or merger effected exclusively to
change the domicile of the Company (an "Acquisition");
(B) a transaction or a series of related
transactions, other than transactions involving a holder of
Series A Preferred Stock, in which a majority of the voting
power is transferred to a third party (or group of affiliated
third parties) who were not previously stockholders of the
Company; or
(C) a sale, lease or other disposition of all or
substantially all of the assets of the Company (an "Asset
Transfer").
(iii) In any of the events set forth in subparagraph (ii), if
the consideration received by the Company is other than cash, its value
will be deemed its fair market value as determined in good faith by the
Board of Directors. Any securities shall be valued as follows:
(A) Securities not subject to restrictions on free
marketability covered by subparagraph (B) below:
(1) If traded on a securities exchange or
through the Nasdaq National Market (or a similar
national quotation system), the value shall be deemed
to be the average of the closing prices of the
securities on such quotation system over the 30 day
period ending three days prior to the closing;
(2) 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 days prior to the
closing; and
(3) 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.
(B) The method of valuation of securities subject to
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
subparagraphs (iii)(A)(1),
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(2) or (3) to reflect the approximate fair market value
thereof, as determined in good faith by the Board of
Directors.
(iv) Written notice of any such liquidation, dissolution or
winding up (or deemed liquidation, dissolution or winding up) of the
Company within the meaning of this Section, which states the payment
date, the place where said payments shall be made and the date on which
conversion rights as set forth herein terminate as to such shares
(which shall be not less than 10 days after the date of such notice),
shall be given by first class mail, postage prepaid, or by telecopy or
facsimile, not less than 20 days prior to the payment date stated
therein, to the then holders of record of Series A Preferred Stock,
such notice to be addressed to each such holder at its address as shown
on the records of the Company.
(d) CONVERSION RIGHTS. The holders of the Series A Preferred Stock
shall have the following rights with respect to the conversion of the Series A
Preferred Stock into shares of Common Stock:
(i) Optional Conversion. Subject to and in compliance with the
provisions of this Section (d), any shares of Series A Preferred Stock
may, at the option of the holder, be converted at any time into
fully-paid and nonassessable shares of Common Stock The number of
shares of Common Stock to which a holder of Series A Preferred Stock
shall be entitled upon conversion shall be the product obtained by
multiplying the "Series A Preferred Conversion Rate" then in effect
(determined as provided in subsection (ii)) by the number of shares of
Series A Preferred Stock being converted.
(ii) Series A Preferred Conversion Rate. The conversion rate
in effect at any time for conversion of the Series A Preferred Stock
(the "Series A Preferred Conversion Rate") shall be the quotient
obtained by dividing the Series A Original Issue Price by the "Series A
Preferred Conversion Price," calculated as provided in subsection (iii)
below.
(iii) Series A Preferred Conversion Price. The conversion
price for the Series A Preferred Stock shall initially be $0.70 (the
"Series A Preferred Conversion Price"). Such initial Series A Preferred
Conversion Price shall be adjusted from time to time in accordance with
this Section (d). All references to the Series A Preferred Conversion
Price herein shall mean the Series A Preferred Conversion Price as so
adjusted.
(iv) Mechanics of Conversion. Each holder of Series A
Preferred Stock who desires to convert the same into shares of Common
Stock pursuant to this Section (d) shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Company or
any transfer agent for the Series A Preferred, and shall give written
notice to the Company at such office that such holder elects to convert
the same. Such notice shall state the number of shares of Series A
Preferred being converted. Thereupon, the Company shall promptly issue
and deliver at such office to such holder a certificate or certificates
for the number of shares of Common Stock to which such holder is
entitled and shall promptly pay in cash (at the Common Stock's fair
market value
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determined by the Board of Directors as of the date of conversion) the
value of any fractional share of Common Stock otherwise issuable to any
holder of Series A Preferred. Such conversion shall be deemed to have
been made at the close of business on the date of such surrender of the
certificates representing the shares of Series A Preferred to be
converted, and the person entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes
as the record holder of such shares of Common Stock on such date.
(v) Adjustment Upon Common Stock Event. Upon the happening of
a Common Stock Event (as hereinafter defined) at any time or from time
to time after the date that the first share of Series A Preferred is
issued (the "Series A Original Issue Date"), the Series A Preferred
Conversion Price shall, simultaneously with the happening of such
Common Stock Event, be adjusted by multiplying the Series A Preferred
Conversion Price in effect immediately prior to such Common Stock Event
by a fraction, (i) the numerator of which shall be the number of shares
of Common Stock issued and outstanding immediately prior to such Common
Stock Event, and (ii) the denominator of which shall be the number of
shares of Common Stock issued and outstanding immediately after such
Common Stock Event, and the product so obtained shall thereafter be the
Series A Preferred Conversion Price. The Series A Preferred Conversion
Price shall be readjusted in the same manner upon the happening of each
subsequent Common Stock Event. As used in this Section (d), the term
"Common Stock Event" shall mean (i) the issue by the Company of
additional shares of Common Stock as a dividend or other distribution
on outstanding Common Stock, (ii) a subdivision of the outstanding
shares of Common Stock into a greater number of shares of Common Stock
(by stock split, reclassification or otherwise), or (iii) a combination
or consolidation, by reclassification or otherwise, of the outstanding
shares of Common Stock into a smaller number of shares of Common Stock.
(vi) Adjustment for Other Dividends and Distributions. If at
any time or from time to time after the Series A Original Issue Date
the Company pays a dividend or makes another distribution to the
holders of the Common Stock (or fixes a record date for the
determination of holders of Common Stock entitled to receive such
dividend or other distribution) payable in securities of the Company or
any of its subsidiaries other than shares of Common Stock, then in each
such event 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 upon conversion
thereof, the amount of securities of the Company which they would have
received had their Series A Preferred Stock been converted into Common
Stock on the date of such event (or such record date, as applicable)
and had they thereafter, during the period from the date of such event
(or such record date, as applicable) to and including the conversion
date, retained such securities receivable by them as aforesaid during
such period, subject to all other adjustments called for during such
period under this Section (d) with respect to the rights of the holders
of the Series A Preferred Stock or with respect to such other
securities by their terms.
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(vii) Adjustment for Reclassification, Exchange and
Substitution. If at any time or from time to time after the Series A
Original Issue Date, the Common Stock issuable upon the conversion of
the Series A Preferred Stock is changed into the same or a different
number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than an
Acquisition or Asset Transfer as defined in Section (c) or a
subdivision or combination of shares or stock dividend or a
reorganization, merger, consolidation or sale of assets provided for
elsewhere in this Section (d)), in any such event each holder of Series
A Preferred Stock shall have the right thereafter to convert such stock
into the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change
by holders of the maximum number of shares of Common Stock into which
such shares of Series A Preferred Stock could have been converted
immediately prior to such recapitalization, reclassification or change,
all subject to further adjustment as provided herein or with respect to
such other securities or property by the terms thereof.
(viii) Adjustment for Reorganizations, Mergers or
Consolidations. If at any time or from time to time after the Series A
Original Issue Date, there is a capital reorganization of the Common
Stock or the merger or consolidation of the Company with or into
another corporation or another entity or person (other than an
Acquisition or Asset Transfer as defined in Section (c) or a
recapitalization, subdivision, combination, reclassification, exchange
or substitution of shares provided for elsewhere in this Section (d)),
as a part of such capital reorganization, provision shall be made so
that the holders of the Series A Preferred Stock shall thereafter be
entitled to receive upon conversion of the Series A Preferred Stock the
number of shares of stock or other securities or property of the
Company to which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled on such capital
reorganization, subject to adjustment in respect of such stock or
securities by the terms thereof. In any such case, appropriate
adjustment shall be made in the application of the provisions of this
Section (d) with respect to the rights of the holders of Series A
Preferred Stock after the capital reorganization to the end that the
provisions of this Section (d) (including adjustment of the Series A
Preferred Conversion Price then in effect and the number of shares
issuable upon conversion of the Series A Preferred Stock) shall be
applicable after that event and be as nearly equivalent as practicable.
(ix) Sale of Shares Below Series A Preferred Conversion Price.
(A) If at any time or from time to time after the
Series A Original Issue Date, the Company issues or sells, or
is deemed by the express provisions of this subsection (ix) to
have issued or sold Additional Shares of Common Stock (as
defined in subsection (ix)(B)(1) below), other than (w) as a
dividend or distribution on the Series A Preferred Stock, (x)
in connection with a Common Stock Event as provided in
subsection (v) above, (y) as a dividend or other distribution
on any class of stock as provided in subsection (vi) above,
and (z) a subdivision or combination of shares of Common Stock
as provided in subsection (vii) above, for an Effective Price
(as defined in subsection (ix)(B)(4) below) less than the then
effective Series A Preferred Conversion Price, then and in
each such case the
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then existing Series A Preferred Conversion Price shall be
reduced, as of the opening of business on the date of such
issue or sale, to a price equal to the price per share paid
for such Additional Shares of Common Stock (but not less than
the par value of the Common Stock).
(B) Certain Definitions. For the purpose of making
any adjustment required under this subsection (ix):
(1) "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or,
pursuant to this Section, deemed to be issued) by the
Company, whether or not subsequently reacquired or
retired by the Company, other than: (A) shares of
Common Stock issued or issuable upon exercise of
options, warrants (other than outstanding warrants
granted in favor of Invest Inc.), convertible
securities or other rights outstanding as of the
Series A Original Issue Date; and (B) shares of
Common Stock issued or issuable by the Company or any
subsidiary to employees, officers, directors or
consultants pursuant to stock option plans that are
permitted by Section 7.4 of the Series A Preferred
Stock Purchase Agreement, dated as of February 16,
2001, among the Company, SCP Private Equity Partners
II, L.P., and ICG Holdings, Inc., unless otherwise
approved by the holders of not less than a majority
of the outstanding shares of Series A Preferred
Stock;
(2) The "Aggregate Consideration Received"
by the Company for any issue or sale (or deemed issue
or sale) of securities shall (i) (A) to the extent it
consists of cash, be computed at the gross amount of
cash received by the Company before deduction of any
underwriting or similar commissions, compensation or
concessions paid or allowed by the Company in
connection with such issue or sale and without
deduction of any expenses payable by the Company; (B)
to the extent it consists of property other than
cash, be computed at the fair value of that property
at the time of such issue as determined in good faith
by the Board; and (C) if Additional Shares of Common
Stock, Convertible Securities or Rights or Options
are issued or sold together with other stock or
securities or other assets of the Company for a
consideration which covers both, be computed as the
portion of the consideration so received that may be
reasonably determined in good faith by the Board to
be allocable to such Additional Shares of Common
Stock, Convertible Securities or Rights or Options or
(ii) if no consideration is received by the Company,
be considered zero;
(3) "Convertible Securities" shall mean any
evidence of indebtedness, stock or other securities
directly or indirectly convertible into or
exchangeable for shares of Common Stock;
(4) The "Effective Price" of Additional
Shares of Common Stock shall mean the quotient
determined by dividing the total number of
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Additional Shares of Common Stock issued or sold, or
deemed to have been issued or sold by the Company by
the provisions of clause (1), into the Aggregate
Consideration Received, or deemed to have been
received by the Company by the provisions of this
clause (4), for such issue or sale of such Additional
Shares of Common Stock; and
(5) "Rights or Options" shall mean warrants,
options or other rights to purchase or otherwise
acquire shares of Common Stock or Convertible
Securities.
(C) Deemed Issuances. For the purpose of making any
adjustment to the Series A Preferred Conversion Price required
under this subsection (ix), if the Company issues or sells any
Rights or Options or Convertible Securities (or shall fix a
record date for the determination of holders of any class of
securities then entitled to receive any such Rights or Options
or Convertible Securities), then the Company shall be deemed
(x) to have issued, at the time of the issuance of such Rights
or Options or Convertible Securities, that number of
Additional Shares of Common Stock that is equal to the maximum
number of shares of Common Stock issuable upon exercise of
such Rights or Options or conversion or exchange of such
Convertible Securities upon their issuance (or, in the case
such a record date shall have been fixed, as of the close of
business on such record date) and (y) to have received, as the
Aggregate Consideration Received for the deemed issuance of
such additional shares of Common Stock, an amount equal to the
total amount of the consideration, if any, received by the
Company for the issuance of such Rights or Options or
Convertible Securities, plus, in the case of such Rights or
Options, the minimum total amount of consideration, if any,
payable to the Company upon the exercise in full of such
Rights or Options (including, with respect to Rights or
Options for Convertible Securities, the minimum aggregate
amount of consideration payable to the Company (other than by
cancellation of liabilities or obligations evidenced by such
Rights or Options) upon the conversion or exchange of such
underlying Convertible Securities), plus, in the case of
Convertible Securities, the minimum total amount of
consideration, if any, payable to the Company (other than by
cancellation of liabilities or obligations evidenced by such
Convertible Securities) upon the conversion or exchange
thereof; PROVIDED THAT:
(1) if the minimum amounts of such
consideration cannot be ascertained, but are a
function of antidilution or similar protective
clauses, then the Company shall be deemed to have
received the minimum amounts of consideration without
reference to such clauses;
(2) if the minimum amount of consideration
payable to the Company upon the exercise of such
Rights or Options or the conversion or exchange of
such Convertible Securities is reduced or the maximum
number of shares of Common Stock issuable upon the
exercise of such Rights or Options or the conversion
or exchange of such Convertible Securities is
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increased over time or upon the occurrence or
non-occurrence of specified events, other than by
reason of antidilution or similar protective
adjustments, then the Series A Preferred Conversion
Price computed upon the original issue or deemed
issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such
decrease or increase becoming effective, be
recomputed to reflect such decrease or increase, as
the case may be (provided, however, that no such
adjustment of the Series A Preferred Conversion Price
shall affect Common Stock previously issued upon
conversion of the Series A Preferred Stock); and
(3) if the minimum amount of consideration
payable to the Company upon the exercise of such
Rights or Options or the conversion or exchange of
such Convertible Securities is subsequently increased
or the maximum number of shares of Common Stock
issuable upon the exercise of such Rights or Options
or the conversion or exchange of such Convertible
Securities is subsequently decreased, then the Series
A Preferred Conversion Price computed upon the
original issue or deemed issue thereof (or upon the
occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or
decrease, as the case may be, (provided, however,
that no such adjustment of the Series A Preferred
Conversion Price shall affect Common Stock previously
issued upon conversion of the Series A Preferred
Stock, and further provided that no readjustment
pursuant to this clause (3) shall have the effect of
increasing the Series A Preferred Conversion Price to
an amount which exceeds the lower of (A) the Series A
Preferred Conversion Price on the original adjustment
date, or (B) the Series A Preferred Conversion Price
that would have resulted from any issuance of
Additional Shares of Common Stock between the
original adjustment date and such readjustment date).
No further adjustment of the Series A Preferred Conversion
Price, adjusted upon the issuance of such Rights or Options or
Convertible Securities, shall be made as a result of the
actual issuance of shares of Common Stock on the exercise of
any such Rights or Options or the conversion or exchange of
any such Convertible Securities. If any such Rights or Options
or the conversion rights represented by any such Convertible
Securities shall expire without having been fully exercised,
then the Series A Preferred Conversion Price as adjusted upon
the issuance of such Rights or Options or Convertible
Securities (or upon the occurrence of the record date with
respect thereto), and any subsequent adjustments based
thereon, shall be readjusted to the Series A Preferred
Conversion Price which would have been in effect had an
adjustment been made on the basis that (x) the only Additional
Shares of Common Stock so issued were the shares of Common
Stock, if any, that were actually issued or sold on the
exercise of such Rights or Options or rights of conversion or
exchange of such Convertible Securities and (y) the
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consideration received with respect to Additional Shares of
Common Stock was the consideration actually received by the
Company upon such exercise of such Rights or Options, plus the
consideration, if any, actually received by the Company for
the granting of all such Rights or Options, whether or not
exercised, plus the consideration received for issuing or
selling all such Convertible Securities actually converted or
exchanged, plus the consideration, if any, actually received
by the Company (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) on the
conversion or exchange of such Convertible Securities
provided, however, that no such adjustment of the Series A
Preferred Conversion Price shall affect Common Stock
previously issued upon conversion of the Series A Preferred
Stock. In the case of any Rights or Options which expire by
their terms not more than 30 days after the date of issue
thereof, no adjustment of the Series A Preferred Conversion
Price shall be made (except as to shares of Series A Preferred
Stock converted in such period) until the expiration or
exercise of all such Rights or Options, whereupon such
adjustment shall be made in the same manner provided above. If
any such record date shall have been fixed and such Rights or
Options or Convertible Securities are not issued on the date
fixed thereof, the adjustment previously made in the Series A
Preferred Conversion Price which became effective on such
record date shall be canceled as of the close of business on
such record date, and shall instead be made on the actual date
of issuance, if any.
(x) Waiver. The Series A Preferred Conversion Price adjustment
provisions of this Section 4 may be waived by the written consent of
the holders of at least a majority of the outstanding Series A
Preferred Stock, voting together as a single class.
(xi) Certificate of Adjustment. In each case of an adjustment
or readjustment of the Series A Preferred Conversion Price for the
number of shares of Common Stock or other securities issuable upon
conversion of the Series A Preferred Stock, if the Series A Preferred
Stock is then convertible pursuant to this Section (d), the Company, at
its expense, shall compute such adjustment or readjustment in
accordance with the provisions hereof and prepare a certificate showing
such adjustment or readjustment, and shall mail such certificate, by
first class mail, postage prepaid, to each registered holder of Series
A Preferred Stock at the holder's address as shown in the Company's
books. The certificate shall set forth such adjustment or readjustment,
showing in detail the facts upon which such adjustment or readjustment
is based, including a statement of (i) the consideration received or
deemed to be received by the Company for any Additional Shares of
Common Stock issued or sold or deemed to have been issued or sold, (ii)
the Series A Preferred Conversion Price at the time in effect, (iii)
the number of Additional Shares of Common Stock and (iv) the type and
amount, if any, of other property which at the time would be received
upon conversion of the Series A Preferred Stock.
(xii) Notices of Record Date. Upon (i) any taking by the
Company of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive
any dividend or other distribution, or (ii) any Acquisition (as defined
in Section (c)) or other capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company, any merger or
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consolidation of the Company with or into any other corporation, or any
Asset Transfer (as defined in Section (c)), or any voluntary or
involuntary dissolution, liquidation or winding up of the Company, the
Company shall mail to each holder of Series A Preferred Stock at least
10 days prior to the record date specified therein (or such shorter
period approved by a majority of the outstanding Series A Preferred
Stock) a notice specifying (A) the date on which any such record is to
be taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (B) the date on which any
such Acquisition, reorganization, reclassification, transfer,
consolidation, merger, Asset Transfer, dissolution, liquidation or
winding up is expected to become effective, and (C) the date, 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 Acquisition, reorganization, reclassification,
transfer, consolidation, merger, Asset Transfer, dissolution,
liquidation or winding up.
(xiii) Automatic Conversion.
(A) Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock, based
on the then-effective Series A Preferred Conversion Price, (A)
at any time upon the written consent of the holders of at
least a majority of the outstanding shares of the Series A
Preferred Stock, (B) upon the closing of a Qualified Public
Offering, or (C) upon a Qualified Sale. The term "Qualified
Public Offering" shall mean a firmly 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 for the account of the Company in which
(i) the per share price is at least four times the then
effective Series A Preferred Conversion Price, and (ii) the
gross cash proceeds to the Company (before underwriting
discounts, commissions and fees) are at least $60,000,000. The
term "Qualified Sale" shall mean an Acquisition or Asset
Transfer (as defined in Section (c)) which provides for
minimum consideration payable with respect to each share of
Common Stock (on a fully diluted basis) of at least three
times the then effective Series A Preferred Conversion Price
in cash or Liquid Stock. The term "Liquid Stock" shall mean
capital stock which is registered under Section 12(b) or
Section 12(g) of the Securities Exchange Act of 1934, as
amended, the disposition of which would not be significantly
restricted by low trading volume or otherwise; provided, that
capital stock which is either (i) listed for trading on the
NASDAQ National Market System with average daily trading
volume over the past six months of at least 100,000 shares, or
(ii) listed for trading on the New York Stock Exchange, Inc.
shall be deemed to be Liquid Stock. Upon such automatic
conversion, any accrued and unpaid dividends shall be paid in
accordance with the provisions of Section (a).
(B) Upon the occurrence of any of the events
specified in subparagraph (A), the outstanding shares of
Series A Preferred Stock shall be converted automatically
without any further action by the holders of such shares and
whether or not the certificates representing such shares are
surrendered to the
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Company or its transfer agent; PROVIDED, HOWEVER, that the
Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such
conversion unless the certificates evidencing such shares of
Series A Preferred Stock are either delivered to the Company
or its transfer agent as provided below, or the holder
notifies the Company or its transfer agent that such
certificates have been lost, stolen or destroyed and executes
an agreement satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with such
certificates. Upon the occurrence of such automatic conversion
of the Series A Preferred Stock, the holders of Series A
Preferred Stock shall surrender the certificates representing
such shares at the office of the Company or any transfer agent
for the Series A Preferred Stock. Thereupon, there shall be
issued and delivered to such holder promptly at such office
and in its name as shown on such surrendered certificate or
certificates, a certificate or certificates for the number of
shares of Common Stock into which the shares of Series A
Preferred Stock surrendered were convertible on the date on
which such automatic conversion occurred. If the conversion is
in connection with an underwritten offering of securities
pursuant to the Securities Act, the conversion may, at the
option of any holder tendering shares of Series A Preferred
Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such
offering, in which event the holder entitled to receive the
Common Stock upon conversion of the Series A Preferred Stock
shall not be deemed to have converted such Series A Preferred
Stock until immediately prior to the closing of such sale of
securities.
(xiv) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of Series A Preferred Stock. All shares
of Common Stock (including fractions thereof) issuable upon conversion
of more than one share of Series A Preferred Stock by a holder thereof
shall be aggregated for purposes of determining whether the conversion
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance
of any fractional share, the Company shall, in lieu of issuing any
fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (as determined by
the Board of Directors) on the date of conversion.
(xv) Reservation of Stock Issuable Upon Conversion. The
Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose
of effecting the conversion of the shares of the Series A Preferred
Stock, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares
of the Series A Preferred Stock. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, the Company will take such corporate action as may be
necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
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(xvi) Notices. Any notice required by the provisions of this
Section (d) shall be in writing and shall be deemed effectively given:
(i) upon personal delivery to the party to be notified, (ii) when sent
by confirmed electronic mail or facsimile if sent during normal
business hours of the recipient; if not, then on the next business day,
(iii) 5 days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (iv) 1 day after deposit
with a nationally recognized overnight courier, specifying next day
delivery, with 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 Company.
(xvii) Payment of Taxes. The Company will pay all taxes (other
than taxes based upon income) and other governmental charges that may
be imposed with respect to the issue or delivery of shares of Common
Stock upon conversion of shares of Series A Preferred Stock, excluding
any tax or other charge imposed in connection with any transfer
involved in the issue and delivery of shares of Common Stock in a name
other than that in which the shares of Series A Preferred Stock so
converted were registered.
(xviii) No Impairment. The Company shall not avoid or seek to
avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company, but shall at all times in good
faith assist in carrying out all such actions as may be reasonably
necessary or appropriate in order to protect the conversion rights of
the holders of the Series A Preferred Stock against impairment.
(xix) Satisfaction of Accrued Dividends. Except as otherwise
expressly provided, upon the conversion of any shares of Series A
Preferred Stock into Common Stock as provided herein, the holders
thereof shall be entitled to receive a payment in satisfaction of all
accrued but unpaid dividends, subject to limitations regarding the
cancellation of PIK Shares contained in this Section.
(e) OPTIONAL REDEMPTION.
(i) Redemption at Option of Holders of Series A Preferred
Stock. At any time on and after January 20, 2006, at the request of any
holder of Series A Preferred Stock, such holder may require the Company
to redeem all, but not less than all, of the shares of Series A
Preferred Stock held by such holder in accordance with the provisions
contained in this Section (e). In no event shall the Company be
required to redeem shares in excess of the amount permitted by law;
PROVIDED, HOWEVER, that such inability to redeem shall not have any
impact or effect upon the per-share Series A Redemption Price (as
hereinafter defined). All redemptions shall be made in the order in
which notices of redemption are received (with any notice of redemption
received within 25 days of delivery of notice by an Initial Redeeming
Holder (as hereinafter defined) under subsection (iii) being treated as
having been received simultaneously with that of the Initial Redeeming
Holder), and, if less than all of the shares submitted for redemption
in a particular 25-day period are capable of being redeemed, then such
shares shall be redeemed
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on a pro rata basis, based on the number of shares that each
stockholder submitted for redemption.
(ii) Redemption Price of Series A Preferred Stock. The price
at which the Series A Preferred Stock shall be redeemed (the "Series A
Redemption Price") shall be equal to the Series A Original Issue Price
(as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares) for each
share of Series A Preferred Stock plus accrued but unpaid dividends.
(iii) Exercise of Option to Redeem Series A Preferred Stock.
If a holder of Series A Preferred Stock desires to exercise such
holder's option to redeem all, but not less than all, of such holder's
shares of Series A Preferred Stock pursuant to this Section (e), such
holder (the "Initial Redeeming Holder") must give written notice to the
Company specifying the number of shares to be redeemed, and the Company
shall promptly provide a copy of such notice to each other holder of
Series A Preferred Stock. No later than 25 days after receipt by the
Company of notice of the Initial Redeeming Holder, if any other holder
of Series A Preferred Stock also wishes to redeem all of such holder's
shares of Series A Preferred Stock at the same time as the redemption
of the shares of the Initial Redeeming Holder, such additional holder
shall provide a notice comparable to that of the Initial Redeeming
Holder to the Company and the Company shall promptly provide a copy of
such notice to each other holder of Series A Preferred Stock.
Redemptions shall be made on a date 30 calendar days after the date on
which the Company receives the notice of the Initial Redeeming Holder
(or the first business day thereafter). Each such date of redemption
shall be a "Series A Redemption Date." To receive the Series A
Redemption Price, the holder of shares of Series A Preferred Stock must
present and surrender the certificate or certificates representing such
shares (duly endorsed for transfer) to the Company at the principal
executive offices of the Company no later than three business days
prior to the Series A Redemption Date. The Company shall pay the Series
A Redemption Price to, or to the order of, the person whose name
appears on such certificate or certificates as the owner thereof. The
Company shall pay the entire Series A Redemption Price on the Series A
Redemption Date.
(iv) Effect of Redemption. From and after the Series A
Redemption Date, unless the Company shall default in providing for the
payment of the Series A Redemption Price, all dividends on such shares
requested to be redeemed pursuant to this Section (e) shall cease to
accrue, and all rights of the holders of any such shares subject to
redemption as stockholders of the Company with respect to such shares,
except the right to receive the Series A Redemption Price, shall cease
and terminate. Any shares of Series A Preferred Stock that are redeemed
by the Company shall be retired and shall not be reissued.
(v) Failure to Redeem. If the Company shall for any reason
fail to redeem any shares of Series A Preferred Stock as required by
this Section (e), and such failure shall continue for a period of 30
days, then notwithstanding anything to the contrary contained in this
Certificate of Designation, with respect to all shares of Series A
Preferred Stock then outstanding: (i) the conversion rights set forth
in Section (d) hereof
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shall continue beyond any date for redemption specified in said
Section, and said rights may be exercised at any time; and (ii) the
Company may not, other than in the ordinary course of business, incur
any indebtedness for money borrowed or borrow or reborrow any amounts
under any lines of credit or any other borrowing facility which it may
then have outstanding without the prior written consent of the holders
of at least a majority of the then outstanding shares of Series A
Preferred Stock, unless the proceeds of such incurrence of such
indebtedness or borrowing or reborrowing are to be used to make all
redemptions then required to be made; and (iii) dividends shall
continue to accrue and be paid in accordance with and as defined in
Section (a), and, to the extent not paid, shall be added to the Series
A Redemption Price. Nothing herein shall limit the Company's
obligations to redeem as set forth above, or limit the remedies
available to the holders of Series A Preferred Stock in the event of a
failure of the Company to honor such obligations.
(f) WAIVER. Any rights of the holders of Series A Preferred Stock set
forth herein may be waived by the affirmative vote or consent of the holders of
a majority of the shares of Series A Preferred Stock then outstanding.
(g) LIMITATION ON REISSUANCE OF SHARES. No share of shares of Series A
Preferred Stock acquired by the Company by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
cancelled, retired and eliminated from the shares that the Company is authorized
to issue.
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