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EXHIBIT 3.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
DESIGNS, INC.
A DELAWARE CORPORATION
Designs, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "CORPORATION"), DOES
HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of
Directors by the Restated Certificate of Incorporation (as amended) of the
Corporation, and pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware (the "DGCL"), the Board of Directors of
the Corporation duly adopted a resolution providing for the designations,
preferences and relative, participating, optional and other special rights of a
series of preferred stock of the Corporation (the "PREFERRED STOCK"), and the
qualifications, limitations and restrictions thereof, which resolution is set
forth in EXHIBIT A attached hereto and is hereby incorporated herein by this
reference.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be duly executed by its Chief Financial Officer this 14th day of
May, 2002.
DESIGNS, INC.
By: /s/ DENNIS R. HERNREICH
---------------------------------
Name: Dennis R. Hernreich
Title: Chief Financial Officer
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EXHIBIT A
RESOLUTION OF THE BOARD OF DIRECTORS DESIGNATING
SERIES B CONVERTIBLE PREFERRED STOCK
OF
DESIGNS, INC.
RESOLVED, that pursuant to the authority conferred upon and
vested in the Board of Directors by the Restated Certificate of Incorporation,
as amended as of the date hereof (the "CERTIFICATE OF INCORPORATION"), of
Designs, Inc. (the "CORPORATION"), the Board of Directors of the Corporation
(the "BOARD OF DIRECTORS") hereby adopts this Certificate of Designations (the
"CERTIFICATE") and establishes and designates a series of Preferred Stock, par
value $0.01 per share, of the Corporation, designated as Series B Convertible
Preferred Stock (the "SERIES B PREFERRED"), and hereby fixes and determines the
authorized number of such shares and the designations, preferences and relative,
participating, optional and other special rights of such shares, and the
qualifications, limitations and restrictions thereof, in addition to those set
forth in the Certificate of Incorporation, as follows:
1. DESIGNATION; ISSUE PRICE. There shall be a series of Preferred Stock
of the Corporation designated as "Series B Convertible Preferred Stock" and the
number of shares constituting such series shall be 200,000. The number of shares
of Series B Preferred may be increased or decreased by resolution of the Board
of Directors; PROVIDED, HOWEVER, that no decrease shall reduce the number of
shares of such series to fewer than the number of shares then issued and
outstanding. The issue price for the shares of Series B Preferred shall be
$425.00 per share, as may be adjusted from time to time for any combinations,
consolidations, subdivisions, stock splits or the like changing the number of
outstanding shares of Series B Preferred (the "SERIES B ISSUE PRICE").
2. DIVIDENDS.
(i) The holders of shares of Series B Preferred shall be
entitled to participate equally with the holders of the common stock of the
Corporation (the "COMMON STOCK"), par value $0.01 per share, as to the payment
of dividends and other distributions, whether in cash, capital stock or other
property (other than a dividend or other distribution payable in securities of
the Corporation or one covered by Section 5(iii)(a)), when, as and if declared
by the Board of Directors, out of assets of the Corporation legally available
therefor, and shall receive such dividends or distributions in an amount per
share equal to the dividends or distributions payable on the number of shares of
Common Stock into which one share of the Series B Preferred is then convertible.
Nothing herein contained with respect to the calculation of any dividend or
distribution shall be construed as, or deemed to be, a declaration of any
dividend or distribution, or shall confer any right on any holder of shares of
Series B Preferred (or any other holder of the Corporation's capital stock) to
the payment of any dividend or distribution until such dividend or distribution
shall have been specifically declared payable by the Board of Directors and
until the date determined for the payment thereof shall have occurred. For
purposes of this Article 2,
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neither a Liquidation Event (as defined in Article 3) nor a distribution or
other event covered by Article 5 hereof shall be considered a dividend or other
distribution.
(ii) The holders of the Series B Preferred shall be entitled
to receive on any Dividend Payment Date (as defined below) dividends (the
"SERIES B DIVIDENDS") on each share of Series B Preferred, initially at the rate
of 15% per annum (computed on the basis of a 360-day year of twelve 30-day
months) of the Series B Issue Price for the first 150 days following the date of
issuance of such share (the "DIVIDEND RATE"); PROVIDED, HOWEVER, that beginning
on the 151st day following such issuance, the Dividend Rate shall automatically
be increased to 20% per annum (computed on such similar basis). Such dividends
shall accrue and accumulate whether or not they have been declared and whether
or not there are profits, surplus or other funds of the Corporation legally
available for the payment of dividends. All dividends shall be paid in cash.
(iii) Dividends on shares of Series B Preferred Stock shall
accrue and be cumulative from the date of issuance of such shares and shall be
payable in arrears on any of the following dates (each, a "DIVIDEND PAYMENT
DATE"): (1) upon and on the date of a Liquidation Event; (2) upon a redemption
in accordance with Article 6 hereof on any given Redemption Date (but only to
the extent required pursuant to Article 6); or (3) semi-annually on May 1 and
November 1 of each year, commencing on November 1, 2002 (each, a "DIVIDEND
PAYMENT DATE"); PROVIDED, HOWEVER, that no Series B Dividend shall be payable
for any shares of Series B Preferred (without regard to its accrual) upon
conversion in accordance with Article 5 hereof that occurs prior to any Dividend
Payment Date.
(iv) For purposes of this Certificate, "FAIR MARKET VALUE"
shall mean, as to the value of securities or other property, as applicable, the
fair value thereof, as of the time of payment or distribution of such securities
or other property by the Corporation, as determined by the Board of Directors in
the good faith exercise of its reasonable business judgment, PROVIDED that (1)
if such securities are listed on any established stock exchange or quoted on a
nationally recognized automated quotation system, their Fair Market Value shall
be the average of the closing sales price for such securities as quoted on such
system or as listed on such exchange (or the largest such exchange) for the 20
trading days preceding the date the value is to be determined, and (2) if such
securities are regularly quoted by a recognized securities dealer but selling
prices are not reported, their Fair Market Value shall be the mean between the
high bid and low asked prices for such securities averaged for such
20-trading-day period preceding the date the value is to be determined.
3. LIQUIDATION PREFERENCE.
(i) In the event of (1) a liquidation, dissolution, or winding
up of the Corporation, whether voluntary or involuntary, (2) the sale,
conveyance or other disposition of all or substantially all of the assets of the
Corporation as an entirety (other than the sale of inventory in the ordinary
course of business), or (3) a merger, consolidation or other business
combination (including without limitation a stock-for-stock exchange) of the
Corporation with one or more other entities that results in the stockholders of
the Corporation immediately prior to such event owning less than 50% of the
combined voting power of all classes of capital stock of the
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Corporation (or its successor) (each, a "LIQUIDATION EVENT"), then distributions
to the stockholders of the Corporation shall be made in the following manner:
(a) Each holder of Series B Preferred shall be
entitled to receive, prior and in preference to any distribution or payment of
any of the assets or surplus funds of the Corporation to the holders of the
Common Stock or any other shares of capital stock of the Corporation with rights
junior to the Series B Preferred, by reason of their ownership of such capital
stock, an amount per share equal to the Redemption Price (as defined in Article
6 hereof). If, upon the occurrence of a Liquidation Event, the assets and funds
available to be distributed among the holders of the Series B Preferred shall be
insufficient to permit the payment to such holders of the aggregate Redemption
Price for all then outstanding shares of Series B Preferred, then the entire
assets and funds of the Corporation legally available for distribution to such
holders shall be distributed ratably in accordance with the respective amounts
which would be paid on such shares of Series B Preferred if all amounts therein
were paid in full.
(b) After payment has been made to the holders of
Series B Preferred, and any other Preferred Stock that may be designated and
issued by the Board of Directors from time to time after the date hereof (in
accordance with the terms hereof) (the "OTHER PREFERRED STOCK"), of the full
amounts to which they are entitled pursuant to Section 3(i)(a) above or any
certificate of designations filed to establish the respective series and
liquidation preferences of any Other Preferred Stock, the remaining assets and
funds of the Corporation available for distribution to stockholders shall be
distributed ratably among the holders of the outstanding shares of Common Stock.
(ii) Nothing hereinabove set forth shall affect in any way the
mandatory conversion of the shares of Series B Preferred into shares of Common
Stock in accordance with Article 5 of this Certificate.
4. VOTING RIGHTS.
The Series B Preferred shall not be entitled to vote on matters as to
which the stockholders of the Corporation generally are entitled to vote.
Notwithstanding the above, so long any shares Series B Preferred remain
outstanding, the Corporation shall not, without the affirmative vote or consent
of the holders of a majority of the shares of Series B Preferred outstanding at
the time, given in person or by proxy, either in writing or at a meeting at
which the holders of the shares of Series B Preferred shall vote separately as a
class:
(i) take or omit to take any action as to any matters which
would alter or change the powers, preferences or special rights of the Series B
Preferred adversely; or
(ii) take or omit to take any other action where the
affirmative vote or consent of the holders of Series B Preferred, voting
separately as a class, is required by law.
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5. CONVERSION RIGHTS. The holders of Series B Preferred shall have
conversion rights as follows:
(i) AUTOMATIC CONVERSION. Each share of Series B Preferred
shall automatically be converted into shares of Common Stock at the then
effective applicable Conversion Rate (as defined below) at the close of business
on the date, if any, on which the requisite approval of stockholders for the
authorization and issuance of such Common Stock required by the Nasdaq
Marketplace Rules is obtained by the Corporation at a meeting of stockholders
or, if the Corporation elects to obtain such approval by written consent of
stockholders in lieu of a meeting, the first date on which such issuance may
occur in compliance with the Securities Exchange Act of 1934, as amended, and
the policies of Nasdaq (the "Stockholder Approval") as follows:
(a) All shares of Series B Preferred to be converted
pursuant to this Section 5(i) shall be convertible into such number of
fully-paid and non-assessable shares of Common Stock (calculated as to each
conversion to the nearest 1/1000th of a share) as is determined by multiplying
(x) the number of shares of Series B Preferred to be converted, TIMES (y) the
then-applicable Conversion Rate for such shares.
(b) The conversion rate in effect from time to time
for determining the number of shares of Common Stock into which each share of
Series B Preferred may be converted (the "CONVERSION RATE") shall be equal to
the quotient obtained by dividing (x) the Series B Issue Price by (y) the then
applicable "CONVERSION PRICE" with respect to such shares of Series B Preferred.
The initial Conversion Price for the Series B Preferred shall be $4.25. The
Conversion Price shall be adjusted from time to time as provided in Section
5(iii) of this Certificate.
(ii) MECHANICS OF CONVERSION. No fractional shares of Common
Stock shall be issued upon conversion of any shares of Series B Preferred. In
lieu of any fractional shares to which the holder would otherwise be entitled,
the Corporation shall pay cash equal to such fraction multiplied by the Fair
Market Value (as defined above) of a share of Common Stock on the date of
conversion. The outstanding shares of Series B Preferred shall be converted
automatically and immediately upon the Stockholder Approval without any further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its transfer
agent; PROVIDED, HOWEVER, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon conversion
pursuant to Section 5(i) unless the certificates evidencing such shares of
Series B Preferred are either delivered to the Corporation or its transfer
agent, or the holder notifies the Corporation or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
reasonably satisfactory to the Corporation or its transfer agent to indemnify
the Corporation from any loss incurred by it in connection with such
certificates. The Corporation shall, as soon as practicable after such delivery,
or such agreement and indemnification in the case of a lost certificate, issue
and deliver at such office to such holder of Series B Preferred, a certificate
or certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid and a check payable to the holder in the amount
of any cash amounts payable as the result of a conversion into fractional shares
of Common
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Stock, as provided in this Section 5(ii). Such conversion shall be deemed to
have been made at the close of business on the date of the Stockholder Approval,
in accordance with Section 5(i), and thereafter the person or persons entitled
to receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock.
(iii) ANTI-DILUTION ADJUSTMENTS.
(a) ADJUSTMENTS FOR SPLITS, SUBDIVISIONS,
COMBINATIONS OR CONSOLIDATIONS OF COMMON STOCK. In the event the outstanding
shares of Common Stock shall be increased by stock split, subdivision or other
similar transaction occurring at any time or from time to time after the
Original Issue Date (as defined below) into a greater number of shares of Common
Stock, the applicable Conversion Price then in effect shall, concurrently with
the effectiveness of such event, be decreased in proportion to the percentage
increase in the outstanding number of shares of Common Stock. In the event the
outstanding shares of Common Stock shall be decreased by reverse stock split,
combination, consolidation, or other similar transaction occurring at any time
or from time to time after the Original Issue Date into a lesser number of
shares of Common Stock, the applicable Conversion Price then in effect shall,
concurrently with the effectiveness of such event, be increased in proportion to
the percentage decrease in the outstanding number of shares of Common Stock. Any
adjustment under this Section 5(iii)(a) shall become effective automatically at
the close of business on the date the subdivision or combination becomes
effective. "ORIGINAL ISSUE DATE" shall mean in the case of the Series B
Preferred the date on which shares of Series B Preferred were first issued.
(b) ADJUSTMENTS FOR OTHER DISTRIBUTIONS. In the event
the Corporation at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, any distribution payable in securities of the Corporation
other than shares of Common Stock and other than as otherwise adjusted in this
Section 5(iii), then and in each such event provision shall be made so that the
holders of Series B Preferred shall receive upon conversion thereof, in addition
to the number of shares of Common Stock receivable thereupon, the amount of
other securities of the Corporation which they would have received had their
Series B Preferred 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 date of conversion, retained such securities receivable by them as
aforesaid during such period, subject to all other adjustments called for during
such period under this Section 5(iii) with respect to the rights of the holders
of Series B Preferred or with respect to such other securities by their terms.
(c) ADJUSTMENTS FOR RECAPITALIZATION,
RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If at any time or from time to time
after the Original Issue Date the Common Stock issuable upon conversion of the
Series B Preferred is changed into the same or a different number of shares of
any other class or classes of capital stock, whether by recapitalization,
reclassification, or otherwise (other than a subdivision or combination of
shares provided for in Section 5(iii)(a) above), the applicable Conversion Price
then in effect shall, concurrently with the effectiveness of such
recapitalization or reclassification, be proportionately adjusted such that the
Series B Preferred shall be convertible into, in lieu of the number of shares of
Common Stock
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which the holders would otherwise have been entitled to receive, a number of
shares of such other class or classes of capital stock equivalent to the number
of shares of Common Stock that would have been subject to receipt by the holders
upon conversion of such Series B Preferred immediately before that change, all
subject to further adjustment as provided for herein or with respect to such
other securities by their terms.
(iv) NO IMPAIRMENT. The Corporation will not, by amendment of
its Certificate or through any reorganization, 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
Article 5 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
Series B Preferred against impairment.
(v) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the applicable Conversion Price pursuant to this
Article 5, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of Series B Preferred so affected a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. In addition, the Corporation shall, upon
the written request of any holder of Series B Preferred so affected, furnish or
cause to be furnished to such holder a like certificate setting forth (a) such
adjustments and readjustments, (b) the applicable Conversion Price and
Conversion Rate at the time then in effect, and (c) the number of shares of
Common Stock and the type and amount, if any, of other property which at the
time would be received upon the conversion of such shares of Series B Preferred.
(vi) ISSUE TAXES. The Corporation shall pay any and all issue
and other taxes (other than income taxes) that may be payable in respect of any
issue or delivery of shares of Common Stock on conversion of shares of Series B
Preferred pursuant hereto; PROVIDED, HOWEVER, that the Corporation shall not be
obligated to pay any transfer taxes resulting from any transfer requested by any
holder in connection with any such conversion.
(vii) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. Subject
to the Stockholder Approval, the Corporation 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 B Preferred,
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 Series B
Preferred. The Corporation shall, from time to time, subject to and in
accordance with applicable law, increase the authorized shares of Common Stock
if at any time the number of authorized shares of Common Stock remaining
unissued shall not be sufficient to permit the conversion at such time of all
then outstanding shares of Series B Preferred.
(viii) STATUS OF REPURCHASED, REDEEMED OR CONVERTED STOCK. In
the event any shares of Series B Preferred are repurchased or redeemed by the
Corporation or are converted pursuant to this Article 5, such repurchased,
redeemed or converted shares of Series B Preferred shall be canceled and retired
by the Corporation and be restored to the status of authorized but
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unissued shares of Preferred Stock, without designation as to class or series,
and may thereafter be issued, as provided in the Certificate of Incorporation.
(ix) AGGREGATION AND LIMITATION ON ADJUSTMENTS. No adjustment
of the Conversion Price shall be made unless such adjustment would require a
change of at least $0.01; provided that any adjustments which by reason of this
Section 5(ix) are not required to be made shall be carried forward and shall be
made at the time of and together with the next subsequent adjustment which,
together with adjustments so carried forward, shall require a change of at least
$0.01 in the Conversion Price then in effect hereunder.
6. REDEMPTION.
(i) REDEMPTION OF SERIES B PREFERRED. On or after the first
anniversary of the Original Issue Date, in the event the Corporation has not
obtained Stockholder Approval, the Corporation, at its option, may redeem the
Series B Preferred Stock in whole at any time or in part from time to time, at a
price per share of Series B Preferred (the "REDEMPTION PRICE") equal to the
greater of (1) the sum of (x) the Series B Issue Price, plus (y) all dividends
accrued and unpaid thereon to the date of redemption, plus (z) a premium equal
to 10% of the Series B Issue Price, or (2) the product of (m) the Conversion
Rate, times (n) the Fair Market Value of one share of Common Stock. The
"REDEMPTION DATE" with resepct to any share of Series B Preferred shall be the
date that is 10 days after the date of written notice given under this Section
6(i) by the holder of the Series B Preferred to be redeemed.
(ii) REDEMPTION NOTICE. Notice of such redemption, specifying
the time and place of redemption, shall be sent by ordinary first class mail to
each holder of the Series B Preferred at its last address as it shall appear on
the stock transfer books of the Corporation (but no failure to mail such notice
or any defects therein or in the mailing thereof shall affect the validity of
the proceedings for such redemption).
(iii) REDEMPTION PRICE AND PRIORITY OF PAYMENT. If, on or
before the redemption date specified in the notice (the "REDEMPTION DATE"), the
Redemption Price for the shares of Series B Preferred called for redemption
shall have been set aside by the Corporation, separate and apart from its other
funds, in trust for the PRO RATA benefit of the holders of the shares called for
redemption, so as to be, and continue to be, available for such holders, then,
on and after the Redemption Date, notwithstanding that any certificate for
shares of the Series B Preferred so called for redemption shall not have been
surrendered for cancellation, the shares of Series B Preferred so called for
redemption shall be deemed no longer to be outstanding, the dividends thereon
shall cease to accrue, and all rights with respect to such shares of Series B so
called for redemption shall forthwith at the close of business on the Redemption
Date cease and terminate, except only the right of the holders thereof to
receive the Redemption Price of the shares redeemed, without any interest
thereon.
(iv) DIVIDENDS AFTER REDEMPTION DATE. No share of Series B
Preferred is entitled to any dividends accuring after the date on which the
Redemption Price of such share is fully paid. On such date of full payment, all
rights of the holder of such share of Series B
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Preferred shall cease, and such share of Series B Preferred shall be retired and
deemed not to be outstanding.
7. RANKING. The shares of Series B Preferred shall rank upon
liquidation and upon receipt of dividends senior and prior to the shares of
Common Stock and the Corporation's Series A Junior Participating Preferred
Stock, par value $0.01 per share. Any capital stock of any other class or
classes or series shall be deemed to rank:
(i) senior and prior to the shares of Series B Preferred, to
be "SENIOR SECURITIES," if the holders of such capital stock shall be entitled
to the receipt of dividends or amounts paid or set aside for redemption, or the
receipt of amounts distributable upon a Liquidation Event, as the case may be,
in preference or priority to the holders of shares of Series B Preferred;
(ii) on a parity with the shares of Series B Preferred, to be
"PARITY SECURITIES," if the holders of such capital stock shall be entitled to
the receipt of dividends or amounts paid in or set aside for redemption, or the
receipt of amounts distributable upon a Liquidation Event, as the case may be,
in proportion to their respective dividend rates or liquidation prices, without
preference or priority, one over the other, as between the holders of such
capital stock and the holders of the shares of Series B Preferred; and
(iii) junior to the shares of Series B Preferred, to be
"JUNIOR SECURITIES," if the holders of Series B Preferred shall be entitled to
the receipt of dividends or of amounts paid in or set aside for redemption, or
to the receipt of amounts distributable upon a Liquidation Event, as the case
may be, in preference or priority to the holders of the shares of such class or
classes or series of capital stock.
8. OUTSTANDING SHARES. For purposes of this Certificate, a share of
Series B Preferred, when issued, shall be deemed outstanding except (i) from the
date, or the deemed date, of conversion thereof in accordance with Article 5
hereof, (ii) from the date of registration of transfer of such share of Series B
Preferred if it becomes held of record by the Corporation or any subsidiary of
the Corporation and (iii) from the Redemption Date.
9. SEVERABILITY OF PROVISIONS. Whenever possible, each provision of
this Certificate shall be interpreted in such a manner as to be effective and
valid under applicable law, but if any provision of this Certificate is held to
be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating or otherwise adversely affecting the remaining provisions hereof.
If a court of competent jurisdiction should determine that a provision of this
Certificate would be valid or enforceable if a period of time were extended or
shortened or a particular percentage were increased or decreased, then such
court may make such changes as shall be necessary to render the provision in
question effective and valid under applicable law.
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