EXHIBIT 3.2
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Certificate of Designation of Series B Convertible Preferred Stock
NEXAR TECHNOLOGIES, INC.
There is hereby created a series of the Preferred Stock of this corporation to
consist of 32,000 of the shares of Series B Convertible Preferred Stock, $.01
par value per share, which this corporation now has authority to issue.
1. The distinctive designation of the series shall be "Series B Convertible
Preferred Stock" (the "Preferred Stock" or the "Series B Preferred Stock").
The number of shares of Series B Convertible Preferred Stock shall be
32,000.
2. For purposes of this Certificate of Designation and the Company's
Certificate of Incorporation, (i) any series of Preferred Stock of the
Company entitled to dividends and liquidation preference on a parity with
the Series B Preferred Stock shall be referred to as "Parity Preferred
Stock," (ii) any series of Preferred Stock ranking senior to the Series B
and Parity Preferred Stock with respect to dividends and liquidation
preference shall be referred to as "Senior Stock," and (iii) the Common
Stock and any series of Preferred Stock ranking junior to the Series B and
Parity Preferred Stock with respect to dividends and liquidation preference
shall be referred to as "Junior Stock." As of the date of this Certificate
of Designation there is not outstanding any Parity Preferred Stock. Without
limiting the generality of the foregoing, the outstanding 45,684 shares of
the Company's Convertible Preferred Stock are and shall be Junior Stock.
3. In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, after setting apart or paying in full the
preferential amounts due to holders of Senior Stock, the holders of Series
B Preferred Stock and Parity Preferred Stock shall be entitled to receive,
prior and in preference to any distribution of any of the assets or surplus
funds of the Company to the holders of Junior Stock or Common Stock by
reason of their ownership thereof, an amount equal to their full
liquidation preference, which in the case of shares of Series B Preferred
Stock shall be $100 per share, plus accrued and unpaid dividends (the
"Redemption Value"). If, upon such liquidation, dissolution or winding-up
of the Company, the assets of the Company available for distribution to the
holders of its stock be insufficient to permit the distribution in full of
the amounts receivable as aforesaid by the holders of Preferred Stock and
Parity Preferred Stock, then all such assets of the Company shall be
distributed ratably among the holders of Preferred Stock and Parity
Preferred Stock in proportion to the amounts which each would have been
entitled to receive if such assets were sufficient to permit distribution
in full as aforesaid. Neither the consolidation nor merger of the Company
nor the sale, lease or transfer by the Company of all or any part of its
assets shall be deemed to be a liquidation, dissolution or winding-up of
the Company for the purposes of this paragraph.
4. Certain Definitions and References.
(a) The Preferred Stock is being issued under Private Placement Purchase
Agreements between the Company and the holders of the Preferred Stock
(each, a "Subscription Agreement").
(b) The terms "Registration Statement" and "Closing Date" shall have the
meanings attributed thereto in the Subscription Agreement, and the
term "Effective Date" means the date on which the Registration
Statement shall be declared to be effective.
5. Dividends
(a) The holders of the Preferred Stock shall be entitled to receive a
dividend, payable in arrears quarterly on the last day of each
calendar quarter commencing with the calendar quarter which begins on
April 1, 1998 or on earlier conversion or redemption of the Preferred
Stock, which accrues from the date of issuance at the annual rate of
$5 per share, provided that the annual rate shall be $18 during any
First Delay Period and the annual rate shall be $24 during any
Extended Delay Period.
(i) The reference to the "First Delay Period" shall apply only if the
Effective Date has not occurred by the close of business on June
30, 1998 and means the period which begins on July 1, 1998 and
ends on the earlier of August 31, 1998 or the Effective Date.
(ii) The reference to the "Extended Delay Period" shall apply only if
the Effective Date has not occurred by August 31, 1998 and means
the period which begins on September 1, 1998 and ends on the
Effective Date.
(b) The dividends shall be payable at the option of the Company either in
cash or in shares of Common Stock which on the date of the dividend
payment are convertible into shares of Common Stock which have a value
equal to the dividend, provided that dividends may be paid in Common
Stock only if the public sale thereof is permitted under a then
effective registration statement. The value of each share of Common
Stock for the purposes of any dividend payment shall be equal to the
average of the last reported sales prices therefor on the NASDAQ
National or Small Cap Market on the last five trading days prior to
the date of the payment.
(c) Nothing in this Certificate shall limit any other remedies which may
be available to the Holder by reason of any delay in the filing or the
effectiveness of the Registration Statement.
6. Conversion
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(a) The holder shall have the right at any time (whether before or after
the Effective Date or otherwise) in its sole discretion, to convert
the Preferred Stock, in whole or in part, into a number of shares (the
"Conversion Shares") of the Company's common stock (the "Common
Stock") equal to $100 per share converted divided by the Conversion
Price. The Conversion Price means the lesser of (1) $3.25 or (2) 75%
of the average of the closing bid price of a share of Common Stock of
the Company during the five trading days prior to such conversion.
(b) In the event that the holder elects to exercise its conversion rights
hereunder, it shall give to the Company written notice (by fax or
overnight courier service or personal delivery) of such election and
shall surrender his Preferred Stock to the Company for cancellation.
Conversion shall be effective upon the giving of such notice provided
that the certificate for the converted Preferred Stock is received by
the Company within three days thereafter. The Company shall, within
three business days after receipt by the Company of notice of
conversion and the Preferred Stock being converted, deliver
irrevocable instructions to its transfer agent (with a copy to Holder)
to DWAC the shares of Common Stock issuable on such conversion. In
addition to, and without limiting any other remedy available to Holder
for any breach by the Company of its obligation timely to DWAC shares
upon conversion as aforesaid , (1) Holder shall be entitled at its
option by notice to rescind any such conversion, and (2) the Company
shall forthwith upon Holder's demand from time to time or times pay to
Holder $50 per share for each day of delay in fulfilling such
obligation. Such obligation to pay such amount shall accrue interest,
payable on demand, at the rate of 11% per annum.
(c) The Preferred Stock shall on March 1, 2000 automatically convert into
Common Stock at the then Conversion Price, provided that such
conversion shall occur on such date only if the Company's listing on
the NASDAQ Small Cap or National Market has then been in effect at all
times from and after January 1, 1999, and only if all of the Common
Stock issuable upon conversion of the Preferred Stock may then be
resold publicly pursuant to an effective registration statement under
the Securities Act of 1933 or under Rule 144 thereunder. If by reason
of the proviso in the preceding sentence the Preferred Stock shall
not convert automatically on March 1, 2000, the Holder may, in
addition to such Holder's other remedies, by written notice to the
Company, require the Company forthwith to redeem the Preferred Stock
at a redemption price equal to $100 per share plus accrued dividends.
The redemption price shall accrue interest payable on demand at the
rate of 15% per annum.
(d) The Company shall reserve for issuance on conversion and exercise of
the Preferred Stock and the Warrant (as defined in the Subscription
Agreement) the number of shares of Common Stock which would be
issuable under the Preferred Stock if converted at a Conversion Price
of $1.50, and shall reserve additional shares as requisite should the
Conversion Price decline below $1.50. The Company shall use its
diligent efforts promptly to list on NASDAQ all shares of Common Stock
which are issued upon conversion of the Preferred Stock.
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(e) The Preferred Stock shall be convertible at any time only to the
extent that Holder would not as a result of such exercise (and after
giving effect to any shares or warrants or other securities owned by
Holder) beneficially own more that 9.99% of the then outstanding
Common Stock. Beneficial ownership shall be defined in accordance with
Rule 13d-3 under the Securities Exchange Act of 1934. The opinion of
counsel to Holder shall prevail in the event of any dispute on the
calculation of Holder's beneficial ownership.
(f) If any consolidation or merger of the Company into another corporation
which has a market capitalization of not less than $75 million, or the
sale or conveyance of all or substantially all of its assets to any
such corporation, shall be effected, then, at the election of the
Company, exercisable by notice (an "Automatic Conversion Notice") to
the Holder given not later than the 20/th/ business day prior to the
consummation of such transaction, the Preferred Stock shall be
deemed automatically converted immediately prior to the consummation
of such transaction as provided above, provided that:
(i) cash shall be payable in respect of the Company's common stock in
the transaction or the securities issuable in respect of the
Company's common stock in the transaction shall be immediately
freely and publicly tradeable; and
(ii) the Company shall give to the holders of the Preferred Stock not
less than 20 days' prior written notice of such transaction. For
purposes of this Section, "market capitalization" shall mean the
product of the number of outstanding shares of the other
corporation's stock multiplied by the average of the closing bid
prices for the other corporation's stock (as quoted on a national
securities exchange or on NASDAQ) during the 20 trading days
prior to the measurement date.
(b) If the Company does not timely give an Automatic Conversion Notice in
respect of a transaction referred to above, or if any other
consolidation, merger or sale shall be effected, or if any capital
reorganization or reclassification of the Common Stock shall be
effected, then, as a condition precedent of such transaction,
appropriate provision shall be made to the end that conversion rights
hereunder (including, without limitation, provisions for appropriate
adjustments) shall thereafter be applicable, as nearly as may be
practicable in relation to the kind of stock, securities or assets
which are deliverable in respect of Common Stock upon the consummation
of such transaction, to the end that the Holder shall have the right
to receive upon conversion the kind of shares of capital stock or
other securities or property which such Holder would have been
entitled to receive upon or as a result of such transaction had the
Preferred Stock been converted immediately prior to such event.
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(c) The Company covenants to call a special or annual meeting of
shareholders which will be held on or before June 30, 1998 and at
which the Company's shareholders will be asked to approve the issuance
of shares on conversion of the Preferred Stock and Warrants issued to
the Purchasers (each such terms as defined in the Subscription
Agreement). The Board of Directors of the Company will recommend that
the shareholders of the Company vote in favor of such approval. Until
such approval is obtained, the maximum number of shares which will be
issued on conversion of the Preferred Stock and exercise of the
Warrants is 2,001,810, issuable on a first converted-first exercised
basis. Should such approval not be obtained by the close of business
on June 30, 1998, then until such approval is obtained, the Company
shall on demand by Holder made at any time or times redeem any portion
of the Preferred Stock designated by Holder for redemption (the
"Redeemed Portion") at a redemption price per share equal to $125 plus
accrued dividends. The redemption price shall be payable within five
business days after demand for redemption is made, and shall accrue
interest payable on demand at 11% per annum. The Holders of shares of
common stock issued on conversion of the Preferred Stock shall not
vote their shares of common stock at the meeting aforesaid.
7. Purchase for Investment. The Holder, by acceptance of shares of Preferred
Stock, acknowledges that the Preferred Stock (and the Common Stock into
which the Preferred Stock is convertible) has not been registered under the
Act, covenants and agrees with the Company that such Holder is taking and
holding the Preferred Stock (and the Common Stock into which the Preferred
Stock is convertible) for investment purposes and not with a view to, or
for sale in connection with, a distribution thereof and that the Preferred
Stock (and the Common Stock into which the Preferred Stock is convertible)
may not be assigned, hypothecated or otherwise disposed of in the absence
of an effective registration statement under the Act or an opinion of
counsel for the Holder, which counsel shall be reasonably satisfactory to
the Company, to the effect that such disposition is in compliance with the
Act, and represents and warrants that such Holder is an "accredited
investor" that such Holder has, or with its representative has, such
knowledge and experience in financial and business matters to be capable of
evaluating the merits and risks in respect of this Preferred Stock (and the
Common Stock into which the Preferred Stock is convertible) and is able to
bear the economic risk of such investment.
8. The Company covenants and agrees that all shares of Common Stock which may
be issued upon conversion of this Preferred Stock will, upon issuance, be
duly and validly issued, fully paid and non-assessable and no personal
liability will attach to the holder thereof.
9. Certain Events of Mandatory Redemption.
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(a) An "event of redemption" with respect to this Preferred Stock shall
exist if any of the following shall occur, if:
(i) The Company shall breach or fail to comply with any
provision of this Preferred Stock and such breach or failure
shall continue for 15 days after written notice by any
Holder of any Preferred Stock to the Company.
(ii) A receiver, liquidator or trustee of the Company or of a
substantial part of its properties shall be appointed by
court order and such order shall remain in effect for more
than 15 days; or the Company shall be adjudicated bankrupt
or insolvent; or a substantial part of the property of the
Company shall be sequestered by court order and such order
shall remain in effect for more than 15 days; or a petition
to reorganize the Company under any bankruptcy,
reorganization or insolvency law shall be filed against the
Company and shall not be dismissed within 45 days after such
filing.
(iii) The Company shall file a petition in voluntary bankruptcy or
request reorganization under any provision of any
bankruptcy, reorganization or insolvency law, or shall
consent to the filing of any petition against it under any
such law.
(iv) The Company shall make an assignment for the benefit of its
creditors, or admit in writing its inability to pay its
debts generally as they become due, or consent to the
appointment of a receiver, trustee or liquidator of the
Company, or of all or any substantial part of its
properties.
(b) If an event of redemption shall occur, the Holder may, in addition to
such Holder's other remedies, by written notice to the Company, require the
Company forthwith to redeem the Preferred Stock at a redemption price
equal to $100 per share plus accrued dividends. The redemption price shall
accrue interest payable on demand at the rate of 15% per annum.
10. Without the consent of a majority in interest of the holders of the
Preferred Stock, the Company shall not create any class of equity security
which is senior to or on parity with the Preferred Stock in liquidation
rights, other than in connection with the sale of shares to existing
stockholders of the Company; or to an entity whose relationship with the
Company creates intangible value for the Company; or to fund merger and/or
acquisition related activity.
11. All share, redemption and similar amounts are subject to appropriate
adjustment in the event of stock splits, stock dividends, recapitalization
and similar events.
12. The Preferred Stock shall have no voting rights except as otherwise
required by law.
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13. Miscellaneous.
(a) All notices and other communications required or permitted to be given
hereunder shall be in writing and shall be given (and shall be deemed to
have been duly given upon receipt) by delivery in person, by telegram, by
facsimile, recognized overnight mail carrier, telex or other standard form
of telecommunications, or by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows: (a) if to the Holder, to
such address as such Holder shall furnish to the Company in accordance with
this Section, or (b) if to the Company, to it at its headquarters office,
or to such other address as the Company shall furnish to the Holder in
accordance with this Section.
(b) The waiver of any event of default or the failure of the Holder to
exercise any right or remedy to which it may be entitled shall not be
deemed a waiver of any subsequent event of default or of the Holder's right
to exercise that or any other right or remedy to which the Holder is
entitled.
(c) The Holder shall be entitled to recover its legal and other costs of
collecting on the Preferred Stock, and such costs shall accrue interest,
payable on demand, at the rate of 15% per annum.
In addition to all other remedies to which the Holder may be entitled hereunder,
Holder shall also be entitled to decrees of specific performance without posting
bond or other security.
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