Exhibit A
BASE TEN SYSTEMS, INC.
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION
PROVIDING FOR DESIGNATION,
PREFERENCES AND RIGHTS OF THE
CONVERTIBLE PREFERRED SHARES, SERIES B
(Par Value $1.00 Per Share)
of
BASE TEN SYSTEMS, INC.
Base Ten Systems, Inc., a corporation (the "Corporation") organized
under the laws of the State of New Jersey, to amend its Restated Certificate of
Incorporation in accordance with Chapter 9 of the New Jersey Business
Corporation Act, hereby certifies:
FIRST: The name of the Corporation is Base Ten Systems, Inc.
SECOND: The Board of Directors of the Corporation, at a meeting held on
November 24, 1998, pursuant to Section 14A:7-2 of the New Jersey Business
Corporation Act and the authority vested in the Board of Directors by the
Restated Certificate of Incorporation, as amended, adopted the following
resolution providing for the issuance of a new series of the Corporation's
Preferred Shares, par value $1.00 per share, consisting of up to [exact initial
number of shares determined immediately prior to filing] shares of Convertible
Preferred Shares, Series B:
RESOLVED, that pursuant to the authority vested in
this Board of Directors in accordance with the provision of
the Corporation's certificate of incorporation, as amended, a
new series of Preferred Shares of the Corporation known as
Convertible Preferred Shares, Series B, be, and hereby is,
created, classified, authorized and the issuance thereof
provided for, and that the designation and number of shares,
and relative rights, preferences and imitations thereof are
hereby fixed, and Article 6 of the Certificate of
Incorporation of the Corporation, as amended, is hereby
amended by adding Article 6(e) thereto, to read, in its
entirety, as follows:
(e) A. Designation and Amount. The shares of this series of
Preferred Shares shall be designated as "Convertible Preferred Shares, Series B"
and the number of shares constituting such series shall be [exact initial number
of shares determined immediately prior to filing], with a par value of $1.00
per share. Fractional B Preferred Shares shall be permitted.
B. Definitions. As used in this Article 6(e), the
following terms shall have the following meanings.
"Article 6(e)" means this Subsection (e) of Article 6 of the
Certificate of Incorporation establishing the B Preferred Shares as the same may
be amended, supplemented or modified from time to time in accordance with the
terms hereof and pursuant to applicable law.
"B Preferred Shares" means the Convertible Preferred Shares, Series B.
"Board of Directors" means the board of directors of the Corporation.
"Business Day" means any day, other than a Saturday, a Sunday or a day
on which banking institutions in the City of New York, New York are authorized
or obligated by law or executive order to close.
"Capital Stock" means any and all shares, rights to purchase, warrants,
options, convertible securities, participation or other equivalents of or
interests (other than security interests) in (however designated and whether
voting or nonvoting) corporate stock.
"Conversion Default Payments" has the meaning set forth in Section H(2)
hereof.
"Closing Bid Price" means, for any security as of any date, the closing
bid price of such security on the principal securities exchange or trading
market where such security is listed or traded, as reported at the close of
normal trading hours, New York time, by Bloomberg Financial Markets or a
comparable reporting service of national reputation selected by the Corporation
and reasonably acceptable to holders of the B Preferred Shares then holding a
majority of the then outstanding B Preferred Shares ("Majority Holders") if
Bloomberg Financial Markets is not then reporting closing bid prices of such
security (collectively, "Bloomberg"), or if the foregoing does not apply, the
last reported sale price of such security in the over-the-counter market on the
electronic bulletin board of such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as reasonably determined by an investment banking firm selected by the
Corporation and reasonably acceptable to the Majority Holders, with the costs of
such appraisal to be borne by the Corporation.
"Common Shares" means the Class A Common Shares, par value $1.00 per
share, of the Corporation and all shares hereafter authorized of any class of
Common Shares of the Corporation, and, in the case of a reclassification,
recapitalization or other similar change in such Common Shares or in the case of
a consolidation or merger of the Corporation with or into another Person, such
consideration to which a holder of a share of Common Shares would have been
entitled upon the occurrence of such event. Common Shares shall not include the
Corporation's Class B Common Shares, par value $1.00 per share.
"Conversion Date" has the meaning set forth in Section H(2) hereof.
"Conversion Notice" has the meaning set forth in Section H(2) hereof.
"Conversion Price" has the meaning set forth in Section H(1) hereof.
"Default Redemption Amount" has the meaning set forth in Section F(4)
hereof.
"Delay Compensation" has the meaning set forth in Section 3(f) of the
Registration Rights Agreement.
"Delisting Payments" has the meaning set forth in Section 4.5 of the
Securities Purchase Agreement.
"Dividend Payment Date" has the meaning set forth in Section C(1)
hereof.
"DTC" has the meaning set forth in Section H(11) hereof.
"Exchange Agreement" means that certain Exchange Agreement, dated as of
December XX, 1998, by and among the Corporation and all holders of the
Convertible Preferred Shares, Series A, a copy of which is on file in the
offices of the Corporation and available for inspection by shareholders of the
Corporation.
"Fiscal Quarter" means a calendar quarter ended on March 31, June 30,
September 30 or December 31, as the case may be.
"Five Percent Limitation" has the meaning set forth in Section H(1)
hereof.
"Illiquidity Payment" has the meaning set forth in Section C(1) hereof.
"Junior Stock" means Common Shares and any other class or series of
Capital Stock of the Corporation now or hereafter issued and outstanding that
ranks junior as to dividends and/or liquidation to the B Preferred Shares.
"Mandatory Redemption Price" has the meaning set forth in Section F(2)
hereof.
"Market Value" as of any date means the average Closing Bid Price of
Common Shares for the ten consecutive Trading Days ending on the date prior to
such date.
"Maturity Date" means December 15, 2000, [To be extended by the number
of days (if any) required to be added to the Series A Preferred Stock prior to
the Effective Date] provided, however, that such Maturity Date shall be extended
by a number of Trading Days equal to the aggregate number of Trading Days during
the period from the effective date of the Amendment to the Certificate of
Incorporation establishing the B Preferred Shares to and including the Maturity
Date during which the holders of B Preferred Shares are restricted from selling
Common Shares by reason of (x) Section 2(d) of the Registration Rights
Agreement, (y) any Delay Period(s) (as defined in Section 3(f) of the
Registration Rights Agreement), but only if the total number of days in any
Delay Period(s) within a twelve-month period exceed thirty (30) days, or (z) any
Redemption Event.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"Person" means an individual, a corporation, a partnership, a joint
venture, an association, a joint-stock company, a trust, a business trust, a
government or any agency or any political subdivision, any unincorporated
organization, or any other entity.
"Purchase Price" shall mean $1,000 per B Preferred Share.
"Redemption Date" means any date on which shares of B Preferred Shares
are to be redeemed pursuant to Section F hereof.
"Redemption Event" means any one of the following:
(i) the Common Shares (including any of the Common Shares
issuable upon conversion of the B Preferred Shares or required from time to time
to be reserved pursuant hereto) are suspended from trading on, or are not listed
(and authorized) for trading on, the NASDAQ Small Cap Market, the NASDAQ
National Market System, the American Stock Exchange, or the New York Stock
Exchange for an aggregate of thirty (30) Trading Days in any eighteen (18) month
period;
(ii) the Company fails at any time during the Registration
Period (as defined in the Registration Rights Agreement), to cause the holders
of B Preferred Shares to be able to utilize the Registration Statement required
to be filed pursuant to Section 5 of the Exchange Agreement for the resale of
all of their Registrable Securities (as defined in the Registration Rights
Agreement and the Exchange Agreement), unless the Company is using its best
efforts to remedy such inability to utilize such registration statement, subject
to the Company's Board of Directors having determined in their good faith
business judgment by resolution that the continued effectiveness of such
registration statement would have a material adverse effect on the Company's
ability to consummate a financing, acquisition, merger or joint venture, the
failure of which to consummate would have a material adverse effect on the
Company's financial condition, results of operations or future prospects;
provided that in no event shall such failure exist for a total of more than
thirty (30) Trading Days in any eighteen (18) month period;
(iii) The Company fails to (x) issue Common Shares to a holder
of the B Preferred Shares upon exercise by the holder of its conversion rights
in accordance with the terms hereof; (y) transfer or to cause its transfer agent
to transfer any certificate for Common Shares issued to a holder upon conversion
of the B Preferred Shares as and when required hereby, by the Exchange
Agreement, or by the Registration Rights Agreement; or (z) remove any
restrictive legend on any certificate for any Common Shares issued to a holder
of the B Preferred Shares upon conversion of the B Preferred Shares as and when
required hereby, by the Securities Purchase Agreement, by the Exchange
Agreement, or by the Registration Rights Agreement; and any such failure
described above shall continue uncured for ten (10) Business Days; or
(iv) The Corporation fails to pay to a holder of B Preferred
Shares any amounts due hereunder or pursuant to the Securities Purchase
Agreement, the Exchange Agreement, or the Registration Rights Agreement
(including but not limited to dividends, Illiquidity Payments, Conversion
Default Payments, and Delay Compensation thereon) when due and any such failure
shall continue uncured (after written notice and demand to cure from the holder
of B Preferred Shares) for ten (10) Business Days.
"Redemption Price" means the Optional Redemption Price, the Mandatory
Redemption Price or the Default Redemption Price, as the case may be, each of
which terms shall have the respective meanings set forth in Section F hereof.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of December 4, 1997 between the Corporation and the initial purchasers
of the Convertible Preferred Shares, Series A of the Corporation, as amended by
and incorporated by reference in the Exchange Agreement, a copy of which is on
file in the offices of the Corporation and available for inspection by
shareholders of the Corporation.
"Securities Purchase Agreement" means the Securities Purchase Agreement
dated as of December 4, 1997 between the Corporation and the initial purchasers
of the Convertible Preferred Shares, Series A, as amended by and incorporated by
reference in the Exchange Agreement, a copy of which is on file in the offices
of the Corporation and available for inspection by shareholders of the
Corporation.
"Trading Day" means, with respect to the Common Shares: (i) if any
series of Common Shares is quoted on the NASDAQ National Market System, any
similar system of automated dissemination of quotations of securities prices, or
the National Quotation Bureau Incorporated, each day on which quotations may be
made on such system; or (ii) if any series of Common Shares is listed or
admitted for trading on any national securities exchange, days on which such
national securities exchange is open for business; or (iii) if the Corporation's
Common Shares are not quoted on any system or listed or admitted for trading on
any securities exchange, a Business Day.
"Underwriter's Lock-Up" has the meaning set forth in Section 2(d) of
the Registration Rights Agreement.
C. Dividends and Certain Other Payments. The holders
of the B Preferred Shares shall be entitled to receive, when and as declared by
the Board of Directors, out of funds legally available therefor, dividends and
certain other payments as set forth in this Section C.
(1) If a holder of B Preferred Shares is subject to
an Underwriter's Lock-Up, that holder (but not any other holder) shall be
entitled to receive a payment (an "Illiquidity Payment") at the rate of $20.00
per Preferred Share for each Fiscal Quarter in which such event occurs or is
continuing. Illiquidity Payments shall be payable at the option of the Board of
Directors (x) in cash, or (y) if the Market Value is equal to, or in excess of,
$4.00, in a number of B Preferred Shares (which may include fractional B
Preferred Shares) equal to the product of (A) the cash amount of such
Illiquidity Payment, as the case may be, multiplied by (B) 1.25, divided by (C)
the Purchase Price per Preferred Share.
(2) The holders of B Preferred Shares shall be
entitled to participate with the holders of Common Shares in any dividends paid
or set aside for payment with respect to the Common Shares so that the holders
of B Preferred Shares shall receive with respect to each B Preferred Share an
amount equal to (x) the dividend payable with respect to each Common Share
multiplied by (y) the number of Common Shares (and fraction of a Common Share,
if any) into which such B Preferred Share is convertible as of the record date
for such dividend.
(3) Dividends and Illiquidity Payments shall accrue
(whether or not declared) from and including the first day of the relevant
Fiscal Quarter to and including the date on which the Redemption Price is paid
on such shares or on which such shares are converted or redeemed and, to the
extent not paid for any relevant Fiscal Quarter, will be cumulative. Dividends
and Illiquidity Payments on the B Preferred Shares, to the extent payable, shall
be payable quarterly, in arrears, on the last day of each relevant Fiscal
Quarter (each such date, a "Dividend Payment Date"), except that if any such
date is not a Business Day, then such dividend or Illiquidity Payment shall be
paid on the next succeeding Business Day. Each such dividend or Illiquidity
Payment shall be payable to holders of B Preferred Shares at the close of
business on the Dividend Payment Date. Dividends on the B Preferred Shares shall
accrue on a daily basis during the relevant quarterly period whether or not the
Corporation shall have earnings or surplus at the time.
D. Voting Rights. The holders of B Preferred Shares
shall have the following voting rights:
(1) Each holder of B Preferred Shares shall be
entitled to such number of votes for the B Preferred Shares held on all matters
submitted to a vote of the Corporation's shareholders as shall be equal to the
largest number of whole Common Shares into which all of the B Preferred Shares
held are then convertible (after giving effect to, and subject to, the Five
Percent Limitation, and any other then applicable limitations set forth in
Section (H)(1));
(2) Except as otherwise provided herein or by law,
the holders of B Preferred Shares, the holders of Common Shares, and the holders
of Class B Common Shares of the Corporation shall vote together as one class on
all matters submitted to a vote of the Corporation's shareholders.
(3) So long as any B Preferred Shares are
outstanding, the Corporation shall not, without first obtaining the approval of
the holders of two-thirds of the B Preferred Shares:
(i) alter or change the rights, preferences
or privileges of the B Preferred Shares;
(ii) issue any other class or series of
Capital Stock having rights upon liquidation or
rights as to dividends which are senior to or pari
passu with the rights of the holders of B Preferred
Shares; or
(iii) issue any additional B Preferred
Shares in excess of the B Preferred Shares issued
pursuant to the Exchange Agreement, other than any
additional B Preferred Shares which may be issued
pursuant to Section C(1) hereof.
E. Liquidation Preference. In the event of any
liquidation, dissolution, or winding up of the Corporation, either voluntary or
involuntary, after the payment or the setting apart of payment to the holders of
any class or series of Capital Stock of the Corporation hereafter issued and
outstanding that ranks senior as to dividends and/or liquidation to the B
Preferred Shares, the holders of B Preferred Shares shall be entitled to receive
out of assets of the Corporation available for distribution to shareholders, an
amount equal to the Mandatory Redemption Price of such shares, before any
payment shall be made or any assets distributed to the holders of Junior Stock.
If the assets and funds to be distributed to the holders of the B Preferred
Shares, and the holders of any other Capital Stock ranking pari passu with the B
Preferred Shares, shall be insufficient to permit the payment to all such
holders of their full preferential amount, the assets and funds legally
available shall be distributed ratably, among the holders of such other Capital
Stock ranking pari passu with the B Preferred Shares, in proportion to the full
preferential amount each such holder is otherwise entitled to receive. Neither
the consolidation or merger of the Corporation with or into any other entity nor
the sale or transfer by the Corporation of all or substantially all of its
assets shall, for the purposes hereof, be deemed to be a liquidation,
dissolution or winding up of the Corporation.
F. Redemption.
(1) Optional Redemption by the Company. While a
Registration Statement (as defined in the Registration Rights Agreement) is
effective with respect to the Common Shares issuable on conversion of the B
Preferred Shares and so long as no Redemption Event has occurred and is
continuing, the Corporation may, at its option at (i) any time within 45 days
prior to or 15 days after the commencement of a firm commitment public offering
of its equity securities, or (ii) at any time or from time to time after
December 15, 1998, redeem for cash, out of funds legally available therefor, all
or any part of (but not less than 1,400 B Preferred Shares in any single
redemption) the outstanding B Preferred Shares at a price per Preferred Share
equal to the greater of (x) 130% of the then applicable Mandatory Redemption
Price per B Preferred Share or (y) (A) the then applicable Mandatory Redemption
Price per B Preferred Share, divided by (B) the then effective Conversion Price
of the B Preferred Shares on the Redemption Date, multiplied by (C) the Market
Value of the Common Shares into which each B Preferred Share is convertible on
the Redemption Date (the "Optional Redemption Price").
(2) Mandatory Redemption by the Company. The
Corporation shall redeem all outstanding B Preferred Shares on the Maturity Date
at a price per share equal to the sum of (x) the Purchase Price, (y) any accrued
and unpaid dividends thereon through the date of final distribution to
shareholders, whether or not declared, and any Illiquidity Payments and
conversion Default Payments thereon, and (z) any Delay Compensation and
Delisting Payments thereon (collectively, the "Mandatory Redemption Price"). All
Conversion Default Payments, Delay Compensation and Conversion Default Payments
shall be payable on the Maturity Date in cash, out of funds legally available
therefor. The balance of the Mandatory Redemption Price (the "Remaining
Redemption Amount") shall be payable on the Maturity Date at the option of the
Board of Directors (x) in cash, out of funds legally available therefor; or (y)
while a Registration Statement (as defined in the Registration Rights Agreement)
is effective with respect to the Common Shares issuable on redemption of the B
Preferred Shares, in Common Shares having an aggregate Market Value on the
Maturity Date equal to (A) the Remaining Redemption Amount multiplied by (B)
1.25.
(3) Procedures for Redemption by the Company.
(i) At least 30 days (45 days if the Redemption Price
is to be paid in Common Shares) but not more than 60 days before the
applicable Redemption Date, the Corporation or its transfer agent shall
mail a notice of redemption by first-class mail postage prepaid to each
holder of B Preferred Shares, addressed to such holders at their last
addresses shown on the stock transfer books of the Corporation. Such
notice shall indicate that B Preferred Shares are to be redeemed and
shall, among other things, state:
(a) the Redemption Date;
(b) the number of B Preferred Shares being
redeemed;
(c) the Optional Redemption Price or
Mandatory Redemption Price, as the case may be, including the
amount of unpaid dividends, Illiquidity Payments, Conversion
Default Payments, Delay Compensation and Delisting Payments
with respect to such shares;
(d) that the B Preferred Shares called for
redemption must be surrendered to the Corporation to collect
the Redemption Price;
(e) that B Preferred Shares called for
redemption may be converted at any time before the close of
business on the first Business Day preceding the Redemption
Date.
Failure to give notice or any defect in the notice to any holder shall
not affect the validity of the notice given to any other holder.
(ii) As long as the Corporation has complied with the
requirements set forth in this Section F, from and after the applicable
Redemption Date, dividends on, and Illiquidity Payments, Conversion
Default Payments, Delay Compensation and Delisting Payments with
respect to the shares of B Preferred Shares so called for redemption
shall cease to accrue as of the applicable Redemption Date, such shares
shall be canceled and shall no longer be deemed to be outstanding, and
all rights of the holders thereof as shareholders of the Corporation
(except the right to receive from the Corporation the Redemption Price)
shall cease.
(4) Optional Redemption By Holder. (i) Upon the
occurrence of a Redemption Event, each holder of B Preferred Shares shall have
the right to elect at any time and from time to time by delivery of a Default
Redemption Notice (as defined herein) to the Corporation while such Redemption
Event continues, to require the Corporation to purchase for cash, out of funds
legally available therefor, for an amount per share equal to the Default
Redemption Amount (as defined herein), any or all of the then outstanding shares
of B Preferred Shares held by such Holder. The "Default Redemption Amount" with
respect to each B Preferred Share means an amount equal to the greater of (i)
1.25 times the then effective Mandatory Redemption Price per share of each B
Preferred Share for which a demand for redemption is being made or (ii) (x) the
then effective Mandatory Redemption Price of each B Preferred Share for which a
demand for redemption is being made, divided by (y) the then effective
Conversion Price, multiplied by (z) the Market Value of the Common Shares.
(ii) If the Corporation fails to pay any holder the
Default Redemption Amount with respect to any B Preferred Shares within five (5)
Business Days of its receipt of a notice requiring such redemption (a "Default
Redemption Notice"), then the holder delivering such Default Redemption Notice
shall be entitled to interest on the Default Redemption Amount at a per annum
rate equal to the lower of (x) the sum of prime rate published from time to time
by the Wall Street Journal plus five percent (5%) and (y) the highest interest
rate permitted by applicable law from the date of the Default Redemption Notice
until the date of redemption hereunder. In the event the Corporation is not able
to redeem all of the shares of B Preferred Shares subject to Default Redemption
Notices because of insufficient shareholders equity, restrictions under
applicable law or pursuant to agreements, or lack of cash, the Corporation shall
redeem shares of B Preferred Shares from each holder, to the maximum extent, pro
rata, based on the total number of shares of B Preferred Shares included by such
holder in the Default Redemption Notice relative to the total number of shares
of B Preferred Shares in all of the Default Redemption Notices.
G. Consolidation, Merger and Sale of Assets, etc. The
Corporation shall not consolidate with or merge into, or transfer all or
substantially all of its assets to, another Person unless (i) in the case of a
merger or consolidation, the Corporation is the surviving entity and the rights
and preferences of the B Preferred Shares are not modified, or (ii) (A) the
surviving, resulting or acquiring Person is a Person organized under the laws of
the United States, any state thereof or the District of Columbia, or a Person
organized under the laws of a foreign jurisdiction whose equity securities are
listed on a national securities exchange in the United States or authorized for
quotation on NASDAQ, and (B) the Corporation shall make effective provision such
that, upon consummation of such transaction, the holders of B Preferred Shares
shall receive preferred stock of the surviving entity having substantially
identical terms and registration rights as the B Preferred Shares.
H. Conversion of B Preferred Shares.
(1) Right of Conversion of B Preferred Shares. Each B
Preferred Share shall be convertible at the option of the holder thereof, at any
time or from time to time, into a number of fully paid and nonassessable Common
Shares equal to the then applicable Mandatory Redemption Price of such B
Preferred Share, divided by $4.00 (the "Conversion Price"); provided, however,
that in no event shall any holder of B Preferred Shares be entitled to receive
Common Shares upon a conversion to the extent that the sum of (x) the number of
Common Shares beneficially owned by that holder and its affiliates (exclusive of
shares issuable upon conversion of the unconverted portion of any B Preferred
Shares or the unexercised or unconverted portion of any other securities of the
Corporation subject to a limitation on conversion or exercise analogous to the
limitations contained herein) and (y) the number of Common Shares issuable upon
the conversion of the B Preferred Shares with respect to which the determination
of this subclause is being made, would result in beneficial ownership by the
holder and its affiliates of more than 4.9% of the outstanding Common Shares
(the "Five Percent Limitation"), and for purposes of this subclause, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13 D-G thereunder, except as
otherwise provided in clause (x) above. To the extent the Five Percent
Limitation applies, the determination of whether B Preferred Shares shall be
convertible (vis-a-vis other securities owned by a holder) shall be in the sole
discretion of the holder and submission of a Conversion Notice shall be deemed
to be the holder's determination of whether the B Preferred Shares are
convertible in whole or in part, subject to such aggregate Five Percent
Limitation. No prior inability to convert the B Preferred Shares pursuant to
this clause shall have any effect on the applicability of the provisions of this
clause with respect to any subsequent determination of ability to convert. The
provisions of this clause may be amended and/or implemented in a manner
otherwise than in strict conformity with the terms of this clause with the
approval of the Board of Directors of the Company and the affected Holder; the
provisions of this clause may be waived by the affected holder upon ninety (90)
days prior written notice from such holder to the Company. The limitations
contained in this clause shall apply to a successor holder concurrently with its
acquisition of such B Preferred Shares, such election to be promptly confirmed
in writing to the Company (provided no transfers to a successor holder or
holders shall be used by a holder to evade the limitations contained herein).
(2) Conversion Procedures. In order to exercise the
conversion privilege, the holder of any B Preferred Shares to be converted in
whole or in part shall give written notice to the Corporation ("Conversion
Notice") by courier delivery (with receipt acknowledged), by personal delivery,
registered or certified mail (with receipt acknowledged) or, by facsimile
transmission (such facsimile transmission will be deemed received by the
Corporation on the date and at the time it was sent by the holder so long as (i)
the holder's facsimile machine confirms that the transmission was received prior
to 5:30 p.m., New York time on the Business Day on which it was sent and (ii)
the Corporation receives the original thereof (together with a copy of the
facsimile confirmation) by courier within 2 Business Days following such
facsimile transmission), that the holder elects to convert such shares or the
portion thereof specified in such Conversion Notice into shares of Common Shares
and shall, within five (5) Business Days after the Business Day on which the
Conversion Notice was so given, surrender the certificate or certificates
evidencing such shares to the Corporation. The Conversion Notice shall specify
the effective date of such conversion, which shall be no earlier than the
Business Day on which the Conversion Notice was properly given in accordance
with this Section H(2) and no later than 30 days following such giving of the
Conversion Notice, and shall also state the name or names (with address) in
which the certificates for Common Shares which shall be issuable upon such
conversion shall be issued. Each certificate evidencing B Preferred Shares
surrendered for conversion shall, unless the shares issuable on conversion are
to be issued in the same name as the registration of such B Preferred Shares, be
duly endorsed by, or be accompanied by instruments of transfer in form
satisfactory to the Corporation duly executed by, such holder or its duly
authorized attorney.
Within three (3) Business Days after the Business Day on which
the Conversion Notice was properly given in accordance with this Section H(2),
but not prior to the specified effective date of conversion, and following (and
in no event prior to) surrender of the certificate or certificates evidencing
the B Preferred Shares relating thereto, the Corporation shall issue and deliver
to such holder (or upon the written order of such holder) a certificate or
certificates for the number of full Common Shares issuable upon the conversion
of such B Preferred Shares or portion thereof in accordance with the provisions
of this Section H, and a check or cash in respect of any fractional Common
Shares issuable upon such conversion, as provided in Section H(3). If the
Corporation fails to issue certificates upon any such conversion of B Preferred
Shares, the Corporation shall pay to any holders of such converted B Preferred
Shares an amount equal to (i) 1% of the Conversion Price per day multiplied by
the number of Common Shares issuable upon conversion of the B Preferred Shares
subject to the applicable Conversion Notice for the first 30 days after the
scheduled delivery date of such certificates, and (ii) thereafter, 2% of the
Conversion Price per day multiplied by the number of Common Shares issuable upon
conversion of the B Preferred Shares subject to the applicable Conversion Notice
("Conversion Default Payments"). Notwithstanding the foregoing, if the
Corporation's failure to issue such certificates is a result of an error made by
its transfer agent, such amount shall not accrue until after the third day
following the scheduled delivery date of such certificate. In the event that
less than all the B Preferred Shares represented by a certificate are to be
converted, the Corporation shall issue and deliver or cause to be issued and
delivered to (or upon the written order of) the holder of the B Preferred Shares
so surrendered, without charge to such holder, a new certificate or certificates
representing a number of B Preferred Shares equal to the unconverted portion of
the surrendered certificate.
Each conversion shall be deemed to have been effected as of
the date (the "Conversion Date") specified in the applicable Conversion Notice,
or if no date is specified, as of the Business Day on which a Conversion Notice
with respect to B Preferred Shares shall have been received by the Corporation,
as described above, but only if the certificate or certificates evidencing B
Preferred Shares shall have been surrendered to the Corporation or its transfer
agent within five (5) Business Days after the Business Day on which the
Conversion Notice relating thereto was properly given in accordance with this
Section H(2) and, if such certificate or certificates shall not have been
surrendered within such time period, such Conversion Notice shall be ineffective
and void ab initio. Any Person in whose name any certificate or certificates for
Common Shares shall be issuable upon conversion shall be deemed to have become
the holder of record of the shares represented thereby on the Conversion Date;
provided, however, that the receipt of a Conversion Notice on any date when the
share transfer books of the Corporation shall be closed shall constitute the
Person in whose name the certificates are to be issued as the record holder
thereof for all purposes on the next succeeding day on which such share transfer
books are open, but such conversion shall be at the Conversion Rate in effect on
the Conversion Date.
Except as otherwise provided in this Section H, no payment or
adjustment will be made for dividends or other distributions with respect to any
Common Shares issuable upon conversion of B Preferred Shares as provided herein.
Full payment shall be made by the Corporation to any holder of B Preferred
Shares surrendered for conversion in respect of dividends accrued since the last
preceding Dividend Payment Date on the B Preferred Shares surrendered for
conversion; the dividend due on such Dividend Payment Date shall be payable with
respect to such B Preferred Shares notwithstanding such conversion, and such
dividend (whether or not punctually paid or duly provided for) shall be paid to
the holder of such shares as of the close of business on such record date.
(3) Cash Payments in Lieu of Fractional Shares. No
fractional Common Shares or scrip representing fractional shares shall be issued
upon conversion of B Preferred Shares. If any fractional Common Share would, but
for this Section H, be issuable upon the conversion of any B Preferred Shares,
the Corporation shall make a payment therefor in cash on the third Business Day
immediately following the Conversion Date equal to the Conversion Price of such
fractional share.
(4) Adjustment of Conversion Privileges. The
Conversion Price shall be adjusted from time to time by the Corporation as
follows:
(i) In case the Corporation shall (A) declare a
dividend, or make a distribution, in shares of any series of its Common
Shares, on any series of its Common Shares, (B) subdivide or reclassify
any series of its outstanding Common Shares into a greater number of
shares, (C) combine any series of its outstanding Common Shares into a
smaller number of shares, (D) pay a dividend or make a distribution on
any series of its Common Shares in shares of any series of its Capital
Stock other than Common Shares, or (E) issue by reclassification of any
series of its Common Shares of any series of its Capital Stock, the
conversion privilege and the Conversion Price in effect immediately
prior thereto shall be adjusted so that the holder of any shares of B
Preferred Shares thereafter surrendered for conversion shall be
entitled to receive the number of Common Shares or other Capital Stock
of the Corporation which such holder would have owned or have been
entitled to receive after the happening of any of the events described
above had such B Preferred Shares been converted immediately prior to
the happening of such event. An adjustment made pursuant to this
Section H(4) shall become effective immediately after the record date
in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of subdivision,
combination or reclassification. Such adjustment shall be made
successively whenever any event referred to above shall occur. In the
event such dividend, distribution, subdivision, reclassification or
combination is not so made, the conversion privilege then in effect
shall be readjusted to the conversion privilege which would then be in
effect if such dividend, distribution, subdivision, reclassification or
combination had not been declared or made, but such readjustment shall
not affect the number of Common Shares or other Capital Stock delivered
upon any conversion prior to the date such readjustment is made.
(ii) In case the Corporation shall distribute to all
holders of any series of its Common Shares any of its assets or debt
securities, or rights, options, warrants or convertible or exchangeable
securities of the Corporation (including securities for cash, but
excluding distributions of Capital Stock referred to in Section H(4)(i)
above, if the adjustment to the Conversion Price under that Section
would be greater than an adjustment under this Section), then in each
such case, the Conversion Price shall be adjusted to equal the
Conversion Price in effect immediately prior to such distribution less
an amount equal to the then fair market value (as reasonably determined
by the Board of Directors, in good faith and as described in a
resolution of the Board of Directors) of the portion of the assets or
debt securities of the Corporation so distributed or of such rights,
options, warrants or convertible or exchangeable securities applicable
to one share of Common Shares. Such adjustment shall become effective
immediately after the record date for the determination of shares
entitled to receive such distribution. Notwithstanding the foregoing,
no adjustment of the Conversion Price shall be made upon the
distribution to holders of any series of Common Shares of such rights,
options, warrants, convertible securities, assets or debt securities if
the plan or arrangement under which such rights, options, warrants,
convertible securities, assets or debt securities are issued provides
for their issuance to holders of shares of B Preferred Shares in the
same pro rata amounts upon conversion thereof. Such adjustment shall be
made successively whenever any event listed above shall occur.
(iii) Anything in this Section H(4) to the contrary
notwithstanding, the Corporation shall be entitled to make such
reductions in the Conversion Price, in addition to those required by
this Section H(4), as it in its reasonable discretion shall determine
to be advisable in order that any stock dividends, subdivision of
shares, distribution of rights to purchase stock or securities, or
distribution of securities convertible into or exchangeable for stock
hereafter made by the Corporation to its shareholders, shall not be
taxable.
(iv) Whenever the Conversion Price is adjusted as
provided in this Section H(4), or the B Preferred Shares becomes
convertible into shares of stock, securities, property or assets
pursuant to Section H(5) below, or the Corporation reduces the
Conversion Price pursuant to Section H(6) below, the Corporation shall
prepare a notice of such adjustment of the Conversion Price setting
forth the adjusted Conversion Price and the date on which such
adjustment becomes effective, and setting forth in reasonable detail
the facts requiring such adjustment and the calculation of such
adjustment, and shall mail such notice of adjustment to all holders of
B Preferred Shares at their last addresses appearing on the share
transfer books of the Corporation.
(v) In any case in which this Section H(4) provides
that an adjustment shall become effective immediately after a record
date for an event, the Corporation may defer until the occurrence of
such event (i) issuing to the holder of any B Preferred Shares
converted after such record date and before the occurrence of such
event the additional Common Shares issuable upon such conversion by
reason of the adjustment required by such event over and above the
Common Shares issuable upon such conversion before giving effect to
such adjustment, and (ii) paying to such holder any amount in cash in
lieu of any fractional Common Shares pursuant to Section H(3).
(vi) For purposes of any computations pursuant to
this Section H(4), respecting consideration received, the following
shall apply:
(a) in the case of the issuance of shares of
Capital Stock for cash, the consideration shall be the amount
of such cash, provided that in no case shall any deduction be
made for any commissions, discounts or other expenses incurred
by the Corporation for any underwriting of the issue or
otherwise in connection therewith;
(b) in the case of the issuance of shares of
Capital Stock for a consideration in whole or in part other
than cash, the consideration other than cash shall be deemed
to be the fair market value thereof as reasonably determined
in good faith by the Board of Directors or a duly authorized
committee thereof (irrespective of the accounting treatment
thereof), and described in a resolution of the Board of
Directors or such committee; and
(c) in the case of the issuance of
securities convertible into or exchangeable or exercisable for
shares of Capital Stock, the aggregate consideration received
therefor shall be deemed to be the consideration received by
the Corporation for the issuance of such securities plus the
additional minimum consideration, if any, to be received by
the Corporation upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner
as provided in clauses (a) and (b) of this Section).
(vii) If after an adjustment a holder of B Preferred
Shares may, upon conversion of such security, receive shares of two or
more classes of Capital Stock of the Corporation, the Corporation shall
determine on a fair basis the allocation of the adjusted Conversion
Price between the classes of Capital Stock. After such allocation, the
conversion privilege and the Conversion Price of each class of Capital
Stock shall thereafter be subject to adjustment on terms comparable to
those applicable to Common Shares in this Section H.
(viii) In no event shall an adjustment pursuant to
this Section H(4) or any other provision of this Certificate of
Amendment reduce the Conversion Price below the then par value, if any,
of the Common Shares issuable upon conversion of B Preferred Shares.
(5) Effect of Reclassification, Consolidation, Merger
or Sale. If any of the following events occur, namely (i) any reclassification
or change of outstanding Common Shares issuable upon conversion of B Preferred
Shares (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination),
(ii) any consolidation or merger of the Corporation with another Person shall be
effected as a result of which holders of Common Shares issuable upon conversion
of B Preferred Shares shall be entitled to receive stock, securities or other
property or assets (including cash) with respect to or in exchange for such
Common Shares, or (iii) any sale or conveyance of the properties and assets of
the Corporation as, or substantially as, an entirety to any other Person, then
the Corporation or such successor or purchasing Person, as the case may be,
shall make provisions in its certificate or articles of incorporation or other
constituent documents to establish that each Preferred Share then outstanding
shall be convertible into the kind and amount of shares of stock and other
securities or property or assets (including cash) receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of Common Shares issuable upon conversion of such B Preferred
Shares immediately prior to such reclassification, change, consolidation,
merger, sale or conveyance. Such provisions shall provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section H.
If this Section H(5) applies with respect to a transaction,
Section H(4) shall not apply with respect to that transaction. The above
provisions of this Section H(5) shall similarly apply to successive
reclassifications, consolidations, mergers and sales.
(6) Voluntary Adjustment. Subject to the Ownership Limitation,
the Corporation at any time may reduce the Conversion Price by any amount and
for any period of time, provided that such period is not less than twenty (20)
Business Days. Whenever the Conversion Price is reduced pursuant to this Section
8(f), the Corporation shall mail to the Holders, a notice of the reduction at
least 15 days before the date the reduced Conversion Price takes effect and such
notice shall state the reduced Conversion Price and the period it will be in
effect.
(7) Taxes on Shares Issued. The issuance of share certificates
upon conversion or transfer of B Preferred Shares shall be made without charge
to the converting holder for any tax in respect of the issuance thereof.
(8) Reservation Of Shares; Shares To Be Fully Paid; Compliance
With Governmental Requirements. The Corporation shall reserve, free from
preemptive rights, out of its authorized but unissued shares, or out of shares
held in its treasury, sufficient Common Shares to provide for the conversion at
any time or from time to time, and/or redemption at the Maturity Date at the
then applicable Mandatory Redemption Price, of all B Preferred Shares from time
to time outstanding. The Corporation covenants that all Common Shares which may
be issued upon conversion of B Preferred Shares will upon issuance be fully paid
and nonassessable by the Corporation and free from all taxes, liens and charges
with respect to the issuance thereof.
(9) Notice to Holders Prior to Certain Actions. In the event:
(i) that the Corporation shall take any action that would
require an adjustment in the Conversion Price pursuant to clauses (i),
(ii) or (iii) of Section H(4) above; or
(ii) that any event described in Section H(5) shall occur; or
(iii) of the voluntary or involuntary dissolution, liquidation
or winding-up of the Corporation;
the Corporation shall cause notice of such proposed action or event to be mailed
to each holder of record of B Preferred Shares at its address appearing on the
stock transfer books of the Corporation, as promptly as possible but in any
event at least thirty (30) days prior to the record date for such proposed
action or the effective date of such event; provided, however, that in the event
that the Corporation provides public notice of such proposed action or event
specifying the information set forth below at least ten (10) days prior to the
proposed record date or effective date, the Corporation shall be deemed to have
satisfied its obligation to provide notice pursuant to this Section H(9). In any
event, such notice shall specify (A) the date on which a record is to be taken
for the purpose of such action, or, if a record is not to be taken, the date as
of which the holders of record of Common Shares are to be determined, or (B) the
date on which such proposed event is expected to become effective, and the date
as of which it is expected that holders of record of Common Shares shall be
entitled to exchange their Common Shares for securities or other property
deliverable upon such event. Failure to give such notice, or any defect therein,
shall not affect the legality or validity of such action or event.
(10) Conversion Disputes. In the case of any dispute with
respect to a conversion, the Corporation shall promptly issue such number of
Common Shares as are not disputed in accordance with Section H hereof. If such
dispute involves the calculation of the Conversion Price, the Corporation shall
submit the disputed calculations, and shall permit any holder to simultaneously
submit its data and views, to a "Big Six" independent accounting firm selected
by the Corporation via facsimile within two (2) business days of receipt of the
Conversion Notice. The accounting firm shall audit the calculations and notify
the Corporation and the holder of the results no later than two (2) business
days from the date it receives the disputed calculations. The accounting firm's
calculation shall be deemed conclusive, absent manifest error. The Company shall
then issue the appropriate number of Common Shares in accordance with Section
H(2) hereof.
(11) Electronic Transmission. In lieu of delivering physical
certificates representing the Common Shares issuable upon the conversion of B
Preferred Shares, provided the Corporation's transfer agent is participating in
the Depository Trust Company ("DTC") Fast Automated Securities Transfer program,
upon the written request of a holder who shall have previously instructed such
holder's prime broker to confirm such request to the Corporation's transfer
agent, the Corporation shall use its commercially reasonable efforts to cause
its transfer agent to electronically transmit the Common Shares issuable upon
conversion to the holder by crediting the account of holder's prime broker with
DTC through its Deposit Withdrawal Agent Commission ("DWAC") system.
I. Transfers; Replacement Of Certificates.
(1) Transfers. Subject to any restrictions on transfer under
applicable securities or other laws, B Preferred Shares may be transferred on
the books of the Corporation by the surrender to the Corporation of the
certificate therefor properly endorsed or accompanied by a written assignment
and power of attorney properly executed, with transfer stamps (if necessary)
affixed, and such proof of the authenticity of signature as the Corporation or
its transfer agent may reasonably require.
(2) Replacement of Certificates. If any mutilated certificate
representing B Preferred Shares is surrendered to the Corporation, or if a
holder claims the certificate representing B Preferred Shares has been lost,
destroyed or willfully taken, the Corporation shall issue a replacement
certificate of like tenor and date if (i) the holder provides an indemnity bond
or other security sufficient, in the reasonable judgment of the Corporation, to
protect the Corporation and any authenticating agent and any of their officers,
directors, employees or representatives from any loss which any of them may
suffer if a certificate representing B Preferred Shares is replaced, and (ii)
the holder satisfies any other reasonable requirements of the Corporation.
J. Reacquired Shares. Any B Preferred Shares which are
converted, purchased, redeemed or otherwise acquired by the Corporation, shall
be retired and canceled by the Corporation promptly thereafter. No such shares
shall upon their cancellation be reissued as B Preferred Shares.
K. Consideration. The Purchase Price of $1,000 per B Preferred
Share shall be paid for by exchange of one share of Convertible Preferred
Shares, Series A in accordance with the terms of the Exchange Agreement. In lieu
of physical delivery of certificates representing Convertible Preferred Shares,
Series A, all shares of Convertible Preferred Shares, Series A to be exchanged,
shall be and become a like number of B Preferred Shares. Each share certificate
representing the Convertible Preferred Shares, Series A, outstanding immediately
prior to the exchange shall, upon effectiveness of the exchange pursuant to the
Exchange Agreement, be deemed to evidence a like number of B Preferred Shares.
The Company shall issue new certificates to each holder requesting B Preferred
Share certificates upon the surrender of certificates previously representing
Convertible Preferred Shares, Series A.
THIRD: That the Corporation's Restated Certificate of Incorporation is
amended so that the designation and number of shares of the B Preferred Shares
acted upon in the foregoing resolution, and the relative rights, preferences and
limitations of such series, are as stated in the foregoing resolution.
FOURTH: This Certificate of Amendment shall become effective upon
filing.
IN WITNESS WHEREOF, Base Ten Systems, Inc. has caused its duly
authorized officer to execute this Certificate on this ____ day of ___________,
1998.
BASE TEN SYSTEMS, INC.
By:__________________________________
THOMAS E. GARDNER, President
and Chief Executive Officer