CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF A SERIES OF
PREFERRED STOCK
OF
FRONT PORCH DIGITAL INC.
----------------
Front Porch Digital Inc., a corporation organized and existing under
the laws of the State of Nevada (the "Corporation"), does hereby certify that,
pursuant to authority conferred upon the Board of Directors of the Corporation
by the Articles of Incorporation of the Corporation (as amended from time to
time, the "Articles of Incorporation"), and pursuant to the provisions of
Section 78.030 of the Nevada General Corporation Law, as amended from time to
time, said Board of Directors duly adopted a resolution providing for the
designations, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of a series of
preferred stock, which resolution is as follows:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of the Articles
of Incorporation, a series of preferred stock of the Corporation known as the
Series A Convertible Preferred Stock be, and such series hereby is, created,
classified, and authorized, and the issuance thereof is provided for, and that
the designation and number of shares, and relative rights, preferences and
limitations thereof, shall be as set forth in the form appended hereto as
EXHIBIT A.
I, Michael Knaisch, Chief Executive Officer of the Corporation, do make this
Certificate, hereby declaring and certifying that this is my act and deed on
behalf of the Corporation this 18th day of August, 2004.
By: /s/ Michael Knaisch
------------------------------
Name: Michael Knaisch
Title: Chief Executive Officer
EXHIBIT A
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1. DESIGNATION. A total of two million five hundred thousand
(2,500,000) shares of the Corporation's preferred stock shall be designated as a
series known as Series A Convertible Preferred Stock, par value $0.001 per share
(the "Series A Preferred Stock").
2. VOTING.
(a) ELECTION OF DIRECTORS. So long as least 500,000 shares of
the originally issued shares of Series A Preferred Stock (as adjusted
appropriately for stock splits, stock dividends, combinations, recapitalizations
and similar transactions) remain outstanding, the holders of outstanding shares
of Series A Preferred Stock shall, voting together as a separate class, be
entitled to elect three (3) Directors of the Corporation. Except as provided in
Section 2(a)(iv) hereof, such Directors shall be elected by a plurality vote,
with the elected candidates being the candidates receiving the greatest number
of affirmative votes (with each holder of Series A Preferred Stock entitled to
cast one vote for or against each candidate with respect to each share of Series
A Preferred Stock held by such holder) of the outstanding shares of Series A
Preferred Stock, with votes cast against such candidates and votes withheld
having no legal effect. The election of such Directors shall occur (i) at the
annual meeting of holders of capital stock, (ii) at any special meeting of
holders of capital stock if such meeting is called for the purpose of electing
directors, (iii) at any special meeting of holders of shares of Series A
Preferred Stock called by holders of not less than a majority of the outstanding
shares of Series A Preferred Stock or (iv) by the written consent of holders of
a majority of the outstanding shares of Series A Preferred Stock entitled to
vote for such Directors in the manner and on the basis specified above or as
otherwise provided by law. If at any time when any share of Series A Preferred
Stock is outstanding any such Director should cease to be a Director for any
reason, the vacancy shall only be filled by the vote or written consent of the
holders of the outstanding shares of Series A Preferred Stock, voting together
as a separate class, in the manner and on the basis specified above or as
otherwise provided by law. The holders of outstanding shares of Series A
Preferred Stock shall also be entitled to vote in the election of all other
Directors of the Corporation together with holders of all other shares of the
Corporation's outstanding capital stock entitled to vote thereon, voting as a
single class, with each outstanding share of Series A Preferred Stock entitled
to the number of votes specified in Section 2(b) hereof. The holders of
outstanding shares of Series A Preferred Stock may, in their sole discretion,
determine not to elect one or more Directors as provided herein from time to
time, and during any such period the Board of Directors shall not be deemed
unduly constituted solely as a result of such vacancy.
(b) VOTING GENERALLY. Each outstanding share of Series A
Preferred Stock shall be entitled to a number of votes equal to the number of
shares of Common Stock into which such share of Series A Preferred Stock is then
convertible pursuant to Section 6 hereof as of the record date for the vote or
written consent of stockholders, if applicable. Each holder of outstanding
shares of Series A Preferred Stock shall be entitled to notice of any
stockholders' meeting in accordance with the by-laws of the Corporation and
shall vote with holders of the Common Stock, voting together as single class,
upon all matters submitted to a vote of stockholders, excluding those matters
required to be submitted to a class or series vote pursuant to the terms hereof
(including, without limitation, Section 8 hereof) or by law.
3. DIVIDENDS. Subject to Section 8 hereof, the Corporation may (when,
as and if declared by the Board of Directors) declare and distribute dividends
among the holders of Series A Preferred Stock and the holders of Common Stock
pro rata based on the number of shares of Common Stock held by each, determined
on an as-if-converted basis (assuming full conversion of all such Series A
Preferred Stock) as of the record date with respect to the declaration of such
dividends; PROVIDED, that the holders of shares of Series A Preferred Stock
shall be entitled to participate on such a pro rata basis in any dividends
declared with respect to the Common Stock.
4. LIQUIDATION; MERGER, ETC.
(a) SERIES A LIQUIDATION PREFERENCE. Upon any liquidation,
dissolution or winding up of the Corporation and its subsidiaries, whether
voluntary or involuntary (a "Liquidation Event"):
(i) each holder of outstanding shares of Series A
Preferred Stock shall be entitled to be paid in cash, before any amount shall be
paid or distributed to the holders of the Common Stock or any other capital
stock ranking on liquidation junior to the Series A Preferred Stock (the Common
Stock and such other capital stock being referred to collectively as, "Junior
Stock"), an amount in cash per share of Series A Preferred Stock equal to (A)
$12.60 (the "Original Issue Price") PLUS (B) an amount equal to all accumulated
but unpaid dividends on such share of Series A Preferred Stock (such amount to
be adjusted appropriately for stock splits, stock dividends, combinations,
recapitalizations and the like) (the "Series A Preference Amount"). If the
amounts available for distribution by the Corporation to holders of Series A
Preferred Stock upon a Liquidation Event are not sufficient to pay the aggregate
Series A Preference Amount due to such holders, such holders of Series A
Preferred Stock shall share ratably in any distribution in connection with such
Liquidation Event in proportion to the full respective preferential amounts to
which they are entitled.
(ii) REMAINING ASSETS. After the prior payment in full of
the Series A Preference Amount in connection with a Liquidation Event, the
remaining assets and funds of the Corporation available for distribution to its
stockholders, if any, shall be distributed among the holders of shares of Junior
Stock then outstanding in accordance with the terms of such Junior Stock.
(b) ALTERNATIVE LIQUIDATION PAYMENT. Notwithstanding Section
4(a) hereof, if, upon such Liquidation Event, the holders of outstanding shares
of Series A Preferred Stock would receive more than the aggregate amount to be
received under Section 4(a) above in the event all of their shares of Series A
Preferred Stock were converted into shares of Common Stock pursuant to the
provisions of Section 6(a) hereof immediately prior to such Liquidation Event
and the holders of shares of Common Stock thereafter received a liquidating
distribution or distributions from the Corporation, then each holder of
outstanding shares of Series A Preferred Stock in connection with such
Liquidation Event shall be entitled to be paid in cash, in lieu of the payments
described in Section 4(a) above, an amount per share of Series A Preferred Stock
equal to such amount as would have been payable in respect of each share of
Common Stock (including any fraction thereof) issuable upon conversion of such
share of Series A
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Preferred Stock had such share of Series A Preferred Stock been converted to
Common Stock immediately prior to such Liquidation Event pursuant to the
provisions of Section 6 hereof.
(c) AMOUNT PAYABLE IN MERGERS, ETC. Subject to Section 7(e)
hereof, the holders of not less than 80% of the voting power of the outstanding
shares of Series A Preferred Stock (a "Supermajority Interest") may elect to
have treated as a Liquidation Event: (i) any merger or consolidation of the
Corporation into or with another corporation (except one in which the holders of
capital stock of the Corporation immediately prior to such merger or
consolidation continue to hold at least a majority of the voting power of the
capital stock of the surviving corporation), (ii) any sale, lease, license or
transfer of all or substantially all of the assets of the Corporation, or (iii)
any other transaction pursuant to, or as a result of, which a single party (or
group of affiliated parties) acquires or holds capital stock of the Corporation
representing a majority of the Corporation's outstanding voting power (such
transaction, a "Change of Control Transaction"). If such election is made, all
consideration payable to the stockholders of the Corporation in connection with
any such merger, consolidation or Change of Control Transaction, or all
consideration payable to the Corporation and distributable to its stockholders,
together with all other available assets of the Corporation (net of obligations
owed by the Corporation that are senior to the Series A Preferred Stock), in
connection with any such asset sale or Change of Control Transaction, shall be,
as applicable, paid by the purchaser to the holders of, or distributed by the
Corporation in redemption (out of funds legally available therefor) of, the
Series A Preferred Stock and any Junior Stock in accordance with the preferences
and priorities set forth in Sections 4(a) and 4(b) above, with such preferences
and priorities specifically intended to be applicable in any such merger,
consolidation, asset sale or Change of Control Transaction, as if such
transaction were a Liquidation Event. In furtherance of the foregoing, the
Corporation shall take such actions as are necessary to give effect to the
provisions of this Section 4(c), including, without limitation, (A) in the case
of a merger, consolidation or Change of Control Transaction, causing the
definitive agreement relating to such merger, consolidation or Change of Control
Transaction to provide for a rate at which the shares of Series A Preferred
Stock are converted into or exchanged for cash, new securities or other
property, or to provide for shares of Series A Preferred Stock to be redeemed,
in each case which gives effect to the preferences and priorities set forth in
Sections 4(a) and 4(b) above, or (B) in the case of an asset sale, redeeming the
Series A Preferred Stock. The Corporation shall promptly provide to the holders
of shares of Series A Preferred Stock such information concerning the terms of
such merger, consolidation, asset sale or Change of Control Transaction, and the
value of the assets of the Corporation as may reasonably be requested by the
holders of Series A Preferred Stock. The amount deemed distributed to the
holders of Series A Preferred Stock upon any such transaction shall be the cash
or the value of the property, rights or securities distributed to such holders
by the Corporation or the acquiring person, firm or other entity, as applicable.
Any election by a Supermajority Interest pursuant to this Section 4(c) shall be
made by written notice to the Corporation and the other holders of Series A
Preferred Stock at least five (5) days prior to the closing of the relevant
transaction. Upon the election of such Supermajority Interest hereunder, all
holders of Series A Preferred Stock shall be deemed to have made such election
and such election shall bind all holders of the Series A Preferred Stock.
Notwithstanding anything to the contrary contained herein, the holders of shares
of Series A Preferred Stock or a Supermajority Interest, as applicable, shall
have the right to elect to give effect to the conversion rights contained in
Section 6(a) hereof or the rights contained in Section
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7(e) hereof, if applicable, instead of giving effect to the provisions contained
in this Section 4(c) with respect to the shares of Series A Preferred Stock held
by such holders.
(d) VALUATION OF SECURITIES OR OTHER NON-CASH CONSIDERATION.
For purposes of valuing any securities or other non-cash consideration to be
delivered to the holders of the Series A Preferred Stock in connection with any
transaction to which Section 4(c) is applicable, the following shall apply:
(i) If any such securities are traded on a nationally
recognized securities exchange or inter-dealer quotation system, the
value shall be deemed to be the average of the closing prices of such
securities on such exchange or system over the thirty (30)-day period
ending three (3) business days prior to the closing;
(ii) If any such securities are traded over-the-counter,
the value shall be deemed to be the average of the closing bid prices of
such securities over the thirty (30)-day period ending three (3) business
days prior to the closing; and
(iii) If there is no active public market for such
securities or other non-cash consideration, the value shall be the fair
market value thereof, as mutually determined in good faith by the
Corporation and the holders of not less than a Supermajority Interest,
provided that if the Corporation and the holders of a Supermajority
Interest are unable to reach agreement, then by independent appraisal by
a mutually agreed to investment banker, the fees of which shall be paid
by the Corporation.
5. REDEMPTION.
(a) OPTIONAL REDEMPTION; REDEMPTION DATE. At any time on or
after August 18, 2008, the holder(s) of a Supermajority Interest may elect to
have all (but not less than all) of the outstanding shares of Series A Preferred
Stock redeemed. In such event, the Corporation shall redeem all (subject to
Section 5(c) hereof) of the outstanding shares of Series A Preferred Stock, out
of funds legally available therefor, for an amount equal to the aggregate Series
A Redemption Price specified in Section 5(b) hereof. Any election by a
Supermajority Interest pursuant to this Section 5(a) shall be made by written
notice to the Corporation and the other holders of Series A Preferred Stock at
least fifteen (15) days prior to the elected redemption date (the "Series A
Redemption Date"). Upon such election, all holders of Series A Preferred Stock
shall be deemed to have elected to have their shares of Series A Preferred Stock
redeemed pursuant to this Section 5(a) and such election shall bind all holders
of Series A Preferred Stock. Notwithstanding anything to the contrary contained
herein, each holder of shares of Series A Preferred Stock shall have the right
to elect to give effect to the conversion rights contained in Section 6(a)
hereof instead of giving effect to the provisions contained in this Section 5(a)
with respect to the shares of Series A Preferred Stock held by such holder.
(b) REDEMPTION PRICE. The price for each share of Series A
Preferred Stock redeemed pursuant to this Section 5 shall be an amount (the
"Series A Redemption Price") equal to the greater of (i) the Series A Preference
Amount (such amount to be adjusted appropriately for stock splits, stock
dividends, combinations, recapitalizations and the like), and (ii) the Fair
Market Value (as defined below) of the Common Stock into which the Series A
Preferred Stock
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is then convertible. The aggregate Series A Redemption Price shall be payable in
cash in immediately available funds to the respective holders of the Series A
Preferred Stock on the Series A Redemption Date.
For purposes of this Section 5(b), the "Fair Market Value" of any
share of Common Stock of the Corporation shall be determined as follows: (i)
within five (5) days after written notice from the holders of a Supermajority
Interest of their election to redeem is delivered to the Corporation in
accordance with Section 5(a) hereof, each of the Corporation and such
Supermajority Interest, as a group, shall submit their good faith estimate of
such Fair Market Value; (ii) to the extent that the Fair Market Value estimates
of the Corporation and such Supermajority Interest differ, the Corporation and
such Supermajority Interest shall engage, for an additional five (5)-day period,
in negotiations to reach agreement (if possible) on the Fair Market Value; and
(iii) if the Corporation and such Supermajority Interest fail to reach agreement
at the end of the foregoing five (5)-day period, the Fair Market Value shall be
determined by appraisal as set forth below.
In the event Fair Market Value is to be determined by appraisal
pursuant to the preceding paragraph, the Corporation and such Supermajority
Interest shall initially negotiate in good faith to select a mutually agreeable
appraiser to determine Fair Market Value with such determination to be binding
on all concerned. If the Corporation and such Supermajority Interest shall fail
to agree on the selection of such appraiser within five (5) days following the
expiration of the five (5)-day period specified in the preceding paragraph, then
the Corporation shall select one independent appraiser and such Supermajority
Interest shall select another independent appraiser and such appraisers shall
promptly designate a third (3rd) independent appraiser which shall determine
Fair Market Value. The Fair Market Value under such circumstances shall be the
Fair Market Value arrived at by the third appraiser within twenty (20) days
following its appointment. In the event that the two original appraisers cannot
agree upon the final appraiser within ten (10) days following their selection by
the Corporation and such Supermajority Interest, then the final appraiser shall
be appointed by the American Arbitration Association. The determination of Fair
Market Value shall be conclusive, final and binding on all parties hereto and
shall be enforceable in any court having any jurisdiction over a proceeding
brought to seek enforcement. All fees and expenses incurred in connection with
an appraisal under this Section 5(b) shall be borne by the Corporation. Fair
Market Value shall be determined on the basis of the following assumptions: (i)
on a "fully diluted" basis (such dilution to be determined in accordance with
generally accepted accounting principles consistently applied) as if the Series
A Preferred Stock was converted and the Common Stock acquired upon such
conversion was sold as part of a sale of all of the capital stock of the
Corporation; (ii) as though all outstanding securities which are then
convertible into, exercisable for or exchangeable into shares of Common Stock of
the Corporation (including, without limitation, vested options and warrants) had
been converted into, exercised for or exchanged into Common Stock of the
Corporation and any amounts payable upon such conversion, exercise or exchange
paid to the Corporation, (iii) without any reduction in value for lack of
control or the inherent lack of liquidity of non-public minority interests; (iv)
giving full effect to the revenue and, if applicable, earnings history and
prospects of the Corporation; and (v) otherwise on a basis which values all
Common Stock of the Corporation at the same per share price.
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(c) INSUFFICIENT FUNDS. If the funds of the Corporation legally
available to redeem shares of Series A Preferred Stock on the Series A
Redemption Date are insufficient to redeem the total number of such shares
required to be redeemed on such date, the Corporation shall (i) take any action
necessary or appropriate, to the extent reasonably within its control, to remove
promptly any impediments to its ability to redeem the total number of shares of
Series A Preferred Stock required to be so redeemed, including, without
limitation, to the extent permissible under applicable law, reducing the stated
capital of the Corporation or causing a revaluation of the assets of the
Corporation under to create sufficient surplus to make such redemption, and (ii)
in any event, use any funds that are legally available to redeem the maximum
possible number of such shares from the holders of such shares to be redeemed in
proportion to the respective number of such shares that otherwise would have
been redeemed if all such shares had been redeemed in full. At any time
thereafter when additional funds of the Corporation are legally available to
redeem such shares of Series A Preferred Stock, the Corporation shall
immediately use such funds to redeem the balance of the shares of Series A
Preferred Stock that the Corporation became obligated to redeem on the Series A
Redemption Date (but which it has not yet redeemed) at such Series A Redemption
Price.
(d) INTEREST. If any shares of Series A Preferred Stock are not
redeemed on the Series A Redemption Date for any reason, all such unredeemed
shares shall remain outstanding and entitled to all the rights and preferences
provided herein, and the Corporation shall pay interest on the Series A
Redemption Price applicable to such unredeemed shares at an aggregate per annum
rate equal to fifteen percent (15%), with such interest to accrue daily in
arrears and to be compounded quarterly; PROVIDED, HOWEVER, that in no event
shall such interest exceed the maximum permitted rate of interest under
applicable law (the "Maximum Permitted Rate"). In the event that fulfillment of
any provision hereof results in such rate of interest being in excess of the
Maximum Permitted Rate, the amount of interest required to be paid hereunder
shall automatically be reduced to eliminate such excess; PROVIDED, HOWEVER, that
any subsequent increase in the Maximum Permitted Rate shall be retroactively
effective to the applicable Series A Redemption Date to the extent permitted by
law.
(e) RIGHT TO ELECT ADDITIONAL DIRECTORS. If any shares of
Series A Preferred Stock are not redeemed on the Series A Redemption Date for
any reason, the number of Directors constituting the Board of Directors of the
Corporation shall automatically be increased by a number of Directors which,
when added to the number of Directors elected by the holders of outstanding
shares of Series A Preferred Stock pursuant to Section 2(a) hereof, will
constitute a majority of the Board of Directors as it will be constituted
following the election of such additional Directors, and the holders of
outstanding shares of Series A Preferred Stock shall be entitled, voting as a
single class (to the exclusion of the holders of all other securities and
classes of capital stock of the Corporation), to elect such additional
Directors. The period beginning on the Series A Redemption Date and ending on
the date upon which all shares of Series A Preferred Stock required to be
redeemed are so redeemed is referred to herein as the "Voting Period."
(i) As soon as practicable after the commencement of the
Voting Period, the Corporation shall call a special meeting of the
holders of outstanding shares of Series A Preferred Stock to be held not
more than ten (10) days after the date of mailing of notice of such
meeting. If the Corporation fails to send a notice, any such
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holder may call the meeting on like notice. The record date for
determining the holders of Series A Preferred Stock entitled to notice of
and to vote at such special meeting shall be the close of business on the
fifth (5th) business day preceding the day on which such notice is
mailed. At any such special meeting and at each meeting of holders of
shares of Series A Preferred Stock held during a Voting Period at which
Directors are to be elected (or with respect to any action by written
consent in lieu of a meeting of stockholders), such holders, voting
together as a single class to the exclusion of the holders of all other
securities and classes of capital stock of the Corporation, shall be
entitled to elect the number of Directors prescribed in this Section
5(e), and each share of Series A Preferred Stock shall be entitled to one
(1) vote (whether voted in person by the holder thereof or by proxy or
pursuant to a stockholders consent).
(ii) The terms of office of all persons who are incumbent
Directors of the Corporation at the time of a special meeting of the
holders of Series A Preferred Stock to elect such additional Directors
shall continue, notwithstanding the election at such meeting of the
additional Directors that such holders are entitled to elect, and the
additional Directors so elected by such holders, together with such
incumbent Directors, shall constitute the duly elected Directors of the
Corporation. Simultaneously with the termination of a Voting Period, the
terms of office of the additional Directors elected by the holders of the
Series A Preferred Stock shall terminate, such incumbent Directors shall
constitute the Directors of the Corporation and the rights of the holders
of Series A Preferred Stock to elect additional Directors pursuant to
this Section 5(e) shall cease.
(f) DIVIDEND AFTER REDEMPTION DATE. In the event that shares of
Series A Preferred Stock required to be redeemed are not redeemed and continue
to be outstanding, such shares shall continue to be entitled to dividends
thereon as provided in Section 3 hereof until the date on which the Corporation
actually redeems such shares.
(g) SURRENDER OF CERTIFICATES. Each holder of shares of Series
A Preferred Stock to be redeemed shall surrender the certificate or certificates
representing such shares to the Corporation, duly assigned or endorsed for
transfer to the Corporation (or accompanied by duly executed stock powers
relating thereto), or, in the event the certificate or certificates are lost,
stolen or missing, shall deliver an affidavit of loss, at the principal
executive office of the Corporation or such other place as the Corporation may
from time to time designate by notice to the holders of Series A Preferred
Stock, and each surrendered certificate shall be canceled and retired and the
Corporation shall thereafter make payment of the applicable Series A Redemption
Price by certified check or wire transfer; PROVIDED, HOWEVER, that if the
Corporation has insufficient funds legally available to redeem all shares of
Series A Preferred Stock required to be redeemed, each such holder shall, in
addition to receiving the payment of the portion of the aggregate Series A
Redemption Price that the Corporation is not legally prohibited from paying to
such holder by certified check or wire transfer, receive a new stock certificate
for those shares of Series A Preferred Stock not so redeemed.
6. CONVERSION. Shares of Series A Preferred Stock shall be converted
into Common Stock in accordance with the following:
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(a) VOLUNTARY CONVERSION. Upon the written election of the
holder thereof and without payment of any additional consideration, each
outstanding share of Series A Preferred Stock held by such holder shall be
converted into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing (i) the Series A Preference Amount, by (ii)
the Conversion Price at the time in effect for such Series A Preferred Stock
(such quotient, the "Conversion Rate"). The initial "Conversion Price" per share
for shares of Series A Preferred Stock shall be $0.63, subject to adjustment as
set forth in Section 7 hereof. Any election by a holder of Series A Preferred
Stock pursuant to this Section 6(a) shall be made by written notice to the
Corporation, and such notice may be given at any time and from time to time
after August 18, 2004 (the "Closing Date") and through and including the day
which is five (5) days prior to the Series A Redemption Date or the closing of
any transaction contemplated by Section 4(c) hereof.
(b) AUTOMATIC CONVERSION. Upon the written election of a
Supermajority Interest and without the payment of any additional consideration,
all (but not less than all) of the outstanding shares of Series A Preferred
Stock shall be converted into fully paid and nonassessable shares of Common
Stock at the Conversion Rate. Any election by a Supermajority Interest pursuant
to this Section 6(b) shall be made by written notice to the Corporation and the
other holders of Series A Preferred Stock, and such notice may be given at any
time after the Closing Date through and including the date which is five (5)
days prior to the closing of any transaction contemplated by Section 4(c)
hereof. Upon such election, all holders of the Series A Preferred Stock shall be
deemed to have elected to voluntarily convert all outstanding shares of Series A
Preferred Stock into shares of Common Stock pursuant to this Section 6(b) and
such election shall bind all holders of Series A Preferred Stock.
(c) PROCEDURE FOR CONVERSION.
(i) VOLUNTARY CONVERSION. Upon election to convert
pursuant to Section 6(a) hereof, the relevant holder or holders of Series
A Preferred Stock shall surrender the certificate or certificates
representing the Series A Preferred Stock being converted to the
Corporation, duly assigned or endorsed for transfer to the Corporation
(or accompanied by duly executed stock powers relating thereto) or shall
deliver an affidavit of loss to the Corporation, at its principal
executive office or such other place as the Corporation may from time to
time designate by notice to the holders of the Series A Preferred Stock.
Upon surrender of such certificate(s) or delivery of an affidavit of
loss, the Corporation shall issue and send by hand delivery, by courier
or by first class mail (postage prepaid) to the holder thereof or to such
holder's designee, at the address designated by such holder, a
certificate or certificates for the number of shares of Common Stock to
which such holder shall be entitled upon conversion. The issuance of
certificates for Common Stock upon conversion of Series A Preferred Stock
shall be deemed effective as of the date of surrender of such Series A
Preferred Stock certificates or delivery of such affidavit of loss and
will be made without charge to the holders of such shares for any
issuance tax in respect thereof or other costs incurred by the
Corporation in connection with such conversion and the related issuance
of such stock.
(ii) AUTOMATIC CONVERSION. Upon election to convert
pursuant to Section 6(b) hereof (the "Automatic Conversion Date"), all
outstanding shares of Series
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A Preferred Stock shall be converted into shares of Common Stock without
any further action by the holders of such shares and whether or not the
certificates representing such shares of Series A Preferred Stock are
surrendered to the Corporation. On the Automatic Conversion Date, all
rights with respect to the Series A Preferred Stock so converted shall
terminate, except any of the rights of the holders thereof upon surrender
of their certificate or certificates therefor or delivery of an affidavit
of loss thereof to receive certificates for the number of shares of
Common Stock into which such shares of Series A Preferred Stock have been
converted. If so required by the Corporation, certificates surrendered
for conversion shall be endorsed or accompanied by a written instrument
or instruments of transfer, in form satisfactory to the Corporation, duly
executed by the registered holder or by his, her or its attorney duly
authorized in writing. Upon surrender of such certificates or affidavit
of loss, the Corporation shall issue and deliver to such holder, promptly
at such office and in its name as shown on such surrendered certificate
or certificates, a certificate or certificates for the number of shares
of Common Stock into which the shares of the Series A Preferred Stock
surrendered are convertible on the Automatic Conversion Date.
(d) RESERVATION OF STOCK ISSUABLE UPON CONVERSION.
(i) CORPORATE ACTION. By no later than ninety (90) days
following the Filing Date (the "Reservation Date"), the Corporation shall
have taken such actions as may be necessary to ensure that the number of
authorized but unissued shares of Common Stock is sufficient to issue the
maximum number of such shares issuable upon the conversion of the Series
A Preferred Stock into Common Stock pursuant to the terms hereof.
Thereafter, 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 Series A Preferred
Stock, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of
Series A Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all outstanding shares of Series A Preferred Stock, the
Corporation will take such corporate action as may be necessary to
increase the number of its authorized but unissued shares of Common Stock
to such number of shares as shall be sufficient for such purpose, and to
reserve the appropriate number of shares of Common Stock for issuance
upon such conversion.
(ii) RIGHT TO ELECT ADDITIONAL DIRECTORS. If the number
of authorized but unissued shares of Common Stock on the Reservation Date
is not sufficient to issue the maximum number of such shares as are
issuable upon the conversion of the Series A Preferred Stock into Common
Stock pursuant to the terms hereof, the number of Directors constituting
the Board of Directors of the Corporation shall automatically be
increased by a number of Directors which, when added to the number of
Directors elected by the holders of outstanding shares of Series A
Preferred Stock pursuant to Section 2(a) hereof, will constitute a
majority of the Board of Directors as it will be constituted following
the election of such additional Directors, and the holders of outstanding
shares of Series A Preferred Stock shall be entitled, voting as a single
class (to the exclusion of the holders of all other securities and
classes of capital stock of the
9
Corporation), to elect such additional Directors. The period beginning on
the Reservation Date and ending on the date upon which the number of
authorized but unissued shares of Common Stock is sufficient to issue the
maximum number of such shares as are issuable upon the conversion of the
Series A Preferred Stock into Common Stock pursuant to the terms hereof
is referred to herein as the "Reservation Period."
(iii) As soon as practicable after the commencement of the
Reservation Period, the Corporation shall call a special meeting of the
holders of outstanding shares of Series A Preferred Stock to be held not
more than ten (10) days after the date of mailing of notice of such
meeting. If the Corporation fails to send a notice, any such holder may
call the meeting on like notice. The record date for determining the
holders of Series A Preferred Stock entitled to notice of and to vote at
such special meeting shall be the close of business on the fifth (5th)
business day preceding the day on which such notice is mailed. At any
such special meeting and at each meeting of holders of shares of Series A
Preferred Stock held during a Reservation Period at which Directors are
to be elected (or with respect to any action by written consent in lieu
of a meeting of stockholders), such holders, voting together as a single
class to the exclusion of the holders of all other securities and classes
of capital stock of the Corporation, shall be entitled to elect the
number of Directors prescribed in this Section 6(d), and each share of
Series A Preferred Stock shall be entitled to one (1) vote (whether voted
in person by the holder thereof or by proxy or pursuant to a stockholders
consent).
(iv) The terms of office of all persons who are incumbent
Directors of the Corporation at the time of a special meeting of the
holders of Series A Preferred Stock to elect such additional Directors
shall continue, notwithstanding the election at such meeting of the
additional Directors that such holders are entitled to elect, and the
additional Directors so elected by such holders, together with such
incumbent Directors, shall constitute the duly elected Directors of the
Corporation. Simultaneously with the termination of the Reservation
Period, the terms of office of the additional Directors elected by the
holders of the Series A Preferred Stock shall terminate, such incumbent
Directors shall constitute the Directors of the Corporation and the
rights of the holders of Series A Preferred Stock to elect additional
Directors pursuant to this Section 6(d) shall cease.
(e) NO CLOSING OF TRANSFER BOOKS. The Corporation shall not
close its books against the transfer of shares of Series A Preferred Stock in
any manner that would interfere with the timely conversion of any shares of
Series A Preferred Stock.
7. ADJUSTMENTS.
(a) ADJUSTMENTS TO THE CONVERSION PRICE. Except (i) as provided
in Section 7(b) hereof, (ii) in the case of an event described in Section 7(c)
hereof and (iii) as the holder(s) of a Supermajority Interest may otherwise
agree in writing to waive the provisions hereof, if and whenever after the date
this Certificate of Designations is first filed with the Secretary of State of
Nevada (the "Filing Date") the Corporation shall issue or sell, or is, in
accordance with this Section 7(a), deemed to have issued or sold, any shares of
Common Stock for a consideration per share less than the Conversion Price in
effect immediately prior to such issuance or sale, then,
10
upon such issuance or sale (or deemed issuance or sale), the Conversion Price
shall be reduced to the price determined by dividing (i) the sum of (A) the
Common Stock Deemed Outstanding (as defined in subparagraph (x) below)
immediately prior to such issuance or sale (or deemed issuance or sale)
multiplied by the Conversion Price then in effect and (B) the aggregate
consideration, if any, received by the Corporation upon such issuance or sale
(or deemed issuance or sale) by (ii) the Common Stock Deemed Outstanding
immediately after such issuance or sale (or deemed issuance or sale).
For purposes of this Section 7(a), the following shall also be
applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Corporation
shall, at any time after the Filing Date, in any manner grant (whether
directly or by assumption in a merger or otherwise) any warrants or other
rights to subscribe for or to purchase, or any options for the purchase
of, Common Stock or any stock or security convertible into or
exchangeable for Common Stock (such warrants, rights or options being
called "Options" and such convertible or exchangeable stock or securities
being called "Convertible Securities"), in each case for - consideration
per share (determined as provided in this paragraph and in Section
7(a)(vi)) hereof less than the Conversion Price then in effect, whether
or not such Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, then the total
maximum number of shares of Common Stock issuable upon the exercise of
such Options, or upon conversion or exchange of the total maximum amount
of such Convertible Securities issuable upon exercise of such Options,
shall be deemed to have been issued as of the date of granting of such
Options, at a price per share equal to the amount determined by dividing
(A) the total amount, if any, received or receivable by the Corporation
as consideration for the granting of such Options, plus the minimum
aggregate amount of additional consideration payable to the Corporation
upon the exercise of all such Options, plus, in the case of such Options
which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issuance or sale of
such Convertible Securities and upon the conversion or exchange thereof,
by (B) the total maximum number of shares of Common Stock deemed to have
been so issued. Except as otherwise provided in Section 7(a)(iii) hereof,
no adjustment of the Conversion Price shall be made upon the actual
issuance of such Common Stock or of such Convertible Securities upon
exercise of such Options or upon the actual issuance of such Common Stock
upon conversion or exchange of such Convertible Securities.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the
Corporation shall, at any time after the Filing Date, in any manner issue
or sell any Convertible Securities for consideration per share
(determined as provided in this paragraph and in Section 7(a)(vi)) hereof
less than the Conversion Price then in effect, whether or not the rights
to exchange or convert any such Convertible Securities are immediately
exercisable, then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible Securities
shall be deemed to have been issued as of the date of the issuance or
sale of such Convertible Securities, at a price per share equal to the
amount determined by dividing (A) the total amount, if any, received or
receivable by the Corporation as consideration for the issuance or sale
of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the
11
Corporation upon the conversion or exchange thereof, by (B) the total
maximum number of shares of Common Stock deemed to have been so issued;
PROVIDED, that (1) except as otherwise provided in Section 7(a)(iii)
hereof, no adjustment of the Conversion Price shall be made upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities and (2) if any such issuance or sale of such
Convertible Securities is made upon exercise of any Options to purchase
any such Convertible Securities, no further adjustment of the Conversion
Price shall be made by reason of such issuance or sale.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If there
shall occur a change in (A) the maximum number of shares of Common Stock
issuable in connection with any Option referred to in Section 7(a)(i) or
any Convertible Securities referred to in Section 7(a)(i) or (ii) hereof,
(B) the purchase price provided for in any Option referred to in Section
7(a)(i) hereof, (C) the additional consideration, if any, payable upon
the conversion or exchange of any Convertible Securities referred to in
Section 7(a)(i) or (ii) hereof, or (D) the rate at which Convertible
Securities referred to in Section 7(a)(i) or (ii) hereof are convertible
into or exchangeable for Common Stock (in each case, other than in
connection with an event described in Section 7(b) hereof), then the
Conversion Price in effect at the time of such event shall be adjusted to
the Conversion Price that would have been in effect at such time had such
Options or Convertible Securities that are still outstanding provided for
such changed maximum number of shares, purchase price, additional
consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold, but only if as a result of such
adjustment the Conversion Price then in effect is thereby reduced; and on
the termination of any such Option or any such right to convert or
exchange such Convertible Securities, the Conversion Price then in effect
hereunder shall be increased to the Conversion Price that would have been
in effect at the time of such termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such
termination (i.e., to the extent that fewer than the number of shares of
Common Stock deemed to have been issued in connection with such Option or
Convertible Securities were actually issued), never been issued or been
issued at such higher price, as the case may be.
(iv) STOCK DIVIDENDS. If the Corporation, at any time or
from time to time after the Filing Date, shall declare or make, or fix a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or make any other distribution upon any stock of the
Corporation payable in Common Stock, Options or Convertible Securities,
any Common Stock, Options or Convertible Securities, as the case may be,
issuable in payment of such dividend or distribution shall be deemed to
have been issued or sold without consideration, and the Conversion Price
will be adjusted pursuant to this Section 7(a); PROVIDED, that no
adjustment shall be made to the Conversion Price as a result of such
dividend or distribution if the holders of the shares of Series A
Preferred Stock are entitled to, and do, receive such dividend or
distribution in accordance with Section 3; and, PROVIDED, FURTHER, that
if any adjustment is made to the Conversion Price as a result of the
declaration of a dividend and such dividend is not effected, the
Conversion Price shall be appropriately readjusted to the Conversion
Price in effect had such dividend not been declared.
12
(v) OTHER DIVIDENDS AND DISTRIBUTIONS. If the
Corporation, at any time or from time to time after the Filing Date,
shall declare or make, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other
distribution payable in securities or other property of the Corporation
other than shares of Common Stock, then and in each such event provision
shall be made so that the holders of the outstanding shares of Series A
Preferred Stock shall receive upon conversion thereof, in addition to the
number of shares of Common Stock receivable thereupon, the amount of such
other securities of the Corporation or the value of such other property
that they would have received had the Series A Preferred Stock been
converted into Common Stock on the date of such event and had such
holders thereafter, during the period from the date of such event to and
including the conversion date, retained such securities or other property
receivable by them during such period giving application to all
adjustments called for during such period under Section 7 with respect to
the rights of the holders of the outstanding shares of Series A Preferred
Stock; and, PROVIDED, FURTHER, however, that no such adjustment shall be
made if the holders of Series A Preferred Stock simultaneously receive a
dividend or other distribution of such securities or other property in an
amount equal to the amount of such securities or other property as they
would have received if all outstanding shares of Series A Preferred Stock
had been converted into Common Stock on the date of such event.
(vi) CONSIDERATION FOR STOCK. If the Corporation, at any
time or from time to time after the Filing Date, shall issue or sell, or
is deemed to have issued or sold, any shares of Common Stock for cash,
the consideration received therefor shall be deemed to be the amount
received or to be received by the Corporation therefor (determined with
respect to deemed issuances and sales in connection with Options and
Convertible Securities in accordance with clause (A) of Section 7(a)(i)
or (ii) hereof, as appropriate). In case any shares of Common Stock shall
be issued or sold, or deemed issued or sold, for a consideration other
than cash, the amount of the consideration other than cash received by
the Corporation shall be deemed to be the fair value of such
consideration received or to be received by the Corporation (determined
with respect to deemed issuances and sales in connection with Options and
Convertible Securities in accordance with clause (A) of Section 7(a)(i)
or(ii) hereof, as appropriate) as determined in good faith by the Board
of Directors of the Corporation and a Supermajority Interest. In case any
Options shall be issued in connection with the issuance and sale of other
securities of the Corporation, together comprising one integral
transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have been
issued for such consideration as determined in good faith by the Board of
Directors of the Corporation and a Supermajority Interest. Anything
herein to the contrary notwithstanding, if in any case described in this
Section 7(a)(vi) the Corporation and the holders of a Supermajority
Interest are unable to reach agreement as to the value of such
consideration, then the value thereof will be determined by an
independent appraisal by a mutually agreed to investment banker, the fees
of which shall be paid by the Corporation.
(vii) RECORD DATE. In case the Corporation shall take a
record of the holders of its Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in Common
Stock, Options or Convertible Securities or (B)
13
to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the
issuance or sale of the shares of Common Stock deemed to have been issued
or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(viii) TREASURY SHARES. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Corporation; PROVIDED, that the
disposition of any such shares shall be considered an issuance or sale of
Common Stock for the purpose of this Section 7.
(ix) OTHER ISSUANCES OR SALES. In calculating any
adjustment to the Conversion Price pursuant to this Section 7(a): (A) any
shares of Common Stock, Options or Convertible Securities issued or sold
(or deemed issued or sold pursuant to Section 7(a)(i) or (ii) above)
after the Filing Date and prior to the effective date of such adjustment,
the issuance or sale (or deemed issuance or sale) of which did not result
in any adjustment to the Conversion Price under this Section 7(a), shall
be deemed to have been issued or sold as part of the issuance or sale (or
deemed issuance or sale) giving rise to such adjustment for the same
consideration per share as the Corporation received in the issuance or
sale (or deemed issuance or sale) giving rise to such adjustment, and (B)
any Options or Convertible Securities that provide, as of the effective
date of such adjustment, for the issuance upon exercise or conversion
thereof of an indeterminable number of shares of Common Stock shall
(together with the shares of Common Stock issuable upon exercise or
conversion thereof) be disregarded; PROVIDED, that at such time as the
number of shares of Common Stock issuable upon exercise or conversion of
such Options or Convertible Securities becomes determinable, the
Conversion Price shall be adjusted as provided in Section 7(a)(iii)
above.
(x) COMMON STOCK DEEMED OUTSTANDING. For purposes of
this Section 7, the term "Common Stock Deemed Outstanding" shall mean, at
any time, the sum of (A) the number of shares of Common Stock outstanding
immediately prior to the Filing Date (including for this purpose all
shares of Common Stock issuable upon exercise or conversion of any
Options or Convertible Securities outstanding immediately prior to the
Filing Date), PLUS (B) the number of shares of Common Stock issued or
sold (or deemed issued or sold) after the Filing Date, the issuance or
sale of which resulted in an adjustment to the Conversion Price pursuant
to Section 7(a) hereof, PLUS (C) the number of shares of Common Stock
deemed issued or sold pursuant to Section 7(a)(ix)(A) above; PROVIDED,
that Common Stock Deemed Outstanding shall not include the Series A
Preferred Stock or any shares of Common Stock issuable upon conversion of
the Series A Preferred Stock.
(b) CERTAIN ISSUES OF COMMON STOCK EXCEPTED. Anything herein to
the contrary notwithstanding, the Corporation shall not be required to make any
adjustment of the Conversion Price in the case of the issuance from and after
the Filing Date of (i) shares of Common Stock upon conversion of shares of
Series A Preferred Stock, upon conversion of other convertible securities issued
prior to the Filing Date, or upon exercise of warrants issued prior to the
Filing Date, and (ii) up to 22,625,000 shares of Common Stock or options
therefor to
14
directors, officers, employees or consultants of the Corporation in connection
with their service as directors of the Corporation, their employment by the
Corporation or their retention as consultants by the Corporation, in each case
authorized by the Board of Directors and issued pursuant to the Corporation's
2000 Equity Incentive Plan or 401K Plan ("EXCLUDED SHARES").
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the
Corporation shall at any time after the Filing Date subdivide its outstanding
shares of Common Stock into a greater number of shares (by any stock split,
stock dividend or otherwise), the Conversion Price in effect immediately prior
to such subdivision shall be proportionately reduced, and, conversely, in case
the Corporation shall at any time after the Filing Date combine its outstanding
shares of Common Stock into a smaller number of shares (by any reverse stock
split or otherwise), the Conversion Price in effect immediately prior to such
combination shall be proportionately increased. In the case of any such
subdivision, no further adjustment shall be made pursuant to Section 7(a)(iv)
hereof by reason thereof.
(d) REORGANIZATION OR RECLASSIFICATION. If any capital
reorganization or reclassification of the capital stock of the Corporation shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization or reclassification, lawful
and adequate provisions shall be made whereby each holder of a share or shares
of Series A Preferred Stock shall thereupon have the right to receive, upon the
basis and upon the terms and conditions specified herein and in lieu of the
shares of Common Stock immediately theretofore receivable upon the conversion of
such share or shares of Series A Preferred Stock, as the case may be, such
shares of stock, securities or assets as may be issued or payable with respect
to or in exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such Common Stock immediately theretofore receivable
upon such conversion had such reorganization or reclassification not taken
place, and in any such case appropriate provisions shall be made with respect to
the rights and interests of such holder to the end that the provisions hereof
(including, without limitation, provisions for adjustments of the Conversion
Price) shall thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities or assets thereafter deliverable upon the exercise
of such conversion rights.
(e) MERGERS, ASSET SALES AND CHANGE OF CONTROL TRANSACTIONS.
Upon the election of a Supermajority Interest made in connection with any merger
or consolidation of the Corporation with or into another corporation, any sale,
lease, license or transfer of all or substantially all of the assets of the
Corporation to another corporation or any Change of Control Transaction, each
share of Series A Preferred Stock shall remain outstanding and shall thereafter
be convertible (or shall be converted into a security which shall be
convertible) into the kind and amount of securities or other property to which a
holder of the number of shares of Common Stock of the Corporation deliverable
upon conversion of such share of Series A Preferred Stock would have been
entitled upon such merger, consolidation, asset sale or Change of Control
Transaction; and, in such case, appropriate adjustment (as determined in good
faith by the Board of Directors) shall be made in the application of the
provisions in Section 7 hereof set forth with respect to the rights and
interests thereafter of the holders of the Series A Preferred Stock, to the end
that the provisions set forth in Section 7 hereof (including provisions with
respect to changes in and other adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as possible, in relation to any securities
or other property thereafter deliverable upon the conversion
15
of the Series A Preferred Stock. Any election by a Supermajority Interest
pursuant to this Section 7(e) shall be made by written notice to the Corporation
and the other holders of Series A Preferred Stock at least five (5) days prior
to the closing of the relevant transaction. Upon the election of such
Supermajority Interest hereunder, all holders of Series A Preferred Stock shall
be deemed to have elected to so participate in such merger, consolidation, asset
sale or Change of Control Transaction as provided in this Section 7(e) and such
election shall bind all holders of Series A Preferred Stock. Notwithstanding
anything to the contrary contained herein, the holders of shares of Series A
Preferred Stock or a Supermajority Interest, as applicable, shall have the right
to elect to give effect to the conversion rights contained in Section 6 hereof
or the rights contained in Section 4(c) hereof, if applicable, instead of giving
effect to the provisions contained in this Section 7(e) with respect to the
shares of Series A Preferred Stock held by such holders.
8. COVENANTS. So long as at least 250,000 shares of the originally
issued shares of Series A Preferred Stock (as adjusted appropriately for stock
splits, stock dividends, combinations, recapitalizations and similar
transactions) remain outstanding, the Corporation shall not, and shall not
permit any of its subsidiaries to (in any case, by merger, consolidation,
operation of law or otherwise), without first having provided written notice of
such proposed action to each holder of outstanding shares of Series A Preferred
Stock and having obtained the affirmative vote or written consent of the holders
of a Supermajority Interest:
(a) increase, decrease or otherwise modify the size of the
Board of Directors of the Corporation such that the number of directors
constituting the full Board of Directors of the Corporation shall not be seven
(7);
(b) declare or pay any dividends or make any distributions of
cash, property or securities in respect of its capital stock, or apply any of
its assets to the redemption, retirement, purchase or other acquisition of its
capital stock, directly or indirectly, through subsidiaries or otherwise, except
for the redemption of Series A Preferred Stock pursuant to and as provided in
this Certificate of Designations;
(c) reclassify any capital stock of the Corporation;
(d) other than securities issuable pursuant to warrants in
existence on the Filing Date, authorize or issue, or obligate itself to issue,
any convertible debt or other debt with any equity participation, any securities
convertible into or exercisable or exchangeable for any equity securities, or
any other equity security, in any case ranking senior to or on parity with the
Series A Preferred Stock as to liquidation, sale or merger preferences,
redemption, covenant or dividend rights, or with any special voting rights;
(e) amend, alter or repeal (whether by merger, consolidation,
operation of law, or otherwise) any provision of, or add any provision to, the
Articles of Incorporation or this Certificate of Designations (in each case
including, without limitation, increasing the total number of shares of
preferred stock (including the Series A Preferred Stock) or Common Stock that
the Corporation shall have the authority to issue) or the bylaws of the
Corporation as in effect on the Closing Date;
16
(f) effect any Liquidation Event, any Change of Control
Transaction or any other event described in Section 4(c) hereof;
(g) effect the sale, transfer, license or lease of any assets
of the Corporation or any subsidiary to any person or entity other than the
Corporation or a wholly-owned subsidiary of the Corporation, other than in the
ordinary course of business;
(h) permit any subsidiary of the Corporation to issue any
capital stock, or any securities convertible into or exercisable or exchangeable
for capital stock or other securities of such subsidiary, to any person or
entity other than to the Corporation or a wholly owned subsidiary of the
Corporation;
(i) make any material change in the nature or conduct of the
Corporation's business that results in the Corporation being primarily engaged
in a line of business other than information storage or information technology
services.
(j) enter into or consummate a transaction or a series of
related transactions with any officer, director, or stockholder or any affiliate
thereof or of the Corporation which transaction(s) has a value in excess of
$50,000 in the aggregate, other than as part of the normal and customary terms
of such person's employment, consultancy or service as a director with the
Corporation;
(k) adopt or amend, or cause any subsidiary of the Corporation
to adopt or amend, any stock option plans or equity incentive plans other than
amendments to increase the number of shares of Common Stock reserved for
issuance as of the Filing Date under the Corporation's stock option plans
adopted on or prior to the Filing Date by an aggregate total of five percent
(5%); or
(l) enter into any agreement to do any of the foregoing that is
not expressly made conditional on obtaining the affirmative vote or written
consent of a Supermajority Interest.
Further, the Corporation shall not, by amendment, alteration or repeal of
the Articles of Incorporation or this Certificate of Designations (in each case
whether by merger, consolidation, operation of law, or otherwise) or through any
Liquidation Event, any event described in Section 4(c) hereof, or any other
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, agreement 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 and shall at all times
in good faith assist in the carrying out of all the provisions of the Articles
of Incorporation and this Certificate of Designations and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the holders of the Series A Preferred Stock against impairment. Any successor to
the Corporation shall agree in writing, as a condition to such succession, to
carry out and observe the obligations of the Corporation hereunder with respect
to the Series A Preferred Stock.
17
9. PURCHASE RIGHTS.
(a) RIGHT TO PURCHASE CERTAIN SECURITIES. Except in the case of
Excluded Shares, if at any time or from time to time after the Filing Date, the
Corporation proposes to issue or sell any shares of Common Stock or other
capital stock of the Corporation, Options or Convertible Securities or (the
"Proposed Securities"), then each holder of Series A Preferred Stock shall be
entitled to acquire a portion of such Proposed Securities on the following
terms:
(i) The Corporation shall submit a written notice to
each holder of the Series A Preferred Stock identifying the terms of the
proposed sale of the Proposed Securities (including price, number or
aggregate principal amount of securities, the voting powers, preferences
and relative participating, optional or other special rights, all other
material terms and such other information the holders of Series A
Preferred Stock may reasonably request in order to evaluate the proposed
issuance);
(ii) The Corporation shall offer to each holder of Series
A Preferred Stock the opportunity to purchase a portion of the Proposed
Securities equal to the product of (1) the number of Proposed Securities,
and (2) a fraction, the numerator of which is the number of shares of
Common Stock Owned by the holder of Series A Preferred Stock and the
denominator of which is the total number of shares of Common Stock Deemed
Outstanding, including for purposes of this calculation all shares of
Common Stock Owned by the holder of Series A Preferred Stock (such
portion of the Proposed Securities is hereinafter referred to as the
"First Right Securities"). For the purposes hereof, "Owned" shall mean
beneficial ownership, assuming the conversion of all outstanding
securities convertible into Common Stock and the exercise of all
outstanding options or warrants to acquire Common Stock; and
(iii) The Corporation's offer to the holders of Series A
Preferred Stock pursuant to this Section 9 shall be on terms and
conditions, including price, which, taken as a whole, are not less
favorable than those on which the Corporation proposes to sell such
securities to a third party or parties and shall remain open and
irrevocable for a period of twenty (20) days following the Corporation's
mailing to the holders of Series A Preferred Stock of the notice
described in clause (a) above (the "First Right Offer Period").
(b) ACCEPTANCE BY HOLDERS OF SERIES A PREFERRED STOCK. Each
holder of Series A Preferred Stock may elect to purchase his or her First Right
Securities by giving written notice thereof to the Corporation prior to the
expiration of the First Right Offer Period, including in such written notice the
number of First Right Securities that the holder of Series A Preferred Stock
wishes to purchase (the "Accepted First Right Securities").
(c) SALE TO THIRD PARTY. Any securities so offered that are not
purchased by the holders of Series A Preferred Stock pursuant to the offers set
forth in Sections 9(a) and (b) above, may be sold by the Corporation, but only
on terms and conditions not more favorable than
18
those set forth in the notice to holders of Series A Preferred Stock, at any
time within sixty (60) calendar days following the termination of the
above-referenced twenty (20) day period, but may not be sold to any other person
or on terms and conditions, including price, which, taken as a whole, are more
favorable to the purchaser than those set forth in such offer or after such
sixty (60) day period without renewed compliance with this Section 9.
(d) CLOSING. The closing of the purchase of any Accepted First
Right Securities by a holder of Series A Preferred Stock shall take place not
later than thirty (30) calendar days after the expiration of the First Right
Offer Period and shall be held at the principal office of the Corporation unless
otherwise mutually agreed. At such closing, the Corporation shall cause to be
delivered to the holders of Series A Preferred Stock who have elected to
purchase Accepted First Right Securities, certificates or other instruments, as
applicable, evidencing such Accepted First Right Securities in exchange for the
purchase price paid therefor.
10. NOTICE; ADJUSTMENTS; WAIVERS.
(a) LIQUIDATION EVENTS, ETC. In the event (i) the Corporation
establishes a record date to determine the holders of any class of securities
who are entitled to receive any dividend or other distribution or who are
entitled to vote at a meeting (or by written consent) in connection with any of
the transactions identified in clause (ii) hereof, or (ii) any Liquidation
Event, event deemed a Liquidation Event pursuant to Section 4(c) hereof, or any
public offering becomes reasonably likely to occur, the Corporation shall mail
or cause to be mailed by first class mail (postage prepaid) to each holder of
Series A Preferred Stock at least thirty (30) days prior to such record date
specified therein or the expected effective date of any such transaction,
whichever is earlier, a notice specifying (A) the date of such record date for
the purpose of such dividend or distribution or meeting or consent and a
description of such dividend or distribution or the action to be taken at such
meeting or by such consent, (B) the date on which any such Liquidation Event or
event deemed a Liquidation Event pursuant to Section 4(c) hereof is expected to
become effective, and (C) the date on which the books of the Corporation shall
close or a record shall be taken with respect to any such event. Such notice
shall be accompanied by a certificate prepared by the chief financial officer of
the Corporation describing in detail (1) the facts of such transaction, (2) the
amount(s) per share of Series A Preferred Stock or Common Stock each holder of
Series A Preferred Stock would receive pursuant to the applicable provisions of
the Articles of Incorporation (including this Certificate of Designations), and
(3) the facts upon which such amounts were determined.
(b) ADJUSTMENTS; CALCULATIONS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to Section 7, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a certificate setting forth in detail (i)
such adjustment or readjustment, (ii) the Conversion Price before and after such
adjustment or readjustment, and (iii) the number of shares of Common Stock and
the amount, if any, of other property which at the time would be received upon
the conversion of such holder's shares of Series A Preferred Stock. All such
calculations shall be made to the nearest cent or to the nearest one hundredth
(1/100) of a share as the case may be.
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(c) WAIVER OF NOTICE. The holder or holders of a Supermajority
Interest may, at any time upon written notice to the Corporation, waive any
notice or certificate delivery provisions specified herein for the benefit of
such holders, and any such waiver shall be binding upon all holders of such
securities.
(d) OTHER WAIVERS. The holder or holders of a Supermajority
Interest may, at any time upon written notice to the Corporation, waive
compliance by the Corporation with any term or provision herein, provided that
any such waiver does not affect any holder of outstanding shares of Series A
Preferred Stock in a manner materially different than any other holder, and any
such waiver shall be binding upon all holders of Series A Preferred Stock and
their respective transferees.
11. NO REISSUANCE OF SERIES A PREFERRED STOCK. No share or shares of
Series A Preferred Stock acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the Corporation shall
be authorized to issue.
12. CONTRACTUAL RIGHTS OF HOLDERS. The various provisions set forth
herein for the benefit of the holders of the Series A Preferred Stock shall be
deemed contract rights enforceable by them, including, without limitation, one
or more actions for specific performance.
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