CERTIFICATE OF DESIGNATIONS
OF
PREFERRED STOCK
OF
NETRIX CORPORATION
TO BE DESIGNATED
SERIES A 8% CONVERTIBLE PREFERRED STOCK
------------------------
PURSUANT TO SECTION 151(G) OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
------------------------
The undersigned DO HEREBY CERTIFY that the following resolution was duly
adopted by the Board of Directors of Netrix Corporation, a Delaware corporation
(the "Corporation"), at a meeting duly convened and held, at which a quorum was
present and acting throughout:
"RESOLVED, that pursuant to the authority conferred on the Board of
Directors of the Corporation (the "Board of Directors") by the Corporation's
Certificate of Incorporation, the issuance of a series of preferred stock,
$.05 par value per share, of the Corporation which shall consist of 290,925
shares of preferred stock be, and the same hereby is, authorized; and the
President and Secretary or Assistant Secretary of the Corporation be, and
they hereby are, authorized and directed to execute and file with the
Secretary of State of the State of Delaware the Certificate of Designations
of Preferred Stock of the Corporation fixing the designations, powers,
preferences and rights of the shares of such series, and the qualifications,
limitations or restrictions thereof (in addition to the designations, powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof, set forth in the Certificate of Incorporation which may be
applicable to the Corporation's preferred stock), as follows:
1. NUMBER OF SHARES; DESIGNATION. A total of 290,925 shares of preferred
stock, par value $.05 per share, of the Corporation are hereby designated as
Series A 8% Convertible Preferred Stock (the "Series"). The number of
authorized shares of the Series may be reduced by the Board of Directors by
the filing of a certificate pursuant to the provisions of the General
Corporation Law of the State of Delaware (the "GCL") stating that the
reduction has been so authorized.
2. RANK. The Series shall, with respect to payment of dividends,
redemption payments and rights upon liquidation, dissolution or winding
up of the affairs of the Corporation, rank:
(i)senior and prior to the Common Stock, par value $.05 per share, of the
Corporation (the "Common Stock"), and any additional series of
preferred stock which may in the future be issued by the Corporation
and are designated in the amendment to the Certificate of Incorporation
or the certificate of designations establishing such additional
preferred stock as ranking junior to the shares of the Series. Any
shares of the Corporation's capital stock which are junior to the
shares of the Series with respect to the payment of dividends are
hereinafter referred to as "Junior Dividend Shares" and any shares
which are junior to the shares of the Series with respect to
redemption, payment and rights upon liquidation, dissolution or winding
up of the affairs of the Corporation are hereinafter referred to as
"Junior Liquidation Shares."
(ii) PARRI PASSU with any additional series of preferred stock which may
in the future be issued by the Corporation and are designated in the
amendment to the Certificate of Incorporation or the certificate of
designations establishing such additional preferred stock as ranking
equal to the shares of the Series or which do not state they are Junior
Dividend Shares or Senior Dividend Shares (as defined below). Any
shares of the Corporation's capital stock which are equal to the shares
of the Series with respect to the payment of dividends are hereinafter
referred to as "Parity Dividend Shares" and any shares which are equal
to the shares of the Series with respect to redemption, payment and
rights upon liquidation, dissolution or winding up of the affairs of
the Corporation are hereinafter referred to as "Parity Liquidation
Shares."
(iii) Senior to any additional series of preferred stock which may in the
future be issued by the Corporation and are designated in the amendment
to the Certificate of Incorporation or the certificate of designations
establishing such additional preferred stock as ranking senior to the
shares of the Series. Any shares of the Corporation's capital stock
which are senior to the shares of the Series with respect to the
payment of dividends are hereinafter referred to as "Senior Dividend
Shares" and any shares which are senior to the shares of the Series
with respect to redemption, payment and rights upon liquidation,
dissolution or winding up of the affairs of the Corporation are
hereinafter referred to as "Senior Liquidation Shares."
The Corporation may issue additional shares of capital stock without the
consent of the holders of the Series.
3. DIVIDENDS. (a) The dividend rate on shares of the Series shall be $1.10
per share per annum. Dividends on shares of the Series shall be fully
cumulative, accruing, without interest, from the date of original issuance of
the Series through the date of redemption or conversion thereof, and shall be
payable in arrears, when, as and if declared by the Board of Directors out of
funds legally available for the payment of dividends, on April 30 and October
31 of each year, commencing October 31, 1999, except that if such date is not
a business day then the dividend shall be payable on the first immediately
succeeding business day (as used herein, the term "business day" shall mean
any day except a Saturday, Sunday or day on which banking institutions are
legally authorized to close in Herndon, Virginia) (each such period being
hereinafter referred to as a "Dividend Period"). Dividends shall be payable
in cash or Common Stock, at the discretion of the Company. The means of
2
payment (cash or Common Stock) of each dividend shall be designated by the
Board of Directors at the time it fixes the record date for determining
holders of shares of the Series entitled to receive such dividend payment.
Each dividend shall be paid to the holders of record of shares of the Series
as they appear on the stock register of the Corporation on the record date,
not less than 10 nor more than 60 days preceding the payment date thereof, as
shall be fixed by the Board of Directors. If any dividend is designated as
being payable in Common Stock, the amount of Common Stock issued in
satisfaction of such dividend shall be determined by dividing the amount of
the dividend payable with respect to each share of the Series by the Current
Market Price (as defined in Section 10) for the Common Stock as of the close
of business on the business day the Board of Directors fixes the record date
for determining the holders entitled to receive such dividend. Dividends
payable for each Dividend Period shall be computed on the basis of a 360-day
year of twelve 30-day months and rounded to the nearest cent. No fractional
share of Common Stock shall be issued with respect to any dividend paid in
Common Stock. The aggregate number of shares issuable to each holder of
shares of the Series will be calculated, and in lieu of issuing a fractional
share the Corporation shall pay the cash value of such fractional share as
determined by reference to the Current Market Price used for purposes of
calculating the number of shares of Common Stock to be issued in such
dividend. Dividends on account of arrearages for any past Dividend Period may
be declared and paid at any time, without reference to any regular dividend
payment date, to holders of record on such date, not exceeding 45 days
preceding the payment date thereof, as may be fixed by the Board of Directors
of the Corporation. Dividends shall accrue regardless of whether the
Corporation has earnings, whether there are funds legally available therefor
and whether declared. No interest shall be payable with respect to any
dividend payment that may be in arrears. Holders of Shares of the Series
called for redemption between the close of business on a dividend payment
record date and the close of business on the corresponding dividend payment
date shall, in lieu of receiving such dividend on the dividend payment date
fixed therefor, receive such dividend payment on the date fixed for
redemption together with all other accrued and unpaid dividends to the date
fixed for redemption. The holders of shares of the Series shall be not be
entitled to any dividends other than the cash dividends provided for in this
paragraph 3.
(b) No dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on any Parity Dividend
Shares for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and set aside for payment
for all accrued dividends with respect to the Series through the most recent
Dividend Period ending on or prior to the date of payment, or setting apart
for payment, of such dividends on such Parity Dividend Shares. Unless
dividends accrued and payable but unpaid on shares of the Series and any
Parity Dividend Shares at the time outstanding have been paid in full, all
dividends declared by the Corporation upon shares of the Series or Parity
Dividend Shares shall be declared PRO RATA with respect to all such shares,
so that the amounts of any dividends declared on shares of the Series and the
Parity Dividend Shares shall in all cases bear to each other the same ratio
that, at the time of the declaration, all accrued but unpaid dividends on
shares of the Series and the other Parity Dividend Shares, respectively, bear
to each other.
3
(c) If at any time the Corporation has failed to pay or set apart for
payment all accrued dividends on any shares of the Series through the then
most recent Dividend Period, the Corporation shall not, and shall not permit
any corporation or other entity directly or indirectly controlled by the
Corporation to:
(i) declare or pay or set aside for payment any dividend or other
distribution on or with respect to the Junior Dividend Shares,
whether in cash, securities, obligations or otherwise (other than
dividends or distributions paid in shares of capital stock of the
Corporation ranking junior to shares of the Series both as to the
payment of dividends and as to rights in liquidation, dissolution or
winding up of the affairs of the Corporation ("Junior Stock"), or
options, warrants or rights to subscribe for or purchase shares of
Junior Stock); or
(ii) redeem, purchase or otherwise acquire, or pay into, set apart
money or make available for a sinking or other analogous fund for
the redemption, purchase or other acquisition of, any shares of the
Series (unless all of the shares of the Series are concurrently
redeemed), Parity Dividend Shares, Parity Liquidation Shares or
Shares of Junior Stock for any consideration (except by conversion
into or exchange for Junior Stock),
unless, in each such case, all dividends accrued on shares of the Series
through the most recent Dividend Period and on any Parity Dividend Shares
have been or contemporaneously are declared and paid in full.
(c) Any reference to "distribution" contained in this paragraph 3 shall
not be deemed to include any distribution made in connection with any
liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary.
4. LIQUIDATION. (a) The liquidation value per share of shares of the
Series, in case of the voluntary or involuntary liquidation, dissolution or
winding-up of the affairs of the Corporation, shall be $13.75 per share, plus
an amount equal to the cash value of dividends accrued and unpaid thereon,
whether or not declared, to the payment date (such aggregate amount being
hereinafter referred to as the "Liquidation Amount").
(b) In the event of any voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, the holders of shares of the Series (i)
shall not be entitled to receive the liquidation value of the shares held by
them until the liquidation value of all Senior Liquidation Shares shall have
been paid in full and (ii) shall be entitled to receive the liquidation value
of such shares held by them in preference to and in priority over any
distributions upon the Junior Liquidation Shares. Upon payment in full of the
liquidation value to which the holders of shares of the Series are entitled,
the holders of shares of the Series will not be entitled to any further
participation in any distribution of assets by the Corporation. If the assets
of the Corporation are not sufficient to pay in full the liquidation value
payable to the holders of shares of the Series and the liquidation value
payable to the holders of any Parity Liquidation Shares, the holders of all
such shares shall share ratably in such distribution of assets in accordance
with the amounts that would be payable on the distribution if the amounts to
4
which the holders of shares of the Series and the holders of Parity
Liquidation Shares are entitled were paid in full.
(c) Neither a consolidation or merger of the Corporation with or into any
other entity, nor a merger of any other entity with or into the Corporation,
nor a sale or transfer of all or any part of the Corporation's assets for
cash or securities or other property shall be considered a liquidation,
dissolution or winding-up of the Corporation within the meaning of this
paragraph 4.
(d) Written notice of any liquidation, dissolution or winding up of the
Corporation, stating the payment date or dates when and the place or places
where the amounts distributable in such circumstances shall be payable, shall
be given by first class mail, postage prepaid, not less than 30 days prior to
any payment date stated therein, to the holders of record of shares of the
Series at their respective addresses as the same shall appear on the books of
the transfer agent with respect to the Series.
5. OPTIONAL REDEMPTION. (a) Shares of the Series will be redeemable at the
option of the Corporation, in whole or in part, from and after the time that
the Current Market Price for the Common Stock for a period of 10 consecutive
trading days equals or exceeds $6.00 per share. The redemption price will be
payable in cash and equal $17.50, together with an amount equal to the
dividends accrued and unpaid thereon, whether or not declared, to the
redemption date. The aggregate payment to each holder of shares of the Series
to be redeemed will be rounded to the nearest cent. Notwithstanding the
foregoing, if the date fixed for redemption occurs after a record date for a
dividend and prior to the corresponding payment date, such dividend shall be
paid, on the payment date and the amount payable with respect to each share
of the Series redeemed shall not include the amount of the dividend to be so
paid.
(b) Not less than 30 nor more than 60 days prior to the date fixed for any
redemption of shares of the Series pursuant to this paragraph 5, a notice of
redemption shall be mailed by first class mail, postage prepaid, to each
holder of shares of the Series to be redeemed at such holder's last address
as it appears on the books of the transfer agent for the Series. Such notice
shall state: (i) that the Corporation has elected to redeem all or a portion
of the shares of the Series, as specified in such notice, (ii) the redemption
price, (iii) the redemption date, (iv) that, unless the Corporation defaults
in the payment of the redemption price, all shares of the Series called for
redemption shall cease to accrue dividends after the redemption date and
shall cease to be outstanding after such date and (v) any other information
required by applicable law to be included therein and any other procedures
that a holder of shares of the Series must follow to receive payment for
their redeemed shares. Neither failure to mail such notice, nor any defect
therein or in the mailing thereof, to any particular holder shall affect the
sufficiency of the notice or the validity of the proceedings for redemption
with respect to any other holder. Any notice mailed in the manner herein
provided shall be conclusively presumed to have been duly given whether or
not the holder receives the notice. On or after the redemption date, each
holder of shares of the Series to be redeemed shall present and surrender
such holder's certificate or certificates for such shares to the Corporation
at the place designated in the redemption notice and thereupon the redemption
price of the shares shall be paid to or on the order of the person whose name
5
appears on such certificate or certificates as the owner thereof, and each
surrendered certificate shall be canceled. In case less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued to the holder representing the unredeemed shares of the Series.
(c) If a notice of redemption has been given pursuant to this paragraph 5
and if, on or before the date fixed for redemption, the funds necessary for
such redemption shall have been set aside by the Corporation, separate and
apart from its other funds, in trust for the PRO RATA benefit of the holders
of the shares of the Series so called for redemption, then, notwithstanding
that any certificates for such shares have not been surrendered for
cancellation, on the redemption date dividends shall cease to accrue on the
shares of the Series to be redeemed, and at the close of business on the
redemption date the holders of such shares shall cease to be stockholders
with respect to those shares, shall have no interest in or claims against the
Corporation by virtue thereof and shall have no voting or other rights with
respect thereto, except the right to receive the moneys payable upon such
redemption, without interest thereon, upon surrender (and endorsement, if
required by the Corporation) of their certificates, and the shares evidenced
thereby shall no longer be outstanding. Subject to applicable escheat laws,
any moneys so set aside by the Corporation and unclaimed at the end of two
years from the redemption date shall revert to the Corporation, after which
reversion the holders of such shares so called for redemption shall look only
to the Corporation for the payment of the redemption price. Any interest
accrued on funds so deposited shall be paid to the Corporation from time to
time.
(d) If a notice of redemption has been given pursuant to this paragraph 5,
and any holder of shares of the Series shall, prior to the close of business
on the date fixed for redemption, give written notice to the Corporation
pursuant to paragraph 7 below of the conversion of any or all of the shares
to be redeemed held by the holder, then such redemption shall not become
effective as to such shares to be converted and such conversion shall become
effective as provided in paragraph 7 below, whereupon any funds deposited by
the Corporation, or on its behalf, with a payment agent or segregated and
held in trust by the Corporation for the redemption of such shares shall
(subject to any right of the holder of such shares to receive the dividend
payable thereon as provided in paragraph 7 below) immediately upon such
conversion be returned to the Corporation or, if then held in trust by the
Corporation, shall be discharged from the trust.
(e) In every case of redemption of less than all of the outstanding shares
of the Series pursuant to this paragraph 5, the shares to be redeemed shall
be selected PRO RATA or by lot or in such other manner as the Board of
Directors may determine, as may be prescribed by resolution of the Board of
Directors of the Corporation, provided that only whole shares shall be
selected for redemption. Notwithstanding the foregoing, the Corporation shall
not redeem any of the shares of the Series at any time outstanding until all
dividends accrued and in arrears upon all shares of the Series then
outstanding shall have been paid for all past dividend periods.
6. MANDATORY REDEMPTION. The shares of the Series are not subject
to mandatory redemption or sinking fund requirements.
6
7. CONVERSION. (a) Holders of shares of the Series will have the right,
exercisable at any time prior to redemption of such shares (as described in
paragraph 5), to convert shares of the Series into shares of Common Stock
(calculated as to each conversion to the nearest 1/100th of a share) at the
conversion price of $2.75, subject to adjustment as described below (the
"Conversion Price"). The number of shares of Common Stock into which each
share of the Series shall be convertible shall be determined by dividing
$13.75, subject to proportional adjustment to reflect any split or
consolidation of the Common Stock or any dividend payable on the Common Stock
in additional shares of Common Stock (the "Conversion Amount"), by the
Conversion Price then in effect. In the case of shares of the Series called
for redemption, conversion rights will expire at the close of business on the
business day next preceding the redemption date. Except as expressly provided
herein, no payment or adjustment for accrued dividends on the shares of the
Series is to be made on conversion, but holders of record of shares of the
Series on a record date fixed for the payment of a dividend on such shares
shall be entitled to receive the dividend notwithstanding the conversion of
the shares prior to the dividend payment date. A share of the Series may not
be converted in part.
(b) In order to exercise the conversion right, the holder of each share of
the Series to be converted shall surrender the certificate representing such
share, duly endorsed or assigned to the Corporation or in blank, at the
office of the Corporation in Herndon, Virginia (or such other address as the
Corporation may designate) and shall give written notice to the Corporation
in the form set forth on the reverse of the stock certificates for the shares
of the Series that such holder elects to convert the shares represented by
such certificate or a portion thereof. Such notice shall also state the name
or names (with address) in which the certificate or certificates for the
shares of Common Stock which shall be issuable upon such conversion shall be
issued, and shall be accompanied by funds in an amount sufficient to pay any
transfer or similar tax required by the provisions of paragraph 7(e) below.
Each share surrendered for conversion shall, unless the shares issuable on
conversion are to be issued in the same name as the name in which such share
of the Series is registered, be duly endorsed by, or be accompanied by
instruments of transfer (in each case, in form reasonably satisfactory to the
Corporation), duly executed by the holder or such holder's duly authorized
attorney-in-fact.
(c) As promptly as practicable after the surrender of certificates for
shares of the Series for conversion and the receipt of such notice and funds,
if any, as aforesaid, the Corporation shall issue and shall deliver to such
holder, or on such holder's written order, a certificate or certificates for
the number of shares of Common Stock issuable upon the conversion of such
shares of the Series in accordance with the provisions of this paragraph 7,
and a check or cash in respect of any fractional interest in respect of a
share of Common Stock arising upon such conversion, as provided in paragraph
7(d) below. Each conversion with respect to any shares of the Series shall be
deemed to have been effected immediately prior to the close of business on
the date on which the certificates for shares of the Series shall have been
surrendered (accompanied by the funds, if any, required by paragraph 7(e)
below) and such notice and assignment, if any, shall have been received by
the Corporation as aforesaid, and the person or persons entitled to receive
the Common Stock issuable upon such conversion shall be deemed for all
purposes to be the record holder or holders of such Common Stock upon that
date.
7
(d) No fractional shares of Common Stock or scrip representing fractional
shares shall be issued upon conversion of shares of the Series. If more than
one share of the Series shall be surrendered for conversion at one time by
the same holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
shares of the Series so surrendered. Instead of any fractional share of
Common Stock otherwise issuable upon conversion of any shares of the Series,
the Corporation shall pay a cash adjustment in respect to such fraction in an
amount equal to the same fraction of the Current Market Price of the Common
Stock at the close of business on the day of conversion.
(e) If a holder converts shares of the Series, the Corporation shall pay
any and all documentary, stamp or similar issue or transfer tax payable in
respect of the issue or delivery of the shares of the Series (or any other
securities issued on account thereof pursuant hereto) or Common Stock upon
the conversion; PROVIDED, HOWEVER, the Corporation shall not be required to
pay any such tax that may be payable because any such shares are issued in a
name other than the name of the holder.
(f) The Corporation shall reserve out of its authorized but unissued
Common Stock or its Common Stock held in treasury sufficient shares of Common
Stock to permit the conversion of all of the outstanding shares of the
Series. The Corporation shall from time to time, in accordance with the GCL,
increase the authorized amount of its Common Stock if at any time the
authorized amount of its Common Stock remaining unissued shall not be
sufficient to permit the conversion of all shares of the Series at the time
outstanding. If any shares of Common Stock required to be reserved for
issuance upon conversion of shares of the Series hereunder require
registration with or approval of any governmental authority under any federal
or state law before the shares may be issued upon conversion, the Corporation
shall in good faith and as expeditiously as possible endeavor to cause the
shares to be so registered or approved. All shares of Common Stock delivered
upon conversion of the shares of the Series will, upon delivery, be duly
authorized and validly issued, fully paid and nonassessable, free from all
taxes, liens and charges with respect to the issue thereof.
(g) The Conversion Price shall be subject to adjustment from time to time
as follows:
(i) In the event that the Corporation shall (A) pay a dividend or make
a distribution, in shares of Common Stock, on any class of Capital
Stock of the Corporation or any subsidiary which is not directly or
indirectly wholly owned by the Corporation, (B) split or subdivide
its outstanding Common Stock into a greater number of shares or (C)
combine its outstanding Common Stock into a smaller number of
shares, then in each such case the Conversion Price in effect
immediately prior thereto shall be adjusted so that the holder of
each share of the Series thereafter surrendered for conversion shall
be entitled to receive the number of shares of Common Stock that
such holder would have owned or have been entitled to receive after
the occurrence of any of the events described above had such share
of the Series been converted immediately prior to the occurrence of
such event. An adjustment made pursuant to this paragraph 7(g)(i)
shall become effective immediately after the close of business on
8
the record date in the case of a dividend or distribution (except as
provided in paragraph 7(k) below) and shall become effective
immediately after the close of business on the effective date in the
case of such subdivision, split or combination, as the case may be.
Any shares of Common Stock issuable in payment of a dividend shall
be deemed to have been issued immediately prior to the close of
business on the record date for such dividend for purposes of
calculating the number of outstanding shares of Common Stock under
clauses (ii) and (iii) below.
(ii) In the event that the Corporation shall commit to issue or
distribute Common Stock or issue rights, warrants, options or
convertible or exchangeable securities entitling the holder thereof
to subscribe for or purchase, convert into or exchange for Common
Stock, in any such case at a price per share less than the Current
Market Price per share on the earliest of (i) the date the
Corporation shall enter into a firm contract for such issuance or
distribution, (ii) the record date for the determination of
stockholders entitled to receive any such rights, warrants, options
or convertible or exchangeable securities, if applicable, or (iii)
the date of actual issuance or distribution of any such Common Stock
or rights, warrants, options or convertible or exchangeable
securities (provided that the issuance of Common Stock upon the
exercise of rights, warrants, options or convertible or exchangeable
securities will not cause an adjustment in the Conversion Price if
no such adjustment would have been required at the time such right,
warrant, option or convertible or exchangeable security was issued),
then the Conversion Price in effect immediately prior to such
earliest date shall be adjusted so that the Conversion Price shall
equal the price determined by multiplying the Conversion Price in
effect immediately prior to such earliest date by the fraction:
(x)whose numerator shall be the number of shares of Common Stock
outstanding on such date plus the number of shares which the
aggregate offering price of the total number of shares so offered
would purchase at such Current Market Price (such amount, with
respect to any such rights, warrants, options or convertible or
exchangeable securities, determined by multiplying the total
number of shares subject thereto by the exercise price of such
rights, warrants, options or convertible or exchangeable
securities and dividing the product so obtained by the Current
Market Price), and
(y)whose denominator shall be the number of shares of Common Stock
outstanding on such date plus the number of additional shares of
Common Stock to be issued or distributed or receivable upon
exercise of any such right, warrant, option or convertible or
exchangeable security.
Such adjustment shall be made successively whenever any such Common
Stock, rights, warrants, options or convertible or exchangeable
securities are issued or distributed. In determining whether any
9
rights, warrants or options entitle the holders to subscribe for or
purchase shares of Common Stock at less than such Current Market
Price, and in determining the aggregate offering price of shares of
Common Stock so issued or distributed, there shall be taken into
account any consideration received by the Corporation for such
Common Stock, rights, warrants, options, or convertible or
exchangeable securities, the value of such consideration, if other
than cash, to be determined by the Board of Directors, whose
determination shall be conclusive and described in a certificate
filed with the records of corporate proceedings of the Corporation.
If any right, warrant, option or convertible or exchangeable
security to purchase or acquire Common Stock, the issuance of which
resulted in an adjustment in the Conversion Price pursuant to this
subsection (b) shall expire and shall not have been exercised, the
Conversion Price shall immediately upon such expiration be
recomputed to the Conversion Price which would have been in effect
had the adjustment of the Conversion Price made upon the issuance of
such right, warrant, option or convertible or exchangeable security
been made on the basis of offering for subscription, purchase or
issuance, as the case may be, only of that number of shares of
Common Stock actually purchased or issued upon the actual exercise
of such right, warrant, option or convertible or exchangeable
securities.
(iii) No adjustment in the Conversion Price shall be required unless
the adjustment would require an increase or decrease of at least 1%
in the Conversion Price then in effect; PROVIDED, HOWEVER, that any
adjustments that by reason of this paragraph 7(g)(i) are not
required to be made shall be carried forward and taken into account
in any subsequent adjustment. All calculations under this paragraph
7(g)(i) shall be made to the nearest cent or nearest 1/100th of a
share.
(iv) Notwithstanding anything to the contrary set forth in this
paragraph 7(g), no adjustment shall be made to the Conversion Price
upon (A) the issuance of shares of Common Stock pursuant to any
compensation or incentive plan for officers, directors, employees or
consultants of the Corporation which plan has been approved by the
Compensation Committee of the Board of Directors (or if there is no
such committee then serving, by the majority vote of the Directors
then serving who are not employees or officers of the Corporation, a
5% or greater stockholder of the Corporation or an officer, employee
or Affiliate or Associate (as defined in paragraph 10 below) of any
such 5% or greater stockholder) and, if required by law, the
requisite vote of the stockholders of the Corporation (unless the
exercise price thereof is changed after the date hereof other than
solely by operation of the anti-dilution provisions thereof or by
the Compensation Committee of the Board of Directors or, if
applicable, the Board of Directors and, if required by law, the
stockholders of the Corporation as provided in this clause (A)) or
(B) the issuance of Common Stock upon the conversion or exercise of
the options or warrants of the Corporation outstanding on April 22,
1999, unless the conversion or exercise price thereof is changed
10
after April 22, 1999 (other than solely by operation of the
anti-dilution provisions thereof).
(v) The Corporation from time to time may reduce the Conversion Price
by any amount for any period of time in the discretion of the Board
of Directors. A voluntary reduction of the Conversion Price does not
change or adjust the conversion price otherwise in effect for
purposes of this paragraph 7(g).
(vii) In the event that, at any time as a result of an adjustment made
pursuant to paragraph 7(g)(i) through 7(g)(iii) above, the holder of
any share of the Series thereafter surrendered for conversion shall
become entitled to receive any shares of the Corporation other than
shares of the Common Stock, thereafter the number of such other
shares so receivable upon conversion of any share of the Series
shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in paragraphs 7(g)(i) through
7(g)(vi) above, and the other provisions of this paragraph 7(g)(vii)
with respect to the Common Stock shall apply on like terms to any
such other shares.
(h) In case of any reclassification of the Common Stock (other than in a
transaction to which paragraph 7(g)(i) applies), any consolidation of the
Corporation with, or merger of the Corporation into, any other entity, any
merger of another entity into the Corporation (other than a merger that does
not result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock of the Corporation), any sale or transfer
of all or substantially all of the assets of the Corporation or any
compulsory share exchange, pursuant to which share exchange the Common Stock
is converted into other securities, cash or other property, then lawful
provision shall be made as part of the terms of such transaction whereby the
holder of each share of the Series then outstanding shall have the right
thereafter, during the period such share shall be convertible, to convert
such share only into the kind and amount of securities, cash and other
property receivable upon the reclassification, consolidation, merger, sale,
transfer or share exchange by a holder of the number of shares of Common
Stock of the Corporation into which a share of the Series might have been
converted immediately prior to the reclassification, consolidation, merger,
sale, transfer or share exchange assuming that such holder of Common Stock
failed to exercise rights of election, if any, as to the kind or amount of
securities, cash or other property receivable upon consummation of such
transaction subject to adjustment as provided in paragraph 7(g) above
following the date of consummation of such transaction. As a condition to any
such transaction, the Corporation or the person formed by the consolidation
or resulting from the merger or which acquires such assets or which acquires
the Corporation's shares, as the case may be, shall make provisions in its
certificate or articles of incorporation or other constituent document to
establish such right. The certificate or articles of incorporation or other
constituent document shall provide for adjustments which, for events
subsequent to the effective date of the certificate or articles of
incorporation or other constituent document, shall be as nearly equivalent as
may be practicable to the adjustments provided for in this paragraph 7. The
provisions of this paragraph 7(h) shall similarly apply to successive
11
reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
(i) If:
(i) the Corporation shall take any action which would require an
adjustment in the Conversion Price pursuant to Section 7(g);
or
(ii) the Corporation shall authorize the granting to the holders of its
Common Stock generally of rights or warrants to subscribe for or
purchase any shares of any class or any other rights or warrants; or
(iii) there shall be any reclassification or change of the Common Stock
(other than a subdivision or combination of its outstanding Common
Stock or a change in par value) or any consolidation, merger or
statutory share exchange to which the Corporation is a party and for
which approval of any stockholders of the Corporation is required,
or the sale or transfer of all or substantially all of the assets of
the Corporation; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, the Corporation shall cause to be filed with the transfer agent for the
Series and shall cause to be mailed to the holders of shares of the Series at
their addresses as shown on the books of the transfer agent for the Series,
as promptly as possible, but at least 30 days prior to the applicable date
hereinafter specified, a notice stating (A) the date on which a record is to
be taken for the purpose of such dividend, distribution or granting of rights
or warrants, or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend,
distribution or rights or warrants are to be determined or (B) the date on
which such reclassification, change, consolidation, merger, statutory share
exchange, sale, transfer, dissolution, liquidation or winding up is expected
to become effective or occur, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares
of Common Stock for securities or other property deliverable upon such
reclassification, change, consolidation, merger, statutory share exchange,
sale, transfer, dissolution, liquidation or winding up. Failure to give such
notice or any defect therein shall not affect the legality or validity of the
proceedings described in this paragraph 7(i).
(j) Whenever the Conversion Price is adjusted as herein provided, the
Corporation shall promptly file with the transfer agent for the Series a
certificate of an officer of the Corporation setting forth the Conversion
Price after the adjustment and setting forth a brief statement of the facts
requiring such adjustment and a computation thereof. The Corporation shall
promptly cause a notice of the adjusted Conversion Price to be mailed to each
registered holder of shares of the Series.
(k) In any case in which paragraph 7(g) provides that an adjustment shall
become effective immediately after a record date for an event and the date
fixed for such adjustment pursuant to paragraph 7(g) occurs after such record
date but before the occurrence of such event, the Corporation may defer until
12
the actual occurrence of such event (i) issuing to the holder of any shares
of the Series converted after such record date and before the occurrence of
such event the additional shares of Common Stock issuable upon such
conversion by reason of the adjustment required by such event over and above
the Common Stock issuable upon such conversion before giving effect to such
adjustment and (ii) paying to such holder any amount in cash in lieu of any
fraction pursuant to paragraph 7(d).
(l) In case the Corporation shall take any action affecting the Common
Stock, other than actions described in this paragraph 7, which in the opinion
of the Board of Directors would materially adversely affect the conversion
right of the holders of the shares of the Series, the Conversion Price may be
adjusted, to the extent permitted by law, in such manner, if any, and at such
time, as the Board of Directors may determine to be equitable in the
circumstances; PROVIDED, HOWEVER, that in no event shall the Board of
Directors be required to take any such action.
(m) The Corporation will endeavor to list the shares of Common Stock
required to be delivered upon conversion of shares of the Series, prior to
delivery, upon each national securities exchange, the Nasdaq Stock Market or
any similar system of automated dissemination of securities prices, if any,
upon which the Common Stock is listed at the time of delivery.
8. STATUS OF SHARES. All shares of the Series that are at any time
redeemed or converted pursuant to paragraph 5 above, and all shares of the
Series that are otherwise reacquired by the Corporation and subsequently
canceled by the Board of Directors, shall have the status of authorized but
unissued shares of preferred stock, without designation as to series, subject
to reissuance by the Board of Directors as shares of any one or more other
series.
9. VOTING RIGHTS. Except as otherwise required by law, holders of shares
of the Series shall have no vote with respect to any matter submitted to the
stockholders of the Corporation for vote or consent. In connection with any
right to vote or give consent provided by law, each holder of shares of the
Series will have one vote for each share held.
10. CERTAIN DEFINITIONS. As used in this Certificate, the
following terms shall have the following respective meanings:
"AFFILIATE" of any specified person means any other person directly or
indirectly controlling or controlled by or under common control with such
specified person. For purposes of this definition, "control" when used with
respect to any person means the power to direct the management and policies
of such person, directly or indirectly, whether through the ownership of
voting securities or otherwise; and the term "controlling" and "controlled"
having meanings correlative to the foregoing.
An "ASSOCIATE" of a person means (A) any corporation or organization,
other than the Corporation or any subsidiary of the Corporation, of which the
person is an officer or partner or is, directly or indirectly, the beneficial
13
owner of 10% or more of any class of equity securities; (B) any trust or
estate in which the person has a substantial beneficial interest or as to
which the person serves as trustee or in a similar fiduciary capacity; and
(C) any relative or spouse of the person, or any relative of the spouse, who
has the same home as the person or who is a director or officer of the person
or any of its parents or subsidiaries.
"CAPITAL STOCK" of any person or entity means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in the common stock or preferred stock of such
person or entity, including, without limitation, partnership and membership
interests.
"CURRENT MARKET PRICE" means, when used with respect to any security as of
any date, the last bid price regular way of such security as reported on the
Nasdaq National Market for such date, or, if such security is not listed or
admitted to trading on the Nasdaq National Market, as reported on the Nasdaq
SmallCap Market for such date, or, in case such security is listed on a
national securities exchange other than Nasdaq, the last sales price of such
security on such date as reported for consolidated transactions with respect
to securities listed on the principal national securities exchange on which
such security is listed or admitted to trading or, if such security is not
listed or admitted to trading on the Nasdaq Stock Market or any national
securities exchange, the average of the high bid and low asked prices of such
security on such date in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations System
or such other system then in use or, if such security is not quoted by any
such organization, the average of the closing bid and asked prices of such
security as of such date furnished by a New York Stock Exchange member firm
selected by the Corporation, or if such security is not quoted by any such
organization and no such New York Stock Exchange member firm is able to
provide such prices, such price as is determined by the Independent Directors
in good faith.
"INDEPENDENT DIRECTORS" means directors that (i) are not 5% or greater
stockholders of the Corporation or the designee of any such stockholder; (ii)
are not officers or employees of the Corporation, any of its subsidiaries or
of a stockholder referred to above in clause (i); (iii) are not Related
Persons; and (iv) do not have relationships that, in the opinion of the Board
of Directors, would interfere with their exercise of independent judgment in
carrying out the responsibilities of the directors.
"RELATED PERSON" means an individual related to an officer, director or
employee of the Corporation or any of its Affiliates which relation is by
blood, marriage or adoption and not more remote than first cousin.
14
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly
executed on its behalf by its undersigned President and attested to by its
Secretary this 30th day of April, 1999.
Corporate Seal /s/ Lynn Chapman
----------------------------
Lynn Chapman
President
ATTEST:
/s/ Norman Welsch
-----------------------------
Norman Welsch
Secretary