AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
TOWNE SERVICES, INC.
ARTICLE ONE
NAME
The name of the corporation is Towne Services, Inc.
ARTICLE TWO
CAPITALIZATION
The total number of shares of all classes which the Corporation has
authority to issue is seventy million (70,000,000), of which fifty million
(50,000,000) shares shall be designated as "Common Stock," and twenty million
(20,000,000) shares shall be designated as "Preferred Stock." The designations
and the preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption of the shares of each class of stock are as follows:
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more series. The description of shares of each
series of Preferred Stock, including any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption shall be as set forth in
resolutions adopted by the Board of Directors, and articles of amendment shall
be filed with the Georgia Secretary of State as required by law to be filed with
respect to issuance of such Preferred Stock, prior to the issuance of any shares
of such series.
The Board of Directors is expressly authorized, at any time, by
adopting resolutions providing for the issuance of, or providing for a change in
the number of, shares of any particular series of Preferred Stock and, if and to
the extent from time to time required by law, by filing articles of amendment
which are effective without shareholder action to increase or decrease the
number of shares included in each series of Preferred Stock, but not below the
number of shares then issued, and to set or change in any one or more respects
the designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms and
conditions of redemption relating to the shares of each such series.
Notwithstanding the foregoing, the Board of Directors shall not be authorized to
change the right of holders of the Common Stock of the Corporation to vote one
vote per share on all matters submitted for shareholder action. The authority of
the Board of Directors with respect to each series of Preferred Stock shall
include, but not be limited to, setting or changing the following:
(a) the annual dividend rate, if any, on shares of such series, the
times of payment and the date from which dividends shall be accumulated, if
dividends are to be cumulative;
(b) whether the shares of such series shall be redeemable and, if so,
the redemption price and the terms and conditions of such redemption;
(c) the obligation, if any, of the Corporation to redeem shares of such
series pursuant to a sinking fund;
(d) whether shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or classes, and, if so, the
terms and conditions of such conversion or exchange, including the price or
prices or the rate or rates of conversion or exchange and the terms of
adjustment, if any;
(e) whether the shares of such series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the extent of such
voting rights;
(f) the rights of the shares of such series in the event of voluntary
or involuntary liquidation, dissolution or winding-up of the Corporation; and
(g) any other relative rights, powers, preferences, qualifications,
limitations or restrictions
thereof relating to such series.
The shares of Preferred Stock of any one series shall be identical with
each other in all respects except as to the dates from and after which dividends
thereon shall accumulate, if cumulative.
SERIES A CONVERTIBLE PREFERRED STOCK
A. Designation. There is hereby established a series of
preferred shares designated as Series A Convertible Preferred
Stock, consisting of 25,000 shares (the "Series A Preferred
Stock").
B. Terms. The following are the terms of the Series A
Preferred Stock:
1. Definitions.
For purposes of this Certificate, the following definitions
shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Common Stock" shall mean the common shares of the
Company.
(c) "Company" shall mean Towne Services, Inc.
2
(d) "Junior Stock" shall mean shares of any class ranking
junior to the Series A Preferred Stock.
(e) "Original Issue Date" for the Series A Preferred Stock
shall mean the date on which the first share of the Series A Preferred Stock was
originally issued.
(f) "PIK dividends" shall mean cumulative dividends payable
with respect to the Series A Preferred Stock in the form of additional shares of
Series A Preferred Stock.
(g) "Qualifying Public Offering" shall mean an underwritten
public offering of Common Stock in which (i) the public offering price per share
(before deducting any underwriting fees or selling commissions) when multiplied
by the number of shares of Common Stock outstanding immediately after the
consummation of such offering (assuming conversion of the Series A Preferred
Stock and any other convertible securities then outstanding, but assuming no
exercise of any outstanding and unexercised options, warrants and similar
rights, including warrants issued pursuant to that certain Stock Purchase
Warrant, dated December 18, 1997 (the "Stock Purchase Warrant") issued by the
Company to Sirrom Investments, Inc.) exceeds $80 million, and (ii) the gross
proceeds to the Company from the underwritten public offering exceed $20
million.
(h) "Subsidiary" shall mean any corporation at least 50% of
whose outstanding voting stock shall at the time be owned directly or indirectly
by the Company or by one or more Subsidiaries.
2. Stated Value. The stated value of the Series A Stock shall
be $100.00 per share (the "Stated Value").
3. Dividends.
(a) The holders of the then outstanding shares of Series A
Preferred Stock shall be entitled to receive cumulative cash dividends when, as
and if declared by the Board out of any funds legally available therefor, and
shall be entitled to receive PIK dividends when, as and if declared by the
Board, as follows:
(i) For the period from the date of issuance through March 31,
1999, the holders shall be entitled to receive PIK dividends at a
quarterly rate of $1.00 per share;
(ii) For the period April 1, 1999 through March 31, 2000, the
holders shall be entitled to receive PIK dividends at a quarterly rate
of $2.00 per share;
(iii) For the period April 1, 2000 through March 31, 2002, the
holders shall be entitled to receive cash dividends at a quarterly rate
of $4.00 per share; and
(iv) From and after April 1, 2002 (so long as the Series A
Preferred Stock remains outstanding), the holders shall be entitled to
receive cash dividends at a quarterly rate of $6.00 per share.
Dividends will be payable quarterly on March 31,
3
June 30, September 30 and December 31 in each year, provided dividends
payable for the period from the Original Issue Date through March 31,
2000 shall accrue but shall not be paid until conversion of the Series
A Preferred Stock or the liquidation, dissolution or winding up of the
Company. The per share value of the Series A Preferred that comprises
any PIK dividend shall be equal to the Stated Value thereof. Dividends
shall accrue on each share of Series A Preferred Stock from the
Original Issue Date, and shall accrue from day to day, whether or not
earned or declared and whether or not there shall be funds legally
available for the payment of such dividends. Such dividends shall be
cumulative so that, if such dividends in respect of any previous or
current quarterly dividend period, at the quarterly rate specified
above, shall not have been paid or declared and a sum sufficient for
the payment thereof set apart, the deficiency shall first be fully
paid before any dividend or other distribution shall be paid on or
declared and set apart for the Common Stock or any Junior Stock. Any
accumulation of dividends on the Series A Preferred Stock shall not
bear interest.
(b) Unless full dividends on the Series A Preferred Stock for
all past dividend periods and the then current dividend period shall have been
paid or declared and a sum sufficient for the payment above set apart: (i) no
dividend whatever (other than a dividend payable solely in Common Stock or any
Junior Stock) shall be paid or declared, and no distribution shall be made, on
any Common Stock or any Junior Stock, and (ii) no shares of Common Stock or any
Junior Stock shall be purchased, redeemed or otherwise acquired by the Company
and no funds shall be paid into or set aside or made available for a sinking
fund for the purchase, redemption or other acquisition thereof without the
approval of the holders of at least a majority of the then outstanding shares of
Series A Preferred Stock.
(c) Each dividend shall be paid to the holders of record of
the Series A Preferred Stock as they shall appear on the stock register of the
Company on such record date, not exceeding 45 days nor less than 10 days
preceding a dividend payment date, as shall be fixed by the Board or a duly
authorized committee thereof.
(d) For the purpose of the dividends payable pursuant to
paragraph 3(a)(i)-(iv), shares of Series A Preferred Stock payable in respect of
accrued and unpaid PIK dividends shall be deemed to have been paid and to be
outstanding as of the respective quarterly payment date set forth in paragraph
3(a).
4. Liquidation Rights.
(a) In the event of any liquidation, dissolution or winding up
of the affairs of the Company, whether voluntary or involuntary, after payment
or provision for payment of the debts and other liabilities and obligations of
the Company, the holders of each share of Series A Preferred Stock then
outstanding shall be entitled to be paid out of the net assets of the Company
available for distribution to its shareholders, before any payment or
declaration and setting apart for payment of any amount shall be made in respect
of the Common Stock, an amount equal to the Stated Value per share of Series A
Preferred Stock outstanding, plus an amount equal to all accrued and unpaid cash
dividends thereon, whether or not earned or declared, to and including the date
full payment shall be tendered to the holders of the Series A
4
Preferred Stock with respect to such liquidation, dissolution or winding up (the
"Series A Liquidation Preference").
(b) A consolidation, merger or statutory share exchange of the
Company or a sale of all or substantially all the assets of the Company shall be
regarded as a liquidation, dissolution or winding up of the affairs of the
Company within the meaning of this Certificate, unless (1) a majority of the
board of directors of the surviving or acquiring corporation in such transaction
is comprised of persons who were members of the Board immediately prior to such
transaction and (2) the holders of the Company's Common Stock and any preferred
shares or other capital stock of the Company, including but not limited to the
Series A Preferred Stock, immediately prior to the transaction will own,
immediately after the transaction, more than 50% of the capital stock of the
surviving or acquiring corporation. In such event, the holders of a majority of
the shares of Series A Preferred Stock then outstanding shall have the right to
elect on behalf of all of the holders of Series A Preferred Stock the benefits
of the provisions of paragraph 6(h) hereof in lieu of receiving payment of the
Series A Liquidation Preference (but without prejudice to the right of the
holders to receive accrued PIK dividends that are payable in accordance with
paragraph 3(a)).
5. Voting Rights.
(a) Except as otherwise expressly provided herein or as
required by law, the holders of each share of Series A Preferred Stock shall be
entitled to vote on all matters upon which holders of Common Stock have the
right to vote and with respect to such vote, shall be entitled to notice of any
shareholders' meeting in accordance with the Bylaws of the Company, and shall be
entitled to a number of votes equal to the largest number of full shares of
Common Stock into which such shares of Series A Preferred Stock could be
converted, pursuant to the provisions of paragraph 6 hereof, at the record date
for the determination of shareholders entitled to vote on such matters or, if no
such record date is established, at the date such vote is taken or any written
consent of shareholders is solicited. Except as otherwise expressly provided
herein or to the extent class or series voting is otherwise required by law or
agreement, the holders of shares of Series A Preferred Stock and Common Stock
shall vote together as a single class and not as separate classes on all
matters.
With respect to any vote required as a result of the Company's
performance under that certain Stock Purchase Warrant dated December 18, 1997
with Sirrom Investment, Inc. ("Sirrom"), the Loan Agreement of even date
therewith or the other agreements and documents executed by the Company and
Sirrom of even date therewith (the "Sirrom Agreements"), the right of the
holders of Series A Preferred Stock to vote on any matter shall be limited in
the same manner and to the same extent as the voting rights of the holders of
Common Stock.
(b) In addition to the voting rights set forth above, for as
long as 10% of the authorized number of shares of Series A Preferred Stock are
outstanding, the holders of the Series A Preferred Stock shall have the
exclusive right, voting separately as a class, to elect one director of the
Company. Any vacancy caused by the death, resignation or removal of any director
who shall have been elected in accordance with this paragraph shall be filled by
a vote
5
of the holders of a majority of the shares of the Series A Preferred Stock
present and voting, in person or by proxy, at a meeting called for such purpose,
or by unanimous written consent without a meeting of the holders of record of
the outstanding shares of the Series A Preferred Stock.
6. Conversion.
The holders of the Series A Preferred Stock shall have the
following conversion rights (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such shares, at the office of the Company or any transfer
agent for the Series A Preferred Stock or Common Stock, into fully paid and
nonassessable shares of Common Stock, at the Conversion Price (as hereafter
defined) in effect at the time of conversion determined as provided herein.
(b) Conversion Price. Shares of Series A Preferred Stock shall
be convertible into the number of shares of Common Stock that results from
dividing the Stated Value per share of Series A Preferred Stock by the
Conversion Price per share in effect at the time of conversion for each share of
Series A Preferred Stock being converted. The conversion price per share for the
Series A Preferred Stock at the Original Issue Date shall be $1.25 (the
"Conversion Price"); provided, however, that in the event the Company has not
completed a Qualifying Public Offering by December 31, 1998, the Conversion
Price shall be reduced automatically by $0.04 on the first calendar day of each
month thereafter, beginning on January 1, 1999, until the earlier to occur of
(i) such time as the Conversion Price equals $1.00 as a result of the provisions
of this paragraph or (ii) the date the Company completes a Qualifying Public
Offering. The Conversion Price, including the Conversion Price adjustments set
forth in the preceding sentence, shall be subject to further adjustment as
provided in paragraph 6.
(c) Mechanics of Conversion; Unpaid Dividends. Before any
holder of Series A Preferred Stock shall be entitled to convert the same into
shares of Common Stock, he shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Company or of any transfer agent
for the Series A Preferred Stock or Common Stock, and shall give written notice
by mail, postage prepaid, or by personal delivery to the Company at such office
that he elects to convert the same and shall state therein the number of shares
of Series A Preferred Stock being converted and the name or names in which the
certificate or certificates for shares of Common Stock are to be issued.
Thereupon the Company shall promptly issue and deliver (or instruct its transfer
agent to promptly issue and deliver) at such office to such holder of Series A
Preferred Stock or to the nominee or nominees of such holder a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled.
Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Series A Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable
6
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date. All PIK dividends accrued
and unpaid on shares of Series A Preferred Stock surrendered for conversion
shall be paid upon conversion in accordance with paragraph 3(a), and, at the
holder's election and upon written notice to the Company in accordance with this
paragraph 6(c), may be converted into Common Stock (without any requirement for
the issuance or surrender of certificates representing the Series A Preferred
Stock comprising such PIK dividends) simultaneously with the conversion of the
Series A Preferred Stock to which such PIK dividends related. Cash dividends
accrued and unpaid on shares of Series A Preferred Stock surrendered for
conversion shall be converted into shares of Common Stock at the Conversion
Price then in effect.
(d) Adjustment for Stock Splits and Combinations. If the
Company shall at any time or from time to time after the Original Issue Date
effect a subdivision of the outstanding Common Stock, the Conversion Price then
in effect immediately before that subdivision shall be proportionately
decreased; conversely, if the Company shall at any time or from time to time
after the Original Issue Date reduce the outstanding shares of Common Stock by
combination or otherwise, the Conversion Price then in effect immediately before
the combination shall be proportionately increased. Any adjustment under this
paragraph 6(d) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(e) Adjustment for Certain Dividends and Distributions. In the
event the Company at any time or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price for the Series A Preferred Stock then in effect shall be decreased as of
the time of such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date, by multiplying the
Conversion Price for the Series A Preferred Stock then in effect by fraction:
(i) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, and
(ii) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date,
plus the number of shares of Common Stock issuable in payment of such
dividend or distribution; provided, however, if such record date shall
have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the
Conversion Price for the Series A Preferred Stock shall be recomputed
accordingly as of the close of business on such record date and
thereafter the Conversion Price for the Series A Preferred Stock shall
be adjusted pursuant to this paragraph 6(e) as of the time of actual
payment of such dividends or distributions.
7
(f) Adjustments for Other Dividends and Distributions. In the
event the Company if at any time or from time to time after the Original Issue
Date shall make or issue, or fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Company other than shares of Common Stock, then and in each
such event provision shall be made so that the holders of Series A Preferred
Stock shall receive upon conversion of the Series A Preferred Stock into Common
Stock, in addition to the number of shares of Common Stock receivable thereupon,
the amount of securities of the Company that they would have received had their
Series A Preferred Stock been converted into Common Stock on the date of such
event and had thereafter, during the period from the date of such event to and
including the conversion date, retained such securities receivable by them as
aforesaid during such period giving application to all adjustments called for
during such period under this paragraph 6 with respect to the rights of the
holders of the Series A Preferred Stock.
(g) Adjustment for Reclassification, Exchange or Substitution.
If the Common Stock issuable upon the conversion of the Series A Preferred Stock
shall be changed into the same or different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation or sale of assets
provided for elsewhere in this paragraph 6), then and in each such event the
holder of each share of Series A Preferred Stock shall have the right thereafter
to convert such share into the kind and amounts of shares of stock and other
securities and property receivable upon such reorganization, reclassification or
other change, by holders of the numbers of shares of Common Stock into which
such shares of Series A Preferred Stock might have been converted immediately
prior to such reorganization, reclassification or change, all subject to further
adjustment as provided herein.
(h) Reorganization, Mergers, Consolidations or Sales of
Assets. If at any time or from time to time after the Original Issue Date there
shall be a capital reorganization of the Common Stock (other than a subdivision,
combination, reclassification or exchange of shares provided for elsewhere in
this paragraph 6) or a merger, consolidation or statutory share exchange of the
Company with or into another corporation, or the sale of all or substantially
all the Company's properties and assets to any other person, then, as a part of
such reorganization, merger, consolidation, share exchange or sale, provision
shall be made so that the holders of the Series A Preferred Stock shall
thereafter be entitled to receive upon conversion of the Series A Preferred
Stock the number of shares of stock or other securities or property of the
Company, or of the successor corporation resulting from such merger,
consolidation, exchange or sale, to which a holder of that number of shares of
Common Stock deliverable upon conversion of the Series A Preferred Stock would
have been entitled on such capital reorganization, merger, consolidation,
exchange or sale. In any such case, appropriate adjustment shall be made in the
application of the provisions of this paragraph 6 with respect to the rights of
the holders of the Series A Preferred Stock after the reorganization, merger,
consolidation, exchange or sale to the end that the provisions of this paragraph
6 (including adjustment of the Conversion Prices then in effect and the number
of shares purchasable upon conversion of the Series A Preferred Stock) shall be
applicable after that event as nearly equivalent as may be practicable. The
holders of a majority of the Series A Preferred Stock
8
upon the occurrence of a capital reorganization, merger or consolidation of the
Company or the sale of all or substantially all its assets and properties as
such events are more fully set forth in this paragraph 6(h) shall have the
option of electing on behalf of all of the holders of Series A Preferred Stock
treatment of all shares of Series A Preferred Stock under either this paragraph
6(h) or paragraph 4 hereof, notice of which election shall be submitted in
writing to the Company at its principal office no later than ten days before the
effective date of such event.
(i) Sale of Shares Below Conversion Price.
(1) If at any time or from time to time after the Original
Issue Date, the Company shall issue or sell Additional Shares of Common
Stock (as hereinafter defined), other than as a dividend as provided in
paragraph 6(e) above, and other than upon a subdivision or combination
of shares of Common Stock as provided in paragraph 6(d) above, for a
consideration per share less than the then existing Conversion Price
for the Series A Preferred Stock, then and in each case the then
Conversion Price for the Series A Preferred Stock shall be reduced, as
of the opening of business on the date of such issue or sale, to a
price equal to the consideration per share received by the Company for
such Additional Shares of Common Stock.
(2) For the purpose of making any adjustment in the Conversion
Price or number of shares of Common Stock purchasable on conversion of
Series A Preferred Stock as provided above, the consideration received
by the Company for any issue or sale of securities shall:
(A) to the extent it consists of cash, be computed at
the net amount of cash received by the Company after deduction
of any underwriting or similar commissions, concessions or
compensation paid or allowed by the Company in connection with
such issue or sale;
(B) to the extent it consists of services or property
other than cash, be computed at the fair value of such
services or property as determined in good faith by the Board;
and
(C) if Additional Shares of Common Stock, Convertible
Securities (as hereinafter defined), or rights or options to
purchase either Additional Shares of Common Stock or
Convertible Securities are issued or sold together with other
stock or securities or other assets of the Company for a
consideration that covers both, be computed as the portion of
the consideration so received that may be reasonably
determined in good faith by the Board to be allocable to such
Additional Shares of Common Stock, Convertible Securities or
rights or options.
9
(3) For the purpose of the adjustment provided in subsection
(1) of this paragraph 6(i), if at any time or from time to time after
the Original Issue Date the Company shall issue any rights or options
for the purchase of, or stock or other securities convertible into,
Additional Shares of Common Stock (such convertible stock or securities
being hereinafter referred to as "Convertible Securities"), then, in
each case, if the Effective Price (as hereinafter defined) of such
rights, options or Convertible Securities shall be less than the then
existing Conversion Price, the Company shall be deemed to have issued
at the time of the issuance of such rights or options or Convertible
Securities the maximum number of Additional Shares of Common Stock
issuable upon exercise or conversion thereof and to have received as
consideration for the issuance of such shares an amount equal to the
total amount of the consideration, if any, received by the Company for
the issuance of such rights or options or Convertible Securities, plus,
in the case of such options or rights, the minimum amounts of
consideration, if any, payable to the Company upon exercise or
conversion of such options or rights. For purposes of the foregoing,
"Effective Price" shall mean the quotient determined by dividing the
total of all such consideration by such maximum number of Additional
Shares of Common Stock. No further adjustment of the Conversion Price
adjusted upon the issuance of such rights, options or Convertible
Securities shall be made as a result of the actual issuance of
Additional Shares of Common stock on the exercise of any such rights or
options or the conversion of any such Convertible Securities.
If any such rights or options or the conversion privilege
represented by any such Convertible Securities shall expire without
having been exercised, the Conversion Price adjusted upon the issuance
of such rights, options or Convertible Securities shall be readjusted
to the Conversion Price that would have been in effect had an
adjustment been made on the basis that (a) the only Additional Shares
of Common Stock so issued were the Additional Shares of Common Stock,
if any, actually issued or sold on the exercise of such rights or
options, or rights of conversion of such Convertible Securities, and
(b) such Additional Shares of Common Stock, if any, were issued or sold
for the consideration actually received by the Company upon such
exercise, plus the consideration, if any, actually received by the
Company for the granting of all such rights and options, whether or not
exercised, plus the consideration received for issuing or selling the
Convertible Securities actually converted plus the consideration, if
any, actually received by the Company on the conversion of such
Convertible Securities.
(4) For the purpose of the adjustment provided for in
subsection (1) of this paragraph 6(i), if at any time or from time to
time after the Original Issue Date the Company shall issue any rights
or options for the purchase of Convertible Securities, then in each
such case, if the Effective Price thereof shall be less than the then
existing Conversion Price, the Company shall be deemed to have issued
at the time of the issuance of such rights or options the maximum
number of Additional Shares of Common Stock issuable upon
10
conversion of the total amount of Convertible Securities covered by such
rights or options and to have received as consideration for the issuance of
such Additional Shares of Common Stock an amount equal to the amount of
consideration, if any, received by the Company for the issuance of such
rights or options, plus the minimum amounts of consideration, if any,
payable to the Company upon the conversion of such Convertible Securities.
For the purposes of the foregoing, "Effective Price" shall mean the
quotient determined by dividing the total amount of such consideration by
such maximum number of Additional Shares of Common Stock. No further
adjustment of such Conversion Price adjusted upon the issuance of such
rights or options shall be made as a result of the actual issuance of the
Convertible Securities upon the exercise of such rights or options or upon
the actual issuance of Additional Shares of Common Stock upon the
conversion of such Convertible Securities. The provisions of subsection (3)
above for the readjustment of such Conversion Price upon the expiration of
rights or options or the rights of conversion of Convertible Securities
shall apply equally to the rights, options and Convertible Securities
referred to in this subsection (4).
(5) For the purpose of the adjustment provided for in
subsection (1) of this paragraph 6(i), the issuance of stock pursuant
to the Sirrom Stock Purchase Warrant shall not deemed to be a sale of
Additional Shares of Common Stock below the Conversion Price.
(j) Definition. The term "Additional Shares of Common Stock"
as used herein shall mean all shares of Common Stock issued or deemed issued by
the Company after the Original Issue Date, whether or not subsequently
reacquired or retired by the Company, other than (1) shares of Common Stock
issued upon conversion of the Series A Preferred Stock and (2) up to 5,121,647
shares of Common Stock (as adjusted for all stock dividends, stock splits,
subdivisions and combinations) issued to Sirrom in accordance with the Sirrom
Agreements or issued to employees, officers, directors, consultants or other
persons performing services for the Company (if so issued solely because of any
such person's status as an officer, director, employee, consultant or other
person performing services for the Company and not as part of any offering of
the Company's securities) pursuant to any stock option plan, stock purchase plan
or management incentive plan, agreement or arrangement approved by the Board and
in existence on the Original Issue Date (including but not limited to a plan to
issue, for compensatory purposes, approximately 850,000 shares of Common Stock
to employees at a price of approximately $1.19 per share).
(k) Certificate of Adjustment. In each case of an adjustment
or readjustment of the Conversion Price for the number of shares of Common Stock
or other securities issuable upon conversion of the Series A Preferred Stock,
the Company's chief financial officer shall compute such adjustment or
readjustment in accordance herewith and prepare a certificate showing such
adjustment or readjustment, and the Company shall mail such certificate, by
first class mail, postage prepaid, to each registered holder of the Series A
Preferred Stock at the holder's address as shown in the Company's books. The
certificate shall set forth such adjustment or readjustment, showing in detail
the facts upon which adjustment or readjustment
11
is based including a statement of (1) the consideration received or to be
received by the Company for any Additional Shares of Common Stock issued or sold
or deemed to have been issued or sold, (2) the Conversion Price at the time in
effect for each series of the Series A Preferred Stock, and (3) the number of
Additional Shares of Common Stock and the type and amount, if any, of other
property which at the time would be received upon conversion of the Series A
Preferred Stock.
(l) Notices of Record Date. In the event of (1) any taking by
the Company of a record of the holders of any class or series of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution or (2) any reclassification or recapitalization
of the capital stock of the Company, any merger, consolidation or statutory
share exchange of the Company, or any transfer of all or substantially all the
assets of the Company to any other corporation, entity or person, or any
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Company, the Company shall mail to each holder of Series A Preferred
Stock at least 30 days prior to the record date specified therein, a notice
specifying (i) the date on which any such record is to be taken for the purpose
of such dividend or distribution, (ii) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, share
exchange, dissolution, liquidation or winding up is expected to become
effective, and (iii) the time, if any is to be fixed, as to when the holders of
record of Common Stock (or other securities) shall be entitled to exchange their
shares of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, transfer, consolidation,
merger, share exchange, dissolution, liquidation or winding up.
(m) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of shares of Series A Preferred Stock. In lieu
of any fractional shares to which the holder would otherwise be entitled, the
Company shall pay cash equal to the product of such fraction multiplied by the
fair market value of one share of the Company's Common Stock on the date of
conversion, as determined in good faith by the Board. Whether or not fractional
shares are issuable upon such conversion shall be determined on the basis of the
total number of shares of Series A Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion.
(n) Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series 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 the Series A Preferred Stock. As a condition precedent to
the taking of any action which would cause an adjustment to the Conversion
Price, the Company will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient in order that it may
validly and legally issue the shares of its Common Stock issuable based upon
such adjusted Conversion Price.
12
(o) Notices. Any notice required by the provisions of this
paragraph 6 to be given to the holder of shares of the Series A Preferred Stock
shall be deemed given when received by such holder after the same has been sent
by means of certified or registered mail, return receipt requested, postage
prepaid, by a reputable overnight courier or messenger for hand delivery and
addressed to each holder of record at his address appearing on the books of the
Company.
(p) Payment of Taxes. The Company will pay all taxes and other
governmental charges (other than taxes measured by the revenue or income of the
holders of the Series A Preferred Stock) that may be imposed in respect of the
issue or delivery of shares of Common Stock upon conversion of the shares of the
Series A Preferred Stock.
(q) No Dilution or Impairment. The Company shall not amend its
Articles of Incorporation or participate in any reorganization,
recapitalization, transfer of assets, consolidation, merger, statutory share
exchange, dissolution, issue or sale of securities or any other voluntary
action, for the purpose of avoiding or seeking to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in carrying out all such
action as may be reasonably necessary or appropriate in order to protect the
conversion rights of the holders of the Series A Preferred Stock against
dilution or other impairment.
(r) Automatic Conversion. Each share of Series A Preferred
Stock which remains outstanding on the closing date for a Qualifying Public
Offering (the "Registration Date"), including shares of Series A Preferred Stock
issuable in respect of any accrued and unpaid PIK dividends, shall
automatically, and without any action on the part of the holder thereof or the
Company except as provided in clause (1) below, be converted on the same basis
and at the same Conversion Price as if each holder thereof had properly
exercised his right to convert on the day next preceding the Registration Date;
provided that (1) each holder of Series A Preferred Stock shall have received
written notice of the proposed Qualifying Public Offering at least 30 days prior
to the date the registration statement relating to the Qualifying Public
Offering becomes effective, (2) such conversion shall be effective at the close
of business on the Registration Date and (3) the Company shall have no
obligation to issue and deliver to any such holder of Series A Preferred Stock
on such date a certificate for the number of shares of Common Stock to which he
shall be entitled until such time as such holder has surrendered his certificate
or certificates for his Series A Preferred Stock (except for shares of Series A
Preferred Stock issuable in respect of any accrued and unpaid PIK dividends),
duly endorsed, at the office of the Company or any transfer agent for the Common
Stock or the holder notifies the Company that such certificates have been lost,
stolen or destroyed and executes an agreement satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection therewith. All
rights with respect to shares of Series A Preferred Stock outstanding on the
Registration Date, including shares of Series A Preferred Stock issuable in
respect of any accrued and unpaid PIK dividends, shall terminate upon conversion
as provided for in this paragraph 6(r), except only the right of the holders of
such shares to receive Common Stock upon surrender of their certificates for the
Series A Preferred Stock.
13
7. Restrictions and Limitations.
----------------------------
So long as any shares of Series A Preferred Stock remain
outstanding, the Company shall not, and, shall not permit any Subsidiary to,
without the vote or written consent of at least a majority of the then
outstanding shares of Series A Preferred Stock:
(a) Redeem, purchase or otherwise acquire for value any
preferred shares, including any share or shares of Series A Preferred Stock,
otherwise than permitted herein;
(b) Purchase, redeem or otherwise acquire (or pay into or set
aside for a sinking fund for such purpose), any of the Common Stock or Junior
Stock or any warrants, rights or options to purchase Common Stock or Junior
Stock; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock or Junior Stock from employees, officers,
directors, consultants or other persons performing services for the Company or
any Subsidiary pursuant to agreements under which the Company has the option to
repurchase such shares upon the occurrence of certain events, such as the
termination of employment; and provided further, however, that without the
approval, by vote or written consent, of the holders of a majority of the
outstanding shares of Series A Preferred Stock, the total amount applied to the
repurchase of shares of Common Stock shall not exceed $25,000 per employee,
officer, director, consultant or other person during any 12-month period;
(c) Authorize or issue, or obligate itself to issue, any
additional shares of Series A Preferred Stock except in respect of PIK dividends
paid in accordance with this Certificate, or any other equity security
(including any security convertible into or exercisable for any equity security)
senior to or on a parity with the Series A Preferred Stock as to dividend
rights, conversion rights, redemption rights or liquidation preferences;
(d) Permit any Subsidiary to issue or sell, or obligate itself
to issue or sell, except to the Company or any other wholly owned Subsidiary,
any stock of such Subsidiary; or
(e) Take any other action as to which the holders of Series A
Preferred Stock would be entitled to vote as a voting group under the Georgia
Business Corporation Code.
8. No Reissuance of Preferred Stock.
No share or shares of Series A Preferred Stock acquired by the
Company 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 Company shall be authorized to issue.
14
COMMON STOCK
Subject to all of the rights of the Preferred Stock as expressly
provided herein, by law or by the Board of Directors pursuant to this Article
Two, the Common Stock of the Corporation shall possess all such rights and
privileges as are afforded to capital stock by applicable law in the absence of
any express grant of rights or privileges in the Corporation's Articles of
Incorporation, including, but not limited to, the following rights and
privileges:
(a) dividends may be declared and paid or set apart for payment upon
the Common Stock out of any assets or funds of the Corporation legally available
for the payment of dividends;
(b) the holders of Common Stock shall have the right to vote for the
election of directors and on all other matters requiring stockholder action,
each share being entitled to one vote; and
(c) upon the voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, the net assets of the Corporation available for
distribution shall be distributed pro rata to the holders of the Common Stock in
accordance with their respective rights and interests.
ARTICLE THREE
REGISTERED OFFICE AND AGENT
The registered agent of the Corporation shall be Drew W. Edwards at the
Company's principal office indicated below.
ARTICLE FOUR
MAILING ADDRESS OF PRINCIPAL OFFICE
The mailing address of the principal office of the Corporation is 3295
River Exchange Drive, Suite 350, Norcross, Georgia 30092.
ARTICLE FIVE
LIMITATION ON DIRECTOR LIABILITY
No director of the corporation shall be personally liable to the
corporation or its shareholders for monetary damages for breach of the duty of
care or any other duty as a director, except that such liability shall not be
eliminated for:
(a) any appropriation, in violation of the director's duties,
of any business opportunity of the corporation;
15
(b) acts or omissions that involve intentional misconduct or a
knowing violation of law;
(c) liability under Section 14-2-832 (or any successor
provision or redesignation thereof) of the
Georgia Business Corporation Code (the "Code"); and
(d) any transaction from which the director derived an
improper personal benefit.
If at any time the Code shall have been amended to authorize the
further elimination or limitation of the liability of a director, then the
liability of each director of the corporation shall be eliminated or limited to
the fullest extent permitted by the Code, as so amended, without further action
by the shareholders, unless the provisions of the Code, as amended, require
further action by the shareholders.
Any repeal or modification of the foregoing provisions of this Article
Five shall not adversely affect the elimination or limitation of liability or
alleged liability pursuant hereto of any director of the corporation for or with
respect to any alleged act or omission of the director occurring prior to such a
repeal or modification.
ARTICLE SIX
BOARD AND SHAREHOLDER ACTION
REQUIRED FOR CERTAIN TRANSACTIONS
The affirmative vote of at least 66 2/3% of the directors is required
for the following actions by the Corporation to be submitted to a vote of the
shareholders:
(a) a sale of all or substantially all of the assets of the
Corporation;
(b) a liquidation or dissolution of the Corporation;
(c) the merger, consolidation or reorganization of the Corporation,
unless the shareholders of the Corporation immediately prior to such
transaction own at least a majority of the combined voting power of the
Corporation resulting from such merger, consolidation or
reorganization; or
(d) any increase in the number of directors above 12 directors;
provided, further, that the affirmative vote of 66 2/3% of the holders of the
Common Stock is required for shareholder approval of any action outlined in the
clauses above.
ARTICLE SEVEN
DIRECTORS
The Corporation shall have not less than five nor more than 12
directors, and the number of directors shall be set by the Board of Directors as
provided in the Company's bylaws. The Board of Directors shall be divided into
three classes to be known as Class I,
16
Class II, and Class III, which shall be as nearly equal in number as possible.
Except in the case of death, resignation, disqualification, or removal for
cause, each director shall serve for a term ending on the date of the third
annual meeting of shareholders following the annual meeting at which the
director was elected; provided, however, that each initial director in Class I
shall hold office until the first annual meeting of shareholders after his
election; each initial director in Class II shall hold office until the second
annual meeting of shareholders after his election; and each initial director in
Class III shall hold office until the third annual meeting of shareholders after
his election. Despite the expiration of a director's term, such director shall
continue to serve until his or her successor, if there is to be any, has been
elected and has qualified. In the event of any increase or decrease in the
authorized number of directors, the newly created or eliminated directorships
resulting from such an increase or decrease shall be apportioned among the three
classes of directors so that the three classes remain as nearly equal in size as
possible; provided, however, that there shall be no classification of additional
directors elected by the Board of Directors until the next meeting of
shareholders called for the purposes of electing directors, at which meeting the
terms of all such additional directors shall expire, and such additional
directors positions, if they are to be continued, shall be apportioned among the
classes of directors and nominees therefor shall be submitted to the
shareholders for their vote.
In discharging the duties of their respective positions and in
determining what is believed to be in the best interests of the Corporation, the
Board of Directors, committees of the Board of Directors, and individual
directors, in addition to considering the effects of any action on the
Corporation or its shareholders, may consider the interests of the employees,
customers, suppliers and creditors of the Corporation and its subsidiaries, the
communities in which offices or other establishments of the Corporation and its
subsidiaries are located, and all other factors such directors consider
pertinent. This provision solely grants discretionary authority to the directors
and shall not be deemed to provide to any other constituency any right to be
considered.
These Amended and Restated Articles of Incorporation were duly approved
by the Board of Directors, on May 19, 1998 and by the shareholders in accordance
with Section 14-2-1003 of the Georgia Business Corporation Code.
IN WITNESS WHEREOF, the Corporation has caused these Amended and
Restated Articles of Incorporation to be executed and attested by its duly
authorized officer on July 28, 1998.
/s/ Henry M. Baroco
--------------------------------------
Henry M. Baroco
Chief Operating Officer/President
17
ARTICLES OF AMENDMENT TO AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF TOWNE SERVICES, INC.
In accordance with Sections 14-2-602 and 14-2-1006 of the Georgia
Business Corporation Code (the "Code"), Towne Services, Inc. (the
"Corporation"), a corporation organized and existing under and by virtue of the
Code, DOES HEREBY CERTIFY:
1. The name of the Corporation is Towne Services, Inc.
2. The following resolution setting forth an amendment to the
Corporation's Articles of Incorporation has been duly adopted
by the Board of Directors:
RESOLVED, THAT ARTICLE 2 OF THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION IS HEREBY AMENDED BY ADDING THE
FOLLOWING PROVISIONS TO THE END THEREOF: "THE CORPORATION IS
AUTHORIZED TO ISSUE 20,000 SHARES OF SERIES B CONVERTIBLE
PREFERRED STOCK, WITHOUT PAR VALUE PER SHARE (THE "SERIES B
PREFERRED STOCK"). THE SERIES B PREFERRED STOCK SHALL HAVE THE
PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS SET FORTH ON
EXHIBIT A TO THIS RESOLUTION."
3. The "Exhibit A" referenced in the foregoing resolution is
included in these Articles of Amendment and is the same
"Exhibit A" as is attached hereto.
4. The foregoing resolution containing the amendment was duly
adopted on May 28, 1999, by the Corporation's Board of
Directors in accordance with the provisions of Sections
14-2-602 and 14-2-1002 of the Code.
IN WITNESS WHEREOF, the Corporation has caused this Amendment to be
signed by the undersigned duly authorized officer, this 11th day of June, 1999.
TOWNE SERVICES, INC.
By: /s/ Henry M. Baroco
----------------------------
Name: Henry M. Baroco
Title: President and Chief Operating Officer
EXHIBIT A
DESIGNATIONS OF PREFERENCES,
LIMITATIONS, AND RELATIVE RIGHTS OF
SERIES B PREFERRED STOCK OF TOWNE SERVICES, INC.
For the purposes of these Designations, the following terms shall have
the meanings specified:
"ARTICLES OF INCORPORATION" shall mean the Amended and Restated
Articles of Incorporation of the Corporation, as amended.
"BOARD OF DIRECTORS" shall mean the board of directors of the
Corporation.
"BYLAWS" shall mean the bylaws of the Corporation, as amended.
"COMMON STOCK" shall mean the common stock, no par value per share, of
the Corporation.
"CONVERSION PRICE" shall have the meaning provided in Subsection (d)(1)
hereof.
"CONVERSION RATE" shall have the meaning provided in Subsection (d)(1)
hereof.
"CONVERSION SHARES" shall mean the shares of Common Stock into which
each share of Series B Preferred Stock is convertible pursuant to Section (d) of
these Designations.
"CORPORATION" shall mean Towne Services, Inc., a Georgia corporation.
"DESIGNATIONS" shall mean the terms, preferences, limitations and
relative rights of the Series B Preferred Stock established hereby and set forth
hereinafter.
"INVESTED AMOUNT" per share of Series B Preferred Stock shall mean the
per share issue price for any share of Series B Preferred Stock as designated in
the agreement with the Corporation pursuant to which such share is issued (as
adjusted pursuant to Section (d)(5) hereof after the Original Issue Date). The
initial Invested Amount per share of Series B Preferred Stock is $100.00.
"LIQUIDATION" shall have the meaning provided in Section (b) hereof.
"SERIES B PREFERRED STOCK" shall mean the 20,000 shares of Series B
Preferred Stock, without par value per share, hereby designated.
2
"ORIGINAL ISSUE DATE" shall mean, with respect to each share of Series
B Preferred Stock, the date on which such share of Series B Preferred Stock is
first issued by the Corporation.
"SECURITIES ACT" shall mean the federal Securities Act of 1933, as
amended.
(a) The Designations granted to and imposed upon the Series B Preferred
Stock are as follows: Dividend Rights. The following dividend rights shall apply
to the Series B Preferred Stock:
(1) The holders of then outstanding Series B Preferred Stock
shall be entitled to receive cumulative cash dividends when, as and if
declared by the Board of Directors out of any funds legally available
therefor at the rate of $2.00 per share of Series B Preferred Stock per
quarter. Dividends will be payable quarterly on March 31, June 30,
September 30 and December 31 in each year.
(2) Dividends shall accrue on each share of Series B Preferred
Stock from the Original Issue Date, and shall accrue from day to day,
whether or not earned or declared and whether or not there shall be
funds legally available for the payment of such dividends. Such
dividends shall be cumulative so that, if such dividends in respect of
any previous or current quarterly dividend period, at the quarterly
rate specified above, shall not have been paid or declared and a sum
sufficient for the payment thereof set apart, the deficiency shall
first be fully paid before any dividend or other distribution shall be
paid on or declared and set apart for the Common Stock or any other
stock ranking junior to the Series B Preferred Stock. Any accumulation
of dividends on the Series B Preferred Stock shall not bear interest.
(3) Unless full dividends on the Series B Preferred Stock for
all past dividend periods and the then current dividend period shall
have been paid or declared and a sum sufficient for the payment above
set apart no cash dividend shall be paid or declared on Common Stock or
any or any other stock ranking junior to the Series B Preferred Stock
as to liquidation preference.
(4) Each dividend shall be paid to the holders of record of
the Series B Preferred Stock as they shall appear on the stock register
of the Company on such record date, not exceeding 45 days nor less than
10 days preceding a dividend payment date, as shall be fixed by the
Board of Directors or a duly authorized committee thereof.
(b) Liquidation Rights. In the event of the liquidation, dissolution or
winding up for any reason, including, without limitation, bankruptcy, of the
Corporation or any of the Corporation's subsidiaries, the assets of which
constitute all or substantially all the assets of the business of the
Corporation and its subsidiaries taken as a whole or such
events specified in the next sentence (each such event referred to as a
"Liquidation"), the holders of the outstanding shares of Series B Preferred
Stock shall, at their election, be entitled to receive in exchange for and in
redemption of each share of their Series B Preferred Stock, and on a parity with
the holders of any capital stock ranking senior to or PARI PASSU to the Series B
Preferred Stock by reason of their ownership thereof, from any funds or assets
legally available for distribution to shareholders that portion of such funds,
proceeds or assets in an amount equal to a fraction,
(1) the numerator of which is the number of Conversion Shares
to which the holder of such share of Series B Preferred Stock would be
entitled by virtue of converting such share; and
(2) the denominator of which is the aggregate of the number of
Conversion Shares, shares of Common Stock outstanding, and all other
shares of outstanding capital stock of any series the holders of which
are entitled to participate in the proceeds of a Liquidation;
provided, however, that, notwithstanding the foregoing, the amount payable to
such holder of a share of Series B Preferred Stock in the event of a Liquidation
of the Corporation, as provided above, shall not be less than, and shall be
increased if necessary (with sums payable to holders of shares of any other
capital stock to be reduced ratably per share as necessary) to equal, the
Invested Amount PLUS declared but unpaid dividends payable with respect to such
Series B Preferred Stock.
All the preferential amounts to be paid to the holders of Series B
Preferred Stock under this Section (b) shall be paid or set apart for payment
before the payment or setting apart for payment of any amount for, or the
distribution of any assets of the Corporation to, the holders of shares of
Common Stock or any class or series of stock of the Corporation ranking junior
to Series B Preferred Stock in connection with a Liquidation as to which this
Section (b) applies. If the assets or surplus funds to be distributed to the
holders of Series B Preferred Stock are insufficient to permit the payment to
such holders of the full amounts payable to such holders, the assets and surplus
funds legally available for distribution shall be distributed ratably among the
holders of Series B Preferred Stock in proportion to the full amount each such
holder is otherwise entitled to receive.
(c) Voting Rights. The Series B Preferred Stock shall be non-voting.
(d) Conversion. The holders of Series B Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(1) CONVERSION RATE.
For purposes of this Section (d), the shares of
Series B Preferred Stock shall be convertible, at the times
and under the conditions described in this Section (d)
hereafter, at the rate (the "Conversion Rate") of one share of
Series B Preferred Stock to the number of shares of Common
Stock that equals the quotient obtained by dividing the
Invested Amount
by the Conversion Price (defined hereinafter). Thus, the
number of shares of Common Stock to which a holder of Series B
Preferred Stock shall be entitled upon any conversion provided
for in this Section (d) shall be the product obtained by
multiplying the Conversion Rate by the number of shares of
Series B Preferred Stock being converted. Such conversion
shall be deemed to have been made immediately prior to the
close of business on the date of the surrender of the shares
of Series B Preferred Stock to be converted in accordance with
the procedures described in Subsection (d)(4) below. The
"Conversion Price" shall equal the average of the closing
price per share of the Common Stock for the 10 days ending one
business day prior to the Original Issue Date, except as
otherwise adjusted as provided hereafter in this Section (d).
No fractional shares of Common Stock shall be issued
upon conversion of Series B Preferred Stock, and any shares of
Series B Preferred Stock surrendered for conversion that would
otherwise result in a fractional share of Common Stock shall
be redeemed in cash at the then effective Conversion Price per
share, payable as promptly as possible when funds are legally
available therefor.
(2) OPTIONAL CONVERSION. Subject to Subsection (d)(3) below, each share of
Series B Preferred Stock shall be convertible, at the option of the
holder thereof, at any time after the first anniversary of the date of
issuance of such share, in whole or in part, at the office of the
Corporation or any transfer agent for the Series B Preferred Stock,
into Common Stock at the then effective Conversion Rate; provided,
however, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such
conversion unless certificates evidencing such shares of Series B
Preferred Stock so converted are surrendered to the Corporation in
accordance with the procedures described in Subsection (d)(3) below.
(3) MECHANICS OF CONVERSION. Before any holder of Series B Preferred Stock
shall be entitled to receive certificates representing the shares of
Common Stock into which shares of Series B Preferred Stock are
converted in accordance with Subsection (d)(2) above, such holder shall
surrender the certificate or certificates for such shares of Series B
Preferred Stock, duly endorsed, at the office of the Corporation or of
any transfer agent for the Series B Preferred Stock, and shall give
written notice to the Corporation at such office of the name or names
in which such holder wishes the certificate or certificates for shares
of Common Stock to be issued, if different from the name shown on the
books and records of the Corporation (the "Conversion Notice"). The
Conversion Notice shall also contain such representations as may
reasonably be required by the Corporation to the effect that the shares
to be received upon conversion are not being acquired and will not be
transferred in any way that might violate the then applicable
securities laws. The Corporation shall, as soon as practicable
thereafter and in no event later than thirty (30) days after the
delivery of said certificates, issue and deliver at such office to
such holder of Series B Preferred Stock, or to the nominee or nominees
of such holder as provided in the Conversion Notice, a certificate or
certificates for the number of shares of Common Stock to which such
holder shall be entitled as aforesaid. The conversion shall be
effective at the time Towne receives and accepts the Conversion Notice.
The person or persons entitled to receive the shares of Common Stock
issuable upon a conversion pursuant to Subsection (d)(2) above shall be
treated for all purposes as the record holder or holders of such shares
of Common Stock as of the effective date of conversion pursuant to this
Section (d). All certificates issued upon the exercise or occurrence of
the conversion shall contain a legend governing restrictions upon such
shares imposed by law or agreement of the holder or his or its
predecessors.
(4) ADJUSTMENT FOR SUBDIVISIONS OR COMBINATIONS OF COMMON STOCK. In the
event the Corporation at any time, or from time to time, after the
Original Issue Date effects a subdivision or combination of the
outstanding Common Stock into a greater or lesser number of shares
without a proportionate and corresponding subdivision or combination of
the outstanding Series B Preferred Stock, then and in each such event
the Invested Amount (and therefore, the Conversion Price and the
corresponding Conversion Rate) shall be decreased or increased
proportionately.
(5) ADJUSTMENTS FOR DIVIDENDS. Distributions and Other Common Stock
Equivalents. In the event that the Corporation at any time, or from
time to time, after the Original Issue Date shall make or issue, or fix
a record date to determine the holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares
of Common Stock or other securities or rights convertible or
exercisable into or otherwise entitling the holder thereof, directly or
indirectly, to receive additional shares of Common Stock (such other
securities or rights being hereinafter referred to as "Common Stock
Equivalents") without payment of any consideration by such holder of
such Common Stock Equivalents or the additional shares of Common Stock,
and without a proportionate and corresponding dividend or other
distribution to holders of Series B Preferred Stock, then and in each
such event the maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained therein for
subsequent adjustment of such number) of the type of Common Stock
issuable in payment of such dividend or distribution or upon conversion
or exercise of such Common Stock Equivalents shall be deemed, for
purposes of this Subsection (d)(5), to be issued and outstanding as of
the time of such issuance or, in the event such a record date shall
have been fixed, as of the close of business on such record date. In
each such event the Conversion Price shall be decreased as of the time
of such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date, by multiplying
the Conversion Price by a fraction,
the numerator of which shall be the total number of
shares of Common Stock issued and outstanding or deemed to be
issued and outstanding (as provided below) immediately prior
to the time of such issuance or the close of business on such
record date; and
the denominator of which shall be the total number of
shares of Common Stock (i) issued and outstanding or deemed
pursuant to the terms hereof to be issued and outstanding, as
provided below (not including any shares described in clause
(ii) immediately below), immediately prior to the time of such
issuance or the close of business on such record date, PLUS
(ii) the number of shares of Common Stock issuable in payment
of such dividend or distribution or upon conversion or
exercise of such Common Stock Equivalents;
PROVIDED, HOWEVER, that (i) if such record date shall have been fixed
and such dividend is not fully paid or if such distribution is not
fully made on the date fixed therefor, the Conversion Price (and the
corresponding Conversion Rate) shall be recomputed accordingly as of
the close of business on such record date and thereafter the Conversion
Price (and the corresponding Conversion Rate) shall be adjusted
pursuant to this Subsection (d)(5) as of the time of actual payment of
such dividend or distribution; or (ii) if such Common Stock Equivalents
provide, with the passage of time or otherwise, for any decrease in the
number of shares of Common Stock issuable upon conversion or exercise
thereof (or upon the occurrence of a record date with respect thereto),
the Conversion Price (and the corresponding Conversion Rate) computed
upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based
thereon, shall, upon any such decrease becoming effective, be
recomputed to reflect such decrease insofar as it affects the rights of
conversion or exercise of the Common Stock Equivalents then
outstanding; or (iii) upon the expiration of any rights of conversion
or exercise under any unexercised Common Stock Equivalents, the
Conversion Price (and the corresponding Conversion Rate) computed upon
the original issue thereof (or upon the occurrence of a record date
with respect thereto), and any subsequent adjustments based thereon,
shall, upon such expiration, be recomputed as if the only additional
shares of Common Stock issued were the shares of such stock, if any,
actually issued upon the conversion or exercise of such Common Stock
Equivalents; or (iv) in the event of issuance of Common Stock
Equivalents that expire by their terms not more than ninety (90) days
after the date of issuance thereof, no adjustments of the Conversion
Price (or the corresponding Conversion Rate) shall be made until the
expiration or exercise of all such Common Stock Equivalents, whereupon
the adjustment otherwise required by this Subsection (d)(5) shall be
made in the manner provided herein. For purposes of this Subsection
(d)(5), Common Stock deemed issued and outstanding shall include shares
of Common Stock into which the then outstanding shares of Series B
Preferred Stock could be converted if fully converted on the day
immediately preceding the given date, and shares of Common Stock that
could be obtained through the exercise or conversion of all
other rights, options, and convertible securities on the day
immediately preceding the given date.
As used herein, "Additional Shares of Common Stock" shall
mean, with respect to such adjustments to be made to the Conversion
Price and the Conversion Rate, either shares of Common Stock issued
subsequent to the Original Issue Date, or, with respect to the issuance
of Common Stock Equivalents, the maximum number of shares (as set forth
in the instrument relating thereto without regard to any provisions
contained therein for subsequent adjustment of such number) of Common
Stock issuable in exchange for, upon conversion of, or upon exercise of
such Common Stock Equivalents.
The foregoing notwithstanding, no adjustment of the
Conversion Price and the Conversion Rate shall be made
pursuant to this Subsection (d) as a result of the issuance
of:
(i) any shares of Common Stock upon the
conversion of shares of Series B Preferred Stock;
(ii) securities of the Corporation offered
to the public pursuant to an effective registration
statement under the Securities Act;
(iii) the Corporation's securities pursuant
to the acquisition by the Corporation of any
product, technology, know-how or another corporation
by merger, purchase of all or substantially all of
the securities or assets, or any other
reorganization;
(iv) any shares of Common Stock pursuant to
which the Conversion Price and the Conversion Rate
are adjusted under this Section (d);
(v) any shares of Common Stock issued at any
time following the Original Issue Date pursuant to
options, warrants or rights granted either before or
after the Original Issue Date to purchase shares of
such series of Common Stock, less the number of any
such options, warrants or rights that are
repurchased by the Corporation, are canceled or
expire, in each case in favor of employees,
directors, officers or consultants of the
Corporation or any subsidiary thereof pursuant to a
stock option plan or agreement approved by the Board
of Directors; or
(vi) any shares of Common Stock issued
pursuant to the exchange, conversion or exercise of
Common Stock Equivalents that have previously been
incorporated into computations hereunder on the date
when such Common Stock Equivalents were issued.
(6) REDEMPTION. The Series B Preferred Stock is redeemable at any time on
or after June 30, 2002 at the option of the Corporation for cash at any
time or from time to time, in whole or in part, on at least 10 business
days but not more than 90 calendar days' notice. Additionally, the
Series B Preferred Stock is redeemable at any time on or after June 30,
2000 at the option of the Corporation for cash pursuant to the above
terms if the average price per share of the Common Stock for any 30
consecutive days equals or exceeds 150% of the initial Conversion
Price. Upon delivery of notice by the Corporation of its intent to
redeem to the holders of the Series B Preferred Stock, such holders
shall have ten (10) business days to notify the Corporation of their
election to convert their shares of Series B Preferred Stock pursuant
to a Conversion Notice delivered pursuant to Section (d) above. With
respect to any such redemption at the option of the Corporation where
no such Conversion Notice is received by the Corporation within the
allotted time, shares of Series B Preferred Stock will be redeemable at
the stated value per share, or $100 per share, together in each case
with accrued but unpaid dividends to the date of redemption.
(7) DE MINIMIS ADJUSTMENTS. No adjustment to the Conversion Price (and,
thereby, the Conversion Rate) shall be made if such adjustment would
result in a change in the Conversion Price of less than $.01.
(8) NO IMPAIRMENT. The Corporation shall at all times in good faith assist
in the carrying out of all the provisions of this Section (d) and in
the taking of all such action as may be necessary in order to protect
the Conversion Rights of the holders of the Series B Preferred Stock
against material impairment.
(9) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment
or readjustment of the Conversion Price pursuant to this Section (d),
the Corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and cause
independent public accountants selected by the Corporation to verify
such computation and prepare and furnish to each holder of Series B
Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment
or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series B Preferred Stock, furnish
or cause to be furnished to such holder a like certificate setting
forth (i) such adjustments and readjustments, (ii) the Conversion Price
and the Conversion Rate at that time in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property that
at that time would be received upon the conversion of Series B
Preferred Stock.
(10) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any series or class of
securities other than Series B Preferred Stock for the purpose of
determining the holders thereof who are entitled to receive any
dividend or other distribution, Common Stock Equivalents or any right
to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other
right, the Corporation shall mail to each holder of Series B Preferred
Stock, at least ten (10) days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for
the purpose of such dividend, distribution or rights, and the amount
and character of such dividend, distribution or rights.
(11) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation shall at
all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Series B Preferred 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 the Series B
Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall be insufficient to effect the
conversion of all then outstanding shares of the Series B Preferred
Stock, the Corporation shall take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
(e) Protective Provisions. In addition to any other rights provided by law,
so long as any shares of Series B Preferred Stock are then outstanding,
except where the vote or written consent of the holders of a greater
number of shares is required by law or by another provision of the
Articles of Incorporation, without first obtaining the affirmative vote
or written consent of the holders of a majority of the total number of
shares of Series B Preferred Stock outstanding, voting together as a
single class, the Corporation shall not:
(1) amend or repeal any provision of, or add any provision to,
the Articles of Incorporation or the Bylaws, or file any
certificate of designations, preferences, limitations and relative
rights of any series or class of preferred stock, if such action
would materially and negatively alter or change the preferences,
rights, privileges or powers of, or restrictions provided for the
benefit of holders of Series B Preferred Stock;
(2) create or authorize the creation of any additional series
or class of shares of stock unless the same ranks junior or pari
passu to the Series B Preferred Stock as to dividends and the
distribution of assets upon a Liquidation of the Corporation;
(3) increase or decrease the authorized number of shares of
the Series B Preferred Stock;
(4) take any action that would alter or change the
preferences, rights,
privileges or powers of, or restrictions provided for the
benefit of holders of Series B Preferred Stock in one or more of
the ways set forth in Section 14-2-1004(a) of the Code; or
(5) amend the provisions of this Section (e).
(f) Notices. Any notice required by the provisions hereof to be given to
the holders of shares of Series B Preferred Stock shall be deemed given
on the third business day following (and not including) the date on
which such notice is deposited in the United States Mail, first-class,
postage prepaid, and addressed to each holder of record at his address
appearing on the books of the Corporation. Notice by any other means
shall not be deemed effective until actually received.
ARTICLES OF AMENDMENT
TO THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
TOWNE SERVICES, INC.
Pursuant to the provisions of Section 14-2-1006 of the Georgia Business
Corporation Code, the undersigned corporation adopts the following Amendment to
its Amended and Restated Articles of Incorporation.
1. The name of the corporation is Towne Services, Inc. (the
"Corporation").
2. Article II of the Corporation's Amended and Restated Articles of
Incorporation is hereby amended by the addition of the following
provisions:
Simultaneously with the effective date of this amendment (the
"Effective Date"), each five shares of the Corporation's Common Stock,
issued and outstanding immediately prior to the Effective Date (the
"Old Common Stock") shall, automatically and without any action on the
part of the holder thereof, be reclassified as and changed, pursuant to
a reverse stock split (the "Reverse Stock Split"), into one share of
the Corporation's outstanding Common Stock (the "New Common Stock"),
subject to the treatment of
fractional share interests as described below. Each holder of a
certificate or certificates which immediately prior to the Effective
Date represented outstanding shares of Old Common Stock (the "Old
Certificates," whether one or more) shall be entitled to receive upon
surrender of such Old Certificates to the Corporation's transfer agent
for cancellation, a certificate or certificates (the "New
Certificates," whether one or more) representing the number of whole
shares of the New Common Stock into and for which the shares of the Old
Common Stock formerly represented by such Old Certificates so
surrendered, are reclassified under the terms hereof. From and after
the Effective Date, Old Certificates shall thereupon be deemed for all
corporate purposes to evidence ownership of New Common Stock in the
appropriately reduced whole number of shares. No certificates or scrip
representing fractional share interests in New Common Stock will be
issued, and no such fractional share interest will entitle the holder
thereof to vote, or to any rights of a shareholder of the Corporation.
In lieu of any fraction of a share of New Common Stock to which the
holder would otherwise be entitled, the holder will receive a cash
payment in U.S. dollars equal to such fraction multiplied by five times
the average of the closing bid and asked price per share of Common
Stock as quoted on Nasdaq for the five trading days immediately
preceding the Effective Date. If more than one Old Certificate shall be
surrendered at one time for the account of the same shareholder, the
number of full shares of New Common Stock for which New Certificates
shall be issued shall be computed on the basis of the aggregate number
of shares represented by the Old Certificates so surrendered. In the
event that the Corporation's transfer agent determines that a holder of
Old Certificates has not surrendered all his certificates for exchange,
the transfer agent shall carry forward any
fractional share until all certificates of that holder have been
presented for exchange such that payment for fractional shares to any
one person shall not exceed the value of one share. If any New
Certificate is to be issued in a name other than that in which it was
issued, the Old Certificates so surrendered shall be properly endorsed
and otherwise in proper form for transfer, and the stock transfer tax
stamps to the Old Certificates so surrendered shall be properly
endorsed and otherwise in proper form for transfer, and the person or
persons requesting such exchange shall affix any requisite stock
transfer tax stamps to the Old Certificates surrendered, or provide
funds for their purchase, or establish to the satisfaction of the
transfer agent that such taxes are not payable. From and after the
Effective Date, the amount of capital shall be represented by the
shares of the New Common Stock into which and for which the shares of
the Old Common Stock are reclassified, until thereafter reduced or
increased in accordance with applicable law. All references elsewhere
in the Amended and Restated Articles of Incorporation to the "Common
Stock" shall, after the Effective Date, refer to the "New Common
Stock."
3. The above amendment was adopted on December 20, 2000.
4. The above amendment was duly approved by the board of directors and the
shareholders of the Corporation in accordance with the provisions of
the Corporation's Amended and Restated Articles of Incorporation and
the Georgia Business Corporation Code, including Section 14-2-1003
thereof.
IN WITNESS WHEREOF, the Chief Executive Officer of the Corporation has
executed this amendment on behalf of the Corporation, this 20th day of December,
2000.
G. LYNN BOGGS
By: /s/ G. Lynn Boggs
--------------------------
G. LYNN BOGGS
CHIEF EXECUTIVE OFFICER
ARTICLES OF AMENDMENT
TO THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
TOWNE SERVICES, INC.
Pursuant to the provisions of Sections 14-2-1006 and 14-2-631 of the
Georgia Business Corporation Code, the undersigned corporation adopts the
following Amendment to its Amended and Restated Articles of Incorporation.
1. The name of the corporation is Towne Services, Inc. (the
"Corporation").
2. Article II of the Corporation's Amended and Restated Articles of
Incorporation is hereby amended by the addition of the following provision which
shall be entitled "ACQUISITION OF COMMON STOCK BY THE CORPORATION" and which
shall read as follows:
ACQUISITION OF COMMON STOCK BY THE CORPORATION
Reacquired shares of Common Stock shall become treasury shares
of the Corporation, unless otherwise determined by the Corporation's
Board of Directors.
3. The above amendment was adopted on January 8, 2001.
4. The above amendment was duly approved by the board of directors of
the Corporation in accordance with the provisions of the Corporation's Amended
and Restated Articles of Incorporation and By-laws and the Georgia Business
Corporation Code, including Section 14-2-1002 thereof.
5. Pursuant to Section 14-2-631 of the Georgia Business Corporation
Code, shareholder approval of the above amendment is not required.
IN WITNESS WHEREOF, the Chief Executive Officer of the Corporation has
executed this amendment on behalf of the Corporation, this 19th day of January,
2001.
By: /s/ G. Lynn Boggs
--------------------
G. LYNN BOGGS
CHIEF EXECUTIVE OFFICER