CERTIFICATE OF THE DESIGNATIONS, POWERS,
PREFERENCES AND RIGHTS
OF THE
SERIES A CONVERTIBLE PREFERRED STOCK
(par value $.001 per share)
of
DATALINK SYSTEMS CORPORATION
a Nevada Corporation
__________
The undersigned DOES HEREBY CERTIFY that the following resolution
was duly dopted by the Board of Directors (the "Board of Directors") of
Datalink Systems Corporation, a Nevada corporation (the "Corporation"), by
unanimous written consent in lieu of a meeting effective August 30, 1997:
RESOLVED, that one series of the class of authorized preferred
stock, $.001 par value, of the Corporation is hereby created and that the
designations, powers, preferences and relative, participating, optional or
other special rights of the shares of such series, and qualifications,
limitations or restrictions thereof, are hereby fixed as follows (this
instrument hereinafter referred to as the "Designation"):
1. Number of Shares and Designations. 2,740,000 shares of the
preferred stock, $.001 par value, of the Corporation are hereby constituted as
a series of preferred stock of the Corporation designated as Series A
Convertible Preferred Stock (the "Series A Preferred Stock").
2. Dividend Provisions. Subject to the rights of any other
series of Preferred Stock that may from time to time come into existence, the
holders of shares of Series A Preferred Stock shall be entitled to receive
dividends, out of any assets legally available therefor, ratably with any
declaration or payment of any dividend with holders of the Common Stock or
other junior securities of this Corporation, when, as and if declared by the
Board of Directors, based on the number of shares of Common Stock into which
each share of Series A Convertible Preferred Stock is then convertible.
3. Liquidation Preference.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary ("Liquidation"), the holders of
record of the shares of the Series A Preferred Stock shall be entitled to
receive, before and in preference to any distribution or payment of assets of
the Corporation or the proceeds thereof may be made or set apart for the
holders of Common Stock or any other security junior to the Series A Preferred
Stock in respect of distributions upon Liquidation out of the assets of the
Corporation legally available for distribution to its stockholders, an amount
in cash equal to $3.75 per share (subject to adjustment in the event of stock
splits, combinations or similar events). If, upon such Liquidation, the
assets of the Corporation available for distribution to the holders of Series
A Preferred Stock and any other series of preferred stock then outstanding
ranking on parity with the Series A Preferred Stock upon liquidation ("Parity
Stock") shall be insufficient to permit payment in full to the holders of the
Series A Preferred Stock and Parity Stock, then the entire assets and funds of
the Corporation legally available for distribution to such holders and the
holders of the Parity
Stock then outstanding shall be distributed ratably among the holders of the
Series A Preferred Stock and Parity Stock based upon the proportion the total
amount distributable on each share upon liquidation bears to the aggregate
amount available for distribution on all shares of the Series A Preferred
Stock and of such Parity Stock, if any.
(b) Upon the completion of the distributions required by
subparagraph (a) of this Paragraph 3 and any other distribution that may be
required with respect to series of preferred stock that may from time to time
come into existence, the remaining assets of the Corporation available for
distribution to stockholders shall be distributed among the holders of the
Common Stock.
(c) For purposes of this Paragraph 3, a merger or
consolidation or a sale of all or substantially all of the assets of the
Corporation shall be considered a Liquidation except in the event that in such
a transaction, the holders of the Series A Preferred Stock receive securities
of the surviving corporation having substantially similar rights as the Series
A Preferred Stock and the stockholders of the Corporation immediately prior to
such transaction are holders of at least a majority of the voting securities
of the surviving corporation immediately thereafter. Notwithstanding
Paragraph 6 hereof, such provision may be waived in writing by a majority of
the holders of the then outstanding Series A Preferred Stock.
4. Redemption. The Series A Preferred Stock is not redeemable.
5. Conversion. The holders of the Series A Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Voluntary Conversion. Each share of Series A
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after issuance at the office of the Corporation or any transfer agent
for such stock, or if there is none, then at the office of the transfer agent
for the Common Stock, or if there is no such transfer agent, at the principal
executive office of the Company, into that number of fully paid and non-
assessable shares of Common Stock of the Company equal to $3.75 divided by the
conversion price in effect at the time of conversion (the "Conversion Price"),
determined as hereinafter provided. The Conversion Price shall initially be
$.375, but shall be subject to adjustment as set forth in Paragraph 5(d). The
number of shares of Common Stock into which each share of Preferred Stock is
convertible is hereinafter collectively referred to as the "Conversion Rate."
For purposes of this Paragraph 5(a), 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 upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date.
(b) Automatic Conversion. Commencing 18 months after the
final closing of the Private Placement (the "Final Closing"), if (i) the
closing price (as determined in accordance with Paragraph 5(f)(2)) of the
Company's Common Stock equals or exceeds $1.00 per share for 30 consecutive
trading days and (ii) a registration statement covering the shares of Common
Stock issuable upon conversion of the Series A Preferred Stock has been
declared effective by the Securities and Exchange Commisson, each share of
Series A Preferred Stock then outstanding shall, by virtue of such conditions
and without any action on the part of the holder thereof, be deemed
automatically converted into that number of shares of Common Stock into which
the Series A Preferred Stock would then be converted at the then effective
Conversion Rate.
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(c) Mechanics of Conversion. Before any holder of Series
A Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for
the Series A Preferred Stock, and shall give written notice to the Corporation
at its principal corporate office, of the election to convert the same and
shall state therein the name or names in which the certificate or certificates
for shares of Common Stock are to be issued. The Corporation shall, as soon
as practicable thereafter, issue and deliver 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 such holder
shall be entitled as aforesaid. 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 upon such
conversion shall be treated for all purposes as the record holder or holders
of such shares of Common Stock as of such date.
(d) Conversion Price Adjustments. The Conversion Price of
the Series A Preferred Stock shall be subject to adjustment from time to time
as set forth below.
(i) (A) The Conversion Price of the Series A
Preferred Stock shall be adjusted to a price equal to the weighted average of
the price or prices of any shares of Common Stock issued by the Company (the
"Weighted Average Price"), other than "Excluded Securities" (as defined
below), on a cumulative basis, sold by the Company on or after the date of the
Final Closing. The Weighted Average Price shall be computed by dividing (A)
for all such issuances of Common Stock, the product of (i) the sales price of
each such issuance of Common Stock and (ii) the number of shares of Common
Stock in each such issuance by (B) the aggregate number of shares of such
Common Stock issued in all such issuances. Notwithstanding anything to the
contrary contained herein, in the event the Company shall, at any time during
the one-year period commencing on the date of the initial closing of the
Private Placement, sell any shares of Common Stock for a consideration per
share less than the Conversion Price, the Conversion Price shall be
immediately adjusted to equal such issuance price. The provisions of this
subparagraph 5(d)(i) shall not apply retroactively to any Series APreferred
Stock which has been converted prior to the date of the adjustment.
(B) Except as otherwise provided in
subparagraph 5(d)(iii) below, in no event shall the Conversion Price be
increased above the initial Conversion Price, as otherwise adjusted pursuant
to this Paragraph 5.
(C) Upon each adjustment of the Conversion
Price pursuant to this subparagraph 5(d)(i), the total number of shares of
Common Stock purchasable upon the conversion of each share of Series A
Preferred Stock shall be such number of shares (calculated to the nearest one-
hundredth and pursuant to the terms of subparagraph 5(f)(i); provided,
however, that in no event shall the Conversion Price increase as a result of
such rounding calculation) purchasable at the Conversion Price in effect
immediately prior to such adjustment multiplied by a fraction, the numerator
of which shall be the Conversion Price in effect immediately prior to such
adjustment and the denominator of which shall be the Conversion Price in
effect immediately after such adjustment.
(D) No adjustment in the Conversion Price or
the number of shares of Common Stock into which a share of Series A Preferred
Stock may be converted shall be required unless such adjustment (plus any
adjustments
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not previously made by reason of this subparagraph (D)) would require an
increase or decrease of at least 5% in the number of shares of Common Stock
into which each share of the Series A Preferred Stock is then convertible,
provided, however, that any adjustments which are not required to be made by
reason of this subparagraph (D) shall be carried forward and taken into
account in any subsequent adjustment. All calculations and adjustments shall
be made to the nearest cent or to the nearest 1/100th of a share, as the case
may be.
(E) After each adjustment of the Conversion
Price the Company shall promptly prepare a certificate signed by its President
or Chief Financial Officer and a Secretary or Assistant Secretary setting
forth: the Conversion Price, as so adjusted; the number of shares of Common
Stock into which the Series A Preferred Stock may be converted; and a
statement of the facts upon which such adjustment is based, and such
certificate shall forthwith be filed with the transfer agent, if any, for the
Series A Preferred Stock, and the Company shall cause such a copy of statement
to be sent by ordinary first class mail to each holder of Series A Preferred
Stock.
(F) In the case of the issuance of Common
Stock for cash, the consideration shall be deemed to be the amount of cash
paid therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by this Company for any underwriting or
otherwise in connection with the issuance and sale thereof.
(G) In the case of the issuance of Common
Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value thereof as
determined in good faith by the Board of Directors.
(H) In the case of the issuance after the
Issuance Date of options to purchase or rights to subscribe for Common Stock,
securities by their terms convertible into or exchangeable for Common Stock or
options to purchase or rights to subscribe for such convertible or
exchangeable securities, the following provisions shall apply for all purposes
of this subparagraph 5(d)(i) and subparagraph 5(d)(ii):
(1) The aggregate maximum number of
shares of Common Stock deliverable upon exercise (assuming the satisfaction of
any conditions to exercisability, including without limitation, the passage of
time, but without taking into account potential antidilution adjustments) of
such options to purchase or rights to subscribe for Common Stock shall be
deemed to have been issued at the time such options or rights were issued and
for a consideration (determined in the manner provided in subparagraphs
5(d)(i)(F) and 5(d)(i)(G)), if any, received by the Company upon the issuance
of such options or rights plus the minimum exercise price provided in such
options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in exchange for
(assuming the satisfaction of any conditions to convertibility or
exchangeability, including, without limitation, the passage of time, but
without taking into account potential antidilution adjustments) any such
convertible or exchangeable securities or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange thereof, shall be deemed to
have been issued at the time such securities were issued or such options or
rights were issued and for a consideration equal to the consideration, if any,
received by the Company for any such securities and related options or rights
(excluding any cash received on account of accrued
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interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Company (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such securities
or the exercise of any related options or rights (the consideration in each
case to be determined in the manner provided in subparagraphs 5(d)(i)(F) and
5(d)(i)(G)).
(3) In the event of any change in the
number of shares of Common Stock deliverable or in the consideration payable
to the Company upon exercise of such options or rights or upon conversion of
or in exchange for such convertible or exchangeable securities (excluding a
change resulting solely from the antidilution provisions thereof if such
change results from an event which gives rise to an antidilution adjustment
under this Paragraph 5(d)), the Conversion Price of the Series A Preferred
Stock, to the extent in any way affected by or computed using such options,
rights or securities, shall be recomputed to reflect such change, but no
further adjustment shall be made for the actual issuance of Common Stock or
any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such
options or rights, the termination of any such rights to convert or exchange
or the expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price of the Series A Preferred Stock,
to the extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be
recomputed to reflect the issuance of only the number of shares of Common
Stock (and convertible or exchangeable securities which remain in effect)
actually issued upon the exercise of such options or rights, upon the
conversion or exchange of such securities or upon the exercise of the options
or rights related to such securities.
(5) The number of shares of Common Stock
deemed issued and the consideration deemed paid therefor pursuant to
subparagraphs 5(d)(i)(H)(1) and (2) shall be appropriately adjusted to reflect
any change, termination or expiration of the type described in either
subparagraph 5(d)(i)(H)(3) or (4).
(6) Notwithstanding the provisions of
subparagraphs 5(d)(i)(H)(1)-(5) above, in the event that on or after the date
hereof the Company issues any options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such
convertible or exchangeable securities, if the conversion or exercise price is
not then determinable or is based on future events, such shares of Common
Stock shall not be deemed to be issued until the price is determinable or such
event has occurred and the conversion or exercise price shall be subject to
adjustment pursuant to subparagraph 5(d)(i) above at the time of such
determination or the occurrence of such event even if the price is determined
or such event occurs after such date.
(ii) The following issuances of Common Stock
("Excluded Securities") shall be excluded from the adjustments set forth in
this Paragraph 5(d):
(A) shares of capital stock issued
pursuant to a stock dividend or a stock split or other subdivision or
recombination of shares;
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(B) Common Stock issued upon exercise of
any warrants, options or other securities outstanding on the date of the Final
Closing;
(C) securities issued by the Company in
an underwritten public offering at not less than 95% of the then effective
Conversion Price;
(D) securities issued pursuant to the
direct or indirect bona fide acquisition by the Company of any Person, whether
by merger, purchase of stock, purchase of assets or otherwise;
(E) securities issued upon exercise,
conversion or exchange of capital stock, rights, options or subscription
calls, warrants or other securities; and
(F) Common Stock or options or warrants
to purchase Common Stock issued to officers, directors or employees of or
consultants to the Company pursuant to any compensation agreement, plan or
arrangement or the issuance of Common Stock upon the exercise of any such
options or warrants, provided such issuances do not exceed 10% of the
Company's outstanding Common Stock and preferred stock on the date of the
Final Closing.
(iii) In case the Company shall (a) issue Common
Stock as a dividend or distribution on any class of the capital stock of the
Company, (b) split or otherwise subdivide its outstanding Common Stock,
(c) combine the outstanding Common Stock into a smaller number of shares, or
(d) issue by reclassification of its Common Stock (except in the case of a
merger, consolidation or sale of all or substantially all of the assets of the
Company as set forth in subparagraph 5(d)(iv) below) any shares of the capital
stock of the Company, any shares of the capital stock of the Company, the
Conversion Price in effect on the record date for any stock dividend or the
effective date of any such other event shall be decreased (or increased in the
case of a reverse stock split) so that the holder of each share of the Series
A Preferred Stock shall thereafter be entitled to receive, upon the conversion
of such share, the number of shares of Common Stock or other capital stock
which it would own or be entitled to receive immediately after the happening
of any of the events mentioned above had such share of the Series A Preferred
Stock been converted immediately prior to the close of business on such record
date or effective date. The adjustments herein provided shall become
effective immediately following the record date for any such stock dividend or
the effective date of any such other events. There shall be no reduction in
the Conversion Price in the event that the Company pays a cash dividend.
(iv) In case of any reclassification or similar
change of outstanding shares of Common Stock of the Company, or in case of the
consolidation or merger of the Company with another corporation, or the
conveyance of all or substantially all of the assets of the Company in a
transaction in which holders of the Common Stock receive shares of stock or
other property including cash, each share of the Series A Preferred Stock
shall, after such event and subject to the other rights of the Series A
Preferred Stock as set forth elsewhere herein, be convertible only into the
number of shares of stock or other securities or property, including cash, to
which a holder of the number of shares of Common Stock of the Company
deliverable upon conversion of such shares of the Series A Preferred Stock
would have been entitled upon such reclassification, change, consolidation,
merger or conveyance had such share been converted immediately prior to the
effective date of such event.
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(e) The Company shall at all times commencing sixty
(60) days after the initial closing of the Private Placement, reserve and keep
available, out of its authorized but unissued shares of Common Stock or out of
shares of Common Stock held in its treasury, solely for the purpose of
effecting the conversion of the shares of the Series A Preferred Stock, the
full number of shares of Common Stock deliverable upon the conversion of all
shares of the Series A Preferred Stock from time to time outstanding. The
Company shall from time to time in accordance with Nevada law take all steps
necessary to increase the authorized amount of its Common Stock if at any time
the authorized number of shares of Common Stock remaining unissued shall not
be sufficient to permit the conversion of all of the shares of the Series A
Preferred Stock.
(f) (i) No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon the conversion of the
Series A Preferred Stock. In lieu of any fractional shares to which a holder
would otherwise be entitled, the Company shall pay cash, equal to such
fraction multiplied by the closing price (determined as provided in
subparagraph (ii) of this Paragraph 5(f)) of the Common Stock on the day of
conversion.
(ii) For the purposes of any computation under
subparagraph 5(f)(i), the current market price per share of Common Stock on
any date shall be deemed to be the average of the daily closing prices for the
20 consecutive business days prior to the day in question. The closing price
for each day shall be the last sales price regular way or in case no sale
takes place on such day, the average of the closing high bid and low asked
prices regular way, in either case (a) as officially quoted by the Nasdaq
SmallCap Market or the Nasdaq National Market or such other market on which
the Common Stock is then listed for trading, or (b) if, in the reasonable
judgment of the Board of Directors of the Company, the Nasdaq SmallCap Market
or the Nasdaq National Market is no longer the principal United States market
for the Common Stock, then as quoted on the principal United States market for
the Common Stock, as determined by the Board of Directors of the Company, or
(c) if, in the reasonable judgment of the Board of Directors of the Company,
there exists no principal United States market for the Common Stock, then as
reasonably determined by the Board of Directors of the Company.
(g) The Company will pay any taxes that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of shares of the Series A Preferred Stock. However, the Company
shall not be required to pay any tax which may be payable in respect to any
transfer involved in the issue and delivery of shares of Common Stock upon
conversion in a name other than that in which the shares of the Series A
Preferred Stock so converted were registered, and no such issue or delivery
shall be made unless and until the person requesting such issue or delivery
has paid to the Company the amount of any such tax, or has established, to the
satisfaction of the Company, that such tax has been paid.
(h) The Company will not, by amendment of its
Articles of Incorporation, as amended, or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith assist
in the carrying out of all the provisions of this Paragraph 5 and in the
taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holders of the Series A Preferred Stock
against impairment.
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6. Voting Rights.
(a) In addition to any other rights provided for
herein or by law, the holders of Series A Preferred Stock shall be entitled to
vote, together with the holders of Common Stock as one class, on all matters
as to which holders of Common Stock shall be entitled to vote, in the same
manner and with the same effect as such Common Stock holders. In any such
vote each share of Series A Preferred Stock shall entitle the holder thereof
to the number of votes per share that equals the number of whole shares of
Common Stock into which each such share of Series A Preferred Stock is then
convertible, calculated to the nearest of a share.
(b) So long as any shares of the Series A Preferred
Stock remain outstanding, the consent of the holders of two-thirds of the then
outstanding Series A Preferred Stock, voting as one class, either expressed in
writing or at a meeting called for that purpose, shall be necessary to permit,
effect or validate the creation and issuance of any series of preferred stock
or other security of the Company which is senior as to liquidation and/or
dividend rights to the Series A Preferred Stock.
(c) So long as any shares of the Series A Preferred
Stock remain outstanding, the consent of two-thirds of the holders of the then
outstanding Series A Preferred Stock, voting as one class, either expressed in
writing or at a meeting called for that purpose, shall be necessary to repeal,
amend or otherwise change this Designation or the Articles of Incorporation of
the Company, as amended, in a manner which would alter or change the powers,
preferences, rights privileges, restrictions and conditions of the Series A
Preferred Stock so as to adversely affect the Series A Preferred Stock.
(d) Each share of the Series A Preferred Stock shall
entitle the holder thereof to one vote on all matters to be voted on by the
holders of the Series A Preferred Stock, as set forth above.
(e) In the event that the holders of the Series A
Preferred Stock are required to vote as a class on any other matter, the
affirmative vote of holders of not less than fifty percent (50%) of the
outstanding shares of Series A Preferred Stock shall be required to approve
each such matter to be voted upon, and if any matter is approved by such
requisite percentage of holders of Series A Preferred Stock, such matter shall
bind all holders of Series A Preferred Stock.
7. Status of Converted Stock. In the event any shares of
Series A Preferred Stock shall be converted pursuant to Paragraph 5 hereof,
the shares so converted shall be cancelled and shall not be issuable by the
Corporation. The Articles of Incorporation of the Corporation, as amended,
may be appropriately amended from time to time to effect the corresponding
reduction in the Corporation's authorized capital stock.
8. Miscellaneous.
(a) There is no sinking fund with respect to the
Series A Preferred Stock.
(b) The shares of the Series A Preferred Stock shall
not have any preferences, voting powers or relative, participating, optional,
preemptive or other special rights except as set forth above in this
Designation and in the Articles of Incorporation of the Company, as amended.
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(c) The holders of the Series A Preferred Stock
shall be entitled to receive all communications sent by the Company to the
holders of the Common Stock.
IN WITNESS WHEREOF, Datalink Systems Corporation has caused this
Designation to be executed this 31st day of October, 1997.
DATALINK SYSTEMS CORPORATION
By:/s/ Anthony N. LaPine
Name: Anthony N. LaPine
Title: President
Attest:
By:/s/ Nicholas Miller
Name: Nicholas Miller
Title: Secretary