ARTICLES OF AMENDMENT TO THE ARTICLES
OF INCORPORATION OF
THE NETWORK CONNECTION, INC.
---------------
These Articles of Amendment (the "Amendment") are being executed as of
April 30, 1999, for the purpose of amending the Articles of Incorporation of The
Network Connection, Inc. (the "Company"), pursuant to Section 14-2-602 of the
Georgia Business Corporation Code.
NOW, THEREFORE, the undersigned hereby certifies as follows:
FIRST: The name of the corporation is The Network Connection, Inc.
SECOND: Pursuant to authority conferred upon the Board of Directors by the
Articles of Incorporation, the Board of Directors, adopted the following
resolution providing for the creation of sixteen hundred (1,600) shares of
Series C 8% Convertible Preferred Stock:
RESOLVED, that pursuant to Article V of the Articles of Incorporation of
the Company, there be and hereby is authorized and created one series of
Preferred Stock, hereby designated as Series C 8% Convertible Preferred Stock to
consist of sixteen hundred (1,600) shares with a par value of $.01 per share and
a Stated Value of $1,000.00 per share (the "Stated Value"), and that the
designations, preferences and relative, participating, optional or other rights
of the Series C 8% Convertible Preferred Stock (the "Series C Preferred Stock")
and qualifications, limitations or restrictions thereof, shall be as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The terms defined in this Article whenever used in
this Amendment have the following respective meanings:
(a) "Additional Capital Shares" has the meaning set forth in Section
6.1(c).
(b) "Affiliate" has the meaning ascribed to such term in Rule 12b-2
under the Securities Exchange Act of 1934, as amended.
(c) "Average Price" per share of Common Stock means the average of the
closing bid prices as reported on the Nasdaq Stock Market ("NASDAQ") or if
not then traded on such market, on such exchange or quotation system where
such shares are
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traded for the lowest five of the twenty Trading Days immediately preceding
the Conversion Date or Dividend Payment Date as the case may be.
(d) "Business Day" means a day other than Saturday, Sunday or any day
on which banks located in the State of New York are authorized or obligated
to close.
(e) "Capital Shares" means the Common Shares and any other shares of
any other class or series of common stock, whether now or hereafter
authorized and however designated, which have the right to participate in
the distribution of earnings and assets (upon dissolution, liquidation or
winding-up) of the Corporation.
(f) "Closing Date" means April 29, 1999.
(g) "Common Shares" or "Common Stock" means shares of common stock,
$.001 par value, of the Corporation.
(h) "Common Stock Issued at Conversion" when used with reference to
the securities issuable upon conversion of the Series C Preferred Stock,
means all Common Shares now or hereafter Outstanding and securities of any
other class or series into which the Series C Preferred Stock hereafter
shall have been changed or substituted, whether now or hereafter created
and however designated.
(i) "Conversion Date" means any day on which all or any portion of
shares of the Series C Preferred Stock is converted in accordance with the
provisions hereof.
(j) "Conversion Notice" has the meaning set forth in Section 6.2.
(k) "Conversion Price" means on any date of determination the
applicable price for the conversion of shares of Series C Preferred Stock
into Common Shares on such day as set forth in Section 6.1.
(l) "Corporation" means The Network Connection, Inc., a Georgia
corporation, and any successor or resulting corporation by way of merger,
consolidation, sale or exchange of all or substantially all of the
Corporation's assets, or otherwise.
(m) "Current Market Price" on any date of determination means the
closing bid price of a Common Share on such day as reported on the NASDAQ
or such other exchange or quotation system where such Common Stock is
traded.
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(n) "Holder" means Interactive Flight Technologies, Inc., any
successor thereto, or any Person to whom the Series C Preferred Stock is
subsequently transferred in accordance with the provisions hereof.
(o) "Market Disruption Event" means any event that results in a
material suspension or limitation of trading of Common Shares on the
NASDAQ.
(p) "Outstanding" when used with reference to Common Shares or Capital
Shares (collectively, "Shares"), means, on any date of determination, all
issued and outstanding Shares, and includes all such Shares issuable in
respect of outstanding scrip or any certificates representing fractional
interests in such Shares; provided, however, that any such Shares directly
or indirectly owned or held by or for the account of the Corporation or any
Subsidiary of the Corporation shall not be deemed "Outstanding" for
purposes hereof.
(q) "Person" means an individual, a corporation, a partnership, an
association, a limited liability company, a unincorporated business
organization, a trust or other entity or organization, and any government
or political subdivision or any agency or instrumentality thereof.
(r) "Registration Rights Agreement" means that certain Registration
Rights Agreement dated October 23, 1998, as amended, between the
Corporation and the Shaar Fund Ltd. as amended on the date hereof.
(s) "SEC" means the United States Securities and Exchange Commission.
(t) "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC thereunder, all as in effect at the
time.
(u) "Securities Purchase Agreement" means that certain Securities
Purchase Agreement of even date herewith between the Corporation and
Interactive Flight Technologies, Inc.
(v) "Subsidiary" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by the Corporation.
(x) "Trading Day" means any day on which purchases and sales of
securities authorized for quotation on the NASDAQ are reported thereon and
on which no Market Disruption Event has occurred.
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(y) "Valuation Event" has the meaning set forth in Section 6.1.
(z) "Valuation Period" means the twenty (20) Trading Day period
immediately preceding each Conversion Date.
All references to "cash" or "$" herein means currency of the United States
of America.
ARTICLE 2
RESERVED
ARTICLE 3
RANK
SECTION 3.1
The Series C Preferred Stock shall rank (i) prior to the Common Stock; (ii)
prior to any class or series of capital stock of the Corporation hereafter
created other than "Pari Passu Securities" (collectively, with the Common Stock,
"Junior Securities"); (iii) pari passu with Corporation's Series B 8%
Convertible Preferred Stock, and (iv) pari passu with any class or series of
capital stock of the Corporation hereafter created specifically ranking on
parity with the Series C Preferred Stock ("Pari Passu Securities").
ARTICLE 4
DIVIDENDS
SECTION 4.1
(a) (i) The Holder shall be entitled to receive, the Board of Directors
shall be obligated to declare, and the Corporation shall be obligated to pay,
out of funds legally available for the payment of dividends, dividends (subject
to Sections 4(a)(ii)) at the rate of 8% per annum (computed on the basis of a
360-day year) (the "Dividend Rate") of the Stated Value of each share of Series
C Preferred Stock on and as of the most recent Dividend Payment Due Date (as
defined below) with respect to each Dividend Period (as defined below).
Dividends on the Series C Preferred Stock shall be cumulative from the date
hereof, whether or not declared for any reason, including if such declaration is
prohibited under any outstanding indebtedness or borrowings of the Corporation
or any of its Subsidiaries, or any other contractual provision binding on the
Corporation or any of its Subsidiaries, and whether or not there shall be funds
legally available for the payment thereof.
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(ii) Each dividend shall be payable in equal quarterly amounts on each
March 31, June 30, September 30 and December 31 of each year (each, a
"Dividend Payment Due Date"), commencing June 30, 1999, to the holders of
record of shares of the Series C Preferred Stock, as they appear on the
stock records of the Corporation at the close of business on any record
date, not more than 60 days nor less than 10 days preceding the payment
dates thereof, as shall be fixed by the Board of Directors. For the
purposes hereof, "Dividend Period" means the quarterly period commencing on
and including the day after the immediately preceding a Dividend Payment
Date and ending on and including the immediately subsequent Dividend
Payment Date. Accrued and unpaid dividends for any past Dividend Period may
be declared and paid at any time, without reference to any Dividend Payment
Due Date, to holders of record on such date, not more than 15 days
preceding the payment date thereof, as may be fixed by the Board of
Directors.
(iii) At the option of the Corporation, the dividend shall be paid in
cash or through the issuance of duly and validly authorized and issued,
fully paid and non-assessable, freely tradable shares of the Common Stock
valued at the Average Price. The Common Stock to be issued in lieu of cash
payments shall be registered for resale in the Registration Statement to be
filed by the Corporation to register the Common Stock issuable upon
conversion of the shares of Series C Preferred Stock as set forth in the
Registration Rights Agreement. Notwithstanding the foregoing, until such
Registration Statement has been declared effective under the Securities Act
by the SEC, payment of dividends on the Series C Preferred Stock shall be
in cash.
(b) The Holder shall not be entitled to any dividends in excess of the
cumulative dividends, as herein provided, on the Series C Preferred Stock.
Except as provided in this Article 4, no interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on the
Series C Preferred Stock that may be in arrears.
(c) As long as any shares of the Series C Preferred Stock are Outstanding,
no dividends, except as described in the next succeeding sentence, shall be
declared or paid or set apart for payment on Pari Passu Securities for any
period unless full cumulative dividends required to be paid in cash have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the Series C Preferred Stock for
all Dividend Periods terminating on or prior to the date of payment of the
dividend on such class or series of Pari Passu Securities. When dividends are
not paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, all dividends declared upon shares of the Series C Preferred Stock
and all dividends declared upon any other class or series of Pari Passu
Securities shall be declared ratably in proportion to the respective amounts of
dividends
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accumulated and unpaid on the Series C Preferred Stock and accumulated and
unpaid on such Pari Passu Securities.
(d) As long as any shares of the Series C Preferred Stock are outstanding,
no dividends shall be declared or paid or set apart for payment or other
distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan (including a stock option
plan) of the Corporation or any subsidiary, (all such dividends, distributions,
redemptions or purchases being hereinafter referred to as a "Junior Securities
Distribution") for any consideration (or any moneys be paid to or made available
for a sinking fund for the redemption of any shares of any such stock) by the
Corporation, directly or indirectly, unless in each case (i) the full cumulative
dividends required to be paid in cash on all outstanding shares of the Series C
Preferred Stock and any other Pari Passu Securities shall have been paid or set
apart for payment for all past Dividend Periods with respect to the Series C
Preferred Stock and all past dividend periods with respect to such Pari Passu
Securities, and (ii) sufficient funds shall have been paid or set apart for the
payment of the dividend for the current Dividend Period with respect to the
Series C Preferred Stock and the current dividend period with respect to such
Pari Passu Securities.
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ARTICLE 5
LIQUIDATION PREFERENCE
SECTION 5.1
(a) If the Corporation shall commence a voluntary case under the Federal
bankruptcy laws or any other applicable Federal or State bankruptcy, insolvency
or similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the Federal bankruptcy laws or any other applicable
Federal or state bankruptcy, insolvency or similar law resulting in the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation upon liquidation, dissolution or winding up
unless prior thereto, the holders of shares of Series C Preferred Stock, subject
to Article 5, shall have received the Liquidation Preference (as defined in
Section 5.1(c)) with respect to each share. If upon the occurrence of a
Liquidation Event, the assets and funds available for distribution among the
holders of the Series C Preferred Stock and holders of Pari Passu Securities
shall be insufficient to permit the payment to such holders of the preferential
amounts payable thereon, then the entire assets and funds of the Corporation
legally available for distribution to the Series C Preferred Stock and the Pari
Passu Securities shall be distributed ratably among such shares in proportion to
the ratio that the Liquidation Preference payable on each such share bears to
the aggregate Liquidation Preferences payable on all such shares.
(b) At the option of each Holder, the sale, conveyance of disposition of
all or substantially all of the assets of the Corporation, the effectuation by
the Corporation of a transaction or series of related transactions in which more
than 50% of the voting power of the Corporation is disposed of, or the
consolidation, merger or other business combination of the Corporation with or
into any other Person (as defined below) or Persons when the Corporation is not
the survivor shall be deemed to be a liquidation,
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dissolution or winding up of the Corporation pursuant to which the Corporation
shall be required to distribute, upon consummation of and as a condition to,
such transaction an amount equal to 120% of the Liquidation Preference with
respect to each outstanding share of Series C Preferred Stock in accordance with
and subject to the terms of this Article 5; provided, that all holders of Series
C Preferred Stock shall be deemed to elect the option set forth above if at
least a majority in interest of such holders elect such option. "Person" shall
mean any individual, corporation, limited liability company, partnership,
association, trust or other entity or organization.
(c) For purposes hereof, the "Liquidation Preference" with respect to a
share of the Series C Preferred Stock shall mean an amount equal to the sum of
(i) the Stated Value thereof, plus (ii) the aggregate of all accrued and unpaid
dividends on such share of Series C Preferred Stock until the most recent
Dividend Payment Date; provided that, in the event of an actual liquidation,
dissolution or winding up of the Corporation, the amount referred to in clause
(ii) above shall be calculated by including accrued and unpaid dividends to the
actual date of such liquidation, dissolution or winding up, rather than the
Dividend Payment Due Date referred to above.
ARTICLE 6
CONVERSION OF SERIES C PREFERRED STOCK
SECTION 6.1 Conversion; Conversion Price. At the option of the Holder, the
shares of Series C Preferred Stock may be converted, either in whole or in part,
into Common Shares (calculated as to each such conversion to the nearest 1/100th
of a share), at any time, and from time to time, at a Conversion Price equal to
the lowest of (a) $2.6875, (b) 66.67% of the Average Price or (c) the amount
determined pursuant to Section 6.5. At the Corporation's option, the amount of
accrued and unpaid dividends as of the Conversion Date shall not be subject to
conversion but instead may be paid in cash as of the Conversion Date; if the
Corporation elects to convert the amount of accrued and unpaid dividends at the
Conversion Date into Common Stock, the Common Stock issued to the Holder shall
be valued at the Conversion Price.
The number of shares of Common Stock due upon conversion of Series C
Preferred Stock shall be (i) the number of shares of Series C Preferred Stock to
be converted, multiplied by (ii) the Stated Value and divided by (iii) the
applicable Conversion Price.
Within two (2) Business Days of the occurrence of a Valuation Event, the
Corporation shall send notice (the "Valuation Event Notice") of such occurrence
to the Holder. Notwithstanding anything to the contrary contained herein, if a
Valuation Event occurs after the date hereof as a result of which the number of
Common Shares
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Outstanding (assuming for purposes of such determination, the issuance of all
such shares pursuant to an exercise or conversion (as the case may be) of
options, warrants, and other securities issued as part of such Valuation Event)
shall be increased or decreased, then the Conversion Price shall automatically
be proportionately decreased or increased, respectively, and the number of
Common Shares reserved for issuance pursuant to the conversion of the then
Outstanding Series C Preferred Stock shall be automatically proportionately
increased or decreased respectively, so as appropriately to reflect the effects
of such Valuation Event, effective immediately upon the effectiveness of such
Valuation Event. The adjustment required by the foregoing sentence shall be
effectuated each time a separate Valuation Event shall occur, and such
adjustments shall therefore be cumulative. Notwithstanding anything to the
contrary contained herein, if a Valuation Event occurs during any Valuation
Period, the calculation of the Average Price, Conversion Price, and Current
Market Price shall be equitably adjusted to reflect the effects of the Valuation
Event.
For purposes of this Section 6.1, a "Valuation Event" shall mean an event in
which the Corporation at any time during a Valuation Period takes any of the
following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution or dividend of its Capital Shares in respect of
Outstanding Capital Shares;
(c) issues any additional Capital Shares (the "Additional Capital Shares"),
otherwise than as provided in the foregoing Sections 6.1(a) and 6.1(b) above, at
a price per share less, or for other consideration lower, than the Current
Market Price in effect immediately prior to such issuances, or without
consideration, except for issuances under employee benefit plans consistent with
those presently in effect and issuances under presently outstanding warrants,
options or convertible securities, to officers, directors or employees of the
Corporation, or otherwise under the Corporation's 1994 Employee Stock Option
Plan or non-employee Director Stock Option Plan;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price in effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable or exercisable
for Capital Shares and the consideration per share for which Additional Capital
Shares may at any time thereafter be issuable pursuant to the terms of such
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convertible, exchangeable or exercisable securities shall be less than the
Current Market Price in effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of indebtedness to the
holders of its Capital Shares as a dividend in liquidation or by way of return
of capital or other than as a dividend payable out of earnings or surplus
legally available for the payment of dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Corporation's assets (other than under the circumstances provided for
in the foregoing Sections 6.1(a) through 6.1(e)); or
(g) takes any action affecting the number of Outstanding Capital Shares,
other than an action described in any of the foregoing Sections 6.1(a) through
6.1(f), inclusive, which in the opinion of the Corporation's Board of Directors,
determined in good faith, would have a material adverse effect upon the rights
of the Holder at the time of a conversion of the Series C Preferred Stock.
SECTION 6.2 Exercise of Conversion Privilege. (a) Conversion of the Series
C Preferred Stock may be exercised, in whole or in part, by the Holder by
telecopying an executed and completed notice of conversion in the form annexed
hereto as Annex I (the "Conversion Notice") to the Corporation. Each date on
which a Conversion Notice is telecopied to and received by the Corporation in
accordance with the provisions of this Section 6.2 shall constitute a Conversion
Date. The Corporation shall convert the Series C Preferred Stock and issue the
Common Stock Issued at Conversion effective as of the Conversion Date. The
Conversion Notice also shall state the name or names (with addresses) of the
persons who are to become the holders of the Common Stock Issued at Conversion
in connection with such conversion. The Holder shall deliver the shares of
Series C Preferred Stock to the Corporation by express courier within 30 days
following the date on which the telecopied Conversion Notice has been
transmitted to the Corporation. Upon surrender for conversion, the Series C
Preferred Stock shall be accompanied by a proper assignment hereof to the
Corporation or be endorsed in blank. As promptly as practicable after the
receipt of the Conversion Notice as aforesaid, but in any event not more than
five Business Days after the Corporation's receipt of such Conversion Notice, or
such Series C Preferred Stock, whichever is later, the Corporation shall (i)
issue the Common Stock issued at Conversion in accordance with the provisions of
this Article 6, and (ii) cause to be mailed for delivery by overnight courier to
the Holder (X) a certificate or certificate(s) representing the number of Common
Shares to which the Holder is entitled by virtue of such conversion, (Y) cash,
as provided in Section 6.3, in respect of any fraction of a Share issuable upon
such conversion and (Z) cash in the amount of accrued and unpaid dividends as of
the Conversion Date. Holder shall indemnify the Corporation for any damages to
third parties as a result of a claim by such third party to ownership of the
Series C Preferred Stock converted prior to the receipt of the Series C
Preferred Stock by the Corporation. Such conversion shall be deemed to
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have been effected at the time at which the Conversion Notice indicates so long
as the Series C Preferred Stock shall have been surrendered as aforesaid at such
time, and at such time the rights of the Holder of the Series C Preferred Stock,
as such, shall cease and the Person and Persons in whose name or names the
Common Stock Issued at Conversion shall be issuable shall be deemed to have
become the holder or holders of record of the Common Shares represented thereby.
The Conversion Notice shall constitute a contract between the Holder and the
Corporation, whereby the Holder shall be deemed to subscribe for the number of
Common Shares which it will be entitled to receive upon such conversion and, in
payment and satisfaction of such subscription (and for any cash adjustment to
which it is entitled pursuant to Section 6.4), to surrender the Series C
Preferred Stock and to release the Corporation from all liability thereon. No
cash payment aggregating less than $1.50 shall be required to be given unless
specifically requested by the Holder.
(b) If, at any time (i) the Corporation challenges, disputes or denies the
right of the Holder hereof to effect the conversion of the Series C Preferred
Stock into Common Shares or otherwise dishonors or rejects any Conversion Notice
delivered in accordance with this Section 6.2 or (ii) any third party who is not
and has never been an Affiliate of the Holder commences any lawsuit or
proceeding or otherwise asserts any claim before any court or public or
governmental authority which seeks to challenge, deny, enjoin, limit, modify,
delay or dispute the right of the Holder hereof to effect the conversion of the
Series C Preferred Stock into Common Shares, then the Holder shall have the
right but not the obligation, by written notice to the Corporation, to require
the Corporation promptly to redeem the Series C Preferred Stock for cash at a
redemption price equal to, in the case of (i), one hundred and twenty-five
percent (125%) of the Stated Value thereof together with all accrued and unpaid
dividends thereon and, in the case of (ii), one hundred and fifteen percent
(115%) of the Stated Value thereof together with all accrued and unpaid
dividends thereon (each, the "Mandatory Purchase Amount"). Under any of the
circumstances set forth above, the Corporation shall be responsible for the
payment of all costs and expenses of the Holder, including reasonable legal fees
and expenses, as and when incurred in disputing any such action or pursuing its
rights hereunder (in addition to any other rights of the Holder).
SECTION 6.3 Fractional Shares. No fractional Common Shares or scrip
representing fractional Common Shares shall be issued upon conversion of the
Series C Preferred Stock. Instead of any fractional Common Shares which
otherwise would be issuable upon conversion of the Series C Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction. No cash payment of less than $1.50 shall be required
to be given unless specifically requested by the Holder.
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SECTION 6.4 Reclassification, Consolidation, Merger or Mandatory Share
Exchange. At any time while the Series C Preferred Stock remains outstanding and
any shares thereof have not been converted, in case of any reclassification or
change of Outstanding Common Shares issuable upon conversion of the Series C
Preferred Stock (other than a change in par value, or from par value to no par
value per share, or from no par value per share to par value or as a result of a
subdivision or combination of outstanding securities issuable upon conversion of
the Series C Preferred Stock) or in case of any consolidation, merger or
mandatory share exchange of the Corporation with or into another corporation
(other than a merger or mandatory share exchange with another corporation in
which the Corporation is a continuing corporation and which does not result in
any reclassification or change, other than a change in par value, or from par
value to no par value per share, or from no par value per share to par value, or
as a result of a subdivision or combination of Outstanding Common Shares upon
conversion of the Series C Preferred Stock), or in the case of any sale or
transfer to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, the Corporation, or such successor,
resulting or purchasing corporation, as the case may be, shall, without payment
of any additional consideration therefor, execute a new Series C Preferred Stock
providing that the Holder shall have the right to convert such new Series C
Preferred Stock (upon terms and conditions not less favorable to the Holder than
those in effect pursuant to the Series C Preferred Stock) and to receive upon
such exercise, in lieu of each Common Share theretofore issuable upon conversion
of the Series C Preferred Stock, the kind and amount of shares of stock, other
securities, money or property receivable upon such reclassification, change,
consolidation, merger, mandatory share exchange, sale or transfer by the holder
of one Common Share issuable upon conversion of the Series C Preferred Stock had
the Series C Preferred Stock been converted immediately prior to such
reclassification, change, consolidation, merger, mandatory share exchange or
sale or transfer. The provisions of this Section 6.4 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, mandatory share
exchanges and sales and transfers.
SECTION 6.5 Possible Reduction of Conversion Price. For as long as any
shares of the Series C Preferred Stock are outstanding, if the Corporation (i)
issues and sells pursuant to an exemption from registration under the Securities
Act (A) Common Shares at a purchase price on the date of issuance thereof that
is lower than the then applicable Conversion Price, (B) warrants or options with
an exercise price calculated as a percentage (less than 100%) of the Current
Market Price (however defined) or (C) convertible, exchangeable or exercisable
securities with a right to exchange at lower than the Current Market Price on
the date of issuance or conversion, as applicable, of such convertible,
exchangeable or exercisable securities, except for stock option agreements or
stock incentive agreements, and (ii) grants the right to the purchaser(s)
thereof to demand that the Corporation register under the Securities Act such
Common Shares issued or the Common Shares for which such warrants or options may
be exercised or such
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convertible, exchangeable or exercisable securities may be converted, exercised
or exchanged, then the Conversion Price shall, at the option of the Holder be
reduced to equal the lowest of any such lower rates.
SECTION 6.6 Optional Redemptions Under Certain Circumstances. At any time
until the Mandatory Conversion Date (as defined below), the Corporation, upon
notice delivered to the Holder as provided in Section 6.7, may redeem the Series
C Preferred Stock (but only with respect to such shares as to which the Holder
has not theretofore furnished a Conversion Notice in compliance with Section
6.2), at one hundred and thirty-five percent (135%) of the Stated Value thereof
(the "Optional Redemption Price"), together with all accrued and unpaid
dividends thereon to the Redemption Date; provided, however, that the
Corporation may only redeem the Series C Preferred Stock under this Section 6.6
if the Current Market Price is less than $2.6875. Except as provided in Article
6 hereof, the Corporation shall not have the right to prepay or redeem the
Series C Preferred Stock.
SECTION 6.7 Notice of Redemption. Notice of redemption pursuant to Section
6.6 shall be provided by the Corporation to the Holder in writing (by registered
mail or overnight courier at the Holder's last address appearing in the
Corporation's security registry) not fewer than ten (10) nor more than thirty
(30) days prior to the Redemption Date, which notice shall specify the
Redemption Date and refer to Section 6.6 (including, a statement of the Current
Market Price per Common Share) and this Section 6.7.
SECTION 6.8 Surrender of Series C Preferred Stock. Upon any redemption of
the Series C Preferred Stock pursuant to Sections 6.6 or 6.7, the Holder shall
either deliver the Series C Preferred Stock by hand to the Corporation at its
principal executive offices or surrender the same to the Corporation at such
address by express courier. Payment of the Optional Redemption Price specified
in Section 6.6 shall be made by the Corporation to the Holder against receipt of
the Series C Preferred Stock (as provided in this Section 6.8) by wire transfer
of immediately available funds to such account(s) as the Holder shall specify to
the Corporation. If payment of such redemption price is not made in full by the
Redemption Date, the Holder shall have the option, exercisable at any time
thereafter to (i) receive interest on the unpaid obligation at the rate of
Twelve Percent (12%) per annum or the highest lawful rate available whichever is
lower or (ii) treat the redemption as void ab initio and thereby to retain all
the rights as a holder of Series C Preferred Stock.
SECTION 6.9 Mandatory Conversion. On April 30, 2002 (the "Mandatory
Conversion Date"), the Corporation shall convert all Series C Preferred Stock
outstanding at the then applicable Conversion Price. Notwithstanding the
previous sentence, unless the Corporation shall have obtained the approval of
its voting stockholders to such issuance in accordance with the rules of the
NASDAQ or of such other stock market as
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the Corporation shall be required to comply with, the Corporation shall not
issue shares of Common Stock upon such conversion, if such issuance of Common
Stock, when added to the number of shares of Common Stock previously issued by
the Corporation to the Holder would equal or exceed twenty percent (20%) of the
number of shares of the Corporation's Common Stock which were issued and
outstanding on the Closing Date (the "Maximum Issuance Amount").
SECTION 6.9A Note Issuance. In the absence of stockholder approval
referred to in Section 6.9 or Section 6.11, if a Conversion would require the
Corporation to issue shares of Common Stock equal to or in excess of the Maximum
Issuance Amount, the Corporation shall complete such Conversion by (i)
converting shares of Series C Preferred Stock which would result in the
Corporation's issuing one share of Common Stock fewer than the Maximum Issuance
Amount and (ii) issuing a Note (the "Note") to the Holder in an amount equal to
(x) the aggregate Stated Value of the shares of Series C Preferred Stock owned
by the Holder after giving effect to the conversion under (i) and (y) all
accrued and unpaid dividends thereon to the date of such issuance. The Note
shall bear interest at the rate of 8% per annum, compounded continuously, shall
mature one year after issuance, and shall, at the option of the Holder, be
convertible into additional Common Shares at any time, and from time to time, at
the Conversion Price which applied on the applicable Conversion Date; provided,
however, that such conversion right shall be exercisable only upon receipt of
the stockholder approval referred to Section 6.9 or Section 6.11 as the case may
be. Corporation hereby covenants and agrees to use its best efforts to obtain
such stockholder approval as promptly as possible.
SECTION 6.10 Compliance with Section 13(d). Notwithstanding anything herein
to the contrary, until the Holder shall have filed a Schedule 13D or Schedule
13G under the Securities Exchange Act of 1934 (the "Exchange Act") and otherwise
complied with the requirements of Section 13 of the Exchange Act with respect to
its beneficial ownership of the Common Stock, the Holder shall not have the
right, and the Corporation shall not have the obligation, to convert all or any
portion of the Series C Preferred Stock (and the Corporation shall not have the
right to pay dividends on the Series C Preferred Stock in shares of Common
Stock) if and to the extent that the issuance to the Holder of shares of Common
Stock upon such conversion (or payment of dividends) would result in the
Holder's being deemed the "beneficial owner" of more than 5% of the then
outstanding shares of Common Stock within the meaning of Section 13(d) of the
Exchange Act, and the rules promulgated thereunder. If any court of competent
jurisdiction shall determine that the foregoing limitation is ineffective to
prevent a Holder from being deemed the beneficial owner of more than 5% of the
then outstanding shares of Common Stock, then the Corporation shall redeem so
many of such Holder's shares (the "Redemption Shares") of Series C Preferred
Stock as are necessary to cause such Holder to be deemed the beneficial owner of
not more than 5% of the then outstanding shares of Common Stock. Upon such
determination by a court of competent jurisdiction,
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the Redemption Shares shall immediately and without further action be deemed
returned to the status of authorized but unissued shares of Series C Preferred
Stock and the Holder shall have no interest in or rights under such Redemption
Shares. Any and all dividends paid on or prior to the date of such determination
shall be deemed dividends paid on the remaining shares of Series C Preferred
Stock held by the Holder. Such redemption shall be for cash at a redemption
price equal to the sum of (i) the Stated Value of the Redemption Shares and (ii)
any accrued and unpaid dividends to the date of such redemption.
SECTION 6.11 Stockholder Approval. Unless the Corporation shall have
obtained approval by its voting stockholders in accordance with the rules of the
NASDAQ or such other stock market or quotation system as the Corporation shall
be required to comply with, of the issuance of Common Shares to the Holder
pursuant to a conversion of Series C Preferred Stock or as a dividend on the
Series C Preferred Stock, then the Corporation shall not issue shares of Common
Stock upon any such conversion or as such a dividend, if such issuance of Common
Stock, when added to the number of shares of Common Stock previously issued by
the Corporation (i) upon conversion of shares of the Series C Preferred Stock.
and (ii) in payment of dividends on the Series C Preferred Stock would equal or
exceed the Maximum Issuance Amount. In the event that the Corporation shall
elect to pay a dividend in shares of Common Stock which would require the
Corporation to issue shares of Common Stock equal to or in excess of the Maximum
Issuance Amount, the Corporation shall pay (i) a dividend in shares of Common
Stock equal to one less than an amount which would result in the Corporation
issuing shares equal to the Maximum Issuance Amount and (ii) the balance of the
dividend in cash.
ARTICLE 7
VOTING RIGHTS
The Holders of the Series C Preferred Stock have no voting power, except as
otherwise provided by the Georgia Business Corporation Code ("GCL"), in this
Article 7, and in Article 8 below; provided, that in the event that on or before
July 15, 1999, the Corporation's Articles of Incorporation have not been amended
to increase the number of authorized shares of Common Stock sufficiently to
permit the Corporation to issue to Interactive Flight Technologies, Inc.
("IFT"), upon the exercise of all options and warrants and the conversion of all
convertible securities held by IFT, that number of shares of Common Stock
necessary to satisfy the Corporation's obligations under all such securities
(the "Charter Amendment"), then the shares of Series C Preferred Stock, in
combination with the shares of Series B Preferred Stock, shall entitle the
holders thereof to cast that number of votes at any duly called meeting of the
stockholders of the Corporation which, when added to the shares of Common Stock
held by any of the holders of the Series B Preferred Stock and Series C
Preferred Stock on the record date
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for such stockholder meeting, shall be necessary to equal a majority of the
number of votes entitled to be cast at such stockholder meeting by the holders
of all voting shares of the Corporation.
Notwithstanding the above, the Corporation shall provide each Holder of
Series C Preferred Stock with prior notification of any meeting of the
stockholders (and copies of proxy materials and other information sent to
stockholders). In the event of any taking by the Corporation of a record of its
stockholders for the purpose of determining stockholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining stockholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
Holder, at least thirty (30) days prior to the consummation of the transaction
or event, whichever is earlier), of the date on which any such action is to be
taken for the purpose of such dividend, distribution, right or other event, and
a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the GCL the vote of the holders of the Series C
Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the holders of at least a majority of the shares of the Series C
Preferred Stock represented at a duly held meeting at which a quorum is present
or by written consent of a majority of the shares of Series C Preferred Stock
(except as otherwise may be required under the GCL) shall constitute the
approval of such action by the class. To the extent that under the GCL holders
of the Series C Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series C Preferred
Stock shall be entitled to a number of votes equal to the number of shares of
Common Stock into which it is then convertible using the record date for the
taking of such vote of stockholders as the date as of which the Conversion Price
is calculated. Holders of the Series C Preferred Stock shall be entitled to
notice of all stockholder meetings or written consents (and copies of proxy
materials and other information sent to stockholders) with respect to which they
would be entitled to vote, which notice would be provided pursuant to the
Corporation's bylaws and the GCL.
ARTICLE 8
PROTECTIVE PROVISIONS
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So long as shares of Series C Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the GCL) of the holders of at least a majority of the
then outstanding shares of Series C Preferred Stock:
(a) alter or change the rights, preferences or privileges of the Series C
Preferred Stock;
(b) create any new class or series of capital stock having a preference
over the Series C Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation ("Senior Securities") or alter or
change the rights, preferences or privileges of any Senior Securities so as to
affect adversely the Series C Preferred Stock;
(c) increase the authorized number of shares of Series C Preferred Stock;
or
(d) do any act or thing not authorized or contemplated by this Amendment
which would result in taxation of the holders of shares of the Series C
Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as
amended (or any comparable provision of the Internal Revenue Code as hereafter
from time to time amended).
In the event holders of at least a majority of the then outstanding shares
of Series C Preferred Stock agree to allow the Corporation to alter or change
the rights, preferences or privileges of the shares of Series C Preferred Stock,
pursuant to subsection (a) above, so as to affect the Series C Preferred Stock,
then the Corporation will deliver notice of such approved change to the holders
of the Series C Preferred Stock that did not agree to such alteration or change
(the "Dissenting Holders") and Dissenting Holders shall have the right for a
period of thirty (30) days to convert pursuant to the terms of this Amendment as
they exist prior to such alteration or change or continue to hold their shares
of Series C Preferred Stock.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 Loss, Theft, Destruction of Series C Preferred Stock. Upon
receipt of evidence satisfactory to the Corporation of the loss, theft,
destruction or mutilation of shares of Series C Preferred
17
Stock and, in the case of any such loss, theft or destruction, upon receipt of
indemnity or security reasonably satisfactory to the Corporation, or, in the
case of any such mutilation, upon surrender and cancellation of the Series C
Preferred Stock, the Corporation shall make, issue and deliver, in lieu of such
lost, stolen, destroyed or mutilated shares of Series C Preferred Stock, new
shares of Series C Preferred Stock of like tenor. The Series C Preferred Stock
shall be held and owned upon the express condition that the provisions of this
Section 10.1 are exclusive with respect to the replacement of mutilated,
destroyed, lost or stolen shares of Series C Preferred Stock and shall preclude
any and all other rights and remedies notwithstanding any law or statute
existing or hereafter enacted to the contrary with respect to the replacement of
negotiable instruments or other securities without the surrender thereof.
SECTION 9.2 Who Deemed Absolute Owner. The Corporation may deem the Person
in whose name the Series C Preferred Stock shall be registered upon the registry
books of the Corporation to be, and may treat it as, the absolute owner of the
Series C Preferred Stock for the purpose of receiving payment of dividends on
the Series C Preferred Stock, for the conversion of the Series C Preferred Stock
and for all other purposes, and the Corporation shall not be affected by any
notice to the contrary. All such payments and such conversion shall be valid and
effectual to satisfy and discharge the liability upon the Series C Preferred
Stock to the extent of the sum or sums so paid or the conversion so made.
SECTION 9.3 Notice of Certain Events. In the case of the occurrence of any
event described in Sections 6.1, 6.6 or 6.7 of this Amendment, the Corporation
shall cause to be mailed to the Holder of the Series C Preferred Stock at its
last address as it appears in the Corporation's security registry, at least
twenty (20) days prior to the applicable record, effective or expiration date
hereinafter specified (or, if such twenty (20) days notice is not practicable,
at the earliest practicable date prior to any such record, effective or
expiration date), a notice stating (x) the date on which a record is to be taken
for the purpose of such dividend, distribution, issuance or granting of rights,
options or warrants, or if a record is not to be taken, the date as of which the
holders of record of Series C Preferred Stock to be entitled to such dividend,
distribution, issuance or granting of rights, options or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding-up is expected to
become effective, and the date as of which it is expected that holders of record
of Series C Preferred Stock will be entitled to exchange their shares for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale transfer, dissolution, liquidation or winding-up.
SECTION 9.4 Register. The Corporation shall keep at its principal office a
register in which the Corporation shall provide for the registration of the
Series C Preferred Stock. Upon any transfer of the Series C Preferred Stock in
accordance with the provisions hereof, the Corporation shall register such
transfer on the Series C Preferred Stock register.
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The Corporation may deem the person in whose name the Series C Preferred
Stock shall be registered upon the registry books of the Corporation to be, and
may treat it as, the absolute owner of the Series C Preferred Stock for the
purpose of receiving payment of dividends on the Series C Preferred Stock, for
the conversion of the Series C Preferred Stock and for all other purposes, and
the Corporation shall not be affected by any notice to the contrary. All such
payments and such conversions shall be valid and effective to satisfy and
discharge the liability upon the Series C Preferred Stock to the extent of the
sum or sums so paid or the conversion or conversions so made.
SECTION 9.5 Withholding. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the Series
C Preferred Stock.
19
SECTION 9.6 Headings. The headings of the Articles and Sections of this
Amendment are inserted for convenience only and do not constitute a part of this
Amendment.
IN WITNESS WHEREOF, the Corporation has caused this Amendment to the
Certificate of Incorporation to be signed by its duly authorized officers on
this ____ day of April, 1999.
THE NETWORK CONNECTION, INC.
By: __________________________________
Name:
Title:
By: __________________________________
Name:
Title:
INITIAL HOLDER
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By: _________________________
Name:
Title:
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ANNEX I
[FORM OF CONVERSION NOTICE]
TO:
The undersigned owner of this Series C 8% Convertible Preferred Stock (the
"Series C Preferred Stock") issued by The Network Connection, Inc. (the
"Corporation") hereby irrevocably exercises its option to convert __________
shares of the Series C Preferred Stock into shares of the common stock, $.001
par value, of the Corporation ("Common Stock"), in accordance with the terms of
the Amendment. The undersigned hereby instructs the Corporation to convert the
number of shares of the Series C Preferred Stock specified above into Shares of
Common Stock Issued at Conversion in accordance with the provisions of Article 6
of the Amendment. The undersigned directs that the Common Stock issuable and
certificates therefor deliverable upon conversion, the Series C Preferred Stock
recertificated, if any, not being surrendered for conversion hereby, together
with any check in payment for fractional Common Stock, be issued in the name of
and delivered to the undersigned unless a different name has been indicated
below. All capitalized terms used and not defined herein have the respective
meanings assigned to them in the Amendment.
Dated:
- --------------------------------------
Signature
Fill in for registration of Series C Preferred Stock:
Please print name and address
(including zip code number):