CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
of
SERIES F CONVERTIBLE PREFERRED STOCK
of
PROJECTAVISION, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
PROJECTAVISION, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies that the
following resolutions were adopted by the Board of Directors of the Corporation
pursuant to authority of the Board of Directors as required by Section 151 of
the Delaware General Corporation Law.
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the "Board")
in accordance with the provisions of its Certificate of Incorporation and
Bylaws, each as amended and restated through the date hereof, the Board of
Directors hereby authorizes a series of the Corporation's previously authorized
Preferred Stock, par value $.01 per share (the "Preferred Stock") and hereby
states the designation and number of shares, and fixes the relative rights,
preferences, privileges, powers and restrictions thereof as follows:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 2,850 shares of
Preferred Stock, is the Series F Convertible Preferred Stock (the "Series F
Preferred Stock") and the face amount shall be One Thousand U.S. Dollars
($1,000.00) per share (the "Face Amount").
II. NO DIVIDENDS
The Series F Preferred Stock will bear no dividends, and the holders of
the Series, F Preferred Stock shall not be entitled to receive dividends on the
Series F Preferred Stock.
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms
shall have the following meanings:
A. "Average Price" means, as of any date of determination, the average
of the Closing Bid Prices for the Corporation's common stock, par value $.0001
per share ("Common Stock"), during the five (5) consecutive trading days ending
on the trading day immediately preceding such date of determination (subject to
equitable adjustment for any stock splits, stock dividends, reclassifications or
similar events during such five (5) trading day period).
B. "Closing Bid Price" means, for any security as of any date, the
closing bid price of such security on the principal securities exchange of
trading maket where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Corporation and reasonably acceptable to holders of a majority
of the then outstanding shares of Series F Preferred Stock if Bloomberg
Financial Markets is not then reporting closing bid prices of such security
(collectively, "Bloomberg"), or if the foregoing does not apply, the last
reported sale price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as reasonably determined by an investment banking firm selected by the
Corporation and reasonably acceptable to holders of a majority of the then
outstanding shares of Series F Preferred Stock, with the cost of such appraisals
to be borne by the Corporation.
C. "Conversion Date" means, for any Conversion, the date specified in
the notice of conversion in the form attached hereto (the "Notice of
Conversion"), so long as the copy of the Notice of Conversion is faxed (or
delivered by other means resulting in notice) to the Corporation before 11:59
p.m., New York City time, on the Conversion Date indicated in the Notice of
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Conversion. If the Notice of Conversion is not so faxed or otherwise delivered
before such time, then the Conversion Date shall be the date the holder faxes or
otherwise delivers the Notice of Conversion to the Corporation.
D. "Conversion Percentage" shall mean seventy-five percent (75%), and
shall be subject to adjustment as provided herein.
E. "Conversion Price" means, with respect to any Conversion Dates, the
lower of the Fixed Conversion Price and the Variable Conversion Price, each in
effect as of such date and subject to adjustment as providcd herein.
F. "Fixed Conversion Price" means $1.00, and shall be subject to
adjustment as provided herein.
G. "Floor Price" shall initially mean $.50; provided, however, that in
the event the Corporation (i) fails to (A) consummate a private placement of not
less than $10,000,000 of the Corporation's equity securities on or before June
30, 1998 (the "Private Placement") and (B) use the proceeds of such Private
Placement to acquire the assets of Vidikron Industries, S.p.A. an or before June
30, 1998 (the "Proposed Acquisition"), or (ii) fails to achieve gross revenues
from the sale of its television products of at least $10,000,000 for the six (6)
month period ending June 30, 1998, the Floor Price shall mean zero, ($0);
provided, further, however, that in the event the corporation (i) consummates
the Private Placement and the Proposed Acquisition at any time after June 30,
1998 or (ii) achieves gross revenues from the sale of its television products of
at least $10,000,000 at any time after June 30, l998, the Floor Price shall
again mean $.50. In addition the Floor Price shall be subject to adjustment as
provided herein.
H. "Issuance Date" means the date of the closing under that certain
Securities Purchase Agreement by and among the Corporation and the purchasers
named therein with respect to the issuance of the Series F Preferred Stock (the
"Securities Purchase Agreement").
I. "N" means the number of days from, but excluding, the Issuance Date.
J. "Premium" means an amount equal to (.08)x(N/365)x(1,000).
K. "Variable Conversion Price" means, as of any date of determination,
the amount obtained by multiplying the Conversion Percentage then in effect by
the Average Price as of such date, and shall be subject to adjustment as
provided herein.
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IV. CONVERSION
A. Conversion at the Option of the Holder. (i) Subject to the
limitations on conversions contained in Paragraph C of this Article IV, each
holder of shares of Series F Preferred Stock may, at any time and from time to
time after the earlier of (x) the one hundred tenth (110th) day following the
Issuance Date and (y) the date on which the registration statement required to
be filed by the Corporation pursuant to Section 2(a) of that certain
Registration Agreement, dated as of the Issuance Date, by and among the
Corporation and the other signatories thereto (the "Registration Rights
Agreement") is declared effective by the United States Securities and Exchange
Commission, convert (a "Conversion") each of its shares of Series F Preferred
Stock into a number of fully paid and nonassessable shares of Common Stock
determined in accordance with the following formula if the Corporation timely
redeems the Premium thereon in cash in accordance with subparagraph (ii) below.
1,000
----------------
Conversion Price
or in accordance with the following formula if the Corporation does not
timely redeem the Premium thereon in accordance with subparagraph (ii) below:
1,000 + the Premium
--------------------
Conversion Price
(ii) (a) The Corporation shall have the right, in its sole discretion,
upon receipt of a Notice of Conversion, to redeem the Premium subject to such
conversion for a sum of cash equal to the amount of the Premium being so
redeemed. All cash redemption payments hereunder shall be paid in lawful money
of the United States of America at such address for the holder as appears on the
record books of the Corporation (or at such other address as such holder shall
hereafter give to the Corporation by written notice). In the event the
Corporation so elects to redeem the Premium in cash and fails to pay such holder
the applicable redemption amount to which such holder is entitled by depositing
a check in the U.S. Mail to such holder within three (3) business days of
receipt by the Corporation of a Notice of Conversion, the Corporation shall
thereafter forfeit its right to redeem such Premium in cash and such Premium
shall thereafter be converted into shares of Common Stock in accordance with
Article IV.A(i).
(b) Each holder of Series F Preferred Stock shall have the right to
require the Corporation to provide advance notice to such holder stating whether
the Corporation will elect to redeem the Premium in cash pursuant to the
Corporation's redemption rights discussed in subparagraph (a) of this Article
IV.A(ii). A holder may exercise such right from time to time by sending notice
(an "Election Notice") to the Corporation, by facsimile, requesting that the
Corporation disclose to such holder whether the Corporation would elect to
redeem the Premium for cash in lieu of issuing shares of Common Stock therefor
if such holder were to exercise its right of
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conversion pursuant to this Article IV.A. The Corporation shall, no later than
the close of business on the next business day following receipt of an Election
Notice, disclose to such holder whether the Corporation would elect to redeem
the Premium in connection with a conversion pursuant to a Notice of Conversion
delivered over the subsequent five (5) business day period. If the Corporation
does not respond to such holder within such one (1) business day period via
facsimile, the Corporation shall, with respect to any conversion pursuant to a
Conversion Notice delivered within the subsequent five (5) business day period,
forfeit its rights to redeem such Premium in accordance with subparagraph (a)
of this Article IV.A(ii) and shall be required to convert such Premium into
shares of Common Stock
D. Mechanics of Conversion. In order to effect a Conversion, a holder
shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice of
Conversion to the Corporation or the transfer agent for the Common Stock and (y)
surrender or cause to be surrendered the original certificates representing the
Series F Preferred Stock being converted (the "Preferred Stock Certificates"),
duly endorsed, along with a copy of the Notice of Conversion as soon as
practicable thereafter to the Corporation or the transfer agent. Upon receipt by
the Corporation of a facsimile copy of a Notice of Conversion from a holder, the
Corporation shall immediately send, via facsimile, a confirmation to such holder
stating that the Notice of Conversion has been received, the date upon which the
Corporation expects to deliver the Common Stock issuable upon such conversion
and the name and telephone number of a contact person at the Corporation
regarding the conversion. The Corporation shall not be obligated to issue shares
of Common Stock upon a conversion unless either the Preferred Stock Certificates
are delivered to the Corporation or the transfer agent as provided above, or the
holder notifies the Corporation or the transfer agent that such certificates
have been lost, stolen or destroyed and delivers the documentation to the
Company required by Article XIV.B hereof.
(i) Delivery of Common Stock Upon Conversion. Upon the surrender of
Preferred Stock Certificates from a holder of Series F Preferred Stock
accompanied by a Notice of Conversion, the Corporation shall, no later than the
later of (a) the second business day following the Conversion Date and (b) the
business day following the date of such surrender (or, in the case of lost,
stolen or destroyed certificates, after provision of indemnity pursuant to
Article XIV.B) (the "Deliveity Period"), issue and deliver to the holder or its
nominee (x) that number of shares of Common Stock issuable upon conversion of
such shares of Series F Preferred Stock being converted and (y) a certificate
representing the number of shares of Series F Preferred Stock not being
converted, if any. If the Corporation's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program, and
so long as the certificates therefore do not bear a legend and the holder
thereof is not obligated to return such certificate for the placement of a
legend thereon, the Corporation shall cause its transfer agent to electronically
transmit the Common Stock issuable upon conversion to the holder by crediting
the account of the holder or its nominee with DTC through its Deposit Withdrawal
Agent Commission system ("DTC Transfer"). If the aforementioned condition to a
DTC Transfer are not satisfied, the Corporation shall deliver to the holder
physical certificates representing the Common Stock issuable upon conversion.
Further, a holder may instruct the Corporation to deliver to the holder physical
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certificates representing the Common Stock issuable upon conversion in lieu of
delivering such shares by way of DTC Transfer.
(ii) Taxes. The Corporation shall pay any and all taxes which may be
imposed upon it with respect to the issuance and delivery of the shares of
Common Stock upon the conversion of the Series F Preferred Stock.
(iii) No Fractional Shares. If any conversion of Series F Preferred
Stock would result in the issuance of a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon conversion of the Series F Preferred Stock shall be the next
higher whole number of shares.
(iv) Conversion Disputes. In the case of any dispute with respect to a
conversion, the Corporation shall promptly issue such number of shares of Common
Stock as are not disputed in accordance with subparagrah (i) above. If such
dispute involves the calculation of the Conversion Price, the Corporation shall
submit the disputed calculation to an independent outside accountant via
facsimile within two (2) business days of receipt of the Notice of Conversion.
The accountant, at the Corporation's sole expense, shall audit the calculations
and notify the Corporation and the holder of the results no later than two (2)
business days from the date it receives the disputed calculations. The
accountant's calculation shall be deemed conclusive, absent manifest error. The
Corporation shall then issue the appropriate number of shares of Common Stock in
accordance with subparagraph (i) above.
C. Limitations on Conversions. The conversion of shares of Series F
Preferred Stock shall be subject to the following limitations (each of which
limitations shall be applied independently):
(i) Cap Amount. Unless permitted by the applicable rules and
regulations of the principal securities market on which the Common Stock is
listed or traded, in no event shall the total number of shares of Common Stock
issued upon conversion of the Series F Preferred Stock exceed the maximum number
of shares of Common Stock that the Corporation can so issue pursuant to Rule
4460(i) of the National Association of Securities Dealers ("NASD") (or any
successor rule) (the "Cap Amount") which, as of the date of issuance of the
Series F Preferred Stock, shall be 4,064,000 shares. The Cap Amount shall be
allocated pro-rata to the holders of Series F Preferred Stock as provided in
Article XIV.C. In the event the Corporation is prohibited from issuing shares
of Common Stock as a result of the operation of this subparagraph (i), the
Corporation shall comply with Article VII.
(ii) No Five Percent Holders. Unless a holder of shares of Series F
Preferred Stock delivers a waiver in accordance with the last sentence of this
subparagraph (ii), in no event shall a holder of shares of Series F Preferred
Stock be entitled to receive shares of Common Stock upon a conversion to the
extent that the sum of (x) the number of shares Common Stock beneficially owned
by the holder and its affiliates (exclusive of shares issuable upon conversion
of
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the unconverted portion of the shares of Series F Preferred Stock or the
unexercised or unconverted portion of any other securities of the Corporation
(including, without limitation, the warrants (the "Warrants") issued by the
Corporation pursuant to the Securities Purchase Agreement) subject to a
limitation on conversion or exercise analogous to the limitations contained
herein) and (y) the number of shares of Common Stock issuable upon the
conversion of the shares of Series F Preferred Stock with respect to which the
determination of this subparagraph is being made, would result in beneficial
ownership by the holder and its affiliates or more than 4.99% of the outstanding
shares of Common Stock. For purposes of this subparagraph, beneficial ownership
shall be determined in accorance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and Regulation 13 D-G therunder, except as otherwise
provided in clause (x) above. Except as provided in the immediately succeeding
sentence, the restriction contained in this subparagraph (ii) shall not be
altered, amended, deleted or changed in any manner whatsoever unless the holders
of a majority of the outstanding shares of Common Stock and each holder of
outstanding shares of Series F Preferred Stock shall approve such alteration,
amendment, deletion or change. Notwithstanding the foregoing, a holder of shares
of Series F Preferred Stock may waive the restriction set forth in this
subparagraph (ii) by written notice to the Corporation upon not less than
sixty-one (61) days prior notice (with such waiver taking effect only upon the
expiration of such sixty-one (61) day period).
(iii) Time Limitations. (a) So long as no Conversion default (as
defined in Article VI hereof) or Mandatory Redemption Event (as defined in
Article VIII.A hereof) has occurred and is then continuing, and except as
otherwise provided below, a holder of Series F Preferred Stock may not convert
shares of Series F Preferred Stock to the extent that the total number of shares
of Series F Preferred Stock previously converted by such holder (excluding for
purposes of this calcualtion any shares of Series F Preferred Stock converted by
such holder following the occurrence and during the continuation of a Conversion
Default or Mandatory Redemption Event) together with the number of shares of
Series F Preferred Stock which such holder is attempting to convert exceeds the
Maximum Conversion Percentage (as defined herein) multiplied by the total number
of shares of Series F Preferred Stock purchased by such holder pursuant to the
Securities Purchase Agreement (with respect to each such holder, the "Original
Share Amount"). A holder's Original Share Amount shall be increased or
decreased, as applicable, upon any sale or purchase by such holder of shares of
Series F Preferred Stock occurring after the Issuance Date. "Maximum Conversion
Percentage" means:
If the Conversion Date is: Then the Maximum Conversion Percentage is:
- -------------------------- ------------------------------------------
On or after the 181st day
following the Issuance Date
and before the 211th day
following the Issuance Date 20%
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On or after the 211th day
following the Issuance Date
and before the 241st day
following the Issuance Date 40%
On or after the 241st day
following the Issuance Date
and before the 271st day
following the Issuance Date 60%
On or after the 271st day
following the Issuance Date
and before the 301st day
following the Issuance Date 80%
On or after the 301st day
following the Issuance Date 100%
(b) Notwithstanding the foregoing, the restrictions on conversion set
forth in this Article IV.C.(iii) shall terminate (I) on or after the date the
Corporation makes a public announcement that it intends to merge or consolidate
with any other entity (other than a merger in which the Corporation is the
surviving or continuing entity and its capital stock is unchanged) or to sell or
transfer all or substantially all of the assets of the Corporation or (II) on or
after the date any person, group or entity (including the Corporation) publicly
announces a tender offer, exchange offer or another transaction to purchase 50%
or more of the Corporation's Common Stock or otherwise publicly announces an
intention to replace a majority of the Corporation's Board of Directors by
waging a proxy battle or otherwise.
(iv) So long as no Conversion Default or Mandatory Redemption Event has
occurred and is then continuing, holders of shares of Series F Preferred Stock,
may not effect a Conversion of shares of Series F Preferred Stock on any
Conversion Date on which the Average Price then in effect is less than the Floor
Price then in effect.
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V. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. Upon the initial issuance of the shares of Series F
Preferred Stock, the Corporation shall reserve 7,600,000 shares of the
authorized but unissued shares of Common Stock for issuance upon conversion of
the Series F Preferred Stock and thereafter the number of authorized but
unissued shares of Common Stock so reserved (the "Reserved Amount") shall not be
decreased and shall at all times be sufficient to provide for the conversion
of the Series F Preferred Stock outstanding at the then current Conversion Price
thereof. The Reserved Amount shall be allocated to the holders of Series F
Preferred Stock as provided in Article XIV.C.
B. Increases to Reserved Amount. If the Reserved Amount for any three
(3) consecutive trading days (the last of such three (3) trading days being the
"Authorization Trigger Date") shall be less than 135% of the number of shares of
Common Stock issuable upon conversion of the then outstanding shares of Series F
Preferred Stock, the Corporation shall immediately notify the holders of Series
F Preferred Stock of such occurrence and shall take immediate action (including,
if necessary, seeking shareholder approval to authorize the issuance of
additional shares of Common Stock) to increase the Reserved Amount to 200% of
the number of shares of Common Stock then issuable upon conversion of the
outstanding Series F Preferred Stock. In the event the Corporation fails to so
increase the Reserved Amount within ninety (90) days after an Authorization
Trigger Date, each holder of Series F Preferred Stock shall thereafter have the
option, exercisable in whole or in part at any time and from time to time by
delivery of a Mandatory Redemption Notice (as defined in Article VIII.C) to the
Corporation, to required the Corporation to purchase for cash, at an amount per
share equal to the Mandatory Redemption Amount (as defined in Article VIII.B) a
portion of the holder's Series F Preferred Stock such that, after giving effect
to such purchase, the holder's allocated portion of the Reserved Amount exceeds
135% of the total number of shares of Common Stock issuable to such holder upon
conversion of its Series F Preferred Stock. If the Corporation fails to redeem
any of such shares within five (5) business days after its receipt of such
Mandatory Redemption Notice, then such holder shall be entitled to the remedies
provided in Article VIII.C.
VI. FAILURE TO SATISFY CONVERSIONS
A. Conversion Default Payments. If, at any time, (x) a holder of shares
of Series F Preferred Stock submits a Notice of Conversion and the Corporation
fails for any reason (other than because such issuance would exceed such
holder's allocated portion of the Reserved Amount or Cap Amount, for which
failures the holders shall have the remedies set forth in Articles V and VII,
respectively) to deliver, on or prior to the fourth (4th) business day following
the expiration of the Delivery Period for such conversion, such number of freely
tradeable shares of Common Stock to which such holder is entitled upon such
conversion, or (y) the Corporation provides notice to any holder of Series F
Preferred Stock at any time of its intention not to issue freely tradeable
shares of Common Stock upon exercise by any holder of its covnersion rights in
accordance with the terms of this Certificate of Designation (other than because
such issuance would exceed such holder's
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allocated portion of the Reserved Amount or Cap Amount) (each of (x) and (y)
being a "Conversion Default"), then the Corporation shall pay to the affected
holder, in the case of a Conversion Default described in clause (x) above, and
to all holders, in the case of a Conversion Default described in clause (y)
above, an amount equal to:
(.24)x(D/365)x(the Default Amount)
where:
"D" means the number of days after the expiration of the Delivery
Period through and including the Default Cure Date;
"Default Amount" means (i) the total Face Amount of all shares of
Series F Preferred Stock held by such holder, plus (ii) the total accrued
Premium as of the first day of the Conversion Default on all shares of Series F
Preferred Stock included in clause (i) of this definition; and
"Default Cure Date" means (i) with respect to a Conversion Default
described in clause (x) of its definition, the date the Corporation effects the
conversion of the full number of shares of Series F Preferred Stock, and (ii)
with respect to a Conversion Default described in clause (y) of its definition,
the date the Corporation begins to issue freely tradeable shares of Common Stock
in satisfaction of all conversions of Series F Preferred Stock in accordance
with Article IV.A, and (iii) with respect to either type of a Conversion
Default, the date on which the Corporation redeems shares of Series F Preferred
Stock held by such holder pursuant to paragraph D of this Article VI.
The payments to which a holder shall be entitled pursuant to this
Paragraph A are referred to herein as "Conversation Default Payments." A holder
may elect to receive accrued Conversion Default Payments in cash or to convert
all or any portion of such accrued Conversion Defaul Payments, at any time, into
Common Stock at the lowest Conversion Price in effect during the period
beginning on the date of the Conversion Default through the Conversion Date with
respect to such Conversion Default Payments. In the event a holder elects to
receive any Conversion Default Payments in cash, it shall so notify the
Corporation in writing. Such payment shall be made in accordance with and be
subject to the provisions of Article XIV.E. In the event a holder elects to
convert all or any portion of the Conversion Default Payments into Common Stock,
the holder shall indicate on a Notice of Conversion such portion of the
Conversion Default Payments which such holder elects to so convert and such
conversion shall otherwise be effected in accordance with the provisions of
Article IV.
B. Adjustment to Conversion Price. If a holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Delivery Period with respect to a conversion of
Series F Preferred Stock for any reason (other than because such issuance would
exceed such holder's allocated portion of the Reserved Amount of Cap Amount, for
which failures the holders shall have the remedies set forth in Articles V and
VII, respectively), then the Fixed Conversion Price in respect of any shares of
Series F Preferred Stock held by such
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holder (including shares of Series F Preferred Stock submitted to the
Corporation for conversion, but for which shares of Common Stock have not been
issued to such holder) shall thereafter be the lesser of (i) the Fixed
Conversion Price on the Conversion Date specified in the Notice of Conversion
which resulted in the Conversion Default and (ii) the lowest Conversion Price in
effect during the period beginning on, and including, such Conversion Date
through and including the earlier of (x) the day such shares of Common Stock are
delivered to the holder and (y) the day on which the holder regains its rights
as a holder of Series F Preferred Stock with respect to such unconverted shares
of Series F Preferred Stock pursuant to the provisions of Article XIV.F hereof.
If there shall occur a Conversion Default of the type described in clause (y) of
Article VI.A, then the Fixed Conversion Price with respect to any conversion
thereafter shall be the lowest Conversion Price in effect at any time during the
period beginning on, and including, the date of the occurrence of such
Conversion Default through and including the Default Cure Date. The Fixed
Conversion Price shall thereafter be subject to further adjustment for any
events described in Article XI.
C. Buy-In Cure. Unless the Corporation has notified the applicable
holder in writing prior to the delivery by such holder of a Notice of Conversion
the the Corporation is unable to honor conversions, if (i) (a) the Corporation
fails for any reason to deliver during the Delivery Period shares of Common
Stock to a holder upon a conversion of shares of Series F Preferred Stock or (b)
there shall occur a Legend Removal Failure (as defined in Article VIII.A(iii)
below) and (ii) thereafter, such holder purchases (in an open market transaction
or otherwise) shares of Common Stock to make delivery in satisfaction of a sale
by such holder of the unlengeded shares of Common Stock (the "Sold Shares")
which such holder anticipated receiving upon such conversion (a "Buy-In"), the
Corporation shall pay such holder (in addition to any other remedies available
to the holder) the amount by which (x) such holder's total purchase price
(including brokerage commisisons, if any) for the un1egended shares of Common
Stock so purchased exceeds (y) the net proceeds received by such holder from the
sale of the Sold Shares. For example, if a holder purchases unlegended shares of
Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to shares of Common Stock it sold for $10,000, the Corporation will be
required to pay the holder $1,000. A holder shall provide the Corporation
written notification and supporting documentation indicating any amounts payable
to such holder pursuant to Paragraph C. The Corporation shall make any payments
required pursuant to this Paragraph C in accordance with and subject to the
provisions of Article XIV.E.
D. Redemption Rights. If the Corporation fails, and such failure
continues uncured for five (5) business days after the Corporation has been
notified thereof in writing by the holder, for any reason (other thm because
such issuance would exceed such holder's allocated portion of the Reserved
Amount or Cap Amount, for which failures the holders shall have the remedies set
forth in Articles V and VII, respectively) to issue shares of Common Stock
within ten (10) business days after the expiration of the Delivery Period with
respect to any conversion of Series F Preferred Stock, then the holder may elect
at any time and from time to time prior to the Default Cure Date for such
Conversion Default by delivey of a Mandatory Redemption Notice to the
Corporation, to have all or any portion of such holder's outstanding shares of
Series F Preferred Stock purchased by the Corporation for cash, at an amount per
share equal to the Mandatory Redemption Amount (as
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defined in Article VIII.B). If the Corporation fails to redeem any of such
shares within five (5) business days after its receipt of such Mandatory
Redemption Notice, then such holder shall be entitled to the remedies provided
in Article VIII.C
VII. INABILITY TO CONVERT DUE TO CAP AMOUNT
A. Obligation to Cure. If at any time after the first date on which the
Series F Preferred Stock may be converted in accordance with Article IV hereof
the then unissued portion of any holder's Cap Amount is less than 135% of the
number of shares of Common Stock then issuable upon conversion of such holder's
shares of Series F Preferred Stock (a "Trading Market Trigger Event"), the
Corporation shall immediately notify the holders of Series F Preferred Stock of
such occurrence and shall take immediate action (including, if necessary,
seeking the approval of its shareholders to authorize the issuance of the full
number of shares of Common Stock which would be issuable upon the conversion of
the then outstanding shares of Series F Preferred Stock but for the Cap Amount)
to eliminate any prohibitions under applicable law or the rules or regulations
of any stock exchange, interdealer quotation system or other self-regulatory
orgainzation with jurisdiction over the Corporation or any of its securities on
the Corporation's ability to issue shares of Common Stock in excess of the Cap
Amount. In the event the Corporation fails to eliminate all such prohibitions
within ninety (90) days after the Trading Market Trigger Event, then each holder
of Series F Preferred Stock shall thereafter have the option, exercisable in
whole or in part at any time and from time to time until such date that all such
prohibitions are eliminated, by delivery of a Mandatory Redemption Notice (as
defined in Article VII.C) to the Corporation, to require the Corporation to
purchase for cash, at an amount per share equal to the Mandatory Redemption
Amount, a number of the holder's shares of Series F Preferred Stock such that,
after giving effect to such redemption, the then unissued portion of such
holder's Cap Amount exceeds 135% of the total number of shares of Common Stock
issuable upon conversion of such holder's shares of Series F Preferred Stock. If
the Corporation fails to redeem any of such shares within five (5) business days
after its reciept of such Mandatory Redemption Notice, then such holder shall be
entitled to the remedies provided in Articles VII.B.and VIII.C.
B. Remedies. If the Corporation fails to redeem any shares of Series F
Preferred Stock pursuant to Article VII.A. within five (5) business days after
its receipt of such Mandatory Redemption Notice, and therafter the Corporation
is prohibited, at any time, from issuing shares of Common Stock upon conversion
of Series F Preferred Stock to any holder because such issuance would excced the
then unissued portion of such holder's Cap Amount becuase of applicable law or
the rules or regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Corporation or its
securities, any holder who is so prohibited from converting its Series F
Preferred Stock may elect either or both of the following additional remedies:
(i) to require, with the consent of holders of at least fifty percent
(50%) of the outstanding shares of Series F Preferred Stock (including any
shares of Series F Preferred Stock held
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by the requesting holder), the Corporation to terminate the listing of its
Common Stock on the Nasdaq SmallCap Market (or any other stock exchange,
interdealer quotation system or trading market) and to cause its Common Stock to
be eligible for trading on the over-the-counter electronic bulletin board; or
(ii) to require the Corporation to issue shares of Common Stock in
accordance with such holder's Notice of Conversion at a conversion price equal
to the Average Price in effect as of the date of the holder's written notice to
the Corporation of its election to receive shares of Common Stock pursuant to
this subparagraph (ii).
VIII. REDEMPTION DUE TO CERTAIN EVENTS
A. Redemption by Holder. In the event (each of the events described in
clauses (i)-(vii) below after expiration of the applicable cure period (if any)
being a "Mandatory Redemption Event"):
(i) the Common Stock (including any of the shares of Common Stock
issuable upon conversion of the Series F Preferred Stock) is suspended from
trading on any of, or is not listed (and authorized) for trading on at least one
of, the New York Stock Exchange, the American Stock Exchange, the Nasdaq
National Market or the Nasdaq SmallCap Market for an aggregate of ten (10)
trading days in any nine (9) month period;
(ii) the Registration Statement required to be filed by the Corporation
pursuant to Section 2(a) of the Registration Rights Agreement has not been
declared effective by the one hundred eightieth (180th) day following the
Issuance Date, or such Registration Statement, after being declared effective,
cannot be utilized by the holders of Series F Preferred Stock for the resale of
all of their Registrable Securities (as defined in the Registration Rights
Agreement) for an aggregate of more than thirty (30) days;
(iii) the Corporation fails to remove any restrictive legend on any
certificate or any shares of Common Stock issued to the holders of Series F
Preferred Stock upon conversion of the Series F Preferred Stock as and when
required by this Certificate of Designation, the Securities Purchase Agreement
or the Registration Rights Agreement (a "Legend Removal Failure"), and any such
failure continues uncured for five (5) business days after the Corporation has
been notified thereof in writing by the holder;
(iv) the Corporation provides notice to any holder of Series F
Preferred Stock, including by way of public announcement, at any time, of its
intention not to issue shares of Common Stock to any holders of Series F
Preferred Stock upon conversion in accordance with the terms of this Certificate
of Designation (other than due to the circumstances contemplated by Articles V
or VII for which the holders shall have the remedies set forth in such
Articles);
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(v) the Corporation shall:
(a) sell, convey or dispose of all or substantially all of its
assets;
(b) merge, consolidate or engage in any other business
combination with any other entity (other than pursuant to am migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Corporation and other than pursuant to a merger in which the Corporation is
the surviving or continuing entity and its capital stock is unchanged); or
(c) have fifty percent (50%) or more of the voting power of its
capital stock owned beneficially by one person, entity or "group" (as such term
is used under Section 13(d) of the Securities Exchange Act of 1934, as amended),
except as a direct result of the Private Placement;
(vi) the Corporation otherwise shall breach any material term
hereunder/or under the Securities Purchase Agreement or the Registration Rights
Agreement and such breach continues uncured for ten (10) business days after the
Corporation has been notified thereof in writing by the holder; or
(vii) Marvin Maslow ceases for any reason to serve as Chairman of the
Board of Directors of the Corporation or Martin Holleran ceases for any reason
to serve as President and Chief Executive Officer of the Corporation;
then, upon the occurrence of any such Mandatory Redemption Event, each holder of
shares of Series F Preferred Stock shall thereafter have the option, exercisable
in whole or in part at any time and from time to time by delivery of a Mandatory
Redemption Notice (as defined in Paragraph C below) to the Corporation while
such Mandatory Redemption Event continues, to require the Corporation to
purchase for cash any or all of the then outstanding shares of Series F
Preferred Stock held by such holder for an amount per share equal to the
Mandatory Redemption Amount (as defined in Paragraph B below) in effect at the
time of the redemption hereunder. For the avoidance of doubt, the occurrence of
any event described in clauses (i), (ii), (iv), (v) or (vii) above shall
immediately constitute a Mandatory Redemption Event and there shall be no cure
period. Upon the Corporation's receipt of any Mandatory Redemption Notice
hereunder (other than during the three (3) trading day period following the
Corporation's delivery of a Mandatory Redemption Announcement (as defined below)
to all of the holders in response to the Corporation's initial receipt of a
Mandatory Redemption Notice from a holder of Series F Preferred Stock), the
Corporation shall immediately (and in any event within one (1) business day
following such receipt) deliver a written notice (a "Mandatory Redemption
Announcement") to all holders of Series F Preferred Stock stating the date upon
which the Corporation received such Mandatory Redemption Notice and the amount
of Series F Preferred Stock covered thereby. The Corporation shall not redeem
any shares of Series F Preferred Stock during the three (3) trading day period
following the delivery of a required Mandatory Redemption Announcement
hereunder. At any time and from time to time during such three (3) trading day
period, each holder of Series F Preferred Stock may request (either orally or
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in writing) information from the Corporation with respect to the instant
redemption (including, but not limited to, the aggregate number of shares of
Series F Preferred Stock covered by Mandatory Redemption Notices received by the
Corporation) and the Corporation shall furnish (either orally or in writing) as
soon as practicable such requested information to such requesting holder.
B. Definition of Mandatory Redemption Amount. The "Mandatory Redemption
Amount" with respect to a share of Series F Preferred Stock means an amount
equal to the greater of:
(i) V
-------- x M
CP
and
(ii) The sum of (x) the product of (I) one hundred percent (100%)
divided by the Conversion Percentage in effect on the date on which the
Corporation receives the Mandatory Redemption Notice, times (II) the Face Amount
thereof, plus (y) the accrued Premium thereon and all unpaid Conversion Dafault
Payments owing (if any) with respect thereto through the date of payment of the
Mandatory Redemption Amount.
where:
"V" means the Face Amount thereof plus the accrued Premium thereon and all
unpaid Conversion Default Payments owing (if any) with respect thereto through
the date of payment of the Mandatory Redemption Amount;
"CP" means the Conversion Price in effect on the date on which the
Corporation receives the Mandatory Redemption Notice; and
"M" means (i) with respect to all redemptions other than redemptions
pursuant to Article VIII.A(v) hereof, the highest Closing Bid Price of the
Corporation's Common Stock during the period beginning on the date on which the
Corporation receives the Mandatory Redemption Notice and ending on the date
immediately preceding the date of payment of the Mandatory Redemption Amount and
(ii) with respect to redemptions pursuant to Article VIII.A(v) hereof, the
greater of (a) the amount determined pursuant to clause (i) of this definition
or (b) the fair market value, as of the date on which the Corporation receives
the Mandatory Redemption Notice, of the consideration payable to the holder of a
share of Common Stock pursuant to the transaction which triggers the redemption.
For purposes of this definition, "fair market value" shall be determined by the
mutual agreement of the Corporation and holders of a majority-in-interest of the
shares of Series F Preferred Stock then outstanding, or if such agreement cannot
be reached within five (5) business days prior to the date of redemption, by an
investment banking firm selected by the Corporation and reasonably acceptable to
holders of a majority-in-interest of the then outstanding shares of Series F
Preferred Stock, with the costs of such appraisal to be borne by the
Corporation.
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C. Redemption Defaults. If the Corporation fails to pay any holder the
Mandatory Redemption Amount with respect to any share of Series F Preferred
Stock within five (5) business days after its receipt of a notice requiring such
redemption (a "Mandatory Redemption Notice"), then the holder of Series F
Preferred Stock delivering such Mandatory Redemption Notice (i) shall be
entitled to interest on the Mandatory Redemption Amount at a per annum rate
equal to the lower of twenty-four percent (24%) and the highest interest rate
permitted by applicable law from the date on which the Corporation receives the
Mandatory Redemption Notice until the date of payment of the Mandatory
Redemption Amount hereunder, and (ii) shall have the right, at any time and from
time to time, to require the Corporation, upon written notice, to immediately
convert (in accordance with the terms of Paragraph A of Article IV) all or any
portion of the Mandatory Redemption Amount, plus interest as aforesaid, into
shares of Common Stock at the lowest Conversion Price in effect during the
period beginning on the date on which the Corporation receives the Mandatory
Redemption Notice and ending on the Conversion Date with respect to the
conversion of such Mandatory Redemption Amount. In the event the Corporation is
not able to redeem all of the shares of Series F Preferred Stock subject to
Mandatory Redemption Notices delivered prior to the date upon which such
redemption is to be effected, the Corporation shall redeem shares of Series F
Preferred Stock from each holder pro rata, based on the total number of shares
of Series F Preferred Stock outstanding at the time of redemption included by
such holder in all Mandatory Redemption Notices delivered prior to the date upon
which such redemption is to be effected relative to the total number of shares
of Series F Preferred Stock outstanding at the time of redemption included in
all of the Mandatory Redemption Notices delivered prior to the date upon which
such redemption is to be effected.
D. Redemption at the Corporation's Option.
(i) The Corporation shall have the right, at any time and from time to
time, so long as no Conversion Default or Mandatory Redemption Event shall have
occurred and be continuing, to redeem (an "Optional Redemption") all or any
portion of the then outstanding shares of Series F Preferred Stock (excluding
shares of Series F Preferred Stock subject to a Notice of Conversion delivered
to the Corporation prior to the date of the Optional Redemption Notice (as
defined in subparagraph (iii) below)) for cash, at an amount per share equal to
the Optional Redemption Amount (as defined below), by delivering an Optional
Redemption Notice to the holders of Series F Preferred Stock. Subject to the
provisions of Article IV.C hereof, holders of Series F Preferred Stock may
convert all or any part of their shares of Series F Preferred Stock selected for
redemption hereunder into Common Stock by delivering a Notice of Conversion to
the Corporation at any time prior to the Effective Date of Redemption. For
purposes hereof, the "Optional Redemption Amount" with respect to a share of
Series F Preferred Stock means:
(a) With respect to an Optional Redemption for which the Effective
Date of Redemption (as defined in subparagraph (iii) below) occurs on or before
the ninetieth (90th) day following the Issuance Date, an amount equal to the sum
of (x) 112.5% of the Face Amount thereof, plus (y) the accured Premium thereon
and all unpaid Conversion Dafault Payments owing (if any) with respect thereto
through the Effective Date of Redemption:
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(b) With respect to an Optional Redemption for which the
Effective Date of Redemption occurs after the ninetieth (90th) day following the
Issuance Date and on or before the one hundred eightieth (180th) day following
the Issuance Date, an amount equal to the sum of (x) 125% of the Face Amount
thereof, plus (y) the accrued Premium thereon and all unpaid Conversion Default
Payments owing (if any) with respect thereto through the Effective Date of
Redemption; and
(c) With respect to an Optional Redemption for which the
Effective Date of Redemption occurs after the one hundred eightieth (180th) day
following the Issuance Date, an amount equal to the greater of:
(x) V
------------- x M
CP
and
(y) The sum of (i) the product of (A) one hundred percent
(100%) divided by the Conversion Percentage in effect on the date of the
Optional Redemption Notice, times (B) the Face Amount thereof, plus (II) the
accrued Premium thereon and all unpaid Conversion Default Payments owing (if
any) with respect thereto through the Effective Date of Redemption.
where:
"V" means the Face Amount thereof plus the accrued Premium thereon and
all unpaid Conversion Default Payments owing (if any) with respect thereto
through the Effective Date of Redemption;
"CP" means the Conversion Price in effect on the date of the Optional
Redemption Notice; and
"M" means the Closing Bid Price of the Corporation's Common Stock on
the date of the Optional Redemption Notice.
(ii) The Corporation may not deliver an Optional Redemption Notice
to the holders of Series F Preferred Stock unless on or prior to the date of
delivery of such Optional Redemption Notice, the Corporation shall have
deposited with an escrow agent reasonably acceptable to holders of a majority of
the then outstanding shares of Series F Preferred Stock, as a trust fund, cash
sufficient in amount to pay all amounts to which the holders of Series F
Preferred Stock are entitled upon such redemption pursuant to subparagraph (i)
of this Paragraph D, with irrevocable instructions and authority to such escrow
agent to complete the redemption thereof in accordance with this Paragraph D.
Any Optional Redemption Notice delivered in accordance with the immediately
preceding sentence shall be accompanied by a statement executed by a duly
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authorized officer of its escrow agent, certifying the amount of funds which
have been deposited with such escrow agent and that the escrow agent has been
instructed and agrees to act as redemption agent hereunder.
(iii) The Corporation shall effect an Optional Redemption under
this Section VIII.D by giving prior written notice (the "Optional Redemption
Notice") of the date on which such redemption is to become effective (the
"Effective Date of Redemption"), the number of shares of Series F Preferred
Stock subject to such Optional Redemption and the Optional Redemption Amount to
(i) the holders of Series F Preferred Stock at the address and facsimile number
of each holder appearing in the Corporation's register for the Series F
Preferred Stock and (ii) the transfer agent for the Common Stock, which Optional
Redemption Notice shall be deemed to have been delivered on the business day
after the Corporation's fax (with a copy sent by overnight courier to the
holders of Series F Preferred Stock) of such notice to the holders of Series F
Preferred Stock. To be effective, an Optional Redemption Notice must be so
delivered (i) not less than three (3) business days prior to the Effective Date
of Redemption specified in such notice, in the case of an Optional Redemption
occurring on or before the one hundred eightieth (180th) day following the
Issuance Date, and (ii) not less than ten (10) business days prior to the
Effective Date of Redemption specified in such notice, in the case of an
Optional Redemption occurring after the one hundred eightieth (180th) day
following the Issuance Date.
(iv) The Optional Redemption Amount shall be paid to the holders
of the Series F Preferred Stock being redeemed within three (3) business days of
the Effective Date of Redemption, provided however, that the Corporation shall
not be obligated to deliver any portion of the Optional Redemption Amount until
either the certificates evidencing the Series F Preferred Stock being redeemed
are delivered to the office of the Corporation or the escrow agent or the holder
notifies the Corporation or the escrow agent that such certificates have been
lost, stolen or destroyed and delivers the documentation in accordance with
Article XIV.B hereof. Notwithstanding anything herein to the contrary, in the
event that the certificates evidencing the Series F Preferred Stock being
redeemed are not delivered to the Corporation or the escrow agent prior to the
third business day following the Effective Date of Redemption, the redemption of
the Series F Preferred Stock pursuant to this Article VIII.D shall be deemed
effective as of the Effective Date of Redemption and the Optional Redemption
Amount shall be paid to the holder of Series F Preferred Stock being redeemed
within five (5) business days of the date the certificates evidencing the Series
F Preferred Stock being redeemed are actually delivered to the Corporation or
the escrow agent.
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(v) In the event that any Optional Redemption Notice delivered by
the Corporation pursuant to this Article VIII.D relates to less than all of the
shares of Series F Preferred Stock then outstanding, the Corporation shall
redeem shares of Series F Preferred Stock from each holder pro rata, based on
the total number of shares of Series F Preferred Stock outstanding on the
Effective Date of Redemption held by each holder of Series F Preferred Stock
relative to the total number of shares of Series F Preferred Stock outstanding
on the Effective Date of Redemption held by all holders of Series F Preferred
Stock.
IX. RANK
All shares of the Series F Preferred Stock shall rank (i) prior to the
Corporation's Common Stock; (ii) prior to (a) the Corporation's Series A
Preferred Stock, Series C Preferred Stock and Series E Preferred Stock and (b)
any class or series of capital stock of the Corporation hereafter created
(unless, with the consent of the holders of Series F Preferred Stock obtained in
accordance with Article XIII hereof, such class or series of capital stock
specifically, by its terms ranks senior to or pari passu with the Series F
Preferred Stock) (collectively with the Common Stock, "Junior Securities");
(iii) pari passu with any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series F Preferred Stock
obtained in accordance with Article XIII hereof) specifically ranking, by its
terms, on parity with the Series F Preferred Stock (the "Pari Passu
Securities"); and (iv) junior to (a) the Series B Preferred Stock and the Series
D Preferred Stock of the Corporation and (b) any class or series of capital
stock of the Corporation hereafter created (with the consent of the holders of
Series F Preferred Stock obtained in accordance with Article XIII hereof)
specifically ranking, by its terms, senior to the Series F Preferred Stock
(collectively, the "Senior Securities"), in each as to distribution of assets
upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
X. LIQUIDATION PREFERENCE
A. If the Corporation shall commence a voluntary case under the U.S.
Federal bankruptcy laws or any other applicable 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 U.S. Federal bankruptcy laws or any other
applicable 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 sixty (60) consecutive
days and, on account of any such event, the Corporation shall liquidate,
dissolve or wind up, or if the Corporation shall otherwise
-19-
liquidate, dissolve or wind up, including, but not limited to, the sale or
transfer of all or substantially all of the Corporation's assets in one
transaction or in a series of related transactions (a "Liquidation Event"), no
distribution shall be made to the holders of any shares of capital stock of the
Corporation (other than Senior Securities) upon liquidation, dissolution or
winding up unless prior thereto the holders of shares of Series F Preferred
Stock shall have received the Liquidation Preference 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 F 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 F
Preferred Stock and the Pari Passu Securities shall be distributed ratable among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate Liquidation Preference payable on all
such shares.
B. The purchase or redemption by the Corporation of stock of any class, in
any manner permitted by law, shall not, for the purposes hereof, be regarded as
a liquidation, dissolution or winding up of the Corporation. Neither the
consolidation or merger of the Corporation with or into any other entity nor the
sale or transfer by the Corporation of less than substantially all of its assets
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Corporation.
C. The "Liquidation Preference" with respect to a share of Series F
Preferred Stock means an amount equal to the Face Amount thereof plus the
accrued Premium thereon through the date of final distribution. The Liquidation
Preference with respect to any Pari Passu Securities shall be as set forth in
the Certificate of Designation filed in respect thereof.
XI. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price and the Floor Price shall be subject to adjustment
from time to time as follows:
A. Stock Splits, Stock Dividends, Etc. If at any time on or after the
Issuance Date, the number of outstanding shares of Common Stock is increased by
a stock split, stock dividend, combination, reclassification or other similar
event, the Fixed Conversion Price and the Floor Price shall be proportionately
reduced, or if the number of outstanding shares of Common Stock is decreased by
a reverse stock split, combination or reclassification of shares, or other
similar event, the Fixed Conversion Price and the Floor Price shall be
proportionately increased. In such event, the Corporation shall notify the
Corporation's transfer agent of such change on or before the effective date
thereof.
B. Adjustment Due to Merger, Consolidation, Etc. If, at any time after
the Issuance Date, there shall be (i) any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par
-20-
value, or as a result of a subdivision or combination), (ii) any consolidation
or merger of the Corporation with any other entity (other than a merger in which
the Corporation is the surviving or continuing entity and its capital stock is
unchanged), (iii) any sale or transfer of all or substantially all of the assets
of the Corporation or (iv) any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property (each of (i)-(iv) above being a "Corporate Change"), then the holders
of Series F Preferred Stock shall thereafter have the right to receive upon
conversion, in lieu of the shares of Common Stock otherwise issuable, such
shares of stock, securities and/or other property as would have been issued or
payable in such Corporate Change with respect to or in exchange for the number
of shares of Common Stock which would have been issuable upon conversion
(without giving effect to the limitations contained in Article IV.C) had such
Corporate Change not taken place, and in any such case, appropriate provisions
shall be made with respect to the rights and interests of the holders of the
Series F Preferred Stock to the end that the provisions hereof (including,
without limitation, provisions for adjustment of the Conversion Price and the
Floor Price and of the number of shares of Common Stock issuable upon conversion
of the Series F Preferred Stock) shall thereafter be applicable, as nearly as
may be practicable in relation to any shares of stock or securities thereafter
deliverable upon the conversion thereof. The Corporation shall not effect any
Corporate Change unless (i) each holder of Series F Preferred Stock has received
written notice of such transaction at least seventy-five (75) days prior
thereto, but in no event later than twenty (20) days prior to the record date
for the determination of shareholders entitled to vote with respect thereto, and
(ii) the resulting successor or acquiring entity (if not the Corporation)
assumes by written instrument the obligations of this Certificate of
Designation. The above provisions shall apply regardless of whether or not there
would have been a sufficient number of shares of Common Stock authorized and
available for issuance upon conversion of the shares of Series F Preferred Stock
outstanding as of the date of such transaction, and shall similarly apply to
successive reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
C. Adjustment Due to Major Announcement. In the event the Corporation
at any time after the Issuance Date (i) makes a public announcement that it
intends to consolidate or merge with any other entity (other than a merger in
which the Corporation is the surviving or continuing entity and its capital
stock is unchanged) or to sell or transfer all or substantially all of the
assets of the Corporation or (ii) any person, group or entity (including the
Corporation) publicly announces a tender offer, exchange offer or another
transaction to purchase 50% or more of the Corporation's Common Stock (other
than in connection with the Private Placement) or otherwise publicly announces
an intention to replace a majority of the Corporation's Board of Directors by
waging a proxy battle or otherwise (the date of the announcement referred to in
clause (i) or (ii) of this Paragraph C is hereinafter referred to as the
"Announcement Date"), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the sixth (6th) trading day following
the earlier of the consummation of the proposed transaction or tender offer,
exchange offer or another transaction or the Abandonment Date (as defined
below), be equal to the lower of (x) the Conversion Price which would have been
applicable for a Conversion occurring on the Announcement Date and (y) the
Conversion Price determined in accordance with Article III.E on the Conversion
Date set forth in the Notice of Conversion for the Conversion. From and after
the
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sixth (6th) trading day following the Abandonment Date, the Conversion Price
shall be determined as set forth in Article III.E. "Abandonment Date" means with
respect to any proposed transaction or tender offer, exchange offer or another
transaction for which a public announcement as contemplated by this
Paragraph C has been made, the date upon which the Corporation (in the case of
clause (i) above) or the person, group or entity (in the case of clause (ii)
above) publicly announces the termination or abandonment of the proposed
transaction or tender offer, exchange offer or another transaction which caused
this Paragraph C to become operative.
D. Adjustment Due to Distribution. If at any time after the Issuance
Date the Corporation shall declare or make any distribution of its assets (or
rights to acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's shareholders in cash or shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e. a spin-off) (a
"Distribution"), then the holders of Series F Preferred Stock shall be entitled,
upon any conversion of shares of Series F Preferred Stock after the date of
record for determining shareholders entitled to such Distribution to receive the
amount of such assets which would have been payable to the holder with respect
to the shares of Common Stock issuable upon such conversion (without giving
effect to the limitations contained in Article IV.C) had such holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such Distribution.
E. Issuance of Other Securities With Variable Conversion Price. If the
Corporation shall issue any securities which are convertible into or
exchangeable for Common Stock ("Convertible Securities") at a conversion or
exchange rate based on a discount to the market price of the Common Stock at the
time of conversion or exercise, then the Conversion Percentage in respect of any
conversion of Series F Preferred Stock after such issuance shall be calculated
utilizing the higher of the greatest discount applicable to any such
Convertible Securities and the difference between one hundred percent (100%) and
the Conversion Percentage then in effect.
F. Purchase Rights. If at any time after the Issuance Date, the
Corporation issues any Convertible Securities or rights to purchase stock,
warrants, securities or other property (the "Purchase Rights") pro rata to the
record holders of any class of Common Stock, then the holders of Series F
Preferred Stock will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock acquirable
upon complete conversion of the Series F Preferred Stock (without giving effect
to the limitations contained in Article IV.C) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.
G. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price and/or the Floor Price pursuant to this
Article XI, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment and prepare and furnish to each holder of Series F
Preferred Stock a certificate setting forth such adjustment or readjustment and
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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 F Preferred Stock, furnish to such holder a like certificate setting
forth (i) such adjustment or readjustment, (ii) the Conversion Price and/or the
Floor Price at the time in effect and (iii) the number of shares of Common Stock
and the amount, if any, of other securities or property which at the time would
be received upon conversion of a share of Series F Preferred Stock.
XII. VOTING RIGHTS
The holders of the Series F Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Delaware General Corporation
Law (the "Business Corporation Law"), in this Article XII and in Article XIII
below.
Notwithstanding the above, the Corporation shall provide each holder of
Series F Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). If the Corporation takes a record of its shareholders for the
purpose of determining shareholders entitled to (a) 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 (b) to vote in connection with any proposed sale,
lease or conveyance of all or substantially all of the assets of the
Corporation, or any proposed merger, consolidation, liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
holder, at least twenty (20) days prior to the record date specified therein (or
seventy-five (75) days prior to the consummation of the transaction or event,
whichever is earlier, but in no event earlier than public announcement of such
proposed transaction), of the date on which any such record is to be taken for
the purpose of such vote, dividend, distribution, right or other event, and a
brief statement regarding the amount and character of such vote, dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the Business Corporation Law the vote of the
holders of the Series F 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 then
outstanding shares of the Series F Preferred Stock represented at a duly held
meeting at which a quorum is present or by written consent of the holders of at
least a majority of the then outstanding shares of Series F Preferred Stock
(except as otherwise may be required under the Business Corporation Law) shall
constitute the approval of such action by the class. To the extent that under
the Business Corporation Law holders of the Series F Preferred Stock are
entitled to vote on a matter with holders of Common Stock, voting together as
one class, each share of Series F 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 (subject to the limitations contained in Article IV.C(ii))
using the record date for the taking of such vote of shareholders as the date as
of which the Conversion Price is calculated.
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XIII. PROTECTION PROVISIONS
So long as any shares of Series F Preferred Stock are outstanding, the
Corporation shall not without first obtaining the approval (by vote or written
consent, as provided by the Business Corporation Law) of the holders of (i) all
of the then outstanding shares of Series F Preferred Stock with respect to
subsection (a) below or (ii) at least 67% of the then outstanding shares of
Series F Preferred Stock with respect to subsections (b) through (i) below:
(a) alter or change the rights, preferences or
privileges of the Series F Preferred Stock;
(b) alter or change the rights, preferences or
privileges of any capital stock of the Corporation so as to affect adversely the
Series F Preferred Stock;
(c) create any new class or series of capital stock
having a preference over the Series F Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article IX hereof, "Senior Securities");
(d) create any new class or series of capital stock
ranking pari passu with the Series F Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article IX hereof, "Pari Passu Securities");
(e) increase the authorized number of shares of Series F
Preferred Stock;
(f) issue any shares of Senior Securities or Pari Passu
Securities;
(g) issue any shares of Series F Preferred Stock other
than pursuant to the Securities Purchase Agreement;
(h) redeem, or declare or pay any cash dividend or
distribution on any Junior Securities; or
(i) increase the par value of the Common Stock.
Notwithstanding the foregoing, no change pursuant to this Article XIII shall be
effective to the extent that, by its terms, it applies to less than all of the
holders of shares of Series F Preferred Stock then outstanding.
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XIV. MISCELLANEOUS
A. Cancellation of Series F Preferred Stock. If any shares of Series F
Preferred Stock are converted pursuant to Article IV, the shares so converted
shall be canceled, shall return to the status of authorized, but unissued
preferred stock of no designated series, and shall not be issuable by the
Corporation as Series F Preferred Stock.
B. Lost of Stolen Certificates. Under receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to the Corporation, or (z) in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Corporation shall execute and deliver new Preferred Stock
Certificate(s) of like tenor and date. However, the Corporation shall not be
obligated to reissue such lost or stolen Preferred Stock Certificate(s) if the
holder contemporaneously requests the Corporation to convert such Series F
Preferred Stock.
C. Allocation of Cap Amount and Reserved Amount. The Initial Cap Amount
and Reserved Amount shall be allocated pro rata among the holders of Series F
Preferred Stock based on the number of shares of Series F Preferred Stock issued
to each holder. Each increase to the Cap Amount and the Reserved Amount shall be
allocated pro rata among the holders of Series F Preferred Stock based on the
number of shares of Series F Preferred Stock held by each holder at the time of
the increase in the Cap Amount or Reserved Amount. In the event a holder shall
sell or otherwise transfer any of such holder's shares of Series F Preferred
Stock, each transferee shall be allocated a pro rata portion of such
transferor's Cap Amount and Reserved Amount. Any portion of the Cap Amount or
Reserved Amount which remains allocated to any person or entity which does not
hold any Series F Preferred Stock shall be allocated to the remaining holders of
shares of Series F Preferred Stock, pro rata based on the number of shares of
Series F Preferred Stock then held by such holders.
D. Quarterly Statements of Available Shares. For each calendar quarter
beginning in the quarter in which the registration statement required to be
filed pursuant to Section 2(a) of the Registration Rights Agreement is declared
effective and thereafter so long as any shares of Series F Preferred Stock are
outstanding, the Corporation shall deliver (or cause its transfer agent to
deliver) to each holder a written report notifying the holders of any occurrence
which prohibits the Corporation from issuing Common Stock upon any such
conversion. The report shall also specify (i) the total number of shares of
Series F Preferred Stock outstanding as of the end of such quarter, (ii) the
total number of shares of Common Stock issued upon all conversions of Series F
Preferred Stock prior to the end of such quarter, (iii) the total number of
shares of Common Stock which are reserved for issuance upon conversion of the
Series F Preferred Stock as of the end of such quarter and (iv) the total number
of shares of Common Stock which may thereafter be issued by the Corporation upon
conversion of the Series F Preferred Stock before the Corporation would exceed
the Cap Amount and the Reserved Amount. The Corporation (or its transfer agent)
shall deliver the report for each quarter to each holder prior to the tenth
(10th) day of the calendar month following the quarter to which such report
relates. In addition, the Corporation (or its transfer agent) shall
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provide, within fifteen (15) days after delivery to the Corporation of a written
request by any holder, any of the information enumerated in clauses (i)-(iii) of
the Paragraph D as of the date of such request.
E. Payment of Cash: Defaults. Whenever the Corporation is required to
make any cash payment to a holder under this Certificate of Designation (as a
Conversion Default Payment upon redemption or otherwise), such cash payment
shall be made to the holder within five (5) business days after delivery by such
holder of a notice specifying that the holder elects to receive such payment in
cash and the method (e.g., by check, wire transfer) in which such payment should
be made. If such payment is not delivered within such five (5) business day
period, such holder shall thereafter be entitled to interest on the unpaid
amount at a per annum rate equal to the lower of twenty-four percent (24%) and
the highest interest rate permitted by applicable law until such amount is paid
in full to the holder.
F. Status as Stockholder. Upon submission of a Notice of Conversion by
a holder of Series F Preferred Stock, (i) the shares covered thereby (other than
the shares, if any, which cannot be issued because their issuuance would exceed
such holder's allocated portion of the Reserved Amount or Cap Amount) shall be
deemed converted into shares of Common Stock and (ii) the holder's rights as a
holder of such converted shares of Series F Preferred Stock shall cease and
terminate, excepting only the right to receive certificates for such shares of
Common Stock and to any remedies provided herein or otherwise available at law
or in equity to such holder because of a failure by the Corporation to comply
with the terms of this Certificate of Designation. In situations where Article
VI.B is applicable, the number of shares of Common Stock referred to in clauses
(i) and (ii) of the immediately preceding sentence shall be determined on the
date on which such shares of Common Stock are delivered to the holder.
Notwithstanding the foregoing, if a holder has not received certificates for all
shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Delivery Period with respect to a conversion of Series F
Preferred Stock for any reason, then (unless the holder otherwise elects to
retain its status as a holder of Common Stock by so notifying the Corporation
within five (5) business days after the expiration of such ten (10) business day
period after expiration of the Delivery Period) the holder shall regain the
rights of a holder of Series F Preferred Stock with respect to such unconverted
shares of Series F Preferred Stock and the Corporation shall, as soon as
practicable, return such unconverted shares to the holder. In all cases, the
holder shall retain all of its rights and remedies (including, without
limitation, (i) the right to receive Conversion Default Payments pursuant to
Article VI.A to the extent required thereby for such Conversion Default and any
subsequent Conversion Default and (ii) the right to have the Conversion Price
with respect to subsequent conversions determined in accordance with Article
VI.B) for the Corporation's failure to convert Series F Preferred Stock.
G. Remedies Cumulative. The remedies provided in this Certificate of
Designation shall be cumulative and in addition to all other remedies available
under this Certificate of Designation, at law or in equity (including a decree
of specific performance and/or other injunctive
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relief), and nothing herein shall limit a holder's right to pursue actual
damages for any failure by the Corporation to comply with the terms of this
Certificate of Designation. The Corporation acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the holders of Series F
Preferred Stock and that the remedy at law for any such breach may be
inadequate. The Corporation therefore agrees, in the event of any such breach or
threatened breach, that the holders of Series F Preferred Stock shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
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IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this 11th day of February, 1998.
PROJECTAVISION, INC.
By: /s/ Martin J. Holleran
-----------------------
Name: Martin J. Holleran
Title: President and Chief
Executive Officer
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