Exhibit 3.06.03
SECOND AMENDMENT TO
DESIGNATION OF STOCK OF
eUNIVERSE, INC. F/K/A MOTORCYCLE CENTERS OF AMERICA, INC.
and
SECOND AMENDED AND RESTATED
CERTIFICATE OF DESIGNATION OF
SERIES A 6% CONVERTIBLE PREFERRED STOCK
OF
eUNIVERSE, INC.
Pursuant to the provisions of Section 78.1955 of the Nevada Revised
Statutes, the undersigned Company hereby adopts the following Second Amended and
Restated Certificate of Designation of Series A 6% Convertible Preferred Stock
(the "Certificate of Designation"), that was approved as of the 22nd day of
October, 2001 by holders of the requisite percentage of shares of such preferred
stock pursuant to Section 7 of the First Amended and Restated Certificate of
Designation of Series A 6% Convertible Preferred Stock of eUniverse, Inc.:
It is hereby certified that:
1. The name of the Company (hereinafter called the "Company") is
eUniverse, Inc., a Nevada corporation.
2. The Articles of Incorporation of the Company authorize the issuance
of forty million (40,000,000) shares of preferred stock, $.10 par value per
share ("Preferred Stock"), and expressly vest in the Board of Directors of the
Company the authority provided therein to issue any or all of said shares in one
(1) or more series and by resolution or resolutions to establish the designation
and number and to fix the relative rights and preferences of each series to be
issued.
3. The Board of Directors of the Company, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a Series A 6% Convertible issue of Preferred Stock:
RESOLVED, that ten million (10,000,000) of the forty million
(40,000,000) authorized shares of Preferred Stock of the Company shall be
designated Series A 6% Convertible Preferred Stock, $.10 par value per share,
and shall possess the rights and preferences set forth below:
Section 1. Designation and Amount. The shares of such series shall have
a par value of $.10 per share and shall be designated as Series A 6% Convertible
Preferred Stock (the "Series A Preferred Stock") and the number of shares
constituting the Series A Preferred Stock shall be ten million (10,000,000). The
Series A Preferred Stock shall be offered at a purchase price of Three Dollars
and Sixty Cents ($3.60) per share (the "Original Series A Issue Price"), with a
six percent (6%) per annum accretion rate as set forth herein.
Section 2. Rank. The Series A Preferred Stock shall rank: (a) junior to
any other class or series of capital stock of the Company other than Common
Stock (defined below) hereafter created specifically ranking by its terms senior
to the Series A Preferred Stock (collectively, the "Senior Securities"); (b)
senior and prior to all of the Company's Common Stock, $.001 par value
per share ("Common Stock"); (c) senior and prior to any class or series of
capital stock of the Company hereafter created not specifically ranking by its
terms senior to or on parity with any Series A Preferred Stock of whatever
subdivision (collectively, with the Common Stock, "Junior Securities"); and (d)
on parity with any class or series of capital stock of the Company hereafter
created specifically ranking by its terms on parity with the Series A Preferred
Stock ("Parity Securities") in each case as to distributions of assets upon
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary (all such distributions being referred to collectively as
"Distributions").
Section 3. Dividends. The Series A Preferred Stock will bear no
dividends, and the holders of the Series A Preferred Stock ("Holders") shall not
be entitled to receive dividends on the Series A Preferred Stock.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of the Company ("Liquidation Event"), either voluntary of involuntary, the then
Holders of shares of Series A Preferred Stock shall be entitled to receive,
immediately after any distributions to Senior Securities required by the
Company's Articles of Incorporation or any certificate of designation, and prior
in preference to any distribution to Junior Securities but in parity with any
distribution to Parity Securities, an amount per share equal to the sum of (i)
the Original Series A Issue Price for each outstanding share of Series A
Preferred Stock and (ii) an amount equal to six percent (6%) of the Original
Series A Issue Price, per annum, accruing daily, for the period that has passed
since the date that, in connection with the consummation of the purchase by
Holder of shares of Series A Preferred Stock from the Company, the escrow agent
first received in its possession funds representing full payment for the shares
of Series A Preferred Stock (such amount being referred to herein as the
"Premium"). If upon the occurrence of such event, and after payment in full of
the preferential amounts with respect to the Senior Securities, the assets and
funds available to be distributed among the Holders of the Series A Preferred
Stock and Parity Securities shall be insufficient to permit the payment to such
Holders of the full preferential amounts due to the Holders of the Series A
Preferred Stock and the Parity Securities, respectively, then the entire assets
and funds of the Company legally available for distribution shall be distributed
among the Holders of the Series A Preferred Stock and the Parity Securities, pro
rata, based on the respective liquidation amounts to which each such series of
stock is entitled by the Company's Articles of Incorporation and any
certificate(s) of designation relating thereto.
(b) Upon the completion of the distribution required by
Subsection 4(a), if assets remain in this Company, they shall be distributed to
holders of Junior Securities in accordance with the Company's Articles of
Incorporation including any duly adopted certificate(s) of designation.
(c) At each Holder's option, a sale, conveyance or disposition
of all or substantially all of the assets of the Company or the effectuation by
the Company of a transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Company is disposed of shall
be deemed to be a Liquidation Event as defined in Section 4(a) hereof; provided,
further that (i) a consolidation, merger, acquisition, or other business
combination of the Company with or into any other publicly traded company or
companies, including those trading on
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the OTC Bulletin Board, shall not be treated as a Liquidation Event as defined
in Section 4(a) but instead shall be treated pursuant to Section 5(d) hereof,
and (ii) a consolidation, merger, acquisition, reorganization or other business
combination of the Company with or into any other non-publicly traded company or
companies where the Company is not the surviving company, shall be treated as a
Liquidation Event as defined in Section 4(a). The Company shall not effect any
transaction described in Subsection 4(c)(ii) unless it first gives thirty (30)
business days prior written notice of such transaction during which time the
Holder shall be entitled to immediately convert any or all of its shares of
Series A Preferred Stock into Common Stock at the Conversion Price, as defined
below, then in effect.
(d) In the event that, immediately prior to the closing of a
transaction described in Section 4(c) hereof which would constitute a
Liquidation Event, the cash distributions required by Section 4(a) or otherwise
hereunder, have not been made, the Company shall either: (i) cause such closing
to be reasonably postponed until such cash distributions have been made, (ii)
cancel such transaction, in which event the rights of the Holders of Series A
Preferred Stock shall be the same as existing immediately prior to such proposed
transaction, or (iii) agree, and shall require that any successor company
resulting from a Liquidation Event agrees, to make such distributions as quickly
after the closing of such Liquidation Event as reasonably practicable, upon the
same terms and in the same amounts as the Company would have made if such
distribution was made immediately prior to the closing of such transaction.
Section 5. Conversion. Subject to Section 4(c) herein, the record
Holder(s) of the Series A Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):
(a) Right to Convert. The record Holder of Series A Preferred
Stock shall be entitled to convert (i) up to five percent (5%) of its Series A
Preferred Stock immediately and (ii) up to an additional five percent (5%) of
its Series A Preferred Stock at any time following 120 days after the Effective
Date (as defined herein), each in accordance with the formula set forth below.
At any time following six months after the Effective Date, the
record Holder of the Series A Preferred Stock shall be
entitled to convert any or all of the aggregate principal
amount of the Series A Preferred Stock at the office of the
Company or its designated transfer agent (the "Transfer
Agent"), into that number of fully-paid and non-assessable
shares of Common Stock calculated in accordance with the
following formula (the "Conversion Rate"):
Number of shares of Common Stock issued upon conversion of one
(1) share of Series A Preferred Stock =
(.06) (N/365) ($3.60) + $3.60
-----------------------------
Conversion Price
where,
N = the number of days between (i) the Initial Issuance Date
(as defined below) and (ii) the applicable Date of Conversion
(as defined in Section 5(b)(iv) below) for
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the shares of Series A Preferred Stock for which conversion is
being elected, and
Conversion Price = $3.60; provided that if the average
closing bid price of the Company's Common Stock over the 20
consecutive trading days immediately preceding January 16,
2002 is less than $3.60 per share, then the Conversion Price
of the Series A Preferred Stock shall be equal to such 20 day
average closing bid price, but in no event shall be less than
$2.00.
As used herein, "Initial Issuance Date" shall mean April 14, 1999 and
"Effective Date" shall mean the date of filing of this Second Amended and
Restated Certificate of Designation of Series A 6% Convertible Preferred Stock
with the Nevada Secretary of State.
For purposes hereof, any Holder which acquires shares of Series A
Preferred Stock from another Holder (the "Transferor") and not upon original
issuance from the Company shall be entitled to exercise such Holder's conversion
right as to the percentages of such shares specified under Section 5(a) in such
amounts and at such times such that the number of shares eligible for conversion
by such Holder at any time shall be in the same proportion that the number of
shares of Series A Preferred Stock acquired by such Holder from its Transferor
bears to the total number of shares of Series A Preferred Stock originally
issued by the Company to such Transferor (or its predecessor Transferor).
For purposes hereof, the term "Closing Bid Price" shall mean the
closing bid price of the Company's Common Stock on the Nasdaq SmallCap Market,
or if no longer traded on the Nasdaq SmallCap Market, the closing bid price on
the principal national securities exchange or the over-the-counter system on
which the Common Stock is so traded and if not available, the mean of the high
and low prices on the principal national securities exchange or the
over-the-counter system on which the Common Stock is so traded.
(b) Mechanics of Conversion. In order to convert Series A
Preferred Stock into full shares of Common Stock, the Holder shall send via
facsimile, or otherwise deliver, on or prior to 11:59 p.m., New York City time
(the "Conversion Notice Deadline") on the Date of Conversion, a copy of the
fully executed notice of conversion ("Notice of Conversion") to the Company at
the office of the Company and to its designated transfer agent (the "Transfer
Agent") for the Series A Preferred Stock stating that the Holder elects to
convert, which notice shall specify the Date of Conversion, the number of shares
of Series A Preferred Stock to be converted, the applicable Conversion Price and
a calculation of the number of shares of Common Stock issuable upon such
conversion (together with a copy of the front page of each certificate to be
converted). Upon receipt by the Company of a facsimile copy of a Notice of
Conversion, the Company shall immediately send, via facsimile, a confirmation of
receipt of the Notice of Conversion to the Holder which shall specify that the
Notice of Conversion has been received and the name and telephone number of a
contact person at the Company whom the Holder should contact regarding
information related to the Conversion. No later than one (1) business day after
receipt of such confirmation of receipt of Notice of Conversion, the Holder
shall surrender to a common courier for delivery to the office of the Company or
the Transfer Agent, the original certificates representing the Series A
Preferred Stock being converted (the "Preferred Stock Certificates"), duly
endorsed for transfer; provided, however, that the Company shall not be
obligated to issue certificates evidencing the shares of
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Common Stock issuable upon such conversion unless either the Preferred Stock
Certificates are delivered to the Company or its Transfer Agent as provided
above, or the Holder notifies the Company or its Transfer Agent that such
certificates have been lost, stolen or destroyed (subject to the requirements of
subparagraph (i) below). In the case of a dispute as to the calculation of the
Conversion Rate, the Company shall promptly issue to the Holder the number of
Shares that are not disputed and shall submit the disputed calculations to its
outside accountant via facsimile within three (3) days of receipt of Holder's
Notice of Conversion. The Company shall cause the accountant to perform the
calculations and notify the Company and Holder of the results no later than two
(2) business days from the time it receives the disputed calculations. The
accountant's calculation shall be deemed conclusive absent manifest error.
(i) Lost or Stolen Certificates. Upon receipt by the
Company of evidence of the loss, theft, destruction or mutilation of
any Preferred Stock Certificates representing shares of Series A
Preferred Stock, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company, and upon
surrender and cancellation of the Preferred Stock Certificate(s), if
mutilated, the Company shall execute and deliver new Preferred Stock
Certificate(s) of like tenor and date. However, the Company shall not
be obligated to re-issue such lost or stolen Preferred Stock
Certificates if Holder contemporaneously requests the Company to
convert such Series A Preferred Stock into Common Stock.
(ii) Delivery of Common Stock Upon Conversion. The
Company shall, or shall cause the Transfer Agent, no later than the
close of business on the third (3rd) business day (the "Deadline")
after receipt by the Company or the Transfer Agent of a facsimile copy
of a Notice of Conversion and receipt by Company or the Transfer Agent
of all necessary documentation duly executed and in proper form
required for conversion, including the original Preferred Stock
Certificates to be converted (or after provision for security or
indemnification in the case of lost or destroyed certificates, if
required), to issue and surrender to a common courier for either
overnight or (if delivery is outside the United States) two (2) day
delivery to the Holder at the address of the Holder as shown on the
stock records of the Company (A) a certificate for the number of shares
of Common Stock to which the Holder shall be entitled as aforesaid, and
(B) certificate(s) representing the number of shares of Series A
Preferred Stock not being exchanged, if necessary.
(iii) No Fractional Shares. If any conversion of the
Series A Preferred Stock would create a fractional share of Common
Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of
Common Stock issuable upon conversion, in the aggregate, shall be the
next higher number of shares.
(iv) Date of Conversion. The date on which conversion
occurs (the "Date of Conversion") shall be deemed to be the date set
forth in such Notice of Conversion, provided (i) that the advance copy
of the Notice of Conversion is sent via facsimile to the Company before
11:59 p.m., New York City time, on the Date of Conversion, and (ii)
that the original Preferred Stock Certificates representing the shares
of Series A Preferred Stock to be converted are surrendered by
depositing such certificates with a common courier, for
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delivery to the Company or the Transfer Agent as provided above, as
soon as practicable after the Date of Conversion, provided that the
Date of Conversion shall not occur less than six (6) months after the
Initial Issuance Date. The person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated
for all purposes as the record Holder or Holders of such shares of
Common Stock on the Date of Conversion.
(v) Taxes. The Company shall pay any and all taxes
(other than transfer taxes) which may be imposed with respect to the
issuance and delivery of the shares of Common Stock pursuant to
conversion of the Series A Preferred Stock.
(c) Automatic Conversion or Redemption. If at any time after
12 months following the initial effectiveness of the required registration of
the Company's Common Stock (under Section 2 of the Company's Registration Rights
Agreement relating to its Series A Preferred Stock) the Closing Bid Price of the
Company's Common Stock is $16.00 or more for twenty (20) consecutive trading
days ("Automatic Conversion Event"), then at any time following the Automatic
Conversion Event (regardless of whether the Closing Bid Price of the Company's
Common Stock shall at any time following the Automatic Conversion Event be less
than $16.00), each share of Series A Preferred Stock outstanding on the date of
the Automatic Conversion Event or, if not a business day, the first business day
thereafter ("Termination Date") automatically, at the option of the Company,
shall either (i) be converted ("Automatic Conversion") into Common Stock on such
date at the Conversion Rate then in effect (calculated in accordance with the
formula in Section 5(a) above), and the Termination Date shall be deemed the
Date of Conversion with respect to such conversion for purposes of this
Certificate of Designation, or (ii) be redeemed ("Automatic Redemption") by the
Company for cash in an amount equal to the Stated Value (as defined below) of
the shares of Series A Preferred Stock being redeemed. If the Company elects to
redeem, on the Termination Date, the Company shall send to the Holders of
outstanding Series A Preferred Stock notice (the "Automatic Redemption Notice")
via facsimile of its intent to effect an Automatic Redemption of the outstanding
Series A Preferred Stock. If the Company does not send such notice to Holder on
such date, an Automatic Conversion shall be deemed to have occurred. If an
Automatic Conversion occurs, the Company and the Holders shall follow the
applicable conversion procedures set forth in this Certificate of Designation;
provided, however, that the Holders are not required to send the Notice of
Conversion contemplated by Section 5(b) hereof. If the Company elects to redeem,
each Holder of outstanding Series A Preferred Stock shall send their
certificates representing the Series A Preferred Stock to the Company within
five (5) days of the date of receipt of the Automatic Redemption Notice from the
Company, and the Company shall pay the applicable redemption price to each
respective Holder within five (5) days of the receipt of such certificates. The
Company shall not be obligated to deliver the redemption price unless the
certificates representing the Series A Preferred Stock are delivered to the
Company, or, in the event one or more certificates have been lost, stolen,
mutilated or destroyed, unless the Holder has complied with Section 5(b)(i). If
the Company elects to redeem under this Section 5(c) and the Company fails to
pay the Holders the redemption price within five (5) days of its receipt of the
certificates representing the shares of Series A Preferred Stock to be redeemed
as required by this Section 5(c), then an Automatic Conversion shall be deemed
to have occurred and, upon receipt of the Preferred Stock certificates, the
Company shall immediately deliver to the Holders the certificates representing
the number of shares of Common Stock to which the Holders would have been
entitled upon Automatic Conversion.
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As used herein, "Last Closing Date" shall mean the date of the
last closing of a purchase and sale of the Series A Preferred Stock that occurs
pursuant to the offering of the Series A Preferred Stock by the Company, and
"Stated Value" shall mean the Original Series A Issue Price (as defined in
Section 1 hereof) together with the accreted but unpaid Premium as defined in
Section 4(a).
(d) Adjustments to Conversion Price. The Conversion Price
shall be subject to adjustment from time to time as follows:
(i) Upon Issuance of Common Stock. If the Company
shall, at any time or from time to time after the Effective Date, issue
any shares of Common Stock (other than an issuance of Common Stock as a
dividend or in a split of or subdivision in respect of which the
adjustment provided for in Section 5(d)(iv) applies), options to
purchase or rights to subscribe for Common Stock, securities by their
terms convertible into or exchangeable for Common Stock, or options to
purchase or rights to subscribe for such convertible or exchangeable
securities (other than Excluded Stock (as defined below)) without
consideration or for consideration per share less than the Conversion
Price in effect immediately prior to such issuance, then such
Conversion Price shall forthwith be lowered to a price equal to the
price obtained by multiplying:
(A) the Conversion Price in effect
immediately prior to the issuance of such Common Stock, options, rights
or securities by
(B) a fraction of which (x) the denominator
shall be the number of shares of Common Stock outstanding on a fully
diluted basis immediately after such issuance and (y) the numerator
shall be the sum of (i) the number of shares of Common Stock
outstanding on a fully diluted basis immediately prior to such issuance
and (ii) the number of additional shares of Common Stock which the
aggregate consideration for the number of shares of Common Stock so
offered would purchase at the Conversion Price.
For purposes of this Section 5(d), "fully diluted basis" shall
be determined in accordance with the treasury stock method of computing fully
diluted earnings per share in accordance with GAAP (as defined below).
(ii) Upon Acquisition of Common Stock. If the Company
or any of its subsidiaries shall, at any time or from time to time
after the Effective Date, directly or indirectly, redeem, purchase or
otherwise acquire any shares of Common Stock, options to purchase or
rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock (other than shares of
Series A Preferred Stock that are redeemed according to their terms),
or options to purchase or rights to subscribe for such convertible or
exchangeable securities, for a consideration per share greater than the
Fair Market Value (as defined below) (plus, in the case of such
options, rights, or securities, the additional consideration required
to be paid to the Company upon exercise, conversion or exchange) per
share of Common Stock immediately prior to such event, then the
Conversion Price shall forthwith be lowered to a price equal to the
price obtained by multiplying:
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(A) the Conversion Price in effect
immediately prior to such event by
(B) a fraction of which (x) the denominator
shall be the Fair Market Value per share of Common Stock immediately
prior to such event and (y) the numerator shall be the result of
dividing:
(a) (1) the product of (A) the
number of shares of Common Stock outstanding
on a fully diluted basis and (B) the Fair
Market Value per share of Common Stock, in
each case immediately prior to such event,
minus (2) the aggregate consideration paid
by the Company in such event (plus, in the
case of such options, rights, or convertible
or exchangeable securities, the aggregate
additional consideration to be paid by the
Company upon exercise, conversion or
exchange), by
(b) the number of shares of Common
Stock outstanding on a fully diluted basis
immediately after such event.
(iii) For the purposes of any adjustment of a
Conversion Price pursuant to paragraph (i) of this Section 5(d), the
following provisions shall be applicable:
(1) In the case of the issuance of Common Stock
for cash in a public offering or private placement, the consideration
shall be deemed to be the amount of cash paid therefor before deducting
therefrom any discounts, commissions or placement fees payable by the
Company to any underwriter or placement agent in connection with the
issuance and sale thereof.
(2) In the case of the issuance of Common Stock
for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the Fair Market
Value thereof.
(3) In the case of the issuance of options to
purchase or rights to subscribe for Common Stock, securities by their
terms convertible into or exchangeable for Common Stock, or options to
purchase or rights to subscribe for such convertible or exchangeable
securities (except for options to acquire Excluded Stock):
(A) the aggregate maximum number of shares
of Common Stock deliverable upon exercise of such options to purchase
or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner
provided in subparagraphs (i) and (ii) above), if any, received by the
Company upon the issuance of such options or rights plus the minimum
purchase price provided in such options or rights for the Common Stock
covered thereby;
(B) the aggregate maximum number of shares
of Common Stock deliverable upon conversion of or in exchange for any
such convertible or exchangeable securities or upon the exercise of
options to purchase or rights to subscribe for such
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convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such
securities, options, or rights were issued and for a consideration
equal to the consideration received by the Company for any such
securities and related options or rights (excluding any cash received
on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the Company upon
the conversion or exchange of such securities or the exercise of any
related options or rights (the consideration in each case to be
determined in the manner provided in paragraphs (i) and (ii) above);
(C) on any change in the number of shares or
exercise price of Common Stock deliverable upon exercise of any such
options or rights or conversions of or exchanges for such securities,
other than a change resulting from the anti-dilution provisions
thereof, the applicable Conversion Price shall forthwith be readjusted
to such Conversion Price as would have been obtained had the adjustment
made upon the issuance of such options, rights or securities not
converted prior to such change or options or rights related to such
securities not converted prior to such change been made upon the basis
of such change; and
(D) no further adjustment of the Conversion
Price adjusted upon the issuance of any such options, rights,
convertible securities or exchangeable securities shall be made as a
result of the actual issuance of Common Stock on the exercise of any
such rights or options or any conversion or exchange of any such
securities.
(iv) Upon Stock Dividends, Subdivisions or Splits.
If, at any time after the Effective Date, the number of shares of
Common Stock outstanding is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of
Common Stock, then, following the record date for the determination of
holders of Common Stock entitled to receive such stock dividend, or to
be affected by such subdivision or split-up, the Conversion Price shall
be appropriately decreased so that the number of shares of Common Stock
issuable on conversion of Series A Preferred Stock shall be increased
in proportion to such increase in outstanding shares.
(v) Upon Combinations. If, at any time after the
Effective Date, the number of shares of Common Stock outstanding is
decreased by a combination of the outstanding shares of Common Stock
into a smaller number of shares of Common Stock, then, following the
record date to determine shares affected by such combination, the
Conversion Price shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of each share of Series A
Preferred Stock shall be decreased in proportion to such decrease in
outstanding shares.
(vi) Upon Reclassifications, Reorganizations,
Consolidations or Mergers. In the event of any capital reorganization
of the Company, any reclassification of the stock of the Company (other
than a change in par value or from par value to no par value or from no
par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or any consolidation
or merger of the Company with or into another corporation (where the
Company is not the surviving corporation or where there is a change in
or distribution with respect to the Common Stock), each share of Series
A Preferred Stock shall
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after such reorganization, reclassification, consolidation, or merger
be convertible into the kind and number of shares of stock or other
securities or property of the Company or of the successor corporation
resulting from such consolidation or surviving such merger, if any, to
which the holder of the number of shares of Common Stock deliverable
(immediately prior to the time of such reorganization,
reclassification, consolidation or merger) upon conversion of such
Series A Preferred Stock would have been entitled upon such
reorganization, reclassification, consolidation or merger. The
provisions of this clause shall similarly apply to successive
reorganizations, reclassifications, consolidations, or mergers. The
Company shall not effect any such reorganization, reclassification,
consolidation or merger unless, prior to the consummation thereof, the
successor corporation (if other than the Company) resulting from such
reorganization, reclassification, consolidation, shall assume, by
written instrument, the obligation to deliver to the holders of the
Series A Preferred Stock such shares of stock, securities or assets,
which, in accordance with the foregoing provisions, such holders shall
be entitled to receive upon such conversion.
(vii) Deferral in Certain Circumstances. In any case
in which the provisions of this Section 5(d) shall require that an
adjustment shall become effective immediately after a record date of
an event, the Company may defer until the occurrence of such event
issuing to the holder of any Series A Preferred Stock converted after
such record date and before the occurrence of such event the shares
of capital stock issuable upon such conversion by reason of the
adjustment required by such event and issuing to such holder only the
shares of capital stock issuable upon such conversion before giving
effect to such adjustments; provided, however, that the Company shall
deliver to such holder an appropriate instrument or due bills
evidencing such holder's right to receive such additional shares.
(viii) Other Anti-Dilution Provisions. If the Company
has issued or issues any securities on or after the Effective Date
containing provisions protecting the holder or holders thereof against
dilution in any manner more favorable to such holder or holders thereof
than those set forth in this Section 5, such provisions (or any more
favorable portion thereof) shall be deemed to be incorporated herein as
if fully set forth herein and, to the extent inconsistent with any
provision herein, shall be deemed to be substituted therefor.
(ix) Appraisal Procedure. In any case in which the
provisions of this Section 5(d) shall necessitate that the Appraisal
Procedure (as defined below) be utilized for purposes of determining
an adjustment to the Conversion Price, the Company may defer, until
the completion of the Appraisal Procedure and the determination of
the adjustment, issuing to the holder of any share of Series A
Preferred Stock converted after the date of the event that requires
the adjustment and before completion of the Appraisal Procedure and
the determination of the adjustment, the shares of capital stock
issuable upon such conversion by reason of the adjustment required by
such event and issuing to such holder only the shares of capital
stock issuable upon such conversion before giving effect to such
adjustment; provided, however, that the Company shall deliver to such
holder an appropriate instrument or due bills evidencing such
holder's right to receive such additional shares.
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(vii) (x) Exceptions. Section 5(d) shall not apply to
(i) any issuance of Common Stock upon exercise of any warrants or
options awarded to employees or directors of the Company pursuant to an
employee stock option plan or stock incentive plan approved by the
Board of Directors, (ii) any issuance of Common Stock upon conversion
of the Preferred Stock or (iii) any issuance of Common Stock or
Preferred Stock pursuant to the closing of that certain Stock Purchase
Agreement by and between the Company and 550 Digital Media Ventures
Inc. dated as of July 13, 2001 (the "Stock Purchase Agreement"), that
certain Share Purchase Agreement by and among the Company, Indimi,
L.L.C., Indimi Inc., 550 Digital Media Ventures Inc. and Sony Music
Entertainment Inc. dated as of July 13, 2001 and related transactions,
including issuance of Preferred Stock upon conversion of the Promissory
Note, as defined in the Stock Purchase Agreement (collectively, the
"Excluded Stock").
For purposes hereof, the following terms shall have the following
respective meanings herein:
"Appraisal Procedure," if applicable, means the following
procedure to determine the fair market value, as to any security, for
purposes of the definition of "Fair Market Value" or the fair market
value, as to any other property (in either case, the "Valuation
Amount"). The Valuation Amount shall be determined in good faith
jointly by the Board of Directors and the holders of more than 50% of
the issued and outstanding shares of Series A Preferred Stock (the
"Majority Holder"); provided, however, that if such parties are not
able to agree on the Valuation Amount within a reasonable period of
time (not to exceed twenty (20) days), the Valuation Amount shall be
determined by an investment banking firm of national recognition, which
firm shall be reasonably acceptable to the Board of Directors and the
Majority Holder. If the Board of Directors and the Majority Holder are
unable to agree upon an acceptable investment banking firm within ten
(10) days after the date either party proposed that one be selected,
the investment banking firm will be selected by an arbitrator located
in New York City, New York, selected by the American Arbitration
Association (or if such organization ceases to exist, the arbitrator
shall be chosen by a court of competent jurisdiction). The arbitrator
shall select the investment banking firm (within ten (10) days of his
appointment) from a list, jointly prepared by the Board of Directors
and the Majority Holder, of not more than six investment banking firms
of national standing in the United States, of which no more than three
may be named by the Board of Directors and no more than three may be
named by the Majority Holder. The arbitrator may consider, within the
ten-day period allotted, arguments from the parties regarding which
investment banking firm to choose, but the selection by the arbitrator
shall be made in its sole discretion from the list of six. The Board of
Directors and the Majority Holder shall submit their respective
valuations and other relevant data to the investment banking firm, and
the investment banking firm shall, within thirty days of its
appointment, make its own determination of the Valuation Amount. The
final Valuation Amount for purposes hereof shall be the average of the
two Valuation Amounts closest together, as determined by the investment
banking firm, from among the Valuation Amounts submitted by the Company
and the Majority Holder and the Valuation Amount calculated by the
investment banking firm. The determination of the final Valuation
Amount by such investment banking firm shall be final and binding upon
the parties. The Company shall pay the fees and expenses of the
investment banking firm and
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arbitrator (if any) used to determine the Valuation Amount. If required
by any such investment banking firm or arbitrator, the Company shall
execute a retainer and engagement letter containing reasonable terms
and conditions, including, without limitation, customary provisions
concerning the rights of indemnification and contribution by the
Company in favor of such investment banking firm or arbitrator and its
officers, directors, partners, employees, agents and affiliates.
"Business Day" means a day other than a Saturday, Sunday or
day on which banking institutions in New York are authorized or
required to remain closed.
"Fair Market Value" means, as to any security, the Twenty Day
Average (as defined below) of the average closing prices of such
security's sales on all domestic securities exchanges on which such
security may at the time be listed, or, if there have been no sales on
any such exchange on any day, the average of the highest bid and lowest
asked prices on all such exchanges at the end of such day, or, if on
any day such security is not so listed, the average of the
representative bid and asked prices quoted in the Nasdaq National
Market System as of 4:00 P.M., New York City time, on such day, or, if
on any day such security is not quoted in the Nasdaq National Market
System, the average of the highest bid and lowest asked prices on such
day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar or successor
organization (and in each such case excluding any trades that are not
bona fide, arm's length transactions). If at any time such security is
not listed on any domestic securities exchange or quoted in the Nasdaq
National Market System or the domestic over-the-counter market, the
"Fair Market Value" of such security shall be the fair market value
thereof as determined in accordance with the Appraisal Procedure, using
any appropriate valuation method, assuming an arms-length sale to an
independent party. In determining the Fair Market Value of any class or
series of Common Stock, a sale of all of the issued and outstanding
Common Stock will be assumed, without giving regard to the lack of
liquidity of such stock due to any restrictions (contractual or
otherwise) applicable thereto or any discount for minority interests
and assuming the conversion or exchange of all securities then
outstanding that are convertible into or exchangeable for Common Stock
and the exercise of all rights and warrants then outstanding and
exercisable to purchase shares of such stock or securities convertible
into or exchangeable for shares of such stock; provided, however that
such assumption will not include those securities, rights and warrants
convertible into Common Stock where the conversion, exchange or
exercise price per share is greater than the Fair Market Value;
provided, further, however, that Fair Market Value shall be determined
with regard to the relative priority of each class or series of Common
Stock (if more than one class or series exists). "Fair Market Value"
means with respect to property other than securities, the "fair market
value" determined in accordance with the Appraisal Procedure.
"GAAP" means United States generally accepted accounting
principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified
Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board, which are in effect from time to time.
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"Twenty Day Average" means, with respect to any prices and in
connection with the calculation of Fair Market Value, the average of
such prices over the twenty Business Days ending on the Business Day
immediately prior to the day as of which "Fair Market Value" is being
determined.
Section 6. Voting Rights. Except as otherwise provided herein or by
law, the Holder(s) of Series A Preferred Stock, by virtue of their ownership
thereof, shall be entitled to cast the number of votes per share thereof on each
matter submitted to the Company's holders of Common Stock for voting as equals
the number of votes which could be cast by the Holders of the number of shares
of Common Stock into which such shares of Series A Preferred Stock could be
converted pursuant hereto immediately prior to the taking of such vote
(including, without limitation, any shares of Common Stock which would be
issuable in payment of accrued and unpaid interest thereon if such shares were
converted on the record date and the Company elected to pay such interest in
Common Stock). Such vote shall be cast together with those cast by the Holders
of Common Stock and not as a separate class except as otherwise provided herein.
Section 7. Protective Provision. So long as shares of Series A
Preferred Stock are outstanding, the Company shall not without first obtaining
the approval (by vote or written consent, as provided by Nevada Law) of the
Holders of at least seventy-five percent (75%) of the then outstanding shares of
Series A Preferred Stock, and at least seventy-five percent (75%) of the then
outstanding Holders:
(a) alter or change the rights, preferences or privileges of
the Series A Preferred Stock or any securities so as to affect adversely the
Series A Preferred Stock;
(b) create any new class or series of stock having a
preference over or on parity with the Series A Preferred Stock with respect to
Distributions (as defined in Section 2 above) or increase the size of the
authorized number of Series A Preferred Stock; or
(c) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the holders of
shares of the Series A 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 seventy-five percent (75%) of the then
outstanding shares of Series A Preferred Stock and at least seventy-five percent
(75%) of the then outstanding Holders agree to allow the Company to alter or
change the rights, preferences or privileges of the shares of Series A Preferred
Stock, pursuant to Subsection (a) above, so as to affect the Series A Preferred
Stock, then the Company will deliver notice of such approved change to the
Holders of the Series A 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) Business Days to convert pursuant to the terms of
this Certificate of Designation as they exist prior to such alteration or change
(notwithstanding any other provision herein to the contrary) or continue to hold
their shares of Series A Preferred Stock, as amended.
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Section 8. Status of Converted Stock. In the event any shares of Series
A Preferred Stock shall be converted pursuant to Section 5 hereof, the shares of
Preferred Stock so converted shall be canceled, shall return to the status of
authorized but unissued Preferred Stock of no designated series, and shall not
be re-issuable by the Company as Series A Preferred Stock.
Section 9. Preference Rights. Nothing contained herein shall be
construed to prevent the Board of Directors of the Company from issuing one (1)
or more series of Preferred Stock with dividend and/or liquidation preferences
junior to the dividend and liquidation preferences of the Series A Preferred
Stock.
Section 10. Authorization and Reservation of Shares of Common Stock.
(a) Authorized and Reserved Amount. The Company shall have
authorized and reserved and keep available for issuance not less than three
million nine hundred thousand (3,900,000) shares of Common Stock (subject to
adjustment for stock splits, stock dividends, reclassifications and similar
types of events) issuable upon conversion of all outstanding Series A Preferred
Stock for the purpose of effecting the conversion of the Series A Preferred
Stock (including any shares of Common Stock as a Conversion Failure Payment
under Section 11 hereof or issuable upon the failure of the Company to pay a
Redemption Amount in accordance with Section 5(c) hereof) issued or to be issued
to the Holders (the "Reserved Amount"). The Reserved Amount shall be at least
two hundred percent (200%) of the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock a sufficient number of shares of Common Stock to provide for the full
conversion of all outstanding Series A Preferred Stock, and issuance of the
shares of Common Stock in connection therewith. During any period in which the
Reserved Amount is less than two hundred percent (200%) of the number of shares
of Common Stock issuable on three (3) consecutive trading days upon conversion
of the outstanding Series A Preferred Stock (without giving effect to any
limitation on conversion or exercise thereof), the Company shall not reserve or
issue shares of Common Stock for any purposes other than the conversion of the
Series A Preferred Stock.
(b) Increases to Reserved Amount. Without limiting any other
provision of this Section 10, if the Reserved Amount for any three (3)
consecutive trading days (the last of such three (3) trading days being the
"Reservation Trigger Date") is less than two hundred percent (200%) of the
number of shares of Common Stock issuable upon conversion of Series A Preferred
Stock on such trading days (a "Share Authorization Failure"), the Company shall
immediately notify all Holders of such occurrence and shall take all necessary
action to increase the Reserved Amount to two hundred percent (200%) of the
number of shares of Common Stock then issuable upon conversion of the Series A
Preferred Stock within (i) fifteen (15) days following a Reservation Trigger
Date if such increase requires solely approval of the Company's Board of
Directors and (ii) sixty (60) days following a Reservation Trigger Date if such
increase requires approval of the Company's shareholders.
(c) Reduction of Reserved Amount Under Certain Circumstances.
Prior to complete conversion of all Series A Preferred Stock, the Company shall
not reduce the number of shares required to be reserved for issuance under this
Section 10 without the written consent of all
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Holders except for a reduction proportionate to a reverse stock split effected
for a business purpose other than affecting the obligations of Holder under this
Section 10, which reverse stock split affects all shares of Common Stock
equally.
(d) Allocation of Reserved Amount. Each increase to the
Reserved Amount shall be allocated pro rata among the Holders based on the
number of Series A Preferred Stock held by each Holder at the time of the
establishment of or increase in the Reserved Amount. In the event a Holder shall
sell or otherwise transfer any of such Holder's Series A Preferred Stock, each
transferee shall be allocated a pro rata portion of such transferor's Reserved
Amount. Any portion of the Reserved Amount which remains allocated to any person
or entity which does not hold any Series A Preferred Stock shall be allocated to
the remaining Holders, pro rata based on the number of Series A Preferred Stock
then held by such Holders.
Section 11. Failure to Satisfy Conversions.
(a) Conversion Failure Payments. If, at any time, (x) a Holder
submits a Notice of Conversion (or is deemed to submit such notice pursuant to
Section 5(d) hereof), and the Company fails for any reason to deliver, on or
prior to the expiration of the Deadline ("Delivery Period") for such conversion,
such number of shares of Common Stock to which such converting Holder is
entitled upon such conversion, or (y) the Company provides notice (including,
but not limited to, any published announcement) to any Holder at any time of its
intention not to issue shares of Common Stock upon exercise by any Holder of its
conversion rights in accordance with the terms of this Certificate of
Designation (each of (x) and (y) being a "Conversion Failure"), then the Company
shall pay to such Holder, in the case of a Conversion Failure described in
clause (x) above, and to all Holders, in the case of a Conversion Failure
described in clause (y) above, damages in an amount equal to the lower of:
(i) "Damages Amount" x "D" x .005; and
(ii) the highest interest rate permitted by
applicable law, where:
"D" means the number of days beginning the date of the Conversion
Failure through and including the Cure Date with respect to such Conversion
Failure;
"Damages Amount" means the Original Series A Issue Price for each share
of Series A Preferred Stock subject to conversion plus all accrued and unpaid
interest thereon as of the first day of the Conversion Failure;
"Cure Date" means (i) with respect to a Conversion Failure described in
clause (x) of its definition, the date the Company effects the conversion of the
shares of Series A Preferred Stock submitted for conversion and (ii) with
respect to a Conversion Failure described in clause (y) of its definition, the
date the Company undertakes in writing to issue Common Stock in satisfaction of
all conversions of Series A Preferred Stock in accordance with the terms of this
Certificate of Designation.
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The payments to which a Holder shall be entitled pursuant to this
Section are referred to herein as "Conversion Failure Payments." The parties
agree that the damages caused by a breach hereof would be difficult or
impossible to estimate accurately. A Holder may elect to receive accrued
Conversion Failure Payments in cash or to convert all or any portion of such
accrued Conversion Failure Payments, at any time, into Common Stock at the
lowest Conversion Price in effect during the period beginning on the date of the
Conversion Failure through the Cure Date for such Conversion Failure. In the
event a Holder elects to receive any Conversion Failure Payments in cash, it
shall notify the Company in writing no later than three (3) Business Days after
the Deadline and failure to so notify the Company shall entitle the Company, in
its sole discretion, to elect to make such Conversion Failure Payments in cash,
Common Stock or some combination of the two. In the event a Holder elects to
convert all or any portion of the Conversion Failure Payments, such Holder shall
indicate on a Notice of Conversion such portion of the Conversion Failure
Payments which such Holder elects to so convert in accordance with this Section
11(a) and such conversion shall otherwise be effected in accordance with
provisions of Section 5.
(b) Buy-In Cure. Unless a Conversion Failure described in
clause (y) of Section 11(a) hereof has occurred with respect to such a Holder,
if (i) the Company fails for any reason to deliver during the Delivery Period
shares of Common Stock to a Holder upon a conversion of the Series A Preferred
Stock and (ii) after the applicable Delivery Period with respect to such
conversion, a Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to make delivery upon a sale by a Holder of the shares of
Common Stock (the "Sold Shares") which such Holder anticipated receiving upon
such conversion (a "Buy-In"), the Company shall pay such Holder (in addition to
any other remedies available to Holder) the amount by which (x) such Holder's
total purchase price (including brokerage commission, if any) for the 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 shares of
Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to shares of Common Stock sold for $10,000, the Company will be required
to pay such Holder $1,000. A Holder shall provide the Company written
notification indicating any amounts payable to Holder pursuant to this Section
11.
(c) Adjustment to Conversion Price. If a Holder has not
received certificates for all shares of Common Stock within five (5) Business
Days following the expiration of the Delivery Period with respect to a
conversion of any portion of any such Holder's Series A Preferred Stock for any
reason, then the Conversion Price for the affected Series A Preferred Stock
shall thereafter be the lesser of (i) the Conversion Price on the Conversion
Date specified in the Notice of Conversion which resulted in the Conversion
Failure and (ii) the lowest Conversion Price in effect during the period
beginning on, and including, such Conversion Date through and including the Cure
Date. If there shall occur a Conversion Failure of the type described in clause
(y) of Section 11(a), then the 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 Failure through and including the Cure Date. The Conversion Price
shall thereafter be subject to further adjustment for any events described in
Section 5(d).
Section 12. Event of Default.
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(a) Holder's Option to Demand Prepayment. Upon the occurrence
of an Event of Default (as herein defined), each Holder shall have the right to
elect at any time and from time to time prior to the cure by Company of such
Event of Default to have all or any portion of such Holder's then outstanding
Series A Preferred Stock prepaid by the Company for an amount equal to the
Holder Demand Prepayment Amount (as defined below).
(i) The right of a Holder to elect prepayment shall
be exercisable upon the occurrence of an Event of Default by such
Holder in its sole discretion by delivery of a Demand Prepayment Notice
(as defined below) in accordance with the procedures set forth in this
Section 12. Notwithstanding the exercise of such right, the Holder
shall be entitled to exercise all other rights and remedies available
under the provisions of this Certificate of Designation and at law or
in equity.
(ii) A Holder shall effect each demand for prepayment
under this Section 12 by giving at least two (2) Business Days prior
written notice (the "Demand Prepayment Notice") of the date which such
prepayment is to become effective (the "Effective Date of Demand of
Prepayment"), the Series A Preferred Stock selected for prepayment and
the Holder Demand Prepayment Amount to the Company at the address and
facsimile number provided in the stock records of the Company, which
Demand Prepayment Notice shall be deemed to have been delivered on the
Business Day after the date of transmission of Holder's facsimile (with
a copy sent by overnight courier to the Company) of such notice.
(iii) The Holder Demand Prepayment Amount shall be
paid to a Holder whose Series A Preferred Stock are being prepaid
within one (1) Business Day following the Effective Date of Demand of
Prepayment; provided, however, that the Company shall not be obligated
to deliver any portion of the Holder Demand Prepayment Amount until one
(1) Business Day following either the date on which the Series A
Preferred Stock being prepaid are delivered to the office of the
Company or its transfer agent, or the date on which the Holder notifies
the Company or the Transfer Agent that such Series A Preferred Stock
have been lost, stolen or destroyed and delivers the documentation
required in accordance with Section 5(b)(i) hereof.
(b) Holder Demand Prepayment Amount. The "Holder Demand
Prepayment Amount" means the greater of: (a) 1.3 times the Stated Value of the
Series A Preferred Stock for which demand is being made, plus all accrued and
unpaid interest thereon and accrued and unpaid Conversion Failure Payments (if
any) through the date of prepayment and (b) the product of (1) the highest price
at which the Common Stock is traded on the date of the Event of Default (or the
most recent highest closing bid price if the Common Stock is not traded on such
date) divided by the Conversion Price in effect as of the date of the Event of
Default, and (2) the sum of the Stated Value and all accrued and unpaid
Conversion Failure Payments (if any) through the date of prepayment.
(c) Events of Default. An "Event of Default" means any one of
the following:
(i) a Conversion Failure described in Section 11(a)
hereof;
-17-
(ii) a Share Authorization Failure described in
Section 10(b) hereof, if such Share Authorization Failure continues
uncured for (x) fifteen (15) days following a Reservation Trigger Date
if such increase requires solely the approval of the Company's Board of
Directors and (y) sixty (60) days after the Reservation Trigger Date if
such increase requires approval of the Company's shareholders;
(iii) the Company fails, and such failure continues
uncured for three (3) Business Days after the Company has been notified
thereof in writing by a Holder, to satisfy the share reservation
requirements of Section 10 hereof;
(iv) the Company fails to maintain an effective
registration statement as required by Section 2, Section 3 or Section 6
of the Registration Rights Agreement between the Company and the
Holder(s) (the "Registration Rights Agreement") except where such
failure lasts no longer than three (3) consecutive trading days and is
caused solely by failure of the Securities and Exchange Commission to
timely review the customary submission of or respond to the customary
requests of the Company;
(v) for three (3) consecutive trading days or for an
aggregate of ten (10) trading days in any nine (9) month period, the
Common Stock (including any of the shares of Common Stock issuable upon
conversion of the Series A Preferred Stock, and exercise of the Common
Warrants) is (i) suspended from trading on any of the Nasdaq SmallCap,
NMS, NYSE, AMEX or the OTC Bulletin Board, or (ii) is not qualified for
trading on at least one of Nasdaq SmallCap, NMS, NYSE, AMEX or the OTC
Bulletin Board;
(vi) the Company fails, and such failure continues
uncured for three (3) Business Days after the Company has been notified
thereof in writing by a Holder, to remove any restrictive legend on any
certificate for any shares of Common Stock issued to a Holder upon
conversion of any Series A Preferred Stock as and when required by this
Certificate of Designation and the Subscription Agreement, between the
Company and the Holder(s) (the "Subscription Agreement") or the
Registration Rights Agreement;
(vii) the Company breaches, and such breach continues
uncured for three (3) Business Days after the Company has been notified
thereof in writing by a Holder, any significant covenant or other
material term or condition of this Certificate of Designation, the
Subscription Agreement or the Registration Rights Agreement;
(viii) any representation or warranty of the Company
made herein or in any agreement, statement or certificate given in
writing pursuant hereto or in connection herewith (including, without
limitation, the Subscription Agreement and Registration Rights
Agreement), shall be false or misleading in any material respect when
made;
(ix) the Company or any subsidiary of the Company
shall make an assignment for the benefit of its creditors, or apply for
or consent to the appointment of a receiver or trustee for it or for a
substantial part of its property or business, or such receiver or
trustee shall otherwise be appointed;
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(x) bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be instituted
by or against the Company or any subsidiary of the Company (and such
proceedings shall continue unstayed for thirty (30) days); or
(xi) the Company fails to file a registration
statement on Form 10 (to register securities pursuant to Section 12(b)
or 12(g) of the Securities Exchange Act of 1934) within sixty (60) days
of the Initial Issuance Date (as defined in Section 5 herein), or such
registration statement is not declared effective within one hundred
fifty (150) days of the Initial Issuance Date.
(d) Failure to Pay Damages Amount. If the Company fails to pay
the Holder Demand Prepayment Amount within five (5) Business Days of its receipt
of a Demand Prepayment Notice, then such Holder shall have the right, at any
time and from time to time prior to the payment of the Holder Demand Prepayment
Amount, to require the Company, upon written notice, to immediately convert (in
accordance with the terms of Section 5) all or any portion of the Holder Demand
Prepayment Amount, into shares of Common Stock at the then current Conversion
Price, provided that if the Company has not delivered the full number of shares
of Common Stock issuable upon such conversion within five (5) Business Days
after the Company receives written notice of such conversion, the Conversion
Price with respect to such Holder Demand Prepayment Amount shall thereafter be
deemed to be at the lowest Conversion Price in effect during the period
beginning on the date of the Event of Default through the date on which the
Company delivers to the Holder the full number of freely tradable shares of
Common Stock issuable upon such conversion. In the event the Company is not able
to pay all amounts due and payable with respect to all Series A Preferred Stock
subject to Holder Demand Prepayment Notices, the Company shall pay the Holders
such amounts pro rata, based on the total amounts payable to such Holder
relative to the total amounts payable to all Holders.
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IN WITNESS WHEREOF, the Company has caused this Certificate of
Designation to be signed by Christopher S. Lipp, its Secretary, Vice President
and General Counsel, this 4th day of January, 2002.
eUNIVERSE, INC.
By: /s/ Christopher S. Lipp
---------------------------------------------
Christopher S. Lipp
Secretary, Vice President and General Counsel
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