EXHIBIT 4.1
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
REMOTE DYNAMICS, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
Remote Dynamics, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "CORPORATION"), hereby certifies that the
Board of Directors of the Corporation (the "BOARD OF DIRECTORS" or the "BOARD"),
pursuant to authority of the Board of Directors as required by Section 151 of
the Delaware General Corporation Law, and in accordance with the provisions of
its Certificate of Incorporation and Bylaws, each as amended and restated
through the date hereof, has and 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 Five Thousand (5,000)
shares of Preferred Stock, is the Series A Convertible Preferred Stock (the
"SERIES A PREFERRED STOCK") and the face amount shall be One Thousand Dollars
($1,000.00) per share (the "FACE AMOUNT").
II. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, in addition to the
other terms defined herein, the following terms shall have the following
meanings:
A. "BUSINESS DAY" means any day, other than a Saturday or Sunday
or a day on which banking institutions in the State of New York are authorized
or obligated by law, regulation or executive order to close.
B. "CHANGE OF CONTROL" means (i) any sale, transfer or other
disposition of all or substantially all of the assets of the Corporation, (ii)
the adoption of a plan relating to the liquidation or dissolution of the
Corporation, (iii) 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), (iv) any share exchange or other transaction
pursuant to which all of the outstanding shares of Common Stock are converted
into other securities or property, (v) 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 value, or as a result of
a subdivision or combination), (vi) any sale or issuance, in one transaction or
a series of related transactions, by the Corporation or any of its stockholders
of any Common Stock or Convertible Securities (as defined in Article X.D, below)
to any person such that, following the consummation of such transaction(s), such
person (together with its affiliates) would own or have the right to acquire
greater than fifty percent (50%) of the outstanding shares of Common Stock
(calculated on a fully-diluted basis assuming the conversion or exercise of all
Convertible Securities), or to elect a majority of the Board, or (vii) the first
day on which the continuing directors (i.e., the current members of the Board,
or those members who are subsequently elected with the approval of a majority of
the then current members of the Board) cease to represent at least a majority of
the members of the Board then serving.
C. "CLOSING SALES PRICE" means, for any security as of any date,
the last sales price of such security on the principal trading market 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 the Majority Holders if Bloomberg Financial Markets
is not then reporting closing sales prices of such security) (collectively,
"BLOOMBERG"), or if the foregoing does not apply, the last reported sales price
of such security on a national exchange or in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
such price is reported for such security by Bloomberg, the average of the bid
prices of all market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc., in each case for such date or, if such
date was not a trading day for such security, on the next preceding date which
was a trading day. If the Closing Sales Price cannot be calculated for such
security as of either of such dates on any of the foregoing bases, the Closing
Sales 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 the Majority Holders, with the costs of such
appraisal to be borne by the Corporation.
D. "CONVERSION DATE" means, for any Optional Conversion (as
defined in Article IV.A below), the date specified in the notice of conversion
in the form attached hereto (the "NOTICE OF CONVERSION"), so long as such day is
a trading day and a copy of the Notice of Conversion is faxed (or delivered by
other means resulting in notice) to the Corporation before 4:00 p.m., New York
City time, on the Conversion Date indicated in the Notice of Conversion;
provided, however, that if the Notice of Conversion is not so faxed or otherwise
delivered before such time, then the Conversion Date shall be the next trading
day after the date the holder faxes or otherwise delivers the Notice of
Conversion to the Corporation.
E. "CONVERSION PRICE" means $2.00; provided, however, that the
Conversion Price shall be subject to adjustment as provided herein.
F. "DEFAULT CURE DATE" means, as applicable, (i) with respect to
a Conversion Default described in clause (i) of Article VI.A, the date the
Corporation effects the conversion of the full number of shares of Series A
Preferred Stock, (ii) with respect to a Conversion Default described in
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clause (ii) of Article VI.A, the date the Corporation issues freely tradable
shares of Common Stock in satisfaction of all conversions of Series A Preferred
Stock in accordance with Article IV, or (iii) with respect to either type of a
Conversion Default, the date on which the Corporation redeems shares of Series A
Preferred Stock held by such holder pursuant to Article VII. A.
G. "DILUTIVE ISSUANCE" means the issuance or sale, or such other
action that is deemed by this definition to constitute an issuance or sale, by
the Corporation of any shares of Common Stock for no consideration or for a
consideration per share less than the Conversion Price in effect on the date of
issuance or sale (or deemed issuance or sale). For the purposes of determining
whether shares of Common Stock are issued or sold for no consideration or for a
consideration per share less than the Conversion Price in effect on the date of
issuance or sale (or deemed issuance or sale), the following shall be
applicable:
(i) Issuance of Purchase Rights. If the Corporation
issues or sells any Purchase Rights (defined below), whether or not immediately
exercisable, and the price per share for which Common Stock is issuable upon the
exercise of such Purchase Rights (and the price of any conversion of Convertible
Securities, if applicable) is less than the Conversion Price in effect on the
date of issuance or sale of such Purchase Rights, then the maximum total number
of shares of Common Stock issuable upon the exercise of all such Purchase Rights
(assuming full conversion, exercise or exchange of Convertible Securities, if
applicable) shall, as of the date of the issuance or sale of such Purchase
Rights, be deemed to be outstanding and to have been issued and sold by the
Corporation for such price per share. For purposes of the preceding sentence,
the "price per share for which Common Stock is issuable upon the exercise of
such Purchase Rights" shall be determined by dividing (A) the total amount, if
any, received or receivable by the Corporation as consideration for the issuance
or sale of all such Purchase Rights, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the exercise
of all such Purchase Rights, plus, in the case of Convertible Securities
issuable upon the exercise of such Purchase Rights, the minimum aggregate amount
of additional consideration payable upon the conversion, exercise or exchange
thereof (determined in accordance with the calculation method set forth in
subparagraph (iii) of this definition), by (B) the maximum total number of
shares of Common Stock issuable upon the exercise of all such Purchase Rights
(assuming full conversion, exercise or exchange of Convertible Securities, if
applicable).
(ii) Issuance of Convertible Securities. If the
Corporation issues or sells any Convertible Securities (defined below), whether
or not immediately convertible, exercisable or exchangeable, and the price per
share for which Common Stock is issuable upon such conversion, exercise or
exchange is less than the Conversion Price in effect on the date of issuance or
sale of such Convertible Securities, then the maximum total number of shares of
Common Stock issuable upon the conversion, exercise or exchange of all such
Convertible Securities shall, as of the date of the issuance or sale of such
Convertible Securities, be deemed to be outstanding and to have been issued and
sold by the Corporation for such price per share. For the purposes of the
preceding sentence, the "price per share for which Common Stock is issuable upon
such conversion, exercise or exchange" shall be determined by dividing (A) the
total amount, if any, received or receivable by the Corporation as consideration
for the issuance or sale of all such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the Corporation
upon the conversion, exercise or exchange thereof (determined in accordance with
the calculation method set
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forth in this subparagraph (iii) of this definition), by (B) the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of all such Convertible Securities.
(iii) Calculation of Consideration Received. If any Common
Stock, Purchase Rights or Convertible Securities are issued or sold for cash,
the consideration received therefor will be the amount received by the
Corporation therefor, after deduction of all underwriting discounts or
allowances in connection with such issuance, grant or sale. In case any Common
Stock, Purchase Rights or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash, including in the
case of a strategic or similar arrangement in which the other entity will
provide services to the Corporation, purchase services from the Corporation or
otherwise provide intangible consideration to the Corporation, the amount of the
consideration other than cash received by the Corporation (including the net
present value of the consideration expected by the Corporation for the provided
or purchased services) shall be the fair market value of such consideration,
except where such consideration consists of securities, in which case the amount
of consideration received by the Corporation will be the Closing Sales Price
thereof as of the date of receipt. In case any Common Stock, Purchase Rights or
Convertible Securities are issued in connection with any merger or consolidation
in which the Corporation is the surviving corporation, the amount of
consideration therefor will be deemed to be the fair market value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Purchase Rights or Convertible Securities, as
the case may be. Notwithstanding anything else herein to the contrary, if Common
Stock, Purchase Rights or Convertible Securities are issued or sold in
conjunction with each other as part of a single transaction or in a series of
related transactions, any holder of Series A Preferred Stock may elect to
determine the amount of consideration deemed to be received by the Corporation
therefor by deducting the fair value of any type of securities (the "DISREGARDED
SECURITIES") issued or sold in such transaction or series of transactions. For
example, if the Corporation were to issue convertible notes having a face value
of $1,000,000 and warrants to purchase shares of Common Stock at an exercise
price equal to the market price of the Common Stock on the date of issuance of
such warrants in exchange for $1,000,000 of consideration, the fair value of the
warrants would be subtracted from the $1,000,000 of consideration received by
the Corporation for the purposes of determining whether the shares of Common
Stock issuable upon conversion of the convertible notes shall be deemed to be
issued at a price per share below the Conversion Price then in effect. The
Corporation shall calculate, using standard commercial valuation methods
appropriate for valuing such assets, the fair market value of any consideration
other than cash or securities; provided, however, that if the Majority Holders
do not agree to such fair market value calculation within three business days
after receipt thereof from the Corporation, then such fair market value shall be
determined in good faith by an investment banker or other appropriate expert of
national reputation selected by the Corporation and reasonably acceptable to the
Majority Holders, with the costs of such appraisal to be borne by the
Corporation.
H. "DIVIDEND" means an amount equal to (Rate)x(N/365)x(Face
Amount), where the "RATE" shall be equal to .08 and "N" means the number of days
from the Issuance Date or the date that the last payment of the Dividend was
made in full, as applicable.
I. "EXCLUDED ISSUANCE" means (i) the issuance of Common Stock
upon the exercise or conversion of any Convertible Securities or Purchase Rights
outstanding on the Issuance Date and
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disclosed in Section 3(c) of the Disclosure Schedule to the Securities Purchase
Agreement in accordance with the terms of such Convertible Securities and
Purchase Rights (as defined in Article X.D, below) as of such date; (ii) the
grant of options to purchase Common Stock, with exercise prices not less than
the market price of the Common Stock on the date of grant, which are issued to
employees, officers, directors or consultants of the Corporation for the primary
purpose of soliciting or retaining their employment or service pursuant to an
equity compensation plan of the Corporation in effect as of the date hereof, and
the issuance of Common Stock upon the exercise thereof; (iii) the conversion of
the Series A Preferred Stock or exercise of the Warrants, (iv) the issuance of
securities in connection with strategic business partnerships or joint ventures,
the primary purpose of which, in the reasonable judgment of the Board of
Directors, is not to raise additional capital; (v) the issuance of securities in
connection with a bona fide public offering at an offering price per share
(prior to underwriter's commissions and discounts) of not less than the
Conversion Price (as adjusted pursuant to the terms hereof) that is underwritten
by a nationally recognized underwriting firm and results in net proceeds to the
Corporation of at least twenty-five million dollars ($25,000,000); (vi) any
issuance of securities as to which the holders of a majority of the then
outstanding shares of Preferred Stock shall have executed a written waiver of
its rights hereunder; (vii) the issuance of Common Stock pursuant to, and upon
the exercise of options granted under, the Company's 2004 Revised Management
Incentive Plan (but only up to such amount as provided for in Section 3(c) of
the Disclosure Schedule to the Securities Purchase Agreement); or (viii) the
issuance of Common Stock pursuant to the Company's Third Amended Joint Plan of
Reorganization (but only up to such amount as provided for in Section 3(c) of
the Disclosure Schedule to the Securities Purchase Agreement).
J. "ISSUANCE DATE" means the date of the closing under the
Securities Purchase Agreement by and among the Corporation and the purchasers
named therein (the "SECURITIES PURCHASE AGREEMENT"), pursuant to which the
Corporation issues, and such purchasers purchase, shares of Series A Preferred
Stock upon the terms and conditions stated therein.
K. "MAJORITY HOLDERS" means the holders of a majority of the then
outstanding shares of Series A Preferred Stock.
L. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the Issuance Date, by and among the Corporation and the
initial holders of Series A Preferred Stock.
M. "TRADING DAY" means any day on which the principal United
States securities exchange or trading market where the Common Stock is then
listed or traded, is open for trading.
N. "WARRANTS" means the warrants (including Structured Warrants
and Incentive Warrants, each as defined in the Securities Purchase Agreement)
issued by the Corporation to the initial holders of Series A Preferred Stock
pursuant to the Securities Purchase Agreement.
III. DIVIDENDS
Dividends shall be payable cumulatively, at the Rate, (a) upon any
conversion for each share of Series A Preferred Stock, and (b) as to each
outstanding share of Series A Preferred Stock, on
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November 30, February 28, May 31 and August 31 of each year, beginning November
30, 2004 and ending on the earlier of (1) August 31, 2006 and (2) the date such
share of Series A Preferred Stock is fully converted or fully redeemed. Payment
of the Dividend shall be made at the election of the holder of each share of
Series A Preferred Stock (i) in cash, or (ii) in such number of shares of Series
A Preferred Stock determined by dividing the amount of the Dividend by the Face
Amount.
IV. CONVERSION
A. Conversion at the Option of the Holder. Subject to the
limitations on conversions contained in Article XIV, each holder of shares of
Series A Preferred Stock may, at any time and from time to time, convert (an
"OPTIONAL CONVERSION") each of its shares of Series A Preferred Stock into a
number of fully paid and nonassessable shares of Common Stock determined in
accordance with the following formula:
FACE AMOUNT
CONVERSION PRICE
B. Mechanics of Conversion. In order to effect an Optional
Conversion, a holder shall: (x) fax (or otherwise deliver) a copy of the fully
executed Notice of Conversion to the Corporation (Attention: Secretary) and (y)
surrender or cause to be surrendered the original certificates representing the
Series A 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. Upon receipt by the Corporation of a
facsimile copy of a Notice of Conversion from a holder, the Corporation shall
promptly 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 as provided above, or the holder notifies the
Corporation that such Preferred Stock Certificates have been lost, stolen or
destroyed and delivers the documentation to the Corporation required by Article
XV.B hereof.
(i) Delivery of Common Stock Upon Conversion. Upon the
surrender of Preferred Stock Certificates accompanied by a Notice of Conversion,
the Corporation (itself, or through its transfer agent) 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 XV.B) (the "DELIVERY PERIOD"), issue and deliver (i.e., deposit with a
nationally recognized overnight courier service postage prepaid) to the holder
or its nominee (x) that number of shares of Common Stock issuable upon
conversion of such shares of Series A Preferred Stock being converted and (y) a
certificate representing the number of shares of Series A Preferred Stock not
being converted, if any. Notwithstanding the foregoing, 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 therefor
do not bear a legend (pursuant to the terms of the Securities Purchase
Agreement) and the holder thereof is not then required to return such
certificate for the placement of a legend thereon
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(pursuant to the terms of the Securities Purchase Agreement), the Corporation
shall cause its transfer agent to promptly 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 conditions to a DTC Transfer are
not satisfied, the Corporation shall deliver as provided above 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
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
that may be imposed upon it with respect to the issuance and delivery of the
shares of Common Stock upon the conversion of the Series A Preferred Stock.
(iii) No Fractional Shares. If any conversion of Series A
Preferred Stock would result in the issuance of a fractional share of Common
Stock (aggregating all shares of Series A Preferred Stock being converted
pursuant to a given Notice of Conversion), such fractional share shall be
payable in cash based upon the ten day average Closing Sales Price of the Common
Stock at such time, and the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock shall be the next lower whole number
of shares. If the Corporation elects not to, or is unable to, make such a cash
payment, the holder shall be entitled to receive, in lieu of the final fraction
of a share, one whole share of Common Stock.
(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 subparagraph (i)
above. If such dispute involves the calculation of the Conversion Price, and
such dispute is not promptly resolved by discussion between the relevant holder
and the Corporation, the Corporation shall submit the disputed calculations to
an independent outside accountant via facsimile within three business days of
receipt of the Notice of Conversion. The accountant, at the Corporation's sole
expense, shall promptly audit the calculations and notify the Corporation and
the holder of the results no later than three 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.
(v) Payment of Accrued Amounts. Upon conversion of any
shares of Series A Preferred Stock, all amounts then accrued or payable on such
shares under this Certificate of Designation (including, without limitation, all
Dividends) or the Registration Rights Agreement through and including the
Conversion Date shall be paid in cash by the Corporation or, in the case of any
Dividend, in the manner described in Article III.
V. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. On or prior to the Issuance Date, the
Corporation shall reserve 5,000,000 shares of its authorized but unissued shares
of Common Stock for issuance upon conversion of the Series A Preferred Stock
(including any Dividend payable thereon) and exercise of
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the Warrants, and, thereafter, the number of authorized but unissued shares of
Common Stock so reserved (the "RESERVED AMOUNT") shall at all times be
sufficient to provide for the full conversion (including any Dividend payable
thereon) of all of the Series A Preferred Stock (including any Dividend payable
thereon) outstanding at the then current Conversion Price thereof (without
giving effect to the limitations contained in Article XIV) and the full exercise
of all Warrants outstanding at the then current Exercise price thereof (without
giving effect to the limitations on exercise set forth therein). The Reserved
Amount shall be allocated among the holders of Series A Preferred Stock as
provided in Article XV.C.
B. Increases to Reserved Amount. If the Reserved Amount for any
three consecutive trading days (the last of such three trading days being the
"AUTHORIZATION TRIGGER DATE") shall be less than one hundred percent (100%) of
the number of shares of Common Stock issuable upon full conversion (including
any Dividend payable thereon) of the then outstanding shares of Series A
Preferred Stock (without giving effect to the limitations contained in Article
XIV), the Corporation shall immediately notify the holders of Series A Preferred
Stock of such occurrence and shall take immediate action (including, if
necessary, seeking stockholder approval to authorize the issuance of additional
shares of Common Stock) to increase the Reserved Amount to one hundred percent
(100%) of the number of shares of Common Stock then issuable upon full
conversion of all of the outstanding Series A Preferred Stock at the then
current Conversion Price (without giving effect to the limitations contained in
Article XIV). In the event the Corporation fails to so increase the Reserved
Amount within 90 days after an Authorization Trigger Date, each holder of Series
A 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 Redemption Notice to
the Corporation, to require the Corporation to redeem for cash, at an amount per
share equal to the Redemption Amount (as defined in Article VII.B), a number of
the holder's shares of Series A Preferred Stock such that, after giving effect
to such redemption, the then unissued portion of such holder's Reserved Amount
is at least equal to one hundred percent (100%) of the total number of shares of
Common Stock issuable upon conversion of such holder's shares of Series A
Preferred Stock. If the Corporation fails to redeem any of such shares within
five business days after its receipt of such Redemption Notice, then such holder
shall be entitled to the remedies provided in Article VII.C. For the avoidance
of doubt, no holder of Series A Preferred Stock shall have the right to submit a
Redemption Notice pursuant to this Article V.B at any time that the Reserved
Amount equals one hundred percent (100%) of the number of shares of Common Stock
then issuable upon full conversion (including any Dividend payable thereon) of
all of the outstanding Series A Preferred Stock at the then current Conversion
Price (without giving effect to the limitations contained in Article XIV).
VI. FAILURE TO SATISFY CONVERSIONS
A. Conversion Defaults. If, at any time, (i) a holder of shares
of Series A 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, for which failures the
holders shall have the remedies set forth in Article V) to deliver, on or prior
to the fifth business day following the expiration of the Delivery Period for
such conversion, such number of freely tradable shares of Common Stock to which
such holder is entitled upon such conversion, or (ii) the Corporation provides
written notice to any holder of Series A Preferred Stock (or makes a public
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announcement via press release) at any time of its intention not to issue freely
tradable shares of Common Stock upon exercise by any holder of its conversion
rights in accordance with the terms of this Certificate of Designation (other
than because such issuance would exceed such holder's allocated portion of the
Cap Amount or Reserved Amount) (each of (i) and (ii) being a "CONVERSION
DEFAULT"), then the holder may elect, at any time and from time to time prior to
the Default Cure Date for such Conversion Default, by delivery of a Redemption
Notice to the Corporation, to have all or any portion of such holder's
outstanding shares of Series A Preferred Stock redeemed by the Corporation for
cash, at an amount per share equal to the Redemption Amount (as defined in
Article VII.B). If the Corporation fails to redeem any of such shares within
five business days after its receipt of such Redemption Notice, then such holder
shall be entitled to the remedies provided in Article VII.C.
B. 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 that the Corporation is unable to honor conversions, if (i) (a) the
Corporation fails to promptly deliver during the Delivery Period shares of
Common Stock to a holder upon a conversion of shares of Series A Preferred Stock
or (b) there shall occur a Legend Removal Failure (as defined in Article
VII.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 unlegended 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 commissions, if any) for the unlegended
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 this Article VI.B.
VII. REDEMPTION DUE TO CERTAIN EVENTS
A. Redemption by Holder. In the event (each of the events
described in clauses (i)-(viii) below after expiration of the applicable cure
period (if any) being a "REDEMPTION EVENT"):
(i) the Common Stock (including any of the shares of
Common Stock issuable upon conversion of the Series A 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
or more trading days in any twelve 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 twentieth (120th) day
following the Issuance Date or such registration statement, after being declared
effective, cannot be utilized by the holders of Series A Preferred Stock for the
resale of all of their Registrable Securities (as defined in the Registration
Rights Agreement) for an aggregate of more than 15 days in the aggregate;
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(iii) the Corporation fails to remove any restrictive
legend on any certificate or any shares of Common Stock issued to the holders of
Series A Preferred Stock upon conversion of the Series A 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 business days after the Corporation
has been notified thereof in writing by the holder;
(iv) the Corporation provides written notice (or otherwise
indicates) to any holder of Series A Preferred Stock, or states by way of public
announcement distributed via a press release, at any time, of its intention not
to issue, or otherwise refuses to issue, shares of Common Stock to any holder of
Series A Preferred Stock upon conversion in accordance with the terms of this
Certificate of Designation;
(v) the Corporation or any subsidiary of the Corporation
shall make an assignment for the benefit of 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 a receiver or trustee shall otherwise be
appointed;
(vi) bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for the relief of debtors shall be instituted
by or against the Corporation or any subsidiary of the Corporation and if
instituted against the Corporation or any subsidiary of the Corporation by a
third party, shall not be dismissed within 60 days of their initiation;
(vii) the Corporation shall:
(a) sell, convey or dispose of all or
substantially all of its assets (the presentation of any such transaction for
stockholder approval being conclusive evidence that such transaction involves
the sale of all or substantially all of the assets of the Corporation);
(b) merge or consolidate with or into, or engage
in any other business combination with, any other person or entity, in any case
which results in either (i) the holders of the voting securities of the
Corporation immediately prior to such transaction holding or having the right to
direct the voting of fifty percent (50%) or less of the total outstanding voting
securities of the Corporation or such other surviving or acquiring person or
entity immediately following such transaction or (ii) the members of the board
of directors or other governing body of the Corporation comprising fifty percent
(50%) of less of the members of the board of directors or other governing body
of the Corporation or such other surviving or acquiring person or entity
immediately following such transaction;
(c) either (i) fail to pay, when due, or within
any applicable grace period, any payment with respect to any indebtedness of the
Corporation in excess of $250,000 due to any third party, other than payments
contested by the Corporation in good faith, or otherwise be in breach or
violation of any agreement for monies owed or owing in an amount in excess of
$250,000 which breach or violation permits the other party thereto to declare a
default or otherwise accelerate
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amounts due thereunder, or (ii) suffer to exist any other default or event of
default under any agreement binding the Corporation which default or event of
default would or is likely to have a material adverse effect on the business,
operations, properties, prospects or financial condition of the Corporation;
(d) 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);
(e) experience any Change of Control not
otherwise addressed in subparagraphs (a)-(d) above; or
(viii) except with respect to matters covered by
subparagraphs (i) - (vii) above, as to which such applicable subparagraphs shall
apply, the Corporation otherwise shall breach any material term hereunder or
under the Securities Purchase Agreement, the Registration Rights Agreement or
the Warrants, including, without limitation, the representations and warranties
contained therein (i.e., in the event of a material breach as of the date such
representation and warranty was made) and if such breach is curable, shall fail
to cure such breach within ten business days after the Corporation has been
notified thereof in writing by the holder;
then, upon the occurrence of any such Redemption Event, each holder of shares of
Series A 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 written notice to
such effect (a "REDEMPTION NOTICE") to the Corporation while such Redemption
Event continues, to require the Corporation to purchase for cash any or all of
the then outstanding shares of Series A Preferred Stock held by such holder for
an amount per share equal to the 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),
(vi) and (vii) above shall immediately constitute a Redemption Event and there
shall be no cure period. Upon the Corporation's receipt of any Redemption Notice
hereunder (other than during the three trading day period following the
Corporation's delivery of a Redemption Announcement (as defined below) to all of
the holders in response to the Corporation's initial receipt of a Redemption
Notice from a holder of Series A Preferred Stock), the Corporation shall
immediately (and in any event within one business day following such receipt)
deliver a written notice (a "REDEMPTION ANNOUNCEMENT") to all holders of Series
A Preferred Stock stating the date upon which the Corporation received such
Redemption Notice and the amount of Series A Preferred Stock covered thereby.
The Corporation shall not redeem any shares of Series A Preferred Stock during
the three trading day period following the delivery of a required Redemption
Announcement hereunder. At any time and from time to time during such three
trading day period, each holder of Series A Preferred Stock may request (either
orally or in writing) information from the Corporation with respect to the
instant redemption (including, but not limited to, the aggregate number of
shares of Series A Preferred Stock covered by 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 Redemption Amount. The "REDEMPTION AMOUNT" with
respect to a share of Series A Preferred Stock means an amount equal to the
greater of:
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(i) V X M
----
CP
and (ii) V X R
where:
"V" means the Face Amount thereof plus all accrued Dividends
thereon through the date of payment of the Redemption Amount;
"CP" means the Conversion Price in effect on the date on which
the Corporation receives the Redemption Notice;
"M" means (i) with respect to all redemptions other than
redemptions pursuant to subparagraph (a) or (b) of Article VII.A(vii) hereof,
the highest Closing Sales Price of the Corporation's Common Stock during the
period beginning 10 trading days prior to the date on which the Corporation
receives the Redemption Notice and ending on the date immediately preceding the
date of payment of the Redemption Amount and (ii) with respect to redemptions
pursuant to subparagraph (a) or (b) of Article VII.A(vii) 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
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 the Majority Holders, or if such
agreement cannot be reached within five business days prior to the date of
redemption, by an investment banking firm selected by the Corporation and
reasonably acceptable to the Majority Holders, with the costs of such appraisal
to be borne by the Corporation; and
"R" means 115%, except in the case of a Redemption Event
described in Article VII.A.(vii), in which case "R" means 150%.
C. Redemption Defaults. If the Corporation fails to pay any
holder the Redemption Amount with respect to any share of Series A Preferred
Stock within five business days after its receipt of a Redemption Notice, then
the holder of Series A Preferred Stock entitled to redemption shall be entitled
to interest on the Redemption Amount at a per annum rate equal to the lower of
eighteen percent (18%) and the highest interest rate permitted by applicable law
from the date on which the Corporation receives the Redemption Notice until the
date of payment of the Redemption Amount hereunder. In the event the Corporation
is not able to redeem all of the shares of Series A Preferred Stock subject to
Redemption Notices delivered prior to the date upon which such redemption is to
be effected, the Corporation shall redeem shares of Series A Preferred Stock
from each holder pro rata, based on the total number of shares of Series A
Preferred Stock outstanding at the time of redemption included by such holder in
all Redemption Notices delivered prior to the date upon which such redemption is
to be effected relative to the total number of shares of Series A Preferred
Stock outstanding at the time of redemption included in all of the Redemption
Notices delivered prior to the date upon which such redemption is to be
effected.
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VIII. RANK
All shares of the Series A Preferred Stock shall rank (i) prior to the
Corporation's Common Stock and any class or series of capital stock of the
Corporation hereafter created (unless, with the consent of the Majority Holders
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
A Preferred Stock) (collectively with the Common Stock, "JUNIOR SECURITIES");
(ii) pari passu with any class or series of capital stock of the Corporation
hereafter created (with the written consent of the Majority Holders obtained in
accordance with Article XII hereof) specifically ranking, by its terms, on
parity with the Series A Preferred Stock (the "PARI PASSU SECURITIES"); and
(iii) junior to any class or series of capital stock of the Corporation
hereafter created (with the written consent of the Majority Holders obtained in
accordance with Article XII hereof) specifically ranking, by its terms, senior
to the Series A Preferred Stock (collectively, the "SENIOR SECURITIES"), in each
case as to distribution of assets upon liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary.
IX. LIQUIDATION PREFERENCE
A. Priority in Liquidation. In the event that the Corporation
shall liquidate, dissolve or wind up its affairs (a "LIQUIDATION EVENT"), no
distribution shall be made to the holders of any shares of capital stock of the
Corporation (other than Senior Securities pursuant to the rights, preferences
and privileges thereof) upon liquidation, dissolution or winding up unless prior
thereto the holders of shares of Series A 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 A Preferred Stock and holders of Pari Passu
Securities, if any, 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 A Preferred
Stock and the Pari Passu Securities, if any, shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate Liquidation Preference payable on all
such shares. If, upon the occurrence of a Liquidation Event, the assets and
funds available for distribution among the holders of Senior Securities, if any,
the holders of the Series A Preferred Stock and the holders of Pari Passu
Securities, if any, shall be sufficient to permit the payment to such holders of
the preferential amounts payable thereon, then after such payment shall be made
in full to the holders of Senior Securities, if any, the holders of the Series A
Preferred Stock and the holders of Pari Passu Securities, if any, the remaining
assets and funds available for distribution shall be distributed ratably among
the holders of shares of Series A Preferred Stock, the holders of any other
class or series of Preferred Stock entitled to participate with the Common Stock
in a liquidating distribution and the holders of the Common Stock, with the
holders of shares of Preferred Stock deemed to hold the number of shares of
Common Stock into which such shares of Preferred Stock are then convertible.
B. Definition of Liquidation Preference. The "LIQUIDATION
PREFERENCE" with respect to a share of Series A Preferred Stock means the
greater of (i) an amount equal to one and one-half (1.5) multiplied by the Face
Amount thereof, and (ii) the amount that would be distributed in such
Liquidation Event on the number of shares of Common Stock into which a share of
Series A
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Preferred Stock could be converted immediately prior to such Liquidation Event,
assuming all shares of Series A Preferred Stock were so converted. The
Liquidation Preference with respect to any Pari Passu Securities, if any, shall
be as set forth in the Certificate of Designation filed in respect thereof.
X. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion 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 Conversion Price shall be proportionately reduced, or
if the number of outstanding shares of Common Stock is decreased by a reverse
stock split, combination, reclassification or other similar event, the
Conversion 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. Change of Control. If, at any time after the Issuance Date,
there shall be a Change of Control, then the holders of Series A 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 Change of
Control with respect to or in exchange for the number of shares of Common Stock
which would have been issuable upon conversion had such Change of Control not
taken place (without giving effect to the limitations contained in Article XIV),
and in any such case, appropriate provisions (in form and substance reasonably
satisfactory to the Majority Holders) shall be made with respect to the rights
and interests of the holders of the Series A Preferred Stock to the end that the
economic value of the shares of Series A Preferred Stock are in no way
diminished by such Change of Control and that the provisions hereof (including,
without limitation, in the case of any such consolidation, merger or sale in
which the successor entity or purchasing entity is not the Corporation, an
immediate adjustment of the Conversion Price so that the Conversion Price
immediately after the Change of Control reflects the same relative value as
compared to the value of the surviving entity's common stock that existed
between the Conversion Price and the value of the Corporation's Common Stock
immediately prior to such Change of Control) 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 Change of Control unless (i) each holder of Series A Preferred Stock
has received written notice (the "CHANGE OF CONTROL NOTICE") of such transaction
at least 30 days prior thereto, but in no event later than 10 days prior to the
record date for the determination of stockholders entitled to vote with respect
thereto, and (ii) the resulting successor or acquiring entity (if not the
Corporation) assumes by written instrument (in form and substance reasonable
satisfactory to the Majority Holders) the obligations of this Certificate of
Designation (including, without limitation, the obligation to make payments of
Dividends accrued but unpaid through the date of such Change of Control and
accruing thereafter). 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 A
Preferred Stock outstanding as of the date of such transaction, and shall
similarly apply to successive reclassifications, consolidations, mergers, sales,
transfers or share exchanges.
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C. Distributions. 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 stockholders 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 A Preferred Stock shall be entitled,
upon any conversion of shares of Series A Preferred Stock after the date of
record for determining stockholders entitled to such Distribution (or if no such
record is taken, the date on which such Distribution is declared or made), 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 XIV) had such
holder been the holder of such shares of Common Stock on the record date for the
determination of stockholders entitled to such Distribution (or if no such
record is taken, the date on which such Distribution is declared or made).
D. Convertible Securities and Purchase Rights. If, at any time
after the Issuance Date, the Corporation issues any securities or other
instruments which are convertible into or exercisable or exchangeable for Common
Stock ("CONVERTIBLE SECURITIES") or options, warrants or other rights to
purchase or subscribe for Common Stock or Convertible Securities ("PURCHASE
RIGHTS") pro rata to the record holders of the Common Stock, whether or not such
Convertible Securities or Purchase Rights are immediately convertible,
exercisable or exchangeable, then the holders of Series A Preferred Stock shall
be entitled, upon any conversion of shares of Series A Preferred Stock after the
date of record for determining stockholders entitled to receive such Convertible
Securities or Purchase Rights (or if no such record is taken, the date on which
such Convertible Securities or Purchase Rights are issued), to receive the
aggregate number of Convertible Securities or Purchase Rights which such holder
would have received with respect to the shares of Common Stock issuable upon
such conversion (without giving effect to the limitations contained in Article
XIV) had such holder been the holder of such shares of Common Stock on the
record date for the determination of stockholders entitled to receive such
Convertible Securities or Purchase Rights (or if no such record is taken, the
date on which such Convertible Securities or Purchase Rights were issued). If
the right to exercise or convert any such Convertible Securities or Purchase
Rights would expire in accordance with their terms prior to the conversion of
the Series A Preferred Stock, then the terms of such Convertible Securities or
Purchase Rights shall provide that such exercise or convertibility right shall
remain in effect until 30 days after the date the holder of Series A Preferred
Stock receives such Convertible Securities or Purchase Rights pursuant to the
conversion hereof.
E. Other Action Affecting Conversion Price. If, at any time after
the Issuance Date, the Corporation takes any action affecting the Common Stock
that would be covered by Article X.A through D, but for the manner in which such
action is taken or structured, which would in any way diminish the value of the
Series A Preferred Stock, then the Conversion Price shall be adjusted in such
manner as the Board of Directors of the Corporation shall in good faith
determine to be equitable under the circumstances.
F. Notice of Adjustments. Upon the occurrence of each adjustment
or readjustment of the Conversion Price pursuant to this Article X amounting to
a more than one percent (1%) change in such Conversion Price, or any change in
the number or type of stock, securities and/or other property issuable upon
conversion of the Series A Preferred Stock, the Corporation, at its expense,
shall
-15-
promptly compute such adjustment or readjustment or change and prepare and
furnish to each holder of Series A Preferred Stock a certificate setting forth
such adjustment or readjustment or change and showing in detail the facts upon
which such adjustment or readjustment or change is based. The Corporation shall,
upon the written request at any time of any holder of Series A Preferred Stock,
furnish to such holder a like certificate setting forth (i) such adjustment or
readjustment or change, (ii) the Conversion 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 A Preferred Stock.
XI. VOTING RIGHTS AND BOARD REPRESENTATION
A. Voting Rights.
(i) Except as otherwise expressly provided elsewhere in
this Certificate of Designation or as otherwise required by the Delaware General
Corporation Law (the "DGCL"), (a) each holder of Series A Preferred Stock shall
be entitled to vote on all matters submitted to a vote of the stockholders of
the Corporation and shall be entitled to that number of votes equal to the
number of shares of Common Stock into which such holder's shares of Series A
Preferred Stock could then be converted (subject to the limitations set forth in
Article XIV) at the record date for the determination of stockholders entitled
to vote on such matters or, if no such record date is established, at the date
such vote is taken or any written consent of stockholders is solicited, and (b)
the holders of shares of Series A Preferred Stock and Common Stock shall vote
together (or tender written consents in lieu of a vote) as a single class on all
matters submitted to the stockholders of the Corporation. Fractional votes shall
not, however, be permitted and any fractional voting rights available on an
as-converted basis (after aggregating all shares of Common Stock into which
shares of Series A Preferred Stock held by each holder could be converted) shall
be rounded to the nearest whole number.
(ii) The Corporation shall provide each holder of Series A
Preferred Stock with prior notification of any meeting of the stockholders (and
copies of proxy materials and other information sent to stockholders). If the
Corporation takes a record of its stockholders for the purpose of determining
stockholders 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 of Series A Preferred Stock, at
least 15 days prior to the record date specified therein (or 45 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.
(iii) To the extent that under the DGCL the vote of the
holders of the Series A
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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 A Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of the Majority Holders (except as
otherwise may be required under the DGCL) shall constitute the approval of such
action by the class.
B. Board Representation. The holders of Series A Preferred Stock,
exclusively and as a separate class, shall be entitled to elect one member of
the Board (the "SERIES A DIRECTOR"). The Board of Directors shall, within two
business days after receiving a request of the Majority Holders, increase the
size of the Board of Directors in order to add the Series A Director and shall
call a special meeting of the holders of Series A Preferred Stock, to be held at
the earliest legally permissible date at the principal office of the Corporation
or such other location as requested by the Majority Holders, for the purpose of
electing the Series A Director. The Series A Director may be removed without
cause by, and only by, the affirmative vote of the holders of Series A Preferred
Stock, given either at a special meeting of the holders of Series A Preferred
Stock duly called for that purpose, or by written consent of the holders of
Series A Preferred Stock.
C. Board Observation. The holders of Series A Preferred Stock,
exclusively and as a separate class, shall be entitled to designate one observer
(an "OBSERVER") to attend all meetings of the Board and all committees thereof.
The Board will give the Observer reasonable prior notice (it being agreed that
the same prior notice given to the Board shall be deemed reasonable prior
notice) in any matter permitted by the Corporation's bylaws for notice to
directors of the time and place of any proposed meeting of the Board, and such
notice in all cases shall include true and correct copies of all documents
furnished to any director in connection with such meeting. The Observer will be
entitled to be present in person as an observer to any such meeting or, if a
meeting is held by telephone conference or other electronic means, to
participate therein for the purpose of listening thereto. The Corporation will
deliver to the Observer copies of all documents that may be distributed from
time to time to the members of the Board (in their capacity as such) at such
time as such papers are so distributed to them, including copies of any written
consent. The Observer shall hold in confidence to the same extent required by
law of the members of the Board all documents furnished in connection with any
meeting of the Board and any committee thereof and all information received
through oral communication in any meeting of the Board and any committee
thereof.
D. Investment Oversight Committee. An Investment Oversight
Committee (the "INVESTMENT OVERSIGHT COMMITTEE") is hereby established for the
purpose of monitoring the disbursement of the net proceeds to the Company from
the sale of Series A Preferred Stock. The Investment Oversight Committee shall
consist of three (3) members, one of whom shall be appointed by the Board, one
of whom shall be appointed by the holders of Series A Preferred Stock, and one
of whom shall be appointed by HFS Minor Planet Funding LLC. All expenditures of
the proceeds resulting from the sale by the Corporation of Series A Preferred
Stock shall require the unanimous, prior, written approval of the members of the
Investment Oversight Committee. The Investment Oversight Committee shall be
terminated when the Corporation shall have entered into a binding agreement with
SBC Communications, Inc. for the provision of VTS equipment and service, with
(a) a minimum term of one (1) year through which the Company will receive a
minimum of $10,000,000.00 in annual gross revenues (determined in accordance
with U.S. generally accepted accounting principles, consistently applied
("GAAP") and which contract contemplates the renewal
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by SBC for at least one (1) additional year, or (b) a minimum term of two (2)
years through which the Company will receive a minimum of $10,000,000.00 in
annual gross revenues (determined in accordance with GAAP).
XII. PROTECTION PROVISIONS
So long as any shares of Series A Preferred Stock are outstanding, the
Corporation shall not take any of the following corporate actions (whether by
merger, consolidation or otherwise) without first obtaining the approval (by
vote or written consent, as provided by the DGCL) of the Majority Holders:
(i) alter or change the rights, preferences or privileges
of the Series A Preferred Stock, or increase the authorized number of shares of
Series A Preferred Stock;
(ii) amend its certificate of incorporation or bylaws;
(iii) issue any shares of Series A Preferred Stock other
than pursuant to the Securities Purchase Agreement or as a Dividend (as
described in Article III);
(iv) redeem, repurchase or otherwise acquire, or declare
or pay any cash dividend or distribution on, any Junior Securities;
(v) increase the par value of the Common Stock;
(vi) sell all or substantially all of its assets or stock,
or consolidate or merge with another entity;
(vii) enter into or permit to occur any Change of Control
transaction;
(viii) sell, transfer or encumber technology, other than
licenses granted in the ordinary course of business;
(ix) liquidate, dissolve, recapitalize or reorganize;
(x) authorize, reserve, or issue Common Stock with
respect to any plan or agreement that provides for the issuance of equity
securities to employees, officers, directors or consultants of the Corporation
in excess of 250,000 shares of Common Stock, which figure equals the number of
shares of Common Stock currently reserved for issuance under such plans and
arrangements;
(xi) change its principal business;
(xii) issue shares of Common Stock, other than as
contemplated herein or by the Warrants;
(xiii) increase the number of members of the Board to more
than 7 members, or, if no Series A Director has been elected, increase the
number of members of the Board to more than 6 members;
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(xiv) alter or change the rights, preferences or privileges
of any capital stock of the Corporation so as to affect adversely the Series A
Preferred Stock;
(xv) create or issue any Senior Securities or Pari Passu
Securities;
(xvi) except for the issuance of debt securities to, or
incurrence of indebtedness from, a recognized financial institution in an
aggregate amount not exceeding $5,000,000 (or such additional amount as the
Board and the Majority Holders agree is reasonably necessary for the Corporation
to perform its obligations under a contract with SBC Communications, Inc. in the
form contemplated by part (A) of the flush language of this Article XII) and
which, in the case of debt securities, are not Convertible Securities or
Purchase Rights, issue any debt securities or incur any indebtedness that would
have any preferences over the Series A Preferred Stock upon liquidation of the
Corporation, or redeem, repurchase, prepay or otherwise acquire any outstanding
debt securities or indebtedness of the Corporation, except as expressly required
by the terms of such securities or indebtedness;
(xvii) make any Dilutive Issuance;
(xviii) enter into any agreement, commitment, understanding
or other arrangement to take any of the foregoing actions; or
(xix) cause or authorize any subsidiary of the Corporation
to engage in any of the foregoing actions.
Notwithstanding the foregoing, (A) after such time as the Company shall have
entered into a binding agreement with SBC Communications, Inc. for the provision
of VTS equipment and service, with (a) a minimum term of one (1) year through
which the Company will receive a minimum of $10,000,000.00 in annual gross
revenues (determined in accordance with GAAP) and which contract contemplates
the renewal by SBC for at least one (1) additional year, or (b) a minimum term
of two (2) years through which the Company will receive a minimum of
$10,000,000.00 in annual gross revenues (determined in accordance with GAAP), no
such approval of the Majority Holders shall be required with respect to
subparagraphs (i) - (xiii), and (xviii) - (xix) (but, with respect to actions
addressed by (xviii) and (xix), only to the extent such action does not relate
to an action prohibited by subparagraphs (xiv) - (xvii)) if such action is
approved by the affirmative vote of at least two-thirds of the Board; and (B) no
corporate action pursuant to this Article XII shall be effective to the extent
that, by its terms, it applies to less than all of the holders of shares of
Series A Preferred Stock then outstanding.
XIII. OPTIONAL REDEMPTION
A. If, at any time after the first anniversary of the Issuance
Date and before the fourth anniversary of the Issuance Date, during a period of
at least twenty (20) consecutive trading days (a) the Closing Sales Price of the
Common Stock is at least 200% of the Conversion Price then in effect and (b) the
trading volume (as reported by Bloomberg) and Market Price of the Common Stock
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result in a value of at least $350,000 of Common Stock traded on each trading
day, then the Corporation shall have the right to redeem all shares of Series A
Preferred Stock then outstanding at price per share of Series A Preferred Stock
equal to the product of two multiplied by the sum of the Face Amount plus all
accrued and unpaid Dividends thereon through the closing date of such
redemption.
B. Any redemption made by the Corporation pursuant to this
Article XIII (the "COMPANY REDEMPTION") shall be made by providing forty-five
(45) days' advance written notice (the "COMPANY REDEMPTION NOTICE") to the
holders of shares of Series A Preferred Stock. The Corporation may redeem all,
but not less than all, of the outstanding shares of Series A Preferred Stock
pursuant to this Article XIII.
C. The Corporation may not deliver to a holder a Company
Redemption Notice unless (a) the conditions to such Company redemption have been
satisfied within the twenty (20) trading day period preceding such Company
Redemption Notice, and (ii) on or prior to the date of delivery of such Company
Redemption Notice, the Corporation shall have segregated on the books and
records of the Corporation an amount of cash sufficient to pay all amounts to
which the holders of shares of Series A Preferred Stock are entitled upon such
redemption pursuant to this Article XIII. Any Company Redemption Notice
delivered shall be irrevocable and shall be accompanied by a certificate
executed by a duly authorized officer of the Corporation stating that all
conditions to such Company Redemption have been satisfied.
D. The price per share of Series A Preferred Stock required to be
paid by the Corporation pursuant to Article XIII.A (the "COMPANY REDEMPTION
AMOUNT") shall be paid in cash to the holders whose Series A Preferred Stock is
being redeemed within five (5) business days of the effective date of the
Company Redemption (the "COMPANY REDEMPTION DATE"); provided, however, that the
Corporation shall not be obligated to deliver any portion of the Company
Redemption Amount until either the Preferred Stock Certificates being redeemed
are delivered to the office of the Corporation or the holder notifies the
Corporation that such certificates have been lost, stolen or destroyed and
delivers the appropriate documentation in accordance with Article XV.B hereof.
Notwithstanding anything herein to the contrary, in the event that the Preferred
Stock Certificates representing the shares of Series A Preferred Stock being
redeemed are not delivered to the Corporation or the transfer agent or the
holder fails to notify the Corporation or the transfer agent that such
certificates have been lost, stolen or destroyed and fails to deliver the
appropriate documentation in accordance with Article XV.B hereof prior to the
fifth business day following the Company Redemption Date, then the redemption of
the Series A Preferred Stock pursuant to this Article XIII shall still be deemed
effective as of the Company Redemption Date, but the Company Redemption Amount
shall be paid in cash to the holder whose shares of Series A Preferred Stock are
being redeemed only within five (5) business days of the date the Preferred
Stock Certificates representing such shares are actually delivered to the
Corporation or the transfer agent or the holder notifies the Corporation that
such Preferred Stock Certificates have been lost, stolen or destroyed and
delivers the documentation to the Corporation required by Article XV.B hereof.
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E. Notwithstanding the delivery of a Company Redemption Notice, a
holder may convert some or all of its shares of Series A Preferred Stock subject
to such Company Redemption Notice by the delivery at least three trading days
prior to the Company Redemption Date of a Notice of Conversion to the
Corporation and otherwise complying with all requirements set forth in Article
IV. In the event a holder would be precluded from converting any shares of
Series A Preferred Stock subject to a Company Redemption Notice due to the
limitation contained in Article XIV, the Company Redemption Date, for such
holder only, shall automatically be extended by that number of days by which
such holder is so precluded; provided, however, that in no event shall the
Company Redemption Date be extended by more than sixty (60) days.
XIV. LIMITATIONS ON CERTAIN CONVERSIONS AND TRANSFERS
In no event shall a holder of shares of Series A Preferred Stock of the
Corporation have the right to convert shares of Series A Preferred Stock into
shares of Common Stock or to dispose of any shares of Series A Preferred Stock
to the extent that such right to effect such conversion or disposition would
result in the holder and its affiliates together beneficially owning or having
the power to vote more than 4.99% of the outstanding shares of Common Stock. For
purposes of this Article XIV, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder. The restriction contained in this
Article XIV may 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 the Majority Holders shall approve, in writing, such alteration,
amendment, deletion or change.
XV. MISCELLANEOUS
A. Cancellation of Series A Preferred Stock. If any shares of
Series A Preferred Stock are converted pursuant to Article IV or redeemed or
repurchased by the Corporation, the shares so converted or redeemed 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
A Preferred Stock.
B. Lost or Stolen Certificates. Upon 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,
indemnity (without any bond or other security) reasonably satisfactory to the
Corporation, or (z) in the case of mutilation, the Preferred Stock
Certificate(s) (surrendered for cancellation), 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, stolen, destroyed or
mutilated Preferred Stock Certificate(s) if the holder contemporaneously
requests the Corporation to convert such Series A Preferred Stock.
C. Allocation of Reserved Amount. The initial Reserved Amount
shall be allocated pro rata among the holders of Series A
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Preferred Stock based on the number of shares of Series A Preferred Stock issued
to each such holder. Each increase to the Reserved Amount shall be allocated pro
rata among the holders of Series A Preferred Stock based on the number of shares
of Series A Preferred Stock held by each holder at the time of the increase in
the Reserved Amount. In the event a holder shall sell or otherwise transfer any
of such holder's shares of 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 that remains allocated to any person or entity which does
not hold any Series A Preferred Stock shall be allocated to the remaining
holders of shares of Series A Preferred Stock, pro rata based on the number of
shares of Series A Preferred Stock then held by such holders.
D. Quarterly Statements of Available Shares. For each calendar
quarter beginning in the quarter in which the initial registration statement
required to be filed pursuant to Section 2(a) of the Registration Rights
Agreement is declared effective and thereafter for so long as any shares of
Series A 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 reason why the Corporation is prohibited from issuing Common
Stock upon any conversion. The report shall also specify (i) the total number of
shares of Series A 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 A 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 A 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 A Preferred Stock before the
Corporation would exceed the Cap Amount and the Reserved Amount. The Corporation
(or its transfer agent) shall use commercially reasonable efforts to deliver the
report for each quarter to each holder prior to the tenth day of the calendar
month following the quarter to which such report relates. In addition, the
Corporation (or its transfer agent) shall provide, as promptly as practicable
following delivery to the Corporation of a written request by any holder, any of
the information enumerated in clauses (i) - (iv) of this 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 payment of any Dividend, upon redemption or otherwise), such
cash payment shall be made to the holder within five business days after
delivery by such holder of a notice specifying the method (e.g., by check, wire
transfer) in which such payment should be made and any supporting documentation
reasonably requested by the Corporation to substantiate the holder's claim to
such cash payment and the amount thereof. If such payment is not delivered
within such five 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 (i)
eighteen percent (18%) and (ii) 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 A Preferred Stock, (i) the shares covered
thereby (other than the shares, if any, which cannot be issued because their
issuance 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 A 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
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failure by the Corporation to comply with the terms of this Certificate of
Designation. Notwithstanding the foregoing, if a holder has not received
certificates for all shares of Common Stock prior to the sixth business day
after the expiration of the Delivery Period with respect to a conversion of
Series A 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 business days after the expiration of such six business
day period after expiration of the Delivery Period) the holder shall regain the
rights of a holder of Series A Preferred Stock with respect to such unconverted
shares of Series A 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 for the Corporation's failure
to convert Series A 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 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 A 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 A 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.
H. Waiver. Notwithstanding any provision in this Certificate of
Designation to the contrary, any provision contained herein and any right of the
holders of Series A Preferred Stock granted hereunder may be waived as to all
shares of Series A Preferred Stock (and the holders thereof) upon the written
consent of the Majority Holders, unless a higher percentage is required by
applicable law, in which case the written consent of the holders of not less
than such higher percentage of shares of Series A Preferred Stock shall be
required.
I. Notices. Any notices required or permitted to be given under
the terms hereof shall be sent by certified or registered mail (return receipt
requested) or delivered personally, by nationally recognized overnight carrier
or by confirmed facsimile transmission, and shall be effective five days after
being placed in the mail, if mailed, or upon receipt or refusal of receipt, if
delivered personally or by nationally recognized overnight carrier or confirmed
facsimile transmission, in each case addressed to a party. The addresses for
such communications are (i) if to the Corporation to Remote Dynamics, Inc., 1155
Kas Drive, Suite 100, Richardson, Texas 75081-1999, Telephone: 972-301-2733,
Facsimile: 972-301-2263, Attention: J. Raymond Bilbao, Esquire, and (ii) if to
any holder to the address set forth under such holder's name on the execution
page to the Securities Purchase Agreement, or such other address as any party
may be designated in writing hereafter, in the same manner, by such person.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this 1st day of October, 2004.
REMOTE DYNAMICS, INC.
By: /s/ W. Michael Smith
----------------------------
Name: W. Michael Smith
Title: Chief Operating Officer
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert ____________
shares of Series A Preferred Stock (the "CONVERSION"), represented by Stock
Certificate No(s). ___________ (the "PREFERRED STOCK CERTIFICATES"), into shares
of common stock ("COMMON STOCK") of Remote Dynamics, Inc. (the "CORPORATION")
according to the conditions of the Certificate of Designation, Preferences and
Rights of Series A Convertible Preferred Stock (the "CERTIFICATE OF
DESIGNATION"), as of the date written below. If securities are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto. No fee will be charged to the
holder for any conversion, except for transfer taxes, if any. Each Preferred
Stock Certificate is attached hereto (or evidence of loss, theft or destruction
thereof).
Except as may be provided below, the Corporation shall electronically
transmit the Common Stock issuable pursuant to this Notice of Conversion to the
account of the undersigned or its nominee (which is _________________) with DTC
through its Deposit Withdrawal Agent Commission System ("DTC TRANSFER").
In the event of partial exercise, please reissue a new stock
certificate for the number of shares of Series A Preferred Stock which shall not
have been converted.
The undersigned acknowledges and agrees that all offers and sales by
the undersigned of the securities issuable to the undersigned upon conversion of
the Series A Preferred Stock have been or will be made only pursuant to an
effective registration of the transfer of the Common Stock under the Securities
Act of 1933, as amended (the "ACT"), or pursuant to an exemption from
registration under the Act.
_
|_| In lieu of receiving the shares of Common Stock issuable
pursuant to this Notice of Conversion by way of DTC Transfer, the
undersigned hereby requests that the Corporation issue and deliver to
the undersigned physical certificates representing such shares of
Common Stock.
Date of Conversion:
-----------------------------------
Applicable Conversion Price:
--------------------------
Signature:
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Name:
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Address:
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