EXHIBIT 4.1
EXECUTION VERSION
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS
OF
SERIES B 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 Six Hundred Fifty (650)
shares of Preferred Stock, is the Series B Convertible Preferred Stock (the
"SERIES B PREFERRED STOCK") and the face amount shall be Ten Thousand Dollars
($10,000.00) 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 Series B 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 Series B 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 $1.55 per share; 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 B
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 B 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 B
Preferred Stock held by such holder pursuant to Article VI.A and/or Article
VII.A.
"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 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, the Holder 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 Holder does 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 Holder, with the
costs of such appraisal to be borne by the Corporation.
(iv) Excluded Issuances. Notwithstanding the foregoing, none
of the following issuances shall be deemed to be "Dilutive Issuances": (i) the
issuance of Common Stock upon the exercise or conversion of any Convertible
Securities or Purchase Rights outstanding on the Issuance Date and disclosed in
Section 3(c) of the Disclosure Schedule to the Securities Purchase Agreement
between the Corporation and the purchaser named therein (the "SERIES B
SECURITIES PURCHASE AGREEMENT") in accordance with the terms of such Convertible
Securities and Purchase
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Rights 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 B Preferred Stock or the
sale and issuance of the Warrants or their exercise for shares of Common Stock,
(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 Series B Majority
Holders 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 2005 Incentive Plan (but only up to such amount as provided
for in Section 3(c) of the Disclosure Schedule to the Series B 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 Series B
Securities Purchase Agreement).
G. "ISSUANCE DATE" means the date of the closing under the Series B
Securities Purchase Agreement, pursuant to which the Corporation issues, and
such purchasers purchase, shares of Series B Preferred Stock upon the terms and
conditions stated therein.
H. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, to be dated as of the Issuance Date, by and among the Corporation and
the initial holders of Series B Preferred Stock.
I. "SERIES B MAJORITY HOLDERS" means the holders of a majority of the then
outstanding shares of Series B Preferred Stock.
J. "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.
K. "WARRANTS" means (i) the warrants to acquire shares of Common Stock
issued to the purchaser of the Company's Series A Preferred Stock in connection
with that Securities Purchase Agreement dated October 1, 2004 (the "SERIES A
SECURITIES PURCHASE AGREEMENT"), (ii) the warrants to acquire shares of Common
Stock to be issued to the purchaser(s) of Series B Preferred Stock in connection
with the issuance thereof pursuant to the Series B Securities Purchase
Agreement, and (iii) the warrants to be issued by the Corporation to the holder
of the promissory note (the "NOTE") issued pursuant to the Series B Securities
Purchase Agreement in consideration of the exchange of such Note in accordance
with the terms thereof.
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III. DIVIDENDS
Dividends (the "DIVIDENDS") shall be payable cumulatively, at the rate of
eight percent (8%) per annum (calculated on the basis of a 365-day year), which
rate shall automatically decrease to three percent (3%) per annum on September
1, 2006, (a) upon any conversion for each share of Series B Preferred Stock, and
(b) as to each outstanding share of Series B Preferred Stock, on August 31,
November 30, February 28 and May 31 of each year, beginning August 31, 2005 and
ending on the earlier of (1) August 31, 2008 and (2) the date such share of
Series B 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 B
Preferred Stock (i) in cash, or (ii) in such number of shares of Series B
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 B
Preferred Stock may, at any time and from time to time, convert (an "OPTIONAL
CONVERSION") each of its shares of Series B 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 B
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 B Preferred Stock being converted and (y) a
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certificate representing the number of shares of Series B 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 Series B Securities Purchase
Agreement) and the holder thereof is not then required to return such
certificate for the placement of a legend thereon (pursuant to the terms of the
Series B 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 B Preferred Stock.
(iii) No Fractional Shares. If any conversion of Series B Preferred
Stock would result in the issuance of a fractional share of Common Stock
(aggregating all shares of Series B 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 B 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 B 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.
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V. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. On or prior to the Issuance Date, the Corporation
shall reserve 10,000,000 shares of its authorized but unissued shares of Common
Stock for issuance upon conversion of the Series B Preferred Stock (including
any Dividend payable thereon) and exercise of 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 B
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 B Preferred Stock as provided in Article
XVI.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 (i) full conversion
(including any Dividend payable thereon) of the then outstanding shares of
Series B Preferred Stock (without giving effect to the limitations contained in
Article XIV) and (ii) 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 Corporation shall immediately notify the
holders of Series B 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 (i) full conversion of all of the outstanding Series B Preferred
Stock at the then current Conversion Price (without giving effect to the
limitations contained in Article XIV) and (ii) full exercise of all Warrants
outstanding at the then current exercise price thereof (without giving effect to
the limitations on exercise set forth therein). In the event the Corporation
fails to so increase the Reserved Amount within 90 days after an Authorization
Trigger Date, each holder of Series B 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 B 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 B 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 B 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 B Preferred Stock at the then current Conversion Price
(without giving effect to the limitations contained in Article XIV).
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VI. FAILURE TO SATISFY CONVERSIONS
A. Conversion Defaults. If, at any time, (i) a holder of shares of Series
B 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 B Preferred Stock (or makes a public
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 B 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 B 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 B Preferred Stock) is suspended from
trading on any of, or is not listed
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(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 B 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;
(iii) the Corporation fails to remove any restrictive legend on any
certificate or any shares of Common Stock issued to the holders of Series B
Preferred Stock upon conversion of the Series B Preferred Stock as and when
required by this Certificate of Designation, the Series B 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 B 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 B 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
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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 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
Series B Securities Purchase Agreement, the Registration Rights Agreement, the
Warrants or the Note, 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 B 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 B 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 B 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
B Preferred Stock stating the date upon which the Corporation received such
Redemption Notice and the amount of Series B Preferred Stock covered thereby.
The Corporation shall not redeem any shares of Series B Preferred Stock during
the three trading day period following the delivery of a required Redemption
Announcement
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hereunder. At any time and from time to time during such three trading day
period, each holder of Series B 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 B
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 B Preferred Stock means an amount equal to the greater of:
(i) V/CP * M
and (ii) V * 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 Series B 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 Series B 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 B Preferred Stock within
five business days after its receipt of a Redemption Notice, then the holder of
Series B Preferred Stock entitled to redemption shall be entitled to interest on
the Redemption Amount at a per annum rate equal to the lower of
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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 B 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 B Preferred Stock
from each holder pro rata, based on the total number of shares of Series B
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 B 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.
VIII. RANK
All shares of the Series B 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 Series B 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 B Preferred Stock) (collectively with the Common Stock, "JUNIOR
SECURITIES"); (ii) pari passu with (a) the Corporation's Series A Convertible
Preferred Stock and (b) any class or series of capital stock of the Corporation
hereafter created (with the written consent of the Series B Majority Holders
obtained in accordance with Article XII hereof) specifically ranking, by its
terms, on parity with the Series B 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 Series B Majority
Holders obtained in accordance with Article XII hereof) specifically ranking, by
its terms, senior to the Series B 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 B 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 B 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 B 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 B Preferred Stock and the holders of Pari Passu
Securities, if any, shall be sufficient to permit the payment to such holders of
the preferential
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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 B 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 B 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 B 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 B Preferred Stock
could be converted immediately prior to such Liquidation Event, assuming all
shares of Series B 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 B 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 Series B Majority Holders) shall be made with respect to the rights and
interests of the holders of the Series B Preferred Stock to the end that the
economic value of the shares of Series B 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
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upon the conversion thereof. The Corporation shall not effect any Change of
Control unless (i) each holder of Series B 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 Series B 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 B
Preferred Stock outstanding as of the date of such transaction, and shall
similarly apply to successive reclassifications, consolidations, mergers, sales,
transfers or share exchanges.
C. 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 B Preferred Stock shall be entitled, upon any conversion of
shares of Series B 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 any class of Common Stock, whether or not such
Convertible Securities or Purchase Rights are immediately convertible,
exercisable or exchangeable, then the holders of Series B Preferred Stock shall
be entitled to acquire, upon the terms applicable to such Convertible Securities
or Purchase Rights, the aggregate number of Convertible Securities or Purchase
Rights which such holder could have acquired if such holder had held the number
of shares of Common Stock acquirable upon complete conversion of the Series B
Preferred Stock (without giving effect to the limitations contained in Article
XIV) immediately before the date on which a record is taken for the grant,
issuance or sale of such Convertible Securities or Purchase Rights, or, if no
such record is taken, the date as of which the record holders of Common Stock
are to be determined for the grant, issue or sale of such Convertible Securities
or Purchase Rights.
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 B Preferred Stock, then the Conversion Price shall be adjusted in
- 15 -
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 B Preferred Stock, the Corporation, at its expense,
shall promptly compute such adjustment or readjustment or change and prepare and
furnish to each holder of Series B 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 B 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 B 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 B 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 B
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 B 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 B 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 B 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 B Preferred Stock, at least 15 days prior
to the record date specified therein (or 45
- 16 -
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 B 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 B Preferred Stock represented at a duly held
meeting at which a quorum is present or by written consent of the Series B
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 B Preferred Stock,
exclusively and as a separate class, shall be entitled to elect one member of
the Board (the "SERIES B DIRECTOR"). The director elected to the Board of
Directors by the Series A Convertible Preferred Stockholders shall initially
serve as the Series B Director. The Series B Director may be removed without
cause by, and only by, the affirmative vote of the holders of Series B Preferred
Stock, given either at a special meeting of the holders of Series B Preferred
Stock duly called for that purpose, or by written consent of the holders of
Series B Preferred Stock. So long as any shares of Series B Preferred Stock are
outstanding, the Company shall not enter into any definitive agreement providing
for, or consummate any Change of Control transaction unless the holders of
Series B Preferred Stock, exclusively and as a separate class of securities,
shall be entitled to elect one or more member of the board of directors (or
equivalent board) of the acquirer or successor entity, as the case may be,
holding at least the same proportional voting power in respect of such board of
such entity as the Series B Director held in respect of the Board of Directors
immediately prior to the consummation of such Change of Control.
C. Board Observation. The holders of Series B 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. The investment oversight committee
established pursuant to the Corporation's Certificate of Designation,
Preferences and Rights of Series A Convertible Preferred Stock is hereby
terminated and a new investment oversight committee (the
- 17 -
"INVESTMENT OVERSIGHT COMMITTEE") is hereby established for the purpose of
monitoring the disbursement of the net proceeds to the Corporation from
transactions pursuant to the Series A Securities Purchase Agreement and Series B
Securities Purchase Agreement. The Investment Oversight Committee shall consist
of two (2) members, one of whom shall be appointed by the Board and one of whom
shall be appointed by the holders of Series B Preferred Stock. The initial
members shall be W. Michael Smith and Raahim Don. All expenditures of the
proceeds resulting from the sales of securities by the Corporation pursuant to
the Series A Securities Purchase Agreement and Series B Securities Purchase
Agreement shall require the unanimous, prior, written approval of the members of
the Investment Oversight Committee. The Investment Oversight Committee shall
remain in existence until the Company has used all of the proceeds received in
connection with the transactions contemplated by the Series B Securities
Purchase Agreement.
XII. PROTECTION PROVISIONS
So long as any shares of Series B 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 Series B Majority
Holders:
(i) alter or change the rights, preferences or privileges of the
Series B Preferred Stock, or increase the authorized number of shares of Series
B Preferred Stock;
(ii) amend its certificate of incorporation or bylaws;
(iii) issue any shares of Series B Preferred Stock other than
pursuant to the Series B 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
- 18 -
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 B Director has been elected, increase the number of
members of the Board to more than 6 members;
(xiv) alter or change the rights, preferences or privileges of any
capital stock of the Corporation so as to affect adversely the Series B
Preferred Stock;
(xv) create or issue any Senior Securities or Pari Passu Securities;
(xvi) except for the issuance of debt securities on an unsecured
basis to, or incurrence of unsecured indebtedness from, a recognized financial
institution in an aggregate amount not exceeding $5,000,000 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 B 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, 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 B 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, on each trading day 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 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 B Preferred Stock then outstanding at price per share of Series
B 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
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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 B Preferred Stock. The Corporation may redeem all, but not less
than all, of the outstanding shares of Series B 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 B 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 B 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 B 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 XVI.B hereof.
Notwithstanding anything herein to the contrary, in the event that the Preferred
Stock Certificates representing the shares of Series B 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 B 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 B 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 XVI.B hereof.
E. Notwithstanding the delivery of a Company Redemption Notice, a holder
may convert some or all of its shares of Series B 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
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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 B 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 B Preferred Stock of the
Corporation have the right to convert shares of Series B Preferred Stock into
shares of Common Stock or to dispose of any shares of Series B 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 9.99% 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 Series B Majority Holders shall approve, in writing, such
alteration, amendment, deletion or change.
XV. PARTICIPATION RIGHT; EXCHANGE RIGHT
Subject to the terms and conditions specified in this Article XV, the
holders of Series B Preferred Stock shall have a right to participate with
respect to the issuance or possible issuance of (i) equity or equity-linked
securities, or (ii) debt that is convertible into equity or in which there is an
equity component ("ADDITIONAL SECURITIES") on the same terms and conditions as
offered by the Company to the other purchasers of such Additional Securities.
Each time the Company proposes to offer any Additional Securities, the Company
shall make an offering of such Additional Securities to each Purchaser in
accordance with the following provisions:
(i) the Company shall deliver a notice (the "NOTICE") to the holders
of Series B Preferred Stock stating (A) its bona fide intention to offer such
Additional Securities, (B) the number of such Additional Securities to be
offered, (C) the price and terms, if any, upon which it proposes to offer such
Additional Securities, and (D) the anticipated closing date of the sale of such
Additional Securities;
(ii) until the second anniversary of the Closing Date, by written
notification received by the Company within fifteen (15) trading days after
giving of the Notice, any holder of Series B Preferred Stock may elect to
purchase or obtain, at the price and on the terms specified in the Notice, up to
that portion of such Additional Securities that have a total purchase price
equal to the greater of (1) fifty percent (50%) of the aggregate amount of the
Additional Securities to be offered and sold in such offering and (2) one
hundred percent (100%) of the Face Amount of the Series B Preferred Stock then
held by such holder (including any shares of Series B Preferred Stock that have
been converted into Common Stock), plus any accrued and unpaid Dividends. The
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Company shall promptly, in writing, inform each holder of Series B Preferred
Stock that elects to purchase all of the Additional Shares available to it
("FULLY-EXERCISING HOLDER") of any other holder of Series B Preferred Stock's
failure to do likewise. During the five (5) trading day period commencing after
such information is given, each Fully-Exercising Holder shall be entitled to
obtain that portion of the Additional Securities for which the holders of Series
B Preferred Stock were entitled to subscribe but that were not subscribed for by
the holders of Series B Preferred Stock that is equal to the proportion that the
Face Amount of the Series B Preferred Stock held by such Fully-Exercising Holder
(including any shares of Series B Preferred Stock that have been converted into
Common Stock) bears to the total Face Amount of the Series B Preferred Stock
held by all holders of Series B Preferred Stock (including any shares of Series
B Preferred Stock that have been converted into Common Stock);
(iii) notwithstanding the provisions of Article XV(ii), at any time
after the Closing Date, by written notification received by the Company within
five (5) trading days after giving of the Notice required by Article XV(i)
above, any holder of Series B Preferred Stock may elect to purchase or obtain,
at the price and on the terms specified in the Notice, up to that portion of
such Additional Securities that have a total purchase price equal to the Face
Amount of the Series B Preferred Stock held by such holder (including any shares
of Series B Preferred Stock that have been converted into Common Stock), plus
accrued and unpaid Dividends; provided, however, that any holder of Series B
Preferred Stock who elects to purchase Additional Securities pursuant to this
Article XV(iii) shall be required to surrender to the Company Series B Preferred
Stock (or Common Stock issued on the conversion of such Series B Preferred
Stock) for which the Face Amount (plus all accrued but unpaid Dividends) equals
the total purchase price of the Additional Securities to be acquired by such
holder of Series B Preferred Stock under this paragraph (iii), and the Company
shall accept such Series B Preferred Stock (or Common Stock issued on the
conversion of such Series B Preferred Stock) as payment in full for such
Additional Securities. The provisions of this Article XV(iii) shall be of no
further force or effect upon the consummation of any transaction (other than
those transactions contemplated by the Series B Securities Purchase Agreement)
resulting in the issuance of the Company's Common Stock in connection with a
bona fide public offering at an offering price per share (prior to any
underwriter's commissions and discounts) of not less than $3.10 (as adjusted to
reflect any stock dividends, distributions, combinations, reclassifications and
other similar transactions effected by the Company in respect to its Common
Stock) that results in total net proceeds to the Company of at least
$25,000,000;
(iv) if all Additional Securities which the holders of Series B
Preferred Stock are entitled to obtain pursuant to Article XV(ii) or Article
XV(iii) are not elected to be obtained as provided in subsection Article XV(ii)
or Article XV(iii) hereof, the Company may, during the 75-day period following
the expiration of the period provided in subsection Article XV(ii) or Article
XV(iii) hereof, offer the remaining unsubscribed portion of such Additional
Securities to any person or persons at a price not less than, and upon terms no
more favorable to the offeree than, those specified in the Notice. If the
Company does not consummate the sale of such Additional Securities within such
period, the right provided hereunder shall be deemed to be revived and such
Additional Securities shall not be offered or sold unless first reoffered to the
holders of Series B Preferred Stock in accordance herewith;
(v) the participation rights in this Article XV shall not be
applicable to (A) the
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issuance or sale of shares of Common Stock (or options therefor) to employees,
officers, directors, or consultants of the Company for the primary purpose of
soliciting or retaining their employment or service pursuant to a stock option
plan (or similar equity incentive plan) approved in good faith by the Board of
Directors, (B) the issuance of Common Stock in connection with a bona fide
underwritten public offering at an offering price per share (prior to
underwriter's commissions and discounts) of not less than 200% of the Conversion
Price (as adjusted to reflect any stock dividends, distributions, combinations,
reclassifications and other similar transactions effected by the Company in
respect to its Common Stock) that results in total proceeds to the Company of at
least $25,000,000, (C) the issuance or sale of the Series B Preferred Stock, (D)
the issuance of securities in connection with mergers, acquisitions, strategic
business partnerships or joint ventures approved by the Board of Directors and
the primary purpose of which, in the reasonable judgment of the Board of
Directors, is not to raise additional capital or (E) any issuance of securities
as to which the Series B Majority Holders shall have executed a written waiver
of the rights contained in this Article XV; and
(vi) the participation rights set forth in this Article XV may not
be assigned or transferred, except that such right is assignable by each holder
of Series B Preferred Stock to any wholly-owned subsidiary or parent of, or to
any corporation or entity that is, within the meaning of the Securities Act,
controlling, controlled by or under common control with, any such holder of
Series B Preferred Stock.
XVI. MISCELLANEOUS
A. Cancellation of Series B Preferred Stock. If any shares of Series B
Preferred Stock are converted pursuant to Article IV, exchanged pursuant to
Article XV(iii) 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 B 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 B Preferred Stock.
C. Allocation of Reserved Amount. The initial Reserved Amount shall be
allocated pro rata among the holders of Series B Preferred Stock based on the
number of shares of Series B Preferred Stock issued to each such holder. Each
increase to the Reserved Amount shall be allocated pro rata among the holders of
Series B Preferred Stock based on the number of shares of Series B 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 B 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 B
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Preferred Stock shall be allocated to the remaining holders of shares of Series
B Preferred Stock, pro rata based on the number of shares of Series B 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 B
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 B 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 B
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 B 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 B 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 B 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 B Preferred Stock shall cease and
terminate, excepting only the right to receive certificates for such shares of
Common Stock and to any remedies provided herein or otherwise available at law
or in equity to such holder because of a failure by the Corporation to comply
with the terms of this Certificate of Designation. 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 B 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
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holder shall regain the rights of a holder of Series B Preferred Stock with
respect to such unconverted shares of Series B 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 B 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 B 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 B 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 B Preferred Stock granted hereunder may be waived as to all
shares of Series B Preferred Stock (and the holders thereof) upon the written
consent of the Series B 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 B 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, subject
to Section II.D. hereof, upon 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 Series B 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 [___] day of [________], 2005.
REMOTE DYNAMICS, INC.
By:_____________________________
Name:
Title:
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series B Preferred Stock)
The undersigned hereby irrevocably elects to convert ____________ shares
of Series B 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") and cash in
lieu of any fractional share(s), if applicable, according to the conditions of
the Certificate of Designation, Preferences and Rights of Series B 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 B 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 B 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:___________________________________
Name:________________________________________
Address:_____________________________________
_____________________________________________
_____________________________________________