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EXHIBIT 4.1
CERTIFICATE OF DESIGNATION
OF
RIGHTS AND PREFERENCES
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
XBOX TECHNOLOGIES, INC.
The undersigned Interim Chief Financial Officer of XBOX Technologies,
Inc., a corporation organized and existing under the General Corporation Law of
the State of Delaware (the "CORPORATION"), in accordance with the provisions of
Section 151 thereof, does hereby certify that, pursuant to the authority
conferred upon the Board of Directors of the Corporation (the "BOARD") by the
Certificate of Incorporation of the Corporation, the Board on June 26, 2001,
adopted the following resolution creating a series of Three Million Two Hundred
Thousand (3,200,000) shares of the Corporation's undesignated preferred stock,
par value $.10 per share, to be designated as Series B Convertible Preferred
Stock:
RESOLVED, that pursuant to the authority granted to and vested in this
Board of Directors in accordance with the Certificate of Incorporation of the
Corporation, a new series of preferred stock is hereby created, and that the
designation and amount thereof and the relative rights and preferences of the
shares of such series, are as follows:
1. SHARES AND CLASSES AUTHORIZED. Three Million Two Hundred (3,200,000)
shares of the Corporation's undesignated preferred stock, par value
$.10 per share, that are authorized by Article V of the Corporation's
Certificate of Incorporation are designated as Series B Convertible
Preferred Stock (the "SERIES B PREFERRED STOCK").
2. DEFINITIONS
2.1 AGREEMENT means the Agreement and Plan of Merger dated as of
July 5, 2001, by and among the Corporation, You Acquisition,
Inc., a Delaware corporation, and YOUPowered, Inc., a Delaware
corporation.
2.2 BASE PRICE means $0.1797, as adjusted pursuant to Section
7.5(d).
2.3 BOARD has the meaning set forth in the Recitals.
2.4 CHANGE OF CONTROL has the meaning set forth in Section 3.3.
2.5 COMMON STOCK means the Corporation's common stock, par value
$.10 per share.
2.6 CONVERSION NOTICE has the meaning set forth in Section 8.2.
2.7 CONVERSION PRICE has the meaning set forth in Section 7.1.
2.8 DETERMINATION DATE means the date which is eighteen (18)
months from the Effective Date.
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2.9 DETERMINATION DATE PRICE means the weighted average trading
price of the Common Stock for the thirty (30) Trading Days
immediately preceding, and including, the Determination Date
calculated as follows:
(a) On each such Trading Day where more than 1,000 shares
of Common Stock are reported as traded (on a national
or foreign securities exchange, the Nasdaq National
Market, the Nasdaq SmallCap Market, OTC Bulletin
Board, National Quotation Bureau, Inc. or other
comparable service), the number of shares included in
each trade reported on such day shall be multiplied
by the reported sales price associated with such
trade;
(b) On each such Trading Day where there are less than
1,001 shares of Common Stock reported as traded, the
closing list price (if the Common Stock is listed,
admitted to unlisted trading privileges or reported
on any foreign or national securities exchange or the
Nasdaq National Market) or the mean between the
closing bid and ask prices (if the Common Stock is
not so listed, admitted or reported but is reported
by the Nasdaq SmallCap Market, OTC Bulleting Board or
the National Quotation Bureau, Inc.) shall be
multiplied by 1,000 or if there are no trades
reported and the Common Stock is not so listed,
admitted or reported, $.10 (appropriately adjusted
for stock splits, stock dividends or other
recapitalizations effecting the Common Stock)
multiplied by 1,000;
(c) The aggregate of the products described in (A) and
(B) shall be divided by the sum of (i) the total
number of traded shares that were included in the
calculations described in (A) and (ii) the number of
Trading Days described in (B) multiplied by 1,000.
2.10 DIVIDEND RATE shall mean eight percent (8.0%) per annum of the
Redemption Price in effect at the time such dividends are
paid.
2.11 EFFECTIVE DATE has the meaning set forth in the Agreement.
2.12 ELECTION FORM means the form to be sent to holders of Series B
Preferred Stock following the Mandatory Conversion Date on
which such holders may elect to receive cash in lieu of shares
of Common Stock to be issued upon conversion of the Series B
Preferred Stock as described in Section 8.
2.13 EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
2.14 LIQUIDATION PRICE means, for each share of Series B Preferred
Stock, the sum of (i) $0.8985 (subject to appropriate
adjustments for stock splits and other combinations in the
same manner as set forth in Sections 6.5 and 6.6) plus (ii)
all accrued and unpaid dividends on shares of the Series B
Preferred Stock, whether or not declared, to and including the
date full payment shall be tendered to the holders of the
Series B Preferred Stock.
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2.15 MANDATORY CONVERSION DATE means the date on which the
Conversion Notice is mailed to holders of outstanding shares
of Series B Preferred Stock pursuant to the provisions of
Section 8.2.
2.16 MERGER means the merger of You Acquisition Inc. with and into
YOUpowered, Inc. pursuant to the Agreement.
2.17 REDEMPTION DATE means the date that is three years from the
Effective Date.
2.18 REDEMPTION AMOUNT means, on any date for each share of Series
B Preferred Stock, the sum of (i) the Redemption Price then in
effect and (ii) all accrued and unpaid dividends on shares of
the Series B Preferred Stock, whether or not declared, to and
including the Redemption Date.
2.19 REDEMPTION NOTICE has the meaning set forth in Section 6.2.
2.20 REDEMPTION PRICE means $0.8985, as such amount may be adjusted
from time to time in accordance with Sections 6.5 and 6.6.
2.21 REVENUE means the revenue of the Corporation, on a
consolidated basis, calculated in accordance with U.S.
generally accepted accounting principles applied on a basis
consistent with past practice.
2.22 SERIES A PREFERRED STOCK has the meaning set forth in Section
3.1.
2.23 SERIES B PREFERRED STOCK" has the meaning set forth in the
Section 1.
2.24 TRADING DAYS means days on which Nasdaq National Market is
open for trading.
2.25 TRADING PRICE means, with respect to the Common Stock, as of a
particular date
(a) the closing price of the Common Stock if the Common
Stock is listed, admitted to unlisted trading
privileges or reported on any foreign or national
securities exchange or on the Nasdaq National Market
or an equivalent foreign market on which sale prices
are reported;
(b) if the Common Stock is not so listed, admitted to
unlisted trading privileges or reported, the mean
between the closing bid and ask prices as reported by
the Nasdaq SmallCap Market, OTC Bulletin Board or the
National Quotation Bureau, Inc. or other comparable
service; or
(c) if the Common Stock is not so listed or reported,
$.10 (appropriately adjusted for stock splits, stock
dividends or other recapitalizations effecting the
Common Stock).
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3. VOTING RIGHTS.
3.1 GENERAL. At all meetings of the stockholders of the
Corporation and in the case of any actions of stockholders in
lieu of a meeting, each holder of Series B Preferred Stock
shall have that number of votes on all matters submitted to
the stockholders that is equal to the number of whole shares
of Common Stock into which such holder's shares of Series B
Preferred Stock are then convertible, as provided in Section
7, at the record date for the determination of the
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 such stockholders is effected. Except
as may be otherwise provided in this Certificate or by
agreement, the holders of the Common Stock, the holders of
shares of the Corporation's Series A Convertible Preferred
Stock (the "SERIES A PREFERRED STOCK") and the holders of the
Series B Preferred Stock shall vote together as a single class
on all actions to be taken by the stockholders of the
Corporation.
3.2 QUORUM. For purposes of determining a quorum in accordance
with the Company's bylaws, shares of Series A Preferred Stock
and Series B Preferred Stock shall be counted on an as-if
converted to Common Stock basis including fractional shares.
3.3 CLASS VOTES BY SERIES B PREFERRED STOCK. For so long as at
least fifty percent (50%) of the aggregate number of shares of
Series B Preferred Stock issued in connection with the Merger
remain outstanding, the Corporation shall not, without the
affirmative vote of at least two-thirds of the then
outstanding shares of Series B Preferred Stock (voting as a
separate class), with each share of Series B Preferred Stock
entitled to one vote in each instance:
(a) take any action that constitutes or results in
amendment or waiver of any provision of the
Corporation's Certificate of Incorporation or Bylaws,
(except for an amendment to effect (i) a change to
the par value of shares of the Corporation's capital
stock, including such changes to the Series B
Preferred Stock or (ii) a change of the name of the
Corporation) if such amendment or waiver in any way
affects, alters or changes any existing rights,
preferences, privileges or provisions relating to the
Series B Preferred Stock or the holders thereof;
(b) authorize or issue any new class of additional shares
of capital stock having (or any security or other
instrument convertible into or exchangeable for
shares of capital stock of the Corporation having)
priority over the Series B Preferred Stock with
respect to the rights and preferences set forth in
Sections 4, 5 and 6 hereof; or
(c) prior to the eighteen month anniversary of the
Effective Date, (i) sell, transfer, lease, license on
an exclusive basis or otherwise dispose of all or any
substantial part of the assets of the Corporation
other than the assets relating to its FullMetrics
operations or the Corporation's rights to the name
"XBOX"; (ii) consolidate with or merge into any other
corporation or entity, or permit any other
corporation or entity to consolidate or merge into
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the Corporation or any subsidiary of the Corporation
unless immediately following the effective date of
such merger or consolidation the securities of the
surviving company representing 50 percent or more of
the combined voting power of the surviving
corporation's then outstanding securities ordinarily
having the right to vote at elections of directors
are held by the stockholders of the Corporation
immediately prior to such effective date or by the
Corporation, except that any subsidiary of the
Corporation may merge into another subsidiary or into
the Corporation; (iii) enter into a plan of exchange
with any other corporation or entity; (iv) engage in
a liquidation, dissolution or similar transaction or
(v) enter into an agreement with respect to a tender
or exchange offer, as defined pursuant to the
Exchange Act, that, if consummated, would result in
any person beneficially owning fifty percent of the
aggregate voting power of all classes of capital
stock of the Corporation (each of the foregoing
events is referred to as a "CHANGE IN CONTROL").
4. DIVIDENDS.
4.1 PREFERRED STOCK DIVIDEND PREFERENCE. The holders of each share
of Series B Preferred Stock then outstanding shall be entitled
to receive cumulative dividends, out of any funds and assets
of the Corporation legally available therefor, prior and in
preference to any declaration or payment of any dividend
(other than a dividend payable in shares of Common Stock)
payable on Common Stock or Series A Preferred Stock of the
Corporation at the Dividend Rate. Notwithstanding the
foregoing, such cumulative dividends shall be payable only if,
as and when declared by the Board.
4.2 NON-CASH DIVIDENDS. Whenever a dividend provided for in this
Section 4 shall be payable in property other than cash, the
value of such dividend shall be deemed to be the fair market
value of such property as determined in good faith by the
Board.
4.3 PAYMENTS ON CONVERSION. All accrued but unpaid dividends, if
any, with respect to any Series B Preferred Stock shares shall
be cancelled upon conversion in accordance with Section 7.
5. LIQUIDATION RIGHTS.
5.1 PREFERENCE OF SERIES B PREFERRED STOCK.
(a) In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or
involuntary, the holders of the Series B Preferred
Stock then outstanding shall be entitled to be paid
out of the assets of the Corporation available for
distribution to its stockholders, whether such assets
are capital, surplus, or earnings, before any payment
or declaration and setting apart for payment of any
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amount shall be made in respect of the Common Stock
or Series A Preferred Stock, an amount equal to the
Liquidation Price for each share of Series B
Preferred Stock held. If, upon any liquidation,
dissolution, or winding up of the Corporation,
whether voluntary or involuntary, the assets to be
distributed to the holders of the Series B Preferred
Stock shall be insufficient to permit the payment to
such stockholders of the full preferential amounts
aforesaid, then all of the assets of the Corporation
shall be distributed ratably to the holders of the
Series B Preferred Stock on the basis of the full
liquidation preference payable with respect to such
Series B Preferred Stock if such liquidation
preference was paid in full.
(b) In the event of a Change of Control, holders of
shares of Series B Preferred Stock may elect to treat
such transaction as a liquidation or dissolution for
purposes of determining amounts to be received by
holders of Series B Preferred Stock and the priority
of such receipt.
5.2 REMAINING ASSETS. If the assets of the Corporation available
for distribution to the Corporation's stockholders exceed the
aggregate amount payable to the holders of the Series B
Preferred Stock pursuant to Section 5.1 hereof, then after the
payments required by Section 5.1 shall have been made or
irrevocably set apart, such assets shall be distributed
equally, on a per share basis, among the holders of the Common
Stock and Series A Preferred Stock, with shares of Series A
Preferred Stock participating on an as-if converted to Common
Stock basis including fractional shares.
5.3 NOTICE. Written notice of such liquidation, dissolution or
winding up, stating a payment date and the place where said
payments shall be made, shall be given by mail, postage
prepaid, or by telex, facsimile or courier service to non-U.S.
residents, not less than ten (10) days prior to the payment
date stated therein, to the holders of record of Series B
Preferred Stock, such notice to be addressed to each such
holder at its address as shown by the records of the
Corporation.
5.4 DETERMINATION OF CONSIDERATION. To the extent any distribution
pursuant to Sections 5.1 or 5.2 consists of property other
than cash, the value thereof shall, for purposes of Sections
5.1 or 5.2, be the fair value at the time of such
distributions as determined in good faith by the Board.
5.5 CONVERSION PRIOR TO LIQUIDATING DISTRIBUTIONS. Upon a
liquidation, dissolution or winding up of the Corporation, any
holder of the Series B Preferred Stock may, at his, her or its
option, convert all or a portion of his, her or its Series B
Preferred Stock shares into shares of Common Stock and thereby
receive distributions with the holders of the Common Stock in
lieu of the Liquidation Price applicable to such shares.
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6. REDEMPTION RIGHTS.
6.1 SCHEDULED REDEMPTION. To the extent the Corporation shall have
funds legally available for such payments, the Corporation
shall offer to redeem all of the outstanding shares of Series
B Preferred Stock on the Redemption Date for a cash amount per
share equal to the Redemption Amount. Any holder of shares of
Series B Preferred Stock must accept such offer. If the
Corporation shall fail to discharge all or any part of any
scheduled redemption obligation pursuant to this Section 6.1
because of insufficient funds or because of state law
restrictions on such redemption, the entire amount legally
available for the payment of such obligation shall be used to
offer to and redeem the shares of the holders of the Series B
Preferred Stock ratably in proportion to the full number of
shares which they would otherwise be entitled to have
redeemed, and the balance of such redemption obligation shall
be deferred and shall be discharged in one or more
installments as soon as the Corporation shall have funds
legally available to permit such redemption, at which time the
Board shall promptly fix a date for such redemption and so
notify the holders of such shares in writing.
6.2 REDEMPTION NOTICE. The Corporation shall, not less than ten
(10) days prior to the Redemption Date, mail written notice
(the "REDEMPTION NOTICE") to each holder of shares of record
of Series B Preferred Stock to be redeemed, at such holder's
post office address last shown on the records of the
Corporation. The Redemption Notice shall state:
(a) the number of shares of Series B Preferred Stock held
such holder;
(b) the Redemption Amount; and
(c) the time, place and manner in which the holder must
surrender to the Corporation the certificate or
certificates representing the shares of Series B
Preferred Stock to be redeemed.
6.3 SURRENDER OF STOCK. As soon as practicable after receipt of
the Redemption Notice, each holder of Series B Preferred Stock
shall surrender the certificate or certificates representing
such shares to the Corporation, in the manner and at the place
designated in the Redemption Notice, and thereupon the
Redemption Amount for such shares shall be payable to the
order of the person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered
certificate shall be canceled and retired. Within ten (10)
business days after receipt of the certificate or certificates
being redeemed, the Corporation will send to the holder
thereof an amount in cash equal to the number of shares being
redeemed by such holder multiplied by the amount equal to the
Redemption Amount in effect as of the close of business on the
Redemption Date.
6.4 TERMINATION OF RIGHTS. If the Redemption Notice is duly given,
and the aggregate Redemption Amount for all shares being
redeemed is made available for payment, then notwithstanding
that the certificates evidencing any of the shares of Series B
Preferred Stock that have not been surrendered, all rights
with respect to such shares shall forthwith after the
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Redemption Date cease and terminate, except only the right of
the holders to receive the Redemption Amount without interest
upon surrender of their certificates therefor; provided,
however, that if the Corporation is notified by a holder of
Series B Preferred Stock within thirty (30) calendar days
after the Redemption Date that such holder wishes to convert
his, her or its shares of Series B Preferred Stock to Common
Stock in lieu of receiving the Redemption Amount, such shares
will be converted into the number of shares of Common Stock as
is determined in accordance with the provisions of Section
7.1.
6.5 ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation at any time or from time to time after the
Effective Date effects a subdivision of the outstanding shares
of such Series B Preferred Stock, the Redemption Price for the
Series B Preferred Stock then in effect immediately before the
subdivision shall be proportionately decreased, and
conversely, if the Corporation at any time or from time to
time after the Effective Date combines the outstanding shares
of such Series B Preferred Stock into a smaller number of
shares, the Redemption Price then in effect immediately before
the combination shall be proportionately increased. Any
adjustment under this Section 6.5 shall become effective at
the close of business on the date the subdivision or
combination becomes effective.
6.6 ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. If the
Corporation at any time or from time to time after the
Effective Date makes or issues or fixes a record date for the
determination of holders of shares of the Series B Preferred
Stock entitled to receive a dividend or other distribution
payable in additional shares of such Series B Preferred Stock,
then and in each such event the Redemption Price then in
effect shall be decreased as of the time of such issuances or,
in the event such record date is fixed, as of the close of
business on such record date, by multiplying the Redemption
Price then in effect by the quotient of (A) the total number
of shares of Series B Preferred Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date, divided by (B) the total number
of shares of the Series B Preferred Stock issued and
outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of
shares of Series B Preferred Stock issuable in payment of such
dividend or distribution; provided, however, that if such
record date is fixed and such dividend is not fully paid or if
such distribution is not fully made on the date fixed
therefor, the Redemption Price shall be recomputed accordingly
as of the close of business on such record date and thereafter
the Redemption Price for the Series B Preferred Stock shall be
adjusted pursuant to this Section 6.6 as of the time of actual
payment of such dividends or distributions.
7. OPTIONAL CONVERSION. The holders of the Series B Preferred Stock shall
have the following conversion rights:
7.1 OPTIONAL CONVERSION OF THE SERIES B PREFERRED STOCK. At any
time after the Effective Date and prior to the earlier of the
Redemption Date and the Mandatory Conversion Date, the Series
B Preferred Stock shall be convertible, without the payment of
any additional consideration by the holder thereof and at the
option of the holder thereof, at the office of the Corporation
or any transfer agent for the Common Stock, into such number
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of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Conversion Price in effect at the
time of conversion by $.1797, then multiplying such quotient
by each share of Series B Preferred Stock to be converted. The
Conversion Price at which shares of Common Stock shall be
deliverable upon conversion without the payment of any
additional consideration by the holder thereof (the
"CONVERSION PRICE") shall at the Effective Time be equal to
$.8985 (such initial Conversion Price results in each shares
of Series A Preferred Stock being initially convertible into 5
shares of Common Stock). Such initial Conversion Price shall
be subject to adjustment, as hereinafter provided.
7.2 FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued upon conversion of the Series B Preferred Stock. In
lieu of any fractional share to which any holder would
otherwise be entitled upon conversion of the Series B
Preferred Stock owned by such holder, the Corporation shall,
at its option, pay cash equal to such fraction multiplied by
the then effective Conversion Price or round the shares Common
Stock to be issued upon conversion up to the nearest whole
share.
7.3 MECHANICS OF OPTIONAL CONVERSION. Before any holder of Series
B Preferred Stock shall be entitled to convert the same into
full shares of Common Stock, such holder shall surrender the
certificate or certificates therefor, endorsed or accompanied
by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the
registered holder or by such holder's attorney duly authorized
in writing, at the office of the Corporation or of any
transfer agent for the Common Stock, and shall give written
notice to the Corporation at such office that such holder
elects to convert the same and shall state therein such
holder's name or the name of the nominees in which such holder
wishes the certificate or certificates for shares of Common
Stock to be issued. The Corporation shall, as soon as
practicable thereafter, cause its transfer agent to issue and
deliver at such office to such holder of Series B Preferred
Stock, or to such holder's nominee or nominees, a certificate
or certificates for the number of shares of Common Stock to
which such holder shall be entitled as aforesaid, together
with cash, if any, in lieu of any fraction of a share of
Common Stock. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of
such surrender of the shares of Series B Preferred Stock to be
converted, and the person or persons entitled to receive the
shares of Common Stock issuable upon conversion shall be
treated for all purposes as the record holder or holders of
such shares of Common Stock on such date. From and after such
date, all rights of the holder with respect to the Series B
Preferred Stock so converted shall terminate, except only the
right of such holder, upon the surrender of his, her or its
certificate or certificates therefor, to receive certificates
for the number of shares of Common Stock issuable upon
conversion thereof and cash for fractional shares.
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7.4 CERTAIN ADJUSTMENTS TO CONVERSION PRICE FOR STOCK SPLITS,
DIVIDENDS, MERGERS, REORGANIZATIONS, ETC.
(a) In the event the outstanding shares of Common Stock
shall, after the Effective Date be further subdivided
(split), or combined (reverse split), by
reclassification or otherwise, or in the event of any
dividend or other distribution payable on the Common
Stock in shares of Common Stock, the applicable
Conversion Price in effect immediately prior to such
subdivision, combination, dividend or other
distribution shall, concurrently with the
effectiveness of such subdivision, combination,
dividend or other distribution, be proportionately
adjusted on the basis that the holders of Series B
Preferred Stock will receive upon conversion, after
each such event, a number of shares of Common Stock
equal to the number that the holder would hold
immediately after such event if the holder had
converted all Series B Preferred Stock to shares of
Common Stock immediately prior to each such event.
(b) In the event of a reclassification, reorganization or
exchange (other than described in Section 7.4.a.
above) or any consolidation or merger of the
Corporation with another Corporation (other than a
merger, acquisition or other reorganization which
results in a Change of Control which shall have the
effect described in Section 8.6), each share of
Series B Preferred Stock shall thereafter be
convertible into the number of shares of stock or
other securities or property to which a holder of the
number of shares of Common Stock deliverable upon
conversion of the Series B Preferred Stock would have
been entitled upon such reclassification,
reorganization, exchange, consolidation, merger or
conveyance had the conversion occurred immediately
prior to the event; and, in any such case,
appropriate adjustment (as determined in good faith
by the Board) shall be made in the application of the
provisions herein set forth with respect to the
rights and interests thereafter of the holders of the
Series B Preferred Stock, to the end that the
provisions set forth herein (including provisions
with respect to changes in and other adjustments of
the applicable Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property
thereafter deliverable upon the conversion of the
Series B Preferred Stock.
7.5 DETERMINATION DATE ADJUSTMENT. If, at the close of business on
the Determination Date, the Determination Date Price is less
than the Base Price then in effect:
(a) The Conversion Price shall be adjusted by multiplying
the Conversion Price then in effect by the quotient
of (A) the Base Price then in effect divided by (B)
the Determination Date Price. The adjustment to the
Conversion Price described in this Section 7.5 shall
be effective as of 12:01 a.m. on the day immediately
following the Determination Date.
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(b) The Corporation will cause to be issued to holders
who converted shares of Series B Preferred Stock into
Common Stock prior to the Determination Date an
additional number of shares of Common Stock (rounded
up to the nearest whole share) equal to the number of
shares of Common Stock that were issued in connection
with such conversion (as such number is
proportionately adjusted for stock splits, reverse
stock splits, recapitalizations and other similar
events occurring subsequent to such conversion)
multiplied by the amount equal to (A) the quotient of
(i) the Base Price in effect at the close of business
on the Determination Date divided by (ii) the
Determination Date Price minus (B) one (1).
Certificates representing the shares, if any, of
Common Stock to be issued pursuant to this Section
7.5(b) will be mailed to the record holder of the
Series B Preferred Stock that was converted within
fifteen (15) business days following the
Determination Date.
(c) If the Determination Date Price is equal to or
greater than the Base Price in effect as of the close
of business on the Determination Date, then no
adjustment will be made to the Conversion Price and
no additional shares of Common Stock will be issued
pursuant to this Section 7.5.
(d) The Base Price may be adjusted from time to time as
follows:
(i) If the Corporation at any time or from time
to time after the Effective Date effects a
subdivision of the outstanding shares of
Common Stock, the Base Price then in effect
immediately before the subdivision shall be
proportionately decreased, and conversely,
if the Corporation at any time or from time
to time after the Effective Date combines
the outstanding shares of the Common Stock
into a smaller number of shares, the Base
Price then in effect immediately before the
combination shall be proportionately
increased. Any adjustment under this
subsection (i) shall become effective at the
close of business on the date the
subdivision or combination becomes
effective.
(ii) If the Corporation at any time or from time
to time after the Effective Date makes or
issues a dividend or other distribution
payable in additional shares of Common
Stock, then and in each such event the Base
Price then in effect shall be decreased as
of the time of such issuances by multiplying
the Base Price then in effect by the
quotient of (A) the total number of shares
of Common Stock issued and outstanding
immediately prior to the time of such
issuance or the close of business on such
record date, divided by (B) the total number
of shares of Common Stock issued and
outstanding immediately prior to the time of
such issuance or the close of business on
such record date plus the number of shares
of Common Stock issuable in payment of such
dividend or distribution.
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7.6 NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of
securities for the purpose of determining the holders thereof
who are entitled to receive any dividend (other than a cash
dividend which is the same as cash dividends paid in previous
quarters) or other distribution, any capital reorganization of
the Corporation, any reclassification or recapitalization of
the Corporation's capital stock, any consolidation or merger
with or into another Corporation, any transfer of all or
substantially all of the assets of the Corporation or any
dissolution, liquidation or winding up of the Corporation, the
Corporation shall mail to each holder of Series B Preferred
Stock at least ten (10) days prior to the date specified for
the taking of a record, a notice specifying the date on which
any such record is to be taken for the purpose of such
dividend or distribution.
8. MANDATORY CONVERSION
8.1 EVENTS TRIGGERING MANDATORY CONVERSION. At any time following
the Conversion Trigger Date, the Corporation may, subject to
the Corporation's ability to comply with Section 8.4, require
all holders of shares of Series B Preferred Stock to convert
such shares into the number of shares of Common Stock as is
determined by dividing the Conversion Price in effect on the
Mandatory Conversion Date by $.1797, then multiplying such
quotient by each share of Series B Preferred Stock held by
such holder to be converted. The "CONVERSION TRIGGER DATE" is
the earliest of (i) the first date on which both of the
following have occurred on or prior to such date (a) for
thirty consecutive Trading Days, the Trading Price has equaled
or exceeded one hundred fifty percent (150%) of the Base Price
and (b) the Corporation's Revenue has increased at least
twenty-five percent (25%) per quarter over the immediately
preceding quarter in any three consecutive quarters, the first
of which ends on or after ending May 31, 2001 and only
commencing once Revenue of the Corporation for any given
quarter equals or exceeds $1,500,000 (based on U.S. generally
accepted accounting principles consistent with past
practices), (ii) the first date on or after August 31, 2002
which ends a twelve month period in which the Corporation's
Revenue for such period has increased at least fifty percent
(50%) over the immediately preceding twelve month period or
(iii) a Change of Control.
8.2 MECHANICS FOR MANDATORY CONVERSION. The Corporation may effect
a mandatory conversion pursuant to a Conversion Trigger Date
described in clauses (i) and (ii) of Section 8.1 by mailing a
written notice ("CONVERSION NOTICE"), postage prepaid, to each
holder of shares of record of Series B Preferred Stock to be
converted, at such holder's post office address last shown on
the records of the Corporation at any time after the
Conversion Trigger Date; provided, however, that the
Corporation may not send a Conversion Notice on a day on which
the Trading Price as of the close of business on the day
immediately preceding such date is less than one hundred fifty
percent (150%) of the Base Price then in effect. The
Conversion Notice shall be accompanied by the Election Form
and shall state:
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(a) the provision in this Certificate of Designation
pursuant to which the Series B Preferred Stock are
being converted;
(b) the number of shares of Series B Preferred Stock held
such holder;
(c) the number of shares of Common Stock into which such
Series B Preferred Stock are to be converted;
(d) the Redemption Amount on the Mandatory Conversion
Date; and
(e) the time, place and manner in which the holder must
surrender to the Corporation the certificate or
certificates representing the shares of Series B
Preferred Stock to be converted.
8.3 SURRENDER OF STOCK. As soon as practicable after receipt of a
Conversion Notice, each holder of Series B Preferred Stock
shall surrender the certificate or certificates therefor,
endorsed or accompanied by a written instrument or instruments
of transfer, in form satisfactory to the Corporation, duly
executed by the registered holder or by such holder's attorney
duly authorized in writing, at the place specified in the
Conversion Notice and shall indicate such holder's name or the
name of the nominees in which such holder wishes the
certificate or certificates for shares of Common Stock to be
issued. The Corporation shall, as soon as practicable
thereafter, cause its transfer agent to issue and deliver to
such holder of Series B Preferred Stock, or to such holder's
nominee or nominees, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be
entitled as aforesaid. In lieu of any fractional share to
which any holder would otherwise be entitled to receive upon
conversion, the Corporation shall, at its option, pay cash
equal to such fraction multiplied by the Conversion Price in
effect on the Mandatory Conversion Date or round the shares
Common Stock to be issued upon conversion up to the nearest
whole share.
8.4 ELECTION TO RECEIVE CASH. Notwithstanding the provisions of
Sections 8.1 or 8.3, in the event of a mandatory conversion
effected pursuant to a Conversion Trigger Date described in
clauses (i) and (ii) of Section 8.1, if a holder of shares of
Series B Preferred Stock shall have elected on the Election
Form to receive cash in lieu Common Stock and have delivered
such Election Form to the Corporation along with the
certificate or certificates representing the shares of Series
B Preferred Stock for which such election is made, the
Corporation shall pay to such holder the Redemption Amount in
effect as of the close of business on the Mandatory Conversion
Date (with dividends accrued through the Mandatory Conversion
Date rather than the Redemption Date) multiplied by the number
of shares of Series B Preferred Stock for which such election
was made. Such payment shall be paid to the holder or the
holder's nominee as specified in the Election Form.
8.5 TERMINATION OF RIGHTS. If the Conversion Notice is duly given
following a mandatory conversion effected pursuant to a
Conversion Trigger Date described in clauses (i) and (ii) of
Section 8.1 and a sufficient number of shares of Common Stock
are reserved for issuance upon conversion of all outstanding
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shares of Series B Preferred Stock, then notwithstanding that
the certificates evidencing any of the shares of Series B
Preferred Stock have not been surrendered, all rights with
respect to such shares shall forthwith after the close of
business on the Mandatory Conversion Date cease and terminate,
except only the right of the holders to promptly receive
shares of Common Stock (or cash) upon surrender of their
certificates therefor. If, on the other hand, the holders of
Series B Preferred Stock redeeming his, her or its shares of
Series B Preferred Stock surrender such shares and shares of
Common Stock issuable upon conversion therefor (or cash) are
not forthcoming, such holders of Series B Preferred Stock
shall retain all of the rights of a holder of Series B
Preferred Stock until such shares are issued (or cash paid).
8.6 CHANGE OF CONTROL MANDATORY CONVERSION. The Corporation may
effect a mandatory conversion pursuant to a Conversion Trigger
Date described in clause (iii) of Section 8.1 by mailing at
least ten (10) days prior to the consummation of a transaction
which results in a Change of Control a notice to all holders
of outstanding shares of Series B Preferred Stock describing
such contemplated transaction. Any of such holders may, at any
time prior to the consummation of transaction, notify the
Corporation in writing of its irrevocable election to receive
an amount in cash equal to the Redemption Amount in effect as
of the close of business on the date of the consummation of
the transaction resulting in the Change of Control (with
dividends accrued through such date rather than the Redemption
Date) multiplied by the number of shares of Series B Preferred
Stock held by the holder making such election, provided,
however, that such election will be contingent and effective
upon the consummation of the transaction that results in the
Change of Control. Each outstanding share of Series B
Preferred Stock for which no such notification has been
received by the Corporation prior to the consummation of the
transaction resulting in a Change of Control shall, contingent
and effective upon the consummation of such transaction and
without further action by the Corporation or the holders
thereof, automatically convert into the number shares of
Common Stock equal to the Conversion Price in effect at the
time of such consummation divided by $.1797.
9. STATUS OF PREFERRED STOCK UPON RETIREMENT. Shares of Series B Preferred
Stock which are acquired or redeemed by the Corporation or converted
pursuant to Section 7 or 8 shall be retired pursuant to Delaware
General Corporation Law Section 243, or any successor provision, and
returned to the status of authorized but unissued shares of the
Corporation's undesignated preferred stock.
10. COMMON STOCK RESERVED. The Corporation shall reserve and keep available
out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect
conversion of the Series B Preferred Stock.
11. WAIVER. Except as prohibited by Delaware or other applicable law or by
the Corporation's certificate of incorporation, any of the rights of
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the holders of Series B Preferred Stock set forth herein may be waived
by the affirmative vote of the holders of two-thirds or more of Series
B Preferred Stock then outstanding.
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