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EXHIBIT 4.1
AMENDED CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
U.S. TECHNOLOGIES INC.
PURSUANT TO SECTION 151 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
U.S. Technologies Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that, pursuant to the authority contained in its Certificate of
Incorporation, as amended and restated, and in accordance with Section 151 of
the General Corporation Law of the State of Delaware, the following resolution
amending the terms of the Series A Convertible Preferred Stock, $0.02 par value,
was duly adopted by the Board of Directors of the Corporation (the "Board") as
of February 24, 1999:
RESOLVED, that the Board hereby amends the terms of the Corporation's
1,000,000 shares of Series A Convertible Preferred Stock, $0.02 par value, and
hereby adopts and prescribes therefore the designation, relative rights,
preferences and limitations, and other terms and conditions of such series as
set forth in, and governed by, Exhibit A attached to these minutes, with such
Exhibit A being hereby incorporated as part of this resolution; and
FURTHER RESOLVED, that the officers of the Corporation be and hereby
are authorized and directed to take any and all further action that may be
necessary or desirable to accomplish the above authorized action, including but
not limited to the execution and filing of all instruments or documents that may
be necessary to create, designate, issue or evidence shares of the Corporation's
Series A Convertible Preferred Stock.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed in its name by the undersigned duly authorized officers of the
Corporation, this 24th day of February, 1999.
/s/ Gregory Earls
------------------------------------------------
By: C. Gregory Earls
Title: Chairman and Chief Executive Officer
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EXHIBIT A
SERIES A CONVERTIBLE PREFERRED STOCK
The powers, designations, preferences and relative, participating,
optional or other rights of the Series A Convertible Preferred Stock of U.S.
Technologies Inc. (the "Corporation") are as stated below. Capitalized terms not
defined herein have the meaning given them in the Investment Agreement by and
between USV Partners, LLC and the Corporation, dated as of July 16, 1998 (the
"Investment Agreement").
1. DESIGNATION AND AMOUNT.
This series of preferred stock shall be designated as "Series A
Convertible Preferred Stock" and shall have a par value of $0.02 per share. The
number of authorized shares constituting this series shall be 1,000,000 shares.
Shares of the Series A Convertible Preferred Stock shall have a stated value of
$10.00 per share (the "Stated Value").
2. DIVIDENDS.
(a) Right to Receive Dividends. Holders of the Series A
Convertible Preferred Stock (each a "Preferred A Holder") shall be entitled to
receive annual dividends at the rate, in the form, at the times and in the
manner set forth in this Section 2. Such dividends shall accrue on any given
share of Series A Convertible Preferred Stock from the day of payment for such
share and shall accrue from day to day whether or not earned or declared.
(b) Form of Dividend. Any dividend payment made with respect to
the Series A Convertible Preferred Stock may, at the sole discretion of the
Board of Directors of the Corporation ("Board of Directors"), be made (i) in
cash out of funds legally available for such purpose, (ii) in Series A
Convertible Preferred Stock having an aggregate stated value equal to the amount
of the dividend or (iii) in Common Stock that has a Current Market Value (as
defined in Section 5(d)(ii)(C)) on the day before the dividends are distributed,
equal to the amount of the dividend.
(c) Dividend Rate. The dividend rate on the Series A Convertible
Preferred Stock shall be 9% of the Stated Value per share per annum; provided
that, upon the occurrence and during the continuance of any Triggering Event (as
defined in Section 7), the dividend rate on the Series A Convertible Preferred
Stock shall be 11% of the Stated Value per share per annum (such rate, as
applicable, the "Dividend Rate").
(d) Payment of Dividends. Dividends shall be payable in arrears on
April 1 of each year, commencing April 1, 1999 (each such annual payment date a
"Dividend Payment Date"), except that if any such date is a Saturday, Sunday or
legal holiday then such dividend shall be
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payable on the first immediately succeeding calendar day which is not a
Saturday, Sunday or legal holiday. Dividends shall accrue on each share of
Series A Convertible Preferred Stock from the date of payment for such share
which, in the case of the initial payment for the Series A Convertible Preferred
Stock, shall be from July 16, 1998 (the "Share Payment Date"), and, after
payment of a dividend as required hereunder, from and after each Dividend
Payment Date based on the number of days elapsed and a 360-day year. The
dividend payable on the first Dividend Payment Date, with respect to any share
of Series A Convertible Preferred Stock, shall be the pro rata portion of the
Dividend Rate based upon the number of days from and including the Share Payment
Date, up to and including such first Dividend Payment Date and a 360-day year.
Each dividend shall be paid to the Preferred A Holders of record as they appear
on the books of the Corporation on such record date, which shall be not more
than 45 days nor fewer than 10 days preceding the respective Dividend Payment
Date, as shall be fixed by the Board of Directors.
(e) Dividend Preference. Dividends on the Series A Convertible
Preferred Stock shall be payable before any dividends or distributions or other
payments shall be paid or set aside for payment, on the common stock, $0.02 par
value, of the Corporation (the "Common Stock"), or any other stock ranking on
liquidation or as to dividends or distributions junior to the Series A
Convertible Preferred Stock (any such stock together with the Common Stock,
being referred to hereinafter as "Junior Stock"). If at any time dividends on
the outstanding Series A Convertible Preferred Stock at the rate set forth
herein shall not have been paid or declared and set apart for payment with
respect to all preceding and current periods, the amount of the deficiency shall
be fully paid or declared and set apart for payment before any dividend,
distribution or payment shall be declared or paid upon or set apart for the
shares of any other class or series of stock of the Corporation; provided that a
dividend or distribution to the holders of Junior Stock may be made in shares of
Junior Stock so long as there has been no default in the payment of dividends to
any Preferred A Holder on any Dividend Payment Date.
3. LIQUIDATION PREFERENCE.
In the event of any bankruptcy, liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, each Preferred A Holder at
the time thereof shall be entitled to receive, prior and in preference to any
distribution of any of the assets or funds of the Corporation to the holders of
the Common Stock or other Junior Stock by reason of their ownership of such
stock, an amount per share of Series A Convertible Preferred Stock equal to the
Stated Value plus any accrued and unpaid dividends to the date of liquidation or
such lesser amount as permitted pursuant to the Restated Certificate of
Incorporation of U.S. Technologies Inc. filed with the Secretary of the State of
Delaware on December 31, 1997, as it may be amended and restated from time to
time ("Certificate of Incorporation"). If the assets and funds legally available
for distribution among the Preferred A Holders shall be insufficient to permit
the payment to the Preferred A Holders of the full aforesaid preferential
amount, then the assets and funds shall be distributed ratably among Preferred A
Holders in proportion to the number of shares of Series A Convertible Preferred
Stock owned by each Preferred A Holder.
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4. VOTING RIGHTS.
In addition to any voting rights provided elsewhere herein or in the
Corporation's Certificate of Incorporation, and any voting rights provided by
law, the Preferred A Holders shall have the following voting rights; provided
that the voting rights set forth below in Sections 4(a) and 4(b), to the extent
not otherwise available under applicable law, shall thereupon terminate when the
number of Preferred Shares that have not been converted is less than 45% of the
number of Preferred Shares issued at Closing:
(a) Election of Directors
(i) Subject to the terms hereof, the Preferred A Holders
shall have the right to elect up to one-third of the members of the Board of
Directors (each a "Series A Preferred Director"); provided however, if the
Corporation receives additional financing (in the form of debt or equity) of at
least $5,000,000 from a third party that is not a Preferred A Holder or an
Affiliate of a Preferred A Holder then (A) if the Board of Directors consists of
one to five members, the Preferred A Holders shall have the right to elect one
director to the Board of Directors and (B) if the Board of Directors consists of
six or more members, the Preferred A Holders shall have the right to elect the
greater of (x) one-sixth of the Board of Directors or (y) two directors. Such
Series A Preferred Director(s) shall be elected by the Preferred A Holders (who
will have one vote for each Series A Preferred Director for each share held)
voting as a single class.
(ii) The initial terms of the Series A Preferred Directors
to be elected pursuant to Section 4(a)(i) will commence upon their election by
the Preferred A Holders and shall expire at the next annual meeting of
shareholders of the Corporation. Upon expiration of the initial terms of such
Series A Preferred Directors, so long as the Series A Convertible Preferred
Stock is outstanding, the Preferred A Holders shall have the right to elect
Series A Preferred Directors to replace such directors. A Series A Preferred
Director so elected shall hold office for a term expiring at the next annual
meeting of shareholders following the election of such director; provided that
when the Series A Convertible Preferred Stock ceases to be outstanding, the term
of office of each such director shall terminate. Notwithstanding the foregoing,
a Series A Preferred Director elected under Section 4(a)(i) shall serve until
such Series A Preferred Director's successor is appointed and qualified, duly
elected or until such director's earlier removal as provided in Section
4(a)(iii) or such director's death or resignation, and, in the event a vacancy
occurs while such Series A Convertible Preferred Stock remains outstanding (and
so long as a number of Preferred Shares equal to at least 45% of the number of
Preferred Shares issued at Closing have not been converted to Common Stock), a
replacement Series A Preferred Director shall be selected as provided in Section
4(a)(i).
(iii) While the Series A Convertible Preferred Stock
remains outstanding (and so long as a number of Preferred Shares equal to at
least 45% of the number of Preferred Shares issued at Closing have not been
converted to Common Stock), a Series A Preferred Director may
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be removed by, and shall not be removed except by, the vote of the Preferred A
Holders of record of a majority of the outstanding shares of Series A
Convertible Preferred Stock, voting together as a single class.
(b) Certain Corporate Actions.
So long as a number of Preferred Shares equal to at least 45% of the
number of Preferred Shares issued at Closing have not been converted to Common
Stock, the Corporation shall not, without first obtaining the affirmative vote
or written consent of the Preferred A Holders of not less than a majority of the
then outstanding shares of Series A Convertible Preferred Stock, voting as a
single class:
(i) repurchase, purchase or otherwise acquire any Common
Stock or other Junior Stock for any consideration (or pay or make available any
moneys, whether by means of a sinking fund or otherwise, for the repurchase of
any shares of Common Stock or other Junior Stock), except by conversion or
exchange of Common Stock or other Junior Stock for such stock that is not Series
A Convertible Preferred Stock;
(ii) after the first Share Payment Date, authorize or
permit the Corporation or any subsidiary of the Corporation, as the case may be,
(A) to issue, other than to the Investor, any equity securities or securities
convertible into or exchangeable for equity securities or any securities
granting the holder an option to acquire any such securities, each at a price
below the Current Market Value (and further provided that this provision does
not include any transaction that is consummated pursuant to Section 8.1(g) of
the Investment Agreement) or (B) to issue any additional Series A Convertible
Preferred Stock, other than in payment of accrued dividends on the outstanding
shares of Series A Convertible Preferred Stock or (C) to issue any other stock
of the Corporation with the same preference and priority as the Series A
Convertible Preferred Stock or with a preference or priority senior to the
Series A Convertible Preferred Stock, other than in payment of accrued dividends
on the outstanding shares of Series A Convertible Preferred Stock;
(iii) authorize or effect, in a single transaction or
through a series of related transactions, a consolidation, merger, business
combination of the Corporation with any other Person or a spin-off or
recapitalization of the Corporation; the liquidation, winding up or dissolution
of the Corporation or the sale, lease, exchange or other transfer of all or
substantially all of the assets of the Corporation to any other Person or adopt
any plan for the same;
(iv) amend, repeal, modify or supplement any provision of
the Amended and Restated Articles of Incorporation, the By-Laws as in effect on
July 16, 1998, or any successor Articles of Incorporation or By-Laws, other than
as necessary to effect an increase in the authorized Common Stock;
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(v) amend, repeal, modify, supplement or in any other
manner, affect or change the terms, designations, preferences or rights of the
Series A Convertible Preferred Stock set forth herein or in the Investment
Documents;
(vi) authorize or permit the Corporation to (A) make an
assignment for the benefit of the creditors, (B) file a petition in bankruptcy,
(C) petition or apply to any tribunal for appointment of a receiver, custodian
or any trustee for it or for a substantial part of its assets or (D) commence
any proceeding under any bankruptcy, reorganization or arrangement or
readjustment of debt law or statute in any jurisdiction;
(vii) authorize or permit the Corporation to materially
change the type of business conducted by the Corporation or contemplated to be
conducted by the Corporation pursuant to Executive Summary for Accredited
Investors dated April 22, 1998 (the "Executive Summary");
(viii) authorize or permit the Corporation to enter into any
transaction with any Affiliate (other than a wholly owned subsidiary) or
shareholder or the amendment, extension or renewal of such a transaction other
than on arm's-length terms; and
(ix) authorize or permit the Corporation to acquire an
equity interest in any other Person, except as contemplated by the Executive
Summary.
(c) Means of Voting. The rights of the Preferred A Holders under
this Section 4 may be exercised (i) at any meeting of shareholders of the
Corporation; (ii) at any meeting of the Preferred A Holders, called for such
purpose by the Corporation or the holders of record of 25% or more of the
outstanding shares of the Series A Convertible Preferred Stock, pursuant to
requests delivered in writing to the Secretary or Assistant Secretary of the
Corporation; or (iii) by written consent signed by all of the holders of the
requisite percentage required by Applicable Law of the then outstanding shares
of the Series A Convertible Preferred Stock, delivered to the Secretary or
Assistant Secretary of the Corporation. Except to the extent otherwise provided
herein, any meeting of Preferred A Holders shall be conducted in accordance with
the provisions of the By-Laws of the Corporation applicable to meetings of
shareholders. In the event of a conflict or inconsistency between the By-Laws of
the Corporation and any term of this Certificate of Designations, Preferences
and Rights of Series A Convertible Preferred Stock ("Certificate of
Designations") (including, but not limited to this Section 4) this Certificate
of Designations shall prevail.
(d) Other Matters. The Preferred A Holders shall be entitled to
vote on any matter as part of the class that includes holders of Common Stock.
Each share of Series A Convertible Preferred Stock shall be entitled to the
number of votes that is equal to the number of shares of Common Stock into which
such share of Series A Convertible Preferred Stock is then convertible.
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5. CONVERSION
Shares of Series A Convertible Preferred Stock may be converted into
shares of Common Stock, on the terms and conditions set forth in this Section 5.
(a) Optional Conversion. Commencing at 9:00 a.m. Eastern Standard
Time on January 12, 1999 (the "Commencement Date") and ending at 5:00 p.m.
Eastern Standard Time on January 12, 2004 (the "Expiration Date"), each
Preferred A Holder may convert any or all of the shares of Series A Convertible
Preferred Stock held by such Preferred A Holder into Common Stock by complying
with the procedures set forth in Section 5(f). The number of shares of Common
Stock into which each share of Series A Convertible Preferred Stock is
convertible shall be equal to the result obtained by (x) dividing (I) the Stated
Value plus any accrued but unpaid dividends on such share, by (II) the
Conversion Price determined in accordance with Section 5(b) below; and (y)
multiplying by the Conversion Factor on the date of conversion as determined in
accordance with Section 5(d) below.
(b) Conversion Price.
(i) The "Conversion Price" shall be the average last sale
price, per share of Common Stock, for the 20 trading days immediately prior to
February 24, 1999, as such last sale price is reported in the principal
consolidated transaction reporting system of the NASDAQ National Market System.
(c) References. References in this Section 5 to "Common Stock"
shall include all stock or other securities or property (including cash) into
which Common Stock is converted following any merger, reorganization or
reclassification of the capital stock of the Corporation.
(d) Conversion Factor. The "Conversion Factor" means 1.00, as
adjusted from time to time as follows:
(i) In case the Corporation shall at any time or from
time to time declare a dividend, or make a distribution, on the outstanding
shares of Common Stock in shares of Common Stock or subdivide or reclassify the
outstanding shares of Common Stock into a greater number of shares or combine or
reclassify the outstanding shares of Common Stock into a smaller number of
shares of Common Stock, then, and in each such case:
(A) The Conversion Factor shall be adjusted such
that the number of shares of Common Stock into which each
share of Series A Convertible Preferred Stock would be
convertible on the effective date of such adjustment is equal
to the number of shares of Common Stock that a Preferred A
Holder would have been entitled to receive after the happening
of any of the events described above had such share been
converted immediately prior to the happening of such event or
the record date therefor, whichever is earlier;
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(B) an adjustment made pursuant to this Section
5(d)(i) shall become effective (I) in the case of any such
dividend or distribution, immediately after the close of
business on the record date for the determination of holders
of shares of Common Stock entitled to receive such dividend or
distribution, or (II) in the case of any such subdivision,
reclassification or combination, at the close of business on
the day upon which such corporate action becomes effective.
(ii) In case the Corporation shall issue shares of Common
Stock (or rights or warrants or other securities convertible into or
exchangeable for shares of Common Stock) after the first Share Payment
Date at a price per share (or having an exercise of conversion price
per share) less than the Current Market Price (as defined below) as of
the date of issuance of such shares (or of such rights, warrants or
other convertible securities), then, and in each such case:
(A) The Conversion Factor shall be adjusted such
that the number of shares of Common Stock into which each
share of Series A Convertible Preferred Stock would be
convertible on the effective date of such adjustment is equal
to the number of shares of Common Stock that would have been
received if there had been no issuance below the Current
Market Price (as determined in accordance with Section 5(a))
multiplied by a fraction, (I) the numerator of which is the
sum of (1) the number of shares of Common Stock outstanding on
the date immediately prior to the date of issuance and (2) the
number of additional shares of Common Stock issued (or into
which the convertible securities may convert), and (II) the
denominator of which is the sum of (1) the number of shares of
Common Stock outstanding on the date immediately prior to the
date of issuance and (2) the number of shares of Common Stock
which the aggregate consideration receivable by the
Corporation for the total number of shares of Common Stock so
issued (or into which the convertible securities may convert)
would purchase at the Current Market Price on such date. For
purposes of this subparagraph, the aggregate consideration
receivable by the Corporation in connection with the issuance
of shares of Common Stock or of securities convertible into
shares of Common Stock shall be deemed to be equal to the sum
of the net offering price (after deduction of underwriting
discounts or commissions and expenses payable to third
parties) of all such securities plus the minimum aggregate
amount, if any, payable upon conversion of any such
convertible securities into shares of Common Stock;
(B) such adjustment shall become effective
immediately after the date of such issuance.
(C) "Current Market Price" means the average of
the daily Closing Prices per share of Common Stock for the 15
consecutive trading days immediately prior to such date. The
"Closing Price" per share of Common Stock for each day shall
be (x) the last sale price, regular way, or, in case no such
sale takes place on such day, the average closing bid and
asked prices, regular way, in either case as reported in the
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principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on NASDAQ
National Market System, the New York Stock Exchange or the
American Stock Exchange, as applicable or (y) the last sale
price, regular way, before 5:00 p.m., or, in case no such sale
takes place on such day, the average closing bid and asked
prices, regular way, in either case as reported on the NASDAQ
OTC Bulletin Board. If on any such trading day or days such
securities are not quoted by any such organization, such
trading day or days shall be replaced for purposes of the
foregoing calculation by the requisite trading day or days
preceding the commencement of such 15 trading day period on
which such securities are so quoted. If shares of Common Stock
are not so listed or traded, the Current Market Price shall
mean the fair value per share of Common Stock as determined in
good faith by the Board of Directors, whose determination
shall be described in a notice to the Preferred A Holders,
based on (I) the most recently completed arm's-length
transaction between the Corporation and a Person other than an
existing shareholder or other Affiliate of the Corporation,
the closing of which occurred on such date or within the
three-month period preceding such date, or (II) if no such
transaction shall have occurred on such date or within such
three-month period, the advice of an independent financial
expert selected by the Board of Directors with the affirmative
vote of at least one of the Series A Preferred Directors, or
(III) a unanimous agreement of all Directors.
(e) Common Stock. The Common Stock to be issued upon
conversion hereunder shall be fully paid and nonassessable upon proper tender of
shares of Series A Convertible Preferred Stock and compliance hereunder.
(f) Procedures for Conversion.
(i) In order to convert shares of Series A
Convertible Preferred Stock into shares of Common Stock, the Preferred A Holder
shall surrender the certificate or certificates therefore, duly endorsed for
transfer, at any time during normal business hours, to the Corporation at its
principal office or at such other office or agency then maintained by it for
such purpose (the "Payment Office"), accompanied by (A) a written notice, in
substantially the form of the conversion notice appearing at the end of this
Certificate of Designations (the "Conversion Notice") of such Preferred A
Holder's election to convert and (B) (if so required by the Corporation or any
conversion agent) an instrument of transfer, in form reasonably satisfactory to
the Corporation and to any conversion agent, duly executed by the registered
Preferred A Holder or by his duly authorized attorney; provided, however, that a
Preferred A Holder's notice may specify that its election to convert is
contingent upon the sale pursuant to a registration statement under the
Securities Act of 1933 (or any successor statute) of the shares of Common Stock
into which such holder's shares of Series A Convertible Preferred Stock are
convertible, in which case such conversion shall occur only upon, and to the
extent of, such sales. As promptly as practicable after the surrender for
conversion of any share of the Series A Convertible Preferred Stock in the
manner provided in the preceding sentence but in any event within three Business
Days after receipt of the Conversion Notice, the Corporation will deliver or
cause to be delivered
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at the Payment Office to or upon the written order of the holder of such shares,
certificates representing the aggregate number of shares of Common Stock
issuable upon such conversion, issued in such name or names as such holder may
direct, and, if the Series A Convertible Preferred Stock is exercised in part, a
new certificate representing the Series A Convertible Preferred Stock that has
not been converted. 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 in proper order for conversion, and all rights of the Preferred A Holder,
solely with respect to the shares converted, shall cease at such time and the
Person or Persons in whose name or names the certificates for such shares of
Common Stock are to be issued shall be treated for all purposes as having become
the record holder or holders thereof at such time; provided, however, that any
such surrender and payment on any date when the stock transfer books of the
Corporation shall be closed shall constitute the Person or Persons in whose name
or names the certificates for such shares of Common Stock are to be issued as
the record holder or holders thereof for all purposes immediately prior to the
close of business on the next succeeding day on which such stock transfer books
are opened and such conversion shall be at the conversion price in effect at
such time on such succeeding day.
(ii) In the event that some but not all of the Series A
Convertible Preferred Stock outstanding is converted pursuant to this Section 5,
if such conversion causes the Corporation to incur a disproportionate amount of
expenses as compared to the respective proportion of costs and expenses that the
Corporation would have incurred if all of the Series A Convertible Preferred
Stock had been converted, then the Preferred A Holder must pay such costs and
expenses, but only to the extent such expenses are disproportionate.
(iii) The Corporation shall not be required to issue
fractional shares of Common Stock upon conversion of shares of Series A
Convertible Preferred Stock. At the Corporation's discretion, in the event the
Corporation determines not to issue fractional shares, in lieu of any fractional
shares to which the Preferred A Holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the Current
Market Price.
(iv) The issuance of certificates for shares of Common
Stock upon conversion shall be made without charge for any issue, stamp or other
similar tax in respect of such issuance. However, if any such certificate is to
be issued in a name other than that of the holder of record of the shares
converted, the Person or Persons requesting the issuance thereof shall pay to
the Corporation the amount of any tax which may be payable in respect of any
transfer involved in such issuance or shall establish, to the satisfaction of
the Corporation, that such tax has been paid or is not payable.
(v) Upon conversion of any shares of Series A Preferred
Stock, the holder thereof shall be entitled to receive any accrued dividends in
respect of such converted shares to the date of conversion.
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(g) Reservation of Stock Issuable Upon Conversion. The Corporation
shall reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Series A Convertible Preferred Stock, 12,200,000 shares of Common Stock.
If at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Series A Convertible Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose, including, without limitation, taking
appropriate board action, recommending such an increase to the holders of Common
Stock, holding shareholders meetings, soliciting votes and proxies in favor of
such increase to obtain the requisite shareholder approval and upon such
approval, the Corporation shall reserve and keep available such additional
shares solely for the purpose of effecting the conversion of the shares of the
Series A Convertible Preferred Stock.
(h) Notices. Whenever the Conversion Factor is adjusted as
provided in Section 5 hereof, the Corporation shall promptly mail to the holders
of record of the outstanding shares of Series A Convertible Preferred Stock at
their respective addresses as the same shall appear in the Corporation's stock
records a notice stating that the Conversion Factor has been adjusted and
setting forth the new Conversion Factor and number of shares of Common Stock (or
describing the new stock, securities, cash or other property) into which each
share of Preferred Stock would be convertible on the effective date of and as a
result of such adjustment, a brief statement of the facts requiring such
adjustment and the computation thereof, and the time when such adjustment became
effective. Any notice required by the provisions of this Section to be given to
the Preferred A Holders shall be given by certified mail, return receipt
requested.
(i) Reorganization, Merger or Sale of the Corporation.
(i) Notwithstanding any other provision hereof, in case
of (A) any reorganization or any reclassification of the capital stock of the
Corporation or (B) any sale of the Corporation if such transaction does not
constitute a liquidation, dissolution or winding up as provided in Section 3,
then, at the election of each Preferred A Holder, concurrently with the
consummation of such reorganization, reclassification or sale of the
Corporation, provision shall be made so that each share of Series A Convertible
Preferred Stock shall thereafter be convertible into the number of shares of
stock or other securities or property (including cash) to which a holder of the
number of shares of Common Stock deliverable upon conversion of such shares of
Series A Convertible Preferred Stock would have been entitled assuming
conversion on the day immediately prior to the initial announcement of the
transaction or a proposed transaction that ultimately resulted in the
transaction. In any case, appropriate adjustment (as determined by the Board of
Directors) shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the Preferred A Holders,
to the end that the provisions set forth herein shall thereafter be applicable,
as nearly as equivalent as is practicable, in relation to any shares of stock or
the securities or property (including cash) thereafter deliverable upon the
conversion of the shares of Series A Convertible Preferred Stock.
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(ii) After the Corporation has determined to enter into a
transaction described in Section 5(i)(i)(B), and publicly announces that the
Corporation will enter into such transaction, the Corporation will provide
written notice to each Preferred A Holder setting forth the material terms of
the transaction, together with all relevant information regarding such
transaction a least 60 days prior to the proposed date of the transaction.
(iii) In case of any merger, consolidation,
reclassification or other similar reorganization, to the extent the Corporation
is not the surviving entity, and the Corporation or the Preferred A Holders do
not otherwise redeem, repurchase or convert all outstanding shares of Series A
Convertible Stock, the Series A Convertible Preferred Stock shall be converted
into or exchanged for and shall become shares of the surviving Corporation
having, in respect of the surviving Corporation, substantially the same powers,
preferences and relative participating, optional or other special rights, and
the qualifications, limitations or restrictions thereon, that the Series A
Convertible Preferred Stock had immediately prior to such transaction.
6. REDEMPTION OPTION
(a) Redemption Price; Redemption Procedure. Subject to the
conversion rights set forth in Section 5 hereof, the Corporation shall have the
option (the "Redemption Option") to redeem the Series A Convertible Preferred
Stock, in whole or in part, at the Stated Value of the Series A Convertible
Preferred Stock ("Redemption Price") plus all accrued and unpaid dividends, at
any time after the daily average Closing Price for the Common Stock has been
$2.50 per share of Common Stock or above for 20 consecutive trading days;
provided, however, that if the Corporation achieves its Earnings Target and the
Conversion Price is adjusted as set forth in Section 5(b), the Redemption Option
may only be exercised, at any time after the daily average Closing Price for the
Common Stock has been $3.00 per share of Common Stock or above for 20
consecutive trading days. The Corporation shall exercise the Redemption Option
by giving the Preferred A Holders an irrevocable written notice (the "Redemption
Notice") specifying (A) the number of shares of Series A Convertible Stock to be
redeemed (and in the case of a partial redemption, the number of shares to be
redeemed with respect to each Preferred A Holder, as set forth below) and (B)
the proposed date of sale, which shall not be earlier than 30 days after the
delivery of the Redemption Notice. If the Redemption Notice is for some but not
all of the outstanding Series A Convertible Preferred Stock, the Redemption
Option shall be ratable among the Preferred A Holders in proportion to the
number of shares of Series A Convertible Preferred Stock owned by each Preferred
A Holder. Within the 30 days after the delivery of the Redemption Notice, each
of the Preferred A Holders may deliver a Conversion Notice with respect to all
or some of the Series A Convertible Preferred Stock held by such Preferred A
Holder in accordance with Section 5 hereof. On the 61st day after the Redemption
Notice, the Corporation shall redeem (ratably among the Preferred A Holders in
proportion to the number of shares of Series A Convertible Preferred Stock owned
by each Preferred A Holder) all of the Series A Convertible Preferred Stock for
which it has not received a Conversion Notice, up to the amount specified in the
Redemption Notice.
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(b) Redemption Closing. The redemption of Series A Convertible
Preferred Stock pursuant to the Redemption Option shall take place at the
offices of the Corporation at 10:00 a.m. local time on a Business Day (the
"Redemption Closing Date") that is no earlier than 61 days after the date of the
Redemption Notice and no later than 90 days after the date of the Redemption
Notice, which date shall be specified in the Redemption Notice. On or prior to
the Redemption Closing Date, the Corporation shall deliver a certified or bank
cashier's check to each Preferred A Holder that has not elected to convert its
Series A Convertible Preferred Stock, at his or its address as the same appears
in the transfer records of the Corporation, in an amount equal to the aggregate
of the Redemption Price multiplied by the number of shares redeemed plus all
accrued and unpaid dividends, or shall transfer such amount by wire transfer of
immediately available funds to any account specified in writing by such
Preferred A Holder to the Corporation. To the extent that less than all of the
shares of a Preferred A Holder's Series A Convertible Preferred Stock are
redeemed, the Corporation shall forthwith issue and deliver to such Preferred A
Holder, as appropriate, certificates representing outstanding Series A
Convertible Preferred Stock which the Preferred A Holder continues to own.
(c) Cessation of Dividends on Shares Redeemed. Provided that the
Redemption Notice has been mailed as stated in subsection (a) above, from and
after the close of business on the Redemption Closing Date (unless default shall
be made by the Corporation in providing money for the payment of the redemption
price of the shares called for redemption), dividends on the shares of the
Series A Convertible Preferred Stock redeemed shall cease to accrue, and said
shares shall no longer be deemed to be outstanding, and all rights of the
holders thereof as stockholders of the Corporation (except the right to receive
from the Corporation the Redemption Price) shall cease. Upon surrender in
accordance with said notice of the certificates for any shares so redeemed
(properly endorsed or assigned for transfer, if the Board of Directors of the
Corporation shall so require and the notice shall so state), such shares shall
be redeemed by the Corporation at the Redemption Price aforesaid. If fewer than
all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares without cost to
the holder thereof.
(d) Status of Redeemed Shares. Upon redemption, any shares of the
Series A Convertible Preferred Stock which have been so redeemed shall be
retired and thereafter have the status of authorized but unissued shares of
preferred stock, without designation as to series until such shares are once
more designated as part of a particular series by the Board of Directors or a
duly authorized committee thereof.
7. TRIGGERING EVENTS.
Each of the following actions or events shall constitute a
"Triggering Event" for purposes hereof:
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(a) Failure to Redeem. The Corporation shall fail to redeem the
Series A Convertible Preferred Stock after providing the Redemption Notice to
the Preferred A Holders in accordance with Section 6.
(b) Failure to Pay Dividends. The Corporation shall fail to pay
any dividend on any Series A Convertible Preferred Stock on any Dividend Payment
Date in accordance with Section 2 for any reason, including but not limited to,
that such payment is prohibited by applicable law or the Board of Directors
elects not to pay such dividend, or shall otherwise violate any term of Section
2 and such failure shall not be cured within a period of 15 days after such
Dividend Payment Date or violation (which cure shall be effected in a manner
ensuring the holders the same yield as if such violation had not occurred).
(c) Failure of Voting Rights. The Corporation shall enter into any
transaction or take any action required to be approved by any Preferred A
Holders without obtaining the requisite approval of the Preferred A Holders,
including without limitation, the failure to elect the Board of Directors in
accordance with Section 4(a) above.
(d) Failure to Convert. The Corporation shall fail for any reason
to issue Common Stock as required under Section 5 upon the request of any
Preferred A Holder as provided in Section 5 or fail to comply with any other
term of Section 5 hereof or the Corporation.
(e) Registration Rights Agreement. The Corporation shall fail in
any material respect to comply with the Registration Rights Agreement dated as
of July 16, 1998 between the Corporation and USV Partners, LLC and their
permitted successors and assigns, and such failure shall continue for a period
of 30 days after notice from any such holder.
(f) Additional Financing. The Corporation shall fail in any
material respect to comply with Section 8.1(g) of the Investment Agreement
granting the Investor a right of first refusal in connection with any additional
debt or equity financing obtained by the Corporation.
(g) Accounting and Controls and Systems. The Corporation shall
fail in any material respect to comply with Section 8.1(h) of the Investment
Agreement regarding the employment of a controller and the establishment and
implementation of accounting systems and controls.
8. REMEDIES.
(a) Upon the occurrence and during the continuance of any
Triggering Event, the Dividend Rate on all outstanding Series A Convertible
Preferred Stock shall be increased as provided in Section 2 without any action
on the part of any Preferred A Holder.
(b) The Corporation stipulates that the remedies at law of each
Preferred A Holder in the event of any Triggering Event or threatened Triggering
Event or otherwise or other failure in the performance of or compliance with any
of the terms hereof are not and will not be adequate
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and that, to the fullest extent permitted by law, such terms may be specifically
enforced by a decree for the specific performance of any agreement contained
herein or by an injunction against a violation of any of the terms hereof or
otherwise without requiring any holder to post a bond or other security except
to the extent required by applicable law.
(c) Any Preferred A Holder shall be entitled to recover from the
Corporation the reasonable attorneys' fees and expenses incurred by such holder
in connection with any Triggering Event or enforcement by such holder of any
obligation of the Corporation hereunder.
(e) No failure or delay on the part of any Preferred A Holder in
exercising any right, power or remedy hereunder or under applicable law or
otherwise shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder
or thereunder. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law or otherwise.
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