EXHIBIT 3.2
CERTIFICATE OF DESIGNATION OF
SERIES F PREFERRED STOCK
OF
LIGHTPATH TECHNOLOGIES, INC.
It is hereby certified that:
1. The name of the Company (hereinafter called the "Company") is LightPath
Technologies, Inc., a Delaware corporation.
2. The certificate of incorporation of the Company authorizes the issuance
of five million (5,000,000) shares of preferred stock, $.01 par value per share,
and expressly vests in the Board of Directors of the Company the authority
provided therein to issue any or all of said shares in one (1) or more series
and by resolution or resolutions to establish the designation and number and to
fix the relative rights and preferences of each series to be issued.
3. The Board of Directors of the Company, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a Series F issue of Preferred Stock:
RESOLVED, that five hundred (500) of the five million (5,000,000)
authorized shares of Preferred Stock of the Company shall be designated Series F
Preferred Stock, $.01 par value per share, and shall possess the rights and
preferences set forth below:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall have a
par value of $.01 per share and shall be designated as Series F Preferred Stock
(the "Series F Preferred Stock," or the "Preferred Shares") and the number of
shares constituting the Series F Preferred Stock shall be five hundred (500).
The Series F Preferred Stock shall be offered at a purchase price of Ten
Thousand Dollars ($10,000) per share (the "Original Series F Issue Price"), with
a seven percent (7%) per annum accretion rate as set forth herein.
Section 2. RANK. The Series F Preferred Stock shall rank: (i) junior to any
other class or series of capital stock of the Company hereafter created
specifically ranking by its terms senior to the Series F Preferred Stock
(collectively, the "Senior Securities"); (ii) prior to all of the Company's
Class A, Class E-1, Class E-2, and Class E-3 Common Stock, all at a $.01 par
value per share ("Common Stock"); (iii) prior to any class or series of capital
stock of the Company hereafter created not specifically ranking by its terms
senior to or on parity with any Series F Preferred Stock of whatever subdivision
(collectively, with the Common Stock, "Junior Securities"); and (iv) on parity
with the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and with any class or series of capital stock of
the Company hereafter created specifically ranking by its terms on parity with
the Series F Preferred Stock ("Parity Securities") in each case as to
distributions of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (all such distributions being referred
to collectively as "Distributions").
Section 3. DIVIDENDS. The Series F Preferred Stock will bear no dividends,
and the holders of the Series F Preferred Stock ("Holders") shall not be
entitled to receive dividends on the Series F Preferred Stock.
Section 4. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of the
Company ("Liquidation Event"), either voluntary or involuntary, the then Holders
of shares of Series F Preferred Stock shall be entitled to receive, immediately
after any distributions to Senior Securities required by the Company's
Certificate of Incorporation or any certificate of designation, and prior in
preference to any distribution to Junior Securities but in parity with any
distribution to Parity Securities, an amount per share equal to the sum of (i)
the Original Series F Issue Price for each outstanding share of Series F
Preferred Stock and (ii) an amount equal to seven percent (7%) of the Original
Series F Issue Price, per annum, accruing daily, for the period that has passed
since the date that, in connection with the consummation of the purchase by
Holder of shares of Series F Preferred Stock from the Company, the escrow agent
first had in its possession funds representing full payment for the shares of
Series F Preferred Stock (such amount being referred to herein as the
"Premium"). If upon the occurrence of such event, and after payment in full of
the preferential amounts with respect to the Senior Securities, the assets and
funds available to be distributed among the Holders of the Series F Preferred
Stock and Parity Securities shall be insufficient to permit the payment to such
Holders of the full preferential amounts due to the Holders of the Series F
Preferred Stock and the Parity Securities, respectively, then the entire assets
and funds of the Company legally available for distribution shall be distributed
among the Holders of the Series F Preferred Stock and the Parity Securities, pro
rata, based on the respective liquidation amounts to which each such series of
stock is entitled by the Company's Certificate of Incorporation and any
certificate(s) of designation relating thereto.
(b) Upon the completion of the distribution required by subsection
4(a), if assets remain in this Company, they shall be distributed to holders of
Junior Securities in accordance with the Company's Certificate of Incorporation
including any duly adopted certificate(s) of designation.
(c) At each Holder's option, a sale, conveyance or disposition of all
or substantially all of the assets of the Company or the effectuation by the
Company of a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company is disposed of shall be
deemed to be a Liquidation Event as defined in Section 4(a); provided further
that (i) a consolidation, merger, acquisition, or other business combination of
the Company with or into any other publicly traded company or companies shall
not be treated as a Liquidation Event as defined in Section 4(a) but instead
shall be treated pursuant to Section 5(d) hereof, and (ii) a consolidation,
merger, acquisition, or other business combination of the Company with or into
any other non-publicly traded company or companies in which the surviving entity
is not a publicly traded company shall be treated as a Liquidation Event as
defined in Section 4(a). The Company shall not effect any transaction described
in subsection 4(c)(ii) unless it first gives thirty (30) business days prior
notice of such transaction during which time the Holder shall be entitled to
immediately convert any or all of its shares of Series F Preferred Stock into
Class A Common Stock at the Conversion Price, as defined below, then in effect,
which conversion shall not be subject to the conversion restrictions set forth
in Section 5(a).
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(d) In the event that, immediately prior to the closing of a
transaction described in Section 4(c) which would constitute a Liquidation
Event, the cash distributions required by Section 4(a) or Section 6 have not
been made, the Company shall either: (i) cause such closing to be reasonably
postponed until such cash distributions have been made, (ii) cancel such
transaction, in which event the rights of the Holders of Series F Preferred
Stock shall be the same as existing immediately prior to such proposed
transaction or (iii) agree, and shall require that any successor company
resulting from a Liquidation Event agrees, to make such distributions as quickly
after the closing of such Liquidation Event as reasonably practicable, upon the
same terms and in the same amounts as the Company would have made if such
distribution was made immediately prior to the closing of such transaction.
Section 5. CONVERSION. Subject to Section 4(c) herein, the record Holders
of this Series F Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(a) RIGHT TO CONVERT. The record Holder of the Series F Preferred
Stock shall be entitled to convert and the conversion restrictions herein below,
any or all the aggregate principal amount of the Series F Preferred Stock on or
after the date that is four (4) months after the Last Closing Date, as defined
below, at the office of the Company or its designated transfer agent (the
"Transfer Agent"), into that number of fully-paid and non-assessable shares of
Class A Common Stock calculated in accordance with the following formula (the
"Conversion Rate"):
Number of shares of Class A Common Stock issued upon conversion of one
(1) share of Series F Preferred Stock =
(.07) (N/365) (10,000) + 10,000
-------------------------------
Conversion Price
where,
* N= the number of days between (i) the date that, in connection with
the consummation of the initial purchase by Holder of shares of Series
F Preferred Stock from the Company, the escrow agent first had in its
possession funds representing full payment for the shares of Series F
Preferred Stock for which conversion is being elected, and (ii) the
applicable Date of Conversion (as defined in Section 5(b)(iv) below)
for the shares of Series F Preferred Stock for which conversion is
being elected, and
* CONVERSION PRICE = the lesser of (x) $5.00 (the "Fixed Conversion
Price"), or (y) 80% of the average Closing Bid Price, as that term is
defined below, of the Company's Class A Common Stock for the five (5)
trading days immediately preceding the Date of Conversion, as defined
below (the "Variable Conversion Price"),
provided, however, that, unless otherwise indicated herein, beginning on the
date that is four (4) months following the Last Closing Date, as defined below,
the right of the Holder to convert into Class A Common Stock using the Variable
Conversion Price initially shall be limited to a maximum of twenty percent (20%)
of the aggregate principal amount of the Series F Preferred Stock issued to such
Holder, and for each one (1) month period which expires thereafter, the Holder
shall accrue the right to convert into Class A Common Stock an additional twenty
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percent (20%) of the aggregate principal amount of the Series F Preferred Stock
issued to such Holder, (the number of shares that may be converted at any given
time using the Variable Conversion Price, in the aggregate, is referred to
hereinafter as the "Conversion Quota"); and provided, further, in the event that
the Holder elects not to convert its full Conversion Quota during any one (1)
month period, the unconverted amount shall be carried forward and added to the
Conversion Quota, and thereafter the Holder may, from time to time, convert any
portion of the Conversion Quota at the Variable Conversion Price; and provided,
further, that subsequent to the date that is nine (9) months following the Last
Closing Date, there shall be no restrictions on the number of shares of Series F
Preferred Stock that may be converted into Class A Common Stock using the
Variable Conversion Price; and provided, further, that a Holder can convert one
hundred percent (100%) of the Series F Preferred Stock, or any portion thereof,
into Class A Common Stock using the Fixed Conversion Price on or after the date
that is four (4) months after the Last Closing Date whether or not the Fixed
Conversion Price is less than the Variable Conversion Price.
As used herein, "Last Closing Date" shall mean the date of the last closing
of a purchase and sale of the Series F Preferred Stock that occurs pursuant to
the offering of the Series F Preferred Stock by the Company.
For purposes hereof, any Holder which acquires shares of Series F Preferred
Stock from another Holder (the "Transferor") and not upon original issuance from
the Company shall be entitled to exercise its conversion right as to the
percentages of such shares specified under Section 5(a) in such amounts and at
such times such that the number of shares eligible for conversion by such Holder
at any time shall be in the same proportion that the number of shares of Series
F Preferred Stock acquired by such Holder from its Transferor bears to the total
number of shares of Series F Preferred Stock originally issued by the Company to
such Transferor (or its predecessor Transferor).
For purposes hereof, the term "Closing Bid Price" shall mean the closing
bid price of the Company's Class A Common Stock on the Nasdaq Small Cap Market,
or if no longer traded on the Nasdaq Small Cap Market, the closing bid price on
the principal national securities exchange or the over-the-counter on which the
Class A Common Stock is so traded and if not available, the mean of the high and
low prices on the principal national securities exchange or the over-the-counter
system on which the Class A Common Stock is so traded.
(b) MECHANICS OF CONVERSION. In order to convert Series F Preferred
Stock into full shares of Class A Common Stock, the Holder shall (i) send via
facsimile, on or prior to 11:59 p.m., New York City time (the "Conversion Notice
Deadline") on the Date of Conversion, a copy of the fully executed notice of
conversion ("Notice of Conversion") to the Company at the office of the Company
and to its designated transfer agent (the "Transfer Agent") for the Series F
Preferred Stock stating that the Holder elects to convert, which notice shall
specify the Date of Conversion, the number of shares of Series F Preferred Stock
to be converted, the applicable Conversion Price and a calculation of the number
of shares of Class A Common Stock issuable upon such conversion (together with a
copy of the front page of each certificate to be converted) and (ii) surrender
to a common courier for delivery to the office of the Company or the Transfer
Agent, the original certificates representing the Series F Preferred Stock being
converted (the "Preferred Stock Certificates"), duly endorsed for transfer;
provided, however, that the Company shall not be obligated to issue certificates
evidencing the shares of Class A Common Stock issuable upon such conversion
unless either the Preferred Stock Certificates are delivered to the Company or
its Transfer Agent as provided above, or the Holder notifies the Company or its
Transfer Agent that such certificates have been lost, stolen or destroyed
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(subject to the requirements of subparagraph (i) below). Upon receipt by the
Company of a facsimile copy of a Notice of Conversion, the Company shall
immediately send, via facsimile, a confirmation of receipt of the Notice of
Conversion to Holder which shall specify that the Notice of Conversion has been
received and the name and telephone number of a contact person at the Company
whom the Holder should contact regarding information related to the Conversion.
In the case of a dispute as to the calculation of the Conversion Rate, the
Company shall promptly issue to the Holder the number of Shares that are not
disputed and shall submit the disputed calculations to its outside accountant
via facsimile within three (3) days of receipt of Holder's Notice of Conversion.
The Company shall cause the accountant to perform the calculations and notify
the Company and Holder of the results no later than two business days from the
time it receives the disputed calculations. Accountant's calculation shall be
deemed conclusive absent manifest error.
(i) LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificates representing shares of Series F Preferred Stock, and (in the case
of loss, theft or destruction) of indemnity or security reasonably satisfactory
to the Company, and upon surrender and cancellation of the Preferred Stock
Certificate(s), if mutilated, the Company shall execute and deliver new
Preferred Stock Certificate(s) of like tenor and date. However, the Company
shall not be obligated to re-issue such lost or stolen Preferred Stock
Certificates if Holder contemporaneously requests the Company to convert such
Series F Preferred Stock into Class A Common Stock.
(ii) DELIVERY OF COMMON STOCK UPON CONVERSION. The Company shall
or shall cause the Transfer Agent to, no later than the close of business on the
second (2nd) business day (the "Deadline") after receipt by the Company or the
Transfer Agent of a facsimile copy of a Notice of Conversion and receipt by
Company or the Transfer Agent of all necessary documentation duly executed and
in proper form required for conversion, including the original Preferred Stock
Certificates to be converted (or after provision for security or indemnification
in the case of lost or destroyed certificates, if required), issue and surrender
to a common courier for either overnight or (if delivery is outside the United
States) two (2) day delivery to the Holder at the address of the Holder as shown
on the stock records of the Company a certificate for the number of shares of
Class A Common Stock to which the Holder shall be entitled as aforesaid.
(iii) NO FRACTIONAL SHARES. If any conversion of the Series F
Preferred Stock would create a fractional share of Class A Common Stock or a
right to acquire a fractional share of Class A Common Stock, such fractional
share shall be disregarded and the number of shares of Class A Common Stock
issuable upon conversion, in the aggregate, shall be the next higher number of
shares.
(iv) DATE OF CONVERSION. The date on which conversion occurs (the
"Date of Conversion") shall be deemed to be the date set forth in such Notice of
Conversion, provided (i) that the advance copy of the Notice of Conversion is
sent via facsimile to the Company before 11:59 p.m., New York City time, on the
Date of Conversion, and (ii) that the original Preferred Stock Certificates
representing the shares of Series F Preferred Stock to be converted are
surrendered by depositing such certificates with a common courier, for delivery
to the Company or the Transfer Agent as provided above, as soon as practicable
after the Date of Conversion. The person or persons entitled to receive the
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shares of Class A Common Stock issuable upon such conversion shall be treated
for all purposes as the record Holder or Holders of such shares of Class A
Common Stock on the Date of Conversion.
(c) AUTOMATIC CONVERSION OR REDEMPTION. Each share of Series F
Preferred Stock outstanding on the date which is three (3) years after the Last
Closing Date or, if not a business day, the first business day thereafter
("Termination Date") automatically shall, at the option of the Company, either
(i) be converted ("Automatic Conversion") into Class A Common Stock on such date
at the Conversion Rate then in effect (calculated in accordance with the formula
in Section 5(a) above), and the Termination Date shall be deemed the Date of
Conversion with respect to such conversion for purposes of this Certificate of
Designation, or (ii) be redeemed ("Automatic Redemption") by the Company for
cash in an amount equal to the Stated Value (as defined in Section 6(b)(i)
below) of the shares of Series F Preferred Stock being redeemed. If the Company
elects to redeem, on the Termination Date, the Company shall send to the Holders
of outstanding Series F Preferred Stock notice (the "Automatic Redemption
Notice") via facsimile of its intent to effect an Automatic Redemption of the
outstanding Series F Preferred Stock. If the Company does not send such notice
to Holder on such date, an Automatic Conversion shall be deemed to have
occurred. If an Automatic Conversion occurs, the Company and the Holders shall
follow the applicable conversion procedures set forth in this Certificate of
Designation; provided, however, that the Holders are not required to send the
Notice of Conversion contemplated by Section 5(b). If the Company elects to
redeem, each Holder of outstanding Series F Preferred Stock shall send their
certificates representing the Series F Preferred Stock to the Company within
five (5) days of the date of receipt of the Automatic Redemption Notice from the
Company, and the Company shall pay the applicable redemption price to each
respective Holder within five (5) days of the receipt of such certificates. The
Company shall not be obligated to deliver the redemption price unless the
certificates representing the Series F Preferred Stock are delivered to the
Company, or, in the event one or more certificates have been lost, stolen,
mutilated or destroyed, unless the Holder has complied with Section 5(b)(i). If
the Company elects to redeem under this Section 5(c) and the Company fails to
pay the Holders the redemption price within five (5) days of its receipt of the
certificates representing the shares of Series F Preferred Stock to be redeemed
as required by this Section 5(c), then an Automatic Conversion shall be deemed
to have occurred and, upon receipt of the Preferred Stock certificates, the
Company shall immediately deliver to the Holders the certificates representing
the number of shares of Class A Common Stock to which the Holders would have
been entitled upon Automatic Conversion.
(d) ADJUSTMENT TO CONVERSION RATE.
(i) ADJUSTMENT TO FIXED CONVERSION PRICE DUE TO STOCK SPLIT,
STOCK DIVIDEND, ETC. If, prior to the conversion of all of the Series F
Preferred Stock, the number of outstanding shares of Class A Common Stock is
increased by a stock split, stock dividend, or other similar event, the Fixed
Conversion Price shall be proportionately reduced, or if the number of
outstanding shares of Common Stock is decreased by a combination or
reclassification of shares, or other similar event, the Fixed Conversion Price
shall be proportionately increased.
(ii) ADJUSTMENT TO VARIABLE CONVERSION PRICE. If, at any time
when any shares of the Series F Preferred Stock are issued and outstanding, the
number of outstanding shares of Class A Common Stock is increased or decreased
by a stock split, stock dividend, or other similar event, which event shall have
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taken place during the reference period for determination of the Conversion
Price for any conversion of the Series F Preferred Stock, then the Variable
Conversion Price shall be calculated giving appropriate effect to the stock
split, stock dividend, combination, reclassification or other similar event for
all five (5) trading days immediately preceding the Date of Conversion.
(iii) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, prior to
the conversion of all Series F Preferred Stock, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Class A Common Stock of the
Company shall be changed into the same or a different number of shares of the
same or another class or classes of stock or securities of the Company or
another entity or there is a sale of all or substantially all the Company's
assets or there is a change of control transaction not deemed to be a
liquidation pursuant to Section 4(c), then the Holders of Series F Preferred
Stock shall thereafter have the right to receive upon conversion of Series F
Preferred Stock, upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Class A Common Stock immediately theretofore
issuable upon conversion, such stock, securities and/or other assets which the
Holder would have been entitled to receive in such transaction had the Series F
Preferred Stock been converted immediately prior to such transaction, and in any
such case appropriate provisions shall be made with respect to the rights and
interests of the Holders of the Series F Preferred Stock to the end that the
provisions hereof (including, without limitation, provisions for the adjustment
of the Conversion Price and of the number of shares issuable upon conversion of
the Series F Preferred Stock) shall thereafter be applicable, as nearly as may
be practicable in relation to any securities thereafter deliverable upon the
exercise hereof. The Company shall not effect any transaction described in this
subsection 5(d)(iii) unless (a) it first gives at least thirty (30) days prior
notice of such merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event (during which time the Holder shall be
entitled to convert its shares of Series F Preferred Stock into Class A Common
Stock) and (b) the resulting successor or acquiring entity (if not the Company)
assumes by written instrument the obligations of the Company under this
Certificate of Designation including this subsection 5(d)(iii).
(iv) NO FRACTIONAL SHARES. If any adjustment under this Section
5(d) would create a fractional share of Class A Common Stock or a right to
acquire a fractional share of Class A Common Stock, such fractional share shall
be disregarded and the number of shares of Class A Common Stock issuable upon
conversion shall be the next higher number of shares.
Section 6. Company's Right to Redeem at Its Election. Subject to Sections
6(iv) and 6(v) below, the Company shall have the right, in its sole discretion,
to redeem ("Redemption at the Company's Election"), from time to time, any or
all of the Preferred Shares at the Redemption Price at the Company's Election
(as defined below). If the Company elects to redeem some, but not all, of the
Preferred Shares, the Company shall redeem a pro rata amount from each holder of
Preferred Shares based on the number of Preferred Shares held by such holder
relative to the number of Preferred Shares outstanding.
(i) Redemption Price at the Company's Election. The "Redemption
Price at the Company's Election" shall be an amount per Preferred Share equal to
the product of (A) 1.3 multiplied by (B) the sum of (I) (.07)(P/365)($10,000)
plus (II) $10,000; where "P" means the number of days from, but excluding, the
issuance date of such Preferred Share through and including the Date of
Redemption at the Company's Election (as defined in Section 6(ii)).
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(ii) Mechanics of Redemption at the Company's Election. The
Company shall effect each such redemption no sooner than 20 trading days nor
later than 40 trading days after delivering written notice of its Redemption at
the Company's Election via facsimile and overnight courier ("Notice of
Redemption at the Company's Election") to (A) each holder of the Preferred
Shares and (B) the Transfer Agent. Such Notice of Redemption at the Company's
Election shall indicate (I) the number of Preferred Shares that have been
selected for redemption, (II) the date that such redemption is to become
effective (the "Date of Redemption at the Company's Election") and (III) the
applicable Redemption Price at the Company's Election. Notwithstanding the
above, any holder may convert into Common Stock pursuant to Section 5, on or
prior to the date immediately preceding the Date of Redemption at the Company's
Election, any Preferred Shares held by such holder (and, after such holder's
receipt of the Notice of Redemption at the Company's Election, without regard to
the conversion limitations set forth in Section 5), including Preferred Shares
that have been selected for Redemption at the Company's Election pursuant to
this Section 6.
(iii) Payment of Redemption Price. Each holder submitting
Preferred Shares being redeemed under this Section 6 shall send such holder's
Preferred Stock Certificates so redeemed to the Transfer Agent within five (5)
business days after the Date of Redemption at the Company's Election, and the
Company shall pay the applicable Redemption Price at the Company's Election to
that holder in cash within three (3) business days after such holder's Preferred
Stock Certificates are delivered to the Company or its Transfer Agent. If the
Company shall fail to pay the applicable Redemption Price at the Company's
Election to such holder on a timely basis as described in this Section 6(iii),
in addition to any remedy such holder of Preferred Shares may have under this
Certificate of Designations and the Subscription Agreement, the Fixed Conversion
Price and Variable Conversion Price shall each be automatically reduced by ten
percent (10%). Notwithstanding the foregoing, if the Company fails to pay the
applicable Redemption Price at the Company's Election to a holder within the
time period described in this Section 6 due to a dispute as to the arithmetic
calculation of the Redemption Price at the Company's Election, such dispute
shall be resolved pursuant to Section 5(b) above.
(iv) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to send any Notice of Redemption
at the Company's Election pursuant to Section 6(ii) above and begin the
redemption procedure under this Section 6, unless it has:
(A) the full amount of the Redemption Price at the Company's
Election in cash, available in a demand or other immediately available account
in a bank or similar financial institution;
(B) credit facilities, with a bank or similar financial
institutions that are immediately available and unrestricted for use in
redeeming the Preferred Shares, in the full amount of the Redemption Price at
the Company's Election;
(C) a written agreement with a standby underwriter or
qualified buyer ready, willing and able to purchase from the Company a
sufficient number of shares of stock to provide proceeds necessary to redeem any
stock that is not converted prior to a Redemption at the Company's Election; or
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(D) a combination of the items set forth in the preceding
clauses (A), (B) and (C), aggregating the full amount of the Redemption Price at
the Company's Election.
(v) Certain Conditions During Notice Period. The Company shall
not be entitled to redeem the Preferred Shares on a Date of Redemption at the
Election of the Company, unless each of the following conditions are satisfied
as of the date of the Notice of Redemption at the Company's Election and on each
day from such date until and including the later of the Date of Redemption at
the Company's Election and the date on which the Company pays the applicable
Redemption Price:
(A) The Registration Statement shall be effective and
available for the sale of no less than 100% of the sum of (I) the number of
shares of common stock then issuable upon the conversion of all outstanding
Preferred Shares and (II) the number of shares of common stock then issuable
upon exercise of all outstanding warrants held by the holders of Preferred
Shares;
(B) The Common Stock is designated for quotation on the
Nasdaq National Market, Nasdaq Small-Cap Market, The New York Stock Exchange,
Inc. or The American Stock Exchange, Inc. and is not suspended from trading;
(C) The Company has delivered shares of common stock upon
conversion of the Preferred Shares and exercise of the warrants held by the
holders of Preferred Shares to the holders of Preferred Shares on a timely basis
as set forth in Section 5 of this Certificate of Designations and as set forth
in the warrants held by such holders, respectively; and
(D) The Company otherwise has satisfied its obligations and
is not in default under this Certificate of Designations, the Subscription
Agreement, the warrants held by the holders of Preferred Shares and the
Registration Rights Agreement.
Section 7. VOTING RIGHTS. The Holders of the Series F Preferred Stock shall
have no voting power whatsoever, except as otherwise provided by the General
Corporation Law of the State of Delaware ("Delaware Law"), and no Holder of
Series F Preferred Stock shall vote or otherwise participate in any proceeding
in which actions shall be taken by the Company or the shareholders thereof or be
entitled to notification as to any meeting of the shareholders.
Notwithstanding the above, the Company shall provide Holder with
notification of any meeting of the shareholders regarding any major corporate
events affecting the Company. In the event of any taking by the Company of a
record of its shareholders for the purpose of determining shareholders who are
entitled to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire any share of any class or any other
securities or property (including by way of merger, consolidation or
reorganization), or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Company, or any proposed liquidation, dissolution or winding up of the
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Company, the Company shall mail a notice to Holder, at least ten (10) days prior
to the record date specified therein, of the date on which any such record is to
be taken for the purpose of such dividend, distribution, right or other event,
and a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under Delaware Law the vote of the Holders of the Series
F Preferred Stock, voting separately as a class, is required to authorize a
given action of the Company, the affirmative vote or consent of the Holders of
at least a majority of the shares of the Series F Preferred Stock represented at
a duly held meeting at which a quorum is present or by written consent of a
majority of the shares of Series F Preferred Stock (except as otherwise may be
required under Delaware Law) shall constitute the approval of such action by the
class. To the extent that under Delaware Law the Holders of the Series F
Preferred Stock are entitled to vote on a matter with holders of Class A Common
Stock, voting together as one (1) class, each share of Series F Preferred Stock
shall be entitled to a number of votes equal to the number of shares of Class A
Common Stock into which it is then convertible using the record date for the
taking of such vote of stockholders as the date as of which the Conversion Price
is calculated. Holders of the Series F Preferred Stock also shall be entitled to
notice of all shareholder meetings or written consents with respect to which
they would be entitled to vote, which notice would be provided pursuant to the
Company's by-laws and applicable statutes.
Section 8. PROTECTIVE PROVISION. So long as shares of Series F Preferred
Stock are outstanding, the Company shall not without first obtaining the
approval (by vote or written consent, as provided by Delaware Law) of the
Holders of at least seventy-five percent (75%) of the then outstanding shares of
Series F Preferred Stock, and at least seventy-five percent (75%) of the then
outstanding Holders:
(a) alter or change the rights, preferences or privileges of
the Series F Preferred Stock or any securities so as to affect adversely the
Series F Preferred Stock;
(b) create any new class or series of stock having a
preference over or on parity with the Series F Preferred Stock with respect to
Distributions (as defined in Section 2 above) or increase the size of the
authorized number of Series F Preferred; or
(c) do any act or thing not authorized or contemplated by this
Designation which would result in taxation of the holders of shares of the
Series F Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended).
In the event Holders of at least seventy-five percent (75%) of the then
outstanding shares of Series F Preferred Stock and at least seventy-five percent
(75%) of the then outstanding Holders agree to allow the Company to alter or
change the rights, preferences or privileges of the shares of Series F Preferred
Stock, pursuant to subsection (a) above, so as to affect the Series F Preferred
Stock, then the Company will deliver notice of such approved change to the
Holders of the Series F Preferred Stock that did not agree to such alteration or
change (the "Dissenting Holders") and Dissenting Holders shall have the right
for a period of thirty (30) business days to convert pursuant to the terms of
this Certificate of Designation as they exist prior to such alteration or change
(notwithstanding the holding requirements set forth in Section 5(a) hereof), or
continue to hold their shares of Series F Preferred Stock, as amended.
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Section 9. STATUS OF CONVERTED OR REDEEMED STOCK. In the event any shares
of Series F Preferred Stock shall be converted or redeemed pursuant to Section 5
or Section 6 hereof, 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 Company as Series F
Preferred Stock.
Section 10. PREFERENCE RIGHTS. Nothing contained herein shall be construed
to prevent the Board of Directors of the Company from issuing one (1) or more
series of Preferred Stock with dividend and/or liquidation preferences junior to
the dividend and liquidation preferences of the Series F Preferred Stock.
Section 11. AUTHORIZATION AND RESERVATION OF SHARES OF COMMON STOCK.
(a) AUTHORIZED AND RESERVED AMOUNT. The Company shall have authorized
and reserved and keep available for issuance one million nine hundred
twenty-five thousand (1,925,000) shares of Class A Common Stock (the "Reserved
Amount") solely for the purpose of effecting the conversion of the Series F
Preferred Stock, and exercise of the warrants to acquire Class A Common Stock
(the "Common Warrants") issued or to be issued to the Holders. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Class A Common Stock a sufficient number of shares of Class A Common
Stock to provide for the full conversion of all outstanding Series F Preferred
Stock, and issuance of the shares of Class A Common Stock in connection
therewith and the full exercise of the Common Warrants and issuance of the
shares of Class A Common Stock in connection therewith.
(b) INCREASES TO RESERVED AMOUNT. Without limiting any other provision
of this Section 11, if the Reserved Amount for any three (3) consecutive trading
days (the last of such three (3) trading days being the "Reservation Trigger
Date") shall be less than one hundred twenty-five percent (125%) of the number
of shares of Class A Common Stock issuable upon conversion of this Series F
Preferred Stock, and one hundred percent of the number of shares of Class A
Common Stock issuable upon exercise of the Common Warrants on such trading days
(a "Share Authorization Failure"), the Company shall immediately notify all
Holders of such occurrence and shall take action as soon as possible, but in any
event within sixty (60) days after a Reservation Trigger Date (including, if
necessary, seeking shareholder approval to authorize the issuance of additional
shares of Class A Common Stock) to increase the Reserved Amount to one hundred
fifty percent (150%) of the number of shares of Class A Common Stock then
issuable upon conversion of the Series F Preferred Stock, and one hundred
percent of the number of shares of Class A Common Stock issuable upon exercise
of the Common Warrants.
(c) REDUCTION OF RESERVED AMOUNT UNDER CERTAIN CIRCUMSTANCES. Prior to
complete conversion of all Series F Preferred Stock the Company shall not reduce
the number of shares required to be reserved for issuance under this Section 11
without the written consent of all Holders except for a reduction proportionate
to a reverse stock split effected for a business purpose other than affecting
the obligations of Holder under this Section 11, which reverse stock split
affects all shares of Class A Common Stock equally. Following complete
conversion of all the Series F Preferred Stock, the Company may, with fifteen
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(15) days prior written notice to Holder, reduce the Reserved Amount to one
hundred twenty-five percent (125%) of the number of shares of Class A Common
Stock issuable upon the full exercise of the Common Warrants; provided, however,
that the Reserved Amount shall continue to be subject to increase pursuant to
Section 11 hereof.
(d) ALLOCATION OF RESERVED AMOUNT. Each increase to the Reserved
Amount shall be allocated pro rata among the Holders based on the number of
Series F Preferred Stock, and Common Warrants held by each Holder at the time of
the establishment of or increase in the Reserved Amount. In the event a Holder
shall sell or otherwise transfer any of such Holder's Series F Preferred Stock,
or Common Warrants, each transferee shall be allocated a pro rata portion of
such transferor's Reserved Amount. Any portion of the Reserved Amount which
remains allocated to any person or entity which does not hold any Series F
Preferred Stock shall be allocated to the remaining Holders, pro rata based on
the number of Series F Preferred Stock, and Common Warrants then held by such
Holders.
(e) CAP AMOUNT. Unless otherwise permitted by Nasdaq, in no event
shall the total number of shares of Common Stock issued upon exercise of all of
the Warrants and upon conversion of the Series F Preferred Stock exceed the
maximum number of shares of Common Stock (the "Cap Amount") that the Company
can, without shareholder approval, so issue pursuant to Nasdaq Rule
4460(i)(1)(d)(ii) (or any other applicable Nasdaq Rules or any successor rule)
(the "Nasdaq 20% Rule"). The Cap Amount shall be allocated pro-rata to the
holders of Series F Preferred Stock as provided in subsection (f) below. In the
event the Company is prohibited from issuing shares of Common Stock as a result
of the operation of this subsection (e), the Company shall comply with
subsection (g) below.
(f) ALLOCATIONS OF CAP AMOUNT AND RESERVED AMOUNT. The initial Cap
Amount and Reserved Amount shall be allocated pro rata among the Holders of
Series F Preferred Stock based on the number of the shares of Series F Preferred
Stock initially issued to each Holder. Each increase to the Cap Amount and
Reserved Amount shall be allocated pro rata among the Holders of Series F
Preferred Stock based on the number of the shares of Series F Preferred Stock
held by each Holder at the time of the increase in the Cap Amount or Reserved
Amount, as the case may be. In the event a holder shall sell or otherwise
transfer any of such Holder's shares of Series F Preferred Stock, each
transferee shall be allocated a pro rata portion of such transferor's Cap amount
and Reserved Amount. Any portion of the Cap Amount or Reserved Amount which
remains allocated to any person or entity which does not hold any Series F
Preferred Stock shall be allocated to the remaining holders of shares of Series
F Preferred Stock, pro rata based on the number of shares of Series F Preferred
Stock then held by such Holders.
(g) INABILITY TO CONVERT DUE TO CAP AMOUNT.
(i) OBLIGATION TO CURE. If, on the last business day of any
month, or at any time a Holder so notifies the Company in writing, the then
unissued portion of any Holder's Cap Amount is less than 125% of the number of
shares of Common Stock then issuable upon conversion of such Holder's shares of
Series F Preferred Stock (a "Trading Market Trigger Event"), the Company shall
immediately notify the Holders of Series F Preferred Stock of such occurrence
and shall immediately take all necessary action (including, if necessary,
approval of its shareholders to authorize the issuance of the full number of
shares of Common Stock which would be issuable upon the conversion of Series F
Preferred Stock but for the Cap Amount) to eliminate any prohibitions under
applicable law or the rules or regulations of any stock exchange, interdealer
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quotation system or other self-regulatory organization with jurisdiction over
the Company or any of its securities on the Company's ability to issue shares of
Common Stock in excess of the Cap Amount.
(ii) REMEDIES. In the event the Company fails to eliminate all
such prohibitions within one hundred twenty (120) days after the Trading Market
Trigger Event (provided, however, that (A) the Company must file preliminary
proxy materials with the SEC within thirty (30) days of the Trading Market
Trigger Event and (B) officers and directors of the Company shall promptly upon
the occasion of any such Trading Market Trigger event enter into irrevocable
agreements to vote all of their shares in favor of eliminating such
prohibitions), each Holder of Series F Preferred Stock shall thereafter have the
option, exercisable in whole or in part at any time and from time to time by
delivery of written notice ("Cap Redemption Notice") to the Company, to require
the Company to purchase for cash, at an amount per share to the Redemption Price
at the Company's Election (as defined in Section 6(i) above), a portion of the
Holder's Series F Preferred Stock such that, after giving effect to such
purchase, the holder's allocated portion of the Cap Amount exceeds 125% of the
total number of shares of Common Stock issuable to such holder upon conversion
of its Series F Preferred Stock on the date of such Cap Redemption Notice.
Section 12. FAILURE TO SATISFY CONVERSIONS.
(a) CONVERSION FAILURE PAYMENTS. If, at any time, (x) a Holder submits
a Notice of Conversion (or is deemed to submit such notice pursuant to Section
5(d) hereof), and the Company fails for any reason to deliver, on or prior to
the expiration of the Deadline ("Delivery Period") for such conversion, such
number of shares of Class A Common Stock to which such Converting Holder is
entitled upon such conversion, or (y) the Company provides notice to Holder at
any time of its intention not to issue shares of Class A Common Stock upon
exercise by Holder of its conversion rights in accordance with the terms of this
Certificate of Designation (each of (x) and (y) being a "Conversion Failure"),
then the Company shall pay to such Holder damages in an amount equal to the
lower of:
(i) "Damages Amount" X "D" X .005, and
(ii) the highest interest rate permitted by applicable law,
where:
"D" means the number of days beginning the date of the Conversion Failure
through and including the Cure Date with respect to such Conversion Failure;
"Damages Amount" means the Original Series F Issue Price for each share of
Series F Preferred Stock subject to conversion plus all accrued and unpaid
interest thereon as of the first day of the Conversion Failure.
"Cure Date" means (i) with respect to a Conversion Failure described in
clause (x) of its definition, the date the Company effects the conversion of the
shares of Series F Preferred Stock submitted for conversion and (ii) with
respect to a Conversion Failure described in clause (y) of its definition, the
date the Company undertakes in writing to issue Class A Common Stock in
satisfaction of all conversions of Series F Preferred Stock in accordance with
the terms of this Certificate of Designation.
The payments to which a Holder shall be entitled pursuant to this Section
are referred to herein as "Conversion Failure Payments." The parties agree that
the damages caused by a breach hereof would be difficult or impossible to
13
estimate accurately. A Holder may elect to receive accrued Conversion Failure
Payments in cash or to convert all or any portion of such accrued Conversion
Failure Payments, at any time, into Class A Common Stock at the lowest
Conversion Price in effect during the period beginning on the date of the
Conversion Failure through the Cure Date for such Conversion Failure. In the
event a Holder elects to receive any Conversion Failure Payments in cash, it
shall so notify the Company in writing no later than three (3) business days
after the Deadline and failure to so notify the Company, shall entitle the
Company, in its sole discretion, to elect to make such Conversion Failure
Payments in cash, Class A Common Stock or some combination of the two. In the
event a Holder elects to convert all or any portion of the Conversion Failure
Payments, such Holder shall indicate on a Notice of Conversion such portion of
the Conversion Failure Payments which such Holder elects to so convert in
accordance with this Section 12(a) and such conversion shall otherwise be
effected in accordance with provisions of Section 5.
(b) BUY-IN CURE. Unless a Conversion Failure described in clause (y)
of Section 12(a) hereof has occurred with respect to such a Holder, if (i) the
Company fails for any reason to deliver during the Delivery Period shares of
Class A Common Stock to a Holder upon a conversion of the Series F Preferred
Stock and (ii) after the applicable Delivery Period with respect to such
conversion, a Holder purchases (in an open market transaction or otherwise)
shares of Class A Common Stock to make delivery upon a sale by a Holder of the
shares of Class A Common Stock (the "Sold Shares") which such Holder anticipated
receiving upon such conversion (a "Buy-In"), the Company shall pay such Holder
(in addition to any other remedies available to Holder) the amount by which (x)
such Holder's total purchase price (including brokerage commission, if any) for
the shares of Class A Common Stock so purchased exceeds (y) the net proceeds
received by such Holder from the sale of the Sold Shares. For example, if a
Holder purchases shares of Class A Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to shares of Class A Common Stock sold
for $10,000, the Company will be required to pay such Holder $1,000. A Holder
shall provide the Company written notification indicating any amounts payable to
Holder pursuant to this Section 12.
(c) ADJUSTMENT TO CONVERSION PRICE. If a Holder has not received
certificates for all shares of Class A Common Stock within five (5) business
days following the expiration of the Delivery Period with respect to a
conversion of any portion of any of such Holder's Series F Preferred Stock for
any reason, then the Conversion Price for the affected Series F Preferred Stock
shall thereafter be the lesser of (i) the Fixed Conversion Price on the
Conversion Date specified in the Notice of Conversion which resulted in the
Conversion Failure and (ii) the lowest Conversion Price in effect during the
period beginning on, and including, such Conversion Date through and including
the Cure Date. If there shall occur a Conversion Failure of the type described
in clause (y) of Section 12(a), then the Fixed Conversion Price with respect to
any conversion thereafter shall be the lowest Conversion Price in effect at any
time during the period beginning on, and including, the date of the occurrence
of such Conversion Failure through and including the Cure Date. The Conversion
Price shall thereafter be subject to further adjustment for any events described
in Section 5(d).
Section 13. EVENTS OF DEFAULT.
(a) HOLDER'S OPTION TO DEMAND PREPAYMENT. Upon the occurrence of an
Event of Default (as herein defined), each Holder shall have the right to elect
at any time and from time to time prior to the cure by the Company of such Event
14
of Default to have all or any portion of such Holder's then outstanding Series F
Preferred Stock prepaid by the Company for an amount equal to the Holder Demand
Prepayment Amount (as herein defined).
(i) The right of a Holder to elect prepayment shall be
exercisable upon the occurrence of an Event of Default by such Holder in its
sole discretion by delivery of a Demand Prepayment Notice (as herein defined) in
accordance with the procedures set forth in this Section 13. Notwithstanding the
exercise of such right, the Holder shall be entitled to exercise all other
rights and remedies available under the provisions of this Certificate of
Designation and at law or in equity.
(ii) A Holder shall effect each demand for prepayment under this
Section 13 by giving at least two (2) business days prior to written notice (the
"Demand Prepayment Notice") of the date which such prepayment is to become
effective (the "Effective Date of Demand of Prepayment"), the Series F Preferred
Stock selected for prepayment and the Holder Demand Prepayment Amount to the
Company at the address and facsimile number provided in the stock records of the
Company, which Demand Prepayment Notice shall be deemed to have been delivered
on the business day after the date of transmission of Holder's facsimile (with a
copy sent by overnight courier to the Company) of such notice.
(iii) The Holder Demand Prepayment Amount shall be paid to a
Holder whose Series F Preferred Stock are being prepaid within one (1) business
day following the Effective Date of Demand of Prepayment; provided, however,
that the Company shall not be obligated to deliver any portion of the Holder
Demand Prepayment Amount until one (1) business day following either the date on
which the Series F Preferred Stock being prepaid are delivered to the office of
the Company or the Transfer Agent, or the date on which the Holder notifies the
Company or the Transfer Agent that such Series F Preferred Stock have been lost,
stolen or destroyed and delivers the documentation required in accordance with
Section 5(b)(i) hereof.
(b) HOLDER DEMAND PREPAYMENT AMOUNT. The "Holder Demand Prepayment
Amount" means the greater of: (a) 1.3 times the Stated Value of the Series F
Preferred Stock for which demand is being made, plus all accrued and unpaid
interest thereon and accrued and unpaid Conversion Failure Payments (if any)
through the date of prepayment and (b) the product of (1) the highest price at
which the Class A Common Stock is traded on the date of the Event of Default (or
the most recent highest closing bid price if the Class A Common Stock is not
traded on such date) divided by the Conversion Price in effect as of the date of
the Event of Default, and (2) the sum of the Stated Value and all accrued and
unpaid Conversion Failure Payments (if any) through the date of prepayment.
(c) EVENTS OF DEFAULT. An "Event of Default" means any one of the
following:
(i) a Conversion Failure described in Section 12(a) hereof;
(ii) a Share Authorization Failure described in Section 11(b)
hereof, if such Share Authorization Failure continues uncured for ninety (90)
days after the Reservation Trigger Date;
15
(iii) the Company fails, and such failure continues uncured for
three (3) business days after the Company has been notified thereof in writing
by a Holder, to satisfy the share reservation requirements of Section 11 hereof;
(iv) the Company fails to maintain an effective registration
statement as required by Section 2, Section 3 and Section 6 of the Registration
Rights Agreement, between the Company and the Holder(s) (the "Registration
Rights Agreement") except where such failure lasts no longer than three (3)
consecutive trading days and is caused solely by failure of the Securities and
Exchange Commission to timely review the customary submission of or respond to
the customary requests of the Company;
(v) for three (3) consecutive trading days or for an aggregate of
ten (10) trading days in any nine (9) month period, the Class A Common Stock
(including any of the shares of Class A Common Stock issuable upon conversion of
the Series F Preferred Stock, and exercise of the Common Warrants) is (i)
suspended from trading on any of NASDAQ SmallCap, NMS, NYSE, AMEX or the OTC
Bulletin Board, or (ii) is not qualified for trading on at least one of NASDAQ
SmallCap, NMS, NYSE, AMEX or the OTC Bulletin Board;
(vi) the Company fails, and such failure continues uncured for
three (3) business days after the Company has been notified thereof in writing
by a Holder, to remove any restrictive legend on any certificate for any shares
of Class A Common Stock issued to a Holder upon conversion of any Series F
Preferred Stock, or exercise of any Common Warrant as and when required by this
Certificate of Designation, the Common Warrants, the Subscription Agreement,
between the Company and the Holder(s) (the "Subscription Agreement") or the
Registration Rights Agreement;
(vii) the Company breaches, and such breach continues uncured for
three (3) business days after the Company has been notified thereof in writing
by a Holder, any significant covenant or other material term or condition of
this Certificate of Designation, the Subscription Agreement, the Common Warrants
or the Registration Rights Agreement;
(viii) any representation or warranty of the Company made herein
or in any agreement, statement or certificate given in writing pursuant hereto
or in connection herewith (including, without limitation, the Subscription
Agreement and Registration Rights Agreement), shall be false or misleading in
any material respect when made;
(ix) the Company or any subsidiary of the Company shall make an
assignment for the benefit of its creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business, or such receiver or trustee shall otherwise be appointed;
or
(x) bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Company or any
subsidiary of the Company (and such proceedings shall continue unstayed for
thirty (30) days).
(d) FAILURE TO PAY DAMAGES AMOUNT. If the Company fails to pay the
Holder Demand Prepayment Amount within five (5) business days of its receipt of
a Demand Prepayment Notice, then such Holder shall have the right, at any time
16
and from time to time prior to the payment of the Holder Demand Prepayment
Amount, to require the Company, upon written notice, to immediately convert (in
accordance with the terms of Section 5) all or any portion of the Holder Demand
Prepayment Amount, into shares of Class A Common Stock at the then current
Conversion Price, provided that if the Company has not delivered the full number
of shares of Class A Common Stock issuable upon such conversion within five (5)
business days after the Company receives written notice of such conversion, the
Conversion Price with respect to such Holder Demand Prepayment Amount shall
thereafter be deemed to be the at the lowest Conversion Price in effect during
the period beginning on the date of the Event of Default through the date on
which the Company delivers to the Holder the full number of freely tradable
shares of Class A Common Stock issuable upon such conversion. In the event the
Company is not able to pay all amounts due and payable with respect to all
Series F Preferred Stock subject to Holder Demand Prepayment Notices, the
Company shall pay the Holders such amounts pro rata, based on the total amounts
payable to such Holder relative to the total amounts payable to all Holders.
Signed on November 2, 1999.
/s/ Donald E. Lawson
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Donald E. Lawson, President
17