Exhibit 4.1
CERTIFICATE OF DESIGNATION
ESTABLISHING THE RIGHTS AND PREFERENCES OF
10% SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
GOLD AND MINERALS COMPANY, INC.
A NEVADA CORPORATION
I, the undersigned, LARRY L. LOZENSKY, do hereby certify:
(1) I am the Chairman and Secretary of GOLD AND MINERALS COMPANY, INC., a
Nevada corporation (the "Corporation").
(2) Pursuant to the authority granted under the Corporation's Articles of
Incorporation, the Board of Directors of said Corporation, by unanimous consent
in writing effective as of August 31, 1999 has duly adopted the following
recitals and resolutions:
"WHEREAS, this Corporation is authorized by its Articles of
Incorporation to issue 10,000,000 shares of preferred stock, par value
$0.001 per share (the "Preferred Stock"); and
"WHEREAS, this Corporation has not previously designated any series of
its Preferred Stock; and
"WHEREAS, the Board of Directors of this Corporation is authorized, as
to the Preferred Stock, within the limitations and restrictions stated in
the Articles of Incorporation, to fix by resolution or resolutions the
designation of each series of Preferred Stock and the powers, preferences
and relative participating, optional or other special rights and
qualifications, limitations or restrictions thereof, including, without
limitation, such provisions as may be desired concerning dividends,
redemption, voting, dissolution or the distribution of assets, conversion
or exchange, and such other subjects or matters as may be fixed by
resolution or resolutions of the Board of Directors; and
"WHEREAS, the Board of Directors of this Corporation desires, pursuant
to its authority granted under the Articles of Incorporation, to determine
and fix the rights, preferences, privileges and restrictions relating to a
first series of said Preferred Stock, and to fix the number of shares
constituting and the designation of such series;
"NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized a
series of Preferred Stock on the terms and with the provisions herein set
forth:
1
SECTION 1. DESIGNATION, NUMBER AND RESTRICTIONS ON ISSUANCE. The
designation of the series of Preferred Stock authorized by these resolutions
shall be "10% Series A Cumulative Convertible Preferred Stock" (the "Series A
Preferred Stock"). The authorized number of shares constituting the Series A
Preferred Stock shall be Five Million (5,000,000) shares. The Board of Directors
is further authorized, within the limitations and restrictions set forth in the
Articles of Incorporation or stated in any resolution or resolutions of the
Board of Directors, to increase or decrease (but not below the number of shares
of such series then outstanding) the number of shares of Series A Preferred
Stock subsequent to the issuance of shares of such series. In case the number of
shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status which they had prior to the adoption of these
or any subsequent resolutions originally fixing the number of shares of such
series.
SECTION 2. CONVERSION RIGHTS.
2.1. As used herein, the term "Common Stock" shall mean and include the
Corporation's Common Stock, $.001 par value, as constituted on August 31, 1999,
and as the same shall be constituted thereafter including adjustments required
for any capital reorganization or reclassification thereof subsequent to August
31, 1999. On September 1, 2000 if the Common Stock of the Corporation is
publicly traded as described below in Section 2.3 and without the election of
the holders of Series A Preferred Stock (except as permitted by Section 2.4
below) and up to the close of business on the second business day immediately
preceding a date fixed for redemption of Series A Preferred Stock in accordance
with Section 7 below at the election of the respective holders of Series A
Preferred Stock, subject to the terms and conditions set forth herein, issued
and outstanding shares of the Series A Preferred Stock and any accrued and
unpaid dividends thereon shall be converted into fully paid and nonassessable
shares of Common Stock of the Corporation at the conversion ratio as defined in
Section 2.2 below, subject to adjustment as provided in Section 2.7 below
(herein called the "Conversion Ratio").
2.2. The Conversion Ratio shall be equal to the quotient of $1.00 divided
by the Market Value of the Common Stock. The Market Value of the Common Stock
shall be determined as the average of the closing bid price of the Common Stock
on any securities exchange or as reported by the National Association of
Securities Dealers Automated Quotation System on the last ten (10) trading days
prior to the date of conversion. Upon conversion the number of Common Stock
shares to be issued to each Series A Preferred Stockholder shall be equal to the
number of Series A Preferred Stock shares held by such Shareholder multiplied by
the Conversion Ratio.
2.3 In the event the Common Stock is not trading on September 1, 2000, then
the Series A Preferred Stock shall be converted into Common Stock without the
election of the holders of the Series A Preferred Stock at the Conversion Ratio
of 2.5 (2.5 shares of Common Stock upon conversion of 1.0 share of Series A
2
Preferred Stock), subject to adjustment as provided in Section 2.7 below. "Not
trading" as used in the preceding sentence shall mean if there is no closing bid
price for the Common Stock on any securities exchange or reported by the
National Association of Securities Dealers Automated Quotation System on any of
the last ten (10) trading days prior to September 1, 2000.
2.4. In the event the Market Value of the Common Stock shall equal or
exceed Ten Dollars ($10.00) per share before September 1, 2000 and continues
above said price, the respective holders of the Series A Preferred Stock may
convert their respective Series A Preferred Shares into Common Stock at the
Conversion Ratio.
2.5. In order to exercise the conversion privilege, a holder of outstanding
shares of Series A Preferred Stock shall surrender certificates for the Series A
Preferred Stock to be converted and exchanged at the principal office of the
Corporation, and shall give written notice to the Corporation at said office
that the holder elects to convert such Series A Preferred Stock into shares of
the Corporation's Common Stock. Such notice shall also state the name or names
(with addresses) in which certificates for shares of Common Stock issuable on
such conversion shall be issued, subject to compliance with applicable
securities laws.
2.6. The Corporation shall not issue fractions of shares of Common Stock
upon conversions of shares of Series A Preferred Stock. If more than one
certificate representing shares of the Series A Preferred Stock shall be
surrendered for conversion at one time by the same holder, the number of full
shares of Common Stock which shall be issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series A Preferred
Stock so surrendered. If any fractional interest in a share of Common Stock
would otherwise be deliverable upon the conversion of any shares of Series A
Preferred Stock, the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to the Market Value of such fractional
interest. So long as there is outstanding any Series A Preferred Stock, there
shall be reserved unissued, out of the authorized but unissued shares of Common
Stock, at least TEN MILLION (10,000,000) shares of Common Stock to provide for
conversion of Series A Preferred Stock in accordance with the provisions of this
Section 2.
2.7. The Conversion Ratio shall be subject to adjustment from time to time
hereafter as follows:
(A) In the event the Corporation at any time after August 31, 1999 shall
issue a stock dividend on its outstanding shares of Common Stock or shall
subdivide or combine the outstanding shares of Common Stock issuable upon
conversion of the Series A Preferred Stock, the Conversion Ratio and number of
shares issuable upon conversion of the Series A Preferred Stock shall be
proportionately and equitably adjusted as if the holder of record of Series A
Preferred Stock had converted shares of Series A Preferred Stock into Common
Stock immediately prior to such event. Any such adjustment shall become
3
effective at the close of business on the date that such stock dividend,
subdivision or combination relating to the Common Stock shall become effective.
For the purposes of such adjustment, the Conversion Ratio in effect immediately
prior to such stock dividend, subdivision or combination shall forthwith be
changed to a Conversion Ratio determined by:
(i) dividing the total number of shares of Common Stock outstanding
immediately after the stock dividend, subdivision or combination, by an
amount equal to the total number of shares of Common Stock outstanding
immediately prior to such stock dividend, subdivision or combination; and
(ii) multiplying the result of clause (i) above by the actual
Conversion Ratio in effect immediately prior to such stock dividend,
subdivision or combination.
and the total of shares of Common Stock thereafter issuable and deliverable on
conversion of the Series A Preferred Stock shall be the number of shares
obtained by applying the Conversion Ratio as so adjusted.
(B) In case of any capital reorganization or any reclassification of the
shares of Common Stock of the Corporation (other than as a result of a stock
dividend, subdivision or combination, as aforesaid), or in case of any
consolidation with or merger of the Corporation into or with another
corporation, or the sale, lease or other disposition of the properties of the
Corporation as an entirety or substantially as an entirety, then as a part of
such reorganization, reclassification, consolidation, merger, sale, lease or
other disposition, as the case may be, lawful provision shall be made so that
the holders of record of the Series A Preferred Stock shall have the right at
that time to convert their respective Series A Preferred Stock at the Market
Value and to receive upon such conversion thereof the kind and amount of shares
of stock or other securities or property which such holders would have been
entitled to receive if, immediately prior to such reorganization,
reclassification, consolidation, merger, sale, lease or other disposition, such
holders had held the number of shares of Common Stock which were then issuable
upon the conversion of the Series A Preferred Stock then held by them. In any
such case, appropriate adjustment shall be made in the application of the
provisions set forth herein with respect to the rights and interests thereafter
of the holders of record of the Series A Preferred Stock, to the end that the
provisions set forth herein (including provisions with respect to adjustments of
the Conversion Ratio) shall thereafter be applicable, as nearly as reasonably
may be, in relation to any shares of stock or other property thereafter
deliverable upon the conversion of such Series A Preferred Stock.
2.8. Upon any conversion of Series A Preferred Stock in accordance with the
foregoing, all of such shares of Series A Preferred Stock shall be canceled and
revert to the status of authorized and unissued shares of Preferred Stock.
4
SECTION 3. REGISTRATION OF COMMON STOCK.
3.1.(a) If the Corporation proposes to register any of its Common Stock
under the Securities Act of 1933, as amended (the "Securities Act"), on any
registration statement, whether or not for its own account (other than by a
registration statement on Form S-8 or other form which does not include
substantially the same information as would be required in a form for the
general registration of securities, would not be available for the Common Stock
or relates to any employee benefit plan or reorganization of the Corporation),
it shall as expeditiously as possible give written notice to all registered
holders of Series A Preferred Stock of such holders' "Piggyback Registration
Rights" as set forth in this Section 3. Upon the written request (which request
shall, if applicable, specify that a holder shall be required to exercise the
right to convert and the number of shares of Common Stock intended to be sold by
such holder after exercise) of any holder made within 20 days after receipt of
any such notice, the Corporation shall (subject to the additional terms of this
Agreement) include in the registration statement the shares of Common Stock
issuable upon conversion of the Series A Preferred Stock (the "Registrable
Securities") which the Corporation has been so requested to register by the
holder thereof and the Corporation shall keep such registration statement in
effect and maintain compliance with each federal and state law or regulation for
the period necessary for such holder to effect the proposed sale or other
disposition (but in no event for a period greater than 120 days).
(b) If, at any time after giving written notice of its intention to
register Registrable Securities in a Piggyback Registration but prior to the
effective date of the related registration statement, the Corporation shall
determine for any reason not to register any Common Stock, the Corporation shall
give notice of such determination to each holder and, thereupon, shall be
relieved of its obligation to register any Registrable Securities in connection
with such Piggyback Registration. All best efforts obligations of the
Corporation shall cease if the Corporation determines to terminate prior to such
effective date any registration pursuant to this Section 3.1.
(c) If a Piggyback Registration involves an offering by or through
underwriters, all holders requesting to have their Registrable Securities
included in the Corporation's registration statement must sell their Registrable
Securities to the underwriters selected by the Corporation on the same terms and
conditions as apply to other selling shareholders, and any holder requesting to
have its Registrable Securities included in such registration statement may
elect in writing, not later than three business days prior to the effectiveness
of the registration statement filed in connection with such registration, not to
have its Registrable Securities so included in connection with such
registration.
(d) If a Piggyback Registration involves an offering by or through
underwriters, the Corporation, except as otherwise provided herein, shall not be
required to include Registrable Securities therein if and to the extent the
underwriter managing the offering reasonably believes in good faith and advises
each holder requesting to have Registrable Securities included in the
Corporation's registration statement that such inclusion would materially
adversely affect such offering, provided that if other selling shareholders who
are employees, officers, directors or other affiliates of the Corporation have
5
requested registration of securities in the proposed offering, the Corporation
will reduce or eliminate such other selling shareholders' securities before any
reduction or elimination of Registrable Securities held by holders of the Series
A Preferred Stock, and any such reduction or elimination (after taking into
account the effect of preceding clause) shall be pro rata to all other holders
of the securities of the Corporation exercising 'piggyback registration rights
similar to those set forth herein in proportion to the respective number of
shares of Registrable Securities they have requested to be registered.
3.2.(a) At any time after September 1, 2000 and provided the Registrable
Securities, upon conversion, are not otherwise qualified for sale under an
exemption available under the Securities Act, holders of an aggregate of 75% of
all outstanding Series A Preferred Stock may exercise their "Demand Registration
Rights" as described herein for registration covering the public sale of
Registrable Securities hereunder. As soon as practicable thereafter, the
Corporation shall use its best efforts to file a registration statement with
respect to the Registrable Securities which holders have requested to be
registered and obtain the effectiveness thereof, and to take all other action
necessary under any federal or state law or regulation to permit such
Registrable Securities to be sold or otherwise disposed of, and the Corporation
shall maintain such compliance with each such federal and state law and
regulation for the period necessary for such holders to effect the proposed sale
or other disposition; PROVIDED THAT the Corporation shall have the right to
delay such registration under certain circumstances for up to 90 days during any
12 month period. The Corporation shall be required to effect one registration or
qualification pursuant to this Section 3.2, and shall not be obligated to effect
a registration during the six month period commencing with the date of any other
registration under the Securities Act in which Registrable Securities were
registered.
(b) The Corporation may delay any registration under this Section 3.2 for
not more than 90 days if management determines in good faith that such delay is
necessary to consummate a pending transaction. If the registration is delayed,
management will notify the holders of Series A Preferred Stock within three
weeks after receipt of notice specified in Section 3.2(a) of the delay but shall
not be required to provide any information to any holder regarding the existence
or the nature of any pending transactions.
3.3.(a) Subject to paragraph (b) of this Section 3.3, the registration
rights of the holders pursuant to this Agreement and the ability to offer and
sell Registrable Securities pursuant to a registration statement are subject to
the following conditions and limitations, and each holder agrees with the
Corporation that:
(i) If the Corporation determines in its good faith judgment that the
filing of a registration statement under Section 3.1 or Section 3.2 hereof
or the use of any prospectus would require the disclosure of important
information which the Corporation has a bona fide business purpose for
preserving as confidential or the disclosure of which would impede the
Corporation's ability to consummate a significant transaction, upon written
notice of such determination by the Corporation, the rights of the holders
to offer, sell or distribute any securities pursuant to the registration
6
statement or to require the Corporation to take action with respect to the
registration or sale of any securities pursuant to the registration
statement (including any action contemplated by Section 3.4 hereof) will
for up to 60 days in any 12 month period be suspended until the date upon
which the Corporation notifies the holders in writing that suspension of
such rights for the grounds set forth in this Section 3.3(a)(i) is no
longer necessary.
(ii) If all reports required to be filed by the Corporation pursuant
to the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
have not been filed by the required date without regard to any extension,
or if consummation of any business combination by the Corporation has
occurred or is probable for purposes of Rule 3-05 or Article 11 of
Regulation S-X under the Securities Act, upon written notice thereof by the
Corporation to the holders, the rights of the holders to offer, sell or
distribute any securities pursuant to the registration statement or to
require the Corporation to take action with respect to the registration or
sale of any securities pursuant to the registration statement (including
any action contemplated by Section 3.4 hereof) will for up to 60 days in
any 12 month period be suspended until the date upon which the Corporation
has filed such reports or obtained the financial information required by
Rule 3-05 or Article 11 of Regulation S-X to be included in the
registration statement.
(iii) In the case of the registration of any underwritten primary
equity offering initiated by the Corporation (other than any registration
by the Corporation on Form S-8, or a successor or substantially similar
form, of (A) an employee stock option, stock purchase or compensation plan
or of securities issued or issuable pursuant to any such plan, or (B) a
dividend reinvestment plan), each holder agrees, if requested in writing by
the managing underwriter or underwriters administering such offering, not
to effect any offer, sale or distribution of securities (or any option or
right to acquire securities) during the period commencing on the 10th day
prior to the effective date of the registration statement covering such
underwritten primary equity offering and ending on the date specified by
such managing underwriter in such written request to such holder, which
period may be of a duration of 90 days or more.
(iv) In the event that the Corporation plans to repurchase or bid for
securities of the Corporation in the open market, on a private solicited
basis or otherwise, and the Corporation determines, in its reasonable good
faith judgment and based upon the advice of counsel to the Corporation
(which counsel shall be experienced in securities laws matters), that any
such repurchase or bid may not, under Rule 10b-6 under the Exchange Act, or
any successor or similar rule ("Rule 10b-6"), be commenced or consummated
due to the existence or the possible commencement of a "distribution"
(within the meaning of Rule 10b-6) as a result of any offers or sales by
holders of any Registrable Securities, as the case may be, under any
registration statement filed pursuant to this Agreement, the Corporation
shall be entitled, for a period of 90 days or more, to request that holders
of Registrable Securities, to suspend or postpone such distribution
pursuant to such registration statement (a "10b-6 Election"). The
Corporation shall, as promptly as practicable, give such holder or holders
written notice of such 10b-6 Election, stating the basis for the
7
Corporation's determination. As promptly as practicable following the
determination by the Corporation that the holders or holders may commence
or recommence their distribution pursuant to the registration statement
without causing the Corporation to be in violation of Rule 10b-6, the
Corporation shall give such holder or holders written notice of such
determination.
(b) Notwithstanding the provisions of Section 3.3(a) above, the aggregate
number of days (whether or not consecutive) during which the Corporation may
delay the effectiveness of a registration statement or prevent offerings, sales
or distribution by the holders thereunder pursuant to Section 3.3(a) shall in no
event exceed 180 days during any 12-month period.
(c) The Corporation may require each selling holder of Registrable
Securities, as a condition to the inclusion of the Registrable Securities of
such selling holder in the registration statement or in any offering thereunder,
as the case may be, to furnish to the Corporation such information regarding the
holder and the distribution of such securities as the Corporation may from time
to time reasonably request (which request shall be confirmed in writing if
requested by the Corporation) in order to comply with applicable law and such
other information as may be legally required in connection with such
registration or offering, and the holder shall promptly provide such information
and a written consent to the inclusion of such information in the registration
statement or any prospectus or supplement thereto; provided that the failure of
any holder to provide such information to the Corporation shall not in any way
affect the obligations of the Corporation hereunder with respect to any other
holder.
3.4. In connection with the obligations of the Corporation with respect to
the registration statement pursuant to Section 3.1 or Section 3.2, hereof and
subject to Section 3.3 hereof, the Corporation shall:
(a) (i) prepare and file with the Commission a registration statement on
the appropriate form under the Securities Act, (A) which form shall be selected
by the Corporation and shall be available for the sale of the Registrable
Securities in accordance with the intended method or methods of distribution by
the selling holders thereof (provided that the Corporation shall not be required
to use any form other than Form S-1, S-2 or S-3 or any successor form and shall
not be required to file more than one registration statement with the
Commission) and (B) which registration statement shall comply as to form in all
material respects with the requirements of the applicable form and include or
incorporate by reference all financial statements required by the Commission to
be so included or incorporated by reference, FURTHER PROVIDED that subject to
the registration statement and prospectus being in compliance with the
requirements of the Securities Act and the Exchange Act (including all rules and
regulations of the Commission thereunder), the Corporation has the sole
discretion to determine the form, substance and presentation of any financial or
other information included in any registration statement or prospectus, and
whether such information should be included in such registration statement or
prospectus; and (ii) use its reasonable best efforts to cause such registration
statement to become effective and remain effective in accordance with Section
3.1 and Section 3.2 hereof;
8
(b) prepare and file with the Commission such amendments and post-effective
amendments to the registration statement as may be necessary to keep such
registration statement effective for the applicable period; and cause each
prospectus to be supplemented by any required prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Securities Act;
(c) in the event that any federal law or regulation binding on the
Corporation and adopted after the date hereof so requires (and would also so
require if the Registrable Securities were being offered in a primary offering
by the Corporation rather than by the holders), use its reasonable best efforts
to cause such Registrable Securities to be registered with or approved by such
other federal governmental agencies or authorities in the United States, if any,
as may be required by virtue of the business and operations of the Corporation
to enable the selling holders to consummate the disposition of such Registrable
Securities;
(d) furnish to each holder of Registrable Securities and to each managing
underwriter of an underwritten offering of Registrable Securities pursuant to
Section 4(1) of the Securities Act, if any, without charge, as many copies of
each prospectus, including each preliminary prospectus, and any amendment or
supplement thereto as such holder or underwriter may reasonably request, in
order to facilitate the public sale or other disposition of the Registrable
Securities;
(e) use its reasonable best efforts to register or qualify the Registrable
Securities under all applicable state securities or "blue sky" laws of such
jurisdictions as any holder of Registrable Securities of such class covered by
the registration statement shall, on 20 days prior written notice, reasonably
request in writing. Such notice to be sent at any time prior to the applicable
registration statement being declared effective by the Commission. The
Corporation shall maintain such registration or qualification in effect during
the applicable period provided in Section 3.1 or Section 3.2 hereof; PROVIDED,
HOWEVER, that the Corporation shall not be required to (i) qualify generally to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 3.4(e); (ii) subject itself to taxation in any such
jurisdiction; (iii) make any change to its Articles or Incorporation or Bylaws;
or (iv) become subject to general service of process in any jurisdiction where
it is not then so subject;
(f) notify each holder of Registrable Securities as promptly as practicable
after becoming aware thereof and (if requested by any such holder) confirm such
notice in writing (i) when the registration statement has become effective and
when any post-effective amendments and supplements thereto become effective;
(ii) of any request by the Commission or any state securities authority for
amendments and supplements to the registration statement and any prospectus or
for additional information relating to the Registrable Securities or the
registration or qualification thereof after the registration statement has
become effective; (iii) of the issuance by the Commission or any state
9
securities authority of any stop order suspending the effectiveness of the
registration statement or the initiation of any proceedings for that purpose;
(iv) if the representations and warranties of the Corporation contained in any
underwriting agreement, securities sales agreement or other similar agreement,
if any, relating to the Registrable Securities cease to be true and correct in
any material respect prior to the closing date specified in such agreement
(PROVIDED such notice shall be given only to holders which are parties to the
agreements pursuant to which such representations and warranties are made), or
if the Corporation receives any notification with respect to the suspension of
the qualification of the Registrable Securities for sale in any jurisdiction or
the initiation of any proceeding for such purpose; and (v) of the happening of
any event during the period (other than any suspension period referred to in
Section 3.3(a)) during which the registration statement is required hereunder to
be effective as a result of which the registration statement or any prospectus
would contain an untrue statement of material fact or omit to state a material
fact necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading;
(g) use its reasonable best efforts to obtain the withdrawal of any order
suspending the effectiveness of the registration statement or the qualification
of the Registrable Securities for sale in any jurisdiction as promptly as
practicable;
(h) furnish to each holder of Registrable Securities, without charge, at
least one conformed copy of the registration statement and any post-effective
amendment thereto (without documents incorporated therein by reference or
exhibits thereto, unless requested in writing);
(i) cooperate with the holders of Registrable Securities to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold pursuant to the registration statement and not bearing any
restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as the selling holders may reasonably
request (in each case, provided such certificates are requested in writing at
least three business days prior to any delivery thereof);
(j) upon the occurrence of any event contemplated by Section 3.4(f)(v)
hereof, use its reasonable best efforts as promptly as practicable to prepare
and file with the Commission a supplement or post-effective amendment to the
registration statement or the related prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, such prospectus will
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading;
(k) otherwise use its reasonable best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering a
period of 12 months, beginning within three months after the effective date of
10
the registration statement, which earnings statement shall satisfy the
provisions of Section ll (a) of the Securities Act and Rule 158 under the
Securities Act;
(l) use its reasonable best efforts to (i) cause all Registrable Securities
to be listed or quoted on any securities exchange or quotation system on which
the Corporation's outstanding Common Stock is then listed or quoted; and
(m) obtain a CUSIP number for all Registrable Securities not later than the
effective date of the registration statement.
Each holder agrees that, upon receipt of any notice from the Corporation of the
happening of any event of the kind described in Section 3.4(f)(v) hereof, such
holder will forthwith discontinue disposition of Registrable Securities pursuant
to the registration statement covering such Registrable Securities until such
holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3.4(j) hereof, or until it is advised in writing by the
Corporation that the use of such prospectus may be resumed and, if so directed
by the Corporation, such holder will deliver to the Corporation (at the
Corporation's expense) all copies, other than permanent file copies then in such
holder's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice; provided, however, that the
Corporation shall use its reasonable best efforts to promptly prepare and
provide to the holders a supplemented or amended prospectus contemplated by such
Section 3.4(j) hereof. In the event the Corporation shall give any such notice,
the period during which such registration statement shall be maintained
effective shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to Section 3.4(f)(v)
hereof to including the date when each holder of Registrable Securities covered
by such registration statement shall have received the copies of the
supplemented or amended prospectus contemplated by Section 3.4(j) hereof.
3.5(a) The Corporation will bear all reasonable expenses incident to the
performance of or compliance with its obligations of a Piggyback Registration
under this Agreement and the holders of the Series A Preferred stock will bear
all reasonable expenses incident to the performance of or compliance with its
obligations of a Demand Registration under this Agreement. The phrase "all
reaonsable expenses" in the preceding sentence shall include without
limitations, all registration and filing fees, all fees and expenses of
compliance with securities or blue sky laws (including reasonable fees and
disbursements of one firm of counsel for the holders in connection with blue sky
qualifications of the Registrable Securities), printing expenses, messenger and
delivery expenses, internal expenses (including, without limitation, all
salaries and expenses of the officers and employees of the Corporation
performing legal or accounting duties), and reasonable fees and disbursement of
11
counsel for the Corporation and its independent certified public accountants
(including the reasonable expenses of any special audit or comfort letters
required by or incident to such performance), securities acts liability
insurance (if the Corporation elects to obtain such insurance), the reasonable
fees and expenses of any special experts retained by the Corporation in
connection with such registration, reasonable fees and expenses of any other
persons retained by the Corporation and the fees and expenses associated with
any required filing with the National Association of Securities Dealers, Inc.
("NASD") (all such expenses being herein called "Registration Expenses").
Notwithstanding the foregoing, the Corporation is not required to pay any fees
or expenses of holders, underwriters, the holder's or any underwriter's counsel
(other than the blue sky counsel referred to above) or accountant or any other
advisers, including any transfer taxes, underwriting, brokerage and other
discounts and commissions and finders' and similar fees payable in the respect
of Registrable Securities.
(b) Each holder shall pay all costs and expenses incurred by such holder
(including all transfer taxes, underwriting, brokerage and other discounts and
commissions and finders' and similar fees payable in respect of Registrable
Securities). To the extent that any Registration Expenses are incurred, assumed
or paid by any holder or any placement or sales agent therefor or underwriter
thereof with the Corporation's prior written consent, the Corporation shall
reimburse such person for the full amount of the registration expenses so
incurred, assumed or paid within a reasonable time after receipt of a written
request therefor. Any registration expenses submitted by any holder, placement
or sales agent or underwriter or on behalf of any such person for payment by the
Corporation shall be itemized in detail and contain clear and accurate receipts
of all expenditures made by such parties.
SECTION 4. VOTING RIGHTS. The holders of Series A Preferred Stock shall be
entitled to vote with one vote per share as holders of Common Stock on all
matters on which Common Stockholders of the Corporation are entitled to vote, in
addition to any voting rights required by law.
SECTION 5. RANK AND PREFERENCE. Shares of Series A Preferred Stock shall,
with respect to dividend rights, rights on redemption and rights on liquidation,
winding up and dissolution, have preference over and rank prior to all classes
of Common Stock and shall rank PARI PASSU with all other series of Preferred
Stock. In case the stated dividends and the amounts payable on liquidation,
distribution or sale of assets, dissolution or winding up of the Corporation are
not paid in full, the shareholders of all series of Preferred Stock shall share
ratably in the payment of dividends, including accumulations, if any, in
accordance with the sums which would be payable on such shares if all dividends
were declared and paid in full and in any distribution of assets other than by
way of dividends, in accordance with the sums which would be payable on such
distribution if all sums payable were discharged and paid in full.
SECTION 6. DIVIDENDS AND RESTRICTIONS ON CERTAIN REPURCHASES.
6.1. The holders of the shares of Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors, out of
funds legally available for the payment of dividends, cumulative dividends at
the annual rate of 10% per annum, or ten cents ($0.10) per share. Each of such
12
annual dividends shall be fully cumulative and shall accrue (whether or not
declared or permitted to be paid), from the first day such shares were first
issued. The Corporation shall declare annual dividends and any appropriate
portion thereof prior to any conversion or redemption of the Series A Preferred
Stock.
6.2. In the event any shares of Series A Preferred Stock shall be
outstanding for more or less than the period covered by such dividend year, the
amount of the dividend shall be prorated for such periods. Such dividends shall
be paid to the holders of record at the close of business on the date specified
by the Board of Directors of the Corporation at the time the dividend is
declared; PROVIDED, HOWEVER, that such record date shall be not more than 30
days nor less than 10 days prior to the respective dividend payment date.
6.3. All dividends paid with respect to shares of the Series A Preferred
Stock shall be paid PRO RATA to the holders entitled thereto.
6.4. No dividends, other than dividends payable solely in Common Stock,
shall be declared by the Board of Directors on any class or series of equity
securities of the Corporation unless and until such time as all accrued and
unpaid dividends on the Series A Preferred Stock have been paid in full or
unless the Series A Preferred Stock has been redeemed in accordance with its
terms or are fully converted into Common Stock of the Corporation or are
otherwise reacquired and retired in full by the Corporation. The Corporation may
not pay or set apart for payment, other than dividends or other distributions or
payments payable solely in Common Stock, any other distributions on any shares
of the Corporation's Common Stock, and may not purchase or otherwise redeem for
cash or other tangible property, other than in shares of Common Stock, any
shares of the Corporation's Common Stock or any warrants, rights or options
exercisable for or convertible into any shares of Common Stock unless and until
such time as the Series A Preferred Stock has been redeemed in accordance with
its terms or are fully converted into Common Stock of the Corporation or are
otherwise reacquired and retired in full by the Corporation.
6.5. (a) In event the Corporation shall have accrued the payment of
dividends beyond a date on which dividends would otherwise be declared
hereunder, the Corporation, at the election of its Board of Directors made at
any time thereafter (so long as such dividends have not been paid in cash), may
elect to pay all cumulative accrued dividends otherwise due and payable in
shares of Series A Preferred Stock in lieu of cash. In such event, the
Corporation shall advise each holder of record of Series A Preferred Stock in
writing on the Record Date, not more than 30 days nor less than 10 days prior to
the respective dividend payment date, of the Corporation's election to make such
dividend payment in shares of the Series A Preferred Stock.
(b) For any dividend payment to be made in Series A Preferred Stock as
herein provided, the number of shares issuable for such dividend payment shall
be determined by dividing the cumulative accrued dividend payments due on said
dividend payment date by the $1.00 face value of the Series A Preferred Stock.
13
SECTION 7. LIQUIDATION, DISSOLUTION OR WINDING-UP.
7.1. In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of Series A Preferred
Stock then outstanding shall be entitled to receive ratably, prior and in
preference to any distribution of any of the assets of the Corporation to the
holders of any other equity securities of the Corporation other than Preferred
Stock, by reason of their ownership thereof, the sum of ONE DOLLAR ($1.00) per
share outstanding plus all accrued and unpaid dividends thereon, each payable in
cash (which may be payable from either capital or surplus) or, if cash is not
then available, in property of the Corporation. In the event it is necessary or
advisable for the Corporation to determine the value of property for any purpose
hereunder, the value of such property so received by holders of Series A
Preferred Stock will be deemed to be its fair market value as determined in good
faith by the Board of Directors of the Corporation unless a majority in interest
of the holders of issued and outstanding Series A Preferred Stock shall demand
an independent appraisal of such property. If, upon the occurrence of any such
event, the assets thus distributed among the holders of the Series A Preferred
Stock shall be insufficient to permit the payment to such holders of the full
preferential amount due to them hereunder, then the entire assets of this
Corporation legally available for distribution shall be distributed ratably
among the holders of all series of the Preferred Stock. Except as provided
above, holders of the Series A Preferred Stock shall not be entitled to any
distribution in the event of liquidation, dissolution or winding up of the
affairs of the Corporation.
7.2. For the purposes of this Section 7, a sale of all or substantially all
of the assets of this Corporation or a merger of the Corporation with or into
any other corporation or corporations where the Corporation is not the surviving
entity, shall not be deemed to be a liquidation, dissolution or winding-up of
the Corporation within the meaning of Section 7.1 unless no provision has been
made for the exchange of securities for Series A Preferred Stock in connection
with the consummation of any such sale of assets or merger.
7.3. The liquidation payment with respect to each outstanding fractional
share of Series A Preferred Stock shall be equal to a ratably proportionate
amount of the liquidation payment with respect to each outstanding share of
Series A Preferred Stock.
SECTION 8. REDEMPTION.
8.1. The Corporation shall have no mandatory obligation to redeem shares of
Series A Preferred Stock; PROVIDED, HOWEVER, in the event of any liquidation,
dissolution or winding-up of the Corporation, either voluntary or involuntary,
or in the event or sale of all or substantially all of the assets of this
Corporation or a merger of the Corporation with or into any other corporation or
corporations where the Corporation is not the surviving entity and in which no
provision has been made for the exchange of securities for Series A Preferred
Stock, each share of Series A Preferred Stock then outstanding shall be entitled
to receive the consideration specified in Section 7.1 above.
14
8.2. The Corporation at its option, at any time and from time to time, may
redeem all or any portion of the Series A Preferred Stock (and if only a
portion, in an amount equal to an even multiple of 10,000 shares) then
outstanding at a redemption price of ONE DOLLAR ($1.00) per share plus the
payment of all accrued and unpaid dividends on the shares so redeemed.
8.3. Upon any redemption of Series A Preferred Stock, written notice shall
be given to the holders of the Series A Preferred Stock for shares to be
purchased or redeemed at least thirty (30) days prior to the date fixed for
redemption. The notice shall be addressed to each such stockholder at the
address of such holder appearing on the books of the Corporation or given by
such holder to the Corporation for the purpose of notice, or, if no such address
appears or is so given, at the last known address of such shareholder. Such
notice shall specify the date fixed for redemption, shall state that all shares
of Series A Preferred Stock outstanding are to be redeemed and the number of
shares of Series A Preferred Stock to be so redeemed, and shall call upon such
holder to surrender to the Corporation on said date, at the place designated in
the notice, such holder's certificate or certificates representing the shares to
be redeemed on the date fixed for redemption stated in such notice. Unless such
person shall elect to convert the same into Common Stock in accordance with
Section 2 above, each holder of shares of Series A Preferred Stock called for
redemption shall surrender the certificate or certificates evidencing such
shares to the Corporation at the place designated in such notice and shall
thereupon be entitled to receive payment of the redemption price on the date
fixed for redemption.
8.4. If, on or prior to any date fixed for redemption, the Corporation
deposits, with any bank or trust company in the United States, as a trust fund,
a sum sufficient to redeem all shares of Series A Preferred Stock called for
redemption which have not theretofore been surrendered for conversion, with
irrevocable instructions and authority to the bank or trust company to pay, on
or after the date fixed for redemption, the redemption price of the shares to
their respective holders upon the surrender of their share certificates, then
from and after the date of redemption the shares to be redeemed shall be
redeemed and dividends and other distributions on those shares shall cease to
accrue after the date such shares were called for redemption. The deposit shall
constitute full payment for the shares of Series A Preferred Stock to their
holders and from and after the date of the deposit the shares of Series A
Preferred Stock shall no longer be outstanding, and the holders thereof shall
cease to be shareholders with respect to such shares, and shall have no rights
with respect thereto except the right to receive from the bank or trust company
payment of the redemption price of the shares without interest upon surrender of
their certificates therefor and the right to receive from the Corporation any
accrued dividends thereon through the date such shares were called for
redemption. Any interest accrued on any funds so deposited shall be the property
of, and paid to, the Corporation.
8.5. In the event that fewer than all the outstanding shares of Series A
Preferred Stock are to be redeemed, the number of shares to be redeemed shall be
determined by the Board of Directors and the shares to be redeemed shall be
selected by lot or pro rata as may be determined by the Board of Directors. In
15
case it shall designate by lot the shares so to be redeemed, the Board of
Directors shall have full power and authority to prescribe the manner in which
the drawings by lot shall be conducted.
8.6. Notwithstanding anything contained herein to the contrary, the
Corporation may not redeem any shares of Series A Preferred Stock and no sums
therefor shall be paid or set aside for payment by the Corporation if, at the
time and after giving effect to such payment, the same is prohibited by the laws
of the State of Nevada.
8.7. Upon any redemption of Series A Preferred Stock in accordance with the
foregoing, all of such shares of Series A Preferred Stock shall be canceled and
revert to the status of authorized and unissued shares of Preferred Stock.
SECTION 9. REQUIRED NOTICES. In case at any time:
(a) there shall be any capital reorganization or reclassification of the
capital stock of the Corporation, or any consolidation or merger of
the Corporation with, or sale of all or substantially all of its
assets to, another corporation; or
(b) there shall be a voluntary or involuntary dissolution, liquidation or
winding-up of the Corporation;
then, in any one or more of such cases, the Corporation shall cause to be mailed
to the holders of record of then outstanding shares of Series A Preferred Stock
(i) at least 30 days' prior written notice of the date on which the books of the
Corporation shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in respect
of any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up, and (ii) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, at least 30 days' prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause (i) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto, and such notice in accordance with the foregoing clause (ii)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, as the case may be.
SECTION 10. AMENDMENTS AND ADDITIONAL COVENANTS.
10.1. So long as any Series A Preferred Stock shall be outstanding, this
Corporation shall not, without the prior approval of the holders of not less
than a majority of the then issued and outstanding shares of Series A Preferred
Stock voting as a class, permit the Corporation to amend or repeal any provision
of, or add any provision to, this Certificate or the Corporation's Articles of
Incorporation or bylaws, if such action would alter or change the preferences,
rights, privileges or powers of, or the restrictions provided for the benefit
of, the Series A Preferred Stock.
16
10.2. So long as any Series A Preferred Stock shall be outstanding, the
Corporation shall:
(a) maintain its books of account and financial statements and records in
accordance with generally accepted accounting principles, and all
determinations hereunder, if any, which are dependent upon a
calculation of the Corporation's financial condition shall be
determined in accordance with generally accepted accounting
principles;
(b) promptly pay and discharge, or cause to be paid and discharged, when
due and payable, all lawful taxes, assessments and governmental
charges or levies imposed upon the income, profits, property, or
business of the Corporation or any subsidiary, except where the
Corporation is contesting any of the foregoing in good faith by
appropriate proceedings; and
(c) keep its properties in good repair, working order, and condition,
reasonable wear and tear excepted, and from time to time make all
needful and proper repairs, renewals, replacements, additions, and
improvements thereto, and the Corporation shall at all times comply
with the provisions of all material leases to which it is a party or
under which it occupies property so as to prevent any loss or
forfeiture thereof or thereunder.
10.3. So long as any Series A Preferred Stock shall be outstanding, the
Corporation shall furnish to each holder of record of the Series A Preferred
Stock as soon as practicable, but in any event within 150 days after the end of
each fiscal year of the Corporation, an income statement, statement of cash flow
and statement of changes in stockholders' equity for such fiscal year, and a
balance sheet of the Corporation as of the end of such year, such year-end
financial statements to be in reasonable detail, prepared in accordance with
generally accepted accounting principles, and audited and certified by
independent public accountants selected by the Board of Directors of the
Corporation.
"RESOLVED FURTHER, that the President or any Vice President of this
Corporation and the Secretary or any Assistant Secretary of the Corporation are
hereby authorized and directed to prepare, sign, and file with the Secretary of
the State of Nevada a Certificate of Designation of Series A Preferred Stock of
the Corporation in accordance with the resolutions set forth herein."
(3) We further certify that the authorized number of shares of Preferred
Stock of this Corporation is 10,000,000 shares; and that the number of shares
constituting the first series of Preferred Stock established by the foregoing
resolutions, none of which have been issued, is 5,000,000 shares.
[Signature Page Follows]
17
IN WITNESS WHEREOF, we have executed this instrument as of the dates set
forth below.
-------------------------------------
Larry L. Lozensky, President
-------------------------------------
Larry L. Lozensky, Secretary
State of Arizona )
) ss.:
County of Maricopa )
On September __, 1999, personally appeared before me, a Notary Public,
Larry L. Lozensky, who acknowledged that he executed the above instrument.
(Notary Stamp or Seal)
-------------------------------------
Signature of Notary
18