Exhibit 3.2
CERTIFICATE OF DESIGNATION OF SERIES C PREFERRED STOCK
OF LIGHTPATH TECHNOLOGIES, INC. Filed February 6, 1998
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 C 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 C 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 C
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 C Preferred
Stock (the "Series C Preferred Stock") and the number of shares constituting the
Series C Preferred Stock shall be five hundred (500). The Series C Preferred
Stock shall be offered at a purchase price of Ten Thousand Dollars ($10,000) per
share (the "Original Series C Issue Price"), with an eight percent (8%) per
annum accretion rate as set forth herein.
Section 2. Rank. The Series C 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 C 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 C 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 and with any class
or series of capital stock of the Company hereafter created specifically ranking
by its terms on parity with the Series C 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 C Preferred Stock will bear no
dividends, and the holders of the Series C Preferred Stock ("Holders") shall not
be entitled to receive dividends on the Series C Preferred Stock.
Section 4. Liquidation Preference.
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(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 C 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 C Issue Price for each outstanding share of Series C
Preferred Stock and (ii) an amount equal to eight percent (8%) of the Original
Series C 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 C Preferred Stock from the Company, the escrow agent
first had in its possession funds representing full payment for the shares of
Series C 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 C 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 C
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 C 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 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 C
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).
(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 C 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
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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 C Preferred Stock shall have conversion rights as follows
(the "Conversion Rights"):
(a) Right to Convert. The record Holder of the Series C
Preferred Stock shall be entitled to convert, subject to the Company's right of
redemption set forth in Section 6(a) and the conversion restrictions herein
below, any or all the aggregate principal amount of the Series C 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 C Preferred Stock =
(.08) (N/365) (10,000) + 10,000
-------------------------------
Conversion Price
where,
o 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
C Preferred Stock from the Company, the escrow agent first had in its
possession funds representing full payment for the shares of Series C
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 C Preferred Stock for which conversion is
being elected, and
o Conversion Price = the lesser of (x) 100% 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 ending on January 28, 1998, which
is $6.675 (the "Fixed Conversion Price"), or (y) 85% 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 C 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
percent (20%) of the aggregate principal amount of the Series C 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,
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there shall be no restrictions on the number of shares of Series C 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 C 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 C Preferred Stock that occurs
pursuant to the offering of the Series C Preferred Stock by the Company.
For purposes hereof, any Holder which acquires shares of Series C
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 C Preferred Stock acquired by such Holder from its Transferor bears to
the total number of shares of Series C 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 C
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 C Preferred Stock stating that the Holder elects to
convert, which notice shall specify the Date of Conversion, the number of shares
of Series C 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 C 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 (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.
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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 C 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 C 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 C 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 C 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 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 C
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
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6(b)(i) below) of the shares of Series C Preferred Stock being redeemed. If the
Company elects to redeem, on the Termination Date, the Company shall send to the
Holders of outstanding Series C Preferred Stock notice (the "Automatic
Redemption Notice") via facsimile of its intent to effect an Automatic
Redemption of the outstanding Series C 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 C Preferred Stock shall send their
certificates representing the Series C 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 C 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 C 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 C
Preferred Stock, the number of outstanding shares of 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 C Preferred Stock are issued and
outstanding, the number of outstanding shares of Common Stock is increased or
decreased by a stock split, stock dividend, or other similar event, which event
shall have taken place during the reference period for determination of the
Conversion Price for any conversion of the Series C 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 C 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 C Preferred
Stock shall thereafter have the right to receive upon conversion of Series C
Preferred Stock, upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Class A Common
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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 C 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 C 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 C 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 C 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. Redemption by Company.
(a) Company's Right to Redeem Upon Receipt of Notice of
Conversion. If the Variable Conversion Price of the Company's Class A Common
Stock is less than the Fixed Conversion Price (as defined in Section 5(a)), at
the time of receipt of a Notice of Conversion pursuant to Section 5(b), the
Company shall have the right, in its sole discretion, to redeem in whole or in
part any Series C Preferred Stock submitted for conversion at the Redemption
Rate (as defined below), immediately prior to and in lieu of conversion
("Redemption Upon Receipt of Notice of Conversion"). If the Company elects to
redeem some, but not all, of the Series C Preferred Stock submitted for
conversion, the Company shall redeem from among the Series C Preferred Stock
submitted by the various shareholders for conversion on the applicable date, a
pro-rata amount from each such Holder so submitting Series C Preferred Stock for
conversion.
(i) Redemption Price Upon Receipt of a Notice of
Conversion. The redemption price of Series C Preferred Stock under this Section
6(a) shall be calculated as follows ("Redemption Rate"): 120% of the Stated
Value, where Stated Value shall have the same meaning as defined in Section
6(b)(i) below.
(ii) Mechanics of Redemption Upon Receipt of Notice
of Conversion. The Company shall effect each such redemption by giving notice of
its election to redeem, by facsimile, by 5:00 p.m. New York City time the next
business day following receipt of a Notice of Conversion from a Holder, and the
Company shall provide a copy of such redemption notice by overnight or two (2)
day courier, to (A) the Holder of the Series C Preferred Stock submitted for
conversion at the address and facsimile number of such Holder appearing in the
Company's register for the Series C Preferred Stock and (B) the Company's
Transfer Agent. Such redemption notice shall indicate whether the Company will
redeem all or part of the Series C Preferred Stock submitted for conversion and
the applicable redemption price.
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(iii) Redemption Buy-In. If (i) subsequent to the
tender of a Notice of Conversion, but prior to its receipt of a Notice of
Redemption Upon Notice of Conversion, the Holder sells shares of Class A Common
Stock (the "Redemption Sold Shares") which such Holder anticipated receiving
upon such conversion, (ii) the Company effects a Redemption Upon Receipt of
Notice of Conversion with respect to such conversion, and (iii) the Holder
purchases (in an open market transaction), no later than the close of trading on
the trading day following its receipt of the Notice of Redemption Upon Notice of
Conversion, shares of Class A Common Stock to make delivery upon the sale of the
Redemption Sold Shares (a "Redemption Buy-In"), the Company shall pay such
Holder (in addition to the applicable Redemption Rate) the amount by which (x)
such Holder's total purchase price (including brokerage commission, if any) for
the shares of Class A Common Stock purchased in the Redemption Buy-In exceeds
(y) the net proceeds received by such Holder from the sale of the Redemption
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 Redemption 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 (and trading records, if reasonably requested by the Company)
indicating any amounts payable to Holder pursuant to this Section.
(b) Company's Right to Redeem at its Election. At any time,
commencing twelve (12) months and one (1) day after the Last Closing Date, the
Company shall have the right, in its sole discretion, to redeem ("Redemption at
Company's Election"), from time to time, any or all of the Series C Preferred
Stock; provided (i) the Company shall first provide thirty (30) days advance
written notice as provided in subparagraph 6(b)(ii) below (which can be given
beginning thirty (30) days prior to the date which is twelve (12) months and one
(1) day after the Last Closing Date), and (ii) that the Company shall only be
entitled to redeem Series C Preferred Stock having an aggregate Stated Value (as
defined below) of at least Three Hundred Seventy-five Thousand Dollars
($375,000). If the Company elects to redeem some, but not all, of the Series C
Preferred Stock, the Company shall redeem a pro-rata amount from each Holder of
the Series C Preferred Stock.
(i) Redemption Price At Company's Election. The
"Redemption Price At Company's Election" shall be calculated as a percentage of
Stated Value, as that term is defined below, of the Series C Preferred Stock
redeemed pursuant to this Section 6(b), which percentage shall vary depending on
the date of Redemption at Company's Election (as defined below), and shall be
determined as follows:
Date of Notice of Redemption at Company's Election % of Stated Value
-------------------------------------------------- -----------------
12 months and 1 day to 18 months following Last Closing Date 130%
18 months and 1 day to 24 months following Last Closing Date 125%
24 months and 1 day to 30 months following Last Closing Date 120%
30 months and 1 day to 36 months following Last Closing Date 115%
For purposes hereof, "Stated Value" shall mean the Original Series C
Issue Price (as defined in Section 1) of the shares of Series C Preferred Stock
being redeemed pursuant to this Section 6(b), together with the accreted but
unpaid Premium (as defined in Section 4(a)).
(ii) Mechanics of Redemption at Company's Election.
The Company shall effect each such redemption by giving at least thirty (30)
days prior written notice ("Notice of Redemption At Company's Election") to (A)
the Holders of the Series C Preferred Stock selected for
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redemption, at the address and facsimile number of such Holder appearing in the
Company's Series C Preferred Stock register and (B) the Transfer Agent, which
Notice of Redemption At Company's Election shall be deemed to have been
delivered three (3) business days after the Company's mailing (by overnight or
two (2) day courier, with a copy by facsimile) of such Notice of Redemption At
Company's Election. Such Notice of Redemption At Company's Election shall
indicate (i) the number of shares of Series C Preferred Stock that have been
selected for redemption, (ii) the date which such redemption is to become
effective (the "Date of Redemption At Company's Election") and (iii) the
applicable Redemption Price At Company's Election, as defined in subsection
(b)(i) above. Notwithstanding the above, Holder may convert into Class A Common
Stock pursuant to Section 5, prior to the close of business on the Date of
Redemption at Company's Election, any Series C Preferred Stock which it is
otherwise entitled to convert, including Series C Preferred Stock that has been
selected for redemption at the Company's election pursuant to this subsection
6(b); provided, however, that the Company shall still be entitled to exercise
its right to redeem upon receipt of a Notice of Conversion pursuant to Section
6(a).
(c) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to send any Redemption Notice and
begin the redemption procedure under Sections 6(a) and 6(b) unless it has:
(i) the full amount of the redemption price in cash,
available in a demand or other immediately available account in a bank or
similar financial institution; or
(ii) immediately available credit facilities, in the
full amount of the redemption price with a bank or similar financial
institution; or
(iii) an agreement with a standby underwriter willing
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
redemption; or
(iv) a combination of the items set forth in (i),
(ii) and (iii) above, aggregating the full amount of the redemption price.
If the foregoing conditions of this Section 6(c) are satisfied and the
Company complies with Section 6(d) hereof, then any shares of Series C Preferred
Stock called for by a Redemption at Company's Election shall cease to be
outstanding for all purposes hereunder (including the right to convert or to
accrete additional Premium or to exercise any other right or privilege
hereunder) on the Date of Redemption at Company's Election and shall instead
represent the right to receive the Redemption Price at Company's Election
without interest from and after the Date of Redemption at Company's Election.
(d) Payment of Redemption Price.
(i) Each Holder submitting Preferred Stock being
redeemed under this Section 6 shall send their Series C Preferred Stock
Certificates so redeemed to the Company or its Transfer Agent, and the Company
shall pay the applicable redemption price to that Holder within five (5)
business days of the Date of Redemption at Company's Election. The Company shall
not be obligated to deliver the redemption price unless the Preferred Stock
Certificates so redeemed are delivered to the Company or its Transfer Agent, or,
in the event one (1) or more certificates have been lost, stolen, mutilated or
destroyed, unless the Holder has complied with Section 5(b)(i).
9
(ii) If the Company elects to redeem pursuant to
Section 6(a) hereof, and the Company fails to pay Holder the redemption price
within the time frame as required by this Section 6(d), then the Company shall
issue shares of Class A Common Stock to any such Holder who has submitted a
Notice of Conversion in compliance with Section 5(b) hereof. The shares to be
issued to Holder pursuant to this provision shall be the number of shares
determined using a Conversion Price (as defined in Section 5 hereof) that equals
the lesser of (i) the Conversion Price on the date Holder sends its Notice of
Conversion to Company or Transfer Agent via facsimile or (ii) the Conversion
Price on the date the Transfer Agent issues Class A Common Stock pursuant to
this Section 6(d)(ii).
(e) Blackout Period. Notwithstanding the foregoing, the
Company may not either send out a redemption notice or effect a redemption
pursuant to Section 6(b) above during a Blackout Period (defined as a period
during which the Company's officers or directors would be prohibited from buying
or selling stock pursuant to the Securities Exchange Act of 1934, as amended,
because of their holding of material non-public information), unless the Company
shall first disclose the non-public information that resulted in the Blackout
Period; provided, however, that no redemption shall be effected until at least
ten (10) days after the Company shall have given the Holder written notice that
the Blackout Period has been lifted.
Section 7. Voting Rights. The Holders of the Series C 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 C 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
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 C 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 C 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 C 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 C
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 C Preferred Stock
shall be entitled to a number of votes equal to the number of shares of Class A
Common Stock
10
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 C 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 C
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 C 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 C Preferred Stock or any securities so as to affect adversely the
Series C Preferred Stock;
(b) create any new class or series of stock having a
preference over or on parity with the Series C Preferred Stock with respect to
Distributions (as defined in Section 2 above) or increase the size of the
authorized number of Series C 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 C 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 C 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 C Preferred
Stock, pursuant to subsection (a) above, so as to affect the Series C Preferred
Stock, then the Company will deliver notice of such approved change to the
Holders of the Series C 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 C Preferred Stock, as amended.
Section 9. Status of Converted or Redeemed Stock. In the event any
shares of Series C 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 C
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 C Preferred
Stock.
Section 11. Authorization and Reservation of Shares of Common Stock.
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(a) Authorized and Reserved Amount. The Company shall have
authorized and reserved and keep available for issuance one million seven
hundred fifty thousand (1,750,000) shares of Class A Common Stock (the "Reserved
Amount") solely for the purpose of effecting the conversion of the Series C
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 C 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 C Preferred Stock, and 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 C Preferred Stock, and exercise of
the Common Warrants.
(c) Reduction of Reserved Amount Under Certain Circumstances.
Prior to complete conversion of all Series C 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 C Preferred Stock, the Company may, with
fifteen (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 C 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 C
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 C Preferred Stock shall be allocated to the remaining Holders, pro rata
based on the number of Series C Preferred Stock, and Common Warrants then held
by such Holders.
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
12
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 C Issue Price for each share
of Series C 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 C 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 C 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 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 C
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
13
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 C Preferred Stock for
any reason, then the Conversion Price for the affected Series C 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 Borrower of such
Event of Default to have all or any portion of such Holder's then outstanding
Series C 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 C
Preferred Stock selected for prepayment and the Holder Demand Prepayment Amount
to the Borrower 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 Borrower) of such
notice.
(iii) The Holder Demand Prepayment Amount shall be
paid to a Holder whose Series C Preferred Stock are being prepaid within one (1)
business day following the Effective Date of Demand of Prepayment; provided,
however, that the Borrower 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 C Preferred Stock being prepaid are delivered to the
office of the Borrower or the Transfer Agent, or the date on which the Holder
notifies the Borrower or the
14
Transfer Agent that such Series C 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 C 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;
(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 C 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 C 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
15
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 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 C 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 February 6, 1998
/s/Donald E. Lawson
-----------------------------------
Donald E. Lawson, President
16