CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK
OF
GUM TECH INTERNATIONAL, INC.
Gum Tech International, Inc. (the "COMPANY"), a corporation organized and
existing under the laws of the State of Utah, does hereby certify that, pursuant
to authority conferred upon the Board of Directors of the Company by the
Articles of Incorporation, as amended, of the Company, and pursuant to Section
16-10a-602 of the Utah Revised Business Corporation Act, the Board of Directors,
as of May 28, 1999, duly adopted resolutions without shareholder action
(shareholder action was not required) (i) authorizing a series of the Company's
previously authorized preferred stock, no par value per share, and (ii)
providing for the designations, preferences and relative, participating,
optional or other rights, and the qualifications, limitations or restrictions
thereof, of Two Thousand (2,000) shares of Series A Preferred Stock of the
Company, as follows:
RESOLVED, that the Company is authorized to issue 2,000 shares of
Series A Preferred Stock (the "PREFERRED SHARES"), no par value per
share, which shall have the following powers, designations,
preferences and other special rights:
(1) VOTING RIGHTS. Holders of Preferred Shares shall have no voting
rights, except as required by law, including but not limited to the Utah Revised
Business Corporation Act, and as expressly provided in this Certificate of
Designations.
(2) DIVIDENDS. Each Preferred Share shall bear dividends ("DIVIDENDS")
at a rate of 14.0% per annum, which shall be cumulative, accrue daily from the
date of issuance of each Preferred Share (the "ISSUANCE DATE") and be payable in
cash on June 30, September 30, December 31 and March 31 of each calendar year
until the Maturity Date (as defined below) (each a "DIVIDEND DATE"). If a
Dividend Date is not a Business Day (as defined below) then the Dividend shall
be due and payable on the Business Day immediately following the Dividend Date.
Any accrued and unpaid dividends which are not paid within five (5) Business
Days following the Dividend Date for such accrued and unpaid dividends shall
bear interest at the rate of 18.0% per annum from such Dividend Date until the
same are paid in full (the "DEFAULT INTEREST"). For purposes hereof, "BUSINESS
DAY" means any day other than a Saturday, Sunday or other day on
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which commercial banks in the City of Chicago are authorized or required by law
to remain closed.
(3) CONVERSION OF PREFERRED SHARES AT MATURITY.
(a) CONVERSION. Upon the second anniversary of the Issuance Date (the
"MATURITY DATE") each Preferred Share shall automatically convert into a number
of shares of common stock of the Company, no par value per share ("COMMON
STOCK"), determined by dividing the Stated Value (as defined below) of such
Preferred Share plus any accrued and unpaid dividends and any Default Interest
thereon by the Conversion Price (as defined below). The Company shall not issue
any fraction of a share of Common Stock upon such conversion, but instead, shall
round such fraction of a share of Common Stock up or down to the nearest whole
share. For purposes of this Certificate of Designations, the following terms
shall have the following meanings:
(i) "CLOSING BID PRICE" means, for any security as of any date,
the last closing bid price for such security on the Nasdaq National
Market (the "PRINCIPAL MARKET") as reported by Bloomberg Financial
Markets ("BLOOMBERG"), or, if the Principal Market is not the
principal securities exchange or trading market for such security, the
last closing bid price of such security on the principal securities
exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last
closing bid price of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price is reported for such security
by Bloomberg, the last closing trade price of such security as
reported by Bloomberg, or, if no last closing trade price is reported
for such security by Bloomberg, the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by
the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing
bases, the Closing Bid Price of such security on such date shall be
the fair market value as mutually determined by the Company and the
holders of Preferred Shares. If the Company and the holders of
Preferred Shares are unable to agree upon the fair market value of the
Common Stock, then such dispute shall be resolved pursuant to Section
3(c) below with the term "Closing Bid Price" being substituted for the
term "Conversion Price."
(ii) "CONVERSION PRICE" means, as of any date, the product of (x)
the average of the Closing Bid Prices for the Common Stock for the
twenty (20) consecutive trading days immediately preceding such date
and (y) eighty percent (80%). (Such determination to be appropriately
adjusted for any stock dividend, stock split or other similar
transaction during such period.)
(iii) "SECURITIES PURCHASE AGREEMENT" means the Securities
Purchase Agreement by and among the Company and the original holders
of the Preferred Shares named therein.
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(iv) "STATED VALUE" means $1,000.00.
(b) MECHANICS OF CONVERSION. On the Maturity Date, all holders of
Preferred Shares shall surrender all stock certificates representing such shares
to the Company, duly endorsed for cancellation. Within one business day after
receipt of Preferred Shares duly endorsed for cancellation, the Company shall
issue to the holder surrendering such shares a stock certificate representing a
number of shares of Common Stock determined in accordance with Section 3(a);
provided, that in lieu of issuing shares of Common Stock in respect of the
conversion of Preferred Shares upon the Maturity Date, the Company may, upon
written notice delivered to the holders of Preferred Shares no later than 30
Business Days prior to the Maturity Date, elect to redeem all outstanding
Preferred Shares on the Maturity Date by paying to each holder an amount of cash
equal to the aggregate Stated Value of all Preferred Shares being redeemed, plus
any accrued and unpaid dividends and Default Interest thereon. Any such payment
shall be made to a holder of Preferred Shares on the Maturity Date by wire
transfer of immediately available funds to an account designated by such holder,
provided that such holder has surrendered such holder's Preferred Shares, duly
endorsed for cancellation, on or prior to such date.
(c) DISPUTE RESOLUTION. If a holder of Preferred Shares and the Company
are unable to agree upon the determination of the Conversion Price then the
Company shall within three (3) Business Days submit via facsimile the disputed
determination to an independent, reputable investment bank selected by the
Company and approved by the holders of such Preferred Shares. The Company shall
cause the investment bank to perform the determination of the Conversion Price
and notify the Company and the holder of the results no later than five (5)
business days from the time it receives the disputed determination. Such
investment bank's determination of the Conversion Price shall be binding upon
all parties absent manifest error.
(d) RECORD HOLDER. The person or persons entitled to receive the shares
of Common Stock issuable upon a conversion of Preferred Shares shall be treated
for all purposes as the record holder or holders of such shares of Common Stock
on the Maturity Date.
(e) TAXES. The Company shall pay any and all taxes that may be payable
with respect to the issuance and delivery of Common Stock upon the conversion of
Preferred Shares.
(4) REDEMPTION AT OPTION OF HOLDERS UPON EVENT OF DEFAULT.
(a) REDEMPTION OPTION. In addition to all other rights of the holders
of Preferred Shares contained herein, after an Event of Default (as defined
below), each holder of Preferred Shares shall have the right, at such holder's
option, to require the Company to redeem for cash all or a portion of such
holder's Preferred Shares at a price per Preferred Share equal to, in the case
of an Event of Default described in clauses (i), (ii) and (iv) below, 110% of
the Stated Value or, in the case of an Event of Default other than an Event of
Default described in clauses (i), (ii) and (iv) below, 100% of the Stated Value,
in each case together with accrued but unpaid dividends and Default Interest
thereon ("REDEMPTION PRICE"). An "EVENT OF DEFAULT" shall be deemed to have
occurred at such time as any of the following events shall have occurred:
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(i) the failure of the registration statement (the "REGISTRATION
STATEMENT") filed pursuant to that certain registration rights
agreement by and between the Company and the initial holders of the
Preferred Shares (the "REGISTRATION RIGHTS AGREEMENT") to be declared
effective by the Securities and Exchange Commission (the "SEC") on or
prior to the date that is 150 days after the original date of issuance
of the Preferred Shares (the "SCHEDULED EFFECTIVE DATE");
(ii) while the Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights
Agreement (and subject to the Allowable Grace Periods set forth in
Section 3(u) thereof), the effectiveness of the Registration Statement
lapses for any reason (including, without limitation, the issuance of
a stop order) or is unavailable to the holder of the Preferred Shares
for sale of all of the Registrable Securities (as defined in the
Registration Rights Agreement) in accordance with the terms of the
Registration Rights Agreement, provided that the cause of such lapse
or unavailability is not due to factors solely within the control of
such holder of Preferred Shares;
(iii) the suspension from trading or failure of the Common Stock
to be listed on the Principal Market, The New York Stock Exchange,
Inc. or The American Stock Exchange, Inc. for a period of five
consecutive trading days or for more than an aggregate of 10 trading
days in any 365-day period;
(iv) upon the Company's failure to pay the Stated Value or
dividends on the Preferred Stock when due and payable pursuant to the
terms hereof (including, without limitation, the mandatory prepayment
of fifty percent (50%) of the original Stated Value of the Preferred
Shares within twelve (12) months following the Closing Date (as
defined in the Securities Purchase Agreement) as provided in Section
16);
(v) the Company or any Subsidiary (A) is generally not paying, or
admits in writing its inability to pay, its debts as they become due,
(B) files, or consents by answer or otherwise to the filing against it
of, a petition for relief or reorganization or arrangement or any
other petition in bankruptcy, for liquidation or to take advantage of
any bankruptcy, insolvency, reorganization, moratorium or other
similar law of any jurisdiction, (C) makes an assignment for the
benefit of its creditors, (D) consents to the appointment of a
custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property,
(E) is adjudicated as insolvent or to be liquidated, or (F) takes
corporate action for the purpose of any of the foregoing;
(vi) on or prior to December 31, 2000, Gary S. Kehoe shall cease
to be employed in the capacity of an executive officer of the Company
with substantial responsibility for day-to-day operation of the
Company's gum business;
(vii) the Company defaults in the performance of or compliance
with any term contained in this Certificate of Designations, the
Securities Purchase Agreement, or the Registration Rights Agreement
(other than those referred to in
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subparagraph (iv) above) and such default is not remedied within 30
days after the earlier of (A) an officer of the Company obtaining
actual knowledge of such default and (B) the Company receiving written
notice of such default from any holder of Preferred Shares; or
(viii) any representation or warranty made in writing by or on
behalf of the Company or by any officer of the Company in any
agreement, document, certificate or instrument furnished in connection
with the Securities Purchase Agreement or the transactions
contemplated thereby proves to have been false or incorrect in any
material respect on the date as of which made, provided however, that
the holders of Preferred Shares agree that there shall not be an Event
of Default hereunder based upon a claim that any projections prepared
by the Company were materially misleading so long as at the time such
projections were prepared, the Company had a reasonable basis for
making such projections.
(b) REDEMPTION NOTICES. Within one (1) day after the occurrence of an
Event of Default or upon notice of an event which would constitute an Event of
Default, the Company shall deliver written notice thereof via facsimile and
overnight courier ("DEFAULT NOTICE") to each holder of Preferred Shares. At any
time after the earlier of a holder's receipt of a Default Notice and such holder
becoming aware of an Event of Default, any holder of Preferred Shares then
outstanding may require the Company to redeem any or all of the Preferred Shares
by delivering written notice thereof via facsimile and overnight courier
("NOTICE OF REDEMPTION") to the Company, which Notice of Redemption shall
indicate (i) the number of Preferred Shares that such holder is electing to
redeem and (ii) the aggregate Redemption Price. Upon the Company's receipt of a
Notice of Redemption from any holder of Preferred Shares, the Company shall
immediately notify each other holder of Preferred Shares by facsimile of the
Company's receipt of such notice.
(c) PAYMENT OF REDEMPTION PRICE. Each holder which has sent a Notice of
Redemption to the Company shall promptly submit to the Company such holder's
stock certificates representing Preferred Shares which such holder has elected
to have redeemed. The Company shall deliver the Redemption Price to such holder
within five business days after the Company's receipt of a Notice of Redemption;
provided that a holder's stock certificates representing Preferred Shares shall
have been so delivered to the Company. If the Company is unable to redeem all of
the Preferred Shares submitted for redemption, the Company shall (i) redeem a
pro rata amount from each holder of Preferred Shares based on the number of
Preferred Shares submitted for redemption by such holder relative to the total
number of Preferred Shares submitted for redemption by all holders of Preferred
Shares and (ii) in addition to any remedy such holder of Preferred Shares may
have under this Certificate of Designations or otherwise, pay to each holder
interest at the rate of 2.5% per month (prorated for partial months) in respect
of each unredeemed Preferred Share until paid in full.
(d) VOID REDEMPTION. Notwithstanding the foregoing provisions of this
Section 4, if the Company receives a Notice of Redemption in connection with an
Event of Default arising out of the occurrence of an event described in clause
(i), (iii) or (vi) of Section 4(a), and such occurrence is by reason of events
which are not solely within the control of the Company,
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the Company shall not be required to effect any redemption of the Preferred
Shares pursuant to such notice; provided, that the Company shall be required to
provide the holder submitting such Notice of Redemption with (i) a certificate
of the Company's Chief Financial Officer stating that (x) the Event of Default
in question has occurred by reason of events which are not solely within the
control of the Company and (y) the redemption of the Preferred Shares in
connection with such Event of Default would result in the Company being required
to classify the Series A Preferred Stock as redeemable preferred stock on a
balance sheet of the Company prepared in accordance with generally accepted
accounting principles and practices ("GAAP") and (ii) an Auditors Determination
(as defined below). For purposes hereof, an "AUDITORS DETERMINATION" means a
determination requested by the Company and signed by the Company's independent
accounting firm (the "AUDITORS") concurring with the Company's conclusion that a
requirement of the Company to redeem, or a right of any holder of Preferred
Shares to require redemption of, Preferred Shares by reason of the occurrence of
an Event of Default described in clause (i), (iii) or (vi) of Section 4(a) would
result in the Company being required to classify the Series A Preferred Stock as
redeemable preferred stock on a balance sheet of the Company in accordance with
GAAP. The Auditors Determination shall (1) set forth in reasonable detail all
relevant facts considered by the Auditors in connection therewith, (2) set forth
all applicable accounting principles and assumption used, and (3) set forth in
reasonable detail or attach copies of all legal, expert and other advice or
information used by the Auditors in reaching their conclusion. To the extent any
facts are assumed for purposes of either the Company's conclusion or the
Auditors Determination, the validity of such conclusion or determination shall
depend upon such assumed facts being true and complete in all material respects.
In the event that the Company is not obligated to redeem Preferred Shares as a
result of the application of the provisions of this Section 4(d), the holder of
such Preferred Shares shall have the right to rescind such holder's Notice of
Redemption as provided in Section 4(e) below.
(e) REDEMPTION RESCISSION. In the event that (x) the Company does not
pay the Redemption Price within the time period set forth in Section 4(c), or
(y) the Company has voided a holder's request for redemption of Preferred Shares
pursuant to Section 4(d), a holder of Preferred Shares shall have the option
(the "RESCIND REDEMPTION OPTION") to, in lieu of redemption, require the Company
to promptly return to such holder any or all of the Preferred Shares that were
submitted for redemption by such holder under this Section 4 and for which the
applicable Redemption Price (together with any interest thereon) has not been
paid, by sending written notice thereof to the Company via facsimile (the
"RESCIND REDEMPTION NOTICE"). Upon the Company's receipt of such Rescind
Redemption Notice, (i) the Notice of Redemption shall be null and void with
respect to those Preferred Shares subject to the Rescind Redemption Notice, (ii)
the Company shall immediately return any Preferred Shares subject to the Rescind
Redemption Notice to the holder, (iii) the holder of such Preferred Shares
shall, on any date thereafter at such holder's option, be entitled to convert
all or any portion of such holder's Preferred Shares (including accrued and
unpaid dividends thereon plus any Default Interest) for shares of Common Stock
at the Conversion Price and (iv) the dividend rate on the Preferred Shares set
forth in Section 2 shall be increased to 24% per annum. Any conversion of
Preferred Shares in connection with the preceding clause (iii) may be made by a
holder on any date by delivery of a facsimile notice setting out the number of
Preferred Shares (including accrued and unpaid dividends thereon plus any
Default Interest) to be converted on such date and the calculation of the
Conversion Price.
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The Company shall deliver shares of Common Stock in respect of any such
conversion within three (3) Business Days following receipt of such notice.
(f) MISCELLANEOUS. A holder's delivery of a Rescind Redemption Notice
and exercise of its rights following such notice shall not affect the Company's
obligations to make any payments which have accrued prior to the date of such
notice. In the event of a redemption pursuant to this Section 4 of less than all
of the Preferred Shares represented by a particular preferred stock certificate,
the Company shall promptly cause to be issued and delivered to the holder of
such Preferred Shares a preferred stock certificate representing the remaining
Preferred Shares which have not been redeemed.
(5) OTHER RIGHTS OF HOLDERS.
(a) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR Sale.
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets to another Person (as
defined below) or other transaction which is effected in such a way that holders
of Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock is referred to herein as "ORGANIC CHANGE." Prior to the
consummation of any (i) sale of all or substantially all of the Company's assets
to an acquiring Person or (ii) other Organic Change following which the Company
is not a surviving entity, to the extent that holders of Preferred Shares have
not elected to be redeemed pursuant to the provisions of Section 5(b), the
Company will secure from the Person purchasing such assets or the successor
resulting from such Organic Change (in each case, the "ACQUIRING ENTITY") a
written agreement (in form and substance satisfactory to the holders of a
majority of the Preferred Shares then outstanding) to deliver to each holder of
Preferred Shares in exchange for such shares, a security of the Acquiring Entity
evidenced by a written instrument substantially similar in form and substance to
the Preferred Shares, including, without limitation, having a stated value and
liquidation preference equal to the Stated Value and the Liquidation Preference
of the Preferred Shares held by such holder, and satisfactory to the holders of
a majority of the Preferred Shares then outstanding. Prior to the consummation
of any other Organic Change, the Company shall make appropriate provision (in
form and substance satisfactory to the holders of a majority of the Preferred
Shares then outstanding) to insure that each of the holders of the Preferred
Shares will thereafter have the right to acquire and receive in lieu of or in
addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
Preferred Shares such shares of stock, securities or assets that would have been
issued or payable in such Organic Change with respect to or in exchange for the
number of shares of Common Stock which would have been acquirable and receivable
upon the conversion of such holder's Preferred Shares as of the date of such
Organic Change (without taking into account any limitations or restrictions on
the convertibility of the Preferred Shares at the Conversion Price). For
purposes hereof, a "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
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(b) OPTIONAL REDEMPTION UPON CHANGE OF CONTROL. In addition to the
rights of the holders of Preferred Shares under Section 5(a), upon a Change of
Control (as defined below) of the Company, each holder of Preferred Shares shall
have the right, at such holder's option, to require the Company to redeem all or
a portion of such holder's Preferred Shares at a price per Preferred Share equal
to the Redemption Price. No sooner than 15 days nor later than 10 days prior to
the consummation of a Change of Control, but not prior to the public
announcement of such Change of Control, the Company shall deliver written notice
thereof via facsimile and overnight courier (a "NOTICE OF CHANGE OF CONTROL") to
each holder of Preferred Shares. At any time during the period beginning after
receipt of a Notice of Change of Control (or, in the event a Notice of Change of
Control is not delivered at least 10 days prior to a Change of Control, at any
time on or after the date which is 10 days prior to a Change of Control) and
ending on the date of such Change of Control, any holder of the Preferred Shares
then outstanding may require the Company to redeem all or a portion of the
holder's Preferred Shares then outstanding by delivering written notice thereof
via facsimile and overnight courier (a "NOTICE OF REDEMPTION UPON CHANGE OF
CONTROL") to the Company, which Notice of Redemption Upon Change of Control
shall indicate (i) the number of Preferred Shares that such holder is submitting
for redemption, and (ii) the aggregate Redemption Price. Upon the Company's
receipt of a Notice(s) of Redemption Upon Change of Control from any holder of
Preferred Shares, the Company shall promptly, but in no event later than one (1)
business day following such receipt, notify each holder of Preferred Shares by
facsimile of the Company's receipt of such Notice(s) of Redemption Upon Change
of Control. The Company shall deliver the aggregate Redemption Price to which a
holder is entitled simultaneously with the consummation of the Change of
Control; provided that, a holder's stock certificates representing the Preferred
Shares being redeemed shall have been so delivered to the Company. Payments
provided for in this Section 5(b) shall have priority to payments to other
stockholders in connection with a Change of Control. For purposes of this
Section 5(b), "CHANGE OF CONTROL" means (i) the consolidation, merger or other
business combination of the Company with or into another Person which action
requires the approval of the Company's Board of Directors (other than (A) a
consolidation, merger or other business combination in which holders of the
Company's voting power immediately prior to the transaction continue after the
transaction to hold, directly or indirectly, the voting power of the surviving
entity or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, or (B) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Company), (ii) the sale or
transfer of all or substantially all of the Company's assets, or (iii) a
purchase, tender or exchange offer made to and accepted by the holders of more
than 30% of the outstanding shares of Common Stock which action requires the
approval of the Company's Board of Directors.
(6) PURCHASE RIGHTS. If at any time the Company grants, issues or sells
any options, convertible securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "PURCHASE RIGHTS"), then the holders of Preferred Shares will
be entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such holder
had held the number of shares of Common Stock acquirable upon complete
conversion of the Preferred Shares (without taking into account any limitations
or restrictions on the convertibility of the
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Preferred Shares) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase
Rights.
(7) LIQUIDATION, DISSOLUTION, WINDING-UP. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Company, the
holders of the Preferred Shares shall be entitled to receive in cash out of the
assets of the Company, whether from capital or from earnings available for
distribution to its stockholders (the "LIQUIDATION FUNDS"), before any amount
shall be paid to the holders of any of the capital stock of the Company of any
class junior in rank to the Preferred Shares in respect of the preferences as to
the distributions and payments on the liquidation, dissolution and winding up of
the Company, an amount per Preferred Share equal to the sum of the Stated Value
plus accrued and unpaid dividends and Default Interest thereon (such sum being
referred to as the "LIQUIDATION PREFERENCE"); provided that, if the Liquidation
Funds are insufficient to pay the full amount due to the holders of Preferred
Shares and holders of shares of other classes or series of preferred stock of
the Company that are of equal rank with the Preferred Shares as to payments of
Liquidation Funds (the "PARI PASSU Shares"), then each holder of Preferred
Shares and Pari Passu Shares shall receive a percentage of the Liquidation Funds
equal to the full amount of Liquidation Funds payable to such holder as a
liquidation preference, in accordance with their respective Certificate of
Designations, Preferences and Rights, as a percentage of the full amount of
Liquidation Funds payable to all holders of Preferred Shares and Pari Passu
Shares. The purchase or redemption by the Company of stock of any class, in any
manner permitted by law, shall not, for the purposes hereof, be regarded as a
liquidation, dissolution or winding up of the Company. Neither the consolidation
or merger of the Company with or into any other Person, nor the sale or transfer
by the Company of less than substantially all of its assets, shall, for the
purposes hereof, be deemed to be a liquidation, dissolution or winding up of the
Company. No holder of Preferred Shares shall be entitled to receive any amounts
with respect thereto upon any liquidation, dissolution or winding up of the
Company other than the amounts provided for herein; provided that a holder of
Preferred Shares shall be entitled to all amounts previously accrued with
respect to amounts owed hereunder.
(8) PREFERRED RANK. All shares of capital stock (other than Preferred
Shares) shall be of junior rank to the Preferred Shares in respect to the
preferences as to distributions and payments upon the liquidation, dissolution
and winding up of the Company. The rights of all such shares of capital stock
shall be subject to the preferences and relative rights of the Preferred Shares.
Without the prior express written consent of the holders of not less than
two-thirds (2/3) of the then outstanding Preferred Shares, the Company shall not
hereafter authorize or issue additional or other capital stock that is of senior
or equal rank to the Preferred Shares in respect of the preferences as to
distributions and payments upon the liquidation, dissolution and winding up of
the Company. Without the prior express written consent of the holders of not
less than two-thirds (2/3) of the then outstanding Preferred Shares, the Company
shall not hereafter authorize or make any amendment to the Company's Certificate
of Incorporation or bylaws, or file any resolution of the board of directors of
the Company with the Utah Secretary of State or enter into any agreement
containing any provisions, which would adversely affect or otherwise impair the
rights or relative priority of the holders of the Preferred Shares relative to
the holders of the
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Common Stock or the holders of any other class of capital stock. In the event of
the merger or consolidation of the Company with or into another corporation, the
Preferred Shares shall maintain their relative powers, designations and
preferences provided for herein and no merger shall result inconsistent
therewith.
(9) RESTRICTION ON REDEMPTION AND CASH DIVIDENDS. Until all of the
Preferred Shares have been converted or redeemed as provided herein, the Company
shall not, directly or indirectly, redeem, or declare or pay any cash dividend
or distribution on, its Common Stock without the prior express written consent
of the holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares.
(10) VOTE TO CHANGE THE TERMS OF PREFERRED SHARES. The affirmative vote
at a meeting duly called for such purpose or the written consent without a
meeting, of the holders of not less than two-thirds (2/3) of the then
outstanding Preferred Shares, shall be required for any change to this
Certificate of Designations or the Company's Certificate of Incorporation which
would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Preferred Shares.
(11) LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of any stock certificates representing the Preferred Shares, and,
in the case of loss, theft or destruction, of any indemnification undertaking by
the holder to the Company in customary form and, in the case of mutilation, upon
surrender and cancellation of the stock certificate(s) representing the
Preferred Shares, the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall not
be obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Company to convert such Preferred Shares into
Common Stock.
(12) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designations. The Company covenants to each holder of Preferred Shares that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holders of the
Preferred Shares and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holders of the Preferred Shares shall be entitled, in
addition to all other available remedies, to an
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injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.
(13) SPECIFIC SHALL NOT LIMIT GENERAL; CONSTRUCTION. No specific
provision contained in this Certificate of Designations shall limit or modify
any more general provision contained herein. This Certificate of Designations
shall be deemed to be jointly drafted by the Company and all Buyers and shall
not be construed against any person as the drafter hereof.
(14) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part
of a holder of Preferred Shares in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
(15) PAYMENTS. Any payments to be made hereunder shall be made by check
or wire transfer of immediately available funds to the address, account or
accounts of record of the holders of Preferred Shares on the books of the
Company or to such other address, account or accounts as the holders of
Preferred Shares shall notify the Company in writing from time to time.
(16) REDEMPTION BY THE COMPANY.
(a) MANDATORY AND OPTIONAL REDEMPTIONS. Subject to the provisions of
this Section 16, the Company may, at its option, upon notice as provided below,
redeem all or any part of, the Preferred Shares on a pro-rata basis (based upon
the Stated Value of Preferred Shares outstanding at the time of redemption);
provided that the Company must redeem at least fifty percent (50%) of the Stated
Value of the Preferred Shares within twelve (12) months after the Closing Date
(as defined in the Securities Purchase Agreement). Any redemption of the
Preferred Shares shall be made at a price equal to 110% of the Stated Value so
redeemed, plus accrued but unpaid dividends to the date of redemption and
Default Interest thereon. The redemption may be made in cash or (no more often
than once in each period of twenty (20) consecutive days during which securities
are normally traded on the Principal Market (a "TRADING DAY")) by issuance of a
number of shares of Common Stock determined by dividing the redemption amount by
ninety five percent (95%) of the average of the Closing Bid Prices of the Common
Stock for the twenty (20) consecutive Trading Days immediately preceding the
date of the Company's notice of redemption described below in subsection 16(b).
Notwithstanding the foregoing, the Company must redeem the Preferred Shares in
cash (to the extent such redemption is required) if (i) any event constituting
an Event of Default, or an event that with the passage of time would constitute
an Event of Default if not cured, has occurred and is continuing on the date of
the Company's notice of redemption as provided in Section 16(b) below or on the
date of redemption, unless otherwise consented to in writing by the holder of
the Preferred Shares entitled to receive such redemption, or (ii) the
Registration Statement has not been declared effective by the SEC on or before
the date of redemption. To the extent the Company elects or is required to
redeem the Preferred Shares as provided in this Section 16, the Company shall
also prepay a proportional amount of Notes (as defined in the Securities
Purchase Agreement) (based upon the unpaid principal amount of the Notes
outstanding relative to the Stated Value of the Preferred Shares outstanding) as
required pursuant to Section 8 of the Securities Purchase Agreement.
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b. NOTICE OF REDEMPTION. The Company will give each holder of Preferred
Shares two (2) Trading Days prior written notice of each optional or mandatory
redemption pursuant to Section 16(a). Any such redemption notice given by the
Company shall be irrevocable. Each such notice shall specify the redemption date
(which date shall not be more than three (3) Trading Days following the date of
the redemption notice), the aggregate Stated Value of Preferred Shares to be
redeemed on such date, and the accrued and unpaid dividend amount plus any
Default Interest with respect to the Preferred Shares being redeemed.
c. ALLOCATION OF PARTIAL REDEMPTION. In the case of any partial
redemption of the Preferred Shares pursuant to Section 16(a), the proceeds of
such redemption shall be applied pro-rata (based upon the aggregate Stated Value
of each Preferred Share then outstanding) to the Preferred Shares then
outstanding. To the extent any holder of Preferred Shares receives more than its
pro-rata portion of any such redemption, it shall immediately turn over to the
other holders of Preferred Shares, their respective portion of such redemption.
d. EFFECT OF REDEMPTION; SURRENDER, ETC. In the case of each redemption
of Preferred Shares pursuant to Section 16(a), each Preferred Share to be
redeemed shall become due and payable on the date fixed for such redemption,
together with dividends on such Preferred Share accrued to such date. From and
after such date, unless the Company shall fail to pay such amount when so due
and payable, together with the dividends as aforesaid, dividends on such amount
shall cease to accrue. Any Preferred Share redeemed in full shall be surrendered
to the Company and canceled and shall not be reissued, and no Preferred Share
shall be issued in lieu of any Preferred Share redeemed pursuant to the
provisions of this Section 16.
e. LIMIT ON REDEMPTION AMOUNTS. Notwithstanding anything to the
contrary set forth in this Section 16, the aggregate principal amount of Notes
together with the Stated Value of Preferred Shares to be prepaid and redeemed by
the Company at any one time shall be limited to an aggregate amount that would
result in the issuance of shares of Common Stock not in excess of 200% of the
average daily trading volume of the Common Stock on the Principal Market as
reported by Bloomberg over the period of 20 consecutive Trading Days ending on
the trading day immediately preceding the Company's notice of redemption
delivered pursuant to Section 16(b).
(17) LIMITATION ON ISSUANCE OF COMMON STOCK. Notwithstanding anything
to the contrary set forth herein, the issuance of shares of Common Stock
pursuant to the terms hereof (including, without limitation, Sections 3, 4, 5
and 16), whether upon conversion, redemption or otherwise, shall be subject to
the provisions of Section 4.4 of the Securities Purchase Agreement.
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IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Gary S. Kehoe, its President, as of the 28th day of
May 1999.
GUM TECH INTERNATIONAL, INC.
By: /s/ Gary S. Kehoe
---------------------------------
Name: Gary S. Kehoe
Its: President
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