ARTICLES OF INCORPORATION
OF
I-MAGIC MERGECO, INC.
The undersigned, being of the age of 18 or more, does hereby make and
acknowledge these Articles of Incorporation for the purpose of forming a
business corporation under and by virtue of the laws of the State of North
Carolina:
ARTICLE I
The name of the Corporation is I-MAGIC MERGECO, INC.
ARTICLE II
The period of duration of the Corporation is perpetual.
ARTICLE III
The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under Chapter 55
of the General Statutes of North Carolina.
ARTICLE IV
Section 4.1. Authorized Capital. The total number of shares of capital
stock of all classes that the Corporation shall have the authority to issue is
Seventy-Five Million (75,000,000) shares. The authorized capital stock is
divided into Twenty-Five Million (25,000,000) shares of preferred stock, having
$.10 par value (the "Preferred Stock"), and Fifty Million (50,000,000) shares of
common stock, having $.l0 par value (the "Common Stock").
Section 4.2. Preferred Stock.
(a) The shares of Preferred Stock of the Corporation may be issued from
time to time in one or more series, the shares of each series to have such
voting powers, full or limited, or no voting powers, and such designations,
preferences and rights (or qualifications, limitations or restrictions thereof)
as are stated in the resolution or resolutions providing for the issue of such
series adopted by the Board of Directors as provided in Section 4.2(b).
(b) Authority is granted to the Board of Directors of the Corporation,
subject to the provisions of this Article IV and to the limitations prescribed
by the North Carolina Business Corporation Act, to authorize the issuance of one
or more series of Preferred Stock and with respect to each such series to fix by
resolution or resolutions the voting powers, full or limited, if any, of the
shares of such series and the designations, preferences and rights (or
qualifications, limitations or restrictions thereof).
Section 4.3. Common Stock. Thirty Million (30,000,000) of the authorized
shares of the Common Stock are hereby designated Class A Common Stock (Voting)
(the "Class A Common"), and Twenty Million (20,000,000) of the authorized shares
of the Common Stock are
hereby designated Class B Common Stock (Nonvoting) (the "Class B Common").
Immediately upon the closing of an initial public offering of the Corporation's
securities and a firm commitment underwriting pursuant to a registration
statement on Form S-1 or SB-2 (or any equivalent successor form) under the
Securities Act of 1933, as amended, the Class A Common and the Class B Common
shall combine and become of one and the same class, the Common Stock. Each
reference herein to Class A Common or Class B Common shall be deemed to be a
reference to the Common Stock. Subject to the rights of the Preferred Stock
provided for by resolution or resolutions of the Board of Directors, pursuant to
these Articles of Incorporation or the North Carolina Business Corporation Act
or provided for in these Articles of Incorporation, the holders of shares of the
combined Common Stock shall have one vote per share on all matters on which
holders of shares of Common Stock are entitled to vote. Subject to the rights of
the Preferred Stock, the holders of shares of Common Stock shall receive the net
assets of the Corporation upon dissolution.
(a) Dividends. Subject to the rights of the Preferred Stock, the Class A
Common and the Class B Common shall be entitled, when and if declared by the
Board of Directors of the Corporation, consistent with North Carolina law, to
cash dividends, distributions and redemptions out of funds of the Corporation
legally available for that purpose. Each outstanding share of the Class A Common
and the Class B Common shall be entitled to participate ratably in
distributions, dividends and redemptions paid on the Common Stock.
(b) Voting.
(1) Except as otherwise required by the laws of North Carolina, the
Bylaws of the Corporation or as provided herein, the Class A Common shall
have one vote per share. Holders of the Class B Common shall not be
entitled to vote for the election of Directors or any other purpose and
shall not be entitled to receive notice of any meeting shareholders, unless
otherwise required by North Carolina law.
(2) In addition to any other rights provided by law or as set forth in
these Articles of Incorporation, so long as any Series A Preferred Stock
shall be outstanding, the Corporation shall not, without first obtaining
the affirmative vote or written consent of the holders of not less than a
majority of the then-outstanding shares of Series A Preferred Stock
consenting or voting (as the case may be) separately as a class:
(i) take any action that materially and adversely alters or
changes the rights, preferences or privileges of the Series A
Preferred Stock;
(ii) take any action that increases or decreases the total number
of authorized shares of Series A Preferred Stock; or
(iii) pay or declare any dividend or distribution on any shares
of its capital stock (other than on the Preferred Stock), or apply any
of its assets to the redemption, retirement, purchase or acquisition,
directly or indirectly, through subsidiaries or otherwise, of any
shares of its capital stock, except for repurchases of shares from
former employees upon
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termination of employment pursuant to the terms of such former
employees' stock purchase agreements providing for such repurchases at
the original issuance prices for such shares.
(c) Liquidation Preference.
(1) Except as otherwise provided herein, in the event of any
liquidation, dissolution or winding up of the Corporation, either voluntary
or involuntary (collectively, a "Liquidating Event"), the holders of each
series of Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of the Corporation to
the holders of the Class A Common and Class B Common by reason of their
ownership thereof, an amount equal to the consideration paid per share of
the Preferred Stock (the "Liquidation Preference") plus an amount equal to
accrued and unpaid dividends on such shares, if any. The Liquidation
Preference of the Series A Preferred Stock shall be $6.10 per share (as
adjusted for stock splits, combinations or similar events). Written notice
of any such liquidation, dissolution or winding up, stating a payment date,
the place where such payment shall be made, the amount of each payment in
liquidation and the amount of accrued dividends to be paid shall be given
by first class mail, postage prepaid, not less than 30 days prior to the
payment date stated therein, to each holder of record of the Preferred
Stock at such holder's address as shown in the records of the Corporation.
If upon the occurrence of such event, the assets and funds to be thus
distributed among the holders of the Preferred shall be insufficient to
permit the payment to such holders of the full aforesaid preferential
amount, then the total assets and funds distributed to each series of
Preferred Stock shall be in the proportions which the product of (a) the
number of outstanding shares of such series and (b) the Liquidation
Preference of such series bears to the sum of such products for all such
series.
(2) Any assets of the Corporation remaining after the payments
specified in paragraph (1) above shall be distributed pro rata with respect
to the outstanding shares of Common Stock.
(3) For the purposes of this Section 4.3(c), any merger or
consolidation of the Corporation into or with any other corporation or
entity, or a sale, conveyance, mortgage, transfer, license, pledge, lease
or other disposition of all or substantially all of the assets of the
Corporation, shall be deemed to be a liquidation, dissolution, or winding
up of the Corporation, unless the shareholders of the Corporation
immediately prior thereto shall, immediately thereafter, hold as a group
the right to cast at least a majority of the votes of all holders of voting
securities of the resulting or surviving corporation or entity on any
matter on which any such holders of voting securities shall be entitled to
vote.
(4) For purposes of this Section 4.3(c), if any assets distributed to
shareholders upon liquidation of the Corporation consist of property other
than cash, the amount of such distribution shall be deemed to be the fair
market value thereof at the time of such distribution, as determined in
good faith by the Board of Directors of the Corporation.
Section 4.4. Designation of Series A, Series B and Series C Preferred
Stock.
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(a) Series A Preferred Stock. Eighty Two Thousand Six Hundred Thirty-Four
(82,634) of the authorized shares of Preferred Stock are hereby designated
Series A Convertible Preferred Stock (the "Series A Preferred Stock").
(1) Voting Rights. Holders of Series A Preferred Stock shall have the
number of votes equal to the number of shares of Common into which their
Series A Preferred Stock is convertible, as adjusted pursuant to Section
4.4(a)(3) hereof.
(2) Cumulative Dividends. Holders of Series A Preferred Stock shall be
entitled, when and if declared by the Board of Directors of the
Corporation, consistent with North Carolina law, to cumulative cash
dividends out of funds of the Corporation legally available for that
purpose, at an annual rate of eight percent (8%), before any dividend shall
be declared, set apart for, or paid on any share of the Common Stock or any
other series of the Preferred Stock. Each outstanding share of Series A
Preferred Stock shall be entitled to participate ratably in dividends paid
on the Series A Preferred Stock.
Such dividends shall accrue on each outstanding share of Series A
Preferred Stock whether or not earned or declared; so that, if, such
dividends with respect to any previous dividend period at the rate provided
for herein have not been paid on all shares of the Series A Preferred Stock
then outstanding, the deficiency shall be fully paid, or provision for the
full payment thereof shall have been made, before any dividend or other
distribution shall be paid on or declared on any shares of the Common Stock
or any other series of the Preferred Stock.
(3) Conversion. The holders of Series A Preferred Stock shall have
conversion rights as follows:
(a) Right to Convert. Each share of Series A Preferred Stock
shall be convertible, at the option of the holder thereof, at any time
and from time to time, and without the payment of additional
consideration by the holder thereof, into such number of fully paid
and nonassessable shares of Class A Common as is determined by
dividing $6.10 by the Conversion Price (as defined below) in effect
at the time of conversion. The "Conversion Price" for Series A
Preferred Stock shall initially be $6.10. Such initial Conversion
Price, and the rate at which shares of Series A Preferred Stock may be
converted into shares of Class A Common, shall be subject to
adjustment as provided below.
(b) Mechanics of Conversion. Before any holder of Series A
Preferred Stock shall be entitled to convert the same into full shares
of Class A Common, the holder shall surrender the certificate or
certificates therefor, duly endorsed for transfer, at the office of
the Corporation or any transfer agent of the Corporation and shall
give written notice to the Corporation at such office that he elects
to convert the same, such notice to state the name or names and
addresses to which certificates for Class A Common will be issued. No
fractional shares of Class A Common shall be issued upon conversion of
Series A Preferred Stock. In lieu of any fractional shares to which
the holder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the then effective Conversion
Price. The
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Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series A Preferred Stock, or
to a third party such holder may designate in writing, a certificate
or certificates for the number of shares of Class A Common to which he
shall be entitled as aforesaid and, a check payable to the holder in
the amount of any cash amounts payable as the result of conversion
into fractional shares of Class A Common plus unpaid dividends, and if
less than all the shares of the Series A Preferred Stock represented
by such certificates are converted, a certificate representing the
shares of Series A Preferred Stock not converted. Such conversion
shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series A
Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Class A Common issuable upon such conversion
shall be treated for all purposes as the record holder or holders of
such shares of Class A Common on such date. If the conversion is in
connection with an underwritten offering of securities registered
pursuant to the Securities Act of 1933, as amended, the conversion
may, at the option of any holder surrendering Series A Preferred Stock
for conversion, be conditioned upon the closing with the underwriter
of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive the Class A Common or other property
issuable upon such conversion of the Series A Preferred Stock shall
not be deemed to have converted such Series A Preferred Stock until
immediately prior to the closing of such sale of securities. Notice of
such conversion in connection with an underwritten offering of
securities shall be given by the Corporation by mail, postage
pre-paid, to the holders of the Series A Preferred Stock at their
addresses shown on the Corporation's records, at least ten (10) days
prior to the closing date of the sale of such securities. On or after
the closing date as specified in such notice, each holder of Series A
Preferred Stock shall surrender his certificate or certificates
representing such Series A Preferred Stock for the number of shares of
Class A Common to which he is entitled at the office of the
Corporation or any transfer agent for the Class A Common. The
Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series A Preferred Stock, a
certificate or certificates for the number of shares of Class A Common
to which he shall be entitled as aforesaid, and a check payable to the
holder in the amount of any cash amounts payable as the result of a
conversion into fractional shares of Class A Common and any declared
but unpaid dividends. The conversion shall be deemed to have occurred
as of the close of business on the actual closing date with respect to
the sale of such securities, and, notwithstanding that any certificate
representing the Series A Preferred Stock to be converted shall not
have been surrendered, each holder of such Series A Preferred Stock
shall thereafter be treated for all purposes as the record holder of
the number of shares of Class A Common issuable to such holder upon
such conversion.
(c) Adjustment of Conversion Price Upon Issuance of Additional
Shares of Class A Common.
(i) The Corporation has issued options to acquire 607,500
shares of Class A Common and Class B Common of the Corporation
(the "Performance Options"). In the event the Corporation shall
issue additional shares of Class A Common upon the exercise of
any Performance Option on or after the date hereof, then and in
such event, the Conversion Price in effect on the date of, and
immediately prior to, such issue shall be reduced, concurrently
with such issue, to a price (calculated to the nearest cent)
determined by multiplying
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such Conversion Price by a fraction, the numerator of which shall
be the number of shares of Class A Common outstanding immediately
prior to such issue and the denominator of which shall be the
number of shares of Class A Common outstanding immediately prior
to such issue plus the number of such additional shares of Class
A Common so issued. For the purpose of the above calculation, the
number of shares of Class A Common outstanding immediately prior
to such issue shall be calculated on a fully diluted basis, as if
all shares of Preferred Stock and all convertible securities had
been fully converted into share of Class A Common immediately
prior to such issuance and any outstanding warrants, options or
other rights for the purchase of shares of stock or convertible
securities had been fully exercised immediately prior to such
issuance (and the resulting securities fully converted into
shares of Class A Common, if so convertible) as of such date, but
not including in such calculation any (i) additional shares of
Class A Common issuable with respect to shares of Preferred
Stock, convertible securities, or outstanding options, warrants
or other rights for the purchase of shares of stock or
convertible securities, solely as a result of the adjustment of
the respective Conversion Prices (or other conversion ratios)
resulting from the issuance of additional shares of Class A
Common causing such adjustment or (ii) Incentive Stock Options
that have become exercisable solely as a result of the passage of
time (and not as a result of a change in control).
(ii) Adjustments for Subdivisions, Class A Common Stock
Dividends, Combinations or Consolidations of Class A Common. In
the event the outstanding shares of Class A Common shall be
subdivided or increased, by stock split or stock dividend, into a
greater number of shares of Class A Common, the Conversion Price
then in effect shall concurrently with the effectiveness of such
subdivision or payment of such stock dividend, be proportionately
decreased. In the event the outstanding shares of Class A Common
shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Class A Common, the
Conversion Price then in effect shall, concurrently with the
effectiveness of such combination or consolidation, be
proportionately increased.
(iii) Adjustments for Reclassification, Exchange and
Substitution. If the Class A Common issuable upon conversion of
the Series A Preferred Stock shall be changed into the same or a
different number of shares of any other class or classes of
stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares
provided for above), the Conversion Price then in effect shall,
concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted such that the
Series A Preferred Stock shall be convertible into, in lieu of
the number of shares of Class A Common which the holders would
otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of
shares of Class A Common that would have been subject to receipt
by the holders upon conversion of the Series A Preferred Stock
immediately before that change.
(iv) Adjustments for Merger, Sale, Lease or Conveyance. In
case of any consolidation with or merger of the Corporation with
or into another corporation, or in case of any sale, lease or
conveyance to another corporation of the assets of the
Corporation as an entirety or substantially as an entirety, the
Series A Preferred Stock shall after the date of such
consolidation, merger, sale, lease or conveyance be convertible
into the number of shares of
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stock or other securities or property (including cash) to which
the Class A Common issuable (at the time of such consolidation,
merger, sale, lease or conveyance) upon conversion of the Series
A Preferred Stock would have been entitled upon such
consolidation, merger, sale, lease or conveyance; and in any such
case, if necessary, the provisions set forth herein with respect
to the rights and interests thereafter of the holders of the
Series A Preferred Stock shall be appropriately adjusted so as to
be applicable, as nearly as may reasonably be, to any shares of
stock or other securities or property thereafter deliverable on
the conversion of the shares of Series A Preferred Stock.
(d) Mandatory Conversion. Each share of Series A Preferred Stock
shall automatically be converted into such number of fully paid and
nonassessable shares of Class A Common as is determined by dividing
$6.10 by the Conversion Price (as defined and adjusted above) in
effect at the time of conversion upon the occurrence of the closing of
an underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the
offer and sale of Class A Common of the Corporation to the public with
an aggregate gross offering price of not less than $10,000,000 and a
per share offering price of not less than $6.10. All holders of record
of shares of Series A Preferred Stock will be given at least twenty
(20) days' prior written notice of the date fixed and place designated
for mandatory conversion of the Series A Preferred Stock and the event
which resulted in the mandatory conversion of the Series A Preferred
Stock into Class A Common. Such notice shall be sent by first class
mail, postage prepaid, to each holder of record of the Series A
Preferred Stock at such holder's address shown in the records of the
Corporation. On or before the date so fixed for conversion, each
holder of shares of the Series A Preferred Stock shall surrender his
or its certificate or certificates for all such shares to the
Corporation at the place designated in such notice and shall
thereafter receive certificates for the number of shares of Class A
Common to which such holder is entitled. The mechanics for conversion
and other provisions relating to conversion of Series A Preferred
Stock into Class A Common set forth elsewhere in these Articles of
Incorporation shall apply to the mandatory conversion of the Series A
Preferred Stock.
(e) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this
Section 4.4(a)(3), the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms
hereof and furnish to each holder of Series A Preferred Stock a
certificate setting forth such adjustment or readjustment in
accordance with the terms hereof showing in detail the facts upon
which such adjustment or readjustment is based. The Corporation shall,
upon the written request at any time of any holder of Series A
Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Price at the time in effect, and (iii) the number
of shares of Class A Common and the amount, if any, of other property
which at the time would be received upon the conversion of Series A
Preferred Stock.
(f) Notices of Record Date. In the event that this Corporation
shall propose at any time:
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(i) to declare any dividend or distribution (other than by
purchase of Class A Common of employees, officers and directors
pursuant to the termination of such persons or pursuant to the
Corporation's exercise of rights of first refusal with respect to
Class A Common held by such persons) upon its Class A Common,
whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or
earned surplus;
(ii) to offer for subscription pro rata to the holders of
any class or series of its stock any additional shares of stock
of any class or series or other rights;
(iii) to effect any reclassification or recapitalization of
its Class A Common shares outstanding involving a change in the
Class A Common; or
(iv) to merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all
its property or business, or to liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall send
to the holders of the Series A Preferred Stock:
(1) at least twenty (20) days' prior written notice of
the date on which a record shall be taken for such dividend,
distribution or subscription rights (and specifying the date
on which the holders of Class A Common shares shall be
entitled thereto) or for determining rights to vote in
respect of the matters referred to in (i) and (ii) above;
and
(2) in the case of the matters referred to in (iii) and
(iv) above, at least twenty (20) days' prior written notice
of the date when the same shall take place (and specifying
the date on which the holders of Class A Common shares shall
be entitled to exchange their Class A Common shares for
securities or other property deliverable upon the occurrence
of such event).
Each such written notice shall be given by first class mail,
postage prepaid, addressed to the holders of Series A Preferred Stock
at the address for each such holder as shown on the books of this
Corporation.
(g) No Impairment. The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action (other than actions taken in
good faith), avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Corporation but will at
all times in good faith assist in carrying out all the provisions of
this Section 4.4(a) and in taking all such action as may be necessary
or appropriate in order to protect the conversion rights of the
holders of the Series A Preferred Stock against impairment.
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(h) Reservation of Class A Common Stock. The Corporation shall,
at all times when the Series A Preferred Stock shall be outstanding,
reserve and keep available out of its authorized but unissued stock,
for the purpose of effecting the conversion of the Series A Preferred
Stock, such number of its duly authorized shares of Class A Common as
shall from time to time be sufficient to effect the conversion of all
outstanding Series A Preferred Stock. Before taking any action which
could cause an adjustment reducing the conversion price below the then
par value of the shares of Class A Common issuable upon conversion of
the Series A Preferred Stock or which would cause the effective
purchase price for the Series A Preferred Stock to be less than the
par value of the shares of Series A Preferred Stock, the Corporation
will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of such Class A
Common at such adjusted Conversion Price or effective purchase price,
as the case may be.
(i) No Adjustment. Upon any voluntary conversion of the Series A
Preferred Stock, no adjustment to the conversion rights shall be made
for declared but unpaid dividends on the Series A Preferred Stock
surrendered for conversion or on the Class A Common delivered.
(j) Cancellation of Series A Preferred Stock. All shares of the
Series A Preferred Stock which shall have been surrendered for
conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the
rights, if any, to receive notices and to vote, shall forthwith cease
and terminate except only the right of the holders thereof to receive
shares of Class A Common in exchange therefor and to receive payment
of any declared but unpaid dividends thereon. Any shares of the Series
A Preferred Stock so converted shall be retired and cancelled and
shall not be reissued, and the Corporation may from time to time take
such appropriate action as may be necessary to reduce the authorized
Series A Preferred Stock accordingly.
(4) Preemptive Rights. Holders of Series A Preferred Stock shall not
be entitled on account of holding such shares to preemptive rights or other
rights to acquire or subscribe for additional shares or securities of the
Corporation authorized to be issued.
(b) Series B Preferred Stock. Seven Hundred Seventy-Eight Thousand
Seven Hundred Forty-Six (778,746) shares of the authorized shares of
Preferred Stock of the Corporation are hereby designated Series B Convertible
Preferred Stock (the "Series B Preferred Stock").
(1) Dividend Provisions.
(a) Subject to the rights of any series of Preferred Stock of the
Corporation the terms of which specifically provide that such series
ranks senior to the Series B Preferred Stock and the Series C
Preferred Stock, or the terms of which specifically provide that such
series ranks pari passu with the Series B Preferred Stock and the
Series C Preferred Stock, the holders of shares of the Series B
Preferred Stock and the Series C Preferred Stock shall be entitled to
receive dividends, out of any assets legally available therefor, prior
and in preference to any declaration or payment of any dividend
(payable other than in Class A Common or Class
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B Common of the Corporation or other securities and rights convertible
into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock) on the Common Stock,
when, as and if declared by the Board of Directors. No dividends shall
be payable upon any Junior Securities (as defined below) of the
Corporation unless equivalent dividends, on an as-converted basis, are
declared and paid concurrently on the Series B Preferred Stock and the
Series C Preferred Stock. For purposes of this Section 4.4(b)(1) only,
the Series A Preferred Stock ranks senior to the Series B Preferred
Stock and the Series C Preferred Stock with respect to dividends.
(b) A "Junior Security" shall include (i) the Common Stock and
(ii) any series of Preferred Stock the terms of which provide that
such series ranks junior and subordinate to the Series B Preferred
Stock and the Series C Preferred Stock with respect to dividends and
as to the distribution of assets upon any Liquidation (as defined
below) or deemed liquidation. For purposes of this Section 4.4(b)(1),
the Series B Preferred Stock shall be treated as pari passu with the
Series C Preferred Stock.
(2) Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding-up of
the Corporation, either voluntary or involuntary (a "Liquidation"),
the holders of shares of Series B Preferred Stock shall be entitled to
receive, in pari passu with the holders of the Series A Preferred
Stock and the Series C Preferred Stock, and prior and in preference to
any distribution of any of the assets of the Corporation to the
holders of any Junior Securities (as defined above) by reason of their
ownership thereof, an amount per share equal to $4.52 (as adjusted
for stock splits, combinations or similar events) for each outstanding
share of Series B Preferred Stock plus any accrued or declared but
unpaid dividends (the "Series B Liquidation Preference"). If, upon the
occurrence of such an event, the assets and funds thus distributed
among the holders of the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock shall be insufficient
to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed
ratably among the holders of the Series A Preferred Stock, the Series
B Preferred Stock and the Series C Preferred Stock in proportion to
the preferential amount each such holder is otherwise entitled to
receive.
(b) Upon the completion of the distributions required by
subsection (a) of this Section 4.4(b)(2) and any other distribution
that may be required with respect to series of Preferred Stock that
may from time to time come into existence, the remaining assets of the
Corporation available for distribution to shareholders shall be
distributed among the holders of the Common Stock pro rata based on
the number of shares of Common Stock held by each such holder.
(c) For purposes of this Section 4.4(b)(2), a Liquidation shall
be deemed to be occasioned by, or to include (i) the acquisition of
the Corporation by another entity or person by means of any
transaction or series of related transactions (including, without
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limitation, any reorganization, merger or consolidation, but excluding
any merger effected exclusively for the purpose of changing the
domicile of the Corporation) or (ii) a sale of all or substantially
all of the assets of the Corporation; unless the Corporation's
shareholders of record as constituted immediately prior to such
acquisition or sale will, immediately after such acquisition or sale
(by virtue of securities issued as consideration for the Corporation's
acquisition or sale or otherwise) hold at least 51% of the voting
power of the surviving or acquiring entity. Nothing contained in this
Section 4.4(b)(2)(c) shall in any way restrict or prohibit the holders
of Series B Preferred Stock from exercising their conversion rights
pursuant to Section 4.4(b)(4) hereof prior to the effective date of
the Liquidation to be effected hereunder.
(3) Redemption. The shares of Series B Preferred Stock shall not be
redeemable.
(4) Conversion. The holders of the Series B Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Automatic Conversion. (i) Each share of Series B Preferred
Stock shall automatically be converted into fully paid and
nonassessable shares of Class A Common at the then effective
Conversion Rate for such series (determined in accordance with Section
4.4(a)(4)(d) below) immediately upon the closing of a Sale Event
(defined below) in which the Company Valuation (defined below) equals
or exceeds $27,000,000. (ii) Each share of Series B Preferred Stock
shall automatically be so converted at the then effective Conversion
Rate on the date specified by written consent or agreement of the
holders of two-thirds of the then outstanding shares of such series of
Series B Preferred Stock.
(b) A "Sale Event" shall include (i) an initial public offering
of the Corporation's securities in a firm commitment underwriting
pursuant to a registration statement on Form S-1 or SB-2 (or any
equivalent successor form) under the Securities Act of 1933, as
amended (an "IPO"), (ii) the consummation by the Corporation of a
merger or consolidation or other acquisition transaction in which more
than fifty percent (50%) of the voting power of the Corporation is
transferred (excluding any merger effected exclusively for the purpose
of changing the domicile of the Corporation) (a "Change in Control")
or (iii) a sale or other disposition of all or substantially all of
the assets of the Corporation (a "Sale").
(c) Right to Convert. Each share of Series B Preferred Stock
shall be convertible, at the option of the holder thereof at any time
after the date of issuance of such share at the office of the
Corporation or any transfer agent for such stock. Each share of Series
B Preferred Stock shall be convertible on a pro rata basis into the
number of fully paid and nonassessable shares of Class A Common
determined at the then effective Conversion Rate.
(d) Determination of Conversion Rate. The number of shares of
Class A Common into which the Series B Preferred Stock is convertible
is hereinafter collectively referred to as the "Conversion Rate" for
such series. The Conversion Rate for the Series B Preferred Stock
shall be determined by multiplying a fraction, the numerator of which
is the
11
Applicable Percentage (determined in accordance with this Section
4.4(b)(4)(d)) and the denominator of which is the difference between
1.0 and the Applicable Percentage, by the Total Number of Shares
Outstanding (as defined in Section 4.4(b)(4)(d)(iv)) on the date of
determination. The Applicable Percentage shall be determined as
follows:
(i) if the Company Valuation (defined below) is less than
$42,500,000, the Applicable Percentage shall be 0.11475;
(ii) if the Company Valuation is greater than or equal to
$42,500,000, the Applicable Percentage shall be a fraction, the
numerator of which is the sum of (A) 0.11475 multiplied by the
Company Valuation and (B) the product of 0.3 multiplied by the
difference between the Company Valuation and $42,500,000, and the
denominator of which is the Company Valuation; provided, that in
no event shall the Applicable Percentage be greater than 0.29.
(iii) The Company Valuation shall be determined as follows:
(A) in the case of an IPO, the aggregate valuation of
the Corporation taken as a whole assigned to the Corporation
by the managing underwriter on the effective date of the
registration statement relating to such IPO;
(B) in the case of any Change in Control that results
in the transfer of one hundred percent (100%) of the capital
stock of the Corporation to an unaffiliated entity, by the
aggregate cash and non-cash consideration received or to be
received by the Corporation or its securityholders (in their
capacity as securityholders and not as employees) as
consideration for their shares transferred in connection
with the transaction;
(C) in the case of any Change in Control in which more
than fifty percent (50%) but less than one hundred percent
(100%) of the voting power of the Corporation is
transferred, by multiplying the Total Number of Shares
Outstanding by a fraction, the numerator of which is the
aggregate cash and non-cash consideration received or to be
received by the Corporation or its securityholders (in their
capacity as securityholders and not as employees) as
consideration for the shares transferred in connection with
the transaction and the denominator of which is the number
of shares of Common Stock transferred in connection with the
Change in Control;
(D) in the case of any Sale, by the aggregate cash and
non-cash consideration received or to be received by the
Corporation or its securityholders (in their capacity as
securityholders and not as employees) in connection with the
transaction plus the assumption of all liabilities; or
(E) In all other cases,
(x) if the Class A Common Stock is listed on a national
securities exchange or admitted to unlisted trading
privileges on such exchange or listed
12
for trading on the Nasdaq National Market, by multiplying
the last reported sale price of the Class A Common on such
exchange or market on the last business day prior to the
date of determination, or if no such sale is made on such
day, the average closing bid and asked prices for such day
on such exchange or market by the Total Number of Shares
Outstanding on such date;
(y) if the Class A Common Stock is not so listed or
admitted to unlisted trading privileges, but is traded on
the Nasdaq SmallCap Market, by multiplying the average of
the closing bid and asked prices for such day on such
market, or if the Class A Common Stock is not so traded, the
mean of the last reported bid and asked prices reported by
the National Quotation Bureau, Inc. on the last business day
prior to the date of determination by the Total Number of
Shares Outstanding on such date; or
(z) if the Class A Common Stock is not so listed or
admitted to unlisted trading privileges and bid and asked
prices are not so reported, the Company Valuation shall be
an amount, not less than book value of the Corporation at
the end of the most recent fiscal year of the Corporation
ending prior to the date of determination, determined in
good faith and in such reasonable manner as may be
prescribed by the Board of Directors of the Corporation.
(iv) On any date of determination, the "Total Number of
Shares Outstanding" shall equal (A) the aggregate number of
shares of Common Stock outstanding on such date, plus (B) the
aggregate maximum number of shares of Common Stock (the
"Underlying Shares") issuable upon exercise, conversion or
exchange (assuming the satisfaction of any conditions thereto
including, without limitation, the passage of time) of securities
of the Company ("Convertible Securities") outstanding on such
date that are exercisable for, convertible into or exchangeable
for, shares of Common Stock, minus (C) Convertible Securities
exercisable for, convertible into or exchangeable for 450,000
of the Underlying Shares (subject to adjustment for stock splits,
combinations or similar events), or such lesser amount if there
are outstanding on such date of determination Convertible
Securities exercisable for, convertible into or exchangeable for
less than 450,000 shares of Common Stock. Notwithstanding
anything to the contrary herein, the Total Number of Shares
Outstanding shall not include any portion of any Convertible
Securities to the extent that such Convertible Securities, by
their explicit terms, can no longer be exercised due to their
expiration or the irrevocable failure of any precondition to
their exercisability, including the failure to achieve
performance goals required for exercisability.
(v) Notwithstanding Section 4.4(b)(4)(d)(iv), in the event
that, prior to any Sale Event, the Corporation shall issue shares
of Common Stock as consideration for any strategic acquisition by
the Corporation of another entity (the "Acquisition Shares"), and
the per share value of the Acquisition Shares multiplied by the
Total Number of Shares Outstanding immediately prior to such
acquisition (such number hereinafter referred to as the
"Acquisition Valuation") exceeds $35,000,000, the Total Number of
Shares Outstanding on the Sale Event shall be reduced by the
number of shares equal to the number of Acquisition Shares
multiplied by a fraction, the numerator of which is the
difference between the Acquisition Valuation and $35,000,000 and
the denominator of which is the Acquisition Valuation.
13
(vi) If in connection with any Sale Event that is not an
IPO, any provisions are made with respect to any Convertible
Securities such that such Convertible Securities become entitled
to any cash or non-cash consideration in connection with such
Sale Event and, as a result of such provisions, the aggregate
number of shares of Common Stock and Convertible Securities
entitled to receive compensation in connection with such Sale
Event exceeds the Total Number of Shares Outstanding, then for
purposes of this Section 4.4(b)(4), the Total Number of Shares
Outstanding shall be increased by such additional number of
shares and/or Convertible Securities.
(d) Mechanics of Conversion. Before any holder of Series B
Preferred Stock shall be entitled to convert the same into shares of
Class A Common Stock, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation
or of any transfer agent for the Series B Preferred Stock, and shall
give written notice to the Corporation at its principal corporate
office, of the election to convert the same and shall state therein
the name or names in which the certificate or certificates for shares
of Class A Common Stock are to be issued. The Corporation shall, as
soon as practicable thereafter, issue and deliver to such holder of
Series B Preferred Stock, or to the nominee or nominees of such
holder, a certificate or certificates for the number of shares of
Class A Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such
surrender of the shares of Series B Preferred Stock to be converted,
and 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 as of such date. If the conversion is in connection with
an underwritten offering of securities registered pursuant to the
Securities Act of 1933, as amended, the conversion may, at the option
of any holder tendering Series B Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of
securities pursuant to such offering, in which event the person(s)
entitled to receive the Class A Common Stock upon conversion of the
Series B Preferred Stock shall not be deemed to have converted such
Series B Preferred Stock until immediately prior to the closing of
such sale of securities.
(e) Other Distributions. In the event the Corporation shall
declare a distribution payable in securities of other persons,
evidences of indebtedness issued by the Corporation or other persons,
assets (excluding cash dividends) or options or rights, then, in each
such case, the holders of the Series B Preferred Stock shall be
entitled to a proportionate share of any such distribution as though
they were the holders of the number of shares of Class A Common Stock
of the Corporation into which their shares of Series B Preferred Stock
are convertible as of the record date fixed for the determination of
the holders of Common Stock of the Corporation entitled to receive
such distribution.
(f) Recapitalizations. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a merger
or sale of assets transaction provided for in Section 4.4(b)(2))
provision shall be made so that the holders of the Series B Preferred
14
Stock shall thereafter be entitled to receive upon conversion of the
Series B Preferred Stock the number of shares of stock or other
securities or property of the Corporation or otherwise, to which a
holder of Class A Common Stock deliverable upon conversion would have
been entitled on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this
Section 4.4(b)(2) with respect to the rights of the holders of the
Series B Preferred Stock after the recapitalization to the end that
the provisions of this Section 4.4(b) (including adjustment of the
number of shares issuable upon conversion of the Series B Preferred
Stock) shall be applicable after that event as nearly equivalent as
may be practicable.
(g) No Impairment. The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in the carrying out of all
the provisions of this Section 4.4(b)(4) and in the taking of all such
action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series B Preferred Stock
against impairment.
(h) No Fractional Shares. No fractional shares shall be issued
upon the conversion of any share or shares of the Series B Preferred
Stock, and the number of shares of Class A Common Stock to be issued
shall be rounded to the nearest whole share. Whether or not fractional
shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of Series B Preferred Stock the
holder is at the time converting into Class A Common Stock and the
number of shares of Class A Common Stock issuable upon such aggregate
conversion.
(i) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to
receive any dividend (other than a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Corporation shall mail to
each holder of Series B Preferred Stock, at least twenty (20) days
prior to the date specified therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Class A Common Stock, solely for the
purpose of effecting the conversion of the shares of the Series B
Preferred Stock, such number of its shares of Class A Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series B Preferred Stock; and if at any time
the number of authorized but unissued shares of Class A Common Stock
shall not be sufficient to effect the conversion of all then
outstanding shares of the Series B Preferred Stock, in addition to
such other remedies as shall be available to the holder of such
Preferred Stock, the Corporation will take such corporate action as
may, in the opinion of its counsel, be
15
necessary to increase its authorized but unissued shares of Class A
Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to
obtain the requisite shareholder approval of any necessary amendment
to these provisions.
(k) Notices. Any notice required by the provisions of this
Section 4.4(b)(4)to be given to the holders of shares of Series B
Preferred Stock shall be deemed given upon personal delivery or upon
delivery by registered or certified mail, postage prepaid, return
receipt requested and addressed to each holder of record at his
address appearing on the books of the Corporation, or at such other
address as such party may designate by ten (10) days' advance written
notice to the Corporation.
(5) Voting Rights. Except as may otherwise be provided in these
Articles of Incorporation or by law or by contract, the Series B Preferred
Stock shall be entitled to vote, as a single class with the holders of
Class A Common Stock and the holders of any other classes or series of
stock of the Corporation so entitled to vote, on all matters as to which
the holders of Class A Common Stock shall be entitled to vote. Each share
of Series B Preferred Stock shall have that number of votes equal to the
number of shares of Class A Common Stock into which it is then convertible,
the holders of Series B Preferred Stock shall be entitled to notice of any
shareholders' meeting in accordance with the bylaws of the Corporation.
(6) Status of Converted Stock. In the event any shares of Series B
Preferred Stock shall be converted pursuant to Section 4.4(b)(4) hereof,
the shares so converted shall be cancelled by the Corporation. Any shares
so cancelled shall revert to the status of authorized but unissued
Preferred Stock without designation. The Articles of Incorporation of the
Corporation may be appropriately amended from time to time to effect the
corresponding reduction, if any, in the Corporation's authorized capital
stock.
(7) Right to Elect Director. The holders of Series B Preferred Stock,
voting as a separate class, shall have the night to elect one individual to
the Corporation's Board of Directors (the "Series B Director"). In the
event of the resignation or removal of a Series B Director, a special
meeting shall be convened at which elections shall be held for the election
of a substitute Series B Director, provided that the holders of Series B
Preferred Stock may act by written consent in lieu of such meeting.
(8) Covenants. So long as any shares of Series B Preferred Stock are
outstanding, the Corporation shall not without first obtaining the written
consent of the holders of at least two-thirds of the then outstanding
shares of Series B Preferred Stock:
(a) except in the case of a Sale Event in which the Company
Valuation is greater than or equal to $50,000,000, (i) sell, convey,
or otherwise dispose of all or substantially all of its property or
business or (ii) merge into or consolidate with any other corporation
(other than a wholly-owned subsidiary corporation or for the exclusive
purpose of changing the domicile of the Corporation) or effect any
transaction or series of related transactions if, in the case of this
subsection (ii), the Corporation's shareholders of record
16
immediately prior to such transaction or series of related
transactions do not immediately after such transaction or series of
related transactions (by virtue of securities issued as consideration
for such transaction or series of related transactions) hold at least
fifty-one percent (51%) of the voting power of the Corporation;
(b) increase or decrease (other than by conversion) the total
number of authorized shares of Series B Preferred Stock or amend the
terms of the Series B Preferred Stock (or any other capital stock of
the Corporation) so as to affect the Series B Preferred Stock
adversely;
(c) authorize or issue, or obligate itself to issue, any other
equity security, including any other security or debt instrument
convertible into or exercisable for any such equity security, having a
preference over, or being on a parity with, the Series B Preferred
Stock with respect to dividends, redemption or liquidation;
(d) increase the authorized number of directors of the
Corporation to more than seven (7) members;
(e) engage in or consummate any Sale Event in which the Company
Valuation is less than $50,000,000;
(f) issue any shares of Common Stock (or any options to purchase
or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to
purchase or rights to subscribe for such convertible or exchangeable
securities) without consideration or for a consideration per share
less than the fair market value (determined on a per share basis in
accordance with subsection 4.4(b)(d)(iii) hereof) in effect
immediately prior to the issuance of such securities; provided, that
this restriction shall not apply to (i) shares of Common Stock
issuable or issued to employees, advisors, consultants or outside
directors of the Corporation directly or pursuant to a stock option
plan or restricted stock plan approved by the Board of Directors of
the Corporation, (ii) shares of Common Stock issuable upon exercise of
options and warrants outstanding on February 2, 1998, or (iii) Class A
Common Stock issued or issuable upon conversion of the Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock;
or
(g) liquidate, dissolve or otherwise wind up the affairs of the
Corporation.
(9) Amendments. No provision of these Articles of Incorporation
relating to the Series B Preferred Stock may be amended, modified or waived
without the written consent or affirmative vote of the holders of at least
two-thirds of the then outstanding shares of Series B Preferred Stock.
(c) Series C Preferred Stock. One Hundred Thirty-Two Thousand Seven
Hundred Forty-Three (132,743) shares of the authorized shares of Preferred
Stock of the Corporation are hereby designated as Series C Preferred Stock (the
"Series C Preferred Stock").
17
(1) Dividend Provisions.
(a) Subject to the rights of any series of Preferred Stock of the
Corporation the terms of which specifically provide that such series
ranks senior to the Series B Preferred Stock and the Series C
Preferred Stock, or the terms of which specifically provide that such
series ranks pari passu with the Series B Preferred Stock and the
Series C Preferred Stock, the holders of shares of the Series B
Preferred Stock and the Series C Preferred Stock shall be entitled to
receive dividends, out of any assets legally available therefor, prior
and in preference to any declaration or payment of any dividend
(payable other than in Common Stock) or other securities and rights
convertible into or entitling the holder thereof to receive, directly
or indirectly, additional shares of Common Stock) on the Common Stock,
when, as and if declared by the Board of Directors. No dividends shall
be payable upon any Junior Securities of the Corporation unless
equivalent dividends, on an as-converted basis, are declared and paid
concurrently on the Series B Preferred Stock and the Series C
Preferred Stock. For purposes of this Section 4.4(c)(1), the Series C
Preferred Stock shall be treated as pari passu with the Series B
Preferred Stock and the Series A Preferred Stock ranks senior to the
Series B Preferred Stock and the Series C Preferred Stock with respect
to dividends.
(2) Liquidation Preference.
(a) In the event of any Liquidation, the holders of shares of
Series C Preferred Stock shall be entitled to receive, in pari passu
with the holders of shares of the Series A Preferred Stock and the
Series B Preferred Stock, and prior and in preference to any
distribution of any of the assets of the Corporation to the holders of
any Junior Securities by reason of their ownership thereof, an amount
per share equal to $4.52 as adjusted for stock splits, combinations
or similar events) for each outstanding share of Series C Preferred
Stock plus any accrued or declared but unpaid dividends (the "Series C
Liquidation Preference"), If, upon the occurrence of such an event,
the assets and funds thus distributed among the holders of the Series
A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock shall be insufficient to permit the payment to such
holders of the full aforesaid preferential amounts, then the entire
assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of the Series A
Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock in proportion to the preferential amount each such
holder is otherwise entitled to receive.
(b) Upon the completion of the distributions required by
subsection (a) of this Section 4.4(c)(2) and any other distribution
that may be required with respect to series of Preferred Stock that
may from time to time come into existence, the remaining assets of the
Corporation available for distribution to shareholders shall be
distributed among the holders of the Common Stock pro rata based on
the number of shares of Common Stock held by each such holder.
(c) For purposes of this Section 4.4(c)(2), a Liquidation shall
be deemed to be occasioned by, or to include (i) the acquisition of
the Corporation by another entity or person by means of any
transaction or series of related transactions (including, without
18
limitation, any reorganization, merger or consolidation, but excluding
any merger effected exclusively for the purpose of changing the
domicile of the Corporation) or (ii) a sale of all or substantially
all of the assets of the Corporation; unless the Corporation's
shareholders of record as constituted immediately prior to such
acquisition or sale will, immediately after such acquisition or sale
(by virtue of securities issued as consideration for the Corporation's
acquisition or sale or otherwise) hold at least 51% of the voting
power of the surviving or acquiring entity.
(3) Redemption.
(a) Mandatory Redemption by the Corporation.
(i) Subject to the rights of the holders of Series C
Preferred Stock set forth in Section 4.4(c)(4) below, the
Corporation shall, to the extent it may do so under applicable
law, redeem the then outstanding shares of Series C Preferred
Stock upon the occurrence of a Sale Event that results in gross
proceeds of at least $15,000,000 (the "Redemption Date"). In the
event shares of Series C Preferred Stock scheduled for redemption
are not redeemed because of a prohibition under applicable law,
such shares shall be redeemed as soon as such prohibition no
longer exists.
(ii) The redemption price (the "Redemption Price") for each
share of Series C Preferred Stock redeemed pursuant to this
Section 4.4(c)(3)(a) shall be equal to the Series C Liquidation
Preference.
(b) Surrender of Certificates. Each holder of shares of Series C
Preferred Stock to be redeemed under this Section 4.4(c)(3) shall
surrender the certificate or certificates representing such shares to
the Corporation on the Redemption Date, and thereupon the Redemption
Price for such shares as set forth in this Section 4.4(c)(3) shall be
paid to the order of the person whose name appears on such certificate
or certificates. Irrespective of whether the certificates therefor
shall have been surrendered, all shares of Series C Preferred Stock
shall be deemed to have been redeemed and shall be cancelled effective
as of the Redemption Date, unless the Corporation shall default in the
payment of the applicable Redemption Price.
(4) Conversion. Each share of the Series C Preferred Stock shall be
convertible at the option of the holder thereof at any time into such
number of shares of Class A Common Stock as determined by dividing $4.52
by the Conversion Price of $4.52.
(5) Voting Rights. Except as may otherwise be provided in these
Articles of Incorporation or by law or by contract, the Series C Preferred
Stock shall be entitled to vote, as a single class with the holders of
Class A Common Stock and the holders of any other classes or series of
stock of the Corporation so entitled to vote, on all matters as to which
the holders of Class A Common Stock shall be entitled to vote. Each share
of Series C Preferred Stock shall have that number of votes equal to
600,000 divided by 4.52. The holders of Series C Preferred
19
Stock shall be entitled to notice of any stockholders' meeting in
accordance with the bylaws of the Corporation.
(6) Covenants. So long as any shares of Series C Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the written
consent of the holders of at least two-thirds of the then outstanding
shares of Series C Preferred Stock, increase or decrease the total number
of authorized shares of Series C Preferred Stock or amend the terms of the
Series C Preferred Stock (or any other capital stock of the Corporation) so
as to affect the Series C Preferred Stock adversely.
(7) Amendments. No provision of these Articles of Incorporation
relating to the Series C Preferred Stock may be amended, modified or waived
without the written consent or affirmative vote of the holders of at least
two-thirds of the then outstanding shares of Series C Preferred Stock.
ARTICLE V
The address of the initial registered office of the Corporation is 215
Southport Drive, Suite 1000, Morrisville, Wake County, North Carolina 27560, and
the name of its initial registered agent at such address is J.W. Stealey.
20
ARTICLE VI
Section 6.1. Number of Directors. The number of directors constituting the
Board of Directors shall be not less than five (5) nor more than fifteen (15),
as specified in the Corporation's Bylaws.
Section 6.2. Classified Board of Directors. Upon such time as the number of
directors constituting the Board of Directors shall be fixed at nine (9) or
more, the Board of Directors shall be divided into three (3) classes, Class I,
Class II, and Class III, which shall be as nearly equal in number as possible.
The term of office of each Director in Class I shall expire at the first annual
meeting of shareholders of the Corporation following the effectiveness of the
resolution or bylaw fixing the number of directors at nine or more. The term of
office of each Director in Class II shall expire at the second annual meeting of
shareholders of the Corporation following the effectiveness of the resolution or
bylaw fixing the number of directors at nine or more. The term of office of each
Director in Class III shall expire at the third annual meeting of shareholders
of the Corporation following the effectiveness of the resolution or bylaw fixing
the number of directors at nine or more. Each Director shall serve until the
election and qualification of a successor or until such Director's earlier
resignation, death, or removal from office. Upon the expiration of the term of
office for each class of Directors, the Directors of such class shall be elected
for a term of three (3) years, to serve until the election and qualification of
their successors or until their earlier resignation, death, or removal from
office.
Section 6.3. Directors. The names of those persons who are to serve as the
Directors of the Corporation following the effectiveness of these Articles of
Incorporation are set forth below. The address for each such director is 215
Southport Drive, Suite 1000, Morrisville, North Carolina 27560.
J. Nicholas England
David H. Kestel
W. Joseph McClelland
Avi Suriel
J. W. Stealey
Section 6.4. Removal of Directors. Any Director, or the entire Board of
Directors, may be removed from office at any time, with or without cause, but
only by the affirmative vote of the holders of at least sixty-six and two-thirds
percent (66-2/3%) of the voting power of all of the shares of capital stock of
the Corporation then entitled to vote generally in the election of Directors. If
a Director was elected by the holders of one class or series of capital stock,
or of a group of such classes or series, only members of that voting group may
participate in the vote to remove him.
Section 6.5. Factors to be Considered by the Directors. In connection with
the exercise of its or his judgment in determining what is in the best interests
of the Corporation and its shareholders, the Board of Directors of the
Corporation, any committee of the Board of Directors, or any individual director
may, but shall not be required to, in addition to considering
21
the long-term and short-term interests of the shareholders, consider any of the
following factors and any other factors that it or he deems relevant: (i) the
social and economic effects of the matter to be considered on the Corporation
and its subsidiaries, its and their employees, clients, and creditors, and the
communities in which the Corporation and its subsidiaries operate or are
located; and (ii) when evaluating a business combination or a proposal by
another Person or Persons to make a business combination or a tender or exchange
offer or any other proposal relating to a potential change of control of the
Corporation (x) the business and financial condition and earnings prospects of
the acquiring Person or Persons, including, but not limited to, debt service and
other existing financial obligations, financial obligations to be incurred in
connection with the acquisition, and other likely financial obligations of the
acquiring Person or Persons, and the possible effect of such conditions upon the
Corporation and its subsidiaries and the communities in which the Corporation
and its subsidiaries operate or are located, (y) the competence, experience, and
integrity of the acquiring Person or Persons and its or their management, and
(z) the prospects for successful conclusion of the business combination, offer
or proposal. The provisions of this Section shall be deemed solely to grant
discretionary authority to the directors and shall not be deemed to provide to
any constituency the right to be considered. As used in this Section, the term
"Person" means any individual, partnership, firm, corporation, limited liability
company, association, trust, unincorporated organization or other entity; when
two or more Persons act as a partnership, limited partnership, syndicate, or
other group acting in concert for the purpose of acquiring, holding, voting or
disposing of securities of the Corporation, such partnership, limited
partnership, syndicate or group shall also be deemed a "Person" for purposes of
this Section.
ARTICLE VII
Section 7.1. Approval of Business Combinations. With regard to any Business
Combination (as defined in Section 7.5(b)) between the Corporation and any other
corporation, person, or other entity, excluding its Subsidiaries (as defined in
Section 7.5(g)) except as provided in section 7.5(b), such Business Combination
must be approved only as follows unless otherwise more restrictively required by
applicable North Carolina law:
(a) The Business Combination must be approved by resolution adopted by
affirmative vote of a majority of a quorum of the Board of Directors;
(b) In addition to the Board approval specified in Section 7.1(a), the
Business Combination must receive one of the following levels of
shareholder approval:
(1) To the extent a shareholder's vote is required by law, at a
special or annual meeting of shareholders by an affirmative vote of
the shareholders holding at least a majority of the shares of capital
stock of the Corporation issued and outstanding and entitled to vote
thereon if such Business Combination has received the prior approval
by resolution adopted by an affirmative vote of at least sixty-six and
two-thirds percent (66 2/3%) of the full Board of Directors before
such Business Combination is submitted for approval to the
shareholders; or
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(2) At a special or annual meeting of shareholders by an
affirmative vote of the shareholders holding at least sixty-six and
two-thirds percent (66-2/3%) of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote thereon if
such Business Combination has received the prior approval by
resolution adopted by an affirmative vote of a majority of a quorum
(but less than sixty-six and two-thirds percent (66-2/3%)) of the
Board of Directors; and
(c) If the Business Combination is to be approved pursuant to Section
7.1(b)(2), the Business Combination as approved must grant to shareholders
not voting to approve the Business Combination the rights set forth in
Section 7.2.
Section 7.2. Fair Price. When any Business Combination above is approved
pursuant to Section 7.1(b)(2), any shareholder not voting to approve the
Business Combination may elect to sell his shares for cash to the Corporation at
their "Fair Price" (as defined in Section 7.5(f)), upon so notifying the
Corporation in writing within twenty (20) days after receiving written
notification of his rights hereunder and that the Business Combination was
approved by the Corporation's shareholders. The Corporation shall have ten (10)
days after receipt of the shareholder's tender of shares to make payment in
cash. Tender of shares may be made simultaneously with, or after, the
shareholder's written notification that he is electing to be paid the Fair Price
of his shares. The Business Combination shall not be consummated until all
shareholders electing to sell their shares for cash to the Corporation at their
Fair Price pursuant to this Article VII have been paid in full by the
Corporation.
Section 7.3. Certain Restrictions on Business Combinations. Notwithstanding
any other provision of this Article VII, prior to the consummation of any
Business Combination between the Corporation and a Control Person (as defined in
Section 7.5(c)):
(a) such Control Person shall not have received the benefit, directly
or indirectly (except proportionately as a shareholder), of any loans,
advances, guarantees, pledges or other financial assistance or tax credits
provided by the Corporation; and
(b) there shall have been no increase or reduction in the annual rate
of dividends paid on the Corporation's common stock after the Control
Person became such (except as necessary to reflect any subdivision of the
common stock), unless such increase or reduction has been approved by a
majority of Disinterested Directors (as defined in Section 7.5(e)).
Section 7.4. Amendments to Articles of Incorporation. Amendments to these
Articles of Incorporation shall be adopted only upon receiving the affirmative
vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of
all the shares of capital stock of the Corporation issued and outstanding and
entitled to vote thereon; provided, however, that if such amendment shall have
received prior approval by resolution adopted by an affirmative vote of a
majority of Disinterested Directors, then the affirmative vote of the holders of
at least a majority of all the shares of capital stock of the Corporation issued
and outstanding and entitled to vote, or such greater percentage approval as
required by North Carolina law, shall be sufficient to amend these Articles of
Incorporation.
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Section 7.5. Definitions. As used in this Article VII, the following terms
shall have the following meanings:
(a) "Affiliate," as used in defining "Control Person," shall mean a
corporation, person, group, or other entity that directly or indirectly
controls, is controlled by, or is under common control with the Control
Person.
(b) "Business Combination" shall mean (i) any merger or consolidation
of the Corporation into any other corporation, person, group or other
entity where the Corporation is not the surviving or resulting entity; (ii)
any merger or consolidation of the Corporation with or into any Control
Person or with any corporation, person, group or other entity where the
merger or consolidation is proposed by or on behalf of a Control Person;
(iii) any sale, lease, exchange, transfer, hypothecation or other
disposition of all or substantially all of the assets of the Corporation;
(iv) any sale, lease, exchange, transfer, hypothecation or other
disposition of a Substantial Part (as defined in Section 7.5(h)) of the
assets of the Corporation to a Control Person, whether in a single
transaction or in related transactions; (v) the issuance of any securities
of the Corporation to a Control Person; (vi) the acquisition by the
Corporation of any securities of a Control Person unless such acquisition
commences prior to the person becoming a Control Person or is an attempt to
prevent the Control Person from obtaining greater control of the
Corporation; (vii) the acquisition by the Corporation of all or
substantially all of the assets of any Control Person or any corporation,
person, group or other entity where the acquisition is proposed by or on
behalf of a Control Person; (viii) the adoption of any plan or proposal for
the liquidation or dissolution of the corporation which is proposed by or
on behalf of a Control Person; (ix) any reclassification of securities
(including any reverse stock split), or recapitalization of the Corporation
which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity or
convertible securities of the Corporation which is beneficially owned or
controlled by a Control Person; (x) any of the transactions described in
this definition of Business Combination which are between the Corporation
and any of its Subsidiaries and which are proposed by or on behalf of any
Control Person; or (xi) any agreement, plan, contract or other arrangement
providing for any of the transactions described in this definition of
Business Combination.
(c) "Control Person" shall mean and include any corporation, person,
group or other entity which, together with its Affiliates prior to a
Business Combination beneficially owns (as the term is defined by federal
securities law) ten percent (10%) or more of the shares of any class of
equity or convertible securities of the Corporation, and any Affiliate of
any such corporation, person, group or other entity; provided, however, any
corporation, person, group or other entity which, together with its
Affiliates, prior to June 30, 1998 beneficially owned (as the term is
defined by federal securities law) ten percent (10%) or more of the shares
of any class of equity or convertible securities of the Corporation, and
any Affiliate of any such corporation, person, group or other entity shall
not be considered to be a Control Person for the purposes hereof.
(d) "Corporation" shall mean I-Magic Mergeco, Inc. and its
Subsidiaries, or any one of them, and their successors.
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(e) "Disinterested Director" shall mean any member of the Board of
Directors of the Corporation who is unaffiliated with, and not a nominee
of, a Control Person and was a member of the Board of Directors prior to
the time a Control Person became such, and any successor of a Disinterested
Director who is unaffiliated with, and not a nominee of, a Control Person
and who is recommended to succeed a Disinterested Director by a majority of
Disinterested Directors then on the Board of Directors.
(f) "Fair Price" shall mean the highest of the following: (i) the
highest price per share paid for the Corporation's shares during the four
years immediately preceding the Section 7.1(b)(2) vote of shareholders by
any shareholder who, at the time of the Section 7.1(b)(2) shareholder vote,
beneficially owned five percent (5%) or more of the Corporation's common
stock and who, in whole or in part, votes in favor of the Business
Combination; (ii) the cash value of the highest price per share previously
offered pursuant to a tender offer to the shareholders of the Corporation
within the four years immediately preceding the Section 7.1(b)(2)
shareholder vote; and (iii) the highest price per share (including
brokerage commissions, soliciting dealers' fees and dealer-management
compensation) paid by a Control Person in acquiring any of its holdings of
the Corporation's common stock.
(g) "Subsidiaries" shall mean any entity in which the Corporation
owns, directly or indirectly, a majority of the voting interests.
(h) "Substantial Part" shall mean more than ten percent (10%) of the
total assets of the Corporation, as of the end of the Corporation's most
recent fiscal year prior to the time the determination is being made.
ARTICLE VIII
The Board of Directors shall have the power to adopt, amend, alter, change,
and repeal the Bylaws of the Corporation. In addition to any requirements of the
Bylaws and the North Carolina Business Corporation Act as in effect from time to
time (and notwithstanding the fact that a lesser percentage may be specified by
the Bylaws or the North Carolina Business Corporation Act), the affirmative vote
of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all the shares of capital stock of the Corporation then entitled
to vote generally in the election of directors, voting together as a single
class, shall be required for the shareholders of the Corporation to adopt,
amend, alter, change, or repeal the Bylaws of the Corporation.
ARTICLE IX
Except to the extent that the North Carolina General Statutes prohibit such
limitation or elimination of liability of directors for breaches of duty, no
director of the Corporation shall have any personal liability arising out of an
action whether by or in the right of the Corporation or otherwise for monetary
damages for breach of any duty as a director. No amendment to or repeal of this
article shall apply to or have any effect on the liability or alleged liability
of any director
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of the Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal. The provisions of this article
shall not be deemed to limit or preclude indemnification of a director by the
Corporation for any liability that has not been eliminated by the provisions of
this article.
ARTICLE X
Section 10.1. Opt-Out of North Carolina Shareholder Protection Act. The
provisions of the North Carolina Shareholder Protection Act, as amended from
time to time, shall not be applicable to the Corporation.
Section 10.2. Opt-Out of North Carolina Control Share Acquisition Act. The
provisions of the North Carolina Control Share Acquisition Act, as amended from
time to time, shall not be applicable to the Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of June, 1998.
/s/ Robert L. Pickens
--------------------------------
Robert L. Pickens, Incorporator
215 Southport Drive, Suite 1000
Morrisville, North Carolina 27560