ARTICLES OF AMENDMENT
OF
INTERACTIVE MAGIC, INC.
Pursuant to Section 55-6-02 of the North Carolina Business Corporation
Act, the undersigned corporation hereby submits these Articles of Amendment for
the purpose of amending its Articles of Incorporation to fix the preferences,
limitations and relative rights of a new series of its shares of Preferred
Stock:
1. The name of the corporation is Interactive Magic, Inc.
2. The amendment to the Articles of Incorporation of the
corporation attached hereto as Exhibit A was duly adopted by
the Board of Directors of the corporation effective the 5th
day of November, 1999.
3. These Articles of Amendment will be effective upon filing.
This the 10th day of November, 1999.
INTERACTIVE MAGIC, INC.
By: /s/ Michael Pearce
---------------------------
Name: Michael Pearce
Title: Chief Executive Officer
EXHIBIT A
1. Article IV of the Articles of Incorporation of Interactive Magic, Inc. (the
"Corporation") is hereby amended to delete the heading for Section 4.4 in its
entirety and to replace it to read as follows:
Section 4.4. Designation of Series A, Series B, Series C and Series D
Preferred Stock.
2. Article IV of the Corporation's Articles of Incorporation is hereby amended
to add a new subsection Section 4.4(d) which shall read in its entirety as
follows:
(d) Series D Convertible Preferred Stock.
(1) DESIGNATION AND AMOUNT. The designation of this series, which
consists of 4,910.844 shares of Preferred Stock, is Series D Convertible
Preferred Stock (the "SERIES D PREFERRED STOCK") and the stated value shall be
One Thousand Dollars ($1,000) per share (the "STATED VALUE").
(2) RANK. The Series D Preferred Stock shall rank (i) prior to the
Corporation's common stock, par value $.10 per share (the "COMMON STOCK"); (ii)
prior to the Corporation's Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock and Series C Preferred Stock; (iii) prior to any
class or series of capital stock of the Corporation hereafter created (unless,
with the consent of the holders of Series D Preferred Stock obtained in
accordance with Section 9 hereof, such class or series of capital stock
specifically, by its terms, ranks senior to or pari passu with the Series D
Preferred Stock) (collectively, with the Common Stock, Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock and the Series C Preferred
Stock, the "JUNIOR SECURITIES"); (iii) pari passu with any class or series of
capital stock of the Corporation hereafter created (with the consent of the
holders of Series D Preferred Stock obtained in accordance with Section 9
hereof) specifically ranking, by its terms, on parity with the Series D
Preferred Stock ("PARI PASSU SECURITIES"); and (iv) junior to any class or
series of capital stock of the Corporation hereafter created (with the consent
of the holders of Series D Preferred Stock obtained in accordance with Section 9
hereof) specifically ranking, by its terms, senior to the Series D Preferred
Stock ("SENIOR SECURITIES"), in each case as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary.
(3) DIVIDENDS. The Series D Preferred Stock shall not bear any
dividends. Except as provided below, in no event, so long as any Series D
Preferred Stock shall remain outstanding, shall any dividend whatsoever be
declared or paid upon, nor shall any distribution be made upon, any Junior
Securities, nor shall any shares of Junior Securities be purchased or redeemed
by the Corporation nor shall any moneys be paid to or made available for a
sinking fund for the purchase or redemption of any Junior Securities (other
than, in each case, a distribution of Junior Securities), without, in each such
case, the written consent of the holders of a majority of the outstanding shares
of Series D Preferred Stock, voting together as a class.
(4) LIQUIDATION PREFERENCE
(A) LIQUIDATION EVENT. If the Corporation shall commence a
voluntary case under the federal bankruptcy laws or any other applicable federal
or state bankruptcy, insolvency or similar law, or consent to the entry of an
order for relief in an involuntary case under any law or to the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or make an assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due, or if a decree or order
for relief in respect of the Corporation shall be entered by a court having
jurisdiction in the premises in an involuntary case under the federal bankruptcy
laws or any other applicable federal or state bankruptcy, insolvency or similar
law resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of 30 consecutive days and, on account of any such event, the Corporation
shall liquidate, dissolve or wind up, or if the Corporation shall otherwise
liquidate, dissolve or wind up (each such event being considered a "LIQUIDATION
EVENT"), no distribution shall be made to the holders of any shares of capital
stock of the Corporation (other than Senior Securities) upon liquidation,
dissolution or winding up unless prior thereto, the holders of shares of Series
D Preferred Stock, subject to Section 6, shall have received the Liquidation
Preference (as defined in Section 4(c)) with respect to each share. If upon the
occurrence of a Liquidation Event, the assets and funds available for
distribution among the holders of the Series D Preferred Stock and holders of
Pari Passu Securities (including any dividends or distribution paid on any Pari
Passu Securities after the date of filing of these Articles of Amendment) shall
be insufficient to permit the payment to such holders of the preferential
amounts payable thereon, then the entire assets and funds of the Corporation
legally available for distribution to the Series D Preferred Stock and the Pari
Passu Securities shall be distributed ratably among such shares in proportion to
the ratio that the Liquidation Preference payable on each such share bears to
the aggregate liquidation preference payable on all such shares. Any prior
dividends or distribution made after the date of filing of these Articles of
Amendment shall offset, dollar for dollar, the amount payable to the class or
series to which such distribution was made.
(B) LIQUIDATION PREFERENCE. For purposes of these Articles of
Amendment, the "LIQUIDATION PREFERENCE" with respect to a share of the Series D
Preferred Stock shall mean an amount equal to the sum of (i) the Stated Value
thereof, plus (ii) an amount equal to six percent (6%) per annum of such Stated
Value for the period beginning on the date of issuance thereof (the "ISSUE
DATE") and ending on the date of final distribution to the holder thereof
(prorated for any portion of such period), plus (iii) the amount of any
outstanding Conversion Default Payments (as defined in Section 6(e) below),
Delivery Default Payments (as defined in Section 6(d) below) and payments owed
to such holder pursuant to Section 2(c) of the Registration Rights Agreement (as
defined below). The liquidation preference with respect to any Pari Passu
Securities shall be as set forth in the Articles of Amendment filed in respect
thereof.
(5) REDEMPTION.
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(A) MANDATORY REDEMPTION. If any of the following events (each, a
"MANDATORY REDEMPTION EVENT") shall occur:
(i) The Corporation fails to issue shares of Common Stock
to the holders of Series D Preferred Stock upon exercise by the holders of their
conversion rights in accordance with the terms of these Articles of Amendment
(for a period of at least 60 days if such failure is solely as a result of the
circumstances governed by the second paragraph of Section 6(e) below and the
Corporation is using its best efforts to authorize a sufficient number of shares
of Common Stock as soon as practicable), fails to transfer or to cause its
transfer agent to transfer (electronically or in certificated form) any
certificate for shares of Common Stock issued to the holders upon conversion of
the Series D Preferred Stock as and when required by these Articles of Amendment
or the Registration Rights Agreement, dated as of the Closing Date (as defined
in the Purchase and Exchange Agreement (defined below)), among the Corporation
and the other signatories thereto (the "REGISTRATION RIGHTS AGREEMENT"), fails
to remove any restrictive legend (or to withdraw any stop transfer instructions
in respect thereof) on any certificate or any shares of Common Stock issued to
the holders of Series D Preferred Stock upon conversion of the Series D
Preferred Stock as and when required by these Articles of Amendment, the
Securities Purchase and Exchange Agreement, dated as of November 8, 1999,
between the Corporation and the other signatories thereto (the "PURCHASE AND
EXCHANGE AGREEMENT") or the Registration Rights Agreement, or fails to fulfill
its obligations pursuant to Sections 4(c), 4(e), 4(g) or 5 of the Purchase and
Exchange Agreement (or makes any announcement, statement or threat that it does
not intend to honor the obligations described in this paragraph) and any such
failure shall continue uncured (or any announcement, statement or threat not to
honor its obligations shall not be rescinded in writing) for 10 days after the
Corporation shall have been notified thereof in writing by any holder of Series
D Preferred Stock;
(ii) The Corporation fails to obtain effectiveness with
the Securities and Exchange Commission (the "SEC") prior to [INSERT DATE 180
DAYS AFTER CLOSING DATE] of the Registration Statement (as defined in the
Registration Rights Agreement) required to be filed pursuant to Section 2(a) of
the Registration Rights Agreement, or fails to obtain the effectiveness of any
additional Registration Statement (required to be filed pursuant to Section 3(b)
of the Registration Rights Agreement) within 60 days after the Registration
Trigger Date (as defined in the Registration Rights Agreement), or any such
Registration Statement, after its initial effectiveness and during the
Registration Period (as defined in the Registration Rights Agreement), lapses in
effect or sales of all of the Registrable Securities (as defined in the
Registration Rights Agreement, the "REGISTRABLE SECURITIES") otherwise cannot be
made thereunder (whether by reason of the Corporation's failure to amend or
supplement the prospectus included therein in accordance with the Registration
Rights Agreement, the Corporation's failure to file and obtain effectiveness
with the SEC of an additional Registration Statement required pursuant to
Section 3(b) of the Registration Rights Agreement or otherwise) for more than 30
consecutive days or more than 60 days in any 12-month period after such
Registration Statement becomes effective;
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(iii) The Corporation or any subsidiary of the Corporation
shall voluntarily make an assignment for the benefit of creditors, or
voluntarily apply for or consent to the appointment of a receiver or trustee for
it or for all or substantially all of its property or business;
(iv) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted voluntarily by the Corporation or
any subsidiary of the Corporation and, if not instituted voluntarily by the
Corporation or any such subsidiary, shall be consented to or acquiesced in by
the Corporation or such subsidiary or shall be converted to a voluntary case;
(v) The sale, conveyance or disposition of all or
substantially all of the assets of the Corporation or the effectuation by the
Corporation of a transaction or series of related transactions in which more
than 50% of the voting power of the Corporation is disposed of (other than
transactions described in subparagraph (vi) or (vii) below, which shall be
governed by such subparagraphs) (PROVIDED, HOWEVER, that no transaction
described in this subparagraph shall constitute a Mandatory Redemption Event
unless the Board of Directors of the Corporation shall have approved such
transaction (including, in the case of a tender offer to, or proxy solicitation
of, the shareholders of the Corporation which results in the consummation of any
such transaction, the approval of the commencement of such tender offer or proxy
solicitation));
(vi) The consolidation, merger or other business
combination of the Corporation with or into any other individual, corporation,
limited liability company, partnership, association, trust or other entity or
organization (each a "PERSON") or Persons when the Corporation is not the
Survivor (as defined below) and either (i) the Survivor is not subject to the
periodic filing requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended (the "SEC FILING REQUIREMENTS"), or (ii) the Survivor is
subject to the SEC Filing Requirements and the consideration to be paid to the
shareholders of the Corporation in such transactions consists of cash or a
combination of cash and securities or other property (PROVIDED, HOWEVER, that no
transaction described in this subparagraph shall constitute a Mandatory
Redemption Event unless the Board of Directors of the Corporation shall have
approved such transaction (including, in the case of a tender offer to, or proxy
solicitation of, the shareholders of the Corporation which results in the
consummation of any such transaction, the approval of the commencement of such
tender offer or proxy solicitation));
(vii) The consolidation, merger or other business
combination of the Corporation with or into any other Person or Persons when the
Corporation is not the Survivor and (A) the Survivor is subject to the SEC
Filing Requirements, (B) the consideration to be paid to the stockholders of the
Corporation in such transaction consists solely of capital stock of the Survivor
and (C) (i) the average of the Closing Bid Prices (defined below) of the Common
Stock for the 20 consecutive Trading Days (defined below) ending on the later of
(I) the third Trading Day immediately preceding the closing of such transaction,
and (II) the date such transaction is approved by the holders of the requisite
percentage of outstanding capital stock of the Corporation (such later date, the
"MEASUREMENT DATE") (such average being hereinafter referred
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to as the "AVERAGE PRICE") is less than the product of (x) two, multiplied by
(y) the Conversion Price in effect on the Measurement Date or (ii) if the
Average Price is equal to or greater than the product of (x) two, multiplied by
(y) the Conversion Price in effect on the Measurement Date, the Closing Bid
Price of the Common Stock on the Trading Day immediately preceding the
Measurement Date is less than the Average Price (PROVIDED, HOWEVER, that no
transaction described in this subparagraph shall constitute a Mandatory
Redemption Event unless the Board of Directors of the Corporation shall have
approved such transaction (including, in the case of a tender offer to, or proxy
solicitation of, the shareholders of the Corporation which results in the
consummation of any such transaction, the approval of the commencement of such
tender offer or proxy solicitation)); or
(viii) The Corporation shall fail (a) to prepare and file
with the SEC on or before November 24, 1999 a proxy statement in accordance with
Section 14 of the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the SEC promulgated thereunder requesting the shareholders of the
Corporation to approve the issuance of the Series D Preferred Stock and the
shares of Common Stock issuable upon conversion of or otherwise pursuant to the
Series D Preferred Stock pursuant to Rule 4310(c)(25)(H)(i) of the Nasdaq Stock
Market or any successor rule ("SHAREHOLDER APPROVAL") or (b) to hold an annual
or special meeting of its shareholders on or before December 31, 1999 and to
obtain at such meeting the Shareholder Approval; provided that such date set
forth in this clause (b) shall be extended to February 15, 2000 if the staff of
the SEC reviews and provides to the Corporation written comments requiring
changes to such proxy statement;
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs (i), (ii), (v), (vii) or (viii), at
the option of the holders of at least 50% of the then outstanding shares of
Series D Preferred Stock exercisable by delivery of written notice (the
"MANDATORY REDEMPTION NOTICE") to the Corporation of such Mandatory Redemption
Event, or upon the occurrence of any Mandatory Redemption Event specified in
subparagraphs (iii), (iv) or (vi), the then outstanding shares of Series D
Preferred Stock shall become immediately redeemable and the Corporation shall
purchase each holder's outstanding shares of Series D Preferred Stock for an
amount per share equal to the greater of (1) the sum of (a) 120% multiplied by
the Stated Value of the shares to be redeemed plus (b) an amount equal to six
percent (6%) per annum of such Stated Value for the period beginning on the
Issue Date and ending on the date of payment of the Mandatory Redemption Amount
(the "MANDATORY REDEMPTION DATE") plus (c) all Conversion Default Payments (as
defined in Section 6(e) below), Delivery Default Payments (as defined in Section
6(d) below)) and any other amounts owed to such holder pursuant to Section 2(c)
of the Registration Rights Agreement, and (2) the "PARITY VALUE" of the shares
to be redeemed, where parity value means (except as provided below with respect
to a Mandatory Redemption Event described in subparagraph (vi) above) the
product of (a) the number of shares of Common Stock issuable upon conversion of
such shares of Series D Preferred Stock in accordance with Section 6 below
(without giving any effect to any limitations on conversions of shares contained
herein, and treating the Trading Day immediately preceding the Mandatory
Redemption Date as the "CONVERSION DATE" (as defined in Section 6(d)(iv))),
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multiplied by (b) the highest Closing Price (as defined below) for the Common
Stock during the period beginning on the date of first occurrence of the
Mandatory Redemption Event and ending one day prior to the Mandatory Redemption
Date (the greater of such amounts being referred to as the "MANDATORY REDEMPTION
AMOUNT"); PROVIDED, HOWEVER, in the case of any Mandatory Redemption Event
described in subparagraph (ii) above, the Corporation shall have the option, in
lieu of redeeming the Series D Preferred Stock as provided above, to pay to each
holder thereof, within five business days of the occurrence of such Mandatory
Redemption Event, an amount in cash equal to One Hundred Dollars ($100) per
share of Series D Preferred Stock not so redeemed (the "COVENANT DEFAULT
AMOUNT"); PROVIDED, FURTHER, that the Corporation shall only have the right to
deliver the Covenant Default Amount in respect of the Mandatory Redemption Event
specified in subparagraph (ii) above if it has used its best efforts to obtain
or maintain the effectiveness of any such Registration Statement in accordance
with its obligations under the Registration Rights Agreement. If the Corporation
fails to deliver the Covenant Default Amount within such five-business day
period, it shall forfeit its right to so deliver the Covenant Default Amount and
the Mandatory Redemption Amount shall become immediately payable. In the case of
a Mandatory Redemption Event described in subparagraph (vi) above, "parity
value" means the product of (a) the number of shares of Common Stock issuable
upon conversion of the shares of Series D Preferred Stock to be redeemed in
accordance with this Section 5 (without giving effect to any limitations on
conversions of the Series D Preferred Stock contained herein) multiplied by (b)
the highest Closing Price for the Common Stock during the period beginning on
the Announcement Date with respect to the transaction giving rise to such
Mandatory Redemption Event and ending on the Measurement Date (the "MEASUREMENT
PERIOD"). The Mandatory Redemption Amount, together with all other ancillary
amounts payable hereunder, shall immediately become due and payable, all without
demand, presentment or notice, all of which hereby are expressly waived,
together with all costs, including, without limitation, reasonable legal fees
and expenses of collection, and the holders of the Series D Preferred Stock
shall be entitled to exercise all other rights and remedies available at law or
in equity. For purposes of this Agreement, "SURVIVOR" means, with respect to any
consolidation, merger or other business combination to which the Corporation is
a party, the surviving entity of such transaction; PROVIDED, HOWEVER, if the
Corporation merges with and into another Person and more than 50% of the
outstanding voting stock of the Corporation (if the Corporation is the surviving
entity), or more than 50% of the outstanding voting stock of such Person (if
such Person is the surviving entity), is owned by another Person that is subject
to the SEC Filing Requirements, then the Person subject to such requirements
shall be deemed the Survivor. "CLOSING PRICE," as of any date, means the last
sale price of the Common Stock on Nasdaq SmallCap as reported by Bloomberg
Financial Markets or an equivalent reliable reporting service mutually
acceptable to and hereafter designated by the holders of a majority in interest
of the shares of Series D Preferred Stock and the Corporation ("BLOOMBERG") or,
if Nasdaq is not the principal trading market for such security, the last sale
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 sale 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 last sale price of such security is available
in the over-the-counter market on the electronic bulletin board for such
security or in any of the foregoing manners, the average of the bid prices of
any market makers for such security
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that are listed in the "pink sheets" by the National Quotation Bureau, Inc. If
the Closing Price cannot be calculated for such security on such date in the
manner provided above, the Closing Price shall be the fair market value as
mutually determined by the Corporation and the holders of a majority in interest
of shares of Series D Preferred Stock being converted for which the calculation
of the Closing Price is required in order to determine the Conversion Price of
such Series D Preferred Stock. "CLOSING BID PRICE" means, for any security as of
any date, the closing bid price on Nasdaq as reported by Bloomberg or, if Nasdaq
is not the principal trading market for such security, the 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 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 of such security is available in the over-the-counter
market on the electronic bulletin board for such security or in any of the
foregoing manners, the average of the bid prices of any market makers for such
security that are listed in the "pink sheets" by the National Quotation Bureau,
Inc. If the Closing Bid Price cannot be calculated for such security on such
date in the manner provided above, the Closing Bid Price shall be the fair
market value as mutually determined by the Corporation and the holders of a
majority in interest of shares of Series D Preferred Stock being converted for
which the calculation of the Closing Bid Price is required in order to determine
the Conversion Price of such Series D Preferred Stock. "TRADING DAY" shall mean
any day on which the Common Stock is traded for any period on Nasdaq, or on the
principal securities exchange or other securities market on which the Common
Stock is then being traded. "ANNOUNCEMENT Date" means the date on which the
Corporation (i) makes a public announcement that it intends to consolidate or
merge with any other corporation (other than a merger in which the Corporation
is the surviving or continuing corporation and its capital stock is unchanged)
or sell or transfer all or substantially all of the assets of the Corporation or
(ii) any person, group or entity (including the Corporation) publicly announces
a tender offer to purchase 50% or more of the Corporation's Common Stock (or any
other takeover scheme).
(B) FAILURE TO PAY MANDATORY REDEMPTION AMOUNT. In the case of
a Mandatory Redemption Event, if the Corporation fails to pay the Mandatory
Redemption Amount within five business days of written notice that such amount
is due and payable, then (assuming there are sufficient authorized shares) in
addition to all other available remedies, each holder of Series D Preferred
Stock shall have the right at any time and from time to time, so long as the
Mandatory Redemption Event continues, to require the Corporation, upon written
notice, to immediately issue (in accordance with and subject to the terms of
Section 6 below), in lieu of the Mandatory Redemption Amount, the number of
shares of Common Stock of the Corporation equal to such applicable amount
divided by any Conversion Price, as chosen in the sole discretion of the holder
of Series D Preferred Stock, in effect from the date of the Mandatory Redemption
Event until the date such holder elects to exercise its rights pursuant to this
Section 5(b).
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(6) CONVERSION AT THE OPTION OF THE HOLDER
(A) CONVERSION AMOUNT. Each holder of shares of Series D
Preferred Stock may, at its option at any time and from time to time, upon
surrender of the certificates therefor, convert any or all of its shares of
Series D Preferred Stock into Common Stock as set forth below (an "OPTIONAL
CONVERSION"); provided, however, the Series D Preferred Stock shall not be
convertible into more than 436,103 shares of Common Stock until such time as the
Corporation shall have obtained Shareholder Approval or at such time as
Shareholder Approval is no longer required, whether because the Common Stock is
no longer listed on Nasdaq or otherwise. Each share of Series D Preferred Stock
shall be convertible into such number of fully paid and nonassessable shares of
Common Stock as such Common Stock exists on the Issue Date, or any other shares
of capital stock or other securities of the Corporation into which such Common
Stock is thereafter changed or reclassified, as is determined by dividing (1)
the sum of (i) the Stated Value thereof plus (ii) the Premium Amount (as defined
below) plus (iii) at the option of such holder of the Series D Preferred Stock,
any Conversion Default Payments (as defined in Section 6(e) below), Delivery
Default Payments (as defined in Section 6(d) below) and any other amounts owed
to such holder pursuant to Section 2(c) of the Registration Rights Agreement
(the sum of (i), (ii) and (iii) being collectively referred to as the
"CONVERSION AMOUNT"), by (2) the then effective Conversion Price (as defined
below); PROVIDED, HOWEVER, that in no event shall a holder of shares of Series D
Preferred Stock be entitled to convert any such shares in excess of that number
of shares upon conversion of which the sum of (x) the number of shares of Common
Stock beneficially owned by the holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the shares of Series D Preferred Stock or the unexercised
or unconverted portion of any other securities of the Corporation), subject to a
limitation on conversion or exercise analogous to the limitations contained
herein) and (y) the number of shares of Common Stock issuable upon the
conversion of the shares of Series D Preferred Stock with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by a holder and such holder's affiliates of more than 4.99% of the
outstanding shares of Common Stock. For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder, except as otherwise provided in clause
(x) of such proviso. The "PREMIUM AMOUNT" means the product of the Stated Value,
multiplied by .06, multiplied by (N/365), where "N" equals the number of days
elapsed from the Issue Date to and including the Conversion Date (as defined in
Section (6)(d)).
(b) CONVERSION PRICE. The Conversion Price shall be $1.00
(subject to adjustment for stock splits, stock dividends and similar events)
(the "CONVERSION PRICE"). The Conversion Price shall be subject to adjustments
pursuant to the provisions of Section 6(c) below.
(c) ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price
shall be subject to adjustment from time to time as follows:
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(i) ADJUSTMENT DUE TO STOCK SPLIT, STOCK DIVIDEND, ETC.
If, at any time when Series D Preferred Stock is issued and outstanding, the
number of outstanding shares of Common Stock is increased or decreased by a
stock split, stock dividend, combination, reclassification, or other similar
event, then the Conversion Price shall be proportionately adjusted to give
effect to the stock split, stock dividend, combination, reclassification or
other similar event. In such event, the Corporation shall notify the Transfer
Agent of such change on or before the effective date thereof.
(ii) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at
any time when Series D Preferred Stock is issued and outstanding, there shall be
any merger, consolidation, exchange of shares, recapitalization, reorganization,
sale of assets or other similar event (other than a transaction described in
Section 7(b)), as a result of which shares of Common Stock of the Corporation
shall be changed into the same or a different number of shares of another class
or classes of stock or securities of the Corporation or another entity, or in
case of any sale or conveyance of all or substantially all of the assets of the
Corporation other than in connection with a plan of complete liquidation of the
Corporation, then the holders of Series D Preferred Stock shall thereafter have
the right to receive upon conversion of the Series D Preferred Stock, upon the
basis and upon the terms and conditions specified herein and in lieu of the
shares of Common Stock immediately theretofore issuable upon conversion, such
stock, securities or assets which the holders of Series D Preferred Stock would
have been entitled to receive in such transaction had the Series D Preferred
Stock been converted in full immediately prior to such transaction (without
regard to any limitations on conversion contained herein), and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the holders of Series D Preferred Stock to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Conversion
Price and of the number of shares of Common Stock issuable upon conversion of
the Series D Preferred Stock) shall thereafter be applicable, as nearly as may
be practicable in relation to any securities or assets thereafter deliverable
upon the conversion of Series D Preferred Stock. The Corporation shall not
effect any transaction described in this subsection (ii) unless (A) it first
gives, to the extent practical, prior written notice of the record date of the
special meeting of stockholders to approve, or if there is no such record date,
the consummation of, such merger, consolidation, exchange of shares,
recapitalization, reorganization, sale of assets or other similar event to the
extent required by law (during which time the holders of Series D Preferred
Stock shall be entitled to convert the Series D Preferred Stock), which notice
shall be given concurrently with the first public announcement of such
transaction and (B) the resulting successor or acquiring entity (if not the
Corporation) and, if an entity different from the successor or acquiring entity,
the entity whose capital stock or assets the holders of Common Stock of the
Corporation are entitled to receive as a result of such merger, consolidation,
exchange of shares, recapitalization, reorganization, sale of assets or other
similar event, assumes by written instrument all of the obligations of these
Articles of Amendment, including this subsection (ii). The above provisions
shall similarly apply to successive consolidations, mergers, sales, transfers or
share exchanges.
(iii) ADJUSTMENT DUE TO DISTRIBUTION. Subject to Section
3, if the Corporation shall declare or make any distribution of its assets (or
rights to acquire its assets) to holders of Common Stock as a dividend, stock
repurchase, by way of return of capital or
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otherwise (including any dividend or distribution to the Corporation's
shareholders in cash or shares (or rights to acquire shares) of capital stock of
a subsidiary (i.e., a spin-off)) (a "DISTRIBUTION"), then the holders of Series
D Preferred Stock shall be entitled, upon any conversion of shares of Series D
Preferred Stock after the date of record for determining shareholders entitled
to such Distribution, to receive the amount of such assets which would have been
payable to the holder with respect to the shares of Common Stock issuable upon
such conversion had such holder been the holder of such shares of Common Stock
on the record date for the determination of shareholders entitled to such
Distribution.
(iv) ADJUSTMENTS TO CONVERSION PRICE UPON ISSUANCE OF
PURCHASE RIGHTS. Subject to Section 3, if at any time when any Series D
Preferred Stock is issued and outstanding, the Corporation issues any
convertible securities or rights to purchase stock, warrants, securities or
other property (the "PURCHASE Rights") pro rata to the record holders of any
class of Common Stock, then the holders of Series D Preferred Stock 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 Series D Preferred Stock (without regard to any limitations on
conversion contained herein) 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.
(d) MECHANICS OF CONVERSION. In order to convert Series D
Preferred Stock into full shares of Common Stock, a holder of Series D Preferred
Stock shall: (i) submit a copy of the fully executed notice of conversion in the
form attached hereto as Exhibit B ("NOTICE OF CONVERSION") to the Corporation by
facsimile dispatched prior to Midnight, New York City time (the "CONVERSION
NOTICE DEADLINE"), on the date specified therein as the Conversion Date (or by
other means resulting in, or reasonably expected to result in, notice to the
Corporation on the Conversion Date) to the office of the Corporation or its
designated Transfer Agent for the Series D Preferred Stock, which notice shall
specify the number of shares of Series D Preferred Stock to be converted, the
applicable Conversion Price and a calculation of the number of shares of Common
Stock issuable upon such conversion (together with a copy of the first page of
each certificate to be converted); and (ii) surrender the original certificates
representing the Series D Preferred Stock being converted (the "PREFERRED STOCK
CERTIFICATES"), duly endorsed, along with a copy of the Notice of Conversion to
the office of the Corporation or the Transfer Agent for the Series D Preferred
Stock as soon as practicable thereafter. The Corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon such
conversion, unless either the Preferred Stock Certificates are delivered to the
Corporation or its Transfer Agent as provided above, or the holder notifies the
Corporation or its Transfer Agent that such certificates have been lost, stolen
or destroyed (subject to the requirements of subparagraph (i) below). In the
case of a dispute as to the calculation of the Conversion Price, the Corporation
shall promptly issue such number of shares of Common Stock that are not disputed
in accordance with subparagraph (ii) below. The Corporation shall submit the
disputed calculations to its outside accountant via facsimile within two
business days of receipt of the
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Notice of Conversion. The accountant shall audit the calculations and notify the
Corporation and the holder of the results no later than 48 hours from the time
it receives the disputed calculations. The accountant's calculation shall be
deemed conclusive absent manifest error.
(i) LOST OR STOLEN CERTIFICATES. Upon receipt by the
Corporation of evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing shares of Series D Preferred Stock,
and (in the case of loss, theft or destruction) of indemnity reasonably
satisfactory to the Corporation, and upon surrender and cancellation of the
Preferred Stock Certificate(s), if mutilated, the Corporation shall execute and
deliver new Preferred Stock Certificate(s) of like tenor and date.
(ii) DELIVERY OF COMMON STOCK UPON CONVERSION. Upon the
surrender of certificates as described above together with a Notice of
Conversion, the Corporation shall issue and, within three business days after
such surrender (or, in the case of lost, stolen or destroyed certificates, after
provision of agreement and indemnification pursuant to subparagraph (i) above)
(the "DELIVERY PERIOD"), deliver (or cause its Transfer Agent to so issue and
deliver) in accordance with the terms hereof and the Purchase and Exchange
Agreement (including, without limitation, in accordance with the requirements of
Section 2(g) of the Purchase and Exchange Agreement) to or upon the order of the
holder (A) that number of shares of Common Stock for the shares of Series D
Preferred Stock converted as shall be determined in accordance herewith and (B)
a certificate representing the balance of the shares of Series D Preferred Stock
not converted, if any. In addition to any other remedies available to the
holder, including actual damages and/or equitable relief, the Corporation shall
pay to a holder $2,000 per day in cash for each day beyond a three-day grace
period following the Delivery Period that the Corporation fails to deliver
Common Stock (a "DELIVERY DEFAULT") issuable upon surrender of shares of Series
D Preferred Stock with a Notice of Conversion until such time as the Corporation
has delivered all such Common Stock (the "DELIVERY DEFAULT PAYMENTS"); PROVIDED,
HOWEVER, in the event of a failure by the Corporation to deliver shares upon
conversion as a result of a Conversion Default (as defined below), the holder
shall not be entitled to receive Delivery Default Payments but shall be entitled
to receive Conversion Default Payments in accordance with Section 6(e). Such
Delivery Default Payments shall be paid to such holder by the fifth day of the
month following the month in which it has accrued or, at the option of the
holder (by written notice to the Corporation by the first day of the month
following the month in which it has accrued), shall be convertible into Common
Stock in accordance with the terms of this Section 6.
In lieu of delivering physical certificates representing
the Common Stock issuable upon conversion, provided the Corporation's Transfer
Agent is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer ("FAST") program, upon request of the holder and its
compliance with the provisions contained in Section 6(a) and in this Section
6(d), the Corporation shall use its best efforts to cause its Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to the holder
by crediting the account of holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system. The time periods for delivery and
penalties described in the immediately preceding paragraph shall apply to the
electronic transmittals described herein.
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(iii) NO FRACTIONAL SHARES. If any conversion of Series D
Preferred Stock would result in a fractional share of Common Stock or the right
to acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon conversion of
the Series D Preferred Stock shall be the next higher number of shares.
(iv) CONVERSION DATE. The "CONVERSION DATE" shall be the
date specified in the Notice of Conversion, provided that the Notice of
Conversion is submitted by facsimile (or by other means resulting in, or
reasonably expected to result in, notice) to the Corporation or its Transfer
Agent before Midnight, New York City time, on the date so specified, otherwise
the Conversion Date shall be the first business day after the date so specified
on which the Notice of Conversion is actually received by the Corporation or its
Transfer Agent. The person or persons entitled to receive the shares of Common
Stock issuable upon conversion shall be treated for all purposes as the record
holder or holders of such securities as of the Conversion Date and all rights
with respect to the shares of Series D Preferred Stock surrendered shall
forthwith terminate except the right to receive the shares of Common Stock or
other securities or property issuable on such conversion and except that the
holders' preferential rights as holders of Series D Preferred Stock shall
survive to the extent the Corporation fails to deliver such securities.
(e) RESERVATION OF SHARES. A number of shares of the authorized but
unissued Common Stock sufficient to provide for the conversion of the Series D
Preferred Stock outstanding shall at all times be reserved by the Corporation,
free from preemptive rights, for such conversion or exercise. As of the date of
issuance of the Series D Preferred Stock, 5,794,796 authorized and unissued
shares of Common Stock have been duly reserved for issuance upon conversion of
the Series D Preferred Stock (the "RESERVED AMOUNT"). The Reserved Amount shall
be increased from time to time in accordance with the Corporation's obligations
pursuant to Section 4(e) of the Purchase and Exchange Agreement. In addition, if
the Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series D Preferred Stock shall be convertible, the Corporation
shall at the same time also make proper provision so that thereafter there shall
be a sufficient number of shares of Common Stock authorized and reserved, free
from preemptive rights, for conversion of the outstanding Series D Preferred
Stock.
If at any time a holder of shares of Series D Preferred Stock submits a
Notice of Conversion, and the Corporation does not have sufficient authorized
but unissued shares of Common Stock available to effect such conversion in
accordance with the provisions of this Section 6 (a "CONVERSION DEFAULT"),
subject to Section 10, the Corporation shall issue to the holder all of the
shares of Common Stock which are available to effect such conversion. The number
of shares of Series D Preferred Stock included in the Notice of Conversion which
exceeds the amount which is then convertible into available shares of Common
Stock (the "EXCESS AMOUNT") shall, notwithstanding anything to the contrary
contained herein, not be convertible into Common Stock in accordance with the
terms hereof until (and at the holder's option at any
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time after) the date additional shares of Common Stock are authorized by the
Corporation to permit such conversion, at which time the Conversion Price in
respect thereof shall be the lesser of (A) the Conversion Price on the
Conversion Default Date (as defined below) and (B) the Conversion Price on the
Conversion Date elected by the holder in respect thereof. The Corporation shall
use its best efforts to effect an increase in the authorized number of shares of
Common Stock as soon as possible following the earlier of (x) such time that a
holder of Series D Preferred Stock notifies the Corporation or that the
Corporation otherwise becomes aware that there are or likely will be
insufficient authorized and unissued shares to allow full conversion thereof and
(y) a Conversion Default. In addition, the Corporation shall pay to the holder
payments ("CONVERSION DEFAULT PAYMENTS") for a Conversion Default in the amount
of (a) .24, multiplied by (b) the sum of the Stated Value plus the Premium
Amount per share of Series D Preferred Stock held by such holder through the
Authorization Date (as defined below), multiplied by (c) (N/365), where N = the
number of days from the day the holder submits a Notice of Conversion giving
rise to a Conversion Default (the "CONVERSION DEFAULT DATE") to the date (the
"AUTHORIZATION DATE") that the Corporation authorizes a sufficient number of
shares of Common Stock to effect conversion of the full number of shares of
Series D Preferred Stock. The Corporation shall send notice to the holder of the
authorization of additional shares of Common Stock, the Authorization Date and
the amount of holder's accrued Conversion Default Payments. The accrued
Conversion Default Payment for each calendar month shall be paid in cash or
shall be convertible into Common Stock at the applicable Conversion Price, at
the holder's option, as follows:
(i) In the event the holder elects to take such payment in
cash, cash payment shall be made to the holder by the fifth day of the month
following the month in which it has accrued; and
(ii) In the event the holder elects to take such payment
in Common Stock, the holder may convert such payment amount into Common Stock at
the Conversion Price (as in effect at the time of Conversion) at any time after
the fifth day of the month following the month in which it has accrued in
accordance with the terms of this Section 6 (so long as there is then a
sufficient number of authorized shares of Common Stock).
The holder's election shall be made in writing to the
Corporation at any time prior to 9:00 p.m., New York City Time, on the third day
of the month following the month in which Conversion Default payments have
accrued. If no election is made, the holder shall be deemed to have elected to
receive cash. Nothing herein shall limit the holder's right to pursue actual
damages (to the extent in excess of the Conversion Default Payments) for the
Corporation's failure to maintain a sufficient number of authorized shares of
Common Stock, and each holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance and/or
injunctive relief).
(f) NOTICE OF CONVERSION PRICE ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 6,
the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms
-13-
hereof and prepare and furnish to each holder of Series D Preferred Stock a
certificate setting forth such adjustment or readjustment and 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 D Preferred
Stock, furnish or cause to be furnished to such holder a like certificate
setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at
the time in effect and (iii) the number of shares of Common Stock and the
amount, if any, of other securities or property which at the time would be
received upon conversion of a share of Series D Preferred Stock.
(g) STATUS AS STOCKHOLDERS. Upon submission of a Notice of
Conversion by a holder of Series D Preferred Stock, (i) the shares covered
thereby (other than the shares, if any, which cannot be issued because their
issuance would exceed such holder's allocated portion of the Reserved Amount)
shall be deemed converted into shares of Common Stock and (ii) the holder's
rights as a holder of such converted shares of Series D Preferred Stock shall
cease and terminate, excepting only the right to receive certificates for such
shares of Common Stock and to any remedies provided herein or otherwise
available at law or in equity to such holder because of a failure by the
Corporation to comply with the terms of these Articles of Amendment.
Notwithstanding the foregoing, if a holder has not received certificates for all
shares of Common Stock prior to the 10th business day after the expiration of
the Delivery Period with respect to a conversion of shares of Series D Preferred
Stock for any reason, then (unless the holder otherwise elects to retain its
status as a holder of Common Stock by so notifying the Corporation) the holder
shall regain the rights of a holder of such shares of Series D Preferred Stock
with respect to such unconverted shares of Series D Preferred Stock and the
Corporation shall, as soon as practicable, return such unconverted shares of
Series D Preferred Stock to the holder or, if such shares of Series D Preferred
Stock have not been surrendered, adjust its records to reflect that such shares
of Series D Preferred Stock have not been converted. In all cases, the holder
shall retain all of its rights and remedies (including, without limitation, (i)
the right to receive Delivery Default Payments pursuant to Section 6(d) to the
extent required thereby for such Delivery Default and any subsequent Delivery
Default and (ii) the right to have the Conversion Price with respect to
subsequent conversions determined in accordance with Section 6(e) for the
Corporation's failure to convert the Series D Preferred Stock .
(7) AUTOMATIC CONVERSION
(a) So long as (i) all of the shares of Common Stock issuable
upon conversion of all outstanding shares of Series D Preferred Stock are then
(x) authorized and reserved for issuance, (y) registered for re-sale under the
Securities Act of 1933, as amended, by the holders of the Series D Preferred
Stock (or may otherwise be resold publicly without registration or restriction
as to volume) and (z) eligible to be traded on Nasdaq, the NYSE, the AMEX or
Nasdaq SmallCap, and (ii) there is not then a continuing Mandatory Redemption
Event, each share of Series D Preferred Stock issued and outstanding on [INSERT
DATE THAT IS THIRD ANNIVERSARY OF ISSUE DATE] (the "AUTOMATIC CONVERSION DATE")
(together with the Premium Amount and any Conversion Default Payments, Delivery
Default Payments and other amounts
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due and payable by the Corporation pursuant to Section 2(c) of the Registration
Rights Agreement) automatically shall be converted into shares of Common Stock
on such date at the then effective Conversion Price in accordance with, and
subject to, the provisions of Section 6 hereof (the "AUTOMATIC CONVERSION"). The
Automatic Conversion Date shall be delayed by one Trading Day for each Trading
Day occurring prior thereto and prior to the full conversion of the Series D
Preferred Stock that (i) any Registration Statement required to be filed and to
be effective pursuant to the Registration Rights Agreement is not effective or
sales of all of the Registrable Securities (as defined in the Registration
Rights Agreement) otherwise cannot be made thereunder during the Registration
Period (whether by reason of the Corporation's failure to properly supplement or
amend the Prospectus in accordance with the terms of the Registration Rights
Agreement or otherwise), (ii) any Mandatory Redemption Event exists, without
regard to whether any cure periods shall have run, or (iii) the Corporation is
in breach of any of its obligations pursuant to Section 4(e) of the Purchase and
Exchange Agreement. The Automatic Conversion Date shall be the Conversion Date
for purposes of determining the Conversion Price and the time within which
certificates representing the Common Stock must be delivered to the holders.
(b) In the event that the Corporation enters into a
consolidation, merger or other business combination with any Person or Persons
when the Corporation is not the Survivor and (i) the Survivor is subject to the
SEC Filing Requirements, (ii) the consideration to be paid to the stockholders
of the Corporation in such transaction consists solely of capital stock of the
Survivor ("SURVIVOR CAPITAL STOCK"), (iii) the Average Price is equal to or
greater than the product of (x) two, multiplied by (y) the Conversion Price in
effect on the Measurement Date, and (iv) the Closing Bid Price of the Common
Stock on the Trading Day immediately preceding the Measurement Date is equal to
or greater than the Average Price, then, so long as the Survivor Capital Stock
is then listed on Nasdaq, the NYSE or the AMEX and the resale thereof by Holder
has been registered under the Securities Act or such stock may be resold by
Holder without registration or restriction (including volume limitations) under
the Securities Act, all shares of Series D Preferred Stock then outstanding
(together with the Premium Amount and any Conversion Default Payments, Delivery
Default Payments and other amounts due and payable by the Corporation pursuant
to Section 2(c) of the Registration Rights Agreement) automatically shall be
converted on the closing date for such transaction into the number of shares of
Survivor Capital Stock that the holders thereof would have received in such
transaction if they had converted such shares in full into Common Stock in
accordance with, and subject to, the provisions of Section 6, at the Conversion
Price then in effect. The Corporation shall not effect any transaction described
in this Section 7(b) unless (x) it first gives, to the extent practical, prior
written notice of the record date of the special meeting of stockholders to
approve, or if there is no such record date, the consummation of, such
transaction, to the extent required by law, which notice shall be given
concurrently with the first public announcement of such transaction and (y) the
Survivor assumes by written instrument the obligations of the Corporation under
this Section 7. Holders of Series D Preferred Stock shall be permitted to
convert such stock in accordance with the terms of Section 6 at any time
following receipt of the notice described in clause (x) of the preceding
sentence.
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(8) VOTING RIGHTS. The holders of the Series D Preferred Stock have no
voting power whatsoever, except as otherwise provided by the North Carolina
Business Corporation Act ("NCBCA"), in this Section 8, and in Section 9 below.
Notwithstanding the above, the Corporation shall provide each holder of
Series D Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Corporation, or any proposed
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder, at least 10 days prior to the record date
specified therein (or 30 days prior to the consummation of the transaction or
event, whichever is earlier), of the date on which any such record is to be
taken for the purpose of such dividend, distribution, right or other event, and
a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the NCBCA the vote of the holders of the
Series D Preferred Stock, voting separately as a class, is required to authorize
a given action of the Corporation, the affirmative vote or consent of the
holders of at least a majority of the shares of the Series D Preferred Stock
represented at a duly held meeting at which a quorum is present or by unanimous
consent of holders of the shares of Series D Preferred Stock (except as
otherwise may be required under the NCBCA) shall constitute the approval of such
action by the class. To the extent that under the NCBCA holders of the Series D
Preferred Stock are entitled to vote on a matter with holders of Common Stock,
voting together as one class, each share of Series D Preferred Stock shall be
entitled to a number of votes equal to the number of shares of Common Stock into
which it is then convertible using the record date for the taking of such vote
of shareholders as the date as of which the Conversion Price is calculated.
Holders of the Series D Preferred Stock shall be entitled to notice of all
shareholder meetings or written consents (and copies of proxy materials and
other information sent to shareholders) with respect to which they would be
entitled to vote, which notice would be provided pursuant to the Corporation's
bylaws and the NCBCA.
(9) PROTECTIVE PROVISIONS. So long as shares of Series D Preferred
Stock are outstanding, the Corporation shall not, without first obtaining the
approval (by vote or written consent, as provided by the NCBCA) of the holders
of at least a majority of the then outstanding shares of Series D Preferred
Stock:
(a) alter, amend or repeal (whether by merger, consolidation
or otherwise) any of the rights, preferences or privileges of the Series D
Preferred Stock or any capital stock of the Corporation so as to affect
adversely the Series D Preferred Stock;
-16-
(b) create any Senior Securities;
(c) create any Pari Passu Securities;
(d) increase the authorized number of shares of Series D
Preferred Stock;
(e) issue any Senior Securities or Pari Passu Securities;
(f) increase the par value of the Common Stock, or
(g) do any act or thing not authorized or contemplated by
these Articles of Amendment which would result in taxation of the holders of
shares of the Series D Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
In the event holders of at least a majority of the then
outstanding shares of Series D Preferred Stock agree to allow the Corporation to
alter or change the rights, preferences or privileges of the shares of Series D
Preferred Stock, pursuant to subsection (a) above, so as to affect the Series D
Preferred Stock, then the Corporation will deliver notice of such approved
change to the holders of the Series D Preferred Stock that did not agree to such
alteration or change (the "DISSENTING HOLDERS") and Dissenting Holders shall
have the right for a period of 30 days to convert pursuant to the terms of these
Articles of Amendment as they exist prior to such alteration or change or
continue to hold their shares of Series D Preferred Stock.
(10) PRO RATA ALLOCATIONS. The Reserved Amount (including any increases
thereto) shall be allocated by the Corporation pro rata among the holders of
Series D Preferred Stock based on the number of shares of Series D Preferred
Stock issued to each holder. Each increase to the Reserved Amount shall be
allocated pro rata among the holders of Series D Preferred Stock based on the
number of shares of Series D Preferred Stock held by each holder at the time of
the increase in the Reserved Amount. In the event a holder shall sell or
otherwise transfer any of such holder's shares of Series D Preferred Stock, each
transferee shall be allocated a pro rata portion of such transferor's Reserved
Amount. Any portion of the Reserved Amount which remains allocated to any person
or entity which does not hold any Series D Preferred Stock shall be allocated to
the remaining holders of shares of Series D Preferred Stock, pro rata based on
the number of shares of Series D Preferred Stock then held by such holders.
-17-
EXHIBIT B
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series D Preferred Stock)
The undersigned hereby irrevocably elects to convert ______ shares of
Series D Preferred Stock, represented by stock certificate No(s). __________
(the "PREFERRED STOCK CERTIFICATES") into shares of common stock ("COMMON
STOCK") of Interactive Magic, Inc., a North Carolina corporation (the
"CORPORATION") according to the conditions of the Articles of Amendment with
respect to the Series D Preferred Stock, as of the date written below. If
securities are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates. No fee will be charged to the Holder for
any conversion, except for transfer taxes, if any. A copy of each Preferred
Stock Certificate is attached hereto (or evidence of loss, theft or destruction
thereof).
The Corporation shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the undersigned or its
nominee with DTC through its Deposit Withdrawal Agent Commission system ("DWAC
Transfer").
Name of DTC Prime Broker:__________________________________________
Account Number:____________________________________________________
[ ] In lieu of receiving shares of Common Stock issuable pursuant to this
Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Corporation issue a certificate or certificates for
the number of shares of Common Stock set forth above (which numbers are
based on the Holder's calculation attached hereto) in the name(s)
specified immediately below or, if additional space is necessary, on an
attachment hereto:
Name:_______________________________________________________________
Address:____________________________________________________________
____________________________________________________________
The undersigned represents and warrants that all offers and sales by
the undersigned of the securities issuable to the undersigned upon conversion of
the Series D Preferred Stock shall be made pursuant to registration of the
securities under the Securities Act of 1933, as amended (the "ACT"), or pursuant
to an exemption from registration under the Act.
Date of Conversion:____________________________
Conversion Price:______________________________
Number of Shares of
Common Stock to be Issued:_____________________
Signature:_____________________________________
Name:__________________________________________
Address:_______________________________________
_______________________________________________
_______________________________________________
_______________________________________________
*The Corporation is not required to issue shares of Common Stock until the
original Series D Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Corporation or its
Transfer Agent. The Corporation shall issue and deliver shares of Common Stock
to an overnight courier not later than two (2) business days following receipt
of the
original Preferred Stock Certificate(s) to be converted, and shall make
payments pursuant to the Articles of Amendment for the number of business days
such issuance and delivery is late.