EXHIBIT 3.1.4
CERTIFICATE OF
DESIGNATION OF RIGHTS, PREFERENCES AND PRIVILEGES OF
SERIES A CUMULATIVE CONVERTIBLE REDEEMABLE
PREFERRED STOCK OF
IN STORE MEDIA SYSTEMS, INC.,
a Nevada corporation
Pursuant to Nevada Revised Statutes Section 78.1955, the undersigned hereby
certifies as follows:
1. That the undersigned is the President and Secretary of In Store
Media Systems, Inc., a Nevada corporation (the "Corporation"); and
2. That, pursuant to the authority conferred on the Corporation's
Board of Directors (the "Board") by Article Fifth of the Corporation's Articles
of Incorporation, the Board, at a meeting duly held on March 30, 2000, the Board
approved and adopted the Statement of Certificate of Designation of Rights,
Preferences and Privileges of Series A Cumulative Convertible Redeemable
Preferred Stock attached hereto (the "Certificate of Designation"), and the
Board authorized the filing of the Certificate of Designation with the Nevada
Secretary of State.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Designation of Rights, Preferences and Privileges of Series A Cumulative
Convertible Redeemable Preferred Stock on this 30th day of March, 2000.
/s/ Donald P. Uhl
-----------------------------------
Donald P. Uhl,
President and Secretary
[SEAL]
Donald P. Uhl did appear before me and execute this document on 3/29/00
/s/ David L. Lewien
-----------------------------------
David L. Lewien
Notary
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STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHO )
On this 30th day of March, 2000, personally appeared before the
undersigned, a Notary Public, Donald P. Uhl, as the President and Secretary of
In Store Media Systems, Inc., a Nevada corporation, known to me to be the person
described in and who executed the foregoing instrument freely and voluntarily
and for the uses and purposes mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal on the day and year in this certificate first written above.
/s/ David L. Lewien
-----------------------------------
David L. Lewien
NOTARY PUBLIC
[SEAL]
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STATEMENT OF CERTIFICATE OF DESIGNATION
OF RIGHTS, PREFERENCES AND PRIVILEGES
OF
SERIES A CUMULATIVE CONVERTIBLE REDEEMABLE
PREFERRED STOCK
OF
IN STORE MEDIA SYSTEMS, INC.,
a Nevada corporation
The Corporation's first series of preferred stock shall be comprised of 14
shares and shall be designated as Series A Cumulative Convertible Redeemable
Series A Preferred Stock (the "Series A Preferred Stock"). The relative rights,
preferences, restrictions and other matters relating to the Series A Preferred
Stock or the holders thereof (each a "Holder") are as follows:
1. Dividend Rights.
(a) Holders of Series A Preferred Stock will be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available therefor, cumulative dividends from the issue date of the Series A
Preferred Stock (the "Series A Original Issue Date") accruing at the rate per
annum equal to eight percent (8%) of the Liquidation Preference (as defined
below) per share, payable semiannually in arrears on February 1 and July 1 of
each year (each such date being referred to herein as a "Dividend Payment
Date"), commencing July 1, 2000. All dividends will be cumulative, whether or
not earned or declared.
(b) Each distribution in the form of a dividend shall be payable in
arrears to Holders of record as they appear on the stock books of the
Corporation on each record date as established by the Board of Directors of the
Corporation (the "Dividend Payment Record Date") not more than 60 nor less than
ten days preceding a Dividend Payment Date.
(i) Dividends payable on the Series A Preferred Stock for each
full dividend period will be computed by dividing the annual dividend rate by
two. Dividends payable on the Series A Preferred Stock for any period less than
a full dividend period will be computed on the basis of a 360-day year
consisting of twelve 30-day months.
(ii) The Series A Preferred Stock will not be entitled to any
dividends, whether payable in cash, property or securities, in excess of the
full cumulative dividends.
(iii) No interest, or sum of money in lieu of interest, will be
payable in respect of any accumulated and unpaid dividends which may be in
arrears.
(c) No dividends or other distributions (other than a dividend or
distribution in Junior Securities) may be declared, made or paid or funds set
apart for payment on the Junior Securities or Parity Securities, and no Junior
Securities or any Paucity Securities, including the Series A Preferred Stock,
may be repurchased, redeemed or otherwise acquired for any consideration (or any
money paid to or made available for a sinking fund for the redemption of any
shares of any such stock) by the Corporation (except by conversion into or
exchange for Junior Securities or in the case that monies for such dividends,
distributions, redemptions, purchases, or other acquisitions are derived from
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the proceeds of a substantially concurrent offering of such securities), unless
full cumulative dividends shall have been or contemporaneously are paid or
declared and a sum sufficient for the payment thereof is set apart for such
payment on all outstanding shares of Series A Preferred Stock for all Dividend
Payment Dates on or prior to such declaration, payment, redemption, purchase or
acquisition.
(d) No dividends may be declared, made or paid or funds set apart for
the payment of dividends upon any outstanding share of Series A Preferred Stock
with respect to any dividend period unless all dividends for all preceding
periods have been paid or declared and a sum sufficient for the payment thereof
is set apart for the payment of such dividend upon all outstanding shares of
Senior Securities.
(e) The holder of record of a share of Series A Preferred Stock at the
close of business on a Dividend Payment Record Date on the Series A Preferred
Stock will be entitled to receive such dividends with respect to such share of
Series A Preferred Stock on the corresponding Dividend Payment Date,
notwithstanding the conversion of such share after such Dividend Payment Record
Date and prior to such Dividend Payment Date (except that Holders of shares
converted on a Conversion Date between the Dividend Payment Record Date and a
date which is two days after the Dividend Payment Date will be entitled to
receive such dividend on such Conversion Date as indicated in Section 5 hereof).
Upon any conversion of Series A Preferred Stock, accrued but unpaid dividends
through the date of conversion shall be payable as set forth in Section 5(d)
below. Upon any redemption under Section 6, accrued and unpaid dividends shall
be paid as set forth in Section 6.
2. Ranking.
(a) The Series A Preferred Stock will, with respect to dividend
distributions and distributions upon the liquidation, winding up or dissolution
of the Corporation, rank:
(i) Senior to all classes of Common Stock and each other class
of Common Stock or series of preferred stock issued by the Corporation, which is
established after the date of filing of this Certificate of Designation, the
terms of which do not expressly provide that such class or series will rank
senior to or on a parity with the Series A Preferred Stock as to dividend
distributions and distributions upon the liquidation, winding up or dissolution
of the Corporation (collectively, with the Common Stock, referred to as the
"Junior Securities");
(ii) On a parity with any class of Common Stock or series of
preferred stock issued by the Corporation, which is established after the date
of filing of this Certificate of Designation, the terms of which expressly
provide that such class or series will rank on a parity with the Series A
Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding up or dissolution of the Corporation (collectively referred
to as "Parity Securities"); and
(iii) Subject to approval of Holders of a majority of the Series A
Preferred Stock pursuant to Section 3(b), junior to each class of Common Stock
or series of preferred stock issued by the Corporation, which is established
after the date of filing of this Certificate of Designation by the Board of
Directors, the terms of which expressly provide that such class or series will
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rank senior to the Series A Preferred Stock as to dividend distributions and
distributions upon liquidation, winding up or dissolution of the Corporation
(collectively referred to as "Senior Securities").
(b) Except as otherwise provided herein, the Corporation is entitled
to amend its Articles of Incorporation to authorize one or more additional
series of preferred stock, file certificates of designation, and issue without
restriction from time to time, any series of Junior Securities, Parity
Securities, or Senior Securities.
3. Voting Rights.
(a) On all matters, except as otherwise provided herein or as required
by law, the Series A Preferred Stock shall be voted equally with the shares of
the Common Stock and not as a separate class, at any annual or special meeting
of the stockholders of the Corporation, and may act by written consent in the
same manner as the Common Stock, in either case upon the following basis: each
Holder of shares of Series A Preferred Stock shall be entitled to such number of
votes as shall be equal to the whole number of shares of Common Stock into which
such Holder's aggregate number of shares of Series A Preferred Stock are
convertible (pursuant to Section 5 hereof) immediately after the close of
business on the record date fixed for such meeting or the effective date of such
written consent.
(b) The affirmative vote of a majority of the outstanding shares of
Series A Preferred Stock shall be required prior to the Corporation doing any of
the following:
(i) The issuance of any Senior Securities or Parity Securities
provided, however, for the purposes of this Section 3(b), Parity Securities
shall not include any shares of Common Stock or preferred stock of which the
purchase price or the conversion price, respectively, exceeds the Conversion
Price of the Series A Preferred Stock in effect on the date of issuance of such
Parity Securities;
(ii) The Authorization or issuance of any securities convertible
into Senior Securities or Parity Securities; and
(iii) Any amendment to the Articles of Incorporation which
materially impairs any right, preference or privilege of the Series A Preferred
Stock.
4. Liquidation Rights.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary (in any event, a "Liquidation"),
each Holder of Series A 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 Common Stock by reason of their ownership thereof, an amount equal to
Two Hundred Fifty Thousand Dollars ($250,000.00) per share of Series A Preferred
Stock, as adjusted for any combination, consolidation, stock distribution or
stock dividend with respect to such shares (the "Series A Liquidation
Preference"), plus all accrued but unpaid dividends on such shares. If, upon the
occurrence of any such event, the assets and funds of the Corporation are
insufficient to permit the payment to all such Holders of the full aforesaid
preferential amount, then the entire assets and funds of the Corporation legally
available for distribution shall be distributed among the Holders of the Series
A Preferred Stock then outstanding, ratably in proportion to the full amounts to
which they otherwise would be entitled.
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(b) After the full distributions required by Section 4(a) hereof have
been paid, Holders of Series A Preferred Stock shall not be entitled to any
additional participation in the distribution of the assets of the Corporation,
and the remaining assets of the Corporation legally available for distribution
shall be distributed ratably among the holders of Common Stock.
(c) Neither the voluntary sale, conveyance, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all or
substantially all of the property or assets of the Corporation or merger of the
Corporation with or into one or more entities will be deemed to be a voluntary
or involuntary liquidation, dissolution or winding-up of the Corporation or
reduction or increase in Common Stock, unless such sale, conveyance, exchange or
transfer shall be in connection with a liquidation, dissolution or winding-up of
the business of the Corporation or a reduction or increase in Common Stock.
(d) The Corporation shall give each Holder of record of Series A
Preferred Stock written notice of such impending transaction not later than
twenty (20) days before the stockholders' meeting called to approve such
transaction, or twenty (20) days before the closing of such transaction,
whichever is earlier, and also shall notify such Holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 4, and the Corporation thereafter shall give such Holders prompt
notice of all material changes. In no event shall the transaction take place
sooner than twenty (20) days after the Corporation has given the first notice
provided for herein or sooner than ten (10) days after the Corporation has given
notice of any material change provided for herein; provided, however, that such
periods may be shortened upon the written consent of the Holders of a majority
of the then-outstanding shares of Series A Preferred Stock.
5. Conversion Rights. The Holders of the Series A Preferred Stock shall
have the following rights with respect to the conversion of the Series A
Preferred Stock into shares of Common Stock (the "Conversion Rights"):
(a) Optional Conversion. Subject to and in compliance with the
provisions of this Section 5, each share of Series A Preferred Stock may, at the
option of the Holder thereof, be converted at any time into fully-paid and
nonassessable shares of Common Stock. The number of shares of Common Stock to
which a Holder of Series A Preferred Stock shall be entitled upon conversion
shall be the product obtained by multiplying the "Series A Conversion Rate" then
in effect (determined as provided in Section 5(b) hereof) by the number of
shares of Series A Preferred Stock being converted.
(b) Series A Conversion Rate. The conversion rate in effect at any
time for conversion of the Series A Preferred Stock (the "Series A Conversion
Rate") shall be the quotient obtained by dividing the Series A Original Issue
Price by the "Series A Conversion Price," calculated as provided in Section
5(c).
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(c) Series A Conversion Price. The conversion price for the Series A
Preferred Stock initially shall be thirty eight and one-half cents ($0.385) per
share (the "Series A Conversion Price"). Such initial Series A Conversion Price
shall be adjusted from time to time in accordance with this Section 5. All
references to the Series A Conversion Price herein shall mean the Series A
Conversion Price as so adjusted.
(d) Mechanics of Conversion. Each Holder of Series A Preferred Stock
who desires to convert the same into shares of Common Stock pursuant to this
Section 5 shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or any transfer agent for the Series
A Preferred Stock and shall give written notice to the Corporation at such
office that such Holder elects to convert the same. Such notice shall state the
number of shares of Series A Preferred Stock being converted. Thereupon, the
Corporation shall promptly issue and deliver at such office to such holder a
certificate or certificates for the number of shares of Common Stock to which
such holder is entitled and shall pay promptly in cash, in Common Stock or a
combination thereof, at the election of the Holder (at the Common Stock's fair
market value determined by the Board of Directors as of the date of such
conversion), all declared and unpaid dividends (if any) on the shares of Series
A Preferred Stock being converted. Such conversion shall be deemed to have been
made at the close of business on the date of such surrender of the certificates
representing the shares of Series A Preferred Stock to be converted, and the
person entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such shares
of Common Stock on such date.
(e) Adjustment for Stock Splits and Combinations. If the Corporation,
at any time or from time to time after the Series A Original Issue Date, effects
a subdivision of the outstanding Common Stock without a corresponding
subdivision of the Series A Preferred Stock, then the Series A Conversion Price
in effect immediately before that subdivision shall be proportionately
decreased. Conversely, if the Corporation at any time or from time to time after
the Series A Original Issue Date combines the outstanding shares of Common Stock
into a smaller number of shares without a corresponding combination of the
Series A Preferred Stock, then the Series A Conversion Price in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this Section 5(e) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(f) Adjustment for Common Stock Dividends and Distributions. If the
Corporation at any time or from time to time after the Series A Original Issue
Date makes, or fixes a Dividend Payment Record Date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, then in each such event the Series
A Conversion Price that is then in effect shall be decreased as of the time of
such issuance or, in the event such Record date is fixed, as of the close of
business on such Record date, by multiplying the Series A Conversion Price then
in effect by a fraction (i) the numerator of which is the total number of shares
of Common Stock issued and outstanding immediately before the time of such
issuance or the close of business on such Record date, and (ii) the denominator
of which is the total number of shares of Common Stock issued and outstanding
immediately before the time of such issuance or the close of business on such
Record date plus the number of shares of Common Stock issuable in payment of
such dividend or distribution; provided, however, that if such Record date is
fixed and such dividend is not fully paid or if such distribution is not fully
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made on the date fixed therefor, then the Series A Conversion Price shall be
recomputed accordingly as of the close of business on such Record date, and
thereafter the Series A Conversion Price shall be adjusted pursuant to this
Section 5(f) to reflect the actual payment of such dividend or distribution.
(g) Adjustment for Reclassification, Exchange and Substitution. If at
any time or from time to time after the Series A Original Issue Date the Common
Stock issuable upon the conversion of the Series A Preferred Stock is changed
into the same or a different number of shares of any class or classes of stock,
whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this Section
5), then in each such event each holder of Series A Preferred Stock shall have
the right thereafter to convert such stock into the kind and amount of stock and
other securities and property receivable upon such recapitalization,
reclassification or other change by holders of the maximum number of shares of
Common Stock into which such shares of Series A Preferred Stock could have been
converted immediately before such recapitalization, reclassification or change,
all subject to further adjustment as provided herein or with respect to such
other securities or property by the terms thereof.
(h) Conversion Price Adjustments of Series A Preferred Stock for
Certain Dilutive Issuances. The Series A Conversion Price shall be subject to
adjustment from time to time as follows:
(A) If this Corporation issues, after the Series A Original Issue
Date, any Additional Stock (as defined below) without consideration or for a
consideration per share less than the Series A Conversion Price in effect
immediately before the issuance of such Additional Stock, then the Series A
Conversion Price in effect immediately before each such issuance shall forthwith
(except as otherwise provided in this clause (i)) be adjusted to a price
determined by multiplying the Series A Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately before such issuance plus the number of shares of Common Stock that
the aggregate consideration received by this Corporation for such issuance would
purchase at the Series A Conversion Price, and the denominator of which shall be
the number of shares of Common Stock outstanding immediately before such
issuance plus the number of shares of such Additional Stock:
(B) No adjustment of the Series A Conversion Price pursuant to
this subsection 5(h) shall have the effect of increasing the Series A Conversion
Price above the Series A Conversion Price in effect immediately before such
adjustment.
(C) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discount, commission or other expense allowed, paid or
incurred by this Corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(D) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.
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(E) In the case of the issuance (whether before, on or after the
applicable Purchase Date) of 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, the following provisions shall apply for all
purposes of this subsection 5(h) hereof
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time such options or
rights were issued and for a consideration equal to the consideration
(determined in the manner provided in subsections 5(h)(i)(C) and 5(h)(i)(D)
hereof), if any, received by the Corporation upon the issuance of such options
or rights plus the minimum exercise price provided in such options or rights for
the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for such convertible or
exchangeable securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the Corporation
for such securities and related options or rights (excluding any cash received
on account of accrued interest or accrued dividends), plus the minimum
additional consideration, if any, to be received by the Corporation upon the
conversion or exchange of such securities or the exercise of related options or
rights (the consideration in each case to be determined in the manner provided
in subsections 5(h)(i)(C) and 5(h)(i)(C) hereof).
(3) In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable to this Corporation
upon exercise of such options or rights or upon conversion of or in exchange for
such convertible or exchangeable securities, including, without limitation, a
change resulting from the antidilution provisions thereof, the Series A
Conversion Price of any Series A Preferred Stock then outstanding, to the extent
in any way affected by or computed using such options, rights or securities,
shall be recomputed to reflect such change, but no further adjustment shall be
made for the actual issuance of Common Stock or any payment of such
consideration upon the exercise of any such options or rights or the conversion
or exchange of such securities.
(4) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Series A Conversion Price of any Series A Preferred Stock then outstanding, to
the extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be recomputed
to reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities which remain in effect) actually issued
upon the exercise of such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or rights related to such
securities.
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(5) The number of shares of Common Stock deemed issued and
the consideration deemed paid therefor pursuant to subsections 5(h)(i)(E)(l) and
5(h)(i)(E)(2) hereof shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subsection
5(h)(i)(E)(3) or (4) hereof.
(ii) "Additional Stock" shall mean any shares of Common Stock issued
(or deemed to have been issued pursuant to subsection 5(h)(i) hereof) by this
Corporation after the Series A Original Issue Date other than:
(A) Common Stock issued pursuant to a transaction described in
elsewhere in this Section 5; or
(B) Shares of Common Stock issuable or issued to employees,
consultants and/or directors of this Corporation directly or pursuant to a stock
option plan or restricted stock plan or any agreement approved by the Board of
Directors; or
(C) Shares of Common Stock or option or warrants to purchase
shares of Common Stock issued or issuable to equipment lessors, commercial
banks, vendors and/or legal counsel approved by the Board; or
(D) Shares of Common Stock issued upon exercise of any options,
warrants or other rights to acquire shares of Common Stock or upon conversion of
any securities convertible into shares of Common Stock issued and outstanding on
or prior to the Series A Original Issue Date; or
(E) Shares of Common Stock issued or issuable upon conversion of
Series A Preferred Stock; or
(F) Shares of Common Stock issued or issuable in any transaction
that results in automatic conversion of the Series A Preferred Stock pursuant to
subsection 5(1).
(iii) Change in Control, Mergers, Consolidations or Similar
Transaction. If at any time or from time to time after the Series A Original
Issue Date there is a (as defined below), a merger, consolidation, or similar
transaction between the Corporation and any Non-Affiliate (as defined below),
(other than a recapitalization, subdivision, combination, reclassification,
exchange or substitution of shares provided for elsewhere in this Section 5) or
a sale of all or substantially all of the assets of the Corporation to any
Non-Affiliate (each such transaction hereinafter referred to as a "Non-Affiliate
Corporate Transaction"), then, as part of such Non-Affiliate Corporate
Transaction, provision shall be made so that the holders of the Series A
Preferred Stock thereafter shall be entitled to, at their election, either:
(A) Convert the Series A Preferred Stock into a number of shares
of Common Stock and receive a pro rata distribution of the cash, securities or
property to which a holder of Common Stock deliverable upon conversion would
have been entitled upon such reorganization; or
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(B) Receive cash equal to the Liquidation Preference plus all
accrued but unpaid dividends through the date of such transaction.
(iv) For purposes of this Section 5(i), any transaction that results
in automatic conversion of the Series A Preferred Stock pursuant to Section 5(l)
below shall not be deemed to be a Non-Affiliate Corporate Transaction and all
rights of the Holders of Series A Preferred Stock shall be governed by Section
5(1).
(v) For purposes of this Section 5(h), "Change in Control" shall mean
means: (a) the sale, lease, transfer, conveyance or other disposition of all or
substantially all of the assets of the Corporation to any "person" or "group"
(within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange Act of
1934, as amended, or any successor provision to either of the foregoing,
including any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d5(b)(1) under the Exchange Act), in one
transaction or a series of related transactions or (b) the acquisition of
beneficial ownership of shares of the Corporation's Common Stock by any "person"
or "group" (within a meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange
Act or any successor provision to either of the foregoing, including any group
acting for the purpose of acquiring, holding or disposing of securities within
the meaning of Rule 13d-5(b)(1) under the Exchange Act), by means of an exchange
offer, liquidation, tender offer, consolidation, merger, combination,
reclassification, recapitalization or otherwise of more than fifty percent (50%)
of the total voting power of all classes of the voting power of the Corporation
or a successor, entitled to vote generally in elections of the Board.
(vi) For purposes of this Section 5(h), "Non-Affiliate" shall mean any
person, group or entity that is not controlled by, does not control or is not
under common control with any officer or director of the Corporation.
(i) Certificate of Adjustment. In each case of an adjustment or
readjustment of the Series A Conversion Price, the Corporation, at its expense,
shall compute such adjustment or readjustment in accordance with the provisions
hereof, shall prepare a certificate showing such adjustment or readjustment and
shall mail such certificate, by first class mail, postage prepaid, to each
registered holder of Series A Preferred Stock at the holder's address as shown
in the Corporation's books. The certificate shall set forth such adjustment or
readjustment, showing in reasonable detail the facts upon which such adjustment
or readjustment is based, including a statement of (i) the Series A Conversion
Price at the time in effect and (ii) the type and amount, if any, of other
property that at the time would be received upon conversion of the Series A
Preferred Stock.
(j) Notices of Record Date. Upon (i) 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 or other
distribution, (ii) any Non-Affiliate Corporate Transaction, or (iii) any
reclassification or recapitalization of the capital stock of the Corporation,
the Corporation shall mail to each holder of Series A Preferred Stock at least
twenty (20) days before the record date specified therein a notice specifying
(A) the date on which any such record is to be taken for the purpose of such
dividend or distribution and a description of such dividend or distribution, (B)
the date on which any such Non-Affiliate Corporate Transaction or,
reclassification or recapitalization is expected to become effective, and (C)
the date, if any, that is to be fixed as to when the holders of record of Common
Stock (or other securities) shall be entitled to exchange their shares of Common
Stock (or other securities) for securities or other property deliverable upon
such Non-Affiliate Corporate Transaction, reclassification or recapitalization.
(k) Automatic Conversion.
(i) Each share of Series A Preferred Stock shall be converted
automatically into shares of Common Stock, based on the then-effective Series A
Conversion Rate, immediately upon the earliest to occur of any of the following:
(A) the closing of a sale of equity securities of the Corporation
for the account of the Corporation in which (x) the pre-closing valuation of the
Corporation on a fully diluted basis exceeds $25,000,000 and (y) the aggregate
gross cash proceeds to the Corporation (before underwriting discounts,
commissions and fees) are at least $10,000,000;
(B) the closing of a Non-Affiliate Corporate Transaction pursuant
to which the Holders of Series A Preferred Stock are entitled to receive cash,
Marketable Securities (as defined below), or a combination thereof having a fair
market value exceeding (x) the Series A Original Issue Price plus (y) all
accrued but unpaid dividends through the closing date of such transaction; or
(C) the date specified by the vote, written consent or agreement
of the holders of a majority of the shares of Series A Preferred Stock then
outstanding.
"Marketable Securities" shall mean securities of any class which are listed
for trading on any nationally recognized securities market or quotation system,
including but not limited to the New York Stock Exchange, The American Stock
Exchange and the National Market System of NASDAQ.
(ii) Immediately prior to the occurrence of either of the events
specified in paragraph (i) immediately above, the outstanding shares of Series A
Preferred Stock shall be converted automatically without any further action by
the holders of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent; provided,
however, that the Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Series A Preferred Stock are delivered to
the Corporation or its transfer agents provided below, or the holder notifies
the Corporation or its transfer agent that such certificates have been lost,
stolen or destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation for any loss incurred by the Corporation in connection
with such certificates. Upon the occurrence of such automatic conversion of the
Series A Preferred Stock, the holders of Series A Preferred Stock shall
surrender the certificates representing such shares at the office of the
Corporation or any transfer agent for the Series A Preferred Stock. Thereupon,
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there shall be issued and delivered to such holder promptly at such office, and
in its name as shown on such surrendered certificate or certificates, a
certificate or certificates for the number of shares of Common Stock into which
the shares of Series A Preferred Stock surrendered were convertible on the date
on which such automatic conversion occurred; and all declared and unpaid
dividends, if any, shall be paid in accordance with the provisions of Section
5(d) hereof.
(l) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of Series A Preferred Stock. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Series A Preferred Stock by a holder thereof shall be aggregated for the purpose
of determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of any fractional share, then the Corporation shall, in
lieu of issuing any fractional share, pay cash equal to the product of such
fraction multiplied by the Common Stock's fair market value (as determined by
the Board of Directors on the date of conversion).
(m) Reservation of Stock Issuable Upon Conversion. The Corporation at
all times shall reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, such number of shares of Common
Stock as from time to time shall be sufficient to effect the conversion of all
outstanding shares of the Series Preferred Stock. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series A Preferred Stock,
then the Corporation will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
(n) Notices. Any notice required by the provisions of this Section 4
shall be in writing and shall be deemed effectively given: (i) upon personal
delivery to the party to be notified, (ii) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient or, if not, then
on the next business day, (iii) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or (iv)
one (1) day after deposit with a nationally-recognized overnight courier,
specifying next day delivery, with written verification of receipt. All notices
shall be addressed to each holder of record at the address of such holder
appearing on the books of the Corporation.
(o) Payment of Taxes. The Corporation will pay all taxes (other than
taxes based on income) and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock upon conversion of
shares of the Series A Preferred Stock, excluding any tax or other charge
imposed in connection with any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the shares of the
Series A Preferred Stock so converted were registered.
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6. Redemption.
(a) The Corporation will redeem all shares of Series A Preferred Stock
on the third anniversary of the Series A Original Issue Date, unless the Series
A Preferred Stock has already been converted. The Corporation shall send notice
of such redemption to Holders upon not less than 30 nor more than 60 days' prior
written notice.
(i) The Holder of the Series A Preferred Stock may elect to
receive either (x) the number of shares of Common Stock that the Holder would
have received had he converted the Series A Preferred Stock on the redemption
date plus accrued but unpaid dividends as provided in Section 5(d) or (y) cash
in an amount equal to the Liquidation Preference plus all accrued but unpaid
dividends through the redemption date.
(b) If, as a matter of law, the Corporation is unable to pay cash upon
redemption of the Series A Preferred Stock, then the Corporation shall cause the
Series A Preferred Stock to be converted on the date of such mandatory
redemption into the same number of shares of Common Stock as could otherwise
have been issued upon conversion; provided that the Corporation shall have given
the Holders of Series A Preferred Stock notice of its inability to pay cash at
least 30 days prior to the date of such mandatory redemption.
7. No Reissuance of Series A Preferred Stock No share or shares of Series A
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares that the Corporation shall be
authorized to issue.
8. No Preemptive Rights. The Holders of Series A Preferred Stock shall have
no preemptive rights except as granted by the Corporation pursuant to written
agreements.
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