EXHIBIT 4.1
CERTIFICATE OF DESIGNATIONS
OF
PREFERRED STOCK
OF
CHINA CABLE AND COMMUNICATION, INC.
To Be Designated
8% Convertible Preferred Stock
Pursuant to Section 151(g) of the
General Corporation Law of the State of Delaware
The undersigned DO HEREBY CERTIFY that the following resolution was duly
adopted by the Board of Directors of China Cable and Communication, Inc., a
Delaware corporation (the "Corporation"), at a meeting duly convened and held,
at which a quorum was present and acting throughout:
"RESOLVED, that pursuant to the authority conferred on the Board of
Directors of the Corporation (the "Board of Directors") by the
Corporation's Certificate of Incorporation, the issuance of a series of
preferred stock, par value $.0001 per share, of the Corporation which shall
consist of 2,758,621 shares of preferred stock be, and the same hereby is,
authorized; and the Chief Executive Officer and Secretary or Assistant
Secretary of the Corporation be, and they hereby are, authorized and
directed to execute and file with the Secretary of State of the State of
Delaware a Certificate of Designations of Preferred Stock of the
Corporation fixing the designations, powers, preferences and rights of the
shares of such series, and the qualifications, limitations or restrictions
thereof (in addition to the designations, powers, preferences and rights,
and the qualifications, limitations or restrictions thereof, set forth in
the Certificate of Incorporation which may be applicable to the
Corporation's preferred stock), as follows:
1. Number of Shares; Designation. A total of 2,758,621 shares of preferred
stock, par value $.0001 per share, of the Corporation are hereby designated
as 8% Convertible Preferred Stock (the "Series"). Shares of the Series are
being sold for a purchase price of $1.45 per share (the "Purchase Price")
pursuant to the Securities Purchase Agreement dated September 24, 2003
among the Corporation and the investors party thereto.
2. Rank. The Series shall, with respect to payment of dividends, redemption
payments and rights upon liquidation, dissolution or winding-up of the
affairs of the Corporation, rank:
(i) senior and prior to the Common Stock, par value $0.00001 per
share, of the Corporation (the "Common Stock"), and any
additional series of preferred stock which may in the future be
issued by the Corporation and are designated in the amendment to
the Certificate of Incorporation or the certificate of
designations establishing such additional preferred stock as
ranking junior to the shares of the Series. Any shares of the
Corporation's capital stock which are junior to the shares of the
Series with respect to the payment of dividends are hereinafter
referred to as "Junior Dividend Shares" and any shares which are
junior to the shares of the Series with respect to redemption,
payment and rights upon liquidation, dissolution or winding-up of
the affairs of the Corporation are hereinafter referred to as
"Junior Liquidation Shares".
(ii) Parri passu with any additional series of preferred stock which
may in the future be issued by the Corporation and are designated
in the amendment to the Certificate of Incorporation or the
certificate of designations establishing such additional
preferred stock as ranking equal to the shares of the Series or
which do not state they are Junior Dividend Shares or Senior
Dividend Shares (as defined below). Any shares of the
Corporation's capital stock which are equal to the shares of the
Series with respect to the payment of dividends are hereinafter
referred to as "Parity Dividend Shares" and any shares which are
equal to the shares of the Series with respect to redemption,
payment and rights upon liquidation, dissolution or winding-up of
the affairs of the Corporation are hereinafter referred to as
"Parity Liquidation Shares".
(iii) Junior to any additional series of preferred stock which may in
the future be issued by the Corporation and are designated in the
amendment to the Certificate of Incorporation or the certificate
of designations establishing such additional preferred stock as
ranking senior to the shares of the Series. Any shares of the
Corporation's capital stock which are senior to the shares of the
Series with respect to the payment of dividends are hereinafter
referred to as "Senior Dividend Shares" and any shares which are
senior to the shares of the Series with respect to redemption,
payment and rights upon liquidation, dissolution or winding-up of
the affairs of the Corporation are hereinafter referred to as
"Senior Liquidation Shares".
The Corporation may not issue additional shares of preferred stock which
are not (a) Junior Stock (as defined in paragraph 3(c) below) or (b) both
Parity Liquidation Shares and Parity Dividend Shares without the consent of
the holders of a majority of the outstanding shares of the Series.
3. Dividends. (a) The dividend rate on shares of the Series shall be 8.0%
of the Purchase Price per share per annum. Dividends on shares of the
Series shall be fully cumulative, accruing, without interest, from the date
of original issuance of the Series through the date of redemption or
conversion thereof, and shall be payable in arrears, when, as and if
declared by the Board of Directors out of funds legally available for the
payment of dividends, on September 30 and March 31 of each year, commencing
March 31, 2004, except that if such date is not a business day then the
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dividend shall be payable on the first immediately succeeding business day
(as used herein, the term "business day" shall mean any day except a
Saturday, Sunday or day on which banking institutions are legally
authorized to close in Dallas, Texas) (each such period being hereinafter
referred to as a "Dividend Period"). Dividends shall be payable in cash.
Each dividend shall be paid to the holders of record of shares of the
Series as they appear on the stock register of the Corporation on the
record date, not less than 10 nor more than 60 days preceding the payment
date thereof, as shall be fixed by the Board of Directors. Dividends
payable for each Dividend Period shall be computed on the basis of a
360-day year of twelve 30-day months and rounded to the nearest cent.
Dividends on account of arrearages for any past Dividend Period may be
declared and paid at any time, without reference to any regular dividend
payment date, to holders of record on such date, not exceeding 45 days
preceding the payment date thereof, as may be fixed by the Board of
Directors of the Corporation. Dividends shall accrue regardless of whether
the Corporation has earnings, whether there are funds legally available
therefor and/or whether declared. No interest shall be payable with respect
to any dividend payment that may be in arrears. Holders of shares of the
Series called for redemption between the close of business on a dividend
payment record date and the close of business on the corresponding dividend
payment date shall, in lieu of receiving such dividend on the dividend
payment date fixed therefor, receive such dividend payment on the date
fixed for redemption together with all other accrued and unpaid dividends
to the date fixed for redemption. The holders of shares of the Series shall
not be entitled to any dividends other than the cash dividends provided for
in this paragraph 3.
(b) No dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on any Parity Dividend
Shares for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and set aside for
payment for all accrued dividends with respect to the Series through the
most recent Dividend Period ending on or prior to the date of payment.
Unless dividends accrued and payable but unpaid on shares of the Series and
any Parity Dividend Shares at the time outstanding have been paid in full,
all dividends declared by the Corporation upon shares of the Series or
Parity Dividend Shares shall be declared pro rata with respect to all such
shares, so that the amounts of any dividends declared on shares of the
Series and the Parity Dividend Shares shall in all cases bear to each other
the same ratio that, at the time of the declaration, all accrued but unpaid
dividends on shares of the Series and the other Parity Dividend Shares,
respectively, bear to each other.
(c) If at any time the Corporation has failed to (x) pay or set apart for
payment all accrued dividends on any shares of the Series through the then
most recent Dividend Period and (y) set apart for payment an amount in cash
equal to the scheduled dividend payments for each of the next two Dividend
Periods, the Corporation shall not, and shall not permit any corporation or
other entity directly or indirectly controlled by the Corporation to:
(i) declare or pay or set aside for payment any dividend or other
distribution on or with respect to the Junior Dividend Shares,
whether in cash, securities, obligations or otherwise (other than
dividends or distributions paid in shares of capital stock of the
Corporation ranking junior to shares of the Series both as to the
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payment of dividends and as to rights in liquidation, dissolution
or winding-up of the affairs of the Corporation ("Junior Stock"),
or options, warrants or rights to subscribe for or purchase
shares of Junior Stock); or
(ii) redeem, purchase or otherwise acquire, or pay into, set apart
money or make available for a sinking or other analogous fund for
the redemption, purchase or other acquisition of, any shares of
the Series (unless all of the shares of the Series are
concurrently redeemed), Parity Dividend Shares, Parity
Liquidation Shares or shares of Junior Stock for any
consideration (except by conversion into or exchange for Junior
Stock),
unless, in each such case, all dividends accrued on shares of the Series
through the most recent Dividend Period and on any Parity Dividend Shares
have been or contemporaneously are declared and paid in full.
(d) Any reference to "distribution" contained in this paragraph 3 shall not
be deemed to include any distribution made in connection with any
liquidation, dissolution or winding-up of the Corporation, whether
voluntary or involuntary.
4. Liquidation. (a) The liquidation value per share of shares of the
Series, in case of the voluntary or involuntary liquidation, dissolution or
winding-up of the affairs of the Corporation, shall be an amount equal to
the Purchase Price, plus an amount equal to the cash value of dividends
accrued and unpaid thereon, whether or not declared, to the payment date.
(b) In the event of any voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, the holders of shares of the Series (i)
shall not be entitled to receive the liquidation value of the shares held
by them until the liquidation value of all Senior Liquidation Shares shall
have been paid in full, and (ii) shall be entitled to receive the
liquidation value of such shares held by them in preference to and in
priority over any distributions upon the Junior Liquidation Shares. Upon
payment in full of the liquidation value to which the holders of shares of
the Series are entitled, the holders of shares of the Series will not be
entitled to any further participation in any distribution of assets by the
Corporation. If the assets of the Corporation are not sufficient to pay in
full the liquidation value payable to the holders of shares of the Series
and the liquidation value payable to the holders of any Parity Liquidation
Shares, the holders of all such shares shall share ratably in such
distribution of assets in accordance with the amounts that would be payable
on the distribution if the amounts to which the holders of shares of the
Series and the holders of Parity Liquidation Shares are entitled were paid
in full.
(c) For purposes of this paragraph 4, (i) any acquisition of the
Corporation by means of merger or other form of corporate reorganization in
which outstanding capital stock of the Corporation are exchanged for
securities or other consideration issued, or caused to be issued, by the
acquiring entity or its subsidiary (other than a mere reincorporation
transaction), or (ii) a sale of all or substantially all of the assets of
the Corporation, shall be treated as a liquidation, dissolution or
winding-up of the Corporation and shall entitle the holders of the Series
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to receive at the closing in cash, securities or other property (valued as
provided in paragraph 4(e) below) amounts as specified in paragraph 4(a)
and (b) above.
(d) Written notice of any liquidation, dissolution or winding-up of the
Corporation, stating the payment date or dates when and the place or places
where the amounts distributable in such circumstances shall be payable,
shall be given by first class mail, postage prepaid, not less than 30 days
prior to any payment date stated therein, to the holders of record of
shares of the Series at their respective addresses as the same shall appear
on the books of the transfer agent with respect to the Series.
(e) Whenever the distribution provided for in this paragraph 4
shall be payable in securities or property other than cash,
the value of such distribution shall be the fair market value
of such securities or other property as determined in good
faith by the Board of Directors.
5. Optional Redemption. (a) Shares of the Series will be redeemable at the
option of the Corporation, in whole or in part, from and after the time
that (x) the first anniversary of the issuance of shares of the Series
occurs, and (y) the Current Market Price for the Common Stock for a period
of any 20 out of 30 consecutive trading days equals or exceeds 200% of the
Conversion Price (as defined below) then in effect, and (z) the Common
Stock underlying the Shares can be sold by the holder thereof without
restriction on resale; provided, however, that prior to the last date (the
"Final Registration Date") on which a registration statement is required to
remain effective and available for use pursuant to that certain
Registration Rights Agreement, dated September 24, 2003 (the "Registration
Rights Agreement"), such registration statement is effective and available
for use at all times during the period beginning thirty (30) days prior to
the date of the redemption notice and ending on the earlier of the
redemption date or the Final Registration Date, and is expected to remain
effective and available for use until the earlier of thirty (30) days
following the redemption date or the Final Registration Date. The
redemption price will be payable in cash and equal to the Purchase Price,
together with an amount equal to the dividends accrued and unpaid thereon,
whether or not declared, to the redemption date. The aggregate payment to
each holder of shares of the Series to be redeemed will be rounded to the
nearest cent. Notwithstanding the foregoing, if the date fixed for
redemption occurs after a record date for a dividend and prior to the
corresponding payment date, such dividend shall be paid on the payment date
and the amount payable with respect to each share of the Series redeemed
shall not include the amount of the dividend to be so paid.
(b) Not less than 60 nor more than 90 days prior to the date fixed for any
redemption of shares of the Series pursuant to this paragraph 5, a notice
of redemption shall be mailed by first class mail, postage prepaid, to each
holder of shares of the Series to be redeemed at such holder's last address
as it appears on the books of the transfer agent for the Series. Such
notice shall state (i) that the Corporation has elected to redeem all or a
portion of the shares of the Series, as specified in such notice, (ii) the
redemption price, (iii) the redemption date, (iv) that, unless the
Corporation defaults in the payment of the redemption price, all shares of
the Series called for redemption shall cease to accrue dividends after the
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redemption date and shall cease to be outstanding after such date, and (v)
any other information required by applicable law to be included therein and
any other procedures that a holder of shares of the Series must follow to
receive payment for its redeemed shares. Neither failure to mail such
notice, nor any defect therein or in the mailing thereof, to any particular
holder shall affect the sufficiency of the notice or the validity of the
proceedings for redemption with respect to any other holder. Any notice
mailed in the manner herein provided shall be conclusively presumed to have
been duly given whether or not the holder receives the notice. On or after
the redemption date, each holder of shares of the Series to be redeemed
shall present and surrender such holder's certificate or certificates for
such shares to the Corporation at the place designated in the redemption
notice and thereupon the redemption price of the shares shall be promptly
paid to or on the order of the person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered
certificate shall be canceled. In case less than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued to
the holder representing the unredeemed shares of the Series.
(c) If a notice of redemption has been given pursuant to this paragraph 5
and if, on or before the date fixed for redemption, the funds necessary for
such redemption shall have been set aside by the Corporation, separate and
apart from its other funds, in trust for the pro rata benefit of the
holders of the shares of the Series so called for redemption, then,
notwithstanding that any certificates for such shares have not been
surrendered for cancellation, on the redemption date dividends shall cease
to accrue on the shares of the Series to be redeemed, and at the close of
business on the redemption date the holders of such shares shall cease to
be stockholders with respect to those shares, shall have no interest in or
claims against the Corporation by virtue thereof and shall have no voting
or other rights with respect thereto, except the right to receive the
moneys payable upon such redemption, without interest thereon, upon
surrender (and endorsement, if required by the Corporation) of their
certificates, and the shares evidenced thereby shall no longer be
outstanding. Subject to applicable escheat laws, any moneys so set aside by
the Corporation and unclaimed at the end of two years from the redemption
date shall revert to the Corporation, after which reversion the holders of
such shares so called for redemption shall look only to the Corporation for
the payment of the redemption price. Any interest accrued on funds so
deposited shall be paid to the Corporation from time to time.
(d) If a notice of redemption has been given pursuant to this paragraph 5,
and any holder of shares of the Series shall, prior to the close of
business on the date fixed for redemption, give written notice to the
Corporation pursuant to paragraph 7 below of the conversion of any or all
of the shares to be redeemed held by the holder, then such redemption shall
not become effective as to such shares to be converted and such conversion
shall become effective as provided in paragraph 7 below, whereupon any
funds deposited by the Corporation, or on its behalf, with a payment agent
or segregated and held in trust by the Corporation for the redemption of
such shares shall (subject to any right of the holder of such shares to
receive the dividend payable thereon as provided in paragraph 7 below)
immediately upon such conversion be returned to the Corporation or, if then
held in trust by the Corporation, shall be discharged from the trust.
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(e) In every case of redemption of less than all of the outstanding shares
of the Series pursuant to this paragraph 5, the shares to be redeemed shall
be selected pro rata or by lot or in such other manner as the Board of
Directors may determine, as may be prescribed by resolution of the Board of
Directors of the Corporation, provided that only whole shares shall be
selected for redemption. Notwithstanding the foregoing, the Corporation
shall not redeem any of the shares of the Series at any time outstanding
until all dividends accrued and in arrears upon all shares of the Series
then outstanding shall have been paid for all past dividend periods.
6. Mandatory Redemption. (a) The Corporation shall redeem, from any source
of funds legally available therefor, all outstanding shares of the Series
on the fifth anniversary of the date on which shares of the Series were
first issued by the Corporation (the "Series Redemption Date"). The
Corporation shall effect such redemption on the Series Redemption Date by
paying in cash in exchange for the shares of the Series to be redeemed a
sum equal to the Purchase Price of the Series (as adjusted for any stock
dividends, combinations or splits with respect to such shares) plus all
declared or accumulated but unpaid dividends on such shares.
(b) In addition, upon the written request of any Holder from and after the
time that the Current Market Price for the Common Stock for a period of any
10 consecutive trading days is equal to or less than $0.70, the Corporation
shall redeem, from any source of funds legally available therefor, all or
any of the outstanding shares of the Series held by each such Holder. The
Corporation shall effect such redemption by paying in cash in exchange for
the shares of the Series to be redeemed a sum equal to $1.67 per share of
the Series (as adjusted for any stock dividends, combinations or splits
with respect to such shares) plus all declared or accumulated but unpaid
dividends on such shares.
7. Conversion. (a) Holders of shares of the Series will have the right,
exercisable at any time after (x) the issuance by the Corporation of shares
of the Series, and (y) prior to redemption of such shares (as described in
paragraph 5), to convert, in whole or in part, shares of the Series into
shares of Common Stock (calculated as to each conversion to the nearest
1/100th of a share) at the conversion price in an amount equal to the
Purchase Price of Common Stock, subject to adjustment as described below
(the "Conversion Price"). The number of shares of Common Stock into which
each share of the Series shall be convertible shall be determined by
dividing the Purchase Price, subject to proportional adjustment to reflect
any split or consolidation of the Common Stock or any dividend payable on
the Common Stock in additional shares of Common Stock (the "Conversion
Amount"), by the Conversion Price then in effect. In the case of shares of
the Series called for redemption, conversion rights will expire at the
close of business on the business day next preceding the redemption date.
Upon conversion of shares of the Series, the Corporation will pay to the
holder of the converted shares an amount equal to the dividends accrued but
unpaid thereon through the date the notice of conversion is delivered to
the Corporation. Such payment shall be made in cash. Notwithstanding the
foregoing, holders of record of shares of the Series on a record date fixed
for the payment of a dividend on such shares shall be entitled to receive
the dividend notwithstanding the conversion of the shares prior to the
dividend payment date. A share of the Series may not be converted in part.
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(b) In order to exercise the conversion right, the holder of each share of
the Series to be converted shall surrender the certificate representing
such share, duly endorsed or assigned to the Corporation or in blank, at
the office of the Corporation in Hong Kong (or such other address as the
Corporation may designate) and shall give written notice to the Corporation
in the form set forth on the reverse of the stock certificates for the
shares of the Series that such holder elects to convert the shares
represented by such certificate or a portion thereof. Such notice shall
also state the name or names (with address) in which the certificate or
certificates for the shares of Common Stock which shall be issuable upon
such conversion shall be issued, and shall be accompanied by funds in an
amount sufficient to pay any transfer or similar tax required by the
provisions of paragraph 7(e) below. Each share surrendered for conversion
shall, unless the shares issuable on conversion are to be issued in the
same name as the name in which such share of the Series is registered, be
duly endorsed by, or be accompanied by instruments of transfer (in each
case, in form reasonably satisfactory to the Corporation), duly executed by
the holder or such holder's duly authorized attorney-in-fact, with such
signature guaranteed by a member of the STAMP medallion program.
(c) As promptly as practicable after the surrender of certificates for
shares of the Series for conversion and the receipt of such notice and
funds, if any, as aforesaid, the Corporation shall issue and shall deliver
to such holder, or on such holder's written order, a certificate or
certificates for the number of shares of Common Stock issuable upon the
conversion of such shares of the Series in accordance with the provisions
of this paragraph 7, and a check or cash in respect of any fractional
interest in respect of a share of Common Stock arising upon such
conversion, as provided in paragraph 7(d) below. Each conversion with
respect to any shares of the Series shall be deemed to have been effected
immediately prior to the close of business on the date on which the
certificates for shares of the Series shall have been surrendered
(accompanied by the funds, if any, required by paragraph 7(e) below) and
such notice and assignment, if any, shall have been received by the
Corporation as aforesaid, and the person or persons entitled to receive the
Common Stock issuable upon such conversion shall be deemed for all purposes
to be the record holder or holders of such Common Stock upon that date.
(d) No fractional shares of Common Stock or scrip representing fractional
shares shall be issued upon conversion of shares of the Series. If more
than one share of the Series shall be surrendered for conversion at one
time by the same holder, the number of full shares of Common Stock issuable
upon conversion thereof shall be computed on the basis of the aggregate
number of shares of the Series so surrendered. Instead of any fractional
share of Common Stock otherwise issuable upon conversion of any shares of
the Series, the Corporation shall pay a cash adjustment in respect to such
fraction in an amount equal to the same fraction of the Current Market
Price of the Common Stock at the close of business on the day of
conversion.
(e) If a holder converts shares of the Series, the Corporation shall pay
any and all documentary, stamp or similar issue or transfer tax payable in
respect of the issue or delivery of the shares of the Series (or any other
securities issued on account thereof pursuant hereto) or Common Stock upon
the conversion; provided, however, the Corporation shall not be required to
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pay any such tax that may be payable because any such shares are issued in
a name other than the name of the holder.
(f) The Corporation shall reserve out of its authorized but unissued Common
Stock or its Common Stock held in treasury sufficient shares of Common
Stock to permit the conversion of all of the outstanding shares of the
Series. The Corporation shall from time to time, in accordance with the
General Corporation Law of the State of Delaware, increase the authorized
amount of its Common Stock if at any time the authorized amount of its
Common Stock remaining unissued shall not be sufficient to permit the
conversion of all shares of the Series at the time outstanding. If any
shares of Common Stock required to be reserved for issuance upon conversion
of shares of the Series hereunder require registration with or approval of
any governmental authority under any federal or state law before the shares
may be issued upon conversion, the Corporation shall in good faith and as
expeditiously as possible endeavor to cause the shares to be so registered
or approved. All shares of Common Stock delivered upon conversion of the
shares of the Series will, upon delivery, be duly authorized and validly
issued, fully paid and nonassessable, free from all taxes, liens and
charges with respect to the issue thereof.
(g) The Conversion Price shall be subject to adjustment from time to time
as follows:
(i) In the event that the Corporation shall (A) pay a dividend or
make a distribution, in shares of Common Stock, on any class of
Capital Stock of the Corporation or any subsidiary which is not
directly or indirectly wholly owned by the Corporation, (B) split
or subdivide its outstanding Common Stock into a greater number
of shares, or (C) combine its outstanding Common Stock into a
smaller number of shares, then in each such case the Conversion
Price in effect immediately prior thereto shall be adjusted so
that the holder of each share of the Series thereafter
surrendered for conversion shall be entitled to receive the
number of shares of Common Stock that such holder would have
owned or have been entitled to receive after the occurrence of
any of the events described above had such share of the Series
been converted immediately prior to the occurrence of such event.
An adjustment made pursuant to this paragraph 7(g)(i) shall
become effective immediately after the close of business on the
record date in the case of a dividend or distribution (except as
provided in paragraph 7(k) below) and shall become effective
immediately after the close of business on the effective date in
the case of such subdivision, split or combination, as the case
may be. Any shares of Common Stock issuable in payment of a
dividend shall be deemed to have been issued immediately prior to
the close of business on the record date for such dividend for
purposes of calculating the number of outstanding shares of
Common Stock under clauses (ii) and (iii) below.
(ii) In the event that the Corporation shall commit to issue or
distribute Common Stock or issue rights, warrants, options or
convertible or exchangeable securities entitling the holder
thereof to subscribe for or purchase, convert into or exchange
for Common Stock, in any such case at a price per share less than
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the Current Market Price per share on the earliest of (i) the
date the Corporation shall enter into a firm contract for such
issuance or distribution, (ii) the record date for the
determination of stockholders entitled to receive any such
rights, warrants, options or convertible or exchangeable
securities, if applicable, or (iii) the date of actual issuance
or distribution of any such Common Stock or rights, warrants,
options or convertible or exchangeable securities (provided that
the issuance of Common Stock upon the exercise of rights,
warrants, options or convertible or exchangeable securities will
not cause an adjustment in the Conversion Price if no such
adjustment would have been required at the time such right,
warrant, option or convertible or exchangeable security was
issued), then the Conversion Price in effect immediately prior to
such earliest date shall be adjusted so that the Conversion Price
shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to such earliest date by the
fraction:
(x) whose numerator shall be the number of shares of Common
Stock outstanding on such date plus the number of shares
which the aggregate offering price of the total number of
shares so offered would purchase at such Current Market
Price (such amount, with respect to any such rights,
warrants, options or convertible or exchangeable securities,
determined by multiplying the total number of shares subject
thereto by the exercise price of such rights, warrants,
options or convertible or exchangeable securities and
dividing the product so obtained by the Current Market
Price), and
(y) whose denominator shall be the number of shares of Common
Stock outstanding on such date plus the number of additional
shares of Common Stock to be issued or distributed or
receivable upon exercise of any such right, warrant, option
or convertible or exchangeable security.
Such adjustment shall be made successively whenever any such
Common Stock, rights, warrants, options or convertible or
exchangeable securities are issued or distributed. In determining
whether any rights, warrants or options entitle the holders to
subscribe for or purchase shares of Common Stock at less than
such Current Market Price, and in determining the aggregate
offering price of shares of Common Stock so issued or
distributed, there shall be taken into account any consideration
received by the Corporation for such Common Stock, rights,
warrants, options, or convertible or exchangeable securities, the
value of such consideration, if other than cash, to be determined
by the Board of Directors, whose determination shall be
conclusive and described in a certificate filed with the records
of corporate proceedings of the Corporation. If any right,
warrant, option or convertible or exchangeable security to
purchase or acquire Common Stock, the issuance of which resulted
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in an adjustment in the Conversion Price pursuant to this
subsection (g) shall expire and shall not have been exercised,
the Conversion Price shall immediately upon such expiration be
recomputed to the Conversion Price which would have been in
effect had the adjustment of the Conversion Price made upon the
issuance of such right, warrant, option or convertible or
exchangeable security been made on the basis of offering for
subscription, purchase or issuance, as the case may be, only of
that number of shares of Common Stock actually purchased or
issued upon the actual exercise of such right, warrant, option or
convertible or exchangeable securities.
(iii) No adjustment in the Conversion Price shall be required unless
the adjustment would require an increase or decrease of at least
1% in the Conversion Price then in effect; provided, however,
that any adjustments that by reason of this paragraph 7(g)(iii)
are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under
this paragraph 7(g) shall be made to the nearest cent or nearest
1/100th of a share.
(iv) Notwithstanding anything to the contrary set forth in this
paragraph 7(g), no adjustment shall be made to the Conversion
Price upon (A) the issuance of shares of Common Stock pursuant to
any compensation or incentive plan for officers, directors,
employees or consultants of the Corporation which plan has been
approved by the Compensation Committee of the Board of Directors
(or if there is no such committee then serving, by the majority
vote of the Directors then serving who are not employees or
officers of the Corporation, a 5% or greater stockholder of the
Corporation or an officer, employee or Affiliate or Associate (as
defined in paragraph 11 below) of any such 5% or greater
stockholder) (unless the exercise price thereof is changed after
the date hereof other than solely by operation of the
anti-dilution provisions thereof or by the Compensation Committee
of the Board of Directors or, if applicable, the Board of
Directors and, if required by law, the stockholders of the
Corporation as provided in this clause (A)), or (B) the issuance
of Common Stock upon the conversion or exercise of the options,
warrants or rights of the Corporation outstanding on September
24, 2003, unless the conversion or exercise price thereof is
changed after September 24, 2003 (other than solely by operation
of the anti-dilution provisions thereof).
(v) The Corporation from time to time may reduce the Conversion Price
by any amount for any period of time in the discretion of the
Board of Directors. A voluntary reduction of the Conversion Price
does not change or adjust the Conversion Price otherwise in
effect for purposes of this paragraph 7(g).
(vi) In the event that, at any time as a result of an adjustment made
pursuant to paragraph 7(g)(i) through 7(g)(iii) above, the holder
of any share of the Series thereafter surrendered for conversion
shall become entitled to receive any shares of the Corporation
other than shares of the Common Stock, thereafter the number of
such other shares so receivable upon conversion of any share of
the Series shall be subject to adjustment from time to time in a
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manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in
paragraphs 7(g)(i) through 7(g)(v) above, and the other
provisions of this paragraph 7(g)(vi) with respect to the Common
Stock shall apply on like terms to any such other shares.
(h) In case of any reclassification of the Common Stock (other than in
a transaction to which paragraph 7(g)(i) applies), any consolidation
of the Corporation with, or merger of the Corporation into, any other
entity, any merger of another entity into the Corporation (other than
a merger that does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock of the
Corporation), any sale or transfer of all or substantially all of the
assets of the Corporation or any compulsory share exchange, pursuant
to which share exchange the Common Stock is converted into other
securities, cash or other property, then lawful provision shall be
made as part of the terms of such transaction whereby the holder of
each share of the Series then outstanding shall have the right
thereafter, during the period such share shall be convertible, to
convert such share only into the kind and amount of securities, cash
and other property receivable upon the reclassification,
consolidation, merger, sale, transfer or share exchange by a holder of
the number of shares of Common Stock of the Corporation into which a
share of the Series might have been converted immediately prior to the
reclassification, consolidation, merger, sale, transfer or share
exchange assuming that such holder of Common Stock failed to exercise
rights of election, if any, as to the kind or amount of securities,
cash or other property receivable upon consummation of such
transaction, subject to adjustment as provided in paragraph 7(g) above
following the date of consummation of such transaction. As a condition
to any such transaction, the Corporation or the person formed by the
consolidation or resulting from the merger or which acquires such
assets or which acquires the Corporation's shares, as the case may be,
shall make provisions in its certificate or articles of incorporation
or other constituent document to establish such right. The certificate
or articles of incorporation or other constituent document shall
provide for adjustments which, for events subsequent to the effective
date of the certificate or articles of incorporation or other
constituent document, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this paragraph 7. The
provisions of this paragraph 7(h) shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
(i) If:
(i) the Corporation shall take any action which would require an
adjustment in the Conversion Price pursuant to Section 7(g);
or
(ii) the Corporation shall authorize the granting to the holders
of its Common Stock generally of rights, warrants or options
to subscribe for or purchase any shares of any class or any
other rights, warrants or options; or
(iii) there shall be any reclassification or change of the Common
Stock (other than a subdivision or combination of its
outstanding Common Stock or a change in par value) or any
consolidation, merger or statutory share exchange to which
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the Corporation is a party and for which approval of any
stockholders of the Corporation is required, or the sale or
transfer of all or substantially all of the assets of the
Corporation; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation;
then, the Corporation shall cause to be filed with the transfer agent for
the Series and shall cause to be mailed to the holders of shares of the
Series at their addresses as shown on the books of the transfer agent for
the Series, as promptly as possible, but at least 30 days prior to the
applicable date hereinafter specified, a notice stating (A) the date on
which a record is to be taken for the purpose of such dividend,
distribution or granting of rights, warrants or options or, if a record is
not to be taken, the date as of which the holders of Common Stock of record
to be entitled to such dividend, distribution or rights, warrants or
options are to be determined, or (B) the date on which such
reclassification, change, consolidation, merger, statutory share exchange,
sale, transfer, dissolution, liquidation or winding-up is expected to
become effective or occur, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities or other property deliverable upon
such reclassification, change, consolidation, merger, statutory share
exchange, sale, transfer, dissolution, liquidation or winding-up. Failure
to give such notice or any defect therein shall not affect the legality or
validity of the proceedings described in this paragraph 7(i).
(j) Whenever the Conversion Price is adjusted as herein provided, the
Corporation shall promptly file with the transfer agent for the Series a
certificate of an officer of the Corporation setting forth the Conversion
Price after the adjustment and setting forth a brief statement of the facts
requiring such adjustment and a computation thereof. The Corporation shall
promptly cause a notice of the adjusted Conversion Price to be mailed to
each registered holder of shares of the Series.
(k) In any case in which paragraph 7(g) provides that an adjustment shall
become effective immediately after a record date for an event and the date
fixed for such adjustment pursuant to paragraph 7(g) occurs after such
record date but before the occurrence of such event, the Corporation may
defer until the actual occurrence of such event (i) issuing to the holder
of any shares of the Series converted after such record date and before the
occurrence of such event the additional shares of Common Stock issuable
upon such conversion by reason of the adjustment required by such event
over and above the Common Stock issuable upon such conversion before giving
effect to such adjustment, and (ii) paying to such holder any amount in
cash in lieu of any fraction pursuant to paragraph 7(d).
(l) In case the Corporation shall take any action affecting the Common
Stock, other than actions described in this paragraph 7, which in the
opinion of the Board of Directors would materially adversely affect the
conversion right of the holders of the shares of the Series, the Conversion
Price may be adjusted, to the extent permitted by law, in such manner, if
any, and at such time, as the Board of Directors may determine to be
13
equitable in the circumstances; provided, however, that in no event shall
the Board of Directors be required to take any such action.
(m) The Corporation shall list the shares of Common Stock required to be
delivered upon conversion of shares of the Series, prior to delivery, upon
each national securities exchange or any similar system of automated
dissemination of securities prices, if any, upon which the Common Stock is
listed at the time of delivery.
(n) The Corporation shall not effect any conversion of the Series, and no
person who is a holder of shares of the Series shall have the right to
convert its shares into Common Stock, to the extent that after giving
effect to such conversion, such person (together with such person's
Affiliates) would beneficially own in excess of 9.99% of the shares of the
Common Stock outstanding immediately after giving effect to such
conversion. For purposes of the foregoing sentence, the aggregate number of
shares of Common Stock beneficially owned by such person and its Affiliates
shall include, without limitation, the number of shares of Common Stock
issuable upon conversion of the shares of the Series with respect to which
the determination of such sentence is being made, but shall exclude shares
of Common Stock which would be issuable upon (i) conversion of the
remaining, unconverted shares of the Series beneficially owned by such
person and its Affiliates, and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the
Corporation beneficially owned by such person and its Affiliates
(including, without limitation, any debentures, convertible notes or
convertible preferred stock or warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein. Except
as set forth in the preceding sentence, for purposes of this paragraph,
beneficial ownership shall be calculated in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended. For purposes of this
paragraph 7(n), in determining the number of outstanding shares of Common
Stock, a holder may rely on the number of outstanding shares of Common
Stock as reflected in (A) the Corporation's most recent Form 10-Q, Form
10-K or other public filing with the Securities and Exchange Commission, as
the case may be, (B) a more recent public announcement by the Corporation,
or (C) any other notice by the Corporation or its transfer agent setting
forth the number of shares of Common Stock outstanding. For any reason at
any time, upon the written or oral request of any holder of the Series, the
Corporation shall within two business days confirm orally and in writing to
such holder the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined
after giving effect to the conversion or exercise of securities of the
Corporation by such holder and its Affiliates since the date as of which
such number of outstanding shares of Common Stock was reported. In
effecting the conversion of shares of the Series, the Corporation shall be
entitled to rely on a representation by the holder of such shares of the
Series as to the number of shares that it beneficially owns for purposes of
the above 9.99% limitation calculation.
8. Status of Shares. All shares of the Series that are at any time redeemed
or converted pursuant to paragraph 5, 6 or 7 above, and all shares of the
Series that are otherwise reacquired by the Corporation and subsequently
canceled by the Board of Directors, shall have the status of authorized but
14
unissued shares of preferred stock, without designation as to series,
subject to reissuance by the Board of Directors as shares of any one or
more other series.
9. Voting Rights. Each holder of shares of the Series shall be entitled to
the number of votes equal to the number of shares of Common Stock into
which such shares of the Series could be converted and shall have voting
rights and powers equal to the voting rights and powers of the Common Stock
(except as otherwise expressly provided herein or as required by law),
voting together with the Common Stock as a single class and shall be
entitled to notice of any stockholders' meeting in accordance with the
Bylaws of the Corporation. Fractional votes shall not, however, be
permitted and any fractional voting rights resulting from the above formula
(after aggregating all shares into which shares of the Series held by each
holder could be converted) shall be rounded to the nearest whole number
(with one-half being rounded upward).
10. Restrictions and Limitations. So long as any shares of the Series
remain outstanding, the Corporation, shall not, without the vote or written
consent by the holders of at least 51% of the then outstanding shares of
the Series, voting together as a single class:
(i) Redeem, purchase or otherwise acquire for value (or pay into or set
aside for a sinking fund for such purpose) any share or shares of
preferred stock otherwise than by redemption in accordance with
paragraph 5 or 6 hereof or by conversion in accordance with paragraph
7 hereof;
(ii) Redeem, purchase or otherwise acquire (or pay into or set aside for a
sinking fund for such purpose), any of the Common Stock; provided,
however, that this restriction shall not apply to the repurchase of
shares of Common Stock form employees, officers, directors,
consultants or other persons performing services for the Corporation
or any subsidiary pursuant to agreements under which the Corporation
has the option to repurchase such shares at cost or at cost plus
interest at a rate not to exceed nine percent (9%) per annum upon the
occurrence of certain events, such as the termination of employment;
and provided further, that the total amount applied to the repurchase
of shares of Common Stock shall not exceed $100,000 during any twelve
month period; or
(iii) Authorize or issue, or obligate itself to issue, any debt security,
or otherwise incur indebtedness for borrowed money (other than (A) to
a strategic investor in connection with a strategic commercial
agreement or transaction as determined by the Independent Directors,
(B) pursuant to a commercial borrowing, secured lending or lease
financing transaction approved by the Independent Directors, or (c)
pursuant to the acquisition of another corporation or entity by the
Corporation by consolidation, merger, purchase of all or substantially
all of the assets, or other reorganization).
11. Certain Definitions. As used in this Certificate, the following terms
shall have the following respective meanings:
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"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under common control with such
specified person. For purposes of this definition, "control" when used with
respect to any person means the power to direct the management and policies
of such person, directly or indirectly, whether through the ownership of
voting securities or otherwise; and the term "controlling" and "controlled"
having meanings correlative to the foregoing.
"Associate" of a person means (A) any corporation or organization, other
than the Corporation or any subsidiary of the Corporation, of which the
person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of its equity securities; (B)
any trust or estate in which the person has a substantial beneficial
interest or as to which the person serves as trustee or in a similar
fiduciary capacity; and (C) any relative or spouse of the person, or any
relative of the spouse, who has the same home as the person or who is a
director or officer of the person or any of its parents or subsidiaries.
"Capital Stock" of any person or entity means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in the common stock or preferred stock of such
person or entity, including, without limitation, partnership and membership
interests.
"Current Market Price" means, when used with respect to any security as of
any date, the volume weighted average price of such security on the ten
(10) consecutive trading days immediately preceding such date as reported
for consolidated transactions with respect to securities listed on the
principal national securities exchange on which such security is listed or
admitted to trading or, if such security is not listed or admitted to
trading on any national securities exchange, the volume weighted average
price of such security on the ten (10) consecutive trading days immediately
preceding such date in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations
System or such other system then in use or, if such security is not quoted
by any such organization, the volume weighted average price of such
security as of the ten (10) consecutive trading days immediately preceding
such date furnished by a New York Stock Exchange member firm selected by
the Corporation, or if such security is not quoted by any such organization
and no such New York Stock Exchange member firm is able to provide such
prices, such price as is determined by the Independent Directors in good
faith.
"Independent Directors" means directors that (i) are not 5% or greater
stockholders of the Corporation or the designee of any such stockholder;
(ii) are not officers or employees of the Corporation, any of its
subsidiaries or of a stockholder referred to above in clause (i); (iii) are
not Related Persons; and (iv) do not have relationships that, in the
opinion of the Board of Directors, would interfere with their exercise of
independent judgment in carrying out the responsibilities of the directors.
"Related Person" means an individual related to an officer, director or
employee of the Corporation or any of its Affiliates which relation is by
blood, marriage or adoption and not more remote than first cousin.
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IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly
executed on its behalf by its undersigned Chief Executive Officer and
attested to by its Secretary this 24th day of September, 2003.
/s/ Raymond Kwan
-------------------------------------
Raymond Ying-Wai Kwan
Chief Executive Officer
ATTEST:
- ----------------------------------
[NAME]
Secretary
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