Exhibit 3.2
Certificate of Designations of Series A Preferred Stock
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF
SERIES A PREFERRED STOCK
OF
RETURN ASSURED INCORPORATED
Return Assured Incorporated, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies that the
following resolutions were adopted by the Board of Directors of the Corporation
pursuant to the authority of the Board of Directors as required by Section 151
of the Delaware General Corporation Law.
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the "Board")
in accordance with the provisions of its Certificate of Incorporation and
Bylaws, each as amended through the date hereof, the Board of Directors hereby
authorizes a series of the Corporation's previously authorized Preferred Stock,
par value $0.001 per share (the "Preferred Stock"), and hereby states the
designation and number of shares, and fixes the relative rights, preferences,
privileges, powers and restrictions thereof as follows:
I. CERTAIN DEFINITIONS.
For purposes of this Certificate of Designations, capitalized terms are
defined in this Certificate of Designations or shall have the following
meanings:
"Common Stock" means the common stock of the Corporation, $0.001 par value
per share.
"Escrow Agent" means the Escrow Agent as defined in the Purchase
Agreement.
"Issuance Date" means the date of the Closing under the Agreement with
respect to the initial issuance of the Series A Preferred Stock.
"Per Share Market Value" means on any particular date (a) the closing bid
price per share of the Common Stock on such date on The Over-The-Counter
Bulletin Board, the OTC Bulletin Board(R) ("OTCBB") or other stock exchange on
which the Common Stock has been listed or if there is no such price on such
date, then the last bid price on such exchange on the date nearest preceding
such date, or (b) if the Common Stock is not listed on OTCBB or any stock
exchange, the closing bid price for a share of Common Stock in the
over-the-counter market, as reported by the NASD at
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the close of business on such date, or (c) if the Common Stock is not quoted by
the NASD, the closing bid price for a share of Common Stock in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices), or (d) if the Common Stock is no longer publicly traded the
fair market value of a share of Common Stock as determined by an Appraiser (as
defined in Section IV(c)(iv) selected in good faith by the Holders of a majority
of principal amount of outstanding Series A Preferred Stocks; provided, however,
that the Corporation, after receipt of the determination by such Appraiser,
shall have the right to select an additional Appraiser, in which case, the fair
market value shall be equal to the average of the determinations by each such
Appraiser, in each case as reported by Bloomberg Financial Markets, or if not
available, a comparable reporting service chosen by the Corporation reasonably
acceptable to the Holder of a majority of the outstanding shares of Series A
Preferred Stock.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Purchase Agreement" is the Series A Preferred Stock Purchase Agreement
dated June 30, 2000, by and among the Corporation and GEM Global Yield Fund
Limited.
"Trading Day" means (a) a day on which the Common Stock is quoted on the
OTCBB or principal stock exchange on which the Common Stock has been listed, or
(b) if the Common Stock is not quoted on the OTCBB or any stock exchange, a day
on which the Common Stock is quoted in the over-the-counter market, as reported
by the National Association of Securities Dealers, Inc. ("NASD"), or (c) if the
Common Stock is not quoted on the NASD, a day on which the Common Stock is
quoted in the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding its
functions of reporting prices).
II. DESIGNATION AND AMOUNT.
The designation of this series, which consists of Six Thousand (6,000)
shares of Preferred Stock, is the Series A Preferred Stock (the "Series A
Preferred Stock") and the stated value shall be One Thousand U.S. Dollars
($1,000.00) per share (the "Stated Value").
III. DIVIDENDS.
(a) The holder of the shares of Series A Preferred Stock as they appear on
the stock records of the Corporation ("Holder" or "Holders") shall be entitled
to receive, the Board of Directors shall be obligated to declare and the
Corporation shall be obligated to pay, out of funds legally available for the
payment of dividends, dividends in cash at the rate of one percent (1%) per
annum (computed on the basis of a 360-day year) (the "Dividend Rate") on the
Stated Value of each share of Series A Preferred Stock on and as of the most
recent Conversion Date (as defined below) with respect to each Dividend Period
(as defined below). Dividends on the Series A Preferred Stock shall be
cumulative from the Issuance Date.
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(b) Each dividend (other than the first dividend, which shall reflect
accrual only from the Issuance Date) shall be payable on each Conversion Date
(as defined below), to the Holders of record of shares of the Series A Preferred
Stock, as they appear on the stock records of the Corporation at the close of
business on such Conversion Date. For the purposes hereof, "Dividend Period"
means the period commencing on and including the day after the immediately
preceding Conversion Date and ending on and including the immediately subsequent
Conversion Date.
(c) At the option of the Corporation, the dividend shall be paid in cash
or through the issuance of duly and validly authorized and issued, fully paid
and non-assessable, shares of Series A Preferred Stock valued at the Stated
Value. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on the Series A Preferred Stock that
may be in arrears.
(d) So long as any shares of the Series A Preferred Stock are outstanding,
no dividends, except as described in the next succeeding sentence, shall be
declared or paid or set apart for payment on Pari Passu Securities (as defined
herein) for any period unless full cumulative dividends required to be paid in
cash have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Series A
Preferred Stock for all Dividend Periods terminating on or prior to the date of
payment of the dividend on such class or series of Pari Passu Securities. When
dividends are not paid in full or a sum sufficient for such payment is not set
apart, as aforesaid, all dividends declared upon shares of the Series A
Preferred Stock and all dividends declared upon any other class or series of
Pari Passu Securities shall be declared ratably in proportion to the respective
amounts of dividends accumulated and unpaid on the Series A Preferred Stock and
accumulated and unpaid on such Pari Passu Securities.
(e) So long as any shares of the Series A Preferred Stock are outstanding,
no dividends shall be declared or paid or set apart for payment or other
distribution declared or made upon Junior Securities (as defined herein), nor
shall any Junior Securities be redeemed, purchased or otherwise acquired (other
than a redemption, purchase or other acquisition of shares of Common Stock made
for purposes of an employee incentive or benefit plan (including a stock option
plan) of the Corporation or any subsidiary) for any consideration (or any moneys
be paid to or made available for a sinking fund for the redemption of any shares
of any such stock) by the Corporation, directly or indirectly, unless in each
case (i) the full cumulative dividends required to be paid in cash on all
outstanding shares of the Series A Preferred Stock and any other Pari Passu
Securities shall have been paid or set apart for payment for all past Dividend
Periods with respect to the Series A Preferred Stock and all past dividend
periods with respect to such Pari Passu Securities, and (ii) sufficient funds
shall have been paid or set apart for the payment of the dividend for the
current Dividend Period with respect to the Series A Preferred Stock and the
current dividend period with respect to such Pari Passu Securities.
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IV. CONVERSION.
(a) The outstanding shares of Series A Preferred Stock shall be
convertible into shares of Common Stock at the Conversion Price as defined
below, and subject to the Limitation on Conversion in Section 4.19 of the
Purchase Agreement, at the option of the Holder in whole or in part, at any
time, commencing on the Issuance Date. Any conversion under this Section IV(a)
shall be for a minimum Stated Value of $10,000.00 of Series A Preferred Stock.
The Holder shall effect conversions by surrendering the shares of Series A
Preferred Stock (or such portions thereof) to be converted to the Corporation,
together with the form of conversion notice attached hereto as Exhibit A (the
"Holder Notice of Conversion") in the manner set forth in Section IV(j). Each
Holder Notice of Conversion shall specify the Stated Value of Series A Preferred
Stock to be converted, and the date on which such conversion is to be effected
(the "Holder Conversion Date"). Except as provided herein, each Holder Notice of
Conversion, once given, shall be irrevocable. If the Holder is converting less
than all of the Stated Value represented by a certificate for the Series A
Preferred Stock(s) tendered by the Holder in the Holder Notice of Conversion,
the Corporation shall deliver to the Holder a new Series A Preferred Stock
certificate for such Stated Value as has not been converted within two (2)
Business Days of the Holder Conversion Date. In the event that the Escrow Agent
holds the Series A Preferred Stock on behalf of the Holder, the Corporation
agrees that in lieu of surrendering the Series A Preferred Stock upon every
partial conversion, the Escrow Agent shall give the Corporation and the Holder
written notice of the amount of the Series A Preferred Stock left unconverted.
Upon the entire conversion of the Series A Preferred Stock or the redemption of
the Series A Preferred Stock, the Escrow Agent shall return the Series A
Preferred Stock to the Corporation for cancellation.
(b) Not later than two (2) Business Days after the Conversion Date,
the Escrow Agent will deliver to the Holder (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions,
representing the number of shares of Common Stock being acquired upon the
conversion of Series A Preferred Stock and (ii) once received from the
Corporation, Series A Preferred Stock in principal amount equal to the principal
amount of Series A Preferred Stock not converted; provided, however that the
Corporation shall not be obligated to issue certificates evidencing the shares
of Common Stock issuable upon conversion of any Series A Preferred Stock, until
the Series A Preferred Stock are either delivered for conversion to the Escrow
Agent or Corporation or any transfer agent for the Series A Preferred Stock or
Common Stock, or the Holder notifies the Corporation that such Series A
Preferred Stock have been lost, stolen or destroyed and provides an agreement
reasonably acceptable to the Corporation to indemnify the Corporation from any
loss incurred by it in connection therewith. In the case of a conversion
pursuant to a Holder Notice of Conversion, if such certificate or certificates
are not delivered by the date required under this Section IV(b), the Holder
shall be entitled by providing written notice to the Corporation at any time on
or before its receipt of such certificate or certificates thereafter, to rescind
such conversion, in which event the Corporation shall immediately return the
Series A Preferred Stock tendered for conversion.
The Corporation agrees that, at any time the conversion price
of the Series A Preferred Stock is such that the number of shares of
Common Stock in escrow (the "Series
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A Preferred Stock Escrow Shares") is less than 200% of the number of
shares of Common Stock that would be needed to satisfy full conversion of
all of the Series A Preferred Stock given the then current conversion
price (the "Full Conversion Shares"), upon five (5) days written notice of
such circumstance to the Corporation by the Purchaser and/or Escrow Agent,
it will issue additional share certificates in the names of each of the
Purchasers in denominations of 10,000 shares, and deliver same to the
Escrow Agent, such that the new number of Series A Preferred Stock Escrow
Shares is equal to 200% of the Full Conversion Shares.
(c) (i) The Conversion Price for each Series A Preferred Stock in
effect on any Conversion Date shall be the lesser of (X) US$3.00 (the "Fixed
Conversion Price") or (Y) one hundred percent (100%) of the average of the three
(3) lowest Per Share Market Value prices during the forty-five (45) day period
immediately preceding the Conversion Date ("Floating Conversion Price"). The
conversion of the Series A Preferred Stock is subject to the Limitation on
Conversion in Section 4.19 of the Purchase Agreement as set forth below.
"In addition to and not in lieu of the limitations on conversion set
forth in the Series A Preferred Stock Certificate of Designations,
the conversion and exercise rights of each of the Purchasers set
forth in the Series A Preferred Stock Certificate of Designations
and the Warrants, as applicable, shall be limited, solely to the
extent required, from time to time, such that, unless each of the
Purchasers give written notice 75 days in advance to the Corporation
of their intention to exceed the Limitations of Conversions as
defined herein, with respect to all or a specified amount of the
Series A Preferred Stock and the corresponding number of the
Underlying Shares, in no instance shall the maximum number of shares
of Common Stock which the Purchasers (singularly, together with any
Persons who in the determination of such Purchasers, together with
such Purchasers, constitute a group as defined in Rule 13d-5 of the
Exchange Act) may receive in respect of any conversion of the Series
A Preferred Stock, or exercise of the Warrants, exceed, at any one
time, an amount equal to the remainder of (i) 4.99% of the then
issued and outstanding shares of Common Stock of the Corporation
following such conversion or exercise minus (ii) the number of
shares of Common Stock of the Corporation then owned by any of the
Purchasers (including any shares of Common Stock deemed beneficially
owned due to ownership of the Series A Preferred Stock and Warrants)
(the foregoing being herein referred to as the "Limitation on
Conversion"); provided, however, that if 10 Business Days have
elapsed since any of the Purchasers shall have declared an Event of
Default (as that term is defined in the Series A Preferred Stock
Certificate of Designations) and the Corporation shall not have
cured such Event of Default, the provisions of this Section 4.19
shall be null
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and void from and after such date. The Corporation shall, promptly
upon its receipt of a notice of conversion tendered by any of the
Purchasers (or its sole designee), as applicable, and upon its
receipt of a notice of exercise under the terms of the Warrants,
notify such Purchaser by telephone and by facsimile of the number of
shares of Common Stock outstanding on such date and the number of
Underlying Shares which would be issuable to such Purchaser (or its
sole designee, as the case may be) if the conversion requested in
such notice of conversion or exercise requested in such notice of
exercise were effected in full, whereupon, notwithstanding anything
to the contrary set forth in the Series A Preferred Stock
Certificate of Designations or the Warrants, such Purchaser may
within one Trading Day of its receipt of the Company notice required
by this Section 4.19 by facsimile revoke such conversion or exercise
to the extent (in whole or in part) that it determines that such
conversion or exercise would result in such Purchaser owning shares
of Stock in excess of the Limitation on Conversion."
(c) (ii) If the Corporation, at any time while any Series A
Preferred Stock are outstanding, (a) shall pay a stock dividend or otherwise
make a distribution or distributions on shares of its Junior Securities payable
in shares of its capital stock (whether payable in shares of its Common Stock or
of capital stock of any class), (b) subdivide outstanding shares of Common Stock
into a larger number of shares, (c) combine outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of shares of
Common Stock any shares of capital stock of the Corporation, the Fixed
Conversion Price designated in Section IV(c)(i) shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock of
the Corporation outstanding before such event and of which the denominator shall
be the number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this Section IV(c)(ii) shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
re-classification.
(c) (iii) If the Corporation, at any time while any Series A
Preferred Stock are outstanding, shall issue or sell shares of Common Stock, or
options, warrants or other rights to subscribe for or purchase shares of Common
Stock, (excluding shares of Common Stock issuable upon exercise of options,
warrants or conversion rights granted prior to the date hereof) and at a price
per share less than the Per Share Market Value of Common Stock at the issue date
mentioned below, the Fixed Conversion Price designated in Section IV(c)(i) shall
be multiplied by a fraction, of which the denominator shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding on the
date of issuance of such rights or warrants plus the number of additional shares
of Common Stock offered for subscription or purchase, and of which the numerator
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such shares, options, warrants or
rights plus the number of shares which the aggregate offering price of the total
number of shares so offered would purchase at such Per Share Market
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Value. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right or warrant to purchase Common Stock
the issuance of which resulted in an adjustment in the Conversion Price
designated in Section IV(c)(i) pursuant to this Section IV(c)(iii), if any such
right or warrant shall expire and shall not have been exercised, the Fixed
Conversion Price designated in Section IV(c)(i) shall immediately upon such
expiration be recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Conversion Price made pursuant to the provisions of this
Article IV after the issuance of such rights or warrants) had the adjustment of
the Conversion Price made upon the issuance of such rights or warrants been made
on the basis of offering for subscription or purchase only that number of shares
of Common Stock actually purchased upon the exercise of such rights or warrants
actually exercised.
(c) (iv) If the Corporation, at any time while Series A Preferred
Stock are outstanding, shall distribute to all holders of Common Stock (and not
to Holders of Series A Preferred Stock) evidences of its indebtedness or assets
or rights or warrants to subscribe for or purchase any security (excluding those
referred to in Section IV(c)(iii) above) then in each such case the Conversion
Price at which each Series A Preferred Stock shall thereafter be convertible
shall be determined by multiplying the Fixed Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Per Share Market Value of Common Stock determined as of the record
date mentioned above, and of which the numerator shall be such Per Share Market
Value of the Common Stock on such record date less the then fair market value at
such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Board of Directors in good faith; provided, however that in the event of a
distribution exceeding ten percent (10%) of the net assets of the Corporation,
such fair market value shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Corporation) (an "Appraiser") selected
in good faith by the Holders of a majority of the principal amount of the Series
A Preferred Stock then outstanding; and provided, further, that the Corporation,
after receipt of the determination by such Appraiser shall have the right to
select an additional Appraiser, in which case the fair market value shall be
equal to the average of the determinations by each such Appraiser. In either
case the adjustments shall be described in a statement provided to the Holder
and all other Holders of Series A Preferred Stock of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
(c) (v) All calculations under this Article IV shall be made to the
nearest 1/1000th of a cent or the nearest 1/1000th of a share, as the case may
be. Any calculation over .005 shall be rounded up to the next cent or share and
any calculation less than .005 shall be rounded down to the previous cent or
share.
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(c) (vi) In the event the Fixed Conversion Price is not adjusted
pursuant to Section IV(c)(ii), (iii), (iv), or (v), within two (2) Business Days
following the occurrence of an event described therein, the Holder shall have
the right to require the Corporation to redeem the Series A Preferred Stock at
135% of Stated Value and simultaneously pay such amount and all accrued
dividends and dividends to the Holder pursuant to the written instructions
provided by the Holder.
(c) (vii) Whenever the Fixed Conversion Price is adjusted pursuant
to Section IV(c)(ii),(iii), (iv) or (v), or redeemed pursuant to Section
IV(c)(vi), the Corporation shall within two (2) days after the determination of
the new Fixed Conversion Price mail and fax to the Holder and to each other
Holder of Series A Preferred Stock, a notice setting forth the Fixed Conversion
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
(c) (viii) In case of any reclassification of the Common Stock, any
consolidation or merger of the Corporation with or into another person, the sale
or transfer of all or substantially all of the assets of the Corporation or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then each holder of Series A Preferred Stock
then outstanding shall have the right thereafter to convert such Series A
Preferred Stock only into the shares of stock and other securities and property
receivable upon or deemed to be held by holders of Common Stock following such
reclassification, consolidation, merger, sale, transfer or share exchange
(except in the event the property is cash, then the Holder shall have the right
to convert the Series A Preferred Stock and receive cash in the same manner as
other stockholders), and the Holder shall be entitled upon such event to receive
such amount of securities or property as the shares of the Common Stock into
which such Series A Preferred Stock could have been converted immediately prior
to such reclassification, consolidation, merger, sale, transfer or share
exchange would have been entitled. The terms of any such consolidation, merger,
sale, transfer or share exchange shall include such terms so as to continue to
give to the holder the right to receive the securities or property set forth in
this Section IV(c)(viii) upon any conversion following such consolidation,
merger, sale, transfer or share exchange. This provision shall similarly apply
to successive reclassifications, consolidations, mergers, sales, transfers or
share exchanges.
(ix) If:
(A) the Corporation shall declare a dividend (or any
other distribution) on its Common Stock; or
(B) the Corporation shall declare a special
nonrecurring cash dividend on or a redemption of
its Common Stock; or
(C) the Corporation shall authorize the granting to
all holders of the Common Stock rights or warrants
to subscribe for or purchase any shares of capital
stock of any class or of any rights; or
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(D) the approval of any stockholders of the
Corporation shall be required in connection with
any reclassification of the Common Stock of the
Corporation (other than a subdivision or
combination of the outstanding shares of Common
Stock), any consolidation or merger to which the
Corporation is a party, any sale or transfer of
all or substantially all of the assets of the
Corporation, or any compulsory share exchange
whereby the Common Stock is converted into other
securities, cash or property; or
(E) the Corporation shall authorize the voluntary or
involuntary dissolution, liquidation or winding-up
of the affairs of the Corporation;
then the Corporation shall cause to be filed at each office or agency maintained
for the purpose of conversion of Series A Preferred Stock, and shall cause to be
mailed and faxed to the Holders of Series A Preferred Stock at their last
addresses as it shall appear upon the Series A Preferred Stock Register, at
least thirty (30) calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, redemption, rights or
warrants, 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, distributions,
redemption, rights or warrants are to be determined, or (y) the date on which
such reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding-up is expected to become effective, 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, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding-up; provided,
however, that the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action required
to be specified in such notice.
(d) If at any time conditions shall arise by reason of action or
inaction taken by the Corporation which in the opinion of the Board of Directors
are not adequately covered by the other provisions hereof and which might
materially and adversely affect the rights of the Holders of Series A Preferred
Stock (different than or distinguished from the effect generally on rights of
holders of any class of the Corporation's capital stock), the Corporation shall,
at least thirty (30) calendar days prior to the effective date of such action,
mail and fax a written notice to each Holder of Series A Preferred Stock briefly
describing the action contemplated and the material adverse effects of such
action on the rights of such Holders and an Appraiser selected by the Holders of
majority of the outstanding Series A Preferred Stock shall give its opinion as
to the adjustment, if any (not inconsistent with the standards established in
this Article IV), of the Fixed Conversion Price (including, if necessary, any
adjustment as to the securities into which Series A Preferred Stock may
thereafter be convertible) and any distribution which is or would be required to
preserve without diluting the rights of the Holders of Series A Preferred Stock;
provided, however, that the Corporation, after receipt of the determination by
such Appraiser, shall have the right to select an
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additional Appraiser, in which case the adjustment shall be equal to the average
of the adjustments recommended by each such Appraiser. The Board of Directors
shall make the adjustment recommended forthwith upon the receipt of such opinion
or opinions or the taking of any such action contemplated, as the case may be;
provided, however, that no such adjustment of the Fixed Conversion Price shall
be made which in the opinion of the Appraiser(s) giving the aforesaid opinion or
opinions would result in an increase of the Fixed Conversion Price to more than
the Fixed Conversion Price then in effect.
(e) The Corporation covenants that it will at all times reserve and
keep available out of its authorized and unissued Common Stock solely for the
purpose of issuance upon conversion of Series A Preferred Stock as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holders of Series A Preferred Stock, such
number of shares of Common Stock as shall be issuable (taking into account the
adjustments and restrictions of Section IV(c) and Section IV(d) hereof) upon the
conversion of the aggregate principal amount of all outstanding Series A
Preferred Stock. The Corporation covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized, issued
and fully paid and nonassessable.
(f) No fractional shares of Common Stock shall be issuable upon a
conversion hereunder and the number of shares to be issued shall be rounded up
to the nearest whole share. If a fractional share interest arises upon any
conversion hereunder, the Corporation shall eliminate such fractional share
interest by issuing Holder an additional full share of Common Stock.
(g) The issuance of certificates for shares of Common Stock on
conversion of Series A Preferred Stock shall be made without charge to the
Holder for any documentary stamp or similar taxes that may be payable in respect
of the issue or delivery of such certificate, provided that the Corporation
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder and the Corporation shall not
be required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Corporation the
amount of such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid.
(h) Series A Preferred Stock converted into Common Stock shall be
canceled upon conversion.
(i) [Reserved]
(j) Each Holder Notice of Conversion shall be given by facsimile to
the Escrow Agent no later than 4:00 pm New York Time. Upon receipt of such
Notice of Conversion, the Escrow Agent shall forward such Notice of Conversion
to the Corporation by facsimile by the end of the Business Day, on which
received, assuming received by 6:00 pm New York Time and if thereafter on the
next Business Day, at the facsimile telephone number and address of the
principal place of business of the Corporation. Each Corporation Notice of
Conversion shall be given by
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facsimile addressed to each Holder of Series A Preferred Stock at the facsimile
telephone number and address of such Holder appearing on the books of the
Corporation as provided to the Corporation by such Holder for the purpose of
such Corporation Notice of Conversion, with a copy to the Escrow Agent. Any such
notice shall be deemed given and effective upon the transmission of such
facsimile at the facsimile telephone number specified in this Section IV(j)
(with printed confirmation of transmission). In the event that the Escrow Agent
receives the Notice of Conversion after 4:00 p.m. New York Time, the Conversion
Date shall be deemed to be the next Business Day. In the event that the Notice
of Conversion is sent after the end of the Business Day, notice will be deemed
to have been given the next Business Day.
V. EVENTS OF DEFAULT AND REMEDIES.
I. "Event of Default", wherever used herein, means any one of the
following events:
(a) the Corporation shall fail to observe or perform any material
covenant, agreement or warranty contained in this Series A Preferred Stock
Certificate of Designations, and such failure shall not have been remedied
within ten (10) Business Days after the date on which written notice of such
failure shall have been given;
(b) the occurrence of any event or breach or default by the
Corporation under the Purchase Agreement or any other Transaction Document (as
defined in the Purchase Agreement) and such failure or breach shall not have
been remedied within ten (10) Business Days after the date on which written
notice of such failure or breach shall have been given by the Purchaser;
(c) the Corporation or any of its subsidiaries shall commence a
voluntary case under the United States Bankruptcy Code as now or hereafter in
effect or any successor thereto (the "Bankruptcy Code"); or an involuntary case
is commenced against the Corporation under the Bankruptcy Code and the
Corporation fails to pursue dismissal of the case within sixty (60) days after
commencement of the case; or the Corporation commences any other proceeding
under any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to the Corporation or there is
commenced against the Corporation any such proceeding and the Corporation fails
to pursue dismissal of the case within sixty (60) days after commencement of the
case; or the Corporation suffers any appointment of any custodian or the like
for it or any substantial part of its property and the Corporation fails to
pursue dismissal of the custodian within sixty (60) days after the appointment;
or the Corporation makes a general assignment for the benefit of creditors; or
any corporate or other action is taken by the Corporation for the purpose of
effecting any of the foregoing;
(d) the Corporation shall voluntarily have its Common Stock deleted
or delisted, as the case may be, from the OTCBB or other national securities
exchange or market on which such Common Stock is listed for trading or suspended
from trading thereon, and shall not have its Common Stock relisted or have such
suspension lifted, as the case may be, within twenty (20) Trading Days of such
deletion or delisting;
11
(e) notwithstanding anything herein to the contrary, the Corporation
shall fail to deliver to the Escrow Agent share certificates representing the
shares of Common Stock to be issued upon conversion of the Series A Preferred
Stock within ten (10) Business Days pursuant to written notice by the Escrow
Agent to the Corporation that additional shares are required in escrow pursuant
to Section 4.14 of the Purchase Agreement, Article 2 of the Escrow Agreement
(annexed as Exhibit D to the Purchase Agreement), and Section IV(b) of this
Series A Preferred Stock;
(f) the Corporation shall issue a press release, or otherwise make
publicly known, that it is not honoring properly executed Holder Notice of
Conversions for any reason whatsoever;
(g) the Registration Statement which is the subject of the
Registration Rights Agreement annexed as Exhibit C to the Purchase Agreement is
no longer effective as required under the Registration Rights Agreement and the
Corporation does not take action to cause such Registration Statement to become
effective within ten (10) Business Days of not being effective;
(h) the Corporation shall issue or enter into an agreement to issue
any equity or equity equivalent security with a floating conversion price
substantially similar to the Series A Preferred Stock.
II. (a) If any Event of Default occurs and continues, beyond any cure
period, if any, then so long as such Event of Default shall then be continuing
any Holder may, by notice to the Corporation demand redemption of the Shares of
Series A Preferred Stock, whereupon the Stated Value and all accrued but unpaid
Dividends immediately due and payable, and such Holder may immediately and
without expiration of any grace period enforce any and all of its rights and
remedies hereunder and all other remedies available to it under applicable law.
Such declaration may be rescinded and annulled by such Holder at any time prior
to payment hereunder. No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon. This shall
include, but not be limited to the right to temporary, preliminary and permanent
injunctive relief without the requirement of posting any bond or undertaking.
(b) Such Holder may thereupon proceed to protect and enforce its
rights either by suit in equity, or by action at law, or by other appropriate
proceedings whether for the specific performance (to the extent permitted by
law) of any covenant or agreement contained in this Series A Preferred Stock
Certificate of Designations or in aid of the exercise of any power granted in
this Series A Preferred Stock Certificate of Designations, and proceed to
enforce the redemption of any of the Series A Preferred Stock held by it, and to
enforce any other legal or equitable right of such Holder.
(c) As a non-exclusive remedy, in the Event of a Default, the Holder
can convert the outstanding shares of Series A Preferred Stock at the lesser of
the Fixed Conversion Price or the Floating Conversion Price upon giving a notice
of conversion to the Corporation. The Corporation shall not have the right to
object to the conversion or the calculation of the applicable Conversion Price,
and the Escrow Agent shall release the shares of Common Stock from escrow upon
notifying the Corporation of the conversion.
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III. To effectuate the terms and provision of this Series A Preferred
Stock, the Holder may send notice of any default to the Corporation's
attorney-in-fact (the "Attorney-in-Fact") as set forth herein and send a copy of
such notice to the Corporation and its counsel, simultaneously, and request the
Attorney-in-Fact, to comply with the terms of this Series A Preferred Stock and
Purchase Agreement and all agreements entered into pursuant to the Purchase
Agreement on behalf of the Corporation.
VI. [Reserved]
VII. RANK.
The Series A Preferred Stock shall rank (i) prior to the Corporation's
Common Stock; (ii) prior to any class or series of capital stock of the
Corporation hereafter created that, by its terms, ranks junior to the Series A
Preferred Stock ("Junior Securities"); (iii) junior to any class or series of
capital stock of the Corporation hereafter created (with the consent of the
Holders of a majority of the outstanding Series A Preferred Stock obtained in
accordance with Article XIII hereof) specifically ranking, by its terms, senior
to the Series A Preferred Stock ("Senior Securities"); and (iv) Pari Passu with
any class or series of capital stock of the Corporation hereafter created (with
the consent of the Holders of a majority of the outstanding the Series A
Preferred Stock specifically ranking by its terms on parity with the Series A
Preferred Stock ("Pari Passu Securities"), in each case as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
VIII. LIQUIDATION PREFERENCE.
If the Corporation shall commence a voluntary case under the U.S. Federal
bankruptcy laws or any other applicable bankruptcy, insolvency or similar law,
or consent to the entry of an order for relief in an involuntary case under any
law or to the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or make an assignment for the benefit of its
creditors, or admit in writing its inability to pay its debts generally as they
become due, or if a decree or order for relief in respect of the Corporation
shall be entered by a court having jurisdiction in the premises in an
involuntary case under the U.S. Federal bankruptcy laws or any other applicable
bankruptcy, insolvency or similar law resulting in the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of 60 consecutive days and,
on account of any such event, the Corporation shall liquidate, dissolve or wind
up, or if the Corporation shall otherwise liquidate, dissolve or wind up,
including, but not limited to, the sale or transfer of all or substantially all
of the Corporation's assets in one transaction or in a series of related
transactions (a "Liquidation Event"), no distribution shall be made to the
holders of any shares of capital stock of the Corporation (other than Senior
Securities and Pari Passu Securities) upon liquidation, dissolution or winding
up unless prior thereto the Holders of shares of Series A Preferred Stock shall
have received the Liquidation Preference with
13
respect to each share. If, upon the occurrence of a Liquidation Event, the
assets and funds available for distribution among the Holders of the Series A
Preferred Stock and Holders of Pari Passu Securities shall be insufficient to
permit the payment to such holders of the preferential amounts payable thereon,
then the entire assets and funds of the Corporation legally available for
distribution to the Series A Preferred Stock and the Pari Passu Securities shall
be distributed ratably among such shares in proportion to the ratio that the
Liquidation Preference payable on each such share bears to the aggregate
Liquidation Preference payable on all such shares. The purchase or redemption by
the Corporation of stock of any class, in any manner permitted by law, shall
not, for the purposes hereof, be regarded as a liquidation, dissolution or
winding up of the Corporation. Neither the consolidation or merger of the
Corporation with or into any other entity nor the sale or transfer by the
Corporation of less than substantially all of its assets shall, for the purposes
hereof, be deemed to be a liquidation, dissolution or winding up of the
Corporation. The "Liquidation Preference" with respect to a share of Series A
Preferred Stock means an amount equal to the Stated Value thereof, plus the
accrued but unpaid dividends thereon through the date of final distribution. The
Liquidation Preference with respect to any Pari Passu Securities shall be as set
forth in the Certificate of Designation filed in respect thereof.
IX. VOTING RIGHTS.
The Holders of the Series A Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Delaware General Corporation Law
(the "DGCL"). To the extent that under the DGCL the vote of the Holders of the
Series A Preferred Stock, voting separately as a class or series, as applicable,
is required to authorize a given action of the Corporation, the affirmative vote
or consent of the Holders of at least a majority of the then outstanding shares
of the Series A Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of the Holders of at least a majority of
the then outstanding shares of Series A Preferred Stock (except as otherwise may
be required under the DGCL) shall constitute the approval of such action by the
class. To the extent that under the DGCL Holders of the Series A Preferred Stock
are entitled to vote on a matter with holders of Common Stock, voting together
as one class, each share of Series A Preferred Stock shall be entitled to a
number of votes equal to the number of shares of Common Stock into which it is
then convertible (subject to the limitations contained in Article IV.) using the
record date for the taking of such vote of shareholders as the date as of which
the Conversion Price is calculated.
X MISCELLANEOUS.
(a) If any shares of Series A Preferred Stock are converted pursuant to
Article IV, the shares so converted shall be canceled, shall return to the
status of authorized, but unissued preferred stock of no designated series, and
shall not be issuable by the Corporation as Series A Preferred Stock.
(b) Upon receipt by the Corporation of (i)evidence of the loss, theft,
destruction or mutilation of any Preferred Stock certificate(s) and (ii) (y) in
the case of loss, theft or destruction, of indemnity (without any bond or other
security) reasonably satisfactory to the Corporation, or (z)
14
in the case of mutilation, upon surrender and cancellation of the Preferred
Stock certificate(s), the Corporation shall execute and deliver new Preferred
Stock certificate(s) of like tenor and date. However, the Corporation shall not
be obligated to reissue such lost or stolen Preferred Stock certificate(s) if
the Holder contemporaneously requests the Corporation to convert such Series A
Preferred Stock.
(f) Upon submission of a Notice of Conversion by a Holder of Series A
Preferred Stock, (i) the shares covered thereby shall be deemed converted into
shares of Common Stock and (ii) the Holder's rights as a Holder of such
converted shares of Series A Preferred Stock shall cease and terminate,
excepting only the right to receive certificates for such shares of Common Stock
and to any remedies provided herein or otherwise available at law or in equity
to such Holder because of a failure by the Corporation to comply with the terms
of this Certificate of Designation. Notwithstanding the foregoing, if a Holder
has not received certificates for all shares of Common Stock prior to the tenth
business day after the expiration of the Delivery Period with respect to a
conversion of Series A Preferred Stock for any reason, then (unless the Holder
otherwise elects to retain its status as a holder of Common Stock by so
notifying the Corporation within five business days after the expiration of such
10 business day period) the Holder shall regain the rights of a Holder of Series
A Preferred Stock with respect to such unconverted shares of Series A Preferred
Stock and the Corporation shall, as soon as practicable, return such unconverted
shares to the Holder. In all cases, the Holder shall retain all of its rights
and remedies for the Corporation's failure to convert Series A Preferred Stock.
(g) The remedies provided in this Certificate of Designations shall be
cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit a
Holder's right to pursue actual damages for any failure by the Corporation to
comply with the terms of this Certificate of Designations. The Corporation
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holders of Series A Preferred Stock and that the remedy
at law for any such breach may be inadequate. The Corporation therefore agrees,
in the event of any such breach or threatened breach, that the Holders of Series
A Preferred Stock shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf
of the Corporation this 12th day of October, 2000.
RETURN ASSURED INCORPORATED
By: /s/ ELI HERTZ
-----------------------
Eli Hertz
President
16
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder
in order to Convert the Series A Preferred Stock)
Except as provided by Article IV of the Series A Preferred Stock Certificate of
Designations, the undersigned hereby irrevocably elects to convert the above
Series A Preferred Stock certificate number(s) _______________ into shares of
Common Stock, $0.001 par value per share (the "Common Stock"), of Return Assured
Incorporated (the "Corporation") according to the conditions hereof, as of the
date written below. If shares are to be issued in the name of a person other
than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Corporation in accordance therewith. A fee of $350
will be charged to the Holder for any conversion by the Escrow Agent. No other
fees will be charged to the Holder, except for such transfer taxes, if any.
Conversion calculations: _____________________________________________________
Date to Effect Conversion
_____________________________________________________
Stated Value of Shares of Series A Preferred Stock to
be Converted
_____________________________________________________
Applicable Conversion Price (Pursuant to Article
4(c)(v))
_____________________________________________________
Number of Shares to be Issued Upon Conversion
_____________________________________________________
Signature
_____________________________________________________
Name
_____________________________________________________
Address