Exhibit 3.1
Certificate Of Designation Of Vertical Computers, Inc. Series "C" 4% Cumulative
Convertible Preferred Stock
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CERTIFICATE OF DESIGNATION OF
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VERTICAL COMPUTER SYSTEMS, INC.
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware, the undersigned duly authorized officers of Vertical Computer Systems,
Inc. (the "Corporation"), a corporation organized and existing under the General
Corporation Law of the State of Delaware, DO HEREBY CERTIFY:
FIRST: That, pursuant to authority expressly vested in the Board of
Directors of said corporation by the provisions of its Certificate of
Incorporation as amended, said Board of Directors duly adopted the following
resolution:
RESOLVED: that the Board of Directors, pursuant to authority expressly
vested in it by the provisions of the Certificate of lncorporation of the
Corporation, hereby authorizes the issue from time to time of a series of
Preferred Stock of the Corporation and hereby fixes the designation, preferences
and relative, participating, optional or other rights, and the qualifications,
limitations or restrictions of the series thereof, in addition to those set
forth in said Certificate of lncorporation, to be in their entirety as follows:
SERIES "C" 4% CUMULATIVE CONVERTIBLE PREFERRED STOCK
Section I. Designation and Number. The series of Preferred Stock shall be
designated and known as "Series "C" 4% Cumulative Convertible Preferred Stock."
The number of shares constituting Series "C" 4% Cumulative Convertible Preferred
Stock (hereinafter referred to as the "Series "C" Preferred Stock") shall be Two
Hundred Thousand (200,000). For purposes of this Section, all equity securities
of the corporation ranking as to dividends or distributions of assets on
liquidation, dissolution or winding up of the corporation, junior to the Series
"C" Preferred Stock, including the Common Stock, are sometimes hereinafter
referred to as "Junior Securities."
Section 2. Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
corporation, the holders of each share of the Series "C" Preferred Stock shall
be entitled to receive, prior to and in preference to any distribution of any of
the assets or surplus funds of the corporation to the holders of Junior
Securities, by reason of their ownership thereof, an amount equal to One Hundred
Dollars ($100.00) per share (the "Liquidation Value") plus any accrued but
unpaid dividends on the Series "C" Preferred Stock.
All of the preferential amounts to be paid to the holders of the Series
"C" Preferred Stock under this Section 2 shall be paid or set apart for payment
before the payment or setting apart for payment of any amount for, or the
distribution of any assets of the corporation to, the holders of Junior
Securities, in connection with such liquidation, dissolution or winding up.
After the payment or the setting apart for payment to the holders of the Series
"C" Preferred Stock of the preferential amounts so payable to them, the holders
of Junior Securities shall be entitled to receive all remaining assets of the
corporation in accordance with the Certificate of Incorporation
of the corporation. If the assets or surplus funds to be distributed to the
holders of the Series "C" Preferred Stock are insufficient to permit the payment
to such holders of their full preferential amount, the assets and surplus funds
legally available for distribution shall be distributed ratably among the
holders of the Series "C" Preferred Stock in proportion to the full preferential
amount each such holder is otherwise entitled to receive.
Section 3. Voting Rights. Except as otherwise provided herein or by law,
the holders of Series "C" Preferred Stock shall not be entitled to notice of any
stockholder's meeting and shall not be entitled to vote, together with the
holders of all other voting capital stock of the Company, including the holders
of Common Stock, upon any matter submitted to the stockholders for a vote..
Section 4. Dividend Rights. The holders of the Series "C" Preferred Stock
shall be entitled to receive, when and as declared by the Board of Directors out
of the funds of the corporation legally available therefore, cumulative cash
dividends at the annual rate of four percent (4%) of the Liquidation Value,
payable quarterly on the first day of April, July, October and January in each
year beginning July 1, 2001. The initial dividend paid after the date of
original issuance of any shares of the Series "C" Preferred Stock shall accrue
from such date of issuance on a pro rata basis. Dividends payable for any period
less than a full quarter shall be computed on the basis of a 360-day year with
12 equal months of 30 days. Dividends shall be payable to holders of record, as
they appear on the stock books of the Corporation on such record dates as may be
declared by the Board of Directors, not more than sixty (60) days nor less than
ten (10) days preceding the payment dates of such dividends. If the dividend on
the Series "C" Preferred Stock is not paid in full, the aggregate deficiency
shall be cumulative and shall be fully paid or set apart for payment before any
dividends shall be paid or set apart for, or any other distributions paid, or
any payments made on account of the purchase, redemption or retirement of,
Junior Securities other than, in the case of dividends or distributions,
dividends or distributions paid in Junior Securities. No full dividends shall be
declared by the Board of Directors or paid or set apart for payment by the
corporation on any Junior Securities for any period unless full cumulative
dividends have been or contemporaneously are declared and paid or declared and a
sum set apart sufficient for such payment on the Series "C" Preferred Stock for
all dividend payment periods terminating on or prior to the date of payment of
such full dividends on the Series "C" Preferred Stock shall not bear interest.
Notwithstanding, any dividends payable pursuant to this Section 4 may, at
the election of the Board of Directors, be paid, all or in part, in shares of
the Corporation's Common Stock. Each such share of Common Stock shall be valued
at the closing sale price on the record date of the Corporation's Common Stock
on any exchange or over the counter market on which the Common Stock trades. If
the Common Stock is not listed on any exchange or there is no market for the
Common Stock, then the value set by the Board of Directors shall be
determinative.
Section 5. Covenants. So long as fifty percent (50%) of the shares of the
Series "C" Preferred Stock authorized hereby shall be outstanding (as adjusted
for all subdivision and combinations, the corporation shall not, without first
obtaining the affirmative vote or written consent of not less than fifty-one
percent (51%) of such outstanding shares of the Series "C" Preferred Stock:
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(a) amend or repeal any provision of, or add any provision to, the
corporation's Certificate of Incorporation or Bylaws if such action would alter
or change the preferences, rights, privileges or powers of, or the restrictions
provided for the benefit of the Series "C" Preferred Stock; provided that, the
authorization of Junior Securities shall not be deemed to alter or change the
preferences, rights, privileges or powers of, or the restriction provided for
the benefit of the Series "C" Preferred Stock;
(b) reclassify any Common Stock into shares having any preference or
priority of the Series "C" Preferred Stock;
(c) pay or declare any cash dividend on any Junior Securities or
apply any of its assets to the redemption, retirement, purchase or other
acquisition directly or indirectly, through subsidiaries or otherwise, of any
Junior Securities or any rights, options, warrants to purchase, or securities
convertible into, Junior Securities except for the acquisition of shares of
Common Stock or options to purchase shares of Common Stock from officers or
employees of, or consultants to, the corporation in accordance with any stock
option or other agreement entered into by the corporation;
(d) create or issue any securities of the corporation which have
equity features and which rank senior to the Series "C" Preferred Stock upon
payment of dividends or upon liquidation or other distribution of assets;
(e) increase the authorized number of shares of the Series "C"
Preferred Stock;
Section 6. Conversion into Common Stock. The holder of any shares of
Series "C" Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(a) Right to Convert. Ninety (90) days after issuance, each share of
Series "C" Preferred Stock shall be convertible, without the payment of
any additional consideration by the holder thereof and at the option of
the holder thereof, into four hundred (400) fully paid and nonassessable
shares of common stock of the Company, subject to adjustment as outlined
below.
Each share of Series "C" Preferred Stock is convertible into four hundred
(400) shares of the Company's common stock. In the event the Company
shall, at any time prior to the expiration date of this conversion and
prior to the exercise thereof: (i) declare or pay to the holders of the
common stock a dividend payable in any kind of shares of stock of the
Company; or (ii) change or divide or otherwise reclassify its common stock
into the same or a different number of shares with or without par value,
or into shares of any class or classes; or (iii) consolidate or merge
with, or transfer its property as an entirety or substantially as an
entirety to, any other corporation; then, upon subsequent exercise of this
conversion, the holder thereof shall receive, in addition to or in
substitution for the shares of common stock to which he would otherwise be
entitled upon such exercise, such additional shares of stock of the
Company, or such reclassified shares of stock of the Company, or such
shares of the securities or property of the Company resulting from
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such consolidation or merger or transfer, which he would have been
entitled to receive had he exercised this conversion prior to the
happening of any of the foregoing events.
(b) Mechanics of Conversion. Holders of Series "C" Preferred Stock may
exercise their conversion rights at any time ninety (90) days after
issuance. Before any holder of Series "C" Preferred Stock shall be
entitled to convert the same into full shares of common stock, he shall
surrender the certificate or certificates therefore, duly endorsed, at the
office of the corporation or of any transfer agent for the Series "C"
Preferred Stock, and shall give written notice to the corporation at such
office that he elects to convert the same and shall state therein his name
or the name or names of his nominees in which he wishes the certificate or
certificates for shares of common stock to be issued.
(c) The corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series "C" Preferred Stock, or to
his nominee or nominees, a certificate or certificates for the number of
shares of common stock to which he shall be entitled as aforesaid,
together with cash in payment of any accrued unpaid dividends on the
shares of Series "C" Preferred Stock converted through the date of
conversion, and a certificate or certificates for such Series "C"
Preferred Stock as were represented by the certificates surrendered and
not converted. Such conversion shall be deemed to have been immediately
prior to the close of business on the date of such surrender of the shares
of Common Stock issuable upon conversion shall be treated for all purposes
as the record holder or holders of such shares of Common stock on such
date.
(d) No Impairment. The corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by
the corporation but will at all times in good faith assist in the carrying
out of all the provisions of this Section 6 and in the taking of all such
action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series "C" Preferred Stock against
impairment.
(e) Notices of Record Date. In the event of any taking by the corporation
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend
(other than a cash dividend which is the same as cash dividends paid in
previous quarters) or other distribution, the corporation shall mail to
each holder of Series "C" Preferred Stock at least ten (10) days prior to
the date specified herein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend or distribution.
(f) Common Stock Reserved. The corporation shall reserve and keep
available out of its authorized but unissued Common Stock such number of
shares of Common Stock as shall from time to time be sufficient to effect
conversion of the Series "C" Preferred Stock.
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IN WITNESS WHEREOF, the officers named below acting for and on behalf of
the corporation, have subscribed their names to this Certificate of Designation
this 13th day of August, 2001.
VERTICAL COMPUTER SYSTEMS, INC.
a Delaware Corporation
By: ________________________________________
Richard Wade, President
By: ________________________________________
William Mills, Secretary
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