EXHIBIT 3.1
KIDEO PRODUCTIONS, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE PARTICIPATING, OPTIONAL
AND OTHER SPECIAL RIGHTS OF PREFERRED
STOCK AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
KIDEO PRODUCTIONS, INC. (the "Corporation"), a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"DGCL"), hereby certifies that, pursuant to the authority contained in Article
IV of its Certificate of Incorporation, and in accordance with the provisions of
Section 151 of the General Corporation Law of the State of Delaware, its Board
of Directors, by unanimous written consent dated May 9, 1997, adopted the
following resolution, which resolution remains in full force and effect as of
the date hereof:
WHEREAS, The Board of Directors of the Corporation is authorized,
within the limitations and restrictions stated in the Certificate of
Incorporation, to fix by resolution or resolutions the designation of each
series of Preferred Stock, par value $.0001 per share (the "Preferred Stock"),
and the powers, preferences and relative participating, optional or other
special rights and qualifications, limitations or restrictions thereof; and
WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to its authority as aforesaid, to authorize and fix the terms of a
series of Preferred Stock and the number of shares constituting such series:
ACCORDINGLY, IT IS HEREBY RESOLVED, that a series of Preferred Stock is
authorized on the terms and with the provisions herein set forth:
CERTIFICATE OF DESIGNATIONS OF
SERIES A 6% CONVERTIBLE PARTICIPATING PREFERRED STOCK
SECTION 1. General
1(a) Designation and Amount. There is hereby constituted a series of
shares of Preferred Stock designated as the Series A 6% Convertible
Participating Preferred Stock (the "Series A Preferred Stock"). The number of
shares constituting such series shall be four thousand (4,000). Each share of
this series shall be identical in all respects with each other share of this
series.
1(b) Ranking. The shares of Series A Preferred Stock shall rank senior
to all Junior Securities as to the payment of dividends and distributions of
whatever kind, including (but not limited to) distributions payable upon the
dissolution, liquidation or winding up of the Corporation. The shares of Series
A Preferred Stock shall rank pari passu with all Parity Securities as to the
payment of all such dividends and distributions. The Series A Preferred Stock
shall be subject to the creation of Parity Securities (with or without Ordinary
Voting Power or special voting rights) and Junior Securities, but any such
creation shall in turn be subject to the provisions of this Certificate of
Designations.
1(c) Payments on Fractional Shares. Each outstanding fractional share
of Series A Preferred Stock shall be entitled to a ratably proportionate amount
of any dividend declared or paid or any distribution or liquidation payment
made, pursuant to the provisions of Section 2 or 3 below, in respect of each
outstanding full share of Series A Preferred Stock, and each such dividend or
liquidation payment shall be payable in the same manner and at the same time as
provided for in such provisions with respect to dividends or liquidation
payments (as the case may be) on each outstanding full share of Series A
Preferred Stock.
1(d) Replacement of Certificates. Upon the Corporation's receipt, from
the Holder of any certificate evidencing shares of Series A Preferred Stock, of
evidence reasonably satisfactory to the Corporation (an affidavit of such holder
will be satisfactory) of the ownership and the loss, theft, destruction or
mutilation of such certificate, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation, and in the case of any such mutilation, upon surrender of such
certificate, the Corporation (at its expense) shall execute and (in accordance
with Section 10 below) deliver to such Holder, in lieu of such certificate, a
new certificate which will represent the number of shares represented by, be
dated the date of, be issued in the name of the Holder of, and be substantially
identical in form to, such lost, stolen, destroyed or mutilated certificate.
1(e) Payment of Taxes. The Corporation shall pay all taxes (other than
taxes based upon income) and other governmental charges that may be imposed in
connection with the issuance or delivery of any shares of Common Stock (or other
of the Corporation's Equity Securities) which results from (i) the conversion of
shares of Series A Preferred Stock pursuant to this Certificate of Designations
or (ii) the application of Section 2(a)(iv) below. Notwithstanding the
foregoing, if the Corporation, pursuant to a notice from a Holder of any shares
of Series A Preferred Stock, effects the issuance or delivery of any shares of
Common Stock (or other of the Corporation's Equity Securities) in any name(s)
other than such Holder's name, then such Holder shall deliver to the Corporation
with the aforesaid notice (A) all transfer taxes and
other governmental charges payable upon the issuance or delivery of securities
in such other name(s) or (B) evidence satisfactory to the Corporation that such
taxes and charges have been or shall be paid in full.
1(f) Definitions. Certain capitalized terms used in this Certificate of
Designation shall have the definitions given below. Each definition shall be
equally applicable to the singular and plural forms of the defined term.
"Accountant" means, at any relevant time, the independent public
accountants then engaged by the Corporation for the purpose of auditing its
books.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Cash Payment" means any cash dividend, cash distribution or other
payment (whether by purchase, redemption, retirement or otherwise) made in cash
on account of the Common Stock, except for purchases of Common Stock made by the
Corporation pursuant to the exercise any of "right of first refusal", "right of
first offer", "matching right" or similar right granted to it in writing by any
stockholder of the Corporation.
"Closing Price" on any date per share (or other single unit) of a
particular security means:
(1) the last sale price of such security or, in case no such
sale takes place on such date, the closing bid price of such security; in either
case as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the principal national
securities exchange on which such security is listed or admitted to trading; or
(2) if such security is not listed or admitted to trading on
any national securities exchange, the last quoted sale price thereof; or, if not
so quoted, the closing bid price in the over-the-counter market, as reported by
Nasdaq (or such other system then in use by the National Association of
Securities Dealers, Inc.); or if, on any such date, such security is not quoted
by any such organization, the closing bid price as furnished by a professional
market maker, selected in good faith by the Board of Directors, then making a
market in such security; or
(3) if such security is not publicly held or listed or traded
as aforesaid, the Fair Market Value per share (or other single unit) thereof.
"Common Stock" means the common stock, par value $.0001 per share, of
the Corporation.
"Conversion Price" on any date means eighty percent (80%) of the
Closing Price of a share of Common Stock on the three (3) Trading Days
immediately preceding such date.
"Conversion Shares" means any shares of Common Stock issued as
contemplated under Section 2(a)(iv) or 5 below, together with all shares of
Common Stock, and all other Equity Securities of the Corporation, issued either
(i) as a dividend or distribution on such shares or (ii) in connection with the
original issuance of such shares.
"Conversion Date" means the date as of which a conversion of any
share(s) of Series A Preferred Stock shall be deemed effective pursuant to the
provisions of Section 5 below.
"Current Market Price" per share of Common Stock on any date shall be
deemed to be the Closing Price per share thereof on the Trading Day immediately
prior to such date.
"Date of Issuance" means, in respect of any share of Series A Preferred
Stock, the date on which the Corporation initially issues such share, regardless
of the number of times transfer of such share is made on the stock transfer
books maintained by or for the Corporation, and regardless of the number of
certificates which may be issued to evidence such share.
"Effective Date" means the date as of which the Securities and Exchange
Commission has issued a declaration or order of effectiveness relating to a
registration statement filed, in compliance with the Securities Act and Rule 415
thereunder, with respect to the shares of Common Stock issuable pursuant to
Section 5 below.
"Equity Security" means any stock, ownership interest or similar
security, including (but not limited to): (i) a security containing equity or
profit participation features; (ii) a security convertible or exchangeable (with
or without consideration) into or for any stock, ownership interest or similar
security or any security referenced in clause (i) immediately above; (iii) a
security carrying any warrant, option or other right to subscribe to or purchase
any stock, ownership interest or similar security or any security referenced in
clause (i) immediately above; or (d) any such warrant, option or right.
"Excluded Merger" means a merger or consolidation: (i) to which the
Corporation is a party; (ii) in which it is the surviving corporation and there
is no resulting reclassification of the outstanding Common Stock; and (iii)
after giving effect to which, Persons who were, immediately before the
consummation or closing of such merger or consolidation, holders of outstanding
Common Stock will be the direct or indirect owners of Equity Securities
possessing, on a fully diluted basis, at least seventy-five percent
(75%) of the voting power of all Equity Securities of the Corporation having
Ordinary Voting Power (excluding, for purposes of such computation, any such
Person who also is a party to such merger or consolidation).
"Fair Market Value" means the amount, as determined in good faith by
the Board of Directors, which a willing buyer would pay a willing seller in an
arm's-length transaction, neither being under any compulsion to purchase or
sell. Although the Board of Directors alone shall make any determination of Fair
Market Value, it shall consult in advance with the Accountant in connection with
each such determination.
"Fiscal Year" means the fiscal year of the Corporation as in effect
from time to time (which, as of the date hereof, ends on July 31st).
"Fundamental Change" means: (i) any sale, lease, exchange or other
transfer of all or substantially all of the assets of the Corporation; or (ii)
any merger or consolidation to which the Corporation is a party, other than an
Excluded Merger.
"Holder" of any Series A Preferred Stock means a holder of record as
shown on the books of the Corporation or its appropriate transfer agent.
"Junior Securities" means any of the Corporation's common equity
securities (including the Common Stock) and any other securities of the
Corporation which are expressly made to rank junior to the Series A Preferred
Stock as to dividends or distributions made upon dissolution, liquidation and
winding up of the Corporation.
"Liquidating Dividend" means, in respect of any class or series of
capital stock of the Corporation, a dividend payable upon such class or series,
in any form other than cash (e.g., securities of the Corporation), out of
earnings or earned surplus (determined in accordance with generally accepted
accounting principles, consistently applied), excluding a stock dividend payable
solely in shares of such class or series.
"Liquidation Value" of a share of Series A Preferred Stock means, at
any time in respect of which it is to be computed hereunder, the amount of one
thousand dollars ($1,000.00) plus any accrued Preferred Dividends and any
accrued Participating Dividends which remain unpaid as of such time in respect
of such share. In the event of (x) any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation or (y) a redemption of shares of
Series A Preferred Stock occurring as contemplated in Section 4 below, unpaid
dividends on such shares shall be: (i) added to the Liquidation Value on (as the
case may be) (A) the payment date in any liquidation, dissolution or winding up
or (B)
the applicable redemption date; and (ii) accrued in each case up to the close of
business on such applicable date.
"Majority Holders" on any relevant date means the Persons who are then
the Holders of at least fifty percent (50%) of the then outstanding shares of
Series A Preferred Stock.
"Ordinary Voting Power" means, with respect to the Equity Securities of
any corporation or other entity, the right to vote generally at all times in
respect of the election of such entity's board of directors or comparable
governing body (as distinguished from special voting rights that may become
exercisable in connection with such an election only if there has first occurred
one or more specified events, conditions or circumstances).
"Original Issuance Date" means the first date as of which any shares of
Series A Preferred Stock are issued by the Corporation.
"Person" means any individual, joint venture, corporation, firm,
partnership, limited liability company, limited liability partnership, trust,
unincorporated organization or other entity, or a government or agency or
political subdivision thereof, and shall include any successor (by merger or
otherwise) of any of the foregoing.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar successor statute, together with the rules and regulations promulgated
thereunder.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business; or, if the Common Stock is not listed or admitted
to trading on any national securities exchange but is listed on the Nasdaq
system (or such other trading system then in use by the National Association of
Securities Dealers, Inc.), a day on which such system is open for the
transaction of business; or, if the foregoing does not apply, any Business Day.
SECTION 2. Dividends and Distributions
2(a) Preferred Dividend - Cash and/or In-Kind. When and as declared by
the Board of Directors and to the extent permitted by the DGCL, the Corporation
shall pay preferential dividends to the holders of the Series A Preferred Stock
as provided in this Section 2(a).
(i) Except as otherwise provided herein, dividends on each
share of Series A Preferred Stock shall accrue, cumulatively on a daily basis,
at the rate of six percent (6.0%) per annum of the Liquidation Value thereof in
effect at the commencement of the Fiscal Year in question, from and including
the Date of Issuance of
such share to and including the date on which the Liquidation Value of such
share is paid or such share is redeemed or converted in accordance with the
provisions hereof (the "Preferred Dividend"). Such dividend will accrue whether
or not it has been declared and whether or not there are profits, surplus or
other funds of the Corporation legally available for its payment.
(ii) Commencing on July 31, 1998, the Preferred Dividend shall
be payable in cash (subject to paragraph (iv) immediately below) semi-annually,
for the actual number of days elapsed, on each July 31 and January 31, to the
Persons who were the holders of record of shares of Series A Preferred Stock as
of the tenth (10th) Business Day preceding the applicable dividend payment date.
(iii) Accrued but unpaid Preferred Dividends shall not bear
interest. Preferred Dividends paid in cash in an amount less than the total
amount of such dividends at the time accrued and payable shall be allocated on a
share-by-share basis among all shares of Series A Preferred Stock at the time
outstanding.
(iv) Notwithstanding anything to the contrary in this
Certificate of Designations, the Board of Directors shall have the option to
cause the Corporation to pay all or any portion of the Preferred Dividends in
the form of validly issued, fully paid and nonassessable shares of Common Stock,
in accordance with the succeeding provisions of this paragraph (iv). The dollar
amount of any Preferred Dividends in respect of which the Board elects such
option is herein called the "PIK Amount". The number of shares of Common Stock
to be issued on and as of a Preferred Dividends payment date in payment of the
PIK Amount shall be the number determined by dividing (A) the PIK Amount by (B)
the Conversion Price in effect on the applicable record date determined under
Section 2(a)(ii) above. The shares of Common Stock so issued (including
fractional shares thereof resulting from the application of this sentence) shall
be allocated on a share-by-share basis among all shares of Series A Preferred
Stock outstanding as of such record date. Within five (5) Business Days after
the aforesaid Preferred Dividends payment date, the Corporation shall deliver,
to each Holder of Series A Preferred Stock as of the aforesaid record date, a
certificate, dated such payment date, representing the number of shares of
Common Stock (including fractional shares) to which such Holder is entitled
under this paragraph (iv).
2(b) Common Stock Participating Dividend. If during any Fiscal Year the
Corporation makes any Cash Payment on account of the Common Stock, then the
following provisions shall apply:
(i) If the amount of all Cash Payments made during any
calendar year on account of a share of Common Stock outstanding throughout such
Fiscal Year exceeds the Preferred Dividends accrued (whether or not paid) during
such year in respect of a share of Series A Preferred Stock outstanding
throughout such year, then
each holder of such a share of Series A Preferred Stock shall be entitled to
receive, in addition to such Preferred Dividends, a dividend per such share
equal to the amount of such excess (the "Participating Dividend").
(ii) Commencing on July 31, 1998, the Participating Dividend
shall be payable annually on each July 31 to the Persons who were the holders of
record of shares of Series A Preferred Stock as of the tenth (10th) Business Day
preceding such date.
(iii) If (A) the Corporation at any time declares, makes, or
sets apart any monies for the making of, any Cash Payment and (B) the making
thereof would entitle the holders of Series A Preferred Stock to a Participating
Dividend under subparagraph (i) immediately above, then the Corporation shall
not declare, make or set apart any monies for the making of such Cash Payment
unless, prior to or concurrently with such declaration, payment or setting
apart, the Corporation provides for the payment of such Participating Dividend
to such holders by (x) depositing funds sufficient therefor in escrow with a
commercial bank located in New York City and (y) irrevocably directing such bank
to make payment thereof in accordance with subparagraph (ii) immediately above.
Interest (if any) earned on Participating Dividends so deposited shall be
retained by the Corporation.
(iv) Each share of Series A Preferred Stock outstanding for
only a portion of a Fiscal Year shall be entitled to a ratably proportionate
amount of any Participating Dividend paid pursuant to the foregoing provisions
of this Section 2(b), in respect of each share of Series A Preferred Stock
outstanding throughout such year, and each such dividend shall be payable in the
same manner and at the same time as provided for in such provisions with respect
to shares of Series A Preferred Stock outstanding throughout such year.
(v) If for any reason a Participating Dividend (or any portion
thereof) shall not be paid with respect to a share of Series A Preferred Stock
on the applicable July 31 or thereafter, then the amount not paid shall be added
to such share's Liquidation Value.
2(c) Dividends on Parity and Junior Securities. Subject to the
foregoing provisions of this Section 2, the Board of Directors may declare and
the Corporation may pay or set apart for payment, or cause the accrual of,
dividends and other distributions on any of the Parity Securities or Junior
Securities, and may purchase or otherwise redeem any of the same (or any
warrants, rights, options or other securities exercisable therefor or
convertible or exchangeable thereinto), and the holders of Series A Preferred
Stock shall not be entitled to share therein. Nothing contained in this Section
2 shall be construed to require the Board of Directors to declare, or the
Corporation to pay or set apart for payment, any
dividends or other distributions on any of the Parity Securities or Junior
Securities.
2(d) Dividends on Transferred Shares. If any shares of Series A
Preferred Stock shall be transferred and the Corporation shall (i) cancel the
certificate(s) representing such transferred shares and (ii) issue and deliver
to the transferee of such shares a new certificate or certificates representing
such shares, then dividends will accrue on the Series A Preferred Stock
represented by such new certificate(s) from the date to which dividends have
been fully paid on the shares represented by such cancelled certificate(s).
2(e) Dividends on Replaced Certificates. If any certificate
representing shares of Series A Preferred Stock shall, pursuant to Section 1(d)
above, be replaced by any new certificate(s) representing such shares, then
dividends will accrue on the Series A Preferred Stock represented by such new
certificate(s) from the date to which dividends have been fully paid on the
shares represented by the replaced certificate.
SECTION 3. Liquidation
3(a) Right to Receive Liquidation Value. The Corporation will mail
written notice of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, not less than sixty (60) days prior to the
payment date stated therein, to each Holder of Series A Preferred Stock. Upon
any such liquidation, dissolution or winding up, the holders of the then
outstanding shares of Series A Preferred Stock will be entitled to be paid out
of the assets of the Corporation available for distribution to its stockholders,
before any distribution or payment is made upon any Junior Securities, an amount
in cash equal to the aggregate Liquidation Value of all such shares, and the
holders of the Series A Preferred Stock will not be entitled to any further
payment.
3(b) Insufficient Assets. If upon any such liquidation, dissolution or
winding up, the Corporation's assets are not sufficient to pay in full the
liquidation payments payable to holders of Series A Preferred Stock and holders
of Parity Securities, then the entire assets to be distributed will be
distributed ratably among such holders based upon the aggregate Liquidation
Value of the Series A Preferred Stock and the Parity Securities held by each
such holder.
3(c) Events Not Deemed a Liquidation. Neither the merger or
consolidation of the Corporation into or with any other corporation(s), nor the
sale or transfer by the Corporation of all or any part of its assets, nor the
reduction of the capital stock of the Corporation, will be deemed to be a
liquidation, dissolution or winding up of the Corporation under this Section 3.
SECTION 4. Redemption and Repurchase Rights.
4(a) No Mandatory Redemption Hereunder. Except pursuant to a written
agreement expressly providing therefor which has been executed between the
Corporation and the Majority Holders of the Series A Preferred Stock, the
Corporation shall have no right to redeem, and holders of shares of Series A
Preferred Stock shall have no right to cause the Corporation to redeem, any or
all of the outstanding shares of Series A Preferred Stock. If any such agreement
has been so executed, however, then it shall be binding upon all holders of
shares of Series A Preferred Stock.
SECTION 5. Conversion Rights and Events
5(a) General. Each share of Series A Preferred Stock that is converted
into Common Stock pursuant to the succeeding provisions of this Section 5 shall
be converted in accordance with Section 6 below.
5(b) Mandatory Conversion - Fundamental Change. (i) If any Fundamental
Change shall occur, then each share of Series A Preferred Stock outstanding as
of the date of the consummation or closing thereof shall be (and be deemed to
have been) converted automatically, without any further action by the holders
thereof, into shares of Common Stock effective as of the close of business on
the date immediately preceding such consummation or closing date. Such
conversion shall be deemed to have occurred whether or not the certificates
representing such shares are surrendered to the Corporation or its transfer
agent.
(ii) The Corporation shall give notice of a proposed or
anticipated Fundamental Change (a "Notice of Fundamental Change") to all Persons
who are the holders of record of the Series A Preferred Stock as of the fifth
(5th) Business Day preceding the date of such notice. A Notice of Fundamental
Change shall be given not later than ten (10) Business Days before the expected
closing or consummation of such Fundamental Change. The Corporation also shall
give prompt notice of the closing or consummation of such Fundamental Change to
all Persons who are the holders of record of the Series A Preferred Stock as of
the date of such closing or consummation. Each holder of Series A Preferred
Stock shall thereupon promptly surrender for conversion, to the Corporation at
its principal office or to any transfer agent for the Series A Preferred Stock
or the Common Stock, all certificates representing all shares of Series A
Preferred Stock held by such holder, accompanied by a written notice specifying
the name or names in which such holder wishes the certificate(s) for shares of
Common Stock to be issued.
5(c) Conversion at Option of Holders. (i) Each share of Series A
Preferred Stock shall be convertible, at the option of the Holder thereof, into
shares of Common Stock at any time(s) after
the close of business on first to occur of these dates: (A) the sixtieth (60th)
day after the Original Issuance Date; and (B) the Effective Date.
(ii) Such Holder may exercise such right by surrendering for
conversion, to the Corporation at its principal office or to any transfer agent
for the Series A Preferred Stock or the Common Stock, a certificate or
certificates representing the shares of Series A Preferred Stock to be
converted, accompanied by a notice (a "Notice of Optional Conversion ")
specifying (A) whether such Holder elects to convert all or a specified whole
number of such shares and (B) the name or names in which such Holder wishes the
certificate or certificates for shares of Common Stock to be issued. Such
conversion shall be deemed to have been made effective as of the close of
business on the date of giving of such Notice of Optional Conversion.
Notwithstanding Section 10 below, a Holder shall have the option of giving his
Notice of Optional Conversion by facsimile transmission made on any Business Day
to the Company (Attention: Chief Financial Officer) at (212) 505-2142 (or any
other number that is then a facsimile number at the Company's principal office),
provided that he surrenders the aforesaid certificate(s) within three (3)
Business Days thereafter.
5(d) Conversion at Option of Corporation. (i) All of the shares of
Series A Preferred Stock shall be convertible, at the option of the Corporation,
into shares of Common Stock at any time after the close of business on the one
(1) year anniversary of the Effective Date.
(ii) The Corporation shall give notice of its exercise of such
conversion option (the "Notice of Mandatory Conversion") to all Persons who are
Holders of Series A Preferred Stock as of the fifth (5th) Business Day preceding
the date (the "Mandatory Conversion Date") as of the Corporation has elected to
make such conversion effective. The Corporation also shall give a copy of the
Notice of Mandatory Conversion to all Persons who are Holders of Series A
Preferred Stock as of the Mandatory Conversion Date. Each Holder of Series A
Preferred Stock as of the Mandatory Conversion Date shall, promptly after such
date, surrender for conversion, to the Corporation at its principal office or to
any transfer agent for the Series A Preferred Stock or the Common Stock, all
certificates representing all shares of Series A Preferred Stock held by such
Holder, accompanied by a written notice specifying the name or names in which
such Holder wishes the certificate(s) for shares of Common Stock to be issued.
(iii) Effective as of the close of business on the Mandatory
Conversion Date, each share of Series A Preferred Stock then outstanding shall
be (and be deemed to have been) converted automatically, without any further
action by the Holders thereof, into shares of Common Stock. Such conversion
shall be deemed to have occurred whether or not the certificates representing
such
shares are surrendered to the Corporation or its transfer agent.
SECTION 6. Conversion Ratio, Adjustments and Procedures
6(a) Conversion Ratio. Subject to the adjustment provisions hereinafter
set forth, each share of Series A Preferred Stock shall be converted on its
Conversion Date into the number of validly issued, fully paid and nonassessable
share of Common Stock determined by dividing (i) the Liquidation Value as of
such date by (ii) the Conversion Price.
6(b) Adjustments. The number of shares of Common Stock into which each
share of Series A Preferred Stock is convertible shall be subject to adjustment
from time to time in accordance with the succeeding provisions of this Section
6(b).
(i) Adjustment for Certain Dividends and Distributions of
Stock. If the Corporation shall pay a dividend in shares of Common Stock or make
a distribution in shares of Common Stock, then upon such dividend or
distribution the Conversion Price in effect immediately prior thereto shall
forthwith be reduced to a price determined by dividing:
(A) an amount equal to the total number of shares of
Common Stock outstanding immediately prior to such dividend or
distribution multiplied by the Conversion Price in effect immediately
prior to such dividend or distribution, by
(B) the total number of shares of Common Stock
outstanding immediately after such dividend or distribution.
For the purposes of any computation to be made in accordance with the provisions
of this Section 6(b)(i), the following shall be applicable: Common Stock
issuable by way of dividend or other distribution on any capital stock of the
Corporation shall be deemed to have been issued immediately after the opening of
business on the date following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution.
(ii) Adjustment for Stock Splits and Combinations. If the
Corporation shall subdivide or combine the outstanding Common Stock, then the
Conversion Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination to the nearest one cent. Any
such adjustment shall become effective at the time such subdivision or
combination shall become effective.
(iii) Other Provisions Relating to Stock Splits and
Combinations. In the event that the number of outstanding shares of Common Stock
is increased by a stock dividend payable in Common Stock or by a subdivision of
the outstanding Common Stock, then,
from and after the time at which the adjusted Conversion Price becomes effective
pursuant to this Section 6(b) by reason of such dividend or subdivision, the
number of shares of Common Stock issuable pursuant to this Certificate of
Designations shall be increased in proportion to such increase in outstanding
shares. In the event that the number of shares of Common Stock outstanding is
decreased by a combination of the outstanding Common Stock, then, from and after
the time at which the adjusted Conversion Price becomes effective pursuant to
this Section 6(b) by reason of such combination, the number of shares of Common
Stock issuable pursuant to this Certificate of Designations shall be decreased
in proportion to such decrease in the outstanding shares of Common Stock.
(iv) Reorganizations and Fundamental Changes.
(A) In case of any reorganization or reclassification of
the outstanding Common Stock (other than a change in par value, or from
par value to no par value, or as a result of a subdivision or
combination), or in case of any Fundamental Change, a Holder of Series
A Preferred Stock shall thereafter have the right to purchase the kind
and amount of shares of Common Stock and other securities and property
receivable upon such reorganization, reclassification or Fundamental
Change by a holder of the number of shares of Common Stock which the
Holder shall then be entitled to acquire under this Certificate of
Designations.
(B) If, as a result of an adjustment made pursuant to
paragraph (A) immediately above, a Holder of Series A Preferred Stock
shall become entitled to purchase any securities other than shares of
Common Stock, then thereafter the number of such securities so
purchasable upon exercise hereof, and the Conversion Price for such
securities, shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in Sections
6(b)(i) through 6(b)(iii) above.
(v) Liquidating Dividends. Subject to the provisions of this
Section 6(b), if the Corporation at any time declares or pays a Liquidating
Dividend upon the Common Stock, then the Corporation shall simultaneously pay to
the Holders of the Series A Preferred Stock the Liquidating Dividends which
would have been paid on their Common Stock had the Series A Preferred Stock been
converted immediately prior to (A) the date on which a record is taken for such
Liquidating Dividend or (B) if no record is taken, the date as of which the
record holders of Common Stock entitled to such dividends are to be determined.
(vi) Subscriptions for Additional Stock. If the Corporation
shall offer to the holders of its Common Stock any
rights to subscribe for additional shares of any class or series of capital
stock of the Corporation, then the Corporation shall (A) give written notice
thereof to all Holders of Series A Preferred Stock and (B) afford such Holders
the right to participate in such offer of subscription upon the same terms and
conditions as are applicable to the holders of its Common Stock. Such notice
shall (x) be given not less than thirty (30) days prior to the record date fixed
for the determination of the stockholders entitled to such subscription rights
and (y) specify such record date.
(vii) Miscellaneous Adjustment Provisions. Any adjustment
pursuant to the aforesaid provisions of this Section 6(b) shall be made on the
basis of the number of shares of Common Stock which a Holder of Series A
Preferred Stock would have been entitled to acquire had all of such Holder's
shares of Series A Preferred Stock been converted in Common Stock immediately
prior to the event giving rise to such adjustment.
6(c) De Minimis Adjustments. All calculations of shares of Common Stock
(and/or other securities issuable upon conversion) under this Section 6 shall be
made to the nearest one-tenth (1/10) of a share. If any adjustment required
under this Section 6 would result an increase or decrease, in the number of
shares of Common Stock (and/or other securities issuable upon conversion) into
which each share of Series A Preferred Stock is then convertible, of less than
one-tenth (1/10) of a share of Common Stock (and/or any such other security),
then (i) the amount of such adjustment shall be carried forward and (ii)
adjustment with respect thereto shall be made at the time of (and together with)
any subsequent adjustment which, together with such amount and any other amount
or amounts so carried forward, shall aggregate at least one-tenth (1/10) of a
share of Common Stock (and/or such other security).
6(d) No Fractional Shares. In connection with the conversion of any
shares of Series A Preferred Stock, no fractions of shares of Common Stock shall
be issued, but in lieu thereof the Corporation shall pay a cash adjustment in
respect of such fractional interest in an amount equal to the product of (i)
such fractional interest times (ii) the Current Market Price per share of Common
Stock as of the Conversion Date of such shares of Series A Preferred Stock.
6(e) Notice of Adjustment. Whenever any adjustment is required to be
made pursuant to this Section 6, the Corporation shall promptly give notice to
the Holders of the Series A Preferred Stock setting forth with reasonable
specificity: (i) a brief statement of the facts requiring such adjustment; (ii)
when such adjustment became effective; (iii) all elements of the computation of
such adjustment; and (iv) the facts resulting from such adjustment. Each such
notice shall be accompanied by a certificate, prepared at the Corporation's
expense by the Accountant and signed thereby, which shall verify the matters
referenced in clauses (iii) and (iv) above. Such a notice accompanied by such a
signed certificate shall be conclusive and binding evidence of the correctness
of any adjustment made under this Section 6.
6(f) Procedure for Conversion. Upon receipt by the Corporation or the
appropriate transfer agent of any certificate representing shares of Series A
Preferred Stock which are being converted pursuant to Section 5 above, the
Corporation shall issue and (in accordance with Section 10 below) deliver to the
Holder of such certificate (i) a certificate or certificates for the number of
shares of Common Stock into which the shares of Series A Preferred Stock
represented by such surrendered certificate were convertible as of the
Conversion Date of such shares and (ii) (if applicable) a new certificate
representing the number of shares of Series A Preferred Stock which are not
being so converted, subject to the following provisions:
(i) The Corporation shall make such delivery within five (5)
Business Days after receipt of such surrendered certificate.
(ii) If such Holder shall, at the time of surrendering such
certificate, give notice that any of the shares of Common Stock (and/or other
securities) issuable upon conversion are to be issued in any name(s) other than
such Holder's name, then such holder shall have complied with Section 1(d)
above.
6(g) Dividends and Rights Upon Conversion. As of the Conversion Date of
any shares of Series A Preferred Stock, the person entitled to receive the
shares of Common Stock (and/or other securities) into which such shares are
convertible shall be treated for all purposes as having become the record holder
of such shares of Common Stock (and/or other securities). From and after such
Conversion Date, (i) dividends on such shares of Series A Preferred Stock shall
cease to accrue and (ii) all rights of the holders thereof, in the capacity as
holders of Series A Preferred Stock, shall cease (except the rights to receive
from the Corporation any accrued and unpaid dividends and the shares of Common
Stock (and/or other securities) into which such shares were convertible). Upon
the conversion of any shares of Series A Preferred Stock, the holder thereof
shall be entitled to receive in cash any dividends accrued and unpaid in respect
of such shares (whether or not declared) to and including the Conversion Date
thereof, subject to the following provisions:
(i) If the funds of the Corporation legally available for
payment of dividends are insufficient to pay all such unpaid dividends, then
such funds will be used to pay the maximum possible amount of such unpaid
dividends. At any time thereafter when additional funds of the Corporation are
legally available for payment of dividends, such funds will immediately be used
to pay the balance of such unpaid dividends.
(ii) If pursuant to subparagraph (i) immediately above the
Corporation delays payment of dividends on converted shares of Series A
Preferred Stock, then the Corporation shall, if the Person who was the Holder of
such shares as of the Conversion Date thereof shall so request, deliver evidence
reasonably satisfactory to such holder of the Corporation's obligation to pay
such unpaid dividends.
(iii) Any Holder of shares of Series A Preferred Stock
converted pursuant to Section 5 above may, in lieu of accepting cash for accrued
and unpaid dividends on such shares, demand by notice that the Corporation pay
all or any portion of such dividends in shares of Common Stock. The Corporation
shall thereupon promptly issue and (in accordance with Section 10 below) deliver
to such Holder a certificate or certificates for the number of shares of Common
Stock determined by dividing (A) the amount of such accrued and unpaid dividends
which such Holder desires to so convert by (B) the Current Market Price per
share of Common Stock as of the Conversion Date of the aforesaid shares of
Series A Preferred Stock.
6(h) Reservation of Shares of Common Stock. The Corporation shall at
all times reserve and keep available out of its authorized and unissued Common
Stock, solely for the purpose of effecting the conversion of the Series A
Preferred Stock, such number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all then outstanding shares of
Series A Preferred Stock. The Corporation shall from time to time, subject to
and in accordance with the laws of the State of Delaware, increase the
authorized amount of Common Stock if at any time the number of authorized shares
of Common Stock remaining unissued shall not be sufficient to permit the
conversion at such time of all then outstanding shares of Series A Preferred
Stock.
SECTION 7. Status of Redeemed or Converted Shares. Shares of Series A
Preferred Stock which are redeemed, converted or otherwise acquired by the
Corporation in any manner (including by purchase or exchange) shall be cancelled
and upon cancellation (i) shall no longer be deemed to be outstanding, (ii)
shall become authorized but unissued shares of Preferred Stock undesignated as
to series and (iii) may be reissued as part of another series of Preferred
Stock.
SECTION 8. Parity on Redemption or Conversion. If and so long as the
Corporation shall not fully discharge in a timely manner its obligations to pay
all accrued and unpaid dividends on converted shares of Series A Preferred Stock
as provided in Section 6(g) above, then the Corporation shall not directly or
indirectly purchase, redeem or discharge any mandatory redemption, sinking fund
or other similar obligation in respect of any of the Parity Securities or any
warrants, rights, options or other securities exercisable therefor or
convertible or exchangeable thereinto;
except in connection with a redemption, sinking fund or other similar obligation
to be satisfied pro rata with the Series A Preferred Stock.
SECTION 9. Voting Rights
9(a) General Voting Rights. Except as set forth in Section 9(b) below
and as otherwise required by law, shares of Series A Preferred Stock shall have
no voting rights.
9(b) Matters Requiring Majority Vote. So long as any shares of Series A
Preferred Stock are outstanding, without the prior affirmative vote or written
consent of the Majority Holders of the Series A Preferred Stock, the Corporation
shall not take or agree to take any of the following actions:
(i) authorize, create or issue, or increase the authorized or
issued amount of, any class or series of any other Equity Security (including
any Preferred Stock) which would rank senior to the Series A Preferred Stock as
to the payment of dividends or distributions of any kind; or
(ii) amend, alter, modify, repeal or waive in any manner: (A)
any term or condition set forth in this Certificate of Designations; or (B) any
provision of the Certificate of Incorporation so as to adversely affect any
right, preference or privilege of the Series A Preferred Stock.
SECTION 10. Notices. Except as otherwise expressly provided herein, all
notices and other communications referenced or provided for in this Certificate
of Designations shall be: (i) in writing; (ii) delivered by (A) registered or
certified mail, return receipt requested, postage prepaid, (B) FedEx, Airborne
Express, UPS, DHL or a similar next-business-day delivery service or (C)
personal courier (with receipt of delivery appropriately acknowledged); (iii)
deemed to have been given on the first (1st) Business Day following the date of
any such delivery; (iv) sent to the Corporation at its principal executive
offices; and (v) sent to any Holder of Series A Preferred Stock at its address
as it appears in the stock records of the Corporation.
[END OF BOARD RESOLUTION]
IN WITNESS WHEREOF, this Certificate of Designations has been signed,
and the statements made herein affirmed as true under the penalties of perjury,
this 9th day of May 1997.
/s/ Richard L. Bulman
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Richard L. Bulman
Chairman and President