CERTIFICATE OF DESIGNATIONS OF
SERIES A PARTICIPATING CONVERTIBLE PREFERRED STOCK
AND
SERIES B PARTICIPATING CONVERTIBLE PREFERRED STOCK
OF
GRAPHON CORPORATION
Pursuant to Section 151(a) of the General
Corporation Law of the State of Delaware
GraphOn Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify:
FIRST: That pursuant to authority conferred upon the Board of Directors of
the Corporation by the Certificate of Incorporation of the Corporation, and
pursuant to the provisions of Section 151(a) of the General Corporation Law of
the State of Delaware, said Board of Directors adopted the following resolutions
by unanimous written consent dated as of January 25, 2005, which remain in full
force and effect as of the date hereof:
WHEREAS, the Board of Directors of the Corporation is authorized to fix or
alter the dividend rights, dividend rate, conversion rights, voting rights, and
the liquidation preferences of any wholly unissued classes of preferred shares,
and the number of shares constituting any such classes and the designation
thereof or any of them;
WHEREAS, the Board of Directors desires to provide for the issue of two
series (each, a "Series") of preferred shares of the Corporation, designated as
"Series A Participating Convertible Preferred Stock," consisting of 162,963
shares, and "Series B Participating Convertible Preferred Stock," consisting of
81,478 shares, and to fix the rights, preferences, privileges, restrictions and
other matters relating to said two series;
NOW, THEREFORE, BE IT RESOLVED, that the Series A Participating
Convertible Preferred Stock and the Series B Participating Convertible
Preferred Stock of GraphOn Corporation, a Delaware corporation (the
"Corporation"), having the rights, preferences, privileges and
restrictions, and the number of shares constituting each such series and
the designation of each such series, set forth below be, and they hereby
are, authorized by the Board of Directors of the Corporation pursuant to
authority given by the Corporation's Certificate of Incorporation.
1. Number and Designation. The Series A Participating Convertible
Preferred Stock shall consist of 162,963 shares of Preferred Stock of the
Corporation and shall be designated the Series A Participating Convertible
Preferred Stock (the "Series A Stock"). The Series B Participating
Convertible Preferred Stock shall consist of 81,478 shares of Preferred
Stock of the Corporation and shall be designated the Series B
Participating Convertible Preferred Stock (the "Series B Stock"). The
number of authorized shares of either Series may be reduced to the extent
any such shares are not issued and outstanding due to either (i) the
conversion of Series A Stock or Series B Stock to Common Stock pursuant to
the terms of Section 5 below or (ii) the automatic conversion of warrants
to purchase Series B Stock into warrants to purchase the Corporation's
Common Stock, but the number of authorized shares of either Series shall
not be increased except with the approval of the holders of not less than
a majority of the outstanding shares of the Series affected thereby. Any
increase or decrease in the number of authorized shares of either Series
shall be effectuated by further resolution duly adopted by the Board of
Directors of the Corporation and by filing an amendment to this
Certificate of Designations pursuant to the provisions of the General
Corporation Law of the State of Delaware stating that such increase or
reduction has been so authorized. None of the shares of Series A Stock or
Series B Stock has been issued.
2. Dividends.
A. When and as any dividend or distribution is declared or paid
by the Corporation on Common Stock, whether payable in cash, property,
securities or rights to acquire securities, the Series A Holders and the
Series B Holders will be entitled to participate with the holders of
Common Stock in such dividend or distribution as set forth in this Section
2A. At the time such dividend or distribution is payable to the holders of
Common Stock, the Corporation will pay to each Series A Holder and to each
Series B Holder such holder's share of such dividend or distribution equal
to the amount of the dividend or distribution per share of Common Stock
payable at such time multiplied by the aggregate number of shares of
Common Stock then obtainable upon conversion of such holder's Series A
Stock or Series B Stock.
B. In addition to the participation by the holders of Series A
Stock and Series B Stock in the dividends declared and paid upon Common
Stock, the Series A Holders and Series B Holders will be entitled to
receive a cumulative dividend of 10% per annum, with such dividend
accruing beginning on July 1, 2005 and payable on a quarterly basis, if
the Amendment (as hereinafter defined) is not effective prior to such
date, and any dividends not paid on scheduled payment dates pursuant to
this subsection will accrue and compound on a quarterly basis at a rate of
10% per annum.
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3. Voting Rights.
A. Except as otherwise required by law or as set forth herein,
the Series A Holders and Series B Holders shall be entitled to notice of
any shareholders' meeting and to vote as a single class with the Common
Stock upon any matter submitted for approval by the holders of Common
Stock on the following basis: the Series A Holders and Series B Holders
shall have that number of votes equal to the aggregate number of shares of
Common Stock into which their outstanding Series A Stock and outstanding
Series B Stock is then convertible. Notwithstanding the foregoing, the
Series A Holders shall be entitled to ten times the number of votes to
which such Series A Holders are otherwise entitled as set forth in the
previous sentence in voting on whether to approve the Corporation's
proposed amendment of its Certificate of Incorporation to increase the
authorized number of shares of Common Stock to 195,000,000 shares (the
"Amendment").
B. In addition to any other rights provided by law, so long as
any Series A Stock or Series B Stock is outstanding, the Corporation,
without first obtaining the affirmative vote or written consent of the
holders of not less than a majority of the outstanding shares of the
Series thereby affected, voting or consenting separately and exclusively
as a Series, will not:
(i) amend or repeal any provision of, or add any provision
to, the Corporation's Certificate of Incorporation or By-Laws if such
action would alter adversely the liquidation preferences of, or other
priorities, rights or privileges provided for the benefit of, any
Series A Stock or Series B Stock; or
(ii) authorize or issue shares of any class or series of
stock (other than the Series A Stock and Series B Stock) having any
preference or priority as to dividends, voting or liquidation or
other rights superior to any such preference, priority, right or
privilege of the Series A Stock or Series B Stock, or authorize or
issue shares of stock of any class or any bonds, debentures, notes or
other obligations convertible into or exchangeable for, or having
option rights to purchase, any shares of stock of the Corporation
having any preference or priority as to dividends, voting or
liquidation or other rights superior to any such preference,
priority, right or privilege of the Series A Stock or Series B Stock;
or
(iii)reclassify any class or series of stock junior to the
Series A Stock or Series B Stock into stock senior to the Series A
Stock or Series B Stock with respect to any preference, priority,
right or privilege; or
(iv) elect to (w) sell or otherwise dispose of all or
substantially all of the assets of the Corporation, (x) merge or
consolidate the Corporation with or into any other corporation or
other entity in any transaction as a result of which the stockholders
of the Corporation immediately prior to such transaction do not hold
a majority of the combined voting power of the surviving corporation
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or other entity immediately after such transaction, (y) wind up,
dissolve or liquidate the Corporation or (z) revoke any such
election.
4. Preference Upon Liquidation.
A. Upon any liquidation, dissolution or winding up of the
Corporation, each Series A Holder and each Series B Holder will be
entitled to be paid, before any distribution or payment is made upon any
Junior Securities of the Corporation, an amount in cash equal to the
aggregate Liquidation Value (as defined in Section 6C below) of all shares
of Series A Stock and Series B Stock held by such holder, plus accrued
dividends thereon, if any; thereafter, each Series A Holder and Series B
Holder will participate in any distribution or payment on a pro rata basis
with all Junior Securities as if such holder's Series A Stock and Series B
Stock had been converted into Common Stock pursuant to the Conversion
Price.
B. Notwithstanding Section 5D below, the reorganization,
consolidation or the merger of the Corporation into or with any other
corporation(s) or other entity(ies) (other than a transaction as a result
of which the stockholders of the Corporation immediately prior to such
transaction hold a majority of the combined voting power of the surviving
entity immediately after such transaction) (a "Reorganization"), the sale,
lease, licensing, exchange or other transfer by the Corporation of all or
any material part of its assets or the commencement by the Corporation of
a voluntary case under the United States bankruptcy laws or any applicable
bankruptcy, insolvency or similar law of any other country, or consent to
the entry of an order for relief in an involuntary case under any such 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 the making of an assignment for
the benefit of its creditors, or an admission in writing of its inability
to pay its debts generally as they become due (any of such actions or
events, a "Material Event"), will be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this
Section 4. Notwithstanding the foregoing, any Series A Holder or Series B
Holder may elect, in such holder's sole discretion, upon written notice to
the Corporation not less than three (3) days before any such
Reorganization, for such Reorganization of the Corporation not to be
deemed to be a liquidation, dissolution or winding up of the Corporation
within the meaning of this Section 4 with respect to such holder's shares.
5. Conversion into Conversion Stock
A. Conversion.
(i) Mandatory Conversion. All of the outstanding shares of
Series A Stock and Series B Stock will be automatically converted
upon the effectiveness of the Amendment; provided that the
Corporation simultaneously reserves for issuance upon conversion of
the Series A Stock and Series B Stock or exercise of the Exchange
Warrants a number of shares of Common Stock equal to the aggregate
number of shares of Common Stock then issuable (x) upon conversion of
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all the Series A Stock and Series B Stock or (y) upon exercise of the
Exchange Warrants. Written notice of such mandatory conversion shall
be delivered to all holders of Series A Stock and Series B Stock as
soon as reasonably possible following the approval of the Amendment.
(ii) As soon as possible after a conversion has been
effected, the Corporation will deliver to the converting holder:
(a) a certificate or certificates representing the
number of shares of Conversion Stock issuable by reason of such
conversion in such name or names and such denomination or
denominations as the converting holder has specified; and
(b) a certificate representing any shares of Series A
Stock or Series B Stock which were represented by the
certificate or certificates delivered to the Corporation in
connection with such conversion but which were not converted.
(iii)No fractional shares of Conversion Stock shall be
issued upon any conversion. In lieu of any fractional share of
Conversion Stock that would have been issuable upon any conversion,
the Corporation will pay the holder of the Conversion Stock the Fair
Market Value of such fractional share.
(iv) The issuance of certificates for shares of Conversion
Stock upon conversion of Series A Stock or Series B Stock will be
made without charge.
(v) The Corporation will not close its books against the
transfer of Series A Stock, Series B Stock or of Conversion Stock
issued or issuable upon conversion of Series A Stock or Series B
Stock in any manner which interferes with the conversion of Series A
Stock or Series B Stock.
B. Conversion Price. In order to prevent dilution of the
conversion rights granted under this Section, each Conversion Price will
be subject to adjustment from time to time pursuant to this Section 5.
C. Subdivision or Combination of Common Stock; Dissolution.
(i) If the Corporation at any time or from time to time
following the Original Issue Date subdivides (by any
reclassification, stock split, stock dividend or otherwise) its
outstanding shares of Common Stock into a greater number of shares,
the Conversion Price in effect immediately prior to such subdivision
will, concurrently with the effectiveness of such subdivision, be
proportionately reduced, and if the Corporation at any time combines
(by reclassification, reverse stock split or otherwise) its
outstanding shares of Common Stock into a smaller number of shares,
the Conversion Price in effect immediately prior to such combination
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will, concurrently with the effectiveness of such combination, be
proportionately increased. In the event of any such reclassification,
stock split, stock dividend or subdivision, each Series A Holder and
each Series B Holder shall have the right thereafter to convert such
stock into the kind and amount of stock and other securities and
property receivable upon such recapitalization, reclassification or
other change by holders of the maximum number of shares of Common
Stock into which such shares of Series A Stock or Series B Stock
could have been converted immediately prior to such recapitalization,
reclassification, stock split, subdivision or other change, all
subject to further adjustment as provided herein or with respect to
such other securities or property by the terms thereof.
(ii) In the event of a judicial or non-judicial dissolution
of the Corporation, the conversion rights and privileges of the
Series A Holders and Series B Holders shall terminate on a date, as
fixed by the Board of Directors of the Corporation, not more than 30
days and not less than 3 days before the date of such dissolution;
provided that the Series A Holders and Series B Holders receive at
least 45 days prior notice of such dissolution setting forth in
detail the material terms of dissolution.
D. Reorganizations, Mergers or Consolidations. If at any time or
from time to time after the Original Issue Date, there is a capital
reorganization of the Common Stock or the merger or consolidation of the
Corporation with or into another corporation or another entity or person, as a
part of such capital reorganization, merger or consolidation, provision shall be
made so that the holders of the Series A Stock and the holders of Series B Stock
shall thereafter be entitled to receive, upon conversion of the Series A Stock
or Series B Stock, the number of shares of stock or other securities or property
to which a holder of the number of shares of Common Stock deliverable upon
conversion would have been entitled on such capital reorganization, merger or
consolidation, subject to adjustment in respect of such stock or securities by
the terms thereof. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 5 with respect to the rights of
the holders of Series A Stock and the holders of Series B Stock after the
capital reorganization to the end that the provisions of this Section 5
(including adjustment of the Conversion Price then in effect and the number of
shares issuable upon conversion of the Series A Stock or Series B Stock) shall
be applicable after that event and be as nearly equivalent as practicable.
E. Other Adjustments.
(i) General. In any case to which Sections 5C and 5D hereof
are not applicable, except as set forth below, where the Corporation
shall issue or sell shares of its Common Stock after the Original
Issue Date for a consideration per share (after subtracting the Fair
Market Value of any securities or other assets transferred by the
Corporation in units or otherwise together with such Common Stock
("Additional Assets")) less than the Conversion Price in effect at
the time of issuance or sale of such additional shares (the "Issuance
Price"), then the Conversion Price in effect hereunder for such
Series shall simultaneously with such issuance or sale be reduced to
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an amount equal to the Issuance Price. This Section 5E shall not
apply to the issuance of (i) all shares of Common Stock issued or
issuable to employees, directors or consultants pursuant to any
equity compensation plan that is in effect on the date of this
Agreement, (ii) all shares of Common Stock issued or issuable to
employees or directors pursuant to any equity compensation approved
by the Series A Holders, (iii) all shares of Common Stock issued or
issuable to employees, directors or consultants in the form of a
hiring bonus, (iv) the warrants issued to Griffin Securities Inc. on
the Original Issue Date, (iv) all shares of Common Stock issued or
issuable to bona fide leasing companies, strategic partners, or major
lenders, (v) all shares of Common Stock issued or issuable as the
purchase price in a bona fide acquisition or merger (including
reasonable fees paid in connection therewith), or (vi) all shares of
Common Stock issued upon conversion or exercise of Options or other
Convertible Securities outstanding on the date hereof.
(ii) Convertible Securities.
(a) In case the Corporation shall issue or sell any
securities convertible into Common Stock of the Corporation
("Convertible Securities") (including without limitation
Additional Assets) after the Original Issue Date, there shall be
determined the price per share for which Common Stock is
issuable upon the conversion or exchange thereof, such
determination to be made by dividing (1) the total amount
received or receivable by the Corporation as consideration for
the issue or sale of such Convertible Securities, plus the
then-current minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (2) the maximum number of
shares of Common Stock of the Corporation issuable upon the
conversion or exchange of all of such Convertible Securities.
(b) If the price per share so determined shall be less
than the applicable Conversion Price, then such issue or sale
shall be deemed to be an issue or sale for cash (as of the date
of issue or sale of such Convertible Securities) of such maximum
number of shares of Common Stock at the price per share so
determined, provided that, if such Convertible Securities shall
by their terms provide for an increase or increases or decrease
or decreases with the passage of time, in the amount of
additional consideration, if any, to the Corporation, or in the
rate of exchange, upon the conversion or exchange thereof, the
adjusted Conversion Price shall, forthwith upon any such
increase or decrease becoming effective, be readjusted to
reflect the same, and provided further, that upon the expiration
of such rights of conversion or exchange of such Convertible
Securities, if any thereof shall not have been exercised, the
adjusted Conversion Price shall forthwith be readjusted and
thereafter be the price which it would have been had an
adjustment been made on the basis that the only shares of Common
Stock so issued or sold were issued or sold upon the conversion
or exchange of such Convertible Securities, and that they were
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issued or sold for the consideration actually received by the
Corporation upon such conversion or exchange, plus the
consideration, if any, actually received by the Corporation for
the issue or sale of all of such Convertible Securities which
shall have been converted or exchanged.
(iii)Rights and Options.
(a) In case the Corporation shall grant any rights,
warrants or options to subscribe for, purchase or otherwise
acquire Common Stock (collectively, "Options") after the
Original Issue Date, there shall be determined the price per
share for which Common Stock is issuable upon the exercise of
such Options, such determination to be made by dividing (1) the
total amount, if any, received or receivable by the Corporation
as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to
the Corporation upon the exercise of such Options, by (2) the
maximum number of shares of Common Stock of the Corporation
issuable upon the exercise of such Options.
(b) If the price per share so determined shall be less
than the applicable Conversion Price, then the granting of such
Options shall be deemed to be an issue or sale for cash (as of
the date of the granting of such Options) of such maximum number
of shares of Common Stock at the price per share so determined,
provided that, if such Options shall by their terms provide for
an increase or increases or decrease or decreases, with the
passage of time, in the amount of additional consideration
payable to the Corporation upon the exercise thereof, the
adjusted Conversion Price shall, forthwith upon any such
increase or decrease becoming effective, be readjusted to
reflect the same, and provided, further, that upon the
expiration of such Options, if any thereof shall not have been
exercised, the adjusted Conversion Price shall forthwith be
readjusted and thereafter be the price which it would have been
had an adjustment been made on the basis that the only shares of
Common Stock so issued or sold were those issued or sold upon
the exercise of such Options and that they were issued or sold
for the consideration actually received by the Corporation
received by the Corporation for the granting of all such
Options, whether or not exercised.
F. Certain Events. If any event occurs of the type contemplated
by the provisions of this Section 5 but not expressly provided for by such
provisions, then the Board of Directors of the Corporation will make an
adjustment in the Conversion Price so as to protect fully and completely
the rights of the Series A Holders or Series B Holders, as appropriate.
G. Notices.
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(i) Immediately upon any adjustment of the Conversion Price
with respect to the Series A Stock or the Series B Stock, the
Corporation will send written notice thereof to all holders of the
Series thereby affected.
(ii) The Corporation will send written notice to all Series
A Holders or Series B Holders, as appropriate, at least 20 days prior
to the date on which the Corporation (a) closes its books or takes a
record (1) with respect to any dividend or distribution upon Common
Stock, (2) with respect to any pro rata subscription offer to holders
of Common Stock, or (3) for determining rights to vote on or approve
any matter, (b) proposes to take any action on which the Series A
Holders or Series B Holders are entitled to vote pursuant to Section
3 or (c) enters into, agrees to enter into or is subject to a
Material Event as described in Section 4B.
(iii)All notices and other communications from the
Corporation to a Series A Holder or Series B Holder shall include all
material information concerning any action, proposed action or other
matter referred to in the notice or communication and shall be mailed
by first class registered or certified mail, postage prepaid, at such
address as may have been furnished to the Corporation in writing by
such holder, or, until an address is so furnished, to and at the
address of the last holder who has so furnished an address to the
Corporation.
H. Converted Shares. Any shares of Series A Stock or Series B
stock which are converted pursuant to this Section 5 will be canceled and
will not be reissued, sold or transferred.
6. Miscellaneous.
A. Registration of Transfer. The Corporation will keep at its
principal office a register for the registration of Series A Stock and
Series B Stock. Upon the surrender of any certificate representing Series
A Stock or Series B Stock at such place, the Corporation will, at the
request of the record holder of such certificate, execute and deliver (at
the Corporation's expense) a new certificate or certificates in exchange
therefor representing in the aggregate the number of shares represented by
the surrendered certificate. Each such new certificate will be registered
in such name and will represent such number of shares as is requested by
the holder of the surrendered certificate and will be substantially
identical in form to the surrendered certificate.
B. Replacement. Upon receipt of evidence reasonably satisfactory
to the Corporation (an affidavit of the registered holder will be
satisfactory) of the ownership and the loss, theft, destruction or
mutilation of any certificate evidencing one or more shares of Series A
Stock or Series B Stock, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation, the Corporation will (at its expense) execute and deliver in
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lieu of such certificate a new certificate representing the number of
shares represented by such lost, stolen, destroyed or mutilated
certificate.
C. Definitions. For purposes hereof:
"Additional Assets" has the meaning set forth in Section 5E(i).
"Amendment" shall have the meaning set forth in Section 3A.
"Common Stock" means the Common Stock of the Corporation, $.0001
par value per share, and includes all stock of any class or classes
(however designated) of the Corporation, authorized upon the Original
Issue Date or thereafter, the holders of which shall have the right,
without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment
of dividends and distributions on any shares entitled to preference, and
the holders of which shall ordinarily, in the absence of contingencies, be
entitled to vote for the election of a majority of directors of the
Corporation (even though the right so to vote has been suspended by the
happening of such a contingency).
"Conversion Price" shall mean the Series A Conversion Price or
Series B Conversion Price, as applicable.
"Conversion Stock" shall have the meanings set forth in Section
5A(i), respectively.
"Convertible Securities" shall have the meaning set forth in
Section 5E(ii)(a).
"Corporation" means GraphOn Corporation, a Delaware
corporation.
"Determination Date" means any particular date chosen for the
determination of the Fair Market Value of a share of Common Stock
Additional of Asset.
"Exchange Warrants" means warrants to purchase Common Stock
issued in exchange for Series B Warrants.
"Fair Market Value" of a share of Common Stock or Additional
Asset as of a Determination Date shall mean: (i), in the case of Common
Stock:
(a) if the Corporation's Common Stock is traded on an exchange or is
quoted on the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") National Market System or the NASDAQ
SmallCap Market, then the closing or last sale price, respectively,
reported for the last business day immediately preceding the
Determination Date;
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(b) if the Common Stock is not traded on an exchange or on the NASDAQ
National Market System or the NASDAQ SmallCap Market but is traded in
the over-the-counter market, then the mean of the closing bid and
asked prices reported for the last business day immediately preceding
the Determination Date;
(c) except as provided in clause (d) below, if the Common Stock is not
publicly traded, then as the holder and the Corporation agree or in
the absence of agreement by arbitration in accordance with the rules
then standing of the American Arbitration Association, before a single
arbitrator to be chosen by the Corporation (and reasonably acceptable
to the majority in interest of the Series A Holders and Series B
Holders) from a panel of persons qualified by education and training
to pass on the matter to be decided; and
(d) if the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a
liquidation, dissolution or winding up pursuant to the
Corporation's charter, then all amounts to be payable per
share to holders of the Common Stock pursuant to the
charter in the event of such liquidation, dissolution or
winding up, plus all other amounts to be payable per share
in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that
all of the shares of Common Stock then issuable upon
conversion of the Series B Stock issuable upon exercise of
the Warrant are outstanding at the Determination Date;
and (ii), in the case of Additional Assets, the fair market value of such
Additional Assets as reasonably determined by the Board of Directors of
the Corporation, without, in the case of securities, any discount for
minority ownership.
"Issuance Price" shall have the meaning set forth in Section 5E.
"Junior Securities" means the Common Stock and any equity
securities of any kind (but not including any debt securities convertible
into equity securities) which the Corporation or any Subsidiary at any
time issues or is authorized to issue other than the Series A Stock and
the Series B Stock, unless the terms of such security explicitly state
that such security shall be senior to or on a par with the Series A Stock
or Series B Stock, as the case may be.
"Liquidation Value" means, with respect to any share of Series A
Stock as of any particular date, $27.00 plus all accrued dividends, and,
with respect to any share of Series B Stock as of any particular date,
$40.00 plus all accrued dividends, subject, in each case, to adjustment
for any and all recapitalizations, reclassifications, stock splits,
reverse stock splits, stock dividends, subdivisions, combinations or
similar events.
"Material Event" shall have the meaning set forth in Section 4B.
"Options" shall have the meaning set forth in Section
5E(iii)(a).
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"Original Issue Date" means January 31, 2005 for both the Series
A Stock and Series B Stock.
"Person" and "person" means an individual, a partnership, a
corporation, a limited liability company, a trust, a joint venture, an
unincorporated organization and a government or any department or agency
thereof.
"Reorganization" shall have the meaning set forth in Section 4B.
"Series A Conversion Price" shall mean $.27, as adjusted from
time to time.
"Series A Holder" shall mean a registered holder of Series A
Stock.
"Series A Stock" shall have the meaning set forth in Section 1.
"Series B Conversion Price" shall mean $.40, as adjusted from
time to time.
"Series B Holder" shall mean a registered holder of Series B
Stock or Series B Warrants.
"Series B Stock" shall have the meaning set forth in Section 1.
"Series B Warrant" means warrants to purchase Series B Stock.
"Subsidiary" means any corporation of which the shares of stock
having a majority of the general voting power in electing the board of
directors are, at the time as of which any determination is being made,
owned by the Corporation either directly or indirectly through
Subsidiaries.
D. Amendment and Waiver. No amendment, modification or waiver
will be binding or effective with respect to any provision hereof
affecting the rights of the holders of any Series without the prior
approval of a majority of the outstanding shares of such Series; provided
that notwithstanding Section 3B above no such action will change or affect
in any way adverse to the interests of the Series A Holders or Series B
Holders (a) the Conversion Price of the Series A Stock or Series B Stock
or the number of shares or the class of stock into which such Series are
convertible, (b) the Liquidation Value of the Series A Stock or Series B
Stock, or (c) the amount of cash, securities or other property receivable
or to be received by the Series A Holders or Series B Holders.
E. Generally Accepted Accounting Principles. When any accounting
determination or calculation is required to be made, such determination or
calculation (unless otherwise provided) will be made in accordance with
generally accepted accounting principles, consistently applied, except
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that if because of a change in generally accepted accounting principles
the Corporation would have to alter a previously utilized accounting
method or policy in order to remain in compliance with generally accepted
accounting principles, such determination or calculation will continue to
be made in accordance with the Corporation's previous accounting methods
and policies unless the Corporation has obtained the prior written consent
of the holders of a majority of each of the Series A Stock and Series B
Stock then outstanding.
F. Consideration Other Than Cash. In any case where the
consideration received by this Corporation is other than cash, its value
will be deemed its fair market value as determined in good faith by the
Board of Directors. Any securities shall be valued as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability covered by (ii) below: (a) if
the principal trading market for such securities is an exchange, the
average of the high reported sale prices per share of such securities for
the last five previous trading days in which a sale was reported, as
officially reported on any consolidated tape, (b) if the principal market
for the Common Stock is the over-the-counter market, the average of the
high reported sale prices per share on such trading days as set forth by
such market or, (c) if such securities are not quoted by such
over-the-counter market, the average of the average of the mean of the bid
and asking prices per share on such trading days as set forth in the
National Quotation Bureau sheet listing such securities for such days.
Notwithstanding the foregoing, if there is no reported high sale price, as
the case may be, reported on any of the ten trading days preceding the
event requiring a determination of fair market value hereunder, then the
fair market value shall be the average of the high bid and asked prices
for such days; and if there is no reported high bid and asked prices, as
the case may be, reported on any of the ten trading days preceding the
event requiring a determination of fair market value hereunder, then the
fair market value shall be determined in good faith by resolution of the
Board of Directors of the Corporation, based on the best information
available to it; provided that in the event of a dispute of the Board of
Director's determination, the fair market value shall be determined by
arbitration in accordance with the rules then standing of the American
Arbitration Association, before a single arbitrator to be chosen by the
Corporation from a panel of persons qualified by education and training to
pass on the matter to be decided.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an
affiliate or former affiliate) shall be to make an appropriate discount
from the market value determined as above in clauses (i) (a), (b) or (c)
to reflect the approximate fair market value thereof, as determined in
good faith by the Board of Directors of the Corporation.
SECOND: That said determination of the designation and the relative
powers, preferences, rights, qualifications, limitations and restrictions
thereof, relating to the Series A Participating Convertible Preferred Stock and
Series B Participating Convertible Preferred Stock, was duly made by the Board
of Directors of the Corporation pursuant to the provisions of the Certificate of
13
Incorporation, in accordance with the provisions of Section 151(a) of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by William Swain, its Chief Financial Officer and Secretary, as of this
25th day of January, 2005.
GRAPHON CORPORATION.
By:/S/ William Swain
---------------------
Name: William Swain
Title: Chief Financial Officer and Secretary