ROCKY MOUNTAIN INTERNET, INC.
CERTIFICATE OF DESIGNATIONS OF
SERIES B CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151 of the General Corporation
Law of the State of Delaware)
Rocky Mountain Internet, Inc., a Delaware corporation (the "Corporation"),
in accordance with the provisions of Section 103 of the General Corporation Law
of the State of Delaware (the "DGCL") DOES HEREBY CERTIFY:
That pursuant to authority vested in the Board of Directors of the
Corporation by the Certificate of Incorporation, as amended, of the Corporation,
the Board of Directors of the Corporation, by unanimous written consent dated
December 8, 1998, adopted a resolution providing for the creation of a series of
the Corporation's Preferred Stock, $.001 par value, which resolution is as
follows:
RESOLVED, that pursuant to authority vested in the Board of Directors by
the Certificate of Incorporation of the Corporation, as amended, the Board of
Directors does hereby provide for and create from the 750,000 shares of
preferred stock, $.001 par value, of the Corporation (the "Preferred Stock")
authorized to be issued pursuant to the Certificate of Incorporation, as
amended, a series of Preferred Stock to consist of 9,600 shares, to be
designated as "Series B Convertible Preferred Stock", and to the extent that the
voting powers and the designations, preferences and relative, participating,
optional or other special rights thereof and the qualifications, limitations or
restrictions of such rights have not been set forth in the Certificate of
Incorporation of the Corporation, as amended, does hereby fix the same as
follows:
SERIES B CONVERTIBLE PREFERRED STOCK
SECTION 1. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
"Affiliate" means, with respect to any person, any other person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with the subject person; for purposes
of this definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such person,
whether through the ownership of voting securities or by contract or otherwise.
"Aggregated Person" means, with respect to any person, any person whose
beneficial ownership of shares of Common Stock would be aggregated with the
beneficial ownership of shares of Common Stock by such person for purposes of
Section 13(d) of the Exchange Act, and Regulation 13D-G thereunder.
"Amendment Event" means an Optional Redemption Event described in clause
(4) of the definition of Optional Redemption Event which arises under the terms
of any amendment of any of the following: this Certificate of Designations, the
Subscription Agreements, the Registration Rights Agreements, the Warrants, or
any other agreements or documents entered into in connection with the issuance
of shares of Series B Convertible Preferred Stock.
"AMEX" means the American Stock Exchange, Inc.
"Auditors" means Ernst & Young LLP or such other firm of independent public
accountants of recognized national standing as shall have been engaged by the
Corporation to audit its financial statements.
"Auditors' Determination" means a determination requested by the
Corporation and signed by the Auditors concurring with the Company's conclusion
that a requirement of the Corporation to redeem, or a right of any holder of
shares of Series B Convertible Preferred Stock to require redemption of, shares
of Series B Convertible Preferred Stock by reason of the occurrence of (i) a
specified Inconvertibility Day or (ii) a specified Optional Redemption Event
which occurs by reason of (x) an event described in clause (1), (2) or (5) of
the definition of Optional Redemption Event or (y) an Amendment Event, whichever
is applicable, would result in the Corporation being required to classify the
Series B Convertible Preferred Stock as redeemable preferred stock on a balance
sheet of the Corporation in accordance with Generally Accepted Accounting
Principles and Regulation S-X of the SEC. The Auditors' Determination shall (i)
set forth in reasonable detail all relevant facts considered by the Auditors in
connection therewith, (ii) set forth all applicable accounting principles and
assumptions used, and (iii) set forth in reasonable detail or attach copies of
all legal, expert and other advice or information used by the Auditors in
reaching their conclusion. To the extent any facts are assumed for purposes of
either the Company's conclusion or the Auditor's Determination, the validity of
such conclusion or determination shall depend upon such assumed facts being true
and complete in all material respects.
"Average Market Price" for any date means the arithmetic average of the
Market Price on each of the three Trading Days, whether or not consecutive,
during the applicable Measurement Period having the lowest Market Prices.
"Blackout Period" means any period of one or more consecutive Trading Days,
but not in excess of ten Trading Days, occurring after the SEC Effective Date as
to which the
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Corporation has notified the holders of shares of Series B Convertible Preferred
Stock on or prior to such Trading Day in accordance with Section 3(f) of the
Registration Rights Agreements that they are required, pursuant to Section 3(f)
of the Registration Rights Agreements, to suspend offers and sales of shares of
Common Stock pursuant to the Registration Statement as a result of an event or
circumstance which relates to a development concerning the business of the
Corporation which development occurred subsequent to the later of (x) the SEC
Effective Date and (y) the latest date prior to such notice on which the
Corporation has amended or supplemented the Registration Statement and as to
which the Board of Directors shall have determined in good faith that public
disclosure of such event or circumstance at such time would not be in the best
interests of the Company, which determination shall be set forth in a resolution
duly adopted by the Board of Directors and copies of which shall be furnished to
the holders of shares of Series B Convertible Preferred Stock; PROVIDED,
HOWEVER, that no more than one Blackout Period may commence in any period of 365
consecutive days.
"Board of Directors" or "Board" means the Board of Directors of the
Corporation.
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks in The City of New York are authorized or required by law
to remain closed.
"Ceiling Price" means
(1) $12.195, unless clause (2) of this definition is applicable, or
(2) if the Market Price of the Common Stock on the Trading Day prior
to the Conversion Date for which the Ceiling Price for a particular conversion
is being determined is greater than $20.00, the Ceiling Price for such
conversion shall equal the sum of (a) the amount set forth in clause (1) of this
definition plus (b) one-half of the amount by which such Market Price of the
Common Stock on the Trading Day prior to such Conversion Date exceeds $20.00
(all dollar amounts referred to in clauses (1) and (2) of this definition are
subject to equitable adjustments from time to time on terms reasonably
acceptable to the Majority Holders for stock splits, stock dividends,
combinations, recapitalizations, reclassifications and similar events occurring
or with respect to which "ex-" trading commences on or after the date of filing
of this Certificate of Designations with the Secretary of State of the State of
Delaware);
PROVIDED, HOWEVER, that, notwithstanding any other provision hereof, the Ceiling
Price applicable to a particular conversion shall be subject to reduction as
provided in Section 10(b)(6); PROVIDED, FURTHER, HOWEVER, that if a Registration
Event occurs, then, in addition to any other right or remedy of any holder of
shares of Series B Convertible Preferred Stock, thereafter the Ceiling Price
shall be permanently reduced on each Computation Date by an amount equal to two
percent of the amount that the Ceiling Price otherwise would
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have been without any reduction pursuant to this proviso (pro rated in the case
of any Computation Date which is less than 30 days after a Registration Event
occurs or less than 30 days after another Computation Date); and PROVIDED,
FURTHER, HOWEVER, that if the Registration Event referred to in the immediately
preceding proviso occurs by reason of the occurrence of an event described in
clause (4) of the definition of Registration Event, such reduction in the
Ceiling Price required by the immediately preceding proviso shall be effective
only for a period of 180 days after such Registration Event ceases to continue.
"Common Stock" means the Common Stock, $.001 par value, of the Corporation.
"Computation Date" means, if a Registration Event occurs, any of (1) the
date which is 30 days after such Registration Event occurs, if any Registration
Event is continuing on such date, (2) each date which is 30 days after a
Computation Date, if any Registration Event is continuing on such date, and (3)
the date on which all Registration Events cease to continue.
"Control Notice" means a notice given by the Corporation to the holders of
shares of the Series B Convertible Preferred Stock, in accordance with Section
7(a)(6) or Section 11(b)(4), (i) stating that an Inconvertibility Day or an
Optional Redemption Event, as the case may be, has occurred by reason of events
which are not solely within the control of the Corporation and (ii) enclosing an
executed copy of an Auditors' Determination.
"Conversion Agent" means American Securities Transfer & Trust, Inc., or its
duly appointed successor, as conversion agent for the Series B Convertible
Preferred Stock pursuant to the Transfer Agent Agreement.
"Conversion Amount" initially shall be equal to $1,000.00, subject to
adjustment as provided in Section 10(b)(8).
"Conversion Date" means, with respect to each conversion of shares of
Series B Convertible Preferred Stock pursuant to Section 10, the date on which
the Conversion Notice relating to such conversion is actually received by the
Conversion Agent, whether by mail, courier, personal service, telephone line
facsimile transmission or other means.
"Conversion Notice" means a written notice in the form specified in the
Subscription Agreements, duly signed by or on behalf of a holder of shares of
Series B Convertible Preferred Stock, stating the number of shares of Series B
Convertible Preferred Stock to be converted.
"Conversion Percentage" means the applicable percentage determined with
respect to each Conversion Date as follows:
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CONVERSION DATE CONVERSION PERCENTAGE
- --------------- ---------------------
Issuance Date through 180th day thereafter 120%
181st through 365th day after Issuance Date 94%
On or after 366th day after Issuance Date 92%;
PROVIDED, HOWEVER, that, notwithstanding any other provision hereof, if a
Registration Event occurs, then each percentage stated above shall be
permanently reduced by two percentage points on each Computation Date (pro rated
in the case of any Computation Date which is less than 30 days after a
Registration Event occurs or less than 30 days after another Computation Date);
PROVIDED, FURTHER, HOWEVER, that if the Registration Event referred to in the
preceding proviso occurs by reason of the occurrence of an event described in
clause (4) of the definition of Registration Event, such reduction in each
percentage stated above shall be effective only for a period of 180 days after
such Registration Event ceases to continue.
"Conversion Price" means for any date the lesser of:
(1) the product of (a) the Average Market Price for such date TIMES
(b) the applicable Conversion Percentage; and
(2) the Ceiling Price;
PROVIDED, HOWEVER, that the Conversion Price applicable to a particular
conversion shall be subject to reduction as provided in Section 10(b)(6).
"Conversion Rate" shall have the meaning provided in Section 10(a).
"Converted Market Price" means, for any share of Series B Convertible
Preferred Stock as of any date of determination, an amount equal to the product
obtained by multiplying (x) the number of shares of Common Stock which would, at
the time of such determination, be issuable on conversion in accordance with
Section 10(a) of one share of Series B Convertible Preferred Stock and any
accrued and unpaid dividends thereon and any accrued and unpaid interest on
dividends thereon in arrears if a Conversion Notice were given by the holder of
such share of Series B Convertible Preferred Stock on the date of such
determination (determined without regard to any limitation on conversion based
on beneficial ownership contained in Section 10(a) or in the Subscription
Agreements) TIMES (y) the arithmetic average of the Market Price of the Common
Stock for the five consecutive Trading Days ending on the Trading Day prior to
the date of such determination.
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"Corporation Optional Redemption Notice" means a notice given by the
Corporation to the holders of shares of Series B Convertible Preferred Stock
pursuant to Section 9(a) which notice shall state (1) that the Corporation is
exercising its right to redeem all or a portion of the outstanding shares of
Series B Convertible Preferred Stock pursuant to Section 9(a), (2) the number of
shares of Series B Convertible Preferred Stock held by such holder which are to
be redeemed, (3) the Redemption Price per share of Series B Convertible
Preferred Stock to be redeemed or the formula for determining the same,
determined in accordance herewith, and (4) the applicable Redemption Date.
"Current Price" means with respect to any date the arithmetic average of
the Market Price of the Common Stock on the 30 consecutive Trading Days
commencing 45 Trading Days before such date.
"Dividend Shares" means shares of Series B Convertible Preferred Stock
issued as dividends on outstanding shares of Series B Convertible Preferred
Stock in accordance with Section 5(b).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Final Redemption Date" means the date of redemption of shares of Series B
Convertible Preferred Stock pursuant to Section 9(b), determined in accordance
therewith.
"Final Redemption Notice" means a notice given by the Corporation to each
holder of Series B Convertible Preferred Stock pursuant to Section 9(b), which
notice shall state (1) that the Corporation is exercising its right to redeem
all outstanding shares of Series B Convertible Preferred Stock pursuant to
Section 9(b), (2) the number of shares of Series B Convertible Preferred Stock
held by such holder which are to be redeemed, (3) the Final Redemption Price per
share of Series B Convertible Preferred Stock held by such holder which are to
be redeemed, determined in accordance herewith, and (4) the Final Redemption
Date.
"Final Redemption Price" means, for any share of Series B Convertible
Preferred Stock on any date, an amount equal to the sum of (i) $1,000 PLUS (ii)
an amount equal to the accrued but unpaid dividends on the share of Series B
Convertible Preferred Stock to be redeemed to the Final Redemption Date, PLUS
(iii) an amount equal to the accrued and unpaid interest on dividends in arrears
on such share of Series B Convertible Preferred Stock to the Final Redemption
Date (determined as provided in Section 5).
"Generally Accepted Accounting Principles" for any person means the
generally accepted accounting principles and practices applied by such person
from time to time in the preparation of its audited financial statements.
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"Inconvertibility Day" means any Trading Day on which the Corporation would
not have been required to convert in accordance with Section 10(a) any shares of
Series B Convertible Preferred Stock as a consequence of the limitations set
forth in Section 7(a)(1) had all outstanding shares of Series B Convertible
Preferred Stock held by such holder on such Trading Day been converted into
Common Stock on such Trading Day (without regard to the limitation, if any, on
beneficial ownership by such holder contained in Section 10(a) or in the
Subscription Agreements).
"Inconvertibility Notice" shall have the meaning provided in Section
7(a)(2).
"Issuance Date" means the first date of original issuance of any shares of
Series B Convertible Preferred Stock.
"Junior Dividend Stock" means, collectively, the Common Stock and any other
class or series of capital stock of the Corporation ranking junior as to
dividends to the Series B Convertible Preferred Stock.
"Junior Liquidation Stock" means the Common Stock or any other class or
series of the Corporation's capital stock ranking junior as to liquidation
rights to the Series B Convertible Preferred Stock.
"Junior Stock" shall have the meaning provided in Section 10(b)(8).
"Liquidation Preference" means, for each share of Series B Convertible
Preferred Stock, the sum of (i) all dividends accrued and unpaid thereon to the
date of final distribution to such holders, (ii) accrued and unpaid interest on
dividends in arrears (computed in accordance with Section 5(a)) to the date of
such distribution, and (iii) $1,000.00.
"Majority Holders" means at any time the holders of shares of Series B
Convertible Preferred Stock which shares constitute a majority of the
outstanding shares of Series B Convertible Preferred Stock.
"Market Price" of the Common Stock on any date means the closing bid price
for one share of Common Stock on such date on the first applicable among the
following: (a) the national securities exchange on which the shares of Common
Stock are listed which constitutes the principal securities market for the
Common Stock, (b) the Nasdaq, if the Nasdaq constitutes the principal market for
the Common Stock on such date, or (c) the Nasdaq SmallCap, if the Nasdaq
SmallCap constitutes the principal securities market for the Common Stock on
such date, in any such case as reported by Bloomberg, L.P.; PROVIDED, HOWEVER,
that if during any Measurement Period or other period during which the Market
Price is being determined:
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(i) The Corporation shall declare or pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares of Common
Stock or fix any record date for any such action, then the Market Price for each
day in such Measurement Period or such other period which day is prior to the
earlier of (1) the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution and (2) the date on which
ex-dividend trading in the Common Stock with respect to such dividend or
distribution begins shall be reduced by multiplying the Market Price (determined
without regard to this proviso) for each such day in such Measurement Period or
such other period by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding at the close of business on the earlier of
(1) the record date fixed for such determination and (2) the date on which
ex-dividend trading in the Common Stock with respect to such dividend or
distribution begins and the denominator of which shall be the sum of such number
of shares and the total number of shares constituting such dividend or other
distribution;
(ii) The Corporation shall issue rights or warrants to all holders of
its outstanding shares of Common Stock, or fix a record date for such issuance,
which rights or warrants entitle such holders (for a period expiring within
forty-five (45) days after the date fixed for the determination of stockholders
entitled to receive such rights or warrants) to subscribe for or purchase shares
of Common Stock at a price per share less than the Market Price (determined
without regard to this proviso) for any day in such Measurement Period or such
other period which day is prior to the end of such 45-day period, then the
Market Price for each such day shall be reduced so that the same shall equal the
price determined by multiplying the Market Price (determined without regard to
this proviso) by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding at the close of business on the record date
fixed for the determination of stockholders entitled to receive such rights or
warrants plus the number of shares which the aggregate offering price of the
total number of shares so offered would purchase at such Market Price, and the
denominator of which shall be the number of shares of Common Stock outstanding
on the close of business on such record date plus the total number of additional
shares of Common Stock so offered for subscription or purchase. In determining
whether any rights or warrants entitle the holders to subscribe for or purchase
shares of Common Stock at less than the Market Price (determined without regard
to this proviso), and in determining the aggregate offering price of such shares
of Common Stock, there shall be taken into account any consideration received
for such rights or warrants, the value of such consideration, if other than
cash, to be determined in good faith by a resolution of the Board of Directors
of the Corporation;
(iii) The outstanding shares of Common Stock shall be subdivided into
a greater number of shares of Common Stock or a record date for any such
subdivision shall be fixed, then the Market Price of the Common Stock for each
day in such Measurement Period or such other period which day is prior to the
earlier of (1) the day upon which such subdivision becomes effective and (2) the
date on which ex-dividend trading in the
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Common Stock with respect to such subdivision begins shall be proportionately
reduced, and conversely, in case the outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common Stock, the Market Price for
each day in such Measurement Period or such other period which day is prior to
the earlier of (1) the date on which such combination becomes effective and (2)
the date on which trading in the Common Stock on a basis which gives effect to
such combination begins, shall be proportionately increased;
(iv) The Corporation shall, by dividend or otherwise, distribute to
all holders of its Common Stock shares of any class of capital stock of the
Corporation (other than any dividends or distributions to which clause (i) of
this proviso applies) or evidences of its indebtedness, cash or other assets
(including securities, but excluding any rights or warrants referred to in
clause (ii) of this proviso and dividends and distributions paid exclusively in
cash and excluding any capital stock, evidences of indebtedness, cash or assets
distributed upon a merger or consolidation) (the foregoing hereinafter in this
clause (iv) of this proviso called the "Securities"), or fix a record date for
any such distribution, then, in each such case, the Market Price for each day in
such Measurement Period or such other period which day is prior to the earlier
of (1) the record date for such distribution and (2) the date on which
ex-dividend trading in the Common Stock with respect to such distribution begins
shall be reduced so that the same shall be equal to the price determined by
multiplying the Market Price (determined without regard to this proviso) by a
fraction, the numerator of which shall be the Market Price (determined without
regard to this proviso) for such date less the fair market value (as determined
in good faith by resolution of the Board of Directors of the Corporation) on
such date of the portion of the Securities so distributed or to be distributed
applicable to one share of Common Stock and the denominator of which shall be
the Market Price (determined without regard to this proviso) for such date;
PROVIDED, HOWEVER, that in the event the then fair market value (as so
determined) of the portion of the Securities so distributed applicable to one
share of Common Stock is equal to or greater than the Market Price (determined
without regard to this clause (iv) of this proviso) for any such Trading Day, in
lieu of the foregoing adjustment, adequate provision shall be made so that the
holders of shares of Series B Convertible Preferred Stock shall have the right
to receive upon conversion of the shares of Series B Convertible Preferred Stock
the amount of Securities the holders of shares of Series B Convertible Preferred
Stock would have received had the number of shares of Common Stock to be issued
in payment of such dividends on the shares of Series B Convertible Preferred
Stock been issued, or had the holders of shares of Series B Convertible
Preferred Stock converted the shares of Series B Convertible Preferred Stock, in
either such case immediately prior to the record date for such distribution. If
the Board of Directors of the Corporation determines the fair market value of
any distribution for purposes of this clause (iv) by reference to the actual or
when issued trading market for any Securities comprising all or part of such
distribution, it must in doing so consider the prices in such market on the same
day for which an adjustment in the Market Price is being determined.
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For purposes of this clause (iv) and clauses (i) and (ii) of this
proviso, any dividend or distribution to which this clause (iv) is applicable
that also includes shares of Common Stock, or rights or warrants to subscribe
for or purchase shares of Common Stock to which clause (i) or (ii) of this
proviso applies (or both), shall be deemed instead to be (1) a dividend or
distribution of the evidences of indebtedness, assets, shares of capital stock,
rights or warrants other than such shares of Common Stock or rights or warrants
to which clause (i) or (ii) of this proviso applies (and any Market Price
reduction required by this clause (iv) with respect to such dividend or
distribution shall then be made) immediately followed by (2) a dividend or
distribution of such shares of Common Stock or such rights or warrants (and any
further Market Price reduction required by clauses (i) and (ii) of this proviso
with respect to such dividend or distribution shall then be made), except that
any shares of Common Stock included in such dividend or distribution shall not
be deemed "outstanding at the close of business on the date fixed for such
determination" within the meaning of clause (i) of this proviso;
(v) The Corporation or any subsidiary of the Corporation shall (x) by
dividend or otherwise, distribute to all holders of its Common Stock cash in (or
fix any record date for any such distribution), or (y) repurchase or reacquire
shares of its Common Stock (other than an Option Share Surrender) for, in either
case, an aggregate amount that, combined with (1) the aggregate amount of any
other such distributions to all holders of its Common Stock made exclusively in
cash after the Issuance Date and within the 12 months preceding the date of
payment of such distribution, and in respect of which no adjustment pursuant to
this clause (v) has been made, (2) the aggregate amount of any cash plus the
fair market value (as determined in good faith by a resolution of the Board of
Directors of the Corporation) of consideration paid in respect of any repurchase
or other reacquisition by the Corporation or any subsidiary of the Corporation
of any shares of Common Stock (other than an Option Share Surrender) made after
the Issuance Date and within the 12 months preceding the date of payment of such
distribution or making of such repurchase or reacquisition, as the case may be,
and in respect of which no adjustment pursuant to this clause (v) has been made,
and (3) the aggregate of any cash plus the fair market value (as determined in
good faith by a resolution of the Board of Directors of the Corporation) of
consideration payable in respect of any Tender Offer by the Corporation or any
of its subsidiaries for all or any portion of the Common Stock concluded within
the 12 months preceding the date of payment of such distribution or completion
of such repurchase or reacquisition, as the case may be, and in respect of which
no adjustment pursuant to clause (vi) of this proviso has been made (such
aggregate amount combined with the amounts in clauses (1), (2) and (3) above
being the "Combined Amount"), exceeds 10% of the product of the Market Price
(determined without regard to this proviso) for any day in such Measurement
Period or such other period which day is prior to the earlier of (A) the record
date with respect to such distribution and (B) the date on which ex-dividend
trading in the Common Stock with respect to such distribution begins or the date
of such repurchase or reacquisition, as the
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case may be, times the number of shares of Common Stock outstanding on such
date, then, and in each such case, the Market Price for each such day shall be
reduced so that the same shall equal the price determined by multiplying the
Market Price (determined without regard to this proviso) for such day by a
fraction (i) the numerator of which shall be equal to the Market Price
(determined without regard to this proviso) for such day less an amount equal to
the quotient of (x) the excess of such Combined Amount over such 10% and (y) the
number of shares of Common Stock outstanding on such day and (ii) the
denominator of which shall be equal to the Market Price (determined without
regard to this proviso) for such day; PROVIDED, HOWEVER, that in the event the
portion of the cash so distributed or paid for the repurchase or reacquisition
of shares (determined per share based on the number of shares of Common Stock
outstanding) applicable to one share of Common Stock is equal to or greater than
the Market Price (determined without regard to this clause (v) of this proviso)
of the Common Stock for any such day, then in lieu of the foregoing adjustment
with respect to such day, adequate provision shall be made so that the holders
of shares of Series B Convertible Preferred Stock shall have the right to
receive upon conversion of shares of Series B Convertible Preferred Stock the
amount of cash the holders of shares of Series B Convertible Preferred Stock
would have received had the holders of shares of Series B Convertible Preferred
Stock converted shares of Series B Convertible Preferred Stock immediately prior
to the record date for such distribution or the payment date of such repurchase,
as applicable; or
(vi) A Tender Offer made by the Corporation or any of its subsidiaries
for all or any portion of the Common Stock shall expire and such Tender Offer
(as amended upon the expiration thereof) shall require the payment to
stockholders (based on the acceptance (up to any maximum specified in the terms
of the Tender Offer) of Purchased Shares (as defined below)) of an aggregate
consideration having a fair market value (as determined in good faith by
resolution of the Board of Directors of the Corporation) that combined together
with (1) the aggregate of the cash plus the fair market value (as determined in
good faith by a resolution of the Board of Directors of the Corporation), as of
the expiration of such Tender Offer, of consideration payable in respect of any
other Tender Offers, by the Corporation or any of its subsidiaries for all or
any portion of the Common Stock expiring within the 12 months preceding the
expiration of such Tender Offer and in respect of which no adjustment pursuant
to this clause (vi) has been made, (2) the aggregate amount of any cash plus the
fair market value (as determined in good faith by a resolution of the Board of
Directors of the Corporation) of consideration paid in respect of any repurchase
or other reacquisition by the Corporation or any subsidiary of the Corporation
of any shares of Common Stock (other than an Option Share Surrender) made after
the Issuance Date and within the 12 months preceding the expiration of such
Tender Offer and in respect of which no adjustment pursuant to clause (v) of
this proviso has been made, and (3) the aggregate amount of any distributions to
all holders of Common Stock made exclusively in cash within 12 months preceding
the expiration of such Tender Offer and in respect of which no adjustment
pursuant to clause (v) of this proviso has been made, exceeds 10% of the product
of the Market Price (determined without regard to this
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proviso) for any day in such period times the number of shares of Common Stock
outstanding on such day, then, and in each such case, the Market Price for such
day shall be reduced so that the same shall equal the price determined by
multiplying the Market Price (determined without regard to this proviso) for
such day by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding on such day multiplied by the Market Price (determined
without regard to this proviso) for such day and the denominator of which shall
be the sum of (x) the fair market value (determined as aforesaid) of the
aggregate consideration payable to stockholders based on the acceptance (up to
any maximum specified in the terms of the Tender Offer) of all shares validly
tendered and not withdrawn as of the last time tenders could have been made
pursuant to such Tender Offer (the "Expiration Time") (the shares deemed so
accepted, up to any such maximum, being referred to as the "Purchased Shares")
and (y) the product of the number of shares of Common Stock outstanding (less
any Purchased Shares) on such day times the Market Price (determined without
regard to this proviso) of the Common Stock on the Trading Day next succeeding
the Expiration Time. If the application of this clause (vi) to any Tender Offer
would result in an increase in the Market Price (determined without regard to
this proviso) for any trade, no adjustment shall be made for such Tender Offer
under this clause (vi) for such day.
"Maximum Share Amount" means 1,838,700 shares, or such greater number as
permitted by the rules of the Nasdaq SmallCap (such amount to be subject to
equitable adjustment from time to time on terms reasonably acceptable to the
Majority Holders for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock occurring or
with respect to which "ex-" trading commences after the date of filing this
Certificate of Designations with the Secretary of State of the State of
Delaware), of Common Stock.
"Measurement Period" means, with respect to any date, the period of 20
consecutive Trading Days ending on the Trading Day prior to such date.
"Nasdaq" means the Nasdaq National Market.
"Nasdaq SmallCap" means the Nasdaq SmallCap Market.
"1933 Act" means the Securities Act of 1933, as amended.
"NYSE" means the New York Stock Exchange, Inc.
"Option Share Surrender" means the surrender of shares of Common Stock to
the Corporation in payment of the exercise price or tax obligations incurred in
connection with the exercise of a stock option granted by the Corporation to any
of its employees, directors or consultants.
12
"Optional Redemption Event" means any one of the following events:
(1) For any period of five consecutive Trading Days there shall be no
closing bid price of the Common Stock on the Nasdaq, the Nasdaq SmallCap, the
NYSE or the AMEX;
(2) The Common Stock ceases to be listed for trading on any of the
Nasdaq, the Nasdaq SmallCap, the NYSE or the AMEX;
(3) The inability for 30 or more days (whether or not consecutive) of
any holder of shares of Series B Convertible Preferred Stock to sell such shares
of Common Stock issued or issuable on conversion of shares of Series B
Convertible Preferred Stock pursuant to the Registration Statement for any
reason other than a Blackout Period on each of such 30 days;
(4) The Corporation shall (A) default in the timely performance of the
obligation to issue shares of Common Stock upon conversion of shares of Series B
Convertible Preferred Stock as and when required by Section 10 or (B) fail or
default in the timely performance of any material obligation (other than as
specifically set forth elsewhere in this definition) to a holder of shares of
Series B Convertible Preferred Stock under the terms of this Certificate of
Designations or under the Subscription Agreements, the Registration Rights
Agreements, the Warrants or any other agreement or document entered into in
connection with the issuance of shares of Series B Convertible Preferred Stock,
as such instruments may be amended from time to time; PROVIDED, that an event
described in clause (B) above shall be an Optional Redemption Event only if such
failure or default shall have continued for a period of 15 days after notice
thereof is given to the Corporation by any holder of shares of Series B
Convertible Preferred Stock.
(5) Any consolidation or merger of the Corporation with or into
another entity (other than a merger or consolidation of a subsidiary of the
Corporation into the Corporation or a wholly-owned subsidiary of the
Corporation) where the shareholders of the Corporation immediately prior to such
transaction do not collectively own at least 51% of the outstanding voting
securities of the surviving corporation of such consolidation or merger
immediately following such transaction or the common stock of such surviving
corporation is not listed for trading on the NYSE, the AMEX, the Nasdaq or the
Nasdaq SmallCap; or any sale or other transfer of all or substantially all of
the assets of the Corporation (other than a transfer to a wholly-owned
subsidiary of the Corporation); or
(6) The taking of any action, including any amendment to the
Corporation's Certificate of Incorporation, as amended (other than an increase
in the number of authorized shares of Common Stock), without the consent of the
Majority Holders which materially and adversely affects the rights of any holder
of shares of Series B Convertible Preferred Stock.
13
"Optional Redemption Notice" means a notice from a holder of shares of
Series B Convertible Preferred Stock to the Corporation which states (1) that
the holder delivering such notice is thereby requiring the Corporation to redeem
shares of Series B Convertible Preferred Stock pursuant to Section 11, (2) in
general terms the Optional Redemption Event giving rise to such redemption, and
(3) the number of shares of Series B Convertible Preferred Stock held by such
holder which are to be redeemed.
"Optional Redemption Price" means the greater of (i) the Premium Price on
the applicable redemption date and (ii) the Converted Market Price on the
applicable redemption date.
"Parity Dividend Stock" means any class or series of the Corporation's
capital stock ranking, as to dividends, on a parity with the Series B
Convertible Preferred Stock.
"Parity Liquidation Stock" means any class or series of the Corporation's
capital stock having parity as to liquidation rights with the Series B
Convertible Preferred Stock.
"Premium Percentage" means 115%.
"Premium Price" means, for any share of Series B Convertible Preferred
Stock as of any date of determination, the product obtained by multiplying (a)
the sum of (1) the Conversion Amount PLUS (2) an amount equal to the accrued but
unpaid dividends on such share of Series B Convertible Preferred Stock to the
date of determination, PLUS (3) an amount equal to the accrued and unpaid
interest on dividends in arrears (as provided in Section 5) to the date of
determination TIMES (b) the Premium Percentage.
"Redemption Date" means the date of a redemption of shares of Series B
Convertible Preferred Stock pursuant to Section 9(a), determined in accordance
therewith.
"Redemption Price" means the greater of (i) the Premium Price on the
applicable Redemption Date and (ii) the Converted Market Price on the applicable
Redemption Date.
"Registration Event" shall mean (1) the Corporation fails to file the
Registration Statement with the SEC on or before January 29, 1999, (2) the
Registration Statement is not effective within 105 days after the Issuance Date,
(3) the Corporation fails to submit a request for acceleration of the effective
date of the Registration Statement in accordance with Section 3(a) of the
Registration Rights Agreements, (4) the Registration Statement shall cease to be
available for use by any holder of shares of Series B Convertible Preferred
Stock who is named therein as a selling stockholder for any reason (including,
without limitation, by reason of an SEC stop order, a material misstatement or
omission in the Registration Statement or the information contained in the
Registration Statement having become outdated) other than a Blackout Period;
PROVIDED, HOWEVER, that no Registration
14
Event pursuant to this clause (4) shall be deemed to occur prior to the SEC
Effective Date, (5) the Common Stock ceases to be listed for trading on any of
the NYSE, the AMEX, the Nasdaq or the Nasdaq SmallCap, or (6) a holder of shares
of Series B Convertible Preferred Stock having become unable to convert any
shares of Series B Convertible Preferred Stock in accordance with Section 10(a)
for any reason (other than by reason of the 4.9% limitation on beneficial
ownership set forth therein, the limitation on beneficial ownership set forth in
the Subscription Agreements, or a redemption or repurchase thereof).
"Registration Rights Agreements" means the several Registration Rights
Agreements entered into between the Corporation and the original holders of the
shares of Series B Convertible Preferred Stock, as amended or modified from time
to time in accordance with their respective terms.
"Registration Statement" means the Registration Statement required to be
filed by the Corporation with the SEC pursuant to Section 2(a) of the
Registration Rights Agreements.
"SEC" means the United States Securities and Exchange Commission.
"SEC Effective Date" means the date the Registration Statement is first
declared effective by the SEC.
"Senior Dividend Stock" means any class or series of capital stock of the
Corporation ranking senior as to dividends to the Series B Convertible Preferred
Stock.
"Senior Liquidation Stock" means any class or series of capital stock of
the Corporation ranking senior as to liquidation rights to the Series B
Convertible Preferred Stock.
"Series B Convertible Preferred Stock" means the Series B Convertible
Preferred Stock, $.001 par value, of the Corporation.
"Share Limitation Redemption Date" means each date on which the Corporation
is required to redeem shares of Series B Convertible Preferred Stock as provided
in Section 7(a).
"Share Limitation Redemption Price" means the greater of (i) the Premium
Price on the applicable Share Limitation Redemption Date and (ii) the Converted
Market Price on the applicable Share Limitation Redemption Date.
"Stockholder Approval" shall mean the approval by a majority of the votes
cast by the holders of shares of Common Stock (in person or by proxy) at a
meeting of the stockholders of the Corporation (duly convened at which a quorum
was present), or a
15
written consent of holders of shares of Common Stock entitled to such number of
votes given without a meeting, of the issuance by the Corporation of 20% or more
of the Common Stock of the Corporation outstanding on the Issuance Date for less
than the greater of the book or market value of such Common Stock on conversion
of the Series B Convertible Preferred Stock, as and to the extent required under
Rule 4310(c)(25)(H) of the Nasdaq SmallCap as in effect from time to time or any
successor, replacement or similar provision thereof or of any other market on
which the Common Stock is listed for trading.
"Stockholder Approval Notice" shall have the meaning provided in Section
7(a)(2).
"Subscription Agreements" means the several Subscription Agreements by and
between the Corporation and the original holders of shares of Series B
Convertible Preferred Stock pursuant to which the shares of Series B Convertible
Preferred Stock were issued.
"Tender Offer" means a tender offer or exchange offer.
"Trading Day" means a day on whichever of (x) the national securities
exchange, (y) the Nasdaq or (z) the Nasdaq SmallCap which at the time
constitutes the principal securities market for the Common Stock is open for
general trading.
"Transfer Agent Agreement" means the Transfer Agent Agreement, dated as of
December 10, 1998, by and among the Corporation, the Conversion Agent and the
original holders of the Series B Convertible Preferred Stock for the benefit of
the holders from time to time of shares of Series B Convertible Preferred Stock.
"Warrants" means the Common Stock Purchase Warrants issued by the
Corporation in connection with the issuance of the shares of Series B
Convertible Preferred Stock.
SECTION 2. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series B Convertible Preferred Stock", and the number of shares
constituting the Series B Convertible Preferred Stock shall be 9,600, and shall
not be subject to increase. Of the authorized shares of Series B Convertible
Preferred Stock, 1,600 shares may be issued only as dividends on the outstanding
shares of Series B Convertible Preferred Stock. The Corporation shall not issue
any shares of Series B Convertible Preferred Stock other than pursuant to the
Subscription Agreements and the Dividend Shares contemplated hereby and thereby,
unless such issuance shall have been approved by the Majority Holders. Any
shares of Series B Convertible Preferred Stock which are redeemed by the
Corporation and retired and any shares of Series B Convertible Preferred Stock
which are converted in accordance with Section 10 shall be restored to the
status of authorized, unissued and undesignated shares of the Corporation's
class of
16
Preferred Stock and shall not be subject to issuance, and may not
thereafter be outstanding, as shares of Series B Convertible Preferred Stock.
SECTION 3. SERIES B CONVERTIBLE PREFERRED STOCK CAPITAL. The amount to be
represented in the Series B Convertible Preferred Stock capital of the
Corporation at all times for each outstanding share of Series B Convertible
Preferred Stock shall be the greater of (i) the Premium Price and (ii) the
Converted Market Price. The Corporation shall take such action as may be
required to maintain the amount required by this Section 3 to be represented in
stated capital for the Series B Convertible Preferred Stock capital not less
frequently than quarterly.
SECTION 4. RANK. All Series B Convertible Preferred Stock shall rank (i)
senior to the Common Stock, now or hereafter issued, as to payment of dividends
and distribution of assets upon liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, (ii) senior to any series or
class of Preferred Stock designated prior to the date of filing of this
Certificate of Designations with the Secretary of State of the State of
Delaware, (iii) senior to any additional series of the class of Preferred Stock
which series the Board of Directors may from time to time authorize, both as to
payment of dividends and as to distributions of assets upon liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary
and (iv) senior to any additional class of preferred stock (or series of
preferred stock of such class) which the Board of Directors or the stockholders
may from time to time authorize in accordance herewith; PROVIDED, HOWEVER, that
the Series B Convertible Preferred Stock shall rank pari passu with any
additional series or class of Preferred Stock from time to time authorized by
the Board of Directors or the stockholders the shares of which are originally
issued to Advantage Fund II Ltd., a British Virgin Islands corporation, or its
designees.
SECTION 5. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of shares of Series
B Convertible Preferred Stock shall be entitled to receive, when, as, and if
declared by the Board of Directors out of funds legally available for such
purpose, dividends at the rate of $50.00 per annum per share, and no more, which
shall be fully cumulative, shall accrue without interest (except as otherwise
provided herein as to dividends in arrears) from the date of original issuance
of each share of Series B Convertible Preferred Stock and shall be payable
semiannually on May 15 and November 15 of each year commencing May 15, 1999
(except that if any such date is a Saturday, Sunday, or legal holiday, then such
dividend shall be payable on the next succeeding day that is not a Saturday,
Sunday, or legal holiday) to holders of record as they appear on the stock books
of the Corporation on such record dates, not more than 20 nor less than 10 days
preceding the payment dates for such dividends, as shall be fixed by the Board.
Dividends on the Series B Convertible Preferred Stock shall be paid in cash or,
subject to the limitations in Section 5(b) hereof, Dividend Shares or any
combination of cash and Dividend Shares, at the option of the Corporation as
hereinafter provided. The amount of the dividends payable per share of Series B
Convertible Preferred Stock for each semiannual dividend period shall be
17
computed by dividing the annual dividend amount by two. The amount of dividends
payable for the initial dividend period and any period shorter than a full
semiannual dividend period shall be computed on the basis of a 360-day year of
twelve 30-day months. Dividends not paid on a payment date, whether or not such
dividends have been declared, will bear interest at the rate of 14% per annum
until paid (or such lesser rate as shall be the maximum rate allowable by
applicable law). No dividends or other distributions, other than the dividends
payable solely in shares of any Junior Dividend Stock, shall be paid or set
apart for payment on any shares of Junior Dividend Stock, and no purchase,
redemption, or other acquisition shall be made by the Corporation of any shares
of Junior Dividend Stock (except for Option Share Surrenders), unless and until
all accrued and unpaid dividends on the Series B Convertible Preferred Stock and
interest on dividends in arrears at the rate specified herein shall have been
paid or declared and set apart for payment.
If at any time any dividend on any Senior Dividend Stock shall be in
arrears, in whole or in part, no dividend shall be paid or declared and set
apart for payment on the Series B Convertible Preferred Stock unless and until
all accrued and unpaid dividends with respect to the Senior Dividend Stock,
including the full dividends for the then current dividend period, shall have
been paid or declared and set apart for payment, without interest. No full
dividends shall be paid or declared and set apart for payment on any Parity
Dividend Stock for any period unless all accrued but unpaid dividends (and
interest on dividends in arrears at the rate specified herein) have been, or
contemporaneously are, paid or declared and set apart for such payment on the
Series B Convertible Preferred Stock. No full dividends shall be paid or
declared and set apart for payment on the Series B Convertible Preferred Stock
for any period unless all accrued but unpaid dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the Parity
Dividend Stock for all dividend periods terminating on or prior to the date of
payment of such full dividends. When dividends are not paid in full upon the
Series B Convertible Preferred Stock and the Parity Dividend Stock, all
dividends paid or declared and set apart for payment upon shares of Series B
Convertible Preferred Stock (and interest on dividends in arrears at the rate
specified herein) and the Parity Dividend Stock shall be paid or declared and
set apart for payment pro rata, so that the amount of dividends paid or declared
and set apart for payment per share on the Series B Convertible Preferred Stock
and the Parity Dividend Stock shall in all cases bear to each other the same
ratio that accrued and unpaid dividends per share on the shares of Series B
Convertible Preferred Stock and the Parity Dividend Stock bear to each other.
Any references to "distribution" contained in this Section 5 shall not be
deemed to include any stock dividend or distributions made in connection with
any liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary.
(b) If the Corporation elects in the exercise of its sole discretion
to issue Dividend Shares in payment of dividends on the Series B Convertible
Preferred Stock in
18
respect of any dividend payment date, the Corporation shall issue and deliver,
or cause to be issued and delivered, by the third Trading Day after such
dividend payment date to each holder of shares of Series B Convertible Preferred
Stock a certificate representing the number of whole Dividend Shares arrived at
by dividing (x) the total amount of cash dividends such holder would be entitled
to receive if the aggregate dividends on the Series B Convertible Preferred
Stock held by such holder which are being paid in Dividend Shares were being
paid in cash BY (y) $1,000.00; PROVIDED, HOWEVER, that if certificates
representing Dividend Shares are issued and delivered to holders of Series B
Convertible Preferred Stock subsequent to the third Trading Day after a dividend
payment date, the amount so divided into such total amount of cash dividends
will be reduced by $10.00 for each Trading Day after the third Trading Day
following such dividend payment date to the date of delivery of Dividend Shares.
No fractional Dividend Shares shall be issued in payment of dividends. In lieu
thereof, the Corporation shall pay cash in an amount equal to the product of (x)
the arithmetic average of the Market Price of the Common Stock for the five
consecutive Trading Days ending on the Trading Day prior to such dividend
payment date TIMES (y) the number of shares of Common Stock which the fraction
of a Dividend Share which would otherwise be issuable by the Corporation would
be convertible in accordance with Section 10(a) if so converted on the
applicable dividend payment date. The Corporation shall not exercise its right
to issue Dividend Shares in payment of dividends on Series B Convertible
Preferred Stock if:
(i) the number of shares of Series B Convertible Preferred Stock at
the time authorized, unissued and unreserved for all purposes, or held in the
Corporation's treasury, is insufficient to permit the issuance of such number of
Dividend Shares; or the number of shares of Common Stock at the time authorized,
unissued and unreserved for all purposes, or held in the Corporation's treasury,
is insufficient to permit the conversion of such Dividend Shares into shares of
Common Stock;
(ii) the issuance or delivery of Dividend Shares as a dividend payment
or the issuance of shares of Common Stock upon conversion of such Dividend
Shares would require registration with or approval of any governmental authority
under any law or regulation, and such registration or approval has not been
effected or obtained;
(iii) the shares of Common Stock issuable upon conversion of such
Dividend Shares have not been authorized for listing, upon official notice of
issuance, on any securities exchange or market on which the Common Stock is then
listed; or have not been approved for quotation if the Common Stock is traded in
the over-the-counter market;
(iv) the number of shares of Common Stock registered pursuant to
Section 2(a) of the Registration Rights Agreements for resale upon issuance upon
conversion of Dividend Shares shall be insufficient (after taking into account
the number of shares of Common Stock issued or issuable upon conversion of
Dividend Shares
19
theretofore issued) to permit the resale pursuant to the Registration Statement
of the shares of Common Stock issuable upon conversion of such Dividend Shares;
(v) the shares of Common Stock issuable upon conversion of such
Dividend Shares (A) cannot be sold or transferred without restriction by
unaffiliated holders who receive such Dividend Shares or (B) are no longer
listed on any of the NYSE, the AMEX, the Nasdaq or the Nasdaq SmallCap; or
(vi) an Optional Redemption Event shall have occurred and any holder
of shares of Series B Convertible Preferred Stock (A) shall be entitled to
exercise optional redemption rights under Section 11 by reason of such Optional
Redemption Event or (B) shall have exercised optional redemption rights under
Section 11 by reason of such Optional Redemption Event and the Corporation shall
not have paid the Optional Redemption Price to each holder.
Dividend Shares issued in payment of dividends on Series B Convertible
Preferred Stock pursuant to this Section and shares of Common Stock issuable
upon conversion of such Dividend Shares shall be, and for all purposes shall be
deemed to be, validly issued, fully paid and nonassessable shares of the
Corporation; the issuance and delivery thereof is hereby authorized; and the
delivery will be, and for all purposes shall be deemed to be, payment in full of
the cumulative dividends to which holders are entitled on the applicable
dividend payment date.
(c) Neither the Corporation nor any subsidiary of the Corporation
shall redeem, repurchase or otherwise acquire in any one transaction or series
of related transactions any shares of Common Stock, Junior Dividend Stock or
Junior Liquidation Stock if the number of shares so repurchased, redeemed or
otherwise acquired in such transaction or series of related transactions
(excluding any Option Share Surrender) is more than either (x) 5% of the number
of shares of Common Stock, Junior Dividend Stock or Junior Liquidation Stock, as
the case may be, outstanding immediately prior to such transaction or series of
related transactions or (y) 1% of the number of shares of Common Stock, Junior
Dividend Stock or Junior Liquidation Stock, as the case may be, outstanding
immediately prior to such transaction or series of related transactions if such
transaction or series of related transactions is with any one person or group of
affiliated persons, unless the Corporation or such subsidiary offers to purchase
for cash from each holder of shares of Series B Convertible Preferred Stock at
the time of such redemption, repurchase or acquisition the same percentage of
such holder's shares of Series B Convertible Preferred Stock as the percentage
of the number of outstanding shares of Common Stock, Junior Dividend Stock or
Junior Liquidation Stock, as the case may be, to be so redeemed, repurchased or
acquired at a purchase price per share of Series B Convertible Preferred Stock
equal to the greater of (i) the Premium Price in effect on the date of purchase
pursuant to this Section 5(c) and (ii) the Converted Market Price on the date of
purchase pursuant to this Section 5(c).
20
(d) Neither the Corporation nor any subsidiary of the Corporation
shall (1) make any Tender Offer for outstanding shares of Common Stock, unless
the Corporation contemporaneously therewith makes an offer, or (2) enter into an
agreement regarding a Tender Offer for outstanding shares of Common Stock by any
person other than the Corporation or any subsidiary of the Corporation, unless
such person agrees with the Corporation to make an offer, in either such case to
each holder of outstanding shares of Series B Convertible Preferred Stock to
purchase for cash at the time of purchase in such Tender Offer the same
percentage of shares of Series B Convertible Preferred Stock held by such holder
as the percentage of outstanding shares of Common Stock offered to be purchased
in such Tender Offer at a price per share of Series B Convertible Preferred
Stock equal to the greater of (i) the Premium Price in effect on the date of
purchase pursuant to this Section 5(d) and (ii) the Converted Market Price on
the date of purchase pursuant to this Section 5(d).
SECTION 6. LIQUIDATION PREFERENCE. In the event of a liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
the holders of Series B Convertible Preferred Stock shall be entitled to receive
out of the assets of the Corporation, whether such assets constitute stated
capital or surplus of any nature, an amount per share of Series B Convertible
Preferred Stock equal to the Liquidation Preference, and no more, before any
payment shall be made or any assets distributed to the holders of Junior
Liquidation Stock; PROVIDED, HOWEVER, that such rights shall accrue to the
holders of Series B Convertible Preferred Stock only in the event that the
Corporation's payments with respect to the liquidation preference of the holders
of Senior Liquidation Stock are fully met. After the liquidation preferences of
the Senior Liquidation Stock are fully met, the entire assets of the Corporation
available for distribution shall be distributed ratably among the holders of the
Series B Convertible Preferred Stock and any Parity Liquidation Stock in
proportion to the respective preferential amounts to which each is entitled (but
only to the extent of such preferential amounts). After payment in full of the
liquidation price of the shares of the Series B Convertible Preferred Stock and
the Parity Liquidation Stock, the holders of such shares shall not be entitled
to any further participation in any distribution of assets by the Corporation.
Neither a consolidation or merger of the Corporation with another corporation
nor a sale or transfer of all or part of the Corporation's assets for cash,
securities, or other property in and of itself will be considered a liquidation,
dissolution or winding up of the Corporation.
SECTION 7. MANDATORY REDEMPTION.
(A) MANDATORY REDEMPTION BASED ON MAXIMUM SHARE AMOUNT. (1)
Notwithstanding any other provision herein, unless the Stockholder Approval
shall have been obtained from the stockholders of the Corporation or waived by
the Nasdaq or the Nasdaq SmallCap, so long as the Common Stock is listed on the
Nasdaq, the Nasdaq SmallCap, the NYSE or the AMEX, the Corporation shall not be
required to issue upon
21
conversion of shares of Series B Convertible Preferred Stock pursuant to Section
10 more than the Maximum Share Amount. The Maximum Share Amount shall be
allocated among the shares of Series B Convertible Preferred Stock at the time
of initial issuance thereof pro rata based on the initial issuance of 8,000
shares of Series B Convertible Preferred Stock. Each certificate for shares of
Series B Convertible Preferred Stock initially issued shall bear a notation as
to the number of shares constituting the portion of the Maximum Share Amount
allocated to the shares of Series B Convertible Preferred Stock represented by
such certificate for purposes of conversion thereof. The Corporation shall
maintain records which show the number of shares of Series B Convertible
Preferred Stock issued by the Corporation pursuant to Section 5 as dividends on
the shares of Series B Convertible Preferred Stock represented by each
certificate, which records shall be controlling in the absence of manifest
error. Each such additional share of Series B Convertible Preferred Stock shall
be allocated a portion of the Maximum Share Amount allocated to the shares of
Series B Convertible Preferred Stock in respect of which such additional shares
of Series B Convertible Preferred Stock are issued as a dividend and the
certificate for such additional shares of Series B Convertible Preferred Stock
shall bear a notation as to the certificate number of the share of Series B
Convertible Preferred Stock in respect of which such additional share of Series
B Convertible Preferred Stock is issued as a dividend. Upon surrender of any
certificate for shares of Series B Convertible Preferred Stock for transfer or
re-registration thereof (or, at the option of the holder, for conversion
pursuant to Section 10(a) of less than all of the shares of Series B Convertible
Preferred Stock represented thereby), the Corporation shall make a notation on
the new certificate issued upon such transfer or re-registration or evidencing
such unconverted shares, as the case may be, as to the remaining number of
shares of Common Stock from the Maximum Share Amount remaining available for
conversion of the shares of Series B Convertible Preferred Stock evidenced by
such new certificate. If any certificate for shares of Series B Convertible
Preferred Stock is surrendered for split-up into two or more certificates
representing an aggregate number of shares of Series B Convertible Preferred
Stock equal to the number of shares of Series B Convertible Preferred Stock
represented by the certificate so surrendered (as reduced by any contemporaneous
conversion of shares of Series B Convertible Preferred Stock represented by the
certificate so surrendered), each certificate issued on such split-up shall bear
a notation of the portion of the Maximum Share Amount allocated thereto
determined by pro rata allocation from among the remaining portion of the
Maximum Share Amount allocated to the certificate so surrendered. If any shares
of Series B Convertible Preferred Stock represented by a single certificate are
converted in full pursuant to Section 10, all of the portion of the Maximum
Share Amount allocated to such shares of Series B Convertible Preferred Stock
which remains unissued after such conversion shall be re-allocated pro rata to
the outstanding shares of Series B Convertible Preferred Stock held of record by
the holder of record at the close of business on the date of such conversion of
the shares of Series B Convertible Preferred Stock so converted, and if there
shall be no other shares of Series B Convertible Preferred Stock held of record
by such holder at the close of business on such date, then such portion of the
Maximum Share
22
Amount shall be allocated pro rata among the shares of Series B
Convertible Preferred Stock outstanding on such date.
(2) The Corporation shall promptly, but in no event later than five
Business Days after the occurrence, give notice to each holder of shares of
Series B Convertible Preferred Stock (by telephone line facsimile transmission
at such number as such holder has specified in writing to the Corporation for
such purposes or, if such holder shall not have specified any such number, by
overnight courier or first class mail, postage prepaid, at such holder's address
as the same appears on the stock books of the Corporation) and any holder of
shares of Series B Convertible Preferred Stock may at any time after the
occurrence give notice to the Corporation, in either case, if on any ten Trading
Days within any period of 20 consecutive Trading Days the Corporation would not
have been required to convert shares of Series B Convertible Preferred Stock of
such holder in accordance with Section 10(a) as a consequence of the limitations
set forth in Section 7(a)(1) had the shares of Series B Convertible Preferred
Stock held by such holder been converted in full into Common Stock on each such
day, determined without regard to the limitation, if any, on such holder
contained in the proviso to the second sentence of Section 10(a) (any such
notice, whether given by the Corporation or a holder, an "Inconvertibility
Notice"). If the Corporation shall have given or been required to give any
Inconvertibility Notice, or if a holder shall have given any Inconvertibility
Notice, then within ten Trading Days after such Inconvertibility Notice is first
given or was required to be given, the holder receiving or giving, as the case
may be, such Inconvertibility Notice shall have the right by written notice to
the Corporation (which written notice may be contained in the Inconvertibility
Notice given by such holder) to direct the Corporation to redeem the portion of
such holder's outstanding shares of Series B Convertible Preferred Stock (which,
if applicable, shall be all of such holder's outstanding shares of Series B
Convertible Preferred Stock) as shall not, on the Business Day prior to the date
of such redemption, be convertible into shares of Common Stock by reason of the
limitations set forth in Section 7(a)(1) (determined without regard to the
limitation, if any, on beneficial ownership of Common Stock by such holder
contained in the proviso to the second sentence of Section 10(a) or in the
Subscription Agreements), within five Business Days after such holder so directs
the Corporation, at a price per share equal to the Share Limitation Redemption
Price unless prior to the earlier of (i) the date of the Corporation's 1999
annual meeting of stockholders and (ii) the date the Corporation is required to
redeem such shares of Series B Convertible Preferred Stock the Corporation
delivers written notice to the holder otherwise so entitled to redemption of
such shares of Series B Convertible Preferred Stock stating that the Corporation
has elected to seek the Stockholder Approval (a "Stockholder Approval Notice").
If a holder of shares of Series B Convertible Preferred Stock directs the
Corporation to redeem outstanding shares of Series B Convertible Preferred Stock
pursuant to this Section 7(a)(2) and, prior to the date the Corporation is
required to redeem such shares of Series B Convertible Preferred Stock, the
Corporation would have been able, within the limitations set forth in Section
7(a)(1), to convert all of such holder's shares of Series B Convertible
Preferred Stock (determined without regard to the limitation, if any,
23
on beneficial ownership of shares of Common Stock by such holder contained in
the proviso to the second sentence of Section 10(a) or in the Subscription
Agreements) on any ten Trading Days within any period of 15 consecutive Trading
Days commencing after the period of 20 consecutive Trading Days which gave rise
to the applicable Inconvertibility Notice from the Corporation or such holder of
shares of Series B Convertible Preferred Stock, as the case may be, had all of
such holder's shares of Series B Convertible Preferred Stock been surrendered
for conversion into Common Stock on each of such ten Trading Days within such 15
Trading Day period, then the Corporation shall not be required to redeem any
shares of Series B Convertible Preferred Stock by reason of such
Inconvertibility Notice.
(3) If the Corporation shall have timely given a Stockholder Approval
Notice, then the Corporation thereafter shall use its best efforts to convene a
meeting of the stockholders of the Corporation to obtain the Stockholder
Approval. If (x) the Stockholder Approval is sought but is not obtained at such
meeting or any adjournment thereof, (y) the Corporation abandons its efforts to
obtain the Stockholder Approval or (z) the Stockholder Approval is not obtained
within 60 days after the earliest Inconvertibility Notice is given in respect of
which shares of Series B Convertible Preferred Stock have not been redeemed by
reason of the Corporation=s decision to seek the Stockholder Approval, then in
each such case the Corporation shall thereafter promptly (but in no event more
than five Business Days thereafter) redeem such portion (which may be all, if
all shares of Series B Convertible Preferred Stock are not convertible by reason
of the limitations in Section 7(a)(1)) of the outstanding shares of Series B
Convertible Preferred Stock as shall not, on the Business Day prior to the date
of such redemption, be convertible into shares of Common Stock by reason of the
limitations as set forth in Section 7(a)(1), on and subject to the terms and
conditions of this Section 7(a).
(4) Notwithstanding the giving of any Inconvertibility Notice by the
Corporation to the holders of Series B Convertible Preferred Stock pursuant to
Section 7(a)(2) or the giving or the absence of any notice by the holders of the
Series B Convertible Preferred Stock in response thereto or any redemption of
shares of Series B Convertible Preferred Stock pursuant to Section 7(a)(2),
thereafter the provisions of Section 7(a)(2) shall continue to be applicable on
any occasion unless the Stockholder Approval shall have been obtained from the
stockholders of the Corporation or waived by the Nasdaq or the Nasdaq SmallCap.
(5) On each Share Limitation Redemption Date (or such later date as a
holder of shares of Series B Convertible Preferred Stock shall surrender to the
Corporation the certificate(s) for the shares of Series B Convertible Preferred
Stock being redeemed pursuant to this Section 7(a)), the Corporation shall make
payment in immediately available funds of the applicable Share Limitation
Redemption Price to such holder of shares of Series B Convertible Preferred
Stock to be redeemed to or upon the order of such holder as specified by such
holder in writing to the Corporation at least one Business Day prior to
24
such Share Limitation Redemption Date. Upon redemption of less than all of the
shares of Series B Convertible Preferred Stock evidenced by a particular
certificate, promptly, but in no event later than three Business Days after
surrender of such certificate to the Corporation, the Corporation shall issue a
replacement certificate for the shares of Series B Convertible Preferred Stock
evidenced by such certificate which have not been redeemed. Only whole shares of
Series B Convertible Preferred Stock may be redeemed.
(6) (A) Notwithstanding any other provision of this Certificate of
Designations, if an Inconvertibility Day occurs by reason of events which are
not solely within the control of the Corporation, the Corporation shall have the
right to give a Control Notice to the holders of Series B Convertible Preferred
Stock at any time after such Inconvertibility Day occurs and prior to the
earlier of (1) the date on which all holders of shares of Series B Convertible
Preferred Stock who had the right (other than as limited by this Section
7(a)(6)) to require redemption of any shares of Series B Convertible Preferred
Stock by reason of the occurrence of such Inconvertibility Day no longer have
such right and (2) the applicable Share Limitation Redemption Date by reason of
the earliest notice given by any holder of shares of Series B Convertible
Preferred Stock directing the Corporation to redeem such shares in accordance
with Section 7(a)(2) by reason of such Inconvertibility Day. For purposes of
this Section 7(a)(6), an Inconvertibility Day shall be deemed to have occurred
by reason of events which are not solely within the control of the Corporation
if a requirement of the Corporation to redeem, or a right of any holder of
shares of Series B Convertible Preferred Stock to require redemption of, shares
of Series B Convertible Preferred Stock by reason thereof would result in the
Corporation being required to classify the Series B Convertible Preferred Stock
as redeemable preferred stock on a balance sheet of the Corporation prepared in
accordance with Generally Accepted Accounting Principles and Regulation S-X of
the SEC. If the Corporation timely gives a Control Notice to the holders of
shares of Series B Convertible Preferred Stock, then in lieu of payment of the
Share Limitation Redemption Price pursuant to a redemption notice given by any
holder of shares of Series B Convertible Preferred Stock in accordance with
Section 7(a)(2) by reason of such Inconvertibility Day and commencing on such
Inconvertibility Day the Conversion Price for all outstanding shares of Series B
Convertible Preferred Stock will be 80% of the amount the Conversion Price would
otherwise be. Such adjustment of the Conversion Price shall continue in effect
until the earliest of (x) the date which is 90 days after the Stockholder
Approval shall have been obtained from the stockholders of the Corporation or
waived by the Nasdaq SmallCap or other securities market on which the Common
Stock is then listed, (y) the date any further adjustments are made following a
failure to obtain the Stockholder Approval as provided below, and (z) the date
when shares of Series B Convertible Preferred Stock are no longer outstanding.
On or after the date the Corporation gives such Control Notice, upon notice from
the Majority Holders, the Corporation promptly shall call a special meeting of
its stockholders, to be held not later than 60 days after such notice is given,
to seek the Stockholder Approval for the issuance of all shares of Common Stock
issuable upon conversion of the Series B Convertible Preferred Stock in
accordance with Section 10 and shall use its best efforts to
25
obtain the Stockholder Approval. The Corporation shall prepare and file with the
SEC within 20 days after such notice is given preliminary proxy materials which
set forth a proposal to seek such Stockholder Approval. The Corporation shall
provide the Majority Holders an opportunity to consult with the Corporation
regarding the content of such proxy materials insofar as it relates to the
Stockholder Approval by providing copies of such preliminary proxy materials and
any revised preliminary proxy materials to the Majority Holders a reasonable
period of time prior to their filing with the SEC. Such consultation shall occur
within five Business Days after each draft of such materials are provided to the
Majority Holders. The Corporation shall furnish to each holder of shares of
Series B Convertible Preferred Stock a copy of its definitive proxy materials
for such special meeting and any amendments or supplements thereto promptly
after the same are mailed to stockholders or filed with the SEC. Upon the
earlier of (i) the failure to obtain the Stockholder Approval at the special
meeting or (ii) the failure to hold the special meeting within such 60-day
period, the Corporation shall so notify the holders of shares of Series B
Convertible Preferred Stock and such of the following as shall be specified by
notice to the Corporation from the Majority Holders shall occur: (1) commencing
on the Business Day following the Corporation's receipt of such notice, the
Conversion Price of the outstanding shares of Series B Convertible Preferred
Stock will be 60% of the amount the Conversion Price would otherwise be without
regard to other adjustments pursuant this Section 7(a)(6) or Section 11(b)(4)
and (2) the Corporation shall promptly file applications and take all other
actions necessary to (i) list the Common Stock for trading and quotation on the
OTC Bulletin Board or such other securities market or exchange which will not
restrict the number of shares of Common Stock issuable upon conversion of the
Series B Convertible Preferred Stock and (ii) upon filing such applications,
request the immediate removal of the Common Stock from listing on the securities
market on which it is then listed which restricts the issuance of shares of
Common Stock upon conversion of shares of Series B Convertible Preferred Stock
without the Stockholder Approval.
(B) If and for so long as an adjustment of the Conversion Price is
simultaneously required by this Section 7(a)(6) and by Section 11(b)(4), the
applicable Conversion Price shall be the lower of the two amounts required by
each such section.
(C) The rights of holders of shares of Series B Convertible Preferred
Stock to require redemption of their shares and exercise other rights pursuant
to Sections 7(a)(1) through 7(a)(5) by reason of an Inconvertibility Day as to
which the Corporation does not have a right to give a Control Notice, or fails
to exercise such right on a timely basis, shall not be limited by the operation
of this Section 7(a)(6).
(B) NO OTHER MANDATORY REDEMPTION. The shares of Series B Convertible
Preferred Stock shall not be subject to mandatory redemption by the Corporation
except as provided in Section 7(a).
26
SECTION 8. NO SINKING FUND. The shares of Series B Convertible Preferred
Stock shall not be subject to the operation of a purchase, retirement or sinking
fund.
SECTION 9. OPTIONAL REDEMPTION.
(A) CORPORATION OPTIONAL REDEMPTION. If (1) the Corporation shall
be in compliance in all material respects with its obligations to the holders of
shares of Series B Convertible Preferred Stock (including, without limitation,
its obligations under the Subscription Agreements, the Registration Rights
Agreements, the Warrants and the provisions of this Certificate of
Designations), (2) on the date the Corporation Optional Redemption Notice is
given and at all times thereafter until the Redemption Date, the Registration
Statement is effective and available for use by each holder of shares of Series
B Convertible Preferred Stock for the resale of shares of Common Stock acquired
by such holder upon conversion of all shares of Series B Convertible Preferred
Stock held by such holder and (3) no Optional Redemption Event shall have
occurred with respect to which, on the date a Corporation Optional Redemption
Notice is to be given or on the Redemption Date, any holder of shares of Series
B Convertible Preferred Stock (A) shall be entitled to exercise optional
redemption rights under Section 11 by reason of such Optional Redemption Event
or (B) shall have exercised optional redemption rights under Section 11 by
reason of such Optional Redemption Event and the Corporation shall not have paid
the Optional Redemption Price to such holder, then the Corporation shall have
the right, exercisable by giving a Corporation Optional Redemption Notice not
less than 20 days or more than 50 days prior to the Redemption Date to all
holders of record of the shares of Series B Convertible Preferred Stock, at any
time to redeem all or from time to time to redeem any part of the outstanding
shares of Series B Convertible Preferred Stock in accordance with this Section
9(a). If the Corporation shall redeem less than all outstanding shares of Series
B Convertible Preferred Stock, such redemption shall be made as nearly as
practical pro rata from all holders of shares of Series B Convertible Preferred
Stock. Any Corporation Optional Redemption Notice under this Section 9(a) shall
be given to the holders of record of the shares of Series B Convertible
Preferred Stock at their addresses appearing on the records of the Corporation;
PROVIDED, HOWEVER, that any failure or defect in the giving of such notice to
any such holder shall not affect the validity of notice to or the redemption of
shares of Series B Convertible Preferred Stock of any other holder. On the
Redemption Date (or such later date as a holder of shares of Series B
Convertible Preferred Stock surrenders to the Corporation the certificate(s) for
shares of Series B Convertible Preferred Stock to be redeemed pursuant to this
Section 9(a)), the Corporation shall make payment of the applicable Redemption
Price to each holder of shares of Series B Convertible Preferred Stock to be
redeemed in immediately available funds to such account as specified by such
holder in writing to the Corporation at least one Business Day prior to the
Redemption Date. A holder of shares of Series B Convertible Preferred Stock to
be redeemed pursuant to this Section 9(a) shall be entitled to convert such
shares of Series B Convertible Preferred Stock in accordance with Section 10 (1)
through the day prior to the Redemption Date and (2) if the Corporation shall
fail to pay the Redemption
27
Price of any share of Series B Convertible Preferred Stock when due, at any time
after the due date thereof until such date as the Corporation pays the
Redemption Price of such share of Series B Convertible Preferred Stock. No share
of Series B Convertible Preferred Stock as to which the holder exercises the
right of conversion pursuant to Section 10 or the optional redemption right
pursuant to Section 11 may be redeemed by the Corporation pursuant to this
Section 9(a) on or after the date of exercise of such conversion right or
optional redemption right, as the case may be, regardless of whether the
Corporation Optional Redemption Notice shall have been given prior to, or on or
after, the date of exercise of such conversion right or optional redemption
right, as the case may be.
(B) FINAL REDEMPTION. The Corporation shall have the right to
redeem all, but not less than all, outstanding shares of Series B Convertible
Preferred Stock at any time on or after the date which is 1,080 days after the
Issuance Date so long as (1) the Corporation shall be in compliance in all
material respects with its obligations to the holders of the Series B
Convertible Preferred Stock (including, without limitation, its obligations
under the Subscription Agreements, the Registration Rights Agreements, the
Warrants and this Certificate of Designations) and (2) no Optional Redemption
Event shall have occurred with respect to which on the date a Final Redemption
Notice is to be given or on the Final Redemption Date, any holder of shares of
Series B Convertible Preferred Stock (a) shall be entitled to exercise optional
redemption rights under Section 11 by reason of such Optional Redemption Event
or (b) shall have exercised optional redemption rights under Section 11 by
reason of such Optional Redemption Event and the Corporation shall not have paid
the Optional Redemption Price to such holder. In order to exercise its rights
under this Section 9(b), the Corporation shall give a Final Redemption Notice
not less than 20 or more than 40 Trading Days prior to the Final Redemption Date
to all holders of record of the shares of Series B Convertible Preferred Stock.
Any Final Redemption Notice shall be given to the holders of record of the
shares of Series B Convertible Preferred Stock by telephone line facsimile
transmission to such number as shown on the records of the Corporation for such
purpose; PROVIDED, HOWEVER, that any failure or defect in the giving of such
notice to any such holder shall not affect the validity of notice to or the
redemption of shares of Series B Convertible Preferred Stock of any other
holder. On the Final Redemption Date (or such later date as a holder of shares
of Series B Convertible Preferred Stock surrenders to the Corporation the
certificate(s) for shares of Series B Convertible Preferred Stock to be redeemed
pursuant to this Section 9(b)), the Corporation shall make payment of the
applicable Final Redemption Price to each holder of shares of Series B
Convertible Preferred Stock to be redeemed in immediately available funds to
such account as specified by such holder in writing to the Corporation at least
one Business Day prior to the Final Redemption Date. A holder of shares of
Series B Convertible Preferred Stock to be redeemed pursuant to this Section
9(b) shall be entitled to convert such shares of Series B Convertible Preferred
Stock in accordance with Section 10 through the day prior to the Final
Redemption Date and (2) if the Corporation shall fail to pay the Final
Redemption Price of any share of Series B Convertible Preferred Stock when due,
at any time after the due date thereof until such date as the Corporation pays
the Final Redemption Price of such share
28
of Series B Convertible Preferred Stock to such holder. No share of Series B
Convertible Preferred Stock as to which a holder exercises the right of
conversion pursuant to Section 10 or the optional redemption right pursuant to
Section 11 may be redeemed by the Corporation pursuant to this Section 9(b) on
or after the date of exercise of such conversion right or optional redemption
right, as the case may be, regardless of whether the Final Redemption Notice
shall have been given prior to, or on or after, the date of exercise of such
conversion right or optional redemption right, as the case may be. So long as
during the period from the Issuance Date through the date the Corporation pays
the Final Redemption Price either (i) the Corporation shall not have commenced a
voluntary case or other proceeding, and no person shall have commenced an
involuntary case or other proceeding against the Corporation, in any such case
seeking liquidation, reorganization or other relief with respect to the
Corporation or its debts under any bankruptcy, insolvency, receivership,
moratorium, or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian, or other similar
official of the Corporation or any substantial part of the Corporation's
property, the Corporation shall not have consented to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, and the Corporation shall not have
made a general assignment for the benefit of creditors or (ii) any of the events
described in clause (i) of this sentence shall have been dismissed or otherwise
terminated within 90 days after the first occurrence thereof and such dismissal
or termination occurs at least nine months prior to the Final Redemption Date,
then the Corporation shall have the right, exercisable by a statement to such
effect in the Final Redemption Notice, to pay all or a portion of the Final
Redemption Price by the issuance to the holders of shares of Series B
Convertible Preferred Stock to be redeemed of shares of Common Stock, valued for
this purpose at the Conversion Price on the Final Redemption Date, in lieu of
payment of cash, so long as all shares of Common Stock to be so issued would, if
issued as dividends on shares of Series B Convertible Preferred Stock, meet the
criteria in clauses (i) through (vi) of Section 5(b).
(C) NO OTHER OPTIONAL REDEMPTION. The shares of Series B
Convertible Preferred Stock shall not be subject to redemption at the option of
the Corporation except as provided in Sections 9(a) and 9(b).
SECTION 10. CONVERSION.
(A) CONVERSION AT OPTION OF HOLDER. The holders of the Series
B Convertible Preferred Stock may at any time on or after the earlier of (x)
the SEC Effective Date and (y) the date which is 90 days after the Issuance
Date convert at any time all or from time to time any part of their shares of
Series B Convertible Preferred Stock into fully paid and nonassessable shares
of Common Stock and such other securities and property as herein provided.
Each share of Series B Convertible Preferred Stock may be converted at the
office of the Conversion Agent or at such other additional office or offices,
if any, as the Board of Directors may designate, into such number of fully
paid and nonassessable
29
shares of Common Stock (calculated as to each conversion to the nearest
1/100th of a share) determined by dividing (x) the sum of (i) the Conversion
Amount, (ii) accrued but unpaid dividends to the applicable Conversion Date
on the share of Series B Convertible Preferred Stock being converted, and
(iii) accrued but unpaid interest on the dividends on the share of Series B
Convertible Preferred Stock being converted in arrears to the applicable
Conversion Date at the rate provided in Section 5 BY (y) the Conversion Price
for such Conversion Date (the "Conversion Rate"); PROVIDED, HOWEVER, that in
no event shall any holder of shares of Series B Convertible Preferred Stock
be entitled to convert any shares of Series B Convertible Preferred Stock in
excess of that number of shares of Series B Convertible Preferred Stock upon
conversion of which the sum of (1) the number of shares of Common Stock
beneficially owned by such holder and all Aggregated Persons of such holder
(other than shares of Common Stock deemed beneficially owned through the
ownership of (x) unconverted shares of Series B Convertible Preferred Stock
and (y) the unconverted or unexercised portion of any instrument, including
without limitation the Warrants, which contains limitations similar to those
set forth in this sentence) and (2) the number of shares of Common Stock
issuable upon the conversion of the number of shares of Series B Convertible
Preferred Stock with respect to which the determination in this proviso is
being made, would result in beneficial ownership by such holder and all
Aggregated Persons of such holder of more than 4.9% of the outstanding shares
of Common Stock. For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and Regulation 13D-G thereunder, except as
otherwise provided in clause (1) of the proviso to the immediately preceding
sentence.
(B) OTHER PROVISIONS. (1) Notwithstanding anything in this
Section 10(b) to the contrary, no change in the Conversion Amount pursuant to
this Section 10(b) shall actually be made until the cumulative effect of the
adjustments called for by this Section 10(b) since the date of the last change
in the Conversion Amount would change the Conversion Amount by more than 1%.
However, once the cumulative effect would result in such a change, then the
Conversion Amount shall actually be changed to reflect all adjustments called
for by this Section 10(b) and not previously made. Notwithstanding anything in
this Section 10(b), no change in the Conversion Amount shall be made that would
result in the price at which a share of Series B Convertible Preferred Stock is
converted being less than the par value of the Common Stock into which shares of
Series B Convertible Preferred Stock are at the time convertible.
(2) The holders of shares of Series B Convertible Preferred Stock
at the close of business on the record date for any dividend payment to holders
of Series B Convertible Preferred Stock shall be entitled to receive the
dividend payable on such shares on the corresponding dividend payment date
notwithstanding the conversion thereof after such dividend payment record date
or the Corporation's default in payment of the dividend due on such dividend
payment date; PROVIDED, HOWEVER, that the holder of shares of Series B
Convertible Preferred Stock surrendered for conversion during the period between
the
30
close of business on any record date for a dividend payment and the opening of
business on the corresponding dividend payment date must pay to the Corporation,
within five days after receipt by such holder, an amount equal to the dividend
payable on such shares on such dividend payment date if such dividend is paid by
the Corporation to such holder. A holder of shares of Series B Convertible
Preferred Stock on a record date for a dividend payment who (or whose
transferee) tenders any of such shares for conversion into shares of Common
Stock on or after such dividend payment date will receive the dividend payable
by the Corporation on such shares of Series B Convertible Preferred Stock on
such date, and the converting holder need not make any payment of the amount of
such dividend in connection with such conversion of shares of Series B
Convertible Preferred Stock. Except as provided above, no adjustment shall be
made in respect of cash dividends on Common Stock or Series B Convertible
Preferred Stock that may be accrued and unpaid at the date of surrender of
shares of Series B Convertible Preferred Stock.
(3) (A) The right of the holders of Series B Convertible
Preferred Stock to convert their shares shall be exercised by giving (which may
be done by telephone line facsimile transmission) a Conversion Notice to the
Conversion Agent and a copy thereof to the Corporation. If a holder of Series B
Convertible Preferred Stock elects to convert any shares of Series B Convertible
Preferred Stock in accordance with Section 10(a), such holder shall not be
required to surrender the certificate(s) representing such shares of Series B
Convertible Preferred Stock to the Corporation unless all of the shares of
Series B Convertible Preferred Stock represented thereby are so converted. Each
holder of shares of Series B Convertible Preferred Stock and the Corporation
shall maintain records showing the number of shares so converted and the dates
of such conversions or shall use such other method, satisfactory to such holder
and the Corporation, so as to not require physical surrender of such
certificates upon each such conversion. In the event of any dispute or
discrepancy, such records of the Corporation shall be controlling and
determinative in the absence of manifest error. Notwithstanding the foregoing,
if any shares of Series B Convertible Preferred Stock evidenced by a particular
certificate therefor are converted as aforesaid, the holder of Series B
Convertible Preferred Stock may not transfer the certificate(s) representing
such shares of Series B Convertible Preferred Stock unless such holder first
physically surrenders such certificate(s) to the Corporation, whereupon the
Corporation will forthwith issue and deliver upon the order of such holder of
shares of Series B Convertible Preferred Stock new certificate(s) of like tenor,
registered as such holder of shares of Series B Convertible Preferred Stock
(upon payment by such holder of shares of Series B Convertible Preferred Stock
of any applicable transfer taxes) may request, representing in the aggregate the
remaining number of shares of Series B Convertible Preferred Stock represented
by such certificate(s). Each holder of shares of Series B Convertible Preferred
Stock, by acceptance of a certificate for such shares, acknowledges and agrees
that (1) by reason of the provisions of this paragraph, following conversion of
any shares of Series B Convertible Preferred Stock represented by such
certificate, the number of shares of Series B Convertible Preferred Stock
represented by such certificate may be less than the number of shares stated on
such certificate, and (2)
31
the Corporation may place a legend on the certificates for shares of Series B
Convertible Preferred Stock which refers to or describes the provisions of this
paragraph.
(B) The Corporation shall pay any transfer tax arising in
connection with any conversion of shares of Series B Convertible Preferred Stock
except that the Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue and delivery
upon conversion of shares of Common Stock or other securities or property in a
name other than that of the holder of the shares of the Series B Convertible
Preferred Stock being converted, and the Corporation shall not be required to
issue or deliver any such shares or other securities or property unless and
until the person or persons requesting the issuance thereof shall have paid to
the Corporation the amount of any such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid.
(C) The number of shares of Common Stock to be issued upon each
conversion of shares of Series B Convertible Preferred Stock shall be the number
set forth in the applicable Conversion Notice which number shall be conclusive
absent manifest error. Within one Trading Day after receipt of each Conversion
Notice, the Corporation shall send a notice by telephone line facsimile
transmission to the Conversion Agent confirming the instructions in such
Conversion Notice. If in connection with a particular conversion of shares of
Series B Convertible Preferred Stock the Corporation determines that manifest
error has been made by virtue of the Conversion Price or other information set
forth in the applicable Conversion Notice, the Corporation shall, within one
Trading Day after a holder of shares of Series B Convertible Preferred Stock
gives such Conversion Notice, notify the Conversion Agent and such holder of
such error, which notice shall state the number of shares of Common Stock in
dispute, and, notwithstanding such notice from the Corporation, the Conversion
Agent shall issue and deliver the number of shares of Common Stock which are not
in dispute. A Conversion Notice shall be deemed for all purposes to be in proper
form unless the Corporation otherwise notifies the holder of shares of Series B
Convertible Preferred Stock giving such Conversion Notice by telephone line
facsimile transmission within one Trading Day after a Conversion Notice has been
given (which notice from the Corporation shall specify all defects in the
Conversion Notice), and any Conversion Notice containing any such defect shall
nonetheless be effective on the date given if such holder corrects all such
defects within two Trading Days after receiving such notice from the
Corporation. If the Corporation shall have notified the Conversion Agent and
such holder of any such claim of manifest error, and the Corporation and such
holder do not agree as to a resolution of such claim on or before the date of
such notice by the Corporation of an error in such Conversion Notice, the
Corporation shall on the date such notice is given submit the dispute to the
Auditors for determination and shall instruct the Auditors to resolve such
dispute and to notify the Corporation, the Conversion Agent and such holder
within two Trading Days after such dispute is submitted to the Auditors.
Immediately after receipt of timely notice of the Auditors' determination (but
in any event within three Trading Days after the applicable Conversion Notice is
given to the Conversion
32
Agent), the Corporation shall cause the Conversion Agent to issue to the
converting holder any additional shares of Common Stock to which such holder is
entitled based on the determination of the Auditors. If the Auditors shall fail
to notify the Conversion Agent, the Corporation and the holder of their
determination within three Trading Days after the applicable Conversion Notice
is given to the Conversion Agent, then the Corporation shall cause the
Conversion Agent to, within three Trading Days after the date the applicable
Conversion Notice was given, issue to the converting holder any additional
shares of Common Stock to which such holder is entitled based on the applicable
Conversion Notice.
(4) The Corporation (and any successor corporation) shall take
all action necessary so that a number of shares of the authorized but unissued
Common Stock (or common stock in the case of any successor corporation)
sufficient to provide for the conversion of the Series B Convertible Preferred
Stock outstanding upon the basis hereinbefore provided are at all times reserved
by the Corporation (or any successor corporation), free from preemptive rights,
for such conversion, subject to the provisions of the next succeeding paragraph.
If the Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series B Convertible Preferred Stock shall be convertible as
herein provided, the Corporation shall at the same time also make proper
provision so that thereafter there shall be a sufficient number of shares of
Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Series B Convertible Preferred Stock on the new
basis. If at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all of the outstanding
shares of Series B Convertible Preferred Stock, the Corporation promptly shall
seek, and use its best efforts to obtain and complete, such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
(5) In case of any consolidation or merger of the Corporation
with any other corporation (other than a wholly-owned subsidiary of the
Corporation) in which the Corporation is not the surviving corporation, or in
case of any sale or transfer of all or substantially all of the assets of the
Corporation (other than to a wholly-owned subsidiary of the Corporation), or in
the case of any share exchange pursuant to which all of the outstanding shares
of Common Stock are converted into other securities or property, the Corporation
shall make appropriate provision or cause appropriate provision to be made so
that each holder of shares of Series B Convertible Preferred Stock then
outstanding shall have the right thereafter to convert such shares of Series B
Convertible Preferred Stock into the kind of shares of stock and other
securities and property receivable upon such consolidation, merger, sale,
transfer, or share exchange by a holder of shares of Common Stock into which
such shares of Series B Convertible Preferred Stock could have been converted
immediately prior to the effective date of such consolidation, merger, sale,
transfer, or share exchange and on a basis which preserves the economic benefits
of the conversion rights of the holders of shares of Series B Convertible
Preferred Stock on a basis
33
as nearly as practical as such rights exist hereunder prior thereto. If, in
connection with any such consolidation, merger, sale, transfer, or share
exchange, each holder of shares of Common Stock is entitled to elect to receive
securities, cash, or other assets upon completion of such transaction, the
Corporation shall provide or cause to be provided to each holder of Series B
Convertible Preferred Stock the right to elect the securities, cash, or other
assets into which the Series B Convertible Preferred Stock held by such holder
shall be convertible after completion of any such transaction on the same terms
and subject to the same conditions applicable to holders of the Common Stock
(including, without limitation, notice of the right to elect, limitations on the
period in which such election shall be made, and the effect of failing to
exercise the election). The Corporation shall not effect any such transaction
unless the provisions of this paragraph have been complied with. The above
provisions shall similarly apply to successive consolidations, mergers, sales,
transfers, or share exchanges.
(6) If a holder shall have given a Conversion Notice for shares
of Series B Convertible Preferred Stock, the Corporation shall issue and deliver
to such person certificates for the Common Stock issuable upon such conversion
within three Trading Days after such Conversion Notice is given and the person
converting shall be deemed to be the holder of record of the Common Stock
issuable upon such conversion, and all rights with respect to the shares
surrendered shall forthwith terminate except the right to receive the Common
Stock or other securities, cash, or other assets as herein provided. If a holder
shall have given a Conversion Notice as provided herein, the Corporation's
obligation to issue and deliver the certificates for Common Stock shall be
absolute and unconditional, irrespective of any action or inaction by the
converting holder to enforce the same, any waiver or consent with respect to any
provision thereof, the recovery of any judgment against any person or any action
to enforce the same, any failure or delay in the enforcement of any other
obligation of the Corporation to such holder, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by such
holder or any other person of any obligation to the Corporation or any violation
or alleged violation of law by such holder or any other person, and irrespective
of any other circumstance which might otherwise limit such obligation of the
Corporation to the holder in connection with such conversion. If the Corporation
fails to issue and deliver the certificates for the Common Stock to the holder
converting shares of Series B Convertible Preferred Stock pursuant to the first
sentence of this paragraph within three Trading Days after such Conversion
Notice is given, in addition to any other liabilities the Corporation may have
hereunder and under applicable law (1) the Corporation shall pay or reimburse
such holder on demand for all out-of-pocket expenses including, without
limitation, reasonable fees and expenses of legal counsel incurred by such
holder as a result of such failure, (2) for each Trading Day thereafter on which
the Corporation so fails to deliver such certificates, (x) the Conversion
Percentage used to determine the Conversion Price applicable to such conversion
shall be reduced by one percentage point from the Conversion Percentage
otherwise used to calculate the Conversion Price applicable to such conversion
or (y) if such conversion is based on the Ceiling Price, the Ceiling Price used
to
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determine the Conversion Price applicable to such conversion shall be reduced by
an amount equal to one percent of the amount that the Ceiling Price otherwise
would have been without reduction pursuant hereto, and (3) such holder may by
written notice (which may be given by mail, courier, personal service or
telephone line facsimile transmission) or oral notice (promptly confirmed in
writing) given at any time prior to delivery to such holder of the certificates
for the shares of Common Stock issuable upon such conversion of shares of Series
B Convertible Preferred Stock, rescind such conversion, whereupon such holder
shall have the right to convert such shares of Series B Convertible Preferred
Stock thereafter in accordance herewith.
(7) No fractional shares of Common Stock shall be issued upon
conversion of Series B Convertible Preferred Stock but, in lieu of any fraction
of a share of Common Stock to purchase fractional shares of Common Stock which
would otherwise be issuable in respect of the aggregate number of such shares
surrendered for conversion at one time by the same holder, the Corporation shall
pay in cash an amount equal to the product of (i) the arithmetic average of the
Market Price of one share of Common Stock on the three consecutive Trading Days
ending on the Trading Day immediately preceding the Conversion Date TIMES (ii)
such fraction of a share.
(8) The Conversion Amount shall be adjusted from time to time
under certain circumstances, subject to the provisions of Section 10(b)(1), as
follows:
(i) In case the Corporation shall issue rights or warrants on a
pro rata basis to all holders of the Common Stock entitling such holders to
subscribe for or purchase Common Stock on the record date referred to below at a
price per share less than the Current Price for such record date, then in each
such case the Conversion Amount in effect on such record date shall be adjusted
in accordance with the following formula:
C(1) = C x O + N
---------
O + N X P
-----
M
where
C(1) = the adjusted Conversion Amount
C = the current Conversion Amount
O = the number of shares of Common Stock outstanding on the
record date.
N = the number of additional shares of Common Stock issuable
pursuant to the exercise of such rights or warrants.
35
P = the offering price per share of the additional shares
(which amount shall include amounts received by the
Corporation in respect of the issuance and the exercise of
such rights or warrants).
M = the Current Price per share of Common Stock on the record
date.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. If
any or all such rights or warrants are not so issued or expire or terminate
before being exercised, the Conversion Amount then in effect shall be readjusted
appropriately.
(ii) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Junior Stock (as hereinafter defined) evidences
of its indebtedness or assets (including securities, but excluding any warrants
or subscription rights referred to in subparagraph (i) above and any dividend or
distribution paid in cash out of the retained earnings of the Corporation), then
in each such case the Conversion Amount then in effect shall be adjusted in
accordance with the formula
M
C(1) = C x -----
M - F
where
C(1) = the adjusted Conversion Amount
C = the current Conversion Amount
M = the Current Price per share of Common Stock on the record
date mentioned below.
F = the aggregate amount of such cash dividend and/or the fair
market value on the record date of the assets or securities
to be distributed divided by the number of shares of Common
Stock outstanding on the record date. The Board of
Directors shall determine such fair market value, which
determination shall be conclusive.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.
For purposes of this subparagraph (ii), "Junior Stock" shall include any class
of capital stock ranking junior as to dividends or upon liquidation to the
Series B Convertible Preferred Stock.
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(iii) All calculations hereunder shall be made to the nearest cent
or to the nearest 1/100 of a share, as the case may be.
(iv) If at any time as a result of an adjustment made pursuant to
Section 10(b)(5), the holder of any Series B Convertible Preferred Stock
thereafter surrendered for conversion shall become entitled to receive
securities, cash, or assets other than Common Stock, the number or amount of
such securities or property so receivable upon conversion shall be subject to
adjustment from time to time in a manner and on terms nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
subparagraphs (i) to (iii) above.
(9) Except as otherwise provided above in this Section 10, no
adjustment in the Conversion Amount shall be made in respect of any conversion
for share distributions or dividends theretofore declared and paid or payable on
the Common Stock.
(10) Whenever the Conversion Amount is adjusted as herein
provided, the Corporation shall send to each holder and each transfer agent, if
any, for the Series B Convertible Preferred Stock and the transfer agent for the
Common Stock, a statement signed by the Chairman of the Board, the President, or
any Vice President of the Corporation and by its Treasurer or its Secretary or
an Assistant Secretary stating the adjusted Conversion Amount determined as
provided in this Section 10, and any adjustment so evidenced, given in good
faith, shall be binding upon all stockholders and upon the Corporation. Whenever
the Conversion Amount is adjusted, the Corporation will give notice by mail to
the holders of record of Series B Convertible Preferred Stock, which notice
shall be made within 15 days after the effective date of such adjustment and
shall state the adjustment and the Conversion Amount. Notwithstanding the
foregoing notice provisions, failure by the Corporation to give such notice or a
defect in such notice shall not affect the binding nature of such corporate
action of the Corporation.
(11) Whenever the Corporation shall propose to take any of the
actions specified in Section 10(b)(5) or in subparagraphs (i) or (ii) of Section
10(b)(8) which would result in any adjustment in the Conversion Amount under
this Section 10(b), the Corporation shall cause a notice to be mailed at least
20 days prior to the date on which the books of the Corporation will close or on
which a record will be taken for such action, to the holders of record of the
outstanding Series B Convertible Preferred Stock on the date of such notice.
Such notice shall specify the action proposed to be taken by the Corporation and
the date as of which holders of record of the Common Stock shall participate in
any such actions or be entitled to exchange their Common Stock for securities or
other property, as the case may be. Failure by the Corporation to mail the
notice or any defect in such notice shall not affect the validity of the
transaction.
SECTION 11. REDEMPTION AT OPTION OF HOLDERS.
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(A) REDEMPTION RIGHT. If an Optional Redemption Event occurs,
then, in addition to any other right or remedy of any holder of shares of Series
B Convertible Preferred Stock, each holder of shares of Series B Convertible
Preferred Stock shall have the right, at such holder's option, to require the
Corporation to redeem all of such holder's shares of Series B Convertible
Preferred Stock, or any portion thereof, on the date that is three Business Days
after the date such holder gives the Corporation an Optional Redemption Notice
with respect to such Optional Redemption Event at any time while any of such
holder's shares of Series B Convertible Preferred Stock are outstanding, at a
price equal to the Optional Redemption Price.
(B) NOTICES; METHOD OF EXERCISING OPTIONAL REDEMPTION RIGHTS,
ETC. (1) On or before the fifth Business Day after the occurrence of an Optional
Redemption Event, the Corporation shall give to each holder of outstanding
shares of Series B Convertible Preferred Stock a notice of the occurrence of
such Optional Redemption Event and of the redemption right set forth herein
arising as a result thereof. Such notice from the Corporation shall set forth:
(i) the date by which the optional redemption right must be
exercised, and
(ii) a description of the procedure (set forth below) which each
such holder must follow to exercise such holder's optional redemption right.
No failure of the Corporation to give such notice or defect therein shall limit
the right of any holder of shares of Series B Convertible Preferred Stock to
exercise the optional redemption right or affect the validity of the proceedings
for the redemption of such holder's shares of Series B Convertible Preferred
Stock.
(2) To exercise its optional redemption right, each holder of
outstanding shares of Series B Convertible Preferred Stock shall deliver to the
Corporation on or before the 30th day after the notice required by Section
11(b)(1) is given to such holder (or if no such notice has been given by the
Corporation to such holder, within 40 days after such holder first learns of
such Optional Redemption Event) an Optional Redemption Notice to the
Corporation. An Optional Redemption Notice may be revoked by such holder giving
such Optional Redemption Notice by giving notice of such revocation to the
Corporation at any time prior to the time the Corporation pays the Optional
Redemption Price to such holder.
(3) If a holder of shares of Series B Convertible Preferred Stock
shall have given an Optional Redemption Notice, on the date which is three
Business Days after the date such Optional Redemption Notice is given (or such
later date as such holder surrenders such holder's certificates for the shares
of Series B Convertible Preferred Stock to be redeemed) the Corporation shall
make payment in immediately available funds of the
38
applicable Optional Redemption Price to such account as specified by such holder
in writing to the Corporation at least one Business Day prior to the applicable
redemption date.
(4) Notwithstanding any other provision of this Certificate of
Designations, if an Optional Redemption Event occurs by reason of the occurrence
of (x) an event described in clause (1), (2) or (5) of the definition of the
term Optional Redemption Event or (y) an Amendment Event, and such occurrence is
by reason of events which are not solely within the control of the Corporation,
the Corporation shall have the right to give a Control Notice to the holders of
shares of Series B Convertible Preferred Stock at any time after such Optional
Redemption Event occurs and prior to the earlier of (1) the date on which all
holders of shares of Series B Convertible Preferred Stock who had the right
(other than as limited by this Section 11(b)(4)) to require redemption of any
shares of Series B Convertible Preferred Stock by reason of the occurrence of
such Optional Redemption Event no longer have such right and (2) the applicable
redemption date by reason of the earliest Optional Redemption Notice given by
any holder of shares of Series B Convertible Preferred Stock by reason of such
Optional Redemption Event. If the Corporation timely gives such Control Notice
to the holders of shares of Series B Convertible Preferred Stock, then in lieu
of payment of the Optional Redemption Price by reason of any such Optional
Redemption Event and commencing on the first date on which such Optional
Redemption Event occurs the following adjustments shall take effect (subject to
the provisions of Section 7(a)(6)(B)):
(A) In the case of an Optional Redemption Event described in
clause (1) of the definition of the term Optional Redemption Event, for a period
of 180 days after the occurrence of such Optional Redemption Event the
Conversion Price will be 70% of the amount which the Conversion Price would
otherwise be.
(B) In the case of an Optional Redemption Event described in
clause (2) of the definition of the term Optional Redemption Event or in the
case of an Amendment Event, for so long as such Optional Redemption Event or
Amendment Event continues the Conversion Price will be 70% of the amount which
the Conversion Price would otherwise be.
(C) In the case of an Optional Redemption Event described in
clause (5) of the definition of the term Optional Redemption Event, for so long
as any shares of Preferred Stock are outstanding the Conversion Price will be
70% of the amount which the Conversion Price would otherwise be.
For purposes of this Section 11(b)(4), an Optional Redemption Event described in
clause (1), (2) or (5) of the definition of the term Optional Redemption Event
or an Amendment Event shall be deemed to have occurred by reason of events which
are not solely within the control of the Corporation if a requirement of the
Corporation to redeem, or a right of any holder of shares of Series B
Convertible Preferred Stock to require redemption of,
39
shares of Series B Convertible Preferred Stock by reason thereof would result in
the Corporation being required to classify the Series B Convertible Preferred
Stock as redeemable preferred stock on a balance sheet of the Corporation
prepared in accordance with Generally Accepted Accounting Principles and
Regulation S-X of the SEC, and, in the case of an Optional Redemption Event
described in clause (5) of the definition of the term Optional Redemption Event,
the Board or the stockholders of the Corporation do not have the right to
approve or disapprove the transactions resulting in such event.
(C) OTHER. (1) In connection with a redemption pursuant to this
Section 11 of less than all of the shares of Series B Convertible Preferred
Stock evidenced by a particular certificate, promptly, but in no event later
than three Business Days after surrender of such certificate to the Corporation,
the Corporation shall issue and deliver to such holder a replacement certificate
for the shares of Series B Convertible Preferred Stock evidenced by such
certificate which have not been redeemed.
(2) An Optional Redemption Notice given by a holder of shares of
Series B Convertible Preferred Stock shall be deemed for all purposes to be in
proper form unless the Corporation notifies such holder in writing within three
Business Days after such Optional Redemption Notice has been given (which notice
shall specify all defects in such Optional Redemption Notice), and any Optional
Redemption Notice containing any such defect shall nonetheless be effective on
the date given if such holder corrects all such defects within three Business
Days after receiving such notice from the Corporation. No such claim of error
shall limit or delay performance of the Corporation's obligation to redeem all
shares of Series B Convertible Preferred Stock not in dispute whether or not
such holder makes such undertaking.
SECTION 12. VOTING RIGHTS; CERTAIN RESTRICTIONS.
(A) VOTING RIGHTS. Except as otherwise required by law or
expressly provided herein, shares of Series B Convertible Preferred Stock shall
not be entitled to vote on any matter.
(B) CERTIFICATE OF INCORPORATION; CERTAIN STOCK. The affirmative
vote or consent of the Majority Holders, voting separately as a class, will be
required for (1) any amendment, alteration, or repeal, whether by merger or
consolidation or otherwise, of the Corporation's Certificate of Incorporation if
the amendment, alteration, or repeal materially and adversely affects the
powers, preferences, or special rights of the Series B Convertible Preferred
Stock, or (2) the creation and issuance of any Senior Dividend Stock or Senior
Liquidation Stock; PROVIDED, HOWEVER, that (A) any increase in the authorized
Preferred Stock or the authorized Common Stock of the Corporation, (B) the
creation and issuance of any stock which is both Junior Dividend Stock and
Junior Liquidation Stock or (C) the creation and original issuance of Preferred
Stock to Advantage Fund II Ltd., a British Virgin Islands corporation, or its
designees on terms similar to and which ranks pari passu with
40
the Series B Convertible Preferred Stock shall not be deemed to affect
materially and adversely such powers, preferences, or special rights and any
such increase or creation and issuance may be made without any such vote by the
holders of Series B Convertible Preferred Stock except as otherwise required by
law.
(C) REPURCHASES OF SERIES B CONVERTIBLE PREFERRED STOCK. The
Corporation shall not repurchase or otherwise acquire any shares of Series B
Convertible Preferred Stock (other than pursuant to Sections 7(a), 9(a), 9(b) or
11) unless the Corporation offers to repurchase or otherwise acquire
simultaneously a pro rata portion of each holder's shares of Series B
Convertible Preferred Stock for cash at the same price per share.
(D) OTHER. So long as any shares of Series B Convertible
Preferred Stock are outstanding:
(1) PAYMENT OF OBLIGATIONS. The Corporation will pay and
discharge, and will cause each subsidiary of the Corporation to pay and
discharge, when due all their respective obligations and liabilities which are
material to the Corporation and its subsidiaries taken as a whole, including,
without limitation, tax liabilities, except where the same may be contested in
good faith by appropriate proceedings.
(2) MAINTENANCE OF PROPERTY; INSURANCE. (A) The Corporation will
keep, and will cause each subsidiary of the Corporation to keep, all material
property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted.
(B) The Corporation will maintain, and will cause each subsidiary
of the Corporation to maintain, with financially sound and responsible insurance
companies, insurance against loss or damage by fire or other casualty and such
other insurance in such amounts and covering such risks as is reasonably
adequate for the conduct of their businesses and the value of their properties.
(3) CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The
Corporation will continue, and will cause each subsidiary of the Corporation to
continue, to engage in business of the same general type as conducted by the
Corporation and its operating subsidiaries at the time this Certificate of
Designations is filed with the Secretary of State of the State of Delaware, and
will preserve, renew and keep in full force and effect, and will cause each
subsidiary of the Corporation to preserve, renew and keep in full force and
effect, their respective corporate existence and their respective material
rights, privileges and franchises necessary or desirable in the normal conduct
of business; PROVIDED, HOWEVER, that this Section 12(d)(3) shall not prevent the
Corporation from merging, combining or transferring its operating subsidiaries
with, into or to the Corporation or any of its wholly-owned subsidiaries.
41
(4) COMPLIANCE WITH LAWS. The Corporation will comply, and will
cause each subsidiary of the Corporation to comply, in all material respects
with all applicable laws, ordinances, rules, regulations, decisions, orders and
requirements of governmental authorities and courts (including, without
limitation, environmental laws) except (i) where compliance therewith is
contested in good faith by appropriate proceedings or (ii) where non-compliance
therewith could not reasonably be expected to have a material adverse effect on
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Corporation and its subsidiaries taken as a
whole.
(5) INVESTMENT COMPANY ACT. The Corporation will not be or become
an open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended, or any successor provision.
(6) TRANSACTIONS WITH AFFILIATES. The Corporation will not, and
will not permit any subsidiary of the Corporation, directly or indirectly, to
pay any funds to or for the account of, make any investment (whether by
acquisition of stock or indebtedness, by loan, advance, transfer of property,
guarantee or other agreement to pay, purchase or service, directly or
indirectly, any indebtedness, or otherwise) in, lease, sell, transfer or
otherwise dispose of any assets, tangible or intangible, to, or participate in,
or effect any transaction in connection with, any joint enterprise or other
joint arrangement with, any Affiliate of the Corporation, except, on terms to
the Corporation or such subsidiary no less favorable than terms that could be
obtained by the Corporation or such subsidiary from a person that is not an
Affiliate of the Corporation, as determined in good faith by the Board of
Directors.
SECTION 13. OUTSTANDING SHARES. For purposes of this Certificate of
Designations, all authorized and issued shares of Series B Convertible Preferred
Stock shall be deemed outstanding except (i) from the applicable Conversion
Date, each share of Series B Convertible Preferred Stock converted into Common
Stock, unless the Corporation shall default in its obligation to issue and
deliver shares of Common Stock upon such conversion as and when required by
Section 10 and such shares of Common Stock are not thereafter delivered to and
accepted by the holder of Series B Convertible Preferred Stock who had given the
applicable Conversion Notice; (ii) from the date of registration of transfer,
all shares of Series B Convertible Preferred Stock held of record by the
Corporation or any subsidiary or Affiliate of the Corporation (other than any
original holder of shares of Series B Convertible Preferred Stock) and (iii)
from the applicable Redemption Date, Share Limitation Redemption Date, Final
Redemption Date or date of redemption pursuant to Section 11, all shares of
Series B Convertible Preferred Stock which are redeemed or repurchased, so long
as in each case the Redemption Price, the Share Limitation Redemption Price, the
Final Redemption Price, the Optional Redemption Price or other repurchase price,
as the case may be, of such shares of Series B Convertible
42
Preferred Stock shall have been paid by the Corporation together with any amount
due pursuant to Section 14(c).
SECTION 14. MISCELLANEOUS.
(A) NOTICES. Any notices required or permitted to be given under
the terms of this Certificate of Designations shall be in writing and shall be
delivered personally (which shall include telephone line facsimile transmission
with answer back confirmation) or by courier and shall be deemed given upon
receipt, if delivered personally or by courier (a) in the case of the
Corporation, addressed to the Corporation at 1099 18th Street, Suite 3000,
Denver, Colorado 80202, Attention: Chief Executive Officer (telephone line
facsimile transmission number (303) 672-0711), or (b) in the case of any holder
of shares of Series B Convertible Preferred Stock, at such holder's address or
telephone line facsimile transmission number shown on the stock books maintained
by the Corporation with respect to the Series B Convertible Preferred Stock or
such other address as the Corporation shall have provided by notice to the
holders of shares of Series B Convertible Preferred Stock in accordance with
this Section or any holder of shares of Series B Convertible Preferred Stock
shall have provided to the Corporation in accordance with this Section.
(B) REPLACEMENT OF CERTIFICATES. Upon receipt by the Corporation
of evidence reasonably satisfactory to the Corporation of the ownership of and
the loss, theft, destruction or mutilation of any certificate for shares of
Series B Convertible Preferred Stock and (1) in the case of loss, theft or
destruction, of indemnity from the record holder of the certificate for such
shares of Series B Convertible Preferred Stock reasonably satisfactory in form
to the Corporation (and without the requirement to post any bond or other
security) or (2) in the case of mutilation, upon surrender and cancellation of
the certificate for such shares of Series B Convertible Preferred Stock, the
Corporation will execute and deliver to such holder a new certificate for such
shares of Series B Convertible Preferred Stock without charge to such holder.
(C) OVERDUE AMOUNTS. Except as otherwise specifically provided in
Section 5 with respect to dividends in arrears on the Series B Convertible
Preferred Stock, whenever any amount which is due to any holder of shares of
Series B Convertible Preferred Stock is not paid to such holder when due, such
amount shall bear interest at the rate of 14% per annum (or such other rate as
shall be the maximum rate allowable by applicable law) until paid in full.
* * * * *
43
IN WITNESS WHEREOF, Rocky Mountain Internet, Inc. has caused this
Certificate of Designations to be signed by ___________________________, its
_______________, as of the ___ day of December, 1998.
ROCKY MOUNTAIN INTERNET, INC.
By:
---------------------------
Title:
44