CERTIFICATE OF DETERMINATION OF
CONVERTIBLE SERIES D PREFERRED STOCK OF
INCOMNET, INC.
The undersigned, President and Assistant Secretary, hereby certify that:
1. They are the duly elected and acting President and Assistant Secretary,
respectively, of Incomnet, Inc., a California corporation (the "Company").
2. The Articles of Incorporation of the Company authorize 100,000 shares
of preferred stock, no par value per share. The number of shares of Convertible
Series A Preferred Stock authorized is 4,000, of which 803 are issued and
outstanding. The number of shares of Convertible Series B Preferred Stock
authorized is 2,900, of which 1,243 are issued and outstanding. The number of
shares of Convertible Series D Preferred Stock authorized is 50, none of which
have been issued. The number of shares of Convertible Series D Preferred Stock
authorized herein is 50 none of which have been issued. Upon filing of the
Certificate of Determination of Convertible Series C Preferred Stock
concurrently with this Certificate of Determination of Convertible Series D
Preferred Stock, the number of shares of Convertible Series C Preferred Stock
authorized herein in 25, none of which have been issued.
3. The following is a true and correct copy of resolutions duly adopted by
the Board of Directors at a meeting duly held on January 18, 1999, which
constituted all requisite action on the part of the Company for adoption of such
resolutions.
RESOLUTIONS
WHEREAS, the Board of Directors of the Company (the "Board of Directors")
is authorized to provide for the issuance of the shares of preferred stock in
series, and by filing a certificate pursuant to the applicable law of the State
of California, to establish from time to time the number of shares to be
included in each such series, and to fix the designations, powers, preferences
and rights of the shares of each such series and the qualifications, limitations
or restrictions thereof.
WHEREAS, the Board of Directors desires, pursuant to its authority
described in the immediately preceding recital, to designate a new series of
preferred stock, set the number of shares constituting such series, and fix the
rights, preferences, privileges and restrictions of such series.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby
designates a new series of preferred stock and the number of shares constituting
such series, and fixes the rights, preferences, privileges and restrictions
relating to such series as follows:
Section 1. Designation, Amount and Par Value.
A series of preferred stock shall be designated as the Convertible Series
D Preferred Stock (the "Series D Preferred Stock"), and the number of shares so
designated shall be 50. The par value of each share of Series D Preferred Stock
shall be no par value. Each share of Series D Preferred Stock shall have a
stated value of $100.00 per share (the "Stated Value").
Section 2. Dividends and Distributions. The holders of Series D Preferred
Stock shall have the rights to receive dividends set forth in this Section 2.
(a) The holders of Series D Preferred Stock shall not be entitled to
receive dividends.
(b) Notwithstanding Section 2(a) above, the holders of Preferred Stock
shall be entitled to receive any dividend or distribution declared on the Common
Stock of the Company. Upon declaration of such a dividend or distribution on the
Common Stock of the Company, the holders of Series D Preferred Stock shall be
entitled to such dividend or distribution that the holders of Series D Preferred
Stock would have been entitled to had such holders converted their shares of
Preferred Stock into shares of Common Stock pursuant to Section 5 immediately
prior to the record date of such dividend or distribution on the Common Stock.
Except as stated in the preceding sentence, the holders of Series D Preferred
Stock shall not be entitled to receive dividends.
Section 3. Voting Rights.
The holders of the Series D Preferred Stock shall have the voting rights
set forth in this Section 3.
(a) Each share of the Series D Preferred Stock shall entitle the holder
thereof to a number of votes equal to the number of shares of Common Stock such
holder of Series D Preferred Stock could have been converted into immediately
prior to the record date for such vote on all matters submitted to a vote of the
Company's stockholders.
(b) Except as otherwise provided by law, the holders of Series D Preferred
Stock, the holders of Convertible Series C Preferred Stock and the holders of
-2-
Common Stock shall vote together as one class on all matters submitted to a vote
of the Company's stockholders.
Section 4. Liquidation.
Upon any liquidation, dissolution, or winding-up of the Company, whether
involuntary or voluntary (a "Liquidation"), holders of shares of Series D
Preferred Stock shall be entitled to receive, out of the assets of the Company,
whether such assets are capital or surplus, for each share of Series D Preferred
Stock an amount equal to the Stated Value, plus an amount equal to accrued but
unpaid dividends payable to such holder of Series D Preferred Stock pursuant to
Section 2(b) above. Such payment shall be subject to the prior payment in full
of the liquidation preferences with respect to the Convertible Series A
Preferred Stock and the Convertible Series B Preferred Stock and shall be made
pari passu with the Convertible Series C Preferred Stock but prior and in
preference to the holders of Junior Securities (defined below). If the assets of
the Company shall be insufficient to pay in full the amounts payable to the
holders of the Series D Preferred Stock and the holders of the Convertible
Series C Preferred Stock, then the entire assets to be distributed shall be
distributed among the holders of the Series D Preferred Stock and the
Convertible Series C Preferred Stock ratably in accordance with the respective
amounts that would be payable on such shares if all amounts payable thereon were
paid in full. A sale, conveyance or disposition of all or substantially all of
the assets of the Company or the effectuation by the Company of a transaction or
series of related transactions in which more than 75% of the voting power of the
Company is disposed of shall be deemed a Liquidation; provided that, a
consolidation or merger of the Company with or into any other company or
companies shall not be treated as a Liquidation, but instead shall be subject to
the provisions of Section 5. The Company shall mail written notice of any such
Liquidation, not less than 60 days prior to the payment date stated therein, to
each record holder of Series D Preferred Stock.
Section 5. Conversion.
(a) Each share of Series D Preferred Stock shall be converted into shares
of Common Stock, at the Conversion Ratio, at the option of the holder in whole
or in part at any time; provided that the number of shares of Common Stock
authorized shall be sufficient to issue shares of Common Stock upon conversion
of the Series D Preferred Stock. The holder shall effect conversions by
surrendering the certificate or certificates representing the shares of Series D
Preferred Stock to be converted to the Company, together with a conversion
notice (the "Holder Conversion Notice") in the manner set forth in Section 5(f)
hereof. Each Holder Conversion Notice shall specify the number of shares of
Series D Preferred Stock to be converted and the date on which such conversion
is to be effected, which date may not be prior to the date the Holder delivers
such Notice
-3-
by facsimile (the "Holder Conversion Date"). Each Holder Conversion Notice, once
given, shall be irrevocable. If the holder is converting less than all shares of
Series D Preferred Stock represented by the certificate or certificates tendered
by the holder with the Holder Conversion Notice, the Company shall promptly
deliver to the holder a certificate for such number of shares as have not been
converted.
(b)
(i) The initial Conversion Price shall be $1.00 per share.
(ii) If the Company, at any time while any shares of Series D
Preferred Stock are outstanding, (a) shall pay a stock dividend or otherwise
make a distribution or distributions on shares of Common Stock payable in shares
of its capital stock (whether payable in shares of Common Stock or of capital
stock of any class), (b) subdivide outstanding shares of Common Stock into a
larger number of shares, (c) combine outstanding shares of Common Stock into a
smaller number of shares, or (d) issue by reclassification of shares of Common
Stock any shares of capital stock of the Company, the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding before such event and of which the numerator shall be
the number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this Section 5(b)(ii) shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(iii) All calculations under this Section 5 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(iv) Whenever the Conversion Price is adjusted pursuant to
Section 5(d)(ii), the Company shall promptly mail to each holder of Series D
Preferred Stock, a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(v) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the holders of the Series D Preferred Stock
then outstanding shall have the right thereafter to convert such shares only
into the shares of stock and other securities and property receivable upon or
deemed to be held by holders of Common Stock following such reclassification,
consolidation, merger, sale, transfer or share exchange, and the holders of the
Series D Preferred Stock shall be entitled upon such event to receive such
amount of securities or property as the shares of Common Stock of the Company
into which such
-4-
shares of Series D Preferred Stock could have been converted immediately prior
to such reclassification, consolidation, merger, sale, transfer or share
exchange would have been entitled. The terms of any such consolidation, merger,
sale, transfer or share exchange shall include such terms so as to continue to
give to the holder of Series D Preferred Stock the right to receive the
securities or property set forth in this Section 5(b)(v) upon any conversion
following such consolidation, merger, sale, transfer or share exchange. This
provision shall similarly apply to successive reclassifications, consolidations,
mergers, sales, transfers or share exchanges.
(c) Upon a conversion hereunder the Company shall not be required to issue
stock certificates representing fractions of shares of Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final fraction of a
share based on the Per Share Market Value at such time. If the Company elects
not, or is unable, to make such a cash payment, the holder of a share of Series
D Preferred Stock shall be entitled to receive, in lieu of the final fraction of
a share, one whole share of Common Stock.
(d) The issuance of certificates for shares of Common Stock on conversion
of Series D Preferred Stock shall be made without charge to the holders thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the holder of such shares of Series D Preferred Stock so
converted and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(e) Shares of Series D Preferred Stock converted into Common Stock shall
be canceled and shall have the status of authorized but unissued shares of
preferred stock.
(f) Each Holder Conversion Notice shall be given by facsimile and by mail,
postage prepaid, addressed to the attention of the Secretary of the Company at
the facsimile telephone number and address of the principal place of business of
the Company. Any such notice shall be deemed given and effective upon (i) the
earliest to occur of (a) if such notice is delivered via facsimile prior to 4:30
p.m. (Eastern Standard Time) on any date, such date, (b) if such Conversion
Notice is delivered via facsimile after 4:30 p.m. on any date, the next date,
(c) five days after deposit in the United States mails, or (d) upon actual
receipt by the Company, or (ii) such later date as is specified in such notice.
-5-
Section 6. Definitions.
"Common Stock" means shares now or hereafter authorized of the class of
Common Stock, no par value, of the Company and stock of any other class into
which such shares may hereafter have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of which the numerator
is 10,000, and of which the denominator is the Conversion Price at such time.
"Junior Securities" means the Common Stock and all other equity securities
of the Company, except the Company's Convertible Series A Preferred Stock,
Convertible Series B Preferred Stock, Convertible Series D Preferred Stock and
Convertible Series C Preferred Stock.
"Per Share Market Value" means on any particular date (a) the closing bid
price per share of the Common Stock of such date on The Nasdaq Stock Market or
other stock exchange on which the Common Stock has been listed or if there is no
such price on such date, then the closing bid price on such exchange on the date
nearest preceding such date, or (b) if the Common Stock is not listed on The
Nasdaq Stock Market or any stock exchange, the closing bid for a share of Common
Stock in the over-the-counter market, as reported by the NASD at the close of
business of such date, or (c) the closing bid price for a share of Common Stock
in the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices), or (d) if the Common Stock is no longer publicly traded the
fair market value of a share of Common Stock as determined in good faith by the
Board of Directors.
Section 7. Notices.
Any notice required by the provisions hereof to be given to the holders of
shares of Series D Preferred Stock shall be deemed given when personally
delivered to such holder or five business days after the same has been deposited
in the United States mail, certified or registered mail, return receipt
requested, postage prepaid, and addressed to each holder of record at his
address appearing on the books of the Company.
-6-
Dated: /s/ Denis Richard
------------- ------------------------------
Denis Richard, President
/s/ Michael Keebaugh
------------------------------
Michael Keebaugh, Assistant Secretary
Denis Richard, as President of Incomnet, Inc., and Michael Keebaugh, as
Assistant Secretary of Incomnet, Inc. hereby declare under penalty of perjury
under the laws of the State of California that they have read the foregoing
certificate and know the contents thereof and that the same is true of their own
knowledge.
Dated: /s/ Denis Richard
------------- ------------------------------
Denis Richard, President
/s/ Michael Keebaugh
------------------------------
Michael Keebaugh, Assistant Secretary
-7-