Exhibit 3.1.4
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
DIAMOND ENTERTAINMENT CORPORATION
Pursuant to the provisions of Section 14A:7-2, Corporations, General,
of the New Jersey Statutes, the undersigned executes the following Certificate
of Amendment to its Certificate of Incorporation:
1. The name of the corporation is Diamond Entertainment Corporation
(the "Corporation").
2. Set forth below is a copy of the resolutions of the Board of
Directors of the Corporation as required by Section 14A:7-2 of the New Jersey
Business Corporation Act which was duly adopted by the Board of Directors on
November 16, 2001, which amends the Certificate of Incorporation (i) authorizing
a series of the Corporation's authorized preferred stock, no par value per
share, and (ii) providing for the designations, preferences and relative,
participating, optional or other rights, and the qualifications, limitations or
restrictions thereof, of 87 shares of Series B Convertible Preferred Stock of
the Corporation, as follows:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation by the Certificate of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), there hereby is created out of the 5,000,000 shares of
Preferred Stock, no par value per share, of the Corporation authorized by
Article 4 of the Certificate of Incorporation (the "Preferred Stock"), a series
of Preferred Stock of the Corporation consisting of 87 shares, which shall be
designated Series B Convertible Preferred Stock, which shall have the following
powers, designations, preferences and relative, participating, optional or other
rights:
1. Designations, Amount and Par Value. The series of Preferred Stock
shall be designated as Series B Convertible Preferred Stock ("Series B Preferred
Shares") and the number of shares so designated shall be 87. Each Series B
Preferred Share shall have no par value and a stated value of $10,000 per share
(the "Stated Value").
2. Dividends. The Series B Preferred Shares shall not bear any
dividends.
3. Holder's Conversion of Series B Preferred Shares. A holder of Series
B Preferred Shares shall have the right, at such holder's option, to convert the
Series B Preferred Shares into shares of the Corporation's common stock, no par
value per share (the "Common Stock"), on the following terms and conditions:
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(a) Conversion Right. Subject to the provisions of Sections 3(g) and
4(a) below, at any time any holder of Series B Preferred Shares shall be
entitled to convert any Series B Preferred Shares into fully paid and
nonassessable shares (rounded to the nearest whole share in accordance with
Section 3(h) below) of Common Stock, at the Conversion Rate (as defined below);
provided, however, that in no event other than upon a Mandatory Conversion
pursuant to Section 3(g) hereof, or upon a Triggering Event pursuant to Section
5(b) hereof, shall any holder be entitled to convert Series B Preferred Shares
in excess of that number of Series B Preferred Shares which, upon giving effect
to such conversion, would cause the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates to exceed 4.99% of the then
issued and outstanding shares of Common Stock of the Corporation following such
conversion. For purposes of the foregoing proviso, the aggregate number of
shares of Common Stock beneficially owned by the holder and its affiliates shall
include the number of shares of Common Stock issuable upon conversion of the
Series B Preferred Shares with respect to which the determination of such
proviso is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon conversion of the remaining, non-converted Series B
Preferred Shares beneficially owned by the holder and its affiliates. Except as
set forth in the preceding sentence, for purposes of this paragraph, beneficial
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and the rules thereunder;
(b) Conversion Rate. The number of shares of Common Stock issuable upon
conversion of each of the Series B Preferred Shares pursuant to Section (3)(a)
shall be determined according to the following formula (the "Conversion Rate"):
(.06)(N/365)(10,000) + 10,000
-----------------------------
Conversion Price
For purposes of this Certificate of Designations, the following terms
shall have the following meanings:
(i) "Conversion Price" means as, of any Conversion Date (as
defined below), the lower of the Fixed Conversion Price and the Floating
Conversion Price, each in effect as of such date, if applicable, and subject to
adjustment as provided herein;
(ii) "Fixed Conversion Price" means $0.02;
(iii) "Floating Conversion Price" means, as of any date of
determination, the amount obtained by multiplying the Conversion Percentage in
effect as of such date by the Average Market Price for the Common Stock for any
five (5) trading days of the previous thirty (30) trading days immediately
preceding the date of conversion;
(iv) "Conversion Percentage" means 70% as adjusted as
described herein;
(v) "Average Market Price" means, with respect to any security
for any period, that price which shall be computed as the arithmetic average of
the Closing Bid Prices (as defined below) for such security for each trading day
in such period;
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(vi) "Closing Bid Price" means, for any security as of any
date, the last closing bid price on The Nasdaq Stock Market, Inc.'s SmallCap
Market (the "Nasdaq-Small Cap") as reported by Bloomberg Financial Markets
("Bloomberg"), or, if the Nasdaq-SmallCap is not the principal trading market
for such security, the last closing bid price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last closing bid
price of such security in The Nasdaq Stock Market, Inc.'s OTC Bulletin Board or,
if not so quoted, in the "pink sheets" for such security as reported by
Bloomberg, or, if no closing bid price is reported for such security by
Bloomberg, the last closing trade price of such security as reported by
Bloomberg. If the Closing Bid Price cannot be calculated for such security on
such date on any of the foregoing bases, the Closing Bid Price of such security
on such date shall be the fair market value as reasonably determined in good
faith by the Board of Directors of the Corporation (all as appropriately
adjusted for any stock dividend, stock split or other similar transaction during
such period); and
(vii) ".06" rate represents additional shares used in the
calculation to determine the Conversion Rate. Such additional share rate shall
be used on the basis of a three hundred and sixty five (365) day year. "N" means
the number of days from, but excluding, the Issuance Date through and including
the Conversion Date for the Series B Preferred Shares for which conversion is
being elected. Interest shall be paid in shares of common stock; and
(viii) "Issuance Date" means the date of issuance of the
Series B Preferred Shares.
(c) Penalty - Registration Statement. If the Registration Statement is
not declared effective by the SEC on or before the one hundred and fiftieth
(150th) day following the Issuance Date (the "Scheduled Effective Date"), or if
after the Registration Statement has been declared effective by the SEC, sales
cannot be made pursuant to the Registration Statement (whether because of a
failure to keep the Registration Statement effective, to disclose such
information as is necessary for sales to be made pursuant to the Registration
Statement, to register sufficient shares of Common Stock or otherwise), then, as
partial relief for the damages to any holder by reason of any such delay in or
reduction of its ability to sell the underlying shares of Common Stock (which
remedy shall not be exclusive of any other remedies at law or in equity), then:
(i) the Corporation will pay as liquidated damages (the
"Liquidated Damages") in penalties to the Buyer(s) a cash amount within three
(3) business days of the end of the month immediately following the Scheduled
Effective Date and for each month thereafter in an amount equal to one percent
(1 %) of the Liquidation Value. (For example, if the Registration Statement
becomes effective one (l) month after the Scheduled Effective Date, the
Corporation will pay in cash to the Buyer(s) an aggregate of eight thousand
seven hundred dollars ($8,700) in Liquidated Damages (1% of $870,000); if, as a
further example, thereafter sales could not be made pursuant to the Registration
Statement for a period of one and one half (1 1/2) months, the Corporation will
pay in cash to the Buyer(s) an aggregate of thirteen thousand and fifty dollars
($13,050) in Liquidated Damages ($8,700 for the first month plus $4,350 for the
half of second month); and if, as a further example, thereafter sales could not
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be made pursuant to the Registration Statement for a period of two (2) months
after the Scheduled Effective Date, the Corporation will pay in cash to the
Buyer(s) an aggregate of seventeen thousand four hundred dollars ($17,400) in
Liquidated Damages ($8,700 for the first month plus $8,700 for the second
month).
(d) Adjustment to Conversion Price - Dilution and Other Events. In
order to prevent dilution of the rights granted under this Certificate of
Designations, the Conversion Price will be subject to adjustment from time to
time as provided in this Section 2(d).
(i) Adjustment of Fixed Conversion Price upon Subdivision or
Combination of Common Stock. If the Corporation at any time subdivides (by any
stock split, stock dividend, re-capitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the
Fixed Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Corporation at any time combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Fixed
Conversion Price in effect immediately prior to such combination will be
proportionately increased.
(ii) Reorganization, Reclassification, Consolidation, Merger,
or Sale. Any recapitalization, reorganization reclassification, consolidation,
merger, sale of all or substantially all of the Corporation's assets to another
Person (as defined below) or other similar transaction which is effected in such
a way that holders of Common Stock are entitled to receive (either directly or
upon subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "Organic Change." Prior to
the consummation of any Organic Change, the Corporation will make appropriate
provision (in form and substance reasonably satisfactory to the Holders of a
majority of the Series B Preferred Shares then outstanding) to insure that, upon
the consummation of such Organic Change, each of the Holders of the Series B
Preferred Shares will thereafter have the right to acquire and receive in lieu
of the Series B Preferred Shares, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for the number of shares
of Common Stock immediately theretofore acquirable and receivable upon the
conversion of such holder's Series B Preferred Shares had such Organic Change
not taken place. In any such case, the Corporation will make appropriate
provision (in form and substance reasonably satisfactory to the Holders of a
majority of the Series B Preferred Shares then outstanding) with respect to such
holders' rights and interests to insure that the provisions of this Section 3(d)
and Section 3(e) below will thereafter be applicable to the Series B Preferred
Shares. For purposes of this Agreement, "Person" shall mean an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a government or any department or
agency thereof.
(iii) Notices.
(A) Immediately upon any adjustment of the Conversion
Price pursuant to this Section
3(d), the Corporation will give written notice thereof to each holder of Series
B Preferred Shares, setting forth in reasonable detail and certifying the
calculation of such adjustment.
(B) The Corporation will give written notice to each
Holder of Series B Preferred
Shares at least twenty (20) days prior to the date on which the Corporation
closes its books or takes a record (I) with respect to any dividend or
distribution upon the Common Stock, (II) with respect to any pro rata
subscription offer to holders of Common Stock or (III) for determining rights to
vote with respect to any Organic Change, dissolution or liquidation.
(C) The Corporation will also give written notice to
each Holder of Series B Preferred
Shares at least twenty (20) days prior to the date on which any Organic Change,
Major Transaction (as defined below), dissolution or liquidation will take
place.
(e) Purchase Rights. If at any time the Corporation grants, issues or
sells any options, convertible securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then the holders of Series B Preferred
Shares will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of Common Stock acquirable upon
complete conversion of the Series B Preferred Shares immediately before the date
on which a record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the record holders
of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
(f) Mechanics of Conversion. Subject to the Corporation's inability to
fully satisfy its obligations under a Conversion Notice (as defined below) as
provided for in Section 6 below:
(i) Holder's Delivery Requirements. Subject to Section 3(a),
in order to convert Series B Preferred Shares into full shares of Common Stock
on any date (the "Conversion Date"), the holder thereof shall (A) deliver or
transmit by facsimile, for receipt on or prior to 11:59 p.m., Eastern Standard
Time, on such date, a copy of a fully executed notice of conversion in the form
attached hereto as Exhibit I (the "Conversion Notice") to the Corporation or its
designated transfer agent (the "Transfer Agent"), and (B) surrender to a common
carrier for delivery to the Corporation or the Transfer Agent as soon as
practicable following such date, the original certificates representing the
Series B Preferred Shares being converted (or an indemnification undertaking
with respect to such shares in the case of their loss, theft or destruction)
(the "Preferred Stock Certificates") and the originally executed Conversion
Notice. Each Conversion Notice shall specify the number of Series B Preferred
Shares 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 Conversion
Notice. Whole Series B preferred shares must be converted into common stock,
partial conversions are not allowed. Buyer is to submit the calculation
documentation for the conversion of Series B Preferred into Common shares.
(ii) Corporation's Response. Upon receipt by the Corporation
of a facsimile copy of a Conversion Notice, the Corporation shall immediately
send, via facsimile, a confirmation of receipt of such Conversion Notice to such
holder. Upon receipt by the Corporation or the Transfer Agent of the Preferred
Stock Certificates to be converted pursuant to a Conversion Notice, together
with the originally executed Conversion Notice, the Corporation or the Transfer
Agent (as applicable) shall, within ten (10) business days following the date of
receipt, (A) issue and surrender to a common carrier for overnight delivery to
the address as specified in the Conversion Notice, a certificate, registered in
the name of the holder or its designee, for the number of shares of Common Stock
to which the holder shall be entitled or (B) credit the aggregate number of
shares of Common Stock to which the holder shall be entitled to the holder's or
its designee's balance account at The Depository Trust Corporation.
(iii) Dispute Resolution. In the case of a dispute as to the
determination of the Average Market Price or the arithmetic calculation of the
Conversion Rate, the Corporation shall promptly issue to the holder the number
of shares of Common Stock that is not disputed and shall submit the disputed
determinations or arithmetic calculations to the holder via facsimile within
three (3) business days of receipt of such holder's Conversion Notice. If such
holder and the Corporation are unable to agree upon the determination of the
Average Market Price or arithmetic calculation of the Conversion Rate within two
(2) business days of such disputed determination or arithmetic calculation being
submitted to the holder, then the Corporation shall within one (1) business day
submit,via facsimile (A) the disputed determination of the Average Market Price
to an independent, reputable investment bank designated by the Corporation, or
(B) the disputed arithmetic calculation of the Conversion Rate to its
independent, outside accountant. The Corporation shall cause the investment bank
or the accountant, as the case may be, to perform the determinations or
calculations and notify the Corporation and the holder of the results no later
than forty-eight (48) hours from the time it receives the disputed
determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the ease may be, shall be binding upon all
parties absent manifest error.
(iv) Record Holder. The person or persons entitled to receive
the shares of Common Stock issuable upon a conversion of Series B Preferred
Shares shall be treated for all purposes as the record holder or holders of such
shares of Common Stock following such conversion.
(v) Corporation's Failure to Timely Convert. If the
Corporation shall fail to issue to a holder within seven (7) business days
following the date of receipt by the Corporation or the Transfer Agent of the
Preferred Stock Certificates to be converted pursuant to a Conversion Notice, a
certificate for the number of shares of Common Stock to which such holder is
entitled upon such holder's conversion of Series B Preferred Shares, in addition
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to all other available remedies which such holder may pursue hereunder and under
the securities purchase agreement between the Corporation and the initial
holders of the Series B Preferred Shares pursuant to which such holders
purchased the Series B Preferred Shares (the "Securities Purchase Agreement")
(including indemnification pursuant to Section 8 thereof), the Corporation shall
pay additional damages to such holder on each day after the seven (7th) business
day following the date of receipt by the Corporation or the Transfer Agent of
the Preferred Stock Certificates to be converted pursuant to the Conversion
Notice, for which such conversion is not timely effected, an amount calculated
in accordance with the following schedule:
Late Payment for Each
Principal Amount Being Series B Preferred Share
No. Business Days Late Converted
---------------------- ------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
11 $200 for
each Business Days
Late Beyond 10 days
(g) Mandatory Conversion. If any Series B Preferred Shares remain
outstanding on November 16, 2005, then all such Series B Preferred Shares shall
be converted as of such date in accordance with this Section 2 as if the holders
of such Series B Preferred Shares had given the Conversion Notice on November
16, 2005, and the Conversion Date had been fixed as of November 16, 2005, for
all purposes of this Section 2, and all holders of Series B Preferred Shares
shall thereupon and with two (2) business days thereafter surrender all
Preferred Stock Certificates, duly endorsed for cancellation, to the Corporation
or the Transfer Agent. No person shall thereafter have any rights in respect of
Series B Preferred Shares, except the right to receive shares of Common Stock on
conversion thereof as provided in this Section 2.
(h) Fractional Shares. The Corporation shall not issue any fraction of
a share of Common Stock upon any conversion. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
the Series B Preferred Shares by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance of a
fraction of a share of Common Stock. If, after the aforementioned aggregation,
the issuance would result in the issuance of a fraction of a share of Common
Stock, the Corporation shall round such fraction of a share of Common Stock up
or down to the nearest whole share.
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4. Corporation's Right to Redeem at its Election.
(a) At any time, commencing 180 days after the Issuance Date, as long
as the Corporation has not breached any of the representations, warranties, and
covenants contained herein or in any related agreements, the Corporation shall
have the right, in it sole discretion, to redeem ("Redemption at Corporation's
Election"), from time to time, any or all of the Series B Preferred Shares which
have not previously been redeemed at a price equal to the Redemption Price at
Corporation's Election below, provided (i) Corporation shall first provide
thirty (30) days advance written notice as provided in subparagraph 4(a)(ii)
below (which can be given any time on or after 90 days after the Issuance Date,
and (ii) that the Corporation shall only be entitled to redeem Series B
Preferred Shares having an aggregate Stated Value of at least One Hundred
Thousand Dollars ($100,000). If the Corporation elects to redeem some, but not
all, of the Series B Preferred Shares, the Corporation shall redeem a pro-rata
amount from each Holder of the Series B Preferred Shares. For this section to
apply there must be an effective registration statement covering the above
shares.
(i) Redemption Price At Corporation's Election. The
"Redemption Price at Corporation's Election" shall be calculated as 120% of the
Liquidation Value, as that term is defined in Section 10 hereof.
(ii) Mechanics of Redemption at Corporation's Election. The
Corporation shall effect each such redemption by giving at least thirty (30)
days prior written notice ("Notice of Redemption at Corporation's Election") to
(A) the holders of the Series B Preferred Shares selected for redemption at the
address and facsimile number of such holder appearing in the Corporation's
Series B Preferred Shares register and (B) the Transfer Agent, which Notice of
Redemption At Corporation's Election shall be deemed to have been delivered
three (3) business days after the Corporation's mailing (by overnight or two (2)
day courier, with a copy by facsimile) of such Notice of Redemption at
Corporation's Election. Such Notice of Redemption At Corporation's Election
shall indicate (i) the number of shares of Series B Preferred Shares that have
been selected for redemption, (ii) the date which such redemption is to become
effective (the "Date of Redemption At Corporation's Election") and (iii) the
applicable Redemption Price At Corporation's Election, as defined in subsection
(a)(i) above. Notwithstanding the above, a holder may convert into Common Stock,
prior to the close of business on the Date of Redemption at Corporation's
Election, any Series B Preferred Shares which it is otherwise entitled to
convert, including Series B Preferred Shares that has been selected for
redemption at Corporation's election pursuant to this subsection 4(a).
(b) Corporation Must Have Immediately Available Funds or Credit
Facilities. The Corporation shall not be entitled to send any Notice of
Redemption at Corporation's Election and begin the redemption procedure under
Sections 4(a) unless it has:
(i) the full amount of the redemption price in cash, available
in a demand or other immediately available account in a bank or similar
financial institution; or
(ii) immediately available credit facilities, in the full
amount of the redemption price with a bank or similar financial institution; or
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(iii) an agreement with a standby underwriter willing to
purchase from the Corporation a sufficient number of shares of stock to provide
proceeds necessary to redeem any stock that is not converted prior to
redemptions; or
(iv) a combination of the items set forth in (i), (ii), and
(iii) above, aggregating the full amount of the redemption price.
(c) Payment of Redemption Price. Each Holder submitting Series B
Preferred Shares being redeemed under this Section 4 shall send their Series B
Preferred Share Certificates to be redeemed to the Corporation or its Transfer
Agent, and the Corporation shall pay the applicable redemption price to that
Holder within five (5) business days of the Date of Redemption at Corporation's
Election. If the payment is not made within these prescribed requirements, all
company redemption rights are lost.
5. Redemption at Option of Holders.
(a) Redemption Option Upon Major Transaction. In addition to all other
rights of the holders of Series B Preferred Shares contained herein, after a
Major Transaction (as defined below), the holders of Series B Preferred Shares
then outstanding shall have the right in accordance with Section 5(f), at the
option of the holders of at least two-thirds (2/3) of the Series B Preferred
Shares then outstanding, to require the Corporation to redeem all of the Series
B Preferred Shares then outstanding at a price per Series B Preferred Share
equal to the greater of (i) 100% of the Liquidation Value (as defined below) of
such shares and (ii) the price calculated in accordance with the Redemption Rate
(as defined below) calculated as of the date of the public announcement of such
Major Transaction or the next date on which the exchange or market on which the
Common Stock is traded is open if such public announcement is made (A) after
1:00 p.m. Eastern Standard Time on such date or (B) on a date on which the
exchange or market on which the Common Stock is traded or quoted is closed.
(b) Redemption Option Upon Triggering Event. In addition to all other
rights of the holders of Series B Preferred Shares contained herein, after a
Triggering Event (as defined below), the holders of Series B Preferred Shares
the outstanding shall have the right in accordance with Section 5(g), at the
option of the holders of at least two-thirds (2/3) of the Series B Preferred
Shares then outstanding, to require the Corporation to redeem all of the Series
B Preferred Shares then outstanding at a price per Series B Preferred Share
equal to the greater of (i) 120% of the Liquidation Value of such share and (ii)
the price calculated in accordance with the Redemption Rate as of the date
immediately preceding such Triggering Event on which the exchange or market on
which the Common Stock is traded or quoted is open.
(c) "Redemption Rate." The "Redemption Rate" shall, as of any date of
determination, be equal to (i) the Conversion Rate in effect as of such date as
calculated pursuant to Section 3(b) multiplied by (ii) the Closing Bid Price of
the Common Stock on such date.
(d) "Major Transaction." A "Major Transaction" shall be deemed to have
occurred at such time as any of the following events:
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(i) the consummation of any merger, reorganization,
restructuring, consolidation, or similar transaction by or involving the
Corporation except (A) a merger or consolidation where the Corporation is the
survivor, or where the holders of the capital stock of the Corporation
immediately prior to such merger or consolidation own at least 50% of the
outstanding capital stock of the surviving entity, (B) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Corporation, or ( C) any such transaction in which each of
the holders of the Series B Preferred Shares receives cash at least equal to
120% of the Liquidation Value of such shares in accordance with Section 5(d)(ii)
hereof;
(ii) sale of all or substantially all of the assets of the
Corporation on a consolidated basis or any similar transaction or related
transactions which effectively results in a sale of all or substantially all of
the assets of the Corporation on a consolidated basis, unless, upon consummation
of such transaction, the Corporation reserves an amount in cash at least equal
to 125% of the Liquidation Value of the Series B Preferred Shares for payment to
the holders thereof.
(e) "Triggering Event." A "Triggering Event" shall be deemed to have
occurred at such time as any of the following events:
(i) either (A) the failure of the Registration Statement to be
declared effective by the SEC or to cover the resale of all of the shares of
Common Stock issued or issuable upon conversion of the Series B Preferred Shares
at any time after ninety (90) days after the Scheduled Effective Date (provided
that for purposes of determining the Closing Bid Price under Section 5(c) above,
the Triggering Event shall be deemed to have occurred on the first day of such
ninety (90) day period) or (B) for any period of ninety (90) consecutive days
after the date that is ninety (90) days after the Scheduled Effective Date that
Common Stock issued or issuable upon conversion of the Series B Preferred Shares
cannot be sold under the Registration Statement for any reason (provided that
for purposes of determining the Closing Bid Price under Section 5(c) above, the
Triggering Event shall be deemed to have occurred on the first day of such
ninety (90) day period);
(ii) if for any reason the Corporation fails to perform or
observe any covenant, agreement, or other provision contained in Section 9 or 10
hereof;
(iii) the Corporation's notice to the holders of Series B
Preferred Shares as a class, including by way of public announcement, at any
time, of its intention not to comply, other than in accordance with the terms
hereof, with requests for conversion of any Series B Preferred Shares for shares
of Common Stock;
(iv) if for any reason the Corporation fails to perform or
observe any covenant, agreement, or other provision contained herein or in the
Securities Purchase Agreement, the Registration Rights Agreement, or in any
related agreement, and such failure is not cured within 30 days after the
Corporation knows, or should have known with the exercise of reasonable
diligence, of the occurrence thereof, and such failure has had, or could
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reasonably be expected to have, a material adverse effect on (A) the financial
condition, operating results, business, properties, or operations of the
Corporation and its subsidiaries taken as a whole taking into account any
proceeds reasonably expected to be received by the Corporation or its
subsidiaries in the foreseeable future from insurance policies or rights of
indemnification or (B) the Series B Preferred Shares; or
(v) any representation or warranty contained in the Securities
Purchase Agreement or the Registration Rights Agreement is false or misleading
on or as of the date made and which either reflects or has had a material
adverse effect on and which, upon the date that the holders require the
Corporation to redeem the Class A Preferred Shares continues to have a material
adverse effect on (A) the financial condition, operating results, business,
properties, or operations of the Corporation and its subsidiaries taken as a
whole taking into account any proceeds reasonably expected to be received by the
Corporation or its subsidiaries in the foreseeable future from insurance
policies or rights of indemnification or (B) the Series B Preferred Shares.
(f) Mechanics of Redemption at Option of Buyer Upon Major Transaction.
No sooner than fifteen (15) days nor later than ten (10) days prior to the
consummation of a Major Transaction, but not prior to the public announcement of
such Major Transaction, the Corporation shall deliver written notice thereof via
facsimile and overnight courier ("Notice of Major Transaction") to each holder
of Series B Preferred Shares. At any time after receipt of a Notice of Major
Transaction, the holders of at least two-thirds (2/3) of the Series B Preferred
Shares then outstanding may require the Corporation to redeem all of the
holders' Series B Preferred Shares then outstanding in accordance with Section
5(a) by delivering written notice thereof via facsimile and overnight courier
("Notice of Redemption at Option of Buyer Upon Major Transaction") to the
Corporation, which Notice of Redemption at Option of Buyer Upon Major
Transaction shall indicate (i) the number of Series B Preferred Shares that such
holders are voting in favor of redemption and (ii) the applicable redemption
price, as calculated pursuant to Section 5(a) above. Unless the Corporation
shall fail to fully redeem all of the holder's Series B Preferred Shares
pursuant to this Section 5, any notice delivered by the holder pursuant to this
subsection shall be irrevocable.
(g) Mechanics of Redemption at Option of Buyer Upon Triggering Event.
As soon as practicable, but in any event no more than five (5) business days
after the occurrence of a Triggering Event, the Corporation shall deliver
written notice thereof via facsimile and overnight courier ("Notice of
Triggering Event") to each holder of Series B Preferred Shares. At any time
after receipt of a Notice of Triggering Event, the holders of at least
two-thirds (2/3) of the Series B Preferred Shares then outstanding may require
the Corporation to redeem all of the Series B Preferred Shares then outstanding
in accordance with Section 5(b) by delivering written notice thereof via
facsimile and overnight courier ("Notice of Redemption at Option of Buyer Upon
Triggering Event") to the Corporation, which Notice of Redemption at Option of
Buyer Upon Triggering Event shall indicate (i) the number of Series B Preferred
Shares that such holders are voting in favor of redemption and (ii) the
applicable redemption price, as calculated pursuant to Section 5(b) above.
Unless the Corporation shall fail to fully redeem all of the holder's Series B
Preferred Shares pursuant to this Section 5, any notice delivered by the holder
pursuant to this subsection shall be irrevocable.
9
(h) Payment of Redemption Price. Upon the Corporation's receipt of a
Notice(s) of Redemption at Option of Buyer Upon Major Transaction or a Notice(s)
of Redemption at Option of Buyer Upon Triggering Event, as the case may be, from
the holders of at least two-thirds (2/3) of the Series B Preferred Shares then
outstanding, the Corporation shall immediately notify each holder by facsimile
of the Corporation's receipt of such requisite notices necessary to effect a
redemption and each holder of Series B Preferred Shares shall thereafter
promptly send such holder's Preferred Stock Certificates to be redeemed to the
Corporation or its Transfer Agent. The Corporation shall pay the applicable
redemption price, as calculated pursuant to Section 5(a) or 5(b) above, in cash
to such holder within thirty (30) days after the Corporation's receipt of the
requisite notices required to effect a redemption; provided that a holder's
Preferred Stock Certificates shall have been so delivered to the Corporation or
its Transfer Agent; provided further that if the Corporation is unable to redeem
all of the Series B Preferred Shares, the Corporation shall redeem an amount
from each holder of Series B Preferred Shares equal to such holder's pro-rata
amount (based on the number of Series B Preferred Shares held by such holder
relative to the number of Series B Preferred Shares outstanding) of all Series B
Preferred Shares being redeemed. If the Corporation shall fall to redeem all of
the Series B Preferred Shares submitted for redemption (other than pursuant to a
dispute as to the determination of the Closing Bid Price or the arithmetic
calculation of the Redemption Rate), the applicable redemption price payable in
respect of such unredeemed Series B Preferred Shares shall bear interest at the
rate of 1% per month (pro rated for partial months) until paid in full. Until
the Corporation pays such unpaid applicable redemption price in full to each
holder, holders of at least two-thirds (2/3) of the Series B Preferred Shares
then outstanding, including shares of Series B Preferred Shares submitted for
redemption pursuant to this Section 4 and for which the applicable redemption
price has not been paid, shall have the option (the "Void Optional Redemption
Option") to, in lieu of redemption, require the Corporation to promptly return
to each holder all of the Series B Preferred Shares that were submitted for
redemption by such holder under this Section 5 and for which the applicable
redemption price has not been paid, by sending written notice thereof to the
Corporation via facsimile (the "Void Optional Redemption Notice"). Upon the
Corporation's receipt of such Void Optional Redemption Notice(s) and prior to
payment of the full applicable redemption price to each holder, (i) the
Notice(s) of Redemption at Option of Buyer Upon Triggering Event or the
Notice(s) of Redemption at Option of Buyer Upon Major Transaction, as the case
may be, shall be null and void with respect to those Series B Preferred Shares
submitted for redemption and for which the applicable redemption price has not
been paid, (ii) the Corporation shall immediately return any Certificates for
Series B Preferred Shares submitted to the Corporation by each holder for
redemption under this Section 4(h) and for which the applicable redemption price
had not been paid, (iii) the Fixed Conversion Price of such returned Series B
Preferred Shares shall be adjusted to the lesser of (A) the Fixed Conversion
Price as in effect on the date on which the Void Option Redemption Notice(s) is
delivered to the Corporation and (B) the lowest Closing Bid Price during the
period beginning on the date on which the Notice(s) of Redemption of Option of
Buyer Upon Major Transaction or the Notice(s) of Redemption at Option of Buyer
Upon Triggering Event, as the case may be, is delivered to the Corporation and
ending on the date on which the Void Optional Redemption Notice(s) is delivered
to the Corporation; provided that no adjustment shall be made if such adjustment
would result in an increase of the Fixed Conversion Price then in effect, and
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(iv) the Conversion Percentage in effect at such time and thereafter shall be
reduced by a number of percentage points equal to the product of (A) two and
one-half (2.5) and (B) the number of months (prorated for partial months) in the
period beginning on the date on which the Notice(s) of Redemption at Option of
Buyer Upon Major Transaction or the Notice(s) of Redemption at Option of Buyer
Upon Triggering Event, as the case may be, is delivered to the Corporation and
ending on the date on which the Void Optional Redemption Notice(s) is delivered
to the Corporation. Notwithstanding the foregoing, in the event of a dispute as
to the determination of the Closing Bid Price or the arithmetic calculation of
the Redemption Rate, such dispute shall be resolved pursuant to Section
3(f)(iii) above with the term "Closing Bid Price" being substituted for the term
"Average Market Price" and the term "Redemption Rate" being substituted for the
term "Conversion Rate."
6. Inability to Fully Convert.
(a) Holder's Option if Corporation Cannot Fully Convert. If at any time
after the earlier to occur of (i) effectiveness of the Registration Statement or
(ii) ninety (90) days after the Scheduled Effective Date, upon the Corporation's
receipt of a Conversion Notice, the Corporation does not issue shares of Common
Stock which are registered for resale under the Registration Statement within
seven (7) business days of the time required in accordance with Section 3(f)
hereof, for any reason or for no reason, including, without limitation, because
the Corporation (x) does not have a sufficient number of shares of Common Stock
authorized and available, (y) is otherwise prohibited by applicable law or by
the rules or regulations of any stock exchange, inter-dealer quotation system or
other self-regulatory organization with jurisdiction over the Corporation or its
securities from issuing all of the Common Stock which is to be issued to a
holder of Series B Preferred Shares pursuant to a Conversion Notice or (z) fails
to have a sufficient number of shares of Common Stock registered and eligible
for resale under the Registration Statement, then the Corporation shall issue as
many shares of Common Stock as it is able to issue in accordance with
Stockholder's Conversion Notice and pursuant to Section 3(f) above and, with
respect to the unconverted Series B Preferred Shares, the holder, solely at such
holder's option, can, in addition to any other remedies such holder may have
hereunder, under the Securities Purchase Agreement (including indemnification
under Section 8 thereof), under the Registration Rights Agreement, at law or in
equity, elect to:
(i) require the Corporation to redeem from such holder those
Series B Preferred Shares for which the Corporation is unable to issue Common
Stock in accordance with such holder's Conversion Notice ("Mandatory
Redemption") at a price per Series B Preferred Share (the "Mandatory Redemption
Price") equal to the greater of (x) 120% of the Liquidation Value of such share
and (y) the Redemption Rate as of such Conversion Date;
(ii) void its Conversion Notice and retain or have returned,
as the case may be the Certificates representing the unconverted Series B
Preferred Shares that were to be converted pursuant to such holder's Conversion
Notice.
7. Reissuance of Certificates. In the event of a conversion or redemption
pursuant to this Certificate of Designations of less than all of the Series B
11
Preferred Shares represented by a particular Preferred Stock Certificate, the
Corporation shall promptly cause to be issued and delivered to the holder of
such Series B Preferred Shares a Preferred Stock Certificate representing the
remaining Series B Preferred Shares which have not been so converted or
redeemed.
8. Reservation of Shares. The Corporation shall, so long as any of the Series B
Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Series B Preferred Shares, 130% of the shares of
common stock required to convert the Series B Preferred Shares on the filing
date of the related registration statement. The Company agrees to increase the
percentage of shares on reserve to 200% upon conclusion of the 2002 annual
shareholders meeting, where the shareholders will be voting on increasing the
number of authorized shares. If at any time, the Corporation does not have
available 125% of authorized and unissued shares of Common Stock to satisfy
conversion of all of the Series B Preferred Shares outstanding, the Corporation
shall call and hold a special shareholders meeting within thirty (30) days of
such occurrence, for the sole purpose of increasing the number of authorized
shares. Furthermore, management of the Corporation shall recommend to the
shareholders to vote in favor of increasing the number of common shares
authorized. Management shall also vote all of its shares in favor of increasing
the number of authorized shares of Common Stock.
9. Voting Rights. Holders of Series B Preferred Shares shall have no voting
rights, except as required by law, including but not limited to the General
Corporation Law of the State of New Jersey and as expressly provided in this
Certificate of Designations.
10. Liquidation, Dissolution, Winding-Up. In the event of any voluntary or
involuntary liquidation, dissolution, or winding up of the Corporation, the
holders of the Series B Preferred Shares shall be entitled to receive in cash
out of the assets of the Corporation, whether from capital or from earnings
available for distribution to its stockholders (the "Preferred Funds"), before
any amount shall be paid to the holders of any of the capital stock of the
Corporation of any class junior in rank to the Series B Preferred Shares in
respect of the preferences as to the distributions and payments on the
liquidation, dissolution and winding up of the Corporation, an amount per Series
B Preferred Share equal to the sum off (i) $10,000 and (ii) an amount equal to
the product of (.06) (N/365) ($10,000) (such sum being referred to as the
"Liquidation Value"); provided that, if the Preferred Funds are insufficient to
pay the full amount due to the holders of Series B Preferred Shares and holders
of shares of other classes or series of preferred stock of the Corporation that
are of equal rank with the Series B Preferred Shares as to payments of Preferred
Funds (thc "Pari Passu Shares"), then each holder of Series B Preferred Shares
and Pari Passu Shares shall receive a percentage of the Preferred Funds equal to
the full amount of Preferred Funds payable to such holder as a liquidation
preference, in accordance with their respective Certificate of Designations,
Preferences and Rights as a percentage or the full amount of Preferred Funds
payable to all holders of Series B Preferred Shares and Pari Passu Shares. The
purchase or redemption by the Corporation of stock of any class in any manner
permitted by law, shall not for the purposes hereof, be regarded as a
liquidation, dissolution or winding up of the Corporation. Neither the
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consolidation or merger of the Corporation with or into any other Person, nor
the sale or transfer by the Corporation of less than substantially all of its
assets, shall, for the purposes hereof, be deemed to be a liquidation,
dissolution or winding up of the Corporation. No holder of Series B Preferred
Shares shall be entitled to receive any amounts with respect thereto upon any
liquidation, dissolution or winding up of the Corporation other than the amounts
provided for herein.
11. Preferred Rank. All shares of Common Stock shall be of junior rank to all
Series B Preferred Shares in respect to the preferences as to distributions and
payments upon the liquidation, dissolution, and winding up of the Corporation.
The rights of the shares of Common Stock shall be subject to the preferences and
relative rights of the Series B Preferred Shares. The Series B Preferred Shares
shall be senior in rights and liquidation preference to the Common Stock or and
any series of Preferred Stock hereinafter issued by the Corporation. Without the
prior express written consent of the holders of not less than two-thirds (2/3)
of the then issued and outstanding Series B Preferred Shares, the Corporation
shall not hereafter authorize or issue additional or other capital stock that is
of senior or equal rank to the Series B Preferred Shares in respect of the
preferences as to distributions and payments upon the liquidation, dissolution
and winding up of the Corporation. Without the prior express written consent of
the holders off not less than two-thirds (2/3) of the then issued and
outstanding Series B Preferred Shares, the Corporation shall not hereafter
authorize or make any amendment to the Corporation's Certificate of
Incorporation or Bylaws, or make any resolution of the board of directors with
the New Jersey Secretary of State containing any provisions, which would
adversely affect or otherwise impair the rights or relative priority of the
holders of the Series B Preferred Shares relative to the holders of the Common
Stock or the holders of any other class of capital stock. In the event of the
merger or consolidation of the Corporation with or into another corporation, the
Series B Preferred Shares shall maintain their relative powers, designations,
and preferences provided for herein and no merger shall result inconsistent
therewith.
12. Restriction on Redemption and Dividends.
(a) Restriction on Dividend. If any Series B Preferred Shares are
outstanding, without the prior express written consent of the holders of not
less than two-thirds (2/3) of the then outstanding Series B Preferred Shares,
the Corporation shall not directly or indirectly declare, pay or make any
dividends or other distributions upon any of the Common Stock so long as written
notice thereof has been given to holders of the Series B Preferred Shares at
least 30 days prior to the earlier of (a) the record date taken for or (b) the
payment of any such dividend or other distribution. Notwithstanding the
foregoing, this Section 12(a) shall not prohibit the Corporation from declaring
and paying a dividend in cash with respect to the Common Stock so long as the
Corporation: (i) pays simultaneously to each holder of Series B Preferred Shares
an amount in cash equal to the amount such holder would have received had all of
such holder's Series B Preferred Shares been converted to Common Stock pursuant
to Section 2 hereof one business day prior to the record date for any such
dividend, and (ii) after giving effect to the payment of any dividend and any
other payments required in connection therewith including to the holders of the
Series B Preferred Shares under clause 12(a)(i) hereof, the Corporation has in
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cash or cash equivalents an amount equal to the aggregate of: (A) all of its
liabilities reflected on its most recently available balance sheet, (B) the
amount of any indebtedness incurred by the Corporation or any of its
subsidiaries since its most recent balance sheet and (C) 125% of the amount
payable to all holders of any shares of any class of preferred stock of the
Corporation assuming a liquidation of the Corporation as the date of its most
recently available balance sheet.
(b) Restriction on Redemption. If any Series B Preferred Shares are
outstanding, without the prior express written consent of the holders of not
less than two-thirds (2/3) of the then outstanding Series B Preferred Shares,
the Corporation shall not directly or indirectly redeem, purchase or otherwise
acquire from any person or entity' other than from a direct or indirect
wholly-owned subsidiary of the Corporation, or permit any subsidiary of the
Corporation to redeem, purchase or otherwise acquire from any person or entity
other than from the Corporation or another direct or indirect wholly-owned
subsidiary of the Corporation, any of the Corporation's or any subsidiary's
capital stock or other equity securities (including, without limitation,
warrants, options and other rights to acquire such capital stock or other equity
securities).
13. Vote to Change the Terms of Series B Preferred Shares. The affirmative vote
at a meeting duly called for such purpose or the written consent without a
meeting, of the holders of not less than two-thirds (2/3) of the then
outstanding Series B Preferred Shares, shall be required for any change to this
Certificate of Designations or the Corporation's Certificate of Incorporation
which would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Series B Preferred Shares.
14. Lost or Stolen Certificates. Upon receipt by the Corporation of evidence
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
any Preferred Stock Certificates representing the Series B Preferred Shares,
and, in the case of loss, theft or destruction, of any indemnification
undertaking by the holder to the Corporation and, in the case of mutilation,
upon surrender and cancellation of the Preferred Stock Certificate(s), the
Corporation shall execute and deliver new preferred stock certificate(s) of like
tenor and date; provided, however, the Corporation shall not be obligated to
re-issue Preferred Stock Certificates if the holder contemporaneously requests
the Corporation to convert such Series B Preferred Shares into Common Stock.
15. Withholding Tax Obligations. Notwithstanding anything herein to the
contrary, to the extent that the Corporation receives advice in writing from its
counsel that there is a reasonable basis to believe that the Corporation is
required by applicable federal laws or regulations and delivers a copy of such
written advice to the holders of the Series B Preferred Shares so affected, the
Corporation may reasonably condition the making of any distribution (as such
term is defined under applicable federal tax law and regulations) in respect of
any Series B Preferred Shares on the holder of such Series B Preferred Shares
depositing with the Corporation an amount of cash sufficient to enable the
Corporation to satisfy its withholding tax obligations (the "Withholding Tax")
with respect to such distribution, Notwithstanding the foregoing or anything to
the contrary, if any holder of the Series B Preferred Shares so affected
receives advice in writing from its counsel that there is a reasonable basis to
14
believe that the Corporation is not so required by applicable federal laws or
regulations and delivers a copy of such written advice to the corporation, the
Corporation shall not be permitted to condition the making of any such
distribution in respect of any Series B Preferred Share on the holder of such
Series B Preferred Shares depositing with the Corporation any Withholding Tax
with respect to such distribution, provided, however, the Corporation may
reasonably condition the making of any such distribution in respect of any
Series B Preferred Share on the holder of such Series B Preferred Shares
executing and delivering to the Corporation, at the election of the holder,
either: (i) if applicable, a properly completed Internal Revenue Service Form
4224, or (a) an indemnification agreement in reasonably acceptable form, with
respect to any federal tax liability, penalties and interest that may be imposed
upon the Corporation by the Internal Revenue Service as a result of the
Corporation's failure to withhold in connection with such distribution to such
holder. If the conditions in the preceding two sentences are fully satisfied,
the Corporation shall not be required to pay any additional damages set forth in
Section 3(f)(v) of this Certificate of Designations if its failure to timely
deliver any Conversion Shares results solely from the holder's failure to
deposit any withholding tax hereunder or provide to the Corporation an executed
indemnification agreement in the form reasonably satisfactory to the
Corporation.
3. The Certificate of Incorporation of the Corporation is amended so that
the designation and number of shares of each class and Series B preferred, acted
upon in the resolutions set forth above, and the relative rights, preferences,
and limitations of each such class and Series Preferred, are as stated in the
above resolutions.
[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK.]
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by James K.T. Lu, its President, as of this day of 16th
of November, 2001.
DIAMOND ENTERTAINMENT CORPORATION
By: /s/ James K.T. Lu.
Name: James K. T. Lu
Title: President and Chief Executive Officer
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert Shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of Series
B Convertible Preferred Stock indicated below, into shares of Common Stock, no
par value per share (the "Common Stock"), of Diamond Entertainment Corporation
(the "Company") according to the condition hereof, as of the date written below.
If shares are to be issued in the name of a person other than the undersigned,
the under signed will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the Holder for
any conversion, except for such transfer taxes.
Conversion calculations: ---------------------------------------
Date to Effect Conversion
---------------------------------------
Number of Shares of Preferred Stock
to be Converted
---------------------------------------
Number of shares of Common Stock to be issued
---------------------------------------
Applicable Conversion Price
---------------------------------------
Signature
---------------------------------------
Name
---------------------------------------
Address
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