CERTIFICATE OF DESIGNATIONS,
PREFERENCES, RIGHTS AND LIMITATIONS OF
SERIES C CONVERTIBLE PREFERRED STOCK OF
NATIONAL LAMPOON, INC.
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware NATIONAL LAMPOON, INC., a corporation organized and existing under the
General Corporation Law of the state of Delaware (the "Corporation"), DOES
HEREBY CERTIFY:
That, pursuant to the authority expressly vested in the Board of Directors
by Article 5 of the Certificate of Incorporation of the Corporation (as amended
from time to time, the "CERTIFICATE OF Incorporation"), and pursuant to the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors duly adopted a resolution providing for the
issuance of up to Two Hundred Fifty Thousand (250,000) shares of Series C
Convertible Preferred Stock, which resolution is as follows:
RESOLVED by the Board of Directors of National Lampoon, Inc., a
Delaware corporation (the "CORPORATION"), that one (1) series of the class
of authorized Preferred Stock, $0.0001 par value per share, of the
Corporation (the "PREFERRED STOCK") to be designated the Series C
Convertible Preferred Stock (the "SERIES C PREFERRED") is hereby created,
and that the designations and amounts thereof and the voting powers,
preferences and relative, participating optional and other special rights
of the shares of such series, and the qualifications, limitations and
restrictions thereof are as follows:
NUMBER OF SERIES AUTHORIZED SHARES: Series C Convertible Preferred Stock
250,000
Section 1. NUMBER OF SHARES. The number of shares constituting the
Series C Preferred shall be as set forth above. Such number of shares may
be increased or decreased by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of shares of Series C
Preferred to a number less than the number of shares then outstanding plus
the number of shares reserved for issuance upon the exercise of any
outstanding options, rights or warrants, or upon the conversion of any
outstanding securities or rights issued by the Corporation convertible
into the Series C Preferred; provided further that no increase shall be
effective unless the Corporation obtains the prior written consent of the
holders of at least seventy-five percent (75%) of the outstanding Series C
Preferred.
Section 2. RANKING. As to the payment of dividends and distributions
on liquidation and as to redemptions, the Series C Preferred ranks senior
to all other Junior Securities of the Corporation.
Section 3. VOTING
Section 3.01. VOTING GENERALLY. Except as may be otherwise provided
in this Certificate of Designations or as otherwise required by applicable
law, the Series C Preferred shall vote together with the Common Stock (and
such other series of Preferred Stock which by their terms likewise vote
together with the Common Stock) as a single class on all actions to be
taken by the stockholders of the Corporation. The holders of Series C
Preferred shall be entitled to notice of all stockholders meetings in
accordance with the Corporation's Bylaws. Each share of Series C Preferred
shall entitle the holder thereof to one vote per share on each such action
for each whole share of Common Stock into which such share of Series C
Preferred is then convertible as of the record date for such vote or, if
no record date is specified, as of the date of such vote.
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Section 3.02. ELECTION OF DIRECTORS. For so long as at least 100,000
shares of Series C Preferred are issued and outstanding (as equitably
adjusted for any stock splits, stock dividends, recapitalizations, reverse
stock splits or otherwise to prevent an enlargement or diminution of
rights), in the election of directors of the Corporation, the holders of
the Series C Preferred, voting separately as a single class to the
exclusion of all other classes of the Corporation's capital stock and with
each share of Series C Preferred entitled to one vote, shall be entitled
to elect one (1) director to serve on the Corporation's Board of Directors
until his/her successor is duly elected by the holders of the Series C
Preferred or he/she is removed from office by the holders of the Series C
Preferred. If the holders of the Series C Preferred for any reason fail to
elect anyone to fill any such directorship, such position shall remain
vacant until such time as the holders of the Series C Preferred elect a
director to fill such position and shall not be filled by resolution or
vote of the Corporation's Board of Directors or the Corporation's other
stockholders.
Section 3.03. OTHER VOTING RIGHTS. Notwithstanding the foregoing, so
long as any Series C Preferred remains outstanding, without the
affirmative vote or prior written consent of the holders of at least a
majority of the outstanding Series C Preferred, the Corporation shall not:
(a) directly or indirectly declare or pay any dividends or make any
distributions upon any of its Common Stock; and
(b) directly or indirectly redeem, purchase or otherwise acquire any
of the Corporation's Junior Securities or directly or indirectly redeem,
purchase or make any payments with respect to any stock appreciation
rights, phantom stock plans or similar rights or plans; except for
repurchases of Common Stock from employees and other service providers of
the Corporation upon termination of employment or other services pursuant
to equity incentive agreements or other agreements providing for a right
of repurchase by the Corporation as approved by the unanimous consent of
the Board.
Section 4. DIVIDENDS. The Corporation shall have the right to issue
dividends and make distributions, whether cash, securities or otherwise,
whether or not any shares of the Series C Preferred Stock are outstanding;
provided, however, that the Corporation shall not issue any dividends
(other than dividends payable solely in Common Stock) or make any
distributions of cash or other assets until after the Payment Satisfaction
Date. To the extent dividends are declared and issued by the Corporation
prior to the earlier of (i) the Redemption Date, (ii) the date of a
Liquidation Event or (iii) the date on which the Series C Preferred Stock
is converted hereunder, the Corporation shall pay preferential dividends,
payable in the Corporation's Common Stock, to the holders of the Series C
Preferred Stock as provided in this Section 4. Dividends on each share of
the Series C Preferred Stock shall accrue on a daily basis, whether or not
declared, beginning with the date of issuance of such share of Series C
Preferred and continuing until the earlier of (i) the Redemption Date,
(ii) the date of a Liquidation Event, or (iii) the date on which such
share of Series C Preferred Stock is converted hereunder, at the rate of
9.0% per annum on the sum of (i) the Original Purchase Price (as equitably
adjusted for any stock splits, stock dividends, recapitalizations, reverse
stock splits or otherwise to prevent an enlargement or diminution of
rights), plus (ii) all accumulated and unpaid dividends thereon
(compounding annually). All accrued and unpaid dividends on each share of
Series C Preferred Stock shall be fully paid (pro rata and pari passu with
any class or series of preferred securities of the Corporation entitled to
participate pro rata and pari passu as to dividends with the Series C
Preferred Stock) before any dividends or distributions may be issued with
respect to any Junior Securities. If a share of Series C Preferred Stock
is converted, then upon such conversion any accumulated and unpaid
dividends on such share of Series C Preferred Stock shall be paid in the
form of Common Stock at a price per share equal to the Conversion Price.
Except as otherwise provided herein, if at any time the Corporation pays
less than the total amount of dividends then accrued with respect to the
Series C Preferred Stock and each Parity Series, such payment shall be
distributed ratably among the holders thereof based upon the aggregate
accrued but unpaid dividends on the Series C Preferred Stock and all
Parity Series.
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Section 5. LIQUIDATION.
Section 5.01. LIQUIDATION PREFERENCE. Upon the occurrence of any
Liquidation Event, each holder of Series C Preferred shall be entitled to
be paid, before any distribution or payment is made upon any Junior
Securities (including, without limitation, the Series B Convertible
Preferred Stock), an amount in cash equal to the aggregate Liquidation
Value of all shares of Series C Preferred held by such holder (plus all
unpaid dividends thereon, if any). In addition to and after payment in
full of all other amounts payable to the holders of the Series C Preferred
under this Section 5 and the subsequent payment of all priority amounts
due to the holders of any other class of preferred stock of the
Corporation outstanding, upon the occurrence of any Liquidation Event, the
assets of the Corporation legally available for distribution, if any,
shall be distributed ratably to the holders of the Common Stock, the
holders of Series C Preferred and the holders of such other series of
Preferred Stock as are constituted as similarly participating (including
the Series B Convertible Preferred Stock), with all holders of Series C
Preferred treated (for purposes of this determination) as if they had
converted all of their shares of Series C Preferred into Common Stock in
accordance with Section 7.
Section 5.02. INSUFFICIENCY OF ASSETS. If upon the occurrence of any
such Liquidation Event, the Corporation's assets to be distributed among
the holders of the Series C Preferred are insufficient to permit payment
to such holders of the aggregate amount which they are entitled to be paid
under this Section 5, then the entire assets available to be distributed
to the Corporation's stockholders shall be distributed pro rata among such
holders based upon the aggregate Liquidation Value (plus all unpaid
dividends thereon, if any) of the Series C Preferred held by each such
holder.
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Section 5.03. NOTICE OF LIQUIDATION. Not less than thirty (30) days
prior to the payment date stated therein, the Corporation shall mail
written notice of any such Liquidation Event to each record holder of
Series C Preferred, setting forth in reasonable detail the amount of
proceeds to be paid with respect to each share of Series C Preferred and
each share of Common Stock in connection with such Liquidation Event.
Section 6. CONVERSION.
Section 6.01. CONVERSION PROCEDURE.
(a) At any time and from time to time, any holder of Series C
Preferred may convert all or any portion of the Series C Preferred held by
such holder into a number of shares of Conversion Stock computed by
multiplying the number of shares of Series C Preferred to be converted
times ten, with such conversion ratio to be adjusted as provided herein.
(b) Except as otherwise provided herein, each conversion of Series C
Preferred shall be deemed to have been effected as of the close of
business on the date on which the certificate or certificates representing
the Series C Preferred to be converted have been surrendered for
conversion at the principal office of the Corporation. At the time any
such conversion has been effected, the rights of the holder of the shares
of Series C Preferred converted as a holder of Series C Preferred shall
cease and the Person or Persons in whose name or names any certificate or
certificates for shares of Conversion Stock are to be issued upon such
conversion shall be deemed to have become the holder or holders of record
of the shares of Conversion Stock represented thereby.
(c).Notwithstanding any other provision hereof, if a conversion of
Series C Preferred is to be made in connection with a Change in Ownership,
a Fundamental Change or other transaction affecting the Corporation, the
conversion of any shares of Series C Preferred may, at the election of the
holder thereof, be conditioned upon the consummation of such transaction,
in which case such conversion shall not be deemed to be effective until
such transaction has been consummated.
(d) As soon as possible after a conversion has been effected, the
Corporation shall deliver to the converting holder:
(i) a certificate or certificates representing the number of
shares of Conversion Stock issuable by reason of such conversion in
such name or names and such denomination or denominations as the
converting holder has specified; and
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(ii) a certificate representing any shares of Series C
Preferred which were represented by the certificate or certificates
delivered to the Corporation in connection with such conversion but
which were not converted.
(e) The issuance of certificates for shares of Conversion Stock upon
conversion of Series C Preferred shall be made without charge to the
holders of such Series C Preferred for any issuance tax in respect thereof
or other cost incurred by the Corporation in connection with such
conversion and the related issuance of shares of Conversion Stock.
(f) The Corporation shall not close its books against the transfer
of Series C Preferred or of Conversion Stock issued or issuable upon
conversion of Series C Preferred in any manner which interferes with the
timely conversion of Series C Preferred. The Corporation shall assist and
cooperate with any holder of shares of Series C Preferred required to make
any governmental filings or obtain any governmental approval prior to or
in connection with any conversion of shares of Series C Preferred
hereunder (including, without limitation, making any filings required to
be made by the Corporation).
(g) The Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Conversion Stock, solely for
the purpose of issuance upon the conversion of the Series C Preferred,
such number of shares of Conversion Stock issuable upon the conversion of
all outstanding Series C Preferred. All shares of Conversion Stock which
are so issuable shall, when issued, be duly and validly issued, fully paid
and nonassessable and free from all taxes, liens and charges.
(h) If any fractional interest in a share of Conversion Stock would,
except for the provisions of this subparagraph, be delivered upon any
conversion of the Series C Preferred, the Corporation, in lieu of
delivering the fractional share therefore, shall pay an amount to the
holder thereof equal to the Market Price of such fractional interest as of
the date of conversion.
Section 6.02. Subdivision or Combination of Common Stock. If the
Corporation at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding
shares of Common Stock into a greater number of shares, the number of
shares of Conversion Stock into which each Series C Preferred Share can be
converted shall be increased ratably, and if the Corporation at any time
combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
number of shares of Conversion Stock into which each Series C Preferred
Share can be converted shall be decreased ratably.
Section 7. REGISTRATION OF TRANSFER. The Corporation shall keep at its
principal office a register for the registration of Series C Preferred.
Upon the surrender of any certificate representing Series C Preferred at
such place, the Corporation shall, at the request of the record holder of
such certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefore representing in the
aggregate the number of shares of Series C Preferred represented by the
surrendered certificate. Each such new certificate shall be registered in
such name and shall represent such number of shares of Series C Preferred
as is requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate.
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Section 8. REPLACEMENT. Upon receipt of evidence reasonably satisfactory
to the Corporation (an affidavit of the registered holder shall be
satisfactory) of the ownership and the loss, theft, destruction or
mutilation of any certificate evidencing shares of Series C Preferred, and
in the case of any such loss, theft or destruction, upon receipt of
indemnity reasonably satisfactory to the Corporation (provided that if the
holder is a financial institution or other institutional investor its own
agreement shall be satisfactory), or, in the case of any such mutilation
upon surrender of such certificate, the Corporation shall (at its expense)
execute and deliver in lieu of such certificate a new certificate of like
kind representing the number of shares of Series C Preferred of such class
represented by such lost, stolen, destroyed or mutilated certificate and
dated the date of such lost, stolen, destroyed or mutilated certificate,
and declared dividends shall accrue on the Series C Preferred represented
by such new certificate from the date to which dividends have been fully
paid on such lost, stolen, destroyed or mutilated certificate.
Section 9. DEFINITIONS.
"CHANGE IN OWNERSHIP" means any sale, transfer or issuance or series
of sales, transfers or issuances of shares of the Corporation's capital
stock by the Corporation or any holders thereof which results in any
Person or group of Persons (as the term "GROUP" is used under the
Securities Exchange Act of 1934), other than the holders of Common Stock,
the Series B Convertible Preferred Stock and the Series C Preferred as of
the Series C Closing Date, owning more than 50% of the Common Stock
outstanding at the time of such sale, transfer or issuance or series of
sales, transfers or issuances.
"COMMON STOCK" means, collectively, the Corporation's Common Stock,
par value of $0.0001 per share.
"CONVERSION STOCK" means shares of the Corporation's Common Stock;
provided that if there is a change such that the securities issuable upon
conversion of the Series C Preferred are issued by an entity other than
the Corporation or there is a change in the type or class of securities so
issuable, then the term "CONVERSION STOCK" shall mean one share of the
security issuable upon conversion of the Series C Preferred if such
security is issuable in shares, or shall mean the smallest unit in which
such security is issuable if such security is not issuable in shares.
"CONVERTIBLE SECURITIES" means any stock or securities directly or
indirectly convertible into or exchangeable for Common Stock.
"FUNDAMENTAL CHANGE" means (a) any sale or transfer of more than 50%
of the assets of the Corporation and its Subsidiaries on a consolidated
basis (measured either by book value in accordance with generally accepted
accounting principles consistently applied or by fair market value
determined in the reasonable good faith judgment of the Corporation's
Board of Directors) in any transaction or series of transactions (other
than sales in the ordinary course of business) and (b) any merger or
consolidation to which the Corporation is a party, except for a merger in
which the Corporation is the surviving corporation, the terms of the
Series C Preferred are not changed and the Series C Preferred is not
exchanged for cash, securities or other property, and after giving effect
to such merger, the holders of the Corporation's outstanding capital stock
possessing a majority of the voting power (under ordinary circumstances)
to elect a majority of the Corporation's Board of Directors immediately
prior to the merger shall continue to own the Corporation's outstanding
capital stock possessing the voting power (under ordinary circumstances)
to elect a majority of the Corporation's Board of Directors.
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"JUNIOR SECURITIES" means any capital stock or other equity
securities of the Corporation (including, without limitation, warrants,
options and other rights to acquire such capital stock or other equity
securities), except for the Series C Preferred and such other series or
classes of securities which the holders of a majority of the Series C
Preferred affirmatively approve to not be Junior Securities under this
Certificate of Designations.
"LIQUIDATION EVENT" means any of the following (i) the liquidation,
dissolution or winding up of the Corporation (whether voluntary or
involuntary), (ii) the sale, lease, transfer or other disposition of all
or substantially all of the property or assets of the Corporation, (iii)
any merger, consolidation or reorganization to which the Corporation is a
party, except for a merger, consolidation or reorganization, which, after
giving effect to such merger, consolidation or reorganization, the holders
of the Corporation's outstanding capital stock (on a fully-diluted basis)
immediately prior to the merger, consolidation or reorganization, own
capital stock holding a majority of the voting power (under ordinary
circumstances), and (iv) any sale or related series of sales of shares of
the Corporation's capital stock by the Corporation which results in any
Person or group of affiliated Persons (other than the owners of the
Company's capital stock as of the Series C Closing Date) owning capital
stock holding a majority of the voting power of the Company.
"LIQUIDATION VALUE" of any share of Series C Preferred as of any
particular date shall be equal to 1.5 times the Original Purchase Price
(as equitably adjusted for any stock splits, stock dividends,
recapitalizations, reverse stock splits, or otherwise to prevent an
enlargement or diminution of rights).
"MARKET PRICE" of any security means the average of the closing
prices of such security's sales on all securities exchanges on which such
security may at the time be listed, or, if there have been no sales on any
such exchange on any day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if on any day
such security is not so listed, the average of the representative bid and
asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time,
or, if on any day such security is not quoted in the NASDAQ System, the
average of the closing or last prices of such stock's sales each day
(whether sales occurred each day or not) in the domestic over-the-counter
market as reported by the National Quotation Bureau, Incorporated, or any
similar successor organization, in each such case averaged over a period
of 21 days consisting of the day as of which "Market Price" is being
determined and the 20 consecutive business days prior to such day. If at
any time such security is not listed on any securities exchange or quoted
in the NASDAQ System or the over-the-counter market, the "Market Price"
shall be the fair value thereof determined in the reasonable good faith
judgment of the Corporation's Board of Directors.
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"OPTIONS" means any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.
"ORIGINAL PURCHASE PRICE" shall mean with respect to each share of
Series C Preferred, the amount of cash consideration paid to the Company
for such share and for any accompanying warrants or options issued with
such share and not separately priced.
"PAYMENT SATISFACTION DATE" means the date following the termination
of the employment of James P. Jimirro ("JIMIRRO") with the Corporation as
of which the following condition (whichever is applicable) has been
satisfied:
(i) if Jimirro's employment with the Corporation has been terminated
by the Corporation for "Cause" pursuant to Section 4(e) of the
Employment Agreement between Jimirro and the Corporation dated May
17, 2002 (the "EMPLOYMENT AGREEMENT") or by Jimirro otherwise than
for an Executive Good Reason Termination Event pursuant to Section
4(g) of the Employment Agreement, then upon full payment of all
compensation (excluding payments with respect to the movie "National
Lampoon's Van Wilder") owed to Jimirro under the Employment
Agreement; or
(ii) if Jimirro's employment with the Corporation has been
terminated by reason of Jimirro's death or disability, by the
Corporation for "Convenience" pursuant to Section 4(f) of the
Employment Agreement, or by Jimirro for an Executive Good Reason
Termination Event pursuant to Section 4(g) of the Employment
Agreement, then upon the later of (A) full payment to Jimirro of all
compensation (including payments under the Severance Note (as
defined in the Employment Agreement) but excluding payments with
respect to the movie "National Lampoon's Van Wilder") owed to
Jimirro under the Employment Agreement, and (B) thirteen (13) months
after the payment to Jimirro of the "Cash Severance Payment"
pursuant to, and as defined in, Section 5(d)(i) of the Employment
Agreement.
"PERSON" means an individual, a partnership, a corporation, a
limited liability Corporation, a limited liability, an association, a
joint stock Corporation, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or
political subdivision thereof.
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"SERIES C CLOSING DATE" means the date upon which the first sale and
purchase of Series C Preferred is consummated, which is currently
anticipated to be in July 2004.
"SUBSIDIARY" means any corporation of which the shares of
outstanding capital stock possessing the voting power (under ordinary
circumstances) in electing the board of directors are, at the time as of
which any determination is being made, owned by the Corporation either
directly or indirectly through Subsidiaries.
Section 10. AMENDMENT AND WAIVER. No amendment, modification or
waiver shall be binding or effective with respect to any provision hereof
without the affirmative vote or prior written consent of the holders of a
majority of the Series C Preferred outstanding at the time such action is
taken; and provided further that no change in the terms hereof may be
accomplished by merger or consolidation of the Corporation with another
corporation or entity unless the Corporation has obtained the affirmative
vote or prior written consent of the holders of a majority of the Series C
Preferred then outstanding.
Section 11. NOTICES. Except as otherwise expressly provided
hereunder, all notices referred to herein shall be in writing and shall be
delivered by registered or certified mail, return receipt requested and
postage prepaid, or by reputable overnight courier service, charges
prepaid, and shall be deemed to have been given when so mailed or sent (i)
to the Corporation, at its principal executive offices and (ii) to any
stockholder, at such holder's address as it appears in the stock records
of the Corporation (unless otherwise indicated by any such holder).
RESOLVED FURTHER, that the Executive Vice President of the Corporation is
authorized to do or cause to be done all such acts or things and to make,
execute and deliver or cause to be made, executed and delivered all such
agreements, documents, instruments and certificates in the name and on behalf of
the Corporation or otherwise as he deems necessary, desirable or appropriate to
execute or carry out the purpose and intent of the foregoing resolutions.
IN WITNESS WHEREOF, National Lampoon, Inc. has caused this Certificate of
Designations, Preferences, Rights and Limitations of Series C Convertible
Preferred Stock to be signed by its duly authorized officer as of this 15th day
of October 2004.
NATIONAL LAMPOON, INC.
BY:/s/ Douglas S. Bennett
---------------------------------
Douglas S. Bennett
Executive Vice President
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