AMENDED DESIGNATIONS, PREFERENCES AND RIGHTS OF
THE SERIES A CONVERTIBLE PREFERRED STOCK
OF
TECHALT, INC.
TechAlt, Inc. (the "COMPANY"), a corporation organized and
existing under the Nevada Revised Statutes (the "NRS"), does hereby certify
that, pursuant to authority conferred upon the Board of Directors of the Company
by the Restated Articles of Incorporation, as amended, of the Company, and
pursuant to Section 78.1955 of the NRS, the Board of Directors of the Company at
a meeting duly held, adopted resolutions (i) authorizing a series of the
Company's previously authorized preferred stock, par value $.001 per share, and
(ii) providing for the designations, preferences and relative, participating,
optional or other rights, and the qualifications, limitations or restrictions
thereof, of Four Million Eight Hundred Twenty Thousand (4,820,000) shares of
Series A Convertible Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue Four Million
Eight Hundred Twenty Thousand (4,820,000) shares of Series A Convertible
Preferred Stock (the "PREFERRED SHARES"), par value $.001 per share, which shall
have the following powers, designations, preferences and other special rights:
(1) (I) Certain Defined Terms. For purposes of this Certificate
of Designations, the following terms shall have the following
meanings:
(a) "ADDITIONAL AMOUNT" means, on a per Preferred Share basis,
the sum of (A) unpaid Default Interest through the date of
determination plus (B) the product of (x) the result of the following
formula: (0.05) (N/365) and (y) $1.00.
(b) "APPROVED STOCK PLAN" means any employee benefit plan
which has been approved by the Board of Directors of the Company,
pursuant to which the Company's securities may be issued to employees,
officers or directors for services provided to the Company.
(c) "BLOOMBERG" means Bloomberg Financial Markets.
(d) "BUSINESS DAY" means any day other than Saturday, Sunday
or other day on which commercial banks in The City of New York are
authorized or required by law to remain closed.
(e) "CALENDAR QUARTER" means each of the following periods:
the period beginning on and including January 1 and ending on and
including March 31; the period beginning on and including April 1 and
ending on and including June 30; the period beginning on and including
July 1 and ending on and including September 30; and the period
beginning on and including October 1 and ending on and including
December 31.
(f) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for
any security as of any date, the last closing bid price and last
closing trade price, respectively, for such security on the Principal
Market, as reported by Bloomberg, or, if the Principal Market begins to
operate on an extended hours basis and does not designate the closing
bid price or the closing trade price, as the case may be, then the last
bid price or last trade price, respectively, of such security prior to
4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the
Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade
price, respectively, 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 or last trade price, respectively, of such security
in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price or
last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the
"pink sheets" by Pink Sheets LLC (formerly the National Quotation
Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price
cannot be calculated for a security on a particular date on any of the
foregoing bases, the Closing Bid Price or the Closing Sale Price, as
the case may be, of such security on such date shall be the fair market
value as mutually determined by the Company and the Required Holders.
If the Company and the Required Holders are unable to agree upon the
fair market value of such security, then such dispute shall be resolved
pursuant to Section 2(c)(iii). All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock
combination or other similar transaction during the applicable
calculation period.
(g) "CONVERSION PRICE" means $0.50, subject to adjustment as
provided herein.
(h) "CONVERTIBLE SECURITIES" means any stock or securities
(other than Options) directly or indirectly convertible into or
exchangeable or exercisable for Common Stock.
(i) "DIVIDEND CALCULATION PRICE" means, with respect to any
Dividend Date, that price which shall be computed as 90% of the
arithmetic average of the Weighted Average Prices of the Common Stock
on each of the five (5) consecutive trading days immediately preceding
the second trading day immediately preceding such Dividend Date, as
appropriately adjusted for any stock dividend, stock split, stock
combination or other similar transaction during such five (5) trading
day period.
(j) "EBITDA" means, for the most recent calendar quarter, the
net income (or net loss) of the Company and its consolidated
subsidiaries, determined in accordance with United States generally
accepted accounting principles, consistently applied, plus (i) any
provision for (or less any benefit from) income taxes, (ii) any
deduction for interest expense, net of interest income, and (iii)
depreciation and amortization expense. All determinations of the
components of EBITDA shall be derived from the Company's then most
recently filed Annual Report on Form 10-K or 10-KSB, as applicable, or
Quarterly Report on Form 10-Q or 10QSB, as applicable.
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(k) "EQUITY CONDITIONS" means: (i) on each day during the
period beginning six (6) months prior to the applicable date of
determination and ending on and including the applicable date of
determination (the "EQUITY CONDITIONS MEASURING PERIOD"), either (x)
the Registration Statement filed pursuant to the Registration Rights
Agreement shall be effective and available for the resale of all
remaining Registrable Securities (as defined in the Registration Rights
Agreement) in accordance with the terms of the Registration Rights
Agreement and there shall not have been any Grace Periods (as defined
in the Registration Rights Agreement) or (y) all shares of Common Stock
issuable upon conversion of the Preferred Shares or as Dividend Shares
shall be eligible for sale without restriction and without the need for
registration under any applicable federal or state securities laws;
(ii) the Company shall have no knowledge of any fact that would cause
(x) the Registration Statements required pursuant to the Registration
Rights Agreement not to be effective and available for the resale of
all remaining Registrable Securities in accordance with the terms of
the Registration Rights Agreement or (y) any shares of Common Stock
issuable upon conversion of the Preferred Shares or as Dividend Shares
not to be eligible for sale without restriction pursuant to Rule 144(k)
and any applicable state securities laws; (iii) on each day during the
Equity Conditions Measuring Period, the shares of Common Stock are
designated for quotation on the Principal Market and shall not have
been suspended from trading on such exchange or market (other than
suspensions of not more than two days and occurring prior to the
applicable date of determination due to business announcements by the
Company) nor shall delisting or suspension by such exchange or market
been threatened or pending either (A) in writing by such exchange or
market or (B) by falling below the minimum listing maintenance
requirements of such exchange or market; (iv) during the Equity
Conditions Measuring Period, the Company shall have delivered
Conversion Shares and Warrant Shares (as defined in the Securities
Purchase Agreement) and other shares of Common Stock issuable upon
conversion of the Preferred Shares and exercise of the Warrants to the
holders on a timely basis; (v) any applicable shares of Common Stock to
be issued in connection with the event requiring determination may be
issued in full without violating Section 4 hereof and any other rules
or regulations of the Principal Market; (vi) during the Equity
Conditions Measuring Period, there shall not have occurred the public
announcement of a pending, proposed or intended Fundamental Transaction
which has not been abandoned, terminated or consummated; and (vii) the
Company otherwise shall have been in material compliance with and shall
not have materially breached any provision, covenant, representation or
warranty of any Transaction Document (as defined in the Securities
Purchase Agreement).
(l) "ELIGIBLE MARKET" means the Principal Market, The New York
Stock Exchange, Inc., the Nasdaq National Market or The Nasdaq SmallCap
Market.
(m) "EXCLUDED SECURITIES" means shares of Common Stock issued
or deemed to be issued in accordance with Section 2(e) hereof by the
Company: (i) pursuant to an Approved Stock Plan; (ii) upon issuance of
the Preferred Shares or upon conversion of the Preferred Shares or as
Dividend Shares; (iii) upon exercise of the Warrants; and (iv) issued
upon exercise of Options or Convertible Securities which are
outstanding on the date immediately preceding the Issuance Date,
provided that such issuance of shares of Common Stock upon exercise of
such Options or Convertible Securities is made pursuant to the terms of
such Options or Convertible Securities in effect on the date
immediately preceding the Issuance Date and such Options or Convertible
Securities are not amended after the date immediately preceding the
Issuance Date.
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(n) "FUNDAMENTAL TRANSACTION" means that the Company shall,
directly or indirectly, in one or more related transactions, (i)
consolidate or merge with or into (whether or not the Company is the
surviving corporation) another Person, or (ii) sell, assign, transfer,
convey or otherwise dispose of all or substantially all of the
properties or assets of the Company to another Person, or (iii) allow
another Person to make a purchase, tender or exchange offer that is
accepted by the holders of more than the 50% of the outstanding shares
of Common Stock (not including any shares of Common Stock held by the
Person or Persons making or party to, or associated or affiliated with
the Persons making or party to, such purchase, tender or exchange
offer), or (iv) consummate a stock purchase agreement or other business
combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another
Person whereby such other Person acquires more than the 50% of the
outstanding shares of Common Stock (not including any shares of Common
Stock held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to,
such stock purchase agreement or other business combination), or (v)
reorganize, recapitalize or reclassify its Common Stock.
(o) "ISSUANCE DATE" means the first date on which Preferred
Shares are issued pursuant to the Securities Purchase Agreement.
(p) "N" means the number of days from, but excluding, the last
Dividend Date with respect to which dividends, along with any Default
Interest, have been paid by the Company on the applicable Preferred
Share, or the Issuance Date if no Dividend Date has occurred, through
and including the date of determination for such Preferred Share for
which such determination is being made.
(q) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
(r) "PARENT ENTITY" of a Person means an entity that, directly
or indirectly, controls the applicable Person and whose common stock or
equivalent equity security is quoted or listed on an Eligible Market,
or, if there is more than one such Person or Parent Entity, the Person
or Parent Entity with the largest public market capitalization as of
the date of consummation of the Fundamental Transaction.
(s) "PERSON" means 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.
(t) "PRINCIPAL MARKET" means the principal exchange or market
on which the Common Stock is listed and trades, which initially is the
OTC Bulletin Board.
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(u) "REGISTRATION RIGHTS AGREEMENT" means that certain
registration rights agreement by and among the Company and the initial
holders of the Preferred Shares relating to the filing of a
Registration Statement (as defined in such agreement) covering the
resale of the shares of Common Stock issuable upon conversion of and as
Dividend Shares on the Preferred Shares and exercise of the Warrants,
as such agreement may be amended from time to time as provided in such
agreement.
(v) "REQUIRED HOLDERS" means the holders of the Preferred
Shares representing at least a majority of the shares of Common Stock
underlying the Preferred Shares then outstanding.
(w) "SECURITIES PURCHASE AGREEMENT" means that certain
securities purchase agreement by and among the Company and the initial
holders of the Preferred Shares, as such agreement may be amended from
time to time as provided in such agreement.
(x) "STATED VALUE" means $1.00.
(y) "SUCCESSOR ENTITY" means the Person, which may be the
Company, formed by, resulting from or surviving any Fundamental
Transaction or the Person with which such Fundamental Transaction shall
have been made, provided that if such Person is not a publicly traded
entity whose common stock or equivalent equity security is quoted or
listed for trading on an Eligible Market, Successor Entity shall mean
such Person's Parent Entity.
(z) "WARRANTS" means the warrants to purchase shares of Common
Stock issued by the Company pursuant to the Securities Purchase
Agreement.
(aa) "WEIGHTED AVERAGE PRICE" means, for any security as of
any date, the dollar volume-weighted average price for such security on
the Principal Market during the period beginning at 9:30:01 a.m., New
York Time (or such other time as the Principal Market publicly
announces is the official open of trading), and ending at 4:00:00 p.m.,
New York Time (or such other time as the Principal Market publicly
announces is the official close of trading) as reported by Bloomberg
through its "Volume at Price" functions, or, if the foregoing does not
apply, the dollar volume-weighted average price of such security in the
over-the-counter market on the electronic bulletin board for such
security during the period beginning at 9:30:01 a.m., New York Time (or
such other time as such market publicly announces is the official open
of trading), and ending at 4:00:00 p.m., New York Time (or such other
time as such market publicly announces is the official close of
trading) as reported by Bloomberg, or, if no dollar volume-weighted
average price is reported for such security by Bloomberg for such
hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as
reported in the "pink sheets" by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). If the Weighted Average Price cannot be
calculated for a security on a particular date on any of the foregoing
bases, the Weighted Average Price of such security on such date shall
be the fair market value as mutually determined by the Company and the
Holder. If the Company and the Holder are unable to agree upon the fair
market value of such security, then such dispute shall be resolved
pursuant to Section 2(c)(iii). All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock
combination or other similar transaction during the applicable
calculation period.
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(II) Dividends. The holders of the Preferred Shares shall be
entitled to receive dividends ("DIVIDENDS") at a rate of 5.0% per annum
(the "DIVIDEND RATE"), which shall be cumulative, accumulate daily from
the Issuance Date and be due and payable beginning on October 1, 2004
(the "FIRST DIVIDEND DATE") and on the first day of each Calendar
Quarter after the First Dividend Date (each, including the First
Dividend Date, a "DIVIDEND DATE"). If a Dividend Date is not a Business
Day, then the Dividend shall be due and payable on the Business Day
immediately following such Dividend Date. Dividends shall be payable in
cash, or, at the option of the Company, in shares of Common Stock
("DIVIDEND SHARES"), provided that the Dividends which accumulated
during any period shall be payable as Dividend Shares only if the
Company provides written notice to each holder of Preferred Shares at
least ten (10) Business Days prior to the Dividend Date (the "DIVIDEND
NOTICE DATE"). Dividends to be paid in Dividend Shares shall be paid in
a number of fully paid and nonassessable shares (rounded up to the
nearest whole share) of Common Stock equal to the quotient of (a) the
Additional Amount divided by (b) the Dividend Calculation Price. If any
Dividend Shares are to be paid on a Dividend Date, then the Company
shall (X) provided that the Company's transfer agent (the "TRANSFER
AGENT") is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer Program, upon the request of such holder,
credit such aggregate number of Dividend Shares to which such holder
shall be entitled to such holder's or its designee's balance account
with DTC through its Deposit Withdrawal Agent Commission system, or (Y)
issue and deliver on the applicable Dividend Date, to each holder of
Preferred Shares at such address as specified by such holder in writing
to the Company at least two Business Days prior to the applicable
Dividend Date, a certificate, registered in the name of such holder or
its designee, for the number of Dividend Shares to which such holder
shall be entitled. Notwithstanding the foregoing, the Company shall not
be entitled to pay Dividends in shares of Common Stock and shall be
required to pay such Dividends in cash if the Equity Conditions are not
satisfied (or waived by the Holder) from and including the Dividend
Notice Date through and including the applicable Dividend Date. Any
accumulated and unpaid cash Dividend Payments which are not paid within
five (5) Business Days of such accumulated and unpaid Dividends'
Dividend Date shall bear interest at the rate of 15.0% per annum from
such Dividend Date until the same is paid in full (the "DEFAULT
INTEREST"). Notwithstanding any other provision in this Certificate of
Designations to the contrary, no Dividends shall be required to be paid
by the Company subsequent to the first fiscal quarter in which the
Company has EBITDA of One Million Dollars ($1,000,000) or more.
(2) Conversion of Preferred Shares. Preferred Shares shall be
convertible into shares of the Company's Common Stock, par value $.001 per share
(the "COMMON STOCK"), on the terms and conditions set forth in this Section 2.
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(a) Holder's Conversion Right. Subject to the provisions of
Section 4, at any time or times on or after the Issuance Date, any
holder of Preferred Shares shall be entitled to convert any whole or
fractional number of Preferred Shares into fully paid and nonassessable
shares of Common Stock in accordance with Section 2(c) at the
Conversion Rate (as defined below). The Company 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 Preferred Share 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 Company shall round such
fraction of a share of Common Stock up to the nearest whole share.
(b) Conversion. The number of shares of Common Stock issuable
upon conversion of each Preferred Share pursuant to Section 2 shall be
determined according to the following formula (the "CONVERSION RATE"):
Stated Value
Conversion Price
(c) Mechanics of Conversion. The conversion of Preferred
Shares shall be conducted in the following manner:
(i) Holder's Delivery Requirements. To convert
Preferred Shares into shares of Common Stock on any date (the
"CONVERSION DATE"), the holder thereof shall (A) transmit by facsimile
(or otherwise deliver), for receipt on or prior to 11:59 p.m., New York
City Time, on such date, a copy of an executed notice of conversion in
the form attached hereto as Exhibit I (the "CONVERSION NOTICE") to the
Company and the Transfer Agent and (B) if required by Section
2(c)(vii), surrender to a common carrier for delivery to the Company as
soon as practicable following such date the original certificates
representing the 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").
(ii) Company's Response. Upon receipt by the Company
of a copy of a Conversion Notice, the Company shall (A) as soon as
practicable, but in any event within one (1) Business Day, send, via
facsimile, a confirmation of receipt of such Conversion Notice to such
holder and the Transfer Agent, which confirmation shall constitute an
instruction to the Transfer Agent to process such Conversion Notice in
accordance with the terms herein and (B) on or before the second (2nd)
Business Day following the date of receipt by the Company of such
Conversion Notice (the "SHARE DELIVERY DATE"), (I) if the Transfer
Agent is participating in the DTC Fast Automated Securities Transfer
program, the Company shall cause the Transfer Agent to promptly
electronically transmit the Common Stock issuable upon conversion to
the holder by crediting the account of the holder or its nominee with
DTC through its Deposit Withdrawal Agent Commission system or (II)
issue and deliver 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. If the number of Preferred Shares represented by the
Preferred Stock Certificate(s) submitted for conversion, as may be
required pursuant to Section 2(c)(vii), is greater than the number of
Preferred Shares being converted, then the Company shall, as soon as
practicable and in no event later than three (3) Business Days after
receipt of the Preferred Stock Certificate(s) (the "PREFERRED STOCK
DELIVERY DATE") and at its own expense, issue and deliver to the holder
a new Preferred Stock Certificate representing the number of Preferred
Shares not converted.
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(iii) Dispute Resolution. In the case of a dispute as
to the determination of the Conversion Price or the arithmetic
calculation of the Conversion Rate, the Company shall instruct the
Transfer Agent to issue to the holder the number of shares of Common
Stock that is not disputed and shall transmit an explanation of the
disputed determinations or arithmetic calculations to the holder via
facsimile (the "DISPUTE NOTICE") within one (1) Business Day of receipt
of such holder's Conversion Notice or other date of determination. If
such holder and the Company are unable to agree upon the determination
of the Conversion Price or arithmetic calculation of the Conversion
Rate within two (2) Business Days of such Dispute Notice, then the
Company shall within one (1) Business Day submit via facsimile (A) the
disputed determination of the Conversion Price to an independent,
reputable investment bank selected by the Company and approved by the
Required Holders or (B) the disputed arithmetic calculation of the
Conversion Rate to the Company's independent, outside accountant. The
Company shall cause, at the Company's expense, the investment bank or
the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the holder of the results no
later than two (2) Business Days from the time it receives the disputed
determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case 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
Preferred Shares shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on the Conversion Date.
(v) Company's Failure to Timely Convert.
(A) Cash Damages. Subject to Section 4, if the
Company shall fail for any reason or for no reason to issue within five
Business Days of the Conversion Date, a certificate for the number of
shares of Common Stock to which the holder is entitled or to credit the
holder's balance account with DTC for such number of shares of Common
Stock to which the holder is entitled upon the holder's conversion of
the Preferred Shares, the Company shall pay as damages in cash to such
holder on each day after such fifth Business Day that the issuance of
such Common Stock is not timely effected an amount equal to 1.0% of the
product of (A) the sum of the number of shares of Common Stock not
issued to the holder on a timely basis and to which the holder is
entitled and (B) the Closing Sale Price of the Common Stock on the
trading day immediately preceding the last possible date which the
Company could have issued such Common Stock to the holder without
violating Section 2(c). In addition to any other rights available to a
holder and the foregoing provisions, if the Company fails to deliver or
cause to be delivered to the holder a certificate for the number of
shares of Common Stock to which the holder is entitled or to credit
the holder's balance account with DTC for such number of shares of
Common Stock to which the holder is entitled upon the holder's
conversion of the Preferred Shares by the Business Day after the date
on which delivery of such certificate is required hereby, and if on or
after such Business Day the holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the holder of the shares that the holder
anticipated receiving from the Company (a "BUY-IN"), then the Company
shall, within three Business Days after the holder's request and in the
holder's discretion, either (i) pay cash to the holder in an amount
equal to the holder's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased, at
which point the Company's obligation to deliver such certificate (and
to issue such shares of Common Stock) shall terminate, or (ii) promptly
honor its obligation to deliver to the holder a certificate or
certificates representing such shares of Common Stock (the "BUY-IN
SHARES") and pay cash to the holder in an amount equal to the product
of (A) the number of Buy-In Shares, times (B) the excess (if any) of
the Closing Sale Price on the date of the Buy-In over the Closing Sale
Price on the date of delivery of the Buy-In Shares.
(B) Void Conversion Notice. If for any reason
a holder has not received all of the shares of Common Stock to which
such holder is entitled prior to the tenth (10th) Business Day after
the Share Delivery Date with respect to a conversion of Preferred
Shares, then the holder, upon written notice to the Company, with a
copy to the Transfer Agent, may void its Conversion Notice with respect
to, and retain or have returned, as the case may be, any Preferred
Shares that have not been converted pursuant to such holder's
Conversion Notice; provided that the voiding of a holder's Conversion
Notice shall not affect the Company's obligations to make any payments
which have accrued prior to the date of such notice pursuant to Section
2(c)(v)(A) or otherwise.
(vi) Pro Rata Conversion. Subject to Section 4(b),
in the event the Company receives a Conversion Notice from more than
one holder of Preferred Shares for the same Conversion Date and the
Company can convert some, but not all, of such Preferred Shares, the
Company shall convert from each holder of Preferred Shares electing to
have Preferred Shares converted at such time a pro rata amount of such
holder's Preferred Shares submitted for conversion based on the number
of Preferred Shares submitted for conversion on such date by such
holder relative to the number of Preferred Shares submitted for
conversion on such date.
(vii) Book-Entry. Notwithstanding anything to the
contrary set forth herein, upon conversion of Preferred Shares in
accordance with the terms hereof, the holder thereof shall not be
required to physically surrender the certificate representing the
Preferred Shares to the Company unless the full or remaining number of
Preferred Shares represented by the certificate are being converted.
The holder and the Company shall maintain records showing the number of
Preferred Shares so converted and the dates of such conversions or
shall use such other method, reasonably satisfactory to the holder and
the Company, so as not to require physical surrender of the certificate
representing the Preferred Shares upon each such conversion. In the
event of any dispute or discrepancy, such records of the Company
establishing the number of Preferred Shares to which the record holder
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is entitled shall be controlling and determinative in the absence of
manifest error. Notwithstanding the foregoing, if Preferred Shares
represented by a certificate are converted as aforesaid, the holder may
not transfer the certificate representing the Preferred Shares unless
the holder first physically surrenders the certificate representing the
Preferred Shares to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the holder a new certificate of
like tenor, registered as the holder may request, representing in the
aggregate the remaining number of Preferred Shares represented by such
certificate. The holder and any assignee, by acceptance of a
certificate, acknowledge and agree that, by reason of the provisions of
this paragraph, following conversion of any Preferred Shares, the
number of Preferred Shares represented by such certificate may be less
than the number of Preferred Shares stated on the face thereof. Each
certificate for Preferred Shares shall bear the following legend:
ANY TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY
REVIEW THE TERMS OF THE COMPANY'S CERTIFICATE OF
DESIGNATIONS RELATING TO THE PREFERRED SHARES
REPRESENTED BY THIS CERTIFICATE, INCLUDING SECTION
2(c)(vii) THEREOF. THE NUMBER OF PREFERRED SHARES
REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN THE
NUMBER OF PREFERRED SHARES STATED ON THE FACE HEREOF
PURSUANT TO SECTION 2(c)(vii) OF THE CERTIFICATE OF
DESIGNATIONS RELATING TO THE PREFERRED SHARES
REPRESENTED BY THIS CERTIFICATE.
(d) Taxes. The Company shall pay any and all documentary,
stamp, transfer and other similar taxes that may be payable with
respect to the issuance and delivery of Common Stock upon the
conversion of Preferred Shares.
(e) Adjustments to Conversion Price. The Conversion Price
will be subject to adjustment from time to time as provided in this
Section 2(e).
(i) Adjustment of Conversion Price upon Issuance of
Common Stock. If and whenever on or after the Issuance Date and while
any Preferred Shares are outstanding, the Company issues or sells, or
in accordance with this Section 2(e) is deemed to have issued or sold,
any shares of Common Stock (including the issuance or sale of shares of
Common Stock owned or held by or for the account of the Company but
excluding Excluded Securities) for a consideration per share (the "NEW
SECURITIES ISSUANCE PRICE") less than a price equal to the Conversion
Price in effect immediately prior to such time (the "APPLICABLE PRICE")
(the foregoing, a "DILUTIVE ISSUANCE"), then immediately after such
issue or sale, the Conversion Price then in effect shall be reduced to
an amount equal to the New Securities Issuance Price. For purposes of
determining the adjusted Conversion Price under this Section 2(e)(i),
the following shall be applicable:
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(A) Issuance of Options. If the Company in any
manner grants or sells any Options (not including Excluded Securities)
and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion,
exchange or exercise of any Convertible Securities issuable upon
exercise of such Option is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have
been issued and sold by the Company at the time of the granting or sale
of such Option for such price per share. For purposes of this Section
2(e)(i)(A), the "lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon
conversion, exchange or exercise of any Convertible Securities issuable
upon exercise of such Option" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company
with respect to any one share of Common Stock upon granting or sale of
the Option, upon exercise of the Option and upon conversion, exchange
or exercise of any Convertible Security issuable upon exercise of such
Option. No further adjustment of the Conversion Price shall be made
upon the actual issuance of such Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion, exchange or exercise of
such Convertible Securities.
(B) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities (not
including Excluded Securities) and the lowest price per share for which
one share of Common Stock is issuable upon such conversion, exchange or
exercise thereof is less than the Applicable Price, then such share of
Common Stock shall be deemed to be outstanding and to have been issued
and sold by the Company at the time of the issuance of sale of such
Convertible Securities for such price per share. For the purposes of
this Section 2(e)(i)(B), the "lowest price per share for which one
share of Common Stock is issuable upon such conversion, exchange or
exercise" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the issuance or sale of
the Convertible Security and upon the conversion, exchange or exercise
of such Convertible Security. No further adjustment of the Conversion
Price shall be made upon the actual issuance of such Common Stock upon
conversion, exchange or exercise of such Convertible Securities, and if
any such issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustment of the Conversion Price
had been or are to be made pursuant to other provisions of this Section
2(e)(i), no further adjustment of the Conversion Price shall be made by
reason of such issue or sale.
(C) Change in Option Price or Rate of
Conversion. If the purchase or exercise price provided for in any
Options (not including Excluded Securities), the additional
consideration, if any, payable upon the issue, conversion, exchange or
exercise of any Convertible Securities (not including Excluded
Securities), or the rate at which any Convertible Securities (not
including Excluded Securities) are convertible into or exchangeable or
-11-
exercisable for Common Stock changes at any time, the Conversion Price
in effect at the time of such change shall be adjusted to the
Conversion Price which would have been in effect at such time had such
Options or Convertible Securities provided for such changed purchase
price, additional consideration or changed conversion rate, as the case
may be, at the time initially granted, issued or sold. For purposes of
this Section 2(e)(i)(C), if the terms of any Option or Convertible
Security that was outstanding as of the date of issuance of the
Preferred Shares are changed in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the
Common Stock deemed issuable upon exercise, conversion or exchange
thereof shall be deemed to have been issued as of the date of such
change. No adjustment shall be made if such adjustment would result in
an increase of the Conversion Price then in effect.
(D) Calculation of Consideration Received. In
case any Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to such
Options by the parties thereto, the Options will be deemed to have been
issued for a consideration of $0.01. If any Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued
or sold for cash, the consideration received therefor will be deemed to
be the gross amount received by the Company therefor. If any Common
Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other
than cash received by the Company will be the fair value of such
consideration, except where such consideration consists of marketable
securities, in which case the amount of consideration received by the
Company will be the arithmetic average of the Closing Sale Prices of
such securities during the ten (10) consecutive trading days ending on
the date of receipt of such securities. The fair value of any
consideration other than cash or securities will be determined jointly
by the Company and the holders of at least a majority of the Preferred
Shares then outstanding. If the Required Holders and the Company are
unable to reach agreement within ten days after the occurrence of an
event requiring valuation (the "VALUATION EVENT"), the fair value of
such consideration will be determined within fifteen Business Days
after the tenth day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the Required
Holders. The determination of such appraiser shall be final and binding
upon all parties absent manifest error and the fees and expenses of
such appraiser shall be borne by the Company.
(E) Record Date. If the Company takes a record
of the holders of Common Stock for the purpose of entitling them (I) to
receive a dividend or other distribution payable in Common Stock,
Options or Convertible Securities or (II) to subscribe for or purchase
Common Stock, Options or Convertible Securities, then such record date
will be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of
such dividend or the making of such other distribution or the date of
the granting of such right of subscription or purchase, as the case may
be.
-12-
(ii) Adjustment of Conversion Price upon Subdivision
or Combination of Common Stock. If the Company at any time subdivides
(by any stock split, stock dividend, recapitalization or otherwise) its
outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will
be proportionately reduced. If the Company at any time combines (by
combination, reverse stock split or otherwise) its outstanding shares
of Common Stock into a smaller number of shares and the Conversion
Price in effect immediately prior to such combination will be
proportionately increased.
(iii) Other Events. If any event occurs of the type
contemplated by the provisions of this Section 2(e) but not expressly
provided for by such provisions, then the Company's Board of Directors
will make an appropriate adjustment in the Conversion Price so as to
protect the rights of the holders of the Preferred Shares; provided
that no such adjustment will increase the Conversion Price as otherwise
determined pursuant to this Section 2(e).
(iv) Notices.
(A) Immediately upon any adjustment of the
Conversion Price pursuant to this Section 2(e), the Company will give
written notice thereof to each holder of Preferred Shares, setting
forth in reasonable detail, and certifying, the calculation of such
adjustment.
(B) The Company will give written notice to
each holder of Preferred Shares at least ten (10) Business Days prior
to the date on which the Company 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 Fundamental Transaction, dissolution or liquidation, provided that
such information shall be made known to the public prior to or in
conjunction with such notice being provided to such holder.
(C) The Company will also give written notice
to each holder of Preferred Shares at least ten (10) Business Days
prior to the date on which any Fundamental Transaction, dissolution or
liquidation will take place, provided that such information shall be
made known to the public prior to or in conjunction with such notice
being provided to such holder.
(3) Other Rights of Holders.
(a) Fundamental Transactions. The Company shall not enter
into or be party to a Fundamental Transaction unless (i) the Successor
Entity assumes in writing all of the obligations of the Company under
this Certificate of Designations and the other Transaction Documents in
accordance with the provisions of this Section 3(a) pursuant to written
agreements in form and substance satisfactory to the Required Holders
and approved by the Required Holders prior to such Fundamental
Transaction, including agreements to deliver to each holder of
Preferred Shares in exchange for such Preferred Shares a security of
-13-
the Successor Entity evidenced by a written instrument substantially
similar in form and substance to the Preferred Shares and this
Certificate of Designations, including, without limitation, having a
conversion price equal to the Conversion Price hereunder and having
similar ranking to the Preferred Shares, and satisfactory to the
Required Holders and (ii) the Successor Entity (including its Parent
Entity) is a publicly traded corporation whose common stock is quoted
on or listed for trading on an Eligible Market. Upon the occurrence of
any Fundamental Transaction, the Successor Entity shall succeed to, and
be substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Certificate of Designations
referring to the "Company" shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and
shall assume all of the obligations of the Company under this
Certificate of Designations with the same effect as if such Successor
Entity had been named as the Company herein. Upon consummation of the
Fundamental Transaction, the Successor Entity shall deliver to the
holders of Preferred Shares confirmation that there shall be issued
upon conversion of the Preferred Shares at any time after the
consummation of the Fundamental Transaction, in lieu of the shares of
the Company's Common Stock (or other securities, cash, assets or other
property) purchasable upon the conversion of the Preferred Shares prior
to such Fundamental Transaction, such shares of stock, securities,
cash, assets or any other property whatsoever (including warrants or
other purchase or subscription rights) which the holder of Preferred
Shares would have been entitled to receive upon the happening of such
Fundamental Transaction had the Preferred Shares been converted
immediately prior to such Fundamental Transaction. The provisions of
this Section shall apply similarly and equally to successive
Fundamental Transactions and shall be applied without regard to any
limitations on the conversion of the Preferred Shares.
(b) Purchase Rights. If at any time the Company 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 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 Preferred Shares (without taking into account any
limitations or restrictions on the convertibility of the 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.
(4) Limitation on Beneficial Ownership. The Company shall not
effect and shall have no obligation to effect any conversion of
Preferred Shares, and no holder of Preferred Shares shall have the
right to convert any Preferred Shares, to the extent that after giving
effect to such conversion, the beneficial owner of such shares
(together with such Person's affiliates) would have acquired, through
conversion of Preferred Shares or otherwise, beneficial ownership of a
number of shares of Common Stock that exceeds 9.99% of the number of
shares of Common Stock outstanding immediately after giving effect to
such conversion. For purposes of the foregoing sentence, the number of
-14-
shares of Common Stock beneficially owned by a Person and its
affiliates shall include the number of shares of Common Stock issuable
upon conversion of the Preferred Shares with respect to which the
determination of such sentence is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon (A)
conversion of the remaining, nonconverted Preferred Shares beneficially
owned by such Person or any of its affiliates and (B) exercise or
conversion of the unexercised or unconverted portion of any other
securities of the Company (including, without limitation, any warrants)
subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by such Person or any of
its affiliates. Except as set forth in the preceding sentence, for
purposes of this Section 4(a), beneficial ownership shall be calculated
in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. For purposes of this Section 4(a), in determining the
number of outstanding shares of Common Stock, a holder may rely on the
number of outstanding shares of Common Stock as reflected in (1) the
Company's most recent Form 10-Q or 10-QSB, as applicable, Form 10-K or
10-KSB, as applicable, or other public filing with the SEC, as the case
may be, (2) a more recent public announcement by the Company, or (3)
any other notice by the Company or its transfer agent setting forth the
number of shares of Common Stock outstanding. Upon the written request
of any holder, the Company shall promptly, but in no event later than
one (1) Business Day following the receipt of such notice, confirm in
writing to any such holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to conversions of
Preferred Shares and exercise of the Warrants by such holder and its
affiliates since the date as of which such number of outstanding shares
of Common Stock was reported.
(5) Company's Right of Mandatory Conversion.
(a) Mandatory Conversion. If at any time from and after
the Issuance Date, (i) EBITDA equals or exceeds $1,000,000 (the "EBITDA
REQUIREMENT") and (ii) the Equity Conditions shall have been satisfied
or waived in writing by the Required Holders from and including the
Mandatory Conversion Notice Date through and including the Mandatory
Conversion Date (each, as defined below), the Company shall have the
right to require each holder of the Preferred Shares to convert all or
any portion of the Preferred Shares then outstanding as designated in
the Mandatory Conversion Notice into fully paid, validly issued and
nonassessable shares of Common Stock in accordance with the terms
hereof at the Conversion Rate as of the Mandatory Conversion Date (a
"MANDATORY CONVERSION"). The Company may exercise its right to require
conversion under this Section 5(a) by delivering within not more than
two Trading Days following the satisfaction of the EBITDA Requirement a
written notice thereof by facsimile and overnight courier to all, but
not less than all, of the holders of Preferred Shares and the Transfer
Agent (the "MANDATORY CONVERSION NOTICE" and the date all of the
holders received such notice is referred to as the "MANDATORY
CONVERSION NOTICE DATE"). The Company may deliver one Mandatory
Conversion Notice hereunder and the Mandatory Conversion Notice shall
be irrevocable.
-15-
(b) Pro Rata Conversion Requirement. If the Company elects
to cause a conversion of all or any portion of the outstanding
Preferred Shares pursuant to Section 5(a), then it must simultaneously
take the same action with respect to all Preferred Shares. If the
Company elects to cause the conversion of Preferred Shares pursuant to
Section 5(a) with respect to less than all of the outstanding Preferred
Shares, then the Company shall require conversion of Preferred Shares
from each of the holders of the Preferred Shares equal to the product
of (I) the aggregate number of Preferred Shares which the Company has
elected to cause to be converted pursuant to Section 5(a), multiplied
by (II) the fraction, the numerator of which is the sum of the
aggregate number of Preferred Shares purchased by such holder pursuant
to the Securities Purchase Agreement and the denominator of which is
the sum of the aggregate number of Preferred Shares purchased by all
holders pursuant to the Securities Purchase Agreement (such fraction
with respect to each holder is referred to as its "ALLOCATION
PERCENTAGE," and such amount with respect to each holder is referred to
as its "PRO RATA CONVERSION AMOUNT"). In the event that the initial
holder of any Preferred Shares shall sell or otherwise transfer any of
such holder's Preferred Shares, the transferee shall be allocated a pro
rata portion of such holder's Allocation Percentage. The Mandatory
Conversion Notice shall state (i) the Business Day selected for the
Mandatory Conversion in accordance with Section 5(a), which Business
Day shall be at least 20 Business Days but not more than 60 Business
Days following the Mandatory Conversion Notice Date (the "MANDATORY
CONVERSION DATE"), (ii) the aggregate number of Preferred Shares which
the Company has elected to be subject to mandatory conversion from all
of the holders of Preferred Shares pursuant to this Section 5, (iii)
each holder's Pro Rata Conversion Amount and (iv) the number of shares
of Common Stock to be issued to such holder as of the Mandatory
Conversion Date. All Preferred Shares converted by a holder after the
Mandatory Conversion Notice Date shall reduce the amount of Preferred
Shares required to be converted on the Mandatory Conversion Date. If
the Company has elected a Mandatory Conversion, the mechanics of
conversion set forth in Section 2(c) shall apply, to the extent
applicable, as if the Company and the Transfer Agent had received from
the applicable holder on the Mandatory Conversion Date a Conversion
Notice with respect to the Preferred Shares being converted pursuant to
the Mandatory Conversion.
(6) Reservation of Shares. The Company shall, so long as any of
the Preferred Shares are outstanding, take all action necessary to
reserve and keep available out of its authorized and unissued Common
Stock, solely for the purpose of effecting the conversions of the
Preferred Shares, such number of shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all of the
Preferred Shares, then outstanding; provided that the number of shares
of Common Stock so reserved shall at no time be less than 130% of the
number of shares of Common Stock for which the Preferred Shares are at
any time convertible (without regard to any limitations on
conversions). The initial number of shares of Common Stock reserved for
conversions of the Preferred Shares and each increase in the number of
shares so reserved shall be allocated pro rata among the holders of the
Preferred Shares based on the number of Preferred Shares held by each
holder at the time of issuance of the Preferred Shares or increase in
the number of reserved shares, as the case may be. In the event a
holder shall sell or otherwise transfer any of such holder's Preferred
Shares, each transferee shall be allocated a pro rata portion of the
number of reserved shares of Common Stock reserved for such transferor.
Any shares of Common Stock reserved and allocated to any Person which
ceases to hold any Preferred Shares shall be allocated to the remaining
holders of Preferred Shares, pro rata based on the number of Preferred
Shares then held by such holders.
-16-
(7) Voting Rights. On any matter presented to the stockholders of
the Company for their action or consideration at any meeting of
stockholders of the Company (or by written action of stockholders in
lieu of meeting), each holder of outstanding Preferred Shares shall be
entitled to the number of votes equal to the number of whole shares of
Common Stock into which the Preferred Shares held by such holder are
convertible (subject to the limitations of Section 4(a) above) as of
the record date for determining stockholders entitled to vote on such
matter. Except as provided by law, holders of Preferred Shares shall
vote together with the holders of Common Stock, and with the holders of
any other series of preferred stock the terms of which so provide, as a
single class.
(8) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Company, the holders of the Preferred Shares shall be entitled to
receive in cash out of the assets of the Company, whether from capital
or from earnings available for distribution to its stockholders (the
"LIQUIDATION FUNDS"), before any amount shall be paid to the holders of
any of the capital stock of the Company of any class junior in rank to
the Preferred Shares in respect of the preferences as to distributions
and payments on the liquidation, dissolution and winding up of the
Company, an amount per Preferred Share equal to Two Dollars ($2.00);
provided that, if the Liquidation Funds are insufficient to pay the
full amount due to the holders of Preferred Shares and holders of
shares of other classes or series of preferred stock of the Company
that are of equal rank with the Preferred Shares as to payments of
Liquidation Funds (the "PARI PASSU SHARES"), then each holder of
Preferred Shares and Pari Passu Shares shall receive a percentage of
the Liquidation Funds equal to the full amount of Liquidation Funds
payable to such holder as a liquidation preference, in accordance with
their respective Certificate of Designations, Preferences and Rights,
as a percentage of the full amount of Liquidation Funds payable to all
holders of Preferred Shares and Pari Passu Shares. The purchase or
redemption by the Company 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 Company. Neither the
consolidation or merger of the Company with or into any other Person,
nor the sale or transfer by the Company 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 Company.
(9) Preferred Rank. All shares of Common Stock shall be of junior
rank to all Preferred Shares with respect to the preferences as to
distributions and payments upon the liquidation, dissolution and
winding up of the Company. The rights of the shares of Common Stock
shall be subject to the preferences and relative rights of the
Preferred Shares. Without the prior express written consent of the
Required Holders, the Company shall not hereafter authorize or make any
amendment to the Company's Certificate of Incorporation or bylaws, or
file any resolution of the board of directors of the Company with the
Secretary of State of the State of Nevada or enter into any agreement
containing any provisions, which would adversely affect or otherwise
-17-
impair the rights or relative priority of the holders of the 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 Company with or into another corporation, the
Preferred Shares shall maintain their relative powers, designations and
preferences provided for herein and no merger shall result inconsistent
therewith.
(10) Participation. The holders of the Preferred Shares shall, as
holders of Preferred Stock, be entitled to such dividends paid and
distributions made to the holders of Common Stock to the same extent as
if such holders of Preferred Shares had converted the Preferred Shares
into Common Stock (without regard to any limitations on conversion
herein or elsewhere) and had held such shares of Common Stock on the
record date for such dividends and distributions. Payments under the
preceding sentence shall be made concurrently with the dividend or
distribution to the holders of Common Stock.
(11) Vote to Change the Terms of or Issue Preferred Shares. The
affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting, of the Required Holders, shall be
required for (a) any change to this Certificate of Designations or the
Company's Articles of Incorporation which would amend, alter, change or
repeal any of the powers, designations, preferences and rights of the
Preferred Shares and (b) the issuance of Preferred Shares other than
pursuant to the Securities Purchase Agreement.
(12) Lost or Stolen Certificates. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of any Preferred Stock Certificates
representing the Preferred Shares, and, in the case of loss, theft or
destruction, of an indemnification undertaking by the holder to the
Company in customary form (accompanied by the posting of a standard
indemnity bond if so requested by the Company) and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred
stock certificate(s) of like tenor and date; provided, however, the
Company shall not be obligated to re-issue preferred stock certificates
if the holder contemporaneously requests the Company to convert such
Preferred Shares into Common Stock.
(13) Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Certificate of
Designations shall be cumulative and in addition to all other remedies
available under this Certificate of Designations, at law or in equity
(including a decree of specific performance and/or other injunctive
relief). No remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy. Nothing
herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designations. The Company covenants to each holder of Preferred Shares
that there shall be no characterization concerning this instrument
other than as expressly provided herein. Amounts set forth or provided
for herein with respect to payments, conversion and the like (and the
computation thereof) shall be the amounts to be received by the holder
thereof and shall not, except as expressly provided herein, be subject
to any other obligation of the Company (or the performance thereof).
The Company acknowledges that a breach by it of its obligations
-18-
hereunder will cause irreparable harm to the holders of the Preferred
Shares and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the holders of the Preferred Shares shall
be entitled, in addition to all other available remedies, to an
injunction restraining any breach, without the necessity of showing
economic loss and without any bond or other security being required.
(14) Construction. This Certificate of Designations shall be deemed
to be jointly drafted by the Company and all holders and shall not be
construed against any person as the drafter hereof.
(15) Failure or Indulgence Not Waiver. No failure or delay on the
part of a holder of Preferred Shares in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other
right, power or privilege.
(16) Notice. Whenever notice is required to be given under this
Certificate of Designations, unless otherwise provided herein, such
notice shall be given in accordance with Section 9(f) of the Securities
Purchase Agreement.
(17) Transfer of Preferred Shares. A holder of Preferred Shares may
assign some or all of the Preferred Shares and the accompanying rights
hereunder held by such holder without the consent of the Company;
provided that such assignment is in compliance with applicable
securities laws.
(18) Preferred Share Register. The Company shall maintain at its
principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holders of the Preferred
Shares), a register for the Preferred Shares, in which the Company
shall record the name and address of the persons in whose name the
Preferred Shares have been issued, as well as the name and address of
each transferee. The Company may treat the person in whose name any
Preferred Share is registered on the register as the owner and holder
thereof for all purposes, notwithstanding any notice to the contrary,
but in all events recognizing any properly made transfers.
(19) Stockholder Matters. Any stockholder action, approval or
consent required, desired or otherwise sought by the Company pursuant
to the rules and regulations of the Principal Market, the NRS, this
Certificate of Designations or otherwise with respect to the Common
Stock issuable upon conversion of the Preferred Shares or the issuance
of any Warrants and the Common Stock issuable upon exercise thereof may
be effected by written consent of the Company's stockholders or at a
duly called meeting of the Company's stockholders, all in accordance
with the applicable rules and regulations of the Principal Market and
the NRS.
* * * *
EXHIBIT I
TECHALT, INC. CONVERSION NOTICE
Reference is made to the Amended Certificate of Designations
preferences and rights of TechAlt, Inc., a Nevada corporation (the "COMPANY"),
for its Series A Convertible Preferred Stock (the "CERTIFICATE OF
DESIGNATIONS"). In accordance with and pursuant to the Certificate of
Designations, the undersigned hereby elects to convert the number of shares of
Series A Convertible Preferred Stock, par value $.001 per share (the "PREFERRED
SHARES"), of the Company indicated below into shares of Common Stock, par value
$.001 per share (the "COMMON STOCK"), of the Company, as of the date specified
below.
Date of Conversion:
----------------------------------------------------
Number of Preferred Shares to be converted:
Stock certificate no(s). of Preferred Shares to be converted:
----------
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Please confirm the following information:
Conversion Price:
------------------------------------------------------
Number of shares of Common Stock to be issued:
Please issue the Common Stock into which the Preferred Shares are being
converted in the following name and to the following address:
Issue to:
--------------------------------------------------------------
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Facsimile Number:
------------------------------------------------------
Authorization:
---------------------------------------------------------
By:
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Title:
----------------------------------------
Dated:
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Account Number (if electronic book entry transfer):
--------------------
Transaction Code Number (if electronic book entry transfer):
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[NOTE TO HOLDER -- THIS FORM MUST BE SENT CONCURRENTLY TO TRANSFER AGENT]
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and
hereby directs Interwest Transfer Company, Inc. to issue the above indicated
number of shares of Common Stock in accordance with the Irrevocable Transfer
Agent Instructions dated January __ , 2004 from the Company and acknowledged and
agreed to by Interwest Transfer Company, Inc.
TECHALT, INC.
By:
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Name:
------------------------------------------
Title:
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