DIGITAL DESCRIPTOR SYSTEMS, INC.
CERTIFICATE OF DESIGNATION OF PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
The undersigned, Anthony Shupin, does hereby certify that:
1. He is the President, of DIGITAL DESCRIPTOR SYSTEMS, INC., a Delaware
corporation (the "Corporation").
2. The Corporation is authorized to issue 1,000,000 shares of preferred
stock, none of which have been issued.
3. The following resolutions were duly adopted by the Board of Directors:
WHEREAS, the Certificate of Incorporation of the Corporation provides for
a class of its authorized stock known as preferred stock, comprised of 1,000,000
shares, $0.001 par value, issuable from time to time in one or more series;
WHEREAS, the Board of Directors of the Corporation is authorized to fix
the dividend rights, dividend rate, voting rights, conversion rights, rights and
terms of redemption and liquidation preferences of any wholly unissued series of
preferred stock and the number of shares constituting any Series and the
designation thereof, of any of them; and
WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to its authority as aforesaid, to fix the rights, preferences,
restrictions and other matters relating to a series of the preferred stock,
which shall consist of up to 20,000 shares of the preferred stock which the
corporation has the authority to issue, as follows:
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby
provide for the issuance of a series of preferred stock for cash or exchange of
other securities, services, rights or property and does hereby fix and determine
the rights, preferences, restrictions and other matters relating to such series
of preferred stock as follows:
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TERMS OF PREFERRED STOCK
Section 1. Designation, Amount and Par Value. The series of
preferred stock shall be designated as its Series A Convertible Preferred Stock
(the "Preferred Stock") and the number of shares so designated shall be 20,000
(which shall not be subject to increase without the consent of all of the
holders of the Preferred Stock (each, a "Holder" and collectively, the
"Holders")). Each share of Preferred Stock shall have a par value of $0.001 per
share and a Stated Value of $2.00 per share (the "Stated Value"). Capitalized
terms not otherwise defined herein shall have the meaning given such terms in
Section 7 hereof.
Section 2. No Dividends.
(a) No dividends shall be payable with respect to the
Preferred Stock.
(b) So long as any Preferred Stock shall remain outstanding,
neither the Corporation nor any Subsidiary thereof shall redeem,
purchase or otherwise acquire directly or indirectly any Junior
Securities. So long as any Preferred Stock shall remain outstanding,
neither the Corporation nor any Subsidiary thereof shall directly or
indirectly pay or declare any dividend or make any distribution
upon, nor shall any distribution be made in respect of, any Junior
Securities so long as any dividends due on the Preferred Stock
remain unpaid, nor shall any monies be set aside for or applied to
the purchase or redemption (through a sinking fund or otherwise) of
any Junior Securities or shares pari passu with the Preferred Stock.
(c) The Corporation acknowledges and agrees that the capital
of the Corporation (as such term is used in the General Corporation
Law of Delaware) in respect of the Preferred Stock and any future
issuances of the Corporation's capital stock shall be equal to the
aggregate par value of such Preferred Stock or capital stock, as the
case may be. The Corporation also acknowledges and agrees that it
shall not create any special reserves under the General Corporation
Law of Delaware without the prior written consent of each Holder.
Section 3. Voting Rights. Except as otherwise provided herein and as
otherwise prohibited by law, the Preferred Stock shall have voting rights on an
as converted basis. Without limiting the generality of the foregoing sentence,
so long as any shares of Preferred Stock are outstanding, the Corporation shall
not, without the affirmative vote of a majority of the Holders of the shares of
the Preferred Stock then outstanding, (a) alter or change adversely the powers,
preferences or rights given to the Preferred Stock or alter or amend this
Certificate of Designation, (b) authorize or create any class of stock ranking
as to dividends, redemption or distribution of assets upon a Liquidation (as
defined in Section 4) senior to or otherwise pari passu with the Preferred
Stock, (c) amend its certificate of incorporation or other charter documents so
as to affect adversely any rights of the Holders, (d) increase the authorized
number of shares of Preferred Stock, or (e) enter into any agreement with
respect to the foregoing.
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Section 4. Liquidation. Upon any liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary (a
"Liquidation"), the Holders shall be entitled to receive out of the assets of
the Corporation, whether such assets are capital or surplus, for each share of
Preferred Stock an amount equal to the Stated Value per share and any other fees
or liquidated damages owing thereon before any distribution or payment shall be
made to the holders of any Junior Securities, and if the assets of the
Corporation shall be insufficient to pay in full such amounts, then the entire
assets to be distributed to the Holders shall be distributed among the Holders
ratably in accordance with the respective amounts that would be payable on such
shares if all amounts payable thereon were paid in full. A Fundamental
Transaction or Change of Control Transaction shall not be treated as a
Liquidation. The Corporation shall mail written notice of any such Liquidation,
not less than 45 days prior to the payment date stated therein, to each record
Holder.
Section 5. Conversion.
(a) Conversions at Option of Holder. Commencing on the third
anniversary of the Original Issue Date until the Termination Date,
provided that, following the second anniversary, the closing bid
price of the Common Stock on then Principal Market shall have been
no less than $2.00 for any ten consecutive trading day period, each
share of Preferred Stock shall be convertible into 240,000 shares of
Common Stock, subject to adjustment as set forth in Section 5(c) (as
adjusted from time to time, the "Conversion Rate"). The Holders
shall effect conversions by providing the Corporation with the form
of conversion notice attached hereto as Annex A (a "Notice of
Conversion"). Each Notice of Conversion shall specify the number of
shares of Preferred Stock to be converted, the number of shares of
Preferred Stock owned prior to the conversion at issue, the number
of shares of Preferred Stock owned subsequent to the conversion at
issue and the date on which such conversion is to be effected, which
date may not be prior to the date the Holder delivers such Notice of
Conversion to the Corporation by facsimile (the "Conversion Date").
If no Conversion Date is specified in a Notice of Conversion, the
Conversion Date shall be the date that such Notice of Conversion to
the Corporation is deemed delivered hereunder. The calculations and
entries set forth in the Notice of Conversion shall control in the
absence of manifest or mathematical error.
(b) (i) Not later than three Trading Days after each
Conversion Date (the "Share Delivery Date"), the Corporation shall
deliver to the Holder a certificate or certificates representing the
number of shares of Common Stock being acquired upon the conversion
of shares of Preferred Stock.
(ii) The Corporation's obligations to issue and deliver
the Conversion Shares upon conversion and redemption of
Preferred Stock in accordance with the terms hereof are
absolute and unconditional, irrespective of any action or
inaction by the Holder to enforce the same, any waiver or
consent with respect to any provision hereof, the recovery of
any judgment against any Person or any action to enforce the
same, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder or
any other Person of any obligation to the Corporation or any
violation or alleged violation of law by the Holder or any
other person, and irrespective of any other circumstance which
might otherwise limit such obligation of the Corporation to
the Holder in connection with the issuance of such Conversion
Shares. In the event a Holder shall elect to convert any or
all of its Preferred Stock, the Corporation may not refuse
conversion based on any claim that such Holder or any one
associated or affiliated with the Holder of has been engaged
in any violation of law, agreement or for any other reason,
unless, an injunction from a court, on notice, restraining and
or enjoining conversion of all or part of this Preferred Stock
shall have been. In the absence of an injunction precluding
the same, the Corporation shall issue Conversion Shares or, if
applicable, cash, upon a properly noticed conversion.
(c) (i) The Conversion Rate is subject to adjustment as set
forth in this Section 5(d).
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(ii) if the Corporation, at any time while the Preferred
Stock is outstanding: (A) shall pay a stock dividend or
otherwise make a distribution or distributions on shares of
its Common Stock or any other equity or equity equivalent
securities payable in shares of Common Stock and the Series A
Preferred Stock, (B) subdivide outstanding shares of Common
Stock into a larger number of shares, (C) combine (including
by way of reverse stock split) outstanding shares of Common
Stock into a smaller number of shares, or (D) issue by
reclassification of shares of the Common Stock any shares of
capital stock of the Corporation (each, an "Adjustment
Event"), then the number of shares of Common Stock issuable
upon conversion of the Preferred Stock shall be increased to a
number of shares determined by dividing the number of shares
of Common Stock issuable prior to the Adjustment Event by a
fraction of which the numerator shall be the number of shares
of Common Stock (excluding treasury shares, if any)
outstanding before the Adjustment Event and of which the
denominator shall be the number of shares of Common Stock
Outstanding after the Adjustment Event. Any adjustment made
pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders
entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the
case of a subdivision, combination or reclassification.
Section 6. Termination. All shares of Preferred Stock owned by the
Holder thereof will automatically and without any action by the Company or the
Holder thereof cease to exist, and all rights associated with the Preferred
Stock (including, without limitation, the right to convert the Preferred Stock)
will be terminated with respect to such Holder upon the earlier of (i) that
person's termination of employment with the Company for any reason, or (ii) the
Termination Date.
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Section 7. Definitions. For purposes hereof, the following terms
shall have the following meanings:
"Alternate Consideration" shall have the meaning set forth in
Section 8.
"Business Day" means any day on which banks are open for
business to the public.
"Change of Control Transaction" means the occurrence after the
date hereof of any of (a) an acquisition after the date hereof by an
individual or legal entity or "group" (as described in Rule
13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether through legal or beneficial ownership of capital stock of
the Corporation, by contract or otherwise) of in excess of 33% of
the voting securities of the Corporation, or (b) a replacement at
one time or within a one year period of more than one-half of the
members of the Corporation's board of directors which is not
approved by a majority of those individuals who are members of the
board of directors on the date hereof (or by those individuals who
are serving as members of the board of directors on any date whose
nomination to the board of directors was approved by a majority of
the members of the board of directors who are members on the date
hereof), or (c) the execution by the Corporation of an agreement to
which the Corporation is a party or by which it is bound, providing
for any of the events set forth above in (a) or (b).
"Common Stock" means the Corporation's common stock, par value
$0.001 per share, and stock of any other class into which such
shares may hereafter have been reclassified or changed.
"Conversion Date" shall have the meaning set forth in Section
5(a)(i).
"Conversion Shares" means, collectively, the shares of Common
Stock into which the shares of Preferred Stock are convertible in
accordance with the terms hereof.
"Fundamental Transaction" means the occurrence after the date
hereof of any of (a) the Corporation effects any merger or
consolidation of the Corporation with or into another Person, (b)
the Corporation effects any sale of all or substantially all of its
assets in one or a series of related transactions, (c) any tender
offer or exchange offer (whether by the Corporation or another
Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities,
cash or property, or (d) the Corporation effects any
reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted
into or exchanged for other securities, cash or property.
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"Holder" shall have the meaning given such term in Section 1
hereof.
"Junior Securities" means the Common Stock and all other
equity or equity equivalent securities of the Corporation other than
those securities that are (a) outstanding on the Original Issue Date
and (b) which are explicitly senior in rights or liquidation
preference to the Preferred Stock.
"Liquidation" shall have the meaning given such term in
Section 4.
"Notice of Conversion" shall have the meaning given such term
in Section 5(a).
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Preferred Stock regardless of the
number of transfers of any particular shares of Preferred Stock and
regardless of the number of certificates which may be issued to
evidence such Preferred Stock.
"Person" means a corporation, an association, a partnership,
an organization, a business, an individual, a government or
political subdivision thereof or a governmental agency.
"Principal Market" initially means the Over-the-Counter
Bulletin Board and shall also include the American Stock Exchange,
NASDAQ Small-Cap Market, the New York Stock Exchange, or the NASDAQ
National Market, whichever is at the time the principal trading
exchange or market for the Common Stock, based upon share volume.
"Share Delivery Date" shall have the meaning given such term
in Section 5(b).
"Stated Value" shall have the meaning given such term in
Section 1.
"Termination Date" shall mean the fifth anniversary of the
Original Issue Date.
Section 8. Fundamental Transactions and Change of Control
Transactions. If a Fundamental Transaction occurs, then upon any subsequent
conversion of shares of Preferred Stock, the Holder shall have the right to
receive, for each Conversion Share that would have been issuable upon such
conversion absent such Fundamental Transaction, the same kind and amount of
securities, cash or property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been, immediately prior to
such Fundamental Transaction, the holder of one share of Common Stock (the
"Alternate Consideration"). For purposes of any such conversion, the
determination of the Set Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate Consideration issuable
in respect of one share of Common Stock in such Fundamental Transaction, and the
Corporation shall apportion the Set Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components of
the Alternate Consideration. If holders of Common Stock are given any choice as
to the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any conversion of shares of Preferred Stock following such
Fundamental Transaction. To the extent necessary to effectuate the foregoing
provisions, any successor to the Corporation or surviving entity in such
Fundamental Transaction shall issue to the Holder new preferred stock consistent
with the foregoing provisions and evidencing the Holder's right to convert such
preferred stock into Alternate Consideration. The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity to comply with the provisions
of this Section 8 and insuring that the Preferred Stock (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction or Change of Control Transaction.
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Section 9. Miscellaneous.
(a) If (i) the Corporation shall declare a dividend (or any
other distribution) on the Common Stock, (ii) the Corporation shall
declare a special nonrecurring cash dividend on or a redemption of
the Common Stock, (iii) the Corporation shall authorize the granting
to all holders of Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or of any
rights, (iv) the approval of any stockholders of the Corporation
shall be required in connection with any reclassification of the
Common Stock, any consolidation or merger to which the Corporation
is a party, any sale or transfer of all or substantially all of the
assets of the Corporation, of any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or
property;, or (v) the Corporation shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of
the Corporation; then the Corporation shall cause to be filed at
each office or agency maintained for the purpose of conversion of
the Preferred Stock, and shall caused to be mailed to the Holders at
their last addresses as they shall appear upon the stock books of
the Corporation, at least 20 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a
record is not to be taken, the date as of which the holders of the
Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined
or (y) the date on which any such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale,
transfer or share exchange; provided, that the failure to mail such
notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert the Conversion
Amount of Preferred Stock during the 20-day period commencing the
date of such notice to the effective date of the event triggering
such notice.
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(b) The Corporation covenants that it will at all times
reserve and keep available out of its authorized and unissued shares
of Common Stock solely for the purpose of issuance upon conversion
of Preferred Stock, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons
other than the Holders, not less than such number of shares of
Common Stock as shall be issuable upon the conversion of all
outstanding shares of Preferred Stock. The Corporation covenants
that all shares of Common Stock that shall be so issuable shall,
upon issue, be duly and validly authorized, issued and fully paid
and nonassessable.
(c) The issuance of certificates for Common Stock on
conversion of Preferred Stock shall be made without charge to the
Holders thereof for any documentary stamp or similar taxes that may
be payable in respect of the issue or delivery of such certificate,
provided that the Corporation shall not be required to pay any tax
that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion in a
name other than that of the Holder of such shares of Preferred Stock
so converted.
(d) To effect conversions or redemptions, as the case may be,
of shares of Preferred Stock, a Holder shall not be required to
surrender the certificate(s) representing such shares of Preferred
Stock to the Corporation unless all of the shares of Preferred Stock
represented thereby are so converted, in which case the Holder shall
deliver the certificate representing such share of Preferred Stock
promptly following the Conversion Date at issue. Shares of Preferred
Stock converted into Common Stock or redeemed in accordance with the
terms hereof shall be canceled and may not be reissued.
(e). Any and all notices or other communications or deliveries
to be provided by the Holders of the Preferred Stock hereunder,
including, without limitation, any Notice of Conversion, shall be in
writing and delivered personally, by facsimile or sent by a
nationally recognized overnight courier service, addressed to the
attention of the President of the Corporation, Fax Number: (732)
359-0265, or to such other address or facsimile number as shall be
specified in writing by the Corporation for such purpose. Any and
all notices or other communications or deliveries to be provided by
the Corporation hereunder shall be in writing and delivered
personally, by facsimile or sent by a nationally recognized
overnight courier service, addressed to each Holder at the facsimile
telephone number or address of such Holder appearing on the books of
the Corporation, which address shall initially be the address of
such Holder set forth on the signature pages of the Award Agreement
pursuant to which shares of Preferred Stock are being granted, or
such other address as the Corporation or a Holder may designate by
ten days advance written notice to the other parties hereto. Any
notice or other communication or deliveries hereunder shall be
deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this
Section prior to 6:30 p.m. (New York City time) (with confirmation
of transmission), (ii) the date after the date of transmission, if
such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section later than 6:30
p.m. (New York City time) on any date and earlier than 11:59 p.m.
(New York City time) on such date (with confirmation of
transmission), (iii) five days after having been sent by registered
or certified mail, return receipt requested, postage prepaid, (iv)
one day after deposit with a nationally recognized overnight courier
service, specifying next day delivery, with written verification of
service, or (v) upon actual receipt by the party to whom such notice
is required to be given.
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(f) For purposes hereof, a share of Preferred Stock is
outstanding until such date as the Holder shall have received the
Conversion Shares or redemption amount (as the case may be) issuable
or payable to it in accordance with this Certificate of Designation.
(g) If a Holder's Preferred Stock certificate shall be
mutilated, lost, stolen or destroyed, the Corporation shall execute
and deliver, in exchange and substitution for and upon cancellation
of a mutilated certificate, or in lieu of or in substitution for a
lost, stolen or destroyed certificate, a new certificate for the
shares of Preferred Stock so mutilated, lost, stolen or destroyed
but only upon receipt of evidence of such loss, theft or destruction
of such certificate, and of the ownership hereof, and indemnity, if
requested, all reasonably satisfactory to the Corporation.
(h) All questions concerning the construction, validity,
enforcement and interpretation of this Certificate of Designation
shall be governed by and construed and enforced in accordance with
the internal laws of the State of Delaware, without regard to the
principles of conflicts of law thereof. Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the New Jersey
Courts for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, or such
New Jersey Courts are improper or inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to
such party at the address in effect for notices to it under this
Certificate of Designation and agrees that such service shall
constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any
way any right to serve process in any manner permitted by law. Each
party hereto hereby irrevocably waives, to the fullest extent
permitted by applicable law, any and all right to trial by jury in
any legal proceeding arising out of or relating to this Certificate
of Designation or the transactions contemplated hereby. If either
party shall commence an action or proceeding to enforce any
provisions of this Certificate of Designation, then the prevailing
party in such action or proceeding shall be reimbursed by the other
party for its attorneys fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action
or proceeding.
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(i) Any waiver by the Corporation or the Holder of a breach of
any provision of this Certificate of Designation shall not operate
as or be construed to be a waiver of any other breach of such
provision or of any breach of any other provision of this
Certificate of Designation. The failure of the Corporation or the
Holder to insist upon strict adherence to any term of this
Certificate of Designation on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to
insist upon strict adherence to that term or any other term of this
Certificate of Designation. Any waiver must be in writing.
(j) If any provision of this Certificate of Designation is
invalid, illegal or unenforceable, the balance of this Certificate
of Designation shall remain in effect, and if any provision is
inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it
shall be found that any interest or other amount deemed interest due
hereunder violates applicable laws governing usury, the applicable
rate of interest due hereunder shall automatically be lowered to
equal the maximum permitted rate of interest.
(k) Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day.
(l) The headings contained herein are for convenience only, do
not constitute a part of this Certificate of Designation and shall
not be deemed to limit or affect any of the provisions hereof.
(m) RESOLVED, FURTHER, that the Chairman, the president or any
vice-president, and the secretary or any assistant secretary, of the
Corporation be and they hereby are authorized and directed to
prepare and file a Certificate of Designation of Preferences, Rights
and Limitations in accordance with the foregoing resolution and the
provisions of Delaware law.
IN WITNESS WHEREOF, the undersigned have executed this Certificate this
9th day of November 2006.
/s/ Anthony Shupin
- -------------------
Name: Antony Shupin
Title: Chief Executive Officer
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ANNEX A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to convert shares of Preferred
Stock)
The undersigned hereby elects to convert the number of shares of Convertible
Preferred Stock indicated below, into shares of common stock, par value $0.001
per share (the "Common Stock"), of Digital Descriptor Systems, Inc., a Delaware
corporation (the "Corporation"), according to the conditions hereof, as of the
date written below. If shares are to be issued in the name of a person other
than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Corporation in accordance therewith. No fee will be
charged to the Holder for any conversion, except for such transfer taxes, if
any.
Conversion calculations:
Date to Effect Conversion
-----------------------------------------
Number of shares of Preferred Stock owned prior to Conversion
-----------------------------------------
Number of shares of Preferred Stock to be Converted
-----------------------------------------
Stated Value of shares of Preferred Stock to be Converted
-----------------------------------------
Number of shares of Common Stock to be Issued
-----------------------------------------
Aggregate Price
-----------------------------------------
Number of shares of Preferred Stock subsequent to Conversion
-----------------------------------------
[HOLDER]
By:
----------------------
Name:
Title:
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