EXHIBIT 4.1
TAG-IT PACIFIC, INC.
CERTIFICATE OF DESIGNATION
OF PREFERENCES, RIGHTS, AND LIMITATIONS OF
SERIES D CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151(g) of the Delaware General Corporation Law)
Tag-It Pacific, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "CORPORATION"), in
accordance with the provisions of Section 151(g) thereof,
DOES HEREBY CERTIFY that pursuant to authority conferred upon the Board
of Directors by the Certificate of Incorporation of the Corporation, as amended
by the Certificate of Amendment dated as of July 7, 1999, the Board of Directors
on December 11, 2003, adopted the following resolution creating a fourth series
of 572,818 shares of preferred stock, $0.001 par value per share, designated as
Series D Convertible Preferred Stock:
RESOLVED, that pursuant to the authority granted to the Board of
Directors by Article IV of the Certificate of Incorporation of the Corporation,
as amended (the "CERTIFICATE"), there is hereby created and the Corporation be,
and it hereby is, authorized to issue 572,818 shares of a fourth series of
preferred stock, designated "Series D Convertible Preferred Stock," which fourth
series shall have, in addition to the terms set forth in the Certificate, the
following, terms, conditions, powers, designations, preferences and privileges,
relative, participating, optional, and other rights, and qualifications,
limitations, and restrictions:
A. DESIGNATION AND AMOUNT.
(1) The shares of such series shall be designated as
"Series D Convertible Preferred Stock," $0.001 par value per share (hereinafter
referred to as "SERIES D PREFERRED") and the number of shares constituting all
of the Series D Preferred shall be 572,818 shares. Any shares of Series D
Preferred that are redeemed by the Corporation and retired and shares of Series
D Preferred that are converted in accordance with Section E shall be restored to
the status of authorized, unissued, and undesignated shares of the Corporation's
class of Preferred Stock and shall not be subject to issuance, and may not
thereafter be outstanding, as shares of Series D Preferred.
(2) Each share of Series D Preferred shall have a stated
value equal to $44.00 (as adjusted for any stock dividends, combinations,
splits, recapitalizations, and the like)(the "SERIES D STATED VALUE").
B. RANK. The Series D Preferred shall rank senior, with respect
to dividend rights and rights on liquidation, winding up, and dissolution, to
the common stock, $0.001 par value ("COMMON STOCK"), of the Corporation, the
Series A Preferred Stock, $0.001 par value per share ("SERIES A PREFERRED"), of
the Corporation, Series B Convertible Preferred Stock, $0.001 par value per
share ("SERIES B PREFERRED"), of the Corporation, Series C Convertible
Redeemable Preferred
Stock, $0.001 par value per share ("SERIES C PREFERRED"), of the Corporation, or
any other series of preferred stock, $0.001 par value per share ("PREFERRED
STOCK") of the Corporation, now or hereafter authorized, issued, or outstanding.
C. DIVIDENDS.
(1) The shares of Series D Preferred shall be entitled to
receive dividends on an as converted basis with shares of Common Stock when, as,
and if declared by the Board of Directors out of funds legally available
therefor and such dividends shall be non-cumulative.
(2) Notwithstanding the foregoing, the holders of Series
D Preferred, in preference to the holders of Common Stock, the Series A
Preferred, the Series B Preferred, the Series C Preferred, and any other series
of Preferred Stock ranking junior to the Series D Preferred as to dividends,
shall be entitled to receive, when, as, and if declared by the Board of
Directors out of funds legally available for such purpose, dividends at the rate
of 5% of the Series D Stated Value (as such stated value may be adjusted for any
stock dividends, combinations, or splits with respect to such shares)(the
"DIVIDEND RATE") per annum per share, and no more, which shall be fully
cumulative, shall accrue without interest (except as otherwise provided herein
as to dividends in arrears) on a daily basis from June 1, 2004, whether or not
declared by the Board of Directors, and shall be payable quarterly on March 31,
June 30, September 30, December 31 of each year commencing September 30, 2004
(except that if any such date is not a business day, then such dividend shall be
payable on the next succeeding day that is a business day)(each a "DIVIDEND
PAYMENT DATE") to holders of record as they appear on the stock books of the
Corporation on such date.
Dividends on the Series D Preferred shall be paid in cash as herein
provided. The amount of the dividends payable per share of Series D Preferred
for each quarterly dividend period shall be computed by multiplying (x) the
Dividend Rate TIMES (y) the Series D Stated Value and then dividing the product
so obtained by four. The amount of dividends payable for the initial dividend
period and any period shorter than a full quarterly dividend period shall be
computed on the basis of a 360-day year of twelve 30-day months. Dividends not
paid on a Dividend Payment Date, whether or not such dividends have been
declared, will bear interest at a rate equal to the Dividend Rate in effect at
such time PLUS 2% per annum (or such lesser rate equal to the highest rate
permitted by applicable law) until paid.
(3) The Corporation shall not declare or pay any
dividends on, or make any distributions with respect to any shares of Common
Stock or series of Preferred Stock ranking junior to the Series D Preferred
(other than dividends in Common Stock) unless and until all accrued dividends on
the Series D Preferred have been paid in full.
D. LIQUIDATION PREFERENCE.
(1) In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation, subject to the
rights of any series of Preferred Stock hereafter authorized, issued, or
outstanding, the holders of Series D Preferred then outstanding shall be
entitled to receive, out of the assets of the Corporation available for
distribution to its stockholders, before any payment shall be made in respect of
the Common Stock, the Series A Preferred, the Series B Preferred, the Series C
Preferred, or any series of Preferred Stock with rights junior to the
2
Series D Preferred, an amount per share of Series D Preferred equal to the
Series D Stated Value, plus all accrued and unpaid dividends thereon (whether or
not declared) to the date fixed for distribution. If upon, liquidation,
dissolution, or winding up of the Corporation, the assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the
holders of Series D Preferred the full amount to which they shall be entitled
pursuant to this Section D(1), then all the assets so available for distribution
to the Corporation's stockholders shall be distributed ratably to the holders of
the Series D Preferred in proportion to the aggregate amounts that would be
payable to such holders if the assets of the Corporation were sufficient to pay
the amount to which they were entitled pursuant to this Section D(1) and nothing
more.
(2) Upon completion of the distributions required by
paragraph (1) of this Section D, the holders of Series D Preferred shall not be
entitled to any further participation in any distribution of assets by the
Corporation.
E. CONVERSION.
(1) AUTOMATIC CONVERSION. Each share of Series D
Preferred shall automatically convert into fully paid and nonassessable shares
of Common Stock immediately following the approval of such conversion by the
stockholders of the Corporation (the "AUTOMATIC CONVERSION DATE"). Each share of
Series D Preferred will be converted into such number of shares of Common Stock
equal to the product obtained by multiplying the Series D Conversion Rate then
in effect by the number of shares of Series D Preferred being converted. The
"SERIES D CONVERSION RATE" in effect at any time for conversion of the Series D
Preferred shall be the quotient obtained by dividing (a) the Series D Stated
Value by (b) the Series D Conversion Price. The "SERIES D CONVERSION PRICE"
shall initially be $4.40. The Series D Conversion Price shall be adjusted from
time to time in accordance with Sections F hereof.
(2) CONVERSION PROCEDURE. Upon the occurrence of any
automatic conversion of the outstanding Series D Preferred, the holders of such
stock shall surrender the certificates representing such shares at the principal
executive office of Corporation, the offices of the transfer agent for the
Series D Preferred, or such other place as may be designated by the Corporation.
Thereupon, there shall be issued and delivered to each such holder, promptly at
such office and in the name as shown on such surrendered certificate or
certificates, a certificate or certificates for the number of shares of Common
Stock into which such Series D Preferred was convertible on the Automatic
Conversion Date and cash in respect of any fraction of a share as provided in
Section E(3). On and after the Automatic Conversion Date, the person or persons
entitled to receive the Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock and shall be entitled to exercise all rights of the holders of
Common Stock. All accrued and unpaid dividends on shares of Series D Preferred
surrendered for conversion shall be paid in full as of the effective date of
conversion. All shares of Common Stock resulting from the automatic conversion
of Series D Preferred into Common Stock pursuant to Section E(1) shall be deemed
fully paid and non-assessable.
(3) NO FRACTIONAL SHARES. The Corporation shall not be
obligated to issue and deliver any fractional share of Common Stock upon any
conversion of shares of Series D Preferred, but in lieu thereof shall pay to the
holder converting such Series D Preferred an amount of based on the fair value
of a share of Common Stock as of the time when those entitled to receive those
fractions are determined. Whether or not fractional shares are issuable upon
such conversion shall
3
be determined on the basis of the total number of shares of Series D Preferred
the holder is at the time converting into Common Stock and the number of shares
of Common Stock issuable upon such aggregate conversion.
(4) 9.9% LIMITATION. Notwithstanding anything to the
contrary contained herein, the number of shares of Common Stock that may be
acquired at any time by a holder of Series D Preferred upon conversion of Series
D Preferred shall not exceed a number that, when added to the total number of
shares of Common Stock deemed beneficially owned by such holder (other than by
virtue of the ownership of securities or rights to acquire securities that have
limitations on the holder's right to convert, exercise, or purchase similar to
the limitation set forth herein ("EXCLUDED SHARES"), together with all shares of
Common Stock beneficially owned at such time (other than by virtue of the
ownership of Excluded Shares) by persons whose beneficial ownership of Common
Stock would be aggregated with the beneficial ownership of such holder for
purposes of determining whether a group exists or for purposes of determining
the holder's beneficial ownership (the "AGGREGATION PARTIES"), in either case
for purposes of Section 13(d) of the Securities Exchange Act of 1934 (the
"EXCHANGE ACT"), Rule 13d-1 to 7, and Schedules 13D and 13G thereunder
(including as the same is made applicable to Section 16 of the Exchange Act and
the rules promulgated thereunder), would result in the beneficial ownership by
such holder or such group of more than 9.9% of the shares of Common Stock for
purposes of Section 13(d) or Section 16 of the Exchange Act and the rules
promulgated thereunder. The Corporation and the holders of Series D Preferred
agree that, if and to the extent this Section E(4) would restrict the conversion
of the shares of Series D Preferred held by any holder (a "RESTRICTED HOLDER"),
then notwithstanding anything to the contrary contained herein, only that
portion of the shares of Series D Preferred held by the Restricted Holder as may
be converted in accordance with this Section E(4) shall be converted and the
remaining shares of Series D Preferred held by the Restricted Holder shall
remain outstanding until the thirtieth (30th) day following the Automatic
Conversion Date, at which time the remaining shares of Series D Preferred held
by the Restricted Holder shall automatically convert into fully paid and
nonassessable shares of Common Stock in the manner provided for in Section E(1)
and the limitation on conversion set forth in this Section E(4) shall cease and
be of no further force or effect. Any Restricted Holder will promptly (and in
any event prior to the Automatic Conversion Date) notify the Corporation in
writing if this Section E(4) would restrict conversion of such holder's Series D
Preferred, specifying therein the number of shares of Series D Preferred so
restricted. If at any time the limits in this Section E(4) make the shares of
Series D Preferred held by any holder inconvertible in whole or in part, the
Corporation shall not by reason thereof be relieved of its obligation to issue
shares of Common Stock at any time or from time to time thereunder as an when
shares of Common Stock may be issued in compliance with such restrictions.
F. ANTI-DILUTION ADJUSTMENTS.
(1) REORGANIZATIONS, MERGERS OR CONSOLIDATIONS. If, prior
to the conversion of all of the Series D Preferred, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Corporation
shall be changed into the same or a different number of shares of the same or
another class or classes of stock or securities of the Corporation or another
entity, then the holders of Series D Preferred shall thereafter have the right
to receive upon conversion of Series D Preferred, upon the basis and upon the
terms and conditions specified herein and in lieu of shares of Common Stock,
immediately theretofore issuable upon conversion, such stock, securities, and/or
other assets that the holder would have been entitled to receive in such
transaction had the Series D Preferred
4
been converted immediately prior to such transaction, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the holders of the Series D Preferred to the end that the provisions hereof
(including, without limitation, provisions for the adjustment of the Series D
Conversion Rate and the number of shares issuable upon conversion of the Series
D Preferred) shall thereafter be applicable, as nearly as may be practicable in
relation to any securities thereafter deliverable upon the conversion thereof.
The Corporation shall not effect any transaction described in this subsection
(1) unless (a) it first gives at least 10 business days prior notice of such
merger, consolidation, exchange of shares, recapitalization, reorganization, or
other similar event (during which time the holders of the Series D Preferred
shall be entitled to convert their Series D Preferred into shares of Common
Stock to the extent permitted hereby), and (b) the resulting successor or
acquiring entity (if not the Corporation) assumes by written instrument the
obligation of the Corporation under the Articles of Incorporation, including the
obligation of this Section F(1).
(2) ADJUSTMENT FOR STOCK SPLITS, DIVIDENDS, AND
COMBINATIONS. If at any time or from time to time after the date of issuance of
Series D Preferred, the Corporation shall subdivide or split-up the outstanding
shares of Common Stock, or shall declare a dividend or other distribution on its
outstanding Common Stock payable in shares of Common Stock or other securities
or rights convertible into, or entitling the holder thereof to receive directly
or indirectly, additional shares of Common Stock ("COMMON STOCK EQUIVALENTS"),
without payment of any consideration by such holder for the additional shares of
Common Stock or Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), the Series D
Conversion Price in effect immediately prior to such subdivision or the
declaration of such dividend shall be proportionately decreased so that the
number of shares of Common Stock issuable on conversion of each share of Series
D Preferred shall be increased in proportion to the increase of the aggregate of
shares of Common Stock outstanding and those issuable with respect to such
Common Stock Equivalents with the number of shares issuable with respect to
Common Stock Equivalents determined from time to time in the manner provided for
deemed issuances, and in case the Corporation shall at any time combine the
outstanding shares of Common Stock, the Series D Conversion Price in effect
immediately prior to such combination shall be proportionately increased,
effective at the close of business on the date of such subdivision, dividend, or
combination, as the case may be.
(3) GOOD FAITH. The Corporation will not, by amendment of
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, share exchange, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of Section F and in the taking of all such
actions as may be necessary or appropriate in order to protect the conversion
rights of the holders of the Series D Preferred against impairment.
(4) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of the Series D Conversion Price pursuant to
Section F, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to the holders of Series D Preferred a certificate signed by the Chief
Financial Officer (or an officer holding a similar position) of the Corporation
setting forth (a) such adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is based and (b) the number of
shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of his shares. The Corporation shall,
upon the
5
written request at any time of any holder of Series D Preferred, furnish or
cause to be furnished to such holder a like certificate setting forth (a) such
adjustment and readjustment, (b) the Series D Conversion Price at the time in
effect, and (c) the number of shares of Common Stock and the amount, if any, of
other property that at the time would be received upon the conversion of such
holder's Series D Preferred.
G. VOTING RIGHTS. Except as otherwise required by the General
Corporation Law of the State of Delaware or the Certificate, holders of Series D
Preferred shall have no voting rights except that, unless the vote of the
holders of a greater number of shares of the Series D Preferred shall then be
required by law, the consent of holders of at least a 66-2/3% of all of the
shares of Series D Preferred at the time outstanding given by written consent,
or given in person or by proxy, by a vote at a meeting called for the purpose at
which the holders of shares of Series D Preferred shall vote together as a
class, shall be necessary for authorizing or effecting the amendment,
alteration, or repeal of any of the provisions of this Certificate of
Designation or the Certificate, which would affect adversely the preferences,
rights, powers, or privileges of the Series D Preferred.
H. MISCELLANEOUS.
(1) Except as specifically set forth herein, all notices
or communications provided for or permitted hereunder shall be made in writing
by hand delivery, express overnight courier, registered first class mail, or
telecopier addressed (a) if to the Corporation, to its office at 21900 Burbank
Boulevard, Suite 270, Woodland Hills, California 91367, Attention: Chief
Executive Officer, Telecopier: (818) 444-4110, and (b) if to the holder of the
Series D Preferred, to such holder at the address of such holder as listed in
the stock record books of the Corporation or to such other address as the
Corporation or such holder, as the case may be, shall have designated by notice
similarly given. All such notices and communications shall be deemed to have
been duly given: (i) when delivered by hand, if personally delivered; (ii) five
business days after being deposited in the mail, registered or certified mail,
return receipt requested, postage prepaid, if mailed; (iii) when received after
being deposited in the regular mail; (iv) the next business day after being
deposited with an overnight courier, if deposited with a nationally recognized,
overnight courier service; and (v) when receipt is acknowledged, if by
telecopier or electronic mail.
(2) The Corporation shall pay any and all stock transfer
and documentary stamp taxes that may be payable in respect of any issuance or
delivery of shares of Series D Preferred or shares of Common Stock or other
securities issued on account of Series D Preferred pursuant hereto or
certificates representing such shares or securities. The Corporation shall not,
however, be required to pay any such tax which may be payable in respect of any
transfer involved in the issuance or delivery of shares of Series D Preferred or
Common Stock or other securities in a name other than that in which the shares
of Series D Preferred with respect to which such shares or other securities are
issued or delivered were registered, or in respect of any payment to any person
with respect to any such shares or securities other than a payment to the
registered holder thereof, and shall not be required to make any such issuance,
delivery or payment described in this sentence unless and until the person
otherwise entitled to such issuance, delivery or payment has paid to the
Corporation the amount of any such tax or has established, to the satisfaction
of the Corporation, that such tax has been paid or is not payable.
(3) In the event that the holder of shares of Series D
Preferred shall not by written notice designate the address to which the
certificate or certificates representing shares of Common
6
Stock to be issued upon conversion of such shares should be sent, the
Corporation shall be entitled to send the certificate or certificates
representing such shares to the address of such holder shown on the records of
the Corporation or any transfer agent for the Series D Preferred.
(4) The Corporation may appoint, and from time to time
discharge and change, a transfer agent of the Series D Preferred. Upon any such
appointment or discharge of a transfer agent, the Corporation shall send notice
thereof by first-class mail, postage prepaid, to each holder of record of Series
D Preferred.
(5) The Corporation may appoint, and from time to time
may replace, a conversion agent for the Series D Preferred. Upon any such
replacement of the conversion agent, the Corporation shall send notice thereof
by first-class mail, postage prepaid, to each holder of record of Series D
Preferred.
(6) The Series D Preferred shall be transferable by the
holders, provided that such transfer is made in compliance with applicable
federal and state securities laws and any applicable agreements between the
Corporation and the holders of Series D Preferred.
IN WITNESS WHEREOF, this Certificate of Designation has been signed by
its authorized officer, this 18th day of December, 2003.
TAG-IT PACIFIC, INC.
By: /S/ COLIN DYNE
-------------------------
Colin Dyne
Chief Executive Officer