EXHIBIT 3.7
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AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
KANAKARIS COMMUNICATIONS, INC.
To the Secretary of State
State of Nevada
Pursuant to the provisions of Nevada Revised Statutes, Title 7, Chapter 78, the
undersigned officers of the Corporation hereinafter named, which is a
corporation for profit organized under the laws of the State of Nevada, do
hereby certify that the following is the entire text of the Articles of
Incorporation of the Corporation as heretofore amended and as hereby restated
and that the Board of Directors of the Corporation at a meeting duly convened
and held on the 14th day of November, 2003 adopted resolutions to amend and
restate the Corporation's Articles of Incorporation as follows:
FIRST: The name of the Corporation is Wi-Fi TV, Inc.
SECOND: This Corporation is authorized to issue two classes of
stock, which are voting Common Stock and Preferred Stock.
The shares of Common Stock which this Corporation is
authorized to issue shall have a par value of one-tenth of
one cent ($.001) per share and the number of shares of
Common Stock this Corporation is authorized to issue is two
hundred fifty million (250,000,000) shares. The shares of
Preferred Stock this Corporation is authorized to issue
shall have a par value of One Cent ($.01) per share and the
number of shares of Preferred Stock this Corporation is
authorized to issue is one million nine hundred (1,000,900)
shares. Of such amount, the Corporation hereby designates
and establishes two (2) series of Preferred Stock, namely
Class A Convertible Preferred Stock and Class B Convertible
Preferred Stock. The number of shares of Class A Convertible
Preferred Stock the Corporation is authorized to issue shall
be one million (1,000,000) shares and the number of shares
of Class B Convertible Preferred Stock the Corporation is
authorized to issue shall be nine hundred (900) shares. Each
share of Preferred Stock shall have the respective rights
and privileges designated on the Statement of Attributes
attached as Exhibit A hereto. All remaining shares of
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Preferred Stock not so specifically designated may be
designated in the future by action of the Board of Directors
of the Corporation and otherwise in accordance with the
applicable provisions of the Nevada Revised Statutes. The
Board of Directors, within any limits and restrictions
stated, may determine or alter the rights, preferences,
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privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock.
THIRD: The capital stock of the Corporation, after the amount of
The subscription price has been paid in money, property or
services, as the directors shall determine, shall not be
subject to assessment to pay the debts of the Corporation,
nor for any other purpose, and no stock issued as fully paid
up shall ever be assessable or assessed, and the articles of
incorporation shall not be amended in this particular.
FOURTH: The Corporation shall, to the fullest extent permitted by
Nevada Revised Statutes Section 78.751, as the same may be
amended, supplemented or replaced from time to time,
indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of
the expenses, liabilities or other matters referred to in or
covered by said section, and the indemnification provided
for herein shall not be deemed exclusive of any other rights
to which those indemnified may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors
or otherwise, both as to action in his official capacity and
as to action in another capacity while holding such office,
and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a
person. Pursuant to said Section 78.751, the expenses of
officers and directors incurred in defending a civil or
criminal action, suit or proceeding must be paid by the
Corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt
of an undertaking by or on behalf of the director or officer
to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to
be indemnified by the Corporation.
FIFTH: A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except to the extent
such exemption from liability or limitation thereof is not
permitted under the Nevada Revised Statutes as the same
exist or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence by the
stockholders of the Corporation shall not adversely affect
any right or protection of a director of the Corporation in
respect of any act or omission occurring prior to the time
of such amendment, modification or repeal.
The number of shares of the Corporation outstanding and entitled to vote on an
amendment to and restatement of the Articles of Incorporation are two hundred
forty-five million three hundred thirty-seven thousand seven hundred
seventy-nine (245,337,779) shares of common stock and one million (1,000,000)
shares of Class A Preferred Stock. No shares of Class B Preferred Stock are
issued and outstanding. The foregoing amendment and restatement has been
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consented to and approved by a majority vote of the stockholders holding at
least a majority of each class of stock outstanding and entitled to vote
thereon.
IN WITNESS WHEREOF, the undersigned officers have hereunto subscribed our names
this 21st day of December, 2003.
--------------------------------
Alex Kanakaris, President
--------------------------------
Rachelle Kuzma, Acting Secretary
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APPENDIX A
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KANAKARIS WIRELESS
(A NEVADA CORPORATION)
STATEMENT OF ATTRIBUTES
OF
CLASS A CONVERTIBLE PREFERRED STOCK
AND
CLASS B CONVERTIBLE PREFERRED STOCK
-----------------------------------
The following Statement of Attributes sets forth the specific attributes to be
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attached to the class of Class A Convertible Preferred Stock and Class B
Convertible Preferred Stock (hereinafter referred to as the "Class A Preferred",
the "Class B Preferred" or collectively as the "Preferred Stock") of Kanakaris
Wireless, a Nevada corporation (the "Corporation"), as prescribed by the Board
of Directors of the Corporation in accordance with Section 78.195 of the
Domestic and Foreign Corporation Laws of the State of Nevada (the "Nevada
Corporations Law"):
SECTION 1. CLASS A CONVERTIBLE PREFERRED STOCK. Shares of Class A Preferred
-----------------------------------
shall have the following voting and other powers, preferences and relative,
participating, optional or other rights and the following qualifications,
limitations and restrictions:
1.1 RANK. All shares of Class A Preferred shall rank prior to all shares of the
Corporation's Common Stock, now or hereafter issued, both as to payment of
dividends and as to distributions of assets upon liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary.
1.2 DIVIDENDS. The holders of Class A Preferred are entitled to receive, in any
fiscal year, if, when and as declared by the Corporation's Board of Directors,
out of any assets at the time legally available therefor, dividends in cash,
before any dividend is paid on Common Stock. Dividends may be declared and paid
on Common Stock in any fiscal year only if dividends shall have been paid to or
declared and set apart on all Class A Preferred. The right to dividends on Class
A Preferred shall not be cumulative, and no right shall accrue to holders of
Class A Preferred by reason of the fact that dividends on that stock are not
declared in any prior year, nor shall any undeclared or unpaid dividend bear or
accrue interest.
1.3 LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or winding
up of the Corporation, holders of Class A Preferred are entitled to receive $.10
in cash per share plus accumulated and unpaid dividends out of assets available
for distribution to stockholders, prior to any distribution to holders of Common
Stock or any other stock ranking junior to the Class A Preferred. If, upon any
liquidation, dissolution or winding up of the Corporation, the amounts payable
with respect to the Class A Preferred (and with respect to any other Preferred
Stock ranking on a parity with the Class A Preferred in any such distribution)
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are not paid in full, the holders of the Class A Preferred (and of such other
Preferred Stock) will share ratably in any such distribution of assets in
proportion to the full preferential amounts to which such shares are entitled.
After payment of the full amount of the liquidating distribution to which they
are entitled, the holders of shares of Class A Preferred will not be entitled to
any further participation in any distribution of assets by the Corporation.
A consolidation or merger of the Corporation with or into any other corporation
or a sale of all or any part of the assets of the Corporation (which shall not
in fact result in the liquidation of the Corporation and the distribution of
assets to stockholders) shall not be deemed to be a liquidation, dissolution or
winding up of the Corporation.
1.4 REDEMPTION. The Class A Preferred may be redeemed by the Corporation at any
time upon thirty (30) days' written notice at a redemption price of $.50 per
share. Holders of Class A Preferred shall have the right to convert their shares
of Class A Preferred into Common Stock during this thirty (30)-day period. The
redemption price shall be payable together with accumulated and unpaid dividends
to the date fixed for redemption. If full cumulative dividends on the Class A
Preferred through the most recent dividend payment date have not been paid, the
Class A Preferred may not be redeemed in part unless approved by the holders of
a majority of shares of Class A Preferred then outstanding, and the Corporation
may not purchase or acquire any share of Class A Preferred other than pursuant
to a purchase or exchange offer made on the same terms to all holders of Class A
Preferred. If less than all of the outstanding shares of Class A Preferred are
to be redeemed, the Corporation will select those to be redeemed by lot or a by
a substantially equivalent method.
The shares of Class A Preferred are not subject to any sinking fund or any other
similar provision.
The redemption by the Corporation of all or any part of the Class A Preferred is
subject to the availability of cash. Moreover, shares of capital stock shall not
be redeemed when the capital of the Corporation is impaired or when the
redemption would cause any impairment of capital.
1.5 CONVERSION RIGHTS. Holders of the Class A Preferred will have the right, at
their option, to convert such shares into shares of Common Stock at any time at
the conversion rate then in effect; provided that, if any of the Class A
Preferred is redeemed, the conversion rights pertaining thereto will terminate
on the third business day preceding the redemption date.
Each share of Class A Preferred will be initially convertible into one (1)
share of Common Stock. No fractional share or scrip representing a fractional
share will be issued upon conversion of the Class A Preferred. Cash will be paid
in lieu of fractional shares.
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The conversion rate will be appropriately adjusted if the Company (a) pays a
dividend or makes a distribution on its shares of Common Stock (but not the
Class A Preferred) which is paid or made in shares of Common Stock, (b)
subdivides or reclassifies its outstanding shares of Common Stock, (c) combines
its outstanding shares of Common Stock into a smaller number of shares of Common
Stock, (d) issues shares of Common Stock, or issues rights or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase shares
of Common Stock (or securities convertible into Common Stock), at a price per
share less than the conversion price in effect immediately prior to the issuance
thereof, or (e) distributes to all holders of its Common Stock evidences of its
indebtedness or assets (excluding any dividend paid in cash out of legally
available funds) subject to the limitation that adjustments by reason of any of
the foregoing need not be made until they result in a cumulative change in the
conversion rate of at least five percent (5%). The conversion rate will not be
adjusted upon the conversion of shares of Class A Preferred or presently
outstanding stock options or warrants. For the purpose of making the above
adjustments, the market price of a share of Common Stock shall be the average of
the closing bid and asked prices for the Common Stock on the Over-The-Counter
market.
In case of any consolidation or merger to which the Company is a party other
than a merger or consolidation in which the Company is the surviving
corporation, or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, or in
case of any statutory exchange of securities with another corporation, there
will be no adjustment of the conversion price, but each holder of shares of
Class A Preferred then outstanding will have the right thereafter to convert
such shares into the kind and amount of securities, cash or other property which
he would have owned or have been entitled to receive immediately after such
consolidation, merger, statutory exchange, sale or conveyance had such shares
been converted immediately prior to the effective date of such consolidation,
merger, statutory exchange, sale or conveyance. In the case of a cash merger of
the Company into another corporation or any other cash transaction of the type
mentioned above, the effect of these provisions would be that the conversion
features of the Class A Preferred would thereafter be limited to converting the
Class A Preferred at the conversion price in effect at such time into the same
amount of cash per share that such holder would have received had such holder
converted the Class A Preferred into Common Stock immediately prior to the
effective date of such cash merger or transaction. Depending upon the terms of
such cash merger or transaction, the aggregate amount of cash so received in
conversion could be more or less than the liquidation preference of the Class A
Preferred.
Class A Preferred may be converted upon surrender of the stock certificate at
least three (3) days prior to the redemption date at the offices of the
Corporation with the form of "Election to Convert" on the reverse side of the
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stock certificate completed and executed as indicated. Shares of Common Stock
issued upon conversion will be fully paid and non-assessable.
1.6 VOTING RIGHTS. Each share of Class A Preferred shall have one hundred (100)
non-cumulative votes. Shares of Common Stock and Class A Preferred vote as a
single class on all matters presented to the stockholders for action. Without
the affirmative vote of the holders of a majority of the Class A Preferred then
outstanding, voting as a separate class, the Corporation may not (i) amend,
alter or repeal any of the preferences or rights of the Class A Preferred, (ii)
authorize any reclassification of the Class A Preferred, (iii) increase the
authorized number of shares of Class A Preferred or (iv) create any class or
series of shares ranking prior to the Class A Preferred as to dividends or upon
liquidation.
1.7 STATUS OF ACQUIRED SHARES. Shares of Class A Preferred redeemed by the
Company or received upon conversion or otherwise acquired by the Company will be
restored to the status of authorized but unissued shares of Preferred Stock,
without designation as to class, and may thereafter be issued, but not as shares
of Class A Preferred.
1.8 PREEMPTIVE RIGHTS. The Class A Preferred is not entitled to any preemptive
or subscription rights in respect of any securities of the Company.
SECTION 2. CLASS B CONVERTIBLE PREFERRED STOCK. Shares of Class B Preferred
-----------------------------------
shall have the following voting and other powers, preferences and relative,
participating, optional or other rights and the following qualifications,
limitations and restrictions:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 900 shares of Preferred Stock,
is Class B Convertible Preferred Stock (the "CLASS B PREFERRED STOCK") and the
stated value shall be One Thousand Dollars ($1,000) per share (the "STATED
VALUE").
II. RANK
The Class B Preferred Stock shall rank (i) prior to the Corporation's common
stock, par value $.001 per share (the "COMMON STOCK"); (ii) prior to the Class A
Preferred Stock and any class or series of capital stock of the Corporation
hereafter created (unless, with the consent of the holders of Class B Preferred
Stock obtained in accordance with Article VIII hereof, such class or series of
capital stock specifically, by its terms, ranks senior to or PARI PASSU with the
Class B Preferred Stock) (collectively, with the Common Stock, "JUNIOR
SECURITIES"); (iii) PARI PASSU with any class or series of capital stock of the
Corporation hereafter created (with the consent of the holders of Class B
Preferred Stock obtained in accordance with Article VIII hereof) specifically
ranking, by its terms, on parity with the Class B Preferred Stock ("PARI PASSU
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SECURITIES"); and (iv) junior to any class or series of capital stock of the
Corporation hereafter created (with the consent of the holders of Class B
Preferred Stock obtained in accordance with Article VIII hereof) specifically
ranking, by its terms, senior to the Class B Preferred Stock ("SENIOR
SECURITIES"), in each case as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
III. DIVIDENDS
The Class B Preferred Stock shall bear dividends at the rate of eight percent
(8%) per annum from the date of issuance of the Class B Preferred Stock until
conversion or redemption thereof. The eight percent (8%) dividend shall be
computed on the basis of a 365-day year and the actual number of days elapsed
and shall be payable, at the option of the holder of the Class B Preferred
Stock, either quarterly on March 31, June 30, September 30 and December 31 of
each year beginning on June 30, 2002, or at the time of conversion of Class B
Preferred Stock in accordance with terms hereof. All dividends due hereunder (to
the extent not converted into Common Stock in accordance with the terms hereof)
shall be made in lawful money of the United States of America or, at the option
of the holder of the Class B Preferred Stock, in whole or in part, in shares of
Common Stock of the Corporation valued at the then applicable Conversion Price
(as defined herein). All payments shall be made at such address as the holder of
the Class B Preferred Stock shall hereafter give to the Corporation by written
notice made in accordance with the provisions hereof. Whenever any amount
expressed to be due by the terms hereof is due on any day which is not a
business day, the same shall instead be due on the next succeeding day which is
a business day and, in the case of any dividend payment date which is not the
date on which the Class B Preferred Stock is converted, the extension of the due
date thereof shall not be taken into account for purposes of determining the
amount of dividend due on such date. As used herein, the term "business day"
shall mean any day other than a Saturday, Sunday or a day on which commercial
banks in the city of Los Angeles, California are authorized or required by law
or executive order to remain closed. In no event, so long as any Class B
Preferred Stock shall remain outstanding, shall any dividend whatsoever be
declared or paid upon, nor shall any distribution be made upon, any Junior
Securities, nor shall any shares of Junior Securities be purchased or redeemed
by the Corporation nor shall any moneys be paid to or made available for a
sinking fund for the purchase or redemption of any Junior Securities (other than
a distribution of Junior Securities), without, in each such case, the written
consent of the holders of a majority of the outstanding shares of Class B
Preferred Stock, voting together as a class.
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IV. LIQUIDATION PREFERENCE
A. LIQUIDATION EVENT.
If the Corporation shall commence a voluntary case under the Federal bankruptcy
laws or any other applicable Federal or State bankruptcy, insolvency or similar
law, or consent to the entry of an order for relief in an involuntary case under
any law or to the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or make an assignment for the benefit of its
creditors, or admit in writing its inability to pay its debts generally as they
become due, or if a decree or order for relief in respect of the Corporation
shall be entered by a court having jurisdiction in the premises in an
involuntary case under the Federal bankruptcy laws or any other applicable
Federal or state bankruptcy, insolvency or similar law resulting in the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"LIQUIDATION EVENT"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation (other than Senior Securities) upon
liquidation, dissolution or winding up unless prior thereto, the holders of
shares of Class B Preferred Stock, subject to Article VI, shall have received
the Liquidation Preference (as defined in Article IV.C) with respect to each
share. If upon the occurrence of a Liquidation Event, the assets and funds
available for distribution among the holders of the Class B Preferred Stock and
holders of PARI PASSU Securities (including any dividends ordistribution paid on
any PARI PASSU Securities after the date of filing of this Certificate of
Designation) shall be insufficient to permit the payment to such holders of the
preferential amounts payable thereon, then the entire assets and funds of the
Corporation legally available for distribution to the Class B Preferred Stock
and the PARI PASSU Securities shall be distributed ratably among such shares in
proportion to the ratio that the Liquidation Preference payable on each such
share bears to the aggregate liquidation preference payable on all such shares.
Any prior dividends or distribution made after the date of filing of this
Certificate of Designation shall offset, dollar for dollar, the amount payable
to the class or series to which such distribution was made.
B. CERTAIN ACTS DEEMED LIQUIDATION EVENT.
At the option of any holder of Class B Preferred Stock, the sale, conveyance or
disposition of all or substantially all of the assets of the Corporation, the
effectuation by the Corporation of a transaction or series of related
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transactions in which more than 50% of the voting power of the Corporation is
disposed of, or the consolidation, merger or other business combination of the
Corporation with or into any other Person (as defined below) or Persons when the
Corporation is not the survivor shall either: (i) be deemed to be a liquidation,
dissolution or winding up of the Corporation pursuant to which the Corporation
shall be required to distribute upon consummation of and as a condition to such
transaction an amount equal to 120% of the Liquidation Preference with respect
to each outstanding share of Class B Preferred Stock or (ii) be treated pursuant
to Article VI.C(b) hereof. "PERSON" shall mean any individual, corporation,
limited liability company, partnership, association, trust or other entity or
organization.
C. LIQUIDATION PREFERENCE.
For purposes hereof, the "LIQUIDATION PREFERENCE" with respect to a share of the
Class B Preferred Stock shall mean an amount equal to the sum of (i) the Stated
Value thereof plus (ii) any accrued and unpaid dividends for the period
beginning on the date of issuance of the Class B Preferred Stock (the "ISSUE
DATE") and ending on the date of final distribution to the holder thereof
(prorated for any portion of such period) plus (iii) all Conversion Default
Payments (as defined in Article VI.E below), Delivery Default Payments (as
defined in Article VI.D below) and any other amounts owed to such holder
pursuant to Section 2(c) of the Registration Rights Agreement (as defined below)
or pursuant to the Exchange Agreement. The liquidation preference with respect
to any PARI PASSU Securities shall be as set forth in a certificate of
designation filed in respect thereof.
V. REDEMPTION
A. MANDATORY REDEMPTION.
If any of the following events (each, a "MANDATORY REDEMPTION EVENT") shall
occur:
(i) The Corporation (a) fails to issue shares of Common Stock to the
holders of Class B Preferred Stock upon exercise by the holders
of their conversion rights in accordance with the terms of this
Certificate of Designation (for a period of at least thirty (30)
days if such failure is solely as a result of the circumstances
governed by the second paragraph of Article VI.E below and the
Corporation is using its best efforts to authorize a sufficient
number of shares of Common Stock as soon as practicable), (b)
fails to transfer or to cause its transfer agent to transfer
(electronically or in certificated form) any certificate for
shares of Common Stock issued to the holders upon conversion of
the Class B Preferred Stock as and when required by this
Certificate of Designation or the Registration Rights Agreement,
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dated as of April 10, 2002, by and among the Corporation and the
other signatory thereto (the "REGISTRATION RIGHTS AGREEMENT"),
(c) fails to remove any restrictive legend (or to withdraw any
stop transfer instructions in respect thereof) on any certificate
or any shares of Common Stock issued to the holders of Class B
Preferred Stock upon conversion of the Class B Preferred Stock as
and when required by this Certificate of Designation, the
Exchange Agreement dated as of April 10, 2002, by and between the
Corporation and the other signatories thereto (the "EXCHANGE
AGREEMENT") or the Registration Rights Agreement, or (d) fails to
fulfill its obligations pursuant to the Exchange Agreement (or
makes any announcement, statement or threat that it does not
intend to honor the obligations described in this paragraph) and
any such failure shall continue uncured (or any announcement,
statement or threat not to honor its obligations shall not be
rescinded in writing) for ten (10) days after the Corporation
shall have been notified thereof in writing by any holder of
Class B Preferred Stock;
(ii) The Corporation fails to obtain effectiveness of the Registration
Statement (as defined in the Registration Rights Agreement) (the
"REGISTRATION STATEMENT") with the Securities and Exchange
Commission (the "SEC"), prior to 210 days from the date of the
Registration Rights Agreement, required to be filed pursuant to
Section 2(a) of the Registration Rights Agreement, or fails to
obtain the effectiveness of any additional Registration Statement
(required to be filed pursuant to Section 3(b) of the
Registration Rights Agreement) within thirty (30) days after the
Registration Trigger Date (as defined in the Registration Rights
Agreement), or any such Registration Statement, after its initial
effectiveness and during the Registration Period (as defined in
the Registration Rights Agreement), lapses in effect or sales of
all of the Registrable Securities (as defined in the Registration
Rights Agreement, the "REGISTRABLE SECURITIES") otherwise cannot
be made thereunder (whether by reason of the Corporation's
failure to amend or supplement the prospectus included therein in
accordance with the Registration Rights Agreement, the
Corporation's failure to file and obtain effectiveness with the
SEC of an additional Registration Statement required to be filed
pursuant to Section 3(b) of the Registration Rights Agreement or
otherwise) for more than thirty (30) consecutive days or more
than forty-five (45) days in any twelve (12) month period after
such Registration Statement becomes effective;
(iii) The Corporation or any subsidiary of the Corporation shall make
an assignment for the benefit of creditors, or apply for or
consent to the appointment of a receiver or trustee for it or for
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all or substantially all of its property or business; or such a
receiver or trustee shall otherwise be appointed;
(iv) Bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any
law for the relief of debtors shall be instituted by or against
the Corporation or any subsidiary of the Corporation;
(v) The Corporation shall fail to maintain the listing of the Common
Stock on the Nasdaq National Market, the Nasdaq SmallCap Market,
the New York Stock Exchange or the American Stock Exchange, or
the Over-the-Counter-Bulletin Board ("OTCBB"), then, upon the
occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs (i), (ii) or (v), at
the option of the holders of at least 50% of the then outstanding
shares of Class B Preferred Stock exercisable by delivery of
written notice (the "Mandatory Redemption Notice") to the
Corporation of such Mandatory Redemption Event, or upon the
occurrence of any Mandatory Redemption Event specified in
subparagraphs (iii) or (iv), the then outstanding shares of Class
B Preferred Stock shall become immediately redeemable and the
Corporation shall purchase each holder's outstanding shares of
Class B Preferred Stock for an amount per share equal to the
greater of (1) 120% multiplied by the sum of (a) the Stated Value
of the shares to be redeemed plus (b) any accrued and unpaid
dividends for the period beginning on the Issue Date and ending
on the date of payment of the Mandatory Redemption Amount (the
"MANDATORY REDEMPTION DATE") plus (c) all Conversion Default
Payments (as defined in Article VI.E below), Delivery Default
Payments (as defined in Article VI.D below) and any other amounts
owed to such holder pursuant to Section 2(c) of the Registration
Rights Agreement or pursuant to the Exchange Agreement, and (2)
the "PARITY VALUE" of the shares to be redeemed, where parity
value means the product of (a) the highest number of shares of
Common Stock issuable upon conversion of such shares of Class B
Preferred Stock in accordance with Article VI below (without
giving any effect to any limitations on conversions of shares
contained herein, and treating the Trading Day (as defined in
Article VI.B) immediately preceding the Mandatory Redemption Date
as the "CONVERSION DATE" (as defined in Article VI.B(a)) for
purposes of determining the lowest applicable Conversion Price,
unless the Mandatory Redemption Event arises as a result of a
breach in respect of a specific Conversion Date in which case
such specific Conversion Date shall be the Conversion Date),
multiplied by (b) the highest Closing Price (as defined below)
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for the Common Stock during the period beginning on the date of
first occurrence of the Mandatory Redemption Event and ending one
day prior to the Mandatory Redemption Date (the greater of such
amounts being referred to as the "MANDATORY REDEMPTION AMOUNT").
"CLOSING PRICE," as of any date, means the last sale price of the
Common Stock on the OTCBB as reported by Bloomberg Financial
Markets or an equivalent reliable reporting service mutually
acceptable to and hereafter designated by the holders of a
majority in interest of the shares of Class B Preferred Stock and
the Corporation ("BLOOMBERG") or, if OTCBB is not the principal
trading market for such security, the last sale price of such
security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the last sale price of such
security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if
no last sale price of such security is available in the
over-the-counter market on the electronic bulletin board for such
security or in any of the foregoing manners, the average of the
bid prices of any market makers for such security that are listed
in the "PINK SHEETS" by the National Quotation Bureau, Inc. If
the Closing Price cannot be calculated for such security on such
date in the manner provided above, the Closing Price shall be the
fair market value as mutually determined by the Corporation and
the holders of a majority in interest of shares of Class B
Preferred Stock for which the calculation of the Closing Price is
required.
B. TRADING MARKET REDEMPTION.
If the Class B Preferred Stock ceases to be convertible by any holder as a
result of the limitations described in Article VI.A(c) below (a "TRADING MARKET
REDEMPTION EVENT"), and the Corporation has not, prior to, or within thirty (30)
days of, the date that such Trading Market Redemption Event arises, (i) obtained
the Stockholder Approval (as defined in Article VI.A(c)) or (ii) eliminated any
prohibitions under applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Corporation or any of its securities on the
Corporation's ability to issue shares of Common Stock in excess of the Maximum
Share Amount (as defined in Article VI.A(c)), then the Corporation shall be
obligated to redeem immediately all of the then outstanding Class B Preferred
Stock, in accordance with this Article V.B. An irrevocable redemption notice
(the "TRADING MARKET REDEMPTION NOTICE") shall be delivered promptly to the
holders of Class B Preferred Stock at their registered address appearing on the
records of the Corporation and shall state (i) that the Maximum Share Amount (as
defined in Article VI.A) has been issued upon exercise of the Class B Preferred
25
Stock, (ii) that the Corporation is obligated to redeem all of the outstanding
Class B Preferred Stock and (iii) the Mandatory Redemption Date, which shall be
a date within five (5) business days of the earlier of (a) the date of the
Trading Market Redemption Notice or (b) the date on which the holders of the
Class B Preferred Stock notify the Corporation of the occurrence of a Trading
Market Redemption Event. On the Mandatory Redemption Date, the Corporation shall
make payment of the Mandatory Redemption Amount (as defined in Article V.A
above) in cash.
C. OPTIONAL REDEMPTION.
Notwithstanding anything to the contrary contained in this Article V, so long as
(i) no Mandatory Redemption Event or Trading Market Redemption Event shall have
occurred and be continuing, (ii) any Registration Statement required to be filed
and be effective pursuant to the Registration Rights Agreement is then in effect
and has been in effect and sales of all of the Registrable Securities can be
made thereunder for at least twenty (20) days prior to the Optional Redemption
Date (as defined below) and (iii) the Corporation has a sufficient number of
authorized shares of Common Stock reserved for issuance upon full conversion of
the Class B Preferred Stock, then at any time after the Issue Date, the
Corporation shall have the right on any Trading Day to deliver written notice to
the holders of Class B Preferred Stock (which notice may not be sent to the
holders of the Class B Preferred Stock until the Corporation is permitted to
redeem the Class B Preferred Stock pursuant to this Article V.C) of its
intention to redeem all of the outstanding shares of Class B Preferred Stock in
accordance with this Article V.C. Any notice (the "OPTIONAL REDEMPTION NOTICE")
of redemption hereunder (an "OPTIONAL REDEMPTION") shall be delivered to the
holders of Class B Preferred Stock at their registered addresses appearing on
the books and records of the Corporation and shall state (1) that the
Corporation is exercising its right to redeem all of the outstanding shares of
Class B Preferred Stock issued and (2) the date of redemption (the "OPTIONAL
REDEMPTION DATE"), which date shall be ten (10) Trading Days after the date of
delivery of the Optional Redemption Notice. On the Optional Redemption Date, the
Corporation shall make payment of the Optional Redemption Amount (as defined
below) to or upon the order of the holders as specified by the holders in
writing to the Corporation at least one (1) business day prior to the Optional
Redemption Date. If the Corporation exercises its right to redeem the Class B
Preferred Stock, the Corporation shall make payment to the holders of an amount
in cash (the "OPTIONAL REDEMPTION AMOUNT") equal to 120% multiplied by the sum
of (i) the Stated Value of the shares of Class B Preferred Stock to be redeemed
plus (ii) any accrued and unpaid dividends for the period beginning on the Issue
Date and ending on the Optional Redemption Date plus (iii) all Conversion
Default Payments (as defined in Article VI.E below), Delivery Default Payments
(as defined in Article VI.D below) and any other amounts owed to such holder
pursuant to Section 2(c) of the Registration Rights Agreement or pursuant to the
Exchange Agreement, for each share of Class B Preferred Stock then held.
Notwithstanding notice of an Optional Redemption, the holders shall at all times
26
prior to the Optional Redemption Date maintain the right to convert all or any
shares of Class B Preferred Stock in accordance with Article VI and any shares
of Class B Preferred Stock so converted after receipt of an Optional Redemption
Notice and prior to the Optional Redemption Date set forth in such notice and
payment of the aggregate Optional Redemption Amount shall be deducted from the
shares of Class B Preferred Stock which are otherwise subject to redemption
pursuant to such notice. If the Corporation delivers an Optional Redemption
Notice and fails to pay the Optional Redemption Amount due to the holders of the
Class B Preferred Stock within two (2) business days following the Optional
Redemption Date, the Corporation shall forever forfeit its right to redeem the
Class B Preferred Stock pursuant to this Article V.C.
D. FAILURE TO PAY REDEMPTION AMOUNTS.
In the case of a Mandatory Redemption Event or the delivery of an Optional
Redemption Notice, if the Corporation fails to pay the Mandatory Redemption
Amount or Optional Redemption Amount within five (5) business days of written
notice that such amount is due and payable, then (assuming there are sufficient
authorized shares) in addition to all other available remedies, each holder of
Class B Preferred Stock shall have the right at any time, so long as the
Mandatory Redemption Event continues, or at any time after delivery of an
Optional Redemption Notice, to require the Corporation, upon written notice, to
immediately issue (in accordance with and subject to the terms of Article VI
below), in lieu of the Mandatory Redemption Amount or the Optional Redemption
Amount, the number of shares of Common Stock of the Corporation equal to such
applicable redemption amount divided by any Conversion Price (as defined below),
as chosen in the sole discretion of the holder of Class B Preferred Stock, in
effect from the date of the Mandatory Redemption Event or the date of delivery
of an Optional Redemption Notice until the date such holder elects to exercise
its rights pursuant to this Article V.D.
VI. CONVERSION AT THE OPTION OF THE HOLDER
A. OPTIONAL CONVERSION
(a) CONVERSION AMOUNT.
Subject to the conversion restriction set forth in Article VI.A(b)
below, each holder of shares of Class B Preferred Stock may, at its
option at any time and from time to time, upon surrender of the
certificates therefor, convert any or all of its shares of Class B
Preferred Stock into Common Stock as set forth below (an "OPTIONAL
CONVERSION"). Each share of Class B Preferred Stock shall be
convertible into such number of fully paid and nonassessable shares of
Common Stock as such Common Stock exists on the Issue Date, or any
other shares of capital stock or other securities of the Corporation
27
into which such Common Stock is thereafter changed or reclassified, as
is determined by dividing (1) the sum of the Stated Value thereof plus
any accrued and unpaid dividends by (2) the then effective Conversion
Price (as defined below); provided, however, that in no event shall a
holder of shares of Class B Preferred Stock be entitled to convert any
such shares in excess of that number of shares upon conversion of
which the sum of (x) the number of shares of Common Stock beneficially
owned by the holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of
the unconverted portion of the shares of Class B Preferred Stock or
the unexercised or unconverted portion of any other securities of the
Corporation subject to a limitation on conversion or exercise
analogous to the limitations contained herein) and (y) the number of
shares of Common Stock issuable upon the conversion of the shares of
Class B Preferred Stock with respect to which the determination of
this proviso is being made, would result in beneficial ownership by a
holder and such holder's affiliates of more than 4.9% of the
outstanding shares of Common Stock. The holder may waive the
limitations set forth herein by sixty-one (61) days written notice to
the Corporation. For purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934,
as amended, and Regulation 13D-G thereunder, except as otherwise
provided in clause (x) of such proviso.
(b) CONVERSION RESTRICTIONS.
Each holder of shares of Class B Preferred Stock shall not convert
shares of Class B Preferred Stock received by such holder prior to 120
days following the Issue Date; provided, however, that the restriction
on conversion set forth above shall not apply to conversions taking
place on any Conversion Date (i) occurring on or after the date the
Corporation makes a public announcement that it intends to merge or
consolidate with any other corporation or sell or transfer
substantially all of the assets of the Corporation or (ii) occurring
on or after the date any person, group or entity (including the
Corporation) publicly announces a tender offer to purchase 50% or more
of the Corporation's Common Stock (or any other takeover scheme) or
(iii) occurring on or after the date on which there is a material
adverse change in the business, operation, assets, financial condition
or prospects of the Corporation or its subsidiaries, taken as a whole,
or (iv) occurring on or after the occurrence of any Mandatory
Redemption Event or on or after the date of delivery of an Optional
Redemption Notice.
(c) TRADING MARKET LIMITATION.
Unless the Corporation either (i) is permitted by the applicable rules
and regulations of the principal securities market on which the Common
Stock is listed or traded or (ii) has obtained approval of the
issuance of the Common Stock upon conversion of or otherwise pursuant
to the Class B Preferred Stock in accordance with applicable law and
the rules and regulations of any stock exchange, interdealer quotation
system or other self-regulatory organization with jurisdiction over
the Corporation or any of its securities (the "STOCKHOLDER APPROVAL"),
in no event shall the total number of shares of Common Stock issued
upon conversion of or otherwise pursuant to the Class B Preferred
Stock (including any shares of capital stock or rights to acquire
shares of capital stock issued by the Corporation which are aggregated
or integrated with the Common Stock issued or issuable upon conversion
of or otherwise pursuant to the Class B Preferred Stock for purposes
of any such rule or regulation) exceed the maximum number of shares of
Common Stock that the Corporation can so issue pursuant to any rule of
the principal United States securities market on which the Common
Stock trades (the "MAXIMUM SHARE AMOUNT") which, as of the Issue Date,
shall be 1,984,261 shares (19.99% of the total shares of Common Stock
outstanding on the Issue Date), subject to equitable adjustments from
time to time for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock
occurring after the Issue Date. With respect to each holder of Class B
Preferred Stock, the Maximum Share Amount shall refer to such holder's
pro rata share thereof determined in accordance with Article IX below.
In the event that the sum of (x) the aggregate number of shares of
Common Stock actually issued upon conversion of or otherwise pursuant
to the outstanding Class B Preferred Stock plus (y) the aggregate
number of shares of Common Stock that remain issuable upon conversion
of or otherwise pursuant to the Class B Preferred Stock at the then
effective Conversion Price, represents at least one hundred percent
(100%) of the Maximum Share Amount (the "TRIGGERING EVENT"), the
Corporation will use its best efforts to seek and obtain Stockholder
Approval (or obtain such other relief as will allow conversions
hereunder in excess of the Maximum Share Amount) as soon as
practicable following the Triggering Event.
28
B. CONVERSION PRICE.
(a) CALCULATION OF CONVERSION PRICE.
Subject to subparagraph (b) below, the "CONVERSION PRICE" shall be the
lesser of the Variable Conversion Price (as defined herein) and the
Fixed Conversion Price (as defined herein), subject to adjustments
pursuant to the provisions of Article VI.C below. The "VARIABLE
CONVERSION PRICE" shall mean the Market Price (as defined below),
multiplied by .82. "MARKET PRICE" means the average of the lowest
three (3) Intraday Trading Prices (as defined below) for the Common
Stock during the thirty (30) Trading Day period ending one Trading Day
prior to the date the Notice of Conversion is sent by the holder of
Class B Preferred Stock to the Corporation via facsimile (the "PRICING
PERIOD"). "INTRADAY TRADING PRICE" means, for any security as of any
date, the intraday trading price on the OTCBB as reported by Bloomberg
or, if the OTCBB is not the principal trading market for such
security, the intraday trading price of such security on the principal
securities exchange or trading market where such security is listed or
traded or, if no intraday trading price of such security is available
in any of the foregoing manners, the average of the intraday trading
prices of any market makers for such security that are listed in the
"pink sheets" by the National Quotation Bureau, Inc. If the Intraday
Trading Price cannot be calculated for such security on such date in
the manner provided above, the Intraday Trading Price shall be the
fair market value as mutually determined by the Corporation and the
holders of a majority in interest of the Class B Preferred Stock for
which the calculation of the Intraday Trading Price of Common Stock is
required in order to determine the Conversion Price of such Class B
Preferred Stock. "TRADING DAY" shall mean any day on which the Common
Stock is traded for any period on the OTCBB, or on the principal
securities exchange or other securities market on which the Common
Stock is then being traded. The "FIXED CONVERSION PRICE" shall mean
$.086.
(b) CONVERSION PRICE DURING MAJOR ANNOUNCEMENTS.
Notwithstanding anything contained in subparagraph (a) of this
Paragraph B to the contrary, in the event the Corporation (i) makes a
public announcement that it intends to consolidate or merge with any
other corporation (other than a merger in which the Corporation is the
surviving or continuing corporation and its capital stock is
unchanged) or sell or transfer all or substantially all of the assets
of the Corporation or (ii) any person, group or entity (including the
29
Corporation) publicly announces a tender offer to purchase 50% or more
of the Corporation's Common Stock (or any other takeover scheme) (the
date of the announcement referred to in clause (i) or (ii) is
hereinafter referred to as the "ANNOUNCEMENT DATE"), then the
Conversion Price shall, effective upon the Announcement Date and
continuing through the Adjusted Conversion Price Termination Date (as
defined below), be equal, for each such date, to the lower of (x) the
Conversion Price which would have been applicable for an Optional
Conversion occurring on the Announcement Date and (y) the Conversion
Price that would otherwise be in effect. From and after the Adjusted
Conversion Price Termination Date, the Conversion Price shall be
determined as set forth in subparagraph (a) of this Article VI.B. For
purposes hereof, "ADJUSTED CONVERSION PRICE TERMINATION Date" shall
mean, with respect to any proposed transaction or tender offer (or
takeover scheme) for which a public announcement as contemplated by
this subparagraph (b) has been made, the date upon which the
Corporation (in the case of clause (i) above) or the person, group or
entity (in the case of clause (ii) above) consummates or publicly
announces the termination or abandonment of the proposed transaction
or tender offer (or takeover scheme) which caused this subparagraph
(b) to become operative.
C. ADJUSTMENTS TO CONVERSION PRICE.
The Conversion Price shall be subject to adjustment from time to time as
follows:
(a) ADJUSTMENT TO CONVERSION PRICE DUE TO STOCK SPLIT, STOCK DIVIDEND,
ETC.
If at any time when Class B Preferred Stock is issued and outstanding,
the number of outstanding shares of Common Stock is increased or
decreased by a stock split, stock dividend, combination,
reclassification, rights offering below the Trading Price (as defined
below) to all holders of Common Stock or other similar event, which
event shall have taken place during the reference period for
determination of the Conversion Price for any Optional Conversion of
the Class B Preferred Stock, then the Conversion Price shall be
calculated giving appropriate effect to the stock split, stock
dividend, combination, reclassification or other similar event. In
such event, the Corporation shall notify the Transfer Agent of such
change on or before the effective date thereof. "TRADING PRICE," which
shall be measured as of the record date in respect of the rights
offering, means (i) the average of the last reported sale prices for
30
the shares of Common Stock on the OTCBB as reported by Bloomberg, as
applicable, for the five (5) Trading Days immediately preceding such
date, or (ii) if OTCBB is not the principal trading market for the
shares of Common Stock, the average of the last reported sale prices
on the principal trading market for the Common Stock during the same
period as reported by Bloomberg, or (iii) if market value cannot be
calculated as of such date on any of the foregoing bases, the Trading
Price shall be the fair market value as reasonably determined in good
faith by (a) the Board of Directors of the Corporation or, (b) at the
option of a majority-in-interest of the holders of the outstanding
Class B Preferred Stock by an independent investment bank of
nationally recognized standing in the valuation of businesses similar
to the business of the Corporation.
(b) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC.
If, at any time when Class B Preferred Stock is issued and outstanding
and prior to the conversion of all Class B Preferred Stock, 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 another class or
classes of stock or securities of the Corporation or another entity,
or in case of any sale or conveyance of all or substantially all of
the assets of the Corporation other than in connection with a plan of
complete liquidation of the Corporation (each, a "CHANGE OF CONTROL
TRANSACTION"), then the holders of Class B Preferred Stock shall
thereafter have the right to receive upon conversion of the Class B
Preferred Stock, upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock immediately
theretofore issuable upon conversion, such stock, securities or assets
which the holders of Class B Preferred Stock would have been entitled
to receive in such transaction had the Class B Preferred Stock been
converted in full immediately prior to such transaction (without
regard to any limitations on conversion contained herein), and in any
such case appropriate provisions shall be made with respect to the
rights and interests of the holders of Class B Preferred Stock to the
end that the provisions hereof (including, without limitation,
provisions for adjustment of the Conversion Price and of the number of
shares of Common Stock issuable upon conversion of the Class B
Preferred Stock) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities or assets thereafter
deliverable upon the conversion of Class B Preferred Stock. The
31
Corporation shall not effect any transaction described in this
subsection (b) unless (a) it first gives, to the extent practical,
thirty (30) days' prior written notice (but in any event at least
fifteen (15) business days prior written notice) of the record date of
the special meeting of stockholders to approve, or if there is no such
record date, the consummation of, such Change of Control Transaction
(during which time the holders of Class B Preferred Stock shall be
entitled to convert the Class B Preferred Stock) and (b) the resulting
successor or acquiring entity (if not the Corporation) and, if an
entity different from the successor or acquiring entity, the entity
whose capital stock or assets the holders of the Common Stock are
entitled to receive as a result of such Change of Control Transaction,
assumes by written instrument the obligations of this Certificate of
Designation (including this subsection (b)). The above provisions
shall similarly apply to successive consolidations, mergers, sales,
transfers or share exchanges.
(c) OTHER SECURITIES OFFERINGS.
If, at any time after the Issue Date, the Corporation sells Common
Stock or securities convertible into, or exchangeable for, Common
Stock, other than a sale pursuant to a bona fide firm commitment
underwritten public offering of Common Stock by the Corporation (not
including a continuous offering pursuant to Rule 415 under the
Securities Act of 1933, as amended) (collectively, the "OTHER COMMON
STOCK"), then, if the effective or maximum sales price of the Common
Stock with respect to such transaction (including the effective or
maximum conversion, or exchange price) (the "OTHER PRICE") is less
than the effective Conversion Price of the Class B Preferred Stock at
such time and such Other Common Stock is eligible for resale prior to
the date that is 210 days following the Issue Date, at the option of
each holder of Class B Preferred Stock, the Corporation shall adjust
the Conversion Price applicable to the Class B Preferred Stock not yet
converted in form and substance reasonably satisfactory to the holders
of Class B Preferred Stock so that the Conversion Price applicable to
the Class B Preferred Stock shall not, in any event, be greater, after
giving effect to all other adjustments contained herein, than the
Other Price.
(d) ADJUSTMENT DUE TO DISTRIBUTION.
Subject to Article III, if the Corporation shall declare or make any
distribution of its assets (or rights to acquire its assets) to
holders of Common Stock as a dividend, stock repurchase, by way of
32
return of capital or otherwise (including any dividend or distribution
to the Corporation's shareholders in cash or shares (or rights to
acquire shares) of capital stock of a subsidiary (i.e., a spin-off))
(a "DISTRIBUTION"), then the holders of Class B Preferred Stock shall
be entitled, upon any conversion of shares of Class B Preferred Stock
after the date of record for determining shareholders entitled to such
Distribution, to receive the amount of such assets which would have
been payable to the holder with respect to the shares of Common Stock
issuable upon such conversion had such holder been the holder of such
shares of Common Stock on the record date for the determination of
shareholders entitled to such Distribution.
(e) PURCHASE RIGHTS.
Subject to Article III, if at any time when any Class B Preferred
Stock is issued and outstanding, the Corporation issues any
convertible securities or rights to purchase stock, warrants,
securities or other property (the "PURCHASE RIGHTS") pro rata to the
record holders of any class of Common Stock, then the holders of Class
B Preferred Stock 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 Class B Preferred Stock (without regard to any limitations on
conversion contained herein) immediately before the date on which a
record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
(f) ADJUSTMENT FOR RESTRICTED PERIODS.
In the event that (i) the Corporation fails to obtain effectiveness
with the SEC of any Registration Statement required to be filed
pursuant to the Registration Rights Agreement on or prior to the date
on which such Registration Statement is required to become effective
pursuant to the terms of the Registration Rights Agreement, or (ii)
any such Registration Statement after its initial effectiveness and
during the Registration Period (as defined in the Registration Rights
Agreement) lapses in effect, or sales of all the Registrable
Securities otherwise cannot be made thereunder, whether by reason of
the Corporation's failure or inability to amend or supplement the
prospectus (the "PROSPECTUS") included therein in accordance with the
33
Registration Rights Agreement or otherwise, after such Registration
Statement becomes effective (including, without limitation, during an
Allowed Delay (as defined in Section 3(f) of the Registration Rights
Agreement)), then, at the election of each holder of Class B Preferred
Stock, the Pricing Period shall be comprised of, (x) in the case of an
event described in clause (i), the thirty-two (32) Trading Days
preceding the date on which such Registration Statement is required to
become effective pursuant to the terms of the Registration Rights
Agreement, plus all Trading Days through and including the third (3rd)
Trading Day following the date of actual effectiveness of such
Registration Statement; and (y) in the case of an event described in
clause (ii), the thirty-two (32) Trading Days preceding the date on
which the holder of the Class B Preferred Stock is first notified that
sales may not be made under the Prospectus, plus all Trading Days
through and including the third (3rd) Trading Day following the date
on which the Holder is first notified that such sales may again be
made under the Prospectus. If a holder of Class B Preferred Stock
determines that sales may not be made pursuant to the Prospectus
(whether by reason of the Corporation's failure or inability to amend
or supplement the Prospectus or otherwise) it shall so notify the
Corporation in writing and, unless the Corporation provides such
holder with a written opinion of the Corporation's counsel to the
contrary, such determination shall be binding for purposes of this
paragraph.
D. MECHANICS OF CONVERSION.
In order to convert Class B Preferred Stock into full shares of Common Stock, a
holder of Class B Preferred Stock shall: (i) submit a copy of the fully executed
notice of conversion in the form attached hereto as Exhibit A ("NOTICE OF
CONVERSION") to the Corporation by facsimile dispatched prior to 6:00 p.m., Los
Angeles, California time (the "CONVERSION NOTICE DEADLINE") on the date
specified therein as the Conversion Date (as defined in Article VI.D(d)) (or by
other means resulting in, or reasonably expected to result in, notice to the
Corporation on the Conversion Date) to the office of the Corporation or its
designated Transfer Agent for the Class B Preferred Stock, which notice shall
specify the number of shares of Class B Preferred Stock to be converted, the
applicable Conversion Price and a calculation of the number of shares of Common
Stock issuable upon such conversion (together with a copy of the first page of
each certificate to be converted); and (ii) surrender the original certificates
representing the Class B Preferred Stock being converted (the "PREFERRED STOCK
CERTIFICATES"), duly endorsed, along with a copy of the Notice of Conversion to
the office of the Corporation or the Transfer Agent for the Class B Preferred
Stock as soon as practicable thereafter. The Corporation shall not be obligated
34
to issue certificates evidencing the shares of Common Stock issuable upon such
conversion, unless either the Preferred Stock Certificates are delivered to the
Corporation or its Transfer Agent as provided above, or the holder notifies the
Corporation or its Transfer Agent that such certificates have been lost, stolen
or destroyed (subject to the requirements of subparagraph (a) below). In the
case of a dispute as to the calculation of the Conversion Price, the Corporation
shall promptly issue such number of shares of Common Stock that are not disputed
in accordance with subparagraph (b) below. The Corporation shall submit the
disputed calculations to its outside accountant via facsimile within two (2)
business days of receipt of the Notice of Conversion. The accountant shall audit
the calculations and notify the Corporation and the holder of the results no
later than 48 hours from the time it receives the disputed calculations. The
accountant's calculation shall be deemed conclusive absent manifest error.
(a) LOST OR STOLEN CERTIFICATES.
Upon receipt by the Corporation of evidence of the loss, theft,
destruction or mutilation of any Preferred Stock Certificates
representing shares of Class B Preferred Stock, and (in the case of
loss, theft or destruction) of indemnity reasonably satisfactory to
the Corporation, and upon surrender and cancellation of the Preferred
Stock Certificate(s), if mutilated, the Corporation shall execute and
deliver new Preferred Stock Certificate(s) of like tenor and date.
(b) DELIVERY OF COMMON STOCK UPON CONVERSION.
Upon the surrender of certificates as described above together with a
Notice of Conversion, the Corporation shall issue and, within two (2)
business days after such surrender (or, in the case of lost, stolen or
destroyed certificates, after provision of agreement and
indemnification pursuant to subparagraph (a) above) (the "DELIVERY
PERIOD"), deliver (or cause its Transfer Agent to so issue and
deliver) in accordance with the terms hereof and the Exchange
Agreement (including, without limitation, in accordance with the
requirements of the Exchange Agreement) to or upon the order of the
holder (i) that number of shares of Common Stock for the portion of
the shares of Class B Preferred Stock converted as shall be determined
in accordance herewith and (ii) a certificate representing the balance
of the shares of Class B Preferred Stock not converted, if any. In
addition to any other remedies available to the holder, including
actual damages and/or equitable relief, the Corporation shall pay to a
holder $2,000 per day in cash for each day beyond a two (2) day grace
period following the Delivery Period that the Corporation fails to
deliver Common Stock (a "DELIVERY DEFAULT") issuable upon surrender of
35
shares of Class B Preferred Stock with a Notice of Conversion until
such time as the Corporation has delivered all such Common Stock (the
"DELIVERY DEFAULT PAYMENTS"). Such Delivery Default Payments shall be
paid to such holder by the fifth day of the month following the month
in which it has accrued or, at the option of the holder (by written
notice to the Corporation by the first day of the month following the
month in which it has accrued), shall be convertible into Common Stock
in accordance with the terms of this Article VI.
In lieu of delivering physical certificates representing the Common
Stock issuable upon conversion, provided the Corporation's Transfer
Agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer ("FAST") program, upon request of the
holder and its compliance with the provisions contained in Article
VI.A and in this Article VI.D, the Corporation shall use its best
efforts to cause its Transfer Agent to electronically transmit the
Common Stock issuable upon conversion to the holder by crediting the
account of holder's prime broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system. The time periods for
delivery and penalties described in the immediately preceding
paragraph shall apply to the electronic transmittals described herein.
(c) NO FRACTIONAL SHARES.
If any conversion of Class B Preferred Stock would result in a
fractional share of Common Stock or the right to acquire a fractional
share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon Conversion of the
Class B Preferred Stock shall be the next higher number of shares.
(d) CONVERSION DATE.
The "CONVERSION DATE" shall be the date specified in the Notice of
Conversion, provided that the Notice of Conversion is submitted by
facsimile (or by other means resulting in, or reasonably expected to
result in, notice) to the Corporation or its Transfer Agent before
6:00 p.m., Los Angeles, California time, on the date so specified,
otherwise the Conversion Date shall be the first business day after
the date so specified on which the Notice of Conversion is actually
received by the Corporation or its Transfer Agent. The person or
persons entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or
36
holders of such securities as of the Conversion Date and all rights
with respect to the shares of Class B Preferred Stock surrendered
shall forthwith terminate except the right to receive the shares of
Common Stock or other securities or property issuable on such
conversion and except that the holders preferential rights as a holder
of Class B Preferred Stock shall survive to the extent the Corporation
fails to deliver such securities.
E. RESERVATION OF SHARES.
A number of shares of the authorized but unissued Common Stock sufficient to
provide for the conversion of the Class B Preferred Stock outstanding (based on
the lesser of the then current Variable Conversion Price and the Fixed
Conversion Price in effect from time to time) shall at all times be reserved by
the Corporation, free from preemptive rights, for such conversion or exercise.
As of the date of issuance of the Class B Preferred Stock, 200% of the
authorized and unissued shares of Common Stock have been duly reserved for
issuance upon conversion of the Class B Preferred Stock (the "RESERVED AMOUNT").
The Reserved Amount shall be increased from time to time in accordance with the
Corporation's obligations pursuant to the Exchange Agreement and Registration
Rights Agreement. In addition, if the Corporation shall issue any securities or
make any change in its capital structure which would change the number of shares
of Common Stock into which each share of the Class B Preferred Stock shall be
convertible, the Corporation shall at the same time also make proper provision
so that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Class B Preferred Stock.
If at any time a holder of shares of Class B Preferred Stock submits a Notice of
Conversion, and the Corporation does not have sufficient authorized but unissued
shares of Common Stock available to effect such conversion in accordance with
the provisions of this Article VI (a "CONVERSION Default"), subject to Article
IX, the Corporation shall issue to the holder all of the shares of Common Stock
which are available to effect such conversion. The number of shares of Class B
Preferred Stock included in the Notice of Conversion which exceeds the amount
which is then convertible into available shares of Common Stock (the "EXCESS
AMOUNT") shall, notwithstanding anything to the contrary contained herein, not
be convertible into Common Stock in accordance with the terms hereof until (and
at the holder's option at any time after) the date additional shares of Common
Stock are authorized by the Corporation to permit such conversion, at which time
the Conversion Price in respect thereof shall be the lesser of (i) the
Conversion Price on the Conversion Default Date (as defined below) and (ii) the
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Conversion Price on the Conversion Date elected by the holder in respect
thereof. The Corporation shall use its best efforts to effect an increase in the
authorized number of shares of Common Stock as soon as possible following the
earlier of (i) such time that a holder of Class B Preferred Stock notifies the
Corporation or that the Corporation otherwise becomes aware that there are or
likely will be insufficient authorized and unissued shares to allow full
conversion thereof and (ii) a Conversion Default. In addition, the Corporation
shall pay to the holder payments ("CONVERSION DEFAULT PAYMENTS") for a
Conversion Default in the amount of (a) .24, multiplied by (b) the sum of the
Stated Value plus any accrued and unpaid dividends through the Authorization
Date (as defined below), multiplied by (c) (N/365), where N = the number of days
from the day the holder submits a Notice of Conversion giving rise to a
Conversion Default (the "Conversion Default Date") to the date (the
"Authorization Date") that the Corporation authorizes a sufficient number of
shares of Common Stock to effect conversion of the full number of shares of
Class B Preferred Stock. The Corporation shall send notice to the holder of the
authorization of additional shares of Common Stock, the Authorization Date and
the amount of holder's accrued Conversion Default Payments. The accrued
Conversion Default Payment for each calendar month shall be paid in cash or
shall be convertible into Common Stock at the applicable Conversion Price, at
the holder's option, as follows:
(a) In the event the holder elects to take such payment in cash, cash
payment shall be made to holder by the fifth day of the month
following the month in which it has accrued; and
(b) In the event the holder elects to take such payment in Common Stock,
the holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the time of Conversion) at any time
after the fifth day of the month following the month in which it has
accrued in accordance with the terms of this Article VI (so long as
there is then a sufficient number of authorized shares of Common
Stock).
The holder's election shall be made in writing to the Corporation at
any time prior to 6:00 p.m., Los Angeles, California time, on the
third (3rd) day of the month following the month in which Conversion
Default payments have accrued. If no election is made, the holder
shall be deemed to have elected to receive cash. Nothing herein shall
limit the holder's right to pursue actual damages (to the extent in
excess of the Conversion Default Payments) for the Corporation's
failure to maintain a sufficient number of authorized shares of Common
Stock, and each holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific
performance and/or injunctive relief).
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F. NOTICE OF CONVERSION PRICE ADJUSTMENTS.
Upon the occurrence of each adjustment or readjustment of the Conversion Price
pursuant to this Article VI, the Corporation, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Class B Preferred Stock a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any holder of Class B Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth
(i) such adjustment or readjustment, (ii) the Conversion Price at the time in
effect and (iii) the number of shares of Common Stock and the amount, if any, of
other securities or property which at the time would be received upon conversion
of a share of Class B Preferred Stock.
G. STATUS AS STOCKHOLDERS.
Upon submission of a Notice of Conversion by a holder of Class B Preferred
Stock, (i) the shares covered thereby (other than the shares, if any, which
cannot be issued because their issuance would exceed such holder's allocated
portion of the Reserved Amount or Maximum Share Amount) shall be deemed
converted into shares of Common Stock and (ii) the holder's rights as a holder
of such converted shares of Class B Preferred Stock shall cease and terminate,
excepting only the right to receive certificates for such shares of Common Stock
and to any remedies provided herein or otherwise available at law or in equity
to such holder because of a failure by the Corporation to comply with the terms
of this Certificate of Designation. Notwithstanding the foregoing, if a holder
has not received certificates for all shares of Common Stock prior to the tenth
(10th) business day after the expiration of the Delivery Period with respect to
a conversion of shares of Class B Preferred Stock for any reason, then (unless
the holder otherwise elects to retain its status as a holder of Common Stock by
so notifying the Corporation) the holder shall regain the rights of a holder of
such shares of Class B Preferred Stock with respect to such unconverted shares
of Class B Preferred Stock and the Corporation shall, as soon as practicable,
return such unconverted shares of Class B Preferred Stock to the holder or, if
such shares of Class B Preferred Stock have not been surrendered, adjust its
records to reflect that such shares of Class B Preferred Stock have not been
converted. In all cases, the holder shall retain all of its rights and remedies
(including, without limitation, (i) the right to receive Delivery Default
Payments pursuant to Article VI.E to the extent required thereby for such
Delivery Default and any subsequent Delivery Default and (ii) the right to have
the Conversion Price with respect to subsequent conversions determined in
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accordance with Article VI.E.) for the Corporation's failure to convert the
Class B Preferred Stock.
VII. VOTING RIGHTS
The holders of the Class B Preferred Stock have no voting power whatsoever,
except as otherwise provided by the Nevada General Corporation Law, in this
Article VII, and in Article VIII below.
Notwithstanding the above, the Corporation shall provide each holder of Class B
Preferred Stock with prior notification of any meeting of the shareholders (and
copies of proxy materials and other information sent to shareholders). In the
event of any taking by the Corporation of a record of its shareholders for the
purpose of determining shareholders who are entitled to receive payment of any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Corporation, or any proposed
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder, at least ten (10) days prior to the record date
specified therein (or thirty (30) days prior to the consummation of the
transaction or event, whichever is earlier), of the date on which any such
record is to be taken for the purpose of such dividend, distribution, right or
other event, and a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
To the extent that under the Nevada General Corporation Law the vote of the
holders of the Class B Preferred Stock, voting separately as a class or series
as applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the shares
of the Class B Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of a majority of the shares of Class B
Preferred Stock (except as otherwise may be required under the Nevada General
Corporation Law) shall constitute the approval of such action by the class. To
the extent that under the Nevada General Corporation Law holders of the Class B
Preferred Stock are entitled to vote on a matter with holders of Common Stock,
voting together as one class, each share of Class B Preferred Stock shall be
entitled to a number of votes equal to the number of shares of Common Stock into
which it is then convertible using the record date for the taking of such vote
of shareholders as the date as of which the Conversion Price is calculated.
Holders of the Class B Preferred Stock shall be entitled to notice of all
shareholder meetings or written consents (and copies of proxy materials and
other information sent to shareholders) with respect to which they would be
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entitled to vote, which notice would be provided pursuant to the Corporation's
bylaws and the Nevada General Corporation Law.
VIII. PROTECTIVE PROVISIONS
So long as shares of Class B Preferred Stock are outstanding, the Corporation
shall not, without first obtaining the approval (by vote or written consent, as
provided by the Nevada General Corporation Law of the holders of at least a
majority of the then outstanding shares of Class B Preferred Stock:
(a) alter, amend or repeal (whether by merger, consolidation or otherwise)
the rights, preferences or privileges of the Class B Preferred Stock
or any capital stock of the Corporation so as to affect adversely the
Class B Preferred Stock;
(b) create any new class or series of capital stock having a preference
over the Class B Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as
previously defined in Article II hereof, "SENIOR SECURITIES");
(c) create any new class or series of capital stock ranking pari passu
with the Class B Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as
previously defined in Article II hereof, "PARI PASSU SECURITIES");
(d) increase the authorized number of shares of Class B Preferred Stock;
(e) issue any Senior Securities or Pari Passu Securities;
(f) increase the par value of the Common Stock, or
(g) do any act or thing not authorized or contemplated by this Certificate
of Designation which would result in taxation of the holders of shares
of the Class B Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended (or any comparable provision of the
Internal Revenue Code as hereafter from time to time amended).
In the event holders of at least a majority of the then outstanding shares of
Class B Preferred Stock agree to allow the Corporation to alter or change the
rights, preferences or privileges of the shares of Class B Preferred Stock,
pursuant to subsection (a) above, so as to affect the Class B Preferred Stock,
then the Corporation will deliver notice of such approved change to the holders
of the Class B Preferred Stock that did not agree to such alteration or change
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(the "DISSENTING HOLDERS") and Dissenting Holders shall have the right for a
period of thirty (30) days to convert pursuant to the terms of this Certificate
of Designation as they exist prior to such alteration or change or continue to
hold their shares of Class B Preferred Stock.
IX. PRO RATA ALLOCATIONS
The Maximum Share Amount and the Reserved Amount (including any increases
thereto) shall be allocated by the Corporation pro rata among the holders of
Class B Preferred Stock based on the number of shares of Class B Preferred Stock
issued to each holder. Each increase to the Maximum Share Amount and the
Reserved Amount shall be allocated pro rata among the holders of Class B
Preferred Stock based on the number of shares of Class B Preferred Stock held by
each holder at the time of the increase in the Maximum Share Amount or Reserved
Amount. In the event a holder shall sell or otherwise transfer any of such
holder's shares of Class B Preferred Stock, each transferee shall be allocated a
pro rata portion of such transferor's Maximum Share Amount and Reserved Amount.
Any portion of the Maximum Share Amount or Reserved Amount which remains
allocated to any person or entity which does not hold any Class B Preferred
Stock shall be allocated to the remaining holders of shares of Class B Preferred
Stock, pro rata based on the number of shares of Class B Preferred Stock then
held by such holders.
SECTION 3. PREFERRED STOCK. Shares of Preferred Stock may be issued from
time to time in one or more classes or series as the Board of Directors, by
resolution or resolutions, may from time to time determine, each of said classes
or series to be distinctively designated. The voting powers, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations or restrictions thereof, if any, of each such class
or series may differ from those of any and all other classes or series of
Preferred Stock at any time outstanding, and the Board of Directors is hereby
expressly granted authority, subject to any limitations contained in any class
or series of Preferred Stock at any time outstanding, to fix or alter, by
resolution or resolutions, the designation, number, voting powers, preferences
and relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions thereof, of each such class or
series, including, but without limiting the generality of the foregoing, the
following:
(i) The distinctive designation of, and the number of shares of Preferred
Stock that shall constitute, such class or series, which number
(except as otherwise provided by the Board of Directors in the
resolution establishing such class or series) may be increased or
decreased (but not below the number of shares of such class or series
then outstanding) from time to time by like action of the Board of
Directors;
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(ii) The rights in respect of dividends, if any, of such class or series of
Preferred Stock, the extent of the preference or relation, if any, of
such dividends to the dividends payable on any other class or classes
or any other series of the same or other class or classes of capital
stock of the Corporation, and whether such dividends shall be
cumulative or noncumulative;
(iii) The right, if any, of the holders of such class or series of
Preferred Stock to convert the same into, or exchange the same for,
shares of any other class or classes or of any other series of the
same or any other class or classes of capital stock of the Corporation
and the terms and conditions of such conversion or exchange;
(iv) Whether or not shares of such class or series of Preferred Stock shall
be subject to redemption, and the redemption price or prices and the
time or times at which, and the terms and conditions on which, shares
of such class or series of Preferred Stock may be redeemed;
(v) The rights, if any, of the holders of such class or series of
Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation or in the event of any
merger or consolidation of or sale of assets by the Corporation;
(vi) The terms of any sinking fund or redemption or purchase account, if
any, to be provided for shares of such class or series of Preferred
Stock;
(vii) The voting powers, if any, of the holders of any class or series of
Preferred Stock generally or with respect to any particular matter,
which may be less than, equal to or greater than one vote per share,
and which may, without limiting the generality of the foregoing,
include the right, voting as a class or series by itself or together
with the holders of any other class or classes or series of the same
or other class or classes of Preferred Stock or all classes or series
of Preferred Stock, to elect one or more directors of the Corporation
(which, without limiting the generality of the foregoing, may include
a specified number or portion of the then-existing number of
authorized directorships of the Corporation, or a specified number or
portion of directorships in addition to the then-existing number of
authorized directorships of the Corporation) generally or under such
specific circumstances and on such conditions, as shall be provided in
the resolution or resolutions of the Board of Directors adopted
pursuant hereto; and
(viii) Such other powers, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations and
restrictions thereof, as the Board of Directors shall determine.
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