EXHIBIT 4.1
CERTIFICATE OF DESIGNATIONS
OF RIGHTS AND PREFERENCES OF THE
SERIES B 8% CONVERTIBLE PREFERRED STOCK
OF
AMEDIA NETWORKS, INC.
Pursuant to the authority expressly granted and vested in the Board of
Directors (the "Board of Directors" or the "Board") of Amedia Networks, Inc.
(the "Company") by the Delaware General Corporation Law (the "Corporation Law")
and the provisions of the Company's Certificate of Incorporation, as amended,
the Board of Directors adopted the following resolution setting forth the
designations, powers, preferences and rights of its Series B 8% Convertible
Preferred Stock (the "Certificate of Designations") on April 14, 2005:
RESOLVED: That the designations, powers, preferences and rights of the
Series B 8% Convertible Preferred Stock be, and they hereby are, as set forth
below:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 85,000 shares of
Preferred Stock, par value $.001 per share, is the Series B 8% Convertible
Preferred Stock (the "Designated Preferred Stock").
II. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms
shall have the following meanings:.
"Adjusted Conversion Price" has the meaning ascribed to it in the
Securities Purchase Agreement.
"Automatic Conversion Date" means the date which is the last day of the
calendar month in which the fifth anniversary of the Closing Date occurs.
"Buy-In Adjustment Amount" means the amount equal to the excess, if any,
of (i) the relevant Holder's total purchase price (including brokerage
commissions, if any) for the Covering Shares (as defined in Article IV Paragraph
B(7)) over (ii) the net proceeds (after brokerage commissions, if any) received
by such Holder from the sale of the Sold Shares (as defined in Article IV
Paragraph B(7)) . By way of illustration and not in limitation of the foregoing,
if the relevant Holder purchases shares of Common Stock having a total purchase
price (including brokerage commissions) of $11,000 to cover a Buy-In (as defined
in Article IV Paragraph B(7)) with respect to shares of Common Stock it sold for
net proceeds of $10,000, the
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Buy-In Adjustment Amount which the Company will be required to pay to such
Holder will be $1,000.
"Closing Sale Price" means the 4:00 P.M. closing sale price (in U.S.
Dollars) of the Common Stock on the Principal Trading Market on the relevant
Trading Day(s), as reported by the Reporting Service.
"Closing Date" has the meaning ascribed to it in the Securities Purchase
Agreement.
"Commencement Date" means the earlier of (i) the date which is
sixty-five (65) days after the Closing Date or (ii) the Effective Date.
"Common Stock" means the Company's common stock, par value $.001 per
share.
"Conversion Certificates" means certificates representing the shares of
Common Stock issuable on conversion of the Designated Preferred Stock, including
shares issued in payment of dividends on the Designated Preferred Stock.
"Conversion Date" has the meaning ascribed to it in Paragraph B of
Article IV hereof.
"Conversion Formula" has the meaning ascribed to it in Paragraph A of
Article IV hereof.
"Conversion Price" means, with respect to any relevant date, the lower
of (i) the Fixed Conversion Price or (ii) the Adjusted Conversion Price, each of
which amounts shall be subject to adjustment as provided herein.
"Converted Shares" means the shares of Designated Preferred Stock
submitted for conversion at any time, whether on a Conversion Date or on an
Automatic Conversion Date.
"Dividend Conversion Price" means the amount equal to (i) the Market
Price, multiplied by (ii) ninety percent (90%).
"Effective Date" has the meaning ascribed to it in the Securities
Purchase Agreement.
"Final Lock-up Date" has the meaning ascribed to it in the Securities
Purchase Agreement.
"Fixed Conversion Price" means $1.01 per share (which amount is subject
to adjustment subject to adjustment as contemplated by Article VIII hereof).
"Holder" means a person or entity holding shares of the Designated
Preferred Stock.
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"Junior Securities" means (i) any class or series of capital stock of
the Company authorized prior to the filing of this Certificate of Designations
that, by its terms, ranks junior to the Designated Preferred Stock as to
distribution of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary and (ii) all classes or series of
capital stock of the Company authorized after the filing of this Certificate of
Designations, unless consented to as provided herein in each instance, each of
which shall rank junior to the Designated Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary.
"Liquidation Preference" means, with respect to a share of Designated
Preferred Stock, an amount equal to the Stated Value thereof, plus the accrued
and unpaid dividends thereon through the date of final distribution.
"Market Price" means the VWAP for the five (5) Trading Days ending on
the Trading Day immediately prior to the relevant Dividend Payment Date.
"Pari Passu Securities" means any class or series of capital stock of
the Company hereafter created specifically ranking, by its terms, on parity with
the Designated Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary.
"Principal Trading Market" means The Over the Counter Bulletin Board
Market, or if the Common Stock is no longer listed on that market, the principal
securities exchange or trading market on which the Common Stock is principally
listed or traded at the relevant time, but shall not include the "pink sheets."
"Registration Rights Agreement" has the meaning ascribed to it in the
Securities Purchase Agreement.
"Registration Statement" means the Registration Statement(s) to be filed
by the Company pursuant to the Registration Rights Agreement for the resale of
the Common Stock issuable upon conversion of the Designated Preferred Stock.
"Reporting Service" means Bloomberg LP or if that service is not then
reporting the relevant information regarding the Common Stock, a comparable
reporting service of national reputation selected by a Majority in Interest of
the Holders (as defined in the Securities Purchase Agreement) of the Designated
Preferred Stock and reasonably acceptable to the Company.
"Scheduled Dividend Payment Date" has the meaning ascribed to in Article
III Paragraph A.
"Securities" means the shares of Designated Preferred Stock or the
Common Stock of the Company into which such shares are converted or convertible,
as contemplated hereby.
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"Securities Purchase Agreement" means that certain Securities Purchase
Agreement, dated on or about the date of the filing of this Certificate of
Designations, to which the Company and the party or parties to whom shares of
Designated Preferred Stock are initially issued are parties.
"Senior Securities" means each class or series of capital stock of the
Company authorized prior to the original filing of this Certificate of
Designations that, by its terms, is senior to the Designated Preferred Stock as
to distribution of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary if, but only if, securities from such
class or series have been issued prior to the Closing Date and such issuance was
disclosed in the Securities Purchase Agreement.
"Stated Value" for the Designated Preferred Stock shall be $100.00 per
share.
"Trading Day" means any day during which the Principal Trading Market
shall be open for business.
"Transaction Agreements" has the meaning ascribed to it in the
Securities Purchase Agreement and includes all ancillary documents entered into
between the parties to those agreements.
"Unconverted Preferred Stock" means, as of the relevant date, the shares
of Designated Preferred Stock which have not yet been converted or for which a
Notice of Conversion has been submitted but for which the certificates
representing the Conversion Shares have not yet been delivered to the Holder.
"VWAP" means the volume weighted average price of the Common Stock on
the Principal Trading Market for the relevant Trading Day, as reported by the
Reporting Service.
III. DIVIDENDS
A. GENERALLY. The Holders of the Designated Preferred Stock shall
be entitled to receive a dividend at the rate of 8% per annum on the outstanding
Stated Value, payable on the date (the "Dividend Payment Date") which is the
earlier of (i) the last calendar day of June and December of each calendar year
(each, a "Scheduled Dividend Payment Date"), except that the first Scheduled
Dividend Payment Date shall be December 31, 2005, or (ii) with respect to the
relevant Converted Shares, on a Conversion Date or the relevant Automatic
Conversion Date, as the case may be. The dividend shall accrue semi-annually
(pro-rated on a daily basis for any period from the later of the Issue Date or
the previous Dividend Payment Date through the current Dividend Payment Date)
and shall be payable in cash or, at the Company's option but subject to the
other provisions of this Article III and Article IV Paragraph C, in Common
Stock. Such dividends shall be payable in preference to dividends on any Common
Stock or stock of any class ranking, as to dividend rights, junior to the
Designated Preferred Stock, and shall be junior as to payment of dividends to
the Senior Securities. If not paid in full on a Dividend
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Payment Date, dividends shall be fully cumulative and shall accrue on a daily
basis, based on a 365-day year (whether or not declared and whether or not there
shall be funds legally available for the payment of dividends) semi-annually or
until paid, whichever is earlier.
B. DIVIDENDS PAID IN CASH. If the Company intends to make a
dividend payment on a Scheduled Dividend Payment Date or the Automatic
Conversion Date, the Company shall give the Holder written notice thereof at
least twenty (20) days prior to the Scheduled Dividend Payment Date or Automatic
Conversion Date, as the case may be. If the dividend is to be paid in cash, (i)
if the Company has given such notice, the Company shall make such payment on the
Scheduled Dividend Payment Date, or (ii) with respect to dividends paid with
respect to Converted Shares, on the relevant Delivery Date for the Conversion
Shares. Dividends may be paid in cash only if permitted by the Corporation Law
and the certificate of incorporation of the Company, as then in effect. If, for
any reason, the dividend is not paid in cash on the Dividend Payment Date or, if
applicable, the relevant Delivery Date, the dividend must be paid in Common
Stock in accordance with the provisions of this Certificate of Designations,
unless the Holder consents otherwise in each specific instance.
C. DIVIDENDS PAID IN COMMON STOCK. If paid in Common Stock, the
number of shares of Common Stock to be received shall be determined by dividing
the dollar amount of the dividend by the Dividend Conversion Price on the
Dividend Payment Date. If the dividend is to be paid in Common Stock, the Common
Stock shall be delivered to the Holder, or per Holder's instructions, (i) if
being issued in connection with a conversion, at the same time the Conversion
Certificates pursuant to Paragraph B(1) of Article IV of this Certificate of
Designations are to be delivered (such date, a "Delivery Date"), and (ii) with
respect to all other instances, within five (5) Trading Days after the Dividend
Payment Date (such fifth Trading Day, a "Delivery Date").
IV. CONVERSION
A. CONVERSIONS.
1. VOLUNTARY CONVERSIONS BY THE HOLDER. Subject to the
limitations on conversions contained in Paragraph C of this Article IV,
each Holder of shares of Designated Preferred Stock may, at any time and
from time to time after the Commencement Date, convert each of its
shares of Designated Preferred Stock into a number of fully paid and
nonassessable shares of Common Stock determined by applying the
Conversion Formula. The minimum Stated Value of each conversion shall be
$50,000 or, if less than $50,000, the Stated Value of the balance of the
shares of Designated Preferred Stock then held by the Holder.
2. AUTOMATIC CONVERSION. On the Automatic Conversion Date,
without further action by the Holder, subject to the following
provisions, the outstanding shares of Designated Preferred Stock shall
be deemed converted into a number of fully paid and nonassessable shares
of Common Stock determined by applying the Conversion Formula. The
Automatic Conversion Date shall be deemed a
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"Conversion Date" for the relevant Unconverted Preferred Stock. The
provisions of Paragraph C of this Article IV shall not apply on the
Automatic Conversion Date, but the other provisions of Article III shall
apply to the conversion effected on the Automatic Conversion Date.
3. CONVERSION FORMULA. The term "Conversion Formula" means
the following formula:
Stated Value of Converted Shares
--------------------------------
CP
where:
"CP" means the Conversion Price in effect on the relevant Conversion
Date.
B. MECHANICS OF VOLUNTARY AND AUTOMATIC CONVERSION. To effect a
voluntary conversion of Converted Shares, the Holder must deliver or fax a
Notice of Conversion in the form attached hereto as Exhibit A ("Notice of
Conversion") to the Company, Attn: CEO, as provided in this Paragraph. The
Notice of Conversion shall be executed by the Holder of one or more shares of
Designated Preferred Stock and shall indicate such Holder's intention to convert
the specific number of Converted Shares, representing all or a portion of the
Holder's shares of Designated Preferred Stock. The date of conversion (the
"Conversion Date") shall be deemed to be the date on which the Holder faxes or
otherwise delivers a Notice of Conversion to the Company, provided that, if the
Notice of Conversion represents the conversion of all of the then Unconverted
Preferred Stock of the Holder, the Holder must deliver to the Company the
certificate or certificates representing all of the Holder's Designated
Preferred Stock no later than five (5) Trading Days thereafter. In addition,
following an Automatic Conversion Date on which all of the then Unconverted
Preferred Stock of the Holder is converted in accordance with the provisions of
Paragraph A of this Article IV, the Holder must deliver to the Company the
certificate or certificates representing all of the Holder's Designated
Preferred Stock. The shares being converted are referred to as the "Converted
Shares."
1. DELIVERY OF COMMON STOCK UPON CONVERSION. The Conversion
Certificates will be delivered to the Converting Holder at the address
specified in the Notice of Conversion (which may be the Converting
Holder's address for notices as contemplated by the Securities Purchase
Agreement or a different address) and for a conversion on an Automatic
Conversion Date, to the same address as the Holder's most recent
conversion (unless the Holder gives alternative instructions in writing
to the Company in the interim), via express courier, by electronic
transfer or otherwise, within three (3) Trading Days (such third Trading
Day, a "Delivery Date") after the later of (i) the date on which the
Notice of Conversion is delivered to the Company as contemplated in this
Paragraph, or the Automatic Conversion Date, as may be applicable, or
(ii) if applicable, the date on which the Converted Shares are delivered
to the Company.
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2. TAXES. The Company shall pay any and all taxes which may
be imposed upon the Company with respect to the issuance and delivery of
the shares of Common Stock upon the conversion of the Designated
Preferred Stock other than transfer taxes due upon conversion, if such
Holder has transferred to another party the Designated Preferred Stock
or the right to receive Common Stock upon the Holder's conversion
thereof or any or income taxes due on the part of the Holder. The
Company shall have the right to withhold any taxes as required by the
United States federal or state tax laws.
3. NO FRACTIONAL SHARES. If any conversion of Designated
Preferred Stock would result in the issuance of 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 Designated
Preferred Stock shall be rounded up or down to the nearest whole share,
it being understood that .5 of one share shall be rounded up to the next
highest share.
4. CONVERSION DISPUTES. In the case of any dispute with
respect to a conversion, the Company shall promptly issue such number of
shares of Common Stock as are not disputed in accordance with Paragraph
A of Article IV above. If such dispute involves the calculation of the
Conversion Price, the Company shall first discuss such discrepancy with
the Converting Holder. If the Company and the Converting Holder are
unable to agree upon the Conversion Price calculation, the Company shall
promptly submit the disputed calculations to independent auditors, which
shall be one of the top three nationally recognized accounting firms
selected by the Holder (unless the Holders and the Company mutually
agree to a different firm). The auditors, at the expense of the party or
parties in error (as determined by the auditors), shall audit the
calculations and notify the Company and the Holder of the results within
five (5) Trading Days following the date it receives the disputed
calculations. The auditor's calculation shall be deemed conclusive,
absent manifest error. The Company shall then issue the appropriate
number of shares of Common Stock in accordance with Paragraph A of
Article IV above.
5. CERTAIN EVENTS. In the event there is a Lower Price
Transaction during the New Transaction Period (as those terms are used
in the provisions of Section 4(g) of the Securities Purchase Agreement),
the Conversion Price shall be amended to be equal to the Adjusted
Conversion Price.
6. DELAY IN DELIVERING CONVERSION CERTIFICATES. The Company
understands that a delay in the delivery of the Conversion Certificates
beyond the Delivery Date could result in economic loss to a Holder. As
compensation to a Holder for such loss, the Company agrees if there is a
delay in the delivery of the Conversion Certificates (as adjusted in
accordance with this provision) so that
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such Conversion Certificates are not received within two (2) Trading
Days after the Delivery Date, to pay late payments to such Holder for
late delivery of Conversion Certificates in accordance with the
following schedule (where "No. Trading Days Late" is defined as the
number of Trading Days beyond two (2) Trading Days after the Delivery
Date):1
No. Trading Days Late Late Payment For Each $10,000 of
Stated Value or Dividend Amount
Being Converted
--------------------- --------------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each Trading
Day Late beyond 10 days
The Company shall pay any payments incurred under this Paragraph in
immediately available funds upon demand. Nothing herein shall limit the
Holder's right to pursue actual damages for the Company's failure to
issue and deliver the Conversion Certificates to the Holder within a
reasonable time. Furthermore, in addition to any other remedies which
may be available to a Holder, in the event that the Company fails for
any reason to effect delivery of such Conversion Certificates within two
(2) Trading Days after the Delivery Date, the Converting Holder will be
entitled to revoke the relevant Notice of Conversion or the effect of
the Automatic Conversion Date by delivering a notice
- ----------------------------------
1 Example: Notice of Conversion is delivered on Monday, May 1, 2006. The
Delivery Date would be Thursday, May 4 (the third Trading Day after such
delivery). If the certificate is delivered by Monday, May 8 (2 Trading Days
after the Delivery Date), no payment under this provision is due. If the
certificates are delivered on May 9, that is 1 "Trading Day Late" in the table
below; if delivered on May 16, that is 6 "Trading Days Late" in the table.
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to such effect to the Company prior to the Converting Holder's receipt
of the relevant Conversion Certificates, whereupon the Company and the
Converting Holder shall each be restored to their respective positions
immediately prior to delivery of such Notice of Conversion or Automatic
Conversion Date; PROVIDED, HOWEVER, that any payments contemplated by
this Paragraph B(5) of this Certificate of Designations which have
accrued through the date of such revocation notice shall remain due and
owing to the Converting Holder notwithstanding such revocation.
7. BUY-IN. If, by the tenth Trading Day after the relevant
Delivery Date, the Company fails for any reason to deliver the
Conversion Certificates, but at any time after the Delivery Date, the
Holder of the Designated Preferred Stock being converted (a "Converting
Holder") purchases, in an arm's-length open market transaction or
otherwise, shares of Common Stock (the "Covering Shares") in order to
make delivery in satisfaction of a sale of Common Stock by the
Converting Holder (the "Sold Shares"), which delivery such Converting
Holder anticipated to make using the shares to be issued upon such
conversion (a "Buy-In"), the Converting Holder shall have the right to
require the Company to pay to the Converting Holder, in addition to and
not in lieu of the amounts due under Paragraph B(6) of Article IV hereof
(and in addition to all other amounts contemplated in other provisions
of the Transaction Agreements, and not in lieu of any such other
amounts), the Buy-In Adjustment Amount. The Company shall pay the Buy-In
Adjustment Amount to the Converting Holder in immediately available
funds immediately upon demand by the Converting Holder.
8. DWAC CERTIFICATE DELIVERY. In lieu of delivering
physical certificates representing the Common Stock issuable upon
conversion, provided the Company's transfer agent is participating in
the Depository Trust Company ("DTC") Fast Automated Securities Transfer
program, upon request of a Converting Holder and his/her compliance with
the provisions contained in this paragraph, so long as the certificates
therefor do not bear a legend and the Converting Holder thereof is not
obligated to return such certificate for the placement of a legend
thereon, the Company shall use its best efforts to cause its transfer
agent to electronically transmit the Common Stock issuable upon
conversion to the Converting Holder by crediting the account of
Converting Holder's prime broker with DTC through its Deposit Withdrawal
Agent Commission system. It shall be the Holder's obligation to obtain
any required medallion guarantee and to be responsible for any
applicable prospectus delivery requirements.
9. CONVERSION OBLIGATIONS AND DEFAULT. If, at any time the
Company challenges, disputes or denies the right of a Holder of
Designated Preferred Stock to effect a conversion of the Designated
Preferred Stock Preferred Stock into Common Stock or otherwise dishonors
or rejects any Notice of
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Conversion delivered in accordance with the terms of the Securities
Purchase Agreement or this Certificate of Designations (subject to the
provisions of Paragraph B(4) of this Article IV with respect to certain
disputes relating to calculations of the number of shares to be issued
and subject to the provisions of Paragraph C of this Article IV with
respect to Limitations on Conversions), then such Holder shall have the
right, by written notice to the Company, to require the Company to
redeem each share of Designated Preferred Stock for which a Notice of
Conversion has been refused pursuant to this Paragraph B(9) for cash, at
an amount per share equal to the Holder Redemption Amount (as defined in
Article VI Paragraph B), pursuant to the provisions of Article VI
hereof.
10. CONVERSION IN BANKRUPTCY. The Holder of any Designated
Preferred Stock shall be entitled to exercise its conversion privilege
with respect to the Designated Preferred Stock notwithstanding the
commencement of any case under 11 U.S.C. ss.101 ET SEQ. (the "Bankruptcy
Code"). In the event the Company is a debtor under the Bankruptcy Code,
the Company hereby waives, to the fullest extent permitted, any rights
to relief it may have under 11 U.S.C. ss.362 in respect of such Holder's
right to convert the Designated Preferred Stock. The Company agrees,
without cost or expense to such Holder, to take or to consent to any and
all action necessary to effectuate relief under 11 U.S.C. ss.362.
C. LIMITATIONS ON CONVERSIONS. Notwithstanding any other provision
hereof or of any of the Transaction Agreements, in no event (except (i) as
specifically provided in this Certificate of Designations as an exception to
this provision, or (ii) while there is outstanding a tender offer for any or all
of the shares of the Company's Common Stock) shall the Holder be entitled to
convert any share of Designated Preferred Stock, or shall the Company have the
obligation to convert such share (and the Company shall not have the right to
pay dividends on shares of Designated Preferred Stock in shares of Common
Stock), to the extent that, after such conversion or issuance of stock in
payment of dividends, the sum of (a) 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 Designated Preferred Stock or any unexercised right
held by the Holder subject to a similar limitation), and (b) the number of
shares of Common Stock issuable upon the conversion of the shares of Designated
Preferred Stock with respect to which the determination of this proviso is being
made, would result in beneficial ownership by the Holder and its affiliates of
more than 4.99% of the outstanding shares of Common Stock (after taking into
account the shares to be issued to the Holder upon such conversion). 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 (the "1934 Act"). If the Holder transfers or
assigns any shares of the Designated Preferred Stock to a party who or which
would not be considered such an affiliate, such assignment shall be made subject
to the transferee's or assignee's specific agreement to be bound by the
provisions of this Paragraph (C) of this Article IV as if such transferee or
assignee were an affiliate of the original Holder hereof. Nothing herein shall
preclude the Holder from disposing of a sufficient number of other shares of
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Common Stock beneficially owned by the Holder so as to thereafter permit the
continued conversion of the shares of Designated Preferred Stock.
V. RESERVATION OF SHARES OF COMMON STOCK
A. RESERVED AMOUNT. Upon the initial issuance of the shares of
Designated Preferred Stock and thereafter as long as there are any shares of
Designated Preferred Stock outstanding, the Company shall reserve out of the
authorized but unissued shares of Common Stock for issuance upon conversion of
the then outstanding Designated Preferred Stock such number of shares at least
equal to
(x) until the Final Lock-up Date, one hundred five percent (105%), and
(y) thereafter, one hundred percent (100%)
of the number of shares of Common Stock issuable as may be required to satisfy
the conversion rights of the Holders of all outstanding Designated Preferred
Stock plus dividends thereon through the date which is one (1) year thereafter.
For the purposes of such calculations, the Company should assume that all
outstanding shares of Designated Preferred Stock were convertible in full at any
time, without regard to any restrictions which might limit any Holder's right to
convert any of such shares held by any Holder and that the Dividend Conversion
Price is equal to the Conversion Price. The number of authorized but unissued
shares of Common Stock so reserved (the "Reserved Amount") shall at all times be
sufficient to provide for the conversion of the Designated Preferred Stock
outstanding at the then current Conversion Price thereof. The Reserved Amount
shall be allocated to the Holders of Designated Preferred Stock as provided in
Article X Paragraph D.
B. INSUFFICIENT SHARES IN RESERVED AMOUNT. If at any time the
actual number of shares actually reserved is such that on any date, were that
date a Conversion Date, the Company would not be able to honor in full the
conversion submitted on that date of all Unconverted Preferred Stock of all
Holders, then each Holder of outstanding shares of Designated Preferred Stock
shall be entitled to the remedies provided in Article VI. In furtherance of the
foregoing, and not in lieu thereof, if either
(i) the relevant Conversion Certificates are not received by the Holder
within ten (10) Trading Days after the relevant Conversion Date, or
(ii) the Holder determines, based on most recent relevant filings or
other disclosure made by the Company and available to the public on the
SEC's EDGAR system indicate that the condition of the first sentence of
this Paragraph B has occurred
the Holder may request the Company (by notice given in the manner contemplated
by the Securities Purchase Agreement) to confirm the number of shares of Common
Stock reserved for
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issuance to the Holder upon conversion of the Holder's then outstanding
Designated Preferred Stock (including the shares submitted for conversion for
which the Conversion Certificates have not yet been received by the Holder) and
that such number represents the reservation of a sufficient number of shares as
contemplated by this Article V. The Company shall provide such information,
certified by an executive officer of the Company, in writing (the "Reserved
Share Confirmation") to the Holder within five (5) Trading Days after its
receipt of such request; provided, however, that if such signed Reserved Share
Confirmation is not timely received by the Holder, then the condition in the
first sentence of this Paragraph B shall be irrebuttably deemed to have occurred
until such time as the Holder shall have received a Reserved Share Confirmation
reflecting that the condition of such first sentence of this Paragraph B.
VI. REDEMPTION
A. REDEMPTION BY HOLDER. The term "Redemption Event" means any one
or more of the following events:
(i) the Company has not delivered Conversion Certificates to the Holder
as contemplated by Article IV Paragraph B hereof for any reason within
fifteen (15) Trading Days after the Conversion Date, the Holder
thereafter gives written notice thereof to the Company and the
Conversion Certificates are not received by the Holder within five (5)
Trading Days after the Company's receipt of such notice (but the
provisions of this clause (i) shall only apply until the delivery of
Conversion Certificates and the payment of the accrued amounts
contemplated by Paragraphs B(6) and 7 of Article IV hereof),
(ii) the Company admits in writing, or the Reserved Share Confirmation
received by the Holder indicates, that the condition of the first
sentence of Paragraph B of Article V has occurred (but the provisions of
this clause (ii) shall only apply until the Holder receives a Reserved
Share Confirmation reflecting that the condition of such first sentence
of Paragraph B of Article V is no longer true), or
(iii) the Reserved Share Confirmation has not been received by the
Holder within the time contemplated by Article V Paragraph B (but the
provisions of this clause (iii) shall only apply until the Holder
receives a Reserved Share Confirmation reflecting that the condition of
such first sentence of Paragraph B of Article V is no longer true).
Upon the occurrence of any Redemption Event and for as long as a Redemption
Event shall continue to exist, then, in addition to the rights provided in
Paragraph D(6) and (7) of Article IV, each Holder of shares of Unconverted
Preferred Stock (or of shares of Designated Preferred Stock for which a
Conversion Notice has been submitted but the certificates representing the
Conversion Shares have not yet been delivered to the Holder) shall thereafter
have the option, exercisable in whole or in part at any time and from time to
time by delivery of a notice (a "Holder Redemption Notice") requesting the
redemption of all or part of such Holder's shares of
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Designated Preferred Stock to the Company while such Redemption Event continues,
to require the Company to purchase for cash any or all of the then outstanding
shares of Designated Preferred Stock held by such Holder for an amount per share
equal to the Holder Redemption Amount in effect at the time of the redemption
hereunder.
B. DEFINITION OF HOLDER REDEMPTION AMOUNT. The "Holder Redemption
Amount" with respect to a share of Designated Preferred Stock being redeemed
(each, a "Redeemed Share") means an amount payable in cash, equal to:
V x M
-----------
CP
where:
"V" means the outstanding Stated Value plus accrued but unpaid
dividends through the date of payment of the Redemption Amount for the
Redeemed Share (the "Redemption Payment Date");
"CP" means the Conversion Price in effect on the Redemption Date
(as defined below)
"Redemption Date" means the date contemplated by a specific
provision of this Certificate of Designations or, if no such date is
specified, the date of redemption specified in the Holder Redemption
Notice; and
"M" means the average of the Closing Sale Prices for any five
(5) Trading Days (which need not be consecutive) selected by the Holder
of the Unconverted Share being redeemed. during the period beginning on
the Redemption Date and ending on the Redemption Payment Date.
If the Company is obligated to pay the Holder Redemption Amount, the Company
shall give the Holder at least three (3) Trading Days' notice of the Redemption
Payment Date (provided that such date shall be no earlier than the tenth Trading
Day after the Redemption Date), and, no later than the Trading Day prior to such
designated date, the Holder shall, by notice to the Company, identify the value
of "M" to the Company, together with a report derived from the Reporting Service
supporting such value. If the Company does not pay the Holder Redemption Amount
on the Redemption Date so specified, the Holder shall have the right to
recompute the value of "M" by notice similarly given (but until such later
notice is given, the computation in the latest notice from the Holder shall
continue to be determinative of the value of "M" for purposes of determining the
Holder Redemption Amount). The determination of the value of "M" shall not
affect the determination of the value of "V" in determining the Holder
Redemption Amount.
C. REDEMPTION DEFAULTS. If the Company fails to pay any Holder the
Holder Redemption Amount with respect to any share of Designated Preferred Stock
within ten (10)
13
Trading Days after its receipt of a Holder Redemption Notice or the Redemption
Date, whichever is later, then the Holder of Designated Preferred Stock
delivering such Holder Redemption Notice shall be entitled to interest on the
Holder Redemption Amount at a per annum rate equal to the lower of 18% and the
highest interest rate permitted by applicable law from the date on which the
Company receives the Holder Redemption Notice until the date of payment of the
Holder Redemption Amount hereunder. In the event the Company is not able to
redeem all of the shares of Designated Preferred Stock subject to Holder
Redemption Notices delivered prior to the date upon which such redemption is to
be effected, the Company shall redeem shares of Designated Preferred Stock from
each Holder pro rata, based on the total number of shares of Designated
Preferred Stock outstanding at the time of redemption included by such Holder in
all Holder Redemption Notices delivered prior to the date upon which such
redemption is to be effected relative to the total number of shares of
Designated Preferred Stock outstanding at the time of redemption included in all
of the Holder Redemption Notices delivered prior to the date upon which such
redemption is to be effected.
VII. LIQUIDATION PREFERENCE
A. LIQUIDATION EVENT. If the Company shall commence a voluntary
case under the U.S. Federal bankruptcy laws or any other applicable 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
Company 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 Company shall be entered by a court having jurisdiction in the premises in
an involuntary case under the U.S. Federal bankruptcy laws or any other
applicable bankruptcy, insolvency or similar law resulting in the appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Company 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 60 consecutive days and,
on account of any such event, the Company shall liquidate, dissolve or wind up,
or if the Company shall otherwise liquidate, dissolve or wind up, including, but
not limited to, the sale or transfer of all or substantially all of the
Company's assets in one transaction or in a series of related transactions (a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Company (other than Senior Securities and Pari Passu
Securities) upon liquidation, dissolution or winding up unless prior thereto the
holders of shares of Designated Preferred Stock shall have received the
Liquidation Preference 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 Designated Preferred Stock and holders of Pari Passu Securities
shall be insufficient to permit the payment to such holders of the preferential
amounts payable thereon, then the entire assets and funds of the Company legally
available for distribution to the Designated 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.
14
B. EXCLUSIONS. The purchase or redemption by the Company of stock
of any class, in any manner permitted by law, shall not, for the purposes
hereof, be regarded as a liquidation, dissolution or winding up of the Company.
Neither the consolidation or merger of the Company with or into any other entity
nor the sale or transfer by the Company of less than substantially all of its
assets shall, for the purposes hereof, be deemed to be a liquidation,
dissolution or winding up of the Company.
VIII. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time as
follows:
A. SALE. If, for as long as any shares of Designated Preferred
Stock remain outstanding, the Company enters into a merger (other than where the
Company is the surviving entity) or consolidation with another corporation or
other entity (collectively, a "Sale"), the Company will require, in the
agreements reflecting such transaction, that the surviving entity and, if an
entity different from the successor or surviving entity, the entity whose
capital stock or assets the holders of Common Stock of the Company are entitled
to receive as a result of such transaction, expressly assume the obligations of
the Company hereunder. Notwithstanding the foregoing, if the Company enters into
a Sale and the holders of the Common Stock are entitled to receive stock,
securities or property in respect of or in exchange for Common Stock, then as a
condition of such Sale, the Company and any such successor, purchaser or
transferee will agree that the Designated Preferred Stock may thereafter be
converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation or transfer by a Holder of the number of shares of Common Stock
into which then outstanding shares of Designated Preferred Stock might have been
converted immediately before such merger, consolidation or transfer, subject to
adjustments which shall be as nearly equivalent as may be practicable. In the
event of any such proposed Sale, the Holder hereof shall have the right to
either (i) convert all of any of the outstanding Designated Preferred Stock
(without regard to the limits contemplated by Paragraph C of Article IV hereof)
by delivering a Notice of Conversion to the Company within 15 days of receipt of
notice of such Sale from the Company or (ii) if the surviving entity in the
transaction is not a publicly traded entity listed on a Principal Trading
Market, demand a redemption of all or any of the outstanding Designated
Preferred Stock for the Holder Redemption Amount by delivering a notice to such
effect to the Company within fifteen (15) days of receipt of notice of such Sale
from the Company.
B. SPIN OFF. If, at any time prior to the Conversion Date of the
balance of the Designated Preferred Stock held by a Holder or to the date of
payment of the Holder Redemption Amount hereunder, the Company consummates a
spin off or otherwise divests itself of a part of its business or operations or
disposes of all or of a part of its assets in a transaction (the "Spin Off") in
which the Company, in addition to or in lieu of any other compensation received
by the Company for such business, operations or assets, causes securities of
another entity (the "Spin Off Securities") to be issued to security holders of
the Company, then the Company shall cause (i) to be reserved Spin Off Securities
equal to the number thereof which would have been issued
15
to the Holder had all of the holder's shares of Designated Preferred Stock
outstanding on the record date (the "Record Date") for determining the amount
and number of Spin Off Securities to be issued to security holders of the
Company (the "Outstanding Designated Preferred Stock") been converted as of the
close of business on the Trading Day immediately before the Record Date (the
"Reserved Spin Off Shares"), and (ii) to be issued to the Holder on the
conversion of all or any of the Outstanding Designated Preferred Stock, such
amount of the Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares
multiplied by (y) a fraction, of which (a) the numerator is the principal amount
of the Outstanding Designated Preferred Stock then being converted, and (b) the
denominator is the principal amount of the Outstanding Designated Preferred
Stock.
C. STOCK SPLITS, ETC. If, at any time while any shares of
Designated Preferred Stock remain outstanding, the Company effectuates a stock
split or reverse stock split of its Common Stock or issues a dividend on its
Common Stock consisting of shares of Common Stock, the Conversion Price and any
other amounts calculated as contemplated by this Certificate of Designations
shall be equitably adjusted to reflect such action. By way of illustration, and
not in limitation, of the foregoing (i) if the Company effectuates a 2:1 split
of its Common Stock, thereafter, with respect to any conversion for which the
Company issues shares after the record date of such split, the Conversion Price
shall be deemed to be one-half of what it had been calculated to be immediately
prior to such split; (ii) if the Company effectuates a 1:10 reverse split of its
Common Stock, thereafter, with respect to any conversion for which the Company
issues shares after the record date of such reverse split, the Conversion Price
shall be deemed to be ten times what it had been calculated to be immediately
prior to such split; and (iii) if the Company declares a stock dividend of one
share of Common Stock for every 10 shares outstanding, thereafter, with respect
to any conversion for which the Company issues shares after the record date of
such dividend, the Conversion Price shall be deemed to be such amount multiplied
by a fraction, of which the numerator is the number of shares (10 in the
example) for which a dividend share will be issued and the denominator is such
number of shares plus the dividend share(s) issuable or issued thereon (11 in
the example).
D. NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Fixed Conversion Price pursuant to this Article VIII, the
Company, at its expense, shall promptly compute such adjustment or readjustment
and prepare and furnish to each Holder of Designated 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 Company
shall, upon the written request at any time of any Holder of Designated
Preferred Stock, furnish to such Holder a like certificate setting forth (i)
such adjustment or readjustment, (ii) the Conversion Price in effect at the time
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 Designated Preferred Stock.
IX. VOTING RIGHTS
16
A. GENERALLY. The holders of the Designated Preferred Stock have no
voting power whatsoever, except as otherwise provided by the Corporation Law or
otherwise contemplated by this Certificate of Designations.
B. CLASS VOTING. To the extent that under the Corporation Law the
vote of the holders of the Designated Preferred Stock, voting separately as a
class or series, as applicable, is required to authorize a given action of the
Company, the affirmative vote or consent of the holders of at least a majority
of the then outstanding shares of the Designated Preferred Stock represented at
a duly held meeting at which a quorum is present or by written consent of the
holders of at least a majority of the then outstanding shares of Designated
Preferred Stock (except as otherwise may be required under the Corporation Law,
a "Required Interest") shall constitute the approval of such action by the
class. To the extent that under the Corporation Law holders of the Designated
Preferred Stock are entitled to vote on a matter with holders of Common Stock,
voting together as one class, each share of Designated 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 (subject to the limitations contained in Article IV
Paragraph E) using the record date for the taking of such vote of shareholders
as the date as of which the Conversion Price is calculated.
X. MISCELLANEOUS
A. RANK. The Designated Preferred Stock shall rank (i) prior to the
Company's Common Stock; (ii) prior to any Junior Securities; (iii) junior to any
Senior Securities; and (iv) PARI PASSU with any Pari Passu Securities; PROVIDED,
HOWEVER, that as of the date of the initial filing of this Certificate of
Designations, except for the Company's Series A 7% Convertible Preferred Stock,
there are no Senior Securities and thereafter no additional Senior Securities or
Pari Passu Securities shall be created without the written consent of a Required
Interest.
B. CANCELLATION OF DESIGNATED PREFERRED STOCK. If any shares of
Designated Preferred Stock are converted or redeemed pursuant to this
Certificate of Designations, the shares so converted shall be canceled, shall
return to the status of authorized, but unissued preferred stock of no
designated series, and shall not be issuable by the Company as Designated
Preferred Stock.
C. LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of (i)
evidence of the loss, theft, destruction or mutilation of any Designated
Preferred Stock certificate(s) and (ii) (y) in the case of loss, theft or
destruction, of indemnity (without any bond or other security) reasonably
satisfactory to the Company, or (z) in the case of mutilation, upon surrender
and cancellation of the Designated Preferred Stock certificate(s), the Company
shall execute and deliver new Designated Preferred Stock certificate(s) of like
tenor and date. However, the Company shall not be obligated to reissue such lost
or stolen Designated Preferred Stock certificate(s) if the Holder
contemporaneously requests the Company to convert such Designated Preferred
Stock.
17
D. ALLOCATION OF RESERVED AMOUNT. The initial Reserved Amount shall
be allocated pro rata among the holders of Designated Preferred Stock based on
the number of shares of Designated Preferred Stock issued to each Holder. Each
increase to the Reserved Amount shall be allocated pro rata among the holders of
Designated Preferred Stock based on the number of shares of Designated Preferred
Stock held by each Holder at the time of the increase in the Reserved Amount. In
the event a Holder shall sell or otherwise transfer any of such holder's shares
of Designated Preferred Stock, each transferee shall be allocated a pro rata
portion of such transferor's Reserved Amount. Any portion of the Reserved Amount
which remains allocated to any person or entity which does not hold any
Designated Preferred Stock shall be allocated to the remaining holders of shares
of Designated Preferred Stock, pro rata based on the number of shares of
Designated Preferred Stock then held by such holders.
E. PAYMENT OF CASH; DEFAULTS. Whenever the Company is required to
make any cash payment to a Holder under this Certificate of Designations (upon
redemption or otherwise), such cash payment shall be made to the Holder in good
funds on the date specified herein or, if not so specified, within five (5)
Trading Days after delivery by such Holder of a notice specifying that the
Holder elects to receive such payment in cash and the method (E.G., by check,
wire transfer) in which such payment should be made. If such payment is not
delivered within the relevant time period, such Holder shall thereafter be
entitled to interest on the unpaid amount at a per annum rate equal to the lower
of 15% and the highest interest rate permitted by applicable law until such
amount is paid in full to the Holder.
F. STATUS AS STOCKHOLDER. Upon submission of a Notice of Conversion
by a Holder of Designated Preferred Stock, (i) the shares covered thereby shall
be deemed converted into shares of Common Stock and (ii) the holder's rights as
a Holder of such converted shares of Designated 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 Company to comply with
the terms of this Certificate of Designations.
G. AMENDMENTS. This Certificate of Designations may only be amended
with the written consent of the holders of more than fifty percent (50%) of the
outstanding Designated Preferred Stock and the vote or action of any other party
or class entitled to vote or act thereon.
AMEDIA NETWORKS, INC.
By: /s/ Frank Galuppo
Title: President, Chief Executive Officer
18
EXHIBIT A
AMEDIA NETWORKS, INC..
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert Shares of the Series B 8% Convertible Preferred Stock)
TO: AMEDIA NETWORKS, INC.. VIA TELECOPIER TO:
101 Crawfords Corner Road (732) 949-0105
Holmdel, NJ 07733
Attn: CEO
FROM: __________________________________________________ ("Holder")
DATE: __________________________________________________ (the "Conversion Date")
RE: Conversion of ______________ shares (the "Converted Shares") of the
Series B 8% Convertible Preferred Stock (the "Preferred Stock") of
AMEDIA NETWORKS, INC. (the "Company") into __________________ shares
(the "Conversion Shares") of Common Stock (defined below)
The captioned Holder hereby gives notice to the Company, pursuant to the
Certificate of Designations of Convertible Preferred Stock of the Company (the
"Certificate of Designations"), that the Holder elects to convert the Converted
Shares into fully paid and non-assessable shares of Common Stock, $.001 par
value (the "Common Stock"), of the Company as of the Conversion Date specified
above. Said conversion shall be based on the following Conversion Price (CHECK
ONE):
[ ] $________________, representing the original Conversion Price
(as defined in the Certificate of Designations)
[ ] $________________, representing the original Conversion Price
(as defined in the Certificate of Designations), adjusted in
accordance with the provisions of the Certificate of
Designations.
19
Based on this Conversion Price, the number of Conversion Shares indicated above
should be issued in the following name(s):
Name and Record Address Conversion Shares
------------------------------- ---------------
------------------------------- ---------------
------------------------------- ---------------
It is the intention of the Holder to comply with the provisions of
Article 4(C) of the Certificate of Designations regarding certain limits on the
Holder's right to convert thereunder. Based on the analysis on the attached
Worksheet Schedule, the Holder believes this conversion complies with the
provisions of said Article 4(C). Nonetheless, to the extent that, pursuant to
the conversion effected hereby, the Holder would have more shares than permitted
under said Article 4(C), this notice should be amended and revised, ab initio,
to refer to the conversion which would result in the issuance of shares
consistent with such provision. Any conversion above such amount is hereby
deemed void and revoked.
As contemplated by the Certificate of Designations, this Notice of
Conversion is being sent by facsimile to the telecopier number and officer
indicated above.
If this Notice of Conversion represents the full conversion of the
outstanding balance of the Preferred Stock registered in the name of the Holder,
the Holder either (1) has previously surrendered the certificate(s) representing
such Preferred Stock to the Company or (2) will surrender (or cause to be
surrendered) the certificate(s) representing such Preferred Stock to the Company
at the address indicated above by express courier within five (5) Trading Days
after delivery or facsimile transmission of this Notice of Conversion.
The certificates representing the Conversion Shares should be
transmitted by the Company to the Holder (CHECK one)
[ ] via express courier or
[ ] by electronic transfer (DTC)
within the time contemplated by the Certificate of Designations after receipt of
this Notice of Conversion (by facsimile transmission or otherwise) to:
-------------------------------------
-------------------------------------
-------------------------------------
20
The Holder has determined that accrued but unpaid dividends on the
Converted Shares through the Conversion Date is $____________________ (subject
to further accrual if payment not timely made). As contemplated by the
Certificate of Designations, the Company should also pay all such accrued but
unpaid dividends on the Converted Shares to the Holder.
-- If the Company elects to pay such dividends in
Common Stock, as contemplated by and subject to the provisions
of the Certificate of Designations, such shares should be issued
in the name of the Holder and delivered in the same manner as,
and together with, the Conversion Shares.
-- If the Company elects or is required to pay the
dividends in cash, such payment should be made by wire transfer
as follows:2
- ----------------------------------
2* Information should include the following:
All Wires:
(1) Bank Name
(2) Bank Address (including street, city, state)
(3) ABA or Wire Routing No.
(4) Account Name
(5) Account Number
If Wire is going to International (Non-US) Bank, all of the above PLUS:
(6) SWIFT Number
21
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
(Print name of Holder)
By: __________________________________
(Signature of Authorized Person)
--------------------------------------
(Printed Name and Title)
22
NOTICE OF CONVERSION
WORKSHEET SCHEDULE
1. Current Common Stock holdings of Holder and Affiliates _____________
2. Shares to be issued on current conversion3 _____________
3. Other shares to be issued on other current conversion(s)
and other current exercise(s)4 _____________
4. Other shares eligible to be acquired within next 60 days
without restriction _____________
5. Total [sum of Lines 1 through 4] _____________
6. Outstanding shares of Common Stock5 _____________
7. Adjustments to Outstanding
a. Shares known to Holder as previously issued
to Holder or others but not included in Line 6 _____________
b. Shares to be issued per Line(s) 2 and 3 _____________
c. Total Adjustments [Lines 7a and 7b] _____________
8. Total Adjusted Outstanding [Lines 6 plus 7c] _____________
9. Holder's Percentage [Line 5 divided by Line 8] _____________%
[Note: Line 9 not to be above 4.99%]
- ----------------------------------
3Includes conversion of stated value and assumes dividends will be paid in
Common Stock at the Conversion Price.
4Includes shares issuable on conversion of convertible securities (including
assumed payment of interest or dividends) or exercise of other rights, including
other warrants or options
5 Based on latest SEC filing by Company or information provided by executive
officer of Company, counsel to Company or transfer agent.
23