CERTIFICATE OF DESIGNATION
OF
SERIES A 8% CONVERTIBLE PREFERRED STOCK
OF
INTELLI-CHECK, INC.
_______________
Pursuant to Section 151(g) of the
General Corporation Law of the State of Delaware
_______________
The undersigned DOES HEREBY CERTIFY that the following resolution was duly
adopted by the Board of Directors of Intelli-Check, Inc., a Delaware corporation
(the "Corporation"), at a meeting duly convened and held, at which a quorum was
present and acting throughout or by unanimous written consent:
"RESOLVED, that pursuant to the authority conferred on the Board of
Directors of the Corporation (the "Board of Directors") by the
Corporation's Certificate of Incorporation, the issuance of a series of
preferred stock, par value $.01 per share, of the Corporation which shall
consist of 30,000 shares of preferred stock which shall be designated as
Series A 8% Convertible Preferred Stock be, and the same hereby is,
authorized; and the Chief Executive Officer and Secretary or Assistant
Secretary of the Corporation be, and they hereby are, authorized and
directed to execute and file with the Secretary of State of the State of
Delaware a Certificate of Designation of Series A 8% Convertible Preferred
Stock of the Corporation fixing the designations, powers, preferences and
rights of the shares of such series, and the qualifications, limitations or
restrictions thereof (in addition to the designations, powers, preferences
and rights, and the qualifications, limitations or restrictions thereof,
set forth in the Certificate of Incorporation which may be applicable to
the Corporation's preferred stock), as follows:
1. Number of Shares; Designation. A total of 30,000 shares of preferred
stock, par value $.01 per share, of the Corporation are hereby designated as
Series A 8% Convertible Preferred Stock (the "Series").
2. Rank. The Series shall, with respect to payment of dividends, redemption
payments and rights upon liquidation, dissolution or winding-up of the affairs
of the Corporation, rank:
(i) senior and prior to Common Stock, par value $.001 per share, of the
Corporation (the "Common Stock"); and any additional series of
preferred stock which may in the future be issued by the Corporation
and are designated in the amendment to the Certificate of
Incorporation or the certificate of designations establishing such
additional preferred stock as ranking junior to the shares of the
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Series. Any shares of the Corporation's capital stock which are junior
to the shares of the Series with respect to the payment of dividends
are hereinafter referred to as "Junior Dividend Shares" and any shares
which are junior to the shares of the Series with respect to
redemption, payment and rights upon liquidation, dissolution or
winding-up of the affairs of the Corporation are hereinafter referred
to as "Junior Liquidation Shares".
(ii) Pari passu with any additional series of preferred stock which may in
the future be issued by the Corporation and are designated in the
amendment to the Certificate of Incorporation or the certificate of
designations establishing such additional preferred stock as ranking
equal to the shares of the Series or which do not state they are
Junior Dividend Shares or Senior Dividend Shares (as defined below).
Any shares of the Corporation's capital stock which are equal to the
shares of the Series with respect to the payment of dividends are
hereinafter referred to as "Parity Dividend Shares" and any shares
which are equal to the shares of the Series with respect to
redemption, payment and rights upon liquidation, dissolution or
winding-up of the affairs of the Corporation are hereinafter referred
to as "Parity Liquidation Shares".
(iii)Junior to any additional series of preferred stock which may in the
future be issued by the Corporation and are designated in the
amendment to the Certificate of Incorporation or the certificate of
designations establishing such additional preferred stock as ranking
senior to the shares of the Series. Any shares of the Corporation's
capital stock which are senior to the shares of the Series with
respect to the payment of dividends are hereinafter referred to as
"Senior Dividend Shares" and any shares which are senior to the shares
of the Series with respect to redemption, payment and rights upon
liquidation, dissolution or winding-up of the affairs of the
Corporation are hereinafter referred to as "Senior Liquidation
Shares".
The Corporation may not issue additional shares of preferred stock which
are not (a) Junior Stock (as defined in paragraph 3(c) below) or (b) both Parity
Liquidation Shares and Parity Dividend Shares without the consent of the holders
of a majority of the then outstanding shares of the Series.
3. Dividends. (a) The dividend rate on shares of the Series shall be $8.00
per share per annum. Dividends on shares of the Series shall be fully
cumulative, accruing, without interest, from the date of original issuance of
the Series through the date of redemption or conversion thereof, and shall be
payable in arrears, when, as and if declared by the Board of Directors out of
funds legally available for the payment of dividends, on September 30 and March
31 of each year (each such date, a "Dividend Payment Date"), commencing
September 30, 2003, except that if such date is not a business day then the
dividend shall be payable on the first immediately succeeding business day (as
used herein, the term "business day" shall mean any day except a Saturday,
Sunday or day on which banking institutions are legally authorized to close in
Woodbury, New York). Dividends payable on September 30 of any year shall be
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payable for the period from April 1 of that year through such September 30
Dividend Payment Date or such earlier date on which accrued and unpaid dividends
are payable due to redemption or conversion of shares of the Series (each such
period being hereinafter referred to as a "Dividend Period"), except that the
Dividend Period for the year 2003 shall commence on March 27, 2003 and end on
September 30, 2003; and dividends payable on March 31 of any year shall be
payable for the period from October 1 of the preceding year through such March
31 Dividend Payment Date or such earlier date on which accrued and unpaid
dividends are payable due to redemption or conversion of shares of the Series
(each such period being hereinafter referred to as a "Dividend Period").
Dividends shall be payable in cash. Each dividend shall be paid to the holders
of record of shares of the Series as they appear on the stock register of the
Corporation on the record date, not less than 10 nor more than 60 days preceding
the payment thereof, as shall be fixed by the Board of Directors. Dividends
payable for each Dividend Period shall be computed on the basis of a 360-day
year of twelve 30-day months and rounded to the nearest cent and shall be paid,
if there are funds legally available therefor, to the holders of record of
shares of the Series within thirty (30) days following the applicable Dividend
Payment Date. Dividends on account of arrearages for any past Dividend Period
may be declared and paid at any time, without reference to any regular Dividend
Payment Date, to holders of record on such date, not exceeding 45 days preceding
the payment date thereof, as may be fixed by the Board of Directors of the
Corporation. Dividends shall accrue regardless of whether the Corporation has
earnings, whether there are funds legally available therefor and/or whether
declared. No interest shall be payable with respect to any dividend payment that
may be in arrears. Holders of shares of the Series called for redemption between
the close of business on a dividend payment record date and the close of
business on the corresponding dividend payment date shall, in lieu of receiving
such dividend on the dividend payment date fixed therefor, receive such dividend
payment on the date fixed for redemption together with all other accrued and
unpaid dividends to the date fixed for redemption. The holders of shares of the
Series shall not be entitled to any dividends other than the cash dividends
provided for in this paragraph 3.
(b) No dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on any Parity Dividend Shares
for any period unless full cumulative dividends have been or contemporaneously
are declared and paid or declared and set aside for payment for all accrued
dividends with respect to the Series through the most recent Dividend Period
ending on or prior to the date of payment. Unless dividends accrued and payable
but unpaid on shares of the Series and any Parity Dividend Shares at the time
outstanding have been paid in full, all dividends declared by the Corporation
upon shares of the Series or Parity Dividend Shares shall be declared pro rata
with respect to all such shares, so that the amounts of any dividends declared
on shares of the Series and the Parity Dividend Shares shall in all cases bear
to each other the same ratio that, at the time of the declaration, all accrued
but unpaid dividends on shares of the Series and the other Parity Dividend
Shares, respectively, bear to each other.
(c) If at any time the Corporation has failed to (x) pay or set apart for
payment all accrued dividends on any shares of the Series through the then most
recently completed Dividend Period and (y) set apart for payment an amount in
cash equal to the scheduled dividend payments for each of the next two Dividend
Periods, the Corporation shall not, and shall not permit any corporation or
other entity directly or indirectly controlled by the Corporation to:
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(i) declare or pay or set aside for payment any dividend or other
distribution on or with respect to the Junior Dividend Shares, whether
in cash, securities, obligations or otherwise (other than dividends or
distributions paid in shares of capital stock of the Corporation
ranking junior to shares of the Series both as to the payment of
dividends and as to rights in liquidation, dissolution or winding-up
of the affairs of the Corporation ("Junior Stock"), or options,
warrants or rights to subscribe for or purchase shares of Junior
Stock); or
(ii) redeem, purchase or otherwise acquire, or pay into, set apart money or
make available for a sinking or other analogous fund for the
redemption, purchase or other acquisition of, any shares of the Series
(unless all of the shares of the Series are concurrently redeemed),
Parity Dividend Shares, Parity Liquidation Shares or shares of Junior
Stock for any consideration (except by conversion into or exchange for
Junior Stock),
unless, in each such case, all dividends accrued on shares of the Series through
the most recently completed Dividend Period and on any Parity Dividend Shares
have been or contemporaneously are declared and paid in full.
(d) Any reference to "distribution" contained in this paragraph 3 shall not
be deemed to include any distribution made in connection with any liquidation,
dissolution or winding-up of the Corporation, whether voluntary or involuntary.
4. Liquidation. (a) The liquidation value per share of shares of the
Series, in case of the voluntary or involuntary liquidation, dissolution or
winding-up of the affairs of the Corporation, shall be $100 per share, plus an
amount equal to the cash value of dividends accrued and unpaid thereon, whether
or not declared, to the payment date.
(b) In the event of any voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, the holders of shares of the Series (i) shall
not be entitled to receive the liquidation value of the shares held by them
until the liquidation value of all Senior Liquidation Shares shall have been
paid in full and (ii) shall be entitled to receive the liquidation value of such
shares held by them in preference to and in priority over any distributions upon
the Junior Liquidation Shares. Upon payment in full of the liquidation value to
which the holders of shares of the Series are entitled, the holders of shares of
the Series will not be entitled to any further participation in any distribution
of assets by the Corporation. If the assets of the Corporation are not
sufficient to pay in full the liquidation value payable to the holders of shares
of the Series and the liquidation value payable to the holders of any Parity
Liquidation Shares, the holders of all such shares shall share ratably in such
distribution of assets in accordance with the amounts that would be payable on
the distribution if the amounts to which the holders of shares of the Series and
the holders of Parity Liquidation Shares are entitled were paid in full.
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(c) For purposes of this paragraph 4, (i) any acquisition of the
Corporation by means of merger or other form of corporate reorganization in
which outstanding capital stock of the Corporation is exchanged for securities
or other consideration issued, or caused to be issued, by the acquiring entity
or its subsidiary, or (ii) a sale of all or substantially all of the assets of
the Corporation, shall be not be treated as a liquidation, dissolution or
winding-up of the Corporation.
(d) Written notice of any liquidation, dissolution or winding-up of the
Corporation, stating the payment date or dates when and the place or places
where the amounts distributable in such circumstances shall be payable, shall be
given by first class mail, postage prepaid, not less than 30 days prior to any
payment date stated therein, to the holders of record of shares of the Series at
their respective addresses as the same shall appear on the stock register of the
Corporation.
(e) Whenever the distribution provided for in this paragraph 4 shall be
payable in securities or property other than cash, such securities or property
shall be valued for such purpose at the fair market value of such securities or
other property as determined in good faith by the Board of Directors.
5. Optional Redemption. (a) Shares of the Series will be redeemable at the
option of the Corporation, in whole or in part, from and after the first date on
or after the first anniversary of the issuance of shares of the Series (the
"Anniversary Date"), if (x) the Current Market Price for the Common Stock for a
period of any 20 out of 30 consecutive trading days commencing on or after the
Anniversary Date equals or exceeds 200% of the Conversion Price (as defined
below) then in effect, and (y) the shares of Common Stock underlying the Shares
can be sold by the holder thereof without restriction on resale under Federal
securities laws; provided, however, that prior to the last date (the "Final
Registration Date") on which a registration statement is required to remain
effective and available for use pursuant to that certain Registration Rights
Agreement, dated March 27, 2003, by and between the Corporation and certain
purchasers identified therein with respect to the Series (the "Registration
Rights Agreement"), such registration statement is effective and available for
use at all times during the period beginning thirty (30) days prior to the date
of the redemption notice and ending on the earlier of the redemption date or the
Final Registration Date, and is expected to remain effective and available for
use until the earlier of thirty (30) days following the redemption date or the
Final Registration Date. The redemption price will be payable in cash and equal
to $100 per share, together with the amount of dividends accrued and unpaid
thereon, whether or not declared, to the redemption date. The aggregate payment
to each holder of shares of the Series to be redeemed will be rounded up or down
to the nearest cent. Notwithstanding the foregoing, if the date fixed for
redemption occurs after a record date for a dividend and prior to the
corresponding payment date, such dividend shall be paid on the payment date and
the amount payable with respect to each share of the Series redeemed shall not
include the amount of the dividend to be so paid.
(b) Not less than 30 nor more than 60 days prior to the date fixed for any
redemption of shares of the Series pursuant to this paragraph 5, a notice of
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redemption shall be mailed by first class mail, postage prepaid, to each holder
of shares of the Series to be redeemed at such holder's last address as it
appears on the books of the transfer agent for the Series. Such notice shall
state (i) that the Corporation has elected to redeem all or a portion of the
shares of the Series, as specified in such notice, (ii) the redemption price,
(iii) the redemption date, (iv) that, unless the Corporation defaults in the
payment of the redemption price, all shares of the Series called for redemption
shall cease to accrue dividends after the redemption date and shall cease to be
outstanding after such date, and (v) any other information required by
applicable law to be included therein and any other procedures that a holder of
shares of the Series must follow to receive payment for its redeemed shares.
Neither failure to mail such notice, nor any defect therein or in the mailing
thereof, to any particular holder shall affect the sufficiency of the notice or
the validity of the proceedings for redemption with respect to any other holder.
Any notice mailed in the manner herein provided shall be conclusively presumed
to have been duly given whether or not the holder receives the notice. On or
after the redemption date, each holder of shares of the Series to be redeemed
shall present and surrender such holder's certificate or certificates for such
shares to the Corporation at the place designated in the redemption notice and
thereupon the redemption price of the shares shall be promptly paid to or on the
order of the person whose name appears on such certificate or certificates as
the owner thereof, and each surrendered certificate shall be canceled. In case
less than all the shares represented by any such certificate are redeemed, a new
certificate shall be issued to the holder representing the unredeemed shares of
the Series.
(c) If a notice of redemption has been given pursuant to this paragraph 5
and if, on or before the date fixed for redemption, the funds necessary for such
redemption shall have been set aside by the Corporation, separate and apart from
its other funds, in trust for the pro rata benefit of the holders of the shares
of the Series so called for redemption, then, notwithstanding that any
certificates for such shares have not been surrendered for cancellation, on the
redemption date dividends shall cease to accrue on the shares of the Series to
be redeemed, and at the close of business on the redemption date the holders of
such shares shall cease to be stockholders with respect to those shares, shall
have no interest in or claims against the Corporation by virtue thereof and
shall have no voting or other rights with respect thereto, except the right to
receive the moneys payable upon such redemption, without interest thereon, upon
surrender (and endorsement, if required by the Corporation) of their
certificates, and the shares evidenced thereby shall no longer be outstanding.
Subject to applicable escheat laws, any moneys so set aside by the Corporation
and unclaimed at the end of two years from the redemption date shall revert to
the Corporation, after which reversion the holders of such shares so called for
redemption shall look only to the Corporation for the payment of the redemption
price. Any interest accrued on funds so deposited shall be paid to the
Corporation from time to time.
(d) If a notice of redemption has been given pursuant to this paragraph 5,
and any holder of shares of the Series shall, prior to the close of business on
the date fixed for redemption, give written notice to the Corporation pursuant
to paragraph 7 below of the conversion of any or all of the shares to be
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redeemed held by the holder, then such redemption shall not become effective as
to such shares to be converted and such conversion shall become effective as
provided in paragraph 7 below, whereupon any funds deposited by the Corporation,
or on its behalf, with a payment agent or segregated and held in trust by the
Corporation for the redemption of such shares shall (subject to any right of the
holder of such shares to receive the dividend payable thereon as provided in
paragraph 7 below) immediately upon such conversion be returned to the
Corporation or, if then held in trust by the Corporation, shall be discharged
from the trust.
(e) In every case of redemption of less than all of the outstanding shares
of the Series pursuant to this paragraph 5, the shares to be redeemed shall be
selected pro rata or by lot or in such other manner as the Board of Directors
may determine, as may be prescribed by resolution of the Board of Directors of
the Corporation, provided that only whole shares shall be selected for
redemption. Notwithstanding the foregoing, the Corporation shall not redeem any
of the shares of the Series at any time outstanding until all dividends accrued
and in arrears upon all shares of the Series then outstanding shall have been
paid for all past dividend periods.
6. Mandatory Redemption. The Corporation shall redeem, from any source of
funds legally available therefor, all outstanding shares of the Series on the
fifth anniversary of the date on which shares of the Series were first issued by
the Corporation (the "Series Redemption Date"). The Corporation shall effect
such redemption on the Series Redemption Date by paying in cash in exchange for
the shares of the Series to be redeemed a sum equal to $100 per share of the
Series (as adjusted for any stock dividends, combinations or splits with respect
to such shares) plus all declared or accumulated but unpaid dividends on such
shares.
7. Conversion. (a) Holders of shares of the Series will have the right,
exercisable at any time after (x) the issuance by the Corporation of shares of
the Series, and (y) prior to redemption of such shares (as described in
paragraph 5), to convert, in whole or in part, shares of the Series into shares
of Common Stock (calculated as to each conversion to the nearest 1/100th of a
share) at the conversion price of $6.60 per share (the "Conversion Price"). The
number of shares of Common Stock into which each share of the Series shall be
convertible shall be determined by dividing $100 by the Conversion Price, and
such number shall be subject to proportional adjustment to reflect any split or
consolidation of the Common Stock or any dividend payable prior to the date of
conversion on the Common Stock in additional shares of Common Stock. In the case
of shares of the Series called for redemption, conversion rights will expire at
the close of business on the business day next preceding the redemption date.
Upon conversion of shares of the Series, the Corporation will pay to the holder
of record of the converted shares an amount equal to the dividends accrued but
unpaid thereon through the date the notice of conversion is delivered to the
Corporation. Such payment shall be made in cash. Notwithstanding the foregoing,
holders of record of shares of the Series on a record date fixed for the payment
of a dividend on such shares shall be entitled to receive the dividend
notwithstanding the conversion of the shares prior to the Dividend Payment Date.
A share of the Series may not be converted in part.
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(b) In order to exercise the conversion right, the holder of each share of
the Series to be converted shall surrender the certificate representing such
share, duly endorsed or assigned to the Corporation or in blank, at the office
of the Corporation in Woodbury, New York (or such other address as the
Corporation may designate) and shall give written notice to the Corporation in
the form attached hereto as Exhibit 1 that such holder elects to convert the
shares represented by such certificate or a portion thereof. Such notice shall
also state the name or names (with address) in which the certificate or
certificates for the shares of Common Stock which shall be issuable upon such
conversion shall be issued, and shall be accompanied by funds in an amount
sufficient to pay any transfer or similar tax required by the provisions of
paragraph 7(e) below. Any shares of Common Stock of the Corporation issued upon
conversion of the Series that are subject to restrictions on transfer under the
terms of the Securities Purchase Agreement between the Corporation and the
initial purchaser(s) of the Series, dated March 27, 2003 (the "Purchase
Agreement") or under the Securities Act of 1933, as amended, shall bear an
appropriate legend. Each share surrendered for conversion shall, unless the
shares issuable on conversion are to be issued in the same name as the name in
which such share of the Series is registered, be duly endorsed by, or be
accompanied by instruments of transfer (in each case, in form reasonably
satisfactory to the Corporation), duly executed by the holder or holders thereof
or such holder's or holders' duly authorized attorney-in- fact.
(c) As promptly as practicable after the surrender of certificates for
shares of the Series for conversion and the receipt of such notice and funds, if
any, as aforesaid, the Corporation shall issue and shall deliver to such holder,
a certificate or certificates for the number of shares of Common Stock issuable
upon the conversion of such shares of the Series in accordance with the
provisions of this paragraph 7, and a check or cash in respect of any fractional
interest in respect of a share of Common Stock arising upon such conversion, as
provided in paragraph 7(d) below. Each conversion with respect to any shares of
the Series shall be deemed to have been effected immediately prior to the close
of business on the date on which the certificates for shares of the Series shall
have been surrendered (accompanied by the funds, if any, required by paragraph
7(e) below) and such notice and assignment, if any, shall have been received by
the Corporation as aforesaid, and the person or persons entitled to receive the
Common Stock issuable upon such conversion shall be deemed for all purposes to
be the record holder or holders of such Common Stock upon that date.
(d) No fractional shares of Common Stock or scrip representing fractional
shares shall be issued upon conversion of shares of the Series. If more than one
share of the Series shall be surrendered for conversion at one time by the same
holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of the
Series so surrendered. Instead of any fractional share of Common Stock otherwise
issuable upon conversion of any shares of the Series, the Corporation shall pay
a cash adjustment in respect to such fraction in an amount equal to the same
fraction of the Current Market Price of the Common Stock at the close of
business on the day of conversion.
(e) If a holder converts shares of the Series, the Corporation shall pay
any and all documentary, stamp or similar issue or transfer tax payable in
respect of the issue or delivery of the shares of the Series (or any other
securities issued on account thereof pursuant hereto) or Common Stock upon the
conversion; provided, however, the Corporation shall not be required to pay any
such tax that may be payable because any such shares are issued in a name other
than the name of the holder or any such tax which is ordinarily payable by the
holder as a tax of any nature on income.
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(f) The Corporation shall reserve out of its authorized but unissued Common
Stock or its Common Stock held in treasury sufficient shares of Common Stock to
permit the conversion of all of the outstanding shares of the Series. The
Corporation shall from time to time, in accordance with the General Corporation
Law of the State of Delaware, increase the authorized amount of its Common Stock
if at any time the authorized amount of its Common Stock remaining unissued
shall not be sufficient to permit the conversion of all shares of the Series at
the time outstanding. If any shares of Common Stock required to be reserved for
issuance upon conversion of shares of the Series hereunder require registration
with or approval of any governmental authority under any federal or state law
before the shares may be issued upon conversion, the Corporation shall in good
faith and as expeditiously as possible endeavor to cause the shares to be so
registered or approved. All shares of Common Stock delivered upon conversion of
the shares of the Series will, upon delivery, be duly authorized and validly
issued, fully paid and nonassessable, free from all taxes, liens and charges
with respect to the issue thereof.
(g) The Conversion Price shall be subject to adjustment from time to time
as follows:
(i) In the event that the Corporation shall (A) pay a dividend or make a
distribution, in shares of Common Stock, on any class of Capital Stock
of the Corporation or any subsidiary which is not directly or
indirectly wholly owned by the Corporation, (B) split or subdivide its
outstanding Common Stock into a greater number of shares, or (C)
combine its outstanding Common Stock into a smaller number of shares,
then in each such case the Conversion Price in effect immediately
prior thereto shall be adjusted so that the holder of each share of
the Series thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock that such holder would
have owned or have been entitled to receive after the occurrence of
any of the events described above had such share of the Series been
converted immediately prior to the occurrence of such event. An
adjustment made pursuant to this paragraph 7(g)(i) shall become
effective immediately after the close of business on the record date
in the case of a dividend or distribution (except as provided in
paragraph 7(k) below) and shall become effective immediately after the
close of business on the effective date in the case of such
subdivision, split or combination, as the case may be. Any shares of
Common Stock issuable in payment of a dividend shall be deemed to have
been issued immediately prior to the close of business on the record
date for such dividend for purposes of calculating the number of
outstanding shares of Common Stock under clauses (ii) and (iii) below.
(ii) In the event that the Corporation shall commit to issue or distribute
Common Stock or issue rights, warrants, options or convertible or
exchangeable securities entitling the holder thereof to subscribe for
or purchase, convert into or exchange for Common Stock, in any such
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case at a price per share less than the Current Market Price per share
on the earliest of (i) the date the Corporation shall enter into a
firm contract for such issuance or distribution, (ii) the record date
for the determination of stockholders entitled to receive any such
rights, warrants, options or convertible or exchangeable securities,
if applicable, or (iii) the date of actual issuance or distribution of
any such Common Stock or rights, warrants, options or convertible or
exchangeable securities (provided that the issuance of Common Stock
upon the exercise of rights, warrants, options or convertible or
exchangeable securities will not cause an adjustment in the Conversion
Price if no such adjustment would have been required at the time such
right, warrant, option or convertible or exchangeable security was
issued), then the Conversion Price in effect immediately prior to such
earliest date shall be adjusted so that the Conversion Price shall
equal the price determined by multiplying the Conversion Price in
effect immediately prior to such earliest date by the fraction:
(x) whose numerator shall be the number of shares of Common Stock
outstanding on such date plus the number of shares which the
aggregate offering price of the total number of shares so offered
would purchase at such Current Market Price (such amount, with
respect to any such rights, warrants, options or convertible or
exchangeable securities, determined by multiplying the total
number of shares subject thereto by the exercise price of such
rights, warrants, options or convertible or exchangeable
securities and dividing the product so obtained by the Current
Market Price), and
(y) whose denominator shall be the number of shares of Common Stock
outstanding on such date plus the number of additional shares of
Common Stock to be issued or distributed or receivable upon
exercise of any such right, warrant, option or convertible or
exchangeable security.
Such adjustment shall be made successively whenever any such Common
Stock, rights, warrants, options or convertible or exchangeable
securities are issued or distributed. In determining whether any
rights, warrants or options entitle the holders to subscribe for or
purchase shares of Common Stock at less than such Current Market
Price, and in determining the aggregate offering price of shares of
Common Stock so issued or distributed, there shall be taken into
account any consideration received by the Corporation for such Common
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Stock, rights, warrants, options, or convertible or exchangeable
securities, the value of such consideration, if other than cash, to be
determined by the Board of Directors, whose determination shall be
conclusive and described in a certificate filed with the records of
corporate proceedings of the Corporation. If any right, warrant,
option or convertible or exchangeable security to purchase or acquire
Common Stock, the issuance of which resulted in an adjustment in the
Conversion Price pursuant to this subsection (g) shall expire and
shall not have been exercised, the Conversion Price shall immediately
upon such expiration be recomputed to the Conversion Price which would
have been in effect had the adjustment of the Conversion Price made
upon the issuance of such right, warrant, option or convertible or
exchangeable security been made on the basis of offering for
subscription, purchase or issuance, as the case may be, only of that
number of shares of Common Stock actually purchased or issued upon the
actual exercise of such right, warrant, option or convertible or
exchangeable securities.
(iii)No adjustment provided for in this Certificate of Designation shall be
made in the Conversion Price: (a) if the then Current Market Price is
less than $6.60, provided, however, that if the then Current Market
Price is less than $6.60, an adjustment may be made only if (1) the
Corporation receives the prior written approval of the American Stock
Exchange; and (2) the Corporation is not required by the rules or
regulations of the American Stock Exchange to seek stockholder
approval for the issuance of any securities pursuant to such
adjustment; or (b) unless the adjustment would require an increase or
decrease of at least 1% in the Conversion Price then in effect;
provided, however, that any adjustments that by reason of clause (b)
of this paragraph 7(g)(iii) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under this paragraph 7(g) shall be made to the
nearest cent or nearest 1/100th of a share.
(iv) Notwithstanding anything to the contrary set forth in this paragraph
7(g), no adjustment shall be made to the Conversion Price upon (A) the
issuance of shares of Common Stock pursuant to any compensation or
incentive plan for officers, directors, employees or consultants of
the Corporation which plan has been approved by the Compensation
Committee of the Board of Directors (or if there is no such committee
then serving, by the majority vote of the Directors then serving who
are not employees or officers of the Corporation, a 5% or greater
stockholder of the Corporation or an officer, employee or Affiliate or
Associate (as defined in paragraph 11 below) of any such 5% or greater
stockholder) (unless the exercise price thereof is changed after the
date hereof other than solely by operation of the anti-dilution
provisions thereof or by the Compensation Committee of the Board of
Directors or, if applicable, the Board of Directors and, if required
by law, the stockholders of the Corporation as provided in this clause
(A)), or (B) the issuance of Common Stock upon the conversion or
exercise of the options, warrants or rights of the Corporation
outstanding on March 27, 2003, unless the conversion or exercise price
thereof is changed after March 27, 2003 (other than solely by
operation of the anti-dilution provisions thereof).
(v) In the event that, at any time as a result of an adjustment made
pursuant to paragraph 7(g)(i) through 7(g)(iii) above, the holder of
any share of the Series thereafter surrendered for conversion was
thus, prior to such surrender, entitled to receive shares of the
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Corporation other than shares of the Common Stock, thereafter the
number of such other shares so receivable upon conversion of any share
of the Series shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in paragraphs
7(g)(i) through 7(g)(iv) above, and the other provisions of this
paragraph 7(g)(v) with respect to the Common Stock shall apply on like
terms to any such other shares.
(h) In case of any reclassification of the Common Stock (other than in a
transaction to which paragraph 7(g)(i) applies), any consolidation of the
Corporation with, or merger of the Corporation into, any other entity, any
merger of another entity into the Corporation (other than a merger that does not
result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock of the Corporation), any sale or transfer of
all or substantially all of the assets of the Corporation or any compulsory
share exchange, pursuant to which share exchange the Common Stock is converted
into other securities, cash or other property, then lawful provision shall be
made as part of the terms of such transaction whereby the holder of each share
of the Series then outstanding shall have the right thereafter, during the
period such share shall be convertible, to convert such share only into the kind
and amount of securities, cash and other property receivable upon the
reclassification, consolidation, merger, sale, transfer or share exchange by a
holder of the number of shares of Common Stock of the Corporation into which a
share of the Series might have been converted immediately prior to the
reclassification, consolidation, merger, sale, transfer or share exchange
assuming that such holder of Common Stock failed to exercise rights of election,
if any, as to the kind or amount of securities, cash or other property
receivable upon consummation of such transaction, subject to adjustment as
provided in paragraph 7(g) above following the date of consummation of such
transaction. As a condition to any such transaction, the Corporation or the
person formed by the consolidation or resulting from the merger or which
acquires such assets or which acquires the Corporation's shares, as the case may
be, shall make provisions in its certificate or articles of incorporation or
other constituent document to establish such right. The certificate or articles
of incorporation or other constituent document shall provide for adjustments
which, for events subsequent to the effective date of the certificate or
articles of incorporation or other constituent document, shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
paragraph 7. The provisions of this paragraph 7(h) shall similarly apply to
successive reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
(i) If: (i) the Corporation shall take any action which would require an
adjustment in the Conversion Price pursuant to Section 7(g); or
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(ii) the Corporation shall authorize the granting to the holders of its
Common Stock generally of rights, warrants or options to subscribe for
or purchase any shares of any class or any other rights, warrants or
options; or
(iii)there shall be any reclassification or change of the Common Stock
(other than a subdivision or combination of its outstanding Common
Stock or a change in par value) or any consolidation, merger or
statutory share exchange to which the Corporation is a party and for
which approval of any stockholders of the Corporation is required, or
the sale or transfer of all or substantially all of the assets of the
Corporation; or
(iv) there shall be a voluntary or involuntary dissolution, liquidation or
winding-up of the Corporation;
then, the Corporation shall cause to be filed with the transfer agent for the
Series and shall cause to be mailed to the holders of record of shares of the
Series at their addresses as shown on the stock register of the Corporation, as
promptly as possible, but at least 30 days prior to the applicable date
hereinafter specified, a notice stating (A) the date on which a record is to be
taken for the purpose of such dividend, distribution or granting of rights,
warrants or options or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution
or rights, warrants or options are to be determined, or (B) the date on which
such reclassification, change, consolidation, merger, statutory share exchange,
sale, transfer, dissolution, liquidation or winding-up is expected to become
effective or occur, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reclassification,
change, consolidation, merger, statutory share exchange, sale, transfer,
dissolution, liquidation or winding-up. Failure to give such notice or any
defect therein shall not affect the legality or validity of the proceedings
described in this paragraph 7(i).
(j) Whenever the Conversion Price is adjusted as herein provided, the
Corporation shall promptly file with the transfer agent for the Series a
certificate of an officer of the Corporation setting forth the Conversion Price
after the adjustment and setting forth a brief statement of the facts requiring
such adjustment and a computation thereof. The Corporation shall promptly cause
a notice of the adjusted Conversion Price to be mailed to each registered holder
of shares of the Series.
(k) In any case in which paragraph 7(g) provides that an adjustment shall
become effective immediately after a record date for an event and the date fixed
for such adjustment pursuant to paragraph 7(g) occurs after such record date but
before the occurrence of such event, the Corporation may defer until the actual
occurrence of such event (i) issuing to the holder of any shares of the Series
converted after such record date and before the occurrence of such event the
additional shares of Common Stock issuable upon such conversion by reason of the
adjustment required by such event over and above the Common Stock issuable upon
such conversion before giving effect to such adjustment, and (ii) paying to such
holder any amount in cash in lieu of any fraction pursuant to paragraph 7(d).
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(l) In case the Corporation shall take any action affecting the Common
Stock, other than actions described in this paragraph 7, which in the opinion of
the Board of Directors would materially adversely affect the conversion right of
the holders of the shares of the Series, the Conversion Price may be adjusted,
to the extent permitted by law, in such manner, if any, and at such time, as the
Board of Directors may determine to be equitable in the circumstances; provided,
however, that in no event shall the Board of Directors be required to take any
such action.
(m) The Corporation shall list the shares of Common Stock required to be
delivered upon conversion of shares of the Series, prior to delivery, upon each
national securities exchange, the American Stock Exchange or any similar system
of automated dissemination of securities prices, if any, upon which the Common
Stock is listed at the time of delivery.
8. Status of Shares. All shares of the Series that are at any time redeemed
or converted pursuant to paragraph 5, 6 or 7 above, and all shares of the Series
that are otherwise reacquired by the Corporation and subsequently canceled by
the Board of Directors, shall have the status of authorized but unissued shares
of preferred stock, without designation as to series, subject to reissuance by
the Board of Directors as shares of any one or more other series.
9. Voting Rights. Each holder of shares of the Series shall be entitled to
the number of votes equal to the number of shares of Common Stock into which
such shares of the Series could be converted and shall have voting rights and
powers equal to the voting rights and powers of the Common Stock (except as
otherwise expressly provided herein or as required by law), voting together with
the Common Stock as a single class and shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of the Corporation.
Fractional votes shall not, however, be permitted and any fractional voting
rights resulting from the above formula (after aggregating all shares into which
shares of the Series held by each holder could be converted) shall be rounded to
the nearest whole number (with one-half being rounded upward).
10. Restrictions and Limitations. So long as any shares of the Series
remain outstanding, the Corporation, shall not, without the vote or written
consent by the holders of at least 51% of the then outstanding shares of the
Series, voting together as a single class:
(a) Redeem, purchase or otherwise acquire for value (or pay into or set
aside for a sinking fund for such purpose) any share or shares of
preferred stock otherwise than by redemption in accordance with
paragraph 5 or 6 hereof or by conversion in accordance with paragraph
7 hereof;
(b) Redeem, purchase or otherwise acquire (or pay into or set aside for a
sinking fund for such purpose), any of the Common Stock; provided,
however, that this restriction shall not apply to the repurchase of
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shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for the Corporation
or any subsidiary pursuant to agreements under which the Corporation
has the option to repurchase such shares at cost or at cost plus
interest at a rate not to exceed nine percent (9%) per annum upon the
occurrence of certain events, such as the termination of employment;
and provided further, that the total amount applied to the repurchase
of shares of Common Stock shall not exceed $25,000 during any twelve
month period; or
(c) Authorize or issue, or obligate itself to issue, any debt security, or
otherwise incur indebtedness for borrowed money, other than preferred
stock which is deemed to be debt.
11. Anything contained herein to the contrary notwithstanding, when
authorized by resolution of its Board of Directors, the Company may amend or
supplement this Certificate of Designation without the consent of any holder of
any shares of the Series, to cure any ambiguity, defect or inconsistency herein,
or pursuant to the requirements of the American Stock Exchange, or make any
other change provided that any such amendment or supplement does not adversely
affect the interests of the holders of the Shares as set forth herein.
12. Certain Definitions. As used in this Certificate, the following terms
shall have the following respective meanings:
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under common control with such
specified person. For purposes of this definition, "control" when used with
respect to any person means the power to direct the management and policies of
such person, directly or indirectly, whether through the ownership of voting
securities or otherwise; and the term "controlling" and "controlled" having
meanings correlative to the foregoing.
"Associate" of a person means (A) any corporation or organization, other
than the Corporation or any subsidiary of the Corporation, of which the person
is an officer or partner or is, directly or indirectly, the beneficial owner of
10% or more of any class of its equity securities; (B) any trust or estate in
which the person has a substantial beneficial interest or as to which the person
serves as trustee or in a similar fiduciary capacity; and (C) any relative or
spouse of the person, or any relative of the spouse, who has the same home as
the person or who is a director or officer of the person or any of its parents
or subsidiaries.
"Capital Stock" of any person or entity means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in the common stock or preferred stock of such
person or entity, including, without limitation, partnership and membership
interests.
"Current Market Price" means, when used with respect to any security as of
any date, the volume weighted average price regular way of such security as
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reported on the American Stock Exchange for the ten (10) consecutive trading
days immediately preceding such date, or, in case such security is listed on a
national securities exchange other than American Stock Exchange, the volume
weighted average price of such security on the ten (10) consecutive trading days
immediately preceding such date as reported for consolidated transactions with
respect to securities listed on the principal national securities exchange on
which such security is listed or admitted to trading or, if such security is not
listed or admitted to trading on the American Stock Exchange or any national
securities exchange, the volume weighted average price of such security on the
ten (10) consecutive trading days immediately preceding such date in the
over-the- counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotations System or such other system then in use or,
if such security is not quoted by any such organization, the volume weighted
average price of such security as of the ten (10) consecutive trading days
immediately preceding such date furnished by a New York Stock Exchange member
firm selected by the Corporation, or if such security is not quoted by any such
organization and no such New York Stock Exchange member firm is able to provide
such prices, such price as is determined by the Independent Directors in good
faith.
"Independent Directors" means directors that (i) are not 5% or greater
stockholders of the Corporation or the designee of any such stockholder; (ii)
are not officers or employees of the Corporation, any of its subsidiaries or of
a stockholder referred to above in clause (i); (iii) are not Related Persons;
and (iv) do not have relationships that, in the opinion of the Board of
Directors, would interfere with their exercise of independent judgment in
carrying out the responsibilities of the directors.
"Related Person" means an individual related to an officer, director or
employee of the Corporation or any of its Affiliates which relation is by blood,
marriage or adoption and not more remote than first cousin.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly
executed on its behalf by its undersigned Chief Executive Officer this 27th day
of March, 2003.
/s/ Frank Mandelbaum
__________________________________
Frank Mandelbaum
Chief Executive Officer