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EXHIBIT 3.3
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES C CONVERTIBLE PREFERRED STOCK
OF
INTRAWARE, INC.
Intraware, Inc. (the "COMPANY"), a corporation organized and existing under
the General Corporation Law of the State of Delaware, does hereby certify that,
pursuant to authority conferred upon the Board of Directors of the Company by
the Certificate of Incorporation, as amended, of the Company, and pursuant to
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors of the Company at a meeting duly held, adopted resolutions (i)
authorizing a series of the Company's previously authorized preferred stock, par
value $0.0001 per share, and (ii) providing for the designations, preferences
and relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, of Eight Hundred Thirty-three (833) shares
of Series C Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 833 shares
of Series C Preferred Stock (the "PREFERRED SHARES"), par value $0.0001
per share, which shall have the powers, designations, preferences and
other special rights set forth below. Capitalized terms used but not
otherwise defined herein shall have the meaning set forth in Section
22.
(1) VOTING RIGHTS. The Preferred Shares shall have no
voting rights, except as required by law, including but not limited to the
General Corporation Law of the State of Delaware, and as expressly provided
in this Certificate of Designations.
(2) DIVIDENDS; STATED VALUE. The Preferred Shares shall
bear dividends ("DIVIDENDS") at a rate of 9% per annum, which shall be
cumulative, accrue daily from the applicable Issuance Date (as defined below)
and be payable on the first day of each Calendar Quarter beginning on October
1, 2000 (each a "DIVIDEND DATE"). If a Dividend Date is not a Business Day
then the Dividend shall be due and payable on the Business Day immediately
following the Dividend Date. Dividends shall be payable in shares of Common
Stock (as defined below) ("DIVIDEND SHARES") or, at the option of the
Company, in cash, provided that the Dividends which accrued during any period
shall be payable in cash only if the Company provides written notice
("DIVIDEND ELECTION NOTICE") to each holder of the applicable Preferred
Shares at least 20 days prior to the Dividend Date (a "DIVIDEND ELECTION
DATE"). Dividends to be paid in shares of Common Stock shall be paid in a
number of fully paid and nonassessable shares (rounded to the nearest whole
share in accordance with Section 3(a)) of
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Common Stock equal to the quotient of (I) the Additional Amount and (II) the
Dividend Conversion Price on the applicable Dividend Date. Notwithstanding
the foregoing, the Company shall not be entitled to pay Dividends in shares
of Common Stock and shall be required to pay such Dividends in cash and to
provide a Dividend Election Notice to each holder of the applicable Preferred
Shares if (x) any event constituting a Triggering Event (as defined in
Section 4(a)), or an event that with the passage of time would constitute a
Triggering Event, if not cured, has occurred and is continuing on the
Dividend Election Date or on the Dividend Date, unless otherwise consented to
in writing by the holder of Preferred Shares entitled to receive such
Dividend or (y) the Registration Statement (as defined in the Registration
Rights Agreement) is not effective and available for the resale of all of the
Registrable Securities (as defined in the Registration Rights Agreement),
including but not limited to the Dividend Shares, on the Dividend Election
Date or on the Dividend Date. Any accrued and unpaid Dividends which are not
paid within five (5) Business Days of such accrued and unpaid Dividends'
Dividend Date shall bear interest at the rate of 18.0% per annum (or if
lower, the maximum amount allowed by applicable law) from such Dividend Date
until the same is paid in full (the "DEFAULT INTEREST"). Each Preferred Share
shall have a "STATED VALUE" equal to $10,000.
(3) CONVERSION OF PREFERRED SHARES. Preferred Shares
shall be convertible into shares of the Company's common stock, par value
$0.0001 per share (the "COMMON STOCK"), on the terms and conditions set forth
in this Section 3.
(a) CONVERSION RIGHT; MANDATORY CONVERSION OR
REDEMPTION. Subject to the provisions of Section 3(d), at any time or times
on or after the date of issuance of any Preferred Share (the "ISSUANCE
DATE"), any holder of Preferred Shares shall be entitled to convert any whole
or partial number of Preferred Shares into fully paid and nonassessable
shares of Common Stock in accordance with Section 3(c), at the Conversion
Rate (as defined below). If any Preferred Shares remain outstanding on the
Maturity Date, then, pursuant to Section 3(c), all such Preferred Shares
shall be converted at the Conversion Rate as of such date in accordance with
Section 3(c) or redeemed in accordance with Section 3(c). The Company shall
not issue any fraction of a share of Common Stock upon any conversion. All
shares of Common Stock (including fractions thereof) issuable upon conversion
of more than one Preferred Share by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance
of a fraction of a share of Common Stock. If, after the aforementioned
aggregation, the issuance would result in the issuance of a fraction of a
share of Common Stock, the Company shall make a payment to the holder in cash
with respect to such fractional share. The Company shall pay any and all
taxes that may be payable with respect to the issuance and delivery of Common
Stock upon conversion of Preferred Shares unless such taxes result from the
issuance of Common Stock upon conversion to a person other than the holder of
Preferred Shares.
(b) CONVERSION RATE. The number of shares of Common
Stock issuable upon conversion of each Preferred Share pursuant to Section
3(a) shall be determined
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by dividing (x) the Stated Value plus the Additional Amount by (y) the
Conversion Price (the "CONVERSION RATE").
(c) MECHANICS OF CONVERSION.
(i) OPTIONAL CONVERSION. To convert Preferred
Shares into shares of Common Stock on any date (a "CONVERSION
DATE"), the holder thereof shall (A) transmit by facsimile (or
otherwise deliver), for receipt on or prior to 11:59 p.m., Chicago
time on such date, a copy of an executed notice of conversion in
the form attached hereto as EXHIBIT I (the "CONVERSION NOTICE") to
the Company, and (B) if required by Section 3(c)(iv), surrender to
a common carrier for delivery to the Company as soon as practicable
following such date the original certificates representing the
Preferred Shares being converted (or an indemnification undertaking
with respect to such shares in the case of their loss, theft or
destruction) (the "PREFERRED STOCK CERTIFICATES"). On or before the
second Business Day following the date of receipt of a Conversion
Notice (the "SHARE DELIVERY DATE"), the Company shall (X) issue and
deliver to the address as specified in the Conversion Notice, a
certificate, registered in the name of the holder or its designee,
for the number of shares of Common Stock to which the holder shall
be entitled, or (Y) provided that the Company's transfer agent (the
"TRANSFER AGENT") is participating in The Depository Trust Company
("DTC") Fast Automated Securities Transfer Program, upon the
request of the holder, credit such aggregate number of shares of
Common Stock to which the holder shall be entitled to the holder's
or its designee's balance account with DTC through its Deposit
Withdrawal Agent Commission system. If the number of Preferred
Shares represented by the Preferred Stock Certificate(s) submitted
for conversion pursuant to Section 3(c)(iv) is greater than the
number of Preferred Shares being converted, then the Company shall,
as soon as practicable and in no event later than three Business
Days after receipt of the Preferred Stock Certificate(s) (the
"PREFERRED STOCK DELIVERY DATE") and at its own expense, issue and
deliver to the holder a new Preferred Stock Certificate
representing the number of Preferred Shares not converted. The
person or persons entitled to receive the shares of Common Stock
issuable upon a conversion of Preferred Shares shall be treated for
all purposes as the record holder or holders of such shares of
Common Stock on the Conversion Date.
(ii) MANDATORY CONVERSION OR REDEMPTION AT
MATURITY. A holder of Preferred Shares shall surrender all
Preferred Stock Certificates representing such Preferred Shares on
the Maturity Date, duly endorsed for cancellation, to the Company
and all such Preferred Shares either (i) shall be converted as of
such date as if the holder of such Preferred Shares had given the
Conversion Notice for all such shares on the Maturity Date (a
"MATURITY DATE MANDATORY CONVERSION"), or (ii) shall be redeemed as
of such date for an amount in cash per Preferred Share (the
"MATURITY DATE REDEMPTION PRICE") equal to the Liquidation
Preference (as defined in Section 12) (a "MATURITY DATE MANDATORY
REDEMPTION"). The Company shall be deemed to have elected a
Maturity Date Mandatory Conversion unless it delivers written
notice to
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each holder of Preferred Shares at least 25 Business Days prior to
the Maturity Date of its election to effect a Maturity Date
Mandatory Redemption. If the Company elects a Maturity Date
Mandatory Redemption, then on the Maturity Date the Company shall
pay to each holder of Preferred Shares outstanding on the Maturity
Date, by wire transfer of immediately available funds, an amount
per Preferred Share equal to the Maturity Date Redemption Price. If
the Company elects a Maturity Date Mandatory Redemption and fails
to redeem all of the Preferred Shares outstanding on the Maturity
Date by payment of the Maturity Date Redemption Price, then in
addition to any remedy such holder of Preferred Shares may have
under this Certificate of Designations, the Securities Purchase
Agreement and the Registration Rights Agreement, (X) the applicable
Maturity Date Redemption Price payable in respect of such
unredeemed Preferred Shares shall bear interest at the rate of 2.0%
per month (or if lower, the maximum amount allowed by applicable
law), prorated for partial months, until paid in full, and (Y) any
holder of Preferred Shares shall have the option to require the
Company to convert any or all of such holder's Preferred Shares
that the Company elected to redeem under this Section 3(c)(ii) and
for which the Maturity Date Redemption Price (together with any
interest thereon) has not been paid without regard to the Maturity
Date Mandatory Redemption.
(iii) COMPANY'S FAILURE TO TIMELY CONVERT. If
the Company shall fail to issue a certificate to a holder or credit
such holder's balance account with DTC for the number of shares of
Common Stock to which such holder is entitled upon such holder's
conversion of Preferred Shares or to issue a new Preferred Stock
Certificate representing the number of Preferred Shares to which
such holder is entitled, in each case within the time periods set
out in Section 3(c)(i) (in each case, a "CONVERSION FAILURE"),
then, in addition to all other available remedies which such holder
may pursue hereunder and under the Securities Purchase Agreement,
(A) following the fifth Business Day of such Conversion Failure,
the Company shall pay damages to such holder for each date of such
Conversion Failure in an amount equal to 0.5% of the product of (I)
the sum of the number of shares of Common Stock not issued to the
holder on or prior to the Share Delivery Date and to which such
holder is entitled and, in the event the Company has failed to
deliver a Preferred Stock Certificate to the holder on or prior to
the Preferred Stock Delivery Date, the number of shares of Common
Stock issuable upon conversion of the Preferred Shares represented
by such Preferred Stock Certificate, as of the Preferred Stock
Delivery Date, and (II) the Closing Sale Price of the Common Stock
on the Share Delivery Date, in the case of the failure to deliver
Common Stock, or the Preferred Stock Delivery Date, in the case of
failure to deliver a Preferred Stock Certificate and (B) following
the tenth Business Day of such Conversion Failure, such holder upon
written notice to the Company may void its Conversion Notice with
respect to, and retain or have returned, as the case may be, any
Preferred Shares that have not been converted pursuant to such
holder's Conversion Notice; provided that the voiding of a holder's
Conversion Notice shall not effect the Company's obligations to
make any payments
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which have accrued prior to the date of such notice pursuant to
this Section 3(c)(iii) or otherwise.
(iv) BOOK-ENTRY. Notwithstanding anything to
the contrary set forth herein, upon conversion of Preferred Shares
in accordance with the terms hereof, the holder thereof shall not
be required to physically surrender the Preferred Stock Certificate
representing the Preferred Shares to the Company unless (A) the
full number of Preferred Shares represented by the certificate are
being converted or (B) the holder of the Preferred Shares has
provided the Company with prior written notice (which notice may be
included in a Conversion Notice) requesting physical surrender and
reissue of the Preferred Stock Certificate. The holder and the
Company shall maintain records showing the number of Preferred
Shares converted and the dates of such conversions or shall use
such other method, reasonably satisfactory to the holder and the
Company, so as not to require physical surrender of the certificate
representing the Preferred Shares upon conversion. In the event of
any dispute or discrepancy, such records of the Company shall be
controlling and determinative in the absence of manifest error.
Notwithstanding the foregoing, if Preferred Shares represented by a
certificate are converted as aforesaid, the holder may not transfer
the certificate representing such Preferred Shares unless the
holder first physically surrenders the certificate representing the
Preferred Shares to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the holder a new
certificate of like tenor, registered as the holder may request,
representing in the aggregate the remaining number of Preferred
Shares represented by such certificate. The holder and any
assignee, by acceptance of a certificate, acknowledge and agree
that, by reason of the provisions of this paragraph, following
conversion of any Preferred Shares, the number of Preferred Shares
represented by such certificate may be less than the number of
Preferred Shares stated on the face thereof. Each certificate for
Preferred Shares shall bear the following legend:
ANY TRANSFEREE OF THIS CERTIFICATE SHOULD
CAREFULLY REVIEW THE TERMS OF THE COMPANY'S
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RIGHTS OF THE PREFERRED SHARES REPRESENTED BY
THIS CERTIFICATE, INCLUDING SECTION 3(c)(iv)
THEREOF. THE NUMBER OF PREFERRED SHARES
REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN
THE NUMBER OF PREFERRED SHARES STATED ON THE FACE
HEREOF PURSUANT TO SECTION 3(c)(iv) OF THE
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RIGHTS.
(v) PRO RATA CONVERSION; DISPUTES. In the
event that the Company receives a Conversion Notice from more than
one holder of Preferred Shares for the same Conversion Date and the
Company can convert some, but not all, of such Preferred
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Shares, the Company, subject to Section 3(d), shall convert from each
holder of Preferred Shares electing to have Preferred Shares converted
on such date a pro rata amount of such holder's Preferred Shares
submitted for conversion based on the number of Preferred Shares
submitted for conversion on such date by such holder relative to the
number of Preferred Shares submitted for conversion on such date. In
the event of a dispute as to the number of shares of Common Stock
issuable to a holder in connection with a conversion of Preferred
Shares, the Company shall issue to the holder the number of shares of
Common Stock not in dispute and, resolve such dispute in accordance
with Section 20.
(d) LIMITATIONS ON CONVERSIONS.
(i) BENEFICIAL OWNERSHIP. The Company shall
not effect any conversion of Preferred Shares, and no holder of
Preferred Shares shall have the right to convert any Preferred
Shares pursuant to Section 3(a), to the extent that after giving
effect to such conversion, the beneficial owner of such shares
(together with such Person's affiliates) would have acquired,
through conversion of Preferred Shares or otherwise, beneficial
ownership of a number of shares of Common Stock during the 60-day
period ending on and including such Conversion Date (the "60 DAY
PERIOD"), that, when added to the number of shares of Common Stock
beneficially owned by such Person (together with such Person's
affiliates) at the beginning of the 60 Day Period, exceeds 10.00%
of the number of shares of Common Stock outstanding immediately
after giving effect to such conversion. For purposes of the
foregoing sentence, the number of shares of Common Stock
beneficially owned by a Person and its affiliates shall include the
number of shares of Common Stock issuable upon conversion of the
Preferred Shares with respect to which the determination of such
sentence is being made, but shall exclude the number of shares of
Common Stock which would be issuable upon (A) conversion of the
remaining, nonconverted Preferred Shares beneficially owned by such
Person or any of its affiliates and (B) exercise or conversion of
the unexercised or unconverted portion of any other securities of
the Company (including, without limitation, any warrants) subject
to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by such Person or
any of its affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 3(d)(i), beneficial
ownership shall be calculated in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended. For purposes of
this Section 3(d)(i), in determining the number of outstanding
shares of Common Stock, a holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the
Company's most recent Form 10-Q or Form 10-K, as the case may be,
(y) a more recent public announcement by the Company or (z) any
other notice by the Company or its Transfer Agent setting forth the
number of shares of Common Stock outstanding. For any reason at any
time, upon the written or oral request of any holder, the Company
shall within one Business Day confirm orally and in writing to any
such holder the number of shares of Common Stock then outstanding.
In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of
securities of the Company, including the
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Preferred Shares, by such holder or its affiliates since the date as
of which such number of outstanding shares of Common Stock was
reported.
(ii) PRINCIPAL MARKET REGULATION. The Company
shall not be obligated to issue any shares of Common Stock upon
conversion of the Preferred Shares if the issuance of such shares
of Common Stock would exceed that number of shares of Common Stock
which the Company may issue upon Conversion of the Preferred Shares
without breaching the Company's obligations under the rules or
regulations of the Principal Market ("EXCHANGE CAP"), except that
such limitation shall not apply in the event that the Company (A)
obtains the approval of its stockholders as required by the
applicable rules of the Principal Market (or any successor rule or
regulation) for issuances of Common Stock in excess of such amount
or (B) obtains a written opinion from outside counsel to the
Company that such approval is not required, which opinion shall be
reasonably satisfactory to the holders of a majority of the
Preferred Shares then outstanding. Until such approval or written
opinion is obtained, no purchaser of Preferred Shares pursuant to
the Securities Purchase Agreement (the "PURCHASERS") shall be
issued, upon conversion of Preferred Shares, shares of Common Stock
in an amount greater than the product of the Exchange Cap amount
multiplied by a fraction, the numerator of which is the number of
Preferred Shares issued to such Purchaser pursuant to the
Securities Purchase Agreement and the denominator of which is the
aggregate amount of all the Preferred Shares issued to the
Purchasers pursuant to the Securities Purchase Agreement (with
respect to each Purchaser, the "EXCHANGE CAP ALLOCATION"). In the
event that any Purchaser shall sell or otherwise transfer any of
such Purchaser's Preferred Shares, the transferee shall be
allocated a pro rata portion of such Purchaser's Exchange Cap
Allocation, and the restrictions of the prior sentence shall apply
to such transferee with respect to the portion of the Exchange Cap
Allocation allocated to such transferee. In the event that any
holder of Preferred Shares shall convert all of such holder's
Preferred Shares into a number of shares of Common Stock which, in
the aggregate, is less than such holder's Exchange Cap Allocation,
then the difference between such holder's Exchange Cap Allocation
and the number of shares of Common Stock actually issued to such
holder shall be allocated to the respective Exchange Cap
Allocations of the remaining holders of Preferred Shares on a pro
rata basis in proportion to the number of Preferred Shares then
held by each such holder.
(4) RIGHTS UPON TRIGGERING EVENT.
(a) TRIGGERING EVENT. Each of the following events
shall constitute a "TRIGGERING EVENT":
(i) the failure of the Registration Statement
to be declared effective by the SEC on or prior to the Mandatory
Effective Date (as defined in the Registration Rights Agreement);
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(ii) while the Registration Statement is
required to be maintained effective pursuant to the terms of the
Registration Rights Agreement, except for days during any Allowable
Grace Period (as defined in the Registration Rights Agreement), the
effectiveness of the Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is
unavailable to the holder of the Preferred Shares for sale of all
of the Registrable Securities (as defined in the Registration
Rights Agreement) in accordance with the terms of the Registration
Rights Agreement, and such lapse or unavailability continues for a
period of five consecutive trading days or for more than an
aggregate of 20 trading days in any 365-day period (other than days
during an Allowable Grace Period);
(iii) the suspension from trading or failure of
the Common Stock to be listed on the Nasdaq National Market, The
New York Stock Exchange, Inc. or The American Stock Exchange, Inc.
for a period of five consecutive trading days or for more than an
aggregate of 10 trading days in any 365-day period;
(iv) the Company's (A) failure to cure a
Conversion Failure by delivery of the required number of shares of
Common Stock within 10 Business Days after the occurrence of such
Conversion Failure or (B) notice, written or oral, to any holder of
Preferred Shares, including by way of public announcement or
through any of its agents, at any time, of its intention not to
comply with a request for conversion of any Preferred Shares into
shares of Common Stock that is tendered in accordance with the
provisions of this Certificate of Designations; provided, however,
that the Triggering Event described in this Section 4(a)(iv) will
not be applicable if the Company is unable to issue shares upon
receipt of a Conversion Notice pursuant to the requirements of
Section 3(d)(i) and the Company or its Transfer Agent, at the
Company's direction, has provided a notice to that effect to such
holder;
(v) at any time following the tenth
consecutive Business Day that a holder's Authorized Share
Allocation is less than the number of shares of Common Stock that
such holder would be entitled to receive upon a conversion of all
Preferred Shares then held by such holder (without regard to any
limitations on conversion set forth in Section 3(d) or otherwise);
(vi) upon the Company's receipt of a Conversion
Notice, the Company is not obligated to issue shares of Common
Stock upon such conversion due to the provisions of Section
3(d)(ii);
(vii) the Company breaches all or any part of
the covenants set forth in Section 4(o) of the Securities Purchase
Agreement; or
(viii) the Company breaches any representation,
warranty, covenant or other term or condition of the Securities
Purchase Agreement (other than Section 4(o) of the Securities
Purchase Agreement), the Registration Rights Agreement
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this Certificate of Designations or any other agreement, document,
certificate or other instrument delivered in connection with the
transactions contemplated thereby and hereby to which such holder
is a party, except to the extent that such breach would not have a
Material Adverse Effect (as defined in Section 3(a) of the
Securities Purchase Agreement) and except, in the case of a breach
of a covenant which is curable, only if such breach continues for a
period of at least ten consecutive Business Days.
(b) REDEMPTION RIGHT. Promptly after the occurrence
of a Triggering Event, the Company shall deliver written notice thereof via
facsimile and overnight courier (a "TRIGGERING EVENT NOTICE") to each holder
of Preferred Shares. At any time after the earlier of a holder's receipt of a
Triggering Event Notice and such holder becoming aware of a Triggering Event,
such holder of Preferred Shares may require the Company to redeem all or any
of such holder's Preferred Shares by delivering written notice thereof
("TRIGGERING EVENT REDEMPTION NOTICE") to the Company, which Triggering Event
Redemption Notice shall indicate the number of Preferred Shares that such
holder is electing to redeem. Each Preferred Share subject to redemption by
the Company pursuant to this Section 4(b) shall be redeemed by the Company at
a price per Preferred Share equal to the greater of (i) 120% of the Stated
Value of such Preferred Share, plus any Additional Amount with respect
thereto, and (ii) the product of (A) the Conversion Rate in effect at such
time as a holder delivers a Redemption Notice and (B) the Closing Sale Price
of the Common Stock on the date immediately preceding such Triggering Event
(the "TRIGGERING EVENT REDEMPTION PRICE"); provided, however, that the
Triggering Event Redemption Price with respect to a Triggering Event
described in Section 4(a)(vii) shall be equal to 120% of the Stated Value of
such Preferred Share. Redemptions required by this Section 4(b) shall be made
in accordance with the provisions of Section 11.
(c) ADJUSTMENT OF ADDITIONAL AMOUNT. From and after
the occurrence of a Triggering Event, the Additional Amount with respect to
each Preferred Share then outstanding shall be adjusted by (i) increasing the
dividend rate set forth in Section 2 from 9% to 20% and (ii) increasing the
number set forth in the definition of "Premium" to 0.20. In the event that
such Triggering Event is subsequently cured, the adjustment referred to in
the preceding sentence shall cease to be effective, as of the date of such
cure, for each day after such cure (until the next occurrence of a Triggering
Event); provided that the Dividends and Additional Amount as calculated
during the continuance of such Triggering Event shall continue to apply to
such Preferred Share to the extent relating to days after the occurrence of a
Triggering Event through and including the date of the cure of the Triggering
Event.
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(5) RIGHTS UPON REORGANIZATION; MERGER; SALE; CHANGE OF
CONTROL.
(a) DEFINITION OF ORGANIC CHANGE AND CHANGE OF
CONTROL. The following shall constitute an "ORGANIC CHANGE": any
recapitalization, reorganization, reclassification, consolidation or merger,
sale of all or substantially all of the Company's assets to another Person or
other transaction which is effected in such a way that holders of Common
Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock. Each of the following events shall constitute a "CHANGE OF
CONTROL": (i) the consolidation, merger or other business combination of the
Company with or into another Person (other than (A) a consolidation, merger
or other business combination in which holders of the Company's voting power
immediately prior to the transaction continue after the transaction to hold,
directly or indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors (or
their equivalent if other than a corporation) of such entity or entities, or
(B) pursuant to a migratory merger effected solely for the purpose of
changing the jurisdiction of incorporation of the Company), (ii) the sale or
transfer of all or substantially all of the Company's assets (including
direct or indirect ownership in subsidiaries or affiliates of the Company),
and (iii) a purchase, tender or exchange offer made to and accepted by the
holders of more than the 50% of the outstanding shares of Common Stock.
(b) ASSUMPTION AND PROVISION UPON ORGANIC CHANGE.
Prior to the consummation of any (i) sale of all or substantially all of the
Company's assets to an acquiring Person or (ii) other Organic Change
following which the Company is not a surviving entity, the Company will
secure from the Person purchasing such assets or the successor resulting from
such Organic Change (in each case, the "ACQUIRING ENTITY") a written
agreement (in form and substance satisfactory to the holders of a majority of
the Preferred Shares then outstanding) to deliver to each holder of Preferred
Shares in exchange for such shares, a security of the Acquiring Entity
evidenced by a written instrument substantially similar in form and substance
to the Preferred Shares, including, without limitation, having a stated value
and liquidation preference equal to the Stated Value and the Liquidation
Preference of the Preferred Shares held by such holder, and satisfactory to
the holders of a majority of the Preferred Shares then outstanding. Prior to
the consummation of any Organic Change not described in the preceding
sentence, the Company shall make appropriate provision (in form and substance
satisfactory to the holders of a majority of the Preferred Shares then
outstanding) to insure that each of the holders of the Preferred Shares will
thereafter have the right to acquire and receive in lieu of or in addition to
(as the case may be) the shares of Common Stock immediately theretofore
acquirable and receivable upon the conversion of such holder's Preferred
Shares such shares of stock, securities or assets that would have been issued
or payable in such Organic Change with respect to or in exchange for the
number of shares of Common Stock which would have been acquirable and
receivable upon the conversion of such holder's Preferred Shares as of the
date of such Organic Change (in all cases without taking into account any
limitations or restrictions on the convertibility of the Preferred Shares).
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(c) REDEMPTION RIGHT UPON CHANGE OF CONTROL. No
sooner than 20 days nor later than 10 days prior to the consummation of a
Change of Control, but not prior to the public announcement of such Change of
Control, the Company shall deliver written notice thereof via facsimile and
overnight courier to each holder of Preferred Shares (a "CHANGE OF CONTROL
NOTICE"). At any time during the period beginning after a holder's receipt of
a Change of Control Notice (or, in the event a Change of Control Notice is
not delivered at least 10 days prior to a Change of Control, at any time on
or after the date which is 10 days prior to a Change of Control) and ending
on the date of such Change of Control, such holder of Preferred Shares may
require the Company to redeem all or any of such holder's Preferred Shares
upon the consummation of such Change of Control by delivering written notice
thereof ("CHANGE OF CONTROL REDEMPTION NOTICE" and, collectively with a
Triggering Event Redemption Notice, "REDEMPTION NOTICES" and, individually,
each a "REDEMPTION NOTICE") to the Company, which Change of Control
Redemption Notice shall indicate the number of Preferred Shares such holder
is electing to redeem. Each Preferred Share subject to redemption pursuant to
this Section 5(c) shall be redeemed by the Company at a price per Preferred
Share equal to the greater of (i) the sum of the Additional Amount and 125%
of the Stated Value, and (ii) the product of (A) the Conversion Rate in
effect immediately prior to the public announcement of such proposed Change
of Control and (B) the Closing Sale Price on the date of delivery of the
holder's Change of Control Redemption Notice (the "CHANGE OF CONTROL
REDEMPTION PRICE" and, together with the Triggering Event Redemption Price,
the "REDEMPTION PRICE"). Redemptions required by this Section 5(c) shall be
made in accordance with the provisions of Section 11 and shall have priority
to payments to other stockholders in connection with a Change of Control. The
rights of a holder under this Section 5(c) are in addition to such holder's
rights under Section 5(b) with respect to any Change of Control. The holders
of Preferred Shares may not exercise their rights under this Section 5(c)
with respect to a Change of Control which constitutes a Merger Transaction
(as defined in Section 8) with respect to which the Company has delivered a
Notice of Merger Conversion (as defined in Section 8) in accordance with
Section 8 and with respect to which the Company has satisfied the Conditions
to Merger Conversion (as defined in Section 8) and all other conditions of
Section 8.
(6) RIGHTS UPON ISSUANCE OF VARIABLE SECURITIES OR
PURCHASE RIGHTS.
(a) VARIABLE SECURITIES. If the Company in any
manner issues or sells (i) any stock or securities other than Options (as
defined below) directly or indirectly convertible into or exchangeable for
Common Stock ("CONVERTIBLE SECURITIES") or (ii) any rights, warrants or
options to subscribe for or purchase Common Stock or Convertible Securities
("OPTIONS"), that are convertible into or exchangeable, directly or
indirectly, for Common Stock at a price which varies or may vary with the
market price of the Common Stock, including by way of one or more adjustments
or resets to a fixed price or by way of the lesser of a variable price or a
fixed price (a "VARIABLE PRICE," and such securities, "VARIABLE SECURITIES"),
the Company shall provide written notice thereof via facsimile and overnight
courier to each holder of the Preferred Shares ("VARIABLE NOTICE") on the
date of issuance of such Variable Securities. If a holder of Preferred Shares
provides written notice via facsimile
<PAGE>
and overnight courier (the "VARIABLE PRICE ELECTION NOTICE") to the Company
within 15 days of receiving a Variable Notice that such holder desires to
replace the Conversion Price then in effect with the Variable Price described
in such Variable Notice, then, from and after the date of the Company's
receipt of the Variable Price Election Notice, the Conversion Price will
automatically be replaced with the Variable Price for the Preferred Shares
held by such holder. In the event that a holder of Preferred Shares delivers
a Conversion Notice after the Company's issuance of Variable Securities but
before such holder's receipt of the Company's Variable Notice, then such
holder shall have the option by written notice to the Company to rescind such
Conversion Notice or to have the Conversion Price be equal to such Variable
Price for the conversion effected by such Conversion Notice.
(b) PURCHASE RIGHTS. If at any time the Company
grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the
holders of Preferred Shares will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which such
holder could have acquired if such holder had held the number of shares of
Common Stock acquirable upon complete conversion of the Preferred Shares
(without taking into account any limitations or restrictions on the
convertibility of the Preferred Shares) immediately before the date on which
a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
(7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.
(a) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
COMMON STOCK. If and whenever on or after the Issuance Date, the Company
issues or sells, or in accordance with this Section 7(a) is deemed to have
issued or sold, any shares of Common Stock (including the issuance or sale of
shares of Common Stock owned or held by or for the account of the Company,
but excluding shares of Common Stock issued or deemed to have been issued by
the Company (I) in connection with any employee benefit plan which has been
approved by the Board of Directors of the Company, pursuant to which the
Company's securities may be issued to any employee, officer or director for
services provided to the Company (an "APPROVED STOCK PLAN"), (II) upon
conversion of the Preferred Shares or exercise of the Warrants, or (III) in
connection with any Excluded Security) for a consideration per share less
than a price (the "APPLICABLE PRICE") equal to the greater of (A) the Closing
Bid Price of the Common Stock or (B) the Conversion Price on the date of such
issuance or sale, then immediately after such issue or sale, the Conversion
Price then in effect shall be reduced to an amount equal to the product of
(x) the Conversion Price in effect immediately prior to such issue or sale
and (y) the quotient determined by dividing (1) the sum of the product of the
Applicable Price and the number of shares of Common Stock Deemed Outstanding
(as defined below) immediately prior to such issue or sale and the
consideration, if any, received by the Company upon such issue or sale, by
(2) the product of the Applicable Price multiplied by the number of shares of
Common Stock Deemed Outstanding immediately after such issue or sale.
<PAGE>
For purposes of determining the adjusted Conversion Price under this Section
7(a), the following shall be applicable:
(i) ISSUANCE OF OPTIONS. If the Company in any
manner grants or sells any Options and the lowest price per share
for which one share of Common Stock is issuable upon the exercise
of any such Option or upon conversion or exchange of any
Convertible Securities issuable upon exercise of such Option is
less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold
by the Company at the time of the granting or sale of such Option
for such price per share. For purposes of this Section 7(a)(i), the
"lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion or
exchange of any Convertible Securities issuable upon exercise of
such Option" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon granting or sale of
the Option, upon exercise of the Option and upon conversion or
exchange of any Convertible Security issuable upon exercise of such
Option. No further adjustment of the Conversion Price shall be made
upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon
the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the
Company in any manner issues or sells any Convertible Securities
and the lowest price per share for which one share of Common Stock
is issuable upon such conversion or exchange thereof is less than
the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance of sale of such Convertible
Securities for such price per share. For the purposes of this
Section 7(a)(ii), the "price per share for which one share of
Common Stock is issuable upon such conversion or exchange" shall be
equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to any one share
of Common Stock upon the issuance or sale of the Convertible
Security and upon the conversion or exchange of such Convertible
Security. No further adjustment of the Conversion Price shall be
made upon the actual issuance of such Common Stock upon conversion
or exchange of such Convertible Securities, and if any such issue
or sale of such Convertible Securities is made upon exercise of any
Options for which adjustment of the Conversion Price had been or
are to be made pursuant to other provisions of this Section 7(a),
no further adjustment of the Conversion Price shall be made by
reason of such issue or sale.
(iii) CHANGE IN OPTION PRICE OR RATE OF
CONVERSION. If the purchase price provided for in any Options, the
additional consideration, if any, payable upon the issue,
conversion or exchange of any Convertible Securities, or the rate
at which any Convertible Securities are convertible into or
exchangeable for
<PAGE>
Common Stock changes at any time, the Conversion Price in effect at
the time of such change shall be adjusted to the Conversion Price
which would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price,
additional consideration or changed conversion rate, as the case
may be, at the time initially granted, issued or sold. For purposes
of this Section 7(a)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the date of
issuance of the Preferred Shares are changed in the manner
described in the immediately preceding sentence, then such Option
or Convertible Security and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such change. No adjustment shall be
made if such adjustment would result in an increase of the
Conversion Price then in effect.
(iv) CALCULATION OF CONSIDERATION RECEIVED. In
case any Option is issued in connection with the issue or sale of
other securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to such
Options by the parties thereto, the Options will be deemed to have
been issued for a consideration of $.01. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to
have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount received by the
Company therefor. If any Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where
such consideration consists of securities, in which case the amount
of consideration received by the Company will be the Closing Sale
Price of such securities on the date of receipt. If any Common
Stock, Options or Convertible Securities are issued to the owners
of the non-surviving entity in connection with any merger in which
the Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of the
net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration
other than cash or securities will be determined jointly by the
Company and the holders of a majority of the Preferred Shares then
outstanding. If such parties are unable to reach agreement within
ten days after the occurrence of an event requiring valuation (the
"VALUATION EVENT"), the fair value of such consideration will be
determined within five Business Days after the tenth day following
the Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the holders of a majority of the
Preferred Shares then outstanding. The determination of such
appraiser shall be deemed binding upon all parties absent manifest
error and the fees and expenses of such appraiser shall be borne by
the Company.
(v) RECORD DATE. If the Company takes a record
of the holders of Common Stock for the purpose of entitling them
(A) to receive a dividend or other distribution payable in Common
Stock, Options or in Convertible Securities or
<PAGE>
(B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will be deemed to be
the date of the issue or sale of the shares of Common Stock deemed
to have been issued or sold upon the declaration of such dividend
or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be.
(vi) COMMON STOCK DEEMED OUTSTANDING. "COMMON
STOCK DEEMED OUTSTANDING" means, at any given time, the number of
shares of Common Stock actually outstanding at such time, plus the
number of shares of Common Stock deemed to be outstanding pursuant
to Sections 7(a)(i) and 7(a)(ii) hereof regardless of whether the
Options or Convertible Securities are actually exercisable at such
time, but excluding any shares of Common Stock owned or held by or
for the account of the Company or issuable upon conversion of the
Preferred Shares or exercise of the Warrants.
(b) ADJUSTMENT OF CONVERSION PRICE UPON SUBDIVISION
OR COMBINATION OF COMMON Stock. If the Company at any time subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
will be proportionately reduced. If the Company at any time combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination will be
proportionately increased.
(c) OTHER EVENTS. If any event occurs of the type
contemplated by the provisions of this Section 7 but not expressly provided
for by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity
features), then the Company's Board of Directors will make an appropriate
adjustment in the Conversion Price so as to protect the rights of the holders
of the Preferred Shares; provided that no such adjustment will increase the
Conversion Price as otherwise determined pursuant to this Section 7.
(8) CONVERSION AT THE COMPANY'S ELECTION UPON MERGER
TRANSACTION. At any time or times on or after the date the Company publicly
discloses a pending, proposed or intended Merger Transaction (as defined
below), the Company shall have the right, in its sole discretion, to require
that all, but not less than all, of the outstanding Preferred Shares be
converted ("MERGER CONVERSION ELECTION") at the applicable Conversion Rate;
provided that the Conditions to Merger Conversion Election (as set forth
below) are satisfied or waived by all the holders of the Preferred Shares
then outstanding. The Company shall exercise its right to make a Merger
Conversion Election by providing each holder of Preferred Shares written
notice ("NOTICE OF MERGER CONVERSION") by facsimile or overnight courier, at
least two trading days after the public disclosure of a proposed, pending or
intended Merger Transaction and at least 30 trading days prior to the date of
consummation of the Merger Transaction ("MERGER ELECTION CONVERSION DATE").
The Notice of Merger Conversion shall indicate the
<PAGE>
anticipated Merger Election Conversion Date. If the Company has exercised its
right of Merger Conversion Election and the conditions of this Section 8 have
been satisfied, then, except to the extent restricted by Section 3(d)(i), on
the Merger Election Conversion Date each holder of Preferred Shares selected
for conversion will be deemed to have submitted a Conversion Notice in
accordance with Section 3(c)(i) for a number of Preferred Shares equal to the
lesser of (I) all the Preferred Shares held by such holder which remain
outstanding on such date, and (II) the maximum number of Preferred Shares
which such holder could convert on the Merger Election Conversion Date taking
into account the restrictions in Section 3(d)(i); provided, however, that in
no event shall any holder of Preferred Shares be required to convert a number
of Preferred Shares which converts into a number of shares of Common Stock in
excess of such holder's Allocation Percentage (as defined below) of 20% of
the aggregate trading volume of the Common Stock on the Principal Market (as
reported by Bloomberg) during the period beginning on and including the date
such holder receives the Notice of Merger Conversion and ending on and
including the date immediately preceding the Merger Election Conversion Date
(the "VOLUME LIMITATIONS"); provided further, however, that if the Principal
Market modifies the method by which it calculates or reports trading volume,
then such percentage will be modified accordingly. All holders of Preferred
Shares shall within two (2) Business Days after the Merger Election
Conversion Date, or such earlier date as the Company and each holder of
Preferred Shares mutually agree, surrender all Preferred Stock Certificates
representing the Preferred Shares converted on the Merger Election Conversion
Date, duly endorsed for cancellation, to the Company. If the Company fails to
provide Conversion Shares with respect to any Preferred Shares in accordance
with Section 3(c)(i), then the Merger Conversion Election shall be null and
void with respect to such Preferred Shares and the holder of such Preferred
Shares shall be entitled to all the rights of a holder of outstanding
Preferred Shares set forth in this Certificate of Designations. "CONDITIONS
TO MERGER CONVERSION ELECTION" means the following conditions: (i) on each
day (other than days during an Allowable Grace Period) during the period
beginning on and including the date the Registration Statement is declared
effective by the SEC and ending on and including the date which is 20 days
prior to the date of the Notice of Merger Conversion, the Registration
Statement (as defined in the Registration Rights Agreement) shall be
effective and available for the sale of at least all the Registrable
Securities other than for a period, prior to the Notice of Merger Conversion,
of five (5) consecutive trading days or 10 trading days in any 365 day
period; (ii) on each day during the period beginning on the date which is 20
days prior to the date of the Notice of Merger Conversion and ending on and
including the Merger Election Conversion Date, the Registration Statement
shall be effective and available for the sale of at least all of the
Registrable Securities required to be included in such Registration Statement
and there shall not have been any Grace Periods; (iii) on each day during the
period beginning on the Issuance Date and ending on and including the Merger
Election Conversion Date, the Common Stock is designated for quotation on the
Nasdaq National Market or listed on The New York Stock Exchange, Inc. and
shall not have been suspended from trading on such market or exchange (other
than suspensions of not more than one day and occurring prior to the date on
which the Company gives a Notice of Merger Conversion due to business
announcements by the Company) nor shall delisting or suspension by such
market or exchange have been threatened or pending either (A) in writing by
such market or exchange or (B) by
<PAGE>
falling below the minimum listing maintenance requirements of such market or
exchange; (iv) during the period beginning on the Issuance Date and ending on
and including the Merger Election Conversion Date, there shall not have
occurred (A) an event constituting a Triggering Event or (B) an event that
with the passage of time and without being cured would constitute a
Triggering Event; (v) during the period beginning on the Issuance Date and
ending on and including the Merger Election Conversion Date, the Company
shall have delivered Conversion Shares upon conversion of the Preferred
Shares and Warrant Shares upon exercise of the Warrants to the holders on a
timely basis as set forth in Section 3(c) hereof and Section 2(a) of the
Warrants, respectively; (vi) the Company shall have received the Stockholder
Approval (as defined in Section 4(n) of the Securities Purchase Agreement)
prior to the date of the Notice of Merger Conversion; (vii) the Company shall
not have failed to timely make any payments within five (5) Business Days of
when such payment is due, whether as interest or penalty payments, pursuant
to this Certificate of Designations, the Securities Purchase Agreement, the
Registration Rights Agreement or the Warrants; (viii) on each of the ten
consecutive trading days ending on and including the date of the Notice of
Merger Conversion, the Closing Bid Price of the Common Stock is at least 180%
of the Conversion Price then in effect; (ix) the entity which is issuing
securities or assets in the Merger Transaction to the holders of Common Stock
with respect to or in exchange for Common Stock (A) has shares of common
stock listed on the New York Stock Exchange, Inc. or authorized for quotation
on the Nasdaq National Market, and (B) has a market capitalization of its
equity securities which are being issued in the Merger Transaction of at
least $2 billion (prior to giving effect to the issuance of securities in the
Merger Transaction); and (x) the public disclosure of a proposed, pending or
intended Merger Transaction with respect to which the Company delivers a
Notice of Merger Conversion shall not have been made prior to the date which
is 210 days after the Issuance Date. Notwithstanding the above, any holder of
Preferred Shares may convert such shares (including Preferred Shares selected
for conversion) into Common Stock pursuant to Section 3(c) on or prior to the
date immediately preceding the Merger Election Conversion Date. For purposes
of this Section 8, "MERGER TRANSACTION" means the consolidation, merger or
other business combination of the Company with or into another Person in
which the Company is not a surviving entity (other than (A) a consolidation,
merger or other business combination in which holders of the Company's voting
power immediately prior to the transaction continue after the transaction to
hold, directly or indirectly, the voting power of the surviving entity or
entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, or (B) pursuant to a migratory merger effected solely for the
purpose of changing the jurisdiction of incorporation of the Company).
"ALLOCATION PERCENTAGE" means a fraction, the numerator of which is the
number of Preferred Shares initially purchased by such holder and the
denominator of which is the total number of Preferred Shares purchased on the
Issuance Date.
(9) RESERVATION OF AUTHORIZED SHARES.
(a) RESERVATION. The Company shall initially
reserve out of its authorized and unissued Common Stock a number of shares of
Common Stock for each outstanding Preferred Share equal to 150% of the
Conversion Rate as of the Issuance Date of
<PAGE>
such Preferred Share. Thereafter, the Company shall, so long as any of the
Preferred Shares are outstanding, take all action necessary to reserve and
keep available out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Preferred Shares, 125% of such
number of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all of the Preferred Shares then outstanding;
provided that at no time shall the number of shares of Common Stock so
reserved be less than the number of shares required to be reserved by the
previous sentence (without regard to any limitations on conversions) (the
"REQUIRED RESERVE AMOUNT). The initial number of shares of Common Stock
reserved for conversions of the Preferred Shares and each increase in the
number of shares so reserved shall be allocated pro rata among the holders of
the Preferred Shares based on the number of Preferred Shares held by each
holder at the time of issuance of the Preferred Shares or increase in the
number of reserved shares, as the case may be (the "AUTHORIZED SHARE
ALLOCATION"). In the event that a holder shall sell or otherwise transfer any
of such holder's Preferred Shares, each transferee shall be allocated a pro
rata portion of such holder's Authorized Share Allocation. Any shares of
Common Stock reserved and allocated to any Person which ceases to hold any
Preferred Shares shall be allocated to the remaining holders of Preferred
Shares, pro rata based on the number of Preferred Shares then held by such
holders.
(b) INSUFFICIENT AUTHORIZED SHARES. If at any time
while any of the Preferred Shares remain outstanding the Company does not
have a sufficient number of authorized and unreserved shares of Common Stock
to satisfy its obligation to reserve for issuance upon conversion of the
Preferred Shares at least a number of shares of Common Stock equal to the
Required Reserve Amount (an "AUTHORIZED SHARE FAILURE"), then the Company
shall immediately take all action necessary to increase the Company's
authorized shares of Common Stock to an amount sufficient to allow the
Company to reserve the Required Reserve Amount for the Preferred Shares then
outstanding. Without limiting the generality of the foregoing sentence, as
soon as practicable after the date of the occurrence of an Authorized Share
Failure, but in no event later than 60 days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its
stockholders for the approval of sufficient increase in the number of
authorized shares of Common Stock. In connection with such meeting, the
Company shall provide each stockholder with a proxy statement and shall use
its best efforts to solicit its stockholders' approval of such increase in
authorized shares of Common Stock and to cause its board of directors to
recommend to the stockholders that they approve such proposal.
(10) MANDATORY REDEMPTION UPON PRICING PERIOD
TERMINATION. If there is a Pricing Period Termination, then the Company shall
redeem a number of Preferred Shares equal to the product of (i) the number of
Preferred Shares issued hereunder, multiplied by (ii) .05, multiplied by
(iii) the number of trading days which were excluded from the Series C
Pricing Period due to the Pricing Period Termination (the "REDEEMED SHARES")
as of the Pricing Date (a "PRICING PERIOD MANDATORY REDEMPTION") for an
amount in cash per Redeemed Share (the "PRICING PERIOD REDEMPTION PRICE")
equal to the Liquidation Preference. The Redeemed Shares shall be redeemed
from each holder of Preferred Shares pro
<PAGE>
rata based on the number of Preferred Shares originally purchased by such
holder relative to the number of Preferred Shares initially purchased by all
holders of Preferred Shares. Within three Business Days of the Pricing Date
the Company shall pay to each holder of Redeemed Shares, by wire transfer of
immediately available funds, an amount per Redeemed Share equal to the
Pricing Period Redemption Price. If the Company fails to redeem all of the
Redeemed Shares by payment of the Pricing Period Redemption Price within five
Business Days of the Pricing Date, then in addition to any remedy such holder
of Preferred Shares may have under this Certificate of Designations, the
Securities Purchase Agreement and the Registration Rights Agreement, (X) the
applicable Pricing Period Redemption Price payable in respect of such
unredeemed Redeemed Shares shall bear interest at the rate of 2.0% per month
(or if lower, the maximum amount allowed by applicable law), prorated for
partial months, until paid in full, and (Y) any holder of Redeemed Shares
shall have the option to require the Company to convert any or all of such
holder's Redeemed Shares for which the Pricing Period Redemption Price
(together with any interest thereon) has not been paid into the number of
shares of Common Stock such holder would have received if such holder had
converted such Redeemed Shares at a conversion price equal to the lesser of
(I) the Conversion Price on the day after the Pricing Date and (II) the
Market Price of the Common Stock on the date the holder of Redeemed Shares
requires the Company to convert Redeemed Shares pursuant to this sentence.
(11) REDEMPTION MECHANICS FOR SECTIONS 4(B) AND 5(C).
Each holder which has sent such a Redemption Notice pursuant to Section 4(b)
or Section 5(c) shall promptly submit to the Company such holder's Preferred
Stock Certificates representing the Preferred Shares which such holder has
elected to have redeemed. Upon the Company's receipt of a Redemption Notice
from any holder of Preferred Shares, the Company shall immediately forward to
each other holder of Preferred Shares by facsimile a copy of such Redemption
Notice. The Company shall deliver the applicable Triggering Event Redemption
Price to a holder within five Business Days after the Company's receipt of
such holder's Triggering Event Redemption Notice; provided that such holder
has delivered to the Company the Preferred Stock Certificates representing
the Preferred Shares being redeemed. If a holder has submitted a Change of
Control Redemption Notice in accordance with Section 5(c), the Company shall
deliver the applicable Change of Control Redemption Price to such holder
concurrent with the consummation of such Change of Control. If the Company is
unable to redeem all of the Preferred Shares submitted for redemption, the
Company shall (i) redeem a pro rata amount from each holder of Preferred
Shares based on the number of Preferred Shares submitted for redemption by
such holder relative to the total number of Preferred Shares submitted for
redemption by all holders of Preferred Shares and (ii) in addition to any
remedy such holder of Preferred Shares may have under this Certificate of
Designations or otherwise, pay to such holder interest at the rate of 2.0%
per month (or if lower, the maximum amount allowed by applicable law)
(prorated for partial months) of the Stated Value in respect of each of such
holder's unredeemed Preferred Share until paid in full. In the event of a
redemption of less than all of the Preferred Shares represented by a
particular Preferred Stock Certificate, the Company shall promptly cause to
be issued and delivered to the holder of such Preferred Shares a preferred
stock certificate representing the remaining Preferred Shares which have not
been redeemed. In the event that the Company does not pay the Redemption
Price to any
<PAGE>
holder of Preferred Shares within the time period required at any time
thereafter and until the Company pays such unpaid Redemption Price in full,
such holder shall have the option to, in lieu of redemption, require the
Company to promptly return to such holder any or all of the Preferred Stock
Certificates representing the Preferred Shares that were submitted for
redemption by such holder and for which the applicable Redemption Price
(together with any interest thereon) has not been paid. Upon the Company's
receipt of such notice, (x) the Redemption Notice shall be null and void with
respect to such Preferred Shares, (y) the Company shall immediately return
any such Preferred Stock Certificate representing the Preferred Shares and
(z) the Conversion Price of such returned Preferred Shares shall be adjusted
to the lesser of (A) the Conversion Price as in effect on the date on which
the Redemption Notice is voided and (B) the lowest Closing Bid Price during
the period beginning on and including the date on which the Redemption Notice
is delivered to the Company and ending on and including the date on which the
Redemption Notice is voided. A holder's delivery of a notice voiding a
Redemption Notice and exercise of its rights following such notice shall not
effect the Company's obligations to make any payments which have accrued
prior to the date of such notice with respect to the Preferred Shares subject
to such notice.
(12) LIQUIDATION, DISSOLUTION, WINDING-UP. In the event
of any voluntary or involuntary liquidation, dissolution or winding up of the
Company, the holders of the Preferred Shares shall be entitled to receive in
cash out of the assets of the Company, whether from capital or from earnings
available for distribution to its stockholders (the "LIQUIDATION FUNDS"),
before any amount shall be paid to the holders of any of the capital stock of
the Company of any class junior in rank to the Preferred Shares in respect of
the preferences as to the distributions and payments on the liquidation,
dissolution and winding up of the Company, an amount per Preferred Share
equal to the Stated Value of such share and any Additional Amount with
respect thereto (such sum being referred to as the "LIQUIDATION PREFERENCE");
provided that, if the Liquidation Funds are insufficient to pay the full
amount due to the holders of Preferred Shares and holders of shares of other
classes or series of preferred stock of the Company that are of equal rank
with the Preferred Shares as to payments of Liquidation Funds (the "PARI
PASSU SHARES"), then each holder of Preferred Shares and Pari Passu Shares
shall receive a percentage of the Liquidation Funds equal to the full amount
of Liquidation Funds payable to such holder as a liquidation preference, in
accordance with their respective Certificate of Designations, Preferences and
Rights, as a percentage of the full amount of Liquidation Funds payable to
all holders of Preferred Shares and Pari Passu Shares. In addition to the
receipt of the Liquidation Preference, in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the
holders of the Preferred Shares shall be entitled to receive Liquidation
Funds distributed to holders of Common Stock, after the Liquidation
Preference has been paid, to the same extent as if such holders of Preferred
Shares had converted the Preferred Shares into Common Stock (without regard
to any limitations on conversions herein or elsewhere) and had held such
shares of Common Stock on the record date for such distribution of the
remaining Liquidation Funds. 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
<PAGE>
Person, 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. No holder of Preferred
Shares shall be entitled to receive any amounts with respect thereto upon any
liquidation, dissolution or winding up of the Company other than the amounts
provided for herein; provided that a holder of Preferred Shares shall be
entitled to all amounts previously accrued with respect to amounts owed
hereunder.
(13) PREFERRED RANK. All shares of Common Stock shall be
of junior rank to all Preferred Shares in respect to the preferences as to
distributions and payments upon the liquidation, dissolution and winding up
of the Company. The rights of the shares of Common Stock shall be subject to
the preferences and relative rights of the Preferred Shares. Without the
prior express written consent of the holders of not less than a majority of
the then outstanding Preferred Shares, the Company shall not hereafter
authorize or issue additional or other capital stock that is of senior or
equal rank to the Preferred Shares in respect of the preferences as to
distributions and payments upon the liquidation, dissolution and winding up
of the Company. Without the prior express written consent of the holders of
not less than two-thirds of the then outstanding Preferred Shares, the
Company shall not hereafter authorize or make any amendment to the Company's
Certificate of Incorporation or bylaws, or file any resolution of the board
of directors of the Company with the Delaware Secretary of State or enter
into any agreement containing any provisions, which would adversely affect or
otherwise impair the rights or relative priority of the holders of the
Preferred Shares relative to the holders of the Common Stock or the holders
of any other class of capital stock. In the event of the merger or
consolidation of the Company with or into another corporation, the Preferred
Shares shall maintain their relative powers, designations and preferences
provided for herein and no merger shall result inconsistent therewith.
(14) PARTICIPATION. Subject to the rights of the holders,
if any, of the Pari Passu Shares, the holders of the Preferred Shares shall,
as holders of Preferred Stock, be entitled to such dividends paid and
distributions made to the holders of Common Stock to the same extent as if
such holders of Preferred Shares had converted the Preferred Shares into
Common Stock (without regard to any limitations on conversion herein or
elsewhere) and had held such shares of Common Stock on the record date for
such dividends and distributions. Payments under the preceding sentence shall
be made concurrently with the dividend or distribution to the holders of
Common Stock.
(15) VOTE TO ISSUE, OR CHANGE THE TERMS OF, PREFERRED
SHARES. The affirmative vote of the holders of not less than a majority of
the then outstanding Preferred Shares at a meeting duly called for such
purpose or the written consent without a meeting of the holders of not less
than a majority of the then outstanding Preferred Shares shall be required
for (a) any change to this Certificate of Designations or the Company's
Certificate of Incorporation which would amend, alter, change or repeal any
of the powers, designations, preferences and rights of the Preferred Shares
or (b) the issuance of Preferred Shares other than pursuant to the Securities
Purchase Agreement.
<PAGE>
(16) LOST OR STOLEN CERTIFICATES. Upon receipt by the
Company of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of any Preferred Stock Certificates
representing the Preferred Shares, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the holder to the Company
in customary form and, in the case of mutilation, upon surrender and
cancellation of the Preferred Stock Certificate(s), the Company shall execute
and deliver new preferred stock certificate(s) of like tenor and date.
(17) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS,
BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Certificate of
Designations shall be cumulative and in addition to all other remedies
available under this Certificate of Designations, the Securities Purchase
Agreement, the Registration Rights Agreement and the Warrants, at law or in
equity (including a decree of specific performance and/or other injunctive
relief), and nothing herein shall limit a holder's right to pursue actual
damages for any failure by the Company to comply with the terms of this
Certificate of Designations. The Company covenants to each holder of
Preferred Shares that there shall be no characterization concerning this
instrument other than as expressly provided herein. Amounts set forth or
provided for herein with respect to payments, conversion and the like (and
the computation thereof) shall be the amounts to be received by the holder
thereof and shall not, except as expressly provided herein, be subject to any
other obligation of the Company (or the performance thereof). The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the holders of the Preferred Shares and that the remedy
at law for any such breach may be inadequate. The Company therefore agrees
that, in the event of any such breach or threatened breach, the holders of
the Preferred Shares shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required.
(18) SPECIFIC SHALL NOT LIMIT GENERAL; CONSTRUCTION. No
specific provision contained in this Certificate of Designations shall limit
or modify any more general provision contained herein. This Certificate of
Designations shall be deemed to be jointly drafted by the Company and all
Buyers and shall not be construed against any person as the drafter hereof.
(19) FAILURE OR INDULGENCE NOT WAIVER. No failure or
delay on the part of a holder of Preferred Shares in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege.
(20) DISPUTE RESOLUTION. In the case of a dispute as to
the determination of the Market Price, the Closing Bid Price or the Closing
Sale Price or the arithmetic calculation of the Conversion Rate or the
Redemption Price, the Company shall submit the disputed determinations or
arithmetic calculations via facsimile within one Business Day of receipt of
the Conversion Notice, Redemption Notice or other event giving rise to such
dispute, as the case may be, to the holder submitting such notice. If such
holder and the Company are unable to agree upon such determination or
calculation of the Market Price, the Closing Bid Price, the
<PAGE>
Closing Sale Price, the Conversion Rate or the Redemption Price within one
Business Day of such disputed determination or arithmetic calculation being
submitted to the holder, then the Company shall, within one Business Day
submit via facsimile (a) the disputed determination of the Market Price, the
Closing Bid Price or the Closing Sale Price to an independent, reputable
investment bank selected by the Company and approved by the holders of a
majority of the Preferred Shares then outstanding or (b) the disputed
arithmetic calculation of the Conversion Rate or the Redemption Price to the
Company's independent, outside accountant. The Company shall cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the holder of the
results no later than five Business Days from the time it receives the
disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be
binding upon all parties absent demonstrable error.
(21) NOTICES; PAYMENTS.
(a) NOTICES. Whenever notice is required to be
given under this Certificate of Designations, unless otherwise provided
herein, such notice shall be given in accordance with Section 9(f) of the
Securities Purchase Agreement. The Company shall provide such holder of
Preferred Shares with prompt written notice of all actions taken pursuant to
this Certificate of Designations, including in reasonable detail a
description of such action and the reason therefore. Without limiting the
generality of the foregoing, the Company will give written notice to each
holder of Preferred Shares (i) immediately upon any adjustment of the
Conversion Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least twenty days prior to the
date on which the Company closes its books or takes a record (A) with respect
to any dividend or distribution upon the Common Stock, (B) with respect to
any pro rata subscription offer to holders of Common Stock or (C) for
determining rights to vote with respect to any Change of Control, dissolution
or liquidation, provided in each case that such information shall be made
known to the public prior to or in conjunction with such notice being
provided to such holder. If any notice required to be given pursuant to this
Section 21(a) or any other provision of this Certificate of Designations
would include or constitute material, nonpublic information, then such
information shall be publicly disclosed prior to or in conjunction with such
notice being provided to any holder of Preferred Shares.
(b) PAYMENTS. Whenever any payment of cash is to be
made by the Company to any Person pursuant to this Certificate of
Designations, such payment shall be made by a check drawn on the account of
the Company and sent via overnight courier service to such Person at such
address as previously provided to the Company in writing (which address, in
the case of each of the Purchasers (as defined in Section 3(d)(ii)), shall
initially be as set forth on the Schedule of Buyers attached to the
Securities Purchase Agreement); provided that any holder of Preferred Shares
may elect to receive a payment of cash via wire transfer of immediately
available funds if such payment is in excess of $10,000 by providing the
Company with prior written notice setting out such request and such holder's
wire transfer instructions.
<PAGE>
(22) CERTAIN DEFINITIONS. For purposes of this
Certificate of Designations, the following terms shall have the following
meanings:
(a) "ADDITIONAL AMOUNT" means, on a per share
basis, the sum of (A) unpaid Default Interest through the date of
determination plus (B) the result of the following formula:
(Premium)(N/365)($10,000).
(b) "ADJUSTED CONVERSION PRICE" means the lesser of
(A) the Initial Conversion Price in effect on the Pricing Date, or (B) 120%
of the arithmetic average of the Closing Bid Price of the Common Stock on
each trading day in the Series C Pricing Period. All such determinations to
be appropriately adjusted for any stock dividend, stock split, stock
combination or other similar transaction during such period.
(c) "BUSINESS DAY" means any day other than
Saturday, Sunday or other day on which commercial banks in the city of New
York are authorized or required by law to remain closed.
(d) "CALENDAR QUARTER" means each of the period
beginning on and including January 1 and ending on and including March 31,
the period beginning on and including April 1 and ending on and including
June 30, the period beginning on and including July 1 and ending on and
including September 30, and the period beginning on and including October 1
and ending on and including December 31.
(e) "CLOSING BID PRICE" and "CLOSING SALE PRICE"
means, for any security as of any date, the last closing bid price and last
closing trade price, respectively, for such security on the Nasdaq National
Market (the "PRINCIPAL MARKET") as reported by Bloomberg Financial Markets
("BLOOMBERG"), or, if the Principal Market begins to operate on an extended
hours basis and does not designate the closing bid price or the closing trade
price, as the case may be, then the last bid price or last trade price,
respectively, of such security prior to 4:00:00 p.m. Eastern Time as reported
by Bloomberg, or, if the Principal Market is not the principal securities
exchange or trading market for such security, the last closing bid price or
last trade price, respectively, of such security on the principal securities
exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last closing bid
price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the average of the
bid prices, or the ask prices, respectively, of any market makers for such
security as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the Closing Bid Price or the Closing Sale Price cannot be calculated
for a security on a particular date on any of the foregoing bases, the
Closing Bid Price or the Closing Sale Price, as the case may be, of such
security on such date shall be the fair market value as mutually determined
by the Company and the holders of Preferred Shares. If the Company and the
holders of Preferred Shares are unable to agree upon the fair market value of
<PAGE>
such security, then such dispute shall be resolved pursuant to Section 20.
All such determinations to be appropriately adjusted for any stock dividend,
stock split, stock combination or other similar transaction during such
period.
(f) "CONVERSION PRICE" or "SERIES C CONVERSION
PRICE" means, as of any Conversion Date or other date of determination (A)
during the period beginning on the Issuance Date and ending on and including
the Pricing Date, the Initial Conversion Price, (B) during the period
beginning on and including the day after the Pricing Date and ending on and
including the day prior to the date which is two (2) years after the Issuance
Date, the Adjusted Conversion Price, or (C) on or after the date which is two
(2) years after the Issuance Date, the Maturity Date Conversion Price, each
in effect as of such date and subject to adjustment as provided herein.
(g) "DIVIDEND CONVERSION PRICE" means that price
which shall be computed as the arithmetic average of the Closing Bid Price of
the Common Stock on each of the 10 consecutive trading days immediately
preceding such date of determination. All such determinations to be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period.
(h) "EXCLUDED SECURITY" means (X) any of the
following, but only to the extent that such securities are issued or sold,
or in accordance with Section 7(a) are deemed to have been issued or sold,
for a consideration per share greater than the Conversion Price in effect on
the date of such issuance or sale: (i) any issuance by the Company of
securities in connection with a strategic partnership or joint venture in
which there is a significant commercial relationship with the Company, (ii)
any issuance by the Company of securities as consideration for a merger or
consolidation or the acquisition of a business, product, license or other
asset of another Person, (iii) any issuance by the Company of securities in a
firm commitment, underwritten public offering with net proceeds to the
Company of at least $25,000,000 by an underwriter which is listed in the most
recently issued report by Securities Data Corporation as one of the top 20
underwriters, based on dollar amount raised, for U.S. equity offerings, or
(iv) any issuance by the Company of securities to a personnel recruiting firm
or to a landlord of the Company or in connection with an asset backed
financing, a loan by an institutional lender or a lease by a leasing company,
provided that the aggregate amount of such securities described in this
clause (X)(iv) does not exceed 100,000 shares of Common Stock (as adjusted
for any stock splits, stock dividends, stock combinations or other similar
transactions), on an as-converted basis; (Y) any issuance by the Company of
securities in connection with the acquisition of Janus Technologies; and (Z)
either of the following, but only to the extent that (A) such securities are
issued or sold, or in accordance with Section 7(a) are deemed to have been
issued or sold, for a consideration per share greater than $14.75 (as
adjusted for any stock splits, stock dividends, stock combinations or other
similar transactions), (B) such issuance occurs after the first trading day
after the Pricing Date, and (C) the aggregate amount of such securities
described in this clause (Z) does not exceed 3,000,000 shares of Common Stock
(as adjusted for any stock splits, stock dividends, stock combinations or
other similar transactions): (I) any issuance by the Company of securities in
<PAGE>
connection with a strategic partnership or joint venture in which there is a
significant commercial relationship with the Company, and (II) any issuance
by the Company of securities as consideration for a merger or consolidation
or the acquisition of a business, product, license or other asset of another
Person.
(i) "INITIAL CONVERSION PRICE" means 150% of the
arithmetic average of the Closing Bid Price of the Common Stock on each of
the 10 consecutive trading days immediately preceding the Issuance Date. All
such determinations to be appropriately adjusted for any stock dividend,
stock split, stock combination nor other similar transaction during such
period.
(j) "MARKET PRICE" means, with respect to any
security for any period, that price which shall be computed as the arithmetic
average of the Closing Bid Prices for such security on each of the five
consecutive trading days immediately preceding such date of determination.
All such determinations to be appropriately adjusted for any stock dividend,
stock split, stock combination or other similar transaction during such
period.
(k) "MATURITY DATE" means the date which is two (2)
years after the Issuance Date; provided that the Maturity Date shall be
increased, at the option of the holder upon written notice to the Company, by
the aggregate number of days of all Grace Periods (as defined in Section 3(t)
of the Registration Rights Agreement) during the 30 days prior to the date
which is two (2) years after the Issuance Date; and provided further that the
Maturity Date shall be extended for any Preferred Shares for as long as (A)
the conversion of such Preferred Shares would violate the provisions of
Section 3(d), (B) a Triggering Event shall have occurred and be continuing or
(C) any event shall have occurred and be continuing which with the passage of
time and the failure to cure would result in a Triggering Event.
(l) "MATURITY DATE CONVERSION PRICE" means, as of
any date of determination, the least of (A) the Conversion Price as of the
day immediately prior to the date which is two (2) years after the Issuance
Date, (B) the arithmetic average of the Closing Bid Price of the Common Stock
on each of the 20 consecutive trading days immediately preceding the date
which is two (2) years after the Issuance Date or (C) the Market Price of the
Common Stock on such date of determination. All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination
or other similar transaction during such period.
(m) "N" means the number of days from, but
excluding, the last Dividend Date with respect to which Dividends, along with
any Default Interest, have been paid by the Corporation on the applicable
Preferred Share (or the applicable Issuance Date, in the event no Dividends
have been paid on such Preferred Share) through and including the Conversion
Date, the Maturity Conversion Date or other date of determination for such
Preferred Share, as the case may be, for which such determination is being
made.
<PAGE>
(n) "PERSON" means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and a government or any
department or agency thereof.
(o) "PREMIUM" means .09, subject to adjustment
pursuant to Section 4(c).
(p) "PRICING DATE" means the last trading day of
the Series C Pricing Period.
(q) "PRICING PERIOD SUSPENSION" means a period of
five (5) trading days during the Series C Pricing Period which (i) shall be
the three (3) trading days prior to the Company's intended release of a press
release related to its earnings (an "EARNINGS RELEASE") (including the day on
which an Earnings Release is intended to be made, if such day is a trading
day) and the two (2) trading days after the intended release of the Earnings
Release and (ii) are identified by date in the Pricing Period Notice (as
defined below); provided that (A) the Company provides written notice (the
"PRICING PERIOD NOTICE") to each holder of the Preferred Shares of its
intention to make an Earnings Release at least 10 days prior to the first
trading day in the Pricing Period Suspension, (B) the Company publicly
discloses the contents of the Pricing Period Notice prior to or concurrent
with the Company's delivery of the Pricing Period Notice to the holders of
the Preferred Shares, and (C) there is no more than an aggregate of one
Pricing Period Suspension during the Series A Pricing Period, the Series B
Pricing Period (as defined in the Certificate of Designations, Preferences
and Rights of the Company's Series B Preferred Stock) and the Series C
Pricing Period (as defined in the Certificate of Designations, Preferences
and Rights of the Company's Series C Preferred Stock). For purposes of
clarity, the Company shall not be entitled to deliver a Pricing Period Notice
if it has delivered a Pricing Period Notice on a prior occasion in connection
with one of the Series A Pricing Period, the Series B Pricing Period and the
Series C Pricing Period.
(r) "REGISTRATION RIGHTS AGREEMENT" means that
certain registration rights agreement between the Company and the initial
holders of the Preferred Shares relating to the registration of the resale of
the shares of Common Stock issuable upon conversion of the Preferred Shares
and exercise of the Warrants (as defined in the Securities Purchase
Agreement).
(s) "SECURITIES PURCHASE AGREEMENT" means that
certain securities purchase agreement between the Company and the initial
holders of the Preferred Shares pursuant to which the Company issued the
Preferred Shares and the Warrants.
(t) "SERIES C PRICING PERIOD" means the 20
consecutive trading days beginning on and including the first trading day
after the 15th calendar day after the end of the Series B Pricing Period (as
defined in the Certificate of Designations, Rights and Preferences of the
Company's Series B Preferred Stock), subject to adjustment as follows: (i) if
the arithmetic average of the Closing Bid Prices of the Common Stock
calculated as of the
<PAGE>
close of any trading day during the Series C Pricing Period is less than
$12.50 (as adjusted for any stock splits, stock dividends, stock combinations
or other similar transactions), then the Series C Pricing Period shall end on
and include such trading day (a "PRICING PERIOD TERMINATION"); and (ii) the
Series C Pricing Period shall not include any trading day during a Pricing
Period Suspension and shall be extended to include a number of additional
trading days equal to the number of trading days in each Pricing Period
Suspension.
[SIGNATURE PAGE TO FOLLOW]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Peter Jackson, its President and Chief Executive
Officer, as of the 29th day of June 2000.
INTRAWARE, INC.
By: /s/ Peter Jackson
--------------------
Name: Peter Jackson
Title: President and Chief Executive
Officer
<PAGE>
EXHIBIT I
INTRAWARE, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights
of Intraware, Inc. (the "CERTIFICATE OF DESIGNATIONS"). In accordance with
and pursuant to the Certificate of Designations, the undersigned hereby
elects to convert the number of shares of Series C Preferred Stock, par value
$0.0001 per share (the "PREFERRED SHARES"), of Intraware, Inc., a Delaware
corporation (the "COMPANY"), indicated below into shares of Common Stock, par
value $0.0001 per share (the "COMMON STOCK"), of the Company, as of the date
specified below.
Date of Conversion: ___________
Number of Preferred Shares to be converted: ___________
Stock certificate no(s). of Preferred Shares to be converted: __________
Please confirm the following information:
Conversion Price: ___________
Number of shares of Common Stock to be issued: ___________
Is the alternative Conversion Price being relied on pursuant to Section 6
of the Certificate of Designations? (check one) YES ____ NO ____
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to: ___________
___________
Facsimile Number: ___________
Authorization: ___________
By:______________
Title:___________
Dated: ___________
<PAGE>
Account Number (if electronic book entry transfer): ___________
Transaction Code Number (if electronic book entry transfer): ___________
<PAGE>
ACKNOWLEDGMENT
--------------
The Company hereby acknowledges this Conversion Notice and hereby
directs [TRANSFER AGENT] to issue the above indicated number of shares of
Common Stock in accordance with the Transfer Agent Instructions dated
___________ ___, 2000 from the Company and acknowledged and agreed to by
[TRANSFER AGENT].
INTRAWARE, INC.
By: ___________________________________
Name:
Title:
