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EXHIBIT 3.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A 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-four (834) shares
of Series A Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 834 shares of Series
A 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 A 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 A 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 A 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, as that term is defined in the Certificate of
Designations, Rights and Preferences of the Company's Series C Preferred Stock,
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
<PAGE>
splits, stock dividends, stock combinations or other similar transactions): (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, 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 A Pricing
Period.
(q) "PRICING PERIOD SUSPENSION" means a period of five (5) trading
days during the Series A 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 A PRICING PERIOD" means the 20 consecutive trading days
beginning on and including the later of (I) the first trading day after the date
on which the Company files a Form 8-K with the Securities and Exchange
Commission describing the terms of the offering of the Preferred Shares pursuant
to the first sentence of Section 4(k) of the Securities Purchase Agreement and
(II) July 5, 2000, subject to adjustment as follows: (i) if the arithmetic
average of the Closing Bid Prices of the Common Stock calculated as of the close
of
<PAGE>
any trading day during the Series A Pricing Period is less than $12.50 (as
adjusted for any stock splits, stock dividends, stock combinations or other
similar transactions), then the Series A Pricing Period shall end on and include
such trading day (a "PRICING PERIOD TERMINATION"); and (ii) the Series A 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 A 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:
