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EXHIBIT 3.6
AMENDED AND RESTATED TERMS OF PREFERRED STOCK
Section 1. Designation, Amount and Par Value. The series of
preferred stock shall be designated as its 6% Series C Convertible Preferred
Stock (the "Preferred Stock") and the number of shares so designated shall be
150,000 (which shall not be subject to increase without the consent of the
holders of the Preferred Stock (each, a "Holder" and collectively, the
"Holders")). Each share of Preferred Stock shall have a par value of $.0001 and
a stated value equal to the sum of $100.00 plus all accrued dividends to the
date of determination to the extent not previously paid in cash in accordance
with the terms hereof (the "Stated Value").
Section 2. Dividends.
(a) Holders shall be entitled to receive, out of funds legally
available therefor, and the Company shall pay, cumulative dividends at the rate
per share (as a percentage of the Stated Value per share) of 6% per annum,
payable on each Conversion Date (as defined herein) for such share, in cash or
by accretion of the Stated Value. Subject to the terms and conditions herein,
the decision whether to accrete dividends hereunder to the Stated Value or to
pay for dividends in cash shall be at the discretion of the Company. The Company
shall provide the Holders written notice of its intention to accrete dividends
hereunder to the Stated Value or pay dividends in cash not less than ten days
prior to each Conversion Date for so long as shares of Preferred Stock are
outstanding (the Company may indicate in such notice that the election contained
in such notice shall continue for later periods until revised). Failure to
timely provide such written notice shall be deemed (if permitted hereunder) an
election by the Company to accrete dividends hereunder to the Stated Value.
Dividends on the Preferred Stock shall be calculated on the basis of a 360-day
year, shall accrue daily commencing on the Original Issue Date (as defined in
Section 8), and shall be deemed to accrue from such date whether or not earned
or declared and whether or not there are profits, surplus or other funds of the
Company legally available for the payment of dividends. Except as otherwise
provided herein, if at any time the Company pays less than the total amount of
dividends then accrued on account of the Preferred Stock, such payment shall be
distributed ratably among the Holders based upon the number of shares of
Preferred Stock held by each Holder. Any dividends to be paid in cash hereunder
that are not paid within three Trading Days (as defined in Section 8) following
a Dividend Payment Date shall continue to accrue and shall entail a late fee,
which must be paid in cash, at the rate of 18% per annum or the lesser rate
permitted by applicable law (such fees to accrue daily, from the date such
dividend is due hereunder through and including the date of payment).
(b) Notwithstanding anything to the contrary contained herein,
the Company must pay dividends in cash if:
(i) the number of shares of Common Stock (as defined
in Section 8) at the time authorized, unissued and unreserved for all purposes
is insufficient to accrete such dividends to the Stated Value to permit
conversion in full of all outstanding Stated Value;
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(ii) after the Dividend Effectiveness Date (as
defined in Section 8), Underlying Shares (as defined in Section 8) (x) are not
registered for resale pursuant to an effective Underlying Shares Registration
Statement (as defined in Section 8) and (y) may not be sold without volume
restrictions pursuant to Rule 144 promulgated under the Securities Act (as
defined in Section 8), as determined by counsel to the Company pursuant to a
written opinion letter, addressed to the Company's transfer agent in the form
and substance acceptable to the applicable Holder and such transfer agent (if
the Company is permitted and elects to pay dividends in shares of Common Stock
under this clause (ii) prior to the Dividend Effectiveness Date and thereafter
an Underlying Shares Registration Statement shall be declared effective by the
Commission (as defined in Section 8), the Company shall, within three Trading
Days after the date of such declaration of effectiveness, exchange such
Underlying Shares for shares of Common Stock that are free of restrictive
legends of any kind);
(iii) the Common Stock is not then listed or quoted
on the Nasdaq National Market ("Nasdaq"), or on the New York Stock Exchange,
American Stock Exchange or Nasdaq SmallCap Market (each, a "Subsequent Market");
or
(iv) the accretion of such dividends to the Stated
Value and subsequent conversions of all then outstanding Stated Value would
result in a violation of Section 5(a)(iii) or the rules of the Nasdaq or any
other rules and regulations governing any Subsequent Market on which the Common
Stock is then listed or quoted for trading.
(c) So long as any Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined in
Section 8), nor shall the Company directly or indirectly pay or declare any
dividend or make any distribution (other than a dividend or distribution
described in Section 5 or dividends due and paid in the ordinary course on
preferred stock of the Company at such times when the Company is in compliance
with its payment and other obligations hereunder) upon, nor shall any
distribution be made in respect of, any Junior Securities, nor shall any monies
be set aside for or applied to the purchase or redemption (through a sinking
fund or otherwise) of any Junior Securities or shares pari passu with the
Preferred Stock.
Section 3. Voting Rights. Except as otherwise provided herein
and as otherwise required by law, the Preferred Stock shall have no voting
rights. However, so long as any shares of Preferred Stock are outstanding, the
Company shall not, without the affirmative vote of the Holders of a majority of
the shares of the Preferred Stock then outstanding, (a) alter or change
adversely the powers, preferences or rights given to the Preferred Stock or
alter or amend this Certificate of Designation, (b) authorize or create any
class of stock ranking as to dividends or distribution of assets upon a
Liquidation (as defined in Section 4) senior to or otherwise pari passu with the
Preferred Stock, (c) amend its certificate or articles of incorporation or other
charter documents so as to affect adversely any rights of the Holders, (d)
increase the authorized number of shares of Preferred Stock, or (e) enter into
any agreement with respect to the foregoing.
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Section 4. Liquidation. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a "Liquidation"),
the Holders shall be entitled to receive out of the assets of the Company,
whether such assets are capital or surplus, for each share of Preferred Stock an
amount equal to the Stated Value per share before any distribution or payment
shall be made to the holders of any Junior Securities, and if the assets of the
Company shall be insufficient to pay in full such amounts, then the entire
assets to be distributed to the Holders shall be distributed among the Holders
ratably in accordance with the respective amounts that would be payable on such
shares if all amounts payable thereon were paid in full. A sale, conveyance or
disposition of 50% or more of the assets of the Company or the effectuation by
the Company of a transaction or series of related transactions in which more
than 33% of the voting power of the Company is disposed of, or a consolidation
or merger of the Company with or into any other company or companies into one or
more companies not wholly-owned by the Company shall not be treated as a
Liquidation, but instead shall be subject to the provisions of Section 5. The
Company shall mail written notice of any such Liquidation, not less than 45 days
prior to the payment date stated therein, to each record Holder.
Section 5. Conversion.
(a)(i) Conversions at Option of Holder. Each share of
Preferred Stock shall be convertible into shares of Common Stock (subject to the
limitations set forth in Section (a)(iii)) at the Conversion Ratio (as defined
in Section 8), at the option of the Holder, at any time and from time to time
from and after the Original Issue Date. Holders shall effect conversions by
surrendering the certificate or certificates representing the shares of
Preferred Stock to be converted to the Company, together with the form of
conversion notice attached hereto as Exhibit A (a "Conversion Notice"). Each
Conversion Notice shall specify the number of shares of Preferred Stock to be
converted and the date on which such conversion is to be effected, which date
may not be prior to the date the Holder delivers such Conversion Notice by
facsimile (the "Conversion Date"). If no Conversion Date is specified in a
Conversion Notice, the Conversion Date shall be the date that such Conversion
Notice is deemed delivered hereunder. If the Holder is converting less than all
shares of Preferred Stock represented by the certificate or certificates
tendered by the Holder with the Conversion Notice, or if a conversion hereunder
cannot be effected in full for any reason, the Company shall promptly deliver to
such Holder (in the manner and within the time set forth in Section 5(b)) a
certificate representing the number of shares of Preferred Stock as have not
been converted.
(ii) Automatic Conversion. Subject to the provisions
of this paragraph and Section 5(a)(iii)(B), all outstanding shares of Preferred
Stock for which Conversion Notices have not previously been received or for
which redemption has not been made or required hereunder shall be automatically
converted on the fifth anniversary of the Original Issue Date at the Conversion
Ratio. The conversion contemplated by this paragraph shall not occur without the
consent of the Holder at such time as (a)(1) an Underlying Shares Registration
Statement is not then effective or (2) the Holder is not permitted to resell
Underlying Shares pursuant to Rule 144(k) promulgated under the Securities Act,
without volume restrictions, as evidenced by an opinion letter of counsel
acceptable to the Holder and the transfer agent for the Common Stock; (b) there
are not sufficient shares of Common Stock authorized and reserved for issuance
upon such conversion; or (c) the Company shall have defaulted in any material
respect on its
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covenants and obligations hereunder or under the Purchase Agreement or
Registration Rights Agreement (each as defined in Section 8). Notwithstanding
the foregoing, the five-year period for automatic conversion under this Section
shall be extended (on a day-for-day basis) for any Trading Days after the
Effective Date that a Holder is unable to resell Underlying Shares under an
Underlying Shares Registration Statement due to (a) the Common Stock not being
listed or quoted for trading on the Nasdaq or any Subsequent Market, (b) the
failure of such Underlying Shares Registration Statement to be declared
effective, or if so declared, to remain effective during the Effectiveness
Period (as defined in the Registration Rights Agreement) as to all Underlying
Shares, or (c) the suspension of the Holder's right to resell Underlying Shares
thereunder. The provisions of Section 5(a)(iii)(A)shall not apply to any
automatic conversion pursuant to this Section 5(a)(ii).
(iii) Certain Conversion Restrictions.
(A) A Holder may not convert shares of Preferred
Stock or receive shares of Common Stock as payment of dividends hereunder to the
extent such conversion or receipt of such dividend payment would result in the
Holder, together with any affiliate thereof, beneficially owning (as determined
in accordance with Section 13(d) of the Exchange Act (as defined in Section 8)
and the rules promulgated thereunder) in excess of 9.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon conversion
of, and payment of dividends on, the shares of Preferred Stock held by such
Holder after application of this Section. Since the Holder will not be obligated
to report to the Company the number of shares of Common Stock it may hold at the
time of a conversion hereunder, unless the conversion at issue would result in
the issuance of shares of Common Stock in excess of 9.999% of the then
outstanding shares of Common Stock without regard to any other shares which may
be beneficially owned by the Holder or an affiliate thereof, the Holder shall
have the authority and obligation to determine whether the restriction contained
in this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the shares of Preferred Stock are
convertible shall be the responsibility and obligation of the Holder. If the
Holder has delivered a Conversion Notice for shares of Preferred Stock that,
without regard to any other shares that the Holder or its affiliates may
beneficially own, would result in the issuance in excess of the permitted amount
hereunder, the Company shall notify the Holder of this fact and shall honor the
conversion for the maximum number of shares of Preferred Stock permitted to be
converted on such Conversion Date in accordance with the periods described in
Section 5(b) and, at the option of the Holder, either retain shares of Preferred
Stock tendered for conversion in excess of the permitted amount hereunder for
future conversions or return such excess shares of Preferred Stock permitted to
the Holder. The provisions of this Section may be waived by a Holder (but only
as to itself and not to any other Holder) upon not less than 61 days prior
notice to the Company. Other Holders shall be unaffected by any such waiver.
(B) If the Common Stock is then listed for trading on
the Nasdaq or the Nasdaq SmallCap Market and the Company has not obtained the
Shareholder Approval (as defined below), then the Company may not issue in
excess of 3,546,848 shares of Common Stock (which equals 19.999% of the number
of shares of Common Stock outstanding on the Trading Day immediately preceding
the Original Issue Date) upon conversions of Preferred
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Stock at a price per share that is less than the Per Share Market Value on the
Trading Day immediately preceding the Original Issue Date (such number of
shares, the "Issuable Maximum"). Each Holder shall be entitled to a portion of
the Issuable Maximum equal to the quotient obtained by dividing (x) the number
of shares of Preferred Stock issued and sold to such Holder on the Original
Issue Date by (y) the number of shares of Preferred Stock issued and sold by the
Company on the Original Issue Date, less the sum of shares of Common Stock
issued at a price per share that is less than the Per Share Market Value on the
Trading Day immediately preceeding the Original Issue Date, upon (i) conversion
of Debentures (as defined in the Purchase Agreement) issued to such Holder, and
(ii) exercise of Adjustable Warrants (as defined in the Registration Rights
Agreement) issued to such Holder. If any Holder shall no longer hold shares of
Preferred Stock, then such Holder's remaining portion of the Issuable Maximum
shall be allocated pro-rata among the remaining Holders. If on any Conversion
Date (A) the shares of Common Stock are listed for trading on the Nasdaq or
Nasdaq SmallCap Market, (B) the Conversion Price then in effect is such that the
aggregate number of shares of Common Stock that would then be issuable upon
conversion in full of all then outstanding shares of Preferred Stock, together
with any shares of Common Stock previously issued upon conversion of shares of
Preferred Stock would exceed the Issuable Maximum, and (C) the Company shall not
have previously obtained the vote of shareholders (the "Shareholder Approval"),
if any, as may be required by the applicable rules and regulations of the Nasdaq
(or any successor entity) applicable to approve the issuance of shares of Common
Stock in excess of the Issuable Maximum pursuant to the terms hereof, then the
Company shall issue to the Holder requesting a conversion a number of shares of
Common Stock equal to such Holder's pro-rata portion (which shall be calculated
pursuant to the terms hereof) of the Issuable Maximum and, with respect to the
remainder of the aggregate Stated Value of the shares of Preferred Stock then
held by such Holder for which a conversion in accordance with the Conversion
Price would result in an issuance of shares of Common Stock in excess of such
Holder's pro-rata portion (which shall be calculated pursuant to the terms
hereof) of the Issuable Maximum (the "Excess Stated Value"), the converting
Holder shall have the option to require the Company to either (1) use its best
efforts to obtain the Shareholder Approval applicable to such issuance as soon
as is possible, but in any event not later than the 45th day after such request,
or (2) pay cash to the converting Holder in an amount equal to the Mandatory
Redemption Amount (as defined in Section 8) for the Excess Stated Value. If the
converting Holder shall have elected the first option pursuant to the
immediately preceding sentence and the Company shall have failed to obtain the
Shareholder Approval on or prior to the 45th day after such request, then within
three (3) days of such 45th day, the Company shall pay cash to the converting
Holder an amount equal to the Mandatory Redemption Amount for the Excess Stated
Value. If the Company fails to pay the Mandatory Redemption Amount in full
pursuant to this Section within seven days after the date payable, the Company
will pay interest thereon at a rate of 18% per annum or such lesser maximum
amount that is permitted to be paid by applicable law, to the converting Holder,
accruing daily from the Conversion Date until such amount, plus all such
interest thereon, is paid in full. The Company and the Holder understand and
agree that shares of Common Stock issued to and then held by the Holder as a
result of conversions of Preferred Stock shall not be entitled to cast votes on
any resolution to obtain Shareholder Approval pursuant hereto.
(b)(i) Not later than three Trading Days after each Conversion
Date, the Company will deliver to the Holder (A) a certificate or certificates
which shall be free of
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restrictive legends and trading restrictions (other than those required by
Section 3.1(b) of the Purchase Agreement) representing the number of shares of
Common Stock being acquired upon the conversion of shares of Preferred Stock,
(B) one or more certificates representing the number of shares of Preferred
Stock not converted and (C) a bank check in the amount of accrued and unpaid
dividends (if the Company has elected or is required to pay accrued dividends in
cash). Notwithstanding the foregoing or anything to the contrary contained
herein, the Company shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon conversion of any shares of Preferred Stock
until one Trading Day after certificates evidencing such shares of Preferred
Stock are delivered for conversion to the Company, or the Holder of such
Preferred Stock notifies the Company that such certificates have been lost,
stolen or destroyed and provides a bond (or other adequate security) reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection therewith. The Company shall, upon request of the Holder, if
available, use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section electronically
through the Depository Trust Corporation or another established clearing
corporation performing similar functions. If in the case of any Conversion
Notice such certificate or certificates are not delivered to or as directed by
the applicable Holder by the third Trading Day after the Conversion Date, the
Holder shall be entitled to elect by written notice to the Company at any time
on or before its receipt of such certificate or certificates thereafter, to
rescind such conversion, in which event the Company shall immediately return the
certificates representing the shares of Preferred Stock tendered for conversion.
(ii) If the Company fails to deliver to the Holder
such certificate or certificates pursuant to Section 5(b)(i), by the third
Trading Day after the Conversion Date, the Company shall pay to such Holder, in
cash, as liquidated damages and not as a penalty, $5,000 for each Trading Day
after such third Trading Day until such certificates are delivered. Nothing
herein shall limit a Holder's right to pursue actual damages for the Company's
failure to deliver certificates representing shares of Common Stock upon
conversion within the period specified herein and such Holder shall have the
right to pursue all remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.
(iii) In addition to any other rights available to
the Holder, if the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 5(b)(i), by the third Trading Day after the
Conversion Date, and if after such third Trading Day the Holder purchases (in an
open market transaction or otherwise) Common Stock to deliver in satisfaction of
a sale by such Holder of the Underlying Shares which the Holder was entitled to
receive upon such conversion (a "Buy-In"), then the Company shall (A) pay in
cash to the Holder the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares of Common Stock
that such Holder was entitled to receive from the conversion at issue multiplied
by (2) the market price of the Common Stock at the time of the sale giving rise
to such purchase obligation and (B) at the option of the Holder, either return
the shares of Preferred Stock for which such conversion was not honored or
deliver to such Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its conversion and delivery
obligations under Section 5(b)(i). For example, if the Holder purchases
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Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to an attempted conversion of shares of Preferred Stock with respect to
which the market price of the Underlying Shares on the date of conversion
totaled $10,000, under clause (A) of the immediately preceding sentence the
Company shall be required to pay the Holder $1,000. The Holder shall provide the
Company written notice indicating the amounts payable to the Holder in respect
of the Buy-In. Nothing herein shall limit a Holder's right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company's failure to timely deliver certificates representing
shares of Common Stock upon conversion of the shares of Preferred Stock as
required pursuant to the terms hereof.
(c)(i) The conversion price (the "Conversion Price") for each
share of Preferred Stock in effect on any Conversion Date be the lesser of (1)
$3.3171875 (the "Fixed Conversion Price") and (2) 85% of the average of the ten
lowest Per Share Market Values during the period of twenty two consecutive
Trading Days preceding the applicable Conversion Date (which may include Trading
Days prior to the Original Issue Date), provided, that such twenty two Trading
Day period shall be extended for the number of Trading Days during such period
in which (A) trading in the Common Stock is suspended by the NASDAQ or a
Subsequent Market on which the Common Stock is then listed, or (B) after the
date declared effective by the Commission, the Underlying Shares Registration
Statement is either not effective, or the Prospectus included in the Underlying
Shares Registration Statement may not be used by the Holder for the resale of
Underlying Shares, provided, however, that prior to the 90th day following the
Original Issue Date, the Conversion Price shall not equal less than the Fixed
Conversion Price.
(ii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall (a) pay a stock dividend or otherwise
make a distribution or distributions on shares of its Junior Securities or pari
passu securities payable in shares of Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine outstanding
shares of Common Stock into a smaller number of shares, or (d) issue by
reclassification and exchange of the Common Stock any shares of capital stock of
the Company, then the Fixed Conversion Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock outstanding
before such event and of which the denominator shall be the number of shares of
Common Stock outstanding after such event. Any adjustment made pursuant to this
Section 5(c)(ii) shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or re-classification.
(iii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall issue rights, warrants or options to all
holders of Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Per Share Market Value at the
record date mentioned below, then the Conversion Price shall be multiplied by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such rights, warrants or
options, plus the number of shares of Common Stock which the aggregate offering
price of the total number of shares so offered would purchase at such Per Share
Market Value, and the denominator of which
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shall be the sum of the number of shares of Common Stock outstanding immediately
prior to such issuance plus the number of shares of Common Stock offered for
subscription or purchase. Such adjustment shall be made whenever such rights or
warrants are issued, and shall become effective immediately after the record
date for the determination of stockholders entitled to receive such rights or
warrants. However, upon the expiration of any right, warrant or option to
purchase shares of Common Stock the issuance of which resulted in an adjustment
in the Conversion Price pursuant to this Section 5(c)(iii), if any such right,
warrant or option shall expire and shall not have been exercised, the Conversion
Price shall immediately upon such expiration shall be recomputed and effective
immediately upon such expiration shall be increased to the price which it would
have been (but reflecting any other adjustments in the Conversion Price made
pursuant to the provisions of this Section 5 upon the issuance of other rights
or warrants) had the adjustment of the Conversion Price made upon the issuance
of such rights, warrants, or options been made on the basis of offering for
subscription or purchase only that number of shares of Common Stock actually
purchased upon the exercise of such rights, warrants or options actually
exercised.
(iv) If the Company or any subsidiary thereof, as
applicable with respect to Common Stock Equivalents (as defined below), at any
time while any shares of Preferred Stock are outstanding, shall issue shares of
Common Stock or rights, warrants, options or other securities or debt that is
convertible into or exchangeable for shares of Common Stock ("Common Stock
Equivalents"), entitling any Person to acquire shares of Common Stock at a price
per share less than the Fixed Conversion Price (if the holder of the Common
Stock or Common Stock Equivalent so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options or rights
issued in connection with such issuance, be entitled to receive shares of Common
Stock at a price less than the Fixed Conversion Price, such issuance shall be
deemed to have occurred for less than the Fixed Conversion Price), then the
Fixed Conversion Price shall be multiplied by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior to
the issuance of such Common Stock or such Common Stock Equivalents plus the
number of shares of Common Stock which the offering price for such shares of
Common Stock or Common Stock Equivalents would purchase at the Fixed Conversion
Price, and the denominator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to such issuance plus the number of
shares of Common Stock so issued or issuable, provided, that for purposes
hereof, all shares of Common Stock that are issuable upon conversion, exercise
or exchange of Common Stock Equivalents shall be deemed outstanding immediately
after the issuance of such Common Stock Equivalents. Such adjustment shall be
made whenever such Common Stock or Common Stock Equivalents are issued. However,
upon the expiration of any Common Stock Equivalents the issuance of which
resulted in an adjustment in the Fixed Conversion Price pursuant to this
Section, if any such Common Stock Equivalents shall expire and shall not have
been exercised, the Fixed Conversion Price shall immediately upon such
expiration be recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Fixed Conversion Price made pursuant to the provisions of
this Section after the issuance of such Common Stock Equivalents) had the
adjustment of the Fixed Conversion Price made upon the issuance of such Common
Stock Equivalents been made on the basis of offering for subscription or
purchase only that number of shares of the Common
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Stock actually purchased upon the exercise of such Common Stock Equivalents
actually exercised.
(v) If the Company, at any time while shares of
Preferred Stock are outstanding, shall distribute to all holders of Common Stock
(and not to Holders) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security (excluding those referred to
in Sections 5(c)(ii)-(iv) above), then in each such case the Conversion Price at
which each share of Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect immediately prior to
the record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Per Share
Market Value determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value on such record date less the then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding share of Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(vi) All calculations under this Section 5 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
The number of shares of Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or sale of Common
Stock.
(vii) Whenever the Fixed Conversion Price or the
Conversion Price is adjusted pursuant to Section 5(c)(ii), (iii), (iv) or (v)
the Company shall promptly mail to each Holder, a notice setting forth the
Conversion Price or Fixed Conversion Price (as applicable) after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.
(viii) In case of any reclassification of the Common
Stock, or any compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property (other than compulsory share
exchanges which constitute Change of Control Transactions), the Holders of the
Preferred Stock then outstanding shall have the right thereafter to convert such
shares only into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock following such
reclassification or share exchange, and the Holders of the Preferred Stock shall
be entitled upon such event to receive such amount of securities, cash or
property as a holder of the number of shares of Common Stock of the Company into
which such shares of Preferred Stock could have been converted immediately prior
to such reclassification or share exchange would have been entitled. This
provision shall similarly apply to successive reclassifications or share
exchanges.
(ix) In case of any merger or consolidation of the
Company with or into another Person, or sale by the Company of more than
one-half of the assets of the Company (on an as valued basis) in one or a series
of related transactions, a Holder shall have the right
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thereafter to (A) convert its shares of Preferred Stock into the shares of stock
and other securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger, consolidation or sale, and such
Holder shall be entitled upon such event or series of related events to receive
such amount of securities, cash and property as the shares of Common Stock into
which such shares of Preferred Stock could have been converted immediately prior
to such merger, consolidation or sales would have been entitled or (B) in the
case of a merger or consolidation, (x) require the surviving entity to issue
shares of convertible preferred stock or convertible debentures with such
aggregate stated value or in such face amount, as the case may be, equal to the
Stated Value of the shares of Preferred Stock then held by such Holder, plus all
accrued and unpaid dividends and other amounts owing thereon, which newly issued
shares of preferred stock or debentures shall have terms identical (including
with respect to conversion) to the terms of the Preferred Stock (except, in the
case of debentures, as may be required to reflect the differences between debt
and equity) and shall be entitled to all of the rights and privileges of a
Holder of Preferred Stock set forth herein and the agreements pursuant to which
the Preferred Stock was issued (including, without limitation, as such rights
relate to the acquisition, transferability, registration and listing of such
shares of stock other securities issuable upon conversion thereof), and (y)
simultaneously with the issuance of such convertible preferred stock or
convertible debentures, shall have the right to convert such instrument only
into shares of stock and other securities, cash and property receivable upon or
deemed to be held by holders of Common Stock following such merger,
consolidation or sale. In the case of clause (B), the conversion price
applicable for the newly issued shares of convertible preferred stock or
convertible debentures shall be based upon the amount of securities, cash and
property that each share of Common Stock would receive in such transaction, the
Conversion Ratio immediately prior to the effectiveness or closing date for such
transaction and the Conversion Price stated herein. The terms of any such
merger, sale or consolidation shall include such terms so as continue to give
the Holders the right to receive the securities, cash and property set forth in
this Section upon any conversion or redemption following such event. This
provision shall similarly apply to successive such events. The rights set forth
in this Section 5(c)(ix) shall not alter the rights of a Holder set forth in
Section 8, provided, that, a Holder may only exercise the rights set forth in
this Section 5(c)(ix) or the rights set forth in Section 8 with respect to a
single event giving rise to such rights.
(x) If (a) the Company shall declare a dividend (or
any other distribution) on the Common Stock, (b) the Company shall declare a
special nonrecurring cash dividend on or a redemption of the Common Stock, (c)
the Company shall authorize the granting to all holders of Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights, (d) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share of exchange whereby the Common Stock is converted into other
securities, cash or property, or (e) the Company shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Company; then the Company shall notify the Holders at their last addresses as
they shall appear upon the stock books of the Company, at least 20 calendar days
prior to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the
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date as of which the holders of Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange. Holders are entitled to convert shares of Preferred Stock during
the 20-day period commencing the date of such notice to the effective date of
the event triggering such notice.
(d) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued shares of Common Stock
solely for the purpose of issuance upon conversion of Preferred Stock, each as
herein provided, free from preemptive rights or any other actual contingent
purchase rights of persons other than the Holders, not less than such number of
shares of Common Stock as shall be issuable (taking into account the provisions
of Section 5(a) and Section 5(c)) upon the conversion of all outstanding shares
of Preferred Stock. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized and
issued and fully paid and nonassessable.
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Per Share Market Value at such time. If
any fraction of an Underlying Share would, except for the provisions of this
Section, be issuable upon a conversion hereunder, the Company shall pay an
amount in cash equal to the Conversion Ratio multiplied by such fraction.
(f) The issuance of certificates for Common Stock on
conversion of Preferred Stock shall be made without charge to the Holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of such shares of Preferred
Stock so converted.
(g) Shares of Preferred Stock converted into Common Stock or
redeemed in accordance with the terms hereof shall be canceled and may not be
reissued.
(h) Any and all notices or other communications or deliveries
to be provided by the Holders of the Preferred Stock hereunder, including,
without limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile or sent by a nationally recognized overnight courier
service, addressed to the attention of the Chief Financial Officer of the
Company addressed to 8115 Preston Road, Eighth Floor East, Dallas, TX 75225,
Facsimile No.: (214) 691-0887, attention Chief Financial Officer, or to such
other address or facsimile number as shall be specified in writing by the
Company for such purpose. Any and all notices or other communications or
deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile or sent by a nationally recognized overnight
courier service, addressed to each Holder at the facsimile telephone number or
address of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address
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<PAGE> 12
appears, at the principal place of business of the Holder. Any notice or other
communication or deliveries hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 6:30 p.m. (New York City time)(with confirmation of
transmission), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 6:30 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on such date (with confirmation
of transmission), (iii) upon receipt, if sent by a nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given.
Section 6. Optional Redemption.
(a) Subject to the provisions of this Section 6, from and
after the 120th day following the Original Issue Date, if the average of the Per
Share Market Values for any ten consecutive Trading Days is lower than the Fixed
Conversion Price, the Company shall have the right, upon 10 calendar days'
notice (an "Optional Redemption Notice" and the date such Optional Redemption
Notice is received by a Holder, an "Optional Redemption Date") to the Holders,
to redeem all or any portion of the shares of Preferred Stock which have not
previously been redeemed or for which Conversion Notices shall not have been
delivered, at a price equal to the Optional Redemption Price (as defined in
Section 8). The Company may only deliver an Optional Redemption Notice if: (i)
the number of shares of Common Stock at the time authorized, unissued and
unreserved for all purposes is sufficient to satisfy the Company's conversion
obligations of all shares of Preferred Stock then outstanding, (ii) the
Underlying Shares then outstanding are registered for resale pursuant to an
effective Underlying Shares Registration Statement pursuant to which the Holders
are permitted to utilize to sell Underlying Shares or the Underlying Shares may
be resold without volume restrictions pursuant to Rule 144(k) promulgated under
the Securities Act, and (iii) the Common Stock is listed for trading on the
Nasdaq or on a Subsequent Market. In order for an Optional Redemption Notice to
remain in effect subsequent to the Optional Redemption Date, each of clauses (i)
- (iii) of the immediately preceding sentence must be true during the entire 10
calendar days between the Optional Redemption Date and the date of payment of
the Optional Redemption Price. The entire Optional Redemption Price shall be
paid in cash. A Holder may convert (and the Company shall honor such conversions
in accordance with the terms hereof) up to 20% of the shares of Preferred Stock
held by it on the Optional Redemption Date on or prior to the 10th calendar day
following the Optional Redemption Date.
(b) Failure by the Company to pay any portion of the Optional
Redemption Price on the tenth calendar day following an Optional Redemption Date
shall, at the option of the Holder subject thereto, result in the invalidation
ab initio of the unpaid portion of such optional redemption, and,
notwithstanding anything herein to the contrary, the Company shall thereafter
have no further rights to optionally redeem any shares of Preferred Stock. In
such event, the Company shall, at the option of the Holder, either, (i) not
later than three Trading Days from receipt of Holder's request for such
election, return to the Holder all of the shares of Preferred Stock for which
such Optional Redemption Price has not been paid in full (the "Unpaid Redemption
Shares") or (ii) convert of all or any portion of the Unpaid Redemption Shares
in
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which event the Per Share Market Value for such shares shall be the lower of the
Per Share Market Value calculated on the date the Optional Redemption Price was
originally due and the Per Share Market Value as of the Holder's written demand
for conversion. If the Holder elects option (ii) above, the Company shall within
three Trading Days of its receipt of such election deliver to the Holder the
shares of Common Stock issuable upon conversion of the Unpaid Redemption Shares
subject to such Holder conversion demand and otherwise perform its obligations
hereunder with respect thereto.
Section 7. Redemption Upon Triggering Events.
(a) Upon the occurrence of a Triggering Event, each Holder
shall (in addition to all other rights it may have hereunder or under applicable
law), have the right, exercisable at the sole option of such Holder, to require
the Company to redeem all or a portion of the Preferred Stock then held by such
Holder for a redemption price, in cash, equal to the sum of (i) the Mandatory
Redemption Amount plus (ii) the product of (A) the number of Underlying Shares
issued in respect of conversions hereunder and then held by the Holder and (B)
the Per Share Market Value on the date such redemption is demanded or the date
the redemption price hereunder is paid in full, whichever is greater (such sum,
the "Redemption Price"). The Redemption Price shall be due and payable within
five Trading Days of the date on which the notice for the payment therefor is
provided by a Holder. If the Company fails to pay the Redemption Price hereunder
in full pursuant to this Section on the date such amount is due in accordance
with this Section, the Company will pay interest thereon at a rate of 18% per
annum (or the lesser amount permitted by applicable law), accruing daily from
such date until the Redemption Price, plus all such interest thereon, is paid in
full. For purposes of this Section, a share of Preferred Stock is outstanding
until such date as the Holder shall have received Underlying Shares upon a
conversion (or attempted conversion) thereof that meets the requirements hereof.
A "Triggering Event" means any one or more of the following
events (whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):
(i) the failure of an Underlying Shares Registration
Statement to be declared effective by the Commission on or prior to the 150th
day after the Original Issue Date;
(ii) if, during the Effectiveness Period, the
effectiveness of the Underlying Shares Registration Statement lapses for any
reason for more than an aggregate of three Trading Days (which need not be
consecutive Trading Days), or the Holder shall not be permitted to resell
Registrable Securities under the Underlying Shares Registration Statement for
more than an aggregate of three Trading Days (which need not be consecutive
Trading Days);
(iii) the failure of the Common Stock to be listed
for trading on the Nasdaq or on a Subsequent Market or the suspension of the
Common Stock from trading on the Nasdaq or on a Subsequent Market, in either
case, for more than three Trading Days (which need not be consecutive Trading
Days);
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<PAGE> 14
(iv) the Company shall fail for any reason to deliver
certificates representing Underlying Shares issuable upon a conversion hereunder
that comply with the provisions hereof prior to the tenth day after the
Conversion Date or the Company shall provide notice to any Holder, including by
way of public announcement, at any time, of its intention not to comply with
requests for conversion of any shares of Preferred Stock in accordance with the
terms hereof;
(v) the Company shall be a party to any Change of
Control Transaction, shall agree to sell (in one or a series of related
transactions) more than 33% of its assets or shall redeem more than a de minimis
number of Common Stock or other Junior Securities (other than redemptions of
Underlying Shares);
(vi) an Event (as defined in the Registration Rights
Agreement) shall not have been cured to the satisfaction of the Holders prior to
the expiration of 60 days from the Event Date (as defined in the Registration
Rights Agreement) relating thereto (other than an Event resulting from a failure
of an Underlying Shares Registration Statement to be declared effective by the
Commission on or prior to the 150th day after the Original Issue Date, which
shall be covered by Section 8(a)(i));
(vii) the Company shall fail for any reason to pay in
full the amount of cash due pursuant to a Buy-In within seven days after notice
therefor is delivered hereunder or shall fail to pay all amounts owed on account
of an Event within seven days of the date due;
(viii) the Company shall fail to have available a
sufficient number of authorized and unreserved shares of Common Stock to issue
to such Holder upon a conversion hereunder; or
(ix) the Company shall fail to observe or perform any
other covenant, agreement or warranty contained in, or otherwise commit any
breach of the Transaction Documents (as defined in Section 8), and such failure
or breach shall not, if subject to the possibility of a cure by the Company,
have been remedied within ten Business Days after the date on which written
notice of such failure or breach shall have been given.
Section 8. Definitions. For the purposes hereof, the following
terms shall have the following meanings:
"Change of Control Transaction" means the occurrence of any of
(i) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 33% of the
voting securities of the Company, (ii) a replacement at one time or over time of
more than one-half of the members of the Company's board of directors which is
not approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of
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<PAGE> 15
directors was approved by a majority of the members of the board of directors
who are members on the date hereof), (iii) the merger of the Company with or
into another entity that is not wholly-owned by the Company, consolidation or
sale of 50% or more of the assets of the Company in one or a series of related
transactions, or (iv) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, par value
$.0001 per share, and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, the
numerator of which is Stated Value (or Excess Stated Value, as the case may be)
and the denominator of which is the Conversion Price at such time.
"Dividend Effectiveness Date" means the earlier to occur of
(x) the Effectiveness Date (as defined in the Registration Rights Agreement) and
(y) the date that an Underlying Shares Registration Statement is declared
effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Junior Securities" means the Common Stock and all other
equity securities of the Company other than those securities that are
outstanding on the Original Issue Date and which are explicitly senior in rights
or liquidation preference to the Preferred Stock.
"Mandatory Redemption Amount" for each share of Preferred
Stock means the sum of (i) the greater of (A) 120% of the Stated Value (or
Excess Stated Value, as the case may be) and (B) the product of (a) the Per
Share Market Value on the Trading Day immediately preceding (x) the date of the
Triggering Event or the Conversion Date, as the case may be, or (y) the date of
payment in full by the Company of the applicable redemption price, whichever is
greater, and (b) the Conversion Ratio calculated on the date of the Triggering
Event, or the Conversion Date, as the case may be, and (ii) all other amounts,
costs, expenses and liquidated damages due in respect of such share of Preferred
Stock.
"Optional Redemption Price" shall be sum of (i) 120% of the
Stated Value of the shares of Preferred Stock to be redeemed pursuant to Section
6 and (ii) all other amounts, costs, expenses and liquidated damages due in
respect of such shares of Preferred Stock.
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Preferred Stock regardless of the number of
transfers of any particular shares of Preferred Stock and regardless of the
number of certificates which may be issued to evidence such Preferred Stock.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of Common Stock on such date on the Nasdaq or on
such Subsequent Market on which
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the shares of Common Stock are then listed or quoted, or if there is no such
price on such date, then the closing bid price on the Nasdaq or on such
Subsequent Market on the date nearest preceding such date, or (b) if the shares
of Common Stock are not then listed or quoted on the Nasdaq or a Subsequent
Market, the closing bid price for a share of Common Stock in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the shares of
Common Stock are not then reported by the National Quotation Bureau Incorporated
(or similar organization or agency succeeding to its functions of reporting
prices), then the average of the "Pink Sheet" quotes for the relevant conversion
period, as determined in good faith by the Holder, or (d) if the Common Stock
are not then publicly traded the fair market value of a share of Common Stock as
determined by an Appraiser selected in good faith by the Holders of a majority
of the shares of the Preferred Stock.
"Person" means a corporation, an association, a partnership,
an organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Secured Convertible Debenture
Purchase Agreement, dated as of May 31, 2000 between the Company and Boxer
Partners, LLC, as amended, modified or supplemented from time to time in
accordance with its terms and, to the extent not contradictory, the Convertible
Preferred Stock Purchase Agreement, dated as of the Original Issue Date, between
the Company and Millennium Partners, L.P., as amended, modified or supplemented
from time to time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of May 31, 2000 between the Company and Boxer Partners, LLC,
as amended, modified or supplemented from time to time in accordance with its
terms.
"Securities Act" means the Securities Act of 1933, as amended.
"Trading Day" means (a) a day on which the shares of Common
Stock are traded on the Nasdaq or on such Subsequent Market on which the shares
of Common Stock are then listed or quoted, or (b) if the shares of Common Stock
are not listed on the Nasdaq or a Subsequent Market, a day on which the shares
of Common Stock are traded in the over-the-counter market, as reported by the
OTC Bulletin Board, or (c) if the shares of Common Stock are not quoted on the
OTC Bulletin Board, a day on which the shares of Common Stock are quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices); provided, that in the event that the shares of Common Stock
are not listed or quoted as set forth in (a), (b) and (c) hereof, then Trading
Day shall mean any day except Saturday, Sunday and any day which shall be a
legal holiday or a day on which banking institutions in the State of New York
are authorized or required by law or other government action to close.
"Transaction Documents" shall have the meaning set forth in
the Purchase Agreement.
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"Underlying Shares" means, collectively, the shares of Common
Stock into which the shares of Preferred Stock are convertible in accordance
with the terms hereof.
"Underlying Shares Registration Statement" means a
registration statement that meets the requirements of the Registration Rights
Agreement and registers the resale of all Underlying Shares by the Holder, who
shall be named as a "selling stockholder" thereunder.
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EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of 6% Series C
Convertible Preferred Stock indicated below, into shares of common stock, par
value $.0001 per share (the "Common Stock"), of Max Internet Communications,
Inc., a Nevada corporation (the "Company"), according to the conditions hereof,
as of the date written below. If shares are to be issued in the name of a person
other than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the Holder for any conversion, except for such transfer taxes, if
any.
Conversion calculations:
----------------------------------------------------
Date to Effect Conversion
----------------------------------------------------
Number of shares of Preferred Stock to be Converted
----------------------------------------------------
Stated Value of shares of Preferred Stock to be
Converted
----------------------------------------------------
Number of shares of Common Stock to be Issued
----------------------------------------------------
Applicable Conversion Price
----------------------------------------------------
Signature
----------------------------------------------------
Name
----------------------------------------------------
Address
18
