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Exhibit 2
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
PHOTOLOFT.COM
Photoloft.com (the "COMPANY"), a corporation organized and existing
under the General Corporation Law of the State of Nevada, does hereby certify
that, pursuant to authority conferred upon the Board of Directors of the Company
by the Certificate of Incorporation of the Company, and pursuant to the General
Corporation Law of the State of Nevada, the Board of Directors of the Company
at a meeting duly held, adopted resolutions (i) authorizing a series of the
Company's authorized preferred stock, $.001 par value per share, and (ii)
providing for the designations, preferences and relative, participating,
optional or other rights, and the qualifications, limitations or restrictions
thereof, of 900 shares of Series B Convertible Preferred Stock of the Company,
as follows:
RESOLVED, that the Company is authorized to issue 900 shares of Series B
Convertible Preferred Stock (the "SERIES B PREFERRED SHARES"), $.001 par value
per share, which shall have the following powers, designations, preferences and
other special rights:
1. DIVIDENDS. The Series B Preferred Shares shall not bear any dividends.
2. HOLDER'S CONVERSION OF SERIES B PREFERRED SHARES. A holder of Series B
Preferred Shares shall have the right to convert the Series B Preferred Shares
into shares of the Company's common stock, $.001 par value per share (the
"COMMON STOCK"), on the following terms and conditions:
(a) CONVERSION RIGHT. Subject to Section 2(e) hereof, the holder of
the Series B Preferred shall be entitled to convert all the Series B Preferred
Shares into that number of fully paid and nonassessable shares of the Company's
Common Stock equal to fifty percent (50%) of the Company's Common Stock then
outstanding, calculated on a fully-diluted basis (including all issued and
outstanding Common Stock,
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the exercise or conversion of all other securities exercisable for or
convertible into Common Stock, and the fulfillment of any other written
commitments of the Company to issue or sell Common Stock) (such calculation
shall be referred to herein as the "Conversion Rate"), subject to Sections 2(c),
2(d)(i) and 2(g) hereof.
(b) ADJUSTMENT TO CONVERSION RATE - DILUTION AND OTHER EVENTS. In
order to prevent dilution of the rights granted under this Certificate of
Designations, the Conversion Rate will be subject to adjustment from time to
time as provided in this Section 2(b).
(i) ADJUSTMENT OF FIXED CONVERSION PRICE UPON SUBDIVISION OR
COMBINATION OF COMMON STOCK. If the Company at any time subdivides (by
any stock split, stock dividend, re-capitalization or otherwise) one or
more classes of its outstanding shares of Common Stock into a greater
number of shares, the Conversion Rate in effect immediately prior to
such subdivision will be proportionately adjusted. 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 Rate in effect immediately prior to
such combination will be proportionately adjusted.
(ii) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER,
OR SALE. Upon any recapitalization, reorganization, reclassification or
consolidation of the Company which does not constitute an Organic Change
(as defined in Section 2(e) hereof), holders of the Series B Preferred
Shares 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 recapitalization, reorganization, reclassification or
consolidation, and the holders of the Series B 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 Series B Preferred Shares could have been
converted immediately prior to such event would have been entitled. This
provision shall similarly apply to successive recapitalizations,
reorganizations, reclassifications, or consolidations.
(iii) NOTICES.
(A) Immediately upon any adjustment of the
Conversion Price, the Company will give written notice thereof
to each holder of Series B Preferred Shares, setting forth in
reasonable detail and certifying the calculation of such
adjustment.
(B) The Company will give written notice to each
holder of Series B Preferred Shares at least twenty (20) days
prior to the date on which the Company closes its books or takes
a record (I) with respect to any dividend or distribution upon
the Common Stock, (II) with respect to any
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pro rata subscription offer to holders of Common Stock or (III)
for determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
(C) The Company will also give written notice to
each holder of Series B Preferred Shares at least twenty (20)
days prior to the date on which any Organic Change, dissolution
or liquidation will take place.
(c) 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 holder(s) of Series B 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(s) had held the number of shares of Common Stock acquirable upon
complete conversion of the Series B Preferred Shares immediately before the date
an 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
holder(s) of Common Stock are to be determined for the grant, issue or sale of
such Purchase Rights.
(d) MECHANICS OF CONVERSION. Subject to the Company's inability to
fully satisfy its obligations under a Conversion Notice (as defined below) as
provided for in Section 3 below:
(i) HOLDER(S) DELIVERY REQUIREMENTS. To convert Series B
Preferred Shares into full shares of Common Stock at any time within
thirty (30) days of the date hereof (and, in no case later than the
thirtieth (30th) day after the date hereof) (the "Conversion Date"),
the holder(s) thereof shall (A) deliver or transmit by facsimile, for
receipt on or prior to 11:59 p.m., Eastern Standard Time, on such date,
a copy of a fully executed notice of conversion in the form attached
hereto (the "CONVERSION Notice") to the Company or its designated
transfer agent (the "TRANSFER AGENT"), and (B) surrender to a common
carrier for delivery to the Company or the Transfer Agent as soon as
practicable following such date, the original certificates representing
the Series B 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") and the originally
executed Conversion Notice.
(ii) COMPANY'S RESPONSE. Upon receipt by the Company of a
facsimile copy of a Conversion Notice, the Company shall immediately
send, via Facsimile, a confirmation of receipt of such Conversion Notice
to such holder(s). Upon receipt by the Company or its Transfer Agent of
the Preferred Stock Certificates to be converted pursuant to a
Conversion Notice, together with the originally executed Conversion
Notice, the Company or the Transfer Agent (as applicable) shall, within
five (5) business days following the date of receipt, (A) issue and
surrender to a common carrier for overnight delivery to the address as
specified in the Conversion Notice, a certificate, registered in the
name of the holder(s) or its
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designee, for the number of shares of Common Stock to which the
holder(s) shall be entitled or {B) credit the aggregate number of shares
of Common Stock to which the holder shall be entitled to the holder(s)
or its designee's balance account at The Depository Trust Company.
(iii) DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Conversion Rate, the Company shall promptly issue
to the holder the number of shares of Common Stock that is not disputed
and shall submit the disputed determinations or arithmetic calculations
to the holder(s) via facsimile within three (3) business days of receipt
of such holder(s) Conversion Notice. If such holder(s) and the Company
are unable to agree upon the determination of the Conversion Rate within
two (2) business days of such disputed determination or arithmetic
calculation being submitted to the holder(s), then the Company shall
within one (1) business day submit via facsimile the disputed arithmetic
calculation of the Conversion Rate to its independent, outside
accountant. The Company shall cause the accountant to perform the
determination and notify the Company and the holder(s) of the results no
later than forty-eight (48) hours from the time it receives the disputed
calculations. Such accountant's determination shall be binding upon all
parties absent manifest error.
(iv) RECORD HOLDER(S). The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of Series
B Preferred Shares shall be treated for all purposes as the record
holder(s) of such shares of Common Stock on the Conversion Date.
(e) MANDATORY CONVERSION. On the first to occur of (i) the thirtieth
(30th) day from the date hereof or (ii) a sale of all or substantially all of
the Company's assets to another Person (as defined below) or a merger or similar
transaction which is effected in such a way that the Company is not the
surviving entity or shares of Common Stock of the Company are to be cancelled in
exchange for value (referred to herein as in "ORGANIC CHANGE") (for purposes of
this Agreement, "PERSON" shall mean an individual, a limited liability company,
a partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof), then all
such Series B Preferred Shares shall automatically be converted as of such date
(all Series B Preferred Shares shall be converted as of the closing of said
Organic Change as if the holder(s) of such Series B Preferred Shares had given
the Conversion Notice on the date of such closing and the Conversion Date had
been fixed as of the date of such closing) in accordance with this Section 2,
and all holders of Series B Preferred Shares shall within two (2) business days
thereafter surrender all Preferred Stock Certificates, duly endorsed for
cancellation, to the Company or its Transfer Agent. No person shall thereafter
have any rights in respect of Series B Preferred Shares, except the right to
receive shares of Common Stock on conversion thereof as provided in this Section
2.
(f) FRACTIONAL SHARES. 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 share of the Series
B Preferred Shares
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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 it share of Common Stock, the Company shall round
such fraction of a share of Common Stock up or down to the nearest whole share.
3. INABILITY TO FULLY CONVERT.
(a) HOLDER(S) OPTION IF COMPANY CANNOT FULLY CONVERT. If at any time
after the Effective Date, upon the Company's receipt of a Conversion Notice, the
Company does not issue shares of Common Stock which are registered for resale
under the Registration Statement within five (5) business days of the time
required in accordance with Section 2(e) hereof, for any reason or for no
reason, including, without limitation, because the Company (x) does not have a
sufficient number of shares of Common Stock authorized and available, (y) is
otherwise prohibited by applicable law or by the roles or regulations of any
stock exchange, inter-dealer quotation system or other self-regulatory
organization with jurisdiction over the Company or its securities from issuing
all of the Common Stock which is to be issued to a holder(s) of Series B
Preferred Shares pursuant to a Conversion Notice or (z) fails to have a
sufficient number of shares of Common Stock registered and eligible for resale
under the Registration Statement, then the Company shall issue as many shares of
Common Stock as it is able to issue in accordance with such holder(s) Conversion
Notice and pursuant to Section 2(e) above and, with respect to the unconverted
Series B Preferred Shares, the holder(s), solely at such holder(s) option, can,
in addition to any other remedies such holder may have hereunder, under the
Stock Purchase Agreement, under the Registration Rights Agreement, at law or in
equity, elect to:
(i) require the Company to redeem from such holder(s) those
Series B Preferred Shares for which the Company is unable to issue
Common Stock in accordance with such holder's Conversion Notice
("Mandatory Redemption") at a price per Series B Preferred Share (the
"Mandatory Redemption Price") equal to the greater of x) 120% of the
Liquidation Value of such share and (y) the Redemption Rate as of such
Conversion Date;
(ii) if the Company's inability to fully convert Series B
Preferred Shares is pursuant to Section 3(a)(z) above, require the
Company to issue restricted shares of Common Stock in accordance with
such holder's Conversion Notice and pursuant to Section 2(e) above; or
(iii) void its Conversion Notice and retain or have returned,
as the case may be, the nonconverted Series B Preferred Shares that were
to be converted pursuant to such holder's Conversion Notice.
4. REISSUANCE OF CERTIFICATES. In the event of a conversion or redemption
pursuant to this Certificate of Designations of less than all of the Series B
Preferred Shares
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represented by a particular Preferred Stock Certificate, the Company shall
promptly cause to be issued and delivered to the holder of such Series B
Preferred Shares a Preferred stock certificate representing the remaining Series
B Preferred Shares which have not been so converted or redeemed.
5. RESERVATION OF SHARES. The Company shall, so long as any of the Series B
Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Series B Preferred Shares, such number of Shares of Common
Stock as shall from time to time be sufficient to affect the conversion of all
of the Series B Preferred Shares. If at any time, the Company does not have
available an amount of authorized and unissued shares of Common Stock necessary
to satisfy full conversion of all of the Series B Preferred Shares outstanding,
the Company shall call and hold a special shareholders meeting within sixty (60)
days of such occurrence, for the sole purpose of increasing the number of shares
authorized. Furthermore, management of the Company shall recommend to the
shareholders to vote in favor of increasing the number of common shares
authorized. Management shall also vote all of its shares of Common Stock in
favor of increasing the number of shares of Common Stock authorized.
6. VOTING RIGHTS. Holder(s) of Series B 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 Nevada and as expressly provided in this
Certificate of Designations.
7. LIQUIDATION, DISSOLUTION, WINDING-UP. In the event of any voluntary or
involuntary liquidation, dissolution, or winding up of the Company, the
holder(s) of the Series B 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 "PREFERRED FUNDS"), after
any amount shall be paid to the holders of the Series A Preferred Stock but
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 Series B 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 Series B
Preferred Share equal to the sum of $10 (such sum being referred to as the
"LIQUIDATION VALUE"); provided that, if the Preferred Funds are insufficient to
pay the full amount due to the holders of Series B Preferred Shares and
holder(s) of shares of other classes or series of preferred stock of the Company
that are of equal rank with the Series B Preferred Shares as to payments of
Preferred Funds (the "PARI PASSU SHARES"), then each holder of Series B
Preferred Shares and Pari Passu Shares shall receive a percentage of the
Preferred Funds equal to the full amount of Preferred Funds payable to such
holder as a liquidation preference, in accordance with their respective
Certificate of Designations, Preferences and Rights as a percentage or the full
amount of Preferred Funds payable to all holders of Series B Preferred Shares
and Pari Passu Shares. 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 Person, nor the
sale or transfer by the Company of less than substantially ail of its assets,
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shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Company. No holder of Series B 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.
8. PREFERRED RATE. All shares of Common Stock shall be of junior rank to
all Series B 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 Series B Preferred Shares. The Series B Preferred Shares
shall be of greater rank than any series of Common or Preferred Stock
hereinafter issued by the Company. Without the prior express written consent of
the holders of not less than two-thirds (2/3) of the then outstanding Series B
Preferred Shares, the Company shall not hereafter authorize or issue additional
or other capital stock that is of senior or equal rank to the Series B 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 (2/3) of the
then outstanding Series B Preferred Shares, the Company shall not hereafter
authorize or make any amendment to the Company's Certificate of Incorporation or
bylaws, or make any resolution of the board of directors with the Nevada
Secretary of State containing any provisions, which would adversely affect or
otherwise impair the rights or relative priority of the holders of the Series B
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 Series B Preferred Shares
shall maintain their relative powers, designations, and preferences provided for
herein and no merger shall result inconsistent therewith.
9. RESTRICTION ON REDEMPTION AND DIVIDENDS.
(a) RESTRICTION ON DIVIDEND. If any Series B Preferred Shares are
outstanding, without the prior express written consent of the holders of not
less than two-thirds (2/3) of the then outstanding Series B Preferred Shares,
the Company shall not directly or indirectly declare, pay or make any dividends
or other distributions upon any of the Common Stock so long as written notice
thereof has been given to holders of the Series B Preferred Shares at least 30
days prior to the earlier of (a) the record date taken for or (b) the payment of
any such dividend or other distribution. Notwithstanding the foregoing, this
Section 9(a) shall not prohibit the Company from declaring and paying a dividend
in cash with respect to the Common Stock so long as the Company: (i) pays
simultaneously to each holder of Series B Preferred Shares an amount in cash
equal to the amount such holder(s) would have received had all of such holder(s)
Series B Preferred Shares been converted to Common Stock pursuant to Section 2
hereof one business day prior to the record date for any such dividend, and (ii)
after giving effect to the payment of any dividend and any other payments
required in connection therewith including to the holder(s) of the Series B
Preferred Shares under clause 9(a)(i) hereof, the Company has in cash or cash
equivalents an amount equal to the aggregate of: (A) all of its liabilities
reflected on its most recently available balance sheet, (B) the amount of any
indebtedness
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incurred by the Company or any of its subsidiaries since its most recent balance
sheet and (C) 125% of the amount payable to all holder(s) of any shares of any
class of preferred stock of the Company assuming a liquidation of the Company as
the date of its most recently available balance sheet.
(b) RESTRICTION ON REDEMPTION. If any Series B Preferred Shares are
outstanding, without the prior express written consent of the holders of not
less than two-thirds (2/3) of the then outstanding Series B Preferred Shares,
the Company shall not directly or indirectly redeem, purchase or otherwise
acquire from any person or entity' other than from a direct or indirect
wholly-owned subsidiary of the Company, or permit any subsidiary of the Company
to redeem, purchase or otherwise acquire from any person or entity other than
from the Company or another direct or indirect wholly-owned subsidiary of the
Company, any of the Company's or any subsidiary's capital stock or other equity
securities (including, without limitation, warrants, options and other rights to
acquire such capital stock or other equity securities).
10. VOTE TO CHANGE THE TERMS OF SERIES B PREFERRED SHARES. The affirmative
vote at a meeting duly called for such purpose or the written consent without a
meeting, of the holders of not less than two-thirds (2/3) of the then
outstanding Series B Preferred Shares, shall be required for 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 Series B Preferred Shares.
11. LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing the Series B Preferred Shares, and, in
the case of loss, theft or destruction, of any indemnification undertaking by
the holder to the Company 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; provided,
however, the Company shall not be obligated to re-issue preferred stock
certificates if the holder(s) contemporaneously requests the Company to convert
such Series B Preferred Shares into Common Stock.
12. WITHHOLDING TAX OBLIGATIONS. Notwithstanding anything herein to the
contrary, to the extent that the Company receives advice in writing from its
counsel that there is a reasonable basis to believe that the Company is required
by applicable federal laws or regulations and delivers a copy of such written
advice to the holders of the Series B referred Shares so effected, the Company
may reasonably condition the making of any distribution (as such term is defined
under applicable federal tax law and regulations) in respect of any Series B
Preferred Shares on the holder of such Series B Preferred Shares depositing with
the Company an amount of cash sufficient to enable the Company to satisfy its
withholding tax obligations (the "WITHHOLDING TAX") with respect to such
distribution, Notwithstanding the foregoing or anything to the contrary, if any
holder of the Series B Preferred Shares so effected receives advice in writing
from its counsel that there is a reasonable basis to believe that the Company is
not so required by applicable federal laws or regulations and delivers a copy of
such written advice to the Company,
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the Company shall not be permitted to condition the making of any such
distribution in respect of any Series B Preferred Share on the holder of such
Series B Preferred Shares depositing with the Company any Withholding Tax with
respect to such distribution, PROVIDED, HOWEVER, the Company may reasonably
condition the making of any such distribution in respect of any Series B
Preferred Share on the holder of such Series B Preferred Shares executing and
delivering to the Company, at the election of the holder, either: (i) if
applicable, a property completed Internal Revenue Service Form 4224, or (a) an
indemnification agreement in reasonably acceptable form, with respect to any
federal tax liability, penalties and interest that may be imposed upon the
Company by the Internal Revenue Service as a result of the Company's failure to
withhold in connection with such distribution to such holder. If the conditions
in the preceding two sentences are fully satisfied, the Company shall not be
required to pay any additional damages if its failure to timely deliver any
Conversion Shares results solely from the holder(s) failure to deposit any
withholding tax hereunder or provide to the Company an executed indemnification
agreement in the form reasonably satisfactory to the Company.
IN WITNESS WHEREOF, the Company has caused this Certificate of Designations to
be signed by Jack Marshall, its President, and Lisa Marshall, its Secretary, as
of the ___ day of May, 2000.
PHOTOLOFT.COM
By:
Name: Jack Marshall
Title: President
By:
Name: Lisa Marshall
Title: Secretary
[Notarization]
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PHOTOLOFT.COM CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and
Rights of Photoloft.com (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 B Convertible Preferred Stock, $.001
par value per share (the "Series B Preferred Shares") of Photoloft.com, a Nevada
corporation (the "Company") indicated below into shares of Common Stock, $.001
par value per share (the "Common Stock") of the Company, by tendering the stock
certificate(s) representing the share(s) of Series B Preferred Shares specified
below as of the date specified below.
The undersigned acknowledges that any sales by the undersigned of the
securities issuable to the undersigned upon conversion of the Series B Preferred
Shares shall be made only pursuant to (i) a registration statement effective
under the Securities Act of 1933, as amended (the "Act"), or (ii) advice of
counsel that such sale is exempt from registration required by Section 5 of the
Act.
Date of Conversion:
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Number of Series B Preferred Shares to be
converted:
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Stock certificate no(s) of Series B
Preferred Shares To be converted:
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Please confirm the following information:
Conversion Rate:
-------------------------------------------
Number of shares of Common Stock To be
issued:
-------------------------------------------
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Please issue the Common Stock into which the Series B Preferred Shares are being
converted in the following name and to the following address:
Issue to:
-------------------------------------------
Facsimile Number:
-------------------------------------------
Authorization:
-------------------------------------------
By:
Title:
Dated:
ACKNOWLEDGED AND AGREED:
PHOTOLOFT.COM
By:
Name:
Title:
Dated:
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