<PAGE>
EXHIBIT 3.06.1
FIRST AMENDMENT TO
DESIGNATION OF STOCK OF
eUNIVERSE, INC. F/K/A MOTORCYCLE CENTERS OF AMERICA, INC.
AND
FIRST AMENDED AND RESTATED
CERTIFICATE OF DESIGNATION OF
SERIES A 6% CONVERTIBLE PREFERRED STOCK
OF
eUNIVERSE, INC.
Pursuant to the provisions of Section 78.1955 of the Nevada General
Corporation Law, the undersigned Company hereby adopts the following First
Amended and Restated Certificate of Designation of Series A 6% Convertible
Preferred Stock, that was approved as of the 2nd day of February, 2000 by
holders of the requisite percentage of shares of such preferred stock pursuant
to Section 7 of the Designation of Stock of eUniverse, Inc.:
It is hereby certified that:
1. The name of the Company (hereinafter called the "Company") is
eUniverse, Inc., a Nevada corporation.
2. The certificate of incorporation of the Company authorizes the
issuance of fifteen million (15,000,000) shares of preferred stock, $.001 par
value per share ("Preferred Stock"), and expressly vests in the Board of
Directors of the Company the authority provided therein to issue any or all of
said shares in one (1) or more series and by resolution or resolutions to
establish the designation and number and to fix the relative rights and
preferences of each series to be issued.
3. The Board of Directors of the Company, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a Series A 6% Convertible issue of Preferred Stock:
RESOLVED, that ten million (10,000,000) of the fifteen million
(15,000,000) authorized shares of Preferred Stock of the Company shall be
designated Series A 6% Convertible Preferred Stock, $.001 par value per share,
and shall possess the rights and preferences set forth below:
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall have
a par value of $.001 per share and shall be designated as Series A 6%
Convertible Preferred Stock (the "Series A Preferred Stock") and the number of
shares constituting the Series A Preferred Stock shall be ten million
(10,000,000). The Series A Preferred Stock shall be offered at a purchase price
of Three Dollars and Sixty Cents ($3.60) per share (the "Original Series A Issue
Price"), with a six percent (6%) per annum accretion rate as set forth herein.
SECTION 2. RANK. The Series A Preferred Stock shall rank: (a) junior to
any other class or series of capital stock of the Company other than Common
Stock (defined below) hereafter created specifically ranking by its terms senior
to the Series A Preferred Stock (collectively, the
<PAGE>
"Senior Securities"); (b) senior and prior to all of the Company's Common Stock,
$.001 par value per share ("Common Stock"); (c) senior and prior to any class or
series of capital stock of the Company hereafter created not specifically
ranking by its terms senior to or on parity with any Series A Preferred Stock of
whatever subdivision (collectively, with the Common Stock, "Junior Securities");
and (d) on parity with any class or series of capital stock of the Company
hereafter created specifically ranking by its terms on parity with the Series A
Preferred Stock ("Parity Securities") in each case as to distributions of assets
upon liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary (all such distributions being referred to collectively as
"Distributions").
SECTION 3. DIVIDENDS. The Series A Preferred Stock will bear no
dividends, and the holders of the Series A Preferred Stock ("Holders") shall not
be entitled to receive dividends on the Series A Preferred Stock.
SECTION 4. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up
of the Company ("Liquidation Event"), either voluntary of involuntary, the then
Holders of shares of Series A Preferred Stock shall be entitled to receive,
immediately after any distributions to Senior Securities required by the
Company's Certificate of Incorporation or any certificate of designation, and
prior in preference to any distribution to Junior Securities but in parity with
any distribution to Parity Securities, an amount per share equal to the sum of
(i) the Original Series A Issue Price for each outstanding share of Series A
Preferred Stock and (ii) an amount equal to six percent (6%) of the Original
Series A Issue Price, per annum, accruing daily, for the period that has passed
since the date that, in connection with the consummation of the purchase by
Holder of shares of Series A Preferred Stock from the Company, the escrow agent
first received in its possession funds representing full payment for the shares
of Series A Preferred Stock (such amount being referred to herein as the
"Premium"). If upon the occurrence of such event, and after payment in full of
the preferential amounts with respect to the Senior Securities, the assets and
funds available to be distributed among the Holders of the Series A Preferred
Stock and Parity Securities shall be insufficient to permit the payment to such
Holders of the full preferential amounts due to the Holders of the Series A
Preferred Stock and the Parity Securities, respectively, then the entire assets
and funds of the Company legally available for distribution shall be distributed
among the Holders of the Series A Preferred Stock and the Parity Securities, pro
rata, based on the respective liquidation amounts to which each such series of
stock is entitled by the Company's Certificate of Incorporation and any
certificate(s) of designation relating thereto.
(b) Upon the completion of the distribution required by
Subsection 4(a), if assets remain in this Company, they shall be distributed to
holders of Junior Securities in accordance with the Company's Certificate of
Incorporation including any duly adopted certificate(s) of designation.
(c) At each Holder's option, a sale, conveyance or disposition
of all or substantially all of the assets of the Company or the effectuation by
the Company of a transaction
-2-
<PAGE>
or series of related transactions in which more than fifty percent (50%) of the
voting power of the Company is disposed of shall be deemed to be a Liquidation
Event as defined in Section 4(a) hereof; provided, further that (i) a
consolidation, merger, acquisition, or other business combination of the Company
with or into any other publicly traded company or companies, including those
trading on the OTC Bulletin Board, shall not be treated as a Liquidation Event
as defined in Section 4(a) but instead shall be treated pursuant to Section 5(d)
hereof, and (ii) a consolidation, merger, acquisition, reorganization or other
business combination of the Company with or into any other non-publicly traded
company or companies where the Company is not the surviving company, shall be
treated as a Liquidation Event as defined in Section 4(a). The Company shall not
effect any transaction described in Subsection 4(c)(ii) unless it first gives
thirty (30) business days prior written notice of such transaction during which
time the Holder shall be entitled to immediately convert any or all of its
shares of Series A Preferred Stock into Common Stock at the Conversion Price, as
defined below, then in effect.
(d) In the event that, immediately prior to the closing of a
transaction described in Section 4(c) hereof which would constitute a
Liquidation Event, the cash distributions required by Section 4(a) or otherwise
hereunder, have not been made, the Company shall either: (i) cause such closing
to be reasonably postponed until such cash distributions have been made, (ii)
cancel such transaction, in which event the rights of the Holders of Series A
Preferred Stock shall be the same as existing immediately prior to such proposed
transaction, or (iii) agree, and shall require that any successor company
resulting from a Liquidation Event agrees, to make such distributions as quickly
after the closing of such Liquidation Event as reasonably practicable, upon the
same terms and in the same amounts as the Company would have made if such
distribution was made immediately prior to the closing of such transaction.
SECTION 5. CONVERSION. Subject to Section 4(c) herein, the record
Holder(s) of the Series A Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):
(a) Right to Convert. At any time following six months after
the Initial Issuance Date, the record Holder of the Series A Preferred Stock
shall be entitled to convert any or all of the aggregate principal amount of the
Series A Preferred Stock at the office of the Company or its designated transfer
agent (the "Transfer Agent"), into that number of fully-paid and non-assessable
shares of Common Stock calculated in accordance with the following formula (the
"Conversion Rate"):
-3-
<PAGE>
Number of shares of Common Stock issued upon conversion of one
(1) share of Series A Preferred Stock =
(.06) (N/365) ($3.60) + $3.60
------------------------------
Conversion Price
where,
N = the number of days between (i) the date that, in
connection with the consummation of the initial purchase by
Holder of shares of Series A Preferred Stock from the Company,
the escrow agent first received in its possession funds
representing full payment for the shares of Series A Preferred
Stock for which conversion is being elected, and (ii) the
applicable Date of Conversion (as defined in Section 5(b)(iv)
below) for the shares of Series A Preferred Stock for which
conversion is being elected, and
Conversion Price
(i) For the period commencing on the Initial Issuance
Date, as defined below, and ending seven (7) months
thereafter, the Conversion Price is the lesser of (a) $3.60;
or (b) the Adjusted Conversion Price;
(ii) For the period commencing seven (7) months and
one (1) day after the Initial Issuance Date and ending nine
months thereafter, the Conversion Price is the lesser of (a)
$3.60; (b) the Adjusted Conversion Price; or (c) 100% of the
average Closing Bid Price, as defined below, of the Company's
Common Stock for the thirty (30) trading days immediately
preceding the date which is seven months after the Initial
Issuance Date, but in no event shall the Conversion Price be
less than $2.00;
(iii) After the period which is nine (9) months and
one (1) day after the Initial Issuance Date, the Conversion
Price is the lesser of (a) $3.60, or (b) the Conversion Price
set forth in Section 5(a)(ii), or (c) 100% of the average of
the lowest three consecutive Closing Bid price of the
Company's Common Stock for the twenty (20) trading days
immediately preceding the Date of Conversion.
As used herein, "Fixed Conversion Price" shall be $3.60. "Variable
Conversion Price" shall be any Conversion price set forth in Section 5(a) other
than $3.60.
As used herein, "Adjusted Conversion Price" shall mean the Adjusted
Conversion Price in the table set forth on Exhibit 1 hereto.
-4-
<PAGE>
As used herein, "Initial Issuance Date" shall mean the date of the
first closing of a purchase and sale of the Series A Preferred Stock that occurs
pursuant to the offering of the Series A Preferred Stock by the Company.
For purposes hereof, any Holder which acquires shares of Series A
Preferred Stock from another Holder (the "Transferor") and not upon original
issuance from the Company shall be entitled to exercise such Holder's conversion
right as to the percentages of such shares specified under Section 5(a) in such
amounts and at such times such that the number of shares eligible for conversion
by such Holder at any time shall be in the same proportion that the number of
shares of Series A Preferred Stock acquired by such Holder from its Transferor
bears to the total number of shares of Series A Preferred Stock originally
issued by the Company to such Transferor (or its predecessor Transferor).
For purposes hereof, the term "Closing Bid Price" shall mean the
closing bid price of the Company's Common Stock on the NASDAQ SmallCap Market,
or if no longer traded on the NASDAQ SmallCap Market, the closing bid price on
the principal national securities exchange or the over-the-counter system on
which the Common Stock is so traded and if not available, the mean of the high
and low prices on the principal national securities exchange or the
over-the-counter system on which the Common Stock is so traded.
(b) Mechanics of Conversion. In order to convert Series A
Preferred Stock into full shares of Common Stock, the Holder shall send via
facsimile, or otherwise deliver, on or prior to 11:59 p.m., New York City time
(the "Conversion Notice Deadline") on the Date of Conversion, a copy of the
fully executed notice of conversion ("Notice of Conversion") to the Company at
the office of the Company and to its designated transfer agent (the "Transfer
Agent") for the Series A Preferred Stock stating that the Holder elects to
convert, which notice shall specify the Date of Conversion, the number of shares
of Series A Preferred Stock to be converted, the applicable Conversion Price and
a calculation of the number of shares of Common Stock issuable upon such
conversion (together with a copy of the front page of each certificate to be
converted). Upon receipt by the Company of a facsimile copy of a Notice of
Conversion, the Company shall immediately send, via facsimile, a confirmation of
receipt of the Notice of Conversion to the Holder which shall specify that the
Notice of Conversion has been received and the name and telephone number of a
contact person at the Company whom the Holder should contact regarding
information related to the Conversion. No later than one (1) business day after
receipt of such confirmation of receipt of Notice of Conversion, the Holder
shall surrender to a common courier for delivery to the office of the Company or
the Transfer Agent, the original certificates representing the Series A
Preferred Stock being converted (the "Preferred Stock Certificates"), duly
endorsed for transfer; provided, however, that the Company shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such conversion unless either the Preferred Stock Certificates are
delivered to the Company or its Transfer Agent as provided above, or the Holder
notifies the Company or its Transfer Agent that such certificates have been
lost, stolen or destroyed (subject to the requirements of subparagraph (i)
below). In the case of a dispute as to the calculation of the Conversion Rate,
the Company shall promptly issue to the Holder the number of Shares that are not
-5-
<PAGE>
disputed and shall submit the disputed calculations to its outside accountant
via facsimile within three (3) days of receipt of Holder's Notice of Conversion.
The Company shall cause the accountant to perform the calculations and notify
the Company and Holder of the results no later than two (2) business days from
the time it receives the disputed calculations. The accountant's calculation
shall be deemed conclusive absent manifest error.
(i) Lost or Stolen Certificates. Upon receipt by the
Company of evidence of the loss, theft, destruction or mutilation of
any Preferred Stock Certificates representing shares of Series A
Preferred Stock, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company, and upon
surrender and cancellation of the Preferred Stock Certificate(s), if
mutilated, the Company shall execute and deliver new Preferred Stock
Certificate(s) of like tenor and date. However, the Company shall not
be obligated to re-issue such lost or stolen Preferred Stock
Certificates if Holder contemporaneously requests the Company to
convert such Series A Preferred Stock into Common Stock.
(ii) Delivery of Common Stock Upon Conversion. The
Company shall, or shall cause the Transfer Agent, no later than the
close of business on the third (3rd) business day (the "Deadline")
after receipt by the Company or the Transfer Agent of a facsimile copy
of a Notice of Conversion and receipt by Company or the Transfer Agent
of all necessary documentation duly executed and in proper form
required for conversion, including the original Preferred Stock
Certificates to be converted (or after provision for security or
indemnification in the case of lost or destroyed certificates, if
required), to issue and surrender to a common courier for either
overnight or (if delivery is outside the United States) two (2) day
delivery to the Holder at the address of the Holder as shown on the
stock records of the Company (A) a certificate for the number of shares
of Common Stock to which the Holder shall be entitled as aforesaid, and
(B) certificate(s) representing the number of shares of Series A
Preferred Stock not being exchanged, if necessary.
(iii) No Fractional Shares. If any conversion of the
Series A Preferred Stock would create a fractional share of Common
Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of
Common Stock issuable upon conversion, in the aggregate, shall be the
next higher number of shares.
(iv) Date of Conversion. The date on which conversion
occurs (the "Date of Conversion") shall be deemed to be the date set
forth in such Notice of Conversion, provided (i) that the advance copy
of the Notice of Conversion is sent via facsimile to the Company before
11:59 p.m., New York City time, on the Date of Conversion, and (ii)
that the original Preferred Stock Certificates representing the shares
of Series A Preferred Stock to be converted are surrendered by
depositing such certificates with a common courier, for delivery to the
Company or the Transfer Agent as provided above, as soon as practicable
after the Date of Conversion, provided that the Date of Conversion
shall not occur less than
-6-
<PAGE>
six (6) months after the Initial Issuance Date. The person or
persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the
record Holder or Holders of such shares of Common Stock on the
Date of Conversion.
(v) Taxes. The Company shall pay any and all taxes
(other than transfer taxes) which may be imposed with respect to the
issuance and delivery of the shares of Common Stock pursuant to
conversion of the Series A Preferred Stock.
(c) Automatic Conversion or Redemption. If at any time after
12 months following the initial effectiveness of the required registration of
the Company's Common Stock (under Section 2 of the Company's Registration Rights
Agreement relating to its Series A Preferred Stock) the Closing Bid Price of the
Company's Common Stock is $16.00 or more for twenty (20) consecutive trading
days ("Automatic Conversion Event"), then at any time following the Automatic
Conversion Event (regardless of whether the Closing Bid Price of the Company's
Common Stock shall at any time following the Automatic Conversion Event be less
than $16.00), each share of Series A Preferred Stock outstanding on the date of
the Automatic Conversion Event or, if not a business day, the first business day
thereafter ("Termination Date") automatically, at the option of the Company,
shall either (i) be converted ("Automatic Conversion") into Common Stock on such
date at the Conversion Rate then in effect (calculated in accordance with the
formula in Section 5(a) above), and the Termination Date shall be deemed the
Date of Conversion with respect to such conversion for purposes of this
Certificate of Designation, or (ii) be redeemed ("Automatic Redemption") by the
Company for cash in an amount equal to the Stated Value (as defined below) of
the shares of Series A Preferred Stock being redeemed. If the Company elects to
redeem, on the Termination Date, the Company shall send to the Holders of
outstanding Series A Preferred Stock notice (the "Automatic Redemption Notice")
via facsimile of its intent to effect an Automatic Redemption of the outstanding
Series A Preferred Stock. If the Company does not send such notice to Holder on
such date, an Automatic Conversion shall be deemed to have occurred. If an
Automatic Conversion occurs, the Company and the Holders shall follow the
applicable conversion procedures set forth in this Certificate of Designation;
provided, however, that the Holders are not required to send the Notice of
Conversion contemplated by Section 5(b) hereof. If the Company elects to redeem,
each Holder of outstanding Series A Preferred Stock shall send their
certificates representing the Series A Preferred Stock to the Company within
five (5) days of the date of receipt of the Automatic Redemption Notice from the
Company, and the Company shall pay the applicable redemption price to each
respective Holder within five (5) days of the receipt of such certificates. The
Company shall not be obligated to deliver the redemption price unless the
certificates representing the Series A Preferred Stock are delivered to the
Company, or, in the event one or more certificates have been lost, stolen,
mutilated or destroyed, unless the Holder has complied with Section 5(b)(i). If
the Company elects to redeem under this Section 5(c) and the Company fails to
pay the Holders the redemption price within five (5) days of its receipt of the
certificates representing the shares of Series A Preferred Stock to be redeemed
as required by this Section 5(c), then an Automatic Conversion shall be deemed
to have occurred and, upon receipt of the Preferred Stock certificates, the
Company shall immediately deliver to the Holders the certificates representing
the
-7-
<PAGE>
number of shares of Common Stock to which the Holders would have been entitled
upon Automatic Conversion.
As used herein, "Last Closing Date" shall mean the date of the
last closing of a purchase and sale of the Series A Preferred Stock that occurs
pursuant to the offering of the Series A Preferred Stock by the Company, and
"Stated Value" shall mean the Original Series A Issue Price (as defined in
Section 1 hereof) together with the accreted but unpaid Premium as defined in
Section 4(a).
(d) Adjustment to Conversion Rate.
(i) Adjustment to Fixed Conversion Price Due to Stock
Split, Stock Dividend, Etc. If, prior to the conversion of all of the
Series A Preferred Stock, the number of outstanding shares of Common
Stock is increased by a stock split, stock dividend, or other similar
event, the Fixed Conversion Price shall be proportionately reduced, or
if the number of outstanding shares of Common Stock is decreased by a
combination or reclassification of shares, or other similar event, the
Fixed Conversion Price shall be proportionately increased.
(ii) Adjustment to Variable Conversion Price. If, at
any time when any shares of the Series A Preferred Stock are issued and
outstanding, the number of outstanding shares of Common Stock is
increased or decreased by a stock split, stock dividend or other
similar event, which event shall have taken place during the reference
period for determination of the Conversion Price for any conversion of
the Series A Preferred Stock, then the Variable Conversion Price shall
be calculated giving appropriate effect to the stock split, stock
dividend, combination, reclassification or other similar event for all
relevant trading days immediately preceding the Date of Conversion.
(iii) Adjustment Due to Merger, Consolidation, Etc.
If, prior to the conversion of all Series A Preferred Stock, there
shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event, as a result
of which shares of Common Stock of the Company shall be changed into
the same or a different number of shares of the same or another class
or classes of stock or securities of the Company or another entity or
there is a sale of all or substantially all of the Company's assets or
there is a change of control transaction not deemed to be a Liquidation
Event pursuant to Section 4(c), then the Holders of Series A Preferred
Stock shall thereafter have the right to receive upon conversion of
Series A Preferred Stock, upon the basis and upon the terms and
conditions specified herein in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such stock,
securities and/or other assets which the Holder would have been
entitled to receive in such transaction had the Series A Preferred
Stock been converted immediately prior to such transaction, and in any
such case appropriate provisions shall be made with respect to the
rights and interests of the Holders of the Series A Preferred Stock to
the end that the provisions hereof (including, without limitation,
provisions for the adjustment of the Conversion Price and of the number
of shares issuable
-8-
<PAGE>
upon conversion of the Series A Preferred Stock) shall thereafter
be applicable, as nearly as may be practicable in relation to
any securities thereafter deliverable upon the exercise hereof.
The Company shall not effect any transaction described in this
Subsection 5(d)(iii) unless (A) it first gives at least thirty (30)
days prior written notice of such merger, consolidation, exchange of
shares, recapitalization, reorganization, or other similar event
(during which time the Holder shall be entitled to convert its shares
of Series A Preferred Stock into Common Stock) and (B) the resulting
successor or acquiring entity (if not the Company) assumes by written
instrument the obligations of the Company under this Certificate of
Designation including this Subsection 5(d)(iii).
(iv) No Fractional Shares. If any adjustment under
this Section 5(d) would create a fractional share of Common Stock or a
right to acquire a fractional share of Common Stock, such fractional
share shall be disregarded and the number of shares of Common Stock
issuable upon conversion shall be the next higher number of shares.
SECTION 6. VOTING RIGHTS. Except as otherwise provided herein or by
law, the Holder(s) of Series A Preferred Stock, by virtue of their ownership
thereof, shall be entitled to cast the number of votes per share thereof on each
matter submitted to the Company's holders of Common Stock for voting as equals
the number of votes which could be cast by the Holders of the number of shares
of Common Stock into which such shares of Series A Preferred Stock could be
converted pursuant hereto immediately prior to the taking of such vote
(including, without limitation, any shares of Common Stock which would be
issuable in payment of accrued and unpaid interest thereon if such shares were
converted on the record date and the Company elected to pay such interest in
Common Stock). Such vote shall be cast together with those cast by the Holders
of Common Stock and not as a separate class except as otherwise provided herein.
SECTION 7. PROTECTIVE PROVISION. So long as shares of Series A
Preferred Stock are outstanding, the Company shall not without first obtaining
the approval (by vote or written consent, as provided by Nevada Law) of the
Holders of at least seventy-five percent (75%) of the then outstanding shares of
Series A Preferred Stock, and at least seventy-five percent (75%) of the then
outstanding Holders:
(a) alter or change the rights, preferences or privileges of
the Series A Preferred Stock or any securities so as to affect adversely the
Series A Preferred Stock;
(b) create any new class or series of stock having a
preference over or on parity with the Series A Preferred Stock with respect to
Distributions (as defined in Section 2 above) or increase the size of the
authorized number of Series A Preferred Stock; or
(c) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the holders of
shares of the Series A Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
-9-
<PAGE>
In the event Holders of at least seventy-five percent (75%) of the then
outstanding shares of Series A Preferred Stock and at least seventy-five percent
(75%) of the then outstanding Holders agree to allow the Company to alter or
change the rights, preferences or privileges of the shares of Series A Preferred
Stock, pursuant to Subsection (a) above, so as to affect the Series A Preferred
Stock, then the Company will deliver notice of such approved change to the
Holders of the Series A Preferred Stock that did not agree to such alteration or
change (the "Dissenting Holders") and Dissenting Holders shall have the right
for a period of thirty (30) business days to convert pursuant to the terms of
this Certificate of Designation as they exist prior to such alteration or change
(notwithstanding any other provision herein to the contrary) or continue to hold
their shares of Series A Preferred Stock, as amended.
SECTION 8. STATUS OF CONVERTED STOCK. In the event any shares of Series
A Preferred Stock shall be converted pursuant to Section 5 hereof, the shares of
Preferred Stock so converted shall be canceled, shall return to the status of
authorized but unissued Preferred Stock of no designated series, and shall not
be re-issuable by the Company as Series A Preferred Stock.
SECTION 9. PREFERENCE RIGHTS. Nothing contained herein shall be
construed to prevent the Board of Directors of the Company from issuing one (1)
or more series of Preferred Stock with dividend and/or liquidation preferences
junior to the dividend and liquidation preferences of the Series A Preferred
Stock.
SECTION 10. AUTHORIZATION AND RESERVATION OF SHARES OF COMMON STOCK.
(a) Authorized and Reserved Amount. The Company shall have
authorized and reserved and keep available for issuance not less than three
million nine hundred thousand (3,900,000) shares of Common Stock (subject to
adjustment for stock splits, stock dividends, reclassifications and similar
types of events) issuable upon conversion of all outstanding Series A Preferred
Stock for the purpose of effecting the conversion of the Series A Preferred
Stock (including any shares of Common Stock as a Conversion Failure Payment
under Section 11 hereof or issuable upon the failure of the Company to pay a
Redemption Amount in accordance with Section 5(c) hereof) issued or to be issued
to the Holders (the "Reserved Amount"). The Reserved Amount shall be at least
two hundred percent (200%) of the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock a sufficient number of shares of Common Stock to provide for the full
conversion of all outstanding Series A Preferred Stock, and issuance of the
shares of Common Stock in connection therewith. During any period in which the
Reserved Amount is less than two hundred percent (200%) of the number of shares
of Common Stock issuable on three (3) consecutive trading days upon conversion
of the outstanding Series A Preferred Stock (without giving effect to any
limitation on conversion or exercise thereof), the Company shall not reserve or
issue shares of Common Stock for any purposes other than the conversion of the
Series A Preferred Stock.
-10-
<PAGE>
(b) Increases to Reserved Amount. Without limiting any other
provision of this Section 10, if the Reserved Amount for any three (3)
consecutive trading days (the last of such three (3) trading days being the
"Reservation Trigger Date") is less than two hundred percent (200%) of the
number of shares of Common Stock issuable upon conversion of Series A Preferred
Stock on such trading days (a "Share Authorization Failure"), the Company shall
immediately notify all Holders of such occurrence and shall take all necessary
action to increase the Reserved Amount to two hundred percent (200%) of the
number of shares of Common Stock then issuable upon conversion of the Series A
Preferred Stock within (i) fifteen (15) days following a Reservation Trigger
Date if such increase requires solely approval of the Company's Board of
Directors and (ii) sixty (60) days following a Reservation Trigger Date if such
increase requires approval of the Company's shareholders.
(c) Reduction of Reserved Amount Under Certain Circumstances.
Prior to complete conversion of all Series A Preferred Stock, the Company shall
not reduce the number of shares required to be reserved for issuance under this
Section 10 without the written consent of all Holders except for a reduction
proportionate to a reverse stock split effected for a business purpose other
than affecting the obligations of Holder under this Section 10, which reverse
stock split affects all shares of Common Stock equally.
(d) Allocation of Reserved Amount. Each increase to the
Reserved Amount shall be allocated pro rata among the Holders based on the
number of Series A Preferred Stock held by each Holder at the time of the
establishment of or increase in the Reserved Amount. In the event a Holder shall
sell or otherwise transfer any of such Holder's Series A Preferred Stock, each
transferee shall be allocated a pro rata portion of such transferor's Reserved
Amount. Any portion of the Reserved Amount which remains allocated to any person
or entity which does not hold any Series A Preferred Stock shall be allocated to
the remaining Holders, pro rata based on the number of Series A Preferred Stock
then held by such Holders.
SECTION 11. FAILURE TO SATISFY CONVERSIONS.
(a) Conversion Failure Payments. If, at any time, (x) a Holder
submits a Notice of Conversion (or is deemed to submit such notice pursuant to
Section 5(d) hereof), and the Company fails for any reason to deliver, on or
prior to the expiration of the Deadline ("Delivery Period") for such conversion,
such number of shares of Common Stock to which such converting Holder is
entitled upon such conversion, or (y) the Company provides notice (including,
but not limited to, any published announcement) to any Holder at any time of its
intention not to issue shares of Common Stock upon exercise by any Holder of its
conversion rights in accordance with the terms of this Certificate of
Designation (each of (x) and (y) being a "Conversion Failure"), then the Company
shall pay to such Holder, in the case of a Conversion Failure described in
clause (x) above, and to all Holders, in the case of a Conversion Failure
described in clause (y) above, damages in an amount equal to the lower of:
(i) "Damages Amount" x "D" x .005; and
-11-
<PAGE>
(ii) the highest interest rate permitted by
applicable law, where:
"D" means the number of days beginning the date of the Conversion
Failure through and including the Cure Date with respect to such Conversion
Failure;
"Damages Amount" means the Original Series A Issue Price for each share
of Series A Preferred Stock subject to conversion plus all accrued and unpaid
interest thereon as of the first day of the Conversion Failure;
"Cure Date" means (i) with respect to a Conversion Failure described in
clause (x) of its definition, the date the Company effects the conversion of the
shares of Series A Preferred Stock submitted for conversion and (ii) with
respect to a Conversion Failure described in clause (y) of its definition, the
date the Company undertakes in writing to issue Common Stock in satisfaction of
all conversions of Series A Preferred Stock in accordance with the terms of this
Certificate of Designation.
The payments to which a Holder shall be entitled pursuant to this
Section are referred to herein as "Conversion Failure Payments." The parties
agree that the damages caused by a breach hereof would be difficult or
impossible to estimate accurately. A Holder may elect to receive accrued
Conversion Failure Payments in cash or to convert all or any portion of such
accrued Conversion Failure Payments, at any time, into Common Stock at the
lowest Conversion Price in effect during the period beginning on the date of the
Conversion Failure through the Cure Date for such Conversion Failure. In the
event a Holder elects to receive any Conversion Failure Payments in cash, it
shall notify the Company in writing no later than three (3) business days after
the Deadline and failure to so notify the Company shall entitle the Company, in
its sole discretion, to elect to make such Conversion Failure Payments in cash,
Common Stock or some combination of the two. In the event a Holder elects to
convert all or any portion of the Conversion Failure Payments, such Holder shall
indicate on a Notice of Conversion such portion of the Conversion Failure
Payments which such Holder elects to so convert in accordance with this Section
11(a) and such conversion shall otherwise be effected in accordance with
provisions of Section 5.
(b) Buy-In Cure. Unless a Conversion Failure described in
clause (y) of Section 11(a) hereof has occurred with respect to such a Holder,
if (i) the Company fails for any reason to deliver during the Delivery Period
shares of Common Stock to a Holder upon a conversion of the Series A Preferred
Stock and (ii) after the applicable Delivery Period with respect to such
conversion, a Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to make delivery upon a sale by a Holder of the shares of
Common Stock (the "Sold Shares") which such Holder anticipated receiving upon
such conversion (a "Buy-In"), the Company shall pay such Holder (in addition to
any other remedies available to Holder) the amount by which (x) such Holder's
total purchase price (including brokerage commission, if any) for the shares of
Common Stock so purchased exceeds (y) the net proceeds received by such Holder
from the sale of the Sold Shares. For example, if a Holder purchases shares of
Common Stock having a total purchase price
-12-
<PAGE>
of $11,000 to cover a Buy-In with respect to shares of Common Stock sold for
$10,000, the Company will be required to pay such Holder $1,000. A Holder shall
provide the Company written notification indicating any amounts payable to
Holder pursuant to this Section 11.
(c) Adjustment to Conversion Price. If a Holder has not
received certificates for all shares of Common Stock within five (5) business
days following the expiration of the Delivery Period with respect to a
conversion of any portion of any such Holder's Series A Preferred Stock for any
reason, then the Conversion Price for the affected Series A Preferred Stock
shall thereafter be the lesser of (i) the Fixed Conversion Price on the
Conversion Date specified in the Notice of Conversion which resulted in the
Conversion Failure and (ii) the lowest Conversion Price in effect during the
period beginning on, and including, such Conversion Date through and including
the Cure Date. If there shall occur a Conversion Failure of the type described
in clause (y) of Section 11(a), then the Fixed Conversion Price with respect to
any conversion thereafter shall be the lowest Conversion Price in effect at any
time during the period beginning on, and including, the date of the occurrence
of such Conversion Failure through and including the Cure Date. The Conversion
Price shall thereafter be subject to further adjustment for any events described
in Section 5(d).
SECTION 12. EVENT OF DEFAULT.
(a) Holder's Option to Demand Prepayment. Upon the occurrence
of an Event of Default (as herein defined), each Holder shall have the right to
elect at any time and from time to time prior to the cure by Company of such
Event of Default to have all or any portion of such Holder's then outstanding
Series A Preferred Stock prepaid by the Company for an amount equal to the
Holder Demand Prepayment Amount (as herein defined).
(i) The right of a Holder to elect prepayment shall
be exercisable upon the occurrence of an Event of Default by such
Holder in its sole discretion by delivery of a Demand Prepayment Notice
(as herein defined) in accordance with the procedures set forth in this
Section 12. Notwithstanding the exercise of such right, the Holder
shall be entitled to exercise all other rights and remedies available
under the provisions of this Certificate of Designation and at law or
in equity.
(ii) A Holder shall effect each demand for prepayment
under this Section 12 by giving at least two (2) business days prior
written notice (the "Demand Prepayment Notice") of the date which such
prepayment is to become effective (the "Effective Date of Demand of
Prepayment"), the Series A Preferred Stock selected for prepayment and
the Holder Demand Prepayment Amount to the Company at the address and
facsimile number provided in the stock records of the Company, which
Demand Prepayment Notice shall be deemed to have been delivered on the
business day after the date of transmission of Holder's facsimile (with
a copy sent by overnight courier to the Company) of such notice.
(iii) The Holder Demand Prepayment Amount shall be
paid to a Holder whose Series A Preferred Stock are being prepaid
within one (1) business day following the
-13-
<PAGE>
Effective Date of Demand of Prepayment; provided, however, that the
Company shall not be obligated to deliver any portion of the Holder
Demand Prepayment Amount until one (1) business day following either
the date on which the Series A Preferred Stock being prepaid are
delivered to the office of the Company or its transfer agent, or the
date on which the Holder notifies the Company or the Transfer Agent
that such Series A Preferred Stock have been lost, stolen or destroyed
and delivers the documentation required in accordance with Section
5(b)(i) hereof.
(b) Holder Demand Prepayment Amount. The "Holder Demand
Prepayment Amount" means the greater of: (a) 1.3 times the Stated Value of the
Series A Preferred Stock for which demand is being made, plus all accrued and
unpaid interest thereon and accrued and unpaid Conversion Failure Payments (if
any) through the date of prepayment and (b) the product of (1) the highest price
at which the Common Stock is traded on the date of the Event of Default (or the
most recent highest closing bid price if the Common Stock is not traded on such
date) divided by the Conversion Price in effect as of the date of the Event of
Default, and (2) the sum of the Stated Value and all accrued and unpaid
Conversion Failure Payments (if any) through the date of prepayment.
(c) Events of Default. An "Event of Default" means any one of
the following:
(i) a Conversion Failure described in Section 11(a)
hereof;
(ii) a Share Authorization Failure described in
Section 10(b) hereof, if such Share Authorization Failure continues
uncured for (x) fifteen (15) days following a Reservation Trigger Date
if such increase requires solely the approval of the Company's Board of
Directors and (y) sixty (60) days after the Reservation Trigger Date if
such increase requires approval of the Company's shareholders;
(iii) the Company fails, and such failure continues
uncured for three (3) business days after the Company has been notified
thereof in writing by a Holder, to satisfy the share reservation
requirements of Section 10 hereof;
(iv) the Company fails to maintain an effective
registration statement as required by Section 2, Section 3 or Section 6
of the Registration Rights Agreement between the Company and the
Holder(s) (the "Registration Rights Agreement") except where such
failure lasts no longer than three (3) consecutive trading days and is
caused solely by failure of the Securities and Exchange Commission to
timely review the customary submission of or respond to the customary
requests of the Company;
(v) for three (3) consecutive trading days or for an
aggregate of ten (10) trading days in any nine (9) month period, the
Common Stock (including any of the shares of Common Stock issuable upon
conversion of the Series a Preferred Stock, and exercise of the Common
Warrants) is (i) suspended from trading on any of the NASDAQ SmallCap,
-14-
<PAGE>
NMS, NYSE, AMEX or the OTC Bulletin Board, or (ii) is not qualified for
trading on at least one of NASDAQ SmallCap, NMS, NYSE, AMEX or the OTC
Bulletin Board;
(vi) the Company fails, and such failure continues
uncured for three (3) business days after the Company has been notified
thereof in writing by a Holder, to remove any restrictive legend on any
certificate for any shares of Common Stock issued to a Holder upon
conversion of any Series A Preferred Stock as and when required by this
Certificate of Designation and the Subscription Agreement, between the
Company and the Holder(s) (the "Subscription Agreement") or the
Registration Rights Agreement;
(vii) the Company breaches, and such breach continues
uncured for three (3) business days after the Company has been notified
thereof in writing by a Holder, any significant covenant or other
material term or condition of this Certificate of Designation, the
Subscription Agreement or the Registration Rights Agreement;
(viii) any representation or warranty of the Company
made herein or in any agreement, statement or certificate given in
writing pursuant hereto or in connection herewith (including, without
limitation, the Subscription Agreement and Registration Rights
Agreement), shall be false or misleading in any material respect when
made;
(ix) the Company or any subsidiary of the Company
shall make an assignment for the benefit of its creditors, or apply for
or consent to the appointment of a receiver or trustee for it or for a
substantial part of its property or business, or such receiver or
trustee shall otherwise be appointed;
(x) bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be instituted
by or against the Company or any subsidiary of the Company (and such
proceedings shall continue unstayed for thirty (30) days); or
(xi) the Company fails to file a registration
statement on Form 10 (to register securities pursuant to Section 12(b)
or 12(g) of the Securities Exchange Act of 1934) within sixty (60) days
of the Initial Issuance Date (as defined in Section 5 of the Company's
Certificate of Designation of Preferred Stock), or such registration
statement is not declared effective within one hundred fifty (150) days
of the Initial Issuance Date.
-15-
<PAGE>
(d) Failure to Pay Damages Amount. If the Company fails to pay
the Holder Demand Prepayment Amount within five (5) business days of its receipt
of a Demand Prepayment Notice, then such Holder shall have the right, at any
time and from time to time prior to the payment of the Holder Demand Prepayment
Amount, to require the Company, upon written notice, to immediately convert (in
accordance with the terms of Section 5) all or any portion of the Holder Demand
Prepayment Amount, into shares of Common Stock at the then current Conversion
Price, provided that if the Company has not delivered the full number of shares
of Common Stock issuable upon such conversion within five (5) business days
after the Company receives written notice of such conversion, the Conversion
Price with respect to such Holder Demand Prepayment Amount shall thereafter be
deemed to be at the lowest Conversion Price in effect during the period
beginning on the date of the Event of Default through the date on which the
Company delivers to the Holder the full number of freely tradable shares of
Common Stock issuable upon such conversion. In the event the Company is not able
to pay all amounts due and payable with respect to all Series A Preferred Stock
subject to Holder Demand Prepayment Notices, the Company shall pay the Holders
such amounts pro rata, based on the total amounts payable to such Holder
relative to the total amounts payable to all Holders.
Dated as of February 2, 2000.
eUNIVERSE, INC.
By: /s/ Leland N. Silvas
------------------------------
Leland N. Silvas, President
By: /s/ William R. Wagner
------------------------------
William R. Wagner, Secretary
STATE OF CONNECTICUT )
) ss.:
COUNTY OF New Haven )
Personally appeared, Leland N. Silvas, President of eUniverse, Inc.,
who executed the foregoing First Amended and Restated Certificate of Designation
of Series A 6% Convertible Preferred Stock and acknowledged that he executed the
same, before me on April 30, 2000.
/s/ Tami L. Belden
------------------------
Tami L. Belden
Notary Public
My commission expires: 1/31/05
-16-
<PAGE>
EXHIBIT 1
TO
CERTIFICATE OF DESIGNATION OF PREFERRED STOCK
The Adjusted Conversion Price is based upon the adjusted pricing point.
The adjusted pricing point is determined by reference to the Closing Bid Price
of the Common Stock, a publicly traded shell corporation ("PE"), as it may be
adjusted, on the day of the merger between the Company and PE. The adjusted
pricing point may be adjusted up or down depending upon the value of the Closing
Bid Price, based upon the following chart:
<TABLE>
<CAPTION>
If the Cents Portion The Cents Portion of the Adjusted
of the Closing Is: Pricing Point Will be Adjusted To:
------------------ ----------------------------------
<S> <C>
$.00 - $.50 $.00
$.51 - $.99 $.50
</TABLE>
The following is an example of the manner in which the adjustments are
to be made:
<TABLE>
<CAPTION>
If the Closing Bid Price Is: The Adjusted Pricing Point Will Be:
---------------------------- -----------------------------------
<S> <C>
$1.00 to $1.50 $1.00
$1.51 to $2.00 $1.50
</TABLE>
-1-
<PAGE>
Based upon the adjusted pricing point determined as set forth above,
the Adjusted Conversion Price will be as follows:
<TABLE>
<CAPTION>
If the Adjusted Price Point Is: The Adjusted Conversion Price Will Be:
---------------------------------------------------------------------
<S> <C>
$1.00 $3.60
$1.50 $2.89
$2.00 $2.73
$2.50 $2.52
$3.00 $2.47
$3.50 $2.43
$4.00 $2.41
$4.50 $2.29
$5.00 $2.27
$5.50 $2.26
$6.00 $2.25
$6.50 $2.15
$7.00 $2.14
$7.50 $2.14
$8.00 $2.13
$8.50 $2.13
$9.00 $2.04
$9.50 $2.04
$10.00 and above $2.04
</TABLE>
Notwithstanding the foregoing, if PE issues its common stock for $1.00
per share, then the Adjusted Conversion Price shall be $3.60.
-2-
