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ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF
2-INFINITY.COM, INC.
Pursuant to the provisions of Section 7-106-102 of the Colorado
Business Corporation Act and Article V, Section 2 of the Articles of
Incorporation, the board of directors of the undersigned corporation,
2-Infinity.com, Inc., a Colorado corporation (the "Corporation"), adopted,
pursuant to unanimous written consent dated August 14, 2000, a resolution
ratifying and approving the following Articles of Amendment to its Articles
of Incorporation providing for the establishment and issuance of a series of
shares of preferred stock as hereinafter described, and providing for the
designations, preferences, limitations and relative, voting, conversion and
other rights thereof and the qualifications, limitations or restrictions
thereof, in addition to those set forth in the Articles of Incorporation, all
in accordance with the provisions of Section 7-106-102 of the Colorado
Business Corporation Act:
FIRST: The name of the Corporation is 2-Infinity.com, Inc.
SECOND: The Board of Directors of the Corporation adopted the
following amendment to the Corporation's Articles of Incorporation on
August 14, 2000.
THIRD: Article V of the Corporation's Articles of Incorporation is
hereby amended to include the new Section 7, which shall read in its
entirety as follows:
Section 7. SERIES A PREFERRED STOCK. The Corporation is authorized
to issue 3,000 shares of Series A Convertible Preferred Stock (the "SERIES A
PREFERRED SHARES"), no par value per share, which shall have the following
powers, designations, preferences and other special rights:
A. DIVIDENDS. The Series A Preferred Shares shall not bear any
dividends.
B. HOLDER'S CONVERSION OF SERIES A PREFERRED SHARES. A holder
of Series A Preferred Shares shall have the right, at such holder's option,
to convert the Series A Preferred Shares into shares of the Corporation's
common stock on the following terms and conditions:
(1) CONVERSION RIGHT. Subject to the provisions of
subsections B(7), B(8), and C(1) below, at any time or times on or
after the earlier of (i) 60 days after the Issuance Date (as defined
herein), (ii) 5 days after receiving a "no-review" status from the U.S.
Securities and Exchange Commission (the "SEC") in connection with a
registration statement ("REGISTRATION STATEMENT") registering the
resale of common stock issued upon conversion of the Series A Preferred
Shares and required to be filed by the Corporation pursuant to the
Registration Rights Agreement between the Corporation and its initial
holders of Series A Preferred Shares (the "REGISTRATION RIGHTS
AGREEMENT"), (iii) the date that the Registration Statement is declared
effective by the U.S. Securities and Exchange Commission (the "SEC"),
any holder of Series A Preferred Shares shall be entitled to convert
any Series A Preferred Shares into fully paid and nonassessable shares
(rounded to the nearest whole share in accordance with subsection B(8)
below) of common stock, at the Conversion Rate (as defined below);
provided, however, that in no event other than upon a Mandatory
Conversion pursuant to subsection B(7) hereof, or upon a Triggering
Event pursuant to subsection F(5) hereof, shall any holder be entitled
to convert Series A Preferred Shares in excess of that number of Series
A Preferred Shares which, upon giving effect to such conversion, would
cause the aggregate number of shares of common stock beneficially owned
by the holder and its affiliates to exceed 4.9% of the outstanding
shares of the common stock following such conversion. For purposes of
the foregoing
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proviso, the aggregate number of shares of common stock beneficially
owned by the holder and its affiliates shall include the number of
shares of common stock issuable upon conversion of the Series A
Preferred Shares with respect to which the determination of such
proviso is being made, but shall exclude the number of shares of common
stock which would be issuable upon conversion of the remaining,
nonconverted Series A Preferred Shares beneficially owned by the holder
and its affiliates beneficially owned by the holder and its affiliates.
Except as set forth in the preceding sentence, for purposes of this
paragraph, beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended.
(2) CONVERSION RATE. The number of shares of common stock
issuable upon conversion of each of the Series A Preferred Shares
pursuant to subsection B(1) shall be determined according to the
following formula (the "CONVERSION RATE");
(.08)(N/365)(1,000) + 1,000
---------------------------
CONVERSION PRICE
For purposes of this Article V, Section 7, the following terms shall
have the following meanings:
(a) "CONVERSION PRICE" means as, of any
Conversion Date (as defined below), the lower of the Fixed
Conversion Price and the Floating Conversion Price, each in
effect as of such date, if applicable, and subject to
adjustment as provided herein;
(b) "FIXED CONVERSION PRICE" means $0.50,
subject to adjustment, as provided herein.
(c) "FLOATING CONVERSION PRICE" means, as of any
date of determination, the amount obtained by multiplying the
Conversion Percentage in effect as of such date by the Average
Market Price for the common stock for the five (5) consecutive
trading days immediately preceding such date;
(d) "CONVERSION PERCENTAGE" means 75% as
adjusted as described herein;
(e) "AVERAGE MARKET PRICE" means, with respect
to any security for any period, that price which shall be
computed as the arithmetic average of the Closing Bid Prices
(as defined below) for such security for each trading day in
such period;
(f) "CLOSING BID PRICE" means, for any security
as of any date, the last closing bid price on the Nasdaq
National Market (the "NASDAQ-NM") as reported by Bloomberg
Financial Markets ("BLOOMBERG"), or, if the Nasdaq-NM is not
the principal trading market for such security, the last
closing bid price of such security on the principal securities
exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not
apply, the last closing sale price of such security in the
over-the-counter market on the pink sheets or bulletin board
for such security as reported by Bloomberg, or, if no closing
sale price is reported for such security by Bloomberg, the
last closing trade price of such security as reported by
Bloomberg. If the Closing Bid Price cannot be calculated for
such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the
fair market value as reasonably determined in good faith by
the Board of Directors of the Corporation (all as
appropriately adjusted for any stock dividend, stock split or
other similar transaction during such period); and
(g) "N" means the number of days from, but
excluding, the Issuance Date
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through and including the Conversion Date for the Series A
Preferred Shares for which conversion is being elected.
(h) "ISSUANCE DATE" means the date of issuance
of the Series A Preferred Shares.
(3) ADJUSTMENT TO CONVERSION PRICE - REGISTRATION
STATEMENT. (i) If the Registration Statement, (i) has not been filed by
October 14, 2000 (the "Filing Deadline"), (ii) is not declared
effective by the SEC by February 14, 2001 (the "Registration Deadline")
or (iii) if after the Registration Statement has been declared
effective by the SEC, sales cannot be made pursuant to the Registration
Statement (whether because of a failure to keep the registration
Statement effective, to disclose such information as is necessary for
sales to be made pursuant to the Registration Statement, to register
sufficient shares of common stock or otherwise and all the common stock
issuable upon conversion of the then outstanding Series A Preferred
Shares can not be sold pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended (the "1933 Act"), then, as partial
relief for the damages to any holder by reason of any such delay in or
reduction of its ability to sell the underlying shares of common stock
(which remedy shall not be exclusive of any other remedies at law or in
equity), the Conversion Percentage and the Fixed Conversion Price shall
be adjusted as follows:
(a) CONVERSION PERCENTAGE. The Conversion
Percentage in effect, at such time for each time period set
forth in subsection B(2)(d) with respect to the Series A
Preferred Shares which may be converted as permitted by
subsection B(1) hereof during the period that sales cannot be
made pursuant to the Registration Statement, shall be reduced
by a number of percentage points equal to the product of (i)
three (3) and (ii) the sum of (I) the number of months
(prorated for partial months) after the Filing Deadline or
Registration Deadline, as the case may be, and prior to the
date that the relevant Registration Statement is declared
effective by the SEC and (II) the number of months (prorated
for partial months) that sales cannot be made pursuant to the
Registration Statement after the Registration Statement has
been declared effective. (For example, if the Registration
Statement becomes effective one and one-half (1 1/2) months
after the Scheduled Effective Date, the Conversion Percentage
with respect to the Series A Preferred Shares would decrease
by four and one half percent (4.5% to 70.5%) until any
subsequent adjustment; if, as a further example, thereafter
sales could not be made pursuant to the Registration Statement
for a period of two (2) additional months, the Conversion
Percentage with respect to the Series A Preferred Shares would
decrease by an additional six percent (6%), for an aggregate
decrease of seven percent (10.5% to 64.5%); and
(b) FIXED CONVERSION PRICE. The Fixed Conversion
Price in effect from time to time with respect to the Series A
Preferred Shares shall be reduced by an amount equal to the
product of (i) $0.50 and (ii) the sum of (I) the number of
months (prorated for partial months) after the Filing Deadline
or Registration Deadline, as the case may be, and prior to the
date that the Registration Statement is declared effective by
the SEC and (II) the number of months (prorated for partial
months) that sales cannot be made pursuant to the Registration
Statement after the Registration Statement has been declared
effective. (For example, if the Registration Statement becomes
effective one and one-half (1 1/2) months after the Scheduled
Effective Date, the Fixed Conversion Price with respect to the
Series A Preferred Shares would be $0.478 until any subsequent
adjustment; if thereafter sales could not be made pursuant to
the Registration Statement for a period of two (2) additional
months, the Fixed Conversion Price with respect to the Series
A Preferred Shares would then be $0.447).
(4) ADJUSTMENT TO CONVERSION PRICE - DILUTION AND OTHER
EVENTS. In order to prevent
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dilution of the rights granted under this Article V, Section 7, the
Conversion Price will be subject to adjustment from time to time as
provided in this subsection B(4).
(a) ADJUSTMENT OF FIXED CONVERSION PRICE UPON
SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Corporation
at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its
outstanding shares of common stock into a greater number of
shares, the Fixed Conversion Price in effect immediately prior
to such subdivision will be proportionately reduced. If the
Corporation 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 Fixed Conversion Price in effect immediately prior
to such combination will be proportionately increased.
(b) REORGANIZATION, RECLASSIFICATION,
CONSOLIDATION, MERGER, OR SALE. Any recapitalization,
reorganization reclassification, consolidation. merger, sale
of all or substantially all of the Corporation's assets to
another Person (as defined below) or other similar transaction
which is effected in such a way that holders of common stock
are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in
exchange for common stock is referred to herein as in "Organic
Change." Prior to the consummation of any Organic Change, the
Corporation will make appropriate provision (in form and
substance satisfactory to the holders of a majority of the
Series A Preferred Shares then outstanding) to insure that
each of the holders of the Series A Preferred Shares will
thereafter have the right to acquire and receive in lieu of or
in addition to (as the case may be) the shares of common stock
immediately theretofore acquirable and receivable upon the
conversion of such holder's Series A Preferred Shares, such
shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for the number of
shares of common stock immediately theretofore acquirable and
receivable upon the conversion of such holder's Series A
Preferred Shares had such Organic Change not taken place. In
any such case, the Corporation will make appropriate provision
(in form and substance satisfactory to the holders of a
majority of the Series A Preferred Shares then outstanding)
with respect to such holders' rights and interests to insure
that the provisions of this subsection B(4) and subsection
B(5) below will thereafter be applicable to the Series A
Preferred Shares. The Corporation will not effect any such
consolidation, merger or sale, unless prior to the
consummation thereof the successor entity (if other than the
Corporation) resulting from consolidation or merger or the
entity purchasing such assets assumes, by written instrument
(in form and substance satisfactory to the holders of a
majority of the Series A Preferred Shares then outstanding),
the obligation to deliver to each holder of Series A Preferred
Shares such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be
entitled to acquire. For purposes of this Agreement, "Person"
shall mean an individual, a limited liability corporation, a
partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department
or agency thereof.
(c) NOTICES.
(I) Immediately upon any adjustment of
the Conversion Price, the Corporation will give
written notice thereof to each holder of Series A
Preferred Shares, setting forth in reasonable detail
and certifying the calculation of such adjustment.
(II) The Corporation will give written
notice to each holder of Series A Preferred Shares at
least twenty (20) days prior to the date on which the
Corporation
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closes its books or takes a record (A) with respect
to any dividend or distribution upon the common
stock, (B) with respect to any pro rata subscription
offer to holders of common stock or (C) for
determining rights to vote with respect to any
Organic Change, dissolution or liquidation.
(III) The Corporation will also give
written notice to each holder of Series A Preferred
Shares at least twenty (20) days prior to the date on
which any Organic Change, Major Transaction (as
defined below), dissolution or liquidation will take
place.
(5) PURCHASE RIGHTS. If at any time the Corporation
grants, issues or sells any Options, Convertible Securities or rights
to purchase stock, warrants, securities or other property pro rata to
the record holders of any class of common stock (the "PURCHASE
RIGHTS"), then the holders of Series A Preferred Shares will be
entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of common stock acquirable
upon complete conversion of the Series A 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 holders of common stock are to be determined for
the grant, issue or sale of such Purchase Rights.
(6) MECHANICS OF CONVERSION. Subject to the Corporation's
inability to fully satisfy its obligations under a Conversion Notice
(as defined below) as provided for in subsection E below:
(a) HOLDER'S DELIVERY REQUIREMENTS. To convert
Series A Preferred Shares into full shares of common stock on
any date (the "CONVERSION DATE"), the holder thereof shall (i)
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 as Exhibit I (the "CONVERSION NOTICE") to the
Corporation or its designated transfer agent (the "TRANSFER
AGENT"), and (ii) surrender to a common carrier for delivery
to the Corporation or the Transfer Agent as soon as
practicable following such date, the original certificates
representing the Series A 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. Upon such conversion by any such holders the 6% per
annum premium which has accrued shall be payable hereunder
shall be paid in cash or common stock (based upon the
Conversion Price) at such time at the election of each of the
holders.
(b) CORPORATION'S RESPONSE. Upon receipt by the
Corporation of a facsimile copy of a Conversion Notice, the
Corporation shall immediately send, via Facsimile, a
confirmation of receipt of such Conversion Notice to such
holder. Upon receipt by the Corporation or the Transfer Agent
of the Preferred Stock Certificates to be converted pursuant
to a Conversion Notice, together with the originally executed
Conversion Notice, the Corporation or the Transfer Agent (as
applicable) shall, within five (5) business days following the
date of receipt, (i) 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 or its designee, for the number of shares of common
stock to which the holder shall be entitled or (ii) 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 Corporation.
(c) DISPUTE RESOLUTION. In the case of a dispute
as to the determination of the
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Average Market Price or the arithmetic calculation of the
Conversion Rate, the Corporation 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 via facsimile within
three (3) business days of receipt of such holder's Conversion
Notice. If such holder and the Corporation are unable to agree
upon the determination of the Average Market Price or
arithmetic calculation of the Conversion Rate within two (2)
business days of such disputed determination or arithmetic
calculation being submitted to the holder, then the
Corporation shall within one (1) business day submit via
facsimile (i) the disputed determination of the Average Market
Price to an independent, reputable investment bank or (ii) the
disputed arithmetic calculation of the Conversion Rate to its
independent, outside accountant. The Corporation shall cause
the investment bank or the accountant, as the case may be, to
perform the determinations or calculations and notify the
Corporation and the holder of the results no later than
forty-eight (48) hours from the time it receives the disputed
determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may
be, shall be binding upon all parties absent manifest error.
(d) RECORD HOLDER. The person or persons
entitled to receive the shares of common stock issuable upon a
conversion of Series A Preferred Shares shall be treated for
all purposes as the record holder or holders of such shares of
common stock on the Conversion Date.
(e) CORPORATION'S FAILURE TO TIMELY CONVERT. If
the Corporation shall fail to issue to a holder within three
(3) business days following the date of receipt by the
Corporation or the Transfer Agent of the Preferred Stock
Certificates to be converted pursuant to a Conversion Notice,
a certificate for the number of shares of common stock to
which such holder is entitled upon such holder's conversion of
Series A Preferred Shares, in addition to all other available
remedies which such holder may pursue hereunder and under the
Securities Purchase Agreement between the Corporation and the
initial holders of the Series A Preferred Shares (the
"SECURITIES PURCHASE AGREEMENT") (including indemnification
pursuant to Section 8 thereof), the Corporation shall pay
additional damages to such holder on each day after the third
(3rd) business day following the date of receipt by the
Corporation or the Transfer Agent of the Preferred Stock
Certificates to be converted pursuant to the Conversion
Notice, for which such conversion is not timely effected, an
amount calculated in accordance with the following schedule:
<TABLE>
<CAPTION>
LATE PAYMENT FOR EACH
PRINCIPAL AMOUNT BEING SERIES A PREFERRED SHARE
NO. BUSINESS DAYS LATE CONVERTED
<S> <C>
1 $10
2 $20
3 $30
4 $40
5 $50
6 $60
7 $70
8 $80
9 $90
10 $100
11 $100 + $20 for each
Business Days Late Beyond 10 days
</TABLE>
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(7) MANDATORY CONVERSION. If any Series A Preferred
Shares remain outstanding on August 14, 2002, then all such Series A
Preferred Shares shall be converted as of such date in accordance with
this Section 2 as if the holders of such Series A Preferred Shares had
given the Conversion Notice on August 7, 2002, and the Conversion Date
had been fixed as of August 14, 2002, for all purposes of this Section
2, and all holders of Series A Preferred Shares shall thereupon and
with two (2) business days thereafter surrender all Preferred Stock
Certificates, duly endorsed for cancellation, to the Corporation or the
Transfer Agent. No person shall thereafter have any rights in respect
of Series A Preferred Shares, except the right to receive shares of
common stock on conversion thereof as provided in this subsection B.
(8) FRACTIONAL SHARES. The Corporation 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 A Preferred Shares 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 Corporation shall round such fraction of a share of common stock up
or down to the nearest whole share.
C. CORPORATION'S RIGHT TO REDEEM AT ITS ELECTION.
(1) (i) Until December 14, 2000 or (ii) at any time after
December 14, 2000, as long as the Corporation has not breached any of
the representations, warrants, and covenants contained herein or in any
related agreements, the Corporation shall have the right, in it sole
discretion, to redeem ("REDEMPTION AT CORPORATION'S ELECTION"), from
time to time, any or all of the Series A Preferred Stock: provided (A)
Corporation shall first provide thirty (30) days advance written notice
as provided in subsection C(1)(b) below (which can be given any time on
or after 90 days after the Issuance Date, and (B) that the Corporation
shall only be entitled to redeem Series A Preferred Stock having an
aggregate Stated Value (as defined below) of at least Five Hundred
Thousand Dollars ($500,000). If the Corporation elects to redeem some,
but not all, of the Series A Preferred Stock, the Corporation shall
redeem a pro-rata amount from each Holder of the Series A Preferred
Stock.
(a) REDEMPTION PRICE AT CORPORATION'S ELECTION.
The "REDEMPTION PRICE AT CORPORATION'S ELECTION" shall be
calculated as (i) 110% of Stated Value for the first 90 days
following the Issuance Date, (ii) 120% of the Stated Value for
the period beginning 90 days after the Issuance Date and
ending 180 days after the Issuance Date and (iii) an
additional 3% shall be added to 120% of the Stated Value for
each 30 day period thereafter, of the Series A Preferred
Stock. If the Corporation elects to redeem some, but not all,
of the Series A Preferred Stock, the Corporation shall redeem
a pro-rata amount from each Holder of the Series A Preferred
Stock. For purposes hereof, "Stated Value" shall mean the
original principal amount of Preferred Stock being redeemed,
plus the unpaid 8% per annum premium being redeemed pursuant
to this subsection C.
(b) MECHANICS OF REDEMPTION AT CORPORATION'S
ELECTION. The Corporation shall effect each such redemption by
giving at least thirty (30) days prior written notice ("NOTICE
OF REDEMPTION AT CORPORATION'S ELECTION") to (i) the Holders
of the Series A Preferred Stock selected for redemption at the
address and facsimile number of such Holder appearing in the
Corporation's Series A Preferred Stock register and (ii) the
Transfer Agent, which Notice of Redemption At Corporation's
Election shall be deemed to have been delivered three (3)
business days after the Corporation's mailing (by overnight or
two (2) day courier, with a copy by facsimile) of such Notice
of Redemption at Corporation's Election. Such Notice of
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Redemption At Corporation's Election shall indicate (A) the
number of shares of Series A Preferred Stock that have been
selected for redemption, (B) the date which such redemption is
to become effective (the "DATE OF REDEMPTION AT CORPORATION'S
ELECTION") and (C) the applicable Redemption Price At
Corporation's Election, as defined in subsection (1)(a) above.
Notwithstanding the above, Holder may convert into common
stock, prior to the close of business on the Date of
Redemption at Corporation's Election, any Series A Preferred
Stock which it is otherwise entitled to convert, including
Series A Preferred Stock that has been selected for redemption
at Corporation's election pursuant to this subsection C(1).
(2) CORPORATION MUST HAVE IMMEDIATELY AVAILABLE FUNDS OR
CREDIT FACILITIES. The Corporation shall not be entitled to send any
Redemption Notice and begin the redemption procedure under subsections
C(1) unless it has:
(a) the full amount of the redemption price to
cash, available in a demand or other immediately available
account in a bank or similar financial institution; or
(b) immediately available credit facilities, in
the full amount of the redemption price with a bank or similar
financial institution, or
(c) an agreement with a standby underwriter
willing to purchase from the Corporation a sufficient number
of shares of stock to provide proceeds necessary to redeem any
stock that is not converted prior to redemptions; or
(d) a combination of the items set forth in (a),
(b), and (c) above, aggregating the full amount of the
redemption price.
(3) PAYMENT OF REDEMPTION PRICE. Each Holder submitting
Preferred Stock being redeemed under this subsection C shall send their
Series A Preferred Stock Certificates to redeemed to the Corporation or
its Transfer Agent, and the Corporation shall pay the applicable
redemption price to that Holder within five (5) business days of the
Date of Redemption at Corporation's Election. Failure by the
Corporation to pay the redemption price in full when due shall result
in a forfeiture and termination of the Corporation's redemption rights
as described in this subsection C.
D. REDEMPTION AT OPTION OF HOLDERS.
(1) REDEMPTION OPTION UPON MAJOR TRANSACTION. In addition
to all other rights of the holders of Series A Preferred Shares
contained herein, after a Major Transaction (as defined below), the
holders of Series A Preferred Shares shall have the right in accordance
with subsection D(6), at the option of the holders of at least
two-thirds (2/3) of the Series A Preferred Shares then outstanding, to
require the Corporation to redeem all of the Series A Preferred Shares
then outstanding at a price per Series A Preferred Share equal to the
greater of (i) 100% of the Liquidation Value (as defined below) of such
share and (ii) the price calculated in accordance with the Redemption
Rate (as defined below) calculated as of the date of the public
announcement of such Major Transaction or the next date on which the
exchange or market on which the common stock is traded in open if such
public announcement is made (A) after 1:00 p.m. Eastern Standard
Time on such date or (B) on a date on which the exchange or market on
which the common stock is traded is closed.
(2) REDEMPTION OPTION UPON TRIGGERING EVENT. In addition
to all other rights of the holders of Series A Preferred Shares
contained herein, after a Triggering Event (as defined below), the
holders of Series A Preferred Shares shall have the right in accordance
with subsection D(7), at the option of the holders of at least
two-thirds (2/3) of the Series A Preferred Shares then outstanding,
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to require the Corporation to redeem all of the Series A Preferred
Shares then outstanding at a price per Series A Preferred Shares equal
to the greater of (i) 130% of the Liquidation Value of such share and
(ii) the price calculated in accordance with the Redemption Rate as of
the date immediately preceding such Triggering Event on which the
exchange or market on which the common stock is traded is open.
(3) "REDEMPTION RATE." The "REDEMPTION RATE" shall, as of
any date of determination, be equal to (i) the Conversion Rate in
effect as of such date as calculated pursuant to subsection B(2)
multiplied by (ii) the Closing Bid Price of the common stock on such
date.
(4) "MAJOR TRANSACTION." A "MAJOR TRANSACTION" shall be
deemed to have occurred at such time as any of the following events:
(a) the consummation of any merger,
reorganization, restructuring, consolidation, or similar
transaction by or involving the Corporation except (i) a
merger or consolidation where the Corporation is the survivor
or (ii) pursuant to a migratory merger effected solely for the
purpose of changing the jurisdiction of incorporation of the
Corporation;
(b) sale of all or substantially all of the
assets of the Corporation or all of its material subsidiaries
or any similar transaction or related transactions which
effectively results in a sale of all or substantially all of
the assets of the Corporation and/or its subsidiaries;
(c) the occurrence, after the date hereof, of
the acquisition, by any person (including any entity or
association) or persons (other than any existing stockholder
of the Corporation or two or more existing stockholders of the
Corporation, acting in concert, of securities of the
Corporation (or the power to vote such securities)
representing 50% or more of the total voting power of all
outstanding common stock or other voting securities of the
Corporation; or
(d) the failure of the Corporation to continue to
own, directly or indirectly, all of the capital stock of all
of its material subsidiaries (other than due to a merger or
consolidation of any subsidiary into the Corporation or a
wholly-owned subsidiary of the Corporation).
(5) "TRIGGERING EVENT." A "TRIGGERING EVENT" shall be
deemed to have occurred at such time as any of the following events:
(a) either (i) the failure of the Registration
Statement to be effective or to cover the resale of all of the
shares of common stock issued or issuable upon conversion of
the Series A Preferred Shares at any time after sixty (60)
days after the Scheduled Effective Date (provided that for
purposes of determining the Closing Bid Price under Section
4(c) above, the Triggering Event shall be deemed to have
occurred on the first day of such 60-day period) or (ii) for
any period of sixty (60) consecutive days after the date that
is sixty (60) days after the Scheduled Effective Date that
common stock issued or issuable upon conversion of the Series
A Preferred Shares cannot be sold under the Registration
Statement for any reason (provided that for purposes of
determining the Closing Bid Price under subsection D(3) above,
the Triggering Event shall be deemed to have occurred on the
first day of such 60-day period);
(b) if for any reason the Corporation fails to
perform or observe any covenant,
<PAGE>
agreement, or other provision contained in Section 9 or 10
hereof or in Section 4(g) of the Securities Purchase
Agreement;
(c) the Corporation's notice to any holder of
Series A Preferred Shares, including by way of public
announcement, at any time, of its intention for any reason not
to comply with requests for conversion of any Series A
Preferred Shares for shares of common stock;
(d) if for any reason the Corporation fails to
perform or observe any covenant, agreement, or other provision
contained herein or in the Securities Purchase Agreement, the
Registration Rights Agreement, or in any related agreement,
and such failure is not cured within 30 days after the
Corporation knows, or should have known with the exercise of
reasonable diligence, of the occurrence thereof, and such
failure has had, or could reasonably be expected to have, a
material adverse effect on (i) the financial condition,
operating results, business, properties, or operations of the
Corporation and its subsidiaries taken as a whole taking into
account any proceeds reasonably expected to be received by the
Corporation or its subsidiaries in the foreseeable future from
insurance policies or rights of indemnification or (ii) the
Series A Preferred Shares; or
(e) any representation or warranty contained in
the Securities Purchase Agreement or the Registration Rights
Agreement is false or misleading on or as of the date made and
which either reflects or has had a material adverse effect on
(i) the financial condition, operating results, business,
properties, or operations of the Corporation and its
subsidiaries taken as a whole taking into account any proceeds
reasonably expected to be received by the Corporation or its
subsidiaries in the foreseeable future from insurance policies
or rights of indemnification or (ii) the Series A Preferred
Shares.
(6) MECHANICS OF REDEMPTION AT OPTION OF BUYER UPON MAJOR
TRANSACTION. No sooner than fifteen (15) days nor later than ten (10)
days prior to the consummation of a Major Transaction, but not prior to
the public announcement of such Major Transaction, the Corporation
shall deliver written notice thereof via facsimile and overnight
courier ("NOTICE OF MAJOR TRANSACTION") to each holder of Series A
Preferred Shares. At any time after receipt of a Notice of Major
Transaction, the holders of at least two-thirds (2/3) of the Series A
Preferred Shares then outstanding may require the Corporation to redeem
all of the holders' Series A Preferred Shares then outstanding in
accordance with subsection D(1) by delivering written notice thereof
via facsimile and overnight courier ("NOTICE OF REDEMPTION AT OPTION OF
BUYER UPON MAJOR TRANSACTION") to the Corporation, which Notice of
Redemption at Option of Buyer Upon Major Transaction shall indicate (i)
the number of Series A Preferred Shares that such holders are voting in
favor of redemption and (ii) the applicable redemption price, as
calculated pursuant to subsection D(1) above.
(7) MECHANICS OF REDEMPTION AT OPTION OF BUYER UPON
TRIGGERING EVENT. Within one (1) day after the occurrence of a
Triggering Event, the Corporation shall deliver written notice thereof
via facsimile and overnight courier ("NOTICE OF TRIGGERING EVENT") to
each holder of Series A Preferred Shares. At any time after receipt of
a Notice of Triggering Event, the holders of at least two-thirds (2/3)
of the Series A Preferred Shares then outstanding may require the
Corporation to redeem all of the Series A Preferred Shares then
outstanding in accordance with subsection D(2) by delivering written
notice thereof via facsimile and overnight courier ("NOTICE OF
REDEMPTION AT OPTION OF BUYER UPON TRIGGERING EVENT") to the
Corporation, which Notice of Redemption at Option of Buyer Upon
Triggering Event shall indicate (i) the number of Series A Preferred
Shares that such holders are voting in favor of redemption and (ii) the
applicable redemption price, as calculated pursuant to subsection D(2)
above.
<PAGE>
(8) PAYMENT OF REDEMPTION PRICE. Upon the Corporation's
receipt of a Notice(s) of Redemption at Option of Buyer Upon Major
Transaction or a Notice(s) of Redemption at Option of Buyer Upon
Triggering Event, as the case may be, from the holders of at least
two-thirds (2/3) of the Series A Preferred Shares then outstanding, the
Corporation shall immediately notify each holder by facsimile of the
Corporation's receipt of such requisite notices necessary to affect a
redemption and each holder of Series A Preferred Shares shall
thereafter promptly send such holder's Preferred Stock Certificates to
be redeemed to the Corporation or its Transfer Agent. The Corporation
shall pay the applicable redemption price, as calculated pursuant to
subsection D(1) or D(2) above, in cash to such holder within thirty
(30) days after the Corporation' receipt of the requisite notices
required to affect a redemption; provided that a holder's Preferred
Stock Certificates shall have been so delivered to the Corporation or
its Transfer Agent; PROVIDED FURTHER that if the Corporation is unable
to redeem all of the Series A Preferred Shares, the Corporation shall
redeem an amount from each holder of Series A Preferred Shares equal to
such holder's pro-rata amount (based on the number of Series A
Preferred Shares held by such holder relative to the number of Series A
Preferred Shares outstanding) of all Series A Preferred Shares being
redeemed. If the Corporation shall fail to redeem all of the Series A
Preferred Shares submitted for redemption (other than pursuant to a
dispute as to the determination of the Closing Bid Price or the
arithmetic calculation of the Redemption Rate), the applicable
redemption price payable in respect of such unredeemed Series A
Preferred Shares shall bear interest at the rate of 3.0% per month
(prorated for partial months) until paid in full. Until the Corporation
pays such unpaid applicable redemption price in full to each holder,
holders of at least two-thirds (2/3) of the Series A Preferred Shares
then outstanding, including shares of Series A Preferred Shares
submitted for redemption pursuant to this subsection D and for which
the applicable redemption price has not been paid, shall have the
option (the "VOID OPTIONAL REDEMPTION OPTION") to, in lieu of
redemption, require the Corporation to promptly return to each holder
all of the Series A Preferred Shares that were submitted for redemption
by such holder under this subsection D and for which the applicable
redemption price has not been paid, by sending written notice thereof
to the Corporation via facsimile (the "VOID OPTIONAL REDEMPTION
NOTICE"). Upon the Corporation's receipt of such Void Optional
Redemption Notice(s) and prior to payment of the full applicable
redemption price to each holder, (i) the Notice(s) of Redemption at
Option of Buyer Upon Triggering Event or the Notice(s) of Redemption at
Option of Buyer Upon Major Transaction, as the case may be, shall be
null and void with respect to those Series A Preferred Shares submitted
for redemption and for which the applicable redemption price has not
been paid, (ii) the Corporation shall immediately return any Series A
Preferred Shares submitted to the Corporation by each holder for
redemption under this subsection D(8) and for which the applicable
redemption price had not been paid, (iii) the Fixed Conversion Price of
such returned Series A Preferred Shares shall be adjusted to the lesser
of (A) the Fixed Conversion Price as in effect on the date on which the
Void Option Redemption Notice(s) is delivered to the Corporation and
(B) the lowest Closing Bid Price during the period beginning on the
date on which the Notice(s) of Redemption of Option of Buyer Upon Major
Transaction or the Notice(s) of Redemption at Option of Buyer Upon
Triggering Event, as the case may be, is delivered to the Corporation
and ending on the date on which the Void Optional Redemption Notice(s)
is delivered to the Corporation; PROVIDED that no adjustment shall be
made if such adjustment would result in an increase of the Fixed
Conversion Price then in effect, and (iv) the Conversion Percentage in
effect at such time and thereafter shall be reduced by a number of
percentage points equal to the product of (A) two and one-half (2.5)
and (B) the number of months (prorated for partial months) in the
period beginning on the date on which the Notice(s) of Redemption at
Option of Buyer Upon Major Transaction or the Notice(s) of Redemption
at Option of Buyer Upon Triggering Event, as the case may be, is
delivered to the Corporation and ending on the date on which the Void
Optional Redemption Notice(s) is delivered to the Corporation.
Notwithstanding the foregoing, in the event of a dispute as to the
determination of the Closing Bid Price or the arithmetic calculation of
the Redemption Rate, such dispute shall be resolved pursuant to
subsection B(6)(c) above with the term
<PAGE>
"CLOSING BID PRICE" being substituted for the term "AVERAGE MARKET
PRICE" and the term "REDEMPTION RATE" being substituted for the term
"CONVERSION RATE."
E. INABILITY TO FULLY CONVERT.
(1) HOLDER'S OPTION IF CORPORATION CANNOT FULLY CONVERT.
If at any time after the earlier to occur of (i) effectiveness of the
Registration Statement or (ii) sixty (60) days after the Scheduled
Effective Date, upon the Corporation's receipt of a Conversion Notice,
the Corporation 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 subsection B(6)
hereof, for any reason or for no reason, including, without limitation,
because the Corporation (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 rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Corporation or its Securities, including without
limitation the Nasdaq-Small Cap, from issuing all of the common stock
which is to be issued to a holder of Series A 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 Corporation 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 subsection B(6) above and, with
respect to the unconverted Series A Preferred Shares, the holder,
solely at such holder's option, can, in addition to any other remedies
such holder may have hereunder, under the Securities Purchase Agreement
(including indemnification under Section 8 thereof), under the
Registration Rights Agreement, at law or in equity, elect to:
(a) require the Corporation to redeem from such
holder those Series A Preferred Shares for which the
Corporation is unable to issue common stock in accordance with
such holder's Conversion Notice ("MANDATORY REDEMPTION") at a
price per Series A Preferred Share (the "MANDATORY REDEMPTION
PRICE") equal to the greater of (x) 130% of the Liquidation
Value of such share and (y) the Redemption Rate as of such
Conversion Date;
(b) if the Corporation's inability to fully
convert Series A Preferred Shares is pursuant to subsection
E(1)(z) above, require the Corporation to issue restricted
shares of common stock in accordance with such holder's
Conversion Notice and pursuant to subsection B(6) above; or
(c) void its Conversion Notice and retain or
have returned, as the case may be, the nonconverted Series A
Preferred Shares that were to be converted pursuant to such
holder's Conversion Notice.
(2) MECHANICS OF FULFILLING HOLDER'S ELECTION. The
Corporation shall immediately send via facsimile to a holder of Series
A Preferred Shares, upon receipt of a facsimile copy of a Conversion
Notice from such holder which cannot be fully satisfied as described in
subsection E(1) above, a notice of the Corporation's inability to fully
satisfy such holder's Conversion Notice (the "INABILITY TO FULLY
CONVERT NOTICE"). Such Inability to Fully Convert Notice shall indicate
(i) the reason why the Corporation is unable to fully satisfy such
holder's Conversion Notice, (ii) the number of Series A Preferred
Shares which cannot be converted and (iii) the applicable Mandatory
Redemption Price. Such holder must within five (5) business days of
receipt of such Inability to Fully Convert Notice deliver written
notice via facsimile to the Corporation ("NOTICE IN RESPONSE TO
INABILITY TO CONVERT") of its election pursuant to subsection E(1)
above.
(3) PAYMENT OF REDEMPTION PRICE. If such holder shall
elect to have its shares redeemed
<PAGE>
pursuant to subsection E(1) above, the Corporation shall pay the
Mandatory Redemption Price in cash to such holder within thirty (30)
days of the Corporation's receipt of the holder's Notice in Response
to Inability to Convert. If the Corporation shall fail to pay the
applicable Mandatory Redemption Price to such holder on a timely basis
as described in this subsection E(3) (other than pursuant to a dispute
as to the determination of the Closing Bid Price or the arithmetic
calculation of the Redemption Rate), such unpaid amount shall bear
interest at the rate of 2.5% per month (prorated for partial months)
until paid in full. Until the full Mandatory Redemption Price is paid
in full to such holder, such holder may void the Mandatory Redemption
with respect to those Series A Preferred Shares for which the full
Mandatory Redemption Price has not been paid and receive back such
Series A Preferred Shares. Notwithstanding the foregoing, if the
Corporation fails to pay the applicable Mandatory Redemption Price
within such thirty (30) days time period due to a dispute as to the
determination of the Closing Bid Price or the arithmetic calculation
of the Redemption Rate, such dispute shall be resolved pursuant to
Section B(6)(c) above with the term "CLOSING BID PRICE" being
substituted for the term "AVERAGE MARKET PRICE" and the term,
"REDEMPTION RATE" being substituted for the term "CONVERSION RATE."
(4) PRO-RATA CONVERSION AND REDEMPTION. In the event the
Corporation receives a Conversion Notice from more than one holder of
Series A Preferred Shares on the same day and the Corporation can
convert and redeem some, but not all, of the Series A Preferred Shares
pursuant to this subsection E, the Corporation shall convert and redeem
from each holder of Series A Preferred Shares electing to have Series A
Preferred Shares converted and redeemed at such time an amount equal to
such holder's pro-rata amount (based on the number of Series A
Preferred Shares held by such holder relative to the number of Series A
Preferred Shares outstanding) of all Series A Preferred Shares being
converted and redeemed at such time.
F. REISSUANCE OF CERTIFICATES. In the event of a conversion or
redemption pursuant to this Article V, Section 7 of less than all of the Series
A Preferred Shares represented by a particular Preferred Stock Certificate, the
Corporation shall promptly cause to be issued and delivered to the holder of
such Series A Preferred Shares a Preferred stock certificate representing the
remaining Series A Preferred Shares which have not been so converted or
redeemed.
G. RESERVATION OF SHARES. The Corporation shall, so long as any
of the Series A 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 A Preferred Shares, at least 200% of number of
Shares of common stock as shall from time to time be sufficient to affect the
conversion of all of the Series A Preferred Shares and Warrant Shares then
outstanding.
H. VOTING RIGHTS. Holders of Series A Preferred Shares shall have
no voting rights, except as required by law, including but not limited to the
Colorado Business Corporation Act and as expressly provided in this Article V,
Section 7.
I. LIQUIDATION, DISSOLUTION, WINDING-UP. In the event of any
voluntary or involuntary liquidation, dissolution, or winding up of the
Corporation, the holders of the Series A Preferred Shares shall be entitled
to receive in cash out of the assets of the Corporation, whether from capital
or from earnings available for distribution to its stockholders (the
"PREFERRED FUNDS"), before any amount shall be paid to the holders of any of
the capital stock of the Corporation of any class junior in rank to the
Series A Preferred Shares in respect of the preferences as to the
distributions and payments on the liquidation, dissolution and winding up of
the Corporation, an amount per Series A Preferred Share equal to the sum of
(i) $1,000 and (ii) an amount equal to the product of (.08) (N/365) ($1,000)
(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 A Preferred Shares and holders of shares of other classes
or series of preferred stock of the Corporation that are
<PAGE>
of equal rank with the Series A Preferred Shares as to payments of Preferred
Funds (the "PARI PASSU SHARES"), then each holder of Series A 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 designations,
preferences and rights as a percentage or the full amount of Preferred Funds
payable to all holders of Series A Preferred Shares and Pari Passu Shares.
The purchase or redemption by the Corporation 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 Corporation. Neither the
consolidation or merger of the Corporation with or into any other Person, nor
the sale or transfer by the Corporation of less than substantially all of its
assets, shall, for the purposes hereof, be deemed to be a liquidation,
dissolution or winding up of the Corporation. No holder of Series A Preferred
Shares shall be entitled to receive any amounts with respect thereto upon any
liquidation, dissolution or winding up of the Corporation other than the
amounts provided for herein.
J. PREFERRED RATE. All shares of common stock shall be of
junior rank to all Series A Preferred Shares in respect to the preferences as
to distributions and payments upon the liquidation, dissolution, and winding
up of the Corporation. The rights of the shares of common stock shall be
subject to the Preferences and relative rights of the Series A Preferred
Shares. The Series A Preferred Shares shall be of greater than any Series of
Common or Preferred Stock hereinafter issued by the Corporation. Without the
prior express written consent of the holders of not less than two-thirds
(2/3) of the then outstanding Series A Preferred Shares, the Corporation
shall not hereafter authorize or issue additional or other capital stock that
is of senior or equal rank to the Series A Preferred Shares in respect of the
preferences as to distributions and payments upon the liquidation,
dissolution and winding up of the Corporation. Without the prior express
written consent of the holders of not less than two-thirds (2/3) of the then
outstanding Series A Preferred Shares, the Corporation shall not hereafter
authorize or make any amendment to the Corporation's Certificate of
Incorporation or bylaws, or make any resolution of the board of directors
with the Colorado Secretary of State containing any provisions, which would
adversely affect or otherwise impair the rights or relative priority of the
holders of the Series A 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 Corporation with or into another
corporation, the Series A Preferred Shares shall maintain their relative
powers, designations, and preferences provided for herein and no merger shall
result inconsistent therewith.
K. RESTRICTION ON REDEMPTION AND DIVIDENDS.
(1) RESTRICTION ON DIVIDEND. If any Series A 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 A Preferred Shares, the Corporation 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 A Preferred Shares at least 30 days
prior to the earlier of (i) the record date taken for or (ii) the
payment of any such dividend or other distribution. Notwithstanding the
foregoing, this subsection K(1) shall not prohibit the Corporation from
declaring and paying a dividend in cash with respect to the common
stock so long as the Corporation: (A) pays simultaneously to each
holder of Series A Preferred Shares an amount in cash equal to the
amount such holder would have received had all of such holder's Series
A 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 (B) after giving effect to the payment of any dividend and any
other payments required in connection therewith including to the
holders of the Series A Preferred Shares required herein, the
Corporation has in cash or cash equivalents an amount equal to the
aggregate of: (x) all of its liabilities reflected on its most recently
available balance sheet, (y) the amount of any indebtedness incurred by
the Corporation or any of its subsidiaries since its most recent
balance sheet and (z) 130% of the amount payable to all holders of any
shares of any class of preferred stock of the Corporation assuming a
liquidation of the Corporation as the date of its most recently
available balance sheet.
<PAGE>
(2) RESTRICTION ON REDEMPTION. If any Series A 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 A Preferred Shares, the Corporation 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 Corporation, or permit any subsidiary of the Corporation to redeem,
purchase or otherwise acquire from any person or entity other than from
the Corporation or another direct or indirect wholly-owned subsidiary
of the Corporation, any of the Corporation'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).
L. VOTE TO CHANGE THE TERMS OF SERIES A 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 A Preferred Shares, shall be required for any
change to this Article V, Section 7 or the Corporation's Certificate of
Incorporation which would amend, alter, change or repeal any of the powers,
designations, preferences and rights of the Series A Preferred Shares.
M. LOST OR STOLEN CERTIFICATES. Upon receipt by the
Corporation of evidence satisfactory to the Corporation of the loss, theft,
destruction or mutilation of any Preferred Stock Certificates representing
the Series A Preferred Shares, and, in the case of loss, theft or
destruction, of any indemnification undertaking or bond, in the Corporation's
discretion, by the holder to the Corporation and, in the case of mutilation,
upon surrender and cancellation of the Preferred Stock Certificate(s), the
Corporation shall execute and deliver new preferred stock certificate(s) of
like tenor and date; provided, however, the Corporation shall not be
obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Corporation to convert such Series A Preferred
Shares into common stock.
N. WITHHOLDING TAX OBLIGATIONS. Notwithstanding anything
herein to the contrary, to the extent that the Corporation receives advice in
writing from its counsel that there is a reasonable basis to believe that the
Corporation is required by applicable federal laws or regulations and
delivers a copy of such written advice to the holders of the Series A
Preferred Shares so effected, the Corporation 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 A Preferred Share on the
holder of such Series A Preferred Shares depositing with the Corporation an
amount of cash sufficient to enable the Corporation 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 A Preferred Shares so effected receives advice in
writing from its counsel that there is a reasonable basis to believe that the
Corporation is not so required by applicable federal laws or regulations and
delivers a copy of such written advice to the Corporation, the Corporation
shall not be permitted to condition the making of any such distribution in
respect of any Series A Preferred Share on the holder of such Series A
Preferred Shares depositing with the Corporation any Withholding Tax with
respect to such distribution, provided, however, the Corporation may
reasonably condition the making of any such distribution in respect of any
Series A Preferred Share on the holder of such Series A Preferred Shares
executing and delivering to the Corporation, at the election of the holder,
either: (i) if applicable, a properly completed Internal Revenue Service Form
4224, or (a) an indemnification agreement in reasonably acceptable form to
the Corporation, with respect to any federal tax liability, penalties and
interest that may be imposed upon the Corporation by the Internal Revenue
Service as a result of the Corporation's failure to withhold in connection
with such distribution to such holder. If the conditions in the preceding two
sentences are fully satisfied, the Corporation shall not be required to pay
any additional damages set forth in subsection B(6)(e) of this Article V,
Section 7 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 Corporation an executed indemnification agreement in the form
reasonably satisfactory to the Corporation.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Article of
Amendment to be signed by Majed M. Jalali, its Chairman of the Board, Chief
Executive Officer, and President, as of the 14th day of August, 2000.
2-INFINITY.COM, INC.
By: /s/ Majed M. Jalali
----------------------
Name: Majed M. Jalali
Title: Chairman of the Board, Chief Executive
Officer and President
<PAGE>
EXHIBIT I
2-INFINITY.COM, INC.
CONVERSION NOTICE
Reference is made to Article V, Section 7 of the Articles of
Incorporation, as amended, of 2-Infinity.com, Inc., a Colorado corporation
(the "CORPORATION"). In accordance with and pursuant to the provisions of
Article V, Section 7, the undersigned hereby elects to convert the number of
shares of Series A Convertible Preferred Stock, no par value per share (the
"SERIES A PREFERRED SHARES"), of the Corporation indicated below into shares
of common stock, no par value per share, of the Corporation, by tendering the
stock certificate(s) representing the share(s) of Series A 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 A
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:
Number of Series A
Preferred Shares to be converted
Stock certificate no(s). of Series A
Preferred Shares to be converted:
Please confirm the following information:
Conversion Price:
Number of shares of common stock to
be issued:
Please issue the common stock into which the Series A 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:
2-INFINITY.COM, INC.
By:
Name:
Title:
Date:
(1) If other than to the record holder of the Series A Preferred Shares, any
applicable transfer tax must be paid by the undersigned.
