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EXHIBIT 3.1
Charter of eSylvan, Inc.
eSYLVAN, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
eSylvan, Inc., a Maryland corporation (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended and as so amended is
restated by striking out in its entirety the existing Charter and inserting in
lieu thereof the following:
ARTICLE I
NAME
The name of the corporation (which is hereinafter called the "Corporation")
is: eSylvan, Inc.
ARTICLE II
PURPOSES FOR WHICH CORPORATION FORMED
The purpose for which the Corporation is formed is to engage in any lawful
act or activity for which corporations may be organized under the Maryland
General Corporation Law (the "MGCL").
ARTICLE III
RESIDENT AGENT AND PRINCIPAL OFFICE
The post office address of the principal office of the Corporation in this
State is 34 Market Place, Baltimore, Maryland 21202. The resident agent of the
Corporation in this State is Robert Zentz, whose post office address is 1000
Lancaster Street, Baltimore, Maryland 21202. Said resident agent is a citizen
of the State of Maryland, and actually resides therein.
ARTICLE IV
AUTHORIZED STOCK
The total number of shares of stock of all classes which the Corporation has
authority to issue is One Hundred Million (100,000,000) shares, of which
Seventy Million (70,000,000) shares shall be of a class designated as Common
Stock, with a par value of One Mill ($0.001) per share (the "Common Stock"),
Ten Million (10,000,000) shares shall be of a class designated as Class A
Common Stock, with a par value of One Mill ($0.001) per share (the "Class A
Common Stock"), and Twenty Million (20,000,000) shares shall be of a class
designated as Series A Preferred Stock, with a par value of One Mill ($0.001)
per share (the "Series A Preferred Stock"). The aggregate par value of all
shares having par value is One Hundred Thousand Dollars ($100,000).
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Subject to the authority of the Board of Directors under Article V, Section
4, the preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption of the Common Stock, the Class A Common Stock and the Series A
Preferred Stock are as follows:
A. COMMON STOCK.
1. Dividends and Distributions. Subject to the provisions of law and this
charter, the holders of Common Stock shall be entitled to receive, together
with the holders of any and all classes or series of stock or securities of the
Corporation convertible into or exchangeable for Common Stock (such convertible
or exchangeable stock or securities being called "Convertible Securities") that
are entitled to receive dividends or distributions on or with respect to the
Common Stock under the provisions of law or this charter, as, if and when
declared by the Board of Directors, out of funds legally available for such
purpose, any and all dividends or distributions declared and paid by the
Corporation on or with respect to the Common Stock, with each such holder
receiving its pro rata portion (assuming the conversion of all such outstanding
Convertible Securities that are entitled to receive such dividends or
distributions) of any such dividend or distribution.
2. Liquidation Rights. Subject to the provisions of law and this charter, in
the event of the dissolution, liquidation or winding up of the Corporation (a
"Liquidation Event"), the assets of the Corporation available for distribution
to its stockholders shall be distributed to the holders of Common Stock,
together with the holders of Convertible Securities entitled to participate in
such distribution under the provisions of law or this charter, on a pro rata
basis (assuming the conversion of all such outstanding Convertible Securities).
3. Voting Rights. Except as otherwise required by law or provided herein, the
holders of Common Stock, together with the holders of Convertible Securities
entitled to vote on matters submitted to stockholders of the Corporation, shall
vote together, as a single class, on all matters submitted to stockholders of
the Corporation for their action or consideration. Each holder of Common Stock
shall be entitled to cast one (1) vote for each share of Common Stock held of
record by such holder. Except as otherwise required by law, holders of Common
Stock shall not have cumulative voting rights.
B. CLASS A COMMON STOCK.
1. Dividends and Distributions. Subject to the provisions of law and this
charter, the holders of Class A Common Stock, together with the holders of
Common Stock and the holders of other Convertible Securities entitled to
receive dividends or distributions on or with respect to the Common Stock under
the provisions of law and this charter, shall be entitled to receive as, if and
when declared by the Board of Directors, out of funds legally available for
such purpose, any and all dividends or distributions declared and paid by the
Corporation on or with respect to the Common Stock, with each such holder
receiving its pro rata portion (assuming the conversion of all outstanding
Class A Common Stock and such other Convertible Securities that are entitled to
receive such dividends or distributions) of any such dividend or distribution.
2. Liquidation Rights. Subject to the provisions of law and this charter,
upon a Liquidation Event, the assets of the Corporation available for
distribution to its stockholders shall be distributed to the holders of Class A
Common Stock, together with the holders of Common Stock and the holders of
other Convertible Securities entitled to participate in such distribution under
the provisions of law and this charter, on a pro rata basis (assuming the
conversion of all outstanding Class A Common Stock and such other Convertible
Securities).
3. Voting Rights. Except as otherwise required by law or provided herein, the
holders of Class A Common Stock, together with the holders of Common Stock and
the holders of other Convertible Securities entitled to vote on matters
submitted to stockholders of the Corporation, shall vote together, as a single
class, on all matters submitted to stockholders of the Corporation for their
action or consideration. Each holder of Class A Common Stock shall be entitled
to cast one (1) vote for each share of Common Stock into which such shares of
Class A Common Stock then held of record by such holder may be converted in
accordance with Section B.4 of this Article IV. Except as otherwise required by
law, holders of Class A Common Stock shall not have cumulative voting rights.
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4. Conversion of Class A Common Stock.
(a) All outstanding shares of Class A Common Stock shall automatically
convert to fully paid and nonassessable shares of Common Stock on the basis of
one share of Common Stock for each share of Class A Common Stock (the
"Conversion Ratio") (i) upon a determination of the Board of Directors of the
Corporation, (ii) upon the closing of a firm commitment underwritten public
offering (pursuant to an effective registration statement under the Securities
Act of 1933, as then in effect, or any comparable statement under any similar
Federal statute then in force) of shares of capital stock of the Corporation in
which (a) the aggregate price paid for such shares by the public shall be Ten
Million Dollars ($10,000,000) or more, and (b) the price paid by the public for
such shares reflects a preoffering valuation of the Corporation of Forty
Million Dollars ($40,000,000) or more (a "Qualified IPO"), (iii) upon the
listing of shares of a class of the Corporation's capital stock on the New York
Stock Exchange, Inc, the American Stock Exchange, Inc. or the Nasdaq National
Market or any successor markets or exchanges, or (iv) immediately prior to the
consummation of a sale or other disposition (or series thereof) of all or a
substantial portion of the Corporation's assets, or of any reorganization,
consolidation, merger or statutory share exchange of the Corporation which is
to be effected in such a way that holders of the Corporation's capital stock
shall be entitled to receive cash, assets or securities of another entity in
exchange for the capital stock of the Corporation. Holders of shares of Class A
Common Stock so converted shall deliver to the Corporation, at its principal
office (or such other office or agency of the Corporation as the Corporation
may designate by notice in writing to such holders) during its usual business
hours, the certificate or certificates for the shares so converted. As promptly
as practicable thereafter, the Corporation shall issue and deliver to such
holder a certificate or certificates for the number of whole shares of Common
Stock to which such holder is entitled, together with any payment in lieu of
fractional shares to which such holder may be entitled. Until such time as a
holder of shares of Class A Common Stock shall surrender the certificates
therefor as provided above, such certificates shall be deemed to represent the
shares of Common Stock to which such holder shall be entitled upon the
surrender thereof.
(b) If the Corporation subdivides (by any stock split, dividend,
distribution, recapitalization or otherwise) the outstanding Common Stock into
a greater number of shares, the applicable Conversion Ratio in effect
immediately prior to such subdivision shall be proportionately increased to
account for such subdivision; provided, however, that notwithstanding the
foregoing, the Conversion Ratio shall not be increased if the holders of Class
A Common Stock participate in such subdivision under the provisions of law or
this charter. If the Corporation combines (by reverse stock split or otherwise)
the outstanding Common Stock into a smaller number of shares, the applicable
Conversion Ratio in effect immediately prior to such combination shall be
proportionately decreased.
(c) No fractional shares shall be issued upon conversion of Class A Common
Stock into Common Stock. If any fractional share of Common Stock would, except
for the provisions of the preceding sentence, be delivered upon such
conversion, the Corporation, in lieu of delivering such fractional share, shall
pay to the holder of the fractional share of Class A Common Stock that has
converted into a fractional share of Common Stock an amount in cash equal to
the current market price of such fractional share as determined in good faith
by the Board of Directors of the Corporation.
(d) The Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Class A Common Stock, such number
of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of Class A Common Stock; and if
at any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all then outstanding shares of
Class A Common Stock, the Corporation will take such corporate action as may,
in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose including, without limitation, engaging in best efforts to
obtain the requisite stockholder approval of any necessary amendment to this
Certificate.
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(e) In the event the Corporation combines (by reverse stock split) the
outstanding Class A Common Stock into a smaller number of shares, and as a
result of such combination the holders of Class A Common Stock are entitled to
receive cash, the shares of Class A Common Stock so combined shall be valued as
though such shares had been converted to Common Stock immediately prior to such
combination.
5. Redemption of Class A Common Stock.
(a) Except as otherwise provided in Section B.5(b) and Section B.5(c) of
this Article IV, upon (i) the death or dissolution of a holder of any shares of
Class A Common Stock (a "Holder"); (ii) an Involuntary Transfer, as defined in
Section B.5(e) of this Article IV, of any shares of Class A Common Stock held
by a Holder; (iii) a Voluntary Transfer, as defined in Section B.6(a) of this
Article IV, of any shares of Class A Common Stock held by a Holder; (iv) the
termination of any license agreement (a "License Agreement"), between a Holder
and Sylvan Learning Systems, Inc., or any of its Affiliates or Associates (as
such terms are defined in Section 3-801 of the MGCL), pursuant to which such
Holder is licensed the right to offer a proprietary system of programs,
systems, teaching and management techniques, individualized diagnostic tests
and academic and educational courses or programs, for any or no reason by any
party to such License Agreement; (v) the termination or expiration of the
rights granted to a Holder by Sylvan Learning Systems, Inc., or any of its
Affiliates or Associates, under an area development agreement (a "Development
Agreement"), with respect to a specific territory, if prior to the termination
or expiration of such rights, such Holder has not entered into a License
Agreement pertaining to the territory for which such rights have terminated or
expired; or (vi) the Transfer, as defined below, by a Holder of its License
Agreement or its rights under a Development Agreement with respect to a
specific territory, then for a period beginning on the occurrence of any such
event and ending One Hundred Eighty (180) days following the date on which the
Corporation receives written notice of the occurrence of any such event (the
"Redemption Period"), the Corporation shall have the right, but not the
obligation, to redeem, at the price and upon the terms contained in this
Section B.5, (A) in the case of (i), (ii), and (iii) above, any or all shares
of Class A Common Stock then registered in such Holder's name; (B) in the case
of (iv) above, any or all shares of Class A Common Stock issued to such Holder
under that certain subscription agreement between such Holder and the
Corporation that sets forth the terminated License Agreement number or the
territory covered by the terminated License Agreement; (C) in the case of (v)
above, any or all shares of Class A Common Stock issued to such Holder under
that certain subscription agreement between such Holder and the Corporation
that sets forth the territory for which the rights granted under a Development
Agreement have terminated or expired; and (D) in the case of (vi) above, any or
all shares of Class A Common Stock issued to such Holder under that certain
subscription agreement between such Holder and the Corporation that sets forth
the transferred License Agreement number or the territory for which the rights
granted under a Development Agreement have been transferred. All shares of the
Class A Common Stock redeemable under this Section B.5 are hereinafter referred
to as the "Redeemable Stock." For purposes of Section B.5(a), a "Transfer"
shall be deemed to occur when (x) a licensee under a License Agreement or
potential licensee under a Development Agreement directly or indirectly sells,
assigns, transfers, conveys, gives away, pledges, mortgages or otherwise
encumbers any interest in a License Agreement or Development Agreement or any
portion or aspect thereof, or (y) a licensee under a License Agreement, a
potential licensee under a Development Agreement or any holder of equity or
voting interests in such licensee or potential licensee, directly or
indirectly, in a single transaction or a series of related transactions, sells,
assigns, transfers, conveys, gives away, pledges, mortgages or otherwise
encumbers any equity or voting interest in the licensee or potential licensee
if the effect of the transaction is to reduce the aggregate percentage of
equity interests or voting interests of all equity holders or holders of voting
interests of the licensee or potential licensee prior to the Transfer to less
than fifty-one percent.
Notwithstanding anything to the contrary contained in this Section B.5(a), the
Redemption Period upon a Voluntary Transfer shall commence on the later to
occur of the effective date of any determination that the provision set forth
in the first two sentences of Section B.6(a) of this Article IV is void,
invalid or unenforceable by virtue of any legal decision, statute, rule or
regulation, or the date upon which the Corporation receives written notice of a
Voluntary Transfer.
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(b) Notwithstanding anything to the contrary contained in Section B.5(a) of
this Article IV, shares of Class A Common Stock of a deceased Holder shall not
be redeemable under Section B.5(a) of this Article IV in the event, within
thirty (30) days following the death of such Holder, (x) such Holder's spouse
or lineal descendant(s) becomes a party to such Holder's License Agreement or
Development Agreement, (y) such Holder's spouse or lineal descendant(s) that
becomes a party to such Holder's License Agreement or Development Agreement
becomes the holder of the shares of Class A Common Stock formerly held by such
deceased Holder, and (z) such Holder's spouse or lineal descendant(s) that
becomes a party to such Holder's License Agreement or Development Agreement
acknowledges in writing that he is subject to the transfer restrictions set
forth in that certain subscription agreement between the Corporation and such
deceased Holder.
(c) Notwithstanding anything to the contrary contained in Section B.5(a) of
this Article IV, shares of Class A Common Stock of a Holder that has
Transferred its License Agreement, or its rights under a Development Agreement
with respect to a specific territory, shall not be redeemable under Section
B.5(a) of this Article IV in the event, simultaneously with such Transfer, (x)
such Holder transfers all (but not less than all) shares of Class A Common
Stock issued to such Holder under that certain subscription agreement between
such Holder and the Corporation that sets forth the transferred License
Agreement number or the territory for which the rights granted under a
Development Agreement (as the case may be) have been transferred, to the
transferee of the License Agreement or the rights under the Development
Agreement, as the case may be, (y) the transferee of the License Agreement or
the rights under the Development Agreement becomes a party to a License
Agreement or Development Agreement, as the case may be, with Sylvan Learning
Systems, Inc., or any of its Affiliates or Associates, and (z) the transferee
acknowledges in writing that it is subject to the transfer restrictions set
forth in the transferor's subscription agreement.
(d) At any time during the applicable Redemption Period, the Corporation may
exercise its right to redeem any shares of Redeemable Stock held by a Holder by
sending written notice (the "Redemption Notice") to such Holder specifying the
Redemption Price, as defined below, the date upon which the Redemption Price
shall be payable (the "Redemption Date"), the number of shares of Redeemable
Stock to be redeemed and the place where the Redemption Price shall be payable.
The Redemption Notice shall be addressed to such Holder at the address of such
Holder shown upon the records of the Corporation. At the close of business on
the Redemption Date, without any action on the part of the Holder of such
Redeemable Stock, the shares of Redeemable Stock to be redeemed on such
Redemption Date shall automatically become and be converted into the right to
receive cash in the amount of the Redemption Price, without interest, upon
surrender of the certificates representing such shares of Redeemable Stock.
From and after the close of business on the Redemption Date, all rights of the
Holder (except the right to receive the Redemption Price) shall cease with
respect to the shares of Redeemable Stock to be redeemed on such Redemption
Date, except the right to receive the Redemption Price from the Corporation,
and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever.
(e) For purposes of this Section B.5, the occurrence of any of the following
events shall constitute an "Involuntary Transfer" of Class A Common Stock: (i)
if any shares of Class A Common Stock are attached or taken in execution; (ii)
if a Holder applies for the benefit of, or files a case under, any provision of
the federal bankruptcy law or any other law relating to insolvency or relief of
debtors; (iii) if a case or proceeding is brought against a Holder under any
provision of the federal bankruptcy law or any other law relating to insolvency
or relief of debtors which is not dismissed within thirty (30) days after the
commencement thereof; (iv) if a Holder makes an assignment for the benefit of
creditors; (v) if any shares of Class A Common Stock are made subject to a
charging order; or (vi) if any shares of Class A Common Stock are transferred
pursuant to a divorce decree.
(f) The Redemption Price of Redeemable Stock payable under this Section B.5
shall be an amount equal to the product obtained by multiplying (i) the number
of shares of Redeemable Stock being redeemed, by (ii) the greater of (x) $0.875
(as adjusted for stock splits, stock dividends, recapitalizations or similar
transactions with respect to the Class A Common Stock) or (y) the most recently
appraised value per share of the Class A Common Stock as determined or approved
by the Board of Directors of the Corporation. The
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Redemption Price determined in accordance with this Section B.5(f) shall
constitute the full and exclusive price for redemption of Redeemable Stock
under this Section B.5.
(g) On the Redemption Date, the certificates representing shares of
Redeemable Stock to be redeemed shall be delivered by the Holder to the
Corporation. If the certificates representing any shares of Redeemable Stock to
be redeemed have not been surrendered by the Holder, all rights of the Holder
with respect to said Redeemable Stock (including voting rights) nonetheless
shall cease and terminate.
6. Restrictions on Transfer of Class A Common Stock.
(a) The Corporation has determined that the continued ownership of Class A
Common Stock only by Holders that have entered into License Agreements or
Development Agreements will encourage such Holders to support and participate
in the Corporation's business plan and perpetuate harmony in the Corporation's
management, policies and operations. Accordingly, any transfer of shares of
Class A Common Stock except (i) to the Corporation, or (ii) pursuant to and
accordance with the terms of Section B.5(b) or Section B.5(c) of this Article
IV, shall be null and void, and the Corporation shall refuse to recognize any
such transfer and shall not reflect on its records any change in record
ownership of the Class A Common Stock pursuant to any such transfer and the
intended transferee of such shares shall be deemed never to have had an
interest therein. If the foregoing provision is determined to be void, invalid
or otherwise unenforceable by virtue of any legal decision, statute, rule or
regulation, then any such transfer of shares of Class A Common Stock except to
the Corporation, whether voluntary, involuntary or otherwise, shall be deemed a
"Voluntary Transfer" for purposes of Section B.5 of this Article IV.
(b) Each certificate of Class A Common Stock shall be endorsed by the
Secretary of Corporation as follows:
The Class A Common Stock evidenced by this certificate is subject to
restrictions on transfer set forth in the Charter of the Corporation. The
Corporation will furnish information about the restrictions to any
stockholder upon request and without charge.
(c) The Corporation may note upon its stock transfer records a "stop
transfer order" with respect to the Class A Common Stock in order to enforce
the restrictions on transfer hereinabove described. The Corporation or its
agent shall not be liable for any refusal to transfer the Class A Common Stock
upon the books of the Corporation, except in compliance with the terms and
conditions of such restrictions.
(d) The restrictions on transfer set forth in this Section 6 shall terminate
upon the earlier to occur of September 30, 2010 or any of the following events:
(i) A determination of the Board of Directors;
(ii) The cessation of the Corporation's business; or
(iii) The bankruptcy, liquidation, receivership, or dissolution of, or
assignment for the benefit of creditors by, the Corporation.
C. SERIES A PREFERRED STOCK.
1. Dividends and Distributions. Subject to the provisions of law and this
charter, the holders of Series A Preferred Stock (i) together with the holders
of Common Stock and the holders of other Convertible Securities entitled to
receive dividends or distributions on or with respect to the Common Stock under
the provisions of law and this charter, shall be entitled to receive as, if and
when declared by the Board of Directors, out of funds legally available for
such purpose, any and all dividends or distributions declared and paid by the
Corporation on or with respect to the Common Stock, with each such holder
receiving its pro rata portion (assuming the conversion of all outstanding
Series A Preferred Stock and such other Convertible Securities that are
entitled to receive such dividends or distributions) of any such dividend or
distribution; and (ii) together with the holders of other Convertible
Securities entitled to receive dividends or distributions on or with respect
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to the Series A Preferred Stock under the provisions of law and this charter,
shall be entitled to receive as, if and when declared by the Board of
Directors, out of funds legally available for such purpose, any and all
dividends or distributions declared and paid by the Corporation on or with
respect to the Series A Preferred Stock, with each such holder receiving its
pro rata portion (assuming the conversion of all outstanding Series A Preferred
Stock and such other Convertible Securities that are entitled to receive such
dividends or distributions) of any such dividend or distribution.
2. Liquidation Rights. Subject to the provisions of law and this charter,
upon a Liquidation Event, the assets of the Corporation available for
distribution to its stockholders shall be distributed to the holders of Series
A Preferred Stock, together with the holders of Common Stock and the holders of
other Convertible Securities entitled to participate in such distribution under
the provisions of law and this charter, on a pro rata basis (assuming the
conversion of all outstanding Series A Preferred Stock and such other
Convertible Securities).
3. Voting Rights; Directors.
(a) Except as otherwise required by law or provided herein, the holders of
Series A Preferred Stock, together with the holders of Common Stock and the
holders of other Convertible Securities entitled to vote on matters submitted
to stockholders of the Corporation, shall vote together, as a single class, on
all matters submitted to stockholders of the Corporation for their action or
consideration. Each holder of Series A Preferred Stock shall be entitled to
cast five (5) votes for each share of Common Stock into which such shares of
Series A Preferred Stock then held of record by such holder may be converted in
accordance with Section C.4 of this Article IV. Except as otherwise required by
law, holders of Series A Preferred Stock shall not have cumulative voting
rights.
(b) The holders of the Series A Preferred Stock, voting as a separate class,
shall be entitled to elect one (1) director of the Corporation by a plurality
vote of the Series A Preferred Stock.
4. Conversion of Series A Preferred Stock.
(a) Voluntary Conversion.
(i) At any time and from time to time prior to the consummation of a
"Qualified IPO" (as defined in Section B.4 of this Article IV), any holder of
Series A Preferred Stock may convert all or any of the shares of Series A
Preferred Stock then held by such holder into a number of shares of Common
Stock computed by multiplying the number of shares of Series A Preferred Stock
proposed to be converted by $1.90, and dividing the result by the applicable
"Conversion Price" (as defined herein) then in effect. The initial conversion
rate for Series A Preferred Stock surrendered for conversion shall be one share
of Common Stock for each share of Series A Preferred Stock surrendered for
conversion, representing an initial "Conversion Price" of $1.90 per share of
Common Stock, subject to adjustment as hereinafter provided.
(ii) Any holder of shares of Series A Preferred Stock desiring to convert
any portion thereof into Common Stock under this Section C.4(a) shall surrender
the certificate or certificates for such shares of Series A Preferred Stock at
the principal office of the Corporation, together with written notice that such
holder elects to convert all or any number of the shares of Series A Preferred
Stock represented by such certificate or certificates. Such notice shall state
such holder's name or the names of the nominees in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. If
reasonably required by the Corporation, certificates surrendered for conversion
shall be endorsed or accompanied by a written instrument or instruments of
transfer, in form satisfactory to the Corporation, duly executed by the
registered holder or his or its attorney-in-fact duly authorized in writing.
The date of receipt of such certificates and notice by the Corporation shall be
the conversion date (the "Conversion Date"). The Corporation shall, as soon as
practicable after the Conversion Date, issue and deliver at such office to such
holder of shares of Series A Preferred Stock, or to his or its nominees, a
certificate or certificates for the number of whole shares of Common Stock to
which such holder or such nominees shall be entitled, together with any payment
in lieu of fractional shares to which such holder may be entitled. Such
conversion shall be deemed to have been made
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immediately prior to the close of business on the Conversion Date, and 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 as of such date.
(iii) In case of any Liquidation Event, the conversion rights set forth in
this Section C.4 shall cease and terminate at the close of business on the
business day fixed for payment of the amount distributable to the holders of
shares of Series A Preferred Stock pursuant to Section C.2 of this Article IV.
(b) Automatic Conversion. All outstanding shares of Series A Preferred Stock
shall automatically convert to fully paid and nonassessable shares of Common
Stock at the then effective Conversion Price immediately prior to the
consummation of a "Qualified IPO" (as defined in Section B.4 of this Article
IV). Holders of shares of Series A Preferred Stock so converted shall deliver
to the Corporation, at its principal office (or such other office or agency of
the Corporation as the Corporation may designate by notice in writing to such
holders) during its usual business hours, the certificate or certificates for
the shares so converted. As promptly as practicable thereafter, the Corporation
shall issue and deliver to such holder a certificate or certificates for the
number of whole shares of Common Stock to which such holder is entitled,
together with any payment in lieu of fractional shares to which such holder may
be entitled. Until such time as a holder of shares of Series A Preferred Stock
shall surrender the certificates therefor as provided above, such certificates
shall be deemed to represent the shares of Common Stock to which such holder
shall be entitled upon the surrender thereof.
(c) No fractional shares shall be issued upon conversion of Series A
Preferred Stock into Common Stock. If any fractional share of Common Stock
would, except for the provisions of the preceding sentence, be delivered upon
such conversion, the Corporation, in lieu of delivering such fractional share,
shall pay to the holder of the fractional share of Series A Preferred Stock
that has converted into a fractional share of Common Stock an amount in cash
equal to the current market price of such fractional share as determined in
good faith by the Board of Directors of the Corporation.
(d) The Corporation shall assist and cooperate with any holder of Series A
Preferred Stock required to make any governmental filings or obtain any
governmental approval prior to or in connection with any conversion of shares
of Series A Preferred Stock hereunder (including, without limitation, making
any filings required to be made by the Corporation). The Corporation shall take
all such actions as may be reasonably necessary to ensure that all such Common
Stock may be so issued without violation of any applicable law or governmental
regulation.
(e) Subdivision or Combination of Common Units. If the Corporation
subdivides (by any stock split, dividend, distribution, recapitalization or
otherwise) the outstanding Common Stock into a greater number of shares, the
applicable Conversion Price in effect immediately prior to such subdivision
shall be proportionately decreased to account for such subdivision, and if the
Corporation combines (by reverse stock split or otherwise) the outstanding
Common Stock into a smaller number of shares, the applicable Conversion Price
in effect immediately prior to such combination shall be proportionately
increased.
(f) Adjustment of Conversion Price Upon Certain Issuances of Stock. If the
Corporation shall issue or sell, or is, in accordance with subparagraphs (i)
through (vi), deemed to have issued or sold, any shares of stock (including
Common Stock and all Options and Convertible Securities) for a consideration
per share less than the applicable Conversion Price for the shares of Series A
Preferred Stock in effect immediately prior to the time of such issue or sale
(a "Dilutive Event"), then, forthwith upon such Dilutive Event, such applicable
Conversion Price shall be reduced concurrently with such issue to an amount
equal to the quotient of (i) (A) the Conversion Price immediately prior to such
Dilutive Event, multiplied by (B) the number of shares of Common Stock
outstanding immediately prior to such Dilutive Event determined on a fully-
diluted basis assuming the conversion or exercise of all outstanding shares of
Series A Preferred Stock, Class A Common Stock and all other Options (as that
term is defined in subsection (f)(i) below) or Convertible Securities ("Fully-
Diluted Basis"), plus (C) the aggregate consideration, if any, received or to
be received by the Corporation upon such Dilutive Event, divided by (ii) the
sum of the number of shares of Common Stock outstanding immediately
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after such Dilutive Event, determined on a Fully-Diluted Basis. The Conversion
Price shall be determined in accordance with the foregoing formula and shall be
rounded to the nearest one tenth of one cent ($0.001).
For purposes of this Section C.4(f) of Article IV, the following subparagraphs
(i) to (vi) shall also be applicable:
(i) Issuance of Rights or Options. In case the Corporation shall in any
manner grant (whether directly or by assumption in a merger or otherwise) any
warrants or other rights to subscribe for or to purchase, or any options for
the purchase of, shares of Common Stock (such warrants, rights or options being
called "Options") or any Convertible Securities, whether or not such Options or
the right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which shares of Common
Stock are issuable upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities (determined, by dividing (a) the total
amount, if any, received or receivable by the Corporation as consideration for
the granting of such Options, plus the minimum aggregate amount of additional
consideration payable to the Corporation upon the exercise of all such Options,
plus, in the case of such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable upon the
issue or sale of such Convertible Securities and upon the conversion or
exchange thereof, by (b) the total maximum number of shares of Common Stock
issuable upon the exercise of all such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise of such
Options) shall be less than the applicable Conversion Price for the Series A
Preferred Stock immediately prior to the time of the granting of such Options
or Convertible Securities, then the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon conversion or exchange
of the total maximum amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to have been issued for such price per
share as of the date of granting of such Options or the issuance of such
Convertible Securities and thereafter shall be deemed to be outstanding. Except
as otherwise provided in subparagraph (iii), no adjustment of any Conversion
Price shall be made upon the actual issue of such shares of Common Stock or of
such Convertible Securities upon exercise of such Options or upon the actual
issue of such shares of Common Stock upon conversion or exchange of such
Convertible Securities.
(ii) Issuance of Convertible Securities. In case the Corporation shall in
any manner issue (whether directly or by assumption in a merger or otherwise)
or sell any Convertible Securities, whether or not the rights to exchange or
convert any such Convertible Securities are immediately exercisable, and the
price per share for which shares of Common Stock are issuable upon such
conversion or exchange (determined by dividing (a) the total amount received or
receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (b) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities)
shall be less than the applicable Conversion Price for the Series A Preferred
Stock immediately prior to the time of such issue or sale, then the total
maximum number of shares of Common Stock issuable upon conversion or exchange
of all such Convertible Securities shall be deemed to be outstanding, provided
that (a) except as otherwise provided in subparagraph (iii), no adjustment of
any Conversion Price shall be made upon the actual issue of such Common Stock
upon conversion or exchange of such Convertible Securities, and (b) if any such
issue or sale of such Convertible Securities is made upon exercise of any
Options to purchase any such Convertible Securities for which adjustments of
any Conversion Price have been or are to be made pursuant to other provisions
of this Section C.4(f) of Article IV, no further adjustment of such Conversion
Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. Upon the happening of any
of the following events, namely, if the purchase price provided for in any
Option referred to in subparagraph (i), the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities referred
to in subparagraph (i) or (ii), or the rate at which Convertible Securities
referred to in subparagraph (i) or (ii) are convertible into or exchangeable
for Common Stock shall change at any time (including, but not limited to,
changes under or by reason of provisions designed to protect against dilution),
the applicable Conversion Price for the Series A Preferred Stock at the time of
such event shall forthwith be readjusted to the Conversion Price
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which would have been in effect at such time had such Options or Convertible
Securities still outstanding included such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold, but in no event will the applicable Conversion Price
be readjusted to an amount greater than the applicable Conversion Price which
would have been in effect had the Options or Convertible Securities subject to
the above described consideration changes never been granted, issued or sold.
In addition, on the expiration or exchange of any Option or Convertible
Securities prior to the conversion of the Series A Preferred, the applicable
Conversion Price then in effect hereunder shall forthwith be adjusted to the
applicable Conversion Price which would have been in effect had such Options or
Convertible Securities never been issued; provided, that any consideration
which was actually received by the Corporation in connection with the issuance
or sale of such Options or Convertible Securities shall be included in the
readjustment computation even though such Options or Convertible Securities
shall have expired or terminated; provided, further, that no such readjustment
to the Conversion Price shall affect any Common Stock previously issued upon
conversion of the Series A Preferred Stock.
(iv) Distribution of Stock. In case the Corporation shall make any
distribution upon any Common Stock of the Corporation payable in Common Stock,
Options or Convertible Securities, any such securities issued in payment of
such distribution shall be deemed to have been issued or sold at a
consideration equal to $.01 per share.
(v) Consideration. In case any Common Stock, Options or Convertible
Securities shall be issued or sold for cash, the consideration received
therefor shall be deemed to be the amount received by the Corporation therefor,
without deduction therefrom of any amounts paid or receivable for accrued
interest, expenses incurred or any underwriting commissions or concessions paid
or allowed by the Corporation in connection therewith. In case any Common
Stock, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Corporation shall be deemed to be the fair value of such
consideration as determined in good faith by the Board of Directors, without
deduction of any amounts paid or receivable for accrued interest and any
expenses incurred or any underwriting commissions or concessions paid or
allowed by the Corporation in connection therewith. In case any Options shall
be issued in connection with the issue and sale of other securities of the
Corporation, together comprising one integral transaction in which no specific
consideration is allocated to such Options by the parties thereto, the
consideration shall be allocated between the Options and such other securities
as determined in good faith by the Board of Directors.
(vi) In case any event shall occur as to which the provisions of this
Section C.4(f) are not strictly applicable but the failure to make any
adjustment would not fairly protect the conversion rights of the holders of the
Series A Preferred Stock in accordance with the essential intent and principles
of such provisions, then, in each such case, the Corporation shall make a good
faith adjustment to the Conversion Price in accordance with the intent of this
Section C.4(f) and, upon the written request of the holders of a majority of
the issued and outstanding shares of Series A Preferred Stock, shall appoint a
firm of independent certified public accountants of recognized national
standing (which may be the regular auditors of the Corporation), which shall
give their opinion upon the adjustment, if any, on a basis consistent with the
essential intent and principles established in this Section C.4(f), necessary
to preserve, without dilution, the conversion rights associated with the Series
A Preferred Stock. Upon receipt of such opinion, the Corporation shall promptly
mail a copy thereof to the holders of each share of Series A Preferred Stock
and shall make the adjustments described therein.
(g) Notification. Immediately upon any adjustment of the applicable
Conversion Price, the Corporation shall give written notice thereof to all
holders of Series A Preferred Stock, setting forth in reasonable detail, and
certifying, the calculation of such adjustment.
(h) Certain Issues of Common Stock Excepted. The Corporation shall not be
required to make any adjustment of the applicable Conversion Price in the case
of the issuance of:
(i) Stock issued or issuable upon conversion of Series A Preferred Stock;
(ii) Stock issued or issuable as a distribution on Series A Preferred Stock;
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(iii) Stock issued or issuable by reason of a dividend, split, or other
distribution on Stock excluded from adjustment of the applicable Conversion
Price pursuant to the preceding clauses (i) and (ii);
(iv) Up to 3,600,000 shares of Class A Common Stock which number includes
without limitation shares of Class A Common Stock issued or issuable under the
Corporation's Registration Statement on Form S-1 (File No.: 333-42530) as filed
with the Securities and Exchange Commission on July 28, 2000, as amended;
(v) Up to 3,000,000 shares of Common Stock issued or issuable, or issued or
issuable upon exercise of Options or conversion of Convertible Securities
issued or issuable, under the Corporation's 2000 Omnibus Stock Plan;
(vi) Common Stock issued or issuable to Ivy West Educational Services, Inc.,
under that certain Asset Purchase Agreement dated May 18, 2000.
(i) Reservation of Stock Issuable Upon Conversion. The Corporation shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
shares of the Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series A Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of Series A Preferred
Stock, the Corporation will take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to this Certificate.
ARTICLE V
BOARD OF DIRECTORS
Section 1. Number of Directors.
The Corporation shall have four (4) directors, which number may be increased
or decreased pursuant to the Bylaws, but the number of directors shall not be
less than the lesser of three (3) or the number of stockholders.
Section 2. Directors.
R. Christopher Hoehn-Saric, B. Lee McGee, Peter Cohen and Robert Zentz shall
act as directors of the Corporation until their successors are duly chosen and
qualified.
Section 3. Board Authorization of Stock Issuance.
The Board of Directors of the Corporation is hereby empowered to authorize
the issuance from time to time of shares of its stock of any class, whether now
or hereafter authorized, and securities convertible into shares of its stock of
any class or classes, whether now or hereafter authorized, for such
consideration as the Board of Directors may deem advisable.
Section 4. Classification of Stock.
The Board of Directors shall have the power to classify or reclassify any
unissued stock, whether now or hereafter authorized, by setting or changing the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms or conditions of
redemption of such stock.
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Section 5. Board Authority to Increase or Decrease Authorized Stock
The Board of Directors of the Corporation, with the approval of a majority
of the entire Board of Directors, and without action by the stockholders, may
amend the charter of the Corporation to increase or decrease the aggregate
number of shares of stock of the Corporation or the number of shares of stock
of any class that the Corporation has authority to issue.
Section 6. Conflict of Interest.
No contract or other transaction between this Corporation and any other
corporation, partnership, individual or other entity and no act of this
Corporation shall in any way be affected or invalidated by the fact that any of
the directors of this Corporation are directors, principals, partners or
officers of such other entity, or are pecuniarily or otherwise interested in
such contract, transaction or act; provided that (i) the existence of such
relationship or such interest shall be disclosed or known to the Board of
Directors or to a committee of the Board of Directors if the matter involves a
committee decision, and the contract, transaction or act shall be authorized,
approved or ratified by a majority of disinterested directors on the Board or
on such committee, as the case may be, even if the number of disinterested
directors constitutes less than a quorum or (ii) the contract, transaction or
act shall be authorized, ratified or approved in any other manner permitted by
the MGCL.
Section 7. Permissible Considerations by Board of Directors.
The Board of Directors, in considering a potential acquisition of control of
the Corporation, is permitted, but is not required, to consider the effect of
the potential acquisition on the stockholders, employees, suppliers, customers,
and creditors of the corporation and the communities in which offices or other
establishments of the Corporation are located.
ARTICLE VI
PROVISIONS CONCERNING CERTAIN RIGHTS
OF THE CORPORATION AND THE STOCKHOLDERS
Section 1. Right to Amend Charter.
The Corporation reserves the right to make, from time to time, any
amendments of its Charter which may now or hereafter be authorized by law,
including any amendments which alter the contract rights of any class of
outstanding stock as expressly set forth in the Charter; provided, however,
that as long as there are any shares of Series A Preferred Stock issued and
outstanding, no amendment of the Charter that affects the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption of Series A
Preferred Stock shall be effective unless approved by the holders of the Series
A Preferred Stock, voting as a separate class.
Section 2. Elimination of Preemptive Rights.
Unless otherwise provided by the Board of Directors, no holder of stock of
any class shall be entitled to preemptive rights to subscribe for or purchase
or receive any part of any new or additional issue of stock of any class of the
Corporation or securities convertible into stock of any class of the
Corporation.
Section 3. Required Stockholder Vote.
Notwithstanding any provision of law requiring any action to be taken or
authorized by the affirmative vote of the holders of a greater proportion of
the votes of all classes or of any class of stock of the Corporation, such
action shall be effective and valid if taken or authorized by the affirmative
vote of a majority of the total number of votes entitled to be cast thereon,
except as otherwise provided in this Charter.
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Section 4. Bylaws.
The Board of Directors, and not the stockholders, shall have the exclusive
power to make, alter, amend or repeal the Bylaws of the Corporation. Any
amendment to, repeal of or adoption of any provision inconsistent with this
Section 4 shall be effective only if it is approved by the affirmative vote of
the holders of at least 80% of the aggregate combined voting power of all
classes of capital stock entitled to vote thereon, voting as one class.
Section 5. Availability of Appraisal Rights
The holders of shares of stock of any class of the Corporation are not
entitled to exercise the rights of an objecting stockholder under Subtitle 2 of
Title 3 of the MGCL.
Section 6. Applicability of the Maryland Control Share and Business
Combination Statutes.
The Corporation elects not to be governed by Subtitle 6 of Title 3 of the
MGCL with respect to any "business combination" as defined in such Subtitle. In
addition, any acquisition of any shares of stock of the Corporation, including
any acquisition of voting rights or other interests in any such stock, shall be
exempt from the provisions of Title 3, Subtitle 7 of the MGCL. Accordingly, the
provisions of the Maryland Business Combination Act and the Maryland Control
Share Acquisition Act shall not apply to this Corporation.
ARTICLE VII
INDEMNIFICATION AND LIMITATION OF LIABILITY
Section 1. Mandatory Indemnification.
The Corporation shall indemnify its currently acting and its former
directors and officers against any and all liabilities and expenses incurred in
connection with their services in such capacities to the maximum extent
permitted by the MGCL, as from time to time amended.
Section 2. Discretionary Indemnification.
If approved by the Board of Directors, the Corporation may indemnify its
employees, agents and persons who serve and have served, at its request as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture or other enterprise or employee benefit plan to the
extent determined to be appropriate by the Board of Directors.
Section 3. Advancing Expenses Prior to a Decision.
The Corporation shall advance expenses to its directors and officers
entitled to mandatory indemnification to the maximum extent permitted by the
MGCL and may in the discretion of the Board of Directors advance expenses to
employees, agents and others who may be granted indemnification.
Section 4. Other Provisions for Indemnification.
The Board of Directors may, by bylaw, resolution or agreement, make further
provision for indemnification of directors, officers, employees and agents.
Section 5. Limitation of Liability of Directors and Officers.
To the maximum extent that limitations on the liability of directors and
officers are permitted by the MGCL, as from time to time amended, no director
or officer of the Corporation shall have any liability to the Corporation or
its stockholders for money damages. This limitation on liability applies to
events occurring at
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the time a person serves as a director or officer of the Corporation whether or
not such person is a director or officer at the time of any proceeding in which
liability is asserted.
Section 6. Effect of Amendment or Repeal.
No amendment or repeal of any section of this Article, or the adoption of
any provision of the Corporation's Charter inconsistent with this Article,
shall apply to or affect in any respect the rights to indemnification or
limitation of liability of any director or officer of the Corporation with
respect to any alleged act or omission which occurred prior to such amendment,
repeal or adoption.
SECOND: The Corporation desires to amend and restate its Charter as
currently in effect. The provisions set forth in the above Articles of
Amendment and Restatement are all of the provisions of the Corporation's
Charter currently in effect as hereby amended.
THIRD: The amendment and restatement of the Charter of the Corporation
herein made was recommended and advised by the Board of Directors of the
Corporation by a unanimous written consent dated October 6, 2000 and was
approved by the stockholders of the Corporation by a unanimous written consent
dated October 10, 2000.
FOURTH: The current address of the principal office of the Corporation is 34
Market Place, Baltimore, Maryland 21202 and the Corporation's current resident
agent is Robert Zentz, whose post office address is 1000 Lancaster Street,
Baltimore, Maryland 21202.
FIFTH: The Corporation currently has four directors; the directors currently
in office are R. Christopher Hoehn-Saric, B. Lee McGee, Peter Cohen and Robert
Zentz.
SIXTH: These Articles of Amendment and Restatement do not increase the
authorized stock of the Corporation or the aggregate par value of such
authorized stock.
SEVENTH: A description, as amended, of each class of stock which the
Corporation is authorized to issue, including the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption, is set forth in Article
IV of the Charter of the Corporation, as set forth herein.
IN WITNESS WHEREOF, eSylvan, Inc. has caused these Articles to be signed in
its name and on its behalf by its President and attested by its Secretary as of
the 27th day of October 2000.
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THE UNDERSIGNED, President of eSylvan, Inc., acknowledges these Articles of
Amendment and Restatement to be the corporate act of the Corporation and
states that, to the best of his knowledge, information and belief, the matters
and facts set forth herein with respect to the authorization and approval
hereof are true in all material respects and that this statement is made under
the penalties of perjury.
ATTEST: eSYLVAN, INC.
/s/ Robert Zentz By: /s/ David Graves
_____________________________ __________________________(SEAL)
Robert Zentz, Secretary David Graves, President
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