EXHIBIT 99.5
EXHIBIT A
TO
SECURITIES
PURCHASE
AGREEMENT
CERTIFICATE OF
DESIGNATIONS, PREFERENCES, AND RIGHTS
of
SERIES A CONVERTIBLE PREFERRED STOCK
of
INTERWORLD CORPORATION
(Pursuant to Section 151 of the
Delaware General Corporation Law)
INTERWORLD CORPORATION, a corporation organized and
existing under the Delaware General Corporation Law (the
"Corporation"), hereby certifies that the following resolutions were
adopted by the Board of Directors of the Corporation on October __,
2000 pursuant to authority of the Board of Directors as required by
Section 151 of the Delaware General Corporation Law ("DGCL"):
RESOLVED, that pursuant to the authority granted to and
vested in the Board of Directors of this Corporation (the "Board of
Directors" or the "Board") in accordance with the provisions of its
Certificate of Incorporation, the Board of Directors hereby
authorizes a series of the Corporation's previously authorized
Preferred Stock, par value $.01 per share (the "Preferred Stock"),
and hereby states the designation and number of shares, and fixes the
relative rights, preferences, privileges, powers and restrictions
thereof as follows:
Series A Convertible Preferred Stock:
I. DESIGNATION AND AMOUNT
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The designation of this series, which consists of Five
Million Five Hundred Thousand (5,500,000) shares of 8% PIK Preferred
Stock, is Series A Convertible Preferred Stock (the "Series A
Preferred Stock") and the stated value shall be Six Dollars and
Twenty-Five Cents ($6.25) per share (the "Stated Value").
II. RANK
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The Series A Preferred Stock shall rank (i) prior to the
Corporation's common stock, par value $.01 per share (the "Common
Stock"); (ii) prior to any class or series of capital stock of the
Corporation hereafter created (unless, with the consent of the
holders of Series A Preferred Stock obtained in accordance with
Article IX hereof, such class or series of capital stock
specifically, by its terms, ranks senior to or pari passu with the
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Series A Preferred Stock) (collectively, with the Common Stock,
"Junior Securities"); (iii) pari passu with any class or series of
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capital stock of the Corporation hereafter created (with the consent
of the holders of Series A Preferred Stock obtained in accordance
with Article IX hereof) specifically ranking, by its terms, on parity
with the Series A Preferred Stock ("Pari Passu Securities"); and (iv)
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junior to any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series A
Preferred Stock obtained in accordance with Article IX hereof)
specifically ranking, by its terms, senior to the Series A Preferred
Stock ("Senior Securities"), in each case as to distribution of
assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary.
III. DIVIDENDS
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The holders of the Series A Preferred Stock shall be
entitled to receive dividends on a quarterly basis at a rate of 8%
per annum per share, payable out of any assets or funds legally
available therefor. Such dividends shall be cumulative and shall
accrue, whether or not declared by the Board of Directors, but shall
be payable only when, as and if declared by the Board of Directors.
If, at any time, the Market Price (as defined in Article VI) of the
Common Stock falls below the Floor Price (as defined in Article VI),
then the rate will increase to 12% for such time as the Market Price
remains below the Floor Price. Accrued but unpaid dividends will be
paid upon conversion of the Series A Preferred Stock. The
Corporation shall have the option to pay such dividends on the Series
A Preferred Stock in additional Series A Preferred Stock or in cash;
provided that the dividends which accrued during each quarterly
period shall be payable in cash only if the Corporation provides
written notice to each holder of Series A Preferred Stock at least
five days prior to the relevant dividend payment date.
In no event, so long as any Series A Preferred Stock shall
remain outstanding, shall any dividend whatsoever be declared or paid
upon, nor shall any distribution be made upon, any Junior Securities,
nor shall any shares of Junior Securities be purchased or redeemed by
the Corporation nor shall any moneys be paid to or made available for
a sinking fund for the purchase or redemption of any Junior
Securities (other than a distribution of Junior Securities), without,
in each such case, the written consent of the holders of a majority
of the outstanding shares of Series A Preferred Stock, voting
together as a class.
IV. LIQUIDATION PREFERENCE
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A. Liquidation Event. If the Corporation shall commence
a voluntary case under the Federal bankruptcy laws or any other
applicable Federal or State bankruptcy, insolvency or similar law, or
consent to the entry of an order for relief in an involuntary case
under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its
property, or make an assignment for the benefit of its creditors, or
admit in writing its inability to pay its debts generally as they
become due, or if a decree or order for relief in respect of the
Corporation shall be entered by a court having jurisdiction in the
premises in an involuntary case under the Federal bankruptcy laws or
any other applicable Federal or state bankruptcy, insolvency or
similar law resulting in the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs,
and any such decree or order shall be unstayed and in effect for a
period of sixty (60) consecutive days and, on account of any such
event, the Corporation shall liquidate, dissolve or wind up, or if
the Corporation shall otherwise liquidate, dissolve or wind up (each
such event being considered a "Liquidation Event"), no distribution
shall be made to the holders of any shares of capital stock of the
Corporation (other than Senior Securities) upon liquidation,
dissolution or winding up unless prior thereto, the holders of shares
of Series A Preferred Stock, subject to Article VI, shall have
received the Liquidation Preference (as defined in Article IV.C) with
respect to each share. If upon the occurrence of a Liquidation
Event, the assets and funds available for distribution among the
holders of the Series A Preferred Stock and holders of Pari Passu
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Securities (including any dividends or distribution paid on any Pari
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Passu Securities after the date of filing of this Certificate of
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Designation) shall be insufficient to permit the payment to such
holders of the preferential amounts payable thereon, then the entire
assets and funds of the Corporation legally available for
distribution to the Series A Preferred Stock and the Pari Passu
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Securities shall be distributed ratably among such shares in
proportion to the ratio that the Liquidation Preference payable on
each such share bears to the aggregate liquidation preference payable
on all such shares. Any prior dividends or distributions made after
the date of filing of this Certificate of Designation shall offset,
dollar for dollar, the amount payable to the class or series to which
such distribution was made.
B. Certain Acts Deemed Special Liquidation Event. At
the option of any holder of Series A Preferred Stock, a Change of
Control Transaction (as defined in Article VI) shall either: (i) be
deemed to be a liquidation, dissolution or winding up of the
Corporation pursuant to which the Corporation shall, at the option of
the holders of the Series A Preferred Stock, be required to
distribute upon consummation of and as a condition to such
transaction an amount equal to 150% of the Liquidation Preference
with respect to each outstanding share of Series A Preferred Stock or
(ii) be treated pursuant to Article VI.C(b) hereof.
C. Liquidation Preference. For purposes hereof, the
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"Liquidation Preference" with respect to each share of the Series A
Preferred Stock shall mean an amount equal to the sum of (i) the
Stated Value thereof plus (ii) an amount (the "Premium Amount") equal
to all accrued but unpaid dividends as set forth in Article III for
the period beginning on the date of issuance of the Series A
Preferred Stock (the "Issue Date") and ending on the date of final
distribution to the holder thereof (prorated for any portion of such
period), plus (iii) all Conversion Default Payments (as defined in
Article VI.E below), Delivery Default Payments (as defined in Article
VI.D below) and any other amounts owed to such holder pursuant to
Section 2(c) of the Registration Rights Agreement. The liquidation
preference with respect to any Pari Passu Securities shall be as set
forth in the Certificate of Designation filed in respect thereof.
V. REDEMPTION
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A. Mandatory Redemption. If any of the following
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events (each, a "Mandatory Redemption Event") shall occur:
(i) The Corporation (a) fails to issue shares of
Common Stock to the holders of Series A Preferred Stock upon exercise
by the holders of their conversion rights in accordance with the
terms of this Certificate of Designation if such failure is solely as
a result of the circumstances governed by the second paragraph of
Article VI.E below and the Corporation is using its best efforts to
authorize a sufficient number of shares of Common Stock as soon as
practicable, (b) fails to transfer or to cause its transfer agent to
transfer (electronically or in certificated form) any certificate for
shares of Common Stock issued to the holders upon conversion of the
Series A Preferred Stock as and when required by this Certificate of
Designation or the Registration Rights Agreement, dated as of October
__, 2000, by and among the Corporation and the other signatories
thereto (the "Registration Rights Agreement") or (c) fails to remove
any restrictive legend (or to withdraw any stop transfer instructions
in respect thereof) on any certificate or any shares of Common Stock
issued to the holders of Series A Preferred Stock upon conversion of
the Series A Preferred Stock as and when required by this Certificate
of Designation, the Securities Purchase Agreement dated as of October
12, 2000, by and between the Corporation and the other signatories
thereto (the "Purchase Agreement") or the Registration Rights
Agreement.
(ii) If on or before April 12, 2001 the
Corporation has not entered into a Change of Control Transaction with
the holder of a majority of the outstanding shares of Series A
Preferred Stock;
(iii) The corporation or any subsidiary of the
Corporation shall make an assignment for the benefit of creditors, or
apply for or consent to the appointment of a receiver or trustee for
it or for all or substantially all of its property or business; or
such a receiver or trustee shall otherwise be appointed; or
(iv) Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Corporation or any subsidiary of the
Corporation;
then, upon the occurrence and during the continuation of any
Mandatory Redemption Event specified in subparagraphs (i) or (ii), at
the option of the holders of at least 50% of the then outstanding
shares of Series A Preferred Stock exercisable by delivery of written
notice (the "Mandatory Redemption Notice") to the Corporation of such
Mandatory Redemption Event, or upon the occurrence of any Mandatory
Redemption Event specified in subparagraph (iii) or (iv), the then
outstanding shares of Series A Preferred Stock shall become
immediately redeemable and the Corporation shall purchase each
holder's outstanding shares of Series A Preferred Stock for an amount
per share equal to the sum of (a) 150% multiplied by the Stated Value
per share of the shares to be redeemed plus (b) an amount equal to
150% multiplied by the Premium Amount per share of the shares being
redeemed plus (c) all Conversion Default Payments (as defined in
Article VI.E below) payable with respect to each such share, Delivery
Default Payments (as defined in Article VI.D below) payable with
respect to each such share and any other amounts owed with respect to
each such share to such holder pursuant to Section 2(c) of the
Registration Rights Agreement (the "Mandatory Redemption Amount").
B. Trading Market Redemption. If the Series A
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Preferred Stock ceases to be convertible by any holder as a result of
the limitations described in Article VI.A(b) below (a "Trading Market
Redemption Event"), and the Corporation has not, prior to, or within
forty-five (45) days of, the date that such Trading Market Redemption
Event arises, (i) obtained the Stockholder Approval (as defined in
Article VI.A(b)) or (ii) eliminated any prohibitions under
applicable law or the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization
with jurisdiction over the Corporation or any of its securities on
the Corporation's ability to issue shares of Common Stock in excess
of the Maximum Share Amount (as defined in Article VI.A(b)), then the
Corporation shall be obligated to redeem immediately all of the then
outstanding Series A Preferred Stock, in accordance with this Article
V.B. An irrevocable redemption notice (the "Trading Market
Redemption Notice") shall be delivered promptly to the holders of
Series A Preferred Stock at their registered address appearing on the
records of the Corporation and shall state (i) that the Maximum Share
Amount (as defined in Article VI.A) has been issued upon conversion
of the Series A Preferred Stock, (ii) that the Corporation is
obligated to redeem all of the outstanding Series A Preferred Stock
and (iii) a specified date (the "Mandatory Redemption Date"), which
shall be a date within five (5) business days of the earlier of (a)
the date of the Trading Market Redemption Notice or (b) the date on
which the holders of the Series A Preferred Stock notify the
Corporation of the occurrence of a Trading Market Redemption Event.
On the Mandatory Redemption Date, the Corporation shall make a cash
payment for each share required to be redeemed equal to the greater
of (i) the Mandatory Redemption Amount (as defined in Article V.A
above) per share required to be redeemed or (ii) 150% of the Market
Price (as defined in Article VI) on the day a Trading Market
Redemption Notice is given.
C. Failure to Pay Redemption Amounts. In the case of a
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Mandatory Redemption Event, if the Corporation fails to pay the
Mandatory Redemption Amount, within five (5) business days of written
notice that such amount is due and payable, then (assuming there are
sufficient authorized shares) in addition to all other available
remedies, each holder of Series A Preferred Stock shall have the
right at any time, so long as the Mandatory Redemption Event
continues, to require the Corporation, upon written notice, to
immediately issue (in accordance with and subject to the terms of
Article VI below), in lieu of the Mandatory Redemption Amount, the
number of shares of Common Stock of the Corporation equal to such
applicable redemption amount divided by the lesser of the Conversion
Price, the Floor Price, or 65% of the Market Price (as defined
below), as chosen in the sole discretion of the holder of Series A
Preferred Stock, in effect from the date of the Mandatory Redemption
Event until the date such holder elects to exercise its rights
pursuant to this Article V.E. In addition the Corporation shall
immediately nominate and recommend a slate of members of its Board of
Directors a majority of which would constitute persons selected by
the holders of a majority of the outstanding Series A Preferred Stock
and shall call a meeting of its stockholders to approve the election
of such slate.
VI. CONVERSION AT THE OPTION OF THE HOLDER
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A. Optional Conversion
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(a) Conversion Amount. Each holder of shares of
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Series A Preferred Stock may, at its option at any time and from
time to time, upon surrender of the certificates therefor, convert
any or all of its shares of Series A Preferred Stock into Common
Stock as set forth below (an "Optional Conversion"). Each share of
Series A Preferred Stock shall be convertible into such number of
fully paid and nonassessable shares of Common Stock as such Common
Stock exists on the Issue Date, or any other shares of capital stock
or other securities of the Corporation into which such Common Stock
is thereafter changed or reclassified, as is determined by dividing
(1) the sum of (a) the total Stated Value per share to be converted
plus (b) the Premium Amount per share to be converted by (2) the then
effective Conversion Price (as defined below); provided, however,
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that in no event (other than pursuant to the Automatic Conversion (as
defined in Article VII)) shall a holder of shares of Series A
Preferred Stock be entitled to convert any such shares in excess of
that number of shares upon conversion of which the sum of (x) the
number of shares of Common Stock beneficially owned by all of the
holders as a result of the ownership of the Series A Preferred Stock
and the Warrants (as defined below) and any Common Stock issued or
issuable thereunder (other than shares of Common Stock which may be
deemed beneficially owned through the ownership of the unconverted
portion of the shares of Series A Preferred Stock or the unexercised
or unconverted portion of any other securities of the Corporation
(including, without limitation, the warrants issued by the
Corporation pursuant to the Purchase Agreement (the "Warrants"))
subject to a limitation on conversion or exercise analogous to the
limitations contained herein) and (y) the number of shares of Common
Stock issuable upon the conversion of the shares of Series A
Preferred Stock with respect to which the determination of this
proviso is being made, would result in beneficial ownership by all of
such holders and such holders' affiliates of more than 19.999% of the
outstanding shares of Common Stock. For purposes of the proviso to
the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13D-G thereunder,
except as otherwise provided in clause (x) of such proviso.
(b) Trading Market Limitation. Unless the
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Corporation either (i) is permitted by the applicable rules and
regulations of the principal securities market on which the Common
Stock is listed or traded or (ii) has obtained approval of the
issuance of the Common Stock upon conversion of or otherwise pursuant
to the Series A Preferred Stock in accordance with applicable law and
the rules and regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with
jurisdiction over the Corporation or any of its securities (the
"Stockholder Approval"), in no event shall the total number of shares
of Common Stock issued upon conversion of or otherwise pursuant to
the Series A Preferred Stock (including any shares of capital stock
or rights to acquire shares of capital stock issued by the
Corporation which are aggregated or integrated with the Common Stock
issued or issuable upon conversion of or otherwise pursuant to the
Series A Preferred Stock for purposes of any such rule or regulation)
exceed the maximum number of shares of Common Stock that the
Corporation can so issue pursuant to any rule of the principal United
States securities market on which the Common Stock trades (including
Rule 4460 of the Nasdaq or any successor rule)(the "Maximum Share
Amount") which, as of the Issue Date, shall be 5,866,905 (19.999% of
the total shares of Common Stock outstanding on the Issue Date),
subject to equitable adjustments from time to time for stock splits,
stock dividends, combinations, capital reorganizations and similar
events relating to the Common Stock occurring after the Issue Date.
With respect to each holder of Series A Preferred Stock, the Maximum
Share Amount shall refer to such holder's pro rata share thereof
___ ____
determined in accordance with Article X below. In the event that the
sum of (x) the aggregate number of shares of Common Stock actually
issued upon conversion of or otherwise pursuant to the outstanding
Series A Preferred Stock plus (y) the aggregate number of shares of
Common Stock that remain issuable upon conversion of or otherwise
pursuant to the Series A Preferred Stock at the then effective
Conversion Price, represents at least one hundred percent (100%) of
the Maximum Share Amount (the "Triggering Event"), the Corporation
will use its best efforts to seek and obtain Stockholder Approval (or
obtain such other relief as will allow conversions hereunder in
excess of the Maximum Share Amount) as soon as practicable following
the Triggering Event.
B. Conversion Price. The "Conversion Price" as
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used herein, shall initially be $6.25 per share and shall be subject
to adjustment as set forth in this Certificate. All such adjustments
shall be successive. On the six month anniversary of the Issue Date,
the Conversion Price shall be adjusted, if lower, to 90% of the
average Closing Price of the Common Stock for each Trading Day during
the six month period from the date of issuance, but in no event shall
such adjustment reduce the Conversion Price below Two Dollars ($2.00)
(subject to adjustment for stock splits, stock dividends and similar
events prior to the end of such period (the "Floor Price).
C. Adjustments to Conversion Price. The
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Conversion Price shall be subject to the following provisions:
(a) Adjustment to Conversion Price Due to
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Stock Split, Stock Dividend, Etc. If at any time when Series A
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Preferred Stock is issued and outstanding, the number of outstanding
shares of Common Stock is increased or decreased by a stock split,
stock dividend, combination, reclassification, rights offering below
the Trading Price (as defined below) to all holders of Common Stock
or other similar event, then the Conversion Price shall be calculated
giving appropriate effect to the stock split, stock dividend,
combination, reclassification, rights offering below the Trading
Price or other similar event. In such event, the Corporation shall
notify the Transfer Agent of such change on or before the effective
date thereof. "Trading Price," which shall be measured as of the
record date in respect of the rights offering, means (i) the average
of the last reported sale prices for the shares of Common Stock on
Nasdaq as reported by Bloomberg, as applicable, for the five (5)
Trading Days immediately preceding such date, or (ii) if Nasdaq is
not the principal trading market for the shares of Common Stock, the
average of the last reported sale prices on the principal trading
market for the Common Stock during the same period as reported by
Bloomberg, or (iii) if market value cannot be calculated as of such
date on any of the foregoing bases, the Trading Price shall be the
fair market value as reasonably determined in good faith by (a) the
Board of Directors of the Corporation or, (b) at the option of a
majority-in-interest of the holders of the outstanding Series A
Preferred Stock by an independent investment bank of nationally
recognized standing in the valuation of businesses similar to the
business of the Corporation.
(b) Adjustment Due to Merger,
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Consolidation, Etc. If, at any time when Series A Preferred Stock is
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issued and outstanding and prior to the conversion of all Series A
Preferred Stock, there shall be any merger, consolidation, exchange
of shares, recapitalization, reorganization, or other similar event,
as a result of which shares of Common Stock of the Corporation shall
be changed into the same or a different number of shares of another
class or classes of stock or securities of the Corporation or another
entity, or in case of any sale or conveyance of all or substantially
all of the assets of the Corporation other than in connection with a
plan of complete liquidation of the Corporation (each, a "Change of
Control Transaction"), then the holders of Series A Preferred Stock
shall thereafter have the right to receive upon conversion of the
Series A Preferred Stock, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such stock,
securities or assets which the holders of Series A Preferred Stock
would have been entitled to receive in such transaction had the
Series A Preferred Stock been converted in full immediately prior to
such transaction (without regard to any limitations on conversion
contained herein), and in any such case appropriate provisions shall
be made with respect to the rights and interests of the holders of
Series A Preferred Stock to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the
Conversion Price and of the number of shares of Common Stock issuable
upon conversion of the Series A Preferred Stock) shall thereafter be
applicable, as nearly as may be practicable in relation to any
securities or assets thereafter deliverable upon the conversion of
Series A Preferred Stock. The Corporation shall not effect any
transaction described in this subsection (b) unless (a) it first
gives, to the extent practical, thirty (30) days' prior written
notice (but in any event at least fifteen (15) business days prior
written notice) of the record date of the special meeting of
stockholders to approve, or if there is no such record date, the date
of consummation of, such Change of Control Transaction (during which
time the holders of Series A Preferred Stock shall be entitled to
convert the Series A Preferred Stock) and (b) the resulting successor
or acquiring entity (if not the Corporation) and, if an entity
different from the successor or acquiring entity, the entity whose
capital stock or assets the holders of the Common Stock are entitled
to receive as a result of such Change of Control Transaction, assumes
by written instrument the obligations of this Certificate of
Designation (including this subsection (b)); provided, if such Change
of Control Transaction occurs prior to April 10, 2001, it shall at
the option of the holder be a deemed Liquidation Event under Section
IVB. The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers or share exchanges.
(c) Adjustment Due to Distribution.
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Subject to Article III, if the Corporation shall declare or make any
distribution of its assets (or rights to acquire its assets) to
holders of Common Stock as a dividend, stock repurchase, by way of
return of capital or otherwise (including any dividend or
distribution to the Corporation's shareholders in cash or shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e., a
spin-off)) (a "Distribution"), then the holders of Series A Preferred
Stock shall be entitled, upon any conversion of shares of Series A
Preferred Stock after the date of record for determining shareholders
entitled to such Distribution, to receive the amount of such assets
which would have been payable to the holder with respect to the
shares of Common Stock issuable upon such conversion had such holder
been the holder of such shares of Common Stock on the record date for
the determination of shareholders entitled to such Distribution.
(d) Purchase Rights. Subject to Article
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III, if at any time when any Series A Preferred Stock is issued and
outstanding, the Corporation issues any convertible securities or
rights to purchase stock, warrants, securities or other property (the
"Purchase Rights") pro rata to the record holders of any class of
Common Stock, then the holders of Series A Preferred Stock 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 Stock
(without regard to any limitations on conversion contained herein)
immediately before the date on 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.
(e) Antidilution Provisions. The
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Conversion Price shall be subject to adjustment from time to time as
provided below:
(i) Adjustment of Conversion Price.
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If and whenever on or after the Issue Date, the Corporation is deemed
to have issued or sold, any shares of Common Stock for no
consideration or for a consideration per share (before deduction of
reasonable expenses or commissions or underwriting discounts or
allowances in connection therewith) less than the Market Price (a
"Dilutive Issuance"), then immediately upon the Dilutive Issuance,
the Conversion Price will be reduced to a price determined by
multiplying the Conversion Price in effect immediately prior to the
Dilutive Issuance by a fraction, (I) the numerator of which is an
amount equal to the sum of (x) the number of shares of Common Stock
actually outstanding immediately prior to the Dilutive Issuance, plus
(y) the quotient of the aggregate consideration, calculated as set
forth in subsection (ii) below, received by the Corporation upon such
Dilutive Issuance divided by the Market Price in effect immediately
prior to the Dilutive Issuance, and (II) the denominator of which is
the total number of shares of Common Stock Deemed Outstanding (as
defined below) immediately prior to such Dilutive Issuance.
(ii) Effect on Conversion Price of
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Certain Events. For purposes of determining the adjusted Conversion
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Price, the following will be applicable:
(A) Issuance of Rights or
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Options. If the Corporation in any manner issues or grants any
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warrants, rights or options, whether or not immediately exercisable,
to subscribe for or to purchase Common Stock or other securities
convertible into or exchangeable for Common Stock ("Convertible
Securities") (such warrants, rights and options to purchase Common
Stock or Convertible Securities are hereinafter referred to as
"Options") and the price per share for which Common Stock is issuable
upon the exercise of such Options is less than the Market Price, then
the Conversion Price shall be adjusted in the manner set forth in
subsection (e)(i) above. For purposes of the preceding sentence, the
"price per share for which Common Stock is issuable upon the exercise
of such Options" is determined by dividing (i) the total amount, if
any, received or receivable by the Corporation as consideration for
the issuance or granting of all such Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Corporation upon the exercise of all such Options, plus, in the case
of Convertible Securities issuable upon the exercise of such Options,
the minimum aggregate amount of additional consideration payable upon
the conversion or exchange thereof at the time such Convertible
Securities first become convertible or exchangeable, by (ii) the
number of shares of Common Stock issuable upon the exercise of all
such Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Conversion Price will be
made upon the actual issuance of such Common Stock upon the exercise
of such Options or upon the conversion or exchange of Convertible
Securities issuable upon exercise of such Options.
(B) Issuance of
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Convertible Securities. If the Corporation in any manner issues or
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sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the exercise
of Options) and the price per share for which Common Stock is
issuable upon such conversion or exchange is less than the Market
Price, then the Conversion Price shall be adjusted in the manner set
forth in subsection (e)(i) above. For the purposes of the preceding
sentence, the "price per share for which Common Stock is issuable
upon such conversion or exchange" is determined by dividing (i) the
total amount, if any, received or receivable by the Corporation as
consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion
or exchange thereof at the time such Convertible Securities first
become convertible or exchangeable, by (ii) the number of shares of
Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No further adjustment to the Conversion
Price will be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(C) Change in Option
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Price or Conversion Rate. If there is a change at any time in (i)
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the amount of additional consideration payable to the Corporation
upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Corporation upon the conversion
or exchange of any Convertible Securities; or (iii) the rate at which
any Convertible Securities are convertible into or exchangeable for
Common Stock (other than under or by reason of provisions designed to
protect against dilution or to automatically adjust for stock splits,
stock dividends, combinations, reclassifications or other similar
events), the Conversion Price in effect at the time of such change
will be readjusted to the Conversion Price which would have been in
effect at such time had such Options or Convertible Securities still
outstanding provided for such changed additional consideration or
changed conversion rate, as the case may be, at the time initially
granted, issued or sold.
(D) Treatment of Expired
____________________
Options and Unexercised Convertible Securities. If, in any case, the
_______________________________________________
total number of shares of Common Stock issuable upon exercise of any
Option or upon conversion or exchange of any Convertible Securities
is not, in fact, issued and the rights to exercise such Option or to
convert or exchange such Convertible Securities shall have expired or
terminated, the Conversion Price then in effect will be readjusted to
the Conversion Price which would have been in effect at the time of
such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such
expiration or termination (other than in respect of the actual number
of shares of Common Stock issued upon exercise or conversion
thereof), never been issued.
(E) Calculation of
______________
Consideration Received. If any Common Stock, Options or Convertible
_______________________
Securities are issued, granted or sold for cash, the consideration
received therefor will be the amount received by the Corporation
therefor, before deduction of reasonable commissions, underwriting
discounts or allowances or other reasonable expenses paid or incurred
by the Corporation in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are
issued or sold for a consideration part or all of which shall be
other than cash, the amount of the consideration other than cash
received by the Corporation will be the fair value of such
consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the
Corporation will be the Market Price thereof as of the date of
receipt. In case any Common Stock, Options or Convertible Securities
are issued in connection with any acquisition, merger or
consolidation in which the Corporation is the surviving corporation,
the amount of consideration therefor will be deemed to be the fair
value of such portion of the net assets and business of the non-
Surviving corporation as is attributable to such Common Stock,
Options or Convertible Securities, as the case may be. The fair
value of any consideration other than cash or securities will be
determined in good faith by the Board of Directors of the
Corporation.
(F) Exceptions to
_____________
Adjustment of Conversion Price. No adjustment to the Conversion
_______________________________
Price will be made (i) upon the exercise of any warrants, options or
convertible securities granted, issued and outstanding on the Issue
Date, including the Series A Preferred Stock or the Warrants; (ii)
upon the payment of any dividends on the Series A Preferred Stock and
any conversions thereof; or (iii) upon the grant or exercise of any
stock or options which may hereafter be granted or exercised under
any employee benefit plan of the Corporation now existing or to be
implemented in the future, so long as in the case of any grant in the
future the issuance of such stock or options is approved by a
majority of the independent members of the Board of Directors of the
Corporation or a majority of the members of a committee of
independent directors established for such purpose.
(iii) Certain Definitions.
____________________
(A) As used in this
certificate, "Common Stock" includes the Common Stock, par value $.01
_____________
per share, and any additional class of stock of the Corporation
having no preference as to dividends or distributions on liquidation,
provided that the shares issuable pursuant to the Series A Preferred
Stock shall include only shares of Common Stock, par value $.01 per
share, in respect of which the Series A Preferred Stock is
convertible, or shares resulting from any subdivision or combination
of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character
referred to above hereof, the stock or other securities or property
provided for in such paragraph.
(B) "Closing Price ," as
of any date, (i) means the reported closing price for the shares of
Common Stock on Nasdaq as reported by Bloomberg Financial Markets or
an equivalent reliable reporting service mutually acceptable to and
hereafter designated by the holder and the Corporation ("Bloomberg"),
or (ii) if Nasdaq is not the principal trading market for the shares
of Common Stock, the average of the reported closing price on the
principal trading market for the Common Stock during the same period
as reported by Bloomberg, or (iii) if closing price cannot be
calculated as of such date on any of the foregoing bases, the Closing
Price shall be the fair market value as reasonably determined in good
faith by (a) the Board of Directors of the Corporation or, at the
option of a majority-in-interest of the holders of the Series A
Preferred Stock, by (b) an independent investment bank of nationally
recognized standing in the valuation of businesses similar to the
business of the Corporation. The manner of determining the Closing
Price of the Common Stock set forth in the foregoing definition shall
apply with respect to any other security in respect of which a
determination as to market value must be made hereunder.
(C) "Market Price,"
______________
as of any date, (i) means the average reported closing prices for
the shares of Common Stock on Nasdaq for the five (5) Trading Days
immediately preceding such date as reported by Bloomberg, or (ii) if
Nasdaq is not the principal trading market for the shares of Common
Stock, the average of the last reported closing prices on the
principal trading market for the Common Stock during the same period
as reported by Bloomberg, or (iii) if market value cannot be
calculated as of such date on any of the foregoing bases, the Market
Price shall be the fair market value as reasonably determined in good
faith by (a) the Board of Directors of the Corporation or, at the
option of a majority-in-interest of the holders of the Series A
Preferred Stock, by (b) an independent investment bank of nationally
recognized standing in the valuation of businesses similar to the
business of the Corporation. The manner of determining the Market
Price of the Common Stock set forth in the foregoing definition shall
apply with respect to any other security in respect of which a
determination as to market value must be made hereunder.
(D) "Trading Day" shall
mean any day on which the Common Stock is traded for any period on
Nasdaq, or on the principal securities exchange or other securities
market on which the Common Stock is then being traded.
D. Mechanics of Conversion. In order to convert Series
________________________
A Preferred Stock into full shares of Common Stock, a holder of
Series A Preferred Stock shall: (i) submit a copy of the fully
executed notice of conversion in the form attached hereto as Exhibit
_______
A ("Notice of Conversion") to the Corporation by facsimile dispatched
_
prior to Midnight, New York City time (the "Conversion Notice
Deadline") on the date specified therein as the Conversion Date (as
defined in Article VI.D(d)) (or by other means resulting in, or
reasonably expected to result in, notice to the Corporation on the
Conversion Date) to the office of the Corporation or its designated
Transfer Agent for the Series A Preferred Stock, which notice shall
specify the number of shares of Series A Preferred Stock to be
converted, the Conversion Price and a calculation of the number of
shares of Common Stock issuable upon such conversion (together with a
copy of the first page of each certificate to be converted); and (ii)
surrender the original certificates representing the Series A
Preferred Stock being converted (the "Preferred Stock Certificates"),
duly endorsed, along with a copy of the Notice of Conversion to the
office of the Corporation or the Transfer Agent for the Series A
Preferred Stock as soon as practicable thereafter. The Corporation
shall not be obligated to issue certificates evidencing the shares of
Common Stock issuable upon such conversion, unless either the
Preferred Stock Certificates are delivered to the Corporation or its
Transfer Agent as provided above, or the holder notifies the
Corporation or its Transfer Agent that such certificates have been
lost, stolen or destroyed (subject to the requirements of
subparagraph (a) below). In the case of a dispute as to the
calculation of the Conversion Price, the Corporation shall promptly
issue such number of shares of Common Stock that are not disputed in
accordance with subparagraph (b) below. The Corporation shall submit
the disputed calculations to its outside accountant via facsimile
within two (2) business days of receipt of the Notice of Conversion.
The accountant shall review the calculations and notify the
Corporation and the holder of the results no later than 48 hours from
the time it receives the disputed calculations. The accountant's
calculation shall be deemed conclusive absent manifest error.
(a) Lost or Stolen Certificates. Upon receipt
____________________________
by the Corporation of evidence of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing shares of
Series A Preferred Stock, and (in the case of loss, theft or
destruction) of indemnity reasonably satisfactory to the Corporation,
and upon surrender and cancellation of the Preferred Stock
Certificate(s), if mutilated, the Corporation shall execute and
deliver new Preferred Stock Certificate(s) of like tenor and date.
(b) Delivery of Common Stock Upon Conversion.
_________________________________________
Upon the surrender of certificates as described above together with a
Notice of Conversion, the Corporation shall issue and, within five
(5) business days after such surrender (or, in the case of lost,
stolen or destroyed certificates, after provision of agreement and
indemnification pursuant to subparagraph (a) above) (the "Delivery
Period"), deliver (or cause its Transfer Agent to so issue and
deliver) in accordance with the terms hereof and the Purchase
Agreement (including, without limitation, in accordance with the
requirements of Section 2(g) of the Purchase Agreement) to or upon
the order of the holder (i) that number of shares of Common Stock for
the portion of the shares of Series A Preferred Stock converted as
shall be determined in accordance herewith and (ii) a certificate
representing the balance of the shares of Series A Preferred Stock
not converted, if any. In addition to any other remedies available
to the holder, including actual damages and/or equitable relief, the
Corporation shall pay to a holder $1,000 per day in cash for each day
beyond a two (2) day grace period following the Delivery Period that
the Corporation fails to deliver Common Stock (a "Delivery Default")
issuable upon surrender of shares of Series A Preferred Stock with a
Notice of Conversion until such time as the Corporation has delivered
all such Common Stock (the "Delivery Default Payments"). Such
Delivery Default Payments shall be paid to such holder by the fifth
day of the month following the month in which it has accrued.
In lieu of delivering physical certificates representing
the Common Stock issuable upon conversion, provided the Corporation's
Transfer Agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, upon
request of the holder and its compliance with the provisions
contained in Article VI.A and in this Article VI.D, the Corporation
shall use its reasonable best efforts to cause its Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to
the holder by crediting the account of holder's Prime Broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system. The
time periods for delivery and penalties described in the immediately
preceding paragraph shall apply to the electronic transmittals
described herein.
(c) No Fractional Shares. If any conversion of
_____________________
Series A Preferred Stock would result in a fractional share of
Common Stock or the right to acquire a fractional share of Common
Stock, such fractional share shall be disregarded and the number of
shares of Common Stock issuable upon Conversion of the Series A
Preferred Stock shall be rounded down to the next highest number of
shares.
(d) Conversion Date. The "Conversion Date"
________________
shall be the date specified in the Notice of Conversion, provided
that the Notice of Conversion is submitted by facsimile (or by other
means resulting in, or reasonably expected to result in, notice) to
the Corporation or its Transfer Agent before 12:00 noon, New York
City time, on the date so specified, otherwise the Conversion Date
shall be the first business day after the date so specified on which
the Notice of Conversion is actually received by the Corporation or
its Transfer Agent. The person or persons entitled to receive the
shares of Common Stock issuable upon conversion shall be treated for
all purposes as the record holder or holders of such securities as of
the Conversion Date and all rights with respect to the shares of
Series A Preferred Stock surrendered shall forthwith terminate except
the right to receive the shares of Common Stock or other securities
or property issuable on such conversion and except that the holders
preferential rights as a holder of Series A Preferred Stock shall
survive to the extent the Corporation fails to deliver such
securities.
E. Reservation of Shares. A number of shares of the
______________________
authorized but unissued Common Stock sufficient to provide for the
conversion of the Series A Preferred Stock outstanding (based on the
Conversion Price then in effect) shall at all times be reserved by
the Corporation, free from preemptive rights, for such conversion or
exercise. As of the date of issuance of the Series A Preferred Stock,
20,000,000 authorized and unissued shares of Common Stock have been
duly reserved for issuance upon conversion of the Series A Preferred
Stock (the "Reserved Amount"). The Reserved Amount shall be
increased from time to time in accordance with the Corporation's
obligations pursuant to Section 4(h) of the Purchase Agreement. In
addition, if the Corporation shall issue any securities or make any
change in its capital structure which would change the number of
shares of Common Stock into which each share of the Series A
Preferred Stock shall be convertible, the Corporation shall at the
same time also make proper provision so that thereafter there shall
be a sufficient number of shares of Common Stock authorized and
reserved, free from preemptive rights, for conversion of the
outstanding Series A Preferred Stock.
If at any time a holder of shares of Series A Preferred
Stock submits a Notice of Conversion, and the Corporation does not
have sufficient authorized but unissued shares of Common Stock
available to effect such conversion in accordance with the provisions
of this Article VI (a "Conversion Default"), subject to Article X,
the Corporation shall issue to the holder all of the shares of Common
Stock which are available to effect such conversion. The number of
shares of Series A Preferred Stock included in the Notice of
Conversion which exceeds the amount which is then convertible into
available shares of Common Stock (the "Excess Amount") shall,
notwithstanding anything to the contrary contained herein, not be
convertible into Common Stock in accordance with the terms hereof
until (and at the holder's option at any time after) the date
additional shares of Common Stock are authorized by the Corporation
to permit such conversion, at which time the Conversion Price in
respect thereof shall be the lesser of (i) the Conversion Price on
the Conversion Default Date (as defined below) and (ii) the
Conversion Price on the Conversion Date elected by the holder in
respect thereof. The Corporation shall use its reasonable best
efforts to effect an increase in the authorized number of shares of
Common Stock as soon as possible following the earlier of (i) such
time that a holder of Series A Preferred Stock notifies the
Corporation or that the Corporation otherwise becomes aware that
there are or likely will be insufficient authorized and unissued
shares to allow full conversion thereof and (ii) a Conversion
Default. In addition, the Corporation shall pay to the holder
payments ("Conversion Default Payments") for a Conversion Default in
the amount of (a) .24 multiplied by (b) the sum of (x) the Stated
Value of the shares held by such holder through the Authorization
Date (as defined below) plus (y) the Premium Amount with respect to
the Shares held by such holder through the Authorization Date,
multiplied by (c) (N/365), where N equals the number of days from the
day the holder submits a Notice of Conversion giving rise to a
Conversion Default (the "Conversion Default Date") to the date (the
"Authorization Date") that the Corporation authorizes a sufficient
number of shares of Common Stock to effect conversion of the full
number of shares of Series A Preferred Stock. The Corporation shall
send notice to the holder of the authorization of additional shares
of Common Stock, the Authorization Date and the amount of holder's
accrued Conversion Default Payments. The accrued Conversion Default
Payment for each calendar month shall be paid in cash or shall be
convertible into Common Stock at the applicable Conversion Price, at
the holder's option, as follows:
(a) In the event the holder elects to take such
payment in cash, cash payment shall be made to holder by the fifth
day of the month following the month in which it has accrued; and
(b) In the event the holder elects to take such
payment in Common Stock, the holder may convert such payment amount
into Common Stock at the Conversion Price (as in effect at the time
of Conversion) at any time after the fifth day of the month following
the month in which it has accrued in accordance with the terms of
this Article VI (so long as there is then a sufficient number of
authorized shares of Common Stock).
The holder's election shall be made in writing to the
Corporation at any time prior to 9:00 p.m., New York City Time, on
the third (3rd) day of the month following the month in which
Conversion Default payments have accrued. If no election is made,
the holder shall be deemed to have elected to receive cash. Nothing
herein shall limit the holder's right to pursue actual damages (to
the extent in excess of the Conversion Default Payments) for the
Corporation's failure to maintain a sufficient number of authorized
shares of Common Stock, and each holder shall have the right to
pursue all remedies available at law or in equity (including a decree
of specific performance and/or injunctive relief).
F. Notice of Conversion Price Adjustments. Upon the
_______________________________________
occurrence of each adjustment or readjustment of the Conversion Price
pursuant to this Article VI, the Corporation, at its expense, shall
promptly compute such adjustment or readjustment in accordance with
the terms hereof and prepare and furnish to each holder of Series A
Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of Series A Preferred
Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustment or readjustment, (ii)
the Conversion Price at the time in effect and (iii) the number of
shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of a
share of Series A Preferred Stock.
G. Status as Stockholders. Upon submission of a Notice
_______________________
of Conversion by a holder of Series A Preferred Stock, (i) the shares
covered thereby (other than the shares, if any, which cannot be
issued because their issuance would exceed such holder's allocated
portion of the Reserved Amount or Maximum Share Amount) shall be
deemed converted into shares of Common Stock and (ii) the holder's
rights as a holder of such converted shares of Series A Preferred
Stock shall cease and terminate, excepting only the right to receive
certificates for such shares of Common Stock and to any remedies
provided herein or otherwise available at law or in equity to such
holder because of a failure by the Corporation to comply with the
terms of this Certificate of Designation. Notwithstanding the
foregoing, if a holder has not received certificates for all shares
of Common Stock prior to the tenth (10th) business day after the
expiration of the Delivery Period with respect to a conversion of
shares of Series A Preferred Stock for any reason, then (unless the
holder otherwise elects to retain its status as a holder of Common
Stock by so notifying the Corporation) the holder shall regain the
rights of a holder of such shares of Series A Preferred Stock with
respect to such unconverted shares of Series A Preferred Stock and
the Corporation shall, as soon as practicable, return such
unconverted shares of Series A Preferred Stock to the holder or, if
such shares of Series A Preferred Stock have not been surrendered,
adjust its records to reflect that such shares of Series A Preferred
Stock have not been converted. In all cases, the holder shall retain
all of its rights and remedies (including, without limitation, (i)
the right to receive Delivery Default Payments pursuant to Article
VI.E to the extent required thereby for such Delivery Default and any
subsequent Delivery Default and (ii) the right to have the Conversion
Price with respect to subsequent conversions determined in accordance
with Article VI.E.) for the Corporation's failure to convert the
Series A Preferred Stock.
VII. REDEMPTION OR CONVERSION AT MATURITY
____________________________________
So long as (i) all of the shares of Common Stock issuable
upon conversion of all outstanding shares of Series A Preferred Stock
are then (x) authorized and reserved for issuance, (y) registered for
re-sale under the 1933 Act by the holders of the Series A Preferred
Stock (or may otherwise be resold publicly without restriction) and
(z) eligible to be traded on Nasdaq, the NYSE, the AMEX or Nasdaq
SmallCap and (ii) there is not then a continuing Mandatory Redemption
Event or Trading Market Redemption Event, each share of Series A
Preferred Stock issued and outstanding on October 10, 2004 (the
"Maturity Date"), shall be either (i) redeemed in cash by the
Corporation for the Liquidation Preference or (ii) at the option of
the holder, converted into shares of Common Stock on such date at a
Conversion Price equal to the lesser of 85% of the Market Price or
the Conversion Price as of the Maturity Date. After the initial
Maturity Date, the Maturity Date shall be delayed by one (1) Trading
Day for each Trading Day occurring prior thereto and prior to the
full conversion of the Series A Preferred Stock that (i) any
Registration Statement required to be filed and to be effective
pursuant to the Registration Rights Agreement is not effective or
sales of all of the Registrable Securities otherwise cannot be made
thereunder during the Registration Period (as defined in the
Registration Rights Agreement) (whether by reason of the
Corporation's failure to properly supplement or amend the prospectus
included therein in accordance with the terms of the Registration
Rights Agreement or otherwise, including during any Allowed Delays
(as defined in Section 3(f) of the Registration Rights Agreement)),
(ii) any Mandatory Redemption Event or Trading Market Redemption
Event exists, without regard to whether any cure periods shall have
run or (iii) that the Corporation is in breach of any of its
obligations pursuant to Section 4(h) of the Purchase Agreement.
VIII VOTING RIGHTS
_____________
The holders of the Series A Preferred Stock will vote on an
as converted basis together with the shares of Common Stock, except
as otherwise provided by the Delaware General Corporation Law
("DGCL"), in this Article VIII, and in Article IX below. For so long
as at least 25% of the Series A Preferred Stock remains outstanding,
the holders of the Series A Preferred Stock, voting together as a
single class, shall be entitled to elect two (2) directors.
Notwithstanding the above, the Corporation shall provide
each holder of Series A Preferred Stock with prior notification of
any meeting of the Corporation's shareholders (and copies of proxy
materials and other information sent to shareholders). In the event
of any taking by the Corporation of a record of its shareholders for
the purpose of determining shareholders who are entitled to receive
payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger,
consolidation or recapitalization) any share of any class or any
other securities or property, or to receive any other right, or for
the purpose of determining shareholders who are entitled to vote in
connection with any proposed sale, lease or conveyance of all or
substantially all of the assets of the Corporation, or any proposed
liquidation, dissolution or winding up of the Corporation, the
Corporation shall mail a notice to each holder, at least five (5)
days prior to the record date specified therein (or fifteen (15) days
prior to the consummation of the transaction or event, whichever is
earlier), of the date on which any such record is to be taken for the
purpose of such dividend, distribution, right or other event, and a
brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the DGCL the vote of the holders
of the Series A Preferred Stock, voting separately as a class or
series as applicable, is required to authorize a given action of the
Corporation, the affirmative vote or consent of the holders of at
least a majority of the shares of the Series A Preferred Stock
represented at a duly held meeting at which a quorum is present or by
written consent of a majority of the shares of Series A Preferred
Stock (except as otherwise may be required under the DGCL) shall
constitute the approval of such action by the class. To the extent
that under the DGCL holders of the Series A Preferred Stock are
entitled to vote on a matter with holders of Common Stock, voting
together as one class, each share of Series A Preferred Stock shall
be entitled to a number of votes equal to the number of shares of
Common Stock into which it is then convertible using the record date
for the taking of such vote of shareholders as the date as of which
the Conversion Price is calculated. Holders of the Series A
Preferred Stock shall be entitled to notice of all shareholder
meetings or written consents (and copies of proxy materials and other
information sent to shareholders) with respect to which they would be
entitled to vote, which notice would be provided pursuant to the
Corporation's bylaws and the DGCL.
IX PROTECTIVE PROVISIONS
_____________________
So long as shares of Series A Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the
approval (by vote or written consent, as provided by the DGCL) of the
holders of at least a majority of the then outstanding shares of
Series A Preferred Stock:
(a) alter, amend or repeal (whether by merger,
consolidation or otherwise) the rights, preferences or privileges of
the Series A Preferred Stock or any capital stock of the Corporation
so as to affect adversely the Series A Preferred Stock;
(b) create any new class or series of capital
stock having a preference over the Series A Preferred Stock as to
distribution of assets upon liquidation, dissolution or winding up of
the Corporation (as previously defined in Article II hereof, "Senior
Securities");
(c) create any new class or series of capital
stock ranking pari passu with the Series A Preferred Stock as to
____ _____
distribution of assets upon liquidation, dissolution or winding up of
the Corporation (as previously defined in Article II hereof, "Pari
____
Passu Securities");
_____
(d) increase the authorized number of shares of
Series A Preferred Stock;
(e) issue any Senior Securities or Pari Passu
____ _____
Securities;
(f) increase the par value of the Common Stock,
or
(g) do any act or thing not authorized or
contemplated by this Certificate of Designation which would result in
taxation of the holders of shares of the Series A Preferred Stock
under Section 305 of the Internal Revenue Code of 1986, as amended
(or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended).
X PRO RATA ALLOCATIONS
____________________
The Maximum Share Amount and the Reserved Amount (including
any increases thereto) shall be allocated by the Corporation pro rata
among the holders of Series A Preferred Stock based on the number of
shares of Series A Preferred Stock issued to each holder. Each
increase to the Maximum Share Amount and the Reserved Amount shall be
allocated pro rata among the holders of Series A Preferred Stock
based on the number of shares of Series A Preferred Stock held by
each holder at the time of the increase in the Maximum Share Amount
or Reserved Amount. In the event a holder shall sell or otherwise
transfer any of such holder's shares of Series A Preferred Stock,
each transferee shall be allocated a pro rata portion of such
transferor's Maximum Share Amount and Reserved Amount. Any portion
of the Maximum Share Amount or Reserved Amount which remains
allocated to any person or entity which does not hold any Series A
Preferred Stock shall be allocated to the remaining holders of shares
of Series A Preferred Stock, pro rata based on the number of shares
of Series A Preferred Stock then held by such holders.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
IN WITNESS WHEREOF, this Certificate of Designation is
executed on behalf of the Corporation this ___ day of October 2000.
INTERWORLD CORPORATION
By:
Jeremy M. Davis, President and Chief
Executive Officer
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert ______
shares of Series A Preferred Stock, represented by stock certificate
No(s). __________ (the "Preferred Stock Certificates") into shares of
common stock ("Common Stock") of INTERWORLD CORPORATION, a Delaware
corporation (the "Corporation") according to the conditions of the
Certificate of Designation of Series A Preferred Stock, as of the
date written below. If securities are to be issued in the name of a
person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering
herewith such certificates. No fee will be charged to the Holder for
any conversion, except for transfer taxes, if any. A copy of each
Preferred Stock Certificate is attached hereto (or evidence of loss,
theft or destruction thereof).
The undersigned hereby irrevocably elects to convert
$___________ in Conversion Default Payments, $__________ in Delivery
Default Payments and/or $___________ in payments pursuant to Section
2(c) of the Registration Rights Agreement at the Conversion Price set
forth below.
The Corporation shall electronically transmit the Common Stock
issuable pursuant to this Notice of Conversion to the account of the
undersigned or its nominee with DTC through its Deposit Withdrawal
Agent Commission system ("DWAC Transfer").
_______________
Name of DTC Prime Broker:____________________________________
Account Number:______________________________________________
[ ] In lieu of receiving shares of Common Stock issuable pursuant to
this Notice of Conversion by way of a DWAC Transfer, the
undersigned hereby requests that the Corporation issue a
certificate or certificates for the number of shares of Common
Stock set forth above (which numbers are based on the Holder's
calculation attached hereto) in the name(s) specified
immediately below or, if additional space is necessary, on an
attachment hereto:
Name:________________________________________________________
Address:______________________________________________________
______________________________________________________
The undersigned represents and warrants that all offers and
sales by the undersigned of the securities issuable to the
undersigned upon conversion of the Series A Preferred Stock shall be
made pursuant to registration of the securities under the Securities
Act of 1933, as amended (the "Act"), or pursuant to an exemption from
registration under the Act.
Date of Conversion:__________________________________________
Conversion Price:____________________________________________
Number of Shares of
Common Stock to be Issued pursuant to:
(i) Conversion of Series A Preferred Stock:
__________________________________________
(ii) Conversion of Conversion Default Payments, Delivery Default
Payments and/or payments pursuant to Section 2(c) of the Registration
Rights Agreement:
_____________________________________________________
Signature:___________________________________________
Name:________________________________________________
Address:_____________________________________________
_____________________________________________
*The Corporation is not required to issue shares of Common Stock
until the original Series A Preferred Stock Certificate(s) (or
evidence of loss, theft or destruction thereof) to be converted are
received by the Corporation or its Transfer Agent. The Corporation
shall issue and deliver shares of Common Stock to an overnight
courier not later than two (2) business days following receipt of the
original Preferred Stock Certificate(s) to be converted, and shall
make payments pursuant to the Certificate of Designation for the
number of business days such issuance and delivery is late.
