EXHIBIT 3.1.2
(Stamp)
FILED
MAY 11, 2000
State Treasurer
Roland Machold
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
DIAMOND ENTERTAINMENT CORPORATION
Pursuant to the provisions of Section 14A:7-2, Corporations, General,
of the New Jersey Statutes, the undersigned executes the following Certificate
of Amendment to its Certificate of Incorporation:
1. The name of the corporation is Diamond Entertainment Corporation
(the "Corporation").
2. Set forth below is a copy of the resolutions of the Board of
Directors of the Corporation as required by Section 14A:7-2 of the New Jersey
Business Corporation Act which was duly adopted by the Board of Directors on
April 14, 2000, which amends the Certificate of Incorporation (i) authorizing a
series of the Corporation's authorized preferred stock, no par value per share,
and (ii) providing for the designations, preferences and relative,
participating, optional or other rights, and the qualifications, limitations or
restrictions thereof, of 50 shares of Series A Convertible Preferred Stock of
the Corporation, as follows:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation by the Certificate of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), there hereby is created out of the 5,000,000 shares of
Preferred Stock, no par value per share, of the Corporation authorized by
Article 4 of the Certificate of Incorporation (the "Preferred Stock"), a series
of Preferred Stock of the Corporation consisting of 50 shares, which shall be
designated Series A Convertible Preferred Stock, which shall have the following
powers, designations, preferences and relative, participating, optional or other
rights:
1. Designations, Amount and Par Value. The series of Preferred Stock
shall be designated as Series A Convertible Preferred Stock ("Series A Preferred
Shares") and the number of shares so designated shall be 50. Each Series A
Preferred Share shall have no par value and a stated value of $10,000 per share
(the "Stated Value").
2. Dividends. The Series A Preferred Shares shall not bear any
dividends.
3. Holder's Conversion of Series A Preferred Shares. A holder of Series
A Preferred Shares shall have the right, at such holder's option, to convert the
Series A Preferred Shares into shares of the Corporation's common stock, no par
value per share (the "Common Stock"), on the following terms and conditions:
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(a) Conversion Right. Subject to the provisions of Sections
3(g) and 4(a) below, at any time or times on or after the earlier of
(i) 90 days after the Issuance Date (as defined herein), (ii) 5 days
after receiving a "no-review" status from the Securities and Exchange
Commission (the "SEC") in connection with a registration statement
("Registration Statement") covering the resale of Common Stock issued
upon conversion of the Series A Preferred Shares and required to be
filed by the Corporation pursuant to the Registration Rights Agreement
between the Corporation and its initial holders of Series A Preferred
Shares (the "Registration Rights Agreement"), (iii) the date that the
Registration Statement is declared effective by the SEC any holder of
Series A Preferred Shares shall be entitled to convert any Series A
Preferred Shares into fully paid and nonassessable shares (rounded to
the nearest whole share in accordance with Section 3(h) below) of
Common Stock, at the Conversion Rate (as defined below); provided,
however, that in no event other than upon a Mandatory Conversion
pursuant to Section 3(g) hereof, or upon a Triggering Event pursuant to
Section 5(b) hereof, shall any holder be entitled to convert Series A
Preferred Shares in excess of that number of Series A Preferred Shares
which, upon giving effect to such conversion, would cause the aggregate
number of shares of Common Stock beneficially owned by the holder and
its affiliates to exceed 4.9% of the then issued and outstanding shares
of Common Stock of the Corporation following such conversion. For
purposes of the foregoing proviso, the aggregate number of shares of
Common Stock beneficially owned by the holder and its affiliates shall
include the number of shares of Common Stock issuable upon conversion
of the Series A Preferred Shares with respect to which the
determination of such proviso is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon
conversion of the remaining, non-converted Series A Preferred Shares
beneficially owned by the holder and its affiliates. Except as set
forth in the preceding sentence, for purposes of this paragraph,
beneficial ownership shall be calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), and the rules thereunder;
(b) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of each of the Series A Preferred Shares
pursuant to Section (3)(a) shall be determined according to the
following formula (the "Conversion Rate"):
(.06)(N/365)(10,000) + 10,000
-----------------------------
Conversion Price
For purposes of this Certificate of Designations, the
following terms shall have the following meanings:
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(i) "Conversion Price" means as, of any Conversion
Date (as defined below), the lower of the Fixed Conversion
Price and the Floating Conversion Price, each in effect as of
such date, if applicable, and subject to adjustment as
provided herein;
(ii) "Fixed Conversion Price" means 120% of the
Closing Bid Price on the day immediately preceding the day of
the closing of the sale and issuance of the Series A Preferred
Shares ("Closing Date") subject to adjustment, as provided
herein;
(iii) "Floating Conversion Price" means, as of any
date of determination, the amount obtained by multiplying the
Conversion Percentage in effect as of such date by the Average
Market Price for the Common Stock for any five (5) trading
days of the previous ten (10) trading days immediately
preceding the date of conversion;
(iv) "Conversion Percentage" means 80% as adjusted
as described herein;
(v) "Average Market Price" means, with respect to any
security for any period, that price which shall be computed as
the arithmetic average of the Closing Bid Prices (as defined
below) for such security for each trading day in such period;
(vi) "Closing Bid Price" means, for any security as
of any date, the last closing bid price on The Nasdaq Stock
Market, Inc.'s SmallCap Market (the "Nasdaq-Small Cap") as
reported by Bloomberg Financial Markets ("Bloomberg"), or, if
the Nasdaq-SmallCap is not the principal trading market for
such security, the last closing bid price of such security on
the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price of such
security in The Nasdaq Stock Market, Inc.'s OTC Bulletin Board
or, if not so quoted, in the "pink sheets" for such security
as reported by Bloomberg, or, if no closing bid price is
reported for such security by Bloomberg, the last closing
trade price of such security as reported by Bloomberg. If the
Closing Bid Price cannot be calculated for such security on
such date on any of the foregoing bases, the Closing Bid Price
of such security on such date shall be the fair market value
as reasonably determined in good faith by the Board of
Directors of the Corporation (all as appropriately adjusted
for any stock dividend, stock split or other similar
transaction during such period); and
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(vii) "N" means the number of days from, but
excluding, the Issuance Date through and including the
Conversion Date for the Series A Preferred Shares for which
conversion is being elected; and
(viii) "Issuance Date" means the date of issuance of
the Series A Preferred Shares.
(c) Penalty - Registration Statement. If the Registration
Statement is not declared effective by the SEC on or before the one
hundred and fiftieth (150th) day following the Issuance Date (the
"Scheduled Effective Date"), or if after the Registration Statement has
been declared effective by the SEC, sales cannot be made pursuant to
the Registration Statement (whether because of a failure to keep the
Registration Statement effective, to disclose such information as is
necessary for sales to be made pursuant to the Registration Statement,
to register sufficient shares of Common Stock or otherwise), then, as
partial relief for the damages to any holder by reason of any such
delay in or reduction of its ability to sell the underlying shares of
Common Stock (which remedy shall not be exclusive of any other remedies
at law or in equity), then:
(i) the Corporation will pay as liquidated damages
(the "Liquidated Damages") in penalties to the Buyer(s) a cash
amount within three (3) business days of the end of the month
immediately following the Scheduled Effective Date and for
each month thereafter in an amount equal to one and one half
percent (1 1/2 %) of the Liquidation Value. (For example, if
the Registration Statement becomes effective one (l) month
after the Scheduled Effective Date, the Corporation will pay
in cash to the Buyer(s) an aggregate of Seven Thousand Five
dollars ($7,500) in Liquidated Damages (1 1/2% of $500,000);
if, as a further example, thereafter sales could not be made
pursuant to the Registration Statement for a period of one and
one half (1 1/2) months, the Corporation will pay in cash to
the Buyer(s) an aggregate of Eleven Thousand Two Hundred and
Fifty dollars ($11,250) in Liquidated Damages ($7,500 for the
first month plus $3,750 for the half of second month); and if,
as a further example, thereafter sales could not be made
pursuant to the Registration Statement for a period of two (2)
months after the Scheduled Effective Date, the Corporation
will pay in cash to the Buyer(s) an aggregate of Fifteen
Thousand dollars ($15,000) in Liquidated Damages ($7,500 for
the first month plus $7,500 for the second month).
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(d) Adjustment to Conversion Price - Dilution and Other
Events. In order to prevent dilution of the rights granted under this
Certificate of Designations, the Conversion Price will be subject to
adjustment from time to time as provided in this Section 2(d).
(i) Adjustment of Fixed Conversion Price upon
Subdivision or Combination of Common Stock. If the Corporation
at any time subdivides (by any stock split, stock dividend,
re-capitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of
shares, the Fixed Conversion Price in effect immediately prior
to such subdivision will be proportionately reduced. If the
Corporation at any time combines (by combination, reverse
stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of
shares, the Fixed Conversion Price in effect immediately prior
to such combination will be proportionately increased.
(ii) Reorganization, Reclassification, Consolidation,
Merger, or Sale. Any recapitalization, reorganization
reclassification, consolidation, merger, sale of all or
substantially all of the Corporation's assets to another
Person (as defined below) or other similar transaction which
is effected in such a way that holders of Common Stock are
entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "Organic
Change." Prior to the consummation of any Organic Change, the
Corporation will make appropriate provision (in form and
substance reasonably satisfactory to the Holders of a majority
of the Series A Preferred Shares then outstanding) to insure
that, upon the consummation of such Organic Change, each of
the Holders of the Series A Preferred Shares will thereafter
have the right to acquire and receive in lieu of the Series A
Preferred Shares, such shares of stock, securities or assets
as may be issued or payable with respect to or in exchange for
the number of shares of Common Stock immediately theretofore
acquirable and receivable upon the conversion of such holder's
Series A Preferred Shares had such Organic Change not taken
place. In any such case, the Corporation will make appropriate
provision (in form and substance reasonably satisfactory to
the Holders of a majority of the Series A Preferred Shares
then outstanding) with respect to such holders' rights and
interests to insure that the provisions of this Section 3(d)
and Section 3(e) below will thereafter be applicable to the
Series A Preferred Shares. For purposes of this Agreement,
"Person" shall mean an individual, a limited liability
company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a government or any
department or agency thereof.
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(iii) Notices.
(A) Immediately upon any adjustment of the
Conversion Price pursuant to this Section 3(d), the
Corporation will give written notice thereof to each
holder of Series A Preferred Shares, setting forth in
reasonable detail and certifying the calculation of
such adjustment.
(B) The Corporation will give written notice
to each Holder of Series A Preferred Shares at least
twenty (20) days prior to the date on which the
Corporation closes its books or takes a record (I)
with respect to any dividend or distribution upon the
Common Stock, (II) with respect to any pro rata
subscription offer to holders of Common Stock or
(III) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation.
(C) The Corporation will also give written
notice to each Holder of Series A Preferred Shares at
least twenty (20) days prior to the date on which any
Organic Change, Major Transaction (as defined below),
dissolution or liquidation will take place.
(e) Purchase Rights. If at any time the Corporation grants,
issues or sells any options, convertible securities or rights to
purchase stock, warrants, securities or other property pro rata to the
record holders of any class of Common Stock (the "Purchase Rights"),
then the holders of Series A Preferred Shares will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Common Stock acquirable upon
complete conversion of the Series A Preferred Shares immediately before
the date an which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
(f) Mechanics of Conversion. Subject to the Corporation's
inability to fully satisfy its obligations under a Conversion Notice
(as defined below) as provided for in Section 6 below:
(i) Holder's Delivery Requirements. Subject to
Section 3(a), in order to convert Series A Preferred Shares
into full shares of Common Stock on any date (the "Conversion
Date"), the holder thereof shall (A) deliver or transmit by
facsimile, for receipt on or prior to 11:59 p.m., Eastern
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Standard Time, on such date, a copy of a fully executed notice
of conversion in the form attached hereto as Exhibit I (the
"Conversion Notice") to the Corporation or its designated
transfer agent (the "Transfer Agent"), and (B) surrender to a
common carrier for delivery to the Corporation or the Transfer
Agent as soon as practicable following such date, the original
certificates representing the Series A Preferred Shares being
converted (or an indemnification undertaking with respect to
such shares in the case of their loss, theft or destruction)
(the "Preferred Stock Certificates") and the originally
executed Conversion Notice. Each Conversion Notice shall
specify the number of Series A Preferred Shares to be
converted and the date on which such conversion is to be
effected, which date may not be prior to the date the holder
delivers such Conversion Notice.
(ii) Corporation's Response. Upon receipt by the
Corporation of a facsimile copy of a Conversion Notice, the
Corporation shall immediately send, via facsimile, a
confirmation of receipt of such Conversion Notice to such
holder. Upon receipt by the Corporation or the Transfer Agent
of the Preferred Stock Certificates to be converted pursuant
to a Conversion Notice, together with the originally executed
Conversion Notice, the Corporation or the Transfer Agent (as
applicable) shall, within ten (10) business days following the
date of receipt, (A) issue and surrender to a common carrier
for overnight delivery to the address as specified in the
Conversion Notice, a certificate, registered in the name of
the holder or its designee, for the number of shares of Common
Stock to which the holder shall be entitled or (B) credit the
aggregate number of shares of Common Stock to which the holder
shall be entitled to the holder's or its designee's balance
account at The Depository Trust Corporation.
(iii) Dispute Resolution. In the case of a dispute as
to the determination of the Average Market Price or the
arithmetic calculation of the Conversion Rate, the Corporation
shall promptly issue to the holder the number of shares of
Common Stock that is not disputed and shall submit the
disputed determinations or arithmetic calculations to the
holder via facsimile within three (3) business days of receipt
of such holder's Conversion Notice. If such holder and the
Corporation are unable to agree upon the determination of the
Average Market Price or arithmetic calculation of the
Conversion Rate within two (2) business days of such disputed
determination or arithmetic calculation being submitted to the
holder, then the Corporation shall within one (1) business day
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submit via facsimile (A) the disputed determination of the
Average Market Price to an independent, reputable investment
bank designated by the Corporation, or (B) the disputed
arithmetic calculation of the Conversion Rate to its
independent, outside accountant. The Corporation shall cause
the investment bank or the accountant, as the case may be, to
perform the determinations or calculations and notify the
Corporation and the holder of the results no later than
forty-eight (48) hours from the time it receives the disputed
determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the ease may be,
shall be binding upon all parties absent manifest error.
(iv) Record Holder. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion
of Series A Preferred Shares shall be treated for all purposes
as the record holder or holders of such shares of Common Stock
following such conversion.
(v) Corporation's Failure to Timely Convert. If the
Corporation shall fail to issue to a holder within seven (7)
business days following the date of receipt by the Corporation
or the Transfer Agent of the Preferred Stock Certificates to
be converted pursuant to a Conversion Notice, a certificate
for the number of shares of Common Stock to which such holder
is entitled upon such holder's conversion of Series A
Preferred Shares, in addition to all other available remedies
which such holder may pursue hereunder and under the
securities purchase agreement between the Corporation and the
initial holders of the Series A Preferred Shares pursuant to
which such holders purchased the Series A Preferred Shares
(the "Securities Purchase Agreement") (including
indemnification pursuant to Section 8 thereof), the
Corporation shall pay additional damages to such holder on
each day after the seven (7th) business day following the date
of receipt by the Corporation or the Transfer Agent of the
Preferred Stock Certificates to be converted pursuant to the
Conversion Notice, for which such conversion is not timely
effected, an amount calculated in accordance with the
following schedule:
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Late Payment for Each
Principal Amount Being Series A Preferred Share
No. Business Days Late Converted
---------------------- ------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
11 $1,000 + $200 for
each Business Days
Late Beyond 10 days
(g) Mandatory Conversion. If any Series A Preferred Shares
remain outstanding on April 14, 2002, then all such Series A Preferred
Shares shall be converted as of such date in accordance with this
Section 2 as if the holders of such Series A Preferred Shares had given
the Conversion Notice on April 14, 2002, and the Conversion Date had
been fixed as of April 14, 2002, for all purposes of this Section 2,
and all holders of Series A Preferred Shares shall thereupon and with
two (2) business days thereafter surrender all Preferred Stock
Certificates, duly endorsed for cancellation, to the Corporation or the
Transfer Agent. No person shall thereafter have any rights in respect
of Series A Preferred Shares, except the right to receive shares of
Common Stock on conversion thereof as provided in this Section 2.
(h) Fractional Shares. The Corporation shall not issue any
fraction of a share of Common Stock upon any conversion. All shares of
Common Stock (including fractions thereof) issuable upon conversion of
more than one share of the Series A Preferred Shares by a holder
thereof shall be aggregated for purposes of determining whether the
conversion would result in the issuance of a fraction of a share of
Common Stock. If, after the aforementioned aggregation, the issuance
would result in the issuance of a fraction of a share of Common Stock,
the Corporation shall round such fraction of a share of Common Stock up
or down to the nearest whole share.
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(i) Notwithstanding anything to the contrary set forth in this
Certificate of Designations, the Corporation shall not be obligated to
issue in excess of 11,875,000 conversion Shares upon conversion of the
Series A Preferred Shares.
4. Corporation's Right to Redeem at its Election.
(a) At any time, commencing 120 days after the Issuance Date,
as long as the Corporation has not breached any of the representations,
warranties, and covenants contained herein or in any related
agreements, the Corporation shall have the right, in it sole
discretion, to redeem ("Redemption at Corporation's Election"), from
time to time, any or all of the Series A Preferred Shares which have
not previously been redeemed at a price equal to the Redemption Price
at Corporation's Election below, provided (i) Corporation shall first
provide thirty (30) days advance written notice as provided in
subparagraph 4(a)(ii) below (which can be given any time on or after 90
days after the Issuance Date, and (ii) that the Corporation shall only
be entitled to redeem Series A Preferred Shares having an aggregate
Stated Value of at least One Hundred Thousand Dollars ($100,000). If
the Corporation elects to redeem some, but not all, of the Series A
Preferred Shares, the Corporation shall redeem a pro-rata amount from
each Holder of the Series A Preferred Shares.
(i) Redemption Price At Corporation's Election. The
"Redemption Price at Corporation's Election" shall be
calculated as 120% of the Liquidation Value, as that term is
defined in Section 10 hereof.
(ii) Mechanics of Redemption at Corporation's
Election. The Corporation shall effect each such redemption by
giving at least thirty (30) days prior written notice ("Notice
of Redemption at Corporation's Election") to (A) the holders
of the Series A Preferred Shares selected for redemption at
the address and facsimile number of such holder appearing in
the Corporation's Series A Preferred Shares register and (B)
the Transfer Agent, which Notice of Redemption At
Corporation's Election shall be deemed to have been delivered
three (3) business days after the Corporation's mailing (by
overnight or two (2) day courier, with a copy by facsimile) of
such Notice of Redemption at Corporation's Election. Such
Notice of Redemption At Corporation's Election shall indicate
(i) the number of shares of Series A Preferred Shares that
have been selected for redemption, (ii) the date which such
redemption is to become effective (the "Date of Redemption At
Corporation's Election") and (iii) the applicable Redemption
Price At Corporation's Election, as defined in subsection
(a)(i) above. Notwithstanding the above, a holder may convert
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into Common Stock, prior to the close of business on the Date
of Redemption at Corporation's Election, any Series A
Preferred Shares which it is otherwise entitled to convert,
including Series A Preferred Shares that has been selected for
redemption at Corporation's election pursuant to this
subsection 4(a).
(b) Corporation Must Have Immediately Available Funds or
Credit Facilities. The Corporation shall not be entitled to send any
Notice of Redemption at Corporation's Election and begin the redemption
procedure under Sections 4(a) unless it has:
(i) the full amount of the redemption price in cash,
available in a demand or other immediately available account
in a bank or similar financial institution; or
(ii) immediately available credit facilities, in the
full amount of the redemption price with a bank or similar
financial institution; or
(iii) an agreement with a standby underwriter willing
to purchase from the Corporation a sufficient number of shares
of stock to provide proceeds necessary to redeem any stock
that is not converted prior to redemptions; or
(iv) a combination of the items set forth in (i),
(ii), and (iii) above, aggregating the full amount of the
redemption price.
(c) Payment of Redemption Price. Each Holder submitting Series
A Preferred Shares being redeemed under this Section 4 shall send their
Series A Preferred Share Certificates to be redeemed to the Corporation
or its Transfer Agent, and the Corporation shall pay the applicable
redemption price to that Holder within five (5) business days of the
Date of Redemption at Corporation's Election.
5. Redemption at Option of Holders.
(a) Redemption Option Upon Major Transaction. In addition to
all other rights of the holders of Series A Preferred Shares contained
herein, after a Major Transaction (as defined below), the holders of
Series A Preferred Shares then outstanding shall have the right in
accordance with Section 5(f), at the option of the holders of at least
two-thirds (2/3) of the Series A Preferred Shares then outstanding, to
require the Corporation to redeem all of the Series A Preferred Shares
then outstanding at a price per Series A Preferred Share equal to the
greater of (i) 100% of the Liquidation Value (as defined below) of such
shares and (ii) the price calculated in accordance with the Redemption
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Rate (as defined below) calculated as of the date of the public
announcement of such Major Transaction or the next date on which the
exchange or market on which the Common Stock is traded is open if such
public announcement is made (A) after 1:00 p.m. Eastern Standard Time
on such date or (B) on a date on which the exchange or market on which
the Common Stock is traded or quoted is closed.
(b) Redemption Option Upon Triggering Event. In addition to
all other rights of the holders of Series A Preferred Shares contained
herein, after a Triggering Event (as defined below), the holders of
Series A Preferred Shares the outstanding shall have the right in
accordance with Section 5(g), at the option of the holders of at least
two-thirds (2/3) of the Series A Preferred Shares then outstanding, to
require the Corporation to redeem all of the Series A Preferred Shares
then outstanding at a price per Series A Preferred Share equal to the
greater of (i) 125% of the Liquidation Value of such share and (ii) the
price calculated in accordance with the Redemption Rate as of the date
immediately preceding such Triggering Event on which the exchange or
market on which the Common Stock is traded or quoted is open.
(c) "Redemption Rate." The "Redemption Rate" shall, as of any
date of determination, be equal to (i) the Conversion Rate in effect as
of such date as calculated pursuant to Section 3(b) multiplied by (ii)
the Closing Bid Price of the Common Stock on such date.
(d) "Major Transaction." A "Major Transaction" shall be deemed
to have occurred at such time as any of the following events:
(i) the consummation of any merger, reorganization,
restructuring, consolidation, or similar transaction by or involving
the Corporation except (A) a merger or consolidation where the
Corporation is the survivor, or where the holders of the capital stock
of the Corporation immediately prior to such merger or consolidation
own at least 50% of the outstanding capital stock of the surviving
entity, (B) pursuant to a migratory merger effected solely for the
purpose of changing the jurisdiction of incorporation of the
Corporation, or (C) any such transaction in which each of the holders
of the Series A Preferred Shares receives cash at least equal to 120%
of the Liquidation Value of such shares in accordance with Section
5(d)(ii) hereof;
(ii) sale of all or substantially all of the assets
of the Corporation on a consolidated basis or any similar transaction
or related transactions which effectively results in a sale of all or
substantially all of the assets of the Corporation on a consolidated
basis, unless, upon consummation of such transaction, the Corporation
reserves an amount in cash at least equal to 125% of the Liquidation
Value of the Series A Preferred Shares for payment to the holders
thereof.
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(e) "Triggering Event." A "Triggering Event" shall be
deemed to have occurred at such time as any of the following events:
(i) either (A) the failure of the Registration
Statement to be declared effective by the SEC or to cover the resale of
all of the shares of Common Stock issued or issuable upon conversion of
the Series A Preferred Shares at any time after ninety (90) days after
the Scheduled Effective Date (provided that for purposes of determining
the Closing Bid Price under Section 5(c) above, the Triggering Event
shall be deemed to have occurred on the first day of such ninety (90)
day period) or (B) for any period of ninety (90) consecutive days after
the date that is ninety (90) days after the Scheduled Effective Date
that Common Stock issued or issuable upon conversion of the Series A
Preferred Shares cannot be sold under the Registration Statement for
any reason (provided that for purposes of determining the Closing Bid
Price under Section 5(c) above, the Triggering Event shall be deemed to
have occurred on the first day of such ninety (90) day period);
(ii) if for any reason the Corporation fails to
perform or observe any covenant, agreement, or other provision
contained in Section 9 or 10 hereof;
(iii) the Corporation's notice to the holders of
Series A Preferred Shares as a class, including by way of public
announcement, at any time, of its intention not to comply, other than
in accordance with the terms hereof, with requests for conversion of
any Series A Preferred Shares for shares of Common Stock;
(iv) if for any reason the Corporation fails to
perform or observe any covenant, agreement, or other provision
contained herein or in the Securities Purchase Agreement, the
Registration Rights Agreement, or in any related agreement, and such
failure is not cured within 30 days after the Corporation knows, or
should have known with the exercise of reasonable diligence, of the
occurrence thereof, and such failure has had, or could reasonably be
expected to have, a material adverse effect on (A) the financial
condition, operating results, business, properties, or operations of
the Corporation and its subsidiaries taken as a whole taking into
account any proceeds reasonably expected to be received by the
Corporation or its subsidiaries in the foreseeable future from
insurance policies or rights of indemnification or (B) the Series A
Preferred Shares; or
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(v) any representation or warranty contained in the
Securities Purchase Agreement or the Registration Rights Agreement is
false or misleading on or as of the date made and which either reflects
or has had a material adverse effect on and which, upon the date that
the holders require the Corporation to redeem the Class A Preferred
Shares continues to have a material adverse effect on (A) the financial
condition, operating results, business, properties, or operations of
the Corporation and its subsidiaries taken as a whole taking into
account any proceeds reasonably expected to be received by the
Corporation or its subsidiaries in the foreseeable future from
insurance policies or rights of indemnification or (B) the Series A
Preferred Shares.
(f) Mechanics of Redemption at Option of Buyer Upon Major
Transaction. No sooner than fifteen (15) days nor later than ten (10)
days prior to the consummation of a Major Transaction, but not prior to
the public announcement of such Major Transaction, the Corporation
shall deliver written notice thereof via facsimile and overnight
courier ("Notice of Major Transaction") to each holder of Series A
Preferred Shares. At any time after receipt of a Notice of Major
Transaction, the holders of at least two-thirds (2/3) of the Series A
Preferred Shares then outstanding may require the Corporation to redeem
all of the holders' Series A Preferred Shares then outstanding in
accordance with Section 5(a) by delivering written notice thereof via
facsimile and overnight courier ("Notice of Redemption at Option of
Buyer Upon Major Transaction") to the Corporation, which Notice of
Redemption at Option of Buyer Upon Major Transaction shall indicate (i)
the number of Series A Preferred Shares that such holders are voting in
favor of redemption and (ii) the applicable redemption price, as
calculated pursuant to Section 5(a) above. Unless the Corporation shall
fail to fully redeem all of the holder's Series A Preferred Shares
pursuant to this Section 5, any notice delivered by the holder pursuant
to this subsection shall be irrevocable.
(g) Mechanics of Redemption at Option of Buyer Upon Triggering
Event. As soon as practicable, but in any event no more than five (5)
business days after the occurrence of a Triggering Event, the
Corporation shall deliver written notice thereof via facsimile and
overnight courier ("Notice of Triggering Event") to each holder of
Series A Preferred Shares. At any time after receipt of a Notice of
Triggering Event, the holders of at least two-thirds (2/3) of the
Series A Preferred Shares then outstanding may require the Corporation
to redeem all of the Series A Preferred Shares then outstanding in
accordance with Section 5(b) by delivering written notice thereof via
facsimile and overnight courier ("Notice of Redemption at Option of
Buyer Upon Triggering Event") to the Corporation, which Notice of
Redemption at Option of Buyer Upon Triggering Event shall indicate (i)
the number of Series A Preferred Shares that such holders are voting in
favor of redemption and (ii) the applicable redemption price, as
calculated pursuant to Section 5(b) above. Unless the Corporation shall
fail to fully redeem all of the holder's Series A Preferred Shares
pursuant to this Section 5, any notice delivered by the holder pursuant
to this subsection shall be irrevocable.
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(h) Payment of Redemption Price. Upon the Corporation's
receipt of a Notice(s) of Redemption at Option of Buyer Upon Major
Transaction or a Notice(s) of Redemption at Option of Buyer Upon
Triggering Event, as the case may be, from the holders of at least
two-thirds (2/3) of the Series A Preferred Shares then outstanding, the
Corporation shall immediately notify each holder by facsimile of the
Corporation's receipt of such requisite notices necessary to effect a
redemption and each holder of Series A Preferred Shares shall
thereafter promptly send such holder's Preferred Stock Certificates to
be redeemed to the Corporation or its Transfer Agent. The Corporation
shall pay the applicable redemption price, as calculated pursuant to
Section 5(a) or 5(b) above, in cash to such holder within thirty (30)
days after the Corporation's receipt of the requisite notices required
to effect a redemption; provided that a holder's Preferred Stock
Certificates shall have been so delivered to the Corporation or its
Transfer Agent; provided further that if the Corporation is unable to
redeem all of the Series A Preferred Shares, the Corporation shall
redeem an amount from each holder of Series A Preferred Shares equal to
such holder's pro-rata amount (based on the number of Series A
Preferred Shares held by such holder relative to the number of Series A
Preferred Shares outstanding) of all Series A Preferred Shares being
redeemed. If the Corporation shall fall to redeem all of the Series A
Preferred Shares submitted for redemption (other than pursuant to a
dispute as to the determination of the Closing Bid Price or the
arithmetic calculation of the Redemption Rate), the applicable
redemption price payable in respect of such unredeemed Series A
Preferred Shares shall bear interest at the rate of 2.5% per month (pro
rated for partial months) until paid in full. Until the Corporation
pays such unpaid applicable redemption price in full to each holder,
holders of at least two-thirds (2/3) of the Series A Preferred Shares
then outstanding, including shares of Series A Preferred Shares
submitted for redemption pursuant to this Section 4 and for which the
applicable redemption price has not been paid, shall have the option
(the "Void Optional Redemption Option") to, in lieu of redemption,
require the Corporation to promptly return to each holder all of the
Series A Preferred Shares that were submitted for redemption by such
holder under this Section 5 and for which the applicable redemption
price has not been paid, by sending written notice thereof to the
Corporation via facsimile (the "Void Optional Redemption Notice"). Upon
the Corporation's receipt of such Void Optional Redemption Notice(s)
and prior to payment of the full applicable redemption price to each
holder, (i) the Notice(s) of Redemption at Option of Buyer Upon
Triggering Event or the Notice(s) of Redemption at Option of Buyer Upon
Major Transaction, as the case may be, shall be null and void with
respect to those Series A Preferred Shares submitted for redemption and
for which the applicable redemption price has not been paid, (ii) the
Corporation shall immediately return any Certificates for Series A
Preferred Shares submitted to the Corporation by each holder for
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redemption under this Section 4(h) and for which the applicable
redemption price had not been paid, (iii) the Fixed Conversion Price of
such returned Series A Preferred Shares shall be adjusted to the lesser
of (A) the Fixed Conversion Price as in effect on the date on which the
Void Option Redemption Notice(s) is delivered to the Corporation and
(B) the lowest Closing Bid Price during the period beginning on the
date on which the Notice(s) of Redemption of Option of Buyer Upon Major
Transaction or the Notice(s) of Redemption at Option of Buyer Upon
Triggering Event, as the case may be, is delivered to the Corporation
and ending on the date on which the Void Optional Redemption Notice(s)
is delivered to the Corporation; provided that no adjustment shall be
made if such adjustment would result in an increase of the Fixed
Conversion Price then in effect, and (iv) the Conversion Percentage in
effect at such time and thereafter shall be reduced by a number of
percentage points equal to the product of (A) two and one-half (2.5)
and (B) the number of months (prorated for partial months) in the
period beginning on the date on which the Notice(s) of Redemption at
Option of Buyer Upon Major Transaction or the Notice(s) of Redemption
at Option of Buyer Upon Triggering Event, as the case may be, is
delivered to the Corporation and ending on the date on which the Void
Optional Redemption Notice(s) is delivered to the Corporation.
Notwithstanding the foregoing, in the event of a dispute as to the
determination of the Closing Bid Price or the arithmetic calculation of
the Redemption Rate, such dispute shall be resolved pursuant to Section
3(f)(iii) above with the term "Closing Bid Price" being substituted for
the term "Average Market Price" and the term "Redemption Rate" being
substituted for the term "Conversion Rate."
6. Inability to Fully Convert.
(a) Holder's Option if Corporation Cannot Fully Convert. If at
any time after the earlier to occur of (i) effectiveness of the
Registration Statement or (ii) ninety (90) days after the Scheduled
Effective Date, upon the Corporation's receipt of a Conversion Notice,
the Corporation does not issue shares of Common Stock which are
registered for resale under the Registration Statement within seven (7)
business days of the time required in accordance with Section 3(f)
hereof, for any reason or for no reason, including, without limitation,
because the Corporation (x) does not have a sufficient number of shares
of Common Stock authorized and available, (y) is otherwise prohibited
by applicable law or by the rules or regulations of any stock exchange,
inter-dealer quotation system or other self-regulatory organization
with jurisdiction over the Corporation or its securities from issuing
all of the Common Stock which is to be issued to a holder of Series A
Preferred Shares pursuant to a Conversion Notice or (z) fails to have a
sufficient number of shares of Common Stock registered and eligible for
resale under the Registration Statement, then the Corporation shall
issue as many shares of Common Stock as it is able to issue in
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accordance with Stockholder's Conversion Notice and pursuant to Section
3(f) above and, with respect to the unconverted Series A Preferred
Shares, the holder, solely at such holder's option, can, in addition to
any other remedies such holder may have hereunder, under the Securities
Purchase Agreement (including indemnification under Section 8 thereof),
under the Registration Rights Agreement, at law or in equity, elect to:
(i) require the Corporation to redeem from such
holder those Series A Preferred Shares for which the Corporation is
unable to issue Common Stock in accordance with such holder's
Conversion Notice ("Mandatory Redemption") at a price per Series A
Preferred Share (the "Mandatory Redemption Price") equal to the greater
of (x) 120% of the Liquidation Value of such share and (y) the
Redemption Rate as of such Conversion Date;
(ii) void its Conversion Notice and retain or have
returned, as the case may be the Certificates representing the
unconverted Series A Preferred Shares that were to be converted
pursuant to such holder's Conversion Notice.
7. Reissuance of Certificates. In the event of a conversion or
redemption pursuant to this Certificate of Designations of less than all of the
Series A Preferred Shares represented by a particular Preferred Stock
Certificate, the Corporation shall promptly cause to be issued and delivered to
the holder of such Series A Preferred Shares a Preferred Stock Certificate
representing the remaining Series A Preferred Shares which have not been so
converted or redeemed.
8. Reservation of Shares. The Corporation shall, so long as any of the
Series A Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Series A Preferred Shares, 11,875,000 shares of
the Common Stock to effect the conversion of all of the Series A Preferred
Shares. If at any time, the Corporation does not have available 11,500,000
authorized and unissued shares of Common Stock to satisfy conversion of all of
the Series A Preferred Shares outstanding, the Corporation shall call and hold a
special shareholders meeting with thirty (30) days of such occurrence, for the
sole purpose of increasing the number of authorized shares. Furthermore,
management of the Corporation shall recommend to the shareholders to vote in
favor of increasing the number of common shares authorized. Management shall
also vote all of its shares in favor of increasing the number of authorized
shares of Common Stock.
9. Voting Rights. Holders of Series A Preferred Shares shall have no
voting rights, except as required by law, including but not limited to the
General Corporation Law of the State of New Jersey and as expressly provided in
this Certificate of Designations.
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10. Liquidation, Dissolution, Winding-Up. In the event of any voluntary
or involuntary liquidation, dissolution, or winding up of the Corporation, the
holders of the Series A Preferred Shares shall be entitled to receive in cash
out of the assets of the Corporation, whether from capital or from earnings
available for distribution to its stockholders (the "Preferred Funds"), before
any amount shall be paid to the holders of any of the capital stock of the
Corporation of any class junior in rank to the Series A Preferred Shares in
respect of the preferences as to the distributions and payments on the
liquidation, dissolution and winding up of the Corporation, an amount per Series
A Preferred Share equal to the sum off (i) $10,000 and (ii) an amount equal to
the product of (.06) (N/365) ($10,000) (such sum being referred to as the
"Liquidation Value"); provided that, if the Preferred Funds are insufficient to
pay the full amount due to the holders of Series A Preferred Shares and holders
of shares of other classes or series of preferred stock of the Corporation that
are of equal rank with the Series A Preferred Shares as to payments of Preferred
Funds (thc "Pari Passu Shares"), then each holder of Series A Preferred Shares
and Pari Passu Shares shall receive a percentage of the Preferred Funds equal to
the full amount of Preferred Funds payable to such holder as a liquidation
preference, in accordance with their respective Certificate of Designations,
Preferences and Rights as a percentage or the full amount of Preferred Funds
payable to all holders of Series A Preferred Shares and Pari Passu Shares. The
purchase or redemption by the Corporation of stock of any class in any manner
permitted by law, shall not for the purposes hereof, be regarded as a
liquidation, dissolution or winding up of the Corporation. Neither the
consolidation or merger of the Corporation with or into any other Person, nor
the sale or transfer by the Corporation of less than substantially all of its
assets, shall, for the purposes hereof, be deemed to be a liquidation,
dissolution or winding up of the Corporation. No holder of Series A Preferred
Shares shall be entitled to receive any amounts with respect thereto upon any
liquidation, dissolution or winding up of the Corporation other than the amounts
provided for herein.
11. Preferred Rank. All shares of Common Stock shall be of junior rank
to all Series A Preferred Shares in respect to the preferences as to
distributions and payments upon the liquidation, dissolution, and winding up of
the Corporation. The rights of the shares of Common Stock shall be subject to
the preferences and relative rights of the Series A Preferred Shares. The Series
A Preferred Shares shall be senior in rights and liquidation preference to the
Common Stock or and any series of Preferred Stock hereinafter issued by the
Corporation. Without the prior express written consent of the holders of not
less than two-thirds (2/3) of the then issued and outstanding Series A Preferred
Shares, the Corporation shall not hereafter authorize or issue additional or
other capital stock that is of senior or equal rank to the Series A Preferred
Shares in respect of the preferences as to distributions and payments upon the
liquidation, dissolution and winding up of the Corporation. Without the prior
express written consent of the holders off not less than two-thirds (2/3) of the
then issued and outstanding Series A Preferred Shares, the Corporation shall not
hereafter authorize or make any amendment to the Corporation's Certificate of
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Incorporation or Bylaws, or make any resolution of the board of directors with
the New Jersey Secretary of State containing any provisions, which would
adversely affect or otherwise impair the rights or relative priority of the
holders of the Series A Preferred Shares relative to the holders of the Common
Stock or the holders of any other class of capital stock. In the event of the
merger or consolidation of the Corporation with or into another corporation, the
Series A Preferred Shares shall maintain their relative powers, designations,
and preferences provided for herein and no merger shall result inconsistent
therewith.
12. Restriction on Redemption and Dividends.
(a) Restriction on Dividend. If any Series A Preferred Shares
are outstanding, without the prior express written consent of the
holders of not less than two-thirds (2/3) of the then outstanding
Series A Preferred Shares, the Corporation shall not directly or
indirectly declare, pay or make any dividends or other distributions
upon any of the Common Stock so long as written notice thereof has been
given to holders of the Series A Preferred Shares at least 30 days
prior to the earlier of (a) the record date taken for or (b) the
payment of any such dividend or other distribution. Notwithstanding the
foregoing, this Section 12(a) shall not prohibit the Corporation from
declaring and paying a dividend in cash with respect to the Common
Stock so long as the Corporation: (i) pays simultaneously to each
holder of Series A Preferred Shares an amount in cash equal to the
amount such holder would have received had all of such holder's Series
A Preferred Shares been converted to Common Stock pursuant to Section 2
hereof one business day prior to the record date for any such dividend,
and (ii) after giving effect to the payment of any dividend and any
other payments required in connection therewith including to the
holders of the Series A Preferred Shares under clause 12(a)(i) hereof,
the Corporation has in cash or cash equivalents an amount equal to the
aggregate of: (A) all of its liabilities reflected on its most recently
available balance sheet, (B) the amount of any indebtedness incurred by
the Corporation or any of its subsidiaries since its most recent
balance sheet and (C) 125% of the amount payable to all holders of any
shares of any class of preferred stock of the Corporation assuming a
liquidation of the Corporation as the date of its most recently
available balance sheet.
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(b) Restriction on Redemption. If any Series A Preferred
Shares are outstanding, without the prior express written consent of
the holders of not less than two-thirds (2/3) of the then outstanding
Series A Preferred Shares, the Corporation shall not directly or
indirectly redeem, purchase or otherwise acquire from any person or
entity' other than from a direct or indirect wholly-owned subsidiary of
the Corporation, or permit any subsidiary of the Corporation to redeem,
purchase or otherwise acquire from any person or entity other than from
the Corporation or another direct or indirect wholly-owned subsidiary
of the Corporation, any of the Corporation's or any subsidiary's
capital stock or other equity securities (including, without
limitation, warrants, options and other rights to acquire such capital
stock or other equity securities).
13. Vote to Change the Terms of Series A Preferred Shares. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than two-thirds (2/3) of
the then outstanding Series A Preferred Shares, shall be required for any change
to this Certificate of Designations or the Corporation's Certificate of
Incorporation which would amend, alter, change or repeal any of the powers,
designations, preferences and rights of the Series A Preferred Shares.
14. Lost or Stolen Certificates. Upon receipt by the Corporation of
evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Series A
Preferred Shares, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the holder to the Corporation and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Corporation shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Corporation shall
not be obligated to re-issue Preferred Stock Certificates if the holder
contemporaneously requests the Corporation to convert such Series A Preferred
Shares into Common Stock.
15. Withholding Tax Obligations. Notwithstanding anything herein to the
contrary, to the extent that the Corporation receives advice in writing from its
counsel that there is a reasonable basis to believe that the Corporation is
required by applicable federal laws or regulations and delivers a copy of such
written advice to the holders of the Series A Preferred Shares so affected, the
Corporation may reasonably condition the making of any distribution (as such
term is defined under applicable federal tax law and regulations) in respect of
any Series A Preferred Shares on the holder of such Series A Preferred Shares
depositing with the Corporation an amount of cash sufficient to enable the
Corporation to satisfy its withholding tax obligations (the "Withholding Tax")
with respect to such distribution, Notwithstanding the foregoing or anything to
the contrary, if any holder of the Series A Preferred Shares so affected
receives advice in writing from its counsel that there is a reasonable basis to
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<PAGE>
believe that the Corporation is not so required by applicable federal laws or
regulations and delivers a copy of such written advice to the Corporation, the
Corporation shall not be permitted to condition the making of any such
distribution in respect of any Series A Preferred Share on the holder of such
Series A Preferred Shares depositing with the Corporation any Withholding Tax
with respect to such distribution, provided, however, the Corporation may
reasonably condition the making of any such distribution in respect of any
Series A Preferred Share on the holder of such Series A Preferred Shares
executing and delivering to the Corporation, at the election of the holder,
either: (i) if applicable, a properly completed Internal Revenue Service Form
4224, or (a) an indemnification agreement in reasonably acceptable form, with
respect to any federal tax liability, penalties and interest that may be imposed
upon the Corporation by the Internal Revenue Service as a result of the
Corporation's failure to withhold in connection with such distribution to such
holder. If the conditions in the preceding two sentences are fully satisfied,
the Corporation shall not be required to pay any additional damages set forth in
Section 3(f)(v) of this Certificate of Designations if its failure to timely
deliver any Conversion Shares results solely from the holder's failure to
deposit any withholding tax hereunder or provide to the Corporation an executed
indemnification agreement in the form reasonably satisfactory to the
Corporation.
3. The Certificate of Incorporation of the Corporation is amended so
that the designation and number of shares of each class and series acted upon in
the resolutions set forth above, and the relative rights, preferences, and
limitations of each such class and series are as state in the above resolutions.
[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK.]
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by James K.T. Lu, its President, as of this day of 14th
April, 2000.
DIAMOND ENTERTAINMENT CORPORATION
By:
Name: James K. T. Lu
Title: President and Chief Executive Officer
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EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert Shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of Series
A Convertible Preferred Stock indicated below, into shares of Common Stock, no
par value per share (the "Common Stock"), of Diamond Entertainment Corporation
(the "Company") according to the condition hereof, as of the date written below.
If shares are to be issued in the name of a person other than the undersigned,
the under signed will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the Holder for
any conversion, except for such transfer taxes.
Conversion calculations: ---------------------------------------
Date to Effect Conversion
---------------------------------------
Number of Shares of Preferred Stock
to be Converted
---------------------------------------
Number of shares of Common Stock to be issued
---------------------------------------
Applicable Conversion Price
---------------------------------------
Signature
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Name
---------------------------------------
Address
