CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND PREFERENCES
OF THE
SERIES B CONVERTIBLE PREFERRED STOCK
OF
DBS INDUSTRIES, INC.
The undersigned, the Chief Executive Officer and President of DBS
Industries, Inc., a Delaware corporation (the "Company"), in accordance with the
provisions of the General Corporation Law of the State of Delaware (the
"Delaware Law"), does hereby certify that, pursuant to the authority conferred
upon the Board of Directors by the Restated Certificate of Incorporation of the
Company, as amended, and pursuant to Section 151(g) of the Delaware Law, the
following resolution creating a series of Convertible Preferred Stock, was duly
adopted on September 11, 2000:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Company by provisions of the Restated
Certificate of Incorporation of the Company, as amended (the "Certificate of
Incorporation"), there hereby is created out of the shares of Preferred Stock,
$.0004 par value, of the Company authorized in the Certificate of Amendment of
the Certificate of Incorporation, filed with the Secretary of State of the State
of Delaware on April 28, 1999 (the "Preferred Stock,"), a series of Preferred
Stock of the Company, to be named "Series B Convertible Preferred Stock,"
consisting of Five Hundred and Fifty (550) shares, which series shall have the
following designations, powers, preferences and relative and other special
rights and the following qualifications, limitations and restrictions:
1. Designation and Rank. The designation of such series of the Preferred
Stock shall be the Series B Convertible Preferred Stock, $.0004 par value (the
"Series B Preferred Stock"). The maximum number of shares of Series B Preferred
Stock shall be Five Hundred and Fifty (550) shares. The Series B Preferred Stock
shall rank (i) prior to the common stock, $.0004 par value (the "Common Stock"),
and to all other classes and series of equity securities of the Company which by
their terms do not rank senior to the Series B Preferred Stock ("Junior Stock"),
(ii) junior to any class or series of equity securities which by its terms shall
rank senior to the Series B Preferred Stock, and (iii) pari passu with the
Series A Preferred Stock. The Series B Preferred Stock shall be subordinate to
and rank junior to all indebtedness of the Company now or hereafter outstanding.
2. Dividends.
(a) Payment of Dividends. The holders of record of shares of Series B
Preferred Stock (the "Holders") shall be entitled to receive, per quarter annum
out of any assets at the time legally available therefor, dividends at the rate
of ten percent (10%) of the stated Liquidation Preference Amount (as defined
below) per share per annum (the "Dividend Payment"), and no more, payable at the
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option of the Holders in cash or as an accrual to the Liquidation Preference
Amount. In the case of shares of Series B Preferred Stock outstanding for less
than a full year, dividends shall be pro rated based on the portion of each year
during which such shares are outstanding. Dividends on the Series B Preferred
Stock shall be cumulative, shall accrue and be payable at conversion of the
Series B Preferred Stock into shares of Common Stock, and shall accrue until the
Mandatory Conversion Date (as defined in Section 5(c)(ii) below without regard
to Section 5(c)(ii)(x)(A)). Dividends on the Series B Preferred Stock are prior
and in preference to any declaration or payment of any distribution (as defined
below) on any outstanding shares of Common Stock or any other equity securities
of the Company ranking junior to the Series B Preferred Stock as to the payment
of dividends. Such dividends shall accrue on each share of Series B Preferred
Stock from day to day from the date of initial issuance thereof whether or not
earned or declared so that if such dividends with respect to any previous
dividend period at the rate provided for herein have not been paid on, or
declared and set apart for, all shares of Series B Preferred Stock at the time
outstanding, the deficiency shall be fully paid on, or declared and set apart
for, such shares on a pro rata basis with all other equity securities of the
Company ranking on a parity with the Series B Preferred Stock as to the payment
of dividends before any distribution shall be paid on, or declared and set apart
for Common Stock or any other equity securities of the Company ranking junior to
the Series B Preferred Stock as to the payment of dividends.
(b) So long as any shares of Series B Preferred Stock are outstanding,
the Company shall not declare, pay or set apart for payment any dividend or make
any distribution on any Junior Stock (other than dividends or distributions
payable in additional shares of Junior Stock), unless at the time of such
dividend or distribution the Company shall have paid all accrued and unpaid
dividends on the outstanding shares of Series B Preferred Stock.
(c) In the event of a dissolution, liquidation or winding up of the
Company pursuant to Section 4 hereof, all accrued and unpaid dividends on the
Series B Preferred Stock shall be payable on the day immediately preceding the
date of payment of the preferential amount to the holders of Series B Preferred
Stock. In the event of (i) a mandatory redemption pursuant to Section 9 hereof,
or (ii) a redemption upon the occurrence of a Major Transaction (as defined in
Section 8(c) hereof) or a Triggering Event (as defined in Section 8(d) hereof)
or at the election of the Company pursuant to Section 8(h) hereof, all accrued
and unpaid dividends on the Series B Preferred Stock shall be payable on the day
immediately preceding the date of such redemption. In the event of a voluntary
conversion pursuant to Section 5(a) hereof, all accrued and unpaid dividends on
the Series B Preferred Stock being converted shall be payable on the day
immediately preceding the Voluntary Conversion Date (as defined in Section
5(b)(i) hereof) and in the event of a mandatory conversion pursuant to Section
5(c) hereof, all accrued and unpaid dividends on the Series B Preferred Stock
being converted shall be payable on the day immediately preceding the Mandatory
Conversion Date (as defined in Section 5(c)(ii) hereof).
(d) For purposes hereof, unless the context otherwise requires,
"distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
shares of Common Stock or other equity securities of the Company, or the
purchase or redemption of shares of the Company (other than redemptions set
forth in Section 8 below or repurchases of Common Stock held by employees or
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consultants of the Corporation upon termination of their employment or services
pursuant to agreements providing for such repurchase or upon the cashless
exercise of options held by employees or consultants) for cash or property.
3. Voting Rights.
(a) Class Voting Rights. The Series B Preferred Stock shall have the
following class voting rights (in addition to the voting rights set forth in
Section 3(b) hereof). So long as any shares of the Series B Preferred Stock
remain outstanding, the Company shall not, without the affirmative vote or
consent of the holders of at least three-fourths (3/4) of the shares of the
Series B Preferred Stock outstanding at the time, given in person or by proxy,
either in writing or at a meeting, in which the holders of the Series B
Preferred Stock vote separately as class: (i) authorize, create, issue or
increase the authorized or issued amount of any class or series of stock,
including but not limited to the issuance of any more shares of previously
authorized Common Stock or Preferred Stock, ranking prior to the Series B
Preferred Stock, with respect to the distribution of assets on liquidation,
dissolution or winding up; (ii) amend, alter or repeal the provisions of the
Series B Preferred Stock, whether by merger, consolidation or otherwise, so as
to adversely affect any right, preference, privilege or voting power of the
Series B Preferred Stock; provided, however, that any creation and issuance of
another series of Junior Stock shall not be deemed to adversely affect such
rights, preferences, privileges or voting powers; (iii) repurchase, redeem or
pay dividends on, shares of the Company's Junior Stock; (iv) amend the
Certificate of Incorporation or By-Laws of the Company so as to affect
materially and adversely any right, preference, privilege or voting power of the
Series B Preferred Stock; provided, however, that any creation and issuance of
another series of Junior Stock or any other class or series of equity securities
which by its terms shall rank on parity with the Series B Preferred Stock shall
not be deemed to materially and adversely affect such rights, preferences
privileges or voting powers; (v) effect any distribution with respect to Junior
Stock; or (vi) reclassify the Company's outstanding securities.
(b) General Voting Rights. Except with respect to transactions upon
which the Series B Preferred Stock shall be entitled to vote separately as a
class pursuant to Section 3(a) above and except as otherwise required by
Delaware law, the Series B Preferred Stock shall have no voting rights. The
Common Stock into which the Series B Preferred Stock is convertible shall, upon
issuance, have all of the same voting rights as other issued and outstanding
Common Stock of the Company.
4. Liquidation Preference.
(a) In the event of the liquidation, dissolution or winding up of the
affairs of the Company, whether voluntary or involuntary, after payment or
provision for payment of the debts and other liabilities of the Company, the
holders of shares of the Series B Preferred Stock then outstanding shall be
entitled to receive, out of the assets of the Company whether such assets are
capital or surplus of any nature, an amount equal to One Thousand Dollars
($1,000) per share (the "Liquidation Preference Amount") of the Series B
Preferred Stock plus any accrued and unpaid dividends before any payment shall
be made or any assets distributed to the holders of the Common Stock or any
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other Junior Stock. If the assets of the Company are not sufficient to pay in
full the Liquidation Preference Amount plus any accrued and unpaid dividends
payable to the holders of outstanding shares of the Series B Preferred Stock and
any series of preferred stock or any other class of stock on a parity, as to
rights on liquidation, dissolution or winding up, with the Series B Preferred
Stock, then all of said assets will be distributed among the holders of the
Series B Preferred Stock and the other classes of stock on a parity with the
Series B Preferred Stock, if any, ratably in accordance with the respective
amounts that would be payable on such shares if all amounts payable thereon were
paid in full. The liquidation payment with respect to each outstanding
fractional share of Series B Preferred Stock shall be equal to a ratably
proportionate amount of the liquidation payment with respect to each outstanding
share of Series B Preferred Stock. All payments for which this Section 4(a)
provides shall be in cash, property (valued at its fair market value as
determined by the Company's independent, outside accountant acceptable to the
holders of the Series B Preferred Stock) or a combination thereof; provided,
however, that no cash shall be paid to holders of Junior Stock unless each
holder of the outstanding shares of Series B Preferred Stock has been paid in
cash the full Liquidation Preference Amount plus any accrued and unpaid
dividends to which such holder is entitled as provided herein. After payment of
the full Liquidation Preference Amount plus any accrued and unpaid dividends to
which each holder is entitled, such holders of shares of Series B Preferred
Stock will not be entitled to any further participation as such in any
distribution of the assets of the Company.
(b) A consolidation or merger of the Company with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Company, or the effectuation by the Company of a transaction or series of
transactions in which more than 50% of the voting shares of the Company is
disposed of or conveyed, shall not be deemed to be a liquidation, dissolution,
or winding up within the meaning of this Section 4. In the event of the merger
or consolidation of the Company with or into another corporation, the Series B
Preferred Stock shall maintain its relative powers, designations and preferences
provided for herein and no merger shall result inconsistent therewith.
(c) Written notice of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, stating a payment date
and the place where the distributable amounts shall be payable, shall be given
by mail, postage prepaid, no less than forty-five (45) days prior to the payment
date stated therein, to the holders of record of the Series B Preferred Stock at
their respective addresses as the same shall appear on the books of the Company.
5. Conversion. The holder of Series B Preferred Stock shall have the
following conversion rights (the "Conversion Rights"):
(a) Right to Convert. At any time on or after one hundred eighty (180)
days from the Closing Date (as such term is defined in the Series B Convertible
Preferred Stock Purchase Agreement dated as of October 6, 2000 between the
Company and the initial holders of the Series B Preferred Stock (the "Securities
Purchase Agreement")), the Holder of any such shares of Series B Preferred Stock
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may, at such Holder's option, subject to the limitations set forth in Section 7
herein, elect to convert (a "Voluntary Conversion") all or any portion of the
shares of Series B Preferred Stock held by such person into a number of fully
paid and nonassessable shares of Common Stock (the "Conversion Rate") equal to
the quotient of (i) the Liquidation Preference Amount of the shares of Series B
Preferred Stock being converted divided by (ii) the Conversion Price (as defined
in Section 5(d)(iii) below) then in effect as of the date of the delivery by
such Holder of its notice of election to convert; provide d, however, that a
Holder may not convert more than 50% of the Series B Preferred Stock originally
purchased by such person in any period of 30 consecutive calendar days,
cumulatively.
(b) Mechanics of Voluntary Conversion. The Voluntary Conversion of
Series B Preferred Stock shall be conducted in the following manner:
(i) Holder's Delivery Requirements. To convert Series B Preferred
Stock into full shares of Common Stock on any date (the "Voluntary Conversion
Date"), the Holder thereof shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 5:00 p.m., Pacific 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 Company, and (B) surrender to a
common carrier for delivery to the Company as soon as practicable following such
Voluntary Conversion Date but in no event later than three (3) business days
after such date the original certificates representing the shares of Series B
Preferred Stock 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.
(ii) Company's Response. Upon receipt by the Company of a
facsimile copy of a Conversion Notice, the Company shall immediately send, via
facsimile, a confirmation of receipt of such Conversion Notice to such holder.
Upon receipt by the Company of the Preferred Stock Certificates to be converted
pursuant to a Conversion Notice, together with the originally executed
Conversion Notice, the Company or its designated transfer agent (the "Transfer
Agent"), as applicable, shall, within three (3) business day following the date
of receipt by the Company of both, 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. If the
number of shares of Preferred Stock represented by the Preferred Stock
Certificate(s) submitted for conversion is greater than the number of shares of
Series B Preferred Stock being converted, then the Company shall, as soon as
practicable and in no event later than three (3) business days after receipt of
the Preferred Stock Certificate(s) and at the Company's expense, issue and
deliver to the holder a new Preferred Stock Certificate representing the number
of shares of Series B Preferred Stock not converted.
(iii) Dispute Resolution. In the case of a dispute as to the
determination of the Average Share Price (as defined in Section 5(d) below) or
the Conversion Price or the arithmetic calculation of the number of shares of
Common Stock to be issued upon conversion, the Company 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 as soon as possible, but in no event later than two (2) business days
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after receipt of such holder's Conversion Notice. If such Holder and the Company
are unable to agree upon the determination of the Average Share Price or the
Conversion Price or the arithmetic calculation of the number of shares of Common
Stock to be issued upon such conversion within one (1) business day of such
disputed determination or arithmetic calculation being submitted to the Holder,
then the Company shall within one (1) business day submit via facsimile (A) the
disputed determination of the Average Share Price or the Conversion Price to an
independent, reputable investment bank acceptable to the applicable holder or
(B) the disputed arithmetic calculation of the number of shares of Common Stock
to be issued upon such conversion to an independent, outside accountant
acceptable to the applicable Holder. The Company shall cause the investment bank
or the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the Holder of the results no later than
seventy-two (72) hours from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shall be binding upon all parties absent
manifest error. The reasonable expenses of such investment bank or accountant in
making such determination shall be paid by the Company, in the event the
Holder's calculation or determination was correct, or by the holder, in the
event the Company's calculation or determination was correct, or equally by the
Company and the holder in the event that neither the Company's or the Holder's
calculation or determination was correct. The period of time in which the
Company is required to effect conversions or redemptions under this Certificate
of Designation shall be tolled with respect to the subject conversion or
redemption pending resolution of any dispute by the Company made in good faith
and in accordance with this Section 5(b)(iii).
(iv) Record Holder. The person or persons entitled to receive the
shares of Common Stock issuable upon a conversion of the Series B Preferred
Stock shall be treated for all purposes as the record holder or holders of such
shares of Common Stock on the Conversion Date.
(v) Company's Failure to Timely Convert. If within three (3)
business days of the Company's receipt of the Conversion Notice and the
Preferred Stock Certificates to be converted (the "Share Delivery Period") the
Company shall fail to issue a certificate to a Holder for the number of shares
of Common Stock to which such holder is entitled upon such Holder's conversion
of the Series B Preferred Stock or to issue a new Preferred Stock Certificate
representing the number of shares of Series B Preferred Stock to which such
Holder is entitled pursuant to Section 5(b)(ii) (a "Conversion Failure"), in
addition to all other available remedies which such Holder may pursue hereunder
and under the Securities Purchase Agreement (including indemnification pursuant
to Article VI thereof), the Company shall pay additional damages to such Holder
on each business day after such third (3rd) business day that such conversion is
not timely effected in an amount equal to one percent (1%) of the product of (A)
the sum of the number of shares of Common Stock not issued to the holder on a
timely basis pursuant to Section 5(b)(ii) and to which such Holder is entitled
and, in the event the Company has failed to deliver a Preferred Stock
Certificate to the Holder on a timely basis pursuant to Section 5(b)(ii), the
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number of shares of Common Stock issuable upon conversion of the shares of
Series B Preferred Stock represented by such Preferred Stock Certificate, as of
the last possible date which the Company could have issued such Preferred Stock
Certificate to such Holder without violating Section 5(b)(ii) and (B) the
Closing Bid Price (as defined in Section 5(d) below) of the Common Stock on the
last possible date which the Company could have issued such Common Stock and
such Preferred Stock Certificate, as the case may be, to such Holder without
violating Section 5(b)(ii). If the Company fails to pay the additional damages
set forth in this Section 5(b)(v) within five (5) business days of the date
incurred, then such payment shall bear interest at the rate of two percent (2%)
per month (pro rated for partial months) until such payments are made.
(vi) Buy-in. The Company shall pay any payments incurred under
this Section 5(b) in immediately available funds upon demand. Nothing herein
shall limit a Holder's right to pursue injunctive relief and/or actual damages
for the Company's failure to issue and deliver Common Stock to the Holder,
including, without limitation, the Holder's actual losses occasioned by any
"buy-in" of Common Stock necessitated by such late delivery. Furthermore, in
addition to any other remedies which may be available to the Holder, in the
event that the Company fails for any reason to effect delivery of such shares of
Common Stock within three (3) business days of the date of receipt of the
Conversion Notice, the Holder will be entitled to revoke the relevant Conversion
Notice by delivering a notice to such effect to the Company whereupon the
Company and the Holder shall each be restored to their respective positions
immediately prior to delivery of such Conversion Notice except that holder shall
retain the right to receive both the late payment amounts set forth above plus
the actual documented cost of any "buy-in." As used herein, "buy-in" shall mean
the purchase by a holder of Series B Preferred Stock of shares of Common Stock
in an open market transaction or otherwise in order to meet its delivery
obligations in connection with the sale of Common Stock, which delivery
obligation the holder intended to satisfy with the shares of Common Stock to be
delivered within the Share Delivery Period.
(c) Mandatory Conversion.
(i) Subject to the Exchange Cap (as defined in Section 7 hereof),
each share of Series B Preferred Stock outstanding on the Mandatory Conversion
Date shall, automatically and without any action on the part of the holder
thereof, convert into a number of fully paid and nonassessable shares of Common
Stock equal to the quotient of (i) the Liquidation Preference Amount of the
shares of Series B Preferred Stock outstanding on the Mandatory Conversion Date
divided by (ii) the Conversion Price in effect on the Mandatory Conversion Date.
(ii) As used herein, a "Mandatory Conversion Date" shall be the
date which is three (3) years after the Closing Date, provided that the
Mandatory Conversion Date shall be extended for the following periods for any
shares of Series B Preferred Stock: (x) for as long as (A) the conversion of
such share of Preferred Stock would violate Section 7, (B) a Triggering Event
(as defined in Section 8(d) hereof) shall have occurred and be continuing or (C)
any event shall have occurred and be continuing which with the passage of time
and the failure to cure would result in a Triggering Event, (y) for those number
of days that the Registration Statement was not in effect during the period
between the Effectiveness Date (as defined in the Registration Rights Agreement)
and the third (3rd) anniversary of the Closing Date and (z) one day for each day
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in any Blackout Period (as defined in Section 3(n) of the Registration Rights
Agreement). The Mandatory Conversion Date and the Voluntary Conversion Date
collectively are referred to in this Certificate of Designation as the
"Conversion Date."
(iii) On the Mandatory Conversion Date, the outstanding shares of
Series B Preferred Stock shall be converted automatically without any further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Company or its transfer agent;
provided, however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon conversion of any shares of
Series B Preferred Stock unless certificates evidencing such shares of Series B
Preferred Stock are either delivered to the Company or the Holder notifies the
Company that such certificates have been lost, stolen, or destroyed, and
executes an agreement satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection therewith. Upon the occurrence of the
automatic conversion of the Series B Preferred Stock pursuant to this Section 5,
the Holders shall surrender the Preferred Stock Certificates representing the
Series B Preferred Stock for which the Mandatory Conversion Date has occurred to
the Company and the Company shall deliver the shares of Common Stock issuable
upon such conversion (in the same manner set forth in Section 5(b)(ii)) to the
holder within three (3) business days of the Holder's delivery of the applicable
Preferred Stock Certificates.
(d) Conversion Price.
(i) The term "Average Share Price" shall mean the average of the
three (3) lowest Closing Bid Prices of the Company's shares of Common Stock (as
reported by Bloomberg Financial Markets ("Bloomberg ")) in the over-the-counter
market on the electronic bulletin board for such security (the "OTC Bulletin
Board") (or on such other United States stock exchange or public trading market
("Alternative Exchange") on which the shares of the Company trade if, at the
time of the conversion, they are not trading in the OTC Bulletin Board), during
the twenty (20) consecutive trading days ending on the trading day immediately
preceding the Conversion Date.
(ii) The term "Fixed Conversion Price" shall mean the lower of (i)
$1.10, and (ii) the average of the five (5) Closing Bid Prices of the Company's
shares of Common Stock (as reported by Bloomberg on the OTC Bulletin Board or an
Alternative Exchange) during the five (5) consecutive trading days ending on the
trading day immediately preceding the Closing Date.
(iii) The term "Conversion Price" shall mean, with respect to any
conversion of Series B Preferred Stock, the lesser of (A) the Fixed Conversion
Price, or (B) one hundred percent (100%) of the "Floating Conversion Price"
where "Floating Conversion Price" shall mean eighty percent (80%) of the Average
Share Price on the Voluntary Conversion Date or Mandatory Conversion Date for
such conversion, as applicable.
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(iv) The term "Closing Bid Price" shall mean, for any security as
of any date, the last closing bid price of such security in the OTC Bulletin
Board 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, or, if no last closing trade price is
reported for such security by Bloomberg, the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. 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 mutually determined
by the Company and the holders of a majority of the outstanding shares of Series
B Preferred Stock. If the Company and the holders of a majority of the
outstanding shares of Series B Preferred Stock are unable to agree upon the fair
market value of the Common Stock, then such dispute shall be resolved pursuant
to Section 5(b)(iii) above with the term "Closing Bid Price" being substituted
for the term "Average Share Price." (All such determinations to be appropriately
adjusted for any stock dividend, stock split or other similar transaction during
such period).
(e) Adjustments of Conversion Price.
(i) Adjustments for Stock Splits and Combinations. If the Company
shall at any time or from time to time after the date of issuance of Series B
Preferred Stock (the "Issuance Date"), effect a stock split of the outstanding
Common Stock, the applicable Conversion Price in effect immediately prior to the
stock split shall be proportionately decreased. If the Company shall at any time
or from time to time after the Issuance Date, combine the outstanding shares of
Common Stock, the applicable Conversion Price in effect immediately prior to the
combination shall be proportionately increased. Any adjustments under this
Section 5(e)(i) shall be effective at the close of business on the date the
stock split or combination occurs.
(ii) Adjustments for Certain Dividends and Distributions. If the
Company shall at any time or from time to time after the Issuance Date, make or
issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in shares of Common
Stock, then, and in each event, the applicable Conversion Price in effect
immediately prior to such event shall be decreased as of the time of such
issuance or, in the event such record date shall have been fixed, as of the
close of business on such record date, by multiplying, as applicable, the
applicable Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date; and
(2) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or distribution.
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(iii) Adjustment for Other Dividends and Distributions. If the
Company shall at any time or from time to time after the Issuance Date, make or
issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in other than
shares of Common Stock, then, and in each event, an appropriate revision to the
applicable Conversion Price shall be made and provision shall be made (by
adjustments of the Conversion Price or otherwise) so that the holders of Series
B Preferred Stock shall receive upon conversions thereof, in addition to the
number of shares of Common Stock receivable thereon, the number of securities of
the Company which they would have received had their Series B Preferred Stock
been converted into Common Stock on the date of such event and had thereafter,
during the period from the date of such event to and including the Conversion
Date, retained such securities (together with any distributions payable thereon
during such period), giving application to all adjustments called for during
such period under this Section 5(e)(iii) with respect to the rights of the
holders of the Series B Preferred Stock.
(iv) Adjustments for Reclassification, Exchange or Substitution.
If the Common Stock issuable upon conversion of the Series B Preferred Stock at
any time or from time to time after the Issuance Date shall be changed to the
same or different number of shares of any class or classes of stock, whether by
reclassification, exchange, substitution or otherwise (other than by way of a
stock split or combination of shares or stock dividends provided for in Sections
5(e)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale of
assets provided for in Section 5(e)(v)), then, and in each event, an appropriate
revision to the Conversion Price shall be made and provisions shall be made (by
adjustments of the Conversion Price or otherwise) so that the holder of each
share of Series B Preferred Stock shall have the right thereafter to convert
such share of Series B Preferred Stock into the kind and amount of shares of
stock and other securities receivable upon reclassification, exchange,
substitution or other change, by holders of the number of shares of Common Stock
into which such share of Series B Preferred Stock might have been converted
immediately prior to such reclassification, exchange, substitution or other
change, all subject to further adjustment as provided herein.
(v) Adjustments for Reorganization, Merger, Consolidation or Sales
of Assets. If at any time or from time to time after the Issuance Date there
shall be a capital reorganization of the Company (other than by way of a stock
split or combination of shares or stock dividends or distributions provided for
in Section 5(e)(i), (ii) and (iii), or a reclassification, exchange or
substitution of shares provided for in Section 5(e)(iv)), or a merger or
consolidation of the Company with or into another corporation, or the sale of
all or substantially all of the Company's properties or assets to any other
person (an "Organic Change"), then as a part of such Organic Change an
appropriate revision to the Conversion Price shall be made and provision shall
be made (by adjustments of the Conversion Price or otherwise) so that the holder
of each share of Series B Preferred Stock shall have the right thereafter to
convert such share of Series B Preferred Stock into the kind and amount of
shares of stock and other securities or property of the Company or any successor
corporation resulting from Organic Change. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
5(e)(v) with respect to the rights of the holders of the Series B Preferred
Stock after the Organic Change to the end that the provisions of this Section
5(e)(v) (including any adjustment in the applicable Conversion Price then in
effect and the number of shares of stock or other securities deliverable upon
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conversion of the Series B Preferred Stock) shall be applied after that event in
as nearly an equivalent manner as may be practicable.
(vi) Adjustments for Issuance of Additional Shares of Common
Stock. If the Company, at any time after the Issuance Date, shall issue any
additional shares of Common Stock (otherwise than as provided in the foregoing
subsections (i) through (v) of this Section 5(e)) (the "Additional Shares of
Common Stock"), at a price per share less than the applicable Conversion Price
then in effect or without consideration, then the applicable Conversion Price
upon each such issuance shall be adjusted to that price (rounded to the nearest
cent) determined by multiplying the applicable Conversion Price then in effect
by a fraction:
(1) the numerator of which shall be equal to the sum of (A)
the number of shares of Common Stock outstanding immediately prior to the
issuance of such Additional Shares of Common Stock plus (B) the number of shares
of Common Stock (rounded to the nearest whole share) which the aggregate
consideration for the total number of such Additional Shares of Common Stock so
issued would purchase at a price per share equal to the applicable Conversion
Price then in effect, and
(2) the denominator of which shall be equal to the number of
shares of Common Stock outstanding immediately after the issuance of such
Additional Shares of Common Stock.
The provisions of this subsection (vi) shall not apply under any of the
circumstances for which an adjustment is provided in subsections (i), (ii),
(iii), (iv) or (v) of this Section 5(e). No adjustment of the applicable
Conversion Price shall be made under this subsection (e)(vi) upon the issuance
of any Additional Shares of Common Stock which are issued pursuant to any Common
Stock Equivalent (as such term is defined hereinafter) if upon the issuance of
such Common Stock Equivalent (x) any adjustment shall have been made pursuant to
subsection (vii) of this Section 5(e) or (y) no adjustment was required pursuant
to subsection (vii) of this Section 5(e). No adjustment of the applicable
Conversion Price shall be made under this subsection (vi) in an amount less than
$.01 per share, but any such lesser adjustment shall be carried forward and
shall be made at the time and together with the next subsequent adjustment, if
any, which together with any adjustments so carried forward shall amount to $.01
per share or more; provided that upon any adjustment of the applicable
Conversion Price as a result of any dividend or distribution payable in Common
Stock or Convertible Securities (as defined below) or the reclassification,
subdivision or combination of Common Stock into a greater or smaller number of
shares, the foregoing figure of $.01 per share (or such figure as last adjusted)
shall be adjusted (to the nearest one-half cent) in proportion to the adjustment
in the applicable Conversion Price.
(vii) Issuance of Common Stock Equivalents. If the Company, at any
time after the Issuance Date, shall issue any securities convertible into or
exchangeable for, directly or indirectly, Common Stock ("Convertible
Securities"), other than the Series B Preferred Stock, or any rights or warrants
or options to purchase any such Common Stock or Convertible Securities, shall be
issued or sold (collectively, the "Common Stock Equivalents") and the price per
share for which Additional Shares of Common Stock may be issuable thereafter
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pursuant to such Common Stock Equivalent shall be less than the applicable
Conversion Price then in effect, or if, after any such issuance of Common Stock
Equivalents, the price per share for which Additional Shares of Common Stock may
be issuable thereafter is amended or adjusted, and such price as so amended
shall be less than the applicable Conversion Price in effect at the time of such
amendment, then the applicable Conversion Price upon each such issuance or
amendment shall be adjusted as provided in the first sentence of subsection (vi)
of this Section 5(e) on the basis that (1) the maximum number of Additional
Shares of Common Stock issuable pursuant to all such Common Stock Equivalents
shall be deemed to have been issued (whether or not such Common Stock
Equivalents are actually then exercisable, convertible or exchangeable in whole
or in part) as of the earlier of (A) the date on which the Company shall enter
into a firm contract for the issuance of such Common Stock Equivalent, or (B)
the date of actual issuance of such Common Stock Equivalent, and (2) the
aggregate consideration for such maximum number of Additional Shares of Common
Stock shall be deemed to be the minimum consideration received or receivable by
the Company for the issuance of such Additional Shares of Common Stock pursuant
to such Common Stock Equivalent. No adjustment of the applicable Conversion
Price shall be made under this subsection (vii) upon the issuance of any
Convertible Security which is issued pursuant to the exercise of any warrants or
other subscription or purchase rights therefor, if any adjustment shall
previously have been made to the exercise price of such warrants then in effect
upon the issuance of such warrants or other rights pursuant to this subsection
(vii).
(viii) Consideration for Stock. In case any shares of Common Stock
or any securities convertible into or exchangeable for, directly or indirectly,
Common Stock ("Convertible Securities"), other than the Series B Preferred
Stock, or any rights or warrants or options to purchase any such Common Stock or
Convertible Securities, shall be issued or sold:
(1) in connection with any merger or consolidation in which
the Company is the surviving corporation (other than any consolidation or merger
in which the previously outstanding shares of Common Stock of the Company shall
be changed to or exchanged for the stock or other securities of another
corporation), the amount of consideration therefore shall be, deemed to be the
fair value, as determined reasonably and in good faith by the Board of Directors
of the Company, of such portion of the assets and business of the nonsurviving
corporation as such Board may determine to be attributable to such shares of
Common Stock, Convertible Securities, rights or warrants or options, as the case
may be; or
(2) in the event of any consolidation or merger of the
Company in which the Company is not the surviving corporation or in which the
previously outstanding shares of Common Stock of the Company shall be changed
into or exchanged for the stock or other securities of another corporation, or
in the event of any sale of all or substantially all of the assets of the
Company for stock or other securities of any corporation, the Company shall be
deemed to have issued a number of shares of its Common Stock for stock or
securities or other property of the other corporation computed on the basis of
the actual exchange ratio on which the transaction was predicated, and for a
consideration equal to the fair market value on the date of such transaction of
all such stock or securities or other property of the other corporation. If any
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such calculation results in adjustment of the applicable Conversion Price, or
the number of shares of Common Stock issuable upon conversion of the Series B
Preferred Stock, the determination of the applicable Conversion Price or the
number of shares of Common Stock issuable upon conversion of the Series B
Preferred Stock immediately prior to such merger, consolidation or sale, shall
be made after giving effect to such adjustment of the number of shares of Common
Stock issuable upon conversion of the Series B Preferred Stock.
(ix) Record Date. In case the Company shall take record of the
holders of its Common Stock or any other Preferred Stock for the purpose of
entitling them to subscribe for or purchase Common Stock or Convertible
Securities, then the date of the issue or sale of the shares of Common Stock
shall be deemed to be such record date.
(x) Certain Issues Excepted. Anything herein to the contrary
notwithstanding, the Company shall not be required to make any adjustment of the
number of shares of Common Stock issuable upon conversion of the Series B
Preferred Stock upon the grant after the Issuance Date of, or the exercise after
the Issuance Date of, options or warrants or rights to purchase stock under the
Company's stock option plan.
(f) No Impairment. The Company shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith, assist in the carrying out of all the provisions of this
Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series B Preferred Stock against impairment. In the event a Holder shall elect
to convert any shares of Series B Preferred Stock as provided herein, the
Company cannot refuse conversion based on any claim that such Holder or any one
associated or affiliated with such holder has been engaged in any violation of
law, unless, an injunction from a court, on notice, restraining and/or adjoining
conversion of all or of said shares of Series B Preferred Stock shall have been
issued and the Company posts a surety bond for the benefit of such Holder in the
amount of the difference between the Conversion Price and the Closing Bid Price
on the trading day preceding the date of the attempted conversion multiplied by
the number of shares of Series B Preferred Stock sought to be converted, which
bond shall remain in effect until the completion of arbitration/litigation of
the dispute and the proceeds of which shall be payable to such holder in the
event it obtains judgment.
(g) Certificates as to Adjustments. Upon occurrence of each adjustment
or readjustment of the Conversion Price or number of shares of Common Stock
issuable upon conversion of the Series B Preferred Stock pursuant to this
Section 5, the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
such Series B Preferred Stock a certificate setting forth such adjustment and
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon written request of the Holder of
such affected Series B Preferred Stock, at any time, furnish or cause to be
furnished to such Holder a like certificate setting forth such adjustments and
readjustments, the applicable Conversion Price in effect at the time, and the
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number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon the conversion of a share of
such Series B Preferred Stock. Notwithstanding the foregoing, the Company shall
not be obligated to deliver a certificate unless such certificate would reflect
an increase or decrease of at least one percent of such adjusted amount.
(h) Issue Taxes. The Company shall pay any and all issue and other
taxes, excluding federal, state or local income taxes, that may be payable in
respect of any issue or delivery of shares of Common Stock on conversion of
shares of Series B Preferred Stock pursuant thereto; provided, however, that the
Company shall not be obligated to pay any transfer taxes resulting from any
transfer requested by any holder in connection with any such conversion.
(i) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by facsimile or
three (3) business days following being mailed by certified or registered mail,
postage prepaid, return-receipt requested, addressed to the holder of record at
its address appearing on the books of the Company. The Company will give written
notice to each Holder at least twenty (20) days prior to the date on which the
Company 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, liquidation or winding-up
and in no event shall such notice be provided to such holder prior to such
information being made known to the public. The Company will also give written
notice to each Holder at least twenty (20) days prior to the date on which any
Organic Change, dissolution, liquidation or winding-up will take place and in no
event shall such notice be provided to such holder prior to such information
being made known to the public.
(j) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Series B Preferred Stock. In lieu of any
fractional shares to which the Holder would otherwise be entitled, the Company
shall pay cash equal to the product of such fraction multiplied by the average
of the Closing Bid Prices of the Common Stock for the five (5) consecutive
trading days immediately preceding the Voluntary Conversion Date or Mandatory
Conversion Date, as applicable.
(k) Reservation of Common Stock. Beginning on the date that is 180
days after the date hereof, so long as any shares of Series B Preferred Stock
are outstanding, reserve and keep available out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the Series B
Preferred Stock, such number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all of the Series B Preferred
Stock then outstanding; provided that the number of shares of Common Stock so
reserved shall at no time be less than two hundred percent (200%) of the number
of shares of Common Stock for which the shares of Series B Preferred Stock are
at any time convertible. The initial number of shares of Common Stock reserved
for conversions of the Series B Preferred Stock and each increase in the number
of shares so reserved shall be allocated pro rata among the Holders based on the
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number of shares of Series B Preferred Stock held by each Holder at the time of
issuance of the Series B Preferred Stock or increase in the number of reserved
shares, as the case may be. In the event a Holder shall sell or otherwise
transfer any of such Holder's shares of Series B Preferred Stock, each
transferee shall be allocated a pro rata portion of the number of reserved
shares of Common Stock reserved for such transferor. Any shares of Common Stock
reserved and which remain allocated to any person or entity which does not hold
any shares of Series B Preferred Stock shall be allocated to the remaining
Holders, pro rata based on the number of shares of Series B Preferred Stock then
held by such Holder. The Company shall, from time to time in accordance with the
Delaware Law, as amended, increase the authorized number of shares of Common
Stock if at any time the unissued number of authorized shares shall not be
sufficient to satisfy the Company's obligations under this Section 5(k).
(l) Retirement of Series B Preferred Stock. Conversion of Series B
Preferred Stock shall be deemed to have been effected on the applicable
Voluntary Conversion Date or Mandatory Conversion Date, and such date is
referred to herein as the "Conversion Date". Upon conversion of only a portion
of the number of shares of Series B Preferred Stock represented by a certificate
surrendered for conversion, the Company shall issue and deliver to such Holder
at the expense of the Company, a new certificate covering the number of shares
of Series B Preferred Stock representing the unconverted portion of the
certificate so surrendered as required by Section 5(b)(ii).
(m) Regulatory Compliance. If any shares of Common Stock to be
reserved for the purpose of conversion of Series B Preferred Stock require
registration or listing with or approval of any governmental authority, stock
exchange or other regulatory body under any federal or state law or regulation
or otherwise before such shares may be validly issued or delivered upon
conversion, the Company shall, at its sole cost and expense, in good faith and
as expeditiously as possible, endeavor to secure such registration, listing or
approval, as the case may be.
6. No Preemptive Rights. Except as provided in Section 5 hereof and in
the Securities Purchase Agreement, no holder of the Series B Preferred Stock
shall be entitled to rights to subscribe for, purchase or receive any part of
any new or additional shares of any class, whether now or hereinafter
authorized, or of bonds or debentures, or other evidences of indebtedness
convertible into or exchangeable for shares of any class, but all such new or
additional shares of any class, or any bond, debentures or other evidences of
indebtedness convertible into or exchangeable for shares, may be issued and
disposed of by the Board of Directors on such terms and for such consideration
(to the extent permitted by law), and to such person or persons as the Board of
Directors in their absolute discretion may deem advisable.
7. Conversion Restrictions.
(a) Notwithstanding any other provision herein, the Company shall not
be obligated to issue any shares of Common Stock upon conversion of the Series B
Preferred Stock if the issuance of such shares of Common Stock would exceed that
number of shares of Common Stock which the Company may issue upon conversion of
the Series B Preferred Stock (the "Exchange Cap") without breaching the
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Company's obligations under the rules or regulations of the OTC Bulletin Board
or any Alternative Exchange, except that such limitation shall not apply in the
event that the Company (a) obtains the approval of its stockholders as required
by applicable rules of the OTC Bulletin Board or any Alternative Exchange, for
issuances of Common Stock in excess of such amount (the "Shareholder Approval")
or (b) obtains a written opinion from outside counsel to the Company that such
approval is not required, which opinion shall be reasonably satisfactory to the
holders of a majority of the shares of Series B Preferred Stock then
outstanding; provided, however, that notwithstanding anything herein to the
contrary, the Company, will issue such number of shares of Common Stock issuable
upon conversion of the Series B Preferred Stock at the then current Conversion
Price up to the Exchange Cap. If the conversion of any shares of Series B
Preferred Stock would result in the issuance of Common Stock which in the
aggregate would equal or exceed the Exchange Cap, the Company shall within
thirty (30) days of the such conversion request, (i) call a meeting of its
stockholders in order to seek the Shareholder Approval as may be required by the
applicable rules or regulations of the OTC Bulletin Board or the Alternative
Exchange, as applicable (the "Stockholders Meeting"), which Stockholders Meeting
shall take place within sixty (60) days of the conversion request and (ii) file
a proxy statement with the Securities and Exchange Commission. Until such
approval or written opinion is obtained, no Holder of Series B Convertible
Preferred Stock pursuant to the Securities Purchase Agreement shall be issued,
upon conversion of shares of Series B Preferred Stock, shares of Common Stock in
an amount greater than the product of (i) the Exchange Cap amount multiplied by
(ii) a fraction, the numerator of which is the number of shares of Series B
Preferred Stock issued to such Holder pursuant to the Securities Purchase
Agreement and the denominator of which is the aggregate amount of all the shares
of Series B Preferred Stock issued to the Holders pursuant to the Securities
Purchase Agreement (the "Cap Allocation Amount"). In the event that any Holder
shall convert all of such Holder's shares of Series B Preferred Stock into a
number of shares of Common Stock which, in the aggregate, is less than such
Holder's Cap Allocation Amount, then the difference between such Holder's Cap
Allocation Amount and the number of shares of Common Stock actually issued to
such Holder shall be allocated to the respective Cap Allocation Amounts of the
remaining Holders of Series B Preferred Stock on a pro rata basis in proportion
to the number of shares of Series B Preferred Stock then held by each such
Holder. If the Company obtains the Shareholder Approval, the Company shall be
obligated to issue upon conversion of the Series B Preferred Stock, in the
aggregate, shares of Common Stock in excess of the Exchange Cap. If the Company
fails to obtain the Shareholder Approval or call the Stockholder Meeting within
the time period set forth herein, any Holder may exercise its rights pursuant to
Section 9(a) hereof. Nothing in this Section 7(a) shall limit a Holder's right
to request conversion of its shares of Series B Preferred Stock or such Holder's
rights under Section 9 hereof.
(b) Notwithstanding anything to the contrary set forth in Section 5 of
this Certificate of Designation, at no time may a Holder convert shares of the
Series B Preferred Stock if the number of shares of Common Stock to be issued
pursuant to such conversion would exceed, when aggregated with all other shares
of Common Stock owned by such Holder at such time, the number of shares of
Common Stock which would result in such Holder owning more than 9.99% of all of
the Common Stock outstanding at such time; provided, however, that upon a Holder
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of Series B Preferred Stock providing the Company with seventy-five (75) days
notice (pursuant to Section 5(i) hereof) (the "Waiver Notice") that such Holder
would like to waive Section 7(b) of this Certificate of Designation with regard
to any or all shares of Common Stock issuable upon conversion of Series B
Preferred Stock, this Section 7(b) shall be of no force or effect with regard to
those shares of Series B Preferred Stock referenced in the Waiver Notice.
8. Redemption.
(a) Redemption Option Upon Major Transaction. In addition to all other
rights of the Holders contained herein, simultaneous with the occurrence of a
Major Transaction (as defined below), each Holder shall have the right, at such
Holder's option, to require the Company to redeem all or a portion of such
Holder's shares of Series B Preferred Stock at a price per share of Series B
Preferred Stock equal to the greater of (i) one hundred twenty five percent
(125%) of the Liquidation Preference Amount and (ii) the product of (A) the
Conversion Rate and (B) the Closing Bid Price of the Common Stock on the trading
date immediately preceding such Major Transaction (the "Major Transaction
Redemption Price").
(b) Redemption Option Upon Triggering Event. In addition to all other
rights of the holders of Series B Preferred Stock contained herein, after a
Triggering Event (as defined below), each Holder shall have the right, at such
Holder's option, to require the Company to redeem all or a portion of such
Holder's shares of Series B Preferred Stock at a price per share of Series B
Preferred Stock equal to the greater of (i) one hundred twenty five percent
(125%) of the Liquidation Preference Amount and (ii) the product of (A) the
Conversion Rate (as defined in Section 5(a)) at such time and (B) the Closing
Bid Price of the Common Stock calculated as of the date immediately preceding
such Triggering Event on which the exchange or market on which the Common Stock
is traded is open (the "Triggering Event Redemption Price" and, collectively
with the "Major Transaction Redemption Price," the "Redemption Price").
(c) "Major Transaction". A "Major Transaction" shall be deemed to have
occurred at such time as any of the following events:
(i) the consolidation, merger or other business combination of the
Company with or into another Person (other than (A) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company or (B) a consolidation, merger or other business
combination in which holders of the Company's voting power immediately prior to
the transaction continue after the transaction to hold, directly or indirectly,
the voting power of the surviving entity or entities necessary to elect a
majority of the members of the board of directors (or their equivalent if other
than a corporation) of such entity or entities).
(ii) the sale or transfer of all or substantially all of the
Company's assets; or
(iii) consummation of a purchase, tender or exchange offer made to
the holders of more than 30% of the outstanding shares of Common Stock.
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(d) "Triggering Event". A "Triggering Event" shall be deemed to have
occurred at such time as any of the following events:
(i) the failure of the Registration Statement to be declared
effective by the SEC on or prior to the date which is two hundred seventy (270)
days after the Closing Date;
(ii) while the Registration Statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of the Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the
Holder for sale of the Registrable Securities (as defined in the Registration
Rights Agreement) in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of ten
consecutive trading days, provided that the cause of such lapse or
unavailability is not due to factors solely within the control of such Holder;
(iii) the suspension from listing or the failure of the Common
Stock to be listed on the OTC Bulletin Board, the Nasdaq SmallCap Market, the
Nasdaq National Market, The New York Stock Exchange, Inc. or The American Stock
Exchange, Inc., as applicable, for a period of five (5) consecutive days;
(iv) the Company's notice to any Holder, including by way of
public announcement, at any time, of its inability to comply (including for any
of the reasons described in Section 9) or its intention not to comply with
proper requests for conversion of any Series B Preferred Stock into shares of
Common Stock;
(v) the Company's failure to comply with a Conversion Notice
tendered in accordance with the provisions of this Certificate of Designation
within ten (10) business days after the receipt by the Company of the Conversion
Notice and the Preferred Stock Certificates;
(vi) the Company's failure for any reason to pay in full the
amount of cash due pursuant to a "buy-in" within five (5) business days after
notice therefor is delivered hereunder or shall fail to pay all amounts owed on
account of a default within five (5) business days of the date due; or
(vii) the Company breaches any representation, warranty, covenant
or other term or condition of the Securities Purchase Agreement, the
Registration Rights Agreement, this Certificate of Designation or any other
agreement, document, certificate or other instrument delivered in connection
with the transactions contemplated thereby or hereby.
(e) 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 Company shall deliver written notice thereof via
facsimile and overnight courier ("Notice of Major Transaction") to each Holder.
At any time after receipt of a Notice of Major Transaction (or, in the event a
Notice of Major Transaction is not delivered at least ten (10) days prior to a
Major Transaction, at any time within ten (10) days prior to a Major
Transaction), any Holder of Series B Preferred Stock then outstanding may
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require the Company to redeem, effective immediately prior to the consummation
of such Major Transaction, all of the Holder's Series B Preferred Stock then
outstanding by delivering written notice thereof via facsimile and overnight
courier ("Notice of Redemption at Option of Buyer Upon Major Transaction") to
the Company, which Notice of Redemption at Option of Buyer Upon Major
Transaction shall indicate (i) the number of shares of Series B Preferred Stock
that such Holder is electing to redeem and (ii) the applicable Major Transaction
Redemption Price, as calculated pursuant to Section 8(a) above.
(f) Mechanics of Redemption at Option of Buyer Upon Triggering Event.
Within one (1) day after the occurrence of a Triggering Event, the Company shall
deliver written notice thereof via facsimile and overnight courier ("Notice of
Triggering Event") to each Holder. At any time after the earlier of a Holder's
receipt of a Notice of Triggering Event and such holder becoming aware of a
Triggering Event, any Holder of Series B Preferred Stock then outstanding may
require the Company to redeem all of the Series B Preferred Stock by delivering
written notice thereof via facsimile and overnight courier ("Notice of
Redemption at Option of Buyer Upon Triggering Event") to the Company, which
Notice of Redemption at Option of Buyer Upon Triggering Event shall indicate (i)
the number of shares of Series B Preferred Stock that such Holder is electing to
redeem and (ii) the applicable Triggering Event Redemption Price, as calculated
pursuant to Section 8(b) above.
(g) Payment of Redemption Price. Upon the Company's receipt of a
Notice(s) of Redemption at Option of Buyer Upon Triggering Event or a Notice(s)
of Redemption at Option of Buyer Upon Major Transaction from any Holder, the
Company shall immediately notify each Holder by facsimile of the Company's
receipt of such Notice(s) of Redemption at Option of Buyer Upon Triggering Event
or Notice(s) of Redemption at Option of Buyer Upon Major Transaction and each
Holder which has sent such a notice shall promptly submit to the Company such
Holder's Preferred Stock Certificates which such Holder has elected to have
redeemed. The Company shall deliver the applicable Triggering Event Redemption
Price, in the case of a redemption pursuant to Section 8(f), to such Holder
within five (5) business days after the Company's receipt of a Notice of
Redemption at Option of Buyer Upon Triggering Event and, in the case of a
redemption pursuant to Section 8(e), the Company shall deliver the applicable
Major Transaction Redemption Price immediately prior to the consummation of the
Major Transaction; provided that a Holder's Preferred Stock Certificates shall
have been so delivered to the Company; provided further that if the Company is
unable to redeem all of the Series B Preferred Stock to be redeemed, the Company
shall redeem an amount from each Holder of Series B Preferred Stock being
redeemed equal to such Holder's pro-rata amount (based on the number of shares
of Series B Preferred Stock held by such Holder relative to the number of shares
of Series B Preferred Stock outstanding) of all Series B Preferred Stock being
redeemed. If the Company shall fail to redeem all of the Series B Preferred
Stock submitted for redemption (other than pursuant to a dispute as to the
arithmetic calculation of the Redemption Price), in addition to any remedy such
Holder of Series B Preferred Stock may have under this Certificate of
Designation and the Securities Purchase Agreement, the applicable Redemption
Price payable in respect of such unredeemed Series B Preferred Stock shall bear
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interest at the rate of 2.0% per month (prorated for partial months) until paid
in full. Until the Company pays such unpaid applicable Redemption Price in full
to a Holder of shares of Series B Preferred Stock submitted for redemption, such
Holder shall have the option (the "Void Optional Redemption Option") to, in lieu
of redemption, require the Company to promptly return to such Holder(s) all of
the shares of Series B Preferred Stock that were submitted for redemption by
such Holder(s) under this Section 8 and for which the applicable Redemption
Price has not been paid, by sending written notice thereof to the Company via
facsimile (the "Void Optional Redemption Notice"). Upon the Company's receipt of
such Void Optional Redemption Notice(s) and prior to payment of the full
applicable Redemption Price to such 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 shares of Series B Preferred Stock submitted for redemption and
for which the applicable Redemption Price has not been paid, (ii) the Company
shall immediately return any Series B Preferred Stock submitted to the Company
by each Holder for redemption under this Section 8(g) and for which the
applicable Redemption Price has not been paid and (iii) the Fixed Conversion
Price of such returned shares of Series B Preferred Stock shall be adjusted to
the lesser of (A) the Fixed Conversion Price as in effect on the date on which
the Void Optional Redemption Notice(s) is delivered to the Company 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 Company and ending on the date on which the Void
Optional Redemption Notice(s) is delivered to the Company; provided that no
adjustment shall be made if such adjustment would result in an increase of the
Fixed Conversion Price then in effect. 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 Price, such dispute shall be resolved
pursuant to Section 5(b)(iii) above with the term "Closing Bid Price" being
substituted for the term "Average Share Price" and the term "Redemption Price"
being substituted for the term "Conversion Price". A Holder's delivery of a Void
Optional Redemption Notice and exercise of its rights following such notice
shall not effect the Company's obligations to make any payments which have
accrued prior to the date of such notice. Payments provided for in this Section
8 shall have priority to payments to other stockholders in connection with a
Major Transaction.
(h) Company's Redemption Option. (x) After the Company has actually
drawn down not less than $300,000 under the Common Stock Purchase Agreement by
and between the Company and Torneaux Ltd., dated as of June 2, 2000, as amended
through the date hereof (the "Equity Line"), the Company shall apply at least
one-half (1/2) of the proceeds of amounts subsequently drawn down by it under
the Equity Line toward the redemption of all of the outstanding Preferred Shares
(as defined in the Securities Purchase Agreement) until all of the Preferred
Shares have been redeemed.
(y) Subject to the foregoing, the Company may redeem all or a
portion of the Series B Preferred Stock outstanding upon two (2) trading days
prior written notice (the "Company's Redemption Notice") at a price per share of
Series B Preferred Stock equal to:
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(i) if redeemed within sixty (60) days from the Closing Date, at
105% of the Liquidation Preference Amount plus any accrued but unpaid dividends
(the "Company's Redemption Price");
(ii) if redeemed between and including the sixty-first (61st) day
and the one hundred twentieth (120th) day after the Closing Date, at 106% of the
Liquidation Preference Amount plus any accrued but unpaid dividends;
(iii) if redeemed between and including the one hundred
twenty-first (121st) day and the one hundred eightieth (180th) day from the
Closing Date, at 107% of the Liquidation Preference Amount plus any accrued but
unpaid dividends; and
(iv) if redeemed on or after the one hundred eighty-first (181st)
day from the Closing Date, at one hundred eleven percent (108%) of the
Liquidation Preference Amount plus any accrued but unpaid dividends (the
"Company's Redemption Price");
provided, that (i) if the Company's Redemption Notice is received after 180 days
after the Closing Date and (ii) a Holder has delivered a Conversion Notice to
the Company or delivers a Conversion Notice within twenty-four (24) of receipt
of the Company's Redemption Notice, up to fifty percent (50%) of the shares of
Series B Preferred Stock designated to be redeemed may be converted by such
holder; provided further that if during the period between delivery of the
Company's Redemption Notice and the Redemption Date a Holder shall become
entitled to deliver a Notice of Redemption at Option of Buyer Upon Major
Transaction or Notice of Redemption at Option of Buyer upon Triggering Event,
then the right of such holder shall take precedence over the previously
delivered Company Redemption Notice. The Company's Redemption Notice shall state
the date of redemption which date shall be the fifth (5th) trading day after the
Company has delivered the Company's Redemption Notice (the "Company's Redemption
Date"), the Company's Redemption Price and the number of shares to be redeemed
by the Company. The Company shall not send a Company's Redemption Notice unless
it has good and clear funds for a minimum of the amount it intends to redeem in
a bank account controlled by the Company; provided that if the redemption is
expected to be made contemporaneous with the closing of a public underwritten
offering of the Company, then the Company may not have good and clear funds in
the bank account at the time of the Company's Redemption Notice and may not send
any such Company's Redemption Notice earlier than the day immediately prior to
the date the public offering is priced. The Company shall deliver the Company's
Redemption Price to the counsel to the Purchasers (as defined in the Securities
Purchase Agreement) within five (5) trading days after the Company has delivered
the Company's Redemption Notice, provided, that if the Holder(s) deliver(s) a
Conversion Notice before the Company's Redemption Date, then the portion of the
Company's Redemption Price which would be paid to redeem the shares of Series B
Preferred Stock covered by such Conversion Notice shall be returned to the
Company upon delivery of the Common Stock issuable in connection with such
Conversion Notice to the Holder(s). On the Redemption Date, the counsel to the
Purchasers shall pay the Company's Redemption Price, subject to any adjustment
pursuant to the immediately preceding sentence, to the Holder(s) on a pro rata
basis, provided, however, that upon receipt by the counsel to the Purchasers of
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the Preferred Stock Certificates to be redeemed pursuant to this Section 8(h),
the counsel to the Purchasers shall, on the next business day following the date
of receipt by the counsel to the Purchasers of such Preferred Stock
Certificates, pay the Company's Redemption Price to the Holder(s) on a pro rata
basis. If the Company fails to pay the Company's Redemption Price by the sixth
(6th) trading day after the Company has delivered the Company's Redemption
Notice (or in the case of a public offering, the closing of the public
offering), the redemption will be declared null and void and the Company shall
lose its right to serve a Company's Redemption Notice in the future.
9. Inability to Fully Convert.
(a) Holder's Option if Company Cannot Fully Convert. If, upon the
Company's receipt of a Conversion Notice or on the Mandatory Conversion Date,
the Company cannot issue shares of Common Stock registered for resale under the
Registration Statement for any reason, including, without limitation, because
the Company (w) does not have a sufficient number of shares of Common Stock
authorized and available, (x) failed to call the Stockholder Meeting within the
time period set forth in Section 7 hereof, (y) is otherwise prohibited by
applicable law or by the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Company or its securities from issuing all of the Common Stock which is to
be issued to a Holder pursuant to a Conversion Notice or (z) fails to have a
sufficient number of shares of Common Stock registered for resale under the
Registration Statement, then the Company shall issue as many shares of Common
Stock as it is able to issue in accordance with such Holder's Conversion Notice
and pursuant to Section 5(b)(ii) above and, with respect to the unconverted
Series B Preferred Stock, the Holder, solely at such holder's option, can elect,
within five (5) business days after receipt of notice from the Company thereof
to:
(i) require the Company to redeem from such Holder those Series B
Preferred Stock for which the Company is unable to issue Common Stock in
accordance with such Holder's Conversion Notice ("Mandatory Redemption") at a
price per share equal to the Triggering Event Redemption Price as of such
Conversion Date (the "Mandatory Redemption Price");
(ii) if the Company's inability to fully convert Series B
Preferred Stock is pursuant to Section 9(a)(z) above, require the Company to
issue restricted shares of Common Stock in accordance with such Holder's
Conversion Notice and pursuant to Section 5(b)(ii) above; or
(iii) void its Conversion Notice and retain or have returned, as
the case may be, the shares of Series B Preferred Stock that were to be
converted pursuant to such Holder's Conversion Notice (provided that a Holder's
voiding its Conversion Notice shall not effect the Company's obligations to make
any payments which have accrued prior to the date of such notice).
(b) Mechanics of Fulfilling Holder's Election. The Company shall
immediately send via facsimile to a Holder, upon receipt of a facsimile copy of
a Conversion Notice from such Holder which cannot be fully satisfied as
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described in Section 9(a) above, a notice of the Company's inability to fully
satisfy such Holder's Conversion Notice (the "Inability to Fully Convert
Notice"). Such Inability to Fully Convert Notice shall indicate (i) the reason
why the Company is unable to fully satisfy such Holder's Conversion Notice, (ii)
the number of Series B Preferred Stock which cannot be converted and (iii) the
applicable Mandatory Redemption Price. Such Holder shall notify the Company of
its election pursuant to Section 9(a) above by delivering written notice via
facsimile to the Company ("Notice in Response to Inability to Convert").
(c) Payment of Redemption Price. If such Holder shall elect to have
its shares redeemed pursuant to Section 9(a)(i) above, the Company shall pay the
Mandatory Redemption Price in cash to such Holder within thirty (30) days of the
Company's receipt of the Holder's Notice in Response to Inability to Convert,
provided that prior to the Company's receipt of the Holder's Notice in Response
to Inability to Convert the Company has not delivered a notice to such Holder
stating, to the satisfaction of the Holder, that the event or condition
resulting in the Mandatory Redemption has been cured and all Conversion Shares
issuable to such Holder can and will be delivered to the Holder in accordance
with the terms of Section 2(g). If the Company shall fail to pay the applicable
Mandatory Redemption Price to such Holder on a timely basis as described in this
Section 9(c) (other than pursuant to a dispute as to the determination of the
arithmetic calculation of the Redemption Price), in addition to any remedy such
Holder may have under this Certificate of Designation and the Securities
Purchase Agreement, such unpaid amount shall bear interest at the rate of 2.0%
per month (prorated for partial months) until paid in full. Until the full
Mandatory Redemption Price is paid in full to such Holder, such Holder may (i)
void the Mandatory Redemption with respect to those Series B Preferred Stock for
which the full Mandatory Redemption Price has not been paid, (ii) receive back
such Series B Preferred Stock, and (iii) require that the Conversion Price of
such returned Series B Preferred Stock be adjusted to the lesser of (A) the
Conversion Price as in effect on the date on which the Holder voided the
Mandatory Redemption and (B) the lowest Closing Bid Price during the period
beginning on the Conversion Date and ending on the date the Holder voided the
Mandatory Redemption. Notwithstanding the foregoing, if the Company fails to pay
the applicable Mandatory Redemption Price within such thirty (30) days time
period due to a dispute as to the determination of the arithmetic calculation of
the Redemption Rate, such dispute shall be resolved pursuant to Section
5(b)(iii) above with the term "Redemption Price" being substituted for the term
"Conversion Price".
(d) Pro-rata Conversion and Redemption. In the event the Company
receives a Conversion Notice from more than one Holder on the same day and the
Company can convert and redeem some, but not all, of the Series B Preferred
Stock pursuant to this Section 9, the Company shall convert and redeem from each
Holder electing to have Series B Preferred Stock converted and redeemed at such
time an amount equal to such Holder's pro-rata amount (based on the number
shares of Series B Preferred Stock held by such Holder relative to the number
shares of Series B Preferred Stock outstanding) of all shares of Series B
Preferred Stock being converted and redeemed at such time.
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10. Vote to Change the Terms of or Issue Preferred Stock. 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 three-fourths (3/4) of the then
outstanding shares of Series B Preferred Stock, shall be required (a) for any
change to this Certificate of Designation or the Company's Certificate of
Incorporation which would amend, alter, change or repeal any of the powers,
designations, preferences and rights of the Series B Preferred Stock or (b) for
the issuance of shares of Series B Preferred Stock other than pursuant to the
Securities Purchase Agreement.
11. Lost or Stolen Certificates. Upon receipt by the Company of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing the shares of Series B Preferred
Stock, and, in the case of loss, theft or destruction, of any indemnification
undertaking by the Holder to the Company and, in the case of mutilation, upon
surrender and cancellation of the Preferred Stock Certificate(s), the Company
shall execute and deliver new preferred stock certificate(s) of like tenor and
date; provided, however, the Company shall not be obligated to re-issue
Preferred Stock Certificates if the Holder contemporaneously requests the
Company to convert such shares of Series B Preferred Stock into Common Stock.
12. Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Certificate of Designation
shall be cumulative and in addition to all other remedies available under this
Certificate of Designation, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a Holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designation. Amounts set forth or provided for herein with respect to payments,
conversion and the like (and the computation thereof) shall be the amounts to be
received by the Holder thereof and shall not, except as expressly provided
herein, be subject to any other obligation of the Company (or the performance
thereof). The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the holders of the Series B Preferred
Stock and that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach or threatened
breach, the Holders shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required.
13. Specific Shall Not Limit General; Construction. No specific provision
contained in this Certificate of Designation shall limit or modify any more
general provision contained herein. This Certificate of Designation shall be
deemed to be jointly drafted by the Company and all initial purchasers of the
Series B Preferred Stock and shall not be construed against any person as the
drafter hereof.
14. Failure or Indulgence Not Waiver. No failure or delay on the part of a
Holder in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.
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IN WITNESS WHEREOF, the undersigned has executed and subscribed this
Certificate and does affirm the foregoing as true this 22nd day of September,
2000.
DBS INDUSTRIES, INC.
By:_______________________________
Name: Fred W. Thompson
Title: CEO and President
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EXHIBIT I
DBS INDUSTRIES, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designation of the Relative Rights and
Preferences of the Series B Preferred Stock of DBS Industries, Inc. (the
"Certificate of Designation"). In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of Series B Preferred Stock, par value $.0004 per share (the
"Preferred Shares"), of DBS Industries, Inc., a Delaware corporation (the
"Company"), indicated below into shares of Common Stock, $.0004 par value (the
"Common Stock"), of the Company, by tendering the stock certificate(s)
representing the share(s) of Preferred Shares specified below as of the date
specified below.
Date of Conversion: ________________________________
Number of Preferred Shares to be converted: ________________________________
Stock certificate no(s). of Preferred Shares to be converted: _______________
The Common Stock have been sold pursuant to the Registration Statement (as
defined in the Registration Rights Agreement): YES ____ NO____
Please confirm the following information:
Conversion Price: ________________________________
Number of shares of Common Stock
to be issued: ________________________________
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to: ________________________________
Facsimile Number: ________________________________
Authorization: ________________________________
By: _________________________
Title: _________________________
Dated:
PRICES ATTACHED
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CERTIFICATE OF CORRECTION OF
CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND
PREFERENCES
OF THE
SERIES B CONVERTIBLE PREFERRED STOCK
OF
DBS INDUSTRIES, INC.
It is hereby certified that:
1. The name of the corporation is DBS Industries, Inc. (the
"Corporation").
2. The Certificate of Designation of the Relative Rights and
Preferences of the Series B Convertible Preferred Stock of the Corporation (the
"Certificate of Designation"), which was filed by the Secretary of State of
Delaware on September 25, 2000, is hereby corrected.
3. The inaccuracy to be corrected in the Certificate of
Designation is as follows:
In Section 5(a), the reference to the date of the
Series B Convertible Preferred Stock Purchase
Agreement should be October 6, 2000 instead of
September 25, 2000.
4. Section 5(a) of the Certificate of Designation should be
corrected to read as follows:
"(a) Right to Convert. At any time on or after one
hundred eighty (180) days from the Closing Date (as
such term is defined in the Series B Convertible
Preferred Stock Purchase Agreement dated as of
October 6, 2000 between the Company and the initial
holders of the Series B Preferred Stock (the
"Securities Purchase Agreement")), the Holder of any
such shares of Series B Preferred Stock may, at such
Holder's option, subject to the limitations set forth
in Section 7 herein, elect to convert (a "Voluntary
Conversion") all or any portion of the shares of
Series B Preferred Stock held by such person into a
number of fully paid and nonassessable shares of
Common Stock (the "Conversion Rate") equal to the
quotient of (i) the Liquidation Preference Amount of
the shares of Series B Preferred Stock being
converted divided by (ii) the Conversion Price (as
defined in Section 5(d)(iii) below) then in effect as
of the date of the delivery by such Holder of its
notice of election to convert; provided, however,
that a Holder may not convert more than 50% of the
Series B Preferred Stock originally purchased by such
person in any period of 30 consecutive calendar days,
cumulatively."
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IN WITNESS WHEREOF, the undersigned has executed and subscribed this
Certificate and does affirm the foregoing as true this 9th day October, 2000
DBS INDUSTRIES, INC.
By: ______________________
Name: Fred W. Thompson
Title: CEO and President
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