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AMENDED CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND
PREFERENCES
OF THE
SERIES L CONVERTIBLE PREFERRED STOCK
OF
ESYNCH CORPORATION
The undersigned, the Chief Executive Officer of eSynch Corporation, a
Delaware corporation (the "Company"), in accordance with the provisions of the
Delaware General Corporation Law, does hereby certify that, pursuant to the
authority conferred upon the Board of Directors by the Certificate of
Incorporation of the Company, the following resolution creating a series of
Series L Convertible Preferred Stock, was duly adopted on September 20, 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 (the "Certificate of
Incorporation"), there hereby is created out of the shares of Preferred Stock,
par value $.001 per share, of the Company authorized in Article IV of the
Certificate of Incorporation (the "Preferred Stock,"), a series of Preferred
Stock of the Company, to be named "Series L Convertible Preferred Stock,"
consisting of Two Hundred Ten (210) 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 L Convertible Preferred Stock, par value
$.001 per share (the "Series L Preferred Stock"). The maximum number of shares
of Series L Preferred Stock shall be Two Hundred Ten (210) Shares. The Series L
Preferred Stock shall rank (i) prior to the common stock, par value $.001 per
share (the "Common Stock"), and to all other classes and series of equity
securities of the Company which by its terms does not rank senior to the Series
L Preferred Stock ("Junior Stock"), (ii) on parity with the Series J Convertible
Preferred Stock, the Series K Convertible Preferred Stock and with any class and
series of equity securities which by its terms shall rank on parity with the
Series L Preferred Stock, and (iii) junior to any class or series of equity
securities which by its terms shall rank senior to the Series L Preferred Stock.
The Series L 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 L Preferred Stock shall be entitled to receive, out of any assets at the
time legally available therefor and when and as declared by the Board of
Directors, dividends at the rate of five percent (5%) of the stated Liquidation
Preference Amount (as defined below) per share per annum (the
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"Dividend Payment"), and no more, payable at the option of the Company in cash
or in shares of Common Stock in an amount equal to the quotient of (i) the
Dividend Payment divided by (ii) the Conversion Price (as defined in Section
5(d) below). In the case of shares of Series L 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 L
Preferred Stock shall be cumulative, shall accrue and be payable only at
conversion of the Series L Preferred Stock into shares of Common Stock and shall
accrue until the Mandatory Conversion Date (as defined in Section 5(c)(ii)
without regard to Section 5(c)(ii)(x)(A)). Dividends on the Series L 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 L Preferred
Stock as to the payment of dividends. Such dividends shall accrue on each share
of Series L 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 L 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 L 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 L Preferred Stock as to the payment of dividends.
(b) So long as any shares of Series L 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 L Preferred Stock.
(c) In the event of a dissolution, liquidation or winding up
of the Company pursuant to Section 4, all accrued and unpaid dividends on the
Series L Preferred Stock shall be payable on the day immediately preceding the
date of payment of the preferential amount to the holders of Series L Preferred
Stock. In the event of (i) a mandatory redemption pursuant to Section 9 or (ii)
a redemption upon the occurrence of a Major Transaction (as defined in Section
8(c)) or a Triggering Event (as defined in Section 8(d)) or at the election of
the Company pursuant to Section 8(h), all accrued and unpaid dividends on the
Series L 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), all accrued and unpaid dividends on the Series L Preferred Stock
being converted shall be payable on the day immediately preceding the Voluntary
Conversion Date (as defined in Section 5(b)(i)) and in the event of a mandatory
conversion pursuant to Section 5(c), all accrued and unpaid dividends on the
Series L Preferred Stock being converted shall be payable on the day immediately
preceding the Mandatory Conversion Date (as defined in Section 5(c)(ii)).
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(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
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 L 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 L 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 L 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 L
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 L
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 L Preferred Stock, whether by merger, consolidation or otherwise, so as
to adversely affect any right, preference, privilege or voting power of the
Series L 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 L 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 L 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 L 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 L Preferred Stock shall have no voting rights. The
Common Stock into which the Series L Preferred Stock is convertible shall, upon
issuance, have all of the same voting rights as other issued and outstanding
Common Stock of the Company.
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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 L 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 $10,000 per share (the
"Liquidation Preference Amount") of the Series L 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 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 L 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 L Preferred Stock, then
all of said assets will be distributed among the holders of the Series L
Preferred Stock and the other classes of stock on a parity with the Series L
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 L Preferred Stock shall be equal to a ratably proportionate amount of
the liquidation payment with respect to each outstanding share of Series L
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) 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 L 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 L 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 L 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
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L Preferred Stock at their respective addresses as the same shall appear on
the books of the Company.
5. CONVERSION. The holder of Series L Preferred Stock shall have the
following conversion rights (the "Conversion Rights"):
(a) RIGHT TO CONVERT. At any time on or after the earlier of
(i) ninety (90) days from the Final Closing Date (as such term is defined in the
Series L Convertible Preferred Stock Purchase Agreement dated as of September
26, 2000 between the Company and the initial holders of the Series L Preferred
Stock (the "Securities Purchase Agreement")) or (ii) the effective date of the
Registration Statement (as such term is defined in the Registration Rights
Agreement dated as of September 26, 2000 by and among the Company and the
initial holders of the Series L Preferred Stock (the "Registration Rights
Agreement")), the holder of any such shares of Series L 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 L 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 L
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.
(b) MECHANICS OF VOLUNTARY CONVERSION. The Voluntary
Conversion of Series L Preferred Stock shall be conducted in the following
manner:
(i) HOLDER'S DELIVERY REQUIREMENTS. To convert Series
L 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 six (6) business days
after such date the original certificates representing the shares of Series L
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 six (6) 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
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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 L Preferred Stock being
converted, then the Company shall, as soon as practicable and in no event
later than six (6) 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
L 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 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 mutually
acceptable to the Company and applicable holder or (B) the disputed arithmetic
calculation of the number of shares of Common Stock to be issued upon such
conversion to the Company's independent, outside accountant. 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 L
Preferred Stock shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on the Conversion Date.
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(v) COMPANY'S FAILURE TO TIMELY CONVERT. If within
six (6) 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 L Preferred Stock or to issue a new Preferred Stock Certificate
representing the number of shares of Series L 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 thereof), the Company shall pay additional damages to such holder on
each business day after such sixth (6th) business day that such conversion is
not timely effected in an amount equal 0.5% 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 number of shares of
Common Stock issuable upon conversion of the shares of Series L 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 2% per month (pro rated for partial
months) until such payments are made.
(c) MANDATORY CONVERSION.
(i) Subject to the Exchange Cap (as defined in
Section 7 hereof), each share of Series L 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 L 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 Final Closing Date,
PROVIDED that the Mandatory Conversion Date shall be extended for the
following periods for any shares of Series L 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 Final Closing Date and (z)
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one day for each day 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 L 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 L Preferred Stock unless certificates
evidencing such shares of Series L 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 L
Preferred Stock pursuant to this Section 5, the holders of the Series L
Preferred Stock shall surrender the Preferred Stock Certificates representing
the Series L 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
$3.75.
(iii) The term "Conversion Price" shall mean, with
respect to any conversion of Series L Preferred Stock, the lesser of (A) the
Fixed Conversion Price, or (B) 100% of the "Floating Conversion Price" where
"Floating Conversion Price" shall mean 90% of the Average Share Price on the
Voluntary Conversion Date or Mandatory Conversion Date for such conversion, as
applicable.
(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,
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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 L Preferred Stock.
If the Company and the holders of Series L 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 L 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.
(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
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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 L 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 L
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 L Preferred Stock.
(iv) ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE OR
SUBSTITUTION. If the Common Stock issuable upon conversion of the Series L
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 L Preferred Stock shall have the
right thereafter to convert such share of Series L 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 L 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 L Preferred Stock shall have the right
thereafter to convert such share of Series L 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 L
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
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upon conversion of the Series L 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 less than the Closing Bid Price then in
effect (the "Per Share Market Value") 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 greater of the Per Share
Market Value then in effect and 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,
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directly or indirectly, Common Stock ("Convertible Securities"), other than
the Series L 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
pursuant to such Common Stock Equivalent shall be less than the applicable
Conversion Price then in effect or less than the Per Share Market Value 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 or less than the Per Share Market Value
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). If no
adjustment is required under this subsection (vii) upon issuance of any
Common Stock Equivalent or once an adjustment is made under this subsection
(vii) based upon the Per Share Market Value in effect on the date of such
adjustment, no further adjustment shall be made under this subsection (vii)
based solely upon a change in the Per Share Market Value after such date.
(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 L
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
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(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 such calculation results in adjustment of the applicable
Conversion Price, or the number of shares of Common Stock issuable upon
conversion of the Series L Preferred Stock, the determination of the applicable
Conversion Price or the number of shares of Common Stock issuable upon
conversion of the Series L 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 L
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 Conversion Price or the number of shares of Common Stock
issuable upon conversion of the Series L 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 L Preferred Stock against impairment. In the event a holder shall elect
to convert any shares of Series L 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 L 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 L Preferred Stock sought to be converted, which
bond shall
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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 L 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 L 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 L 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
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 L 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 L 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 of Series L Preferred Stock 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 of Series L
Preferred Stock 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 L 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
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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. The Company shall, so long as
any shares of Series L 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 L 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 L Preferred Stock then outstanding; PROVIDED
that the number of shares of Common Stock so reserved shall at no time be less
than 200% of the number of shares of Common Stock for which the shares of Series
L Preferred Stock are at any time convertible. The initial number of shares of
Common Stock reserved for conversions of the Series L Preferred Stock and each
increase in the number of shares so reserved shall be allocated pro rata among
the holders of the Series L Preferred Stock based on the number of shares of
Series L Preferred Stock held by each holder at the time of issuance of the
Series L 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 L 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 L Preferred
Stock shall be allocated to the remaining holders of Series L Preferred Stock,
pro rata based on the number of shares of Series L Preferred Stock then held by
such holder. The Company shall, from time to time in accordance with the
Delaware General Corporation 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 L PREFERRED STOCK. Conversion of
Series L 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 L 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 L 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 L 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.
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6. NO PREEMPTIVE RIGHTS. Except as provided in Section 5 hereof and in
the Securities Purchase Agreement, no holder of the Series L 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 L 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 L Preferred Stock (the "Exchange Cap")
without breaching the Company's obligations under the rules or regulations of
The Nasdaq Stock Market, Inc. 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 Nasdaq
Stock Market, Inc. 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 L 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 L Preferred Stock at the then current Conversion
Price up to the Exchange Cap. If the conversion of any shares of Series L
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 such conversion request, (i) call a meeting of its
stockholders in order to seek the Shareholder Approval as required by the
applicable rules or regulations of Nasdaq 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 L Convertible
Preferred Stock pursuant to the Securities Purchase Agreement shall be
issued, upon conversion of shares of Series L 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 L 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 L Preferred Stock issued to the holders
pursuant to the Securities Purchase Agreement (the "Cap Allocation Amount").
In the event that any holder of Series L Preferred Stock shall convert all of
such holder's shares of Series L Preferred Stock into a number of shares of
Common Stock which, in the aggregate, is
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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 L Preferred Stock on a
pro rata basis in proportion to the number of shares of Series L 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 L 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 of Series L Preferred Stock 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 L 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 of
shares of Series L Preferred Stock convert shares of the Series L 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 of
Series L 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 L Preferred Stock, this Section 7(b) shall be of no force or effect
with regard to those shares of Series L Preferred Stock referenced in the
Waiver Notice.
8. REDEMPTION.
(a) REDEMPTION OPTION UPON MAJOR TRANSACTION. In addition to
all other rights of the holders of Series L Preferred Stock contained herein,
simultaneous with the occurrence of a Major Transaction (as defined below), each
holder of Series L Preferred Stock 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 L Preferred Stock at a price per share of Series L Preferred
Stock equal to the greater of (i) 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 L Preferred Stock contained herein,
after a Triggering Event (as defined below), each holder of Series L Preferred
Stock 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 L Preferred Stock at a
price per share of Series L Preferred Stock equal to the greater of (i) 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
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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.
(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 120 days after
the Final 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 of the Series L Preferred Stock 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 of Series L Preferred Stock;
(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;
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(iv) the Company's notice to any holder of Series L
Preferred Stock, 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 L
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; or
(vi) 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, except to the
extent that such breach would not have a Material Adverse Effect (as defined in
Section 2.1(e) of the Securities Purchase Agreement) and except, in the case of
a breach of a covenant which is curable, only if such breach continues for a
period of a least ten (10) days.
(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 of Series L Preferred Stock. 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 L
Preferred Stock then outstanding may require the Company to redeem, effective
immediately prior to the consummation of such Major Transaction, all of the
holder's Series L 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 L 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 of Series L Preferred Stock. 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 L
Preferred Stock then outstanding may require the Company to redeem all of the
Series L 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
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Series L 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 of Series L Preferred Stock, the Company shall immediately notify each
holder of Series L Preferred Stock 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 L Preferred Stock to be redeemed, the Company shall redeem an amount from
each holder of Series L Preferred Stock being redeemed equal to such holder's
pro-rata amount (based on the number of shares of Series L Preferred Stock held
by such holder relative to the number of shares of Series L Preferred Stock
outstanding) of all Series L Preferred Stock being redeemed. If the Company
shall fail to redeem all of the Series L 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 L
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 L Preferred Stock shall bear 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 L 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 L 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 L Preferred Stock submitted for redemption and for
which the applicable Redemption Price has not been paid, (ii) the Company shall
immediately return any Series L 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 L Preferred Stock shall be adjusted to the lesser of
(A) the Fixed Conversion Price as in effect on
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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. The Company may redeem all or
a portion of the Series L Preferred Stock outstanding upon five (5) days prior
written notice (the "Company's Redemption Notice") at a price per share of
Series L Preferred Stock equal to:
(i) if redeemed within sixty (60) days from the Final
Closing Date, at 105% of the Liquidation Preference Amount plus any accrued but
unpaid dividends;
(ii) if redeemed between and including the
sixty-first (61st) day and the one hundred twentieth (120th) day after the Final
Closing Date, at 107% 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 Final Closing Date, at 109% 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 Final Closing Date, at 111% of the Liquidation
Preference Amount plus any accrued but unpaid dividends (the "Company's
Redemption Price");
PROVIDED, that if a holder has delivered a Conversion Notice to the Company or
delivers a Conversion Notice within twenty-four (24) hours of receipt of the
Company's Redemption Notice, up to fifty percent (50%) of the shares of Series L
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
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Redemption Notice shall state the date of redemption which date shall be the
sixth (6th) 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 Escrow Agent (as defined in the Securities
Purchase Agreement) within five (5) business days after the Company has
delivered the Company's Redemption Notice, PROVIDED, that if the holder(s)
delivers 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 L 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 Escrow Agent 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
Escrow Agent of the Preferred Stock Certificates to be redeemed pursuant to
this Section 8(h), the Escrow Agent shall, on the next business day following
the date of receipt by the Escrow Agent 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)
business 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 of Series L Preferred Stock
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 L
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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 L 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 L 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;
(iii) void its Conversion Notice and retain or have
returned, as the case may be, the shares of Series L 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 of Series L Preferred Stock,
upon receipt of a facsimile copy of a Conversion Notice from such holder which
cannot be fully satisfied as 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 L 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 of Series L Preferred Stock 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
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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 L Preferred Stock for which the full
Mandatory Redemption Price has not been paid, (ii) receive back such Series L
Preferred Stock, and (iii) require that the Fixed Conversion Price of such
returned Series L Preferred Stock be adjusted to the lesser of (A) the Fixed
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 of Series L
Preferred Stock on the same day and the Company can convert and redeem some, but
not all, of the Series L Preferred Stock pursuant to this Section 9, the Company
shall convert and redeem from each holder of Series L Convertible Preferred
Stock electing to have Series L 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 L Preferred Stock held by such holder relative to the number
shares of Series L Preferred Stock outstanding) of all shares of Series L
Preferred Stock being converted and redeemed at such time.
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 L 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 L Preferred Stock
or (b) for the issuance of shares of Series L 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
L 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 L
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
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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 L 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 of the Series L Preferred Stock 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 L 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 of Series L Preferred Stock 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 26th day of September,
2000.
ESYNCH CORPORATION
By: /s/ Thomas Hemingway
---------------------------------------
Name: Thomas Hemingway
Title: Chief Executive Officer
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EXHIBIT I
ESYNCH CORPORATION
CONVERSION NOTICE
Reference is made to the Certificate of Designation of the Relative Rights
and Preferences of the Series L Preferred Stock of eSynch Corporation (the
"Certificate of Designations"). In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the
number of shares of Series L Preferred Stock, par value $.001 per share (the
"Preferred Shares"), of eSynch Corporation, a Delaware corporation (the
"Company"), indicated below into shares of Common Stock, par value $.001 per
share (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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