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Exhibit 3.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF THE
6.5% CUMULATIVE PREFERRED STOCK SERIES D
STATED VALUE $100.00 PER SHARE OF
DAMARK INTERNATIONAL, INC.
DAMARK International, Inc., a corporation organized and
existing under the laws of the state of Minnesota (the "COMPANY"), does hereby
certify as follows, pursuant to Section 302A.401 of the Minnesota Business
Corporation Act:
1. Pursuant to the authority vested in the Board of
Directors of the Company (the "BOARD") by Article IV of the Restated Articles of
Incorporation of the Company, the Board, at a meeting duly convened and held on
the 28th day of September, 2000, adopted the resolution (the "RESOLUTION")
attached hereto as Exhibit 1, creating a series consisting of 200,000 shares of
its preferred stock, with a par value of $.01 per share, designated as 6.5%
Cumulative Convertible Preferred Stock, Series D.
2. The Resolution and the creation and authorization
thereby of the 6.5% Cumulative Convertible Preferred Stock, Series D, was duly
adopted by the Board pursuant to its authority as aforesaid and in accordance
with the Minnesota Business Corporation Act and has not been amended, modified,
rescinded or superseded and remains in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be executed, delivered and filed this 29th day of September,
2000.
DAMARK INTERNATIONAL, INC.
By:____________________________________
Mark A. Cohn
Chairman and Chief Executive Officer
ATTEST:
_______________________________________
Stephen P. Letak, Secretary
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EXHIBIT 1
RESOLVED, that pursuant to the authority vested in the Board
of Directors in accordance with the provisions of the Company's Restated
Articles of Incorporation, the Board hereby authorizes the designation and
issuance of up to 200,000 shares of a new series of preferred stock entitled
6.5% Cumulative Convertible Preferred Stock, Series D (the "SERIES D PREFERRED
SHARES") with terms substantially as attached hereto as Exhibit A, and, pursuant
thereto, the Board hereby (a) authorizes the adoption and filing of a
Certificate of Designations of 6.5% Cumulative Convertible Preferred Stock,
Series D with terms substantially as attached hereto and with such final terms
as may be approved by the Chairman of the Board, and (b) authorizes and directs
that the Company initially reserve and keep available out of its authorized
Common Stock 5,250,000 shares of Common Stock that may be deliverable upon
conversion of all outstanding shares of the Series D Preferred Shares, upon
exercise of the related warrants and upon payment of dividends in Common Stock
on the Series D Preferred Shares.
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EXHIBIT A
(1) DESIGNATION. The series of preferred stock established hereby
shall be designated the "6.5% Cumulative Convertible Preferred Stock, Series D"
(and shall be referred to herein as the "SERIES D PREFERRED SHARES") and the
authorized number of Series D Preferred Shares, par value $.01 per share, shall
be 200,000. The stated value per share shall be $100.00 (the "STATED VALUE").
(2) CONVERSION OF SERIES D PREFERRED SHARES. A holder of Series D
Preferred Shares (collectively, the "HOLDERS" and each a "HOLDER") shall have
the right, at such holder's option, to convert the Series D Preferred Shares
into shares of the Company's common stock, par value $.01 per share (the "COMMON
STOCK"), on the following terms and conditions:
(a) CONVERSION RIGHT. Subject to the provisions of
Section 2(f) below, each Series D Preferred Share shall be convertible at the
option of the Holder thereof, at any time or from time to time on or after the
initial date of issuance of the Series D Preferred Shares (the "INITIAL ISSUANCE
DATE") into fully paid, validly issued and nonassessable shares (rounded to the
nearest whole share in accordance with Section 2(g) below) of Common Stock, at
the Conversion Rate (as defined below). In no event shall the Company honor any
request by any Holder to convert Series D Preferred Shares in excess of that
number of Series D Preferred Shares which, upon giving effect to such
conversion, would cause the aggregate number of shares of Common Stock
beneficially owned by the Holder and its affiliates to exceed 4.99% of the
outstanding shares of the Common Stock following such conversion (the Blocker
Provision), PROVIDED, HOWEVER, that a Holder may elect to waive this restriction
upon not less than sixty-one (61) days prior written notice to the Company;
PROVIDED FURTHER that this restriction shall not preclude the Company from
issuing shares in connection with the Mandatory Redemption Date (as defined
herein). For purposes of this paragraph "beneficial ownership" shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended.
(b) CONVERSION RATE. The number of shares of Common Stock
issuable upon conversion of each of the Series D Preferred Shares pursuant to
Sections (2)(a) and 2(f) shall be determined in accordance with the following
formula (the "CONVERSION RATE"):
Stated Value + all accrued and unpaid dividends
------------------------------------------------------------------------
Conversion Price
For purposes of this Certificate of Designations, the following terms
shall have the following meanings:
(i) "ADDITIONAL SHARES OF COMMON STOCK" shall
mean, all shares (including treasury shares) of Common Stock issued or sold (or,
pursuant to Section (2)(d)(ii) or (2)(d)(iv), deemed to be issued) by the
Company after the Initial Issuance Date, whether or not subsequently reacquired
or retired by the Company other
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than (a) (i) shares of Common Stock issued upon conversion of the Series D
Preferred Shares, (ii) shares of Common Stock issued upon exercise of the
Warrants, or (iii) such number of additional shares of Common Stock as may
become issuable by conversion of the Series D Preferred Shares and exercise of
the Warrants by reason of adjustments required pursuant to the anti-dilution
provisions applicable to such Warrants or Series D Preferred Shares as in effect
on the date hereof; and (b) (i) shares of Common Stock issued pursuant to
Approved Stock Plans (as defined herein), (ii) Dividend Shares (as defined
herein), (iii) shares of Common Stock issued pursuant to any right to purchase
such shares in existence as of August 31, 2000 and set forth on Schedule 3(c) to
the Purchase Agreement (the "EXISTING OPTIONS"); and (iv) shares of Common Stock
issued in connection with a Strategic Financing;
(ii) "ANNIVERSARY DATE" means September 29th of
each calendar year;
(iii) "APPROVED STOCK PLAN" means any contract,
plan or agreement which has been or shall be approved by the Board of Directors
of the Company (the "BOARD"), pursuant to which the Company's securities may be
issued after the Initial Issuance Date to any employee, officer, director,
consultant or other service provider of the Company in an aggregate amount that
does not exceed 1,500,000 shares of the Common Stock (subject to appropriate
adjustment for any stock dividends, any subdivsion or combination, or other
reorganization of the outstanding shares of Common Stock);
(iv) "AVERAGE MARKET PRICE" shall mean the
average of the Closing Bid Prices of the Common Stock for the ten (10) trading
days immediately preceding the applicable date;
(vi) "CLOSING BID PRICES" shall mean for any
security as of any date, the closing bid price of such security on the principal
securities exchange or trade market where such security is listed or traded as
reported by Bloomberg, L.P. ("BLOOMBERG"), or if the foregoing does not apply,
the closing bid price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
closing bid 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, as set forth above, the Closing
Bid Price of such security shall be the fair market value as determined in good
faith by an investment banking firm selected jointly by the Company and the
Holders, with the fees and expenses of such determination borne solely by the
Company;
(vii) "CONVERSION PRICE" means $12.94, subject to
adjustment as provided herein;
(viii) "PURCHASE AGREEMENT" means the securities
purchase agreement dated as of September 29, 2000 by and among the Company and
the Buyers signatory thereto;
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(ix) "STRATEGIC FINANCING" shall mean any future
equity financing whereby Common Stock or Convertible Securities are issued for
consideration other than cash or cash equivalents (e.g., notes) to any person or
entity which has or is proposed to have a material business, technology or
commercial relationship with the Company in addition to any equity financing
provided by such person or entity and it is determined by the Board of Directors
of the Company that such equity financing will result in or further develop a
material business, technology or commercial relationship with the Company;
PROVIDED, HOWEVER, that the aggregate number of shares of Common Stock
(including Convertible Securities and Options on a fully diluted) that may be
issued pursuant to Strategic Financings may not exceed 750,000 shares.
(x) "WARRANTS" shall mean the common stock
purchase warrants (and any such warrants issued in substitution therefor)
originally issued pursuant to the terms of the Purchase Agreement.
(c) EFFECT OF FAILURE TO OBTAIN AND MAINTAIN
EFFECTIVENESS OF REGISTRATION STATEMENT. (i) If the registration statement (the
"REGISTRATION STATEMENT") covering the resale of the shares of Common Stock
issuable upon conversion of the Series D Preferred Shares and required to be
filed by the Company pursuant to the Registration Rights Agreement between the
Company and the initial Holders of the Series D Preferred Shares (the
"REGISTRATION RIGHTS AGREEMENT") is not declared effective by the United States
Securities and Exchange Commission or any successor entity thereto (the "SEC")
on or before the 105th calendar day following the Initial Issuance Date (the
"SCHEDULED EFFECTIVE DATE"), then for each consecutive thirty (30) day period
following the Scheduled Effective Date, each Holder of Series D Preferred Shares
shall, until such time as the Registration Statement is declared effective by
the SEC (all such payments to be made in cash on the first day of each thirty
(30) day period (refundable pro rata for partial months)), be entitled to an
amount equal to the product of (A) one percent multiplied by (B) the Stated
Value plus all accrued and unpaid dividends thereon, multiplied by (C) the
number of Series D Preferred Shares held by such Holder.
(ii) If the Registration Statement shall not have
been declared effective by the 180th day following the Scheduled Effective Date,
the Company shall be required, at the option of the Holders, to redeem the
Series D Preferred Shares in accordance with Section 3(a) and in connection
therewith the Company shall pay the Holders who so elect, a price per Series D
Preferred Share equal to the Triggering Event Redemption Price (as defined in
Section 3(a)(ii)).
(d) ADJUSTMENT TO CONVERSION PRICE AND THE CLOSING BID
PRICES -- DILUTION AND OTHER EVENTS. In order to prevent dilution of the rights
granted under this Certificate of Designations, the Conversion Price and the
Closing Bid Prices for any days during any measuring period prior to any of the
events set forth below (the "ADJUSTING CLOSING BID PRICES") will be subject to
adjustment from time to time as provided in this Section 2(d). Notwithstanding
anything contained herein to the contrary, the issuance of Common Stock pursuant
to the Existing Options or any Approved Stock Plan shall not give rise to any
adjustment under this Section 2(d). Any such adjustments to the Conversion Price
and the Adjusting Closing Bid Prices will be applicable to Series D Preferred
Shares not yet converted or redeemed.
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(i) DIVIDENDS AND DISTRIBUTIONS. If the Company
shall declare or pay to the holders of the Common Stock a dividend or other
distribution payable in shares of Common Stock or any other security convertible
into or exchangeable for shares of Common Stock, each Holder shall be entitled
to receive the number of shares of Common Stock or other securities convertible
into or exchangeable for shares of Common Stock, as applicable, which such
Holder would have owned or been entitled to receive after the declaration and
payment of such dividend or other distribution as if the Series D Preferred
Shares then held by such Holder had been converted at the Conversion Price in
effect immediately prior to the record date for the determination of
stockholders entitled to receive such dividend or other distribution; PROVIDED,
HOWEVER, that the foregoing adjustment shall not apply to the ClickShip
Distribution and there shall be no adjustments resulting from the ClickShip
Distribution under this Section 2(d).
(ii) STOCK SPLITS AND COMBINATIONS. If the
Company shall subdivide (by means of any stock split, stock dividend,
recapitalization or otherwise) the outstanding shares of Common Stock into a
greater number of shares of Common Stock, or combine (by means of any
combination, reverse stock split or otherwise) the outstanding shares of Common
Stock into a lesser number of shares, or issue by reclassification of shares of
Common Stock any shares of the Company, the Conversion Price and the Adjusting
Closing Bid Prices, each in effect immediately prior thereto shall be adjusted
so that each Holder shall receive the number of shares of Common Stock which
such Holder would have owned or been entitled to receive after the happening of
any and each of the events described above if such Holder had converted the
Series D Preferred Shares held by such Holder immediately prior to the happening
of each such event on the day upon which such subdivision or combination, as the
case may be, becomes effective. Additional Shares of Common Stock deemed to have
been issued pursuant to this Section 2(d)(ii) shall be deemed to have been
issued for no consideration.
(iii) ORGANIC CHANGES. Any recapitalization,
reorganization, reclassification, consolidation, merger, sale of all or
substantially all of the Company's assets (in one or a series of related
transactions) to another Person (as defined below) or other transaction which is
effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for Common Stock is referred to herein as an
"ORGANIC CHANGE". In case the Company shall effect an Organic Change, then the
Holder shall be given a written notice from the Company informing such Holder of
the terms of such Organic Change and of the record date thereof for any
distribution pursuant thereto, at least twenty (20) days in advance of such
record date, and, if such record date shall precede the Mandatory Redemption
Date, each Holder shall have the right thereafter to receive, upon conversion of
the Series D Preferred Shares, the number of shares of stock or other
securities, property or assets of the Company, or of its successor or transferee
or any affiliate thereof, or cash receivable upon or as a result of such Organic
Change that would have been received by a holder of the number of shares of
Common Stock equal to the number of shares each Holder would have received had
such Holder converted its Series D Preferred Shares prior to such event at the
Conversion Price in effect immediately prior to such event unless the Organic
Change is a Major Transaction (as defined in Section 3(b) below) and the
outstanding Series D Preferred Shares are
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redeemed as provided in Section 3(b). In any such case, the Company will make
appropriate provision (in form and substance reasonably satisfactory to the
Holders of a majority of the Series D Preferred Shares then outstanding) to
insure that the provisions of this Section 2(d)(iii) will thereafter be
applicable to the Series D Preferred Shares (including, in the case of any such
Organic Change in which the successor entity or purchasing entity is other than
the Company, an immediate adjustment of the Conversion Price to the value for
the Common Stock reflected by the terms of such Organic Change, if the value so
reflected is less than the Conversion Price in effect immediately prior to such
Organic Change) unless the Organic Change is a Major Transaction (as defined in
Section 3(b) below) and the outstanding Series D Preferred Shares are redeemed
as provided in Section 3(b). The Company will not effect any such Organic Change
unless prior to the consummation thereof the successor entity (if other than the
Company) resulting from such Organic Change assumes, by written instrument (in
form and substance satisfactory to the Holders of a majority of the Series D
Preferred Shares then outstanding), the obligation to deliver to each Holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such Holder may be entitled to acquire or receive. The provisions of
this subparagraph (iii) shall similarly apply to successive Organic Changes.
"PERSON" means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
(iv) ADJUSTMENT UPON ISSUANCE OF OPTIONS AND
CONVERTIBLE SECURITIES. If the Company at any time or from time to time after
the date hereof shall issue, sell, grant or assume, or shall fix a record date
for the determination of holders of any class of securities of the Company
entitled to receive, any rights or options to subscribe for, purchase or
otherwise acquire Additional Shares of Common Stock or any stock or other
securities convertible into or exchangeable for Additional Shares of Common
Stock (such rights or options being herein called "OPTIONS" and such convertible
or exchangeable stock or securities being herein called "CONVERTIBLE
SECURITIES") (whether or not the rights thereunder are immediately exercisable)
and the price per share for which Common Stock is issuable upon the exercise of
such Options or upon conversion or exchange of such Convertible Securities (the
"NEW OPTION ISSUANCE PRICE") is less than the Average Market Price immediately
prior to such time, then, and in each such case, the maximum number of
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares of
Common Stock issued as of the time of such issue, sale, grant or assumption or,
in case such a record date shall have been fixed, as of the close of business on
such record date (or, if the Common Stock trades on an ex-dividend basis, on the
date prior to the commencement of ex-dividend trading).
For purposes of this Section 2(d)(iv), the
New Option Issuance Price shall mean the amount determined by dividing (A) the
total amount, if any, received and receivable by the Company as consideration
for the issue, sale, grant or assumption of the Options or Convertible
Securities in question, plus the minimum
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aggregate amount of additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of such consideration to protect against dilution) payable
to the Company upon the exercise in full of such Options or the conversion or
exchange of such Convertible Securities or, in the case of Options for
Convertible Securities, the exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible Securities, by (B) the total
maximum number of shares of Common Stock (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of such consideration to protect against dilution)
issuable upon exercise of such Options or upon the conversion or exchange of all
such Convertible Securities issuable upon the exercise of such Options. No
further adjustment of the Conversion Price shall be made upon the actual
issuance of such Common Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(v) CHANGE IN OPTION PRICE OR RATE OF
CONVERSION. If the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for any class of Common Stock change at any
time, the Conversion Price at the time of such change shall be readjusted,
effective on and after the date of such change, to the Conversion Price which
would have been in effect on the date of such change had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold; provided that no adjustment shall
be made if such adjustment would result in an increase of the Conversion Price
then in effect.
(vi) ISSUANCE OF ADDITIONAL SHARES OF COMMON
STOCK. In case the Company at any time or from time to time after the date
hereof shall issue or sell Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section
2(d)(ii), (iv) or (v)), without consideration or for a consideration per share
less than the Average Market Price (or, in the case of an Underwritten Pubic
Offering, for consideration less than the offering price to the public) in
effect immediately prior to such issue or sale, then, and in each such case, the
Conversion Price shall be reduced, to a price determined by multiplying such
Conversion Price by a fraction
(A) the numerator of which shall be the
sum of (i) the number of shares of Common Stock outstanding immediately prior to
such issue or sale and (ii) the number of shares of Common Stock which the
aggregate consideration received by the Company for the total number of such
Additional Shares of Common Stock so issued or sold would purchase at the
Average Market Price, and
(B) the denominator of which shall be
the number of shares of Common Stock outstanding immediately after such issue or
sale, PROVIDED that, for the purposes of this Section 2(d)(vi), (x) immediately
after any Additional Shares of Common Stock are deemed to have been issued
pursuant to Section 2(d)(ii), (iv) or (v),
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such Additional Shares of Common Stock shall be deemed to be outstanding, and
(y) treasury shares of Common Stock shall not be deemed to be outstanding.
An "Underwritten Public Offering" shall mean an offering of shares of
Common Stock through one or more investment banking firms that is registered
with the SEC in which the net proceeds received by the Company exceeds $25
million.
(vii) ISSUANCE OF CONVERTIBLE SECURITIES AND
ADDITIONAL SHARES OF COMMON STOCK. In case the Company at any time or from time
to time after the date hereof, other than in connection with a Strategic
Financing, shall issue or sell Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section
2(d)(ii), (iv) or (v)) or shall issue or sell any Options or Convertible
Securities, without consideration or for a consideration per share less than the
Conversion Price in effect immediately prior to such issue or sale (such
consideration referred to as the "TRIGGERING PRICE" and such event referred to
as a "TRIGGERING EVENT"), then, subject to Section 2(d)(v) and in each such
case, the Conversion Price shall be reduced, concurrently with such issue or
sale, to a price equal to the Triggering Price, subject to further adjustment
and readjustment from time to time as provided in this Section 2(d), and, as so
adjusted or readjusted, shall remain in effect until a further adjustment or
readjustment thereof is required by this Section 2(d).
(viii) OTHER DILUTIVE EVENTS. In case any event
shall occur as to which the provisions of this Section 2(d) are not strictly
applicable or if strictly applicable would not fairly protect the conversion
rights of the Holder in accordance with the essential intent and principles of
this Section 2(d), then, in each such case, the Board of Directors of the
Company shall make an adjustment in the application of such provisions, in
accordance with such essential intent and principles, so as to preserve, without
dilution, the conversion rights represented by this Section 2.
(ix) NO DILUTION OR IMPAIRMENT. The Company shall
not, by amendment of its articles of incorporation or through any Organic Change
or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Certificate of Designations, but will at
all times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holders against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (A) shall take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock, free from all
taxes, liens, security interests, encumbrances, preemptive rights and charges on
the conversion of the Series D Preferred Shares, (B) shall not take any action
which results in any adjustment of the Conversion Price or the Adjusting Closing
Bid Prices if the total number of shares of Common Stock issuable after the
action upon the conversion of the Series D Preferred Shares would exceed the
total number of shares of Common Stock then authorized by the Company's articles
of incorporation and available for the purpose of issue upon such exercise, (C)
shall not permit the par value of any shares of stock receivable upon the
conversion of the Series D Preferred Shares to exceed the amount payable
therefor upon such exercise, and (D) shall not issue any capital stock of any
class which, as to the Holders, is preferred as to dividends or as to the
distribution of assets
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upon voluntary or involuntary dissolution, liquidation or winding-up, unless the
rights of the holders thereof shall be limited to a fixed sum or percentage of
par value or a sum determined by reference to a formula based on a published
index of interest rates, an interest rate publicly announced by a financial
institution or a similar indicator of interest rates in respect of participation
in dividends and to a fixed sum or percentage of par value in any such
distribution of assets.
(x) CLICKSHIP DIRECT DISTRIBUTION. In lieu of
any other adjustments under this Section 2(d) resulting from the ClickShip
Distribution, in the event that the Company distributes the shares or assets of
ClickShip Direct, Inc. ("CLICKSHIP"), to the shareholders of the Company or
consummates any similar transaction (the "CLICKSHIP DISTRIBUTION"), the Series D
Preferred Shares shall remain the outstanding obligations of the Company or its
successor and the Conversion Price then in effect shall be reduced by an amount
equal to the greater of (i) the average of the Closing Bid Prices of the
principal securities of ClickShip that trade on the principal exchange or market
for such securities for the ten (10) trading days immediately following the date
of the ClickShip Distribution, (ii) the value per share to the shareholders of
the Company established by the Board for federal income tax purposes as a result
of the ClickShip Distribution and (iii) the difference between (x) the average
of the Closing Bid Prices of the Common Stock for the ten (10) trading days
ending on the trading day immediately preceding the date of the ClickShip
Distribution and (y) the average of the Closing Bid Prices of the Common Stock
for the ten (10) trading days immediately following the date of the ClickShip
Distribution. In the event that the ClickShip Distribution or the ClickShip
Disposition (as defined in the Purchase Agreement) is not consummated by March
31, 2001, the Conversion Price then in effect shall be reduced, but not
increased, to an amount equal to the lesser of (1) the average of the Closing
Bid Prices for the twenty (20) trading days prior to such date and (2) 101% of
the Closing Bid Price of the trading day prior to such date. An equivalent
adjustment shall be made on each subsequent September 30 and March 31 that the
ClickShip Distribution or the ClickShip Disposition has not been consummated.
(xi) NOTICES.
(A) Immediately upon any adjustment
pursuant hereto of the Conversion Price or the Adjusting Closing Bid Prices, the
Company will give immediate written notice thereof to each Holder, setting forth
in reasonable detail and certifying the calculation of such adjustment.
(B) 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, or (II) for determining rights to vote with
respect to any Organic Change, dissolution or liquidation; PROVIDED, that in no
event shall such notice be provided to such Holder prior to such information
being made known to the public.
(C) 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 or liquidation will take place.
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(xii) SUCCESSIVE ADJUSTMENTS. Successive
adjustments in the Conversion Price and the Adjusting Closing Bid Prices shall
be made whenever any event specified above shall occur. All calculations under
this Section 2(d) shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. No adjustment in the Adjusting
Closing Bid Prices shall be made if the amount of such adjustment would be less
than $0.01, but any such amount shall be carried forward and an adjustment with
respect thereto shall be made at the time of, and together with, any subsequent
adjustment which, together with such amount and any other amount or amounts so
carried forward, shall in the aggregate equal $0.01 or more.
(e) MECHANICS OF CONVERSION. Subject to the Company's
inability to fully satisfy its obligations under a Conversion Notice (as defined
below) as provided for in Section 5 below:
(i) HOLDER'S DELIVERY REQUIREMENTS. To convert
Series D Preferred Shares into full shares of Common Stock on any date (the
"CONVERSION DATE"), the Holder thereof shall (A) deliver by courier or transmit
by facsimile, for receipt on or prior to 11:59 p.m., Eastern 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 or its designated transfer
agent (the "TRANSFER AGENT"), and (B) surrender to a common carrier for delivery
to the Company or the Transfer Agent as soon as practicable following such date,
the original certificates representing the Series D Preferred Shares being
converted (or an indemnification undertaking with respect to such shares in the
case of their loss, theft or destruction pursuant to the provisions set forth in
Section 12 hereof) (the "PREFERRED STOCK CERTIFICATES") and the originally
executed Conversion Notice.
(ii) COMPANY'S RESPONSE. Upon receipt by the
Company of a 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 or the Transfer Agent of the Preferred Stock
Certificates to be converted pursuant to a Conversion Notice (or an
indemnification undertaking with respect to such shares in the case of their
loss, theft or destruction pursuant to the provisions set forth in Section 12
hereof), together with the originally executed Conversion Notice, the Company or
the Transfer Agent (as applicable) shall, on the next business day following the
date of such receipt (A) issue and surrender to a common carrier for overnight
delivery to the address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the number of shares
of Common Stock to which the Holder shall be entitled, (B) credit such aggregate
number of shares of Common Stock to which the Holder shall be entitled to the
Holder's or its designee's balance account with The Depository Trust Company, or
(C) if the Holder requests, issue shares in electronic format (E.G. via DWAC).
(iii) DISPUTE RESOLUTION. In the case of a dispute
as to the determination of the Conversion Price, the Company shall promptly
issue to the Holder the number of shares of Common Stock that is not disputed
pursuant to the provision in this Section 2(e) and shall submit the disputed
determinations or arithmetic calculations to the Holder via facsimile within one
(1) business day of receipt of such Holder's
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Conversion Notice. If such Holder and the Company are unable to agree upon the
determination of the Conversion Price 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 the
disputed determination of the Conversion Price to an independent, reputable
accounting firm of national standing acceptable to the Company and such Holder
of Series D Preferred Shares. The Company shall cause such accounting firm to
perform the determinations or calculations and notify the Company and the Holder
of the results no later than two (2) business days from the time it receives the
disputed determinations or calculations. Such accounting firm's determination
shall be binding upon all parties absent manifest error. If as a result of such
determination by the accounting firm the Company is required to issue additional
shares of Common Stock to a Holder, the Company or the Transfer Agent, as
applicable, shall on the next business day following the date such determination
is made, issue such shares of Common Stock in accordance with the options set
forth in the last sentence of Section 2(e)(ii) above. The reasonable fees and
expenses of the accounting firm shall be borne by the party whose calculations
is furthest from the accounting firm's determination.
(iv) RECORD HOLDER. The Person or Persons
entitled to receive the shares of Common Stock issuable upon a conversion of
Series D Preferred Shares 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 the
Company shall fail (other than as a result of the situations described in
Section 4(a) with respect to which the Holder has elected, and the Company has
satisfied its obligations under, one of the options set forth in subparagraphs
(i) through (v) of Section 4(a)) or pursuant to the Blocker Provision to issue
to a Holder on a timely basis as described in this Section 2(e), a certificate
for the number of shares of Common Stock to which such Holder is entitled upon
such Holder's conversion of Series D Preferred Shares, the Company shall pay
damages to such Holder equal to actual damages incurred by such Holder as a
result of such Holder's needing to "buy in" shares of Common Stock to satisfy
its securities delivery requirements ("BUY IN ACTUAL DAMAGES").
(f) FRACTIONAL SHARES. The Company shall not issue any
fraction of a share of Common Stock upon any conversion. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
Series D Preferred Share by a Holder shall be aggregated for purposes of
determining whether the conversion would result in the issuance of a fraction of
a share of Common Stock. If, after the aforementioned aggregation, the issuance
would result in the issuance of a fraction of a share of Common Stock, the
Company shall round such fraction of a share of Common Stock up or down to the
nearest whole share.
(g) TAXES. The Company shall pay any and all taxes which
may be imposed upon it with respect to the issuance and delivery of Common Stock
upon the conversion of the Series D Preferred Shares.
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(3) REDEMPTION.
(a) RIGHT TO REQUIRE REDEMPTION UPON TRIGGERING EVENT.
(i) TRIGGERING EVENT. In addition to all other
rights of the Holders of Series D Preferred Shares contained in this Certificate
of Designations (including, without limitation, the provisions of Section 2),
after a Triggering Event (as defined in Section 3(c) below), each Holder of
Series D Preferred Shares shall have the right in accordance with Section 3(e),
at such Holder's option, to require the Company to redeem all or a portion of
such Holder's Series D Preferred Shares at a price per Series D Preferred Share
equal to the greater of (x) the product of (A) the aggregate number of shares of
Common Stock for which such Holder would be entitled to receive if the Series D
Preferred Shares that it holds would be converted as of the date immediately
preceding such Triggering Event on which the exchange or market on which the
Common Stock is traded is open, multiplied by (B) the Average Market Price of
the Common Stock on such date and (y) the product of (A) the Stated Value plus
all accrued and unpaid dividends thereon, multiplied by (B) 125% (the
"TRIGGERING EVENT REDEMPTION PRICE"). The provisions of this Section 3(a)(ii)
shall not be deemed to restrict the ability of a Holder to convert the Series D
Preferred Shares pursuant to the provisions of Section 2 at any time and from
time to time before such Holder receives the Triggering Event Redemption Price.
(ii) A "TRIGGERING EVENT" shall be deemed to have
occurred at such time as any of the following events:
(x) notice from the Company that Common
Stock issued or issuable upon conversion of the Series D Preferred Shares cannot
be sold under the Registration Statement covering such Common Stock (the
"SUSPENSION PERIOD"), for any period of ten consecutive trading days or any
twenty non-consecutive trading days during any period of 180 consecutive days
that is (A) after the date the Registration Statement has been declared
effective by the SEC and (B) prior to the time that the securities issuable upon
conversion of the Series D Preferred Shares may be sold without limitation in
accordance with Rule 144(k) under the Securities Act of 1933, as amended (the
"1933 ACT"); PROVIDED, that any demand for redemption under this Section 3(a)(i)
must be made by a Holder of Series D Preferred Shares within 30 days after
receipt of notice from the Company of the termination of the Suspension Period;
PROVIDED, FURTHER, that if the aggregate number of days in all Suspension
Periods (the "SUSPENSION DAYS") is equal to or greater than thirty (30) days,
then the Mandatory Redemption Date may, at the option of the Holder, be extended
by the aggregate number of Suspension Days.
(y) the failure of the Common Stock or
the Conversion Shares to be listed on the American Stock Exchange (the "AMEX"),
the New York Stock Exchange ("NYSE") or the NASDAQ for a period of 10 days
during any period of 12 months (the "DELISTING PERIOD"); PROVIDED, HOWEVER, that
any demand for redemption under this Section 3(a)(ii) must be made by a Holder
within 30 days after receipt of the Notice of Triggering Event (as defined in
Section 3(e)); or
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(z) the Company's notice to any Holder
of Series D Preferred Shares, including by way of public announcement, at any
time, of its intention not to comply with proper requests for conversion of any
Series D Preferred Shares into shares of Common Stock, including due to any of
the reasons set forth in Section 4(a) below, except in any case in which the
basis for such intention by the Company is a bona fide dispute as to the right
of such Holder to such conversion.
(b) REDEMPTION UPON MAJOR TRANSACTION.
(i) If any Series D Preferred Shares
remain outstanding on the date on which a Major Transaction is consummated (the
"Major Transaction Date"), the Company or its successor on the Major Transaction
Date, shall redeem for cash all of such Holder's outstanding Series D Preferred
Shares at a price per Series D Preferred Share equal to (A) the product of the
Stated Value, multiplied by 125%, plus (B) all accrued and unpaid dividends
thereon ("Major Transaction Redemption Price"). The provisions of this Section
3(b)(i) shall not be deemed to restrict the ability of a Holder to convert
Series D Preferred Shares pursuant to the provisions of Section 2 at any time
and from time to time before the Major Transaction Date.
(ii) A "Major Transaction" means the
occurrence at such time of any of the following events:
(x) the consummation of a
consolidation, merger or reorganization of the Company with or into another
Person (other than (x) pursuant to a migratory merger effected solely for the
purpose of changing the jurisdiction of incorporation of the Company or (y)
pursuant to a consolidation, merger or reorganization after which the holders of
the Company's outstanding capital stock immediately prior to the consolidation,
merger or reorganization own a number of shares of the resulting company's
outstanding capital stock sufficient to elect a majority of the resulting
company's board of directors);
(y) the consummation of a
sale, transfer, lease, disposal or abandonment (whether in one transaction or in
a series of transactions) of all or substantially all of the Company's assets
(other than a sale or transfer to an entity controlling, controlled by or under
common control with the Company), provided that the ClickShip Distribution or
the ClickShip Disposition shall not be considered such a sale, transfer, lease,
disposal or abandonment; or
(z) the consummation of a
purchase, tender or exchange offer for more than 50% of the outstanding shares
of Common Stock or other voting securities of the Company is made and accepted
by the holders thereof.
(iii) Within five (5) days after the
Company enters into an agreement to effect a Major Transaction but not prior to
the public announcement of such Major Transaction or the public announcement of
a third party tender offer that would, if consummated, constitute a Major
Transaction, the Company shall deliver written notice thereof via facsimile and
overnight courier to each Holder.
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(c) [Intentionally left blank.]
(d) MANDATORY REDEMPTION. If any of the Series D
Preferred Shares remain outstanding on September 29, 2002 (the "MANDATORY
REDEMPTION DATE") (subject to extension as provided in Section 3(c)(i) above),
then the Company shall be required to redeem all of such Series D Preferred
Shares at a price per Series D Preferred Shares equal to (i) the Stated Value
plus all accrued and unpaid dividends thereon (the "MANDATORY REDEMPTION PRICE"
and together with the Major Transaction Redemption Price, and the Triggering
Event Redemption Price, each a "REDEMPTION PRICE"). Mandatory Redemption Price
payments made with respect to Series D Preferred Shares shall be made, subject
to the terms hereof, in cash, or at the option and in the sole discretion of the
Board of Directors of the Company, in full or in part, by issuing validly
issued, fully paid and nonassessable shares of Common Stock (such shares of
Common Stock "REDEMPTION SHARES"); provided that the shares of Common Stock so
issued are covered by an effective Registration Statement or may otherwise be
sold without limitation in accordance with Rule 144(k) under the 1933 Act. The
number of shares of Common Stock to be so issued shall be equal to the quotient
of (a) the Stated Value plus all accrued and unpaid dividends thereon, divided
by (b) 90% times the amount equal to the average of the Closing Bid Prices for
the ten trading days immediately preceding such date. If the Board of Directors
shall elect to pay any part of a Mandatory Redemption Price by such issuance of
Common Stock, the Company shall provide notice (the "COMMON STOCK REDEMPTION
ELECTION NOTICE") to such effect to the Holders of the Series D Preferred Shares
by no later than ninety (90) days prior to the Mandatory Redemption Date. If the
Company shall not provide a Common Stock Redemption Election Notice, the
Mandatory Redemption Price shall be paid in cash.
(e) MECHANICS OF REDEMPTION.
(i) UPON TRIGGERING EVENT. Within one
day after the occurrence of a Triggering Event, the Company shall deliver
written notice thereof via facsimile and overnight courier to each Holder (each
a "NOTICE OF TRIGGERING EVENT"). At anytime after receipt of a Notice of
Triggering Event, but only for so long as the facts giving rise to the
Triggering Event continue to exist, any Holder may require the Company to redeem
all or any portion of its Series D Preferred Shares by delivering written notice
thereof via facsimile or overnight courier (each a "NOTICE OF VOLUNTARY
REDEMPTION UPON TRIGGERING EVENT") to the Company, which Notice of Voluntary
Redemption Upon Triggering Event shall indicate (A) the number of Series D
Preferred Shares that such Holder is requesting redemption for and (B) the
Triggering Event Redemption Price as calculated pursuant to Section 3(a)(ii)
above.
(ii) UPON MAJOR TRANSACTION. Within two
business days after receipt of the Major Transaction Redemption Price in cash,
the Holders shall surrender all Preferred Stock Certificates, duly endorsed for
cancellation, to the Company or the Transfer Agent. As of the Major Transaction
Date, no Person shall have any rights in respect of Series D Preferred Shares,
except the right to receive the Major Transaction Redemption Price.
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(iii) UPON MANDATORY REDEMPTION DATE.
Within two business days after receipt of the Mandatory Redemption Price in cash
and/or shares of Common Stock, the Holders shall surrender all Preferred Stock
Certificates, duly endorsed for cancellation, to the Company or the Transfer
Agent. As of the Mandatory Redemption Date, no Person shall have any rights in
respect of Series D Preferred Shares, except the right to receive the Mandatory
Redemption Price.
(f) COMPANY REDEMPTION OPTION. In addition to
the foregoing, provided that the shares of Common Stock issued and issuable upon
conversion of the Series D Preferred Shares are covered by an effective
Registration Statement, at any time after the first Anniversary Date after the
Initial Issuance Date, if the Closing Bid Price for the Common Stock is equal to
no less than two times the Conversion Price on each of no less than twenty (20)
consecutive trading days for the Common Stock, the Company, solely at its
option, can elect, by delivering an irrevocable notice of such election within
two (2) business days of the applicable twenty-day determination period (a
"NOTICE OF COMPANY Redemption"), to redeem from all Holders the outstanding
Series D Preferred Shares for which the Company has not received a Conversion
Notice (the "COMPANY REDEMPTION OPTION") in cash at a price per Series D
Preferred Share equal to the Stated Value per share of the Series D Preferred
Shares plus accrued but unpaid dividends thereon (the "COMPANY REDEMPTION
PRICE"), which Notice of Company Redemption shall specify the date for such
redemption which date shall not be less than ten (10) days after receipt by the
Holder of the Notice of Company Redemption. The provisions of this Section 3(f)
shall not be deemed to restrict the ability of a Holder to convert the Series D
Preferred Shares pursuant to the provisions of Section 2 at any time and from
time to time before such Holder receives the Company Redemption Price.
(g) PAYMENT OF REDEMPTION PRICE UPON VOLUNTARY
REDEMPTION. Upon the Company's (i) receipt of a Notice of Voluntary Redemption
Upon Triggering Event from any Holder, or (ii) delivery of a Notice of Company
Redemption, the Company shall immediately notify such Holder by facsimile of the
mechanics of the delivery of each Holder's Preferred Stock Certificate and, if
applicable, the Company's receipt of such requisite notice necessary to effect a
redemption and such Holder of Series D Preferred Shares shall thereafter
promptly send such Holder's Preferred Stock Certificates to be redeemed to the
Company or its Transfer Agent (or an indemnification undertaking with respect to
such shares in the case of their loss, the theft or destruction pursuant to the
provisions set forth in Section 12 hereof). The Company shall deliver the
applicable Redemption Price, or Company Redemption Price, as applicable, to such
Holder within ten (10) days after the Company's receipt of the requisite notice
required to affect a redemption or the Company's delivery of a Notice of Company
Redemption; PROVIDED, that a Holder's Preferred Stock Certificates shall have
been so delivered to the Company or its Transfer Agent (or an indemnification
undertaking with respect to such shares in the case of their loss, the theft or
destruction pursuant to the provisions set forth in Section 12 hereof); PROVIDED
further that if the Company is unable to redeem all of the Series D Preferred
Shares, the Company shall redeem an amount from each Holder of Series D
Preferred Shares equal to such Holder's pro rata amount (based on the number of
Series D Preferred Shares held by such Holder relative to the number of Series D
Preferred Shares outstanding) of all Series D Preferred Shares being redeemed.
If the
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Company shall fail to redeem all of the Series D Preferred Shares submitted for
redemption (other than pursuant to a dispute as to the arithmetic calculation of
the applicable Redemption Price), in addition to any remedy such Holder of
Series D Preferred Shares may have under this Certificate of Designations and
the Purchase Agreement, among the Company and the initial Buyers named therein,
the applicable Redemption Price or Company Redemption Price, as applicable,
payable in respect of such unredeemed Series D Preferred Shares shall bear
interest at the rate of 1.25% per month (prorated for partial months) until paid
in full. Until the Company pays such unpaid Redemption Price or Company
Redemption Price, as applicable, in full to each Holder, Holders of the Series D
Preferred Shares then outstanding, including shares of Series D Preferred Shares
submitted for redemption pursuant to this Section 3 and for which the applicable
Redemption Price or Company Redemption Price, as applicable, has not been paid,
shall have the option (the "VOID REDEMPTION OPTION") to, in lieu of redemption,
require the Company to promptly return to each Holder all of the Series D
Preferred Shares that were submitted for redemption by such Holder under this
Section 3 and for which the applicable Redemption Price or Company Redemption
Price, as applicable, has not been paid, by sending written notice thereof to
the Company via facsimile or by courier (the "VOID REDEMPTION NOTICE"). Upon the
Company's receipt of such Void Redemption Notice and prior to payment of the
full applicable Redemption Price or Company Redemption Price, as applicable, to
each Holder, (i) the Notice of Voluntary Redemption Upon Major Transaction,
Notice of Voluntary Redemption Upon Triggering Event or Company Redemption
Price, as applicable, shall be null and void with respect to those Series D
Preferred Shares submitted for redemption and for which the applicable
Redemption Price or Company Redemption Price, as applicable, has not been paid,
and (ii) the Company shall immediately return any Series D Preferred Shares
submitted to the Company by each such Holder for redemption under this Section
3(g) and for which the applicable Redemption Price or Company Redemption Price,
as applicable, has not been paid. Notwithstanding the foregoing, in the event of
a dispute as to the determination of the arithmetic calculation of the
applicable Redemption Price, such dispute shall be resolved pursuant to the
provisions set forth in Section 2(e)(iii) above. Payments provided for in this
Section 3 in connection with a Redemption Upon a Major Transaction shall have
priority to payments to other stockholders in connection with a Major
Transaction.
(4) INABILITY TO FULLY CONVERT.
(a) HOLDER'S OPTION IF COMPANY CANNOT FULLY CONVERT. If,
upon the Company's receipt of a Conversion Notice, the Company cannot issue
shares of Common Stock registered for resale under the Registration Statement
for any reason, including, without limitation, because the Company (x) does not
have a sufficient number of shares of Common Stock authorized and available, (y)
is otherwise prohibited by applicable law or by the rules or regulations of any
stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or its securities, including
without limitation the NASDAQ, 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
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issue in accordance with such Holder's Conversion Notice and pursuant to Section
2(e) above and, with respect to the unconverted Series D Preferred Shares, the
Holder, solely at such Holder's option, can elect to (unless the Company issues
and delivers the Common Stock underlying the unconverted Series D Preferred
Shares prior to the Holder's election hereunder, in which case such Holder shall
only be entitled to receive Buy In Actual Damages under Section 2(e)(v)):
(i) require the Company to redeem from such
Holder those Series D Preferred Shares for which the Company is unable to issue
Common Stock in accordance with such Holder's Conversion Notice ("DEFAULT
REDEMPTION") at a price per Series D Preferred Share equal to the Triggering
Event Redemption Price as of such Conversion Date ("DEFAULT REDEMPTION PRICE");
(ii) if the Company's inability to fully convert
Series D Preferred Shares is pursuant to Section 4(a)(z) above, require the
Company to issue restricted shares of Common Stock in accordance with such
Holder's Conversion Notice pursuant to Section 2(e) above;
(iii) void its Conversion Notice and retain or
have retained, as the case may be, the nonconverted Series D Preferred Shares
that were to be converted pursuant to such Holder's Conversion Notice; or
(iv) if the Company's inability to fully convert
Series D Preferred Shares is pursuant to the rules and regulations described in
Section 4(a)(y) above, require the Company to issue shares of Common Stock in
accordance with such Holder's Conversion Notice and pursuant to Section 2(e)
above at a Conversion Price equal to the Average Market Price of the Common
Stock on the date preceding such Holder's Notice in Response to Inability to
Convert (as defined below).
(b) MECHANICS OF FULFILLING HOLDER'S ELECTION. The
Company shall immediately send via facsimile to a Holder of Series D Preferred
Shares, upon receipt of a facsimile copy of a Conversion Notice from such Holder
which cannot be fully satisfied as described in Section 4(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 D Preferred Shares which
cannot be converted and (iii) the Default Redemption Price. Such Holder must
within five (5) business days of receipt of such Inability to Fully Convert
Notice deliver written notice via facsimile to the Company ("NOTICE IN RESPONSE
TO INABILITY TO CONVERT") of its election pursuant to Section 4(a) above.
(c) PAYMENT OF DEFAULT REDEMPTION PRICE. If such Holder
shall elect to have its shares redeemed pursuant to Section 4(a)(i) above, the
Company shall pay the Default Redemption Price in cash to such Holder within ten
(10) days of the Company's receipt of the Holder's Notice in Response to
Inability to Convert. If the Company shall fail to pay the Default Redemption
Price to such Holder on a timely basis as described in this Section 4(c) (other
than pursuant to a dispute as to the determination of the arithmetic calculation
of the Default Redemption Price), in addition to any remedy such Holder of
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Series D Preferred Shares may have under this Certificate of Designations and
the Purchase Agreement, such unpaid amount shall bear interest at the rate of
1.25% per month (prorated for partial months) until paid in full. Until the full
Default Redemption Price is paid in full to such Holder, such Holder may void
the Default Redemption with respect to those Series D Preferred Shares for which
the full Default Redemption Price has not been paid and receive back such Series
D Preferred Shares. Notwithstanding the foregoing, if the Company fails to pay
the Default Redemption Price within such ten (10) day time period due to a
dispute as to the determination of the arithmetic calculation of the Default
Redemption Price, such dispute shall be resolved pursuant to Section 2(e)(iii)
above.
(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 D
Preferred Shares pursuant to this Section 4, the Company shall convert and
redeem from each Holder electing to have Series D Preferred Shares converted and
redeemed at such time an amount equal to such Holder's pro rata amount (based on
the number of Series D Preferred Shares held by such Holder relative to the
number of Series D Preferred Shares outstanding) of all Series D Preferred
Shares being converted and redeemed at such time.
(5) REISSUANCE OF CERTIFICATES. In the event of a conversion or
redemption pursuant to this Certificate of Designations of less than all of the
Series D Preferred Shares represented by a particular Preferred Stock
Certificate, the Company shall promptly cause to be issued and delivered to the
Holder of such Series D Preferred Shares a preferred stock certificate
representing the remaining Series D Preferred Shares which have not been so
converted or redeemed.
(6) RESERVATION OF SHARES. The Company shall, so long as any of
the Series D Preferred Shares 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 D Preferred Shares, such number of shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
of the Series D Preferred Shares then outstanding and otherwise as set forth in
the Purchase Agreement; PROVIDED, that such shares of Common Stock so reserved
shall be allocated for issuance upon conversion of Series D Preferred Shares pro
rata among the Holders of Series D Preferred Shares based on the number of
Series D Preferred Shares held by such Holder relative to the total number of
outstanding Series D Preferred Shares.
(7) DIVIDENDS. The Holders of the outstanding Series D Preferred
Shares shall be entitled to receive cumulative dividends at the rate of 6.5% per
annum of the Stated Value per Series D Preferred Share. Such dividends shall be
payable quarterly in arrears on the last day of March, June, September and
December of each year, commencing on December 31, 2000 (each of such dates being
a "DIVIDEND PAYMENT DATE"). Such dividend shall accrue on each Series D
Preferred Share from the Initial Issuance Date (with appropriate proration for
any partial dividend period) and shall accrue from day-to-day, whether or not
earned or declared. Dividend payments made with respect to Series D Preferred
Shares shall be made, subject to the terms hereof, in cash when and as declared
by the Board of Directors out of funds legally available therefor, or at the
option
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and in the sole discretion of the Board of Directors of the Company, in full or
in part, by issuing validly issued, fully paid and nonassessable shares of
Common Stock (such shares of Common Stock "DIVIDEND SHARES"); provided that the
shares of Common Stock so issued are covered by the Registration Statement or
may otherwise be sold without limitation in accordance with Rule 144(k) under
the 1933 Act. The number of shares of Common Stock to be so issued shall be
equal to the quotient of (a) the amount of the dividend to be paid on such
Dividend Payment Date which is not being paid in cash, divided by (b) 90% times
the amount equal to the average of the Closing Bid Prices for the ten trading
days immediately preceding such date. If the Board of Directors shall elect to
pay any part of a dividend by such issuance of Common Stock, the Company shall
provide an irrevocable notice (the "COMMON STOCK ELECTION NOTICE") to such
effect to the Holders of the Series D Preferred Shares by no later than twenty
(20) days prior to the applicable Dividend Payment Date. If the Company shall
not provide a Common Stock Election Notice, the applicable dividend shall be
paid in cash. The issuance of such Common Stock (plus the amount of cash
dividend, if any, paid together therewith) shall constitute full payment of such
dividend. In no event shall an election by the Board of Directors to pay
dividends, in full or in part, in cash on any Dividend Payment Dates preclude
the Board of Directors from electing any other available alternative in respect
of all or any portion of any subsequent dividend.
(8) LIQUIDATION, DISSOLUTION, WINDING-UP. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the Holders of the Series D Preferred Shares shall be entitled to receive in
cash out of the assets of the Company, whether from capital or from earnings
available for distribution to its stockholders (the "PREFERRED FUNDS"), after
payment to holders of indebtedness which indebtedness shall be senior in rank to
the Series D Preferred Stock but before any amount shall be paid to the holders
of any of the capital stock of the Company of any class junior in rank to the
Series D Preferred Shares in respect of the preferences as to the distributions
and payments on the liquidation, dissolution and winding up of the Company, an
amount per Series D Preferred Share equal to the product of (x) 125% and (y) the
sum of (i) the Stated Value and (ii) all accrued and unpaid dividends thereon
(such sum being referred to as the "LIQUIDATION VALUE"); PROVIDED, that if the
Preferred Funds are insufficient to pay the full amount due to the holders of
Series D Preferred Shares and holders of shares of other classes or series of
preferred stock of the Company that are of equal rank with the Series D
Preferred Shares as to payments of Preferred Funds (the "PARI PASSU SHARES"),
then each holder of Series D Preferred Shares and Pari Passu Shares shall
receive a percentage of the Preferred Funds equal to the full amount of
Preferred Funds payable to such holder as a liquidation preference, in
accordance with their respective Certificate of Designations, as a percentage of
the full amount of Preferred Funds payable to all holders of Series D Preferred
Shares and Pari Passu Shares. The purchase or redemption by the Company of stock
of any class, in any manner permitted by law, shall not, for the purposes
hereof, be regarded as a liquidation, dissolution or winding up of the Company.
Neither the consolidation or merger of the Company with or into any other
Person, nor the sale or transfer by the Company of less than substantially all
of its assets, shall, for the purposes hereof, be deemed to be a liquidation,
dissolution or winding up of the Company.
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(9) PREFERRED RANK. All shares of Common Stock of the Company,
Class B Common Stock of the Company, Series A Convertible Preferred Stock of the
Company, Series B Convertible Non-Voting Preferred Stock of the Company and
Series C Junior Participating Preferred Stock of the Company shall be of junior
rank to all Series D Preferred Shares in respect to the preferences as to
distributions and payments upon the liquidation, dissolution and winding up of
the Company. All other shares of preferred stock shall not be of senior rank to
all Series D Preferred Shares in respect to the preferences as to distributions
and payments upon the liquidation, dissolution and winding up of the Company. As
long as the Series D Preferred Shares initially issued remain outstanding, then
without the prior express written consent of the holders of not less than
two-thirds (2/3) of the then outstanding Series D Preferred Shares, the Company
shall not hereafter authorize or issue additional or other capital stock that is
of senior rank or rank pari passu to the Series D Preferred Shares in respect of
the preferences as to distributions and payments upon the liquidation,
dissolution and winding up of the Company. Without the prior express written
consent of the holders of not less than two-thirds (2/3) of the then outstanding
Series D Preferred Shares, the Company shall not hereafter authorize or make any
amendment to the Company's Articles of Incorporation or bylaws, or file any
resolution of the board of directors of the Company with the Minnesota Secretary
of State containing any provisions, which would adversely affect or otherwise
impair the rights or relative priority of the holders of the Series D Preferred
Shares relative to the holders of the Common Stock or the holders of any other
class of capital stock. In the event of the merger, consolidation or
reorganization of the Company with or into another corporation, the Series D
Preferred Shares shall maintain their relative powers, designations and
preferences provided for herein and no merger shall result inconsistent
therewith.
(10) RESTRICTION ON REDEMPTION AND CASH DIVIDENDS WITH RESPECT TO
OTHER CAPITAL STOCK. Until all of the Series D Preferred Shares have been
converted or redeemed as provided herein, the Company shall not, directly or
indirectly, declare or pay any cash dividend or distribution on its Common Stock
without the prior express written consent of the holders of not less than
two-thirds (2/3) of the then outstanding Series D Preferred Shares except for
(a) the ClickShip Distribution that may be made in the sole discretion of the
Board, and (b) the payment of cash for fractional shares in the event of a stock
dividend, stock split, reverse stock split or similar transaction.
(11) VOTING RIGHTS AND RELATED MATTERS.
(a) The Holders of the outstanding Series D Preferred
Shares shall have no voting rights, except as required by law, including, but
not limited to, the laws of the State of Minnesota, and as expressly provided in
this Certificate of Designations.
(b) The affirmative vote at a meeting duly called for
such purpose or the written consent without a meeting, of the holders of not
less than two-thirds (2/3) of the then outstanding Series D Preferred Shares,
shall be required for any change to this Certificate of Designations or the
Company's Articles of Incorporation which would amend, alter, change or repeal
any of the powers, designations, preferences and rights of the Series D
Preferred Shares.
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<PAGE>
(12) 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 Series D
Preferred Shares, 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 Series D Preferred Shares
into Common Stock; and provided, further, the Company may require such holder to
post an indemnity bond for the reasonable value of the Series D Preferred Shares
represented by the lost certificate(s) unless such holder was an original
purchaser or the Series D Preferred Shares.
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<PAGE>
EXHIBIT I
DAMARK INTERNATIONAL, INC.
CONVERSION NOTICE
Reference is made to the Certificate of the Designations, Preferences, Rights
and Privileges of the 6.5% Cumulative Preferred Stock, Series D Pursuant to the
Minnesota Business Corporation Act (the "CERTIFICATE OF DESIGNATIONS"). In
accordance with and pursuant to the Certificate of Designations, the undersigned
hereby elects to convert the number of shares of Series D Convertible Preferred
Stock, stated value $100.00 per share (the "SERIES D PREFERRED SHARES"), of
DAMARK International, Inc., a Minnesota corporation (the "COMPANY"), indicated
below into shares of Common Stock, par value $.01 per share (the "COMMON
STOCK"), of the Company, by tendering the stock certificate(s) representing the
share(s) of Series D Preferred Shares specified below as of the date specified
below.
Date of Conversion: _____________________________
Number of Series D
Preferred Shares to be converted: _____________________________
Stock certificate no(s). of Series D Preferred
Shares to be converted: _____________________________
Please confirm the following information:
Conversion Price: _____________________________
Number of shares of Common Stock
to be issued: _____________________________
Please issue and deliver the Common Stock and, if applicable, any check drawn on
an account of the Company into which the Series D Preferred Shares are being
converted in the following name and to the following address:
Issue to: _____________________________
_____________________________
_____________________________
_____________________________
Facsimile Number: _____________________________
Authorization:
_____________________________
By:__________________________
Title:_______________________
Dated: _____________________________
