EXHIBIT 3.5
CERTIFICATE OF DESIGNATION
OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
VALUESTAR CORPORATION
VALUESTAR CORPORATION, a corporation organized and existing under the
Colorado Business Corporation Act (the "corporation"), in accordance with Colo.
Rev. Stat. Section 7-106-102,
HEREBY CERTIFIES:
1. The name of the Corporation is: Valuestar Corporation.
2. The text of the amendment determining the designations, preferences,
limitations, and relative rights of the class or series of shares is as
set forth on Exhibit "A", attached hereto and by this reference
incorporated herein.
3. This amendment was adopted on September 14, 2000.
4. This amendment was duly adopted by the Board of Directors of the
Corporation.
The undersigned does hereby confirm, under penalties of perjury, that
the foregoing Certificate of Designation of Valuestar Corporation constitutes
the act and deed of the Corporation, and that the facts stated herein are true.
Executed at Oakland, California on September 14, 2000
/s/ James Stein
---------------
James Stein, Chief Executive Officer
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Exhibit "A"
RESOLVED, that pursuant to the authority granted to the Board of
Directors by Article THIRD, Paragraph I of the Articles of Incorporation of the
Corporation, as amended (the "Articles"), Certificate there is hereby created,
and the Corporation be, and it hereby is, authorized to issue One Million Three
Hundred Thirty-Three Thousand Three Hundred Thirty-Three (1,333,333) shares of a
series of convertible preferred stock, designated "SERIES C CONVERTIBLE
PREFERRED STOCK," which Series C Convertible Preferred Stock (also referred to
herein as "Series C Stock" or "Series C Preferred Stock") shall have, in
addition to the rights, restrictions, preferences and privileges set forth in
the Articles, the following terms, conditions, rights, restrictions, preferences
and privileges:
"A. DIVIDENDS.
1. Generally. Subject to the preferential dividend rights of
the holders of the Corporationss.s Series A Convertible Preferred Stock ("Series
A Stock"), and Series B Convertible Preferred Stock ("Series B Stock") each
holder of outstanding shares of Series C Stock shall be entitled to receive,
when and if declared by the Board of Directors and out of any funds legally
available therefor, cumulative dividends at the annual rate of $1.80 per share
(the "Series C Preferential Dividend"), and in preference to any declaration or
payment (payable other than in Common Stock) of dividends with respect to the
Common Stock. No cash dividends shall be declared and paid on the Common Stock
or any other equity of the Company except the Series A Stock and Series B Stock
as contemplated above unless a like cash dividend amount has been paid to the
Series C Stock on an as converted basis.
2. Payment Other Than Cash. If the Corporation shall declare a
distribution payable in securities of persons other than this Corporation,
evidences of indebtedness issued by the Corporation or other persons, assets
(excluding cash dividends) or options or rights to purchase any such securities
or evidences of indebtedness, then, in each such case, the holders of Series C
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though the holders of Series C Preferred Stock were the holders
of the number of shares of Common Stock of the Corporation into which their
respective shares of Series C Preferred Stock are convertible as of the record
date fixed for the determination of the holders of Common Stock of the
Corporation who are entitled to receive such distribution.
3. Dividend Adjustment. The Series C Preferential Dividend
shall be appropriately adjusted for any stock splits, dividends, combinations,
recapitalizations and the like ("Appropriately Adjusted").
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B. PREFERENCE ON LIQUIDATION.
1. Preference Price. Except upon a oQualified Liquidation
Event,o in the event of any liquidation, dissolution or winding up of this
Corporation, whether voluntary or involuntary, the holders of the outstanding
shares of Series C Stock shall be entitled to be paid out of the assets of this
Corporation available for distribution to its shareholders, whether from
capital, surplus funds or earnings, after payment of the preferential amount is
made in respect of the shares of Series A Stock (the oSeries A Preference
Priceo) and Series B Stock (the oSeries B Preference Priceo) and before any
payment is made in respect of the shares of Common Stock, in an amount equal to
$22.50 per share (Appropriately Adjusted), together with an amount equal to the
greater of (A) eight percent (8%) of such $22.50 at the rate of 8% for each year
(or fraction thereof) after the date of the issuance of each such share of
Series C Stock, less the amount, if any, of any cash dividends actually paid to
the Series C Stock through the date of liquidation, or (B) any declared and
unpaid dividends thereon (the oSeries C Preference Priceo). After payment of the
Series C Preference Price to the holders of outstanding shares of Series C
Stock, the remaining assets of the Corporation shall be distributed ratably
solely among the holders of the outstanding shares of Common Stock in an equal
amount per share.
2. Partial Payment. If, upon any such liquidation, dissolution
or winding up of this Corporation, whether voluntary or involuntary, the assets
of this Corporation available for distribution to its shareholders shall be
insufficient to pay in full the Series C Preference Price required to be paid to
the holders of the outstanding shares of Series C Stock after payment in full of
the Series A Preference Price and Series B Preference Price, then all of the
assets of this Corporation legally available for distribution to the holders of
equity securities shall be distributed ratably among the holders of the
outstanding shares of Series C Stock in proportion to the Series C Preference
Price upon liquidation that each Series C Stock holder is otherwise entitled to
receive.
3. Certain Transactions. The following shall be deemed to be a
liquidation, dissolution or winding up within the meaning of this Section B with
respect to the Series C Stock: (A) a sale of all or substantially all of the
Corporation's assets; or (B) a consolidation, merger or reorganization of the
Corporation with or into any other corporation or corporations if the
Corporation's shareholders do not control a majority of the outstanding voting
securities of such consolidated, merged or reorganized corporation(s). The
Corporation shall provide written notice of each of the above transactions to
each holder of Series C Stock at least ten (10) days prior to such transaction
in accordance with Section D.14 (below).
4. Liquidation Adjustment. The Series C Preference Price shall
be Appropriately Adjusted.
C. VOTING.
1. Generally. Except as otherwise required by law or expressly
provided herein, each share of Series C Preferred Stock shall be entitled to
vote on all matters submitted or required to be submitted to a vote of the
shareholders of the Corporation in the same class and together with the holders
of Common Stock and shall be entitled to the number of votes equal to the number
of whole shares of Common Stock into which such shares of Series C Preferred
Stock are convertible pursuant to the provisions hereof, at the record date for
the determination of shareholders entitled to vote on such matters or, if no
such record date is established, at the date such vote is taken or any written
consent of shareholders is solicited. In each such case, except as otherwise
required by law or expressly provided herein, the holders of shares of Series A
Stock, Series B Stock, Series C Stock and Common Stock shall vote together and
not as separate classes.
2. Special Voting for the Election of Directors. The Board of
Directors shall be elected as follows:
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(i) So long as at least One Hundred Thousand
(100,000) shares of Series A Stock are issued and outstanding (Appropriately
Adjusted), the holders of Series A Stock shall be entitled, voting as a separate
class, to elect one (1) and only one (1) member to the Corporationss.s Board of
Directors;
(ii) So long as at least Two Hundred Thousand
(200,000) shares of Series B Stock are issued and outstanding (Appropriately
Adjusted), the holders of Series B Stock shall be entitled, voting as a separate
class, to elect two (2) and only two (2) members to the Corporationss.s Board of
Directors;
(iii) So long as at least Two Hundred Thousand
(200,000) shares of Series C Stock are issued and outstanding (Appropriately
Adjusted), the holders of Series C Stock shall be entitled, voting as a separate
class, to elect one (1) and only one (1) member to the Corporationss.s Board of
Directors;
(iv) The remaining authorized members of the Board of
Directors not entitled to be elected by any series of Preferred Stock then
outstanding from time to time shall be elected by the holders of Common Stock
with the holders of Series C Stock voting in the same class as the holders of
Common Stock on an as-converted basis and the holders of Common Stock.
3. Removals or Resignations. Any vacancy created on the
Corporation's Board of Directors shall be filled by a successor Director who
shall be elected in a manner by which his or her predecessor was elected as
provided above. Any Director who has been elected to the Corporation's Board of
Directors as provided above may be removed during his term of office in
accordance with the Business Corporation Act of the State of Colorado, and any
vacancy thereby created shall be filled as provided in this subparagraph.
D. CONVERSION. The holders of the outstanding shares of Series C Stock
shall have the following conversion rights (the "Conversion Rights"):
1. Right to Convert. Each share of Series C Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such shares, at the office of this Corporation or any transfer agent
for the Corporation's shares into that number of shares of Common Stock which is
equal to the quotient obtained by dividing the Series C Preference Price then in
effect for each share of Series C Stock by the Series C Conversion Price (as
such term is hereinafter defined) in effect immediately prior to the time of
such conversion. The initial price at which shares of Common Stock shall be
deliverable upon conversion of shares of Series C Stock shall be $2.25 (as
adjusted from time to time as herein provided, the "Series C Conversion Price").
2. Mechanics of Conversion. Each holder of outstanding shares
of Series C Stock who desires to convert the same into shares of Common Stock
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of this Corporation or of any transfer agent for the Corporation's shares
and shall give written notice to this Corporation at such office that such
holder elects to convert the same and shall state therein the number of shares
of Series C Stock being converted. Thereupon, this Corporation shall issue and
deliver at such office to such holder a certificate or certificates for the
number of shares of Common Stock to which such holder is entitled and shall
promptly pay all declared but unpaid dividends on the shares being converted.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the certificate or certificates
representing the shares to be converted, and the person entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder of such shares of Common Stock on such date.
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3. Adjustment for Stock Splits and Combinations. If this
Corporation at any time or from time to time after the date that this
Certificate of Designation was filed with the Colorado Secretary of State (the
"Filing Date") effects a division of the outstanding shares of Common Stock, the
Series C Conversion Price shall be proportionately decreased and, conversely, if
this Corporation at any time, or from time to time, after the Filing Date
combines the outstanding shares of Common Stock, the Series C Conversion Price
shall be proportionately increased. Any adjustment under this Section D.3 shall
be effective on the close of business on the date such division or combination
becomes effective.
4. Adjustment for Certain Dividends and Distributions. If this
Corporation at any time or from time to time after the Filing Date pays or fixes
a record date for the determination of holders of shares of Common Stock
entitled to receive a dividend or other distribution in the form of shares of
Common Stock, or rights or options for the purchase of, or securities
convertible into, Common Stock, then in each such event the Series C Conversion
Price shall be decreased, as of the time of such payment or, in the event a
record date is fixed, as of the close of business on such record date, by
multiplying the Series C Conversion Price by a fraction (i) the numerator of
which shall be the total number of shares of Common Stock outstanding
immediately prior to the time of such payment or the close of business on such
record date and (ii) the denominator of which shall be (A) the total number of
shares of Common Stock outstanding immediately prior to the time of such payment
or the close of business on such record date plus (B) the number of shares of
Common Stock issuable in payment of such dividend or distribution or upon
exercise of such option or right of conversion; provided, however, that if a
record date is fixed and such dividend is not fully paid or such other
distribution is not fully made on the date fixed therefor, the Series C
Conversion Price shall not be decreased as of the close of business on such
record date as hereinabove provided as to the portion not fully paid or
distributed and thereafter the Series C Conversion Price shall be decreased
pursuant to this Section 4 as of the date or dates of actual payment of such
dividend or distribution.
5. Adjustments for Other Dividends and Distributions. If this
Corporation at any time or from time to time after the Filing Date pays, or
fixes a record date for the determination of holders of shares of Common Stock
entitled to receive, a dividend or other distribution in the form of securities
of this Corporation other than shares of Common Stock or rights or options for
the purchase of, or securities convertible into, Common Stock, then in each such
event provision shall be made so that the holders of outstanding shares of
Series C Stock shall receive upon conversion thereof, in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of this
Corporation that they would have received had their respective shares of Series
C Stock been converted into shares of Common Stock on the date of such event and
had such holders thereafter, from the date of such event to and including the
actual date of conversion of their shares, retained such securities, subject to
all other adjustments called for during such period under this Section D with
respect to the rights of the holders of the outstanding shares of Series C
Stock.
6. Adjustment for Reclassification, Exchange and Substitution.
If, at any time or from time to time after the Filing Date, the number of shares
of Common Stock issuable upon conversion of the shares of Series C Stock is
changed into the same or a different number of shares of any other class or
classes of stock or other securities, whether by recapitalization,
reclassification or otherwise (other than a recapitalization, division or
combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section D), then
in any such event each holder of outstanding shares of Series C Stock shall have
the right thereafter to convert such shares of Series C Stock into the same kind
and amount of stock and other securities receivable upon such recapitalization,
reclassification or other change, as the maximum number of shares of Common
Stock into which such shares of Series C Stock could have been converted
immediately prior to such recapitalization, reclassification or change, all
subject to further adjustment as provided herein.
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7. Reorganizations, Mergers, Consolidations or Sales of
Assets. If, at any time or from time to time after the Filing Date, there is a
capital reorganization of the Common Stock (other than a recapitalization,
division, combination, reclassification or exchange of shares provided for
elsewhere in this Section D) or a merger or consolidation of this Corporation
into or with another corporation or a sale of all or substantially all of this
Corporation's properties and assets to any other person, then, as a part of such
capital reorganization, merger, consolidation or sale, provision shall be made
so that the holders of outstanding shares of Series C Stock shall thereafter
receive upon conversion thereof the number of shares of stock or other
securities or property of this Corporation, or of the successor corporation
resulting from such merger or consolidation or sale, to which a holder of the
number of shares of Common Stock into which their shares of Series C Stock were
convertible would have been entitled on such capital reorganization, merger,
consolidation or sale. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section D with respect to the rights
of the holders of the outstanding shares of Series C Stock after the capital
reorganization, merger, consolidation, or sale to the end that the provisions of
this Section D (including adjustment of the Series B Conversion Price and the
number of shares into which the shares of Series B Stock may be converted) shall
be applicable after that event and be as nearly equivalent to such Conversion
Prices and number of shares as may be practicable.
8. Sale of Shares Below Conversion Price.
(i) If, at any time or from time to time after the
Filing Date, this Corporation issues or sells, or is deemed by the express
provisions of this Section 8 to have issued or sold, Additional Shares of Common
Stock (as hereinafter defined) for an Effective Price (as hereinafter defined)
less than the then current Series C Conversion Price, other than (A) as a
dividend or other distribution on any class of stock as provided in Section D.4
above or (B) upon a division or combination of shares of Common Stock as
provided in Section D.3 above, then, in any such event, the Series C Conversion
Price shall be reduced, as of the close of business on the date of such issuance
or sale, to an amount determined by multiplying the Series C Conversion Price by
a fraction (A) the numerator of which shall be (x) the number of shares of
Common Stock outstanding at the close of business on the day immediately
preceding the date of such issuance or sale, plus (y) the number of shares of
Common Stock which the aggregate consideration received (or by the express
provisions hereof deemed to have been received) by this Corporation for the
total number of Additional Shares of Common Stock so issued or sold would
purchase at such Series C Conversion Price and (B) the denominator of which
shall be the number of shares of Common Stock outstanding at the close of
business on the date of such issuance or sale after giving effect to such
issuance or sale of Additional Shares of Common Stock. For the purpose of the
calculation described in this Section 8, the number of shares of Common Stock
outstanding shall include, in addition to the number of shares of Common Stock
actually outstanding, (A) the number of shares of Common Stock into which the
then outstanding shares of Series A Stock, Series B Stock and Series C Stock
could be converted if fully converted on the day immediately preceding the
issuance or sale or deemed issuance or sale of Additional Shares of Common
Stock; and (B) the number of shares of Common Stock which would be obtained
through the exercise or conversion of all rights, options and Convertible
Securities (as hereinafter defined) outstanding on the day immediately preceding
the issuance or sale or deemed issuance or sale of Additional Shares of Common
Stock.
(ii) For the purpose of making any adjustment
required under this Section 8, the consideration received by this Corporation
for any issuance or sale of securities shall (A) to the extent it consists of
property other than cash, be the fair value of that property as reasonably
determined in good faith by a disinterested majority of the Board of Directors;
and (B) if Additional Shares of Common Stock, Convertible Securities (as
hereinafter defined) or rights or options to purchase either Additional Shares
of Common Stock or Convertible Securities are issued or sold together with other
stock or securities or other assets of this Corporation for a consideration
which covers both, be the portion of the consideration so received reasonably
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determined in good faith by a disinterested majority of the Board of Directors
to be allocable to such Additional Shares of Common Stock, Convertible
Securities or rights or options.
(iii) For the purpose of the adjustment required
under this Section 8, if this Corporation issues or sells any rights or options
for the purchase of, or stock or other securities convertible into, Additional
Shares of Common Stock (such convertible stock or securities being hereinafter
referred to as oConvertible Securitieso) and if the Effective Price (as defined
in Clause (v) below) of such Additional Shares of Common Stock is less than the
then current Series C Conversion Price, this Corporation shall be deemed to have
issued, at the time of the issuance of such rights, options or Convertible
Securities the maximum number of Additional Shares of Common Stock issuable upon
exercise or conversion thereof and to have received as consideration therefor an
amount equal to (A) the total amount of the consideration, if any, received by
this Corporation for the issuance of such rights or options or Convertible
Securities plus (B) in the case of such rights or options, the minimum amount of
consideration, if any, payable to this Corporation upon the exercise of such
rights or options or, in the case of Convertible Securities, the minimum amount
of consideration, if any, payable to this Corporation upon the conversion
thereof. Thereafter, no further adjustment of the Series C Conversion Price
shall be made as a result of the actual issuance of Additional Shares of Common
Stock on the exercise of any such rights or options or the conversion of any
such Convertible Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall expire or
otherwise terminate without having been exercised, the Series C Conversion Price
shall thereafter be the Series C Conversion Price that would have been in effect
had an adjustment been made on the basis that the only Additional Shares of
Common Stock so issued were the Additional Shares of Common Stock, if any,
actually issued or sold on the exercise of such rights or options or rights of
conversion of such Convertible Securities, and were issued or sold for the
consideration actually received by this Corporation upon such exercise plus (A)
the consideration, if any, actually received for the granting of all such rights
or options, whether or not exercised, (B) the consideration, if any, actually
received by issuing or selling the Convertible Securities actually converted and
(C) the consideration, if any, actually received on the conversion of such
Convertible Securities. However, if any such rights or options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the Corporation, upon the exercise,
conversion or exchange thereof, the Series C Conversion Price for the Series C
Stock, and any subsequent adjustments based thereon, shall upon any such
increase or decrease becoming effective be recomputed to reflect such increase
or decrease insofar as it affects such rights, options or the rights of
conversion or exchange under such Convertible Securities.
(iv) For the purpose of any adjustment required under
this Section D.8, if (a) this Corporation issues or sells any rights or options
for the purchase of Convertible Securities and (b) if the Effective Price of the
Additional Shares of Common Stock underlying such Convertible Securities is less
than the Series C Conversion Price, then in each such event this Corporation
shall be deemed to have issued at the time of the issuance of such rights or
options the maximum number of Additional Shares of Common Stock issuable upon
conversion of the total number of Convertible Securities covered by such rights
or options (as set forth in the legal instruments setting forth the terms of
such Convertible Securities) and to have received as consideration for the
issuance of such Additional Shares of Common Stock an amount equal to the amount
of consideration, if any, received for the issuance of such rights or options
plus (A) the minimum amount of consideration, if any, payable upon the exercise
of such rights or options and (B) the minimum amount of consideration, if any,
payable upon the conversion of such Convertible Securities. No further
adjustment of the Series C Conversion Price shall be made as a result of the
actual issuance of the Convertible Securities upon the exercise of such rights
or options or upon the actual issuance of Additional Shares of Common Stock upon
the conversion of such Convertible Securities. The provisions of Section
D.8.(iii) for the adjustment of the Series C Conversion Price upon the
expiration of rights or options or the rights of conversion of Convertible
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Securities shall apply mutatis mutandis upon the expiration of the rights,
options and Convertible Securities referred to in this Clause D.8.(iv).
(v) "Additional Shares of Common Stock" shall mean
all shares of Common Stock issued or deemed to be issued under this Section D.8
after the Filing Date, other than (A) shares of Common Stock issued upon
conversion of the shares of Series A Stock, the Series B Stock or Series C
Stock; (B) shares of Common Stock (or options, warrants or rights therefor)
granted or issued subsequent to the Filing Date to employees, officers,
directors of the Corporation or any subsidiary pursuant to incentive agreements,
stock purchase or stock option plans, stock bonuses or awards, warrants,
contracts or other arrangements that are approved by the Board of Directors; (C)
securities issued by the Corporation representing in the aggregate five percent
(5%) or less of the then outstanding shares of Common Stock, on a fully-diluted
basis, to contractors, consultants, advisers to, or vendors of, the Corporation
or in connection with any credit, financing or leasing agreements or similar
instruments with equipment lessors or other persons providing equipment lease or
other equipment financing; (D) securities issued in connection with or pursuant
to the acquisition of all or any portion of another company by the Company
whether by merger or any other reorganization or by the purchase of all or any
portion of the assets of another company, pursuant to a plan, agreement or other
arrangement approved by the Board of Directors; (E) securities issued to or in
connection with an arrangement or venture with a strategic partner of the
Company, provided such issuance is unanimously approved by the Board of
Directors; (F) shares of Common Stock or Preferred Stock issued or issuable upon
the exercise of any warrants, options or other rights that are outstanding as of
the Filing Date (or issued or issuable after the reissuance of any such expired
or terminated options, warrants or rights and net of any such issued shares
repurchased by the Corporation); (G) the reissuance or assignment by the
Corporation of any shares of Common Stock outstanding as of the Filing Date to a
different person from the holder of such shares; (H) securities issued pursuant
to any anti-dilution rights of the holders of Series A Stock or Series B Stock
or warrants to purchase securities of this Corporation that are outstanding as
of the Filing Date; (H) shares of Common Stock issued in a public offering by
this Corporation in which all shares of Series A Stock, Series B Stock and
Series C Stock are automatically converted into shares of Common Stock; and (I)
shares of Common Stock issued by way of dividend or other distribution on shares
of Preferred Stock and Common Stock excluded from the definition of Additional
Shares of Common Stock by the foregoing clauses (A), (B), (C), (D), (E), (F),
(G) (H) and this clause (I). The oEffective Priceo of Additional Shares of
Common Stock shall mean the quotient obtained by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been issued
or sold, under this Section 8 into the aggregate consideration received, or
deemed to have been received for such Additional Shares of Common Stock.
9. Certificate of Adjustment. Upon the occurrence of each
adjustment or readjustment of the Series C Conversion Price, the Corporation, at
its sole expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each holder of
Series C Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
10. Notices of Record Date. In the event of (i) any taking by
this Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution or (ii) any capital reorganization of this
Corporation, any reclassification or recapitalization of the capital stock of
this Corporation, any merger or consolidation of this Corporation with or into
any other corporation, or any transfer of all or substantially all of the assets
of the Corporation, or any voluntary or involuntary dissolution, liquidation or
winding up of this Corporation, this Corporation shall mail to each holder of
shares of Series C Stock at least twenty (20) days prior to the record date
specified therein, a notice specifying (i) the date on which any such record is
to be taken for the purpose of such dividend or distribution and a description
of such dividend or distribution; (ii) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
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liquidation or winding up, is expected to become effective and the specific
details thereof; and (iii) the date, if any, that is to be fixed as to when the
holders of record of shares of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up.
11. Automatic Conversion.
(i) Series C Stock Conversion. Each share of Series C
Stock shall automatically be converted into shares of Common Stock based upon
the Series C Conversion Price upon the automatic conversion of the shares of
Series A Stock pursuant to a "Qualified Liquidation Evento or oQualified
Liquidity Milestoneo as set forth in the Corporationss.s Certificate of
Designation of Series A Convertible Preferred Stock or otherwise upon the
conversion of all the shares of Series A Stock.
(ii) Upon Vote of 66-2/3% of Series C Preferred
Stock. Each share of Series C Preferred Stock shall automatically be converted
into shares of Common Stock based upon the Series C Conversion Price then
applicable upon the affirmative vote of the holders of at least sixty-six and
two thirds percent (66-2/3 %) of the outstanding shares of Series C Preferred
Stock.
Upon the occurrence of an event specified in this Section 11, the
outstanding shares of Series C Stock shall be converted into outstanding shares
of Common Stock, whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent. Upon the automatic
conversion of the outstanding shares of Series C Stock, the Corporation shall
notify the holders of the outstanding shares of Series C Stock and thereafter
such holders shall surrender the certificates representing such shares at the
office of the Corporation or any transfer agent for the shares. Thereupon there
shall be issued and delivered to such holder, promptly at such office and in its
name as shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the surrendered
shares of Series C Stock of such holder were convertible on the date on which
such automatic conversion occurred.
12. Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the shares of Series C Stock. In lieu of any
fractional share to which the holder of such shares would otherwise be entitled,
the Corporation shall pay cash equal to the product of (i) such fraction
multiplied by (ii) the fair market value of one share of the Common Stock on the
date of conversion, as determined in good faith by a disinterested majority of
the Board of Directors.
13. Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Series C Stock, such number of shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series C Stock. If at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of Series C Stock, the Corporation
shall take such action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
14. Notices. Any notice required by the provisions of this
Section D to be given to a holder of shares of Series C Stock shall be deemed
given upon actual receipt or if receipt is refused or does not occur, then the
second attempted delivery as evidenced by appropriate third-party commercial
documentation (i.e., Postal Service, Federal Express, etc.).
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15. No Dilution or Impairment. The Corporation shall not amend
its Certificate of Incorporation or participate in any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the rights of the holders of the shares of Series C Stock
against dilution (as contemplated herein) or other impairment of their rights.
E. NO RE-ISSUANCE. No share or shares of Series C Stock acquired by the
Corporation by reason of redemption, purchase or otherwise shall be reissued,
and all such shares shall be canceled, retired and eliminated from the shares
which the Corporation shall be authorized to issue.
9
