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EXHIBITS 3.1
Exhibit B to Securities Purchase Agreement
ARTICLES OF AMENDMENT
OF THE
ARTICLES OF INCORPORATION
OF
WAVEPHORE, INC.
The undersigned officer of WavePhore, Inc. (the "Corporation"), a
corporation existing pursuant to the provisions of the Indiana Business
Corporation Law, as amended (the "Act"), desiring to give notice of corporate
action effectuating the amendment of certain provisions of the Corporation's
Articles of Incorporation, sets forth the following facts:
ARTICLE I
AMENDMENT
Section 1. The Corporation was incorporated on November 13, 1990.
Section 2. The name of the Corporation following this Amendment to the
Articles of Incorporation is WavePhore, Inc.
Section 3. The exact text of new subsection (6) of Article III, Section
C of the Articles of Incorporation is now as follows:
(6) Designation of Rights of Series C Convertible Preferred Shares.
The Corporation is authorized to issue a Series of its Preferred Shares
consisting of 24,000 Preferred Shares having a stated value of One Thousand
Dollars ($1,000) per share (the "Stated Value"), to be designated as the Series
C Convertible Preferred Stock (the "Series C Preferred Stock"). The rights,
privileges and preferences of the Series C Preferred Stock, and the limitations
and restrictions thereon, are as follows:
1. DIVIDENDS.
(a) Dividend Rate; Payments. The holders (each, a "Holder" and
collectively, the "Holders") of shares of Series C Preferred Stock (the "Series
C Preferred Shares") shall be entitled to receive, to the extent permitted by
applicable law, subject to the prior, full payment of any accumulated and unpaid
dividends on any class or series of Senior Securities (as defined below) and in
preference to the payment of any dividend on any class or series of Junior
Securities (as defined below), cumulative dividends ("Dividends") on each Series
C Preferred Share in an amount equal to, on an annualized basis, the Stated
Value of such Series C Preferred Share times six percent (6%) (such percentage
being subject to ratable adjustment in the event of any stock split or
combination of the Series C Preferred Stock and to equitable adjustment in the
event of a reclassification of the Series C Preferred Stock or other similar
event). Dividends shall accrue,
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whether or not earned or declared, on each Series C Preferred Share from the
date of original issuance thereof (the "Purchase Date") through the earlier to
occur of (A) the Maturity Date (as defined below) and (B) the redemption or
conversion thereof in accordance with the terms hereof. Accrued Dividends on a
Series C Preferred Share shall be payable quarterly on each June 30, September
30, December 31 and March 31 following the date hereof (or if such date is not a
Business Day, on the next succeeding Business Day), on any Redemption Date (as
defined below) and on the Maturity Date (as defined below), the first such
payment of which shall be prorated and made on September 30, 1997 (each, a
"Dividend Payment Date") to the record holder of such Series C Preferred Share
on the relevant Dividend Payment Date. If, on any date, Dividends on the
outstanding Series C Preferred Shares have not been paid or declared by the
Board of Directors in accordance with applicable law and set apart for payment
with respect to all Dividend Payment Dates preceding such date, the aggregate
amount of such Dividends shall be fully paid or declared and set apart for
payment before any distribution, whether by way of dividend or otherwise, shall
be declared, paid or set apart with respect to any Junior Securities on or after
such date. In the event that a Holder elects to convert a Series C Preferred
Share on a Conversion Date (as defined below) which is not a Dividend Payment
Date, such Holder shall not be entitled to receive any Dividends which have
accrued on such Series C Preferred Share since the immediately prior Dividend
Payment Date (the "Cut-off Date"); provided, however, that, in such event, such
Holder shall be entitled to receive, on such Conversion Date, any Dividends that
have accrued but remain unpaid with respect to each day prior to the Cut-off
Date and such Conversion Date shall be deemed to be a Dividend Payment Date with
respect to such accrued Dividends. Dividends shall be paid either in cash or, at
the option of the Corporation (the "Stock Payment Option"), and subject to the
satisfaction of the conditions set forth in paragraph 2(e) below (the "Stock
Payment Conditions"), in shares of Common Stock (the "Dividend Payment Shares").
Cash Dividends shall be paid to each Holder within five (5) Business Days
following the applicable Dividend Payment Date by delivering immediately
available funds to such Holder in accordance with such Holder's wiring
instructions. Any amount of Dividends payable in cash which is not paid within
five Business Days of the applicable Dividend Payment Date shall bear interest
at an annual rate equal to the lower of (x) the "prime" rate (as published in
the Wall Street Journal) on such fifth Business Day plus three percent (3%) and
(y) the highest rate permitted by applicable law, for the number of days elapsed
from the third such Business Day until such amount is paid in full (the "Default
Interest Rate").
(b) Exercise of Stock Payment Option. If the Corporation elects to
exercise the Stock Payment Option, it shall do so by delivering written notice
thereof to each Holder at least ten (10) but no more than thirty (30) Business
Days prior to the applicable Dividend Payment Date, which notice shall set forth
the amount of the Dividend to which such Holder is entitled and the formula
pursuant to which the determination of the number of Dividend Payment Shares
issuable to such Holder will be made. The Stock Payment Option may be exercised
with respect to all or any part of the aggregate Dividend payable to all Holders
on a Dividend Payment Date; provided, however, that, if the Stock Payment Option
is exercised with respect to less than all of such aggregate Dividend, each
Holder shall be entitled to receive Dividend Payment Shares on a pro rata basis
in proportion to the amount payable as a Dividend to such Holder on such
Dividend Payment Date relative to the amount of the aggregate Dividend payable
to all Holders.
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(c) Delivery of Dividend Payment Shares. Upon exercise of the Stock
Payment Option, the Corporation shall deliver to each Holder, on or before the
third (3rd) Business Day following the applicable Dividend Payment Date (the
"Dividend Payment Share Delivery Date"), the aggregate number of whole Dividend
Payment Shares that is determined by dividing (x) the amount of the Dividend to
which such Holder is entitled as of such Dividend Payment Date with respect to
all of such Holder's Series C Preferred Shares by (y) the average Closing Sale
Price (as defined below) for the Common Stock during the five (5) Trading Days
(as defined below) occurring immediately prior to, but not including, the
Dividend Payment Date. The Corporation shall effect delivery of Dividend Payment
Shares to a Holder by, as long as (A) purchases and sales of shares of Common
Stock are eligible for settlement at the Depository Trust Company ("DTC") and
(B) such Holder or its nominee (as identified to the Corporation by such Holder)
maintains on the applicable Dividend Payment Share Delivery Date an account at
DTC for the receipt of securities, crediting the account of such Holder or
nominee at DTC with the number of Dividend Payment Shares required to be
delivered, no later than the close of business on such Dividend Payment Share
Delivery Date. In the event that either or both of the conditions specified in
clauses (A) and (B) above are not satisfied as of the applicable Dividend
Payment Share Delivery Date, the Corporation shall effect delivery of Dividend
Payment Shares by delivering to the Holder or its nominee physical certificates
representing such Dividend Payment Shares, no later than the close of business
on such Dividend Payment Share Delivery Date. No fractional Dividend Payment
Shares shall be issued; the Corporation shall, in lieu thereof, either issue a
number of Dividend Payment Shares which reflects a rounding up to the next whole
number of shares or pay such amount in cash. The Dividend Payment Shares shall
be fully paid and non-assessable, free and clear of any liens, claims,
preemptive rights or encumbrances imposed by or through the Corporation.
(d) Failure to Deliver Dividend Payment Shares. If the Corporation
fails to issue and deliver the appropriate number of Dividend Payment Shares to
a Holder on or before the tenth (10th) Business Day following the Dividend
Payment Share Delivery Date, the Corporation shall, upon written notice by such
Holder, immediately pay the amount of the Dividend in cash, together with
Default Interest on such unpaid amount calculated from the applicable Dividend
Payment Date until the date on which such amount is paid. Each Holder shall have
the right to pursue actual damages for the Corporation's failure to issue and
deliver Dividend Payment Shares on the Dividend Payment Share Delivery Date for
a Dividend, including, without limitation, damages relating to any purchase of
shares of Common Stock by such Holder to make delivery on a sale effected in
anticipation of receiving Dividend Payment Shares, such damages to be in an
amount equal to (A) the aggregate amount paid by such Holder for the shares of
Common Stock so purchased minus (B) (i) the aggregate amount of net proceeds, if
any, received by such Holder from the sale of the Dividend Payment Shares issued
by the Corporation with respect to such Dividend and (ii) the amount of any cash
received in lieu of such Dividend Payment Shares pursuant to the first sentence
of this paragraph (d), and such Holder shall have the right to pursue all
remedies available to it at law or in equity (including, without limitation, a
decree of specific performance and/or injunctive relief).
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(e) Conditions to Stock Payment Option. The Corporation may exercise
the Stock Payment Option with respect to Dividends payable to a Holder only if
each of the following conditions has been satisfied as of the applicable
Dividend Payment Date:
(i) the number of shares of Common Stock authorized, unissued
and unreserved for all other purposes, or held in the Corporation's treasury, is
sufficient to effect the issuance and delivery of at least 125% of the aggregate
of (i) the number of shares of Common Stock into which all outstanding Series C
Preferred Shares are convertible (the "Conversion Shares"), (ii) the number of
shares of Common Stock (the "Warrant Shares") issuable upon exercise of the
Warrants (the "Warrants") issued and sold pursuant to the terms of a Securities
Purchase Agreement governing the issuance and sale of the Series C Preferred
Stock (the "Securities Purchase Agreement") and which are then outstanding, and
(iii) the number of Dividend Payment Shares issuable pursuant to such exercise;
(ii) the Corporation's common stock (the "Common Stock") is
authorized for quotation on the Nasdaq National Market or for listing or
quotation on the New York Stock Exchange or any other national securities
exchange;
(iii) (A) a Registration Statement covering the resale of
shares of Common Stock (the "Registration Statement") is effective and available
for the sale of no less than 125% of the aggregate of (i) the number of
Conversion Shares into which all outstanding Series C Preferred Shares are then
convertible, (ii) the number of Warrant Shares then issuable upon the exercise
of all outstanding Warrants in full, (iii) the number of Conversion Shares and
Warrant Shares, respectively, that are then held by all of the Holders and with
respect to which a registration statement is required to be maintained under the
terms of the Registration Rights Agreement, pursuant to which the Conversion
Shares, the Warrant Shares and the Dividend Payment Shares are required to be
registered under the Registration Statement (the "Registration Rights
Agreement") and (iv) the number of Dividend Payment Shares issuable pursuant to
such exercise or (B) a Registration Statement is no longer required to be
maintained under the Registration Rights Agreement;
(iv) a Mandatory Redemption Event (as defined herein) has not
occurred; and
(v) such payment in Dividend Payment Shares, after giving
effect to the Conversion of all Series C Preferred Shares, the exercise of all
Warrants and the prior issuance of all shares of Common Stock hereunder, in each
case effected on or before such Dividend Payment Date, will not violate the
limitations set forth in Section 4 below.
For purposes of subparagraphs (e)(i) and (e)(iii) above, the
determination of the number of Conversion Shares or Warrant Shares issuable at
any time shall be made without regard to the limitations set forth in Section 4
below or in paragraph 4 of the Warrant.
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2. PRIORITY.
(a) Payment upon Dissolution.
(i) Upon the occurrence of (x) any insolvency or bankruptcy
proceedings, or any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, commenced by the Corporation or by its
creditors, as such, or relating to its assets or (y) the dissolution or other
winding up of the Corporation whether total or partial, whether voluntary or
involuntary and whether or not involving insolvency or bankruptcy proceedings,
or (z) any assignment for the benefit of creditors or any marshalling of the
material assets or material liabilities of the Corporation (each, a "Liquidation
Event"), no distribution shall be made to the holders of any shares of Junior
Securities (as defined below) unless, following the payment of preferential
amounts on all Senior Securities (as defined below), each Holder shall have
received the Liquidation Preference (as defined below) with respect to each
Series C Preferred Share then held by such Holder. In the event that upon the
occurrence of a Liquidation Event, and following the payment of preferential
amounts on all Senior Securities (as defined below), the assets available for
distribution to the Holders and the holders of securities ranking pari passu
with the Series C Preferred Stock in respect of dividends, redemption or
distribution upon liquidation (the "Pari Passu Securities") are insufficient to
pay the Liquidation Preference with respect to all of the outstanding Series C
Preferred Shares and the preferential amounts payable to such holders, the
entire assets of the Corporation shall be distributed ratably among the Series C
Preferred Shares and the shares of Pari Passu Securities in proportion to the
ratio that the preferential amount payable on each such share (which shall be
the Liquidation Preference in the case of a Series C Preferred Share) bears to
the aggregate preferential amount payable on all such shares.
(ii) The "Liquidation Preference" with respect to a Series C
Preferred Share shall mean an amount equal to the Stated Value of such Series C
Preferred Share plus any accrued and unpaid Dividends thereon. "Junior
Securities" shall mean the Common Stock and all other capital stock of the
Corporation that are not Pari Passu Securities or do not have a preference over
the Series C Preferred Stock in respect of dividends, redemption or distribution
upon liquidation. "Senior Securities" shall mean any securities of the
Corporation which by their terms have a preference over the Series C Preferred
Stock in respect of dividends, redemption or distribution upon liquidation. For
purposes hereof, the Corporation's Series A Preferred Stock and Series B
Preferred Stock shall be deemed to be Senior Securities and the Corporation's
Series 1994 Cumulative Preferred Stock and any other series of capital stock
that does not constitute Junior Securities or Senior Securities shall be deemed
to be Pari Passu Securities.
3. CONVERSION.
(a) Right to Convert. Subject to the limitations contained in Section 4
below, each Holder shall have the right to convert, at any time and from time to
time, from and after the date which is three months following the Purchase Date
(the "Initial Conversion Date"), all or any part of the Series C Preferred
Shares held by such Holder into such number of fully paid and non-
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assessable shares of Common Stock ("Conversion Shares") as is computed in
accordance with the terms hereof (a "Conversion").
(b) Conversion Notice. In order to convert Series C Preferred Shares, a
Holder shall send by facsimile transmission, at any time prior to 11:59 p.m.,
eastern time, on the date on which such Holder wishes to effect such Conversion
(the "Conversion Date"), (i) a notice of conversion (a "Conversion Notice") to
the Corporation and to its designated transfer agent for the Common Stock (the
"Transfer Agent") stating the number of Series C Preferred Shares to be
converted, the applicable Conversion Price (as defined below) and a calculation
of the number of shares of Common Stock issuable upon such Conversion and (ii) a
copy of the certificate or certificates representing the Series C Preferred
Shares being converted. The Holder shall thereafter send the original of the
Conversion Notice and of such certificate or certificates by overnight mail to
the Transfer Agent. The Corporation shall issue a new certificate for Series C
Preferred Shares in the event that less than all of the Series C Preferred
Shares represented by a certificate delivered to the Corporation in connection
with a Conversion are converted. Upon receipt of a facsimile of the Conversion
Notice, the Corporation shall send by facsimile to the Holder submitting such
Conversion Notice a confirmation of the receipt thereof ("a Confirmation
Notice"). In the case of an unresolved good faith dispute as to the calculation
of the Conversion Price or the number of Conversion Shares issuable upon a
Conversion, the Corporation shall promptly issue to the Holder the number of
Conversion Shares that are not disputed and shall submit the disputed
calculations to its independent accountants within three (3) Business Days of
receipt of the Holder's Conversion Notice. The Corporation shall cause such
accountant to calculate the Conversion Price as provided herein and to notify
the Corporation and the Holder of the results in writing no later than three (3)
Business Days following the day on which it received the disputed calculations.
Such accountant's calculation shall be deemed conclusive absent manifest error.
The fees of any such accountant shall be borne by the party whose calculations
were most at variance with those of such accountant.
(c) Number of Conversion Shares; Conversion Price. The number of
Conversion Shares to be delivered by the Corporation pursuant to a Conversion
shall be determined by dividing the aggregate Stated Value of the Series C
Preferred Shares to be converted by the Conversion Price (as defined herein) in
effect on the Conversion Date. During the first six months following the
Purchase Date (the "Fixed Conversion Price Period"), "Conversion Price" shall
mean 115% of the average of the Closing Sale Prices for the Common Stock on the
five (5) Trading Days (as defined herein) occurring immediately prior to (but
not including) the Purchase Date (the "Fixed Conversion Price"). Following the
end of the Fixed Conversion Price Period, "Conversion Price" shall mean the
lesser of (A) the Fixed Conversion Price and (B) a price (the "Floating
Conversion Price") calculated by (i) determining the seven lowest Closing Sale
Prices for the Common Stock during the thirty (30) Trading Days occurring
immediately prior to (but not including) the Conversion Date, (ii) determining
the average of the five highest of such seven Closing Sale Prices and (iii)
multiplying such average by a percentage determined as described below (the
"Conversion Percentage")(for the avoidance of doubt, the Floating Conversion
Price shall be equal to the product of such average times the Conversion
Percentage). The Conversion Percentage shall be equal to (i) as long as the
Common Stock is quoted on the Nasdaq National Market or listed on a national
securities exchange, 100% (ii) if the Common Stock is quoted on the Nasdaq
SmallCap Market,
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85% and (iii) if the Common Stock is neither quoted on the Nasdaq National
Market or on the Nasdaq SmallCap Market, nor listed on a national securities
exchange, 75%. Upon the satisfaction of each of the Extension Conditions (as
defined below), the Fixed Conversion Price Period shall be extended for an
additional six month period (the "Extension Period"), subject to the prior
expiration of such period as described below. The "Extension Conditions" are as
follows: (1) the Corporation's earnings deficiency before interest, taxes,
depreciation and amortization for the third quarter of 1997 is not greater than
$2,500,000, (2) the Corporation's revenues for the third quarter of 1997 are at
least $6,500,000, and (3) the average of the Closing Sale Prices for the Common
Stock on the five (5) Trading Days occurring immediately prior to (but not
including) the day on which the Fixed Conversion Price Period would otherwise
expire is equal to or greater than 125% of the Fixed Conversion Price.
Notwithstanding the satisfaction of the Extension Conditions, if on any three
(3) consecutive Trading Days occurring during the Extension Period, the Closing
Sale Price for the Common Stock is less than the Closing Sale Price for the
Common Stock on the Purchase Date, the Extension Period will automatically
expire at 5:00 p.m, eastern time, on the third such Trading Day.
(d) Certain Definitions. "Trading Day" shall mean any day on which the
Common Stock is traded on the Nasdaq National Market or on the principal
securities exchange or market on which the Common Stock is then traded. "Closing
Sale Price" means, with respect to a security, the closing sale price of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg Financial Markets or, if
Bloomberg Financial Markets is not then reporting closing sale prices of such
security, a comparable reporting service of national reputation selected by the
Corporation and reasonably acceptable to holders of a majority of the then
outstanding Series C Preferred Shares (collectively, "Bloomberg"), or if the
foregoing does not apply, the last reported sale 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 sale price is reported for such security by
Bloomberg, the average of the sale prices of all market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Sale Price cannot be calculated for such security on any of the
foregoing bases, the Closing Sale Price of such security shall be the fair
market value as reasonably determined by an investment banking firm selected by
the Holders (which may be a Holder) of a majority of the then outstanding Series
C Preferred Shares and reasonably acceptable to the Corporation, with the costs
of such appraisal to be borne by the Corporation. "Business Day" means any day
on which the New York Stock Exchange and commercial banks located in the City of
New York are open for business
(e) Delivery of Common Stock Upon Conversion. Upon receipt of a
Conversion Notice from a Holder pursuant to paragraph 3(b) above, the
Corporation shall, no later than the close of business on the later to occur of
(i) the third (3rd) Business Day following the Conversion Date set forth in such
Conversion Notice, (ii) the first Business Day following delivery of the
original certificates, duly endorsed, representing the Series C Preferred Shares
being converted pursuant thereto, if such delivery is effected at or prior to
2:00 p.m., Arizona time, and (iii) the second Business Day following delivery of
such original certificates if such delivery is effected after 2:00 p.m., Arizona
time (the "Delivery Date"), issue and deliver or cause to be delivered to such
Holder the number of Conversion Shares as shall be determined as provided
herein. The Corporation shall
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effect delivery of Conversion Shares to a Holder by, as long as (A) purchases
and sales of shares of Common Stock are eligible for settlement at DTC and (B)
such Holder or its nominee (as advised by such Holder) maintains on the
applicable Delivery Date an account at DTC for the receipt of securities,
crediting the account of such Holder or nominee at DTC with the number of
Conversion Shares required to be delivered, no later than the close of business
on such Delivery Date. In the event that either or both of the conditions
specified in clauses (A) or (B) above are not satisfied as of the applicable
Delivery Date, or if a Holder so specifies in a Conversion Notice, the
Corporation shall effect delivery of Conversion Shares by delivering to the
Holder or its nominee physical certificates representing such Conversion Shares,
no later than the close of business on such Delivery Date. If any Conversion
would create a fractional Conversion Share, such fractional Conversion Share
shall be disregarded and the number of Conversion Shares issuable upon such
Conversion, in the aggregate, shall be the next higher number of Conversion
Shares. Conversion Shares delivered to the Holder shall not contain any
restrictive legend as long as the sale of such Conversion Shares is covered by
an effective Registration Statement or may be made pursuant to Rule 144(k) under
the Securities Act of 1933, as amended (the "Securities Act"), or any successor
rule or provision.
(f) Failure to Deliver Conversion Shares.
(i) In the event that the Corporation fails for any reason
(other than by operation of Section 4 below) to deliver to a Holder certificates
representing the number of Conversion Shares specified in the applicable
Conversion Notice on or before the Delivery Date therefor (a "Conversion
Default"), such Holder shall notify the Corporation by facsimile of such
Conversion Default (a "Default Notice"). If, after the Holder has sent a Default
Notice to the Corporation, the Corporation has not delivered such certificates,
and such failure continues for three (3) Business Days following the later to
occur of the Delivery Date and the date on which the Default Notice is sent, the
Corporation shall pay to such Holder payments ("Conversion Default Payments") in
the amount of (i) (N/365) multiplied by (ii) the aggregate Liquidation
Preference of the Series C Preferred Shares represented by the Conversion Shares
which remain the subject of such Conversion Default multiplied by (iii) the
lower of twenty-four percent (24%) and the maximum rate permitted by applicable
law, where "N" equals the number of days elapsed between the original Delivery
Date for such Conversion Shares and the earlier to occur of (A) the date on
which all of the certificates representing such Conversion Shares are issued and
delivered to such Holder, (B) the date on which such Series C Preferred Shares
are redeemed pursuant to the terms hereof and (C) the date on which a Withdrawal
Notice (as defined below) is delivered to the Corporation. Amounts payable under
this subparagraph (f) shall be paid to the Holder in immediately available funds
on or before the fifth (5th) Business Day of the calendar month immediately
following the calendar month in which such amounts have accrued.
(ii) In the event that a Holder has not received certificates
representing the Conversion Shares by the tenth (10th) Business Day following a
Conversion Default, such Holder may, upon written notice (a "Withdrawal Notice")
delivered to the Corporation on such Business Day or on any Business Day
thereafter (unless, prior to the delivery of such notice, such Conversion Shares
are delivered to such Holder), withdraw its Conversion Notice with respect to
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such Conversion Shares and regain its rights as a Holder of the Series C
Preferred Shares that are the subject of such Conversion Default. In such event,
the Conversion Price that would otherwise be in effect when such Series C
Preferred Shares are thereafter converted in accordance with the terms hereof
shall be reduced by one percent (1%) for each day occurring during the period
immediately following such 10th Business Day until the day on which the such
Holder delivers a Withdrawal Notice to the Corporation; provided, however, that
the maximum percentage by which such Conversion Price may be reduced hereunder,
and under subparagraph 7(d)(iii) hereof, shall be fifty percent (50%). (For
example, if such Conversion Default were to continue for five days following
such 10th Business Day, such Conversion Price would be reduced by 5%; if for ten
days, by 10%; and for fifty days or more, 50%, so that the number of Conversion
Shares deliverable upon conversion of such Series C Preferred Shares would be
increased proportionately) Upon delivery by a Holder of a Withdrawal Notice,
such Holder shall retain all of such Holder's rights and remedies with respect
to the Corporation's failure to deliver such Conversion Shares (including
without limitation the right to receive the cash payments specified in
subparagraph 3(f)(i) above).
(iii) Nothing herein shall limit a Holder's right to pursue
actual damages for the Corporation's failure to issue and deliver Conversion
Shares on the applicable Delivery Date (including, without limitation, damages
relating to any purchase of shares of Common Stock by such Holder to make
delivery on a sale effected in anticipation of receiving Conversion Shares upon
Conversion, such damages to be in an amount equal to (A) the aggregate amount
paid by such Holder for the shares of Common Stock so purchased minus (B) the
aggregate amount of net proceeds, if any, received by such Holder from the sale
of the Conversion Shares issued by the Corporation pursuant to such Conversion),
and such Holder shall have the right to pursue all remedies available to it at
law or in equity (including, without limitation, a decree of specific
performance and/or injunctive relief).
(g) Conversion at Maturity. On the date which is five (5) years
following the Purchase Date (the "Maturity Date"), all Series C Preferred Shares
then outstanding shall be automatically converted into the number of shares of
Common Stock equal to the Stated Value of such shares divided by the Mandatory
Conversion Price (as defined below) (a "Mandatory Conversion"), provided,
however, that if either (x) the Common Stock is not designated for quotation on
the Nasdaq National Market or listed on the New York Stock Exchange or other
national securities exchange or (y) the Corporation delivers a written notice to
each Holder at least twenty-five (25) Business Days prior to the Maturity Date
stating that it intends to redeem the outstanding Series C Preferred Shares for
cash, the Corporation shall, within five (5) Business Days following the
Maturity Date, pay to each Holder, in immediately available funds, an amount
equal to the Stated Value for the Series C Preferred Shares then held by such
Holder. If a Mandatory Conversion occurs, the Corporation and each Holder shall
follow the procedures for Conversion set forth in this Section 3, with the
Maturity Date deemed to be the Conversion Date, except that the Holder shall not
be required to send a Conversion Notice as contemplated by paragraph 3(b). The
"Mandatory Conversion Price" shall be equal to the average Closing Sale Price of
the Common Stock for the twenty (20) Trading Days occurring immediately prior
to, but not including, the Maturity Date.
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4. CONVERSION LIMITATIONS.
In no event shall a Holder be permitted to convert any Series C
Preferred Shares in excess of the number of such shares, upon the Conversion of
which:
(a) the number of Conversion Shares to be issued pursuant to such
Conversion, when added to the number of shares of Common Stock issued pursuant
to all prior Conversions of Series C Preferred Shares, issuances of Dividend
Payment Shares and exercise of the Warrants would exceed 19.99% of the number of
outstanding shares of Common Stock on the Purchase Date (subject to equitable
adjustments from time to time for the events described in Section 5 below) (the
"Cap Amount"), except that such limitation shall not apply in the event that (i)
the Corporation obtains the approval of its shareholders as required by NASD
Rule 4460 (or any successor rule or regulation) for issuances of Common Stock in
excess of such amount or (ii) obtains a written opinion from outside counsel to
the Corporation that such approval is not required, which opinion shall be
reasonably satisfactory to the Holders of a majority of the Series C Preferred
Shares then outstanding. Until such approval or written opinion is obtained, no
purchaser of Series C Preferred Shares pursuant to the Securities Purchase
Agreement (each, a "Purchaser" and, collectively, the "Purchasers") shall be
issued, upon Conversion of the Series C Preferred Shares, Conversion Shares in
an amount greater than the product of (A) the Cap Amount times (B) a fraction,
the numerator of which is the number of Series C Preferred Shares issued to such
Purchaser pursuant to the Securities Purchase Agreement and the denominator of
which is the aggregate amount of all of the Series C Preferred Shares issued to
the Purchasers pursuant to the Securities Purchase Agreement (the "Allocation
Amount"). In the event that any Purchaser shall sell or otherwise transfer any
of such Purchaser's Series C Preferred Shares, the transferee shall be allocated
a pro rata portion of such Purchaser's Allocation Amount. In the event that any
Holder shall convert all of such Holder's Series C Preferred Shares into a
number of Conversion Shares which, in the aggregate, is less than such Holder's
Allocation Amount, then the difference between such Holder's Allocation Amount
and the number of Conversion Shares actually issued to such Holder shall be
allocated to the respective Allocation Amounts of the remaining Holders of
Series C Preferred Shares on a pro rata basis in proportion to the number of
Series C Preferred Shares then held by each such Holder;
(b) (x) the number of shares of Common Stock beneficially owned by such
Holder and its affiliates (other than shares of Common Stock issuable upon
conversion of such Series C Preferred Shares or which would otherwise be deemed
beneficially owned except for being subject to a limitation on conversion or
exercise analogous to the limitation contained in this subparagraph (b)) plus
(y) the number of shares of Common Stock issuable upon the Conversion of such
Series C Preferred Shares, would be equal to or exceed (z) 4.99% of the number
of shares of Common Stock then issued and outstanding. As used herein,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules thereunder. To the
extent that the limitation contained in this paragraph 4(b) applies, the
determination of whether Series C Preferred Shares are convertible (in relation
to other securities owned by a Holder) and of which Series C Preferred Shares
are convertible shall be in the sole discretion of such Holder, and the
submission of Series C Preferred Shares for Conversion shall be deemed to be
such Holder's determination of whether such Series C Preferred Shares are
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convertible (in relation to other securities owned by a Holder) and of which
Series C Preferred Shares are convertible, subject to such aggregate percentage
limitation, and the Corporation shall have no obligation whatsoever to verify or
confirm the accuracy of such determination. This paragraph may be amended (i) in
order to clarify an ambiguity or otherwise to give effect to such limitation, by
the Board of Directors of the Corporation and the Holders of two-thirds (2/3) of
the Series C Preferred Shares then outstanding and (ii) for any other reason,
with the further consent of the holders of a majority of the shares of Common
Stock then outstanding, to the extent permitted by applicable law and subject to
the rights and preferences of the Senior Securities. Nothing contained herein
shall be deemed to restrict the right of a Holder to convert such Series C
Preferred Shares at such time as such Conversion will not violate the provisions
of this subparagraph (b); and
(c) during the period beginning on the day which is three (3) months
following the Purchase Date and ending on the day which is nine months following
the Purchase Date (the "Additional Restriction Period"), such Holder would have
converted more than fifty percent (50%) of the Series C Preferred Shares
originally issued to such Holder (the "Additional Cap Amount") or, if such
Holder received the Series C Preferred Shares otherwise than through the
original issuance thereof, such Holder's pro rata portion of the original
Holder's Additional Cap Amount. Following the last day of the Additional
Restriction Period, such Holder shall be entitled to convert all of the Series C
Preferred Shares then held by such Holder (subject to the other limitations
contained in this Section 4).
The restrictions contained in (A) paragraph 4(c) shall not apply in the
event of an Optional Redemption or Mandatory Redemption (each as defined below)
and (B) paragraphs 4(b) or 4(c) shall not apply in the event of a Mandatory
Conversion.
5. ADJUSTMENTS TO CONVERSION PRICE.
(a) Adjustment to Fixed Conversion Price Due to Stock Split, Stock
Dividend, Etc. If, prior to the Conversion of all of the Series C Preferred
Shares, (A) the number of outstanding shares of Common Stock is increased by a
stock split, a stock dividend on the Common Stock, a reclassification of the
Common Stock, the distribution to holders of Common Stock of rights or warrants
entitling them to subscribe for or purchase Common Stock at less than the then
current market price thereof (based upon the subscription or exercise price of
such rights or warrants at the time of the issuance thereof) or other similar
event, the Fixed Conversion Price shall be proportionately reduced, or (B) the
number of outstanding shares of Common Stock is decreased by a reverse stock
split, combination or reclassification of shares or other similar event, the
Fixed Conversion Price shall be proportionately increased. In such event, the
Corporation shall notify the Transfer Agent of such change on or before the
effective date thereof. For purposes hereof, the market price per share of
Common Stock on any date shall be the average Closing Sale Price for the Common
Stock on the five (5) consecutive Trading Days occurring immediately prior to
but not including the earlier of such date and the Trading Day before the "ex"
date, if any, with respect to the issuance or distribution requiring such
computation. The term "'ex' date", when used with respect to any issuance or
distribution, means the first Trading Day on which the Common Stock
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trades regular way in the market from which such average Closing Sale Price is
then to be determined without the right to receive such issuance or
distribution.
(b) Adjustment to Conversion Price. If, prior to the Conversion of all
of the Series C Preferred Shares, the number of outstanding shares of Common
Stock is increased or decreased by a stock split, a stock dividend on the Common
Stock, combination, a reclassification of the Common Stock or other similar
event, and such event takes place during the reference period for determination
of the Conversion Price for any Conversion thereof, the Conversion Price shall
be calculated giving appropriate effect to the stock split, stock dividend,
combination, reclassification or other similar event for all Trading Days
immediately preceding the Conversion Date.
(c) Adjustment Due to Merger, Consolidation, Etc. If, prior to the
Conversion of all of the Series C Preferred Shares, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization or other
similar event, as a result of which shares of Common Stock shall be changed into
the same or a different number of shares of the same or another class or classes
of stock or securities of the Corporation or another entity or there is a sale
of all or substantially all the Corporation's assets or there is a Change of
Control Transaction (as defined below) with respect to which, in any such case,
a Holder does not exercise its right to a Mandatory Redemption (as defined
below) of the Series C Preferred Stock, then such Holder shall thereafter have
the right to receive upon Conversion of Series C Preferred Shares, upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon Conversion, such stock, securities and/or
other assets, if any, which such Holder would have been entitled to receive in
such transaction had such shares been converted immediately prior to such
transaction, and in any such case appropriate provisions shall be made with
respect to the rights and interests of such Holder to the end that the
provisions hereof (including, without limitation, provisions for the adjustment
of the Conversion Price and of the number of shares issuable upon a Conversion)
shall thereafter be applicable as nearly as may be practicable in relation to
any securities thereafter deliverable upon the exercise hereof. The Corporation
shall not effect any transaction described in this subsection 5(c) unless (i) it
first gives to each Holder prior notice of such merger, consolidation, exchange
of shares, recapitalization, reorganization, redemption or other similar event,
and makes a public announcement of such event at the same time that it gives
such notice and (ii) the resulting successor or acquiring entity (if not the
Corporation) assumes by written instrument the obligations of the Corporation
hereunder, including the terms of this subsection 5(c).
(d) Distribution of Assets. If the Corporation shall declare or make
any distribution of cash, evidences of indebtedness or other securities or
assets (other than cash dividends or distributions payable out of earned surplus
or net profits for the current or the immediately preceding year), or any rights
to acquire any of the foregoing, to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise, including any
dividend or distribution in shares of capital stock of a subsidiary of the
Corporation (collectively, a "Distribution"), then, upon a Conversion by a
Holder occurring after the record date for determining shareholders entitled to
such Distribution, the Fixed Conversion Price for Series C Preferred Shares not
converted prior to the record date of a Distribution shall be reduced to a price
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determined by decreasing the Fixed Conversion Price in effect immediately prior
to the record date of the Distribution by an amount equal to the fair market
value of the assets so distributed with respect to each share of Common Stock,
as determined by mutual agreement of the Corporation and each Holder.
(e) Adjustment Due to Major Announcement. If the Corporation (i) makes
a public announcement that it intends to enter into a Change of Control
Transaction (as defined below) or (ii) any person, group or entity (including
the Corporation, but excluding a Holder or any affiliate of a Holder) publicly
announces a bona fide tender offer, exchange offer or other transaction to
purchase 50% or more of the Common Stock (such announcement being referred to
herein as a "Major Announcement" and the date on which a Major Announcement is
made, the "Announcement Date"), then, in the event that a Holder seeks to
convert Series C Preferred Shares on or following the Announcement Date, the
Conversion Price shall, effective upon the Announcement Date and continuing
through the earlier to occur of the consummation of the proposed transaction or
tender offer, exchange offer or other transaction and the Abandonment Date (as
defined below), be equal to the lower of (x) the average Closing Sale Price for
the Common Stock on the five Trading Days immediately preceding (but not
including) the Announcement Date and (y) the Conversion Price in effect on the
Conversion Date for such Series C Preferred Shares (regardless of whether the
Announcement Date occurs during the Fixed Conversion Price Period). "Abandonment
Date" means with respect to any proposed transaction or tender offer, exchange
offer or other transaction for which a public announcement as contemplated by
this Paragraph (e) has been made, the date upon which the Corporation (in the
case of clause (i) above) or the person, group or entity (in the case of clause
(ii) above) publicly announces the termination or abandonment of the proposed
transaction or tender offer, exchange offer or another transaction which caused
this Paragraph (e) to become operative. In the event of a Major Announcement,
the restrictions contained in paragraph 4(c) shall not apply during the period
from the Announcement Date until the Abandonment Date.
(f) No Fractional Shares. If any adjustment under this Section would
create a fractional share of Common Stock or a right to acquire a fractional
share of Common Stock, such fractional share shall be disregarded and the number
of shares of Common Stock issuable upon Conversion shall be the next higher
number of shares or, at the option of the Corporation, shall be paid in cash in
an amount calculated by multiplying the amount of the fractional share times the
Closing Sale Price used to calculate the Conversion Price for such Conversion.
6. OPTIONAL REDEMPTION.
(a) Optional Redemption by Corporation. In the event that at any time
after the day which is twelve (12) months following the Purchase Date, the
Closing Sale Price of the Common Stock exceeds 150% of the Fixed Conversion
Price for any ten (10) consecutive Trading Days (an "Optional Redemption
Period"), the Corporation shall have the right to redeem, to the extent
permitted by applicable law and subject to the rights and preferences of the
Senior Securities (an "Optional Redemption"), up to, with respect to each
Optional Redemption, twenty-five percent (25%) of the number of Series C
Preferred Shares originally purchased by a Holder on the Purchase Date (the
"Optional Redemption Amount") at the Optional Redemption Price (as defined
below).
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A Holder's Optional Redemption Amount shall be deemed to be reduced (but without
duplication) by the number of Series C Preferred Shares which the Holder has
converted or which have been redeemed prior to an Optional Redemption. In the
event that a Holder sells or otherwise transfers any of such Holder's Series C
Preferred Shares, the transferee shall be allocated a pro rata portion of such
Holder's Optional Redemption Amount. The Corporation may not effect an Optional
Redemption hereunder with respect to a Holder's Series C Preferred Shares unless
such Optional Redemption applies on a pro rata basis to the Series C Preferred
Shares held by each of the other Holders.
(b) Optional Redemption Notice; Conditions. In order to effect an
Optional Redemption, the Corporation must deliver a written notice to each
Holder no later than five (5) Business Days following the last day of an
Optional Redemption Period (an "Optional Redemption Notice"). An Optional
Redemption Notice shall specify the number of such Holder's Series C Preferred
Shares being redeemed, the date on which such redemption will be effected (an
"Optional Redemption Date"), whether the Optional Redemption Price (as defined
below) will be paid in cash or shares of Common Stock and, if paid in shares of
Common Stock, the calculation therefor. An Optional Redemption Date shall be no
less than twenty (20) Trading Days and no more than thirty (30) Trading Days
following the date on which the related Optional Redemption Notice is delivered
to all of the Holders. Notwithstanding the foregoing, the Corporation shall have
the right to effect an Optional Redemption (x) only once during any period of
ninety (90) consecutive days and (y) only if, at all times during the period
beginning on the first day of the Optional Redemption Period and ending on the
Optional Redemption Date (the "Determination Period"), each of the following
conditions (collectively, the "Optional Redemption Conditions") is satisfied:
(i) the Common Stock is designated for quotation on the Nasdaq
National Market or is listed on the New York Stock Exchange or other national
exchange;
(ii) the Registration Statement is effective and available
(other than for any five (5) days occurring during the Determination Period) for
the sale of no less than 125% of the aggregate of: (A) the number of Conversion
Shares into which all outstanding Series C Preferred Shares are then
convertible, (B) the number of Warrant Shares then issuable upon the exercise of
the Warrants in full and (C) the number of Conversion Shares and Warrant Shares,
respectively, that are then held by all of the Holders and with respect to which
a registration statement is required to be maintained under the terms of the
Registration Rights Agreement; and
(iii) the Corporation is not in breach of its obligation to
deliver Conversion Shares pursuant to the terms of paragraph 3(e) hereof.
Nothing contained herein shall be deemed to limit in any way a Holder's
right to convert Series C Preferred Shares at any time including during the
period between the date on which an Optional Redemption Notice is delivered to
such Holder and the related Optional Redemption Date. For purposes of
subparagraph (ii) above, the determination of the number of Conversion Shares or
Warrant Shares issuable at any time shall be made without regard to the
limitations set forth in Section 4 above or paragraph 4 of the Warrants.
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(c) Optional Redemption Price. The "Optional Redemption Price" price
for a Series C Preferred Share shall be payable, at the option of the
Corporation, in cash or shares of Common Stock, in an amount equal to 115% of
the Stated Value thereof if paid in cash or, if paid in shares of Common Stock,
the number of shares equal to 115% of such Stated Value divided by the Optional
Redemption Conversion Price. The "Optional Redemption Conversion Price" shall be
equal to the average Closing Sale Price for the Common Stock during the twenty
(20) Trading Days occurring immediately prior to, but not including, the related
Optional Redemption Date.
(d) Payment of Optional Redemption Price.
(i) Cash Payment. In the event that an Optional Redemption Notice
states that the Corporation will pay the Optional Redemption Price in cash, and
if all of the Optional Redemption Conditions are satisfied, such payment shall
be made to the Holders within five (5) Business Days following the Optional
Redemption Date. Upon the redemption of a Series C Preferred Share, and payment
of the Optional Redemption Price to the Holder thereof, such Holder will
promptly return such share to the Corporation for cancellation. If the
Corporation fails to pay the Optional Redemption Price to the Holder within five
(5) Business Days of the Optional Redemption Date, the Holder shall be entitled
to interest thereon at an annual rate equal to the Default Interest Rate from
and after the Optional Redemption Date until the Optional Redemption Price has
been paid in full.
(ii) Payment in Common Stock. In the event that an Optional
Redemption Notice states that the Corporation will pay the Optional Redemption
Price in shares of Common Stock (the "Optional Redemption Shares"), and assuming
the due satisfaction of all of the Optional Redemption Conditions, the
Corporation shall deliver to each Holder, on or before the third (3rd) Business
Day following the applicable Optional Redemption Date (the "Optional Redemption
Share Delivery Date"), the aggregate number of whole shares of Common Stock that
is determined in accordance with paragraph 6(c) above. The Corporation shall
effect delivery of Optional Redemption Shares to a Holder by, as long as (A)
purchases and sales of shares of Common Stock are eligible for settlement at DTC
and (B) such Holder or its nominee (as identified to the Corporation by such
Holder) maintains on the applicable Optional Redemption Share Delivery Date an
account at DTC for the receipt of securities, crediting the account of such
Holder or nominee at DTC with the number of Dividend Payment Shares required to
be delivered, no later than the close of business on such Optional Redemption
Share Delivery Date. In the event that either or both of the conditions
specified in clauses (A) and (B) above are not satisfied as of the applicable
Optional Redemption Share Delivery Date, the Corporation shall effect delivery
of Optional Redemption Shares by delivering to the Holder or its nominee
physical certificates representing such Dividend Payment Shares, no later than
the close of business on such Optional Redemption Share Delivery Date. No
fractional Optional Redemption Shares shall be issued; the Corporation shall, in
lieu thereof, either issue a number of Optional Redemption Shares which reflects
a rounding up to the next whole number of shares or pay such amount in cash. The
Optional Redemption Shares shall be fully paid and non-assessable, free and
clear of any liens, claims, preemptive rights or encumbrances imposed by or
through the Corporation. If the Corporation fails to issue and deliver the
appropriate number
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of Optional Redemption Shares to such Holder on or before the tenth (10th)
Business Day following the Optional Redemption Payment Share Delivery Date, the
Company shall, upon written notice by such Holder, immediately pay the Optional
Redemption Price in cash, together with Default Interest on such unpaid amount
calculated from the applicable Optional Redemption Date until the date on which
such amount is paid.
7. MANDATORY REDEMPTION.
(a) Mandatory Redemption. In the event that a Mandatory Redemption
Event (as defined below) occurs, each Holder shall have the right, to the extent
permitted by applicable law and subject to the rights and preferences of the
Senior Securities, to have all or any portion of the Series C Preferred Shares
held by such Holder redeemed by the Corporation (a "Mandatory Redemption") at
the Mandatory Redemption Price (as defined herein) in same day funds. In order
to exercise its right to effect a Mandatory Redemption, a Holder must deliver a
written notice (a "Mandatory Redemption Notice") to the Corporation no later
than 5 p.m., Arizona time, on the Business Day following the day on which
written notice is delivered by the Corporation to the Holder that such event is
no longer continuing; provided, however, that, in the case of subparagraph
(b)(vi) below, the following procedure shall be followed in lieu thereof: (a) no
sooner than fifteen (15) days nor later than ten (10) days prior to the
Company's good faith estimate of the consummation of a Change of Control
Transaction (as defined below), but not prior to the public announcement of such
Change of Control Transaction, the Company shall deliver a written notice (a
"Notice of Change of Control Transaction") to each Holder, and (b) within five
(5) days of delivery by the Company of a Notice of Change of Control
Transaction, each Holder who wishes to exercise its right to effect a Mandatory
Redemption hereunder shall deliver a Mandatory Redemption Notice to the
Corporation. The Mandatory Redemption Notice shall specify the effective date of
such Mandatory Redemption (the "Mandatory Redemption Date") and the number of
such shares to be redeemed. As used herein, a Mandatory Redemption Date and an
Optional Redemption Date are each sometimes referred to as a "Redemption Date".
(b) Mandatory Redemption Event. Each of the following events shall be
deemed a "Mandatory Redemption Event":
(i) the Corporation fails for any reason (including without
limitation as a result of not having a sufficient number of shares of Common
Stock authorized and reserved for issuance, but not including by reason of the
provisions of Section 4 hereof) to issue shares of Common Stock to a Holder and
deliver certificates representing such shares to such Holder as and when
required by the provisions hereof upon Conversion of any Series C Preferred
Shares, and such failure continues for ten (10) Business Days;
(ii) the Corporation's shareholders fail to approve the
proposal contemplated by Section 4.5 of the Securities Purchase Agreement at the
first meeting of the Corporation's shareholders held after the Purchase Date and
the Corporation fails, within twenty days following such meeting, to cause the
Common Stock to be listed or quoted on a recognized national securities
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exchange or quotation system which would not impose a limitation similar to that
described in paragraph 4(a) hereof;
(iii) the Corporation breaches, in a material respect, any
covenant or other material term or condition of the Securities Purchase
Agreement (other than a representation or warranty contained therein), the
Registration Rights Agreement or any other agreement, document, certificate or
other instrument delivered in connection with the transactions contemplated
thereby, and such breach continues for a period of thirty (30) days after
written notice thereof to the Corporation from a Holder;
(iv) the Registration Statement is not declared effective by
180 days following the Purchase Date or if the Registration Statement has been
declared effective by such date and, while the effectiveness of the Registration
Statement is required to be maintained pursuant to the terms of the Registration
Rights Agreement, the effectiveness of the Registration Statement lapses for any
reason (including without limitation, the issuance of a stop order) or is
unavailable to the Holder for the sale of Conversion Shares in accordance with
the terms of the Registration Rights Agreement, and such lapse or unavailability
continues for a period of five (5) Business Days, provided that the cause of
such lapse or unavailability is not due to factors solely within the control of
the Holder, and provided further that the Registration Statement shall not be
deemed to be unavailable to the Holder, for purposes of this subparagraph (iv)
only, during any period, not to exceed an aggregate of thirty (30) days for all
such periods, with respect to which the Board of Directors of the Corporation
determines in good faith (A) that an amendment or supplement to the Registration
Statement or prospectus contained therein is necessary in order to correct a
material misstatement made therein or to include information the absence of
which would render the Registration Statement or such prospectus materially
misleading and (B) that the disclosure of such information at such time would be
detrimental to the business or prospects of the Corporation;
(v) the Corporation undertakes any voluntary action to
terminate the quotation or listing of the Common Stock on the Nasdaq National
Market or on a national securities exchange, unless such action is taken in
connection with the continued quotation or listing of the Common Stock on
another recognized national securities exchange or quotation system; or
(vi) there occurs the sale, conveyance or disposition of all
or substantially all of the assets of the Corporation, the effectuation of a
transaction or series of related transactions, in which more than 50% of the
voting power of the Corporation is disposed of, or the consolidation, merger or
other business combination of the Corporation with or into any other entity,
immediately following which the prior shareholders of the Corporation fail to
own, directly or indirectly, at least fifty percent (50%) of the surviving
entity (a "Change of Control Transaction"); provided, however, that a tender
offer or any other transaction with respect to which the Corporation's Board of
Directors is unable to exercise discretion as to the effectuation thereof shall
not be deemed to be a Mandatory Redemption Event by operation of this
subparagraph (vi).
(c) Mandatory Redemption Price. The "Mandatory Redemption Price" shall
be equal to the Stated Value of the Series C Preferred Shares being redeemed
multiplied by one hundred and
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twenty percent (120%); provided, however, that the Mandatory Redemption Price
for a Mandatory Redemption which occurs pursuant to subparagraph 7(b)(ii) above
shall be equal to (i) the Stated Value of the Series C Preferred Shares being
redeemed plus (ii) an amount equal to such Stated Value times 1.125% for each
month which has elapsed between the Purchase Date and the Mandatory Redemption
Date.
(d) Payment of Mandatory Redemption Price.
(i) The Corporation shall pay the Mandatory Redemption Price
to the Holder exercising its right to redemption within five (5) Business Days
following the Mandatory Redemption Date. Upon the redemption of a Series C
Preferred Share, and payment of the Mandatory Redemption Price to the Holder
thereof, such Holder will promptly return such share to the Corporation for
cancellation.
(ii) If Corporation fails to pay the Mandatory Redemption
Price to the Holder within five (5) Business Days of the Mandatory Redemption
Date, the Holder shall be entitled to interest thereon, from and after the
Mandatory Redemption Date until the Mandatory Redemption Price has been paid in
full, at an annual rate equal to the Default Interest Rate.
(iii) If the Corporation fails to pay the Mandatory Redemption
Price within ten (10) Business Days of the Mandatory Redemption Date, then the
Holder shall have the right at any time, so long as the Corporation remains in
default, to require the Corporation, upon written notice, to immediately issue,
in lieu of the Mandatory Redemption Price, the number of shares of Common Stock
of the Corporation equal to the Mandatory Redemption Price divided by the
Conversion Price in effect on such Conversion Date as is specified by the Holder
in writing to the Corporation, such Conversion Price to be reduced by one
percent (1%) for each day beyond such 10th Business Day in which the failure to
pay the Mandatory Redemption Price continues; provided, however, that the
maximum percentage by which such Conversion Price may be reduced in the
aggregate hereunder, and under subparagraph 3(f)(ii) above, shall be fifty
percent (50%).
8. MISCELLANEOUS.
(a) Transfer of Series C Preferred Shares. A Holder may sell, transfer
or otherwise dispose of all or any portion of the Series C Preferred Shares to
any person or entity as long as such sale, transfer or disposition is the
subject of an effective registration statement under the Securities Act or is
exempt from registration thereunder and otherwise is made in accordance with the
terms of the Securities Purchase Agreement. From and after the date of such
sale, transfer or disposition, the transferee hereof shall be deemed to be a
Holder. Upon any such sale, transfer or disposition, the Corporation shall,
promptly following the return of the certificate or certificates representing
the Series C Preferred Shares that are the subject of such sale, transfer or
disposition, issue and deliver to such transferee a new certificate in the name
of such transferee.
(b) Notices. Except as otherwise provided herein, any notice, demand or
request required or permitted to be given pursuant to the terms hereof, the form
or delivery of which notice, demand or request is not otherwise specified
herein, shall be in writing and shall be deemed
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given (i) when delivered personally or by verifiable facsimile transmission
(with an original to follow) on or before 5:00 p.m., eastern time, on a Business
Day or, if such day is not a Business Day, on the next succeeding Business Day,
(ii) on the next Business Day after timely delivery to an overnight courier and
(iii) on the third Business Day after deposit in the U.S. mail (certified or
registered mail, return receipt requested, postage prepaid), addressed to the
parties as follows:
If to the Corporation:
WavePhore, Inc.
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇ (with a copy to the General Counsel)
Fax: ▇▇▇-▇▇▇-▇▇▇▇
and if to any Holder, to such address for such Holder as shall be designated by
such Holder in writing to the Corporation.
(c) Lost or Stolen Certificate. Upon receipt by the Corporation of
evidence of the loss, theft, destruction or mutilation of a certificate
representing Series C Preferred Shares, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the
Corporation, and upon surrender and cancellation of such certificate if
mutilated, the Corporation shall execute and deliver to the Holder a new
certificate identical in all respects to the original certificate.
(d) No Voting Rights. Except as provided by Indiana Code Section
23-1-38-4 and paragraph 8(e) below, the Holders of the Series C Preferred Shares
shall have no voting rights with respect to the business, management or affairs
of the Corporation; provided that the Corporation shall provide each Holder with
prior notification of each meeting of shareholders (and copies of proxy
statements and other information sent to such shareholders).
(e) Protective Provisions.
So long as shares of Series C Preferred Stock are outstanding,
the Corporation shall not, without first obtaining the approval of the Holders
of at least two-thirds (2/3) of the then outstanding shares of Series C
Preferred Stock:
(i) alter or change the rights, preferences or
privileges of the Series C Preferred Stock or any other capital stock of the
Corporation so as to affect adversely the Series C Preferred Stock;
(ii) create any new class or series of capital stock
having a preference over or ranking pari passu with the Series C Preferred Stock
as to redemption, the payment of dividends or distribution of assets upon a
Liquidation Event or any other liquidation, dissolution or winding up of the
Corporation;
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(iii) increase the authorized number of shares of
Series C Preferred Stock;
(iv) issue any shares of Series C Preferred Stock
other than pursuant to the Securities Purchase Agreement; or
(v) issue any additional shares of Senior Securities
or Pari Passu Securities.
In the event that Holders of at least two-thirds (2/3) of the
then outstanding shares of Series C Preferred Stock agree to allow the
Corporation to alter or change the rights, preferences or privileges of the
shares of Series C Preferred Stock, pursuant to the terms hereof, then the
Corporation will deliver notice of such approved change to the holders of the
Series C Preferred Stock that did not agree to such alteration or change (the
"Dissenting Holders") and the Dissenting Holders shall have the right for a
period of thirty (30) days following such delivery to convert their Series C
Preferred Shares pursuant to the terms hereof as they existed prior to such
alteration or change (without giving effect to the limitations contained in
paragraph 4(c) hereof), or to continue to hold such Series C Preferred Shares.
No such change shall be effective to the extent that, by its terms, it applies
to less than all of the Holders of Series C Preferred Shares then outstanding.
ARTICLE II
MANNER OF ADOPTION AND VOTE
Section 1. Action by Directors. The Board of Directors of the
Corporation, as of July 9, 1997, duly adopted resolutions approving the above
amendment.
Section 2. No Action by Shareholders. No shareholder action is required
for adoption of the above amendment pursuant to IND. CODE. Section 23-1-25-2.
Section 3. Compliance with Legal Requirements. The manner of adoption
of the above amendment and the vote by which it was adopted constitute full
legal compliance with the provisions of the Act, the Articles of Incorporation
and the By-Laws of the Corporation.
Section 4. Effective Date. The above amendment shall become effective
when filed with the Indiana Secretary of State.
I hereby verify, subject to penalties of perjury, that the facts
contained herein are true.
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