CERTIFICATE OF DESIGNATION
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
eUNIVERSE, INC.
(Pursuant to Sections 78.035, 78.195, 78.196
of the Nevada Revised Statutes)
eUniverse, Inc., a Nevada corporation (the "Company"), hereby certifies
that the following resolution was adopted by the Board of Directors of the
Company:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Company (the "Board of Directors") by
the provisions of the Articles of Incorporation of the Company (the "Articles of
Incorporation"), there is hereby created, out of the 40,000,000 shares of
preferred stock, par value $.10 per share, of the Company authorized in Article
Fourth of the Articles of Incorporation (the "Preferred Stock"), a series of the
Preferred Stock consisting of 4,098,335 shares, which series shall have the
following powers, designations, preferences and relative, participating,
optional or other rights, and the following qualifications, limitations and
restrictions (in addition to any powers, designations, preferences and relative,
participating, optional or other rights, and any qualifications, limitations and
restrictions, set forth in the Articles of Incorporation which are applicable to
the Preferred Stock):
Section 1. Designation of Amount.
The shares of Preferred Stock created hereby shall be designated the
"Series B Convertible Preferred Stock" (the "Series B Preferred Stock") and the
authorized number of shares constituting such series shall be 4,098,335. The
Series B Preferred Stock shall rank senior to the Series A 6% Convertible
Preferred Stock as to dividends, distributions or as to distributions of assets
upon liquidation, dissolution, or winding up of the Company, whether voluntary
or involuntary.
Section 2. Dividends.
(a) The holders of the then outstanding shares of Series B Preferred
Stock will be entitled to receive, when, as and if declared by the Board of
Directors out of funds of the Company legally available therefor, non-cumulative
cash dividends,
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accruing on a daily basis from the Original Issuance Date (as hereinafter
defined) through and including the date on which such dividends are paid at the
annual rate of 8% (the "Applicable Rate") of the Liquidation Preference (as
hereinafter defined) per share of the Series B Preferred Stock. The term
"Original Issuance Date" means October 23, 2001. The cash dividends provided for
in this Section 2(a) are hereinafter referred to as "Base Dividends."
(b) In addition to Base Dividends, in the event any dividends are
declared or paid or any other distribution is made on or with respect to the
common stock, par value $.001 per share ("Common Stock"), the holders of the
Series B Preferred Stock as of the record date established by the Board of
Directors for such dividend or distribution on the Common Stock shall be
entitled to receive as additional dividends (the "Additional Dividends") an
amount (whether in the form of cash, securities or other property) equal to the
amount (and in the form) of the dividends or distribution that such holder would
have received had the Series B Preferred Stock been converted into Common Stock
as of the date immediately prior to the record date of such dividend or
distribution on the Common Stock, such Additional Dividends to be payable on the
same payment date as the payment date for the dividend on the Common Stock
established by the Board of Directors (the "Additional Dividend Payment Date");
provided, however, that if the Company declares and pays a dividend or makes a
distribution on the Common Stock consisting in whole or in part of Common Stock,
then no such dividend or distribution shall be payable in respect of the Series
B Preferred Stock on account of the portion of such dividend or distribution on
the Common Stock payable in Common Stock and in lieu thereof the anti-dilution
adjustment in Section 5(e) below shall apply. The record date for any such
Additional Dividends shall be the record date for the applicable dividend or
distribution on the Common Stock, and any such Additional Dividends shall be
payable to the individual, entity or group (a "Person") in whose name the Series
B Preferred Stock is registered at the close of business on the applicable
record date.
(c) No dividend shall be paid or declared on any share of Common Stock
(other than dividends payable in Common Stock for which an adjustment is made
pursuant to Section 5(e)(iv) hereof), unless a dividend, payable in the same
consideration and manner, is simultaneously paid or declared, as the case may
be, on each share of Series B Preferred Stock in an amount determined as set
forth in paragraph (b) above. For purposes hereof, the term "dividends" shall
include any pro rata distribution by the Company, out of funds of the Company
legally available therefor, of cash, property, securities (including, but not
limited to, rights, warrants or options) or other property or assets to the
holders of the Common Stock, whether or not paid out of capital, surplus or
earnings.
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(d) Prior to declaring any dividend or making any distribution on or
with respect to shares of Common Stock, the Company shall take all prior
corporate action necessary to authorize the issuance of any securities payable
as a dividend in respect of the Series B Preferred Stock.
Section 3. Liquidation Preference.
In the event of a liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (a "Liquidation"), the holders of the
Series B Preferred Stock then outstanding shall be entitled to receive out of
the available assets of the Company, whether such assets are stated capital or
surplus of any nature, an amount on such date equal to $2.60 per share of Series
B Preferred Stock plus the amount of any accrued and unpaid Base Dividends as of
such date, calculated pursuant to Section 2 and any declared but unpaid
Additional Dividends as of such date (collectively, the "Liquidation
Preference"). Such payment shall be made before any payment shall be made or any
assets distributed to the holders of any class or series of the Common Stock,
the holders of the Series A 6% Convertible Preferred Stock or any other class or
series of the Company's capital stock ranking junior as to liquidation rights to
the Series B Preferred Stock. After the Liquidation Preference has been paid in
full pursuant to this Section 3, the holders of the Series A 6% Convertible
Preferred Stock shall be entitled to receive their liquidation preference as set
forth in the First Amendment to the Certificate of Designation of the Series A
6% Convertible Preferred Stock. Following payment, first, to the holders of the
Series B Preferred Stock of the full preferential amounts described in the first
sentence of this Section 3 and, second, to the holders of the Series A 6%
Convertible Preferred Stock of the full preferential amounts described in the
First Amendment to the Certificate of Designation of the Series A 6% Convertible
Preferred Stock, the remaining assets (if any) of the Company available for
distribution to stockholders of the Company shall be distributed, subject to the
rights of the holders of shares of any other series of Preferred Stock ranking
prior to the Common Stock as to distributions upon Liquidation, pro rata among
(i) the holders of the then outstanding shares of Series B Preferred Stock (as
if the Series B Preferred Stock had been converted into Common Stock as of the
date immediately prior to the date fixed for determination of stockholders
entitled to receive such distribution) and (ii) the holders of the Common Stock
and any other shares of capital stock of the Company ranking on a parity with
the Common Stock as to distributions upon Liquidation. If upon any Liquidation
the assets available for payment of the Liquidation Preference are insufficient
to permit the payment to the holders of the Series B Preferred Stock of the full
preferential amounts described in this paragraph, then all the remaining
available assets shall be distributed among the holders of the then outstanding
Series B Preferred Stock pro rata according to the
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number of then outstanding shares of Series B Preferred Stock held by each
holder thereof. A Corporate Transaction (as hereinafter defined), shall at the
election of the holders of a majority of the Series B Preferred Stock
outstanding at the time constitute a Liquidation for purposes of this Section 3,
other than an Excluded Corporate Transaction.
Section 4. Voting Rights.
(a) Except as otherwise provided by applicable law and in addition to
any voting rights provided by law, the holders of outstanding shares of the
Series B Preferred Stock:
(i) shall be entitled to vote together with the holders of the
Common Stock as a single class on all matters submitted for a vote of
holders of Common Stock;
(ii) shall have such other voting rights as are specified in
the Articles of Incorporation or as otherwise provided by Nevada law;
and
(iii) shall be entitled to receive notice of any stockholders'
meeting in accordance with the Articles of Incorporation and By-laws of
the Company.
For purposes of the voting rights set forth in this Section
4(a), each share of Series B Preferred Stock shall entitle the holder thereof to
cast one vote for each whole vote that such holder would be entitled to cast had
such holder converted its Series B Preferred Stock into shares of Common Stock
as of the date immediately prior to the record date for determining the
stockholders of the Company eligible to vote on any such matter.
(b) The holders of Series B Preferred Stock shall have the exclusive
right, voting separately as a single class, to elect the following number of
members of the Board of Directors: one (1) member in the event the Board of
Directors consists of one (1) to five (5) members; two (2) members in the event
the Board of Directors consists of six (6) to eight (8) members; and three (3)
members in the event the Board of Directors consists of nine (9) to eleven (11)
members (each such member elected by the Series B Preferred Stockholders, a
"Preferred Stock Director"). Except as permitted by Section 4(c) below in no
event shall the total number of members of the Board of Directors exceed eleven
(11). In any such election the holders of Series B Preferred Stock shall be
entitled to cast one vote per share of Series B Preferred Stock held of record
on the record date for the determination of
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the holders of Series B Preferred Stock entitled to vote on such election. The
initial Preferred Stock Director(s) shall be Thomas Gewecke, and he is elected
to serve until his successors are duly elected; and thereafter the Preferred
Stock Directors shall be elected at the same time as other members of the Board
of Directors. A Preferred Stock Director may only be removed by the written
consent or affirmative vote of at least a majority of the Series B Preferred
Stock. If for any reason a Preferred Stock Director shall resign or otherwise be
removed from the Board of Directors, then his or her replacement shall be a
person elected by the holders of the Series B Preferred Stock, in accordance
with the voting procedures set forth in this Section 4(b). The Preferred Stock
Directors shall be appointed by the Board of Directors to serve on each
committee of the Board of Directors at least in the same proportions that the
number of Preferred Stock Directors bears to the total number of directors then
comprising the entire Board of Directors.
(c) So long as any shares of Series B Preferred Stock remain
outstanding, the Company shall not, without the written consent or affirmative
vote of the holders of at least two-thirds of the outstanding shares of Series B
Preferred Stock, (i) amend, alter, waive or repeal, whether by merger,
consolidation, combination, reclassification or otherwise, the Articles of
Incorporation, including this Certificate of Designation, or By-laws of the
Company or any provisions thereof (including the adoption of a new provision
thereof), (ii) create, authorize or issue any class, series or shares of
Preferred Stock or any other class of capital stock ranking either as to payment
of dividends, distributions or as to distributions of assets upon Liquidation
(x) prior to the Series B Preferred Stock, or (y) on a parity with the Series B
Preferred Stock or (iii) increase the size of the Board or Directors beyond
eleven (11) members. The vote of the holders of at least two-thirds of the
outstanding shares of Series B Preferred Stock, voting separately as one class,
shall be necessary to adopt any alteration, amendment or repeal of any provision
of this Resolution, in addition to any other vote of stockholders required by
law.
(d) So long as 550 Digital Media Ventures Inc. or any of its affiliates
owns at least 1,442,308 shares of Series B Preferred Stock or Common Stock (as
appropriately adjusted for any stock split, combination, reorganization,
reclassification, stock dividend, stock distribution or similar event), the
Company shall not, without the written consent or affirmative vote of at least
two-thirds of the Board of Directors (i) enter into an agreement to, or
consummate, a Corporate Transaction, (ii) enter into transactions which result
in or require the Company to issue shares of its capital stock in excess of 5%
(in any one transaction) or 12.5% (in the aggregate, in a series of transactions
commencing on or after the Original Issuance Date) of the Company's issued and
outstanding shares of capital stock, (iii) enter into transactions which result
in or require the Company to pay (whether in
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cash, stock or a combination thereof) in excess of 5% (in any one transaction)
or 12.5% (in the aggregate, in a series of transactions commencing on or after
the Original Issuance Date) of the Company's then-current market capitalization,
(iv) increase or decrease the number of authorized shares of capital stock, (v)
directly or indirectly declare or pay any dividend or make any other
distribution in respect thereof, or directly or indirectly purchase, redeem,
repurchase or otherwise acquire any shares of capital stock of the Company or
any subsidiary, whether in cash or property or in obligations of the Company or
any subsidiary, other than repurchases pursuant to an employee's employment or
incentive agreement and upon an employee's termination and at a price not to
exceed such employee's cost, (vi) increase or decrease the size of the Company's
Board of Directors; provided that in no event shall the total number of members
of the Board of Directors exceed (11).
Section 5. Conversion Rights.
(a) General. Subject to and upon compliance with the provisions of this
Section 5, the holders of the shares of Series B Preferred Stock shall be
entitled, at their option, at any time to convert all or any such shares of
Series B Preferred Stock into a number of fully paid and non-assessable shares
(calculated as to each conversion to the nearest 1/100,000th of a share) of
Common Stock. The number of shares of Common Stock to which a holder of Series B
Preferred Stock shall be entitled upon conversion shall be determined by
dividing (x) the Liquidation Preference of such Series B Preferred Stock as of
the Conversion Date (as hereinafter defined) by (y) the Conversion Price in
effect at the close of business on the Conversion Date (determined as provided
in this Section 5).
(b) Automatic Conversion. Each share of Series B Preferred Stock shall
automatically convert, immediately upon the earlier of (1) the written consent
of holders of more than 50% of issued and outstanding Series B Preferred Stock,
and (2) the Company Election (each, an "Automatic Conversion Date") into fully
paid and non-assessable shares of Common Stock. The number of shares of Common
Stock (calculated as to each conversion to the nearest 1/100,000th of a share)
to which a holder of Series B Preferred Stock shall be entitled upon such
automatic conversion shall be determined by dividing (x) the Liquidation
Preference of such Series B Preferred Stock as of the Automatic Conversion Date
by (y) the Conversion Price in effect at the close of business on the Business
Day immediately preceding such closing date. Such conversion shall occur
automatically and without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Company or its transfer agent. Upon the occurrence of such automatic conversion
of the Series B Preferred Stock, the holders of Series B Preferred Stock shall
surrender the certificates representing such
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shares at the office of the Company or any transfer agent for the Series B
Preferred Stock. 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 shares of Series B Preferred Stock surrendered were
convertible on the date on which such automatic conversion occurred.
(c) Conversion Price. The conversion price (the "Conversion Price")
shall initially be $2.60, subject to adjustment from time to time in accordance
with Section 5(e).
(d) Fractions of Shares. Unless the holder of shares of Series B
Preferred Stock being converted specifies otherwise, the Company shall issue
fractional shares of Common Stock (carried out to seven decimal places) upon
conversion of shares of Series B Preferred Stock. If more than one share of
Series B Preferred Stock shall be surrendered for conversion at one time by the
same holder, the number of full shares of Common Stock to be issued shall be
computed on the basis of the aggregate number of shares of Series B Preferred
Stock so surrendered. Instead of any fractional shares of Common Stock which
would otherwise be issuable upon conversion of any shares of Series B Preferred
Stock, the Company shall pay a cash adjustment in respect of such fractional
share in an amount equal to the product of such fraction multiplied by the Fair
Market Value (as hereinafter defined) of one share of Common Stock on the
Conversion Date.
(e) Adjustments to Conversion Price. The Conversion Price shall be
subject to adjustment from time to time as follows:
(i) Upon Issuance of Common Stock. If the Company shall, at
any time or from time to time after the Original Issuance Date, issue
any shares of Common Stock (other than an issuance of Common Stock as a
dividend or in a split of or subdivision in respect of which the
adjustment provided for in Section 5(e)(iv) applies), options to
purchase or rights to subscribe for Common Stock, securities by their
terms convertible into or exchangeable for Common Stock, or options to
purchase or rights to subscribe for such convertible or exchangeable
securities (other than Excluded Stock (as defined below)) without
consideration or for consideration per share less than the Conversion
Price in effect immediately prior to such issuance, then such
Conversion Price shall forthwith be lowered to a price equal to the
price obtained by multiplying:
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(A) the Conversion Price in effect immediately
prior to the issuance of such Common Stock,
options, rights or securities by
(B) a fraction of which (x) the denominator
shall be the number of shares of Common
Stock outstanding on a fully-diluted basis
immediately after such issuance and (y) the
numerator shall be the sum of (i) the number
of shares of Common Stock outstanding on a
fully-diluted basis immediately prior to
such issuance and (ii) the number of
additional shares of Common Stock which the
aggregate consideration for the number of
shares of Common Stock so offered would
purchase at the Conversion Price.
For purposes of this Section 5(e), "fully diluted basis" shall
be determined in accordance with the treasury stock method of computing fully
diluted earnings per share in accordance with GAAP.
(ii) Upon Acquisition of Common Stock. If the Company or any
subsidiary shall, at any time or from time to time after the Original
Issuance Date, directly or indirectly, redeem, purchase or otherwise
acquire any shares of Common Stock, options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into
or exchangeable for Common Stock (other than shares of Series B
Preferred Stock that are redeemed according to their terms), or options
to purchase or rights to subscribe for such convertible or exchangeable
securities, for a consideration per share greater than the Fair Market
Value (plus, in the case of such options, rights, or securities, the
additional consideration required to be paid to the Company upon
exercise, conversion or exchange) per share of Common Stock immediately
prior to such event, then the Conversion Price shall forthwith be
lowered to a price equal to the price obtained by multiplying:
(A) the Conversion Price in effect immediately
prior to such event by
(B) a fraction of which (x) the denominator
shall be the Fair Market Value per share of
Common
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Stock immediately prior to such event and
(y) the numerator shall be the result of
dividing:
a) (1) the product of (A) the number of
shares of Common Stock outstanding on a fully-diluted
basis and (B) the Fair Market Value per share of
Common Stock, in each case immediately prior to such
event, minus (2) the aggregate consideration paid by
the Company in such event (plus, in the case of such
options, rights, or convertible or exchangeable
securities, the aggregate additional consideration to
be paid by the Company upon exercise, conversion or
exchange), by
b) the number of shares of Common Stock
outstanding on a fully-diluted basis immediately
after such event.
(iii) For the purposes of any adjustment of a Conversion Price
pursuant to paragraphs (1) of this Section 5(e), the following
provisions shall be applicable:
(1) In the case of the issuance of Common Stock for
cash in a public offering or private placement, the
consideration shall be deemed to be the amount of cash paid
therefor before deducting therefrom any discounts, commissions
or placement fees payable by the Company to any underwriter or
placement agent in connection with the issuance and sale
thereof.
(2) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the Fair
Market Value thereof.
(3) In the case of the issuance of options to
purchase or rights to subscribe for Common Stock, securities
by their terms convertible into or exchangeable for Common
Stock, or options to purchase or rights to subscribe for such
convertible or exchangeable securities (except for options to
acquire Excluded Stock):
(A) the aggregate maximum number of
shares of Common Stock deliverable
upon exercise of
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such options to purchase or rights
to subscribe for Common Stock shall
be deemed to have been issued at
the time such options or rights
were issued and for a consideration
equal to the consideration
(determined in the manner provided
in subparagraphs (i) and (ii)
above), if any, received by the
Company upon the issuance of such
options or rights plus the minimum
purchase price provided in such
options or rights for the Common
Stock covered thereby;
(B) the aggregate maximum number of
shares of Common Stock deliverable
upon conversion of or in exchange
for any such convertible or
exchangeable securities or upon the
exercise of options to purchase or
rights to subscribe for such
convertible or exchangeable
securities and subsequent
conversion or exchange thereof
shall be deemed to have been issued
at the time such securities,
options, or rights were issued and
for a consideration equal to the
consideration received by the
Company for any such securities and
related options or rights
(excluding any cash received on
account of accrued interest or
accrued dividends), plus the
additional consideration, if any,
to be received by the Company upon
the conversion or exchange of such
securities or the exercise of any
related options or rights (the
consideration in each case to be
determined in the manner provided
in paragraphs (i) and (ii) above);
(C) on any change in the number of
shares or exercise price of Common
Stock deliverable upon exercise of
any such options or rights or
conversions of or exchanges for
such securities, other than a
change resulting from the
anti-dilution provisions thereof,
the applicable Conversion Price
shall forthwith be readjusted to
such Conversion Price as would have
been
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obtained had the adjustment made
upon the issuance of such options,
rights or securities not converted
prior to such change or options or
rights related to such securities
not converted prior to such change
been made upon the basis of such
change; and
(D) no further adjustment of the
Conversion Price adjusted upon the
issuance of any such options,
rights, convertible securities or
exchangeable securities shall be
made as a result of the actual
issuance of Common Stock on the
exercise of any such rights or
options or any conversion or
exchange of any such securities.
(iv) Upon Stock Dividends, Subdivisions or Splits. If, at any
time after the Original Issuance Date, the number of shares of Common
Stock outstanding is increased by a stock dividend payable in shares of
Common Stock or by a subdivision or split-up of shares of Common Stock,
then, following the record date for the determination of holders of
Common Stock entitled to receive such stock dividend, or to be affected
by such subdivision or split-up, the Conversion Price shall be
appropriately decreased so that the number of shares of Common Stock
issuable on conversion of Series B Preferred Stock shall be increased
in proportion to such increase in outstanding shares.
(v) Upon Combinations. If, at any time after the Original
Issuance Date, the number of shares of Common Stock outstanding is
decreased by a combination of the outstanding shares of Common Stock
into a smaller number of shares of Common Stock, then, following the
record date to determine shares affected by such combination, the
Conversion Price shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of each share of Series B
Preferred Stock shall be decreased in proportion to such decrease in
outstanding shares.
(vi) Upon Reclassifications, Reorganizations, Consolidations
or Mergers. In the event of any capital reorganization of the Company,
any reclassification of the stock of the Company (other than a change
in par value or from par value to no par value or from no par value to
par value or as a result of a stock dividend or subdivision, split-up
or combination
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of shares), or any consolidation or merger of the Company with or into
another corporation (where the Company is not the surviving corporation
or where there is a change in or distribution with respect to the
Common Stock), each share of Series B Preferred Stock shall after such
reorganization, reclassification, consolidation, or merger be
convertible into the kind and number of shares of stock or other
securities or property of the Company or of the successor corporation
resulting from such consolidation or surviving such merger, if any, to
which the holder of the number of shares of Common Stock deliverable
(immediately prior to the time of such reorganization,
reclassification, consolidation or merger) upon conversion of such
Series B Preferred Stock would have been entitled upon such
reorganization, reclassification, consolidation or merger. The
provisions of this clause shall similarly apply to successive
reorganizations, reclassifications, consolidations, or mergers. The
Company shall not effect any such reorganization, reclassification,
consolidation or merger unless, prior to the consummation thereof, the
successor corporation (if other than the Company) resulting from such
reorganization, reclassification, consolidation, shall assume, by
written instrument, the obligation to deliver to the holders of the
Series B Preferred Stock such shares of stock, securities or assets,
which, in accordance with the foregoing provisions, such holders shall
be entitled to receive upon such conversion.
(vii) Deferral in Certain Circumstances. In any case in which
the provisions of this Section 5(e) shall require that an adjustment
shall become effective immediately after a record date of an event, the
Company may defer until the occurrence of such event:
(1) issuing to the holder of any Series B Preferred
Stock converted after such record date and before the
occurrence of such event the shares of capital stock issuable
upon such conversion by reason of the adjustment required by
such event and issuing to such holder only the shares of
capital stock issuable upon such conversion before giving
effect to such adjustments, and
(2) paying to such holder any amount in cash in lieu
of fractional share of capital stock pursuant to Section 5(d)
above;
provided, however, that the Company shall deliver to such holder an
appropriate instrument or due bills evidencing such holder's right to
receive such additional shares and such cash.
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(viii) Other Anti-Dilution Provisions. If the Company has
issued or issues any securities on or after the Original Issuance Date
containing provisions protecting the holder or holders thereof against
dilution in any manner more favorable to such holder or holders thereof
than those set forth in this Section 5, such provisions (or any more
favorable portion thereof) shall be deemed to be incorporated herein as
if fully set forth herein and, to the extent inconsistent with any
provision herein, shall be deemed to be substituted therefor.
(ix) Appraisal Procedure. In any case in which the provisions
of this Section 5(e) shall necessitate that the Appraisal Procedure be
utilized for purposes of determining an adjustment to the Conversion
Price, the Company may defer until the completion of the Appraisal
Procedure and the determination of the adjustment:
(1) issuing to the holder of any share of Series B
Preferred Stock converted after the date of the event that
requires the adjustment and before completion of the Appraisal
Procedure and the determination of the adjustment, the shares
of capital stock issuable upon such conversion by reason of
the adjustment required by such event and issuing to such
holder only the shares of capital stock issuable upon such
conversion before giving effect to such adjustment and
(2) paying to such holder any amount in cash in lieu
of a fractional share of capital stock pursuant to Section
5(d) above
; provided, however, that the Company shall deliver to such holder an
appropriate instrument or due bills evidencing such holder's right to
receive such additional shares and such cash.
(x) Exceptions. Section 5(e) shall not apply to (i) any
issuance of Common Stock upon any grant or exercise of any warrants or
options awarded to employees or directors of the Company pursuant to an
employee stock option plan or stock incentive plan approved by the
Board of Directors, (ii) any issuance of Common Stock upon conversion
of the Preferred Stock, (iii) upon approval by the Preferred
Stockholder, (x) any issuance of Common Stock or any grant of any
warrants or options to purchase Common Stock as payment for services or
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compensation or (y) in connection with an asset or stock acquisition
(collectively, the "Excluded Stock").
(f) Exercise of Conversion Privilege.
(i) Except in the case of an automatic conversion pursuant to
Section 5(b), in order to convert shares of Series B Preferred Stock, a
holder must (A) surrender the certificate or certificates evidencing
such holder's shares of Series B Preferred Stock to be converted, duly
endorsed in a form satisfactory to the Company, at the office of the
Company and (B) notify the Company at such office that such holder
elects to convert Series B Preferred Stock and the number of shares
such holder wishes to convert. Such notice referred to in clause (B)
above shall be delivered substantially in the following form:
"NOTICE TO EXERCISE CONVERSION RIGHT
The undersigned, being a holder of the Series B Convertible Preferred
Stock of eUniverse, Inc. (the "Convertible Preferred Stock"), irrevocably
exercises the right to convert ____________ outstanding shares of Convertible
Preferred Stock on ___________, ____, into shares of Common Stock of eUniverse,
Inc. In accordance with the terms of the shares of Convertible Preferred Stock,
and directs that the shares issuable and deliverable upon the conversion be
issued and delivered in the denominations indicated below to the registered
holder hereof unless a different name has been indicated below.
Dated: [At least one Business Day prior to the date fixed for conversion]
Fill in for registration of
shares of Common Stock
if to be issued other than
to the registered holder:
Name
Address
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Please print name and (Signature)
address, including postal
code number
Denominations: _________"
(ii) Series B Preferred Stock shall be deemed to have been
converted immediately prior to the close of business on the day (the
"Conversion Date") of surrender of such shares of Series B Preferred
Stock for conversion in accordance with the foregoing provisions (or,
in the case of an automatic conversion pursuant to Section 5(b), the
Automatic Conversion Date, and at such time the rights of the holders
of such shares of Series B Preferred Stock as holder shall cease, and
the Person or Persons entitled to receive the Common Stock issuable
upon conversion shall be treated for all purposes as the record holder
or holders of such Common Stock as and after such time. As promptly as
practicable on or after the Conversion Date, the Company shall issue
and shall deliver at any office or agency of the Company maintained for
the surrender of Series B Preferred Stock a certificate or certificates
for the number of full shares of Common Stock issuable upon conversion,
together with payment in lieu of any fraction of a share, as provided
in Section 5(d).
(iii) In the case of any certificate evidencing shares of
Series B Preferred Stock which is converted in part only, upon such
conversion the Company shall execute and deliver a new certificate
representing an aggregate number of shares of Series B Preferred Stock
equal to the unconverted portion of such certificate.
(g) Notice of Adjustment of Conversion Price. Whenever the Conversion
Price is adjusted as herein provided: (i) the Company shall compute the adjusted
Conversion Price in accordance with Section 5(e) and shall prepare a certificate
signed by the Treasurer or Chief Financial Officer of the Company setting forth
the adjusted Conversion Price and showing in reasonable detail the facts upon
which such adjustment is based, and such certificate shall forthwith be filed at
each office or agency maintained for such purpose or conversion of shares of
Series B Preferred Stock; and (ii) a notice stating that the Conversion Price
has been adjusted and setting forth the adjusted Conversion Price shall
forthwith be prepared by the Company, and as soon as practicable after it is
prepared, such notice shall be mailed
15
by the Company at its expense to all holders at their last addresses as they
shall appear in the stock register.
(h) Notice of Certain Corporate Action. In case: (i) the Company shall
take an action or an event shall occur, that would require a Conversion Price
adjustment pursuant to Section 5(e); or (ii) the Company shall grant to the
holders of its Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class; or (iii) of any reclassification of the
Common Stock (other than a subdivision or combination of the outstanding shares
of Common Stock), or of any consolidation, merger or share exchange to which the
Company is a party and for which approval of any stockholders of the Company is
required, or of the sale or transfer of all or substantially all of the assets
of the Company; or (iv) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company; or (v) the Company or any subsidiary shall
commence a tender offer for all or a portion of the outstanding shares of Common
Stock (or shall amend any such tender offer to change the maximum number of
shares being sought or the amount or type of consideration being offered
therefor); then the Company shall cause to be filed at each office or agency
maintained for such purpose, and shall cause to be mailed to all holders at
their last addresses as they shall appear in the stock register, at least 30
days prior to the applicable record, effective or expiration date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution or granting of rights or warrants,
or, if a record is not to be taken, the date as of which the holders of Common
Stock of record who will be entitled to such dividend, distribution, rights or
warrants are to be determined, (y) the date on which such reclassification,
consolidation, merger, share exchange, sale, transfer, dissolution, liquidation
or winding up is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, share exchange, sale,
transfer, dissolution, liquidation or winding up, or (z) the date on which such
tender offer commenced, the date on which such tender offer is scheduled to
expire unless extended, the consideration offered and the other material terms
thereof (or the material terms of the amendment thereto). Such notice shall also
set forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action on the Conversion Price and the number, kind
or class of shares or other securities or property which shall be deliverable or
purchasable upon the occurrence of such action or deliverable upon conversion of
the Series B Preferred Stock. Neither the failure to give any such notice nor
any defect therein shall affect the legality or validity of any action described
in clauses (i) through (v) of this Section 5(h).
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(i) Company to Reserve Common Stock. The Company shall at all times
reserve and keep available, free from preemptive rights, out of the authorized
but unissued Common Stock or out of the Common Stock held in treasury, for the
purpose of effecting the conversion of Series B Preferred Stock, the full number
of shares of Common Stock then issuable upon the conversion of all outstanding
shares of Series B Preferred Stock.
Before taking any action that would cause an adjustment reducing the
Conversion Price below the then par value (if any) of the shares of Common Stock
deliverable upon conversion of the Series B Preferred Stock or that would cause
the number of shares of Common Stock deliverable upon conversion of the Series B
Preferred Stock to exceed (when taken together with all other outstanding shares
of Common Stock) the number of shares of Common Stock that the Company is
authorized to issue, the Company will take any corporate action that, in the
opinion of its counsel, is necessary in order that the Company may validly and
legally issue the full number of fully paid and non-assessable shares of Common
Stock issuable upon conversion at such adjusted conversion price.
(j) Taxes on Conversions. The Company will pay any and all original
issuance, transfer, stamp and other similar taxes that may be payable in respect
of the issue or delivery of shares of Common Stock on conversion of Series B
Preferred Stock pursuant hereto. The Company shall not, however, be required to
pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of shares of Common Stock in a name other than that of the
holder of the share(s) of Series B Preferred Stock to be converted, and no such
issue or delivery shall be made unless and until the Person requesting such
issue has paid to the Company the amount of any such tax, or has established to
the reasonable satisfaction of the Company that such tax has been or will be
paid.
(k) Cancellation of Converted Series B Preferred Stock. All Series B
Preferred Stock delivered for conversion shall be delivered to the Company to be
canceled.
(l) Certain Definitions. The following terms shall have the following
respective meanings herein:
"Appraisal Procedure" if applicable, means the following
procedure to determine the fair market value, as to any security, for
purposes of the definition of "Fair Market Value" or the fair market
value, as to any other property (in either case, the "Valuation
Amount"). The Valuation Amount shall be determined in good faith
jointly by the Board of Directors and the
17
holders of more than 50% of the issued and outstanding shares of Series
B Preferred Stock (the "Majority Holder"); provided, however, that if
such parties are not able to agree on the Valuation Amount within a
reasonable period of time (not to exceed twenty (20) days), the
Valuation Amount shall be determined by an investment banking firm of
national recognition, which firm shall be reasonably acceptable to the
Board of Directors and the Majority Holder. If the Board of Directors
and the Majority Holder are unable to agree upon an acceptable
investment banking firm within ten (10) days after the date either
party proposed that one be selected, the investment banking firm will
be selected by an arbitrator located in New York City, New York,
selected by the American Arbitration Association (or if such
organization ceases to exist, the arbitrator shall be chosen by a court
of competent jurisdiction). The arbitrator shall select the investment
banking firm (within ten (10) days of his appointment) from a list,
jointly prepared by the Board of Directors and the Majority Holder, of
not more than six investment banking firms of national standing in the
United States, of which no more than three may be named by the Board of
Directors and no more than three may be named by the Majority Holder.
The arbitrator may consider, within the ten-day period allotted,
arguments from the parties regarding which investment banking firm to
choose, but the selection by the arbitrator shall be made in its sole
discretion from the list of six. The Board of Directors and the
Majority Holder shall submit their respective valuations and other
relevant data to the investment banking firm, and the investment
banking firm shall, within thirty days of its appointment, make its own
determination of the Valuation Amount. The final Valuation Amount for
purposes hereof shall be the average of the two Valuation Amounts
closest together, as determined by the investment banking firm, from
among the Valuation Amounts submitted by the Company and the Majority
Holder and the Valuation Amount calculated by the investment banking
firm. The determination of the final Valuation Amount by such
investment-banking firm shall be final and binding upon the parties.
The Company shall pay the fees and expenses of the investment banking
firm and arbitrator (if any) used to determine the Valuation Amount. If
required by any such investment banking firm or arbitrator, the Company
shall execute a retainer and engagement letter containing reasonable
terms and conditions, including, without limitation, customary
provisions concerning the rights of indemnification and contribution by
the Company in favor of such investment banking firm or arbitrator and
its officers, directors, partners, employees, agents and affiliates.
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"Business Day" means a day other than a Saturday, Sunday or
day on which banking institutions in New York are authorized or
required to remain closed.
"Company Election" means the election by the Company to
exercise its right to convert the Series B Preferred Stock into Common
Stock within 60 days of the public filing by the Company on Form 10-K
or 10-Q, as applicable, evidencing the Company's achievement of four
(4) consecutive quarters (commencing after the Original Issuance Date)
of individual quarterly Operating Profits equal to or greater than
$750,000 in each of the four (4) consecutive quarters.
"Corporate Transaction" means a reorganization, merger, change
of control or consolidation of the Company or sale or other disposition
of all or substantially all of the assets of the Company.
"Excluded Corporate Transaction" means a Corporate Transaction
pursuant to which the individuals or entities who are the beneficial
owners, respectively, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities immediately prior to such
Corporate Transaction will beneficially own, directly or indirectly,
more than 50% of, respectively, the outstanding shares of common stock,
and the combined voting power of the outstanding securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from, or the transferee Person, in such Corporate
Transaction (including, without limitation, a corporation which as a
result of such transaction owns 100% of the Outstanding Company Common
Stock or all or substantially all of the Company's assets either
directly or indirectly) in substantially the same proportions relative
to each other as their ownership, immediately prior to such Corporate
Transaction, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities, as the case may be.
"Fair Market Value" means, as to any security, the Twenty Day
Average of the average closing prices of such security's sales on all
domestic securities exchanges on which such security may at the time be
listed, or, if there have been no sales on any such exchange on any
day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices
quoted in the NASDAQ National Market System as of 4:00 P.M., New York
City time, on such day, or, if on any day such security is not quoted
in the NASDAQ National Market System, the
19
average of the highest bid and lowest asked prices on such day in the
domestic over-the-counter market as reported by the National Quotation
Bureau, Incorporated, or any similar or successor organization (and in
each such case excluding any trades that are not bona fide, arm's
length transactions). If at any time such security is not listed on any
domestic securities exchange or quoted in the NASDAQ National Market
System or the domestic over-the-counter market, the "Fair Market Value"
of such security shall be the fair market value thereof as determined
in accordance with the Appraisal Procedure, using any appropriate
valuation method, assuming an arms-length sale to an independent party.
In determining the Fair Market Value of any class or series of Common
Stock, a sale of all of the issued and outstanding Common Stock will be
assumed, without giving regard to the lack of liquidity of such stock
due to any restrictions (contractual or otherwise) applicable thereto
or any discount for minority interests and assuming the conversion or
exchange of all securities then outstanding that are convertible into
or exchangeable for Common Stock and the exercise of all rights and
warrants then outstanding and exercisable to purchase shares of such
stock or securities convertible into or exchangeable for shares of such
stock; provided, however that such assumption will not include those
securities, rights and warrants convertible into Common Stock where the
conversion, exchange or exercise price per share is greater than the
Fair Market Value; provided, further, however, that Fair Market Value
shall be determined with regard to the relative priority of each class
or series of Common Stock (if more than one class or series exists).
"Fair Market Value" means with respect to property other than
securities, the "fair market value" determined in accordance with the
Appraisal Procedure.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards
Board, which are in effect from time to time.
"Operating Profits" means earnings before interest, taxes and
purchase price amortization, adjusted to exclude non-recurring items,
equity earnings/losses and minority interests.
"Outstanding Company Common Stock" means the then outstanding
shares of Common Stock.
20
"Outstanding Company Voting Securities" means the combined
voting power of the then outstanding securities of the Company entitled
to vote generally in the election of directors.
"Twenty Day Average" means, with respect to any prices and in
connection with the calculation of Fair Market Value, the average of
such prices over the twenty Business Days ending on the Business Day
immediately prior to the day as of which "Fair Market Value" is being
determined.
"Voting Stock" shall mean shares of Common Stock, Preferred
Stock and any other class of securities of the Company having the power
to elect directors to the Board of Directors and any other general
voting power (and shall include any shares of Voting Stock issuable
upon exercise, exchange or conversion of securities exercisable or
exchangeable for or convertible into shares of Voting Stock). Each
share of Common Stock shall count as one share of Voting Stock, each
share of Preferred Stock shall count as a number of shares of Voting
Stock equal to the number of shares of Common Stock into which such
share of Preferred Stock is then convertible and each share of any
other class of securities of the Company constituting Voting Stock
shall count as a number of shares of Voting Stock equal to the number
of shares of Common Stock into which such share of Voting Stock is then
convertible, exchangeable or exercisable, as the case may be.
"Voting Stock Equivalents" means any right, warrant, option or
security of the Company which is exercisable or exchangeable for or
convertible into, or represents the right to otherwise acquire,
directly or indirectly, Voting Stock, whether at the time of issuance
or upon the passage of time or the occurrence of some future event.
Each Voting Stock Equivalent shall count as a number of shares of
Voting Stock equal to the number of shares of Common Stock into which
such Voting Stock Equivalent is then convertible, exchangeable or
exercisable.
Section 6. Dividend Received Deduction.
For federal income tax purposes, the Company shall report distributions
on the Series B Preferred Stock as dividends, to the extent of the Company's
current and accumulated earnings and profits (as determined for federal income
tax purposes).
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Section 7. Preemptive Rights.
In case the Company proposes at any time to issue or sell any Voting
Stock, options, rights or warrants to purchase Voting Stock or Voting Stock
Equivalents or any other securities (whether debt or equity) of the Company,
other than Excluded Stock (collectively, the "Company Offered Securities"), the
Company shall, no later than twenty-five (25) days prior to the consummation of
such transaction (a "Preemptive Rights Transaction"), give notice in writing
(the "Preemptive Rights Offer Notice") to each holder of Series B Preferred
Stock of such Preemptive Rights Transaction. The Preemptive Rights Offer Notice
shall describe the proposed Preemptive Rights Transaction, identify the proposed
purchaser, and contain an offer (the "Preemptive Rights Offer") to sell to each
holder of Series B Preferred Stock, at the same price and for the same
consideration to be paid by the proposed purchaser (provided, that, in the event
any of such consideration is non-cash consideration, at the election of such
holder of Series B Preferred Stock to whom the Preemptive Rights Offer is made,
such holder of Series B Preferred Stock may pay cash equal to the value of such
non-cash consideration), all or any part of such holder of Series B Preferred
Stock's pro rata portion of the Company Offered Securities (which shall be a
fraction of the Company Offered Securities determined by dividing the number of
shares of outstanding Voting Stock owned by such holder of Series B Preferred
Stock by the sum of (i) the number of shares of outstanding Voting Stock owned
by such holder of Series B Preferred Stock and (ii) the number of outstanding
shares of Voting Stock not held by such holder of Series B Preferred Stock). If
any holder of Series B Preferred Stock to whom a Preemptive Rights Offer is made
fails to accept (a "Non-Responding Holder") in writing the Preemptive Rights
Offer by the tenth (10th) day after the Company's delivery of the Preemptive
Rights Offer Notice, such Non-Responding Holders shall have no further rights
with respect to the proposed Preemptive Rights Transaction.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designation to be signed by Brad D. Greenspan, its Chairman and Chief Executive
Officer, this 19th day of October, 2001.
eUNIVERSE, INC.
By: /s/ Brad D. Greenspan
--------------------------------------------
Name: Brad D. Greenspan
Title: Chairman and Chief Executive Officer
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Certificate of Designation of Series B Convertible Preferred Stock
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