**EXHIBIT  3.01.2**CERTIFICATE OF DESIGNATIONOFSERIES B CONVERTIBLE PARTICIPATING PREFERRED STOCKOFHOMESTORE, INC.          Homestore, Inc. (the “Company”), a corporation organized and existing under theGeneral Corporation Law of the State of Delaware (the “DGCL”), hereby certifies, pursuantto Section 151 of the DGCL, that the following resolutions were duly adopted by a committee of itsBoard of Directors (the “Board”) on November 6, 2005:          WHEREAS, the Company’s Restated Certificate of Incorporation (the “Certificate ofIncorporation”), authorizes 10,000,000 shares of preferred stock, par value $0.001 per share(the “Preferred Stock”), issuable from time to time in one or more series; and          WHEREAS, the Certificate of Incorporation authorizes the Board to establish and fix the numberof shares to be included in any series of Preferred Stock and the voting powers, full or limited,or no voting powers, and the designations, preferences and relative, participating, optional orother special rights, and qualifications, limitations or restrictions of the shares of such series;          NOW, THEREFORE, BE IT RESOLVED, that a series of Preferred Stock with the powers,designations, preferences, rights, qualifications, limitations and restrictions as provided hereinis hereby authorized and established as follows:     Section 1. Number; Designation; Rank.          (a) This series of convertible participating Preferred Stock is designated as the “Series BConvertible Participating Preferred Stock” (the “Series B Preferred Stock”). The number ofshares constituting the Series B Preferred Stock is 119,034 shares, par value $0.001 per share(which number includes 19,034 of shares of Series B Preferred Stock reserved exclusively for thepayment of dividends in kind).          (b) The Series B Preferred Stock ranks, with respect to dividend rights and rights uponliquidation, dissolution or winding up of the Company:     (i) senior in preference and priority to the common stock of the Company, parvalue $0.001 per share (the “Common Stock”), and each other class or seriesof Equity Security (as defined in Section 8) of the Company the terms of which donot expressly provide that it ranks senior in preference or priority to or onparity, without preference or priority, with the Series B Preferred Stock withrespect to dividend rights or rights upon liquidation, dissolution or
 

 

2winding up of the Company (collectively with the Common Stock, the “JuniorSecurities”);     (ii) on parity, without preference and priority, with each other class orseries of Equity Security of the Company, the terms of which expressly provide thatit will rank on parity, without preference or priority, with the Series B PreferredStock with respect to dividend rights or rights upon liquidation, dissolution orwinding up of the Company (collectively, the “Parity Securities”); and     (iii) junior in preference and priority to the series of Preferred Stock of theCompany that is designated as “Series A Preferred Stock” (the “Series APreferred Stock”), and, subject to Section 4 hereof, each other class or seriesof Equity Security of the Company the terms of which expressly provide that it willrank senior in preference or priority to the Series B Preferred Stock with respectto dividend rights or rights upon liquidation, dissolution or winding up of theCompany (collectively, the “Senior Securities”).     Section 2. Dividends.          (a) Each holder of issued and outstanding Series B Preferred Stock will be entitled toreceive, when, as and if declared by the Board, out of funds legally available for the payment ofdividends for each share of Series B Preferred Stock the greater of, with respect to each dividendperiod:     (i) dividends at a rate per annum equal to 3.50% of the sum of (A) $1,000 pershare (the “Original Purchase Price”) plus (B) all accrued and unpaiddividends that are payable on such share of Series B Preferred Stock, in each caseas adjusted for any stock dividends, splits, combinations and similar events (the“Regular Dividends”); or     (ii) participating dividends of the same type as any dividends or otherdistribution, whether cash, in kind or other property (but excluding AdditionalShares of Common Stock), payable or to be made on outstanding shares of Common Stockequal to the amount of such dividends or other distribution as would be made on thelargest number of shares of Common Stock into which such share of Series B PreferredStock could be converted on the date of payment of such dividends or otherdistribution on the Common Stock, assuming such converted shares of Common Stockwere outstanding on the applicable record date for such dividend or otherdistribution (the “Participating Dividends” and, together with RegularDividends, the “Dividends”).          (b) Regular Dividends will accrue and cumulate from the date of issuance and are payablequarterly in arrears on the last day of each March, June, September and December, or, if such dateis not a business day, the succeeding business day (each such day, a “Regular Dividend PaymentDate”). The amount of Regular Dividends payable for each full quarterly dividend period willbe computed by dividing the annual rate by four. The amount of Regular Dividends
 

 

3payable for the initial dividend period, or any other dividend period shorter or longer than afull quarterly dividend period, will be computed on the basis of a 360-day year consisting oftwelve 30-day months. Regular Dividends will be paid to the holders of record of Series BPreferred Stock as they appear in the records of the Company at the close of business on the 15thday of the calendar month in which the applicable Regular Dividend Payment Date falls or on suchother date designated by the Board for the payment of Regular Dividends that is not more than 60days or less than 10 days prior to such Regular Dividend Payment Date. Any payment of a RegularDividend will first be credited against the earliest accumulated but unpaid Regular Dividend duewith respect to such share that remains payable.          (c) Regular Dividends are payable only in kind in additional shares of Series B PreferredStock until the fifth anniversary of the Original Issuance Date, and after such date, RegularDividends will be payable only in cash. Regular Dividends will accrue and cumulate whether or notthe Company has earnings or profits, whether or not there are funds legally available for thepayment of Regular Dividends and whether or not Regular Dividends are declared. Regular Dividendswill accumulate and compound quarterly to the extent they are not paid. The Company shall at alltimes reserve and keep available, free from any preemptive rights, out of its authorized butunissued shares of Series B Stock the full number of shares of Series B Preferred Stock for thepurpose of paying all Regular Dividends that may be or become payable in kind.          (d) If greater than Regular Dividends with respect to a quarterly dividend period,Participating Dividends are payable at the same time as and when such dividend or otherdistribution on Common Stock is paid to the holders of Common Stock. For purposes of determiningwhether Participating Dividends are greater than Regular Dividends, (i) the value of anyParticipating Dividend not consisting of cash will equal the Fair Market Value (as defined inSection 8) thereof, and (ii) the amount of Participating Dividends payable for each quarterlydividend period will be the full amount so payable. If Participating Dividends are not paid, thenParticipating Dividends will not accrue and the provisions of Section 5(e) shall apply.          (e) If and when dividends are declared and paid on the Series A Preferred Stock pursuant toclause (a) of Article V of the Certificate of Incorporation, each holder of issued and outstandingSeries B Preferred Stock will be entitled to receive, when, as and if declared by the Board, out offunds legally available for the payment of dividends for each share of Series B Preferred Stock anamount equal to the total of amount of dividends paid on the Series A Preferred Stock divided bythe total number of shares of Series B Preferred Stock then outstanding.          (f) So long as any share of Series B Preferred Stock is outstanding, no dividend (other than adividend in Common Stock, other Junior Securities or pursuant to a shareholder rights plan adoptedby the Board of Directors of the Company (provided that any Common Stock issuable uponconversion of the Series B Preferred Stock would be entitled to such rights)) may be declared orpaid or set aside for payment or other distribution declared or made upon any Junior Securities ofany kind, nor may any Junior Securities of any kind be redeemed, purchased or otherwise acquiredfor any consideration (or any moneys be paid to or made available for a sinking fund for theredemption of any shares of any such Junior Securities) by the Company (except by conversion intoor exchange for other Junior Securities and except for the redemption
 

 

4of rights issued pursuant to such a shareholder rights plan (provided that the rightsassociated with any Common Stock issued upon conversion of the Series B Preferred Stock would alsobe so redeemed)), unless, in each case, full cumulative Dividends on all shares of Series BPreferred Stock have been or are contemporaneously declared and paid or are declared and a sumsufficient for the payment thereof is set apart for such payment for all past dividend periods andthe then current dividend period. If Dividends are not paid in full or a sum sufficient for suchfull payment is not so set apart upon the Series B Preferred Stock, all Dividends declared upon theSeries B Preferred Stock and all dividends declared on any Parity Securities shall be declared prorata so that the amount of Dividends declared per share of the Series B Preferred Stock anddividends declared per share of such Parity Securities shall in all cases bear to each other thesame ratio that accrued and unpaid Dividends per share on the Series B Preferred Stock and accruedand unpaid dividends per share of such Parity Securities bear to each other.          (g) The Company shall take all actions necessary or advisable under the DGCL to permit thepayment of Dividends to the holders of Series B Preferred Stock. Holders of Series B PreferredStock are not entitled to any dividend, whether payable in cash, in kind or other property, inexcess of full Dividends as provided in this Section 2.     Section 3. Liquidation Preference.          (a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company,each share of Series B Preferred Stock entitles the holder thereof to receive and to be paid out ofthe assets of the Company available for distribution, before any distribution or payment may bemade to a holder of any Junior Securities, an amount in cash per share equal to the greater of (i)the sum of (A) the Original Purchase Price per share plus (B) all accrued but unpaid dividends onsuch share of Series B Preferred Stock, in each case as adjusted for any stock dividends, splits,combinations and similar events (such sum, as adjusted, the “Regular LiquidationPreference”), or (ii) an amount equal to the amount the holders of Series B Preferred Stockwould have received upon liquidation, dissolution or winding up of the Company had such holdersconverted their shares of Series B Preferred Stock into shares of Common Stock (the“Participating Liquidation Preference”, and such greater amount, the “LiquidationPreference”); provided that the payment of the Liquidation Preference shall be subjectto the Maximum Cash Payment Rule (as defined in Section 8).          (b) If upon any such liquidation, dissolution or winding up of the Company, the assets of theCompany available for distribution are insufficient to pay the holders of Series B Preferred Stockthe full Liquidation Preference and the holders of all Parity Securities the full liquidationpreferences to which they are entitled, the holders of Series B Preferred Stock and such ParitySecurities will share ratably in any such distribution of the assets of the Company in proportionto the full respective amounts to which they are entitled.          (c) After payment to the holders of Series B Preferred Stock of the full LiquidationPreference to which they are entitled, the holders of Series B Preferred Stock as such will have noright or claim to any of the assets of the Company.          (d) The value of any property not consisting of cash that is distributed by the Company to theholders of the Series B Preferred Stock will equal the Fair Market Value thereof.
 

 

5          (e) For the purposes of this Section 3, neither of (i) the sale, lease, conveyance, exchangeor transfer (for cash, shares of stock, securities or other consideration) of all or substantiallyall of the property or assets of the Company, (ii) the consolidation or merger of the Company withor into one or more persons, nor (iii) a Change in Control shall be deemed to be a liquidation,dissolution or winding-up of the corporation.          (f) A failure of the Company to redeem the outstanding shares of Series B Preferred Stockpursuant to Section 6 or to repurchase the outstanding shares of Series B Preferred Stock pursuantto Section 7 because of the lack of legally available funds therefor shall be deemed to be aliquidation, dissolution or winding up of the Company under this Section 3.     Section 4. Voting Rights; Board Representation.          (a) The holders of Series B Preferred Stock are entitled to vote on all matters on which theholders of Common Stock are entitled to vote, and except as otherwise provided herein or by law,the holders of Series B Preferred Stock will vote together with the holders of Common Stock as asingle class. Each holder of Series B Preferred Stock is entitled to a number of votes equal tothe number of shares of Common Stock into which all of the outstanding shares of Series B PreferredStock held by such holder on the record date are convertible immediately prior to the vote.          (b) So long as the holders of Series B Preferred Stock hold at least one-sixth of the sharesof Series B Preferred Stock that were issued on the Original Issuance Date (as adjusted for stockdividends, splits, combinations and similar events, but not for conversion or Regular Dividends),except as otherwise provided by law and except with respect to a Change in Control in which aChange in Control Offer is made (and not withdrawn) pursuant to Section 7, the Company may not takeany of the following actions without the prior vote or written consent of holders representing atleast a majority of the then outstanding shares of Series B Preferred Stock, voting together as aseparate class:     (i) any increase or decrease (including by way of merger, consolidation orotherwise) in the authorized amount of shares of Series B Preferred Stock, exceptfor the cancellation and retirement of shares set forth in Section 9(b);     (ii) any issuance of shares of Series B Preferred Stock, except for theissuance of shares of Series B Preferred Stock for the payment of in kind dividendsset forth in Section 2;     (iii) any amendment, repeal, alteration, addition, deletion or other change tothe powers, designations, preferences, rights, qualifications, limitations orrestrictions of the Series B Preferred Stock in any manner adverse thereto to theholders thereof, including but not limited to by way of merger, consolidation orotherwise, and whether by Board resolution, amendment to the Certificate ofIncorporation or Bylaws or otherwise;
 

 

6     (iv) any authorization (and if authorized, any increase in the authorizedamount), creation or issuance (including by way of merger, consolidation,reclassification or otherwise) of any Senior Securities, Parity Securities or debtof the Company that is convertible into Senior Securities or Parity Securities;     (v) any amendment, repeal, alteration, addition, deletion or other change ofany provision of the Certificate of Incorporation or the Bylaws of the Company inany manner (including by way of merger, consolidation or otherwise) that adverselyaffects the powers, designations, preferences, rights, qualifications, limitationsor restrictions of Series B Preferred Stock to the holders thereof; or     (vi) any contract, understanding or other arrangement or to do any of theforegoing, except if such contract, understanding or arrangement expressly providesthat the undertaking of any of the foregoing is subject to the prior approval of theholders of Series B Preferred Stock;provided that, in the event of a merger or consolidation of the Company, the exchange,conversion or other substitution of the Series B Preferred Stock by, for or with preferred stock ofthe surviving corporation having the same powers, designations, preferences, rights,qualifications, limitations and restrictions as are provided herein (except that the shares of suchpreferred stock may be convertible into common stock of the surviving corporation or a parentcompany thereof) shall not be deemed to require vote or consent of the holders the Series BPreferred Stock pursuant to this Section 4(b); and provided, further, that thevoting rights of the holders of the Series B Preferred Stock set forth in this clause (b) shall besubject to applicable Nasdaq rules to the extent required such that the Common Stock shall continueto be listed on Nasdaq.          (c) The holders of Series B Preferred Stock, voting together as a separate class, are entitledto elect two directors to the Board (each, a “Series B Director”) at a special or annualmeeting of stockholders of the Company called for the purpose of electing directors at which aclass of directors to which a Series B Director belongs is up for election or at any specialmeeting of the holders of Series B Preferred Stock or by written consent; provided that ifthe aggregate number of shares of Series B Preferred Stock issued on the Original Issuance Datethat are outstanding on the record date for determining the stockholders entitled to vote at thenext annual meeting of stockholders is less than two-thirds but at least one-third of the shares ofSeries B Preferred Stock issued on the Original Issuance Date, as adjusted for stock dividends,splits, combinations and similar events but not for conversion or Regular Dividends (the“Two-Thirds Threshold”), then the holders thereof will be entitled to elect only one SeriesB Director as a separate class; provided, further, that if the aggregate number ofshares of Series B Preferred Stock issued on the Original Issuance Date that are outstanding on therecord date for determining the stockholders entitled to vote at the next annual meeting ofstockholders is less than one-third of the shares of Series B Preferred Stock issued on theOriginal Issuance Date, as adjusted for stock dividends, splits, combinations and similar eventsbut not for conversion or Regular Dividends (the “One-Third Threshold”), then the holdersthereof will not be entitled to elect any Series B Director as a separate class. Notwithstandingany provision to the contrary, holders of Series B Preferred Stock are entitled to vote togetherwith the holders of Common Stock, as a single class, in the general election of directors.
 

 
 7          (d) Only the holders of Series B Preferred Stock, voting together as a separate class, areentitled to fill any vacancy caused by the resignation, death or removal of a Series B Director,and only the holders of Series B Preferred Stock are entitled to remove from office a Series BDirector without cause, provided, that in the event that the aggregate number of shares ofSeries B Preferred Stock outstanding at any time (whether before or after the record date for anymeeting of stockholders) falls below either the Two-Thirds Threshold or the One-Third Threshold,such that the number of Series B Directors to be elected at the next annual meeting of stockholderspursuant to Section 4(c) would be reduced, then any such vacancy which would not be filled by aSeries B Director at such meeting may be filled by the Board of Directors or the stockholders ofthe Company generally, and not the holders of Series B Preferred Stock voting as a separate class,in accordance with the Certificate of Incorporation, the Bylaws of the Company and applicable law.          (e) Notwithstanding the foregoing, the rights of the holders of the Series B Preferred Stockset forth in this Section 4 to vote with the Common Stock shall be subject to applicable Nasdaqrules to the extent required such that the Common Stock shall continue to be listed on the Nasdaq,including, without limitation, compliance by the Company with Rule 4351 of Nasdaq insofar as it maybe applied in the event that the Conversion Price is determined to be less than the “market value”as defined in such rules, and such rights to vote with the Common Stock shall be accordinglyreduced or otherwise modified to the minimum extent required to comply with such Nasdaq rules.          (f) In connection with an Approved Transaction (as defined in the Stockholders Agreement)pursuant to which the Company issues shares of Common Stock as consideration in the transaction,the maximum number of Series B Directors that the holders of Series B Preferred Stock are entitledto designate or nominate immediately prior to such transaction (the “Maximum Number ofDirectors”) may be reduced following consummation of such transaction, at the election of theCompany, to a number of Series B Directors (rounded to the nearest whole number) equal to (x) theMaximum Number of Directors multiplied by (y) the aggregate percentage ownership of the Companyfollowing consummation of such transaction owned on fully diluted basis by the holders of capitalstock of the Company immediately prior to such transaction (provided that in no event maythe Maximum Number of Directors be reduced to below one (1) Series B Director by application ofthis provision although it shall remain subject to reduction pursuant to Section 4(c) and 4(d)).               Section 5. Conversion.          Each share of Series B Preferred Stock is convertible into shares of Common Stock as providedin this Section 5.          (a) Optional Conversion. Each holder of Series B Preferred Stock is entitled toconvert, at any time and from time to time, at the option and election of such holder, any or allshares of outstanding Series B Preferred Stock held by such holder into a number of dulyauthorized, validly issued, fully paid and nonassessable shares of Common Stock equal to the amount(the “Conversion Amount”) determined by dividing (i) the Regular Liquidation Preference foreach share of Series B Preferred Stock to be converted by such holder by (ii) the Conversion Pricein effect at the time of conversion. The “Conversion Price” initially is $4.20,
 

 
 8as adjusted from time to time as provided in Section 5(e). In order to convert shares ofSeries B Preferred Stock into shares of Common Stock, the holder must surrender the certificatesrepresenting such shares of Series B Preferred Stock, accompanied by transfer instrumentsreasonably satisfactory to the Company, free of any adverse interest or liens at the office of theCompany’s transfer agent (or at the principal office of the Company, if the Company serves as itsown transfer agent), together with written notice that such holder elects to convert all or suchnumber of shares represented by such certificates as specified therein. With respect to aconversion pursuant to this Section 5(a), the date of receipt of such certificates, together withsuch notice, by the transfer agent or the Company will be the date of conversion (the“Conversion Date”).          (b) Mandatory Conversion.          (i) On and after the third anniversary of the Original Issuance Date, at theCompany’s option and election, in whole but not in part, each share of Series BPreferred Stock may be converted automatically into a number of duly authorized,validly issued, fully paid and nonassessable shares of Common Stock equal to theConversion Amount after the delivery by the Company to the holders of Series BPreferred Stock of a written notice of the conversion contemplated by this Section5(b) which conversion shall occur on the date specified in such notice, not lessthan 10 nor more than 30 days following the date of delivery of such notice (whichshall be the Conversion Date in respect of a conversion pursuant to this Section5(b)); provided that such notice may be delivered by the Company only if (i)the average closing price per share of the Common Stock on Nasdaq during the 30consecutive trading days ending on any trading day no more than 15 business daysprior to the business day on which such notice is delivered is at least 185% of theConversion Price then in effect, and (ii) all requisite arrangements with theCompany’s transfer agent, Nasdaq, and any other requisite securities intermediary(including The Depository Trust Company and Cede & Co., if applicable) to permit theimmediate trading of such shares of Common Stock on the Conversion Date shall havebeen completed. Once delivered, such notice shall be irrevocable, unless theCompany obtains the written consent of the holders representing a majority of theoutstanding shares of Series B Preferred Stock; and provided, further, thatnotwithstanding anything in the foregoing to the contrary, in the event of a Changein Control, the Company may elect to effect such an automatic conversion in theevent that the fair market value of the consideration per share of Common Stock inthe Change in Control is at least 190% of the Conversion Price then in effect (the“CIC Conversion Price”), and such election shall be conditioned on theconsummation of the Change in Control and the conversion may occur at any time uponor following the notice thereof as specified in such notice.          (ii) If (x) a Change in Control Offer (other than in respect of an eventpursuant to clauses (iii) or (v) of the definition of Change in Control) has beenmade pursuant to Section 7(a) and has not been withdrawn and (y) any holder ofSeries B Preferred Stock has not elected to accept the Change in Control Offer,then, with respect to such shares of Series B Preferred Stock for which the
 

 
 9Change in Control Offer has not been elected (the “Non-acceptingShares”), at the Company’s option and election, the Non-accepting Shares may beconverted automatically into a number of duly authorized, validly issued, fully paidand nonassessable shares of Common Stock equal to the Conversion Amount immediatelyupon notice of such conversion to such holder of Non-accepting Shares(provided that on or prior to the delivery of such notice, all requisitearrangements with the Company’s transfer agent, Nasdaq and any other requisitesecurities intermediary (including The Depository Trust Company and Cede & Co., ifapplicable) to permit the immediate trading of Common Stock into which Non-acceptingShares are converted on the Conversion Date shall have been completed, ifapplicable, unless such trading is to be terminated upon consummation of such Changein Control; provided that such notice shall be conditioned on the occurrenceof a Change in Control). With respect to a conversion pursuant to this Section5(b)(ii), the date of delivery of such notice or, if specified, the date of theconversion set forth in such notice (which may be the Change in Control Closing Datebut shall not be earlier that the date of the delivery of such notice) shall be the“Conversion Date” for purposes of Section 5(d).(c) Fractional Shares. No fractional shares of Common Stock will be issued uponconversion of the Series B Preferred Stock. In lieu of fractional shares, the Company shall paycash equal to such fractional amount multiplied by the Fair Market Value as of the Conversion Date.If more than one share of Series B Preferred Stock is being converted at one time by the sameholder, then the number of full shares issuable upon conversion will be calculated on the basis ofthe aggregate number of shares of Series B Preferred Stock converted by such holder at such time.(d) Mechanics of Conversion.          (i) As soon as practicable after the Conversion Date, the Company shallpromptly issue and deliver to such holder a certificate for the number of shares ofCommon Stock to which such holder is entitled, together with a check or cash forpayment of fractional shares, if any, in exchange for the certificates formerlyrepresenting shares of Series B Preferred Stock; provided that the deliveryof certificates shall not be required with respect to a conversion with respect to aChange in Control if provision is made for the receipt of the consideration in theChange in Control. Such conversion will be deemed to have been made on theConversion Date, and the person (as defined in Section 8) entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for allpurposes as the record holder of such shares of Common Stock on such ConversionDate. In case fewer than all the shares represented by any such certificate are tobe converted, a new certificate shall be issued representing the unconverted shareswithout cost to the holder thereof, except for any documentary, stamp or similarissue or transfer tax due because any certificates for shares of Common Stock orSeries B Preferred Stock are issued in a name other than the name of the convertingholder. The Company shall pay any documentary, stamp or similar issue or transfertax due on the issue of Common
 

 
 10Stock upon conversion or due upon the issuance of a new certificate for any shares of Series B Preferred Stock not converted other than any such tax due because shares of Common Stock or a certificate for shares of Series B Preferred Stock are issued in a name other than the name of the converting holder.          (ii) The Company shall at all times reserve and keep available, free from anypreemptive rights, out of its treasury or authorized but unissued shares of CommonStock (or a combination of both) for the purpose of effecting the conversion of theSeries B Preferred Stock the full number of shares of Common Stock deliverable uponthe conversion of all outstanding Series B Preferred Stock (assuming for thepurposes of this calculation that all outstanding shares of Series B Preferred Stockare held by one holder), and the Company shall take all actions to amend itsCertificate of Incorporation to increase the authorized amount of Common Stock ifnecessary therefor. Before taking any action which would cause an adjustmentreducing the Conversion Price below the then par value of the shares of Common Stockissuable upon conversion of the Series B Preferred Stock, the Company will take anycorporate action which may, in the opinion of its counsel, be necessary in orderthat the Company may validly and legally issue fully paid and nonassessable sharesof Common Stock at such adjusted Conversion Price.          (iii) From and after the Conversion Date, dividends on the Series B PreferredStock to be converted on such Conversion Date will cease to accrue; said shares ofSeries B Preferred Stock will no longer be deemed to be outstanding; and all rightsof the holder thereof as a holder of Series B Preferred Stock (except the right toreceive from the Company the Common Stock upon conversion) shall cease and terminatewith respect to such shares; provided that, except for a conversion pursuantto Section 5(b)(ii), in the event that a share of Series B Preferred Stock is notconverted due to a default by the Company or because the Company is otherwise unableto issue the requisite shares of Common Stock, such share of Series B PreferredStock will remain outstanding and will be entitled to all of the rights as providedherein. Any shares of Series B Preferred Stock that have been converted will, aftersuch conversion, be deemed cancelled and retired and have the status of authorizedbut unissued Preferred Stock, without designation as to series until such shares areonce more designated as part of a particular series by the Board.          (iv) In the event that a share of Series B Preferred Stock is converted intoCommon Stock after the close of business on a record date for the Regular Dividends,in lieu of payment of such dividend on the Regular Dividend Payment Date relatedthereto, such dividend shall be payable in share(s) of Common Stock equal to theamount of such dividend divided by the Conversion Price pursuant to this Section 5.          (v) If the conversion is in connection with any sale, transfer or otherdisposition, the conversion may, at the option of any holder tendering any share ofSeries B Preferred Stock for conversion, be conditioned upon the closing of the
 

 
 11sale, transfer or the disposition of shares of Series B Preferred Stock withthe underwriter, transferee or other acquirer in such sale, transfer or disposition,in which event such conversion of such shares of Series B Preferred Stock shall notbe deemed to have occurred until immediately prior to the closing of such sale,transfer or other disposition.          (vi) The Company shall comply with all federal and state laws, rules andregulations and applicable rules and regulations of Nasdaq. If any shares of CommonStock to be reserved for the purpose of conversion of shares of Series B PreferredStock require registration with or approval of any person or group (as defined inSection 8) under any federal or state law or the rules and regulations of Nasdaqbefore such shares may be validly issued or delivered upon conversion, then theCompany will in good faith and as expeditiously as possible endeavor to secure suchregistration or approval, as the case may be. So long as any Common Stock intowhich the shares of Series B Preferred Stock are then convertible is then listed onNasdaq, the Company will list and keep listed on Nasdaq, upon official notice ofissuance, all shares of such Common Stock issuable upon conversion.          (vii) All shares of Common Stock which may be issued upon conversion of the shares of Series B Preferred Stock will, upon issuance by the Company, be duly andvalidly issued, fully paid and nonassessable, not issued in violation of anypreemptive rights arising under law or contract and free from all taxes, liens andcharges with respect to the issuance thereof, and the Company shall take no actionwhich will cause a contrary result.               (e) Adjustments to Conversion Price.          (i) Special Definitions. For purposes of this Section 5(e), thefollowing definitions apply: (A) “Options”means any rights, options, warrants or similarsecurities to subscribe for, purchase or otherwiseacquire Common Stock or Convertible Securities.  (B) “ConvertibleSecurities” means any debt or other evidences ofindebtedness, capital stock or other securities directlyor indirectly convertible into or exercisable orexchangeable for Common Stock.  (C) “AdditionalShares of Common Stock” means any shares of CommonStock issued (whether from the Company’s treasury orauthorized and unissued shares of capital stock) or, asprovided in clause (ii) below, deemed to be issued bythe Company after the Original Issuance Date;provided that Additional
 

 
 12   Shares of Common Stock will not include any shares ofCommon Stock issued or issuable in any of thefollowing circumstances: (1) as a dividend or other distribution on shares ofSeries B Preferred Stock;  (2) upon conversion of shares of Series B PreferredStock or pursuant to the terms of the Series APreferred Stock and any other ConvertibleSecurity issued and outstanding on the OriginalIssuance Date;  (3) in a Public Offering (as defined in theStockholders Agreement (as defined in Section8));  (4) pursuant to an Approved Stock Plan (as definedin the Stockholders Agreement);  (5) pursuant to an Approved Transaction asconsideration for such transactions, providedthat the Fair Market Value of such Common Stockconsideration shall not exceed $25 million inthe aggregate with all other Common Stockconsideration issued in Approved Transactionsafter the Original Issuance Date; and  (6) pursuant to a shareholder rights plan adopted bythe Board of Directors of the Company;provided that any Common Stock issuableupon conversion of the Series B Preferred Stockwould be entitled to such rights. (D) “MeasurementDate” means (i) with respect to a dividend,distribution or issuance to the Company’s stockholders,the record date for determining the stockholdersentitled to receive such dividend, distribution orissuance, and (ii) with respect to a transaction notcontemplated by clause (i), the public announcement ofsuch transaction (or, if no such public announcement ismade, the date of issuance).          (ii) Deemed Issuances of Additional Shares of Common Stock. Themaximum number of shares of Common Stock (as set forth in the instrument
 

 
 13relating thereto without regard to any provision contained therein for asubsequent adjustment of such number) issuable upon the exercise, conversion orexchange of Options or Convertible Securities will be deemed to be Additional Sharesof Common Stock issued as of the time of the issuance of such Options or ConvertibleSecurities; provided, however, that: (A) No adjustment inthe Conversion Price will be made upon the subsequentissuance of shares of Common Stock upon the exercise,conversion or exchange of such Options or ConvertibleSecurities;  (B) To the extentthat shares of Common Stock are not issued pursuant toany Option or Convertible Security upon the expirationor termination of an unissued, unexercised, unconvertedor unexchanged Option or Convertible Security, theConversion Price will be readjusted to the ConversionPrice that would have been in effect had such Option orConvertible Security (to the extent outstandingimmediately prior to such expiration or termination)never been issued; and  (C) In the event ofany change in the number of shares of Common Stockissuable upon the exercise, conversion or exchange ofany Option or Convertible Security, excluding a changeresulting from the anti-dilution provisions thereof, butincluding a repricing of the exercise or conversionprice thereof, the Conversion Price then in effect willbe readjusted to the Conversion Price that would havebeen in effect as if, on the date of issuance, suchOption or Convertible Security were exercisable,convertible or exchangeable for such changed number of shares of Common Stock.          (iii) Determination of Consideration. The Fair Market Value of theconsideration received by the Company for the issue of any Additional Shares ofCommon Stock will be computed as follows: (A) Cash andProperty. Consideration consisting of cash andother property will: (1) insofar as it consists of cash, be computed atthe aggregate of cash received by the Company,excluding amounts paid or payable for accruedinterest or accrued dividends;
 

 
 14 (2) insofar as it consists of property other thancash, be computed at the Fair Market Valuethereof; and  (3) insofar as it consists of both cash and otherproperty, be the proportion of suchconsideration so received, computed as providedin clauses (1) and (2) above, as determined ingood faith by the Board. (B) Options andConvertible Securities. The consideration per sharereceived by the Company for Options and ConvertibleSecurities will be determined by dividing: (1) the total amount, if any, received or receivableby the Company as consideration for the issuanceof such Options or Convertible Securities, plusthe minimum aggregate amount of additionalconsideration (as set forth in the instrumentsrelating thereto, without regard to anyprovision contained therein for a subsequentadjustment of such consideration) payable to theCompany upon the exercise, conversion orexchange of such Options or ConvertibleSecurities, by (2) the maximum number of shares of Common Stock (asset forth in the instruments relating thereto,without regard to any provision containedtherein for a subsequent adjustment of suchnumber) issuable upon the exercise, conversionor exchange of such Options or ConvertibleSecurities.          (iv) Stock Splits and Combinations. If the outstanding shares ofCommon Stock are split into a greater number of shares, the Conversion Price then ineffect immediately before such split will be proportionately decreased. If theoutstanding shares of Common Stock are combined into a smaller number of shares, theConversion Price then in effect immediately before such combination will beproportionately increased. These adjustments will be effective at the close ofbusiness on the date the split or combination becomes effective.          (v) Dividends and Other Distributions in Additional Shares of CommonStock. If the Company declares or makes a dividend or other distributionpayable in Additional Shares of Common Stock to holders of
 

 
 15Common Stock, then, to the extent that full Participating Dividends are notpaid or made on shares of Series B Preferred Stock, the Conversion Price will bereduced, effective at the close of business on the Measurement Date, to a pricedetermined by multiplying such Conversion Price by a fraction: (A) the numerator ofwhich will be the sum of (x) the number of shares ofCommon Stock outstanding on the Measurement Date, plus(y) in the case of a dividend or other distributionpayable in Options or Convertible Securities (but not shares of Common Stock), the number of shares of CommonStock which the aggregate consideration received by theCompany for the total number of Additional Shares ofCommon Stock so issued would purchase at the Fair MarketValue per share of Common Stock immediately prior to theMeasurement Date, and  (B) the denominatorof which will be the sum of (x) the number of shares ofCommon Stock outstanding on the Measurement Date plus(y) the number of such Additional Shares of Common Stockissuable or so issued.          (vi) Other Issuances of Additional Shares of Common Stock. If theCompany issues or is deemed to issue Additional Shares of Common Stock to any personor group (other than a dividend or other distribution to which clause (v) applies)without consideration or for a consideration per share less than the Fair MarketValue per share of Common Stock immediately prior to the Measurement Date, then theConversion Price will be reduced, effective at the close of business on the date ofissuance, to a price determined by multiplying such Conversion Price by a fraction: (A) the numerator ofwhich will be the sum of (x) the number of shares ofCommon Stock that are outstanding, plus (y) the numberof shares that are subject to issuance upon exercise ofoutstanding Options and conversion of outstandingConvertible Securities, immediately before suchissuance, plus (z) the number of shares of Common Stockwhich the aggregate consideration received by theCompany for the total number of Additional Shares ofCommon Stock so issued would purchase at the Fair MarketValue per share of Common Stock immediately prior to theMeasurement Date, and  (B) the denominatorof which will be the sum of (x) the number of shares ofCommon Stock that are
 

 
 16   outstanding, plus (y) the number of shares that aresubject to issuance upon exercise of outstandingOptions and conversion of outstanding ConvertibleSecurities, immediately before such issuance, plus(z) the number of such Additional Shares of CommonStock issuable or so issued;provided that the Conversion Price shall not be adjusted pursuant to this clause5(e)(vi) to a price less than $3.56 (as adjusted for any stock dividends, splits, combinations,reclassifications and similar events) unless such adjustment would then be permitted by the rulesof Nasdaq such that the Common Stock continues to be listed thereon; provided, further,that in the event that without regard to the foregoing proviso the Conversion Price would be soadjusted to a price less than $3.56 (as adjusted for any stock dividends, splits combinations,reclassifications and similar events) and such adjustment is not so permitted, the Company shalluse reasonable best efforts either to (x) obtain the approval of stockholders of the Company forsuch adjustment or (y) to the extent that such Company stockholder approval is not successfullyobtained, take such other action (which may include the payment of cash) reasonably acceptable tothe holders representing a majority of the outstanding shares of Series B Preferred Stock, in eachcase to the extent such action would effectuate the purposes of this clause 5(e)(vi) and isconsistent with applicable law and continued listing of the Common Stock on Nasdaq.          (vii) Dividends and Distributions Other Than In Additional Shares of CommonStock. If the Company declares or makes a dividend or other distribution toholders of Common Stock payable in shares of any capital stock, other securities orother property (including but not limited to cash and evidences of indebtedness)other than Additional Shares of Common Stock, then, to the extent that full amountof Participating Dividends are not paid or made on shares of Series B PreferredStock, the Company shall provide that the holders of Series B Preferred Stock willreceive upon conversion thereof, in addition to the number of shares of Common Stockreceivable thereupon, such capital stock, other securities or other property(including but not limited to cash and evidences of indebtedness) that they wouldhave received had their shares of Series B Preferred Stock been converted intoCommon Stock on the date of such event and had retained such capital stock, othersecurities or other property (including but not limited to cash and evidences ofindebtedness) receivable from the date of such event until the Conversion Date.This clause (vii) shall not apply to dividends, distributions or issuances set forthin clauses (iv), (v) or (vi) above.          (viii) Minimum Adjustment. Notwithstanding the foregoing, theConversion Price will not be reduced if the amount of such reduction would be anamount less than $0.01, but any such amount will be carried forward and reductionwith respect thereto will made at the time that such amount, together with anysubsequent amounts so carried forward, aggregates to $0.01 or more.          (ix) Rules of Calculation; Treasury Stock. All calculations will bemade to the nearest one-hundredth of a cent or to the nearest one-ten thousandth ofa share. The number of shares of Common Stock outstanding will be calculated on thebasis of the number of issued and outstanding shares of Common Stock, not including shares held in the treasury of the Company. The Company shall not pay any dividendon or make any distribution to shares of Common Stock held in treasury.          (x) Waiver. Notwithstanding the foregoing, the Conversion Price willnot be reduced if the Company receives, prior to the effective time of theadjustment to the Conversion Price, written notice from the holders representing atleast a majority of the then outstanding shares of Series B Preferred Stock, votingtogether as a separate class, that no adjustment is to be made as the result of aparticular issuance of Additional Shares of Common Stock or other dividend or otherdistribution on shares of Common Stock. This waiver will be limited in
 

 
 17scope and will not be valid for any issuance of Additional Shares of CommonStock or other dividend or other distribution on shares of Common Stock notspecifically provided for in such notice.          (xi) Tax Adjustment. Anything in this Section 5 notwithstanding, theCompany shall be entitled to make such downward adjustments in the Conversion Price,in addition to those required by this Section 5, as the Company in its solediscretion shall determine to be advisable in order that any event treated forfederal income tax purposes as a dividend or stock split will not be taxable to theholders of Common Stock.          (xii) Par Value. Anything in this Section 5 notwithstanding, noadjustment to the Conversion Price shall reduce the Conversion Price below the thenpar value per share of Common Stock, and any such purported adjustment shall insteadreduce the Conversion Price to such par value.          (xiii) No Duplication. If any action would require adjustment of theConversion Price pursuant to more than one of the provisions described in thisSection 5 in a manner such that such adjustments are duplicative, only oneadjustment shall be made.          (f) Effect of Reclassification, Divestiture, Merger or Sale. If any of the followingevents occur, namely (x) any reclassification of or any other change to the outstanding shares ofCommon Stock (other than a stock split or combination to which Section 5(e) applies), (y) anymerger, consolidation or other combination of the Company with another person as a result of whichall holders of Common Stock become entitled to receive capital stock, other securities or otherproperty (including but not limited to cash and evidences of indebtedness) with respect to or inexchange for such Common Stock, or (z) any sale, conveyance or other transfer of all orsubstantially all of the properties of the Company to any other person as a result of which allholders of Common Stock become entitled to receive capital stock, other securities or otherproperty (including but not limited to cash and evidences of indebtedness) with respect to or inexchange for such Common Stock, in each case other than in connection with a voluntary orinvoluntary liquidation, dissolution or winding up as to which Section 3 applies or in connectionwith a Change in Control requiring the Company to make (and consummate without withdrawal) a Changein Control Offer under Section 7, then appropriate provision will be made in any such transactionso that the shares of Series B Preferred Stock will be convertible into the kind and amount ofshares of capital stock, other securities or other property (including but not limited to cash andevidences of indebtedness) receivable upon such reclassification, change, merger, consolidation,combination, sale, conveyance or transfer by a holder of a number of shares of Common Stockissuable upon conversion of such shares of Series B Preferred Stock (assuming, for such purposes, asufficient number of authorized shares of Common Stock available to convert all such Series BPreferred Stock ) immediately prior to such reclassification, change, merger, consolidation,combination, sale, conveyance or transfer; provided that if the holders of Common Stockwere entitled to exercise a right of election as to the kind or amount of capital stock, othersecurities or other property (including but not limited to cash and evidences of indebtedness)receivable upon such reclassification, change, merger, consolidation, combination, sale, conveyanceor transfer, then the kind and amount of capital stock, other securities or other
 

 
18property (including but not limited to cash and evidences of indebtedness) receivable inrespect of each share of Common Stock issuable upon conversion of the Series B Preferred Stock uponsuch reclassification, change, merger, consolidation, combination, sale, conveyance or transferwill be the kind and amount so receivable per share by a plurality of the holders of Common Stock.This Section 5(f) will similarly apply to successive reclassifications, changes, mergers,consolidations, combinations, sales, conveyances and transfers. If Section 5(e) applies to anyevent or occurrence, then this Section 5(f) will not apply.          (g) Notice of Record Date. In the event of:     (i) any stock split or combination of the outstanding shares of Common Stock;     (ii) any declaration or making of a dividend or other distribution to holdersof Common Stock in Additional Shares of Common Stock, any other capital stock, othersecurities or other property (including but not limited to cash and evidences ofindebtedness);     (iii) any reclassification, change, merger, consolidation, combination, sale,conveyance or transfer to which Section 5(f) applies;     (iv) the dissolution, liquidation or winding up of the Company; or     (v) any other event constituting a Change in Control;then the Company shall file with its corporate records and mail to the holders of the Series BPreferred Stock at their last addresses as shown on the records of the Company, at least 10 daysprior to the record date specified in (A) below, 20 days prior to the date specified in (B) below,or as soon as practicable after the date specified in (C) below, a notice stating: (A) the record dateof such stock split, combination, dividend or otherdistribution, or, if a record is not to be taken, thedate as of which the holders of Common Stock of recordto be entitled to such stock split, combination,dividend or other distribution are to be determined,  (B) the date on whichsuch reclassification, change, merger, consolidation,sale, conveyance, transfer, liquidation, dissolution,winding up or other Change in Control described in (i)or (iv) of such definition, is expected to becomeeffective, and the date as of which it is expected thatholders of Common Stock of record will be entitled toexchange their shares of Common Stock for the capitalstock, other securities or other property (including butnot limited to cash and evidences of indebtedness)deliverable upon
 

 
19   such reclassification, change, merger, consolidation,combination, sale, conveyance, transfer, liquidation,dissolution, winding up or other Change in Control,or  (C) with respect to aChange in Control described in clause (ii) or (iii) ofsuch definition, the date on which the Company hasknowledge that the Change in Control has occurred.          (h) Certificate of Adjustments. Upon the occurrence of each adjustment orreadjustment of the Conversion Price pursuant to this Section 5, the Company at its expense shallpromptly as reasonably practicable compute such adjustment or readjustment in accordance with theterms hereof and furnish to each holder of Series B Preferred Stock a certificate, signed by anofficer of the Company, setting forth such adjustment or readjustment and showing in detail thefacts upon which such adjustment or readjustment is based and shall file a copy of such certificatewith its corporate records. The Company shall, upon the reasonable written request of any holderof Series B Preferred Stock, furnish to such holder a similar certificate setting forth (i) thecalculation of such adjustments and readjustments in reasonable detail, (ii) the Conversion Pricethen in effect, and (iii) the number of shares of Common Stock and the amount, if any, of capitalstock, other securities or other property (including but not limited to cash and evidences ofindebtedness) which then would be received upon the conversion of Series B Preferred Stock.          (i) No Impairment. The Company may not, whether by any amendment of its Certificateof Incorporation, by any reclassification or other change to its capital stock, by any merger,consolidation or other combination involving the Company, by any sale, conveyance or other transferof any of its assets, by the liquidation, dissolution or winding up of the Company or by any otherway, impair or restrict its ability to convert shares of Series B Preferred Stock and issue sharesof Common Stock therefor, or avoid or seek to avoid the observance or performance of any of theterms to be observed or performed hereunder by the Company, but will at all times in good faithassist in the carrying out of all the provisions of this Section 5 and in the taking of all suchaction as may be necessary or appropriate in order to protect the conversion rights of the holdersof the Series B Preferred Stock against impairment to the extent required hereunder.Notwithstanding the foregoing, a Change in Control in which a Change in Control Offer is made (andnot withdrawn) pursuant to Section 7 shall not be deemed to violate this Section 5(i).     Section 6. Redemption.          Each share of Series B Preferred Stock is redeemable as provided in this Section 6.          (a) Mandatory Redemption.     (i) On the seventh anniversary of the Original Issuance Date (the “SeventhAnniversary”), or, if not a business day, the first business day thereafter, theCompany shall redeem (subject to the legal availability of funds therefor) all,
 

 
20but not less than all, of the outstanding shares of Series B Preferred Stock ata redemption price per share (the “Redemption Price”) equal to the greaterof (x) the Regular Liquidation Preference and (y) the value of the number of sharesof Common Stock issuable upon conversion of such share of Series B Preferred Stockif converted as of the date such share is being redeemed (the “RedemptionDate”); provided that the payment of the Redemption Price pursuant toclause (y) shall be in the form of shares of Common Stock the issuance of which hasnot been registered under the Securities Act.     (ii) The Redemption Date shall be the same date as the Seventh Anniversary or,if not a business day, the first business day thereafter. The Board shall fix arecord date for the determination of the shares of Series B Preferred Stock to beredeemed, and the Company shall deliver a notice of redemption not less than 30 normore than 60 days prior to the Redemption Date, addressed to the holders of recordof the Series B Preferred Stock as they appear in the records of the Company. Eachnotice must state the following: (A) the record date and Redemption Date; (B) theRedemption Price as of the scheduled Redemption Date (it being understood that theactual Redemption Price will be determined as of the actual Redemption Date); (C)the name of the redemption agent to whom, and the address of the place to where, theSeries B Preferred Stock are to be surrendered for payment of the Redemption Price;and (D) that dividends on the shares to be redeemed will cease to accrue on suchRedemption Date.(b) Optional Redemption.     (i) On and after the fifth anniversary of the Original Issuance Date (the“Fifth Anniversary”), the Company, at its option and election, may redeem(out of funds legally available therefor) all, but not less than all, of theoutstanding shares of Series B Preferred Stock at a Redemption Price equal to thegreater of (x) the Regular Liquidation Preference and (y) the value of the number of shares of Common Stock issuable upon conversion of such share of Series B PreferredStock if converted as of the Redemption Date; provided that the payment ofthe Redemption Price pursuant to clause (y) shall be in the form of shares of CommonStock the issuance of which has not been registered under the Securities Act.     (ii) The Redemption Date shall be a business day on a date that is not earlierthan the Fifth Anniversary. The Board shall fix a record date for the determinationof the shares of Series B Preferred Stock to be redeemed, and the Company shalldeliver a notice of redemption not less than 30 nor more than 60 days prior to theRedemption Date, addressed to the holders of record of the Series B Preferred Stockas they appear in the records of the Company. Each notice must state the following:(A) the record date and Redemption Date; (B) the Redemption Price as of thescheduled Redemption Date (it being understood that the actual Redemption Price willbe determined as of the actual Redemption Date); (C) the name of the redemptionagent to whom, and the address of the place to where, the Series B Preferred Stockare to be surrendered for payment of
 

 
21the Redemption Price; and (D) that dividends on the shares to be redeemed willcease to accrue on such Redemption Date.(c) Mechanics of Redemption.     (i) Unless waived in writing by the holders representing a majority of theoutstanding shares of Series B Preferred Stock, the Company shall deposit with aredemption agent in trust, upon delivery of the Company’s redemption notice pursuantto Section 6(a) or 6(b), funds consisting of cash or cash equivalents sufficient topay the Redemption Price on the Redemption Date. The redemption agent must be abank or trust company in good standing, organized under the laws of the UnitedStates of America or any jurisdiction thereof, having capital and surplus of atleast $1 billion. The deposit in trust with the redemption agent shall beirrevocable, except that the Company shall be entitled to receive from theredemption agent (i) Redemption Prices with respect to shares of Series B PreferredStock that are no longer to be redeemed, whether by conversion or otherwise; and(ii) the interest or other earnings, if any, earned on any such deposit. Theholders of the shares redeemed shall have no claim to such interest or otherearnings, and any funds so deposited with the redemption agent and unclaimed by theholders of the Series B Preferred Stock entitled thereto at the expiration of oneyear from the Redemption Date shall be repaid, together with any interest or otherearnings thereon, to the Company, and after any such repayment, the holders of the shares entitled to the funds so returned to the Company shall look only to theCompany for such payment, without interest. Notwithstanding the deposit of suchfunds, the Company shall remain liable for the payment of the Redemption Price tothe extent such Redemption Price is not paid as provided herein.     (ii) The redemption agent on behalf of the Company shall pay the RedemptionPrice on the Redemption Date upon surrender of the certificates representing the shares of Series B Preferred Stock to be redeemed (properly endorsed or assigned fortransfer, if the Company shall so require and letters of transmittal andinstructions therefor on reasonable terms are included in the notice sent by theCompany); provided that if such certificates are lost, stolen or destroyed,the Company may require such holder to indemnify the Company, in a reasonable amountand in a reasonable manner, prior to paying such Redemption Price.     (iii) In case fewer than all the shares represented by any such certificate areto be redeemed, a new certificate shall be issued representing the unredeemed shareswithout cost to the holder thereof, except for any documentary, stamp or similarissue or transfer tax due because any certificate for shares Series B PreferredStock are issued in a name other than the name of the redeeming holder. The Companyshall pay any documentary, stamp or similar issue or transfer tax due upon theissuance of a new certificate for any shares of Series B Preferred Stock notredeemed other than any such tax due because a certificate for shares
 

 
22Series B Preferred Stock is issued in a name other than the name of theredeeming holder.     (iv) From and after the Redemption Date, dividends on the Series B PreferredStock to be redeemed on such Redemption Date will cease to accrue; said shares willno longer be deemed to be outstanding; and all powers, designations, preferences andother rights of the holder thereof as a holder of Series B Preferred Stock (exceptthe right to receive from the Company the Redemption Price) shall cease andterminate with respect to such shares; provided that in the event that ashare of Series B Preferred Stock is not redeemed due to a default in payment by theCompany or because the Company is otherwise unable to pay the Redemption Price incash in full, such share of Series B Preferred Stock will remain outstanding andwill be entitled to all of the powers, designations, preferences and other rights(including but not limited to the accrual and payment of dividends and theconversion rights) as provided herein.     (v) Notwithstanding the foregoing, unless full Dividends on all shares ofSeries B Preferred Stock will have been or contemporaneously are declared and paidor are declared and a sum sufficient for the payment thereof is set apart forpayment for all past dividend periods and the then current dividend period, (i) noshare of Series B Preferred Stock may be redeemed unless all outstanding shares ofSeries B Preferred Stock are simultaneously redeemed and (ii) the Company shall notpurchase or otherwise acquire directly or indirectly any share of Series B PreferredStock; provided, however, that the foregoing shall not prevent theredemption on a pro rata basis of shares of Series B Preferred Stock or the purchaseor other acquisition of shares of Series B Preferred Stock pursuant to a Change inControl Offer pursuant to Section 7 or another purchase or exchange offer made onthe same terms to holders of all outstanding shares of Series B Preferred Stock.     (vi) Notwithstanding anything in this Section 6 to the contrary, each holdershall retain the right to convert shares of Series B Preferred Stock to be redeemedat any time on or prior to the Redemption Date.     (vii) The Company may not, whether by any amendment of its Certificate ofIncorporation or Bylaws, by any reclassification or other change to its capitalstock, by any merger, consolidation or other combination involving the Company, byany sale, conveyance or other transfer of any of its assets, by the liquidation,dissolution or winding up of the Company, or by any other way, impair or restrictits ability to redeem shares of Series B Preferred Stock, or avoid or seek to avoidthe observance or performance of any of the terms to be observed or performedhereunder by the Company, but will at all times in good faith assist in the carryingout of all the provisions of this Section 6 and in the taking of all such action asmay be necessary or appropriate in order to protect the redemption rights of theholders of the Series B Preferred Stock against impairment to the extent requiredhereunder. Notwithstanding the foregoing, a Change in Control in
 

 
23which a Change in Control Offer is made (and not withdrawn) pursuant to Section7 shall not be deemed to violate this Section 6(c)(vii).     Section 7. Change in Control.(a) Offer to Repurchase.     (i) So long as the holders of Series B Preferred Stock hold at least one-sixthof the shares of Series B Preferred Stock that were issued on the Original IssuanceDate (as adjusted for stock dividends, splits, combinations and similar events, butnot for conversion or Regular Dividends), then in connection with such Change inControl the Company shall make an offer to repurchase (subject to the legalavailability of funds therefor), at the option and election of the holder thereof,each share of Series B Preferred Stock then outstanding (the “Change in ControlOffer”) at a purchase price per share in cash equal to 101% of the RegularLiquidation Preference or, in the case of a Change in Control which occurs prior tothe six (6) month anniversary of the Original Issuance Date, 100% of, the RegularLiquidation Preference (such amount being the “Base Repurchase Price”);provided that if the Change in Control is consummated on or prior to thefifth anniversary of the Original Issuance Date and the fair market value of theconsideration per share of Common Stock in such Change in Control is less than theCIC Conversion Price then in effect, then, subject to Section 7(a)(ii) below, thepurchase price in the Change in Control Offer shall be increased by an amount equalto 100% of, but if the Deemed Accrued Dividends are paid in cash and not pursuant toSection 7(a)(ii)(y) on or after the six (6) month anniversary of the OriginalIssuance Date 101% of, the Regular Dividends that such holder of the Series BPreferred Stock would have received if such holder had retained its shares of SeriesB Preferred Stock during a period of time equal to the lesser of (x) the period fromthe date of repurchase pursuant to the Change in Control Offer (the “RepurchaseDate”) until the fifth anniversary of the Original Issuance Date or (y) threeyears (such amount equal to the lesser of clause (x) or (y), the “Deemed AccruedDividends,” and the Base Repurchase Price plus the Deemed Accrued Dividends, ifany being the “Repurchase Price”); and provided, further,that the payment of the Repurchase Price shall be subject to the Maximum CashPayment Rule.     (ii) The terms of the Change in Control Offer shall provide that, unless thefair market value of the consideration per share of Common Stock in such Change inControl is equal to or greater than the CIC Conversion Price then in effect, aholder of the Series B Preferred Stock may elect that (x) in lieu of receiving theBase Repurchase Price, the holder’s shares of Series B Preferred Stock be convertedin accordance with Section 5 (in which case, for the avoidance of doubt, the BaseRepurchase Price shall not be due or payable) and (y) any Deemed Accrued Dividendsbe paid in the form of additional shares of Series B Preferred Stock (or if such shares would be required to be registered under the Securities Act or applicablestate securities laws in the good faith judgment of the Company, the Company shallpay such Deemed Accrued Dividends in the form
 

 
24of cash out of legally available funds in an amount equal to the considerationpayable in the Change in Control with respect to such shares on an as-converted toCommon Stock basis). Proper provision will be made in such transaction to permit toany Deemed Accrued Dividends received or to be received by such holder to be,contemporaneously with such holder’s other shares of Series B Preferred Stock,converted into the consideration payable to former holders of Common Stock pursuantto such Change in Control in accordance with Section 5.     (iii) In no event shall a holder of Series B Preferred Stock receiveconsideration (including Deemed Accrued Dividends) pursuant to, or in connectionwith, a Change in Control Offer, including in the event either or both of theelections made in Section 7(a)(ii) are made, the fair market value of theconsideration per share of Common Stock in the Change in Control times the number of shares of Common Stock issuable upon conversion of shares of Series B PreferredStock held (including shares received as Deemed Accrued Dividends if applicable), inexcess of an amount equal to the product of (A) the CIC Conversion Price then ineffect and (B) the number of shares of Common Stock held by such holder on an asconverted basis (excluding Deemed Accrued Dividends); provided that, for theavoidance of doubt, the conversion rights of a holder of Series B Preferred Stockpursuant to Section 5 to the extent such holder does not accept the Change inControl Offer are not limited hereby.     (iv) The Repurchase Date shall be the date on which the Change in Control isconsummated (the “Change in Control Closing Date”), unless the Change inControl Closing Date is the same date as the announcement of the transaction orexecution of an agreement providing for such Change in Control, in which case theRepurchase Date shall be as soon as practicable after the Change in Control ClosingDate (but in any event within 30 days thereof). The Board shall fix a record datefor the determination of the shares of Series B Preferred Stock subject to theChange in Control Offer. As soon as practicable after the announcement of suchtransaction or execution of such agreement providing for such Change in Control, theCompany shall commence the Change in Control Offer by delivering a notice, not lessthan 30 nor more than 60 days prior to the Repurchase Date, addressed to the holdersof record of the Series B Preferred Stock as they appear in the records of theCompany. Each notice must state that: (A) the Change in Control Offer may beaccepted by delivery of a written revocable notice specifying the number of sharesto be repurchased or converted pursuant to Section 7(a)(ii); (B) the RepurchasePrice as of the scheduled Repurchase Date (it being understood that the actualRepurchase Price will be determined as of the actual Repurchase Date); (C) the nameof the paying agent to whom, and the address of the place to where, the Series BPreferred Stock are to be surrendered for payment of the Repurchase Price; (D) iftendered for payment, dividends on the shares to be repurchased will cease to accrueon the Change in Control Payment Repurchase Date; (E) any shares of Series BPreferred Stock not tendered for payment or converted pursuant to Section 7(a)(ii)shall continue to be outstanding and holders thereof shall, subject to Section5(b)(i) and (ii), remain
 

 
25entitled to, among other things, the accrual and payment of dividends thereonand exercise their conversion rights (whether on the date of consummation of theChange in Control or otherwise); (F) the consummation of the Change in Control Offerand the payment of the Repurchase Price shall be subject to the consummation of theChange in Control, and the Change in Control Offer shall not be consummated in theevent the Company elects to effect a mandatory conversion pursuant to Section5(b)(i); and (G) the circumstances and material facts regarding such Change inControl. If the Change in Control is not consummated, the Change in Control Offershall be automatically withdrawn.     (v) Notwithstanding this Section 7, the Change in Control Offer shall besubject to, and be made in compliance with, Regulation 14E under the Exchange Actand any other federal and state securities laws, as applicable, including anyapplicable time periods. The Company shall notify the holders of the results of theChange in Control Offer on or as soon as practicable after the Repurchase Date.(b) Mechanics of Repurchase.     (i) Unless waived by the holders representing a majority of the outstanding shares of Series B Preferred Stock, the Company shall deposit with a paying agent intrust, as soon as practicable upon the receipt of any election for repurchasepursuant to this Section 7 (and in any case, at least one business day prior to theRepurchase Date), funds consisting of cash or cash equivalents sufficient to pay thecash portion of the Repurchase Price on the Repurchase Date. The paying agent mustbe a bank or trust company in good standing, organized under the laws of the UnitedStates of America or any jurisdiction thereof, having capital and surplus of atleast $1 billion. The deposit in trust with the paying agent shall be irrevocable,except that the Company shall be entitled to receive from the paying agent (A)Repurchase Prices with respect to shares of Series B Preferred Stock that are nolonger to be repurchased, whether by conversion, withdrawal of an election or tenderor otherwise and (B) the interest or other earnings, if any, earned on any suchdeposit. The holders of the shares repurchased shall have no claim to such interestor other earnings, and any funds so deposited with the paying agent and unclaimed bythe holders of the Series B Preferred Stock entitled thereto at the expiration ofone year from the Repurchase Date shall be repaid, together with any interest orother earnings thereon, to the Company, and after any such repayment, the holders ofthe shares entitled to the funds so returned to the Company shall look only to theCompany for such payment, without interest. Notwithstanding the deposit of suchfunds, the Company shall remain liable for the payment of the Repurchase Price tothe extent such Repurchase Price is not paid as provided herein.     (ii) The paying agent on behalf of the Company shall pay the Repurchase Priceon the Repurchase Date upon surrender of the certificates representing the shares ofSeries B Preferred Stock to be repurchased (properly endorsed or assigned fortransfer, if the Company shall so require and letters of
 

 
26transmittal and instructions therefor on reasonable terms are included in thenotice sent by the Company); provided that if such certificates are lost,stolen or destroyed, the Company may require such holder to indemnify the Company,in a reasonable amount and in a reasonable manner, prior to paying such RepurchasePrice.     (iii) In case fewer than all the shares represented by any such certificate areto be repurchased, a new certificate shall be issued representing the unrepurchased shares without cost to the holder thereof, except for any documentary, stamp orsimilar issue or transfer tax due because any certificate for shares Series BPreferred Stock are issued in a name other than the name of the selling holder. TheCompany shall pay any documentary, stamp or similar issue or transfer tax due uponthe issuance of a new certificate for any shares of Series B Preferred Stock notrepurchased other than any such tax due because a certificate for shares Series BPreferred Stock is issued in a name other than the name of the selling holder.     (iv) From and after the Repurchase Date, dividends on the Series B PreferredStock to be repurchased on such Repurchase Date will cease to accrue; said shareswill no longer be deemed to be outstanding; and all powers, designations,preferences and other rights of the holder thereof as a holder of Series B PreferredStock (except the right to receive from the Company the Repurchase Price) shallcease and terminate with respect to such shares; provided that in the event that ashare of Series B Preferred Stock is not repurchased due to a default in payment bythe Company or because the Company is otherwise unable to pay the Repurchase Pricein cash (or shares of Common Stock, if applicable under the provisions of theMaximum Cash Payment Rule) in full, such share of Series B Preferred Stock willremain outstanding and will be entitled to all of the powers, designations,preferences and other rights (including but not limited to the accrual and paymentof dividends and the conversion rights) as provided herein.     (v) Notwithstanding anything in this Section 7 to the contrary, each holdershall retain the right to (A) convert shares of Series B Preferred Stock to berepurchased at any time on or prior to the Repurchase Date or (B) withdraw anelection to have such shares repurchased or any tender of such shares in the Changein Control Offer on or prior to the Repurchase Date.     (vi) The Company may not, whether by any amendment of its Certificate ofIncorporation or Bylaws, by any reclassification or other change to its capitalstock, by any merger, consolidation or other combination involving the Company, byany sale, conveyance or other transfer of any of its assets, by the liquidation,dissolution or winding up of the Company, or by any other way, impair or restrictits ability to repurchase shares of Series B Preferred Stock, or avoid or seek toavoid the observance or performance of any of the terms to be observed or performedhereunder by the Company, but will at all times in good faith assist in the carryingout of all the provisions of this Section 7 and in the
 

 
27taking of all such action as may be necessary or appropriate in order toprotect the repurchase rights of the holders of the Series B Preferred Stock againstimpairment to the extent required hereunder. Notwithstanding the foregoing, aChange in Control in which a Change in Control Offer is made (and not withdrawn)pursuant to this Section 7 or conversion effected pursuant to Section 5(a)(i) shallnot be deemed to violate this Section 7(b)(vi).     (vii) The Company shall not be required to make a Change in Control Offer if anaffiliate in control of the Company makes the Change in Control Offer in the manner,at the times and otherwise in compliance with the requirements set forth in thisSection 7 and purchases all shares of Series B Preferred Stock validly tendered andnot withdrawn under such Change in Control Offer.          Section 8. Additional Definitions. For purposes of these resolutions, thefollowing terms shall have the following meanings:          (a) “affiliate” means, with respect to any specified person, any other person thatdirectly or indirectly through one or more intermediaries, controls, is controlled by or is undercommon control with, such specified person, for so long as such other person remains so associatedto such specified person.          (b) “beneficial owner” or “beneficially own” has the meaning given such termin Rule 13d-3 under the Exchange Act, and a person’s beneficial ownership of securities will becalculated in accordance with the provisions of such Rule; provided, however, thata person will be deemed to be the beneficial owner of any security which may be acquired by suchperson whether within 60 days or thereafter, upon the conversion, exchange or exercise of anyrights, options, warrants or similar securities to subscribe for, purchase or otherwise acquire (x)capital stock of any person or (y) debt or other evidences of indebtedness, capital stock or othersecurities directly or indirectly convertible into or exercisable or exchangeable for such capitalstock of such person.          (c) “capital stock” means any and all shares, interests, participations or otherequivalents (however designated, whether voting or non-voting) of capital stock, partnershipinterests (whether general or limited) or equivalent ownership interests in or issued by suchperson, and with respect to the Company includes, without limitation, any and all shares of CommonStock and the Preferred Stock.          (d) “Change in Control” means the occurrence of any of the following:     (i) any merger, consolidation, stock or asset purchase, recapitalization orother business combination transaction as a result of which the stockholders of theCompany immediately prior to such transaction in the aggregate cease to own morethan 50% of the total voting power of all shares of capital stock of the Companythat are entitled to vote generally in the election of directors of the entitysurviving or resulting from such transaction (or ultimate parent thereof);
 

 
28     (ii) any person or group, together with any affiliates thereof (other than anyemployee stock option plan and other than any Investor Stockholder, as defined inthe Stockholders Agreement), has, directly or indirectly, become the beneficialowner of more than 50% of the total voting power of all shares of capital stock ofthe Company that are entitled to vote generally in the election of directors;     (iii) during any period of two consecutive years, individuals who at thebeginning of such period constitute the Board (together with any new directors whoseelection by such Board or whose nomination for election by the stockholders of theCompany was approved by a vote of a majority of the directors of the Company thenstill in office who were either directors at the beginning of such period or whoseelection or nomination for election was previously so approved) cease for any reason(other than death) to constitute a majority of the Board then in office;     (iv) the sale, lease, encumbrance, transfer or disposition, including but notlimited to any spin-off or in-kind distribution (a “Divestiture”), by theCompany or by one or more of its Subsidiaries of all or substantially all of theassets, business or securities of the Company (on a consolidated basis) to anyperson or group (other than the Company or its wholly-owned subsidiaries);provided that a Divestiture, the Fair Market Value of the assets, businessand securities of which is in excess of 50% of the Company’s market capitalizationas of the consummation of the Divestiture, shall be deemed a Divestiture of all orsubstantially all of the assets, business or securities of the Company (on aconsolidated basis); provided that a Change in Control shall not include aspin-off or similar in-kind distribution to the stockholders of the Company in whichthe holders of Series Preferred Stock are entitled to such distribution asParticipating Dividends or pursuant to Section 5(e)(vii) or 5(f) without otheradjustment to the Conversion Price if the rights of the holders of Series BPreferred Stock pursuant to the Certificate of Designation and the StockholdersAgreement are preserved and not impaired after giving effect to such spin-off orin-kind distribution.     (v) RealSelect, Inc. (or its successor) ceases to be a wholly-owned subsidiaryof the Company unless all or substantially all of the assets previously owned byRealSelect, Inc. are otherwise owned directly or indirectly by the Company.          (e) “Equity Securities” means (x) any shares of capital stock of the Company, (y) anyrights, options, warrants or similar securities to subscribe for, purchase or otherwise acquire anyshares of capital stock of the Company, and (z) capital stock or other equity securities directlyor indirectly convertible into or exercisable or exchangeable for any shares of capital stock ofthe Company, excluding, for the avoidance of doubt, convertible debt.          (f) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and therules and regulations promulgated thereunder.
 

 
29          (g) “Fair Market Value” of Common Stock or any other security or property means thefair market value thereof as determined in good faith by the Board, which determination must be setforth in a written resolution of the Board, in accordance with the following rules:     (i) for Common Stock or other security traded or quoted on Nasdaq or othernational securities exchange or automated quotation system, the Fair Market Valuewill be the average of the closing prices of such security on Nasdaq or suchexchange or quotation system over a consecutive trading day period of one to thirtytrading days, as selected by the Board in good faith, ending on the trading dayimmediately prior to the date of determination;     (ii) for any security that is not so traded or quoted, the Fair Market Valueshall be determined: (x) mutually by the Board and the holders of at least amajority of the then outstanding shares of Series B Preferred Stock, or (y) by anationally recognized investment bank, appraisal or accounting firm (whose fees andexpenses will be paid by the Company) selected by mutual agreement between the Boardand the holders representing a majority of the then outstanding shares of Series BPreferred Stock; or     (iii) for any other property, the Fair Market Value shall be determined by theBoard in good faith assuming a willing buyer and a willing seller in an arms’-lengthtransaction; provided that if holders representing a majority of the thenoutstanding shares of Series B Preferred Stock object to a determination of theBoard made pursuant to this clause (iii), the Fair Market Value of such propertyshall be as determined by nationally recognized investment bank, appraisal oraccounting firm (whose fees and expenses will be paid by the Company) selected bymutual agreement between the Board and such holders.          (h) “group” has the meaning assigned to such term in Section 13(d)(3) of the ExchangeAct.          (i) “hereof”, “herein” and “hereunder” and words of similar importrefer to these resolutions as a whole and not merely to any particular clause, provision, sectionor subsection.          (j) “Maximum Cash Payment Rule” means, with respect to the payment of any amount pershare of Series B Preferred Stock, that (i) such amount up to the Regular Liquidation Preference(or, in the case of a Change in Control Offer, 101% of the Regular Liquidation Preference) shall bepayable in cash, and (ii) such amount payable per share in excess of the Regular LiquidationPreference (or, in the case of a Change in Control Offer, 101% of the Regular LiquidationPreference) shall be payable, at the election of the Company, in cash or in a number of shares ofCommon Stock based on the closing price of the Common Stock on the trading day immediately prior tothe date of issuance; provided that if shares of Common Stock are to be issued, allrequisite arrangements with the Company’s transfer agent, Nasdaq, and any other requisitesecurities intermediary (including The Depositary Trust Company and Cede & Co., if applicable) topermit the immediate trading of such shares of Common Stock on such date of such payment shall havebeen completed.
 

 
30          (k) “Nasdaq” means The Nasdaq National Market or any securities exchange or otherautomated quotation system on which the Common Stock is then listed or quoted.          (l) “Original Issuance Date” means the date on which the first share of Series BPreferred Stock was issued.          (m) “person” means any individual, corporation, limited liability company, limited orgeneral partnership, joint venture, association, joint-stock company, trust, unincorporatedorganization, government, any agency or political subdivisions thereof or other “person” ascontemplated by Section 13(d) of the Exchange Act.          (n) “Securities Act” means the Securities Act of 1933, as amended, and the rules andregulations promulgated thereunder.          (o) “Stockholders Agreement” means the Stockholders Agreement, dated the OriginalIssuance Date, by and among the Company, Elevation Partners, L.P. and Elevation Employee Side Fund, LLC, as it may beamended from time to time.          Section 9. Miscellaneous. For purposes of these resolutions, the followingprovisions shall apply:          (a) Reduction of Capital. Upon any conversion, redemption, repurchase or similartransaction resulting in the cancellation of Series B Preferred Stock, the Company’s capital shallbe reduced by an amount equal to the Regular Liquidation Preference multiplied by the number ofshares of Series B Preferred Stock converted, redeemed or repurchased.          (b) Status of Cancelled Shares. Shares of Series B Preferred Stock which have beenconverted, redeemed, repurchased or otherwise cancelled shall be retired and have the status ofauthorized and unissued shares of Preferred Stock, without designation as to series until suchshares are once more, subject to Section 4, designated as part of a particular series by the Board.          (c) Severability. If any right, preference or limitation of the Preferred Stock setforth in this resolution (as such resolution may be amended from time to time) is invalid, unlawfulor incapable of being enforced by reason of any rule of law or public policy, all other rights,preferences and limitations set forth in this resolution (as so amended) which can be given effectwithout the invalid, unlawful or unenforceable right, preference or limitation shall, nevertheless,remain in full force and effect, and no right, preference or limitation herein set forth shall bedeemed dependent upon any other such right, preference or limitation unless so expressed herein.          (d) Headings. The headings of the various subdivisions hereof are for convenience ofreference only and shall not affect the interpretation of any of the provisions hereof.*[Rest of page intentionally left blank.]*
 

 
          IN WITNESS WHEREOF, the Company has caused this Certificate of Designation to be executed by aduly authorized officer of the Company as of November 29, 2005.      HOMESTORE, INC.      By: /s/ Michael R. Douglas        Name: Michael R. Douglas   Title: Executive Vice President,General