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EXHIBIT 4.5
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES C CONVERTIBLE PREFERRED STOCK
OF
JTS CORPORATION
JTS Corporation (the "COMPANY"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, does hereby certify
that, pursuant to authority conferred upon the Board of Directors of the Company
by the Certificate of Incorporation, as amended, of the Company, and pursuant to
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors of the Company at a meeting duly held, adopted resolutions (i)
authorizing a series of the Company's previously authorized preferred stock,
$.001 par value per share, and (ii) providing for the designations, preferences
and relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, of twenty-five thousand (25,000) shares of
Series C Convertible Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 25,000
shares of Series C Convertible Preferred Stock (the "SERIES C PREFERRED
SHARES"), $.001 par value per share, which shall have the following
powers, designations, preferences and other special rights:
(1) Dividends. The Series C Preferred Shares shall not bear
any dividends.
(2) Holder's Conversion of Series C Preferred Shares. A holder
of Series C Preferred Shares shall have the right, at such holder's
option, to convert the Series C Preferred Shares into shares of the
Company's common stock, $.001 par value per share (the "COMMON STOCK"),
on the following terms and conditions:
(a) Conversion Right. At any time or times on or after the
earlier of (i) the date the Registration Statement (as defined below)
is declared effective by the United States Securities and Exchange
Commission (the "SEC") and (ii) eighty (80) days after the initial date
of issuance of the Series C Preferred Shares (the "SCHEDULED EFFECTIVE
DATE"), any holder of Series C Preferred Shares shall be entitled to
convert any
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whole number of Series C Preferred Shares into (x) fully paid and
nonassessable shares (rounded to the nearest whole share in accordance
with Section 2(g) below) of Common Stock, at the Conversion Rate (as
defined below) plus (y) an amount per Series C Preferred Share being
converted (the"ADDITIONAL AMOUNT") equal to the product of
(.05)(N/365)(1,000), which Additional Amount may be paid, at the option
of the Company either (I) in cash or (II) in fully paid and
nonassessable shares of Common Stock (rounded to the nearest whole
share in accordance with Section 2(g) below) valued at the Average
Market Price (as defined below) for such Common Stock for the five (5)
consecutive trading days immediately preceding the Conversion Date (as
defined below); provided, however, that in no event shall any holder be
entitled to convert Series C Preferred Shares in excess of that number
of Series C Preferred Shares which, upon giving effect to such
conversion, would cause the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates to exceed 4.9% of
the outstanding shares of the Common Stock following such conversion.
For purposes of the foregoing proviso, the aggregate number of shares
of Common Stock beneficially owned by the holder and its affiliates
shall include the number of shares of Common Stock issuable upon
conversion of the Series C Preferred Shares with respect to which the
determination of such proviso is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon
conversion of the remaining, nonconverted Series C Preferred Shares
beneficially owned by the holder and its affiliates. Except as set
forth in the preceding sentence, for purposes of this paragraph,
beneficial ownership shall be calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended.
(b) Conversion Rate. The number of shares of Common
Stock issuable upon conversion of each of the Series C Preferred Shares
pursuant to Section (2)(a)(x) above shall equal the quotient obtained
by dividing (i) 1,000 by (ii) the Conversion Price (the "CONVERSION
RATE"). For purposes of this Certificate of Designations, the following
terms shall have the following meanings:
(i) "CONVERSION PRICE" means, as of any Conversion
Date (as defined below), the lower of the Fixed Conversion Price and
the Floating Conversion Price, each in effect as of such date and
subject to adjustment as provided herein;
(ii) "FIXED CONVERSION PRICE" means the lower of
(A) $3.6125 and (B) the Average Market Price for the Common Stock for
the five (5) consecutive trading days immediately preceding the date on
which the Registration Statement is declared effective by the SEC,
subject to adjustment as provided herein;
(iii) "FLOATING CONVERSION PRICE" means, as of any
date of determination, the amount obtained by multiplying the
Conversion Percentage in effect as of such date by the Average Market
Price for the Common Stock for the five (5) consecutive trading days
immediately preceding such date;
(iv) "CONVERSION PERCENTAGE" means eighty-five
percent (85%), subject to adjustment as provided herein;
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(v) "AVERAGE MARKET PRICE" means, with respect to
any security for any period, that price which shall be computed as the
arithmetic average of the Lowest Sale Prices (as defined below) for
such security for each trading day in such period (all as appropriately
adjusted for any stock dividend, stock split, pro rata below market
price rights offering or other similar transaction during such period);
(vi) "LOWEST SALE PRICE" means, for any security as
of any date, the lowest sale price on The American Stock Exchange, Inc.
("AMEX") as reported by Bloomberg Financial Markets ("BLOOMBERG"), or,
if AMEX is not the principal trading market for such security, the
lowest sale price of such security on the principal securities exchange
or trading market where such security is listed or traded as reported
by Bloomberg, or if the foregoing do not apply, the lowest sale price
of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of
the bid prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the Lowest
Sale Price cannot be calculated for such security on such date on any
of the foregoing bases, the Lowest Sale Price of such security on such
date shall be the fair market value as reasonably determined in good
faith by the Board of Directors of the Company; and
(vii) "N" means the number of days from, but
excluding, the date that, in connection with the consummation of the
initial purchase by the holder of Series C Preferred Shares from the
Company, the Company first had in its possession funds representing
full payment for the Series C Preferred Shares for which conversion is
being elected, through and including the Conversion Date for the Series
C Preferred Shares for which conversion is being elected.
(c) Adjustment to Conversion Price - Registration
Statement. If the registration statement (the "REGISTRATION STATEMENT")
covering the resale of the shares of Common Stock issuable upon
conversion of the Series C Preferred Shares and required to be filed by
the Company pursuant to the Registration Rights Agreement between the
Company and the initial holders of the Series C Preferred Shares (THE
"REGISTRATION RIGHTS AGREEMENT") is not declared effective by the SEC
on or before the Scheduled Effective Date, or, if after the
Registration Statement has been declared effective by the SEC, sales
cannot be made pursuant to the Registration Statement (whether because
of a failure to keep the Registration Statement effective, to disclose
such information as is necessary for sales to be made pursuant to the
Registration Statement, to register sufficient shares of Common Stock
or otherwise), then, as partial relief for the damages to any holder by
reason of any such delay in or reduction of its ability to sell the
underlying shares of Common Stock (which remedy shall not be exclusive
of any other remedies available at law or in equity), the Conversion
Percentage and the Fixed Conversion Price shall be adjusted as follows:
(i) Conversion Percentage. Except as provided in
Section 3(a) and Section 3(f) of the Registation Rights Agreement, the
Conversion Percentage in effect at such time shall be reduced by a
number of percentage points equal to the
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product of (A) two and one-half (2.5) and (B) the sum of (I) the number
of months (prorated for partial months) after the Scheduled Effective
Date and prior to the date that the relevant Registration Statement is
declared effective by the SEC and (II) the number of months (prorated
for partial months) that sales cannot be made pursuant to the
Registration Statement after the Registration Statement has been
declared effective; provided, however, that the maximum aggregate
reduction in the Conversion Percentage due to this Section 2(c)(i)
shall be fifteen (15) percentage points. (For example, if the
Registration Statement becomes effective one and one-half (1 1/2)
months after the Scheduled Effective Date, the Conversion Percentage
would be eighty-one and one-fourth percent (81.25%) until any
subsequent adjustment; if thereafter sales could not be made pursuant
to the Registration Statement for a period of two (2) additional
months, the Conversion Percentage would then be seventy-six and
one-fourth percent (76.25%)); and
(ii) Fixed Conversion Price. The Fixed Conversion
Price in effect at such time shall be reduced by an amount equal to the
product of (A) nine-hundred and three ten-thousandths (.0903) and (B)
the sum of (I) the number of months (prorated for partial months) after
the Scheduled Effective Date and prior to the date that the
Registration Statement is declared effective by the SEC and (II) the
number of months (prorated for partial months) that sales cannot be
made pursuant to the Registration Statement after the Registration
Statement has been declared effective; provided, however, that the
maximum aggregate reduction in the Fixed Conversion Price pursuant to
this section 2(c)(ii) shall be an amount equal to 15% of the Fixed
Conversion Price in effect at such time. (For example, assuming the
Fixed Conversion Price is $3.6125, if the Registration Statement
becomes effective one and one-half (1 1/2) months after the Scheduled
Effective Date, the Fixed Conversion Price would be $3.4771 until any
subsequent adjustment; if thereafter sales could not be made pursuant
to the Registration Statement for a period of two (2) additional
months, the Fixed Conversion Price would then be $3.2965).
(d) Adjustment to Conversion Price -- Dilution and
Other Events. In order to prevent dilution of the rights granted under
this Certificate of Designations, the Conversion Price will be subject
to adjustment from time to time as provided in this Section 2(d).
(i) Adjustment of Fixed Conversion Price upon
Subdivision or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization, pro
rata below market price rights offering or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number
of shares, the Fixed Conversion Price in effect immediately prior to
such subdivision will be proportionately reduced. If the Company at any
time combines (by combination, reverse stock split or otherwise) one or
more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Fixed Conversion Price in effect immediately
prior to such combination will be proportionately increased.
(ii) Reorganization, Reclassification, Consolidation,
Merger or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale
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of all or substantially all of the Company's assets to another Person
(as defined below) or other transaction which is effected in such a way
that holders of Common Stock are entitled to receive (either directly
or upon subsequent liquidation) stock, securities or assets with
respect to or in exchange for Common Stock is referred to herein as
"ORGANIC CHANGE." Prior to the consummation of any Organic Change, the
Company will make appropriate provision (in form and substance
satisfactory to the holders of a majority of the Series C Preferred
Shares then outstanding) to insure that each of the holders of the
Series C Preferred Shares will thereafter have the right to acquire and
receive in lieu of or addition to (as the case may be) the shares of
Common Stock immediately theretofore acquirable and receivable upon the
conversion of such holder's Series C Preferred Shares, such shares of
stock, securities or assets as may be issued or payable with respect to
or in exchange for the number of shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such
holder's Series C Preferred Shares had such Organic Change not taken
place. In any such case, the Company will make appropriate provision
(in form and substance satisfactory to the holders of a majority of the
Series C Preferred Shares then outstanding) with respect to such
holders' rights and interests to insure that the provisions of this
Section 2(d) and Section 2(e) below will thereafter be applicable to
the Series C Preferred Shares (including, in the case of any such
consolidation, merger or sale in which the successor entity or
purchasing entity is other than the Company, an immediate adjustment of
the Fixed Conversion Price to the value for the Common Stock reflected
by the terms of such consolidation, merger or sale, if the value so
reflected is less than the Fixed Conversion Price in effect immediately
prior to such consolidation, merger or sale). The Company will not
effect any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor entity (if other than the Company)
resulting from consolidation or merger or the entity purchasing such
assets assumes, by written instrument (in form and substance
satisfactory to the holders of a majority of the Series C Preferred
Shares then outstanding), the obligation to deliver to each holder of
Series C Preferred Shares such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holder may be
entitled to acquire. For purposes of this Agreement, "PERSON" shall
mean an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
(iii) Notices.
(A) Immediately upon any adjustment of the
Fixed Conversion Price, the Company will give written notice thereof to
each holder of Series C Preferred Shares, setting forth in reasonable
detail and certifying the calculation of such adjustment.
(B) The Company will give written notice to
each holder of Series C Preferred Shares at least twenty (20) days
prior to the date on which the Company closes its books or takes a
record (I) with respect to any dividend or distribution upon the Common
Stock, (II) with respect to any pro rata subscription offer
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to holders of Common Stock or (III) for determining rights to vote with
respect to any Organic Change, dissolution or liquidation.
(C) The Company will also give written notice
to each holder of Series C Preferred Shares at least twenty (20) days
prior to the date on which any Organic Change, dissolution or
liquidation will take place.
(e) Purchase Rights. In addition to any adjustments of the
Conversion Price pursuant to Section 2(d) above, if at any time the
Company grants, issues or sells any rights or options to subscribe for
or to purchase Common Stock, any stock or other securities convertible
into or exchangeable for Common Stock or any rights to purchase stock,
warrants, securities or other property, in each case, pro rata to the
record holders of any class of Common Stock (the "PURCHASE RIGHTS"),
then the holders of Series C Preferred Shares will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Common Stock acquirable upon
complete conversion of the Series C Preferred Shares immediately before
the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
(f) Mechanics of Conversion. Subject to the Company's
inability to fully satisfy its obligations under a Conversion Notice
(as defined below) as provided for in Section 5 below:
(i) Holder's Delivery Requirements. To convert
Series C Preferred Shares into full shares of Common Stock on any date
(the "CONVERSION DATE"), the holder thereof shall (A) deliver or
transmit by facsimile, for receipt on or prior to 11:59 p.m., Pacific
Standard Time on such date, a copy of a fully executed notice of
conversion in the form attached hereto as Exhibit I (the "CONVERSION
NOTICE"), to the Company or its designated transfer agent (the
"TRANSFER AGENT"), and (B) surrender to a common carrier for delivery
to the Company or the Transfer Agent as soon as practicable following
such date, the original certificates representing the Series C
Preferred Shares being converted (or an indemnification undertaking
with respect to such shares in the case of their loss, theft or
destruction) (the "PREFERRED STOCK CERTIFICATES") and the originally
executed Conversion Notice.
(ii) Company's Response. Upon receipt by the Company
of a facsimile copy of a Conversion Notice, the Company shall
immediately send, via facsimile, a confirmation of receipt of such
Conversion Notice to such holder. Upon receipt by the Company or the
Transfer Agent of the Preferred Stock Certificates to be converted
pursuant to a Conversion Notice, together with the originally executed
Conversion Notice, the Company or the Transfer Agent (as applicable)
shall, on the next business day following the date of receipt (or the
second business day following the date of receipt if received after
11:00 a.m. local time of the Company or Transfer Agent, as applicable),
(A) (I) issue and surrender to a common carrier for overnight delivery
to the
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address as specified in the Conversion Notice, a certificate,
registered in the name of the holder or its designee, for the number of
shares of Common Stock to which the holder shall be entitled, including
the number of shares of Common Stock constituting the Additional Amount
if the Company elects to pay the Additional Amount in Common Stock or
(II) credit such aggregate number of shares of Common Stock to which
the holder shall be entitled to the holder's or its designee's balance
account with the Depository Trust Corporation, and (B) issue and
surrender to a common carrier for overnight delivery to the address as
specified in the Conversion Notice, a check drawn on an account of the
Company and payable to the order of the holder or its designee in an
amount equal to the Additional Amount, if the Company elects to pay the
Additional Amount in cash.
(iii) Dispute Resolution. In the case of a dispute as
to the determination of the Lowest Sale Price or the arithmetic
calculation of the Conversion Rate or the Additional Amount, the
Company shall promptly issue to the holder the number of shares of
Common Stock and cash, if applicable, that is not disputed and shall
submit the disputed determinations or arithmetic calculations to the
holder via facsimile within one (1) day of receipt of such holder's
Conversion Notice. If such holder and the Company are unable to agree
upon the determination of the Lowest Sale Price or arithmetic
calculation of the Conversion Rate or the Additional Amount within one
(1) day of such disputed determination or arithmetic calculation being
submitted to the holder, then the Company shall immediately submit via
facsimile (A) the disputed determination of the Lowest Sale Price to an
independent, reputable investment bank or (B) the disputed arithmetic
calculation of the Conversion Rate or the Additional Amount to its
independent, outside accountant. The Company shall cause the investment
bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the holder of
the results no later than forty-eight (48) hours from the time it
receives the disputed determinations or calculations. Such investment
bank's or accountant's determination or calculation, as the case may
be, shall be binding upon all parties absent manifest error.
(iv) Record Holder. The person or persons entitled
to receive the shares of Common Stock issuable upon a conversion of
Series C Preferred Shares shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on the
Conversion Date.
(v) Company's Failure to Timely Convert. If the
Company shall fail to issue to a holder on a timely basis as described
in this Section 2(f), a certificate for the number of shares of Common
Stock to which such holder is entitled upon such holder's conversion of
Series C Preferred Shares, including shares of Common Stock which
constitute the Additional Amount, if the Company elects to pay the
Additional Amount in Common Stock, in addition to all other available
remedies which such holder may pursue, the Company shall pay damages to
such holder on each date such conversion is not timely effected in an
amount equal to 5% of the product of (A) the number of shares of Common
Stock not issued to the holder on a timely basis and to which such
holder is entitled and (B) the Closing Price (as defined below) of the
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Common Stock on the last possible date which the Company could have
issued such Common Stock to such holder without violating this Section
2(f). If the Company elects to pay the Additional Amount in cash, and
fails to pay such Additional Amount on a timely basis as described in
Section 2(f)(ii) above, such unpaid amount shall bear interest at the
rate of 2.5% per month until paid in full.
(g) Fractional Shares. The Company shall not issue any
fraction of a share of Common Stock upon any conversion. All shares of
Common Stock (including fractions thereof) issuable upon conversion of
more than one Series C Preferred Share by a holder thereof (including
shares of Common Stock issuable in connection with the payment of an
Additional Amount, if the Company elects to pay such Additional Amount
in Common Stock) shall be aggregated for purposes of determining
whether the conversion would result in the issuance of a fraction of a
share of Common Stock. If, after the aforementioned aggregation, the
issuance would result in the issuance of a fraction of a share of
Common Stock, the Company shall round such fraction of a share of
Common Stock up or down to the nearest whole share.
(h) Taxes. The Company shall pay any and all taxes which
may be imposed upon it with respect to the issuance and delivery of
Common Stock upon the conversion of the Series C Preferred Shares.
(3) Redemption at Option of Holders.
(a) Redemption Option Upon Major Transaction. In
addition to all other rights of the holders of Series C Preferred
Shares contained herein, after a Major Transaction (as defined below),
the holders of Series C Preferred Shares shall have the right, at the
option of the holders of at least two-thirds (2/3) of the Series C
Preferred Shares then outstanding, to require the Company to redeem all
of the Series C Preferred Shares then outstanding in exchange for
consideration (the "REDEMPTION CONSIDERATION") per Series C Preferred
Share equal to the greater of (i) the number of shares of stock or
securities or cash or property of the Company, or of the entity
resulting from such consolidation, merger or tender or exchange offer
(the "MAJOR TRANSACTION CONSIDERATION"), to which a holder of the
number of shares of Common Stock delivered upon conversion of such
Series C Preferred Share would have been entitled upon such Major
Transaction (x) had the holder of such Series C Preferred Share
exercised its right of conversion on the date of the public
announcement of such Major Transaction and (y) had such Common Stock
been issued and outstanding and had such holder been the holder of
record of such Common Stock at the time of such Major Transaction and
(ii) an amount of Major Transaction Consideration to which a holder of
the number of shares of Common Stock equal to (A) the product of 1.1765
and the Liquidation Value of such Series C Preferred Share, divided by
(B) the Lowest Sale Price of the Common Stock on the date prior to the
consummation of the Major Transaction would have been entitled upon
such Major Transaction had such Common Stock been issued and
outstanding and had such holder been the holder of record of such
Common Stock at the time of such Major Transaction, and in either case
the Company shall make
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lawful provision therefor as a part of such consolidation, merger or
tender or exchange offer.
(b) Redemption Option Upon Triggering Event. In addition
to all other rights of the holders of Series C Preferred Shares
contained herein, after a Triggering Event (as defined below), the
holders of Series C Preferred Shares shall have the right, at the
option of the holders of at least two-thirds (2/3) of the Series C
Preferred Shares then outstanding, to require the Company to redeem all
of the Series C Preferred Shares then outstanding at a price per Series
C Preferred Share in cash (the "OPTIONAL REDEMPTION PRICE") equal to
the greater of (i) 117.65% of the Liquidation Value of such share and
(ii) the price calculated in accordance with the Redemption Rate
calculated as of the date immediately preceding such Triggering Event
on which the exchange or market on which the Common Stock is traded is
open.
(c) "Redemption Rate". The "REDEMPTION RATE" shall, as of
any date of determination, be equal to the sum of (i) the product
obtained by multiplying (A) the Conversion Rate in effect as of such
date as calculated pursuant to Section 2(b) by (B) the Closing Price of
the Common Stock on such date, and (ii) an amount equal to the product
of (.05)(N/365)(1,000).
(d) "Closing Price". "CLOSING PRICE" means, for any
security as of any date, the last closing price on AMEX as reported by
Bloomberg, or, if AMEX is not the principal trading market for such
security, the last closing price of such security on the principal
securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the
closing price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg,
or, if no closing price is reported for such security by Bloomberg, the
average of the ask prices of any market makers for such security as
reported in the "pink sheets" by the National Quotation Bureau, Inc. If
the Closing Price cannot be calculated for such security on such date
on any of the foregoing bases, the Closing Price of such security on
such date shall be the fair market value as reasonably determined in
good faith by the Board of Directors of the Company (all as
appropriately adjusted for any stock dividend, stock, split or other
similar transaction during such period).
(e) "Major Transaction". A "MAJOR TRANSACTION" shall
be deemed to have occurred at such time as any of the following events:
(i) the consolidation or merger of the Company with
or into another Person (other than pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of
incorporation of the Company);
(ii) the sale or transfer of substantially all of the
Company's assets; or
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(iii) a purchase, tender or exchange offer made to and
accepted by the holders of more than 10% of the outstanding shares of
Common Stock.
(f) "Triggering Event". A "TRIGGERING EVENT" shall be
deemed to have occurred at such time as any of the following events:
(i) the failure of the Registration Statement to be
declared effective by the SEC on or prior to the date that is sixty
(60) days after the Scheduled Effective Date;
(ii) either (A) the failure of the Registration
Statement to be effective or to cover the resale of all of the shares
of Common Stock issued or issuable upon conversion of the Series C
Preferred Shares or (B) notice from the Company that Common Stock
issued or issuable upon conversion of the Shares C Preferred Shares
cannot be sold under the Registration Statement, for any period of
sixty (60) consecutive days after the date that is sixty (60) days
after the Scheduled Effective Date (provided that for purposes of
determining the Closing Price under Section 3(c) above, the Triggering
Event shall be deemed to have occurred on the first day of such 60-day
period);
(iii) David T. Mitchell ceases to be a director or
officer of the Company prior to August 1, 1997 for any reason other
than death or "disability"; provided that for purposes of this
Certificate of Designations, David T. Mitchell shall be deemed to have
a "disability" if he is unable to perform, by reason of physical or
mental incapacity, his duties or obligations as a director or officer
of the Company for any thirty (30) consecutive day period;
(iv) the failure of the Common Stock to be listed on
AMEX, the Nasdaq National Market or The New York Stock Exchange, Inc.
for a period of seven (7) consecutive days (provided that for purposes
of determining the Closing Price under Section 3(c) above, the
Triggering Event shall be deemed to have occurred on the first day of
such seven-day period and provided further that such failure shall not
constitute a Triggering Event if caused by holders of Series C
Preferred Shares pursuant to Section 3(i) below); or
(v) the Company's notice to any holder of Series C
Preferred Shares, including by way of public announcement, at any time,
of its intention not to comply with proper requests for conversion of
any Series C Preferred Shares into shares of Common Stock, including
due to any of the reasons set forth in Section 5(a) below.
(g) Mechanics of Redemption at Option of Buyer Upon
Major Transaction. No sooner than fifteen (15) days nor later than ten
(10) days prior to the consummation of a Major Transaction, but not
prior to the public announcement of such Major Transaction, the Company
shall deliver written notice thereof via facsimile and overnight
courier ("NOTICE OF MAJOR TRANSACTION") to each holder of Series C
Preferred Shares. At any time after receipt of a Notice of Major
Transaction, the holders of at
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least two-thirds (2/3) of the Series C Preferred Shares then
outstanding may require the Company to redeem all of the holder's
Series C Preferred Shares then outstanding by delivering written notice
thereof via facsimile and overnight courier ("NOTICE OF REDEMPTION AT
OPTION OF BUYER UPON MAJOR TRANSACTION") to the Company, which Notice
of Redemption at Option of Buyer Upon Major Transaction shall indicate
(i) the number of Series C Preferred Shares that such holders are
voting in favor of redemption and (ii) the applicable Redemption
Consideration, as calculated pursuant to Section 3(a) above.
(h) Mechanics of Redemption at Option of Buyer Upon
Triggering Event. Within one (1) day after the occurrence of a
Triggering Event, the Company shall deliver written notice thereof via
facsimile and overnight courier ("NOTICE OF TRIGGERING EVENT") to each
holder of Series C Preferred Shares. At any time after receipt of a
Notice of Triggering Event, the holders of at least two-thirds (2/3) of
the Series C Preferred Shares then outstanding may require the Company
to redeem all of the Series C Preferred Shares by delivering written
notice thereof via facsimile and overnight courier ("NOTICE OF
REDEMPTION AT OPTION OF BUYER UPON TRIGGERING EVENT") to the Company,
which Notice of Redemption at Option of Buyer Upon Triggering Event
shall indicate (i) the number of Series C Preferred Shares that such
holders are voting in favor of redemption and (ii) the applicable
Optional Redemption Price, as calculated pursuant to Section 3(b)
above.
(i) Payment of Redemption Price. Upon the Company's
receipt of a Notice(s) of Redemption at Option of Buyer Upon Major
Transaction or a Notice(s) of Redemption at Option of Buyer Upon
Triggering Event, as the case may be, from the holders of at least
two-thirds (2/3) of the Series C Preferred Shares then outstanding, the
Company shall immediately notify each holder by facsimile of the
Company's receipt of such requisite notices necessary to affect a
redemption and each holder of Series C Preferred Shares shall
thereafter promptly send such holder's Preferred Stock Certificates to
be redeemed to the Company or its Transfer Agent. The Company shall
deliver the applicable Redemption Consideration or Optional Redemption
Price, as the case may be, to such holder within thirty (30) days after
the Company's receipt of the requisite notices required to affect a
redemption; provided that a holder's Preferred Stock Certificates shall
have been so delivered to the Company or its Transfer Agent; provided
further that if the Company is unable to redeem all of the Series C
Preferred Shares, the Company shall redeem an amount from each holder
of Series C Preferred Shares equal to such holder's pro-rata amount
(based on the number of Series C Preferred Shares held by such holder
relative to the number of Series C Preferred Shares outstanding) of all
Series C Preferred Shares being redeemed. If the Company shall fail to
redeem all of the Series C Preferred Shares submitted for redemption
(other than pursuant to a dispute as to the determination of the
Closing Price or the arithmetic calculation of the Redemption Rate),
the applicable Redemption Consideration or Optional Redemption Price
payable in respect of such unredeemed Series C Preferred Shares shall
bear interest at the rate of 2.5% per month (prorated for partial
months) until paid in full. Until the Company pays such unpaid
applicable Redemption Consideration or Optional Redemption Price in
full to each holder, holders of at least two-thirds (2/3) of the Series
C Preferred Shares then
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outstanding, including shares of Series C Preferred Shares submitted
for redemption pursuant to this Section 3 and for which the applicable
Redemption Consideration or Optional Redemption Price has not been
paid, shall have the option (the "VOID OPTIONAL REDEMPTION OPTION") to,
in lieu of redemption, require the Company to promptly return to each
holder all of the Series C Preferred Shares that were submitted for
redemption by such holder under this Section 3 and for which the
applicable Redemption Consideration or Optional Redemption Price has
not been paid, by sending written notice thereof to the Company via
facsimile (the "VOID OPTIONAL REDEMPTION NOTICE"). Upon the Company's
receipt of such Void Optional Redemption Notice(s) and prior to payment
of the full applicable Redemption Consideration or Optional Redemption
Price to each holder, (i) the Notice(s) of Redemption at Option of
Buyer Upon Triggering Event or the Notice(s) of Redemption at Option of
Buyer Upon Major Transaction, as the case may be, shall be null and
void with respect to those Series C Preferred Shares submitted for
redemption and for which the applicable Redemption Consideration or
Optional Redemption Price has not been paid, (ii) the Company shall
immediately return any Series C Preferred Shares submitted to the
Company by each holder for redemption under this Section 3(i) and for
which the applicable Redemption Consideration or Optional Redemption
Price has not been paid, (iii) the Fixed Conversion Price of such
returned Series C Preferred Shares shall be adjusted to the lesser of
(A) the Fixed Conversion Price as in effect on the date on which the
Void Optional Redemption Notice(s) is delivered to the Company and (B)
the lowest Closing Price during the period beginning on the date on
which the Notice(s) of Redemption of Option of Buyer Upon Major
Transaction or the Notice(s) of Redemption at Option of Buyer Upon
Triggering event, as the case may be, is delivered to the Company and
ending on the date on which the Void Optional Redemption Notice(s) is
delivered to the Company; provided that no adjustment shall be made if
such adjustment would result in an increase of the Fixed Conversion
Price then in effect, and (iv) the Conversion Percentage in effect at
such time shall be reduced by a number of percentage points equal to
the product of (A) two and one-half (2.5) and (B) the number of months
(prorated for partial months) in the period beginning on the date on
which the Notice(s) of Redemption at Option of Buyer Upon Major
Transaction or the Notice(s) of Redemption at Option of Buyer Upon
Triggering Event, as the case may be, is delivered to the Company and
ending on the date on which the Void Optional Redemption Notice(s) is
delivered to the Company. In addition, if a redemption voided pursuant
to this Section 3(i) was caused by a Triggering Event involving the
Company's inability to issue Conversion Shares because of the Amex Cap,
and if so directed by the holders of at least two-thirds (2/3) of the
Series C Preferred Shares then outstanding, including shares of Series
C Preferred Shares submitted for redemption pursuant to this Section 3
with respect to which the applicable Optional Redemption Price has not
been paid, in a Void Mandatory Redemption Notice, the Company shall
immediately delist the Common Stock from AMEX and have the Common
Stock, at such holders' option, listed on The Nasdaq SmallCap Market or
traded on the electronic bulletin board or the "pink sheets".
Notwithstanding the foregoing, in the event of a dispute as to the
determination of the Closing Price or Major Transaction Consideration
or the arithmetic calculation of the Redemption Rate, such dispute
shall be resolved pursuant to Section 2(f)(iii) above with the term
"Closing Price" or "Major Transaction Consideration" being substituted
for the term "Lowest Sale Price"
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and the term "Redemption Rate" being substituted for the term
"Conversion Rate". Payments provided for in this Section 3 shall have
priority to payments to other stockholders in connection with a Major
Transaction.
(4) Company's Right to Redeem at Its Election. Subject to
Section 4(d) below, at any time, the Company shall have the right, at
its option, to redeem ("REDEMPTION AT THE COMPANY'S ELECTION"), from
time to time, any or all of the Series C Preferred Shares; provided
that (i) the Notice of Redemption at the Company's Election (as defined
below) is delivered on a date on which the Closing Price of the Common
Stock is greater than $7.23 and (ii) the Company shall be entitled to
redeem under this Section 4, if and only if, it redeems Series C
Preferred Shares having an aggregate Liquidation Value of at least Five
Million Dollars ($5,000,000). If the Company elects to redeem some, but
not all, of the Series C Preferred Shares, the Company shall redeem an
amount from each holder of Series C Preferred Shares equal to such
holder's pro-rata amount (based on the number of Series C Preferred
Shares held by such holder relative to the number of Series C Preferred
Shares outstanding) of all Series C Preferred Shares being redeemed.
(a) Redemption Price at the Company's Election. The
"REDEMPTION PRICE AT THE COMPANY'S ELECTION" shall be an amount per
Series C Preferred Share equal to the greater of (i) the price
calculated in accordance with the Redemption Rate as of the date of the
Notice of Redemption at the Company's Election and (ii) 117.65% of the
Liquidation Value of such Series C Preferred Share.
(b) Mechanics of Redemption at the Company's Election.
The Company shall effect each such redemption no sooner than (30) days
after delivering written notice thereof via facsimile and overnight
courier ("NOTICE OF REDEMPTION AT THE COMPANY'S ELECTION") to each (i)
holder of the Series C Preferred Shares and (ii) the Transfer Agent.
Such Notice of Redemption at the Company's Election shall indicate (A)
the number of shares of Series C Preferred Shares that have been
selected for redemption, (B) the date that such redemption is to become
effective (the "DATE OF REDEMPTION AT THE COMPANY'S ELECTION") and (C)
the applicable Redemption Price at the Company's Election.
Notwithstanding the above, any holder may convert into Common Stock
pursuant to Section (2)(a) above, prior to the close of business on the
day prior to the Date of Redemption at the Company's Election, any
Series C Preferred Shares that such holder is otherwise entitled to
convert, including Series C Preferred Shares that have been selected
for redemption at the Company's election pursuant to this Section 4.
(c) Payment of Redemption Price. Each holder submitting
Series C Preferred Shares being redeemed under this Section 4 shall
send such holder's Preferred Stock Certificates so redeemed to the
Company or its Transfer Agent within five (5) business days after the
Date of Redemption at the Company's Election, and the Company shall pay
the applicable Redemption Price at the Company's Election to that
holder in cash within five (5) business days after such holder's
Preferred Stock Certificates are delivered to the Company or its
Transfer Agent. If the Company shall fail to pay the
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applicable Redemption Price at the Company's Election to such holder on
a timely basis as described in this Section 4(c), such unpaid amount
shall bear interest at the rate of 2.5% per month until paid in full.
Notwithstanding the foregoing, if the Company fails to pay the
applicable Redemption Price at the Company's Election to a holder
within the time period described in this Section 4 due to a dispute as
to the determination of the Closing Price or the arithmetic calculation
of the Redemption Rate, such dispute shall be resolved pursuant to
Section 2(f)(iii) above with the term "Closing Price" being substituted
for the term "Lowest Sale Price" and the term "Redemption Rate" being
substituted for the term "Conversion Rate."
(d) Company Must Have Immediately Available Funds or
Credit Facilities. The Company shall not be entitled to send any Notice
of Redemption at the Company's Election pursuant to Section 4(b) above
and begin the redemption procedure under this Section 4, unless it has:
(i) the full amount of the Redemption Price at the
Company's Election in cash, available in a demand or other immediately
available account in a bank or similar financial institution;
(ii) credit facilities, with a bank or similar
financial institutions that are immediately available and unrestricted
for use in redeeming the Series C Preferred Shares, in the full amount
of the Redemption Price at the Company's Election;
(iii) a written agreement with a standby underwriter
or qualified buyer ready, willing and able to purchase from the Company
a sufficient number of shares of stock to provide proceeds necessary to
redeem any stock that is not converted prior to a Redemption at the
Company's Election; or
(iv) a combination of the items set forth in the
preceding clauses (i), (ii) and (iii), aggregating the full amount of
the Redemption Price at the Company's Election.
(5) Inability to Fully Convert.
(a) Holder's Option if Company Cannot Fully Convert. If,
upon the Company's receipt of a Conversion Notice, the Company can not
issue shares of Common Stock registered for resale under the
Registration Statement for any reason, including, without limitation,
because the Company (x) does not have a sufficient number of shares of
Common Stock authorized and available, (y) is otherwise prohibited by
applicable law or by the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Company or its Securities, including without
limitation the AMEX Cap (as defined below), from issuing all of the
Common Stock which is to be issued to a holder of Series C Preferred
Shares pursuant to a Conversion Notice or (z) fails to have a
sufficient number of shares of Common Stock registered for resale under
the Registration Statement, then the Company shall issue as many shares
of Common Stock as it is able to issue in accordance with
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such holder's Conversion Notice and pursuant to Section 2(f) above and,
with respect to the unconverted Series C Preferred Shares, the holder,
solely at such holder's option, can elect to:
(i) require the Company to redeem from such holder
those Series C Preferred Shares for which the Company is unable to
issue Common Stock in accordance with such holder's Conversion Notice
("MANDATORY REDEMPTION") at a price per Series C Preferred Share (the
"MANDATORY REDEMPTION PRICE") equal to the greater of (x) 117.65% of
the Liquidation Value of such share and (y) the Redemption Rate as of
such Conversion Date;
(ii) if the Company's inability to fully convert
Series C Preferred Shares is pursuant to Section 5(a)(z) above, require
the Company to issue restricted shares of Common Stock in accordance
with such holder's Conversion Notice and pursuant to Section 2(f)
above;
(iii) void its Conversion Notice and retain or have
returned, as the case may be, the nonconverted Series C Preferred
Shares that were to be converted pursuant to such holder's Conversion
Notice; or
(iv) if the Company's inability to fully convert
Series C Preferred Shares is pursuant to the Amex Cap described in
Section 5(a)(y) above, require the Company to issue shares of Common
Stock in accordance with such holder's Conversion Notice and pursuant
to Section 2(f) above at a Conversion Price equal to the Average Market
Price of the Common Stock for the five (5) consecutive trading days
preceding such holder's Notice in Response to Inability to Convert (as
defined below).
(b) Mechanics of Fulfilling Holder's Election. The
Company shall immediately send via facsimile to a holder of Series C
Preferred Shares, upon receipt of a facsimile copy of a Conversion
Notice from such holder which cannot be fully satisfied as described in
Section 5(a) above, a notice of the Company's inability to fully
satisfy such holder's Conversion Notice (the "INABILITY TO FULLY
CONVERT NOTICE"). Such Inability to Fully Convert Notice shall indicate
(i) the reason why the Company is unable to fully satisfy such holder's
Conversion Notice, (ii) the number of Series C Preferred Shares which
cannot be converted and (iii) the applicable Mandatory Redemption
Price. Such holder must within two (2) days of receipt of such
Inability to Fully Convert Notice deliver written notice via facsimile
to the Company ("NOTICE IN RESPONSE TO INABILITY TO CONVERT") of its
election pursuant to Section 5(a) above.
(c) Payment of Redemption Price. If such holder shall
elect to have its shares redeemed pursuant to Section 5(a)(i) above,
the Company shall pay the Mandatory Redemption Price in cash to such
holder within thirty (30) days of the Company's receipt of the holder's
Notice in Response to Inability to Convert. If the Company shall fail
to pay the applicable Mandatory Redemption Price to such holder on a
timely basis as described in this Section 5(c) (other than pursuant to
a dispute as to the determination of the Closing Price or the
arithmetic calculation of the Redemption Rate),
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such unpaid amount shall bear interest at the rate of 2.5% per month
(prorated for partial months) until paid in full. Until the full
Mandatory Redemption Price is paid in full to such holder, such holder
may void the Mandatory Redemption with respect to those Series C
Preferred Shares for which the full Mandatory Redemption Price has not
been paid and receive back such Series C Preferred Shares.
Notwithstanding the foregoing, if the Company fails to pay the
applicable Mandatory Redemption Price within such thirty (30) days time
period due to a dispute as to the determination of the Closing Price or
the arithmetic calculation of the Redemption Rate, such dispute shall
be resolved pursuant to Section 2(f)(iii) above with the term "Closing
Price" being substituted for the term "Lowest Sale Price" and the term
"Redemption Rate" being substituted for the term "Conversion Rate".
(d) Pro-rata Conversion and Redemption. In the event
the Company receives a Conversion Notice from more than one holder of
Series C Preferred Shares on the same day and the Company can convert
and redeem some, but not all, of the Series C Preferred Shares pursuant
to this Section 5, the Company shall convert and redeem from each
holder of Series C Preferred Shares electing to have Series C Preferred
Shares converted and redeemed at such time an amount equal to such
holder's pro-rata amount (based on the number of Series C Preferred
Shares held by such holder relative to the number of Series C Preferred
Shares outstanding) of all Series C Preferred Shares being converted
and redeemed at such time.
(6) Reissuance of Certificates. In the event of a conversion
or redemption pursuant to this Certificate of Designations of less than
all of the Series C Preferred Shares represented by a particular
Preferred Stock Certificate, the Company shall promptly cause to be
issued and delivered to the holder of such Series C Preferred Shares a
preferred stock certificate representing the remaining Series C
Preferred Shares which have not been so converted or redeemed.
(7) Reservation of Shares. The Company shall, so long as any
of the Series C Preferred Shares are outstanding, reserve and keep
available out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Series C Preferred
Shares, such number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all of the Series C
Preferred Shares then outstanding; provided that the number of shares
of Common Stock so reserved shall at no time be less than 200% of the
number of shares of Common Stock for which the Series C Preferred
Shares are at any time convertible; provided further that such shares
of Common Stock so reserved shall be allocated for issuance upon
conversion of Series C Preferred Shares pro rata among the holders of
Series C Preferred Shares based on the number of Series C Preferred
Shares held by such holder relative to the total number of authorized
Series C Preferred Shares.
(8) Voting Rights. Holders of Series C Preferred Shares shall
have no voting rights, except as required by law, including but not
limited to the General Corporation Law of the State of Delaware, and as
expressly provided in this Certificate of Designations.
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(9) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Company, the holders of the Series C Preferred Shares shall be entitled
to receive in cash out of the assets of the Company, whether from
capital or from earnings available for distribution to its stockholders
(the "PREFERRED FUNDS"), before any amount shall be paid to the holders
of any of the capital stock of the Company of any class junior in rank
to the Series C Preferred Shares in respect of the preferences as to
the distributions and payments on the liquidation, dissolution and
winding up of the Company, an amount per Series C Preferred Share equal
to the sum of (i) $1,000 and (ii) an amount equal to the product of
(.05) (N/365) ($1,000) (such sum being referred to as the "LIQUIDATION
VALUE"); provided that, if the Preferred Funds are insufficient to pay
the full amount due to the holders of Series C Preferred Shares and
holders of shares of other classes or series of preferred stock of the
Company that are of equal rank with the Series C Preferred Shares as to
payments of Preferred Funds (the "PARI PASSU SHARES"), then each holder
of Series C Preferred Shares and Pari Passu Shares shall receive a
percentage of the Preferred Funds equal to the full amount of Preferred
Funds payable to such holder as a percentage of the full amount of
Preferred Funds payable to all holders of Series C Preferred Shares and
Pari Passu Shares. The purchase or redemption by the Company of stock
of any class, in any manner permitted by law, shall not, for the
purposes hereof, be regarded as a liquidation, dissolution or winding
up of the Company. Neither the consolidation or merger of the Company
with or into any other Person, nor the sale or transfer by the Company
of less than substantially all of its assets, shall, for the purposes
hereof, be deemed to be a liquidation, dissolution or winding up of the
Company. No holder of Series C Preferred Shares shall be entitled to
receive any amounts with respect thereto upon any liquidation,
dissolution or winding up of the Company other than the amounts
provided for herein.
(10) Preferred Rank. All shares of Common Stock shall be of
junior rank to all Series C Preferred Shares in respect to the
preferences as to distributions and payments upon the liquidation,
dissolution and winding up of the Company. The rights of the shares of
Common Stock shall be subject to the preferences and relative rights of
the Series C Preferred Shares. The Series C Preferred Shares shall be
of equal rank with shares of the Company's Series B Convertible
Preferred Stock. Without the prior express written consent of the
holders of not less than two-thirds (2/3) of the then outstanding
Series C Preferred Shares, the Company may not hereafter authorize or
issue additional or other capital stock that is of senior rank to the
Series C Preferred Shares in respect of the preferences as to
distributions and payments upon the liquidation, dissolution and
winding up of the Company. In the event of the merger or consolidation
of the Company with or into another corporation, the Series C Preferred
Shares shall maintain their relative powers, designations and
preferences provided for herein and no merger shall result inconsistent
therewith.
(11) Restriction on Redemption and Cash Dividends with respect
to Other Capital Stock. Until all of the Series C Preferred Shares have
been converted or redeemed as provided herein, the Company shall not
redeem, or declare or pay any cash dividend or distribution on, its
Common Stock without the prior express written consent
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of the holders of not less than two-thirds (2/3) of the then
outstanding Series C Preferred Shares.
(12) Limitation on Number of Conversion Shares. The Company
shall not be obligated to issue, in the aggregate, more than 20,946,476
shares of Common Stock (such amount to be proportionately and equitably
adjusted from time to time in the event of stock splits, stock
dividends, combinations, reverse stock splits, reclassification,
capital reorganizations and similar events relating to the Common
Stock) (the "AMEX CAP") upon conversion of the Series C Preferred
Shares, if issuance of a larger number of shares of Common Stock would
constitute a breach of the Company's obligations under the rules or
regulations of AMEX or any other principal securities exchange or
market upon which the Common Stock becomes traded. The Amex Cap shall
be allocated among the Series C Preferred Shares pro rata based on the
total number of authorized Series C Preferred Shares.
(13) Vote to Change the Terms of Series C Preferred Shares.
The affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting, of the holders of not less than
two-thirds (2/3) of the then outstanding Series C Preferred Shares,
shall be required for any change to this Certificate of Designations or
the Company's Certificate of Incorporation which would amend, alter,
change or repeal any of the powers, designations, preferences and
rights of the Series C Preferred Shares.
(14) Lost or Stolen Certificates. Upon receipt by the Company
of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of any Preferred Stock Certificates representing the
Series C Preferred Shares, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the holder to the
Company and, in the case of mutilation, upon surrender and cancellation
of the Preferred Stock Certificate(s), the Company shall execute and
deliver new preferred stock certificate(s) of like tenor and date;
provided, however, the Company shall not be obligated to re-issue
preferred stock certificates if the holder contemporaneously requests
the Company to convert such Series C Preferred Shares into Common
Stock.
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IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Virginia Walker, its Executive Vice President,
Finance and Administration, Chief Financial Officer and Secretary, as of the
17th day of January 1997.
JTS CORPORATION
By:_________________________________
Name: Virginia Walker
Its: Executive Vice President, Finance
and Administration, Chief Financial
Officer and Secretary
20
EXHIBIT I
JTS CORPORATION
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
JTS Corporation (the "CERTIFICATE OF DESIGNATIONS"). In accordance with and
pursuant to the Certificate of Designations, the undersigned hereby elects to
convert the number of shares of Series C Convertible Preferred Stock, $.001 par
value per share (the "SERIES C PREFERRED SHARES"), of JTS Corporation, a
Delaware corporation (the "COMPANY"), indicated below into shares of Common
Stock, $.001 par value per share (the "COMMON STOCK"), of the Company, by
tendering the stock certificate(s) representing the share(s) of Series C
Preferred Shares specified below as of the date specified below.
Date of Conversion: _______________________________
Number of Series C
Preferred Shares to be converted: _______________________________
Stock certificate no(s). of Series C
Preferred Shares to be converted: _______________________________
Please confirm the following information:
Conversion Price: _______________________________
Number of shares of Common Stock _______________________________
to be issued:
Additional Amount: _______________________________
Please issue the Common Stock and, if applicable, any check drawn on an account
of the Company into which the Series C Preferred Shares are being converted in
the following name and to the following address:
Issue to: _______________________________
_______________________________
_______________________________
_______________________________
Facsimile Number: _______________________________
Authorization: _______________________________
By:____________________________
Title:_________________________
Dated: _______________________________