1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
PHASE METRICS, INC.
ARTICLE I
The name of this corporation is Phase Metrics, Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 9 East Loockerman Street, Dover, 19901. The name of the
corporation's registered agent at such address is National Registered Agents,
Inc.
ARTICLE III
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
The corporation is authorized to issue two classes of stock designated
respectively "Common Stock" and "Preferred Stock." The total number of shares
of Common Stock this corporation is authorized to issue is 70,000,000, par
value $.0001 per share, and the total number of shares of Preferred Stock this
corporation is authorized to issue is 605,364, par value $.0001 per share. The
Preferred Stock shall be issued in series. The first two such series shall be
designated "Series A Convertible Preferred Stock" and "Series B Convertible
Participating Preferred Stock." The total number of shares of Series A
Convertible Preferred Stock this corporation is authorized to issue is 412,500.
The total number of shares of Series B Convertible Participating Preferred
Stock this corporation is authorized to issue is 192,864.
(A) Series A Convertible Preferred Stock
The following is a statement of the designations, powers,
privileges, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions relating to the
Series A Convertible Preferred Stock:
(1) Number and Designation. 412,500 shares of the
Preferred Stock of the Corporation shall be designated as Series A Convertible
Preferred Stock (the "SERIES A PREFERRED STOCK"). Each share of Series A
Preferred Stock shall rank equally in all respects and shall be subject to the
following provisions.
(2) Rank. The Series A Preferred Stock shall rank junior
to the Series B Convertible Participating Preferred Stock ("Series B Preferred
Stock") with respect to dividend rights and rights on liquidation, dissolution
or winding up as set forth in Article
2
IV(A), paragraph (3) and Article IV(A), paragraph (4), and prior to all classes
of Common Stock with respect to rights on liquidation, dissolution or winding
up. All equity securities of the corporation to which the Series A Preferred
Stock ranks prior (whether with respect to dividends or upon liquidation,
dissolution, winding up or otherwise), including the Common Stock, are
collectively referred to in this Article IV(A) as the "JUNIOR SECURITIES." All
equity securities of the Corporation with which the Series A Preferred Stock
ranks on a parity (whether with respect to dividends or upon liquidation,
dissolution or winding up) are collectively referred to in this Article IV(A)
as the "PARITY SECURITIES." The respective definitions of Junior Securities
and Parity Securities shall also include any rights or options exercisable for
or convertible into any of the Junior Securities and Parity Securities, as the
case may be.
(3) Dividends. Shares of Series A Preferred Stock shall
rank junior as to dividend rights to shares of Series B Preferred Stock. Each
share of Series A Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors, out of funds legally available for the
payment of dividends, dividends to the same extent as, on the same basis as, at
the same rate as, and contemporaneously with, dividends when, as and if
declared by the Board of Directors with respect to shares of Common Stock or
Parity Securities. Such dividends shall be payable on the dates specified by
the Board of Directors as the dates for payment of dividends in respect of
shares of Common Stock or Parity Securities (each of such dates being a
"DIVIDEND PAYMENT DATE") (unless such day is not a business day, in which
event on the next succeeding business day), in preference to dividends on the
Junior Securities. Such dividends shall be paid to the holders of record at the
close of business on the date specified by the Board of Directors of the
Corporation at the time such dividend is declared, provided that such date
shall not be more than 60 days nor less than 10 days prior to the respective
dividend payment date. If the Corporation shall at any time after the date of
issuance of the Series A Preferred Stock pay any dividend on Common Stock
payable in shares of Common Stock or effect a subdivision or combination of the
outstanding shares of Common Stock (by reclassification or otherwise) into a
greater or lesser number of shares of Common Stock, then in each such case the
dividend amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under the preceding sentence shall be
adjusted by multiplying such amount by a fraction of which the numerator is the
number of shares of Common Stock outstanding immediately after such event and
of which the denominator is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(4) Liquidation Preference. (a) In the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, before any payment or distribution of the assets of the
Corporation (whether capital or surplus) shall be made to or set apart for the
holders of Junior Securities, but after payment in full to holders of Series B
Preferred Stock of all amounts due thereunder, the holders of the shares of
Series A Preferred Stock shall be entitled to receive an amount in cash equal
to $21.82 per share of Series A Preferred Stock, plus an amount equal to all
dividends declared and unpaid thereon to the date of final distribution to such
holders. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation, or proceeds thereof,
3
distributable among the holders of the shares of Series A Preferred Stock,
after payment in full to holders of Series B Preferred Stock of all amounts due
thereunder, shall be insufficient to pay in full the preferential amount
aforesaid and liquidating payments on any Parity Securities, then such assets,
or the proceeds thereof, shall be distributed among the holders of shares of
Series A Preferred Stock and any such other Parity Securities ratably in
accordance with the respective amounts that would be payable on such shares of
Series A Preferred Stock and any such other Parity Securities if all amounts
payable thereon were paid in full. Subject to the rights of the holders of any
Parity Securities, after payment shall have been made in full to the holders of
the Series A Preferred Stock, as provided in this Article IV(A), paragraph (4),
any other series or class or classes of Junior Securities shall, subject to the
respective terms and provisions (if any) applying thereto, be entitled to
receive any and all assets remaining to be paid or distributed, and the holders
of the Series A Preferred Stock shall not be entitled to share therein.
(b) For the purposes of this Article IV(A), paragraph (4),
(i) a consolidation or merger of the Corporation with one or more corporations,
or (ii) a sale or transfer of all or substantially all of the Corporation's
assets, shall be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary, of the Corporation.
(5) Conversion. (a) Subject to the provisions of this
Article IV(A), paragraph (5), each holder of the shares of Series A Preferred
Stock shall have the right, at any time and from time to time, at such holder's
option, to convert any or all outstanding shares (and fractional shares) of
Series A Preferred Stock, in whole or in part, into fully paid and
non-assessable shares of Common Stock.
(b) Subject to the provisions of this Article IV(A),
paragraph (5), all of the outstanding shares (and fractional shares) of Series
A Preferred Stock shall be converted automatically into fully paid and
non-assessable shares of Common Stock upon the occurrence of a Series A Trigger
Event. Any conversion pursuant to this Article IV(A), paragraph 5(b) shall
occur automatically, without further action on the part of the holders or the
Corporation.
(c) The number of shares of Common Stock deliverable upon
conversion of a share of Series A Preferred Stock, adjusted as hereinafter
provided, is referred to in this Article IV(A) as the "SERIES A CONVERSION
RATIO." The Series A Conversion Ratio as of the date of original issuance of
the Series A Preferred Stock is one, subject to adjustment from time to time
pursuant to Article IV(A), paragraph (5)(g) hereof.
(d)(i) In order to exercise the conversion privilege and upon
the occurrence of a Series A Trigger Event, the holder of the shares of Series
A Preferred Stock to be converted shall surrender the certificate representing
such shares at the office of the Corporation, with, in the case of any
conversion pursuant to Article IV(A), paragraph 5(a), a written notice of
election to convert completed and signed, specifying the number of shares to be
converted. Unless the shares issuable on conversion are to be issued in the
same name as the name in which such shares of Series A Preferred Stock are
registered, each share
3
4
surrendered for conversion shall, subject to the provisions of the
Securityholders Agreement, be accompanied by instruments of transfer, in form
satisfactory to the Corporation, duly executed by the holder or the holder's
duly authorized attorney and an amount sufficient to pay any transfer or
similar tax.
(ii) As promptly as practicable after the surrender by the
holder of the certificates for shares of Series A Preferred Stock as aforesaid,
the Corporation shall issue and shall deliver to such holder, or on the
holder's written order to the holder's transferee, a certificate or
certificates for the whole number of shares of Common Stock issuable upon the
conversion of such shares in accordance with the provisions of this Article
IV(A), paragraph (5).
(iii) Each conversion shall be deemed to have been effected
(x) in the case of any conversion pursuant to Article IV(A), paragraph 5(a),
immediately prior to the close of business on the date on which the
certificates for shares of Series A Preferred Stock shall have been surrendered
and such notice received by the Corporation as aforesaid or (y) in the case of
any conversion pursuant to Article IV(A), paragraph 5(b), on the date of the
Series A Trigger Event, and the person in whose name or names any certificate
or certificates for shares of Common Stock shall be issuable upon such
conversion shall be deemed to have become the holder of record of the shares of
Common Stock represented thereby at such time on such date and such conversion
shall be into a number of shares of Common Stock equal to the product of the
number of shares of Series A Preferred Stock surrendered times the Series A
Conversion Ratio in effect at such time on such date. All shares of Common
Stock delivered upon conversion of the Series A Preferred Stock will upon
delivery be duly and validly issued and fully paid and non-assessable, free of
all liens and charges and not subject to any preemptive rights. Upon the
surrender of certificates representing shares of Series A Preferred Stock, such
shares shall no longer be deemed to be outstanding and all rights of a holder
with respect to such shares surrendered for conversion shall immediately
terminate except the right to receive the Common Stock and any other amounts
payable pursuant to this Article IV(A), paragraph (5).
(e)(i) From the date of delivery by a holder of shares of
Series A Preferred Stock of such holder's shares of Series A Preferred Stock
(and, in the case of any conversion pursuant to Article IV(A), paragraph 5(b),
upon the occurrence of a Series A Trigger Event), such Series A Preferred Stock
shall continue to participate equally and ratably with the holders of shares of
Common Stock in all dividends paid on the Common Stock as if such shares of
Series A Preferred Stock had been converted to shares of Common Stock at the
time of such delivery or Series A Trigger Event.
(ii) Except to the extent provided above in Article IV(A),
paragraph (5)(e)(i) and in Article IV(A), paragraph (5)(g), the Corporation
shall make no payment or adjustment for accrued and unpaid dividends on the
shares of Series A Preferred Stock, whether or not in arrears, on conversion of
such shares or for dividends in cash on the shares of Common Stock issued upon
such conversion.
4
5
(f)(i) The Corporation covenants that it will at all times
reserve and keep available, free from preemptive rights, such number of its
authorized but unissued shares of Common Stock as shall be required for the
purpose of effecting conversions of the Series A Preferred Stock.
(ii) Prior to the delivery of any securities which the
Corporation shall be obligated to deliver upon conversion of the Series A
Preferred Stock, the Corporation shall comply with respect to the issuance of
such securities with all applicable federal and state laws and regulations
which require action to be taken by the Corporation.
(iii) The Corporation will pay any and all documentary stamp
or similar issue or transfer taxes payable in respect of the issue or delivery
of shares of Common Stock on conversion of the Series A Preferred Stock
pursuant hereto; provided that the Corporation shall not be required to pay any
tax which may be payable in respect of any transfer involving the issue or
delivery of shares of Common Stock in a name other than that of the holder of
the Series A Preferred Stock to be converted and no such issue or delivery
shall be made unless and until the person requesting such issue or delivery has
paid to the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(iv) In connection with the conversion of any shares of
Series A Preferred Stock, no fractions of shares of Common Stock shall be
issued, but in lieu thereof the Corporation shall pay a cash adjustment in
respect of such fractional interest in an amount equal to such fractional
interest multiplied by the Daily Price per share of Common Stock on the
business day on which such shares of Series A Preferred Stock are deemed to
have been converted.
(g)(i) In case the Corporation shall at any time after the
date of issuance of the Series A Preferred Stock (I) declare a dividend or make
a distribution on Common Stock payable in Common Stock (other than a dividend
in which shares of Series A Preferred Stock participate as provided in Article
IV(A), paragraph (3)), (II) subdivide or split the outstanding Common Stock,
(III) combine or reclassify the outstanding Common Stock into a smaller number
of shares, (IV) issue any shares of its capital stock in a reclassification of
Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Corporation is the continuing corporation,
other than any such consolidation or merger which results in the payment to the
holders of Series A Preferred Stock of the liquidation preference as provided
in Article IV(A), paragraph (4)), or (V) consolidate with, or merge with or
into, any other Person (other than any such consolidation or merger which
results in the payment to the holders of Series A Preferred Stock of the
liquidation preference as provided in Article IV(A), paragraph (4)), the Series
A Conversion Ratio in effect at the time of the record date for such dividend
or distribution or of the effective date of such subdivision, split,
combination, consolidation, merger or reclassification shall be proportionately
adjusted so that the conversion of the Series A Preferred Stock after such time
shall entitle the holder to receive the aggregate number of shares of Common
Stock or other securities of the Corporation (or shares of any security into
5
6
which such shares of Common Stock have been combined, consolidated, merged or
reclassified pursuant to clause (III), (IV) or (V) above) which, if this
Series A Preferred Stock had been converted immediately prior to such time,
such holder would have owned upon such conversion and been entitled to receive
by virtue of such dividend, distribution, subdivision, split, combination,
consolidation, merger or reclassification, assuming such holder of Common Stock
of the Corporation (x) is not a Person with which the Corporation consolidated
or into which the Corporation merged or which merged into the Corporation or to
which such recapitalization, sale or transfer was made, as the case may be
("CONSTITUENT PERSON"), or an affiliate of a constituent person and (y) failed
to exercise any rights of election as to the kind or amount of securities, cash
and other property receivable upon such reclassification, change,
consolidation, merger, recapitalization, sale or transfer (provided, that if
the kind or amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger, recapitalization, sale or
transfer is not the same for each share of Common Stock of the Corporation held
immediately prior to such reclassification, change, consolidation, merger,
recapitalization, sale or transfer by other than a constituent person or an
affiliate thereof and in respect of which such rights of election shall not
have been exercised ("NON-ELECTING SHARE"), then for the purpose of this
Article IV(A), paragraph (5)(g) the kind and amount of securities, cash and
other property receivable upon such reclassification, change, consolidation,
merger, recapitalization, sale or transfer by each non-electing share shall be
deemed to be the kind and amount so receivable per share by a plurality of the
non-electing shares). Such adjustments shall be made successively whenever any
event listed above shall occur.
(ii) In case the Corporation shall issue or sell any Common
Stock (other than Common Stock issued (I) upon conversion of the Series A
Preferred Stock, the Series B Preferred Stock or the Notes, (II) pursuant to
the Corporation's stock option plans or pursuant to any other Common Stock
related employee compensation plan of the Corporation approved by the
Corporation's Board of Directors, (III) upon exercise or conversion of any
security the setting of a record date for which or issuance of which caused an
adjustment under Article IV(A), paragraphs (5)(g)(iii) or (g)(iv) hereof, (IV)
upon exercise of warrants issued to lenders of the Corporation including,
without limitation, pursuant to the Bridge Securities Purchase Agreement, (V)
in connection with any bona fide, arms-length direct or indirect merger,
acquisition or similar transaction) without consideration or for a
consideration per share less than the then Conversion Price Per Common Share,
the Series A Conversion Ratio to be in effect after such issuance or sale shall
be determined by multiplying the Series A Conversion Ratio in effect
immediately prior to such issuance or sale by a fraction, (A) the numerator of
which shall be the sum of (x) the product of the aggregate number of shares of
Common Stock outstanding immediately after such issuance or sale and the
Current Valuation Per Common Share immediately prior to such issuance or sale
plus (y) the aggregate of the product of each share of Fully Diluted Common
Stock (other than shares of Common Stock included in (A)(x) or employee stock
options) outstanding immediately prior to such issuance or sale and the
Exercise Price applicable to such share of Fully Diluted Common Stock and (B)
the denominator of which shall be the sum of (x) the number of shares of Common
Stock outstanding immediately prior to the time of such issuance or sale
multiplied by the Current Valuation Per Common Share immediately prior to
6
7
such issuance or sale, plus (y) the aggregate of the product of each share of
Fully Diluted Common Stock (other than shares of Common Stock included in
(B)(x) or employee stock options) outstanding immediately prior to such
issuance or sale and the Exercise Price applicable to such share of Fully
Diluted Common Stock, plus (z) the aggregate consideration, if any, to be
received by the Corporation upon such issuance or sale. In case any portion of
the consideration to be received by the Corporation shall be in a form other
than cash, the fair market value of such noncash consideration shall be
utilized in the foregoing computation. Such fair market value shall be
determined by the Board of Directors of the Corporation; provided that if the
holders of 25% of the Series A Preferred Stock shall object to any such
determination, the Board of Directors shall retain an independent appraiser
reasonably satisfactory to such holders to determine such fair market value.
The holders shall be notified promptly of any consideration other than cash to
be received by the Corporation and furnished with a description of the
consideration and the fair market value thereof, as determined by the Board of
Directors.
(iii) In case the Corporation shall fix a record date for
the issuance of rights, options or warrants to the holders of its Common Stock
or other securities of the Corporation entitling such holders to subscribe for
or purchase shares of Common Stock (or securities convertible into shares of
Common Stock), with respect to which the holders of Series A Preferred Stock do
not participate pursuant to Article IV(A), paragraph (3), at a price per share
of Common Stock (or having a conversion price per share of Common Stock, if a
security convertible into shares of Common Stock) less than the then Conversion
Price Per Common Share on such record date, the maximum number of shares of
Common Stock issuable upon exercise of such rights, options or warrants (or
conversion of such convertible securities) shall be deemed to have been issued
and outstanding as of such record date and the Series A Conversion Ratio shall
be adjusted pursuant to Article IV(A), paragraph (5)(g)(ii) hereof, as though
such maximum number of shares of Common Stock had been so issued for the
aggregate consideration payable by the holders of such rights, options,
warrants or convertible securities prior to their receipt of such shares of
Common Stock. In case any portion of such consideration shall be in a form
other than cash, the fair market value of such noncash consideration shall be
determined as set forth in Article IV(A), paragraph (5)(g)(ii) hereof. Such
adjustment shall be made successively whenever such record date is fixed; and
in the event that such rights, options or warrants are not so issued or expire
unexercised, or in the event of a change in the number of shares of Common
Stock to which the holders of such rights, options or warrants are entitled
(other than pursuant to adjustment provisions therein comparable to those
contained in this Article IV(A), paragraph (5)(g)), the Series A Conversion
Ratio shall again be adjusted to be the Series A Conversion Ratio which would
then be in effect if such record date had not been fixed, in the former event,
or the Series A Conversion Ratio which would then be in effect if such holder
had initially been entitled to such changed number of shares of Common Stock,
in the latter event.
(iv) In case the Corporation shall issue rights, options
(other than options issued pursuant to a plan described in clause II of Article
IV(A), paragraph (5)(g)(ii)) or warrants (other than warrants described in
clause IV of Article IV(A), paragraph (5)(g)(ii))
7
8
entitling the holders thereof to subscribe for or purchase Common Stock (or
securities convertible into shares of Common Stock) or shall issue convertible
securities, and the price per share of Common Stock of such rights, options,
warrants or convertible securities (including, in the case of rights, options
or warrants, the price at which they may be exercised) is less than the then
Conversion Price Per Common Share, the maximum number of shares of Common Stock
issuable upon exercise of such rights, options or warrants or upon conversion
of such convertible securities shall be deemed to have been issued and
outstanding as of the date of such sale or issuance, and the Series A
Conversion Ratio shall be adjusted pursuant to Article IV(A), paragraph
(5)(g)(ii) hereof as though such maximum number of shares of Common Stock had
been so issued for an aggregate consideration equal to the aggregate
consideration paid for such rights, options, warrants or convertible securities
and the aggregate consideration payable by the holders of such rights, options,
warrants or convertible securities prior to their receipt of such shares of
Common Stock. In case any portion of such consideration shall be in a form
other than cash, the fair market value of such noncash consideration shall be
determined as set forth in Article IV(A), paragraph (5)(g)(ii) hereof. Such
adjustment shall be made successively whenever such rights, options, warrants
or convertible securities are issued; and in the event that such rights,
options or warrants expire unexercised, or in the event of a change in the
number of shares of Common Stock to which the holders of such rights, options,
warrants or convertible securities are entitled (other than pursuant to
adjustment provisions therein comparable to those contained in this Article
IV(A), paragraph (5)(g)), the Series A Conversion Ratio shall again be adjusted
to be the Series A Conversion Ratio which would then be in effect if such
rights, options, warrants or convertible securities had not been issued, in the
former event, or the Series A Conversion Ratio which would then be in effect if
such holders had initially been entitled to such changed number of shares of
Common Stock, in the latter event. No adjustment of the Series A Conversion
Ratio shall be made pursuant to this Article IV(A), paragraph (5)(g)(iv) to the
extent that the Series A Conversion Ratio shall have been adjusted pursuant to
Article IV(A), paragraph (5)(g)(iii) (or is not required to be adjusted
pursuant to Article IV(A), paragraph (5)(g)(iii) because holders of the Series
A Preferred Stock have participated pursuant to Article IV(A), paragraph (3))
upon the setting of any record date relating to such rights, options, warrants
or convertible securities and such adjustment fully reflects the number of
shares of Common Stock to which the holders of such rights, options, warrants
or convertible securities are entitled and the price payable therefor.
(v) In case the Corporation shall fix a record date for
the making of a distribution to holders of Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Corporation is the continuing corporation, other than any such consolidation or
merger which results in the payment to holders of Series A Preferred Stock of
the liquidation preference as provided in Article IV(A), paragraph (4)) of
evidences of indebtedness, assets or other property (other than dividends
payable in Common Stock or rights, options or warrants referred to in, and for
which an adjustment is made pursuant to Article IV(A), paragraph (5)(g)(iii)
hereof) with respect to which the holders of the Series A Preferred Stock do
not participate pursuant to Article IV(A), paragraph (3), the Series A
Conversion Ratio to be in effect after such record date shall be determined by
multiplying the Series A Conversion Ratio in effect immediately prior to such
record date by
8
9
a fraction, (A) the numerator of which shall be the Current Valuation Per
Common Share on such record date, and (B) the denominator of which shall be the
Current Valuation Per Common Share on such record date, less the fair market
value (determined as set forth in Article IV(A), paragraph (5)(g)(ii) hereof)
of the portion of the assets, other property or evidence of indebtedness so to
be distributed which is applicable to one share of Common stock. Such
adjustments shall be made successively whenever such a record date is fixed;
and in the event that such distribution is not so made, the Series A Conversion
Ratio shall again be adjusted to be the Series A Conversion Ratio which would
then be in effect if such record date had not been fixed.
(vi) For purposes of any computation under this Article
IV(A), paragraph (5)(f)(iv) or paragraph (5)(g), the number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by
or for the account of the Corporation.
(vii) No adjustment to the Series A Conversion Ratio
pursuant to Article IV(A), paragraphs (5)(g)(ii), (iii), (iv) and (v) above
shall be required unless such adjustment would require an increase or decrease
of at least 1% in the Series A Conversion Ratio; provided however, that any
adjustments which by reason of this Article IV(A), paragraph (5)(g)(vii) are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Article IV(A), paragraph
(5)(g) shall be made to the nearest four decimal points.
(viii) In the event that, at any time as a result of the
provisions of this Article IV(A), paragraph (5)(g), the holders of the Series A
Preferred Stock upon subsequent conversion shall become entitled to receive any
shares of capital stock of the Corporation other than Common Stock, the number
of such other shares so receivable upon conversion of the Series A Preferred
Stock shall thereafter be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions contained
herein.
(ix) In the event:
(A) of any capital reorganization or reclassification of
the Common Stock (other than a subdivision or combination of the
outstanding Common Stock and other than a change in par value of the
Common Stock) or of any consolidation or merger to which the
Corporation is a party and for which approval of any stockholders of
the corporation is required (other than a consolidation or merger in
which the Corporation is the continuing corporation and that does not
result in any reclassification or change of the Common Stock
outstanding), or of the conveyance or transfer of the properties and
assets of the corporation substantially as an entirety; or
(B) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation; or
(C) the Corporation proposes to take any action (other
than actions of the character described in Article IV(A), paragraph
(5)(g)(i)(I) or (II)) that would require
9
10
an adjustment pursuant to this Article IV(A), paragraph (5)(g) to the
number of shares purchasable upon conversion;
then the Corporation shall cause to be mailed by first-class mail to the
holders of Series A Preferred Stock, at least five days prior to the applicable
record or effective date hereinafter specified (10 days in the case of the
events referred to in clauses (A) and (B) above), a notice stating (x) the date
as of which the holders of Common Stock of record to be entitled to receive any
such rights, warrants or distributions are to be determined, or (y) the date on
which any such consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding-up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities or other property, if
any, deliverable upon such reorganization, reclassification, consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding-up.
(h) All adjustments pursuant to this Article IV(A),
paragraph (5) shall be notified to the holders of this Series A Preferred Stock
and such notice shall be accompanied by a schedule of computation of the
adjustments.
(6) Voting Rights. (a) Except as otherwise provided by
applicable law, the holders of the shares of Series A Preferred Stock (i) shall
be entitled to vote with the holders of the Common Stock on all matters
submitted for a vote of holders of Common Stock, (ii) shall be entitled to a
number of votes equal to the number of votes to which shares of Common Stock
issuable upon conversion of such shares of Series A Preferred Stock would have
been entitled if such shares of Common Stock had been outstanding at the time
of the applicable vote and related record date and (iii) shall be entitled to
notice of any stockholders' meeting in accordance with the Articles of
Incorporation and Bylaws of the Corporation. Except as otherwise provided by
applicable law and as set forth in Article IV(A), paragraph (6)(b) below, the
shares of Series A Preferred Stock shall vote together with the shares of
Common Stock as a single class.
(b) Without the written consent or affirmative vote at a
meeting called for that purpose of the holders of a majority of the shares of
Series A Preferred Stock then outstanding, the Corporation shall not take any
of the following actions:
(i) create, authorize, or issue any class or series of
stock other than the Series B Preferred Stock ranking prior to the
Series A Preferred Stock (whether with respect to dividends or upon
liquidation, dissolution or winding up) or any Parity Securities, or
increase the authorized number of shares of any such class or series,
or reclassify any authorized stock of the Corporation into any such
prior shares or Parity Securities, or create, authorize or issue any
obligation or security convertible into or evidencing the right to
purchase any such prior shares or Parity Securities;
(ii) issue more shares of the Series A Preferred Stock;
10
11
(iii) voluntarily liquidate, dissolve, or wind up the
Corporation unless provision for the payment of the liquidation
preference is made in accordance with Article IV(A), paragraph (4) or
(iv) amend, alter, or repeal, whether by merger,
consolidation or otherwise, any of the provisions of the Articles of
Incorporation or Bylaws of the Corporation in a manner adverse to the
preferences, privileges, voting rights or powers of the Series A
Preferred Stock.
(c) Except as otherwise required by applicable law or as
set forth herein, the shares of Series A Preferred Stock shall not have any
relative, participating, optional or other special voting rights and powers and
the consent of the holders thereof shall not be required for the taking of any
corporate action.
(7) General Provision. Shares of Series A Preferred Stock
which have been issued and reacquired in any manner, including shares purchased
or redeemed, shall (upon compliance with any applicable provisions of the laws
of the State of California) have the status of authorized and unissued shares
of the class of Preferred Stock undesignated as to series and may be
redesignated and reissued as part of any series of the Preferred Stock;
provided that no such issued and reacquired shares of Series A Preferred Stock
shall be reissued or sold as Series A Preferred Stock.
(B) Series B Convertible Participating Preferred Stock
The following is a statement of the designations, powers,
privileges, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions relating to the
Series B Convertible Participating Preferred Stock:
(1) Number and Designation. 192,864 shares of the
Preferred Stock of the Corporation shall be designated as Series B Convertible
Participating Preferred Stock (the "SERIES B PREFERRED STOCK"). Each share of
Series B Preferred Stock shall rank equally in all respects and shall be
subject to the following provisions.
(2) Rank. The Series B Preferred Stock shall, with
respect to dividend rights and rights on liquidation, dissolution or winding
up, rank prior to the Corporation's Series A Preferred Stock and prior to all
classes of the Corporation's Common Stock, in each case, as set forth in
Article IV(B), paragraph (3) and Article IV(B), paragraph (4). All equity
securities of the Corporation to which the Series B Preferred Stock ranks prior
(whether with respect to dividends or upon liquidation, dissolution, winding up
or otherwise), including the Common Stock, are collectively referred to in this
Article IV(B) as the "JUNIOR SECURITIES." All equity securities of the
Corporation with which the Series B Preferred Stock ranks on a parity (whether
with respect to dividends or upon liquidation, dissolution or winding up) are
collectively referred to in this Article IV(B) as the "PARITY SECURITIES." The
respective definitions of Junior Securities and Parity Securities in this
Article IV(B) shall also include any rights or options exercisable for or
convertible into any of the Junior Securities
11
12
and Parity Securities, as the case may be. The Series B Preferred Stock shall
be subject to the creation of Junior Securities and Parity Securities.
(3) Dividends. (a) The holders of shares of Series B
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors, out of funds legally available for the payment of
dividends, cash dividends at (i) a rate of 25% per annum of the Original
Liquidation Amount (as defined below) per share for the period from the date of
issuance of such shares until the third anniversary of such date of issuance
(the "Decrease Date"), and (ii) the Applicable Rate (as defined below) in
effect in respect of each Dividend Period (as defined below) thereafter.
Notwithstanding the foregoing, if for any Dividend Period the holder of such
amount of Common Stock as a holder of Series B Preferred Stock would be
entitled to receive upon conversion would be entitled to receive any dividend
and such dividend would, but for the provisions of this Article IV(B) paragraph
(3), exceed the dividend payable on one share of Series B Preferred Stock in
respect of such period, the dividend payable per share of Series B Preferred
Stock in respect of such period shall be increased so as to equal the dividend
payable on a share of Common Stock in respect of such period. Such dividends
shall be payable in arrears in equal amounts quarterly on March 31, June 30,
Sept. 30 and Dec. 31 of each year (unless such day is not a business day, in
which event on the next succeeding business day) (each of such dates being a
"DIVIDEND PAYMENT DATE" and each such quarterly period (or portion thereof)
being a "DIVIDEND PERIOD"). Such dividends shall be cumulative from the date of
issue, whether or not in any Dividend Period or Periods there shall be funds of
the Corporation legally available for the payment of such dividends. Such
dividends shall be paid to the holders of record at the close of business on
the date specified by the Board of Directors of the Corporation at the time
such dividend is declared, provided that such date shall not be more than 60
days nor less than 10 days prior to the respective Dividend payment Date.
Accrued and unpaid dividends for any past Dividend Periods may be declared and
paid at any time, without reference to any Dividend Payment Date, to holders of
record on such date, not more than 45 days preceding the payment date thereof,
as may be fixed by the Board of Directors. As used herein, (x) "Applicable
Rate" in effect in respect of any Dividend Period after the Decrease Date shall
mean the rate per annum equal to the greater of (A) 12.5% of the Original
Liquidation Amount per share and (B) the Original Liquidation Amount per share
multiplied by the sum of the Prime Rate in effect on the first business day of
such Dividend Period plus 2%, and (y) "Prime Rate" means the rate of interest
publicly announced by Citibank, N.A. in The City of New York from time to time
as its prime rate.
(b) Except in the case where the amount of dividends
payable is determined pursuant to the second sentence of Article IV(B),
paragraph 3(a), the amount of dividends payable for each full Dividend Period
for the Series B Preferred Stock shall be computed by dividing the annual
dividend rate by four, and the amount of dividends payable for the initial
Dividend Period, or any other period shorter or longer than a full Dividend
Period, on the Series B Preferred Stock shall be computed on the basis of
twelve 30-day months and a 360-day year. Holders of shares of Series B
Preferred Stock shall not be entitled to any dividends, whether payable in
cash, property or stock, in excess of cumulative dividends, as herein provided,
on the Series B Preferred Stock. No interest, or sum of money in lieu of
12
13
interest, shall be payable in respect of any dividend payment or payments on
the Series B Preferred Stock that may be in arrears.
(c) So long as any shares of the Series B Preferred Stock
are outstanding, no dividends, except as described in the next succeeding
sentence, shall be declared or paid or set apart for payment on Parity
Securities, for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Series B Preferred Stock
for all Dividend Periods terminating on or prior to the date of payment of the
dividend on such class or series of Parity Securities. When dividends are not
paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, all dividends declared upon shares of the Series B Preferred Stock
and all dividends declared upon any other class or series of Parity Securities
shall be declared ratably in proportion to the respective amounts of dividends
accumulated and unpaid on the Series B Preferred Stock and accumulated and
unpaid on such Parity Securities.
(d) So long as any shares of the Series B Preferred Stock
are outstanding, no dividends (other than dividends or distributions paid in
shares of, or options, warrants or rights to subscribe for or purchase shares
of, Junior Securities) shall be declared or paid or set apart for payment or
other distribution declared or made upon Junior Securities, nor shall any
Junior Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made
pursuant to an employee incentive or benefit plan of the Corporation or any
subsidiary) (all such dividends, distributions, redemptions or purchases being
hereinafter referred to as a "JUNIOR SECURITIES DISTRIBUTION") for any
consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any shares of any such stock) by the Corporation,
directly or indirectly (except by conversion into or exchange for Junior
Securities), unless in each case (i) the full cumulative dividends on all
outstanding shares of the Series B Preferred Stock and any other Parity
Securities shall have been paid or set apart for payment for all past Dividend
Periods with respect to the Series B Preferred Stock and all past dividend
periods with respect to such Parity Securities and (ii) sufficient funds shall
have been paid or set apart for the payment of the dividend for the current
Dividend Period with respect to the Series B Preferred Stock and the current
dividend period with respect to such Parity Securities.
(4) Liquidation Preference. (a) In the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, before any payment or distribution of the assets of the
Corporation (whether capital or surplus) shall be made to or set apart for the
holders of Junior Securities, the holders of the shares of Series B Preferred
Stock shall be entitled to receive the greater of (x) $31.11 per share of
Series B Preferred Stock (the "Original Liquidation Amount") plus an amount
equal to all dividends (whether or not earned or declared) accrued and unpaid
thereon to the date of final distribution to such holders and (y) the amount
that would have been received by a holder of one share of Series B Preferred
Stock had it converted such share as provided in Article IV(B), paragraph (7)
immediately prior to such liquidation, dissolution or winding-up (and assuming
similar
13
14
conversion by all holders of Series B Preferred Stock). If, upon any
liquidation, dissolution or winding up of the Corporation, the assets of the
Corporation, or proceeds thereof, distributable among the holders of the shares
of Series B Preferred Stock shall be insufficient to pay in full the
preferential amount aforesaid and liquidating payments on any Parity
Securities, then such assets, or the proceeds thereof, shall be distributed
among the holders of shares of Series B Preferred Stock and any such other
Parity Securities ratably in accordance with the respective amounts that would
be payable on such shares of Series B Preferred stock and any such other stock
if all amounts payable thereon were paid in full. For the purposes of this
Article IV(B), paragraph (4), (i) a consolidation or merger of the Corporation
with one or more corporations, or (ii) a sale or transfer of all or
substantially all of the Corporation's assets, shall be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary, of the
Corporation.
(b) Subject to the rights of the holders of any Parity
Securities, after payment shall have been made in full to the holders of the
Series B Preferred Stock, as provided in this Article IV(B), paragraph (4), any
other series or class or classes of Junior Securities shall, subject to the
respective terms and provisions (if any) applying thereto, be entitled to
receive any and all assets remaining to be paid or distributed, and the holders
of the Series B Preferred Stock shall not be entitled to share therein.
(5) Redemption. (a) The Series B Preferred Stock shall
not be redeemable by the Corporation prior to November 23, 1997. On and after
November 23, 1997, to the extent the Corporation shall have funds legally
available for such payment, the Corporation may redeem at its option shares of
Series B Preferred Stock, at any time in whole or from time to time in part, at
a redemption price of $31.11 per share in cash, together with accrued and
unpaid dividends thereon to the date fixed for redemption, without interest.
(b) To the extent the Corporation shall have funds legally
available for such payment, at any time after November 23, 1998, the
Corporation shall at the request of holders of at least a majority of the
shares of Series B Preferred Stock then outstanding, redeem all outstanding
shares of Series B Preferred Stock at a redemption price of $31.11 per share in
cash, together with accrued and unpaid dividends to the date fixed for
redemption, without interest.
(c) To the extent the Corporation shall have funds legally
available for such payment, on November 23, 2000, if any shares of the Series B
Preferred Stock shall be outstanding, the Corporation shall redeem all then
outstanding shares of the Series B Preferred Stock, at a redemption price of
$31.11 per share in cash, together with accrued and unpaid dividends thereon to
such date, without interest.
(d) Shares of Series B Preferred Stock which have been
issued and reacquired in any manner, including shares purchased or redeemed,
shall (upon compliance with any applicable provisions of the laws of the State
of California) have the status of authorized and unissued shares of the class
of Preferred Stock undesignated as to series and may be redesignated and
reissued as part of any series of the Preferred Stock; provided that
14
15
no such issued and reacquired shares of Series B Preferred Stock shall be
reissued or sold as Series B Preferred Stock.
(e) If the Corporation is unable or shall fail to
discharge its obligation to redeem all outstanding shares of Series B Preferred
Stock pursuant to Article IV(B), paragraph (5)(b) or 5(c) (the "MANDATORY
REDEMPTION OBLIGATION"), the Mandatory Redemption Obligation shall be
discharged as soon as the Corporation is able to discharge such Mandatory
Redemption Obligation. If and so long as any Mandatory Redemption Obligation
with respect to the Series B Preferred Stock shall not be fully discharged, the
Corporation shall not (i) directly or indirectly, redeem, purchase, or
otherwise acquire any Parity Security or discharge any mandatory or optional
redemption, sinking fund or other similar obligation in respect of any Parity
Securities (except in connection with a redemption, sinking fund or other
similar obligation to be satisfied pro rata with the Series B Preferred Stock)
or (ii) in accordance with Article IV(B), paragraph (3)(d), declare or make any
Junior Securities Distribution, or, directly or indirectly, discharge any
mandatory or optional redemption, sinking fund or other similar obligation in
respect of the Junior Securities.
(f) Notwithstanding the foregoing provisions of this
Article IV(B), paragraph (5), unless full cumulative cash dividends (whether or
not declared) on all outstanding shares of Series B Preferred Stock shall have
been paid or contemporaneously are declared and paid or set apart for payment
for all dividend periods terminating on or prior to the applicable redemption
date, none of the shares of Series B Preferred Stock shall be redeemed, and no
sum shall be set aside for such redemption, unless shares of Series B Preferred
Stock are redeemed (in accordance with the provisions of this Article IV(B),
paragraph (5) and for the redemption price plus accrued and unpaid dividends)
pro rata among the holders thereof.
(6) Procedure for Redemption. (a) In the event that fewer
than all the outstanding shares of Series B Preferred Stock are to be redeemed,
the number of shares to be redeemed shall be determined by the Board of
Directors and the shares to be redeemed shall be selected by lot or pro rata
(with any fractional shares being rounded to the nearest whole share) as may be
determined by the Board of Directors (subject to Article IV(B), paragraph
(5)(f)).
(b) In the event the Corporation shall redeem shares of
Series B Preferred Stock, notice of such redemption shall be given by first
class mail, postage prepaid, mailed not less than 30 days nor more than 60 days
prior to the redemption date, to each holder of record of the shares to be
redeemed at such holder's address as the same appears on the stock register of
the Corporation; provided that neither the failure to give such notice nor any
defect therein shall affect the validity of the giving of notice for the
redemption of any share of Series B Preferred Stock to be redeemed except as to
the holder to whom the Corporation has failed to give said notice or except as
to the holder whose notice was defective. Each such notice shall state: (i)
the redemption date; (ii) the number of shares of Series B Preferred Stock to
be redeemed and, if fewer than all the shares held by such holder are to be
redeemed, the number of shares to be redeemed from such holder; (iii) the
redemption
15
16
price; (iv) the place or places where certificates for such shares are to be
surrendered for payment of the redemption price; and (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date.
(c) Notice having been mailed as aforesaid, from and after
the redemption date (unless default shall be made by the Corporation in
providing money for the payment of the redemption price of the shares called
for redemption), dividends on the shares of Series B Preferred Stock so called
for redemption shall cease to accrue, and all rights of the holders thereof as
stockholders of the Corporation (except the right to receive from the
Corporation the redemption price, together with accrued and unpaid dividends
thereon to the date fixed for redemption, without interest) shall cease. Upon
surrender in accordance with said notice of the certificates for any shares so
redeemed (properly endorsed or assigned for transfer, if the Board of Directors
of the Corporation shall so require and the notice shall so state), such share
shall be redeemed by the Corporation at the redemption price aforesaid. In
case fewer than all the shares represented by any such certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares
without cost to the holder thereof.
(7) Conversion. (a)(i) Subject to the provisions of this
Article IV(B), paragraph (7), each holder of the shares of Series B Preferred
Stock shall have the right, at any time and from time to time, at such holder's
option, to convert any or all outstanding shares (and fractional shares) of
Series B Preferred Stock, in whole or in part, into fully paid and
non-assessable shares of Common Stock.
(ii) Subject to the provisions of this Article IV(B),
paragraph (7), all of the outstanding shares (and fractional shares) of Series
B Preferred Stock shall be converted automatically into fully paid and
non-assessable shares of Common Stock upon the occurrence of a Series B Trigger
Event. Any conversion pursuant to this Article IV(B), paragraph 7(a)(ii) shall
occur automatically, without further action on the part of the holders or the
Corporation.
(iii) The number of shares of Common Stock deliverable upon
conversion of a share of Series B Preferred Stock, adjusted as hereinafter
provided, is referred to in this Article IV(B) as the "SERIES B CONVERSION
RATIO." The Series B Conversion Ratio as of the date of original issuance of
the Series B Preferred Stock is one, subject to adjustment from time to time
pursuant to Article IV(B), paragraph (7)(h) hereof. Notwithstanding any call
for redemption pursuant to Article IV(B), paragraph (5), the right to convert
shares so called for redemption shall terminate at the close of business on the
date immediately preceding the date fixed for such redemption unless the
Corporation shall default in making payment of the amount payable upon such
redemption.
(b) [Previously Deleted]
(c)(i) In order to exercise the conversion privilege and upon
the occurrence of a Series B Trigger Event, the holder of the shares of Series
B Preferred Stock to be converted shall surrender the certificate representing
such shares at the office of the
16
17
Corporation, with, in the case of any conversion pursuant to Article IV(B),
paragraph (7)(a)(i), a written notice of election to convert completed and
signed, specifying the number of shares to be converted. Unless the shares
issuable on conversion are to be issued in the same name as the name in which
such shares of Series B Preferred Stock are registered, each share surrendered
for conversion shall, subject to the provisions of the Securityholders
Agreement, be accompanied by instruments of transfer, in form satisfactory to
the Corporation, duly executed by the holder or the holder's duly authorized
attorney and an amount sufficient to pay any transfer or similar tax.
(ii) As promptly as practicable after the surrender by the
holder of the certificates for shares of Series B Preferred Stock as aforesaid,
the Corporation shall issue and shall deliver to such holder, or on the
holder's written order to the holder's transferee, a certificate or
certificates for the whole number of shares of Common Stock issuable upon the
conversion of such shares in accordance with the provisions of this Article
IV(B), paragraph (7).
(iii) Each conversion shall be deemed to have been effected
(x) in the case of any conversion pursuant to Article IV(B), paragraph 7(a)(i),
immediately prior to the close of business on the date on which the
certificates for shares of Series B Preferred Stock shall have been surrendered
and such notice received by the Corporation as aforesaid or (y) in the case of
any conversion pursuant to Article IV(B), paragraph 7(a)(ii), on the date of
the Series B Trigger Event, and the person in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder of record of the
shares of Common Stock represented thereby at such time on such date and such
conversion shall be into a number of shares of Common Stock equal to the
product of the number of shares of Series B Preferred Stock surrendered times
the Series B Conversion Ratio in effect at such time on such date. All shares
of Common Stock delivered upon conversion of the Series B Preferred Stock will
upon delivery be duly and validly issued and fully paid and non-assessable,
free of all liens and charges and not subject to any preemptive rights. Upon
the surrender of certificates representing shares of Series B Preferred Stock,
such shares shall no longer be deemed to be outstanding and all rights of a
holder with respect to such shares surrendered for conversion shall immediately
terminate except the right to receive the Common Stock and other amounts
payable pursuant to this Article IV(B), paragraph (7).
(d)(i) Upon delivery to the Corporation by a holder of shares
of Series B Preferred Stock of a notice of election to convert, the right of
the Corporation to redeem such shares of Series B Preferred Stock shall
terminate, regardless of whether a notice of redemption has been mailed as
aforesaid.
(ii) From the date of delivery by a holder of shares of
Series B Preferred Stock of such holder's shares of Series B Preferred Stock
(and in the case of any conversion pursuant to Article IV(B), paragraph
7(a)(ii), upon the occurrence of a Series B Trigger Event), in lieu of
dividends on such Series B Preferred Stock pursuant to Article IV(B), paragraph
(3), such Series B Preferred Stock shall participate equally and ratably with
the
17
18
holders of shares of Common Stock in all dividends paid on the Common Stock as
if such shares of Series B Preferred Stock had been converted to shares of
Common Stock at the time of such delivery or Series B Trigger Event.
(iii) Except to the extent provided above in Article IV(B),
paragraph (7)(d)(ii) and in Article IV(B), paragraph (7)(h), the Corporation
shall make no payment or adjustment for accrued and unpaid dividends on the
shares of Series B Preferred Stock, whether or not in arrears, on conversion of
such shares or for dividends in cash on the shares of Common Stock issued upon
such conversion.
(e)(i) The Corporation covenants that it will at all times
reserve and keep available, free from preemptive rights, such number of its
authorized but unissued shares of Common Stock as shall be required for the
purpose of effecting conversions of the Series B Preferred Stock.
(ii) Prior to the delivery of any securities which the
Corporation shall be obligated to deliver upon conversion of the Series B
Preferred Stock, the Corporation shall comply with respect to the issuance of
such securities with all applicable federal and state laws and regulations
which require action to be taken by the Corporation.
(f) The Corporation will pay any and all documentary stamp
or similar issue or transfer taxes payable in respect of the issue or delivery
of shares of Common Stock on conversion of the Series B Preferred Stock
pursuant hereto; provided that the Corporation shall not be required to pay any
tax which may be payable in respect of any transfer involving the issue or
delivery of shares of Common Stock in a name other than that of the holder of
the Series B Preferred Stock to be converted and no such issue or delivery
shall be made unless and until the person requesting such issue or delivery has
paid to the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(g) In connection with the conversion of any shares of
Series B Preferred Stock, no fractions of shares of Common Stock shall be
issued, but in lieu thereof the Corporation shall pay a cash adjustment in
respect of such fractional interest in an amount equal to such fractional
interest multiplied by the Daily Price per share of Common Stock on the
business day on which such shares of Series B Preferred Stock are deemed to
have been converted.
(h)(i) In case the Corporation shall at any time after the
date of issuance of the Series B Preferred Stock (I) declare a dividend or make
a distribution on Common Stock payable in Common Stock, (II) subdivide or split
the outstanding Common Stock, (III) combine or reclassify the outstanding
Common Stock into a smaller number of shares, (IV) issue any shares of its
capital stock in a reclassification of Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Corporation is the continuing corporation, other than any such consolidation or
merger which results in the payment to the holders of Series B Preferred Stock
of the liquidation preference as provided
18
19
in Article IV(B), paragraph (4)), or (V) consolidate with, or merge with or
into, any other Person (other than any such consolidation or merger which
results in the payment to the holders of Series B Preferred Stock of the
liquidation preference as provided in Article IV(B), paragraph (4)), the Series
B Conversion Ratio in effect at the time of the record date for such dividend
or distribution or of the effective date of such subdivision, split,
combination, consolidation, merger or reclassification shall be proportionately
adjusted so that the conversion of the Series B Preferred Stock after such time
shall entitle the holder to receive the aggregate number of shares of Common
Stock or other securities of the Corporation (or shares of any security into
which such shares of Common Stock have been combined, consolidated, merged or
reclassified pursuant to clause (III), (IV) or (V) above) which, if this
Series B Preferred Stock had been converted immediately prior to such time,
such holder would have owned upon such conversion and been entitled to receive
by virtue of such dividend, distribution, subdivision, split, combination,
consolidation, merger or reclassification, assuming such holder of Common Stock
of the Corporation (x) is not a constituent person, or an affiliate of a
constituent person and (y) failed to exercise any rights of election as to the
kind or amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger, recapitalization, sale or
transfer (provided, that if the kind or amount of securities, cash and other
property receivable upon such reclassification, change, consolidation, merger,
recapitalization, sale or transfer is not the same for each non-electing share
of Common Stock of the Corporation held immediately prior to such
reclassification, change, consolidation, merger, recapitalization, sale or
transfer by other than a constituent person or an affiliate thereof, then for
the purpose of this Article IV(B), subparagraph (h) the kind and amount of
securities, cash and other property receivable upon such reclassification,
change, consolidation, merger, recapitalization, sale or transfer by each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares). Such adjustment shall be
made successively whenever any event listed above shall occur.
(ii) In case the Corporation shall issue or sell any Common
Stock (other than Common Stock issued (I) upon conversion of the Series A
Preferred Stock, the Series B Preferred Stock or the Notes, (II) pursuant to
the Corporation's stock option plans or pursuant to any other Common Stock
related employee compensation plan of the Corporation approved by the
Corporation's Board of Directors, (III) upon exercise or conversion of any
security the setting of a record date for which or issuance of which caused an
adjustment under Article IV(B), paragraphs (7)(h)(iii) or (h)(iv) hereof, (IV)
upon exercise of warrants issued to lenders of the Corporation including,
without limitation, pursuant to the Bridge Securities Purchase Agreement or (V)
in connection with any bona fide, arms-length direct or indirect merger,
acquisition or similar transaction) without consideration or for a
consideration per share less than the then Conversion Price Per Common Share,
the Series B Conversion Ratio to be in effect after such issuance or sale shall
be determined by multiplying the Series B Conversion Ratio in effect
immediately prior to such issuance or sale by a fraction, (A) the numerator of
which shall be the sum of (x) the product of the aggregate number of shares of
Common Stock outstanding immediately after such issuance or sale and the
Current Valuation Per Common Share immediately prior to such issuance or sale
plus (y) the aggregate of the product of each share of Fully Diluted Common
Stock (other
19
20
than shares of Common Stock included in (A)(x) or employee stock options)
outstanding immediately prior to such issuance or sale and the Exercise Price
applicable to such share of Fully Diluted Common Stock and (B) the denominator
of which shall be the sum of (x) the number of shares of Common Stock
outstanding immediately prior to the time of such issuance or sale multiplied
by the Current Valuation Per Common Share immediately prior to such issuance or
sale, plus (y) the aggregate of the product of each share of Fully Diluted
Common Stock (other than shares of Common Stock included in (B)(x) or employee
stock options) outstanding immediately prior to such issuance or sale and the
Exercise Price applicable to such share of Fully Diluted Common Stock, plus (z)
the aggregate consideration, if any, to be received by the Corporation upon
such issuance or sale. In case any portion of the consideration to be received
by the Corporation shall be in a form other than cash, the fair market value of
such noncash consideration shall be utilized in the foregoing computation.
Such fair market value shall be determined by the Board of Directors of the
Corporation; provided that if the holders of 25% of the Series B Preferred
Stock shall object to any such determination, the Board of Directors shall
retain an independent appraiser reasonably satisfactory to such holders to
determine such fair market value. The holders shall be notified promptly of
any consideration other than cash to be received by the Corporation and
furnished with a description of the consideration and the fair market value
thereof, as determined by the Board of Directors.
(iii) In case the Corporation shall fix a record date for
the issuance of rights, options or warrants to the holders of its Common Stock
or other securities of the Corporation entitling such holders to subscribe for
or purchase shares of Common Stock (or securities convertible into shares of
Common Stock) at a price per share of Common Stock (or having a conversion
price per share of Common Stock, if a security convertible into shares of
Common Stock) less than the then Conversion Price Per Common Share on such
record date, the maximum number of shares of Common Stock issuable upon
exercise of such rights, options or warrants (or conversion of such convertible
securities) shall be deemed to have been issued and outstanding as of such
record date and the Series B Conversion Ratio shall be adjusted pursuant to
Article IV(B), paragraph (7)(h)(ii) hereof, as though such maximum number of
shares of Common Stock had been so issued for the aggregate consideration
payable by the holders of such rights, options, warrants or convertible
securities prior to their receipt of such shares of Common Stock. In case any
portion of such consideration shall be in a form other than cash, the fair
market value of such noncash consideration shall be determined as set forth in
Article IV(B), paragraph (7)(h)(ii) hereof. Such adjustment shall be made
successively whenever such record date is fixed; and in the event that such
rights, options or warrants are not so issued or expire unexercised, or in the
event of a change in the number of shares of Common Stock to which the holders
of such rights, options or warrants are entitled (other than pursuant to
adjustment provisions therein comparable to those contained in this Article
IV(B), paragraph (7)(h)), the Series B Conversion Ratio shall again be adjusted
to be the Series B Conversion Ratio which would then be in effect if such
record date had not been fixed, in the former event, or the Series B Conversion
Ratio which would then be in effect if such holder had initially been entitled
to such changed number of shares of Common Stock, in the latter event.
20
21
(iv) In case the Corporation shall issue rights, options
(other than options issued pursuant to a plan described in clause II of Article
IV(B), paragraph (h)(ii)) or warrants (other than warrants described in clause
IV of Article IV(B), paragraph (h) (ii)) entitling the holders thereof to
subscribe for or purchase Common Stock (or securities convertible into shares
of Common Stock) or shall issue convertible securities, and the price per share
of Common Stock of such rights, options, warrants or convertible securities
(including, in the case of rights, options or warrants, the price at which they
may be exercised) is less than the then Conversion Price Per Common Share, the
maximum number of shares of Common Stock issuable upon exercise of such rights,
options or warrants or upon conversion of such convertible securities shall be
deemed to have been issued and outstanding as of the date of such sale or
issuance, and the Series B Conversion Ratio shall be adjusted pursuant to
Article IV(B), paragraph (7)(h)(ii) hereof as though such maximum number of
shares of Common Stock had been so issued for an aggregate consideration equal
to the aggregate consideration paid for such rights, options, warrants or
convertible securities and the aggregate consideration payable by the holders
of such rights, options, warrants or convertible securities prior to their
receipt of such shares of Common Stock. In case any portion of such
consideration shall be in a form other than cash, the fair market value of such
noncash consideration shall be determined as set forth in Article IV(B),
paragraph (7)(h)(ii) hereof. Such adjustment shall be made successively
whenever such rights, options, warrants or convertible securities are issued;
and in the event that such rights, options or warrants expire unexercised, or
in the event of a change in the number of shares of Common Stock to which the
holders of such rights, options, warrants or convertible securities are
entitled (other than pursuant to adjustment provisions therein comparable to
those contained in this Article IV(B), paragraph (7)(h)), the Series B
Conversion Ratio shall again be adjusted to be the Series B Conversion Ratio
which would then be in effect if such rights, options, warrants or convertible
securities had not been issued, in the former event, or the Series B Conversion
Ratio which would then be in effect if such holders had initially been entitled
to such changed number of shares of Common Stock, in the latter event. No
adjustment of the Series B Conversion Ratio shall be made pursuant to this
Article IV(B), paragraph (7)(h)(iv) to the extent that the Series B Conversion
Ratio shall have been adjusted pursuant to Article IV(B), paragraph (7)(h)(iii)
upon the setting of any record date relating to such rights, options, warrants
or convertible securities and such adjustment fully reflects the number of
shares of Common Stock to which the holders of such rights, options, warrants
or convertible securities are entitled and the price payable therefor.
(v) In case the Corporation shall fix a record date for
the making of a distribution to holders of Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Corporation is the continuing corporation, other than any such consolidation or
merger which results in the payment to holders of Series B Preferred Stock of
the liquidation preference as provided in Article IV(B), paragraph (4)) of
evidences of indebtedness, assets or other property (other than dividends
payable in Common Stock or rights, options or warrants referred to in, and for
which an adjustment is made pursuant to Article IV(B), paragraph (7)(h)(iii)
hereof), the Series B Conversion Ratio to be in effect after such record date
shall be determined by multiplying the Series B Conversion Ratio in effect
immediately prior to such record date by a fraction, (A) the numerator of
21
22
which shall be the Current Valuation Per Common Share on such record date, and
(B) the denominator of which shall be the Current Valuation Per Common Share on
such record date, less the fair market value (determined as set forth in
Article IV(B), paragraph (7)(h)(ii) hereof) of the portion of the assets, other
property or evidence of indebtedness so to be distributed which is applicable
to one share of Common Stock. Such adjustments shall be made successively
whenever such a record date is fixed; and in the event that such distribution
is not so made, the Series B Conversion Ratio shall again be adjusted to be the
Series B Conversion Ratio which would then be in effect if such record date had
not been fixed.
(vi) For purposes of any computation under Article IV(B),
paragraph (7)(g) or paragraph (7)(h), the number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Corporation.
(vii) No adjustment to the Series B Conversion Ratio
pursuant to Article IV(B), paragraphs (7)(h)(ii), (iii), (iv) and (v) above
shall be required unless such adjustment would require an increase or decrease
of at least 1% in the Series B Conversion Ratio; provided however, that any
adjustments which by reason of this Article IV(B), paragraph (7)(h)(vii) are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Article IV(B), paragraph
(7)(h) shall be made to the nearest four decimal points.
(viii) In the event that, at any time as a result of the
provisions of this Article IV(B), paragraph (7)(h), the holders of the Series B
Preferred Stock upon subsequent conversion shall become entitled to receive any
shares of capital stock of the Corporation other than Common Stock, the number
of such other shares so receivable upon conversion of the Series B Preferred
Stock shall thereafter be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions contained
herein.
(ix) In the event:
(A) of any capital reorganization or reclassification of
the Common Stock (other than a subdivision or combination of the
outstanding Common Stock and other than a change in par value of the
Common Stock) or of any consolidation or merger to which the
Corporation is a party and for which approval of any stockholders of
the Corporation is required (other than a consolidation or merger in
which the Corporation is the continuing corporation and that does not
result in any reclassification or change of the Common Stock
outstanding), or of the conveyance or transfer of the properties and
assets of the Corporation substantially as an entirety; or
(B) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation; or
(C) the Corporation proposes to take any action (other
than actions of the character described in Article IV(B), paragraph
(7)(h)(i)(I) or (II)) that would require
22
23
an adjustment pursuant to this Article IV(B), paragraph (7)(h) to the
number of shares purchasable upon conversion;
then the Corporation shall cause to be mailed by first-class mail to the
holders of Series B Preferred Stock, at least five days prior to the applicable
record or effective date hereinafter specified (10 days in the case of the
events referred to in clauses (A) and (B) above), a notice stating (x) the
date as of which the holders of Common Stock of record to be entitled to
receive any such rights, warrants or distributions are to be determined, or (y)
the date on which any such consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding-up is expected to become effective, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property, if any, deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding-up.
(i) All adjustments pursuant to this Article IV(B),
paragraph (7) shall be notified to the holders of this Series B Preferred Stock
and such notice shall be accompanied by a schedule of computation of the
adjustments.
(8) Voting Rights. (a) Except as otherwise provided by
applicable law, the holders of the shares of Series B Preferred Stock (i) shall
be entitled to vote with the holders of the Common Stock on all matters
submitted for a vote of holders of Common Stock, (ii) shall be entitled to a
number of votes equal to the number of votes to which shares of Common Stock
issuable upon conversion of such shares of Series B Preferred Stock would have
been entitled if such shares of Common Stock had been outstanding at the time
of the applicable vote and related record date and (iii) shall be entitled to
notice of any stockholders' meeting in accordance with the Articles of
Incorporation and Bylaws of the Corporation. Except as otherwise provided by
applicable law and as set forth in Article IV(B), paragraph (8)(b) below, the
shares of Series B Preferred Stock shall vote together with the shares of
Common Stock as a single class.
(b) So long as there remain outstanding Notes and/or
shares of Series B Preferred Stock representing at least 25% of the aggregate
number of shares of Fully Diluted Common Stock represented by the Notes and
shares of Series B Preferred Stock immediately following the Closing
(determined taking into account any adjustment in accordance with the terms of
the Notes and the Series B Preferred Stock), the Corporation shall not, without
the written consent or affirmative vote at a meeting called for that purpose of
holders of 66 2/3% of the shares of Series B Preferred Stock then outstanding,
voting as a separate class, take, or permit any Significant Subsidiary to take,
any of the following actions:
(i) amend, alter or repeal, whether by merger,
consolidation, or otherwise, any of the provisions of the Articles of
Incorporation or the Bylaws of the Corporation or any Significant
Subsidiary in a manner adverse to the preferences, privileges, voting
rights or powers of the Series B Preferred Stock;
23
24
(ii) voluntarily liquidate, dissolve, or wind up the
Corporation or any Significant Subsidiary;
(iii) voluntarily sell, convey, exchange or transfer (for
cash, shares of stock, securities or other consideration) all or
substantially all of the property or assets of the Corporation or any
Significant Subsidiary or merge into or consolidate with any other
corporation unless the holders of Common Stock would receive in
connection therewith consideration per share of Common Stock held by
them at least equal to $93.33 per share (as adjusted to take into
account any subdivisions, combinations or reclassifications of the
Common Stock after the date hereof);
(iv) increase the size of the Board of Directors of the
Corporation or any Significant Subsidiary;
(v) terminate or alter in any material respect the terms
of employment (including the duties and responsibilities) of John F.
Schaefer or Arthur J. Cormier;
(vi)(a) incur, assume, or at any time be liable with respect
to, any Debt, (b) refinance or renew any Debt or (c) discharge, repay
(other than pursuant to regularly scheduled payments thereof) or cancel
any Debt, other than (1) in the case of clause (a), (w) any Debt at any
time after the Closing which, after giving effect to the incurrence or
assumption thereof or liability therefor, would not result in aggregate
Debt outstanding at such time (other than Debt then outstanding in
respect of the Notes, the Credit Agreement (as defined below), the
Helios Notes (as defined below), or any customer deposits) being more
than $15,000,000, (x) any Debt under the Credit Agreement (as it may be
amended, modified, supplemented or restated from time to time, the
"Credit Agreement") dated as of December 3, 1996 among DLJ Capital
Funding, Inc., as Syndication Agent, the Administrative Agent party
thereto, each of the Lenders party thereto, and the Corporation, as
borrower, and related documents (provided that the aggregate principal
amount of Debt outstanding under the Credit Agreement at any time shall
not exceed $120,000,000 which amount is exclusive of amounts that may
be owing in respect to interest, fees, costs, expenses, indemnities and
the like), (y) any Debt owed to the former shareholders of Helios
pursuant to the Subordinated Secured Promissory Notes issued by the
Corporation pursuant to the Helios Agreement (such Notes collectively,
the "Helios Notes") (provided that the aggregate principal amount of
Debt outstanding under the Helios Notes at any time shall not exceed
$4,000,000), and (z) any Debt incurred the proceeds of which are to be
applied by the Corporation to redeem all (but not less than all) of the
then outstanding Notes and shares of Series B Preferred Stock in
accordance with the redemption provisions applicable to such securities
and (2) in the case of clause (b) or (c), (x) any extensions, renewals,
refundings and refinancings of the Debt outstanding under the Credit
Agreement, (y) any repayment or prepayment of revolving working capital
Debt under the Credit Agreement or any mandatory prepayment of Debt
required under the terms of the Credit Agreement and (z) any repayment
or prepayment of the Helios Notes;
24
25
(vii) except as expressly permitted in Article (IV)(B),
paragraph (5)(a) or as expressly required in these Articles, pay or
declare dividends or distributions on the capital stock of the
Corporation or any Significant Subsidiary;
(viii) except as expressly permitted in Article (IV)(B),
paragraph (5)(a) or as expressly required in these Articles, redeem or
repurchase any shares of capital stock of the Corporation or any
Significant Subsidiary, phantom equity or similar rights or interests
or any warrants, options or other rights to purchase, substitute for or
acquire shares of capital stock, phantom equity or similar rights or
interests or securities convertible into or exchangeable for any shares
of capital stock, phantom equity or similar rights or interests of the
Corporation or any Significant Subsidiary, except repurchases of
options or capital stock from employees at cost; or
(ix) create, authorize, or issue any class or series of
stock ranking prior to the Series B Preferred Stock (whether with
respect to dividends or upon liquidation, dissolution or winding up) or
any Parity Securities, or increase the authorized number of shares of
any such class or series, or reclassify any authorized stock of the
Corporation into any such prior shares or Parity Securities, or create,
authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such prior shares or Parity
Securities.
(c) Except as otherwise required by applicable law or as
set forth herein, the shares of Series B Preferred Stock shall not have any
relative, participating, optional or other special voting rights and powers and
the consent of the holders thereof shall not be required for the taking of any
corporate action.
(9) Reports. So long as any of the Series B Preferred
Stock is outstanding, the Corporation will furnish the holders thereof with the
quarterly and annual financial reports that the Corporation is required to file
with the Securities and Exchange Commission pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 or, in the event the Corporation
is not required to file such reports, reports containing substantially the same
information as would be required in such reports (it being understood that the
foregoing shall not be construed to require presentation in the manner required
by such Act and the regulations thereunder so long as the data required
thereunder is so provided).
(C) General Provisions Applicable to the Preferred Stock
(1) Definitions. The following terms, as used in this
Article IV, have the following meanings:
"Bridge Securities Purchase Agreement" means the Bridge
Securities Purchase Agreement dated as of November 23, 1994 between the
Corporation and PM Funding, Inc.
"Closing" shall have the meaning set forth in the Securities
Purchase Agreement.
25
26
"Common Stock" means the common stock of the Corporation and
all shares hereafter authorized of any class of common stock of the Corporation
which term shall include, in the case of a reclassification, recapitalization
or other change in such common stock, or in the case of a consolidation or
merger of the Corporation with or into another Person, such consideration to
which a holder of a share of common stock of the Corporation would have been
entitled upon the occurrence of such event.
"Conversion Price Per Common Share" shall mean, on any
determination date, the amount in dollars which is equal to (i) with respect to
the Series A Preferred Stock, $31.11 divided by the Series A Conversion Ratio
immediately prior to such date and (ii) with respect to the Series B Preferred
Stock, $31.11 divided by the Series B Conversion Ratio immediately prior to
such date.
"Current Market Price Per Common Share" shall mean, on any
determination date, the average (weighted by daily trading volume) of the Daily
Prices per share of the applicable class of Common Stock for the 20 consecutive
trading days immediately prior to such date.
"Current Valuation Per Common Share" means, on any
determination date, the greater of the Current Market Price Per Common Share
and the Conversion Price Per Common Share.
"Daily Price" means, on any determination date, (i) if the
shares of such class of Common Stock then are listed and traded on the New York
Stock Exchange, Inc. ("NYSE"), the closing price on such day as reported on the
NYSE Composite Transactions Tape; (ii) if the shares of such class of Common
Stock then are not listed and traded on the NYSE, the closing price on such day
as reported by the principal national securities exchange on which the shares
are listed and traded; (iii) if the shares of such class of Common Stock then
are not listed and traded on any such securities exchange, the last reported
sale price on such day on the National Market of the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ"); (iv) if the
shares of such class of Common Stock then are not traded on the NASDAQ National
Market, the average of the highest reported bid and lowest reported asked price
on such day as reported by NASDAQ; or (v) if the shares of such class of Common
Stock are not so listed or admitted to unlisted trading privileges and bid and
asked prices are not so reported, an amount, not less than book value,
determined in good faith to be the fair market value in such reasonable manner
as may be prescribed by the Board of Directors of the Corporation.
"Debt" of any Person means at any date, without duplication,
(i) all obligations, including accrued and unpaid interest and premium, of such
Person for borrowed money, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations
of such Person in respect of letters of credit, bankers' acceptance or other
similar instruments (or reimbursement obligations with respect thereto), (iv)
all obligations of such Person to pay the deferred purchase price of property
or services, except Trade Payables, (v) all obligations of such Person as
lessee which are
26
27
capitalized in accordance with generally accepted accounting principles, (vi)
all Debt of others secured by a Lien on any asset of such Person, whether or
not such Debt is assumed by such Person, and (vii) all Debt of others
Guaranteed by such Person.
"Derivative Security" means any security convertible into or
exchangeable for Common Stock, or any stock appreciation right or option,
warrant or other irrevocable right to purchase or subscribe for Common Stock or
any security convertible into or exchangeable for Common Stock.
"Exercise Price" means, with respect to any Derivative
Security on any determination date, the exercise price or conversion price per
share of Common Stock applicable to such Derivative Security on such date.
"Fully Diluted Common Stock" means, with respect to Common
Stock and without duplication, all outstanding shares and all shares issuable
in respect of securities convertible into or exchangeable for Common Stock,
stock appreciation rights or options, warrants and other irrevocable rights to
purchase or subscribe for Common Stock or securities convertible into or
exchangeable for Common Stock, and any Person shall be deemed to own such
number of Fully Diluted shares of Common Stock as such Person has the right to
acquire from any other Person (including the Issuer).
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Debt of such other Person (whether arising by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets, goods, securities
or services, to take-or-pay, or to maintain financial statement conditions or
otherwise) or (ii) entered into for the purpose of assuring in any other manner
the obligee of such Debt for the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part); provided that the term
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset. For the purposes of the Notes, the Corporation shall be deemed to own
subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement,
capitalized lease or other title retention agreement relating to such asset.
"Notes" shall have the meaning set forth in the Securities
Purchase Agreement.
"outstanding," when used with reference to shares of stock,
shall mean issued shares, excluding shares held by the Corporation or a
subsidiary.
27
28
"Person" means any corporation, limited liability company,
partnership, trust, organization, association, other entity or individual.
"Securities Purchase Agreement" means the Securities Purchase
Agreement dated as of November 23, 1994 among the corporation, the DLJ Buyers
(as defined therein), Arthur J. Cormier and John F. Schaefer.
"Securityholders Agreement" means the Securityholders
Agreement dated as of November 23, 1994 among the Corporation, the DLJ Entities
(as defined therein), PM Funding, Inc., Arthur J. cormier and John F. Schaefer.
"Series A Trigger Event" means the earlier to occur of (i) the
completion of an initial public offering of shares of Common stock pursuant to
an effective registration statement resulting in net proceeds to the
corporation of not less than $15 million at a price per share of Common stock
of not less than $93.33 (as adjusted to take into account any subdivisions,
combinations or reclassifications of the Common Stock after the date hereof) or
(ii) the conversion into common Stock of Notes and/or shares of Series B
Preferred Stock representing at least 30% of the aggregate number of shares of
Fully Diluted Common stock represented by the Notes and shares of series B
Preferred Stock immediately following the Closing (taking into account any
adjustment in accordance with the terms of the Notes and the series B Preferred
Stock).
"Series B Trigger Event" means the completion of an initial
public offering of shares of Common Stock pursuant to an effective registration
statement resulting in net proceeds to the Corporation of not less than $15
million at a price per share of Common Stock of not less than $93.33 per share
(as adjusted to take into account any subdivisions, combinations or
reclassifications of the Common stock after the date hereof).
"Significant Subsidiary" means any Subsidiary that would meet
the definition of "Significant Subsidiary" under Regulation S-X promulgated
under the Securities Exchange Act of 1934 if the Corporation were subject to
the periodic reporting obligations set forth in such Act.
"Subsidiary" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or persons performing similar functions are at the time
directly or indirectly owned by the Corporation.
"Trade Payables" means accounts payable or any other
indebtedness or monetary obligations to trade creditors created or assumed by
the Corporation or any Subsidiary of the Corporation in the ordinary course of
business in connection with the obtaining of materials or services.
(2) Headings. The headings of the paragraphs, subparagraphs,
clauses and subclauses of this Article IV are for convenience of reference only
and shall not define, limit or affect any of the provisions hereof.
28
29
ARTICLE V
The name and mailing address of the incorporator is Neel Grover,
Brobeck, Phleger & Harrison LLP, 4675 MacArthur Court, Newport Beach,
California 92660-1846.
ARTICLE VI
The number of directors of the corporation shall be fixed from time to
time by, or in the manner provided in, the Bylaws or amendment thereof duly
adopted by the Board of Directors or by the stockholders of the corporation.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
15th day of July 1997.
/s/ NEEL GROVER
----------------------------------------
Neel Grover
Incorporator
29
30
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
OF PHASE METRICS, INC.
It is hereby certified that:
1. The name of the corporation is Phase Metrics, Inc. (the "Corporation").
2. Paragraph 5 of Article IV(B) of the Certificate of Incorporation (the
"Certificate") is hereby amended and restated to read in full as
follows:
"(a) [Deleted]
(b) [Deleted]
(c) To the extent the Corporation shall have funds legally
available for such payment, on July 15, 2005, if any shares of
the Series B Preferred Stock shall be outstanding, the
Corporation shall redeem all then outstanding shares of the
Series B Preferred Stock, at a redemption price of $31.11 per
share in cash, together with accrued and unpaid dividends
thereon to such date, without interest.
(d) Shares of Series B Preferred Stock which have been issued
and reacquired in any manner, including shares purchased or
redeemed, shall (upon compliance with any applicable provisions
of the laws of the State of Delaware) have the status of
authorized and unissued shares of the class of Preferred Stock
undesignated as to series and may be redesignated and reissued
as part of any series of the Preferred Stock; provided that no
such issued and reacquired shares of Series B Preferred Stock
shall be reissued or sold as Series B Preferred Stock.
(e) If the Corporation is unable or shall fail to discharge its
obligation to redeem all outstanding shares of Series B
Preferred Stock pursuant to Article IV(B), paragraph 5(c) (the
"Mandatory Redemption Obligation"), the Mandatory Redemption
Obligation shall be discharged as soon as the Corporation is
able to discharge such Mandatory Redemption Obligation. If and
so long as any Mandatory Redemption Obligation with respect to
the Series B Preferred Stock shall not be fully discharged, the
Corporation shall not (i) directly or indirectly, redeem,
purchase, or otherwise acquire any Parity Security or discharge
any mandatory or optional redemption, sinking fund or other
similar obligation in respect of any Parity Securities (except
in connection with a redemption, sinking fund or other similar
obligation to be satisfied pro rata with the Series B Preferred
Stock) or (ii) in
1
31
accordance with Article IV(B), paragraph (3)(d), declare or make
any junior Securities Distribution, or, directly or indirectly,
discharge any mandatory or optional redemption, sinking fund or
other similar obligation in respect of the Junior Securities.
(f) Notwithstanding the foregoing provisions of this Article
IV(B), paragraph (5), unless full cumulative cash dividends
(whether or not declared) on all outstanding shares of Series B
Preferred Stock shall have been paid or contemporaneously are
declared and paid or set apart for payment for all dividend
periods terminating on or prior to the applicable redemption
date, none of the shares of Series B Preferred Stock shall be
redeemed, and no sum shall be set aside for such redemption.
unless shares of Series B Preferred Stock are redeemed (in
accordance with the provisions of this Article IV(B), paragraph
(5) and for the redemption price plus accrued and unpaid
dividends) pro rata among the holders thereof."
3. Paragraph 8(b)(vi) of Article IV(B) of the Certificate is hereby amended
and restated to read in full as follows:
"(vi)(a) incur, assume, or at any time be liable with respect
to, any Debt, (b) refinance or renew any Debt or (c) discharge, repay
(other than pursuant to regularly scheduled payments thereof) or cancel
any Debt, other than (1) in the case of clause (a), (w) any Debt at any
time after the Closing which, after giving effect to the incurrence or
assumption thereof or liability therefor, would not result in aggregate
Debt outstanding at such time (other than Debt then outstanding in
respect of the Notes and the Credit Agreement and Senior Notes (as such
terms are defined below), or any customer deposits) being more than
$15,000,000, (x) any Debt under the Credit Agreement (as it may be
amended, modified, supplemented or restated from time to time, the
"Credit Agreement") dated as of January 30, 1998, among Fleet National
Bank and each of the other Lenders (as defined in the Credit Agreement)
party thereto, and the Corporation, as borrower, and related documents
(provided, that the aggregate principal amount of Debt outstanding under
the Credit Agreement at any time shall not exceed $40,000,000, which
amount is exclusive of amounts that may be owing in respect to interest,
fees, costs, expenses, indemnities and the like), (y) any Debt related
to the 10 3/4% Senior Notes of the Corporation due 2005, issued by the
Corporation pursuant to the Purchase Agreement between the Corporation
and Donaldson, Lufkin & Jenrette Securities Corporation dated January
23, 1998 (the "Senior Notes") (provided, that the aggregate principal
amount of Debt outstanding under the Senior Notes shall not exceed
$110,000,000, which amount is exclusive of amounts that may be owing in
respect to
2
32
interest, fees, costs, expenses, indemnities and the like), and (z) any
Debt incurred the proceeds of which are to be applied by the Corporation
to redeem all (but not less than all) of the then outstanding Notes and
shares of Series B Preferred Stock in accordance with the redemption
provisions applicable to such securities and (2) in the case of clause
(b) or (c), (x) any extensions, renewals, refundings and refinancings of
the Debt outstanding under the Senior Notes and Credit Agreement
including, without limitation, the exchange of the Senior Notes with new
notes registered under the Securities Act of 1933, as amended, as
contemplated by the Registration Rights Agreement (as defined in the
Purchase Agreement) entered into upon the closing of the Purchase
Agreement and (y) any repayment or prepayment of revolving working
capital Debt under the Credit Agreement or any mandatory prepayment or
redemption of Debt required under the terms and conditions of the Credit
Agreement and the Indenture (as defined in the Purchase Agreement)
(including any indenture related to the Senior Notes to be issued in the
exchange offer contemplated by the Purchase Agreement and the
Registration Rights Agreement) related to the Senior Notes dated January
30, 1998, between the Corporation and State Street Bank and Trust
Company of California, N.A. as Trustee;"
4. The foregoing amendments have been duly approved by the Board of
Directors of the Corporation in accordance with Section 242 of the
Delaware General Corporation Law;
5. The foregoing amendments have been duly approved by the required vote of
stockholders in accordance with Section 228 of the Delaware General
Corporation Law and the Certificate of Incorporation of the Corporation.
The total number of currently outstanding shares of Common Stock, Series
A Convertible Preferred Stock and Series B Convertible Participating
Preferred Stock of the Corporation are 5,627,431 shares, 412,500 shares
and 192,864 shares, respectively. The number of shares voting in favor
of the amendment equalled or exceeded the vote required. The vote
required was the affirmative vote of (i) the holders of a majority of
the total outstanding shares of the Corporation, (ii) the holders of a
majority of the outstanding shares of Series A Convertible Preferred
Stock voting together as a single class and (iii) the holders of at
least 66-2/3% of the outstanding shares of Series B Convertible
Participating Preferred Stock voting together as a single class.
3
33
Signed and attested to on January 29, 1998.
PHASE METRICS, INC.
By: /s/ R. JOSEPH SAUNDERS
-------------------------------------
R. Joseph Saunders
Vice President, Chief Financial
Officer and Assistant Secretary
Attest:
/s/ RICHARD A. FINK
- ----------------------------------
Richard A. Fink
Secretary
4
34
CERTIFICATE OF AMENDMENT OF
THE CERTIFICATE OF INCORPORATION OF
PHASE METRICS, INC.
The undersigned certify that:
1. They are the Chief Executive Officer and Assistant Secretary,
respectively, of Phase Metrics, Inc., a Delaware corporation (the
"Corporation").
2. The Certificate of Incorporation is hereby amended by inserting
the Article VII and Article VIII that follow:
ARTICLE VII
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided, however, that the foregoing shall not eliminate or
limit the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of Delaware or (iv)
for any transaction from which the director derived an improper personal
benefit. If the General Corporation Law of Delaware is hereafter amended to
permit further elimination or limitation of the personal liability of directors,
then the liability of a director of the corporation shall be eliminated or
limited to the fullest extent permitted by the General Corporation Law of
Delaware as so amended. Any repeal or modification of this Article VII shall not
adversely affect any right or protection of a director of the corporation
existing at the time of such repeal or modification.
ARTICLE VIII
To the fullest extent permitted by applicable law, the corporation
shall indemnify (and advance expenses to) its directors and is also authorized
to provide indemnification of (and advancement of expenses to) its officers and
any other person to which Delaware law permits this corporation to provide
indemnification through Bylaw provisions, agreements with such agents or other
persons, vote of stockholders or disinterested directors or otherwise, with
respect to actions for breach of duty to the corporation, its stockholders, and
others. Any repeal or modification of any of the foregoing provisions of this
Article VIII shall not adversely affect any right or protection of a director,
officer, agent or other person existing at the time of, or increase the
liability of any director of this corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification.
3. The foregoing amendments have been duly approved by the Board of
Directors of the Corporation in accordance with Section 242 of the Delaware
General Corporation Law.
35
4. The foregoing amendments have been duly approved by the required
vote of stockholders in accordance with Section 228 of the Delaware General
Corporation Law and the Certificate of Incorporation of the Corporation. The
total number of currently outstanding shares of Common Stock, Series A
Convertible Preferred Stock and Series B Convertible Participating Preferred
Stock of the Corporation are 5,606,846 shares, 412,500 shares and 192,864
shares, respectively. The number of shares voting in favor of the amendment
equalled or exceeded the vote required. The vote required was the affirmative
vote of the holders of a majority of the total outstanding shares of the
Corporation.
I declare under penalty of perjury under the laws of the State of
Delaware that the matters set forth in this Certificate are true and correct of
my own knowledge.
Executed at San Diego, California, on April 15, 1998.
/s/ JOHN F. SCHAEFER
----------------------------------------
John F. Schaefer
Chief Executive Officer
/s/ R. JOSEPH SAUNDERS
----------------------------------------
R. Joseph Saunders
Assistant Secretary