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EXHIBIT 4
CERTIFICATE OF
DETERMINATION OF RIGHTS AND PREFERENCES
OF
CLASS A CUMULATIVE, REDEEMABLE AND EXCHANGEABLE PREFERRED STOCK,
CLASS B CUMULATIVE, REDEEMABLE AND EXCHANGEABLE PREFERRED STOCK,
CLASS C CUMULATIVE, REDEEMABLE AND EXCHANGEABLE PREFERRED STOCK
AND
VOTING PREFERRED STOCK
OF
ALPHA MICROSYSTEMS, a California corporation
PURSUANT TO THE PROVISIONS OF SECTION 401
OF THE GENERAL CORPORATION LAW OF THE STATE OF CALIFORNIA
Douglas J. Tullio and John F. Glade hereby certify that:
FIRST: They are the President and Secretary, respectively, of Alpha
Microsystems, a California corporation (the "Company").
SECOND: That the Board of Directors of the Company, pursuant to the
authority so vested in it by the Articles of Incorporation of the Company and in
accordance with the provisions of Section 401 of the General Corporation Law of
the State of California (the "California Corporation Law"), duly adopted the
following resolutions creating the following classes of Preferred Stock
designated as (i) Class A Cumulative, Redeemable and Exchangeable Preferred
Stock (the "Class A Preferred Stock"), (ii) Class B Cumulative, Redeemable and
Exchangeable Preferred Stock (the "Class B Preferred Stock"), (iii) Class C
Cumulative, Redeemable and Exchangeable Preferred Stock (the "Class C Preferred
Stock") and (iv) Voting Preferred Stock (the "Voting Preferred Stock").
THIRD: That the following resolutions designate (i) 8,000 shares of Class A
Preferred Stock, (ii) 7,000 shares of Class B Preferred Stock, (iii) 5,000
shares of Class C Preferred Stock, and (iv) 100 shares of Voting Preferred
Stock, and that as of the date hereof, no shares of Class A Preferred Stock,
Class B Preferred Stock, Class C Preferred Stock or Voting Preferred Stock have
been issued.
FOURTH: The resolutions duly adopted by the Board of Directors of the
Company are as follows:
WHEREAS the Articles of Incorporation of the Company authorize Preferred
Stock consisting of 5,000,000 shares, no par value per share, issuable from time
to time in one or more series; and
WHEREAS the Board of Directors of the Company is authorized, subject to
limitations prescribed by law and by the provisions of Article FOURTH of the
Company's Articles of Incorporation, as amended, to establish and fix the number
of shares to be included in any class of Preferred Stock and the designation of
rights, preferences, privileges and restrictions of the shares of such class;
and
WHEREAS it is the desire of the Board of Directors to establish and fix the
number of shares to be included in new classes of Preferred Stock and the
designation of rights, preferences privileges and restrictions of the shares of
such new classes;
NOW, THEREFORE, BE IT RESOLVED that pursuant to Article FOURTH of the
Company's Articles of Incorporation, as amended, there is hereby established the
following new classes of Preferred Stock with such designations and authorized
number of shares as set forth herein: (i) 8,000 shares of Class A Cumulative,
Redeemable and Exchangeable Preferred Stock (the "Class A Preferred Stock"),
(ii) 7,000 shares of Class B Cumulative, Redeemable and Exchangeable Preferred
Stock (the "Class B
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Preferred Stock"), (iii) 5,000 shares of Class C Cumulative, Redeemable and
Exchangeable Preferred Stock (the "Class C Preferred Stock") and (iv) 100 shares
of Voting Preferred Stock (the "Voting Preferred Stock"). Each share of such
Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock and
Voting Preferred Stock shall have the rights, preferences, privileges and
restrictions set forth in the following Determination of Rights, Preferences,
Privileges and Restrictions of Class A Preferred Stock, Class B Preferred Stock,
Class C Preferred Stock and Voting Preferred Stock (the "Determination of
Preferred Stock"):
A. Class A Preferred Stock.
1. Definitions. As used in this subsection A of this Determination of
Preferred Stock, capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Purchase Agreement. In addition, the
following capitalized terms have the following meanings:
"Articles of Incorporation" means the Articles of Incorporation of the
Company as amended and restated and in effect at the time in question.
"By-laws" means the By-laws of the Company, as amended and in effect
from time to time.
"Board" means the Board of Directors of the Company.
"Common Stock" means, collectively, all of the Common Stock, no par
value, of the Company of any class, and any other class of capital stock of the
Company hereafter authorized that is not limited to a fixed sum or percentage of
par or stated value in respect to the rights of the holders thereof to
participate in dividends or in the distribution of assets upon any liquidation,
dissolution or winding up of the Company.
"Exchange Triggering Date" means October 30, 1998; provided, that in the
event the Second Closing is consummated in full, the Exchange Triggering Date
shall be deemed to be December 31, 1999.
"Liquidation" means, subject to the provisions of Section 3(c) of this
subsection A, any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company.
"Liquidation Value" shall mean Original Cost plus any accrued and unpaid
dividends as determined pursuant to Section 2(c) of this subsection A.
"Maturity Date" means, with respect to any Class A Preferred Stock or
Notes issued in exchange for Class A Preferred Stock, the earliest to occur of
(i) a Maturity Default, (ii) a Change of Control or (iii) June 30, 2000 (the
"Calendar Maturity Date"); provided, that the Calendar Maturity Date shall be
deemed to be June 30, 2005, in the event the transactions contemplated by the
Second Closing Date are consummated in full.
"Maturity Default" shall have the meaning set forth in Section 6(a) of
this subsection A.
"Net Proceeds" of any transaction shall mean the gross proceeds of such
transaction net of any commissions or transaction fees and expenses paid by the
Company in connection with such transaction.
"Original Cost" means, with respect to any share of Class A Preferred
Stock, $1,000.
"Person" shall be construed broadly and shall include without limitation
an individual, a partnership, a corporation, an association, a joint stock
company, a limited liability company, a trust, a joint venture, an
unincorporated organization and a Governmental Authority.
"Preferred A Holders" means holders of Class A Preferred Stock.
"Purchase Agreement" means the Securities Purchase Agreement, dated as
of August 7, 1998, between the Company and the Investor (as defined therein), as
amended, restated or otherwise modified from time to time.
"Rate per Annum" means the specified rate per annum computed on the
basis of a 360-day year; provided, that in the event dividends are not paid in
full in cash on any applicable Dividend Reference Date or upon any Redemption
Date, the Rate per Annum for the applicable period shall be increased by 500
basis
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points (e.g., a 9.0% Rate per Annum would be increased to a 14.0% Rate per
Annum) until such dividends are paid in full in cash.
"Redemption Event" has the meaning ascribed to it in Section A.5(a) of
this Determination of Preferred Stock.
"Redemption Price" has the meaning ascribed to it in Section A.5(a) of
this Determination of Preferred Stock.
"Requisite Preferred A Holders" means the holders representing a
majority of the then outstanding shares of Class A Preferred Stock.
"Requisite Preferred Holders" means the holders representing a majority
of the then outstanding shares of Class A Preferred Stock, Class B Preferred
Stock and Class C Preferred Stock voting together as a group.
"Transaction Documents" means the Purchase Agreement, the Exhibits and
Schedules attached thereto in their final and executed form, as applicable, and
each of the agreements contemplated thereby.
"Warrant" has the meaning given to such term in the Purchase Agreement.
2. Dividends.
(a) The Preferred A Holders shall be entitled to receive, out of funds
legally available therefor, cumulative dividends on the Liquidation Value at the
Rate per Annum and for the periods set forth below:
RATE PER
PERIOD ANNUM
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Until June 30, 2000......................................... 9.0%
July 1, 2000 to June 30, 2001............................... 11.0%
July 1, 2001 to June 30, 2002............................... 12.0%
July 1, 2002 to June 30, 2003............................... 13.0%
July 1, 2003 to June 30, 2004............................... 14.0%
July 1, 2004 to June 30, 2005............................... 15.0%
(subject to appropriate adjustments in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares) per
share per annum, and no more, payable in preference and priority to any payment
of any cash dividend on Common Stock or any other shares of capital stock of the
Company other than the Class A Preferred Stock, Class B Preferred Stock and
Class C Preferred Stock (which shall rank on a par with the Class A Preferred
Stock) or other class or series of stock ranking on a par with, or senior to the
Class A Preferred Stock in respect of dividends (such Common Stock and other
inferior stock being collectively referred to as "Junior Stock"), when and as
declared by the Board.
(b) Such dividends shall accrue with respect to each share of Class A
Preferred Stock from the date on which such share is issued and outstanding and
thereafter shall be deemed to accrue from day to day whether or not earned or
declared and whether or not there exists profits, surplus or other funds legally
available for the payment of dividends, and shall be cumulative so that if such
dividends on the Class A Preferred Stock shall not have been paid, or declared
and set apart for payment, the deficiency shall be fully paid or declared and
set apart for payment before any dividend shall be paid or declared or set apart
for any Junior Stock and before any purchase or acquisition of any Junior Stock
is made by the Company, except the repurchase of Junior Stock from employees of
the Company upon termination of employment or as otherwise approved by the
Requisite Preferred A Holders.
(c) Dividends shall be payable in cash, quarterly in arrears. To the extent
dividends are not paid on each September 30, December 31, March 31 and June 30,
(each a "Dividend Reference Date") all dividends which have accrued on each
share of Class A Preferred Stock during the three-month period (or shorter
period in the case of the first or last period) ending on each Dividend
Reference Date will be added to the Liquidation Value of such share and will
remain a part thereof until such dividends are paid in full in cash. Each
dividend
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paid in cash shall be mailed to the holders of record of the Class A Preferred
Stock as their names and addresses appear on the share register of the Company
or at the office of the transfer agent on the corresponding dividend payment
date.
3. Liquidation.
(a) In the event of any Liquidation of the Company, the Preferred A Holders
shall be entitled to be paid out of the assets of the Company legally available
for distribution to its stockholders, after and subject to the payment in full
of all amounts required to be distributed to the holders of any other class or
series of stock of the Company ranking on liquidation prior and in preference to
the Class A Preferred Stock (collectively referred to as "Senior Preferred
Stock"), but before any payment shall be made to the holders of Junior Stock by
reason of their ownership thereof, an amount equal to the Liquidation Value per
share of Class A Preferred Stock. If upon any such Liquidation of the Company
the remaining assets of the Company available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Class A
Preferred Stock the full amount to which they shall be entitled, the holders of
shares of Class A Preferred Stock and any class or series of stock ranking on
liquidation on a parity with the Class A Preferred Stock shall share ratably in
any distribution of the remaining assets and funds of the Company in proportion
to the respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
(b) The merger or consolidation of the Company into or with another
corporation which results in the exchange of outstanding shares of the Company
for securities or other consideration issued or paid or caused to be issued or
paid by such other corporation or an affiliate thereof (except if such merger or
consolidation does not result in the transfer of more than 50 percent of the
voting securities of the Company), or the sale of all or substantially all the
assets of the Company, shall be deemed to be a Liquidation of the Company for
purposes of this Section 3 of this subsection A, unless a majority of the
Preferred A Holders vote otherwise. The amount deemed distributed to the holders
of Class A Preferred Stock upon any such merger or consolidation shall be the
cash or the value of the property, rights and/or securities distributed to such
holders by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined in good faith by the
Board.
4. Voting Rights.
(a) Except as required by law and pursuant to paragraphs (b), (c) and (d)
below, the Preferred A Holders shall not be entitled to vote.
(b) The Company shall not, without the affirmative consent or approval of
the Requisite Preferred A Holders:
(i) in any manner authorize, issue or sell any shares of Class A
Preferred Stock other than as contemplated by the Purchase Agreement or this
Determination of Preferred Stock;
(ii) reclassify, cancel or in any manner alter or change the
designations, preferences, privileges or relative, optional or other special
rights, or the qualifications, limitations or restrictions thereof, of the Class
A Preferred Stock;
(iii) amend, repeal or modify any provision of this subsection A of this
Determination of Preferred Stock; or
(iv) amend, repeal or modify any provision of the Articles of
Incorporation or By-laws in a manner that would adversely affect the
preferences, privileges or rights of the Preferred A Holders.
(c)(i) The Company hereby covenants that the Requisite Preferred A Holders
shall have the right to have that number of representatives (each such
representative, an "Observer") determined as hereinafter provided present at all
meetings of the Board. Such right shall from time to time be exercisable by
delivery to the Company of written notice from the Requisite Preferred A Holders
specifying the names of such Observers. The number of Observers shall at all
times and from time to time be equal to that number of
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members of the Board that the Investor is then entitled to designate but whose
seats on the Board are at the time vacant.
(ii) The Company will give each Observer reasonable prior notice (it
being agreed that the same prior notice given to the Board shall be deemed
reasonable prior notice) in any manner permitted in the Company's By-laws for
notices to directors of the time and place of any proposed meeting of the Board,
such notice in all cases to include true and complete copies of all documents
furnished to any director in connection with such meeting. Each such Observer
will be entitled to be present in person as an observer at any such meeting or,
if a meeting is held by telephone conference, to participate therein for the
purpose of listening thereto.
(iii) The Company will deliver to each Observer copies of all papers
which may be distributed from time to time to the directors of the Company at
such time as such papers are so distributed to them, including copies of any
written consent.
(d) The Company shall not, without the affirmative consent or approval of
the Requisite Preferred Holders:
(i) take any action, or enter into or authorize any material agreement
or material transaction, other than in the ordinary course of business and
consistent with past practice;
(ii) agree to acquire the stock or assets of, or otherwise agree to any
joint venture, licensing arrangement with, any other person.
(iii) enter into any arrangement which would reasonably be expected to
result in a Change of Control;
(iv) sell, transfer, convey, assign or otherwise dispose of any of its
material assets or properties, or spinoff or splitoff any material assets,
properties or Securities except sales of inventory and used, obsolete, worn out
or unnecessary equipment or fixtures in the ordinary course of business and
consistent with past practice;
(v) sell, transfer, convey, assign, license or otherwise dispose of any
significant portion of its Intellectual Property Rights;
(vi) except in the ordinary course of business and consistent with past
practice, waive, release or cancel any material claims against third parties or
material debts owing to it, or any material rights which have any material
value;
(vii) make any material changes in its accounting systems, policies,
principles or practices except in the ordinary course of business and consistent
with past practice;
(viii) enter into, authorize, or permit any transaction with Affiliates,
or modify in any material respect the employment, compensation or other
arrangements with the executive officers of the Company or any Subsidiary;
(ix) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants or exchangeable Securities, commitments, subscriptions, rights to
purchase or otherwise) any shares of capital stock or any other Securities of
the Company or any Subsidiary, or amend any of the terms of any such capital
stock or other Securities;
(x) split, combine, or reclassify any shares of its capital stock,
declare, set aside or pay any dividend (other than dividends on the Preferred
Stock) or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, or redeem or otherwise
acquire any capital stock or other Securities of the Company or any Subsidiary;
(xi) except in the ordinary course of business and consistent with past
practice, make any borrowings, incur any Indebtedness, or assume, guarantee,
endorse or otherwise become liable (whether directly, contingently or otherwise)
for the obligations of any other Person;
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(xii) except in the ordinary course of business and consistent with past
practice, make any loans, advances or capital contributions to, or investments
in, any other Person.
(xiii) exercise the Company's option to require exchange of the
Preferred Stock pursuant to Section 7(a) of this subsection A.
5. Redemption.
(a) Subject to the Company having funds legally available for such purpose,
the Company shall redeem all of the shares of the Class A Preferred Stock then
outstanding, on the Maturity Date (a "Redemption Event"). The per share
redemption price at which shares of Class A Preferred Stock are to be redeemed
pursuant to this Section 5(a) of this subsection A shall be equal to the
Liquidation Value (the "Redemption Price").
(b) In the event the Company or any of its Subsidiaries consummates a
public or private offering for cash of capital stock or other equity interests,
the Company shall be required to apply 50% of the Net Proceeds of such offering
toward the redemption of shares of Preferred Stock (other than Voting Preferred
Stock), on a pro rata basis (determined on the basis of the number of shares of
Preferred Stock (other than Voting Preferred Stock), held by such holder over
the total number of shares of Preferred Stock (other than Voting Preferred
Stock) outstanding) from the Holders of Preferred Stock at the Redemption Price.
(c) In addition to the Company's mandatory redemption obligations as set
forth in Sections 5(a) and (b) of this subsection A, the Company shall have the
option to redeem a minimum of $1 million of Original Cost of Class A Preferred
Stock and integral multiples of $100,000 thereafter at the Liquidation Value
thereof.
(d) On and after any date set for redemption (the "Redemption Date")
pursuant to this Section 5 of this subsection A (unless default shall be made by
the Company in the payment of the Redemption Price, in which event such rights
shall be exercisable until such default is cured), all rights in respect of the
shares of the Class A Preferred Stock to be redeemed, except the right to
receive the Redemption Price, shall cease and terminate, and such shares shall
no longer be deemed to be outstanding, whether or not the certificates
representing such shares have been received by the Company.
(e) Any communication or notice relating to redemption given pursuant to
this Section 5 of this subsection A shall be sent by first-class certified mail,
return receipt requested, postage prepaid, to the Preferred A Holders, at their
respective addresses as the same shall appear on the books of the Company, or to
the Company at the address of its principal, or registered office, as the case
may be.
(f) At any time on or after the Redemption Date, the Preferred A Holders
shall be entitled to receive the Redemption Price upon actual delivery to the
Company or its agents of the certificates representing the shares of the Class A
Preferred Stock to be redeemed.
(g) Any redemption payments by the Company pursuant to this Section 5 of
this subsection A shall be paid in cash.
(h) Any shares of Class A Preferred Stock which are redeemed, or otherwise
acquired by the Company shall be canceled and shall not be reissued (as treasury
shares), sold or transferred as Class A Preferred but such shares shall become
unclassified Preferred Stock of the Company.
(i) Notwithstanding the foregoing provisions of this Section 5 of this
subsection A, so long as any Investor remains a Significant Holder, the Company
shall not be permitted to redeem or retire all outstanding shares of Series A
Preferred Stock, but shall instead allow such Significant Holder to remain the
holder of one (1) share of Series A Preferred Stock.
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6. Maturity Default.
(a) The occurrence of any of the following events of default shall, at the
option of the Requisite Preferred Holders, constitute a Maturity Default:
(i) the Company fails to comply in any material respect with any of
its obligations under any of the Transaction Documents or the Fundamental
Documents;
(ii) a material default occurs under any mortgage, indenture or other
instrument under which there may be secured or evidenced any indebtedness
for money borrowed by the Company if the principal amount of such
indebtedness aggregates $1,000,000 or more; or
(iii) the Company fails to comply with the provisions of Section
7.2(g)(iv) of the Purchase Agreement.
(b) A default under clauses (a)(i) or (a)(ii) is not a Maturity Default
until the Company does not cure the default within 30 days of the Company having
Knowledge of such default. When a default is cured, it ceases.
(c) The Requisite Preferred Holders by notice to the Company may waive an
existing default or Maturity Default and its consequences. When a default or
Maturity Default is waived, it ceases.
7. Exchange.
(a) Subject to the requirements of Section 500 of the California
Corporation Law, the Requisite Preferred A Holders and the Company shall have
the option at any time and from time to time following the Exchange Triggering
Date to exchange all or any portion of the shares of Class A Preferred Stock
outstanding into the Company's Subordinated Debentures (the "Notes") to be
issued substantially in the form attached as Exhibit D to the Purchase Agreement
in the amount of $1,000 principal amount of Notes for each $1,000 of Liquidation
Value of Class A Preferred Stock; provided, however, that no such exchange may
be consummated unless full cumulative dividends (including, without duplication,
full cumulative dividends pro rata for the elapsed portion of the current
dividend period) on the Class A Preferred Stock to the date of exchange shall
have been paid. Notes shall be issued only in integral multiples of $1,000 at
the time of exchange. If any additional amounts ("Fractional Principal Amounts")
would otherwise be issuable to any holders of Preferred Stock, then the Company
shall, in lieu of issuing a Fractional Principal Amount therefor, pay in full
payment of the Company's obligation with respect to such Fractional Principal
Amounts, to each Preferred A Holder an amount in cash equal to such Fractional
Principal Amount.
(b) Any exchange pursuant to this Section 7 shall be made upon not less
than 30 days' notice prior to the date fixed for exchange (the "Exchange Date").
The notice given shall state that, upon surrender of their certificate or
certificates to the Company, the holders of Class A Preferred Stock will receive
Notes in the amount set forth in Section 7(a) of this subsection A above and
that, at the close of business on the Exchange Date, all rights of the holders
with respect to such shares so called for exchange shall cease, except the right
to receive the Notes in the amount set forth in Section 7(a) of this subsection
A. Except as may be otherwise required by applicable law, the form of the Notes
may only be amended or supplemented before the first Exchange Date which occurs
with the affirmative vote or consent of the Requisite Preferred A Holders. On or
after such first Exchange Date, the Notes may only be amended or supplemented as
provided in the Notes. The Company will cause the Notes to be authenticated on
the Exchange Date, and the Company will pay interest on the Notes at the rate
and on the dates specified in Notes from and after the relevant Exchange Date.
(c) Notwithstanding the foregoing provisions of this Section 7 of this
subsection A, so long as any Investor remains a Significant Holder, the Company
shall not be permitted to exchange all outstanding shares of Series A Preferred
Stock, but shall instead allow such Significant Holder to remain the holder of
one (1) share of Series A Preferred Stock.
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B. Class B Preferred Stock.
1. Definitions. As used in subsection B of this Determination of Preferred
Stock, capitalized terms not otherwise defined herein shall have the meanings
given to such terms in the Purchase Agreement. In addition, the following
capitalized terms have the following meanings:
"Articles of Incorporation" means the Articles of Incorporation of the
Company as amended and restated and in effect at the time in question.
"By-laws" means the By-laws of the Company, as amended and in effect from
time to time.
"Board" means the Board of Directors of the Company.
"Common Stock" means, collectively, all of the Common Stock, no par value,
of the Company of any class, and any other class of capital stock of the Company
hereafter authorized that is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Company.
"Exchange Triggering Date" means December 31, 1999.
"Liquidation" means, subject to the provisions of Section 3(c) of this
subsection B, any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company.
"Liquidation Value" shall mean Original Cost plus any accrued and unpaid
dividends as determined pursuant to Section 2(c) of this subsection B.
"Maturity Date" means, with respect to any Class B Preferred Stock or Notes
issued in exchange for Class B Preferred Stock, the earliest to occur of (i) a
Maturity Default, (ii) a Change of Control or (iii) June 30, 2005; provided,
that the Maturity Date shall be December 31, 2000 with respect to Class B
Preferred Stock which is issued in connection with a Spinoff Transaction.
"Maturity Default" shall have the meaning set forth in Section 6(a) of this
subsection B.
"Net Proceeds" of any transaction shall mean the gross proceeds of such
transaction net of any commissions or transaction fees and expenses paid by the
Company in connection with such transaction.
"Original Cost" means, with respect to any share of Class B Preferred
Stock, $1,000.
"Person" shall be construed broadly and shall include without limitation an
individual, a partnership, a corporation, an association, a joint stock company,
a limited liability company, a trust, a joint venture, an unincorporated
organization and a Governmental Authority.
"Preferred B Holders" means holders of Class B Preferred Stock.
"Purchase Agreement" means the Securities Purchase Agreement, dated as of
August 7, 1998, between the Company and the Investor (as defined therein), as
amended, restated or otherwise modified from time to time.
"Rate per Annum" means the specified rate per annum computed on the basis
of a 360-day year; provided, that in the event dividends are not paid in full in
cash on any applicable Dividend Reference Date or upon any Redemption Date, the
Rate per Annum for the applicable period shall be increased by 500 basis points
(e.g., a 9.0% Rate per Annum would be increased to a 14.0% Rate per Annum) until
such dividends are paid in full in cash.
"Redemption Event" has the meaning ascribed to it in Section B.5(a) of this
Determination of Preferred Stock.
"Redemption Price" has the meaning ascribed to it in Section B.5(a) of this
Determination of Preferred Stock.
"Requisite Preferred B Holders" means the holders of a majority of the then
outstanding shares of Class B Preferred Stock.
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"Requisite Preferred Holders" means the holders representing a majority of
the then outstanding shares of Class A Preferred Stock, Class B Preferred Stock
and Class C Preferred Stock voting together as a group.
"Transaction Documents" means the Purchase Agreement, the Exhibits and
Schedules attached thereto in their final and executed form, as applicable, and
each of the agreements contemplated thereby.
"Warrant" has the meaning given to such term in the Purchase Agreement.
2. Dividends.
(a) The Preferred B Holders shall be entitled to receive, out of funds
legally available therefor, cumulative dividends on the Liquidation Value at the
Rate per Annum and for the periods set forth below:
RATE PER
PERIOD ANNUM
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Until June 30, 2000......................................... 9.0%
July 1, 2000 to June 30, 2001............................... 11.0%
July 1, 2001 to June 30, 2002............................... 12.0%
July 1, 2002 to June 30, 2003............................... 13.0%
July 1, 2003 to June 30, 2004............................... 14.0%
July 1, 2004 to June 30, 2005............................... 15.0%
(subject to appropriate adjustments in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares) per
share per annum, and no more, payable in preference and priority to any payment
of any cash dividend on Common Stock or any other shares of capital stock of the
Company other than the Class A Preferred Stock, Class B Preferred Stock and
Class C Preferred Stock (which shall rank on a par with the Class B Preferred
Stock) or other class or series of stock ranking on a par with, or senior to the
Class B Preferred Stock in respect of dividends (such Common Stock and other
inferior stock being collectively referred to as "Junior Stock"), when and as
declared by the Board.
(b) Such dividends shall accrue with respect to each share of Class B
Preferred Stock from the date on which such share is issued and outstanding and
thereafter shall be deemed to accrue from day to day whether or not earned or
declared and whether or not there exists profits, surplus or other funds legally
available for the payment of dividends, and shall be cumulative so that if such
dividends on the Class B Preferred Stock shall not have been paid, or declared
and set apart for payment, the deficiency shall be fully paid or declared and
set apart for payment before any dividend shall be paid or declared or set apart
for any Junior Stock and before any purchase or acquisition of any Junior Stock
is made by the Company, except the repurchase of Junior Stock from employees of
the Company upon termination of employment or as otherwise approved by the
Requisite Preferred B Holders.
(c) Dividends shall be payable in cash, quarterly in arrears. To the extent
dividends are not paid on each September 30, December 31, March 31 and June 30,
(each a "Dividend Reference Date") all dividends which have accrued on each
share of Class B Preferred Stock during the three-month period (or shorter
period in the case of the first or last period) ending on each Dividend
Reference Date will be added to the Liquidation Value of such share and will
remain a part thereof until such dividends are paid in full in cash. Each
dividend paid in cash shall be mailed to the holders of record of the Class B
Preferred Stock as their names and addresses appear on the share register of the
Company or at the office of the transfer agent on the corresponding dividend
payment date.
3. Liquidation.
(a) In the event of any Liquidation of the Company, the Preferred B Holders
shall be entitled to be paid out of the assets of the Company legally available
for distribution to its stockholders, after and subject to the payment in full
of all amounts required to be distributed to the holders of any other class or
series of stock of the Company ranking on liquidation prior and in preference to
the Class B Preferred Stock (collectively referred to as "Senior Preferred
Stock"), but before any payment shall be made to the holders of Junior Stock by
reason of their ownership thereof, an amount equal to the Liquidation Value per
share of Class B Preferred
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Stock. If upon any such Liquidation of the Company the remaining assets of the
Company available for distribution to its stockholders shall be insufficient to
pay the holders of shares of Class B Preferred Stock the full amount to which
they shall be entitled, the holders of shares of Class B Preferred Stock and any
class or series of stock ranking on liquidation on a parity with the Class B
Preferred Stock shall share ratably in any distribution of the remaining assets
and funds of the Company in proportion to the respective amounts which would
otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.
(b) The merger or consolidation of the Company into or with another
corporation which results in the exchange of outstanding shares of the Company
for securities or other consideration issued or paid or caused to be issued or
paid by such other corporation or an affiliate thereof (except if such merger or
consolidation does not result in the transfer of more than 50 percent of the
voting securities of the Company), or the sale of all or substantially all the
assets of the Company, shall be deemed to be a Liquidation of the Company for
purposes of this Section 3 of this subsection B, unless a majority of the
Preferred B Holders vote otherwise. The amount deemed distributed to the holders
of Class B Preferred Stock upon any such merger or consolidation shall be the
cash or the value of the property, rights and/or securities distributed to such
holders by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined in good faith by the
Board.
4. Voting Rights.
(a) Except as required by law and pursuant to paragraphs (b), (c) and (d)
below, the Preferred B Holders shall not be entitled to vote.
(b) The Company shall not, without the affirmative consent or approval of
the Requisite Preferred B Holders:
(i) in any manner authorize, issue or sell any shares of Class B
Preferred Stock other than as contemplated by the Purchase Agreement or
this Determination of Preferred Stock;
(ii) reclassify, cancel or in any manner alter or change the
designations, preferences, privileges or relative, optional or other
special rights, or the qualifications, limitations or restrictions thereof,
of the Class B Preferred Stock;
(iii) amend, repeal or modify any provision of this subsection B of
this Determination of Preferred Stock; or
(iv) amend, repeal or modify any provision of the Articles of
Incorporation or By-laws in a manner that would adversely affect the
preferences, privileges or rights of the Preferred B Holders.
(c)(i) The Company hereby covenants that the Requisite Preferred B Holders
shall have the right to have that number of representatives (each such
representative, an "Observer") determined as hereinafter provided present at all
meetings of the Board. Such right shall from time to time be exercisable by
delivery to the Company of written notice from the Requisite Preferred B Holders
specifying the names of such Observers. The number of Observers shall at all
times and from time to time be equal to that number of members of the Board that
the Investor is then entitled to designate but whose seats on the Board are at
the time vacant.
(ii) The Company will give each Observer reasonable prior notice (it
being agreed that the same prior notice given to the Board shall be deemed
reasonable prior notice) in any manner permitted in the Company's By-laws
for notices to directors of the time and place of any proposed meeting of
the Board, such notice in all cases to include true and complete copies of
all documents furnished to any director in connection with such meeting.
Each such Observer will be entitled to be present in person as an observer
at any such meeting or, if a meeting is held by telephone conference, to
participate therein for the purpose of listening thereto.
(iii) The Company will deliver to each Observer copies of all papers
which may be distributed from time to time to the directors of the Company
at such time as such papers are so distributed to them, including copies of
any written consent.
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(d) The Company shall not, without the affirmative consent or approval of
the Requisite Preferred Holders:
(i) take any action, or enter into or authorize any material agreement
or material transaction, other than in the ordinary course of business and
consistent with past practice;
(ii) agree to acquire the stock or assets of, or otherwise agree to
any joint venture, licensing arrangement with, any other person.
(iii) enter into any arrangement which would reasonably be expected to
result in a Change of Control;
(iv) sell, transfer, convey, assign or otherwise dispose of any of its
material assets or properties, or spinoff or splitoff any material assets,
properties or Securities except sales of inventory and used, obsolete, worn
out or unnecessary equipment or fixtures in the ordinary course of business
and consistent with past practice;
(v) sell, transfer, convey, assign, license or otherwise dispose of
any significant portion of its Intellectual Property Rights;
(vi) except in the ordinary course of business and consistent with
past practice, waive, release or cancel any material claims against third
parties or material debts owing to it, or any material rights which have
any material value;
(vii) make any material changes in its accounting systems, policies,
principles or practices except in the ordinary course of business and
consistent with past practice;
(viii) enter into, authorize, or permit any transaction with
Affiliates, or modify in any material respect the employment, compensation
or other arrangements with the executive officers of the Company or any
Subsidiary;
(ix) authorize for issuance, issue, sell, deliver or agree or commit
to issue, sell or deliver (whether through the issuance or granting of
options, warrants or exchangeable Securities, commitments, subscriptions,
rights to purchase or otherwise) any shares of capital stock or any other
Securities of the Company or any Subsidiary, or amend any of the terms of
any such capital stock or other Securities;
(x) split, combine, or reclassify any shares of its capital stock,
declare, set aside or pay any dividend (other than dividends on the
Preferred Stock) or other distribution (whether in cash, stock or property
or any combination thereof) in respect of its capital stock, or redeem or
otherwise acquire any capital stock or other Securities of the Company or
any Subsidiary;
(xi) except in the ordinary course of business and consistent with
past practice, make any borrowings, incur any Indebtedness, or assume,
guarantee, endorse or otherwise become liable (whether directly,
contingently or otherwise) for the obligations of any other Person;
(xii) except in the ordinary course of business and consistent with
past practice, make any loans, advances or capital contributions to, or
investments in, any other Person.
(xiii) exercise the Company's option to require exchange of the
Preferred Stock pursuant to Section 7(a) of this subsection B.
5. Redemption.
(a) Subject to the Company having funds legally available for such purpose,
the Company shall redeem all of the shares of the Class B Preferred Stock then
outstanding, on the Maturity Date (a "Redemption Event"). The per share
redemption price at which shares of Class B Preferred Stock are to be redeemed
pursuant to this Section 5(a) of this subsection B shall be equal to the
Liquidation Value (the "Redemption Price").
(b) In the event the Company or any of its Subsidiaries consummates a
public or private offering for cash of capital stock or other equity interests,
the Company shall be required to apply 50% of the Net Proceeds
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of such offering toward the redemption of shares of Preferred Stock (other than
Voting Preferred Stock), on a pro rata basis (determined on the basis of the
number of shares of Preferred Stock (other than Voting Preferred Stock), held by
such holder over the total number of shares of Preferred Stock (other than
Voting Preferred Stock) outstanding) from the Holders of Preferred Stock at the
Redemption Price.
(c) In addition to the Company's mandatory redemption obligations as set
forth in Sections 5(a) and (b) of this subsection B, the Company shall have the
option to redeem a minimum of $1 million of Original Cost of Class B Preferred
Stock and integral multiples of $100,000 thereafter at the Liquidation Value
thereof.
(d) On and after any date set for redemption (the "Redemption Date")
pursuant to this Section 5 of this subsection B (unless default shall be made by
the Company in the payment of the Redemption Price, in which event such rights
shall be exercisable until such default is cured), all rights in respect of the
shares of the Class B Preferred Stock to be redeemed, except the right to
receive the Redemption Price, shall cease and terminate, and such shares shall
no longer be deemed to be outstanding, whether or not the certificates
representing such shares have been received by the Company.
(e) Any communication or notice relating to redemption given pursuant to
this Section 5 of this subsection B shall be sent by first-class certified mail,
return receipt requested, postage prepaid, to the Preferred B Holders, at their
respective addresses as the same shall appear on the books of the Company, or to
the Company at the address of its principal, or registered office, as the case
may be.
(f) At any time on or after the Redemption Date, the Preferred B Holders
shall be entitled to receive the Redemption Price upon actual delivery to the
Company or its agents of the certificates representing the shares of the Class B
Preferred Stock to be redeemed.
(g) Any redemption payments by the Company pursuant to this Section 5 of
this subsection B shall be paid in cash.
(h) Any shares of Class B Preferred Stock which are redeemed, or otherwise
acquired by the Company shall be canceled and shall not be reissued (as treasury
shares), sold or transferred as Class B Preferred but such shares shall become
unclassified Preferred Stock of the Company.
(i) Notwithstanding the foregoing provisions of this Section 5 of this
subsection B, so long as any Investor remains a Significant Holder, the Company
shall not be permitted to redeem or retire all outstanding shares of Series B
Preferred Stock, but shall instead allow such Significant Holder to remain the
holder of one (1) share of Series B Preferred Stock.
6. Maturity Default.
(a) The occurrence of any of the following events of default shall, at the
option of the Requisite Preferred Holders, constitute a Maturity Default:
(i) the Company fails to comply in any material respect with any of
its obligations under any of the Transaction Documents or the Fundamental
Documents;
(ii) a material default occurs under any mortgage, indenture or other
instrument under which there may be secured or evidenced any indebtedness
for money borrowed by the Company if the principal amount of such
indebtedness aggregates $1,000,000 or more; or
(iii) the Company fails to comply with the provisions of Section
7.2(g)(iv) of the Purchase Agreement.
(b) A default under clauses (a)(i) or (a)(ii) is not a Maturity Default
until the Company does not cure the default within 30 days of the Company having
Knowledge of such default. When a default is cured, it ceases.
(c) The Requisite Preferred Holders by notice to the Company may waive an
existing default or Maturity Default and its consequences. When a default or
Maturity Default is waived, it ceases.
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7. Exchange.
(a) Subject to the provisions of Section 500 of the California Corporation
Law, the Requisite Preferred B Holders and the Company shall have the option at
any time and from time to time following the Exchange Triggering Date to
exchange all or any portion of the shares of Class B Preferred Stock outstanding
into the Company's Subordinated Debentures (the "Notes") to be issued
substantially in the form of Exhibit D of the Purchase Agreement in the amount
of $1,000 principal amount of Notes for each $1,000 of Liquidation Value of
Class B Preferred Stock; provided, however, that no such exchange may be
consummated unless full cumulative dividends (including, without duplication,
full cumulative dividends pro rata for the elapsed portion of the current
dividend period) on the Class B Preferred Stock to the date of exchange shall
have been paid. Notes shall be issued only in integral multiples of $1,000 at
the time of exchange. If any additional amounts ("Fractional Principal Amounts")
would otherwise be issuable to any holders of Preferred Stock, then the Company
shall, in lieu of issuing a Fractional Principal Amount therefor, pay in full
payment of the Company's obligation with respect to such Fractional Principal
Amount, to each Preferred B Holder an amount in cash equal to such Fractional
Principal Amount.
(b) Any exchange pursuant to this Section 7 shall be made upon not less
than 30 days' notice prior to the date fixed for exchange (the "Exchange Date").
The notice given shall state that, upon surrender of their certificate or
certificates to the Company, the holders of Class B Preferred Stock will receive
Notes in the amount set forth in Section 7(a) of this subsection B and that, at
the close of business on the Exchange Date, all rights of the holders with
respect to such shares so called for exchange shall cease, except the right to
receive the Notes in the amount set forth in Section 7(a) of this subsection B.
Except as may be otherwise required by applicable law, the form of the Notes may
only be amended or supplemented before the first Exchange Date which occurs with
the affirmative vote or consent of the Requisite Preferred B Holders. On or
after such first Exchange Date, the Notes may only be amended or supplemented as
provided in the Notes. The Company will cause the Notes to be authenticated on
the Exchange Date, and the Company will pay interest on the Notes at the rate
and on the dates specified in the Notes from and after the relevant Exchange
Date.
(c) Notwithstanding the foregoing provisions of this Section 7 of this
subsection B, so long as any Investor remains a Significant Holder, the Company
shall not be permitted to exchange all outstanding shares of Series B Preferred
Stock, but shall instead allow such Significant Holder to remain the holder of
one (1) share of Series B Preferred Stock.
C. Class C Preferred Stock.
1. Definitions. As used in this subsection C of this Determination of
Preferred Stock, capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Purchase Agreement. In addition, the
following capitalized terms have the following meanings:
"Articles of Incorporation" means the Articles of Incorporation of the
Company as amended and restated and in effect at the time in question.
"By-laws" means the By-laws of the Company, as amended and in effect
from time to time.
"Board" means the Board of Directors of the Company.
"Common Stock" means, collectively, all of the Common Stock, no par
value, of the Company of any class, and any other class of capital stock of the
Company hereafter authorized that is not limited to a fixed sum or percentage of
par or stated value in respect to the rights of the holders thereof to
participate in dividends or in the distribution of assets upon any liquidation,
dissolution or winding up of the Company.
"Exchange Triggering Date" means December 31, 1999.
"Liquidation" means, subject to the provisions of Section 3(c) of this
subsection C, any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company.
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"Liquidation Value" shall mean Original Cost plus any accrued and unpaid
dividends as determined pursuant to Section 2(c) of this subsection C.
"Maturity Date" means, with respect to any Class C Preferred Stock or
Notes issued in exchange for Class C Preferred Stock, the earliest to occur of
(i) a Maturity Default, (ii) a Change of Control or (iii) June 30, 2005.
"Maturity Default" shall have the meaning set forth in Section 6(a) of
this subsection C.
"Net Proceeds" of any transaction shall mean the gross proceeds of such
transaction net of any commissions or transaction fees and expenses paid by the
Company in connection with such transaction.
"Original Cost" means, with respect to any share of Class C Preferred
Stock, $1,000.
"Person" shall be construed broadly and shall include without limitation
an individual, a partnership, a corporation, an association, a joint stock
company, a limited liability company, a trust, a joint venture, an
unincorporated organization and a Governmental Authority.
"Preferred C Holders" means holders of Class C Preferred Stock.
"Purchase Agreement" means the Securities Purchase Agreement dated as of
August 7, 1998, between the Company and the Investor (as defined therein), as
amended, restated or otherwise modified from time to time.
"Rate per Annum" means the specified rate per annum computed on the
basis of a 360-day year; provided, that in the event dividends are not paid in
full in cash on any applicable Dividend Reference Date or upon any Redemption
Date, the Rate per Annum for the applicable period shall be increased by 500
basis points (e.g., a 9.0% Rate per Annum would be increased to a 14.0% Rate per
Annum) until such dividends are paid in full in cash.
"Redemption Event" has the meaning ascribed to it in Section C.5(a) of
this Determination of Preferred Stock.
"Redemption Price" has the meaning ascribed to it in Section C.5(a) of
this Determination of Preferred Stock.
"Requisite Preferred C Holders" means the holders of a majority of the
then outstanding shares of Class C Preferred Stock.
"Requisite Preferred Holders" means the holders representing a majority
of the then outstanding shares of Class A Preferred Stock, Class B Preferred
Stock and Class C Preferred Stock voting together as a group.
"Transaction Documents" means the Purchase Agreement, the Exhibits and
Schedules attached thereto in their final and executed form, as applicable, and
each of the agreements contemplated thereby.
"Warrant" has the meaning given to such term in the Purchase Agreement.
2. Dividends.
(a) The Preferred C Holders shall be entitled to receive, out of funds
legally available therefor, cumulative dividends on the Liquidation Value at the
Rate per Annum and for the periods set forth below:
RATE PER
PERIOD ANNUM
------ --------
Until June 30, 2000......................................... 9.0%
July 1, 2000 to June 30, 2001............................... 11.0%
July 1, 2001 to June 30, 2002............................... 12.0%
July 1, 2002 to June 30, 2003............................... 13.0%
July 1, 2003 to June 30, 2004............................... 14.0%
July 1, 2004 to June 30, 2005............................... 15.0%
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(subject to appropriate adjustments in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares) per
share per annum, and no more, payable in preference and priority to any payment
of any cash dividend on Common Stock or any other shares of capital stock of the
Company other than the Class C Preferred Stock, Class A Preferred Stock and
Class B Preferred Stock (which shall rank on a par with the Class B Preferred
Stock) or other class or series of stock ranking on a par with, or senior to the
Class C Preferred Stock in respect of dividends (such Common Stock and other
inferior stock being collectively referred to as "Junior Stock"), when and as
declared by the Board.
(b) Such dividends shall accrue with respect to each share of Class C
Preferred Stock from the date on which such share is issued and outstanding and
thereafter shall be deemed to accrue from day to day whether or not earned or
declared and whether or not there exists profits, surplus or other funds legally
available for the payment of dividends, and shall be cumulative so that if such
dividends on the Class C Preferred Stock shall not have been paid, or declared
and set apart for payment, the deficiency shall be fully paid or declared and
set apart for payment before any dividend shall be paid or declared or set apart
for any Junior Stock and before any purchase or acquisition of any Junior Stock
is made by the Company, except the repurchase of Junior Stock from employees of
the Company upon termination of employment, except as otherwise approved by the
Requisite Preferred C Holders.
(c) Dividends shall be payable in cash, quarterly in arrears. To the extent
dividends are not paid on each September 30, December 31, March 31 and June 30,
(each a "Dividend Reference Date") all dividends which have accrued on each
share of Class C Preferred Stock during the three-month period (or shorter
period in the case of the first or last period) ending on each Dividend
Reference Date will be added to the Liquidation Value of such share and will
remain a part thereof until such dividends are paid in full in cash. Each
dividend paid in cash shall be mailed to the holders of record of the Class C
Preferred Stock as their names and addresses appear on the share register of the
Company or at the office of the transfer agent on the corresponding dividend
payment date.
3. Liquidation.
(a) In the event of any Liquidation of the Company, the Preferred C Holders
shall be entitled to be paid out of the assets of the Company legally available
for distribution to its stockholders, after and subject to the payment in full
of all amounts required to be distributed to the holders of any other class or
series of stock of the Company ranking on liquidation prior and in preference to
the Class C Preferred Stock (collectively referred to as "Senior Preferred
Stock"), but before any payment shall be made to the holders of Junior Stock by
reason of their ownership thereof, an amount equal to the Liquidation Value per
share of Class C Preferred Stock. If upon any such Liquidation of the Company
the remaining assets of the Company available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Class C
Preferred Stock the full amount to which they shall be entitled, the holders of
shares of Class C Preferred Stock and any class or series of stock ranking on
liquidation on a parity with the Class C Preferred Stock shall share ratably in
any distribution of the remaining assets and funds of the Company in proportion
to the respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
(b) The merger or consolidation of the Company into or with another
corporation which results in the exchange of outstanding shares of the Company
for securities or other consideration issued or paid or caused to be issued or
paid by such other corporation or an affiliate thereof (except if such merger or
consolidation does not result in the transfer of more than 50 percent of the
voting securities of the Company), or the sale of all or substantially all the
assets of the Company, shall be deemed to be a Liquidation of the Company for
purposes of this Section 3 of this subsection C, unless a majority of the
Preferred C Holders vote otherwise. The amount deemed distributed to the holders
of Class C Preferred Stock upon any such merger or consolidation shall be the
cash or the value of the property, rights and/or securities distributed to such
holders by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined in good faith by the
Board.
4. Voting Rights.
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(a) Except as required by law and pursuant to paragraphs (b), (c) and (d)
below, the Preferred C Holders shall not be entitled to vote.
(b) The Company shall not, without the affirmative consent or approval of
the Requisite Preferred C Holders:
(i) in any manner authorize, issue or sell any shares of Class C
Preferred Stock other than as contemplated by the Purchase Agreement or
this Determination of Preferred Stock;
(ii) reclassify, cancel or in any manner alter or change the
designations, privileges or relative, optional or other special rights, or
the qualifications, limitations or restrictions thereof, of the Class C
Preferred Stock;
(iii) amend, repeal or modify any provision of this subsection C of
this Determination of Preferred Stock; or
(iv) amend, repeal or modify any provision of the Articles of
Incorporation or By-laws in a manner that would adversely affect the
preferences, privileges or rights of the Preferred C Holders.
(c)(i) The Company hereby covenants that the Requisite Preferred C Holders
shall have the right to have that number of representatives (each such
representative, an "Observer") determined as hereinafter provided present at all
meetings of the Board. Such right shall from time to time be exercisable by
delivery to the Company of written notice from the Requisite Preferred C Holders
specifying the names of such Observers. The number of Observers shall at all
times and from time to time be equal to that number of members of the Board that
the Investor is then entitled to designate but whose seats on the Board are at
the time vacant.
(ii) The Company will give each Observer reasonable prior notice (it
being agreed that the same prior notice given to the Board shall be deemed
reasonable prior notice) in any manner permitted in the Company's By-laws
for notices to directors of the time and place of any proposed meeting of
the Board, such notice in all cases to include true and complete copies of
all documents furnished to any director in connection with such meeting.
Each such Observer will be entitled to be present in person as an observer
at any such meeting or, if a meeting is held by telephone conference, to
participate therein for the purpose of listening thereto.
(iii) The Company will deliver to each Observer copies of all papers
which may be distributed from time to time to the directors of the Company
at such time as such papers are so distributed to them, including copies of
any written consent.
(d) The Company shall not, without the affirmative consent or approval of
the Requisite Preferred Holders:
(i) take any action, or enter into or authorize any material agreement
or material transaction, other than in the ordinary course of business and
consistent with past practice;
(ii) agree to acquire the stock or assets of, or otherwise agree to
any joint venture, licensing arrangement with, any other person.
(iii) enter into any arrangement which would reasonably be expected to
result in a Change of Control;
(iv) sell, transfer, convey, assign or otherwise dispose of any of its
material assets or properties, or spinoff or splitoff any material assets,
properties or Securities except sales of inventory and used, obsolete, worn
out or unnecessary equipment or fixtures in the ordinary course of business
and consistent with past practice;
(v) sell, transfer, convey, assign, license or otherwise dispose of
any significant portion of its Intellectual Property Rights;
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(vi) except in the ordinary course of business and consistent with
past practice, waive, release or cancel any material claims against third
parties or material debts owing to it, or any material rights which have
any material value;
(vii) make any material changes in its accounting systems, policies,
principles or practices except in the ordinary course of business and
consistent with past practice;
(viii) enter into, authorize, or permit any transaction with
Affiliates, or modify in any material respect the employment, compensation
or other arrangements with the executive officers of the Company or any
Subsidiary;
(ix) authorize for issuance, issue, sell, deliver or agree or commit
to issue, sell or deliver (whether through the issuance or granting of
options, warrants or exchangeable Securities, commitments, subscriptions,
rights to purchase or otherwise) any shares of capital stock or any other
Securities of the Company or any Subsidiary, or amend any of the terms of
any such capital stock or other Securities;
(x) split, combine, or reclassify any shares of its capital stock,
declare, set aside or pay any dividend (other than dividends on the
Preferred Stock) or other distribution (whether in cash, stock or property
or any combination thereof) in respect of its capital stock, or redeem or
otherwise acquire any capital stock or other Securities of the Company or
any Subsidiary;
(xi) except in the ordinary course of business and consistent with
past practice, make any borrowings, incur any Indebtedness, or assume,
guarantee, endorse or otherwise become liable (whether directly,
contingently or otherwise) for the obligations of any other Person;
(xii) except in the ordinary course of business and consistent with
past practice, make any loans, advances or capital contributions to, or
investments in, any other Person.
(xiii) exercise the Company's option to require exchange of the
Preferred Stock pursuant to Section 7(a) of this subsection C.
5. Redemption.
(a) Subject to the Company having funds legally available for such purpose,
the Company shall redeem all of the shares of the Class C Preferred Stock then
outstanding, on the Maturity Date (a "Redemption Event"). The per share
redemption price at which shares of Class C Preferred Stock are to be redeemed
pursuant to this Section 5(a) of this subsection C shall be equal to the
Liquidation Value (the "Redemption Price").
(b) In the event the Company or any of its Subsidiaries consummates a
public or private offering for cash of capital stock or other equity interests,
the Company shall be required to apply 50% of the Net Proceeds of such offering
toward the redemption of shares of Preferred Stock (other than Voting Preferred
Stock), on a pro rata basis (determined on the basis of the number of shares of
Preferred Stock (other than Voting Preferred Stock), held by such holder over
the total number of shares of Preferred Stock (other than Voting Preferred
Stock) outstanding) from the Holders of Preferred Stock at the Redemption Price.
(c) In addition to the Company's mandatory redemption obligations as set
forth in Sections 5(a) and (b), of this subsection C, the Company shall have the
option to redeem a minimum of $1 million of Original Cost of Class C Preferred
Stock and integral multiples of $100,000 thereafter at the Liquidation Value
thereof.
(d) On and after any date set for redemption (the "Redemption Date")
pursuant to this Section 5 of this subsection C (unless default shall be made by
the Company in the payment of the Redemption Price, in which event such rights
shall be exercisable until such default is cured), all rights in respect of the
shares of the Class C Preferred Stock to be redeemed, except the right to
receive the Redemption Price, shall cease and terminate, and such shares shall
no longer be deemed to be outstanding, whether or not the certificates
representing such shares have been received by the Company.
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(e) Any communication or notice relating to redemption given pursuant to
this Section 5 of this subsection C shall be sent by first-class certified mail,
return receipt requested, postage prepaid, to the Preferred C Holders, at their
respective addresses as the same shall appear on the books of the Company, or to
the Company at the address of its principal, or registered office, as the case
may be.
(f) At any time on or after the Redemption Date, the Preferred C Holders
shall be entitled to receive the Redemption Price upon actual delivery to the
Company or its agents of the certificates representing the shares of the Class C
Preferred Stock to be redeemed.
(g) Any redemption payments by the Company pursuant to this Section 5 of
this subsection C shall be paid in cash.
(h) Any shares of Class C Preferred Stock which are redeemed, or otherwise
acquired by the Company shall be canceled and shall not be reissued (as treasury
shares), sold or transferred as Class C Preferred but such shares shall become
unclassified Preferred Stock of the Company.
(i) Notwithstanding the foregoing provisions of this Section 5 of this
subsection C, so long as any Investor remains a Significant Holder, the Company
shall not be permitted to redeem or retire all outstanding shares of Series C
Preferred Stock, but shall instead allow such Significant Holder to remain the
holder of one (1) share of Series C Preferred Stock.
6. Maturity Default.
(a) The occurrence of any of the following events of default shall, at the
option of the Requisite Preferred Holders, constitute a Maturity Default:
(i) the Company fails to comply in any material respect with any of
its obligations under any of the Transaction Documents or the Fundamental
Documents;
(ii) a material default occurs under any mortgage, indenture or other
instrument under which there may be secured or evidenced any indebtedness
for money borrowed by the Company if the principal amount of such
indebtedness aggregates $1,000,000 or more; or
(iii) the Company fails to comply with the provisions of Section
7.2(g)(iv) of the Purchase Agreement.
(b) A default under clauses (a)(i) or (a)(ii) is not a Maturity Default
until the Company does not cure the default within 30 days of the Company having
Knowledge of such default. When a default is cured, it ceases.
(c) The Requisite Preferred Holders by notice to the Company may waive an
existing default or Maturity Default and its consequences. When a default or
Maturity Default is waived, it ceases.
7. Exchange.
(a) Subject to the provisions of Section 500 of California Corporate Law,
the Requisite Preferred C Holders and the Company shall have the option at any
time and from time to time following the Exchange Triggering Date to exchange
all or any portion of the shares of Class C Preferred Stock outstanding into the
Company's Subordinated Debentures (the "Notes") to be issued substantially in
the form attached to the Purchase Agreement as Exhibit D, in the amount of
$1,000 principal amount of Notes for each $1,000 of Liquidation Value of Class C
Preferred Stock; provided, however, that no such exchange may be consummated
unless full cumulative dividends (including, without duplication, full
cumulative dividends pro rata for the elapsed portion of the current dividend
period) on the Class C Preferred Stock to the date of exchange shall have been
paid. Notes shall be issued only in integral multiples of $1,000 at the time of
exchange. If any additional amounts ("Fractional Principal Amounts") would
otherwise be issuable to any holders of Preferred Stock, then the Company shall,
in lieu of issuing a Fractional Principal Amount therefor, pay in full payment
of the Company's obligation with respect to such Fractional Principal Amount, an
amount in cash equal to the Fractional Principal Amount.
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(b) Any exchange pursuant to this Section 7 shall be made upon not less
than 30 days' notice prior to the date fixed for exchange (the "Exchange Date").
The notice given shall state that, upon surrender of their certificate or
certificates to the Company, the holders of Class C Preferred Stock will receive
Notes in the amount set forth in Section 7(a) of this subsection C above and
that, at the close of business on the Exchange Date, all rights of the holders
with respect to such shares so called for exchange shall cease, except the right
to receive the Notes in the amount set forth in Section 7(a) of this subsection
C. Except as may be otherwise required by applicable law, the form of the Notes
may only be amended or supplemented before the first Exchange Date which occurs
with the affirmative vote or consent of the Requisite Preferred C Holders. On or
after such first Exchange Date, the Notes may only be amended or supplemented as
provided in the Notes. The Company will cause the Notes to be authenticated on
the Exchange Date, and the Company will pay interest on the Notes at the rate
and on the dates specified in such Indenture from and after the relevant
Exchange Date.
(c) Notwithstanding the foregoing provisions of this Section 7 of this
subsection C, so long as any Investor remains a Significant Holder, the Company
shall not be permitted to exchange all outstanding shares of Series C Preferred
Stock, but shall instead allow such Significant Holder to remain the holder of
one (1) share of Series C Preferred Stock.
D. Voting Preferred Stock.
1. Definitions. As used in this subsection D of this Determination of
Preferred Stock, capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Purchase Agreement. In addition, the
following capitalized terms have the following meanings:
"Purchase Agreement" means the Securities Purchase Agreement, dated as of
August 7, 1998, between the Company and the Investor (as defined therein), as
amended, restated or otherwise modified from time to time.
"Requisite Voting Preferred Holders" means the holders of a majority of the
Common Stock issuable upon the exercise of any then outstanding Warrants.
"Senior Preferred Stock" shall mean the Class A Preferred Stock, the Class
B Preferred Stock and the Class C Preferred Stock.
"Warrantholder" means a holder of Warrants.
2. Voting Rights.
(a) Standard Voting Rights. In addition to the voting rights expressly
required by law or with regard to any amendment to the Company's Articles of
Incorporation or this Determination of Preferred Stock to alter or change,
directly or indirectly, the powers, designations, preferences or special rights
relating to shares of the Voting Preferred Stock, the holder of a share of
Voting Preferred Stock shall be entitled to vote together with the Common Stock
and any other voting stock of the Company on all matters submitted to the
Company's stockholders for consideration, vote or approval and to cast an
aggregate number of votes equal to the number of votes that the shares of Common
Stock issuable upon exercise of the then unexercised portion of the Warrants
held by such holder are entitled to as of the record date designated for any
stockholders' meeting or the date of any written consent of stockholders.
3. Dividends. The holder of the Voting Preferred Stock shall not be
entitled to receive dividend payments at any time.
4. Liquidation. Upon any liquidation, dissolution or winding up of the
Company, before any distribution or payment is made upon any shares of any other
class of capital stock of the Company other than the Senior Preferred Stock,
each holder of Voting Preferred Stock will be entitled to be paid an amount
equal to $100 per share, and shall not be entitled to receive any further
distribution or payment. Neither the consolidation nor merger of the Company
into or with any other corporation or corporations, nor the sale or transfer by
the Company of all or any part of its assets, nor the reduction of the capital
stock of the Company,
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shall be deemed to be a liquidation, dissolution or winding-up of the Company
within the meaning of any of the provisions of this subsection D.
5. Mandatory Redemption.
(a) Triggering Event. In the event that all of the outstanding Senior
Preferred Stock is redeemed in full in accordance with its terms, then
simultaneously with such redemption, the Company shall redeem the outstanding
shares of Voting Preferred Stock; provided, that the Voting Preferred Stock
shall not be redeemable so long as any Warrantholder is a Significant Holder..
(b) Redemption Price. On the date of redemption, upon surrender by the
holder at the Company's principal office of the certificate representing the
share of the Voting Preferred Stock, the Company will pay to the holder an
amount in cash equal to $100 per share.
(c) Cancellation of Redeemed Stock. Shares of Voting Preferred Stock
redeemed pursuant to this Section 5 of this subsection D shall be canceled and
shall not under any circumstances be reissued.
6. Replacement. Upon receipt of evidence reasonably satisfactory to the
Company (an affidavit of the registered holder will be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of Voting Preferred Stock, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Company (provided that if the holder is an institutional investor its own
agreement will be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Company will (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind representing
the shares of Voting Preferred Stock, dated the date of such lost, stolen,
destroyed or mutilated certificate.
7. Amendment and Waiver. No amendment, modification or any other change,
directly or indirectly, in any manner with respect to any term or provision of
this Determination of Preferred Stock or the Voting Preferred Stock will be
valid without the prior written consent of the Requisite Voting Preferred
Holders.
8. Notices. All notices will be in writing and will be delivered by
registered or certified mail, return receipt requested, postage prepaid and will
be deemed to have been given when so mailed (i) to the Company, at its principal
executive offices and (ii) to the holder of the Voting Preferred Stock, at such
holder's address as it appears in the stock records of the Company (unless
otherwise indicated by any such holder).
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/s/ DOUGLAS J. TULLIO
--------------------------------------
Douglas J. Tullio
President
/s/ JOHN F. GLADE
--------------------------------------
John F. Glade
Secretary
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate are true and correct
of our own knowledge. Executed at Santa Ana, California, on , 1998.
/s/ DOUGLAS J. TULLIO
--------------------------------------
Douglas J. Tullio
President
/s/ JOHN F. GLADE
--------------------------------------
John F. Glade
Secretary
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