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EXHIBIT 4.9
CERTIFICATE OF
DETERMINATION OF RIGHTS AND PREFERENCES
OF
CLASS A1 CUMULATIVE, REDEEMABLE AND EXCHANGEABLE PREFERRED STOCK,
CLASS A2 CUMULATIVE, REDEEMABLE AND EXCHANGEABLE PREFERRED STOCK,
CLASS B1 CUMULATIVE, REDEEMABLE AND EXCHANGEABLE PREFERRED STOCK,
CLASS C1 CUMULATIVE, REDEEMABLE AND EXCHANGEABLE PREFERRED STOCK
AND
CLASS D CUMULATIVE, REDEEMABLE AND EXCHANGEABLE 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 Jeffrey J. Dunnigan 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 series of Preferred Stock
designated as (i) Class A1 Cumulative, Redeemable and Exchangeable Preferred
Stock (the "Class A1 Preferred Stock"), (ii) Class A2 Cumulative, Redeemable and
Exchangeable Preferred Stock (the "Class A2 Preferred Stock"), (iii)
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Class B1 Cumulative, Redeemable and Exchangeable Preferred Stock (the "Class B1
Preferred Stock"), (iv) Class C1 Cumulative, Redeemable and Exchangeable
Preferred Stock (the "Class C1 Preferred Stock") and (v) Class D Cumulative
Redeemable and Exchangeable Preferred Stock (the "Class D Preferred Stock").
THIRD: That, as required by subsection A, subsection B, subsection C and
subsection D, respectively, of the 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 the Company, as filed with the California Secretary of State on August
25, 1998 (the "8/25/98 Certificate of Determination"), the creation of the Class
A1 Preferred Stock, Class A2 Preferred Stock, Class B1 Preferred Stock, Class C1
Preferred Stock and Class D Preferred Stock has been consented to by the
Requisite Preferred Holders, the Requisite Preferred A Holders, the Requisite
Preferred B Holders, the Requisite Preferred C Holders and the Requisite Voting
Preferred Holders (as each such term is defined in the 8/25/98 Certificate of
Determination).
FOURTH: That the following resolutions designate (i) 2,500 shares of
Class A1 Preferred Stock, (ii) 5,500 shares of Class A2 Preferred Stock, (iii)
7,000 shares of Class B1 Preferred Stock, (iv) 5,000 shares of Class C1
Preferred Stock, and (v) 17,500 shares of Class D Preferred Stock, and that as
of the date hereof, no shares of Class A1 Preferred Stock, Class A2 Preferred
Stock, Class B1 Preferred Stock, Class C1 Preferred Stock or Class D Preferred
Stock have been issued.
FIFTH: 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 IV of the
Company's Articles of Incorporation, as amended, to establish and fix the number
of shares to be included in any series of Preferred Stock and the designation of
rights, preferences, privileges and restrictions of the shares of such series;
and
WHEREAS it is the desire of the Board of Directors to establish and fix
the number of shares to be included in new series of Preferred Stock and the
designation of rights, preferences privileges and restrictions of the shares of
such new series;
NOW, THEREFORE, BE IT RESOLVED that pursuant to Article IV of the
Company's Articles of Incorporation, as amended, there is hereby established the
following new series of Preferred Stock with such designations and authorized
number of shares as set forth herein: (i) 2,500 shares of Class A1 Cumulative,
Redeemable and Exchangeable Preferred Stock (the "Class A1 Preferred Stock"),
(ii) 5,500 shares of Class A2 Cumulative, Redeemable and Exchangeable Preferred
Stock (the "Class A2 Preferred Stock"), (iii) 7,000 shares of Class B1
Cumulative, Redeemable and Exchangeable Preferred Stock (the "Class B1 Preferred
Stock"), (iv) 5,000 shares of Class C1 Cumulative, Redeemable and Exchangeable
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Preferred Stock (the "Class C1 Preferred Stock") and (v) 17,500 shares of Class
D Cumulative, Redeemable and Exchangeable Preferred Stock (the "Class D
Preferred Stock"). Each share of such Class A1 Preferred Stock, Class A2
Preferred Stock, Class B1 Preferred Stock, Class C1 Preferred Stock and Class D
Preferred Stock shall have the rights, preferences, privileges and restrictions
set forth in the following Determination of Rights, Preferences, Privileges and
Restrictions of Class A1 Preferred Stock, Class B1 Preferred Stock, Class C1
Preferred Stock and Class D Preferred Stock (the "Determination of Preferred
Stock"):
A1. Class A1 Preferred Stock.
1. Definitions. As used in this subsection A1 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.
"Class A Preferred Stock" means the Class A Cumulative, Redeemable and
Exchangeable Preferred Stock of the Company.
"Class B Preferred Stock" means the Class B Cumulative, Redeemable and
Exchangeable Preferred Stock of the Company.
"Class C Preferred Stock" means the Class C Cumulative, Redeemable and
Exchangeable Preferred Stock 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.
"Dividend Reference Date" has the meaning ascribed to it in Section
A1.2(c).
"Exchange Triggering Date" means December 31, 1999.
"Liquidation" means, subject to the provisions of Section 3(b) of this
subsection A1, 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 A1.
"Maturity Date" means, with respect to any Class A1 Preferred Stock or
Notes issued in exchange for Class A1 Preferred Stock, the earliest to occur of
(i) a Maturity Default, (ii) a Change of Control or (iii) June 30, 2005 (the
"Calendar Maturity Date").
"Maturity Default" shall have the meaning set forth in Section 6(a) of
this subsection A1.
"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 A1 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 A1/A2 Holders" means, collectively, Preferred A1 Holders and
Preferred A2 Holders.
"Preferred A1 Holders" means holders of Class A1 Preferred Stock.
"Preferred A2 Holders" means holders of Class A2 Preferred Stock.
"Preferred Shareholder Agreement" shall mean the Preferred Shareholder
Agreement, dated as of February 17, 1999, between the Company and the Holder (as
defined therein).
"Preferred Stock" means, collectively, the Class A Preferred Stock,
Class B Preferred Stock, Class C Preferred Stock, Class A1 Preferred Stock,
Class A2 Preferred Stock, Class B1 Preferred Stock, Class C1 Preferred Stock,
Class D Preferred Stock and Voting 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 Price" has the meaning ascribed to it in Section A1.5(a) of
this Determination of Preferred Stock.
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"Requisite Preferred A1/A2 Holders" means the holders representing a
majority of the then outstanding shares of Class A1 Preferred Stock and Class A2
Preferred Stock voting together as a group.
"Requisite Preferred A1 Holders" means the holders representing a
majority of the then outstanding shares of Class A1 Preferred Stock.
"Requisite Preferred Holders" means the holders representing a majority
of the then outstanding shares of Class A1 Preferred Stock, Class A2 Preferred
Stock, Class B1 Preferred Stock, Class C1 Preferred Stock and Class D 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.
"Voting Preferred Stock" means the Voting Preferred Stock of the
Company.
"Warrant" has the meaning given to such term in the Purchase Agreement.
2. Dividends.
(a) The Preferred A1 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%
(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, Class C
Preferred Stock, Class A1 Preferred Stock, Class A2 Preferred Stock, Class B1
Preferred Stock, Class C1 Preferred Stock and Class D Preferred Stock (which
shall rank on a par with the Class A1 Preferred Stock) or other class or series
of stock ranking on a par with, or senior to the Class A1 Preferred Stock in
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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 A1
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 A1 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 A1 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 A1 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 A1
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 A1
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 Voting
Preferred Stock and any other class or series of stock of the Company ranking on
liquidation prior and in preference to the Class A1 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 A1
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 A1 Preferred Stock the full
amount to which they shall be entitled, the holders of shares of Class A1
Preferred Stock and the holders of shares of Class A Preferred Stock, Class B
Preferred Stock, Class C Preferred Stock, Class A2 Preferred Stock, Class B1
Preferred Stock, Class C1 Preferred Stock, Class D Preferred Stock and any other
class or series of stock ranking on liquidation on a parity with the Class A1
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
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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 A1,
unless the Requisite Preferred A1 Holders vote otherwise. The amount deemed
distributed to the holders of Class A1 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 A1 Holders shall not be entitled to vote.
(b) The Company shall not, without the affirmative consent or approval
of the Requisite Preferred A1 Holders:
(i) in any manner authorize, issue or sell any shares of Class A1
Preferred Stock other than as contemplated by the Purchase Agreement,
the Preferred Shareholder 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 A1 Preferred Stock;
(iii) amend, repeal or modify any provision of this subsection A1
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 A1 Holders.
(c) (i) The Company hereby covenants that the Requisite Preferred
A1/A2 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 A1/A2 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 nominees to the Board that
the Preferred A1/A2 Holders are then entitled to designate less the
number of such nominees as are then members of the Board.
(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
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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
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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.
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 A1 Preferred
Stock then outstanding, on the Maturity Date. The per share redemption price at
which shares of Class A1 Preferred Stock are to be redeemed pursuant to this
Section 5(a) of this subsection A1 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 A1, the Company shall have the
option to redeem a minimum of $1 million of Original Cost of Class A1 Preferred
Stock and integral multiples of $100,000 thereafter at the Liquidation Value
thereof. Any shares to be redeemed pursuant to this Section 5(c) of this
subsection A1 shall be selected for redemption at the discretion of, or in a
manner approved by, the Board. Notwithstanding any of the other provisions of
this Section 5 of this subsection A1, so long as any Preferred A1/A2 Holder
remains a Significant Holder, the Company shall not be permitted to redeem or
retire all outstanding shares of Class A1 Preferred Stock, but shall instead
allow such Significant Holder to remain the holder of one (1) share of Class A1
Preferred Stock.
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(d) On and after any date set for redemption (the "Redemption Date")
pursuant to this Section 5 of this subsection A1 (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 A1 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 A1 shall be sent by first-class certified
mail, return receipt requested, postage prepaid, to the Preferred A1 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 A1
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 A1 Preferred Stock to be redeemed.
(g) Any redemption payments by the Company pursuant to this Section 5 of
this subsection A1 shall be paid in cash.
(h) Any shares of Class A1 Preferred Stock which are redeemed or
otherwise acquired by the Company shall be canceled and shall not be reissued,
sold or transferred as Class A1 Preferred Stock and the Board shall reduce the
number of authorized shares of Class A1 Preferred Stock by the number of shares
so redeemed or otherwise acquired.
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.
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(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 A1 Holders and the Company may agree at
any time and from time to time following the Exchange Triggering Date to
exchange all or any portion of the shares of Class A1 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 A1 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 A1 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 A1 Holder an amount in cash equal to such Fractional
Principal Amount. Any and all exchange rights set forth in this Section 7 of
this subsection A1 shall be deemed to be a right of redemption subject to
Section 402 of the California Corporation Law. In the event that the Company
exercises its option to exchange any portion of the outstanding shares of Class
A1 Preferred Stock into Notes pursuant to this Section 7 of this subsection A1,
such shares to be exchanged shall be selected for exchange at the discretion of,
or in a manner approved by, the Board. Notwithstanding any of the other
provisions of this Section 7 of this subsection A1, so long as any Preferred A1
Holder remains a Significant Holder, the Company shall not be permitted to
exchange all outstanding shares of Class A1 Preferred Stock, but shall instead
allow such Significant Holder to remain the holder of one (1) share of Class A1
Preferred Stock.
(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 A1 Preferred Stock will
receive Notes in the amount set forth in Section 7(a) of this subsection A1
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 A1. 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 A1
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.
A2. Class A2 Preferred Stock.
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1. Definitions. As used in this subsection A2 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.
"Class A Preferred Stock" means the Class A Cumulative, Redeemable and
Exchangeable Preferred Stock of the Company.
"Class B Preferred Stock" means the Class B Cumulative, Redeemable and
Exchangeable Preferred Stock of the Company.
"Class C Preferred Stock" means the Class C Cumulative, Redeemable and
Exchangeable Preferred Stock 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.
"Dividend Reference Date" has the meaning ascribed to it in Section
A2.2(c).
"Exchange Triggering Date" means December 31, 1999.
"Liquidation" means, subject to the provisions of Section 3(b) of this
subsection A2, 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 A2.
"Maturity Date" means, with respect to any Class A2 Preferred Stock or
Notes issued in exchange for Class A2 Preferred Stock, the earliest to occur of
(i) a Maturity Default, (ii) a Change of Control or (iii) June 30, 2005 (the
"Calendar Maturity Date").
"Maturity Default" shall have the meaning set forth in Section 6(a) of
this subsection A2.
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"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 A2 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 A1/A2 Holders" means, collectively, Preferred A1 Holders and
Preferred A2 Holders.
"Preferred A1 Holders" means holders of Class A1 Preferred Stock.
"Preferred A2 Holders" means holders of Class A2 Preferred Stock.
"Preferred Shareholder Agreement" shall mean the Preferred Shareholder
Agreement, dated as of February 17, 1999, between the Company and the Holder (as
defined therein).
"Preferred Stock" means, collectively, the Class A Preferred Stock,
Class B Preferred Stock, Class C Preferred Stock, Class A1 Preferred Stock,
Class A2 Preferred Stock, Class B1 Preferred Stock, Class C1 Preferred Stock,
Class D Preferred Stock and Voting 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 Price" has the meaning ascribed to it in Section A2.5(a) of
this Determination of Preferred Stock.
"Requisite Preferred A1/A2 Holders" means the holders representing a
majority of the then outstanding shares of Class A1 Preferred Stock and Class A2
Preferred Stock voting together as a group.
"Requisite Preferred A2 Holders" means the holders representing a
majority of the then outstanding shares of Class A2 Preferred Stock.
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"Requisite Preferred Holders" means the holders representing a majority
of the then outstanding shares of Class A1 Preferred Stock, Class A2 Preferred
Stock, Class B1 Preferred Stock, Class C1 Preferred Stock and Class D 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.
"Voting Preferred Stock" means the Voting Preferred Stock of the
Company.
"Warrant" has the meaning given to such term in the Purchase Agreement.
2. Dividends.
(a) The Preferred A2 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%
(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, Class C
Preferred Stock, Class A1 Preferred Stock, Class A2 Preferred Stock, Class B1
Preferred Stock, Class C1 Preferred Stock and Class D Preferred Stock (which
shall rank on a par with the Class A2 Preferred Stock) or other class or series
of stock ranking on a par with, or senior to the Class A2 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 A2
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 A2 Preferred Stock shall not have been paid, or declared
and set apart for payment, the deficiency
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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 A2 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 A2 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 A2
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 A2
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 Voting
Preferred Stock and any other class or series of stock of the Company ranking on
liquidation prior and in preference to the Class A2 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 A2
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 A2 Preferred Stock the full
amount to which they shall be entitled, the holders of shares of Class A2
Preferred Stock and the holders of shares of Class A Preferred Stock, Class B
Preferred Stock, Class C Preferred Stock, Class A1 Preferred Stock, Class B1
Preferred Stock, Class C1 Preferred Stock, Class D Preferred Stock and any other
class or series of stock ranking on liquidation on a parity with the Class A2
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 A2, unless the Requisite Preferred
A2 Holders vote otherwise. The amount deemed distributed to the holders of Class
A2 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.
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4. Voting Rights.
(a) Except as required by law and pursuant to paragraphs (b), (c) and
(d) below, the Preferred A2 Holders shall not be entitled to vote.
(b) The Company shall not, without the affirmative consent or approval
of the Requisite Preferred A2 Holders:
(i) in any manner authorize, issue or sell any shares of Class A2
Preferred Stock other than as contemplated by the Purchase Agreement,
the Preferred Shareholder 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 A2 Preferred Stock;
(iii) amend, repeal or modify any provision of this subsection A2
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 A2 Holders.
(c) (i) The Company hereby covenants that the Requisite Preferred
A1/A2 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 A1/A2 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 nominees to the Board that
the Preferred A1/A2 Holders are then entitled to designate less the
number of such nominees as are then members of the Board.
(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;
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(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.
5 Redemption.
(a) Subject to the Company having funds legally available for such
purpose, the Company, on the Maturity Date, shall have the option of redeeming
all the shares of outstanding Class A2 Preferred Stock for cash as described in
Section 5(d)-(h) below. If the Company does not redeem such shares on the
Maturity Date, the Company shall pay full cumulative dividends (including,
without duplication, full cumulative dividends pro rata for the elapsed portion
of the current dividend period) on the Class A2 Preferred Stock to the Maturity
Date and, immediately thereafter, each share of Class A2 Preferred Stock shall
automatically be converted into one share of Class D Preferred Stock. The per
share redemption price at which shares of Class A2 Preferred Stock are to be
redeemed pursuant to this Section 5(a) of this subsection A2 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 obligations as set forth in Sections
5(a) and (b) of this subsection A2, the Company shall have the option to redeem
a minimum of $1 million of Original Cost of Class A2 Preferred Stock and
integral multiples of $100,000 thereafter at the Liquidation Value thereof. Any
shares to be redeemed pursuant to this Section 5(c) of this subsection A2 shall
be selected for redemption at the discretion of, or in a manner approved by, the
Board. Notwithstanding any of the other provisions of this Section 5 of this
subsection A2, so long as any Preferred A1/A2 Holder remains a Significant
Holder, the Company shall not be permitted to redeem or retire all outstanding
shares of Class A2 Preferred Stock, but shall instead allow such Significant
Holder to remain the holder of one (1) share of Class A2 Preferred Stock.
(d) On and after any date set for redemption (the "Redemption Date")
pursuant to this Section 5 of this subsection A2 (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 A2 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
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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 A2 shall be sent by first-class certified
mail, return receipt requested, postage prepaid, to the Preferred A2 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 A2
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 A2 Preferred Stock to be redeemed.
(g) Any redemption payments by the Company pursuant to this Section 5 of
this subsection A2 shall be paid in cash.
(h) Any shares of Class A2 Preferred Stock which are redeemed or
otherwise acquired by the Company shall be canceled and shall not be reissued,
sold or transferred as Class A2 Preferred Stock and the Board shall reduce the
number of authorized shares of Class A2 Preferred Stock by the number of shares
so redeemed or otherwise required.
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.
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(a) Subject to the requirements of Section 500 of the California
Corporation Law, the Requisite Preferred A2 Holders and the Company may agree at
any time and from time to time following the Exchange Triggering Date to
exchange all or any portion of the shares of Class A2 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 A2 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 A2 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 A2 Holder an amount in cash equal to such Fractional
Principal Amount. Any and all exchange rights set forth in this Section 7 of
this subsection A2 shall be deemed to be a right of redemption subject to
Section 402 of the California Corporation Law. In the event that the Company
exercises its option to exchange any portion of the outstanding shares of Class
A2 Preferred Stock into Notes pursuant to this Section 7 of this subsection A2,
such shares to be exchanged shall be selected for exchange at the discretion of,
or in a manner approved by, the Board. Notwithstanding any of the other
provisions of this Section 7 of this subsection A2, so long as any Preferred A2
Holder remains a Significant Holder, the Company shall not be permitted to
exchange all outstanding shares of Class A2 Preferred Stock, but shall instead
allow such Significant Holder to remain the holder of one (1) share of Class A2
Preferred Stock.
(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 A2 Preferred Stock will
receive Notes in the amount set forth in Section 7(a) of this subsection A2
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 A2. 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 A2
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.
B1 Class B1 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:
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"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.
"Class A Preferred Stock" means the Class A Cumulative, Redeemable and
Exchangeable Preferred Stock of the Company.
"Class B Preferred Stock" means the Class B Cumulative, Redeemable and
Exchangeable Preferred Stock of the Company.
"Class C Preferred Stock" means the Class C Cumulative, Redeemable and
Exchangeable Preferred Stock 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.
"Dividend Reference Date" has the meaning ascribed to it in Section
B.2(c).
"Exchange Triggering Date" means December 31, 1999.
"Liquidation" means, subject to the provisions of Section 3(b) 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 B1 Preferred Stock or
Notes issued in exchange for Class B1 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 B1 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 B1 Preferred
Stock, $1,000.
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"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 B1 Holders" means holders of Class B1 Preferred Stock.
"Preferred Shareholder Agreement" shall mean the Preferred Shareholder
Agreement, dated as of February 17, 1999, between the Company and the Holder (as
defined therein).
"Preferred Stock" means, collectively, the Class A Preferred Stock,
Class B Preferred Stock, Class C Preferred Stock, Class A1 Preferred Stock,
Class A2 Preferred Stock, Class B1 Preferred Stock, Class C1 Preferred Stock,
Class D Preferred Stock and Voting 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 Price" has the meaning ascribed to it in Section B.5(a) of
this Determination of Preferred Stock.
"Requisite Preferred B1 Holders" means the holders representing a
majority of the then outstanding shares of Class B1 Preferred Stock.
"Requisite Preferred Holders" means the holders representing a majority
of the then outstanding shares of Class A1 Preferred Stock, Class A2 Preferred
Stock, Class B1 Preferred Stock, Class C1 Preferred Stock and Class D 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.
"Voting Preferred Stock" means the Voting Preferred Stock of the
Company.
"Warrant" has the meaning given to such term in the Purchase Agreement.
2 Dividends.
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(a) The Preferred B1 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%
(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, Class C
Preferred Stock, Class A1 Preferred Stock, Class A2 Preferred Stock, Class B1
Preferred Stock, Class C1 Preferred Stock and Class D Preferred Stock (which
shall rank on a par with the Class B1 Preferred Stock) or other class or series
of stock ranking on a par with, or senior to the Class B1 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 B1
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 B1 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 B1 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 B1 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 B1
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.
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3 Liquidation.
(a) In the event of any Liquidation of the Company, the Preferred B1
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 Voting
Preferred Stock and any other class or series of stock of the Company ranking on
liquidation prior and in preference to the Class B1 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 B1
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 B1 Preferred Stock the full
amount to which they shall be entitled, the holders of shares of Class B1
Preferred Stock and the holders of shares of Class A Preferred Stock, Class B
Preferred Stock, Class C Preferred Stock, Class A1 Preferred Stock, Class A2
Preferred Stock, Class C1 Preferred Stock, Class D Preferred Stock and any other
class or series of stock ranking on liquidation on a parity with the Class B1
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 the Requisite Preferred
B1 Holders vote otherwise. The amount deemed distributed to the holders of Class
B1 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 B1 Holders shall not be entitled to vote.
(b) The Company shall not, without the affirmative consent or approval
of the Requisite Preferred B1 Holders:
(i) in any manner authorize, issue or sell any shares of Class B1
Preferred Stock other than as contemplated by the Purchase Agreement,
the Preferred Shareholder Agreement or this Determination of Preferred
Stock;
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(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 B1 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 B1 Holders.
(c) (i) The Company hereby covenants that the Requisite Preferred B1
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 B1 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 nominees to the Board that the Preferred
B1 Holders are then entitled to designate less the number of such
nominees as are then members of the Board.
(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;
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(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.
5 Redemption.
(a) Subject to the Company having funds legally available for such
purpose, the Company, on the Maturity Date, shall have the option of redeeming
all the shares of outstanding Class B1 Preferred Stock for cash as described in
Section 5(d)-(h) below. If the Company does not redeem such shares on
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the Maturity Date, the Company shall pay full cumulative dividends (including,
without duplication, full cumulative dividends pro rata for the elapsed portion
of the current dividend period) on the Class B1 Preferred Stock to the Maturity
Date and, immediately thereafter, each share of Class B1 Preferred Stock shall
automatically be converted into one share of Class D Preferred Stock. The per
share redemption price at which shares of Class B1 Preferred Stock are to be
redeemed pursuant to this Section 5(a) of this subsection B1 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 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 B1 Preferred Stock and integral
multiples of $100,000 thereafter at the Liquidation Value thereof. Any shares to
be redeemed pursuant to this Section 5(c) of this subsection B shall be selected
for redemption at the discretion of, or in a manner approved by, the Board.
Notwithstanding any of the other provisions of this Section 5 of this subsection
B, so long as any Preferred B1 Holder remains a Significant Holder, the Company
shall not be permitted to redeem or retire all outstanding shares of Class B1
Preferred Stock, but shall instead allow such Significant Holder to remain the
holder of one (1) share of Class B1 Preferred Stock.
(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 B1 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 B1 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 B1
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 B1 Preferred Stock to be redeemed.
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(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 B1 Preferred Stock which are redeemed or
otherwise acquired by the Company shall be canceled and shall not be reissued,
sold or transferred as Class B1 Preferred Stock and the Board shall reduce the
number of authorized shares of Class B1 Preferred stock by the number of shares
so redeemed or otherwise acquired.
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 B1 Holders and the Company may agree at
any time and from time to time following the Exchange Triggering Date to
exchange all or any portion of the shares of Class B1 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 B1 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 B1 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
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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 B1 Holder an amount in cash equal to such Fractional Principal
Amount. Any and all exchange rights set forth in this Section 7 of this
subsection B shall be deemed to be a right of redemption subject to Section 402
of the California Corporation Law. In the event that the Company exercises its
option to exchange any portion of the outstanding shares of Class B1 Preferred
Stock into Notes pursuant to this Section 7 of this subsection B, such shares to
be exchanged shall be selected for exchange at the discretion of, or in a manner
approved by, the Board. Notwithstanding any of the other provisions of this
Section 7 of this subsection B, so long as any Preferred B1 Holder remains a
Significant Holder, the Company shall not be permitted to exchange all
outstanding shares of Class B1 Preferred Stock, but shall instead allow such
Significant Holder to remain the holder of one (1) share of Class B1 Preferred
Stock.
(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 B1 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 B1 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.
C1 Class C1 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.
"Class A Preferred Stock" means the Class A Cumulative, Redeemable and
Exchangeable Preferred Stock of the Company.
"Class B Preferred Stock" means the Class B Cumulative, Redeemable and
Exchangeable Preferred Stock of the Company.
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"Class C Preferred Stock" means the Class C Cumulative, Redeemable and
Exchangeable Preferred Stock 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.
"Dividend Reference Date" has the meaning ascribed to it in Section
C.2(c).
"Exchange Triggering Date" means December 31, 1999.
"Liquidation" means, subject to the provisions of Section 3(b) of this
subsection C, 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 C.
"Maturity Date" means, with respect to any Class C1 Preferred Stock or
Notes issued in exchange for Class C1 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 C1 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 C1 Holders" means holders of Class C1 Preferred Stock.
"Preferred Shareholder Agreement" shall mean the Preferred Shareholder
Agreement, dated as of February 17, 1999, between the Company and the Holder (as
defined therein).
"Preferred Stock" means, collectively, the Class A Preferred Stock,
Class B Preferred Stock, Class C Preferred Stock, Class A1 Preferred Stock,
Class A2 Preferred Stock, Class B1 Preferred Stock, Class C1 Preferred Stock,
Class D Preferred Stock and Voting Preferred Stock.
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"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 Price" has the meaning ascribed to it in Section C.5(a) of
this Determination of Preferred Stock.
"Requisite Preferred C1 Holders" means the holders of a majority of the
then outstanding shares of Class C1 Preferred Stock.
"Requisite Preferred Holders" means the holders representing a majority
of the then outstanding shares of Class A1 Preferred Stock, Class A2 Preferred
Stock, Class B1 Preferred Stock, Class C1 Preferred Stock and Class D 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.
"Voting Preferred Stock" means the Voting Preferred Stock of the
Company.
"Warrant" has the meaning given to such term in the Purchase Agreement.
2 Dividends.
(a) The Preferred C1 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 A Preferred Stock, Class B Preferred Stock, Class C
Preferred Stock, Class A1 Preferred Stock, Class A2 Preferred Stock, Class B1
Preferred Stock, Class C1 Preferred Stock and Class D Preferred Stock (which
shall rank on a par with the Class C1 Preferred Stock) or other class or series
of stock ranking on a par with, or senior to the Class C1 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 C1
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 C1 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 C1 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 C1 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 C1
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 C1
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 Voting
Preferred Stock and any other class or series of stock of the Company ranking on
liquidation prior and in preference to the Class C1 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 C1
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 C1 Preferred Stock the full
amount to which they shall be entitled, the holders of shares of Class C1
Preferred Stock and the holders of shares of Class A Preferred Stock, Class B
Preferred Stock, Class C Preferred Stock, Class A1 Preferred Stock, Class A2
Preferred Stock, Class B1 Preferred Stock, Class D Preferred Stock and any
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other class or series of stock ranking on liquidation on a parity with the Class
C1 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 the Requisite Preferred
C1 Holders vote otherwise. The amount deemed distributed to the holders of Class
C1 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 C1 Holders shall not be entitled to vote.
(b) The Company shall not, without the affirmative consent or approval
of the Requisite Preferred C1 Holders:
(i) in any manner authorize, issue or sell any shares of Class C1
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
C1 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 C1 Holders.
(c) (i) The Company hereby covenants that the Requisite Preferred C1
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 C1 Holders specifying the names of such
Observers. The number of Observers shall at
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all times and from time to time be equal to that number of nominees to
the Board that the Preferred C1 Holders are then entitled to designate
less the number of such nominees as are then members of the Board.
(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;
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(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.
5. Redemption.
(a) Subject to the Company having funds legally available for such
purpose, the Company, on the Maturity Date shall have the option of redeeming
all the shares of outstanding Class C1 Preferred Stock for cash as described in
Section 5(d)-(h) below. If the Company does not redeem such shares on the
Maturity Date, the Company shall pay full cumulative dividends (including,
without duplication, full cumulative dividends pro rata for the elapsed portion
of the current dividend period) on the Class C1 Preferred Stock to the Maturity
Date and, immediately thereafter, each share of Class C1 Preferred Stock shall
automatically be converted into one share of Class D Preferred Stock. The per
share redemption price at which shares of Class C1 Preferred Stock are to be
redeemed pursuant to this Section 5(a) of this subsection C1 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.
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(c) In addition to the Company's 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 C1 Preferred Stock and
integral multiples of $100,000 thereafter at the Liquidation Value thereof. Any
shares to be redeemed pursuant to this Section 5(c) of this subsection C shall
be selected for redemption at the discretion of, or in a manner approved by, the
Board. Notwithstanding any of the other provisions of this Section 5 of this
subsection C, so long as any Preferred C1 Holder remains a Significant Holder,
the Company shall not be permitted to redeem or retire all outstanding shares of
Class C1 Preferred Stock, but shall instead allow such Significant Holder to
remain the holder of one (1) share of Class C1 Preferred Stock.
(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 C1 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 C shall be sent by first-class certified
mail, return receipt requested, postage prepaid, to the Preferred C1 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 C1
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 C1 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 C1 Preferred Stock which are redeemed or
otherwise acquired by the Company shall be canceled and shall not be reissued,
sold or transferred as Class C1 Preferred Stock and the Board shall reduce the
number of authorized shares of Class C1 Preferred Stock by the number of shares
so redeemed or otherwise acquired.
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;
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(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 Corporation
Law, the Requisite Preferred C1 Holders and the Company may agree at any time
and from time to time following the Exchange Triggering Date to exchange all or
any portion of the shares of Class C1 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
C1 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 C1 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 C1 Holder an amount in cash equal to the Fractional Principal
Amount. Any and all exchange rights set forth in this Section 7 of this
subsection C shall be deemed to be a right of redemption subject to Section 402
of the California Corporation Law. In the event that the Company exercises its
option to exchange any portion of the outstanding shares of Class C1 Preferred
Stock into Notes pursuant to this Section 7 of this subsection C, such shares to
be exchanged shall be selected for exchange at the discretion of, or in a manner
approved by, the Board. Notwithstanding any of the other provisions of this
Section 7 of this subsection C, so long as any Preferred C1 Holder remains a
Significant Holder, the Company shall not be permitted to exchange all
outstanding shares of Class C1 Preferred Stock, but shall instead allow such
Significant Holder to remain the holder of one (1) share of Class C1 Preferred
Stock.
(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 C1 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
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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 C1 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.
D. Class D 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:
"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.
"Class A Preferred Stock" means the Class A Cumulative, Redeemable and
Exchangeable Preferred Stock of the Company.
"Class B Preferred Stock" means the Class B Cumulative, Redeemable and
Exchangeable Preferred Stock of the Company.
"Class C Preferred Stock" means the Class C Cumulative, Redeemable and
Exchangeable Preferred Stock 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.
"Dividend Reference Date" has the meaning ascribed to it in Section
D.2(c).
"Exchange Triggering Date" means December 31, 1999.
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"Liquidation" means, subject to the provisions of Section 3(b) of this
subsection D, 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 D.
"Maturity Date" means, with respect to any Class D Preferred Stock or
Notes issued in exchange for Class D Preferred Stock, the earliest to occur of
(i) a Maturity Default, (ii) a Change of Control or (iii) June 30, 2005 (the
"Calendar Maturity Date").
"Maturity Default" shall have the meaning set forth in Section 6(a) of
this subsection D.
"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 D 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 D Holders" means holders of Class D Preferred Stock.
"Preferred Stock" means, collectively, the Class A Preferred Stock,
Class B Preferred Stock, Class C Preferred Stock, Class A1 Preferred Stock,
Class A2 Preferred Stock, Class B1 Preferred Stock, Class C1 Preferred Stock,
Class D Preferred Stock and Voting 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, the Rate per Annum for
the applicable period shall be increased by 500 basis points (e.g., a 40.0% Rate
per Annum would be increased to a 45% Rate per Annum) until such dividends are
paid in full in cash.
"Redemption Price" has the meaning ascribed to it in Section D.5(b) of
this Determination of Preferred Stock.
"Requisite Preferred D Holders" means the holders representing a
majority of the then outstanding shares of Class D Preferred Stock.
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"Requisite Preferred Holders" means the holders representing a majority
of the then outstanding shares of Class A1 Preferred Stock, Class A2 Preferred
Stock, Class B1 Preferred Stock, Class C1 Preferred Stock and Class D 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.
"Voting Preferred Stock" means the Voting Preferred Stock of the
Company.
"Warrant" has the meaning given to such term in the Purchase Agreement.
2. Dividends.
(a) The Preferred D Holders shall be entitled to receive, out of funds
legally available therefor, cumulative dividends on the Liquidation Value at the
Rate per Annum of 40.0% (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, Class C Preferred Stock, Class D Preferred Stock, Class
A1 Preferred Stock, Class A2 Preferred Stock, Class B1 Preferred Stock and Class
C1 Preferred Stock (which shall rank on a par with the Class D Preferred Stock)
or other class or series of stock ranking on a par with, or senior to the Class
D 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 D
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 D 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 D 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 D 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 D
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.
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3. Liquidation.
(a) In the event of any Liquidation of the Company, the Preferred D
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 Voting
Preferred Stock and any other class or series of stock of the Company ranking on
liquidation prior and in preference to the Class D 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 D 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 D Preferred Stock the full amount to which they shall be
entitled, the holders of shares of Class D Preferred Stock and the holders of
shares of Class A Preferred Stock, Class B Preferred Stock, Class C Preferred
Stock, Class A1 Preferred Stock, Class A2 Preferred Stock, Class B1 Preferred
Stock, Class C1 Preferred Stock and any other class or series of stock ranking
on liquidation on a parity with the Class D 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 D, unless the Requisite Preferred
D Holders vote otherwise. The amount deemed distributed to the holders of Class
D 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 D Holders shall not be entitled to vote.
(b) The Company shall not, without the affirmative consent or approval
of the Requisite Preferred D Holders:
(i) in any manner authorize, issue or sell any shares of Class D
Preferred Stock other than as contemplated by the Purchase Agreement or
this Determination of Preferred Stock;
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(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 D Preferred Stock;
(iii) amend, repeal or modify any provision of this subsection D
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 D Holders.
(c) (i) The Company hereby covenants that the Requisite Preferred D
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 D 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 nominees to the Board that the Preferred
D Holders are then entitled to designate less the number of such
nominees as are then members of the Board.
(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;
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(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.
5. Redemption.
(a) [Intentionally Deleted.]
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(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.
The per share redemption price at which shares of Class D Preferred Stock are to
be redeemed pursuant to this Section 5(b) of this subsection D shall be equal to
the Liquidation Value (the "Redemption Price").
(c) In addition to the Company's mandatory redemption obligations as
set forth in Section 5(b) of this subsection D, the Company shall have the
option to redeem a minimum of $1 million of Original Cost of Class D Preferred
Stock and integral multiples of $100,000 thereafter at the Liquidation Value
thereof. Any shares to be redeemed pursuant to this Section 5(c) of this
subsection D shall be selected for redemption at the discretion of, or in a
manner approved by, the Board. Notwithstanding any of the other provisions of
this Section 5 of this subsection D, so long as any Preferred D Holder remains a
Significant Holder, the Company shall not be permitted to redeem or retire all
outstanding shares of Class D Preferred Stock, but shall instead allow such
Significant Holder to remain the holder of one (1) share of Class D Preferred
Stock.
(d) On and after any date set for redemption (the "Redemption Date")
pursuant to this Section 5 of this subsection D (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 D 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 D shall be sent by first-class certified mail,
return receipt requested, postage prepaid, to the Preferred D 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 D 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 D
Preferred Stock to be redeemed.
(g) Any redemption payments by the Company pursuant to this Section 5 of
this subsection D shall be paid in cash.
(h) Any shares of Class D Preferred Stock which are redeemed or
otherwise acquired by the Company shall be canceled and shall not be reissued,
sold or transferred as Class D Preferred Stock and
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the Board shall reduce the number of authorized shares of Class D Preferred
Stock by the number of shares so redeemed or otherwise acquired.
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 D Holders and the Company may agree at
any time and from time to time following the Exchange Triggering Date to
exchange all or any portion of the shares of Class D 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 D 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 D 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 D Holder an amount in cash equal to such Fractional
Principal Amount. Any and all exchange rights set forth in this Section 7 of
this subsection D shall be deemed to be a right of redemption subject to Section
402 of the California Corporation Law. In the event that the Company exercises
its option to exchange any portion
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of the outstanding shares of Class D Preferred Stock into Notes pursuant to this
Section 7 of this subsection D, such shares to be exchanged shall be selected
for exchange at the discretion of, or in a manner approved by, the Board.
Notwithstanding any of the other provisions of this Section 7 of this subsection
D, so long as any Preferred D Holder remains a Significant Holder, the Company
shall not be permitted to exchange all outstanding shares of Class D Preferred
Stock, but shall instead allow such Significant Holder to remain the holder of
one (1) share of Class D Preferred Stock.
(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 D Preferred Stock will receive
Notes in the amount set forth in Section 7(a) of this subsection D 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
D. 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 D 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.
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Douglas J. Tullio
President
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Jeffrey J. Dunnigan
Secretary
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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 February __,
1999.
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Douglas J. Tullio
President
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Jeffrey J. Dunnigan
Secretary
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