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Exhibit 10.52
AMENDMENT NO. 3 TO SECURITIES PURCHASE AGREEMENT
AMENDMENT NO. 3 TO SECURITIES PURCHASE AGREEMENT, dated as of November
18, 1999 (this "Amendment") to that certain Securities Purchase Agreement dated
as of August 7, 1998 (as the same has been amended by Amendment No. 1 dated
February, 1999 and Amendment No. 2 dated June 28, 1999, the "Purchase
Agreement") between ALPHA MICROSYSTEMS, a California corporation doing business
as AlphaServ.com (the "Company"), and HAMPSHIRE EQUITY PARTNERS II, L.P. (f/k/a
ING Equity Partners II, L.P.), a Delaware limited partnership (the "Purchaser"),
is made by and between the Company and the Purchaser.
WHEREAS, at the First Closing and the Second Closing under the Purchase
Agreement, the Purchaser invested an aggregate $15.0 million to purchase certain
classes of Preferred Stock and Warrants of the Company;
WHEREAS, the Purchase Agreement contemplates a Third Closing, to occur
at the option of the Company, at which the Purchaser would, subject to the terms
and conditions of the Purchase Agreement, invest up to an additional $5.0
million to purchase Class C1 Preferred Stock and the Third Closing Warrants,
with the proceeds of such investment to be applied by the Company to certain
designated uses; and
WHEREAS, the Company desires to exercise such option and issue, and the
Purchaser desires to purchase, the Class C1 Preferred Stock and the Third
Closing Warrants, subject to the terms and conditions of the Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
and obligations hereinafter set forth, the Company and the Purchaser hereby
agree as follows:
SECTION 1. Definitions. Capitalized terms used but not otherwise
defined herein shall have the meaning given to them in the Purchase Agreement
or, if not defined therein, in the Company's Certificate of Incorporation.
SECTION 2. Amendments to Purchase Agreement. The Purchase Agreement is
hereby amended as of the date hereof as follows:
(a) Section 1.1 is amended to add the following definitions:
"Class E Certificate of Determination" means the
Certificate of Determination of Rights and Preferences
attached hereto as Exhibit A-2.
"Class E Preferred Stock" means the Class E
Cumulative, Redeemable and Exchangeable Preferred Stock, no
par value, of the Company, having the
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rights, preferences, privileges and restrictions set forth in
the Class E Certificate of Determination.
(b) Section 1.1 is further amended to amend and restate the following
definition:
"Preferred Stock" means, collectively, the Class A
Preferred Stock, the Class B Preferred Stock, the Class C
Preferred Stock, any Voting Preferred Stock, the Class A1
Preferred Stock, the Class A2 Preferred Stock, the Class B1
Preferred Stock, the Class C1 Preferred Stock, the Class D
Preferred Stock and the Class E Preferred Stock.
(c) Section 2.1(c) is amended and restated in its entirety as follows:
(c) The third closing (the "Third Closing") hereunder
in respect of the issuance and sale of the Class C1 Preferred
Stock being purchased by the Investor at the Third Closing
will occur at the option of the Company, and subject to the
satisfaction or waiver of the applicable terms and conditions
set forth herein, take place at the offices of Mayer, Brown &
Platt in New York, New York on November 18, 1999, or such
other date agreed upon by the Investor and the Company (the
"Third Closing Date"); provided, that the Third Closing Date
shall be within five Business Days after all conditions of the
Investor and the Company to the Third Closing have been
satisfied or waived, but in any case the Third Closing Date
shall occur, if at all, on or before June 30, 2000.
Notwithstanding anything to the contrary contained in the New
Certificate relating to the Class A1 Preferred Stock, Class A2
Preferred Stock, Class B1 Preferred Stock, Class C1 Preferred
Stock and Class D Preferred Stock, upon the filing of the
Class E Certificate of Determination with the California
Secretary of State, the Company shall have the option,
exercisable in its sole discretion, of paying dividends on the
Class A1 Preferred Stock, Class A2 Preferred Stock, Class B1
Preferred Stock and Class C1 Preferred Stock either (x) in
cash or (y) in shares of validly issued, fully-paid and
nonassessable Class E Preferred Stock at a rate of one share
per each integral multiple of $1,000 of dividends payable,
with any remaining fractional dividend amount to be paid in
cash.
(d) Section 2.2(c) is amended and restated in its entirety as follows:
(c) The proceeds received by the Company from the
sale of the Class C1 Preferred Stock to the Investor shall be
used by the Company solely (i) to repay up to $2,500,000.00 of
Indebtedness that is outstanding under the Credit Agreement,
dated June 9, 1998, between the Company and Imperial Bank (the
"Credit Agreement"), (ii) to fund the separation of the
Company's AlphaCONNECT business from its IT Service business,
(iii) to pay fees and expenses incurred in connection with the
consummation of the Third Closing and (iv) for general
corporate purposes.
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(e) The current Section 5.4(b) is deleted in its entirety and the
following is substituted in its place:
(b) Opinion of Counsel. Allen, Matkins, Leck Gamble &
Mallory, counsel to the Company, shall have delivered its
opinion to the Investor, dated as of the Third Closing Date,
in a form reasonably acceptable to the Investor.
(f) The current Section 5.4(c) is deleted in its entirety and the
following is substituted in its place:
(c) Performance. [Intentionally Deleted].
(g) The following is added to the Purchase Agreement as Section 7.7
thereof:
7.7 Filing of Class E Certificate of Determination.
The Company shall use its best efforts to file or cause to be
filed the Series E Certificate of Determination with the
Secretary of State of the State of California as promptly as
is practicable.
(h) The following is added to the Purchase Agreement as Section 7.8
thereof:
7.8 Exchange of Series E Preferred Stock. A holder of
shares of Series E Preferred Stock shall have the right, at
any time, to surrender any or all such shares to the Company
and receive in exchange therefor the number of duly
authorized, validly issued, fully paid and nonassessable
shares of Common Stock that equal (x) the aggregate
Liquidation Value of the shares of Series E Preferred Stock
being surrendered, divided by (y) Two Dollars and Fifty Cents
($2.50).
(i) The Class E Certificate of Determination (a copy of which is
attached as Exhibit A to this Amendment) is added to the Purchase Agreement as
Exhibit A-2 thereof.
(j) The Warrant Schedule attached as Exhibit C-1 to the Purchase
Agreement is hereby amended such that (i) the Series E Common Stock Warrant's
"Intended Percentage" is changed from 8.50% to 8.29487% and its "Initial
Exercise Amount" is changed from 1,750,725 to 1,720,737 as of the Third Closing,
and (ii) the Series F Common Stock Warrant's "Intended Percentage" is changed
from 1.00% to 1.20513% and its "Initial Exercise Amount" is changed from 205,968
to 250,000 as of the Third Closing.
SECTION 3. Warrant Shares as of the Third Closing Date. The Company and
Equity Partners hereby acknowledge and agree that each outstanding Common Stock
Warrant issued by the Company to Equity Partners pursuant to the Purchase
Agreement, after applying the terms and conditions of such Warrant, including
any adjustments determined in accordance with the Warrant Schedule, is
exercisable as of the Third Closing Date for the number of shares of Common
Stock indicated below:
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(a) The Restated Series A Warrant is exercisable for 3,630,300 shares;
(b) The Restated Series B Warrant is exercisable for 207,446 shares;
(c) The Series C Warrant is exercisable for 2,800,517 shares;
(d) The Series D Warrant is exercisable for 207,446 shares;
(e) The Series E Warrant is exercisable for 1,720,737 shares; and
(f) the Series F Warrant is exercisable for 250,000 shares.
This Section 3 shall in no way mitigate the responsibility or Liability of the
Company for any breach of the representations and warranties made by it in the
Purchase Agreement, on which Equity Partners is relying in full in connection
with the calculation of the foregoing share amounts.
SECTION 4. Credit Agreement. Solely with respect to, and to the extent
that, any event of default under the Credit Agreement has been disclosed in
writing to the Investor prior to the date of this Amendment, the Investor hereby
waives the application of Section 5.4(d) as a condition precedent to its
obligation to purchase the Class C1 Preferred Stock.
SECTION 5. No Implied Amendments. Except as herein amended, the
Purchase Agreement shall remain in full force and effect and is ratified in all
respects. On and after the effectiveness of this Amendment, each reference in
the Purchase Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import, and each reference to the Purchase Agreement in any other
agreements, documents or instruments executed and delivered pursuant to the
Purchase Agreement, shall mean and be a reference to the Purchase Agreement, as
amended by this Amendment.
SECTION 6. Costs and Expenses. The Company confirms the Company's
agreement to pay all reasonable fees, expenses and costs of Equity Partners for
the negotiation, preparation, execution and delivery of this Amendment and
amendments, as necessary, to the other Purchase Documents, in connection with
this Amendment (including the reasonable fees, expenses and disbursements of
Equity Partners' counsel) all as provided for in Section 8.1 of the Purchase
Agreement. Equity Partners shall notify the Company to the extent that such
fees, expenses and costs exceed $100,000.
SECTION 7. Effective Date. This Amendment shall be effective as of the
date hereof.
SECTION 8. Counterparts. This Amendment may be executed by the parties
hereto in several counterparts, each of which shall be executed by the Company
and the Purchaser and be deemed to be an original and all of which shall
constitute together but one and the same agreement.
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IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above-written.
ALPHA MICROSYSTEMS
By: /s/ Douglas J. Tullio
------------------------------------
Name: Douglas J. Tullio
Title: President and Chief Executive
Officer
HAMPSHIRE EQUITY PARTNERS II, L.P.
By: LEXINGTON EQUITY PARTNERS II, L.P.,
its General Partner
By: LEXINGTON EQUITY PARTNERS, INC.,
Its General Partner
By: /s/ Benjamin P. Giess
------------------------------------
Name: Benjamin P. Giess
Title: Authorized Signatory
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Exhibit A-2
CERTIFICATE OF
DETERMINATION OF RIGHTS AND PREFERENCES
OF
CLASS E 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 Richard E. Mahmarian 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 Class E Cumulative Redeemable and Exchangeable Preferred Stock
(the "Class E Preferred Stock").
THIRD: That, as required by subsection A, subsection B, subsection C
and subsection D 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 E 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).
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FOURTH: That, as required by subsection A1, subsection A2, subsection
B1, subsection C1 and subsection D of the 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 the Company, as filed with the California
Secretary of State on February 22, 1999 (the "2/22/99 Certificate of
Determination"), the creation of the Class E Preferred Stock has been consented
to by the Requisite Preferred Holders, the Requisite Preferred A1 Holders, the
Requisite Preferred A2 Holders, the Requisite Preferred A1/A2 Holders, the
Requisite Preferred B Holders, the Requisite Preferred C Holders and the
Requisite Preferred D Holders (as each such term is defined in the 2/22/99
Certificate of Determination).
FIFTH: That the following resolutions designate12,000 shares of Class E
Preferred Stock, and that as of the date hereof, no shares of Class A Preferred
Stock, Class B Preferred Stock, Class C Preferred Stock or Class D Preferred
Stock are issued and outstanding.
SIXTH: 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 a 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:12,000 shares of Class E Cumulative,
Redeemable and Exchangeable Preferred Stock (the "Class E Preferred Stock").
Each share of such Class E Preferred Stock shall have the rights, preferences,
privileges and restrictions set forth in the following Determination of Rights,
Preferences, Privileges and Restrictions of Class E Preferred Stock (the
"Determination of Preferred Stock"):
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Class E Preferred Stock.
1. Definitions. As used in 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 A1 Preferred Stock" means the Class A1 Cumulative, Redeemable
and Exchangeable Preferred Stock of the Company.
"Class A2 Preferred Stock" means the Class A2 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 B1 Preferred Stock" means the Class B1 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.
"Class C1 Preferred Stock" means the Class C1 Cumulative, Redeemable
and Exchangeable Preferred Stock of the Company.
"Class D Preferred Stock" means the Class D 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.
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"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
Determination of Preferred Stock, 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 Determination of
Preferred Stock.
"Maturity Date" means, with respect to any Class E Preferred Stock or
Notes issued in exchange for Class E 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 Determination of Preferred Stock.
"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 E 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 E Holders" means holders of Class E 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, Class E 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.
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"Redemption Price" has the meaning ascribed to it in Section 5(a) of
this Determination of Preferred Stock.
"Requisite Preferred E Holders" means the holders of a majority of the
then outstanding shares of Class E 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, Class D Preferred
Stock and Class E 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 E 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 E Preferred Stock) or other class or series
of stock ranking on a par with, or senior to the Class E 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.
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(b) Such dividends shall accrue with respect to each share of Class E
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 E 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 E 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 E 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 E
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 E
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 E 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 E 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 E Preferred Stock the full amount to which they shall be
entitled, the holders of shares of Class E 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, Class D Preferred Stock and any other class or
series of stock ranking on liquidation on a parity with the Class E 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
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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 Determination of Preferred Stock, unless the Requisite Preferred E
Holders vote otherwise. The amount deemed distributed to the holders of Class E
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 E Holders shall not be entitled to vote.
(b) The Company shall not, without the affirmative consent or approval
of the Requisite Preferred E Holders:
(i) in any manner authorize, issue or sell any shares of Class
E 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 E Preferred Stock;
(iii) amend, repeal or modify any provision 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 E Holders.
(c)(i) The Company hereby covenants that the Requisite Preferred E
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 E 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 E 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
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be entitled to be present in person as an observer at any such meeting
or, if a meeting is held by telephone conference, to participate
therein for the purpose of listening thereto.
(iii) The Company will deliver to each Observer copies of all
papers which may be distributed from time to time to the directors of
the Company at such time as such papers are so distributed to them,
including copies of any written consent.
(d) The Company shall not, without the affirmative consent or approval
of the Requisite Preferred Holders:
(i) take any action, or enter into or authorize any material
agreement or material transaction, other than in the ordinary course of
business and consistent with past practice;
(ii) agree to acquire the stock or assets of, or otherwise
agree to any joint venture, licensing arrangement with, any other
person.
(iii) enter into any arrangement which would reasonably be
expected to result in a Change of Control;
(iv) sell, transfer, convey, assign or otherwise dispose of
any of its material assets or properties, or spinoff or splitoff any
material assets, properties or Securities except sales of inventory and
used, obsolete, worn out or unnecessary equipment or fixtures in the
ordinary course of business and consistent with past practice;
(v) sell, transfer, convey, assign, license or otherwise
dispose of any significant portion of its Intellectual Property Rights;
(vi) except in the ordinary course of business and consistent
with past practice, waive, release or cancel any material claims
against third parties or material debts owing to it, or any material
rights which have any material value;
(vii) make any material changes in its accounting systems,
policies, principles or practices except in the ordinary course of
business and consistent with past practice;
(viii) enter into, authorize, or permit any transaction with
Affiliates, or modify in any material respect the employment,
compensation or other arrangements with the executive officers of the
Company or any Subsidiary;
(ix) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or
granting of options, warrants or exchangeable Securities, commitments,
subscriptions, rights to purchase or otherwise) any shares of capital
stock or any other Securities of the Company or any Subsidiary, or
amend any of the terms of any such capital stock or other Securities;
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(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, (i) on the Maturity Date the Company shall redeem all shares of Class E
Preferred Stock then outstanding and (ii) upon the Company"s receipt of a
written redemption request from any Preferred E Holder, the Company shall redeem
all of the shares of Class E Preferred Stock with respect to which such
redemption request was made. The per share redemption price at which shares of
Class E Preferred Stock are to be redeemed pursuant to this Section 5(a) shall
be equal to the Liquidation Value (the "Redemption Price").
(b) In the event the Company or any of its Subsidiaries consummates a
public or private offering for cash of capital stock or other equity interests,
the Company shall be required to apply 50% of the Net Proceeds of such offering
toward the redemption of shares of Preferred Stock (other than Voting Preferred
Stock), on a pro rata basis (determined on the basis of the number of shares of
Preferred Stock (other than Voting Preferred Stock), held by such holder over
the total number of shares of Preferred Stock (other than Voting Preferred
Stock) outstanding) from the Holders of Preferred Stock at the Redemption Price.
(c) In addition to the Company"s obligations as set forth in Sections
5(a) and (b), of this Determination of Preferred Stock, the Company shall have
the option to redeem a minimum of $1 million of Original Cost of Class E
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
Determination of Preferred Stock shall be selected for redemption at the
discretion of, or in a manner approved by, the Board.
(d) On and after any date set for redemption (the "Redemption Date")
pursuant to this Section 5 of this Determination of Preferred Stock (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 E Preferred Stock to be redeemed,
except the right to receive the Redemption Price, shall cease and terminate, and
such shares shall no longer be deemed to be outstanding, whether or not the
certificates representing such shares have been received by the Company.
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(e) Any communication or notice relating to redemption given pursuant
to this Section 5 of this Determination of Preferred Stock shall be sent by
first-class certified mail, return receipt requested, postage prepaid, to the
Preferred E 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 E
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 E Preferred Stock to be redeemed.
(g) Any redemption payments by the Company pursuant to this Section 5
of this Determination of Preferred Stock shall be paid in cash.
(h) Any shares of Class E Preferred Stock which are redeemed or
otherwise acquired by the Company shall be canceled and shall not be reissued,
sold or transferred as Class E Preferred Stock and the Board shall reduce the
number of authorized shares of Class E 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.
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7. Exchange.
(a) Subject to the provisions of Section 500 of California Corporation
Law, the Requisite Preferred E 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 E 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 E
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 E 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 E Holder an amount in cash equal to the Fractional Principal
Amount. Any and all exchange rights set forth in this Section 7 of this
Determination of Preferred Stock 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 E Preferred Stock into Notes pursuant to this Section 7 of this
Determination of Preferred Stock, such shares to be exchanged shall be selected
for exchange at the discretion of, or in a manner approved by, the Board.
(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 E Preferred Stock will receive
Notes in the amount set forth in Section 7(a) of this Determination of Preferred
Stock 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 Determination of Preferred Stock. 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 E 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.
Douglas J. Tullio
President
Richard E. Mahmarian
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 November 18,
1999.
Douglas J. Tullio
President
Richard E. Mahmarian
Secretary
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