EXHIBIT 4(e)
CERTIFICATE OF DETERMINATION
OF
CHATCOM, INC.
A CALIFORNIA CORPORATION
The undersigned, James B. Mariner and James R. Spievak, hereby certify
that:
a. They are the duly elected and acting President and Secretary,
respectively, of ChatCom, Inc., a California corporation (the "Company").
b. The number of shares of Series C Convertible Redeemable
Preferred Stock of the Company is 1,000, none of which have been issued.
c. Pursuant to authority given by the Company's Articles of
Incorporation, as amended, the Board of Directors of the Company has duly
adopted the following recitals and resolutions:
WHEREAS, the Articles of Incorporation, as amended, of the Company
provide for a class of shares known as Preferred Stock, issuable from time to
time in one or more series; and
WHEREAS, the Board of Directors of the Company is authorized to
determine or alter the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock, to fix the
number of shares constituting any such series and to determine the designation
thereof, or any of them; and
WHEREAS, the Company has 1,000 authorized shares of Series B Preferred
Stock, of which 75 shares are outstanding, and no other shares of any series of
Preferred Stock authorized or outstanding;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby
fixes and determines the designation of, the number of shares constituting, and
the rights, preferences, privileges and restrictions relating to, a series of
Preferred Stock as follows:
1. Designation of Series; Rank of Series. The designation of such
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series of Preferred Stock is Series C Convertible Preferred Stock ("Series C
Preferred Stock"). The number of shares constituting such series is 1,000, with
a stated value of $20,000 per share. Shares of Series C Preferred Stock
converted, redeemed or purchased by the Company shall be canceled and shall
revert to authorized but unissued shares of Preferred Stock undesignated as to
series. Shares of the Series C Preferred Stock shall rank pari passu and share
in dividends and other distributions on a pro rata
basis with the Series B Preferred Stock and shares of other series of preferred
stock issued by the Company, with substantially equivalent rights, preferences,
privileges and limitations as those of this Series.
2. Dividends. Each holder of the outstanding Series C Preferred
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Stock shall be entitled to receive, upon conversion or redemption of such
holder's shares of Series C Preferred Stock, in cash or shares of the Common
Stock, at the Company's option, cumulative dividends at the annual rate of 6.0%
of the stated value of the Series C Preferred Stock per share of Series C
Preferred Stock, when, as and if declared by the Board of Directors of the
Company, out of funds legally available therefor. Such dividends shall be
cumulative so that if such dividends shall not have been declared and set apart
for all shares of Series C Preferred Stock at the time outstanding, the
deficiency shall be declared and set apart for such shares before the Company
makes any Distribution (as hereinafter defined) to the holders of Common Stock
or Preferred Stock of any other series junior to the Series C Preferred Stock.
Accrued but unpaid dividends shall not bear interest. "Distribution" in this
paragraph 2 means the transfer of cash or property without consideration,
whether by way of dividend or otherwise (except a dividend in shares of the
Company) or the purchase or redemption of shares of the Company for cash or
property (except for an exchange of shares of the Company or shares acquired by
the Company from employees pursuant to the terms of any employee incentive plan,
agreement or arrangement) including any such transfer, purchase or redemption by
a subsidiary of the Company. The time of any distribution by way of dividend
shall be the date of declaration thereof and the time of any distribution by
purchase or redemption of shares shall be the day cash or property is
transferred by the Company, whether or not pursuant to a contract of an earlier
date; provided that where a negotiable debt security is issued in exchange for
shares the time of the distribution is the date when the Company acquires the
shares in such exchange. The Board of Directors may fix a record date for the
determination of holders of Series C Preferred Stock entitled to receive payment
of a dividend declared thereon, which record date shall be no more than sixty
(60) days prior to the date fixed for the payment thereof. Upon notice of
conversion or redemption, if not previously declared, the Board of Directors
shall declare, out of funds legally available therefor, dividends on the Series
C Preferred Stock in shares of Common Stock, or at the Company's option if
permitted by law, in cash, at the annual rate of 6.0% of the stated value of the
Series C Preferred Stock from the date of issuance to the date of conversion or
redemption of such shares of Series C Preferred Stock. If upon redemption or
conversion of shares of Series C Preferred Stock the Company elects to pay
accrued dividends on such shares in shares of Common Stock, the number of shares
of Common Stock shall be determined by dividing the amount of
2.
such accrued dividends as of the redemption date or the Conversion Date (as
defined below) by the lesser of the First Market Price (as defined below) or the
Conversion Price (as defined below) on the applicable redemption date or
Conversion Date.
3. Voting Rights. The holders of Series C Preferred Stock shall not
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be entitled to vote upon any matters presented to the stockholders, except as
provided by law and except that without the approval of holders of a majority of
the outstanding shares of Series C Preferred Stock, the Company shall not (a)
authorize, create or issue any shares of any class or series ranking senior to
the Series C Preferred Stock as to liquidation rights, (b) amend, alter or
repeal, by any means, the Articles of Incorporation if the powers, preferences,
or special rights of the Series C Preferred Stock would be adversely affected,
or (c) become subject to any restriction on the Series C Preferred Stock, other
than restrictions arising under the General Corporation Law of the State of
California or existing under the Articles of Incorporation as in effect on March
13, 1996; provided, however, that the creation of additional series of Preferred
Stock with substantially equivalent rights, preferences, privileges and
limitations as those of this Series C shall not be a violation of this Section
3.
4. Liquidation, Dissolution or Winding Up. In the event of a
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voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of Series C Preferred Stock shall be entitled to receive out of the
assets of the Company, whether such assets are capital or surplus of any nature,
an amount per share of Series C Preferred Stock equal to the stated value of
such share of Series C Preferred Stock and a further amount equal to any
dividends accrued and unpaid thereon, as provided in paragraph 2 hereof, to the
date that payment is made available to the holders of Series C Preferred Stock,
whether earned or declared or not, and no more, before any payment shall be made
or any assets distributed to the holders of shares of stock of the Company
junior in rank to the Series C Preferred Stock.
If upon such liquidation, dissolution or winding up, the assets thus
distributed among the holders of the Series C Preferred Stock and other series
of preferred stock that upon liquidation, dissolution or winding up share pari
passu with the Series C Preferred Stock shall be insufficient to permit the
payment to all such holders of the full preferential amounts aforesaid, then the
entire assets of the Company to be distributed shall be distributed ratably
among the holders of Series C Preferred Stock and such other series of Preferred
Stock.
3.
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company, subject to the provisions of the Company's
Articles of Incorporation and to all of the preferential rights, on distribution
or otherwise, of the holders of Series C Preferred Stock and other series of
preferred stock that rank pari passu with the Series C Preferred Stock, the
holders of Common Stock shall be entitled to receive, ratably, all remaining
assets of the Company.
A consolidation or merger of the Company with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Company, shall not be deemed to be a liquidation, dissolution or winding
up within the meaning of this paragraph 4.
5. Conversion Rights. The holder of shares of Series C Preferred
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Stock shall have the right commencing (a) 60 days after the date of completion
of the offering by the Company of such shares, as agreed to by the Company and
the issuees of such shares, (the "Determination Date"), to convert one-half of
such shares, and (b) 90 days after the Determination Date to convert the other
one-half of such shares into duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock at the lesser of the First Market Price or
the Conversion Price on the applicable Conversion Date and upon the terms set
forth herein.
The Company shall have the right to redeem the Series C Preferred
Stock, in whole or in part, as provided in paragraph 13.
6. Conversion Price. Each share of Series C Preferred Stock shall be
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converted into a number of shares of Common Stock determined by dividing $20,000
and accrued dividends at the rate of 6% per annum by an amount equal to the
lesser of (a) the Market Price, as defined in this paragraph, on the
Determination Date (the "First Market Price"), or (b) 75% of the Market Price on
the applicable redemption date or Conversion Date (the "Conversion Price"). For
purposes of determining the First Market Price and the Conversion Price, the
"Market Price" shall be (i) if the Common Stock is listed or admitted to trade
on a national securities exchange, on the NASDAQ National Market ("NNM"), or on
the NASDAQ SmallCap Market ("SmallCap"), the average of the last closing bid
prices of the Common Stock for the five (5) trading days immediately preceding
the Determination Date (in the case of the First Market Price) or the applicable
redemption date or Conversion Date (in the case of the Conversion Price), on the
composite tape of the principal national securities exchange on which the Common
Stock is so listed or admitted to trade or on the NNM or SmallCap markets, as
the case may be; or (ii) if the Common Stock is not listed or admitted to trade
on an exchange or a system that publishes daily closing prices, the average
closing bid prices as reported by such other inter-
4.
dealer quotation system as may list the Common Stock. The First Market Price
and the Conversion Price shall be subject to further adjustment as set forth in
paragraph 8.
7. Conversion Procedure. The holder of any shares of the Series C
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Preferred Stock may exercise its rights to convert such shares into shares of
Common Stock by surrendering the share certificates for the Series C Preferred
Stock to be converted to the Company, at its principal office or at such other
office or agency maintained by the Company for that purpose, with the conversion
certificate (provided by the Company to the holder of such shares) executed by
the holder thereof, or a specified portion of such shares (as provided in the
conversion certificate, but for not less than $50,000 aggregate liquidation
preference of Series C Preferred Stock), and accompanied, if required by the
Company, by proper assignment in blank. The date of execution of such
certificate and delivery by facsimile to the Company at (818) 822-1424 (or such
other facsimile number as shall be given to the holder by the Company) shall be
defined as the "Conversion Date," provided share certificates are delivered
within three (3) business days to the Company or its transfer agent.
If the holder of such certificate wishes the certificate or
certificates for the shares of Common Stock to be issued in another name, the
holder shall specify the name or names in which such shares of Common Stock are
to be issued. In case such Conversion Certificate shall specify a name or names
other than that of such holder, such notice shall be accompanied by payment of
all transfer taxes payable upon the issuance of shares of Common Stock in such
name or names. As promptly as practicable, and in any event within five
business day after the surrender of such certificates and the receipt of such
notice relating thereto and, if applicable, payment of all transfer taxes, the
Company shall deliver or cause to be delivered (i) certificates representing the
number of validly issued, fully paid and nonassessable shares of Common Stock to
which the holder of the Series C Preferred Stock so converted shall be entitled
and (ii) if less than the full number of shares of the Series C Preferred Stock
evidenced by the surrendered certificate or certificates are being converted, a
new certificate or certificates, of like tenor, for the number of shares
evidenced by such surrendered certificate or certificates less the number of
shares converted. Such conversions shall be deemed to have been made at the
close of business on the date of giving of such notice and of such surrender of
the certificate or certificates representing the shares of the Series C
Preferred Stock to be converted so that the rights of the holder thereof shall
cease except for the right to receive Common Stock in accordance herewith, and
the converting holder shall be treated for all purposes as having become the
record holder of such Common Stock at such time.
5.
Shares of the Series C Preferred Stock may be converted at any time
up to but not after the close of business on the fifth business day of the ten
day redemption notice period for such shares pursuant to paragraph 13.
8. Conversion Price Adjustments. The First Market Price and the
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Conversion Price shall be subject to adjustment from time to time upon the
occurrence of certain events as follows:
(a) Reclassifications or Combinations. If the Company shall
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combine or reclassify the outstanding Common Stock into a smaller number of
shares, the First Market Price in effect at the time of the record date of such
combination or reclassification shall be proportionately adjusted by multiplying
such price by a fraction, the numerator of which is the number of shares being
surrendered to the Company and the denominator of which is the number of shares
being issued by the Company in such combination or reclassification (i.e. in the
case of a 2-for-5 reverse stock split the First Market Price would be multiplied
by five and divided by two). If such combination or reclassification shall occur
during the five-trading-day period used to calculate the Conversion Price, a
similar adjustment shall be made to the closing prices for the trading days
during such period prior to such combination or reclassification.
(b) Rounding of Calculations; Minimum Adjustment. All calculations
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under this paragraph 8 shall be made to the nearest cent. No adjustment in the
First Market Price shall be made if the amount of such adjustment would be less
than $0.01, but any such amount shall be carried forward and an adjustment with
respect thereto shall be made at the time of and together with any subsequent
adjustment which, together with such amount and any other amount or amounts so
carried forward, shall aggregate $0.01 or more.
(c) Adjustments for Consolidation, Merger, etc. In the event of a
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merger, consolidation, or sale of substantially all of the assets or other
business combination, all the Series C Preferred Stock, at the option of the
holder of such shares, shall be converted into the number of shares of Common
Stock into which the Series C Preferred Stock is convertible at the time of such
transaction. In the event of a business combination or similar transaction,
each Preferred Share shall be converted into the number of shares into which it
is convertible on the date the transaction is consummated.
9. Voluntary Adjustment. The Company may make, but shall not be
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obligated to make, such decreases in the First Market Price and the Conversion
Price so as to increase the number of shares of Common Stock into which the
Series C Preferred Stock may be converted, in addition to those required by
paragraph 8, as it considers to be advisable in
6.
order to avoid federal income tax treatment as a dividend of stock or stock
rights.
10. Reservation of Shares of Common Stock for Conversion. The
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Company shall at all times reserve and keep available out of its authorized and
unissued shares of Common Stock such number of shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all shares of Series
C Preferred Stock that are then outstanding. The Company shall use its
reasonable best efforts to take the action necessary to increase the number of
reserved shares from time to time if needed, and to increase the number of
authorized shares of Common Stock if such an increase should become necessary to
effect conversion of all shares of Series C Preferred Stock that are then
outstanding.
11. Notice of Adjustment of Conversion Price. Whenever the First
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Market Price or Conversion Price is adjusted as herein provided, the Company
shall forthwith file with any transfer agent or agents, if any, for the Series C
Preferred Stock, and at the principal office of the Company, a statement signed
by the President or a Vice-President and by the Chief Financial Officer or the
Secretary of the Company setting forth the adjusted First Market Price. The
statement so filed shall be open to inspection by any holder of record of shares
of Series C Preferred Stock. The Company shall also, at the time of filing any
such statement, mail notice to the same effect to the holders of shares of
Series C Preferred Stock at their addresses appearing on the books of the
Company or supplied by such holder to the Company for the purpose of notice.
12. Fractional Shares in Conversion. The Company shall not be
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required to issue fractions of shares of Common Stock on the conversion of
Series C Preferred Stock. If any fraction of a share of Common Stock would be
issuable upon the conversion of a share, except for the provisions hereof, the
Company shall purchase such fraction for an amount in cash equal to the Market
Price at the Conversion Date multiplied by such fraction. If more than one
certificate for shares of Series C Preferred Stock shall be presented for
conversion at any one time by the same registered holder, the number of shares
of Common Stock that shall be issuable upon conversion thereof shall be computed
on the basis of the aggregate number of shares of Common Stock issuable upon
conversion of the shares so presented. All calculations under this paragraph 12
shall be made to the nearest one-hundredth of a share.
13. (a) Mandatory Redemption. If the resale of the shares of Common
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Stock issuable upon conversion of the Series C Preferred Stock are not
registered with the Securities and Exchange Commission on Form S-3, or on
another appropriate form for such registration as requested by the holder of
such shares (the "Registration Statement"), within three years of the
Determination Date, the Company, at the option of such
7.
holder, and subject to applicable California law, shall redeem such holder's
shares of Series C Preferred Stock for a total amount equal to 120% of the
stated value of such shares, and shall also pay to such holder accrued dividends
on such shares, whether or not declared, to the redemption date.
(b) Voluntary Redemption. Shares of the Series C Preferred
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Stock may be redeemed, at the option of the Company by resolution of its Board
of Directors, in whole or in part, upon ten days written notice, at any time
after the later of 125 days from the Determination Date or 50 days after the
effective date of the Registration Statement, for a total amount equal to 133%
of the stated value of such shares, and shall also pay to such holder accrued
dividends on such shares, whether or not declared, to the redemption date. In
case of the redemption of a part only of the outstanding shares of Series C
Preferred Stock, the shares to be redeemed shall be selected pro rata. During
the first five business days of such ten-day period, the holder of shares of the
Series C Preferred Stock shall have the right to convert such shares as provided
above.
At least ten days' previous notice by mail, postage prepaid, shall be
given to the holders of record of the shares of Series C Preferred Stock to be
redeemed, such notice to be addressed to each such stockholder at the address of
such holder appearing on the books of the Company or given by such holder to the
Company for the purpose of notice, or if no such address appears or is so given,
at the place where the principal office of the Company is located. Such notice
shall state the date fixed for redemption and the redemption price and shall
call upon such holder to surrender to the Company on said date at the place
designated in the notice such holder's certificate or certificates representing
the shares to be redeemed. On or after the date fixed for redemption and stated
in such notice, each holder of shares of Series C Preferred Stock called for
redemption shall surrender the certificate evidencing such shares to the Company
at the place designated in such notice and shall thereupon be entitled to
receive payment of the redemption price, together with accrued dividends to the
date fixed for redemption. If less than all the shares represented by any such
surrendered certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. If such notice of redemption shall have
been duly given, and if on the date fixed for redemption funds necessary for the
redemption shall be available therefor, then, notwithstanding that the
certificate evidencing any shares of Series C Preferred Stock so called for
redemption shall not have been surrendered, the dividends with respect to the
shares so called for redemption shall forthwith after such date cease to accrue
and all other rights pertaining to such shares shall terminate, except only the
right of the holders to receive the redemption price, together with accrued and
unpaid dividends to the date fixed for redemption, without interest, upon
surrender of their certificates therefor.
8.
If, after notice of redemption has been given, the Company deposits,
on or prior to any date fixed for redemption of shares of Series C Preferred
Stock, with any bank or trust company in the State of California that has a
combined capital and surplus of not less than $100 million, as a trust fund, a
sum sufficient to redeem, on the date fixed for redemption thereof, the shares
called for redemption, with irrevocable instructions and authority to the bank
or trust company to give the notice of redemption thereof (or to complete the
giving of such notice if theretofore commenced) and to pay, on or after the date
fixed for redemption or prior thereto, the redemption price of the shares to
their respective holders upon the surrender of their share certificates, then
from and after the date of the deposit (although prior to the date fixed for
redemption), the shares shall no longer be outstanding, and the holders thereof
shall cease to be stockholders with respect to such shares, and shall have no
rights with respect thereto except the right to receive from the bank or trust
company payment of the redemption price of the shares without interest, upon the
surrender of their certificates therefor, and the right to convert said shares
as provided herein at any time up to but not after the close of business on the
fifth business day of the ten day redemption notice period for such shares, and
except that dividends on such shares shall continue to accrue to the date fixed
for redemption. The deposit shall constitute full payment of the shares to the
holders thereof. Any moneys so deposited on account of the redemption price of
Series C Preferred Stock converted subsequent to the making of such deposit
shall be repaid to the Company forthwith upon the conversion of such shares of
Series C Preferred Stock. Any interest accrued on any funds so deposited shall
be the property of, and paid to, the Company. If the holders of Series C
Preferred Stock so called for redemption shall not, at the end of two years from
the date fixed for redemption thereof, have claimed any funds so deposited, such
bank or trust company shall thereupon pay over to the Company such unclaimed
funds, and such bank or trust company shall thereafter be relieved of all
responsibility in respect thereof to such holders and such holders shall look
only to the Company for payment of the redemption price.
14. Severability of Provisions. If any right, preference or
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limitation of the Series C Preferred Stock set forth in this resolution (as such
resolution may be amended from time to time) is invalid, unlawful or incapable
of being enforced by reason of any rule of law or public policy, all other
rights, preferences and limitations set forth in this resolution (as so amended)
which can be given effect without the invalid, unlawful or unenforceable right,
preference or limitation shall, nevertheless, remain in full force and effect,
and no right, preference or limitation herein set forth shall be deemed
dependent upon any other such right, preference or limitation unless so
expressed herein.
9.
RESOLVED FURTHER, that the President and Secretary of the Company be,
and hereby are, authorized and directed to prepare, execute, verify, and file in
the Office of the California Secretary of State, a Certificate of Determination
in accordance with this resolution and as required by law.
The undersigned further declares 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 their own knowledge.
Dated: April 2, 1996 /s/ James B. Mariner
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James B. Mariner, President
/s/ James R. Spievak
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James R. Spievak, Secretary
10.