EXHIBIT 3.1
CERTIFICATE OF AMENDMENT OF THE
ARTICLES OF INCORPORATION OF
NOTIFY CORPORATION
Paul DePond and Gerald W. Rice hereby certify that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of Notify Corporation, a California corporation (the "Corporation"
or the "Company").
TWO: That the first paragraph of Article III of the Company's Amended and
Restated Articles of Incorporation is amended to read in its entirety as
follows:
The Corporation is authorized to issue two classes of stock to be
designated respectively "Preferred Stock" and "Common Stock." The total number
of shares of Preferred Stock authorized is 4,500,000. The total number of
shares of Common Stock authorized is 12,100,000. All the shares of Common Stock
and Preferred Stock shall be without par value. Upon the filing of this
Certificate of Amendment, each share of Common Stock shall be reverse split and
converted into .19802 shares of Common Stock. In lieu of any fractional shares
to which the holder of Common Stock would otherwise be entitled, the corporation
shall pay cash equal to such fraction multiplied by the fair market value of one
share of Common Stock (post-reverse-split) as determined by the Board of
Directors of the Corporation.
THREE: That Article III Section 4(b) of the Company's Amended and Restated
Articles of Incorporation is amended to read in its entirety as follows:
Each share of Preferred Stock shall automatically be converted into
shares of Common Stock at the Conversion Price then in effect upon the closing
of a firm commit ment underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended. In the
event of the automatic conversion of the Preferred Stock as set forth herein,
the person(s) entitled to receive the Common Stock issuable upon such conversion
shall not be deemed to have converted such shares until immediately prior to the
closing of such sale of securities.
FOUR: The foregoing amendments of the articles of incorporation have been
duly approved by the Board of Directors of this Company.
FIVE: The foregoing amendments of the articles of incorporation have been
duly approved by the required vote of shareholders in accordance with Section
902 and 903 of the California Corporations Code. The total number of
outstanding shares of each class entitled to vote with respect to the foregoing
amendment was 4,636,881 shares of Common Stock, 1,000,000 shares of Series A
Preferred Stock, and 3,500,000 shares of Series B Preferred Stock. The number
of shares voting in favor of the amendment equaled or exceeded the vote
required. The percentage vote required was (i) a majority of the outstanding
shares of Common Stock, (ii) a majority of the outstand-
ing shares of Series A Preferred Stock and Series B Preferred Stock, voting
together as a class, and (iii) a majority of all outstanding stock voting
together as a single class.
We further declare under penalty of perjury that the matters set forth in
the foregoing certificate are true and correct of our own knowledge.
Executed at San Jose, California, on February 18, 1997.
Paul De Pond, President
Gerald W. Rice, Secretary
AMENDED AND RESTATED
--------------------
ARTICLES OF INCORPORATION
-------------------------
OF
--
PRACTICAL TELEPHONY CORPORATION
-------------------------------
The undersigned, Paul F. DePond and Gaylan I. Larson, hereby certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of Practical Telephony Corporation, a California corporation (the
"Corporation").
2. The Articles of Incorporation of the Corporation are amended and
restated in their entirety as in Appendix I attached hereto.
3. The amendments and restatements herein set forth have been duly
approved by the Board of Directors of the Corporation.
4. The amendments herein set forth have been duly approved by the
required vote of the shareholders of the Corporation in accordance with Sections
902 and 903 of the California Corporations Code. The total number of shares of
Common Stock entitled to vote is 4,286,458, the total number of shares of Series
A Preferred Stock entitled to vote is 1,000,000 and the total number of shares
of Series B Preferred Stock entitled to vote is 2,314,000. The number of
shares voting in favor of the amendments equalled or exceeded the vote required.
The percentage vote required was more than 50% of the outstanding shares of
Common Stock, 50% of the outstanding shares of Common Stock, Series A Preferred
Stock and
Series B Preferred Stock voting together as a single class, 50% of the
outstanding shares of Series A Preferred Stock and 50% of the outstanding shares
of Series B Preferred Stock.
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 on October __, 1995.
------------------------------
Paul DePond, President
------------------------------
Gaylan I. Larson, Secretary
APPENDIX I
ARTICLE I
NAME
----
The name of the Corporation is Practical Telephony Corporation.
ARTICLE II
PURPOSES
--------
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be orga nized under the General
Corporation Law of California other than the banking business, the trust company
business or the practice of a profession permitted to be incorporated by the
California Corporations Code.
ARTICLE III
STOCK
-----
The Corporation is authorized to issue two classes of stock to be
designated respectively "Preferred Stock" and "Common Stock." The total number
of shares of Preferred Stock authorized is 4,500,000. The total number of
shares of Common Stock authorized is 12,100,000. All the shares of Common Stock
and Preferred Stock shall be without par value.
Subject to the rights of any outstanding series of Preferred Stock, the
Preferred Stock authorized by these Articles of Incorporation may be issued from
time to time in one or more series. The Board of Directors is authorized to
determine or alter any or all of the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of the
Preferred Stock, and to fix or alter the number of shares comprising any such
series and the designation thereof, or any of them, to increase or decrease (but
not below the number of shares of any such series then outstanding) the number
of shares of any such series subsequent to the issue of shares of that series,
and to provide for rights and terms of redemption or conversion of the shares of
any such series.
1. Designation. The first series of Preferred Stock shall consist of
-----------
1,000,000 shares of Series A Preferred Stock ("Series A Preferred"). The second
series of Preferred
Stock shall consist of 3,500,000 shares of Series B Preferred Stock ("Series B
Preferred"). The relative rights, preferences, restrictions and other matters
relating to the Series A Preferred and Series B Preferred are as follows:
2. Dividends.
---------
(a) The holders of the Series B Preferred shall be entitled to
receive, when and as declared by the Board of Directors, out of funds legally
available therefor, dividends at an annual rate of $0.05 per share of Series B
Preferred Stock (the "Series B Dividend Rate"), payable in preference and
priority to any payment of any dividend on Series A Preferred Stock or Common
Stock of the Corporation. Such dividends shall not be cumulative and no right
to such dividends shall accrue to holders of Series B Preferred Stock unless
declared by the Board of Directors.
(b) After the holders of Series B Preferred have received in any
fiscal year dividends at the Series B Dividend Rate, the holders of the Series A
Preferred shall be entitled to receive, when and as declared by the Board of
Directors, out of funds legally available therefor, dividends at an annual rate
of $0.01 per share of Series A Preferred Stock (the "Series A Dividend Rate"),
payable in preference and priority to any payment of any dividend on Common
Stock of the Corporation. Such dividends shall not be cumulative and no right
to such dividends shall accrue to holders of Series A Preferred Stock unless
declared by the Board of Directors.
(c) If any cash dividend or other distribution is declared by the
Corporation after payment of the preferential dividends set forth above, the
holders of Preferred Stock shall participate with holders of Common Stock in the
payment of dividends in excess of the dividends to be first paid on Preferred
Stock ratably on an as-if-converted to Common Stock basis.
(d) Definition of Distribution. For purposes of this Section 2, unless
--------------------------
the context otherwise requires, a "distribution" shall mean the transfer of cash
or other property without consideration whether by way of dividend or
otherwise, payable other than in Common Stock, or the purchase or redemption of
shares of the Corporation (other than repurchases at cost of Common Stock
issued to or held by employees, officers, directors or consultants of the
Corporation or its subsidiaries upon termination of their employment or services
pursuant to agreements providing for the right of said repurchase) for cash or
property.
(e) Certain Repurchases not Distributions. As authorized by Section
-------------------------------------
402.5(c) of the California Corporations Code, the provisions of Sections 502 and
503 of the California Corporations Code shall not apply with respect to
repurchases by the Corporation at cost of shares of Common Stock issued to or
held by employees, officers, directors of consultants of the Corporation or its
subsidiaries upon termination of their employment or services pursuant to
agreements providing for the right of said repurchase.
3. Liquidation Preference.
----------------------
In the event of any liquidation, dissolution, or winding up of the
Corporation, either voluntary or involuntary, distributions to the
shareholders of the Corporation shall be made in the following manner:
(a) The holders of Series B Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any assets or surplus
funds of the Corporation to the holders of Series A Preferred or the Common
Stock by reason of their ownership of such stock, the amount of $0.50 per share
for each share of Series B Preferred then held by them, plus any declared but
unpaid dividends on the Series B Preferred, adjusted for any stock splits,
combinations, consolidations, or stock distributions or dividends with respect
to such shares. If the assets and funds available for distribution among the
holders of the Series B Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amount, then the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of the Series B Preferred.
(b) After payment has been made to the holders of the Series B
Preferred Stock of the full amount to which they shall be entitled, the holders
of Series A Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any assets or surplus funds of the Corporation
to the holders of the Common Stock by reason of their ownership of such stock,
the amount of $0.10 per share for each share of Series A Preferred then held by
them, plus any declared but unpaid dividends on the Series A Preferred, adjusted
for any stock splits, combinations, consolidations, or stock distributions or
dividends with respect to such shares. If the assets and funds available for
distribution among the holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amount, then the entire assets and funds of the Corporation legally
available for distribution
shall be distributed ratably among the holders of the Series A Preferred.
(c) Distribution of Remaining Assets. After payment has been made to
--------------------------------
the holders of the Preferred Stock of the full amounts to which they shall be
entitled as set forth in Section 3(a) and Section 3(b) above, then the entire
remaining assets and funds of the Corporation legally available for
distribution, if any, shall be distributed ratably among the holders of the
Common Stock and Preferred Stock based upon the number of shares of Common Stock
then held by each holder of Common Stock or issuable upon conversion of the
shares of Preferred Stock held by a holder of Preferred Stock.
(d) Deemed Liquidations. For purposes of this Section 3, a merger or
-------------------
consolidation of the Corporation with or into any other corporation or
corporations, or the merger of any other corporation or corporations into the
Corporation, in which consolidation or merger the shareholders of the
Corporation receive distributions in cash or securities of another corporation
or corporations as a result of such consolidation or merger and in which the
shareholders of the Corporation do not own at least 50% of the voting power of
the surviving corporation after the consolidation or merger, or a sale of all or
substantially all of the assets of the Corporation, shall be treated as a
liquidation, dissolution or winding up of the Corporation.
4. Conversion.
----------
The holders of Preferred Stock shall have conversion rights as follows:
(the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
----------------
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share and on or prior to the day prior to such Redemption Date
as may have been fixed in any applicable Redemption Notice, at the office of the
Corporation or any transfer agent for the Preferred Stock, into such number of
fully paid and nonassessable shares of Common Stock as is determined in the case
of the Series A Preferred by dividing $0.10 by the Series A Conversion Price, as
determined as hereinafter provided and in the case of the Series B Preferred by
dividing $0.50 by the Series B Conversion Price, as determined as hereinafter
provided. The price at which shares of Common Stock shall be deliverable upon
conversion of Preferred Stock shall initially be in the case of the Series A
Preferred, $0.10 per share of Common Stock (the "Series A Conversion Price") and
in the case of the Series B Preferred, $0.50 per share of Common Stock (the
"Series B Conversion Price"). The term "Conversion Price", as used herein, shall
refer to the respective conversion prices for each series of Preferred Stock.
Such initial Conversion Prices shall be subject to adjustment as provided
herein.
(b) Automatic Conversion.
--------------------
(i) Each share of Preferred Stock shall automatically be
converted into shares of Common Stock at the Conversion Price then in effect
upon the closing of a firm commitment underwritten public offering pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account of the
Corporation to the public at a price per share (before deduction of underwriter
discounts and commissions and offering expenses) of not less than $3.00
(appropriately adjusted for any stock splits, combinations, consolidations, or
stock distributions or dividends with respect to such shares) and an aggregate
offering price to the public of not less than $7,500,000. In the event of the
automatic conversion of the Preferred Stock as set forth herein, the person(s)
entitled to receive the Common Stock issuable upon such conversion shall not be
deemed to have converted such shares until immediately prior to the closing of
such sale of securities.
(c) Mechanics of Conversion. No fractional shares of Common Stock
-----------------------
shall be issued upon conversion of Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the then current fair value of the
Common Stock, as determined in good faith by the Board of Directors. Before any
holder of Preferred Stock shall be entitled to convert the same into full shares
of Common Stock and to receive certificates therefor, he shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Preferred Stock, and shall give
written notice to the Corporation at such office that he elects to convert the
same; provided, however, that in the event of an automatic conversion pursuant
to Section 4(b), the outstanding shares of Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent, and provided further that the Corporation
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such automatic conversion unless the certificates evidencing
such shares of Preferred Stock are either delivered to the Corporation or its
transfer agent as provided above, or the holder
notifies the Corporation or its transfer agent that such certificates have been
lost, stolen or destroyed and executes an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates. The Corporation shall, as soon as practicable
after such delivery, or such agreement and indemnification in the case or a lost
certificate, issue and deliver at such office to such holder of Preferred Stock,
a certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid and a check payable to the holder in
the amount of any cash amounts payable as the result of a conversion into
fractional shares of Common Stock. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender of
the shares of Preferred Stock to be converted, or in the case of automatic
conversion on the date of closing of the offering or the vote, as the case may
be, and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on such date.
(d) Adjustments to Conversion Price for Diluting Issues.
---------------------------------------------------
(i) Special Definitions. For purposes of this Section 4(d), the
-------------------
following definitions shall apply:
(A) "Options" shall mean rights, options or warrants to
-------
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(B) "Original Issue Date" shall mean the date on which the
-------------------
first share of Series A Preferred or Series B Preferred, as the case may be, was
issued.
(C) "Convertible Securities" shall mean any evidences of
----------------------
indebtedness, Preferred Stock (other than the Series A Preferred Stock or Series
B Preferred Stock) or other securities convertible into or exchangeable for
Common Stock.
(D) "Additional Shares of Common" shall mean all shares of
---------------------------
Common Stock issued (or, pursuant to Section 4(d)(iii), deemed to be issued) by
the Corporation after the Original Issue Date, other than the following:
(1) shares of Common Stock issued or issuable upon
conversion of shares of Series A or Series B Preferred Stock;
(2) shares of Common Stock issued or issuable up to
1,500,000 shares of Common Stock issued after September 1, 1995 to officers,
directors or employees of, or consultants to, the Corporation pursuant to a
stock grant, stock option plan or stock purchase plan or other stock incentive
agreement or arrangement approved by the Board of Directors;
(3) shares of Common Stock issued or issuable as a
dividend or distribution on Preferred Stock;
(4) shares of Common Stock issued or issuable in
connection with any transaction for which adjustment is made pursuant to
Section 4(e) hereof; and
(5) any shares of Common Stock issued, issuable or,
pursuant to Section 4(d)(iii), deemed to be issued, if the holders of a majority
the Series B Preferred agree in writing that such shares shall not constitute
Additional Shares of Common.
(ii) No Adjustment of Conversion Price. No adjustment in the
---------------------------------
Conversion Price of a particular share of Preferred Stock shall be made in
respect of the issuance of Additional Shares of Common unless the consideration
per share for an Additional Share of Common issued or deemed to be issued by the
Corporation is less than the Conversion Price in effect on the date of, and
immediately prior to, such issue for such share of Preferred Stock.
(iii) Options and Convertible Securities. In the event the
----------------------------------
Corporation at any time or from time to time after the Original Issue Date shall
issue any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares (as set
forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number, including
provisions designed to protect against dilution) of Common Stock issuable upon
the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided that Additional Shares of Common shall
not be deemed to have been issued unless the consideration per share (determined
pursuant to Section 4(d)(v) hereof) of such Additional Shares of Common would be
less than the Conversion Price in effect on the date of, and immediately prior
to, such issue, or such record date, as the case may be, and provided further
that in any such case in which Additional Shares of Common are deemed to be
issued:
(A) no further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by their terms
provide, with the passage of time, by reason of antidilution provisions or
otherwise, for any change in the consideration payable to the Corporation, or
change in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such change
becoming effective, be recomputed to reflect an appropriate increase or decrease
reflecting such change insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities; provided, however,
that no such adjustment of the Conversion Price shall affect Common Stock
previously issued upon conversion of the Preferred Stock; and
(C) upon the expiration or cancellation of any such Options
or any rights of conversion or exchange under such Convertible Securities which
shall not have been exercised, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon such expiration or
cancellation, be recomputed as if
(1) in the case of Convertible Securities or Options for
Common Stock, the only Additional Shares of Common issued were shares of Common
Stock, if any, actually issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the Corporation for
the issue of all such Options, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or for the issue of all
Convertible Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Corporation upon such
conversion or exchange, and
(2) in the case of Options for Convertible Securities,
only the Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options, and the consideration
received
by the Corporation for the Additional Shares of Common deemed to have been then
issued was the consideration actually received the Corporation for the issue of
all such Options, whether or not exercised, plus the consideration deemed to
have been received by the Corporation upon the issue of the Convertible
Securities with respect to which such Options were actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above shall
have the effect of increasing the Conversion Price to an amount which exceeds
the lower of the Conversion Price on the original adjustment date, or the
Conversion Price that would have resulted from any issuance of Additional Shares
of Common between the original adjustment date and such readjustment date.
(iv) Adjustment of Conversion Price Upon Issuance of Additional
----------------------------------------------------------
Shares of Common. In the event this Corporation shall issue Additional Shares of
- ----------------
Common (including Additional Shares of Common deemed to be issued pursuant to
Section 4(d)(iii)) without consideration or for a consideration per share less
than the Series A Conversion Price or less than the Series B Conversion Price in
effect on the date of and immediately prior to such issue, then and in such
event, each applicable Conversion Price shall be reduced, concurrently with such
issue, to a price (calculated to the nearest cent) determined by multiplying
such Conversion Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issue plus the
number of shares of Common Stock which the aggregate consideration received by
the Corporation for the total number of Additional Shares of Common so issued
would purchase at such Conversion Price; and the denominator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issue plus the number of such Additional Shares of Common so issued; and
provided further that, for the purposes of this Section 4(d)(iv), all shares of
Common Stock issuable upon conversion of outstanding Options and Convertible
Securities (including the Series A Preferred and Series B Preferred) shall be
deemed to be outstanding, and immediately after any Additional Shares of Common
are deemed issued pursuant to Section 4(d)(iii), such Additional Shares of
Common shall be deemed to be outstanding.
(v) Determination of Consideration. For purposes of this Section
------------------------------
4(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common shall be computed as follows:
(A) Cash and Property. Such consideration shall:
-----------------
(1) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than cash,
be computed at the fair value thereof at the time of such issue, as determined
in good faith by the Board of Directors of the Corporation; and
(3) in the event Additional Shares of Common are issued
together with other shares or securities or other assets of the Corporation for
consideration which covers both, be the proportion of such consideration so
received, computed as provided in clauses (1) and (2) above, as determined in
good faith by the Board of Directors of the Corporation.
(B) Options and Convertible Securities.
----------------------------------
(1) The consideration per share received by the
Corporation for Additional Shares of Common deemed to have been issued pursuant
to Section 4(d)(iii) shall be the sum of (x) the total amount, if any, received
or receivable by the Corporation as consideration for the issue of such Options
or Convertible Securities plus (y) the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration, including any provisions designed to protect against dilution)
payable to the Corporation upon the exercise of such Options or the conversion
or exchange of such Convertible Securities, or in the case of Options for
Convertible Securities, the exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible Securities.
(2) The number of Additional Shares of Common deemed to
have been issued pursuant to Section 4(d)(iii) shall be the maximum number of
shares of Common Stock (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such number, including any provisions designed to protect against dilution)
issuable upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(e) Adjustments to Conversion Price for Stock Splits, Distributions
---------------------------------------------------------------
and Recapitalizations.
- ---------------------
(i) Adjustments for Subdivision, Combination or Consolidation of
------------------------------------------------------------
Common Stock. In the event the outstanding shares of Common Stock shall be
- ------------
subdivided (by stock split, by stock dividend or otherwise), into a greater
number of shares of Common Stock, the Series A Conversion Price and Series B
Conversion Price in effect immediately prior to such subdivision shall,
concurrently with the effectiveness of such subdivision, be proportionately
decreased. In the event the outstanding shares of Common Stock shall be combined
or consolidated (by reclassification or otherwise) into a lesser number of
shares of Common Stock, the Series A Conversion Price and Series B Conversion
Price in effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
(ii) Adjustments for Other Distributions. In the event the
-----------------------------------
Corporation at any time or from time to time makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive any
distribution payable in securities of the Corporation other than shares of
Common Stock and other than as otherwise adjusted in this Section 4 or as
otherwise provided in Section 2, then, and in each such event, provision shall
be made so that the holders of Series A Preferred and Series B Preferred shall
receive upon conversion thereof, in addition to the number of shares of Common
Stock receivable thereupon, the amount of securities of the Corporation which
they would have received had their Series A Preferred and Series B Preferred
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
date of conversion, retained such securities receivable by them as aforesaid
during such period, subject to all other adjustments called for during such
period under this Section 4 with respect to the rights of the holders of the
Series A Preferred and Series B Preferred.
(iii) Adjustments for Reclassification, Exchange, and
-----------------------------------------------
Substitution. If the Common Stock issuable upon conversion of the Series A
- ------------
Preferred and Series B Preferred shall be changed into the same or a different
number of shares of any other class or classes of stock, whether by capital
reorganization, reclassification or otherwise (other than a subdivision or
combination of shares provided for above), the Series A Conversion Price then in
effect for the Series A Preferred and the Series B Conversion Price then in
effect for the Series B Preferred shall, concurrently with the effectiveness of
such reorganization or reclassification, be proportionately adjusted such that
the Series A Preferred and Series B Preferred shall be convertible into, in lieu
of the number of shares of Common Stock which the holders would otherwise have
been entitled to receive, a number of shares of such other class or classes of
stock equivalent to the number of
shares of Common Stock that would have been subject to receipt by the holders
upon conversion of the Series A Preferred and Series B Preferred immediately
before that change.
(f) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Series A Conversion Price and Series B
Preferred pursuant to this Section 4, the Corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to each holder of Series A Preferred and Series B Preferred a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Series A Preferred
or Series B Preferred, furnish or cause to be furnished to such holder a like
certificate setting forth such adjustments and readjustments, the applicable
Conversion Price at the time in effect and the number of shares of Common Stock
and the amount, if any, of other property which at the time would be received
upon the conversion of such Series A Preferred or Series B Preferred.
(g) Notices of Record Date. In the event that this Corporation shall
----------------------
propose at any time:
(i) to declare any dividend or distribution upon its Common Stock,
whether in cash, property, stock or other securities, whether or not a regular
cash dividend and whether or not out of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of any class or
series or other rights;
(iii) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common Stock; or
(iv) to merge or consolidate with or into any other corporation,
or sell, lease or convey all or substantially all its property or business, or
to liquidate, dissolve or wind up;
then, in connection with each such event, this Corporation shall send to the
holders of the Preferred Stock:
(A) at least 20 days' prior written notice of the date on
which a record shall be taken for such dividend, distribution or subscription
rights (and specifying the date on which the holders of Common Stock shall be
entitled thereto) or for determining rights to vote in respect of the matters
referred to in (iii) and (iv) above; and
(B) in the case of the matters referred to in (iii) and (iv)
above, at least 20 days' prior written notice of the date when the same shall
take place (and specifying the date on which the holders of Common Stock shall
be entitled to exchange their Common Stock for securities or other property
deliverable upon the occurrence of such event).
Each such written notice shall be given by first class mail, postage
prepaid, addressed to the holders of Preferred Stock at the address for each
such holder as shown on the books of this Corporation.
5. Voting Rights.
-------------
(a) General Except as otherwise required by law or by Section 6
-------
hereof, the holders of Preferred Stock and the holders of Common Stock shall be
entitled to notice of any shareholders meeting and to vote together as a class
upon any matter submitted to shareholders for a vote. In any matter submitted
to shareholders for a vote, each share of Common Stock issued and outstanding
shall have one vote and each holder of shares of Series A Preferred or Series B
Preferred shall be entitled to the number of votes equal to the number of shares
of Common Stock into which such holder's Series A Preferred and/or Series B
Preferred is convertible, as adjusted from time to time pursuant to Section 4
hereof, at the record date for determination of the shareholders entitled to
vote on such matters, or, if no such record date is established, at the date
such vote is taken or any written consent of shareholders is solicited.
(b) Board of Directors. The authorized number of directors shall be
------------------
set forth in the Bylaws of the Corporation and may be increased or decreased by
an amendment to such Bylaws in accordance with their provisions. As long as
there are at least 1,000,000 shares of Series B Preferred Stock issued and
outstanding, of the authorized number of members of the Corporation's Board of
Directors the holders of Series B Preferred Stock voting separately as a class
shall be entitled to elect one (1) director (and to fill any vacancies with
respect thereto), with each holder of Series B Preferred Stock entitled to the
number of votes determined as provided in Section 5(a) above.
Subject to Section 302 and Section 303 of the California Corporations Code, any
director who shall have been elected by a specified group of shareholders may be
removed during the aforesaid term of office, either for or without cause, by and
only by, the affirmative vote of the holders of a majority of the shares of such
specified group, given at a special meeting of such shareholders duly called or
by an action by written consent for that purpose.
6. Covenants.
---------
(a) Series A Preferred. In addition to any other rights provided
by law, so long as at least 15,000 shares of Series A Preferred shall be
outstanding, this Corporation shall not, without first obtaining the affirmative
vote or written consent of the holders of a majority of the outstanding shares
of the Series A Preferred:
(i) amend or repeal any provision of, or add any provision
to, this Corporation's Articles of Incorporation or bylaws if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series A Preferred or Preferred
Stock in a material and adverse manner;
(ii) authorize, issue, or obligate itself to issue shares of
any class of stock or options to purchase or securities convertible into or
exchangeable for shares of any class of stock having any preference or priority
as to dividends, redemption rights, liquidation preferences, conversion rights,
voting rights or rights otherwise superior to or on a parity with any such
preference or priority of the Series A Preferred;
(iii) reclassify any Common Stock into shares having any
preference or priority as to dividends, redemption rights, liquidation
preferences, conversion rights, voting rights or rights otherwise superior to or
on a parity with any such preference or priority of the Series A Preferred; or
(iv) increase the authorized number of shares of Series A
Preferred or Preferred Stock.
(b) Series B Preferred. In addition to any other rights provided
------------------
by law, so long as at least 100,000 shares of Series B Preferred shall be
outstanding, this Corporation shall not, without first obtaining the affirmative
vote or written consent of the holders of a majority of the outstanding shares
of the Series B Preferred:
(i) amend or repeal any provision of, or add any provision
to, this Corporation's Articles of Incorporation or bylaws if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series B Preferred or Preferred
Stock in a material and adverse manner;
(ii) authorize, issue, or obligate itself to issue shares of
any class of stock or options to purchase or securities convertible into or
exchangeable for shares of any class of stock having any preference or priority
as to
dividends, redemption rights, liquidation preferences, conversion rights, voting
rights or rights otherwise superior to or on a parity with any such preference
or priority of the Series B Preferred;
(iii) reclassify any Common Stock into shares having any
preference or priority as to dividends, redemption rights, liquidation
preferences, conversion rights, voting rights or rights otherwise superior to or
on a parity with any such preference or priority of the Series B Preferred; or
(iv) increase the authorized number of shares of Series B
Preferred or Preferred Stock.
7. Residual Rights. All rights accruing to the outstanding shares of
---------------
this Corporation not expressly provided for to the contrary herein shall be
vested in the Common Stock.
ARTICLE IV
LIMITATION OF LIABILITY
-----------------------
1. Limitation of Directors' Liability. The liability of the
----------------------------------
directors of this Corporation for monetary damages shall be eliminated to the
fullest extent permissible under California law.
2. Indemnification of Corporate Agents. This Corporation is
-----------------------------------
authorized to indemnify the directors and officers of this Corporation to the
fullest extent permissible under California law.
3. Repeal or Modification. Any repeal or modification of this
----------------------
Article IV or any provision hereof shall not adversely affect any right of
indemnification or limitation of liability of any agent of this Corporation
relating to acts or omissions occurring prior to such repeal or modification.