EXHIBIT 3.1
CERTIFICATE OF DETERMINATION OF
SERIES D PREFERRED STOCK OF
SONIC SOLUTIONS
1. The undersigned, Robert J. Doris and Mary C. Sauer, hereby certify
that:
2. They are the duly elected and President and Secretary, respectively, of
Sonic Solutions, a California corporation (the "Corporation").
3. The Corporation hereby designates Eight Hundred Fifty Thousand
(850,000) shares of Series D Preferred Stock (the "Series D Preferred Stock").
4. None of the shares of Series D Preferred Stock have been issued, and
none of the shares of Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock (collectively, the "Series A, B and C Preferred") were
issued and outstanding as of the date hereof.
5. Pursuant to authority given by the Corporation's Restated Articles of
Incorporation (the "Restated Articles of Incorporation"), the Board of Directors
of the Corporation (the "Board of Directors") has duly adopted the following
recitals and resolutions:
WHEREAS, the Restated Articles of Incorporation provide for a class of
shares known as Preferred Shares (the "Preferred Shares"), issuable from time to
time in one or more series;
WHEREAS, the Board of Directors is authorized within the limitations and
restrictions stated in the Restated Articles of Incorporation to determine or
alter the rights, preferences, privileges and restrictions granted to or imposed
on any wholly unissued series of Preferred Shares, to fix the number of shares
constituting any such series, and to determine the designation thereof, or any
of them; and
WHEREAS, the Corporation has not issued any shares of Series D Preferred
Stock and the Board of Directors desires to determine the rights, preferences,
privileges and restrictions relating to the Series D Preferred Stock, and the
number of shares constituting said Series and the designation of said Series.
NOW, THEREFORE, BE IT RESOLVED: That the President and the Secretary of
this Corporation are each authorized to execute, verify and file a certificate
of determination of preferences with respect to the Series D Preferred Stock in
accordance with the laws of the State of California.
RESOLVED FURTHER: That the Board of Directors hereby determines the
rights, preferences, privileges and restrictions relating to the Series D
Preferred Stock shall be as set forth below:
"Eight Hundred Fifty Thousand (850,000) of the authorized shares of the
Preferred Stock, none of which have been issued or are outstanding, are hereby
designated "Series D Preferred Stock" (the "Series D Preferred Stock").
The rights, preferences, privileges, restrictions and other matters
relating to the Series D Preferred Stock are as follows:
1. Dividend Rights. The holders of Series D Preferred Stock shall be
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entitled to receive in any fiscal year when and as declared by the Board of
Directors, out of any assets at the time legally available therefor,
distributions in cash per share of Series D Preferred Stock (as adjusted for any
stock dividends, combinations, splits, reclassifications or the like with
respect to such shares) at the annual rate of $0.20 until such shares have been
converted into Common Stock of the Corporation (the "Common Stock") or redeemed
by the Corporation as provided in Section 5 hereunder. Such distributions shall
be payable quarterly in arrears for each calendar quarter of each fiscal year.
Distributions may be declared or paid upon shares of Common Stock in any fiscal
year only if distributions shall have been paid or declared and set apart upon
all shares of Series D Preferred Stock at such applicable annual rate for each
quarter of such fiscal year including the quarter in which such distributions on
Common Stock are declared. Dividends on Series D Preferred Stock may be paid, at
the election of the Corporation, in cash or in shares of Series D Preferred
Stock at a price equal to the then applicable "Conversion Rate" (as defined in
Section 4 below). The right to such dividends on Series D Preferred Stock, if
not declared and paid, shall accrue and be cumulative.
2. Voting Rights. Except as otherwise provided herein or by law, each
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holder of Series D Preferred Stock shall be entitled to the number of votes
equal to the number of shares of Common Stock into which such shares of Series D
Preferred Stock could be converted and shall have voting rights and powers equal
to the voting rights and powers of the Common Stock.
3. Liquidation, Dissolution or Winding Up. In the event of any
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liquidation, dissolution or winding up of the Corporation, either voluntary or
involuntary, (a "Liquidation Event") the holders of the Series D Preferred Stock
shall be entitled to receive, prior and in preference to any distribution of the
assets or surplus funds of the Corporation to the holders of Series A, B and C
Preferred and of the Common Stock by reason of their ownership thereof, the
amount of $5.00 per share (as adjusted for any stock dividends, combinations,
splits, reclassifications or the like with respect to such shares) plus all
accrued but unpaid dividends on such share for each share of Series D Preferred
Stock then held by them (the "Liquidation Preference"). If, upon occurrence of
such event the assets and funds thus distributed among the holders of the Series
D Preferred Stock shall be insufficient to permit the holders of the Series D
Preferred Stock the full Liquidation Preference, then the entire assets and
funds of the Corporation legally available for distribution shall be distributed
among the holders of the Series D Preferred Stock in proportion to the number of
shares of Series D Preferred Stock held by each such holder. After payment has
been made to the holders of the Series D Preferred Stock of the Liquidation
Preference, the holders of the Common Stock shall be entitled to receive the
remaining assets of the Corporation in proportion to the number of shares of
Common Stock held by each such holder. For the purposes of this Section 3, (i)
any acquisition of the Corporation by means of merger or other form of corporate
reorganization in which outstanding shares of the Corporation are exchanged for
securities or other consideration issued, or caused to be issued, by the
acquiring corporation
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or its subsidiary (other than a mere reincorporation transaction) or (ii) a sale
of all or substantially all of the assets of the Corporation, shall be treated
as a Liquidation Event and shall entitle the holders of Series D Preferred Stock
to receive upon such Liquidation Event, payment of the Liquidation Preference.
4. Conversion Rights. Subject to the redemption rights of the
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Corporation as set forth in Section 5 below, each holder of Series D Preferred
Stock may, at any time, upon surrender of the certificates therefor, convert
each share of Series D Preferred Stock (and all accrued and unpaid dividends
thereon) held by such holder into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing the Liquidation Preference
for each share of Series D Preferred Stock by the Conversion Rate applicable to
such share, determined as hereinafter provided, in effect on the date the
certificate is surrendered for conversion. The price at which shares of Common
Stock shall be deliverable upon conversion of shares of the Series D Preferred
Stock (the "Conversion Rate") shall initially be $5.00 per share of Common
Stock. Such initial Conversion Rate shall be adjusted as hereinafter provided.
5. Redemption Rights of the Corporation.
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(a) At any time after the issuance of Series D Preferred Stock, the
Corporation may elect to redeem the whole or any part of the Series D
Preferred Stock (the "Corporation Redemption"), for cash at a price
per share equal to the Liquidation Preference, plus any accrued but
unpaid dividends on such share (the "Redemption Price"); provided,
however, that the closing price of the Corporation's Common Stock, as
reported by Bloomberg, L.P., for each of the ten (10) consecutive
trading days immediately preceding the date on which the Corporation
delivers a notice of redemption (a "Notice of Redemption") is equal to
or more than $5.00 per share. A Notice of Redemption shall be mailed
by overnight courier not earlier than 30 days prior to the redemption
date indicated in the Notice of Redemption (the "Redemption Date") to
the holders of record of such Series D Preferred Stock, addressed to
each such holder at the holder's address appearing on the records of
the Corporation. The Notice of Redemption shall set forth the number
of shares of Series D Preferred Stock which the Corporation intends to
redeem, the Redemption Date, the Redemption Price and the place at
which shareholders may obtain payment upon surrender of their
certificates.
(i) Mechanics of Corporation Redemption. If the Corporation elects to
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limit the number of Series D Preferred Stock which it will redeem
under a Notice of Redemption, the Corporation shall allocate for
redemption from each holder of Series D Preferred Stock a number of
shares equal to such holder's pro-rata amount (based on the number of
Series D Preferred Stock held by such holder on the Redemption Date
relative to the total number of Series D Preferred Stock outstanding
on such date).
(ii) Payment of Redemption Price. The Corporation shall pay the applicable
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Redemption Price to the holder of the Series D Preferred Stock being
redeemed in cash on the Redemption Date (if the shares have not been
submitted for conversion).
(b) Notwithstanding the fact that said shares have been called for
redemption, the holders of such shares shall have the right to convert
said shares in accordance with Section 4
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above. This right to convert shall terminate at the close of business
on the day prior to the Redemption Date.
6. Adjustment of Conversion Rate. The number of and kind of
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securities to which the holder of Preferred Stock is entitled upon conversion
shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances. If the Corporation
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shall at any time after the date hereof but prior to the expiration of
the Preferred Stock subdivide its outstanding securities as to which
rights under this Agreement exist, by split-up, spin-off, or
otherwise, or combine its outstanding securities as to which rights
under this Agreement exist, the number of shares of Common Stock as to
which the Preferred Stock holder is entitled upon conversion as of the
date of such subdivision, split-up, spin-off or combination shall
forthwith be proportionately increased in the case of a subdivision,
or proportionately decreased in the case of a combination.
(b) Stock Dividend. If at any time after the date hereof the Corporation
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declares a dividend or other distribution on Common Stock payable in
Common Stock or other securities or rights convertible into or
exchangeable for Common Stock ("Common Stock Equivalents"), without
payment of any consideration by holders of Common Stock for the
additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon
exercise or conversion thereof), then the number of shares of Common
Stock to which the Preferred Stock holder is entitled upon conversion
shall be increased as of the record date (or the date of such dividend
distribution if no record date is set) for determining which holders
of Common Stock shall be entitled to receive such dividends, in
proportion to the increase in the number of outstanding shares (and
shares of Common Stock issuable upon conversion of all Common Stock
Equivalents) of Common Stock as a result of such dividend.
(c) Other Distributions. If at any time after the date hereof the
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Corporation distributes to holders of its Common Stock, other than as
part of a dissolution or liquidation or the winding up of its affairs,
cash, any securities (other than the Corporation's own Common Stock or
Common Stock Equivalents), any evidence of indebtedness or any of its
assets, then, in any such case, the Preferred Stock holder shall be
entitled to receive, upon conversion of the Preferred Stock, with
respect to each share of Common Stock issuable upon such conversion
the amount of evidences of indebtedness, cash or other securities or
assets (excluding cash and the Corporation's own Common Stock or
Common Stock Equivalents) which such Preferred Stock Holder would have
been entitled to receive as a result of the happening of such event
with respect to each such share of Common Stock the Preferred Stock
holder would have held had all the outstanding Preferred Shares still
held by such holder been converted immediately prior to the record
date or other date determining the shareholders entitled to
participate in such distribution.
(d) Merger, Consolidation, etc. If at any time after the date hereof
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there shall be a merger or consolidation of the Corporation with or
into, or a transfer of all or substantially all of the assets of the
Corporation to, another entity (a "Consolidation Event"), then each
Preferred Stock holder shall be entitled to receive upon such
transfer, merger or consolidation
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becoming effective the number of shares or other securities or
property of or cash or other consideration from the Corporation or of
the successor corporation resulting from such merger or
consolidation, to which such Preferred Stock holder would have been
entitled to receive as a result of the happening of such event with
respect to each such shares of Common Stock as the Preferred Stock
holder would have held had all the outstanding Preferred Shares still
held by such holder been converted immediately prior to such
transfer, merger or consolidation becoming effective or to the
applicable record date thereof, as the case may be. The Corporation
shall not effect any Consolidation Event unless the resulting
successor or acquiring entity (if not the Corporation) assumes by
written instrument the obligation to deliver to the Preferred Stock
holder such shares of stock and/or securities as the Preferred Stock
holder is entitled to receive had the Preferred Stock been converted
in accordance with the foregoing.
(e) Reclassification, Etc. If at any time after the date hereof there
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shall be a reclassification of any securities as to which purchase
rights under this Certificate exist, into the same or a different
number of securities of any other class or classes, then the
Preferred Stock holder shall thereafter be entitled to receive upon
conversion of the Preferred Stock the number of shares or other
securities or property or cash or other consideration resulting from
such reorganization or reclassification, which would have been
received by the Preferred Stock holder for the shares of stock
subject to this Certificate had the Preferred Stock at such time been
converted.
(f) Registration Statement.
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(i) If no Registration Statement (as defined below) has been declared
effective by the Securities and Exchange Commission ("SEC") by the
Registration Deadline (as defined in that certain Registration Rights
Agreement between the Corporation and Daikin Industries, Ltd.
("Daikin") providing for the registration with the SEC of certain
shares of Common Stock of the Corporation issued or issuable to
Daikin (the "Registration Rights Agreement")), then a Price
Protection Adjustment (as defined below) shall be made to the
Conversion Rate in effect on that day, and a further Price Protection
Adjustment shall be made on each subsequent monthly anniversary of
that day until a Registration Statement has been declared effective
by the SEC.
(ii) As used in this Section 6(f), "Registration Statement" means a
registration statement for the resale by Daikin to the public of the
Registrable Securities, as defined in the Registration Rights
Agreement.
(iii) As used in this Section 6(f), "Price Protection Adjustment" shall
mean a reduction in a then applicable Conversion Rate to an amount
equal to 90% of such Conversion Rate. The Conversion Rate as so
adjusted shall thereafter become the "Conversion Rate" for all
purposes under this Certificate of Determination.
(g) Adjustments: Additional Shares, Securities or Assets. In the event
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that at any time, as a result of an adjustment made pursuant to this
Section 6, the Preferred Stock holder shall become entitled to
receive shares and/or other securities or assets other than Common
Stock then, wherever appropriate, all references herein to shares of
Common Stock shall
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be deemed to refer to and include such shares and/or other securities
or assets; and thereafter the number of such shares and/or other
securities or assets shall be subject to adjustment from time to time
in a manner and upon terms as nearly equivalent as practicable to the
provisions of this Section 6.
(h) Notice of Adjustments; Notices. Whenever the number of shares of
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Common Stock due upon conversion shall be adjusted pursuant to this
Section 6, the Corporation shall execute and deliver to the Preferred
Stock holder a certificate setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated and the number of
shares Common Stock due upon conversion after giving effect to such
adjustment, and shall cause a copy of such certificate to be mailed
(by first class mail, postage prepaid) to the Preferred Stock holder.
7. Mechanisms for Effecting Conversions. Subject to the
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Corporation's rights of redemption in Section 5, the Preferred Stock holder
shall effect conversions by surrendering the certificate or certificates
representing the shares of Series D Preferred Stock to be converted to the
Corporation together with a written conversion notice (the "Conversion Notice")
which shall specify the number of shares of Series D Preferred Stock, and the
date on which such conversion is to be effected, which date may not be prior to
the date the holder delivers such Conversion Notice by facsimile (the
"Conversion Date"). If no Conversion Date is specified in a Conversion Notice,
the Conversion Date shall be the first business day after the date that the
Conversion Notice is transmitted to the Corporation by facsimile or the third
business day after the Conversion Notice is mailed to the Corporation by first
class US mail. If the holder is converting less than all shares of Series D
Preferred Stock represented by the certificate(s) tendered by the holder with
the Conversion Notice, or if a conversion hereunder cannot be effected in full
for any reason, the Corporation shall convert up to the number of shares of
Series D Preferred Stock which is specified in the Conversion Notice and may be
so converted and shall promptly deliver to such holder a certificate for such
number of shares as have not been converted.
8. Delivery of Stock Certificates.
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(a) Subject to the terms and conditions of this Agreement, as soon as
practicable after a request for conversion, the Corporation at its
expense (including, without limitation, the payment by it of any
applicable issue taxes) will cause to be issued in the name of and
delivered to the Series D Preferred Stock holder, or as the Preferred
Stock holder may lawfully direct, a certificate or certificates for
the number of fully paid and non-assessable shares of Common Stock to
which the Preferred Stockholder shall be entitled on such conversion,
together with any other stock or other securities or property
(including cash, where applicable) to which the Preferred Stock holder
is entitled upon such conversion in accordance with the provisions
hereof.
(b) In lieu of delivering physical certificates representing the Common
Stock issuable upon conversion, provided the Corporation's Transfer
Agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer ("FAST") program, upon request of the
holder and in this Section 8, the Corporation shall use its best
efforts to cause its Transfer Agent to electronically transmit the
Common Stock issuable upon
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conversion to the holder by crediting the account of holder's Prime
Broker with DTC through its Deposit Withdrawal Agent Commission
("DWAC") system. The time periods for delivery and penalties described
in the immediately preceding paragraph shall apply to the electronic
transmittals described herein.
(c) In lieu of any fractional shares to which the holder of the Series D
Preferred Stock would otherwise be entitled, this Corporation shall
pay cash equal to such fraction multiplied by the Fair Market Value of
one share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of
shares of Series D Preferred Stock of each holder at the time
converting into Common Stock and the number of shares of Common Stock
issuable upon such aggregate conversion.
9. Reservation of Stock Issuable Upon Conversion. The Corporation
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shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the Series D Preferred Stock, such number of shares of Common Stock as
shall be necessary to effect the conversion of the Series D Preferred Stock into
Common Stock.
10. Replacement of Certificate. Upon receipt of evidence reasonably
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satisfactory to the Corporation of the loss, theft, destruction or mutilation of
this Certificate and, in the case of any such loss, theft or destruction of the
Certificate, upon delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Corporation or, in the case of any such
mutilation, on surrender and cancellation of such Certificate, the Corporation
at its expense will execute and deliver, in lieu thereof, a new Certificate of
like tenor.
11. Vote to Change the Terms of Series D Preferred Stock; Preferred
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Rank. The approval of the Board of Directors and the affirmative vote at a
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meeting duly called by the Board of Directors for such purpose (or the written
consent without a meeting) of the holders of not less than a majority of the
then outstanding shares of the Series D Preferred Stock shall be required (a) to
amend, alter, change or repeal any of the powers, designations, preferences and
rights of the Series D Preferred Stock, (b) to authorize the issuance of
additional shares of Series D Preferred Stock, and (c) for the Corporation to
authorize or issue additional or other capital stock that is of senior or equal
rank to the Series D Preferred Stock in respect of the preferences as to
distributions and payments upon the liquidation, dissolution and winding up of
the Corporation."
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IN WITNESS WHEREOF, the undersigned each declares under penalty of perjury
that the matters set out in the foregoing certificate are true of his or her own
knowledge, and the undersigned have executed this certificate at Novato,
California as of the 23rd day of February, 2001.
/s/ Robert J. Doris
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Robert J. Doris, President
/s/ Mary C. Sauer
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Mary C. Sauer, Secretary
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