EXHIBIT 3.04
NINTH AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
DIGITAL SOUND CORPORATION
I
The name of the corporation is Digital Sound Corporation.
II
The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized 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.
III
1. AUTHORIZATION OF SHARES
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The corporation is authorized to issue two classes of shares designated
"Common Stock," without par value, and "Preferred Stock," without par value,
respectively. The number of shares of Common Stock authorized to be issued is
50,000,000, and the number of shares of Preferred Stock authorized to be issued
is 15,000,000, 1,927,249 of which are presently undesignated as to series and
13,072,751 of which are presently designated as to series, as follows: 535,000
shares are designated as "Series A Preferred Stock," 660,000 shares are
designated as "Series B Preferred Stock," 1,500,00 shares are designated as
"Series C Preferred Stock," 2,627,750 are designated as "Series D Preferred
Stock," 3,250,001 shares are designated as "Series E Preferred Stock," and
4,500,000 shares are designated as "Series F Preferred Stock." The rights,
preferences, privileges and restrictions granted to and imposed upon the Common
Stock, the Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock, and
the Series F Preferred Stock are set forth below in Article IV.
2. DESIGNATION OF UNISSUED SERIES OF PREFERRED STOCK.
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The Board of Directors of the corporation may designate, fix the number of
shares of and determine or alter the rights, preferences, privileges and
restrictions granted to or imposed upon, any series of Preferred Stock as to
which there are no outstanding shares or rights to acquire shares (including any
series which becomes so as a result of conversion of all outstanding shares of
such series pursuant to Article IV, Section 6 hereof and the application of
Article IV, Section 6(s) hereof). As to any series of Preferred Stock, the
number of shares of which is authorized to be fixed by the Board of Directors,
the Board may, within any limits and restrictions stated in the resolutions of
the Board originally fixing the number of shares constituting such series,
increase or decrease (but not below the number of shares of such series then
outstanding and as to which rights to acquire shares of such series are then
outstanding) the number of shares of any such series subsequent to the issue of
shares of that series. Except as provided in Article IV, Section 7(a)(3) or
Section 7(b)(7), or as otherwise required by law, any new series of Preferred
Stock may be designated, fixed and determined as provided herein by the Board
without further approval of the holders of Common Stock or Preferred Stock, or
any series thereof.
IV
Section 1. Definitions. For purposes of this Article IV, the following
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definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
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(b) "Company" shall mean this corporation.
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(c) "Common Stock" shall mean the Common Stock of the Company.
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(d) "Common Stock's Fair Market Value" shall mean the fair market value of a
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share of Common Stock, as determined in good faith by the Board for the
purpose of granting stock options or issuing shares to employees of the
Company or any Subsidiary and determined as of the most recent date that
such determination has been made within one year of the applicable date
or, if no such determination has been made during such period, the fair
market value of such stock, as determined in good faith by the Board as
of the applicable date.
(e) "Dividend Rate" shall mean the rate at which dividends are declared by
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the Board from time to time with respect to each share of Common Stock.
(f) "Original Issue Price" shall mean $4.84 per share for the Series A
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Preferred Stock, $8.66 per share for the Series B Preferred Stock, $8.21
per share for the Series C Preferred Stock, $1.91 per share for the
Series D Preferred Stock, $2.00 per share for the Series E Preferred
Stock, and $2.00 per share for the Series F Preferred Stock.
(g) "Preferred Stock" shall mean the Series A Preferred Stock, Series B
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Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, and Series F Preferred Stock of the Company.
(h) "Redemption Price" shall mean the relevant Original Issue Price, plus
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10%, plus any declared and unpaid dividends, for each series of Preferred
Stock.
(i) "Redemption Threshold Date" shall mean August 18, 1994.
(j) "Subsidiary" shall mean any corporation at least fifty percent (50%) of
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the outstanding voting stock of which is at the time owned directly or
indirectly by the Company or by one or more of such subsidiary
corporations.
Section 2. Dividends. The holders of the then outstanding Preferred Stock
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shall be entitled to receive in cash, when, if and as declared by the Board, out
of any funds legally available therefor, dividends at the applicable Dividend
Rate for each share of Common Stock into which the Preferred Stock is then
convertible concurrently with the payment of any dividends (other than those
payable solely in Common Stock) with respect to the Common Stock in any given
fiscal year of the Company. Dividends on the Preferred Stock shall not be
mandatory or cumulative and no rights shall accrue to the holders of Preferred
Stock in the event that the Company shall fail to declare dividends on the
Preferred Stock in respect of that or any previous fiscal year whether or not
the earnings of the Company in that or any previous fiscal year were sufficient
to pay dividends.
Section 3. Liquidation Rights of Preferred Stock.
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(a) Preference. In the event of any liquidation, dissolution or winding up
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of the Company, whether voluntary or involuntary, the holders of the
Preferred Stock then outstanding shall be entitled to be paid out of the
assets of the Company available for distribution to its shareholders,
whether such assets are capital, surplus, or earnings, before any payment
or declaration and setting apart for payment of any amount shall be made
in respect of the Common Stock as follows:
(1) The holders of the Series F Preferred Stock shall be entitled to
receive, as the first priority in any such distribution, an amount
equal to $2.00 per share (the "First Preferential Amount"). If
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the assets to be distributed are insufficient to pay such First
Preferential Amount in full the assets available for distribution
shall be distributed to such holders pro rata in proportion to the
number of shares of Series F Preferred Stock held by each such
holder.
(2) After distribution of the full amount set forth in paragraph (1)
above, the holders of the Series A, Series B, Series C, Series D
and Series E Preferred Stock shall be entitled to receive, as the
second priority in any such distribution, an amount equal to $2.00
per share of Series A, Series B, Series C and Series E Preferred
Stock and $1.91 per share of Series D Preferred Stock (the "Second
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Preferential Amounts"). If the assets to be distributed are
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insufficient to pay such Second Preferential Amounts in full, the
assets available for distribution shall be distributed to such
holders pro rata in proportion to the aggregate of the Second
Preferential Amounts held by each such holder.
(3) After distribution of the full amount set forth in paragraph (2)
above, the holders of the Preferred Stock shall be entitled to
receive, as the third priority in any such distribution, a
fraction the numerator of which shall be $2.00 for the Series A,
Series B, Series C, Series E and Series F Preferred Stock, and
$1.91 for the Series D Preferred Stock, and the denominator of
which shall be the Original Issue Price for such series of
Preferred Stock, multiplied by any declared but unpaid dividends
on the shares of the Preferred Stock held by them (the "Third
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Preferential Amounts"). If the assets to be distributed are
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insufficient to pay such Third Preferential Amounts in full, the
assets available for distribution shall be distributed to such
holders pro rata in proportion to the aggregate of the Third
Preferential Amounts held by each such holder.
(4) After distribution of the full amounts set forth in paragraph (3)
above, the holders of Series A, Series B and Series C Preferred
Stock shall be entitled to receive, as the fourth priority in any
such distribution, an amount equal to the Original Issue Price of
each such series less $2.00 per share (the "Fourth Preferential
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Amounts"). If the assets to be distributed under this paragraph
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(4) are insufficient to pay such Fourth Preferential Amounts in
full, the assets available for distribution shall be distributed
to such holders pro rata in proportion to the aggregate of the
Fourth Preferential Amounts held by each such holder.
(5) After distribution of the full amounts set forth in paragraph (4)
above, the holders of the Series A, Series B and Series C
Preferred Stock shall be entitled to receive, as the fifth
priority in any such distribution, an amount equal to the
remainder of any declared but unpaid dividends on the shares of
the Series A, Series B and Series C Preferred Stock held by them
not distributed under paragraph (3) above.
(b) Remaining Assets. After the payment or distribution to the holders of
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the Preferred Stock of the full preferential amounts aforesaid, the
holders of the Common Stock then outstanding shall be entitled to receive
ratably all remaining assets of the Company to be distributed.
(c) Reorganization. A consolidation or merger of the Company with or into
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any other corporation or corporations in which the holders of the
Company's outstanding shares before the consolidation or merger do not
retain a majority of the voting power in the surviving corporation, a
sale or other disposition of all or substantially all the assets of the
Company, or a transfer in a single transaction or series of related
transactions to a single party or group of related parties of outstanding
shares of the Company's stock having 50% or more of the total voting
power of the Company shall be deemed a liquidation, dissolution, or
winding up of the Company as those terms are used in this Section 3.
(d) Consent to Certain Transactions. Each holder of shares of Preferred
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Stock shall, by virtue of its acceptance of a stock certificate
evidencing Preferred Stock, be treated as having consented, for purposes
of Sections 502, 503 and 506 of the California Corporations Code, to
distributions made by the Company for the repurchase of shares of Common
Stock from directors or employees of or consultants or advisers to the
Company or any Subsidiary upon the termination of employment by or
service to the Company or any Subsidiary or otherwise if such repurchase
is made in accordance with the repurchase agreements referred to in
Section 7(a)(2) hereof and such repurchases are not prohibited by such
Section.
Section 4. Redemption.
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(a) Restriction on Redemption and Purchase. Except as expressly provided in
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this Section 4, the Company shall not have the right to purchase, call,
redeem or otherwise acquire for value any or all of the Preferred Stock.
(b) Optional Redemption.
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(1) From time to time, upon the approval of the holders of a majority
of the outstanding shares of Series F Preferred Stock on, or at
any time after, the Redemption Threshold Date, the Company shall
redeem the shares of Series F Preferred Stock held by holders who
request such redemption (the "Series F Requesting Holders") at the
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Redemption Price. If the Company does not have sufficient and
lawful funds to redeem all shares held by Series F Requesting
Holders, the Company shall redeem the shares held by the Series F
Requesting Holders pro rata in proportion to the total number of
shares of Series F Preferred Stock held by the Series F Requesting
Holders that are requested by them to be redeemed.
(2) From time to time, upon the approval of the holders of a majority
of the outstanding shares of Series E Preferred Stock on, or at
any time after, the Redemption Threshold Date, the Company shall
redeem the shares of Series E Preferred Stock held by holders who
request such redemption (the "Series E
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Requesting Holders") at the Redemption Price, provided that the
Series F Requesting Holders shall have first priority to have
their Series F Preferred Stock redeemed in full prior to any
redemption by the Company of the shares of Series E Preferred
Stock. If the Company does not have sufficient and lawful funds to
redeem all shares held by Series E Requesting Holders, the Company
shall redeem the shares held by the Series E Requesting Holders
pro rata in proportion to the total number of shares of Series E
Preferred Stock held by the Series E Requesting Holders that are
requested by them to be redeemed.
(3) On, or at any time after, the Redemption Threshold Date, the
Company may at its option redeem the Series A, Series B, Series C
and Series D Preferred Stock in whole, but not in part, at the
applicable Redemption Price specified for each series of Preferred
Stock; provided that the Company shall not redeem any of such
series of Preferred Stock or give notice of any such redemption
unless the Company has sufficient and lawful funds to redeem all
series of the then outstanding Preferred Stock, and provided
further that the Company shall give each holder of Series E
Preferred Stock and Series F Preferred Stock notice of its
intention to redeem the Preferred Stock under this subsection (3)
at least thirty (30) days prior to the date fixed for redemption.
(c) Price. The redemption price of each series of Preferred Stock shall be
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an amount per share equal to the applicable Redemption Price for such
series.
(d) Redemption Notice. In the event of a redemption under Section 4(b)(1),
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4(b)(2) or 4(b)(3) hereof, the Company shall, not less than thirty (30)
days nor more than sixty (60) days prior to the date fixed for redemption
(the "Redemption Date"), mail written notice (the "Redemption Notice"),
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postage prepaid, to each holder of record of Preferred Stock to be
redeemed, at such holder's post office address last shown on the records
of the Company. The Redemption Notice shall state:
(1) The total number of shares of each series of Preferred Stock being
redeemed;
(2) The number of shares of Preferred Stock of such series held by the
holder;
(3) The Redemption Date and the Redemption Price for such series;
(4) With respect to redemptions pursuant to Section 4(b)(3) hereof,
that the holder's right to convert the Preferred Stock will
terminate one business day before the Redemption Date; and
(5) The time, place and-manner in which the holder is to surrender to
the Company the certificate or certificates representing the
shares of Preferred Stock to be redeemed.
(e) Surrender of Stock. In the event of a redemption under Section 4(b)(1),
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4(b)(2) or 4(b)(3) hereof, on or before the Redemption Date, each holder
of Preferred Stock to be redeemed, unless the holder has exercised his
right to convert the shares as provided in Section 6 hereof, shall
surrender the certificate or certificates representing such shares to the
Company, in the manner and at the place designated in the Redemption
Notice, and thereupon the Redemption Price for such shares shall be
payable to the order of the person whose name appears on such certificate
or certificates as the owner thereof, and each surrendered certificate
shall be cancelled and retired.
(f) Termination of Rights. If the Redemption Notice is duly given, and if on
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or before the Redemption Date the Redemption Price is either paid or made
available for payment through the arrangement specified in subsection (g)
below, then notwithstanding that the certificates evidencing any of the
shares of Preferred Stock so called for redemption have not been
surrendered, all rights with respect to such shares shall forthwith on
the Redemption Date cease and terminate, except only (i) the right of the
holders to receive the Redemption Price, without interest, upon surrender
of their certificates therefor or (ii) the right to receive Common Stock
plus dividends if any upon proper and timely exercise of the conversion
rights as provided in Section 6 hereof, provided that the voting rights
of the Preferred Stock conferred by Section 5 hereof shall not be
impaired prior to such receipt of the Redemption Price or conversion, as
the case may be.
(g) Deposit of Funds. At least five (5) days prior to the Redemption Date,
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the Company shall deposit with any bank or trust company in Santa Barbara
or Los Angeles, California, having capital of at least $10,000,000.00, a
sum equal to the aggregate Redemption Price of all shares of the
Preferred Stock called for redemption and not yet redeemed, with
irrevocable instructions and authority to the bank or trust company to
pay, on or (if surrender of
certificates occurs after the Redemption Date) after the Redemption Date
or prior thereto, the Redemption Price to the respective holders upon the
surrender of their share certificates. The deposit shall constitute full
payment of the shares to their holders, and from and after the date of
such deposit (even if prior to the Redemption Date) the holders thereof
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 surrender of their certificates therefor
and the right to convert such shares and receive any declared and unpaid
dividends as provided in Section 6 hereof, provided as aforesaid in
subsection (f) with respect to voting rights. Any monies so deposited and
unclaimed at the end of one year from the Redemption Date shall be
released or repaid to the Company, after which the holders of shares
called for redemption shall be entitled to receive payment of the
Redemption Price only from the Company.
Section 5. Voting Rights.
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(a) Preferred Stock. Each holder of shares of Preferred Stock shall be
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entitled to vote on all matters and, except as otherwise expressly
provided herein, shall be entitled to the number of votes equal to the
largest number of full shares of Common Stock into which such shares of
Preferred Stock could be converted, pursuant to the provisions of Section
6 hereof, at the record date for the 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.
(b) Common Stock. Each holder of shares of Common Stock shall be entitled to
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one vote for each share thereof held. Except as otherwise expressly
provided herein or as required by law, the holders of Preferred Stock and
the holders of Common Stock shall vote together and not as separate
classes.
Section 6. Conversion.
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The holders of the Preferred Stock shall have the following conversion
rights:
(a) Right to Convert. Each share of Preferred Stock shall be convertible, at
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any time or from time to time at the option of the holder thereof, into
fully paid and nonassessable shares of Common Stock.
(b) Conversion Price. Each share of Preferred Stock shall be convertible
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into the number of shares of Common Stock which results from dividing the
conversion price of that series of Preferred Stock that is in effect at
the time of conversion (the "Conversion Price") into the Original Issue
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Price for such series of Preferred Stock. As of the filing of these
Articles, the initial Conversion Price for each series of Preferred Stock
shall be the Original Issue Price for such series. The Conversion Price
for each series of Preferred Stock shall be subject to adjustment from
time to time as provided below.
(c) Mechanics of Conversion. Each holder of Preferred Stock who desires to
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convert the same into shares of Common Stock shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Company or any transfer agent for the Preferred Stock or Common Stock,
and shall give written notice to the Company at such office that such
holder elects to convert the same and shall state therein the number of
shares of Preferred Stock being converted. Thereupon the Company shall
promptly issue and deliver at such office to such holder a certificate or
certificates for the number of shares of Common Stock to which such
holder is entitled and shall promptly pay in cash any declared and unpaid
dividends on the shares of Preferred Stock being converted. Such
conversion shall be-deemed to have been made immediately prior to the
close of business on the date of such surrender of the certificate
representing the shares of Preferred Stock to be converted, and the
person entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such
shares of Common Stock on such date. If a surrender for conversion
occurs after the record date fixed by the Company for the determination
of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock, but prior to
the issuance of such additional shares, the Conversion Price shall,
subject to such issue, be recomputed in accordance with subsection (e) of
this Section 6.
(d) Adjustment for Stock Splits and Combinations. If the Company at any time
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or from time to time after the filing of these Articles effects a
subdivision of the outstanding Common Stock, the Conversion Price for
each series of Preferred Stock in effect immediately before that
subdivision shall be proportionately decreased, and conversely, if the
Company at any time or from time to time after the filing of these
Articles combines the outstanding shares of Common Stock into a smaller
number of shares, the-Conversion Price for each series of Preferred Stock
in effect immediately before the combination shall be proportionately
increased. Any adjustment under this
subsection (d) shall become effective at the close of business on the
date the subdivision or combination becomes effective.
(e) Adjustment for Common Stock Dividends. If the Company at any time or
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from time to time after the filing of these Articles makes, or fixes a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of
Common Stock, in each such event the applicable Conversion Price for each
series of Preferred Stock that is then in effect shall be decreased as of
the time of such issuance or, in the event such record date is fixed, as
of the close of business on such record date, by multiplying the
applicable Conversion Price then in effect for each series of Preferred
Stock by a fraction (1) the numerator of which is the total number of
shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date, and
(2) the denominator of which is the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and
such dividend is not fully paid or if such distribution is not fully made
on the date fixed therefor, the applicable Conversion Price for each
series of Preferred Stock shall be recomputed accordingly as of the close
of business on such record date and thereafter the applicable Conversion
Price for each series of Preferred Stock shall be adjusted pursuant to
this subsection (e) to reflect the actual payment of such dividend or
distribution.
(f) Adjustment for Other Dividends and Distributions. If the Company at any
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time or from time to time after the filing of these Articles makes, or
fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in
securities of the Company other than shares of Common Stock, in each such
event provision shall be made so that the holders of any series of
Preferred Stock shall receive upon conversion thereof, in addition to the
number of shares of Common Stock receivable thereupon, the amount of
securities of the Company which they would have received had their
Preferred Stock 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 conversion date, retained such securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 6 with
respect to the rights of the holders of the Preferred Stock or with
respect to such other securities by their terms.
(g) Adjustment for Reclassification, Exchange and Substitution. If at any
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time or from time to time after the filing of these Articles the Common
Stock issuable upon the conversion of any series of Preferred Stock is
changed into the same or a different number of shares of any class or
classes of stock, whether by recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock
dividend or a reorganization, merger, consolidation or sale of assets,
provided for elsewhere in this Section 6), in any such event each holder
of such series of Preferred Stock shall have the right thereafter to
convert such stock into the kind and amount of stock and other securities
and property receivable upon such recapitalization, reclassification or
other change by holders of the maximum number of shares of Common Stock
into which such shares of Preferred Stock could have been converted
immediately prior to such recapitalization, reclassification or change,
all subject to further adjustment as provided herein or with respect to
such other securities or property by the terms thereof.
(h) Reorganizations, Mergers. Consolidations or Sales of Assets. If at any
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time or from time to time after the filing of these Articles there is a
capital reorganization of the Common Stock (other than a
recapitalization, subdivision, combination, reclassification or exchange
of shares provided for elsewhere in this Section 6) or a merger or
consolidation of the Company into or with another corporation, or the
sale-of all or substantially all the Company's properties and assets to
any other person, as a part of such reorganization, merger, consolidation
or sale, provision shall be made so that the holders of any series of
Preferred Stock shall thereafter be entitled to receive upon conversion
of such series of Preferred Stock the number of shares of stock or other
securities or property of the Company, or of the successor corporation
resulting from such merger or consolidation or sale, to which a holder of
the number of shares of Common Stock deliverable upon conversion would
have been entitled on such capital reorganization, merger, consolidation
or sale, subject to adjustment in respect of such stock or securities by
the terms thereof. In any such case, appropriate adjustment shall be
made in the application of the provisions of this Section 6 with respect
to the rights of the holders of Preferred Stock after the reorganization,
merger, consolidation or sale to the end that the provisions of this
Section 6 (including adjustment of the Conversion Price then in effect
for each series of Preferred Stock and the number of shares purchasable
upon conversion of each series of Preferred Stock) shall be applicable
after that event and be as nearly equivalent as practicable.
(i) Sale of Shares Below Conversion Price.
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(1) Except as provided in subsections (d) through (i) hereof, there
shall be no adjustment in the Conversion Price of any series of
Preferred Stock by reason, of any sale or issuance of Common Stock
or securities exercisable for or convertible into Common Stock,
whether for consideration less than the applicable Conversion
Price of any series of Preferred Stock or otherwise.
(2) If at any time or from time to time after the first sale and
issuance of any shares of the Series F Preferred Stock only, the
Company issues or sells, or is deemed by the express provisions of
this subsection (i) to have issued or sold, Additional Shares of
Common Stock (as hereinafter defined), other than as a dividend or
other distribution on any class of stock as provided in
subsections (e) and (f) above and other than upon a subdivision or
combination of shares of Common Stock as provided in subsection
(d) above, for an Effective Price (as hereinafter defined) less
than the then existing Conversion Price for Series F Preferred
Stock, then and in each such case the then existing Conversion
Price for Series F Preferred Stock only shall be reduced, as of
the opening of business on the date of such issue or sale, to a
price equal to the Effective Price at which such Additional Shares
of Common Stock are issued or sold.
(3) For the purpose of making any adjustment required under this
subsection (i), the consideration received by the Company for any
issue or sale of securities shall (A) to the extent it consists of
cash, be computed at the net amount of cash received by the
Company after deduction of any expenses payable by the Company and
any underwriting or similar commissions, compensation, or
concessions paid or allowed by the Company in connection with such
issue or sale, (B) to the extent it consists of property other
than cash, be computed at the fair value of that property as
determined in good faith by the Board, and (C) if Additional
Shares of Common Stock, Convertible Securities (as hereinafter
defined) or rights or options to purchase either Additional Shares
of Common Stock or Convertible Securities are issued or sold
together with other stock or securities or other assets of the
Company for a consideration which covers both, be computed as the
portion of the consideration so received that may be reasonably
determined in good faith by the Board to be allocable to such
Additional Shares of Common Stock, Convertible Securities or
rights or options.
(4) For the purpose of the adjustment required under this subsection
(i), if the Company issues or sells any rights or options for the
purchase of, or stock or other securities convertible into,
Additional Shares of Common Stock (such convertible stock or
securities being hereinafter referred to as "Convertible
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Securities") and if the Effective Price of such Additional Shares
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of Common Stock is less than the-Conversion Price then in effect,
in each case the Company shall be deemed to have issued at the
time of the issuance of such rights or options or Convertible
Securities the maximum number of Additional Shares of Common Stock
issuable upon exercise or conversion thereof and to have received
as consideration for the issuance of such shares an amount equal
to the total amount of the consideration, if any, received by the
Company for the issuance of such rights or options or Convertible
Securities, plus, in the case of such rights or options, the
minimum amounts of consideration, if any, payable to the Company
upon the exercise of such rights or options, plus, in the case of
Convertible Securities, the minimum amounts of consideration, if
any, payable to the Company (other than by cancellation of
liabilities or obligations evidenced by such Convertible
Securities) upon the conversion thereof provided that if in the
case of Convertible Securities the minimum amounts of such
consideration cannot be ascertained, but are a function of
antidilution or similar protective clauses, the Company shall be
deemed to have received the minimum amounts of consideration
without reference to such clauses; provided that if the minimum
amount of consideration payable to the Company upon the exercise
or conversion of rights, options or Convertible Securities is
reduced over time or on the occurrence or non-occurrence of
specified events, the Effective Price shall be recalculated using
the figure to which such minimum amount .of consideration is
reduced; provided that if the minimum amount of consideration
payable to the-Company upon the exercise or conversion of such
rights, options or Convertible Securities is subsequently
increased, the Effective Price shall be again recalculated using
the increased minimum amount of consideration payable to the
Company upon the exercise or conversion of such rights, options or
Convertible Securities. No further adjustment of the Conversion
Price, adjusted upon the issuance of such rights, options or
Convertible Securities, shall be made as a result of the actual
issuance of Additional Shares of Common Stock on the exercise of
any such rights or options or the conversion of any such
Convertible Securities. If any such rights or options or the
conversion privilege . represented by any such Convertible
Securities shall expire without having been exercised, the
Conversion Price adjusted upon the issuance of such rights,
options or Convertible Securities shall be readjusted to the
Conversion Price which would have been in effect had an adjustment
been made on the basis that the only Additional Shares of Common
Stock so issued were the Additional Shares of Common Stock, if
any, actually issued or sold on the exercise of such rights or
options or rights of conversion of such Convertible Securities,
and such Additional Shares of Common Stock, if any, were issued or
sold for the consideration actually received by the Company upon
such exercise, plus the consideration, if any, actually received
by the Company for the granting of all such rights or options,
whether or not exercised, plus the consideration received for
issuing or selling the Convertible Securities actually converted,
plus the consideration, if any, actually received by the
Company,(other than by cancellation of liabilities or obligations
evidenced by such Convertible Securities) on the conversion of
such Convertible Securities provided that such readjustment shall
not apply to prior conversions of Preferred Stock.
(5) For the purpose of the adjustment required under this subsection
(i), if the Company issues or sells any rights or options for the
purchase of Convertible Securities and if the Effective Price of
the Additional Shares of Common Stock underlying such Convertible
Securities is less than the Conversion Price then in effect, in
each such case the Company shall be deemed to have issued at the
time of the issuance of such rights or options the maximum number
of Additional Shares of Common Stock issuable upon conversion of
the total amount of Convertible Securities covered by such rights
or options and to ha-re received as consideration for the issuance
of such Additional Shares of Common Stock an amount equal to the
amount of consideration, if any, received by the Company for the
issuance of such rights or options, plus the minimum amounts of
consideration, if any, payable to the Company upon the exercise of
such rights or options and plus the minimum amount of
consideration, if any, payable to the Company (other than by
cancellation of liabilities or obligations evidenced by such
Convertible Securities) upon the conversion of such Convertible
Securities. No further adjustment of the Conversion Price,
adjusted upon the issuance of such rights or options, shall be
made as a result of the actual issuance of the Convertible
Securities upon the exercise of such rights or options or upon the
actual issuance of Additional Shares of Common Stock upon the
conversion of such Convertible Securities. The provisions of
paragraph (4) above for the readjustment of the Conversion Price
upon the expiration of rights or options or the rights of
conversion of Convertible Securities shall apply mutatis mutandi
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to the rights, options and Convertible Securities referred to in
this paragraph (5).
(6) "Additional Shares of Common Stock" shall mean all shares of
-----------------------------------
Common Stock issued by the Company, whether or not subsequently
reacquired or retired by the Company, other than (1) shares of
Common Stock issued upon conversion of the Preferred Stock; and
(2) the first 2,475,198 shares of Common Stock issued or deemed
issued after August 19, 1988 to employee or directors of or
consultants or advisers to the Company or any Subsidiary pursuant
to stock purchase or stock option plans or other arrangements that
are approved by the Board, net of any options that have expired or
terminated and of any shares repurchased by the Company from
employees or directors of or consultants or advisors to the
Company at cost upon termination of employment pursuant to the
terms of stock purchase agreements or stock pledge agreements
approved by the Board; and (3) all shares of Common Stock issued
to employees of the Company pursuant to any employee salary, bonus
or commission deferral program that is approved by the Board; and
(4) shares of Common Stock issued or issuable pursuant to warrants
issued on or after June 16, 1986 and on or before October 15, 1986
to purchase up to 411,400 shares of Common Stock. The "Effective
----------
Price" of Additional Shares of Common Stock shall mean the
------
quotient determined by dividing the total number of Additional
Shares of Common Stock issued or sold, or deemed to have been
issued or sold by the Company under this subsection (i), into the
aggregate consideration received, or deemed to have been received
by the Company for such issue under this subsection (i), for such
Additional Shares of Common Stock.
(j) Accountants' Certificate of Adjustment. In each case of an adjustment or
--------------------------------------
readjustment of the Conversion Price and the number of shares of Common
Stock or other securities issuable upon conversion of the Preferred
Stock, the Company, at its expense, shall cause independent public
accountants of recognized standing selected by the Company (who may be
the independent public accountants then auditing the books of the
Company) to compute such adjustment or readjustment in accordance with
the provisions hereof and prepare a certificate showing such adjustment
or readjustment, and shall mail such certificate, by first class mail,
postage prepaid, to each registered holder of the Preferred Stock at the
holder's address as shown in the Company's books. The certificate shall
set forth such adjustment or readjustment, showing in detail the facts
upon which such adjustment or readjustment is
based, including a statement of (1) the Conversion Price at the time in
effect, (2) the number of additional shares of Common Stock and (3) the
type and amount, if any, of other property which at the time would-be
received upon conversion of the Preferred Stock.
(k) Notices of Record Date. Upon (i) any taking by the Company of a record
----------------------
of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, or (ii) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company,
any merger or consolidation of the Company with or into any other
corporation, or any transfer of all or substantially all the assets of
the Company to any other person or any voluntary or involuntary
dissolution, liquidation or winding up of the Company, the Company shall
mail to each holder of Preferred Stock at least twenty (20) days prior to
the record date specified therein a notice specifying (1) the date on
which any such record is to be taken for the purpose of such dividend or
distribution and a description of such dividend or distribution, (2) the
date on which any such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected
to become effective, and (3) the date, if any, that is to be fixed as to
when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up.
(1) Automatic Conversion.
--------------------
(1) Each share of Preferred Stock shall automatically be converted
into shares of Common Stock based on the then effective Conversion
Price for such share of Preferred Stock immediately upon the
closing of an underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933,
as amended, covering the offering and sale of Common Stock for the
account of the Company (i) in which the aggregate gross proceeds
received by the Company at the public offering price equals or
exceeds $10,000,000.00, (ii) the public offering price per share
of which equals or exceeds $5.00 per share of Common Stock
(appropriately adjusted for subdivisions and combinations of
shares of Common Stock and dividends on Common Stock payable in
shares of Common Stock that occur after the date of filing of
these Articles) and (iii) the obligation of the underwriters with
respect to which is that if any of the securities being offered
are purchased, all such securities must be purchased; provided,
however, that such conversion shall be conditioned upon payment by
the Company of all declared and unpaid dividends on the
outstanding Preferred Stock to and including the date of such
conversion, payable either in cash or, at the option of the
Company, Common Stock (valued at the Common Stock's Fair Market
Value), or both.
(2) Each share of any series of Preferred Stock. shall automatically
be converted into shares of Common Stock based on the then
effective Conversion Price for such series upon the written
approval of the holders of (as applicable to such series) a
majority of such series for the Series A Preferred Stock, the
holders of sixty-seven percent (67%) of such series for the Series
B Preferred Stock, the holders of sixty-seven percent (67%) of
such series for the Series C Preferred Stock, the holders of
sixty-seven percent (67%) of such series for the Series D
Preferred Stock, the holders of a majority of such series for the
Series E Preferred Stock, and the holders of a majority of such
series for the Series F Preferred Stock.
(3) Upon the occurrence of either of the events specified in
paragraphs (1) and (2) above, the outstanding shares of Preferred
Stock of the relevant Series 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 Company or its transfer agent; provided,
however, that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon
such conversion unless the certificates evidencing such shares of
Preferred Stock are either delivered to the Company or-its
transfer agent as provided below, or the holder notifies the
Company or its transfer agent that such certificates have been
lost, stolen or destroyed and executes an agreement satisfactory
to the Company to indemnify the Company from any loss incurred by
it in connection with such certificates. Upon the occurrence of
such automatic conversion of the Preferred Stock, the holders of
Preferred Stock shall surrender the certificates representing such
shares at the office of the Company or any transfer agent for the
Preferred Stock or Common Stock. Thereupon, there shall be issued
and delivered to such holder promptly at such office and in its
name as shown on such surrendered certificate or certificates, a
certificate or certificates for the number of shares of Common
Stock into which the shares of Preferred
Stock surrendered were convertible on the date on which such
automatic conversion occurred, and the Company shall promptly pay
in cash or, at the option of the Company, Common Stock (taken at
the Common Stock's Fair Market Value as of the date of such
conversion), or, at the option of the Company, a combination, all
declared and unpaid dividends on the shares of Preferred Stock
being converted to and including the date of such conversion.
(m) Fractional Shares. No fractional shares of Common Stock shall be issued
-----------------
upon conversion of Preferred Stock. In lieu of any fractional share to
which the holder would otherwise be entitled, the Company shall pay cash
equal to the product of such fraction multiplied by the Common Stock's
Fair Market Value on the date of conversion.
(n) Reservation of Stock Issuable Upon Conversion. The Company 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 Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of the Preferred Stock; and if
at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding
shares of the Preferred Stock, the Company will take such corporate
action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(o) Notices. Any notice required by the provisions of this Section 6 to be
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given to holders of shares of the Preferred Stock shall be deemed given
upon the earlier of actual receipt or seventy-two (72) hours after the
same has been deposited in the United States mail, by certified or
registered mail, return receipt requested, postage prepaid, and addressed
to each holder of record at the address of such holder appearing on the
books of the Company.
(p) Payment of Taxes. The Company will pay all taxes (other than taxes based
----------------
upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock upon
conversion of shares of Preferred Stock, including without limitation any
tax or other charge imposed in connection with any transfer involved in
the issue and delivery of shares of Common Stock in a name other than
that in which the shares of Preferred Stock so converted were registered.
(q) No Dilution or Impairment. The Company shall not amend its Articles of
-------------------------
Incorporation or participate in any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid
the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but shall at all times in good faith
assist in carrying out all such action as may be reasonably necessary or
appropriate in order to protect the conversion rights of the holders of
the Preferred Stock against dilution or other impairment.
(r) Cancellation of Preferred Stock on Conversion. All certificates of the
---------------------------------------------
Preferred Stock surrendered for conversion shall be appropriately
cancelled on the books of the Company, and the shares so converted
represented by such certificates shall not be reissuable as shares of the
series of Preferred Stock so converted, but shall instead be restored to
the status of authorized but unissued Preferred Stock of the Company,
undesignated as to series and subject to designation by the Board of
Directors of the Company pursuant to Article III, Section 2 hereof.
(s) Effect of Conversion on Rights to Acquire Preferred Stock. Upon the
---------------------------------------------------------
conversion of all outstanding shares of any series of Preferred Stock
into Common Stock pursuant to this Section 6, all outstanding warrants,
options or other rights to acquire shares of such series of Preferred
Stock (the "Rights") shall thereafter be exercisable to acquire shares of
--------
Common Stock only, in lieu of shares of such series of Preferred Stock.
The number of shares of Common Stock issuable upon exercise of any such
Right shall be equal to the number of shares of Common Stock that would
have been issuable to the holder thereof, at the time of conversion of
all shares of the series of Preferred Stock, had the holder exercised the
Right immediately prior to such conversion, subject to further adjustment
as provided herein. Following the conversion of all outstanding shares
of any series of Preferred Stock, the Company shall at all times
thereafter reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of allowing the exercise
of all Rights with respect to such series, such number of shares of its
Common Stock as shall from time to time be sufficient to allow the
exercise of all such Rights; and if at any such time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
allow the exercise of all such Rights, the Company will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
Section 7. Restrictions and Limitations.
----------------------------
(a) So long as any shares of Preferred Stock remain outstanding, the Company
shall not, and shall not permit any Subsidiary to, without the vote or
written consent by the holders of a majority of the voting power of all
Series of Preferred Stock voting as a class:
(1) Redeem, purchase or otherwise acquire for value, any share or
shares of Preferred Stock otherwise than by redemption in
accordance with Section 4 hereof;
(2) Purchase, redeem or otherwise acquire for value (or pay into or
set aside as a sinking fund for such purpose) any of the Common
Stock; provided, however, that this -restriction shall not apply
to the repurchase of shares of Common Stock from directors or
employees of or consultants or advisers to the Company or any
Subsidiary pursuant to agreements under which the Company has the
option to repurchase such shares upon the occurrence of certain
events, including the termination of employment by or service to
the Company or any Subsidiary; and provided further, however, that
without the approval, by vote or written consent, of the holders
of a majority of the voting power of the Preferred Stock, the
total amount applied to the repurchase of shares of Common Stock
shall not exceed $150,000.00 during any twelve-month period;
(3) Authorize or issue, or obligate itself to issue, any other equity
security senior to or on a parity with the Preferred Stock as to
dividend or redemption rights, liquidation preferences, voting
rights or with respect to the rights provided for in this Section
7, or otherwise;
(4) Declare or pay any dividends on or declare or make any other
distribution, direct or indirect (other than a dividend payable
solely in shares of Common Stock) on account of the Common Stock
or set apart any sum for any such purpose;
(5) Effect any sale, lease, assignment, transfer or other conveyance
of all or substantially all the assets of the Company or any of
its Subsidiaries or any consolidation or merger involving the
Company or any of its Subsidiaries that requires the approval of
the shareholders of the Company under California law, or any
reclassification or other change of any stock, or any
recapitalization, or any dissolution, liquidation, or winding up
of the Company, or sale of more than 50% of its Common Stock or,
unless the obligations of the Company under such agreement are
expressly conditioned upon the requisite approval of the holders
of a majority of the outstanding Preferred Stock as provided for
herein, make any agreement or become obligated to do so;
(6) Permit any Subsidiary to issue or sell, or obligate itself to
issue or sell, except to the Company or any wholly-owned
Subsidiary, any stock of such Subsidiary; or
(7) Increase or decrease (other than by redemption or conversion) the
total number of authorized shares of Preferred Stock.
(b) The Company shall not amend its Articles of Incorporation without the
approval, by vote or written consent, on an as-converted basis, of the
holders of, as relevant, a majority of the Series A Preferred Stock, 67%
of the Series B Preferred Stock, 67% of the Series C Preferred Stock, 67%
of the Series D Preferred Stock, a majority of the Series E Preferred
Stock, and a majority of the Series F Preferred Stock, if such amendment
would change-any of the rights, preferences, privileges of or limitations
provided for-herein for the benefit of any shares of such series of
Preferred Stock. Without limiting the generality of the next preceding
sentence, the Company shall not amend its Articles of Incorporation
without the requisite approval set forth in this subsection (b) by the
holders of such series of Preferred Stock affected if such amendment
would:
(1) Reduce the dividend rate on such series of Preferred Stock
provided for herein, or change the relative seniority rights of
the holders of such series of Preferred Stock as to the payment of
dividends in relation to the holders of any other capital stock of
the Company;
(2) Reduce the amount payable to the holders of such series of
Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company, or change the relative
seniority of
the liquidation preferences of the holders of such series of
Preferred Stock to the rights upon liquidation of the holders of
any other capital stock of the Company;
(3) Reduce the Redemption Price of such series;
(4) Make such series redeemable at the option of the Company except as
specified in Section 4 hereof;
(5) Cancel or modify the voting rights provided for such series in
Section 5 hereof;
(6) Cancel or modify the conversion rights provided for such series in
Section 6 hereof;
(7) Authorize any other equity security senior to such series of
Preferred Stock as to dividend or redemption rights, liquidation
preferences, voting rights, or with respect to the rights provided
for in this Section 7, or otherwise; or
(8) Cancel or modify the redemption rights provided for such series in
Section 4(b) hereof.
V
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
VI
The corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code), through bylaw
provisions, by agreement or otherwise, in excess of the indemnification
otherwise permitted by Section 317 of the California Corporations Code, subject
to the limits on such excess indemnification set forth in Section 204 of the
California Corporations Code.