AZ CORP. COMMISSION
FILED
JUN 17 1996
APPR. SIGNATURE
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TERM
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DATE 6/17/96
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0252003-4
STATEMENT PURSUANT TO SECTION 10-602
CERTIFICATE OF DESIGNATION OF
SERIES A PREFERRED STOCK
OF
SC&T International, Inc.
It is hereby certified that:
1. The name of the Company (hereinafter called the "Company") is SC&T
International, Inc., an Arizona corporation.
2. The certificate of incorporation of the Company authorize the
issuance of Five Million (5,000,000) shares of preferred stock, $.01 par value
per share, and expressly vests in the Board of Directors of the Company the
authority provided therein to issue any or all of said shares in one (1) or more
series and by resolution or resolutions to establish the designation and number
and to fix the relative rights and preferences of each series to be issued.
3. The Board of Directors of the Company, pursuant to the authority
expressly vested in it as aforesaid, has duly adopted as of June 10, 1996, the
following resolutions creating a Series A issue of Preferred Stock:
RESOLVED, that One Thousand Fifty-one (1,051) of the Five Million
(5,000,000) authorized shares of Preferred Stock of the Company shall be
designated Series A Preferred Stock, $.01 par value per share, and shall possess
the rights and preferences set forth below:
Section 1. Designation and Amount. The shares of such series shall have
a par value of $.01 per share and shall be designated as Series A Preferred
Stock (the "Series A Preferred Stock") and the number of shares constituting the
Series A Preferred Stock shall be One Thousand Fifty-one (1,051). The Series A
Preferred Stock shall be offered at a purchase price of Ten Thousand Dollars
($10,000) per share (the "Original Series A Issue Price"), with an eight percent
(8%) per annum accretion rate as set forth herein.
Section 2. Rank. The Series A Preferred Stock shall rank: (i) junior to
any other class or series of capital stock of the Company hereafter created
specifically ranking by its terms senior to the Series A Preferred Stock
(collectively, the "Senior Securities"); (ii) prior to all of the Company's
Common Stock, $.01 par value per share ("Common Stock"); (iii) prior to any
class or series of capital stock of the Company hereafter created not
specifically ranking by its terms senior to or on parity with any Series A
Preferred Stock of whatever subdivision (collectively, with the Common Stock,
"Junior Securities"); and (iv) on parity with any class or series of capital
stock of the Company hereafter created specifically ranking by its terms on
parity with the Series A Preferred Stock ("Parity Securities") in each case as
to distributions of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (all such distributions being referred
to collectively as "Distributions").
Section 3. Dividends. The Series A Preferred Stock will bear no
dividends, and the holders of the Series A Preferred Stock ("Holders") shall not
be entitled to receive dividends on the Series A Preferred Stock.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of the Company, either voluntary or involuntary, the Holders of shares of Series
A Preferred Stock shall be entitled to receive, immediately after any
distributions to Senior Securities required by the Company's Certificate of
Incorporation or any certificate of designation, and prior in preference to any
distribution to Junior Securities but in parity with any distribution to Parity
Securities, an amount per share equal to the sum of (i) the Original Series A
Issue Price for each outstanding share of Series A Preferred Stock and (ii) an
amount equal to eight percent (8%) of the Original Series A Issue Price per
annum for the
period that has passed since the date that, in connection with the consummation
of the purchase by Holder of shares of Series A Preferred Stock from the
Company, the escrow agent first had in its possession funds representing full
payment for the shares of Series A Preferred Stock (such amount being referred
to herein as the "Premium"). If upon the occurrence of such event, and after
payment in full of the preferential amounts with respect to the Senior
Securities, the assets and funds available to be distributed among the Holders
of the Series A Preferred Stock and Parity Securities shall be insufficient to
permit the payment to such Holders of the full preferential amounts due to the
Holders of the Series A Preferred Stock and the Parity Securities, respectively,
then the entire assets and funds of the Company legally available for
distribution shall be distributed among the Holders of the Series A Preferred
Stock and the Parity Securities, pro rata, based on the respective liquidation
amounts to which each such series of stock is entitled by the Company's
Certificate of Incorporation and any certificate(s) of designation relating
thereto.
(b) Upon the completion of the distribution required by
subsection 4(a), if assets remain in this Company, they shall be distributed to
holders of Junior Securities in accordance with the Company's Certificate of
Incorporation including any duly adopted certificate(s) of designation.
(c) At each Holder's option, a sale, conveyance or disposition
of all or substantially all of the assets of the Company or the effectuation by
the Company of a transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Company is disposed of shall
be deemed to be a liquidation, dissolution or winding up within the meaning of
this Section 4; provided further that an event described in the prior clause
that the Holder does not elect to treat as a liquidation and a consolidation,
merger, acquisition, or other business combination of the Company with or into
any other company or companies shall not be treated as a liquidation,
dissolution or winding up within the meaning of this Section 4, but instead
shall be treated pursuant to Section 5(f) hereof.
(d) In the event that, immediately prior to the closing of a
transaction described in Section 4(c) which would constitute a liquidation
event, the cash distributions required by Section 4(a) or Section 6 have not
been made, the Company shall either: (i) cause such closing to be postponed
until such cash distributions have been made, or (ii) cancel such transaction,
in which event the rights of the Holders of Series A Preferred Stock shall be
the same as existing immediately prior to such proposed transaction.
Section 5. Conversion. The record Holders of this Series A Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each record Holder of Series A Preferred
Stock shall be entitled (at the times and in the amounts set forth below) and
subject to the Company's right of redemption set forth in Section 6(a), at the
office of the Company or any transfer agent for the Series A Preferred Stock
(the "Transfer Agent"), to convert (in multiples of one (1) share of Preferred
Stock) as follows: (x) up to one-third (1/3) of the shares of Series A Preferred
Stock initially issued to such Holder at any time beginning sixty (60) days
following the date of the last closing of a purchase and sale of Series A
Preferred Stock that occurs pursuant to the offering of the Series A Preferred
Stock by the Company (the "Last Closing Date") and at any time thereafter, (y)
up to an additional one-third (1/3) of the shares of Series A Preferred Stock
initially issued to such Holder at any time beginning ninety (90) days following
the Last Closing Date and at any time thereafter, and (z) all remaining Series A
Preferred Stock held by such Holder at any time beginning one hundred twenty
(120) days following the Last Closing Date (each of the time periods referenced
in subclauses (x), (y) and (z) is hereinafter referred to singularly as a
"Conversion Gate") at the office of the Company or any Transfer Agent for the
Series A Preferred Stock, into that number of fully-paid and non-assessable
shares of Common Stock of the Company calculated in accordance with the
following formula (the "Conversion Rate"):
Number of shares issued upon conversion of one (1) share of Series A
Preferred Stock =
(.08) (N/365) (10,000) + 10,000
-------------------------------
Conversion Price
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where,
* N= the number of days between (i) the date that, in connection with
the consummation of the initial purchase by Holder of shares of Series A
Preferred Stock from the Company, the escrow agent first had in its
possession funds representing full payment for the shares of Series A
Preferred Stock for which conversion is being elected, and (ii) the
applicable Date of Conversion (as defined in Section 5(c)(iv) below) for
the shares of Series A Preferred Stock for which conversion is being
elected, and
* Conversion Price = the lesser of (x) $ 7.75 (the "Fixed Conversion
Price"), or (y) 85% of the average Closing Bid Price, as that term is
defined below, of the Company's Common Stock for the ten (10) trading
days immediately preceding the Date of Conversion, as defined below (the
"Variable Conversion Price").
For purposes hereof, the term "Closing Bid Price" shall mean the closing
bid price on the Nasdaq Small Cap Market, or if no longer traded on the Nasdaq
Small Cap Market, the closing bid price on the principal national securities
exchange or the National Market System on which the Common Stock is so traded
and if not available, the mean of the high and low prices on the principal
national securities exchange or the National Market System on which the Common
Stock is so traded.
(b) Mechanics of Conversion. In order to convert Series A
Preferred Stock into full shares of Common Stock, the Holder shall (i) fax, on
or prior to 11:59 p.m., Phoenix, Arizona time (the "Conversion Notice Deadline")
on the date of conversion, a copy of the fully executed notice of conversion
("Notice of Conversion") to the Company at the office of the Company or its
designated transfer agent (the "Transfer Agent") for the Series A Preferred
Stock stating that the Holder elects to convert, which notice shall specify the
date of conversion, the number of shares of Series A Preferred Stock to be
converted, the applicable conversion price and a calculation of the number of
shares of Common Stock issuable upon such conversion (together with a copy of
the front page of each certificate to be converted) and (ii) surrender to a
common courier for delivery to the office of the Transfer Agent, the original
certificates representing the Series A Preferred Stock being converted (the
"Preferred Stock Certificates"), duly endorsed for transfer; provided, however,
that the Company shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless either the Preferred
Stock Certificates are delivered to the Transfer Agent as provided above, or the
Holder notifies the Company or its Transfer Agent that such certificates have
been lost, stolen or destroyed (subject to the requirements of subparagraph (i)
below). Upon receipt by Company of a facsimile copy of a Notice of Conversion,
Company shall immediately send, via facsimile, a confirmation of receipt of the
Notice of Conversion to Holder which shall specify that the Notice of Conversion
has been received and the name and telephone number of a contact person at the
Company whom the Holder should contact regarding information related to the
Conversion. In the case of a dispute as to the calculation of the Conversion
Rate, the Company shall promptly issue to the Holder the number of Shares that
are not disputed and shall submit the disputed calculations to its outside
accountant via facsimile within three (3) days of receipt of Holder's Notice of
Conversion. The Company shall cause the accountant to perform the calculations
and notify Company and Holder of the results no later than ninety-six (96) hours
from the time it receives the disputed calculations. Accountant's calculation
shall be deemed conclusive absent manifest error.
(i) Lost or Stolen Certificates. Upon receipt by the
Company of evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing shares of Series A Preferred Stock,
and (in the case of loss, theft or destruction) of indemnity or security
reasonably satisfactory to the Company, and upon surrender and cancellation of
the Preferred Stock Certificate(s), if mutilated, the Company shall execute and
deliver new Preferred Stock Certificate(s) of like tenor and date. However,
Company shall not be obligated to re-issue such lost or stolen Preferred Stock
Certificates if Holder contemporaneously requests Company to convert such Series
A Preferred Stock into Common Stock.
(ii) Delivery of Common Stock Upon Conversion. Subject
to paragraph 5(b) hereof, no later than the close of business on the second
(2nd) business day (the "Deadline") after receipt by the Company or the Transfer
Agent of a facsimile copy of a Notice of Conversion and receipt by Company or
the Transfer Agent of all necessary documentation duly executed and in
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proper form required for conversion, including the receipt by the Transfer Agent
of the original Preferred Stock Certificates to be converted (or after provision
for security or indemnification in the case of lost or destroyed certificates,
if required), the Company shall or shall cause the Transfer Agent to (as
applicable) issue and surrender to a common courier for either overnight or (if
delivery is outside the United States) two (2) day delivery to the Holder at the
address of the Holder as shown on the stock records of the Company a certificate
for the number of shares of Common Stock to which the Holder shall be entitled
as aforesaid.
(iii) No Fractional Shares. If any conversion of the
Series A Preferred Stock would create a fractional share of Common Stock or a
right to acquire a fractional share of Common Stock, such fractional share shall
be disregarded and the number of shares of Common Stock issuable upon
conversion, in the aggregate, shall be the next lower number of shares.
(iv) Date of Conversion. The date on which conversion
occurs (the "Date of Conversion") shall be deemed to be the date set forth in
such Notice of Conversion, provided (i) that the advance copy of the Notice of
Conversion is faxed to the Company before 11:59 p.m., Phoenix, Arizona time, on
the Date of Conversion, and (ii) that the original Preferred Stock Certificates
representing the shares of Series A Preferred Stock to be converted are
surrendered by depositing such certificates with a common courier, as provided
above, and received by the Transfer Agent within five (5) business days after
the Date of Conversion. 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 the Date of
Conversion. If the original Preferred Stock Certificates representing the Series
A Preferred Stock to be converted are not received by the Transfer Agent within
five (5) business days after the Date of Conversion or if the facsimile of the
Notice of Conversion is not received by the Company or its designated Transfer
Agent prior to the Conversion Notice Deadline, the Notice of Conversion, at the
Company's option, may be declared null and void.
(c) 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 Series A Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all then outstanding
Series A 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 Series A Preferred Stock, the Company will
take such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
(d) Automatic Conversion. Subject to the Company's right of
redemption set forth in Section 6 hereof, each share of Series A Preferred Stock
outstanding on the date which is three (3) years after the Last Closing Date
automatically shall be converted into Common Stock on such date at the
Conversion Rate then in effect (calculated in accordance with the formula in
Section 5(a) above), and the date which is three (3) years after the Last
Closing Date shall be deemed the Date of Conversion with respect to such
conversion.
(e) Adjustment to Conversion Rate.
(i) Adjustment to Fixed Conversion Price Due to Stock
Split, Stock Dividend, Etc. If, prior to the conversion of all of the Series A
Preferred Stock, the number of outstanding shares of Common Stock is increased
by a stock split, stock dividend, or other similar event, the Fixed Conversion
Price shall be proportionately reduced, or if the number of outstanding shares
of Common Stock is decreased by a combination or reclassification of shares, or
other similar event, the Fixed Conversion Price shall be proportionately
increased.
(ii) Adjustment to Variable Conversion Price. If, at any
time when any shares of the Series A Preferred Stock are issued and outstanding,
the number of outstanding shares of Common Stock is increased or decreased by a
stock split, stock dividend, or other similar event, which event shall have
taken place during the reference period for determination of the Conversion
Price for any conversion of the Series A Preferred Stock, then the Variable
Conversion Price shall be
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calculated giving appropriate effect to the stock split, stock dividend,
combination, reclassification or other similar event for all five (5) trading
days immediately preceding the Date of Conversion.
(iii) Adjustment Due to Merger, Consolidation, Etc. If,
prior to the conversion of all Series A Preferred Stock, there shall be any
merger, consolidation, exchange of shares, recapitalization, reorganization, or
other similar event, as a result of which shares of Common Stock of the Company
shall be changed into the same or a different number of shares of the same or
another class or classes of stock or securities of the Company or another entity
or there is a sale of all or substantially all the Company's assets or there is
a change of control transaction not deemed to be a liquidation pursuant to
section 4(c), then the Holders of Series A Preferred Stock shall thereafter have
the right to receive upon conversion of Series A Preferred Stock, upon the basis
and upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore issuable upon conversion, such stock,
securities and/or other assets which the Holder would have been entitled to
receive in such transaction had the Series A Preferred Stock been converted
immediately prior to such transaction, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the Holders
of the Series A Preferred Stock to the end that the provisions hereof
(including, without limitation, provisions for the adjustment of the Conversion
Price and of the number of shares issuable upon conversion of the Series A
Preferred Stock) shall thereafter be applicable, as nearly as may be practicable
in relation to any securities thereafter deliverable upon the exercise hereof.
The Company shall not effect any transaction described in this subsection
5(e)(iii) unless (a) it first gives thirty (30) business days prior notice of
such merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event (during which time the Holder shall be
entitled to convert its shares of Series A Preferred Stock into Common Stock)
and (b) the resulting successor or acquiring entity (if not the Company) assumes
by written instrument the obligations of the Company under this Certificate of
Designation including this subsection 5(e)(iii).
(iv) No Fractional Shares. If any adjustment under this
Section 5(e) would create a fractional share of Common Stock or a right to
acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon conversion
shall be the next lower number of shares.
Section 6. Redemption by Company.
(a) Company's Right to Redeem Upon Receipt of Notice of
Conversion. If the Conversion Price of the Company's Common Stock is less than
the Fixed Conversion Price (as defined in Section 5(a)), at the time of receipt
of a Notice of Conversion pursuant to Section 5, the Company shall have the
right, in its sole discretion, to redeem in whole or in part any Series A
Preferred Stock submitted for conversion, immediately prior to and in lieu of
conversion ("Redemption Upon Receipt of Notice of Conversion"). If the Company
elects to redeem some, but not all, of the Series A Preferred Stock submitted
for conversion, the Company shall redeem from among the Series A Preferred Stock
submitted by the various Holders for conversion on the applicable date, a
pro-rata amount from each such Holder so submitting Series A Preferred Stock for
conversion.
(i) Redemption Price Upon Receipt of a Notice of
Conversion. The redemption price per share of Series A Preferred Stock under
this Section 6(a) shall be calculated in accordance with the following formula
("Redemption Rate"):
[[(.08)(N/365) (10,000)] + 10,000] x Closing Bid Price on Date of Conversion
---------------------------------------
Conversion Price
where,
"N", "Date of Conversion", "Closing Bid Price" and "Conversion Price"
shall have the same meanings as defined in Section 5.
(ii) Mechanics of Redemption Upon Receipt of Notice of
Conversion. The Company shall effect each such redemption by giving notice of
its election to redeem, by facsimile,
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by 5:00 p.m. New York City time the next business day following receipt of a
Notice of Conversion from a Holder, and the Company shall provide a copy of such
redemption notice by overnight or two (2) day courier, to (A) the Holder of the
Series A Preferred Stock submitted for conversion at the address and facsimile
number of such Holder appearing in the Company's register for the Series A
Preferred Stock and (B) the Company's Transfer Agent. Such redemption notice
shall indicate whether the Company will redeem all or part of the Series A
Preferred Stock submitted for conversion and the applicable redemption price.
(b) Company's Right to Redeem at its Election. At any time,
commencing twelve (12) months and one (1) day after the Last Closing Date, the
Company shall have the right, in its sole discretion, to redeem ("Redemption at
Company's Election"), from time to time, any or all of the Series A Preferred
Stock; provided (i) Company shall first provide thirty (30) business days
advance written notice as provided in subparagraph 6(b)(ii) below (which can be
given beginning thirty (30) business days prior to the date which is twelve (12)
months and one (1) day after the Last Closing Date), and (ii) that the Company
shall only be entitled to redeem Series A Preferred Stock having an aggregate
Stated Value (as defined below) of at least One Million Five Hundred Thousand
Dollars ($1,500,000). If the Company elects to redeem some, but not all, of the
Series A Preferred Stock, the Company shall redeem a pro-rata amount from each
Holder of the Series A Preferred Stock.
(i) Redemption Price At Company's Election. The
"Redemption Price At Company's Election" shall be calculated as a percentage of
Stated Value, as that term is defined below, of the Series A Preferred Stock
redeemed pursuant to this Section 6(b), which percentage shall vary depending on
the date of Redemption at Company's Election (as defined below), and shall be
determined as follows:
Date of Notice of Redemption at Company's Election % of Stated Value
-------------------------------------------------- -----------------
12 months and 1 day to 18 months following Last Closing Date 130%
18 months and 1 day to 24 months following Last Closing Date 125%
24 months and 1 day to 30 months following Last Closing Date 120%
30 months and 1 day to 36 months following Last Closing Date 115%
For purposes hereof, "Stated Value" shall mean the Original Series A
Issue Price (as defined in Section 4(a)) of the shares of Series A Preferred
Stock being redeemed pursuant to this Section 6(b), together with the accrued
but unpaid Premium (as defined in Section 4(a)).
(ii) Mechanics of Redemption at Company's Election. The
Company shall effect each such redemption by giving at least thirty (30)
business days prior written notice ("Notice of Redemption At Company's
Election") to (A) the Holders of the Series A Preferred Stock selected for
redemption, at the address and facsimile number of such Holder appearing in the
Company's Series A Preferred stock register and (B) the Transfer Agent, which
Notice of Redemption At Company's Election shall be deemed to have been
delivered three (3) business days after the Company's mailing (by overnight or
two (2) day courier, with a copy by facsimile) of such Notice of Redemption At
Company's Election. Such Notice of Redemption At Company's Election shall
indicate (i) the number of shares of Series A Preferred Stock that have been
selected for redemption, (ii) the date which such redemption is to become
effective (the "Date of Redemption At Company's Election") and (iii) the
applicable Redemption Price At Company's Election, as defined in subsection
(b)(i) above. Notwithstanding the above, Holder may convert into Common Stock
pursuant to section 5, prior to the close of business on the Date of Redemption
at Company's Election, any Series A Preferred Stock which it is otherwise
entitled to convert, including Series A Preferred Stock that has been selected
for redemption at Company's election pursuant to this subsection 6(b); provided,
however, that the Company shall still be entitled to exercise its right to
redeem upon receipt of a Notice of Conversion pursuant to section 6(a).
(c) Company Must Have Immediately Available Funds or Credit Facilities.
The Company shall not be entitled to send any Redemption Notice and begin the
redemption procedure under Sections 6(a) and 6(b) unless it has:
(i) the full amount of the redemption price in cash,
available in a demand or other immediately available account in a bank or
similar financial institution; or
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(ii) immediately available credit facilities, in the
full amount of the redemption price with a bank or similar financial
institution; or
(iii) an agreement with a standby underwriter willing to
purchase from the Company a sufficient number of shares of stock to provide
proceeds necessary to redeem any stock that is not converted prior to
redemption; or
(iv) a combination of the items set forth in (i), (ii)
and (iii) above, aggregating the full amount of the redemption price.
(d) Payment of Redemption Price.
(i) Each Holder submitting Preferred Stock being
redeemed under this Section 6 shall send their Series A Preferred Stock
Certificates so redeemed to the Company or its Transfer Agent, and the Company
shall pay the applicable redemption price to that Holder within ten (10)
business days of the Date of Redemption at Company's Election. The Company shall
not be obligated to deliver the redemption price unless the Preferred Stock
Certificates so redeemed are delivered to the Company or its Transfer Agent, or,
in the event one (1) or more certificates have been lost, stolen, mutilated or
destroyed, unless the Holder has complied with Section 5(b)(i).
(ii) If Company elects to redeem pursuant to Section
6(a) hereof, and Company fails to pay Holder the redemption price within the
time frame as required by this Section 6(d), then Company shall issue shares of
Common Stock to any such Holder who has submitted a Notice of Conversion in
compliance with Section 5(b) hereof. The shares to be issued to Holder pursuant
to this provision shall be the number of shares determined using a Conversion
Price that equals the lesser of (i) the Conversion Price on the date Holder
sends its Notice of Conversion to Company or Transfer Agent via facsimile or
(ii) the Conversion Price on the date the Transfer Agent issues Common Stock
pursuant to this Section 6(d)(ii).
(iii) Notwithstanding the foregoing, in the event that
the certificates evidencing the Series A Preferred Stock redeemed are not
delivered to the Transfer Agent as provided herein, the redemption of the Series
A Preferred Stock pursuant to this Section 6 shall still be deemed effective as
of the Date of Redemption.
(e) Blackout Period. Notwithstanding the foregoing, the Company
may not either send out a redemption notice or effect a redemption pursuant to
Section 6(b) above during a Blackout Period (defined as a period during which
the Company's officers or directors would not be entitled to buy or sell stock
because of their holding of material non-public information), unless the Company
shall first disclose the non-public information that resulted in the Blackout
Period; provided, however, that no redemption shall be effected until at least
ten (10) days after the Company shall have given the Holder written notice that
the Blackout Period has been lifted.
Section 7. Advance Notice of Redemption.
(a) Holder's Right to Elect to Receive Notice of Cash Redemption
by the Company. Holder shall have the right to require Company to provide
advance notice stating whether the Company will elect to redeem Holder's shares
of Series A Preferred Stock in cash, pursuant to the Company's redemption rights
discussed in Section 6(a).
(b) Mechanics of Holder's Election Notice. Holder shall send
notice ("Election Notice") to the Company and such other person(s) as the
Company may designate, via facsimile, stating Holder's intention to require
Company to disclose that if Holder were to exercise his, her or its right of
conversion (pursuant to Section 5) whether Company would elect to redeem a
specific number of shares of Holder's Series A Preferred Stock for cash in lieu
of issuing Common Stock. Company is required to disclose to Holder what action
Company would take over the subsequent twenty (20) business day period,
including the date of such Election Notice, as further discussed in subsection
7(c).
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(c) Company's Response. Upon receipt by the Company of a
facsimile copy of an Election Notice, Company shall immediately send, via
facsimile, a confirmation of receipt of the Election Notice to Holder, which
shall specify that the Election Notice has been received and the name and
telephone number of a contact person at the Company whom the Holder should
contact regarding information related to the requested advance notice.
Thereafter, the Company must respond by the close of business on the next
business day following receipt of Holder's Election Notice (1) via facsimile and
(2) by depositing such response with an overnight or two (2) day courier. The
Company's response must state whether it would redeem the shares, in whole or in
part, or allow conversion into shares of Common Stock without redemption. If
Company does not respond to Holder within one (1) business day via facsimile and
overnight or two (2) day courier, Company shall be required to issue to Holder
Common Stock upon Holder's conversion within the subsequent twenty (20) business
day period of Holder's Election Notice. However, if the Company's Common Stock
price decreases so that under the Conversion Rate Company would be required to
issue more than an additional ten percent (10% ) of shares of Common Stock than
Holder was entitled to receive at the time Holder sent Company its Election
Notice and if the Conversion Price is below the Fixed Conversion Price, then
Company shall no longer be bound to convert Holder's Preferred Stock into Common
Stock but may elect to redeem for cash.
Section 8. Voting Rights. The Holders of the Series A Preferred Stock
shall have no voting power whatsoever, except as otherwise provided by the
Arizona Business Corporation Act ("Arizona Law"), and no Holder of Series A
Preferred Stock shall vote or otherwise participate in any proceeding in which
actions shall be taken by the Company or the shareholders thereof or be entitled
to notification as to any meeting of the shareholders.
Notwithstanding the above, Company shall provide Holder with
notification of any meeting of the shareholders regarding any major corporate
events affecting the Company. In the event of any taking by the Company of a
record of its shareholders for the purpose of determining shareholders who are
entitled to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire any share of any class or any other
securities or property (including by way of merger, consolidation or
reorganization), or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Company, or any proposed liquidation, dissolution or winding up of the
Company, the Company shall mail a notice to Holder, at least ten (10) days prior
to the board meeting scheduled for the purpose of voting on such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time.
To the extent that under Arizona Law the vote of the Holders of the
Series A Preferred Stock, voting separately as a class, is required to authorize
a given action of the Company, the affirmative vote or consent of the Holders of
at least a majority of the shares of the Series A Preferred Stock represented at
a duly held meeting at which a quorum is present or by written consent of a
majority of the shares of Series A Preferred Stock (except as otherwise may be
required under Arizona Law) shall constitute the approval of such action by the
class. To the extent that under Arizona Law the Holders of the Series A
Preferred Stock are entitled to vote on a matter with holders of Common Stock,
voting together as one (1) class, each share of Series A Preferred Stock shall
be entitled to a number of votes equal to the number of shares of Common Stock
into which it is then convertible using the record date for the taking of such
vote of stockholders as the date as of which the Conversion Price is calculated.
Holders of the Series A Preferred Stock also shall be entitled to notice of all
shareholder meetings or written consents with respect to which they would be
entitled to vote, which notice would be provided pursuant to the Company's
by-laws and applicable statutes.
Section 9. Protective Provision. So long as shares of Series A Preferred
Stock are outstanding, the Company shall not without first obtaining the
approval (by vote or written consent, as provided by Arizona Law) of the Holders
of at least sixty-six and two-thirds percent (66 2/3%) of the then outstanding
shares of Series A Preferred Stock, and at least sixty-six and two-thirds
percent (66 2/3%) of the then outstanding Holders:
(a) alter or change the rights, preferences or privileges of the
Series A Preferred Stock or any Senior Securities so as to affect adversely the
Series A Preferred Stock; provided,
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however, that no such change may be approved at any time on or prior to the
fortieth (40th) day following the Last Closing Date unless such change is
unanimously approved by all Holders;
(b) create any new class or series of stock having a preference
over or on parity with the Series A Preferred Stock with respect to
Distributions (as defined in Section 2 above) or increase the size of the
authorized number of Series A Preferred; or
(c) do any act or thing not authorized or contemplated by this
Designation which would result in taxation of the holders of shares of the
Series A Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended).
In the event Holders of at least sixty-six and two-thirds percent (66
2/3%) of the then outstanding shares of Series A Preferred Stock and at least
sixty-six and two-thirds percent (66 2/3%) of the then outstanding Holders agree
to allow the Company to alter or change the rights, preferences or privileges of
the shares of Series A Preferred Stock, pursuant to subsection (a) above, so as
to affect the Series A Preferred Stock, then the Company will deliver notice of
such approved change to the Holders of the Series A Preferred Stock that did not
agree to such alteration or change (the "Dissenting Holders") and Dissenting
Holders shall have the right for a period of thirty (30) business days to
convert pursuant to the terms of this Certificate of Designation as they exist
prior to such alteration or change (notwithstanding the sixty (60) day, ninety
(90) day, and one hundred twenty (120) day holding requirements set forth in
Section 5(a) hereof), or continue to hold their shares of Series A Preferred
Stock provided, however, that the Dissenting Holders may not convert anytime on
or before the fortieth (40th) day following the Last Closing Date.
Section 10. Status of Converted or Redeemed Stock. In the event any
shares of Series A Preferred Stock shall be converted or redeemed pursuant to
Section 5 or Section 6 hereof, the shares so converted or redeemed shall be
canceled, shall return to the status of authorized but unissued Preferred Stock
of no designated series, and shall not be issuable by the Company as Series A
Preferred Stock.
Section 11. Preference Rights. Nothing contained herein shall be
construed to prevent the Board of Directors of the Company from issuing one (1)
or more series of Preferred Stock with dividend and/or liquidation preferences
junior to the dividend and liquidation preferences of the Series A Preferred
Stock.
The undersigned, under penalties of perjury, acknowledge that the Certificate is
his or her act and deed or the act and deed of the Company and that the facts
stated in the Certificate are true.
Signed on June 14, 1996
Signature: /s/ James L. Copland
-----------------------
Name: James L. Copland
----------------------------
Title: President
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Attest:
/s/ Timothy J. Stocker
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Timothy J. Stocker, Secretary
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